GLOBUS SPIRITS LIMITED 1 GLOBUS SPIRITS LIMITED Globus Sprits Limited (GSL) is engaged in manufacturing, marketing and sale of Indian Made Indian Liquor (IMIL), Indian Made Foreign Liquor (IMFL), Bulk Al- cohol and contract bottling for established IMFL brands. The company has a well-established presence in the IMIL segment and set to become Pan-India IMIL leader with launch of distilleries in Bihar and West Bengal. Rationale for Investment Strong Presence in High Margin IMIL - The alcohol industry in India comprises of Beer, Wine, Brandy, IMFL and IMIL/ Country Liquor (CL). IMIL segment con- tributes maximum revenue to the turnover of GSL and contributed about 47% of the total income in FY17 (~51% in FY16). GSL is number 1 private player and number 4 private IMIL player in Rajasthan and Haryana, respectively as of FY2018. GSL’s market share in Rajasthan increased from 30.9% in FY2017 to 32% in FY2018. Strong Presence across the alcohol value chain - GSL has unique 360 degree model straddling across the entire alcohol value chain. The company ensures high quality maintenance with control on entire value chain. GSL derives reve- nue from manufacturing and consumer centric business. Healthy Capacity Utilisation & Volume Growth - GSL has successfully increased operating capacity utilisation from 74% in FY2014 to 93% in FY2018 on the back of its diversified 360 degree business model. We expect GSL’s bulk alco- hol segment to attain ~94% & ~96% capacity utilisation in FY19 E & FY20 E after the start of Bihar plant in mid-year of FY19. We estimate GSL’s to clock revenues of around INR 987.9 cr and INR 1,112.1 cr in FY19 E and FY20 E, respectively and EBITDA margin to improved by 20 bps to 7.9% & 30 bps to 8.0% in FY19 E & FY20 E respectively. We expect EBITDA to grow by 13.5% CAGR during the FY 17 – 20E. Outlook & Valuation We believe GSL will grow at a faster pace with restart of Bihar facility. GSL also enjoys strong brand value in Rajasthan & Haryana. Incremental revenue growth with negligible capex, better cost management and margin focus, will lead to better profitability and improve return ratios going forward. At CMP of INR 152.9, the company trades at P/E of 37.9x (FY19E) & 22.6x (FY 20E) EPS of INR 4.0 (FY19E) & INR 6.8 (FY20E). Thus, we initiate a HOLD rating with target price of INR 203, valuing the company at 30x FY20E earnings which gives an upside of 10% from current levels. Financials: (Standalone) (In INR Cr.) RATING : HOLD Target : 203 Upside : 10% CMP : 184.2 (01/09/2018) Reuter Code : GLOS:NS Bloomberg Code : GBSL:IN Sensex and Stock Movement Dinesh Gupta +91 22 30272867 [email protected]Lohit Bharambe +91 22 30272866 [email protected]Market Data Face Value (INR) 10 Equity Share Capital (INR cr.) 28.8 Share Outstanding (cr.) 2.9 Market Cap (INR cr.) 530.4 Book Value / share 131.7 Daily Avg. Volume 5,41,093 52 W High 199.9 52 W Low 70.0 Shareholding % Promoter 54.2 Foreign 18.9 Institutions 0.1 Public & Others 26.9 Particular FY2016 FY2017 FY2018 FY2019E FY2020E Net Sales 706.7 789.1 969.0 987.8 1,112.1 Op. EBDITA 69.9 56.2 69.4 72.6 82.3 PAT 12.5 9.0 7.0 11.6 19.5 EPS 4.4 3.1 2.5 4.0 6.8 PE 15.0 24.4 47.8 37.9 22.6 Source - Company, DSPL Research
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GLOBUS SPIRITS LIMITEDGLOBUS SPIRITS LIMITED 6 Source - ResearchonIndia report, DSPL Research Alcohol Industry India is the 3rd largest liquor market in the world, with an overall
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GLOBUS SPIRITS LIMITED
1
GLOBUS SPIRITS LIMITED
Globus Sprits Limited (GSL) is engaged in manufacturing, marketing and sale of
Indian Made Indian Liquor (IMIL), Indian Made Foreign Liquor (IMFL), Bulk Al-
cohol and contract bottling for established IMFL brands. The company has a
well-established presence in the IMIL segment and set to become Pan-India IMIL
leader with launch of distilleries in Bihar and West Bengal.
Rationale for Investment
Strong Presence in High Margin IMIL - The alcohol industry in India comprises
of Beer, Wine, Brandy, IMFL and IMIL/ Country Liquor (CL). IMIL segment con-
tributes maximum revenue to the turnover of GSL and contributed about 47% of
the total income in FY17 (~51% in FY16). GSL is number 1 private player and
number 4 private IMIL player in Rajasthan and Haryana, respectively as of
FY2018. GSL’s market share in Rajasthan increased from 30.9% in FY2017 to
32% in FY2018.
Strong Presence across the alcohol value chain - GSL has unique 360 degree
model straddling across the entire alcohol value chain. The company ensures
high quality maintenance with control on entire value chain. GSL derives reve-
nue from manufacturing and consumer centric business.
sioned facility at West Bengal enable company to garner sales volume of 0.05 crore cases in FY2018.
Apart from IMIL segment, GSL also has a presence in the bulk alcohol segment which contributed around 26% of the
net sales in FY17 (25% in FY16). Though the margins from this segment are lower than the CL segment, it provides a
steady source of revenue for the company.
Source: State Excise departments, Company, *Delhi – FY2016, DSPL Research
Investment Rationale
Particulars IMIL Industry Sales
volume in crore cases (FY2017)
GSL IMIL Sales volume in crore cases (FY2017)
GSL Market share (%)
Rajasthan 2.61 0.81 30.9% Haryana 2.11 0.22 10.4% Delhi* NA 0.07 25.0% West Bengal 3.19 0.05 1.7%
GLOBUS SPIRITS LIMITED
13
Strong Presence across the alcohol value chain
GSL has unique 360 degree model straddling across the entire alcohol value chain. The company ensures high quality
maintenance with control on entire value chain. GSL derives revenue from manufacturing and consumer centric busi-
ness.
Manufacturing: The company earned 53% of net revenue from Manufacturing - Industrial/Bulk Alcohol, Franchise IMFL
Bottling, Others segment in FY2017.
Distillery - The company has large, efficient grain based distillery manufacturing operations in India with approximately
14.9 crore bulk litres of distillery capacity. It has backward integration enabled manufacturing facilities. In FY2017, GSL
utilised 45% of produced Industrial/Bulk alcohol for captive consumption and remaining 55% sold in open market.
Bottling - GSL has dedicated blending and bottling facility for India’s top IMFL companies namely United Spirits Ltd and
ABD India.
Others - GSL is well placed to benefit from the fuel Ethanol blending opportunity in India. The company has presence in
Distillers Dried Grains with Soluble (DDGS) – a high potential co-product used in animal feed.
Consumer - GSL has consumer business through IMFL and IMIL brands across the country. The company’s high utilisa-
tion and assured captive off-take from its distilleries provide growth to its consumer centric business. GSL earned 47%
net revenue from Consumer - IMFL, IMIL segment in FY2017.
Source - Company, DSPL Research
Distillery
Bottling
IMIL
IMFL 360o model
GLOBUS SPIRITS LIMITED
14
Augmentation of new segment - Ethanol would be new source of revenue
The Central Government approved National Policy on Biofuels encourages the use of renewable energy resources as
alternative fuels. In a bid to renew its focus and implement the ethanol blending programme, the Central Government
recommended a 10% mandatory blending of ethanol with gasoline across all states for which 313 crore litre of ethanol
is required, according to industry body ISMA. Until now, ethanol produced from molasses and new generation feed-
stock was used for blending with fuel. Citing to cater demand recently, Government has allowed grain based ethanol
for blending with fuel.
According to latest OMCs tender for ethanol requirement from December 2018 to November 2019, bidding adminis-
tered price as INR 43.46 per litre for Ethanol derived from C Heavy Molasses and INR 47.13 per litre for Ethanol de-
rived from B Heavy Molasses, Sugar Cane Juice/Damaged Food Grains. There is total requirement of ~66 crore litre
ethanol derived from B Heavy Molasses, Sugar Cane Juice/Damaged Food Grains and ~263 crore litre ethanol de-
rived from B Heavy Molasses. The premium pricing for ethanol derived from Food Grains over B Heavy Molasses would
benefit company like GSL.
Being the largest grain based distillery in India, GSL will have an advantage and start generating revenue from ethanol
blending programme in the country. The company has capex plan for ethanol compliant manufacturing facilities with
INR 8-10 crore in FY2019. GSL is aiming to have improved EBITDA margins after company getting revenue from new
segment - blending of ethanol with fuel on the back of attractive pricing. The company is eager to take part in bidding
process for required ethanol from Oil marketing companies going forward.
GLOBUS SPIRITS LIMITED
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Financials
Healthy Capacity Utilisation & Volume Growth
GSL has the largest grain based Distilleries in India with capacity of approximately 14.90 crore BL per annum. GSL has
ramp up installed capacity from 9 crore BL per annum in FY2016 to 14.9 crore BL in FY2017 by expanding capacity by
2.6 crore BL per annum at Dist. Vaishali, Bihar and 3.3 crore BL per annum at Dist. Burdwan, West Bengal in FY2017.
GSL has successfully increased operating capacity utilisation from 74% in FY2014 to 93% in FY2018 on the back of its
diversified 360 degree business model.
Source - Company, DSPL Research
We expect GSL’s bulk alcohol segment to attain ~94% & ~96% capacity utilisation in FY19 E & FY20 E after the start
of Bihar plant in Q3 of FY19.
GSL’s Industrial/Bulk alcohol manufacturing sales volume increased from 3.8 crore BL in FY2014 to 7.4 crore BL in
FY2018 on the back of augmenting company’s operating capacity and capacity utilisation over the years. The compa-
ny’s Franchise IMFL sales volume also increased from 0.24 crore cases in FY2014 to 0.34 crore cases in FY2018.
Source - Company, DSPL Research
GLOBUS SPIRITS LIMITED
16
GSL’s net sales grew by 14.4% (5 year CAGR) during FY2014-FY2018 whereas IMIL over the same period grew by
7.5% (5 year CAGR). The company’s net sales increased by 22.8% to INR 969.0 crore in FY2018 on the back of
strong growth from Manufacturing segment.
GSL’s segment wise net sales mix stood as 53% & 47% from Manufacturing & Consumer segment in FY2017, respec-
tively. The company’s Manufacturing segment net sales rose by 20.8% to INR 418.2 crore in FY2017 on the back of
better realisation during the year. Its Manufacturing segment net sales increased by 23.5% CAGR in period of FY2013-
FY2017. The company’s Consumer segment net sales increased by 2.9% to INR 370.9 crore in FY2017 on the back
of better realisation during the year. Its Consumer segment net sales increased by 5.8% CAGR in period of FY2013-
FY2017.
GSL’s EBIDTA increased by 23.5% to INR 74.9 crore in FY2018, meanwhile the company’s EBITDA margin remained
stable at 7.7% in FY2018 as compared to previous fiscal year. The company’s PAT declined by 22.1% to INR 7.0 crore
in FY2018. Its PAT margin contracted by 40 basis points to 0.7% due to rise in finance cost from 7% to 11.2% in
FY2018. GSL’s profitability remained under pressure due to non-utilisation of Bihar facility from the start of FY2017.
Recently, Bihar government has permitted manufacturing of Extra Neutral Alcohol (ENA) in the state post orders of the
state High Court. Positive development for Bihar manufacturing capacity, implying that the company can now recom-
mence plant and export ENA to neighbouring states. It is expecting to recommence Bihar plant by mid FY2019. We ex-
pect GSL’s bulk alcohol segment to attain ~94% & ~96% capacity utilisation in FY19 E & FY20 E after the start of Bi-
har plant in mid-year of FY19. Thus, with utilisation levels expected to remain above 90%, we estimate GSL’s to clock
revenues of around INR 987.9 cr and INR 1,112.1 cr in FY19 E and FY20 E, respectively and EBITDA margin to im-
proved by 20 bps to 7.9% & 30 bps to 8.0% in FY19 E & FY20 E. We expect EBITDA to grow by 13.5% CAGR during
the FY 17 – 20E.
Source - Company, DSPL Research
GLOBUS SPIRITS LIMITED
17
Source - Company, DSPL Research
For FY19E and FY20E, we expect a gradual increase in net profit margin to around 1.2% and 1.7% respectively. In ab-
solute terms, we estimate net profit of around INR 11.6 cr and INR 19.5 cr in FY19E and FY20E, respectively.
GSL has successfully controlled its debt to equity ratio over the years; which stood at 0.6x in FY2018. The company’s
long term debt stood at INR 143.5 crore in FY2018 and it has planned schedule for repayment. Its total debt will re-
duce by INR 35 crore and INR 27.5 crore in FY2019 E & FY2020 E respectively.
Source - Company, DSPL Research
GLOBUS SPIRITS LIMITED
18
Going forward, we expect GSL to generate healthy free cash flow i.e. average ~ INR 41 crore in FY 2019E & FY
2020E due to operating efficiency.
Particulars in INR crore FY2017 FY2018E FY2019E FY2020E
Net Cash from Operating Activities 101.7 42.4 77.3 75.9
Less - Capex -110.2 -8.7 -10.0 -20.0
Less - Interest Cost -17.5 -27.1 -22.5 -19.2
Free Cash Flow -26.0 6.6 44.8 36.7
Free Cash Flow Yield (%) -11.8% 1.9% 10.2% 8.3%
Source - Company, DSPL Research
Q1 FY2019 Result Update
Globus Spirits Limited’s (GSL) net sales stood at INR 231.51 crore in Q1FY2019, in-line as compared to Q1FY18
due to improved realisations in key states despite marginal decrease in volume. The company’s IMIL price hike in
Rajasthan led to increase in IMIL realisation in the state by 9% YoY in Q1FY2019.
The company’s EBITDA boosted by 49.39% YoY to INR 27.16 crore in Q1FY2019. Its EBITDA margin expanded by
391 basis points to 11.73% on YoY basis in Q1FY2019 on the back of company’s operating efficiency. GSL’s op-
erating Expenses as a % of net sales contracted by 603 basis points to 58.86% in Q1FY2019.
GSL’s PAT increased more than 4 times to INR 7.54 crore in Q1FY2019 as compared to same period in last fiscal
year. The company’s PAT margin expanded by 258 basis points to 3.26% on YoY basis in Q1FY2019.
GSL has excluded Brand Franchisee segment from its statement of Profit & Loss due to change in revenue recogni-
tion under Indian accounting standards 115 – ‘revenue from contracts with customers’, effective from
Q1FY2019. There is no impact on company’s total equity and profit.
Key updates
GSL retained number 1 position in IMIL category with market share of 30% in the state of Rajasthan.
The company has also retained number 4 position in IMIL category with market share of 9% in the state of
Haryana.
GSL’s wholly owned subsidiary Unibev has launched premium and super premium whiskeys in Karnataka in
June 2018. The company’s Oakton, Governor’s Reserve and L’affaire Brandy have received phenomenal
response from trade and consumer.
Government had earlier approved grain based ethanol for fuel blending which was until now restricted only
to molasses and new generation feedstock.
GLOBUS SPIRITS LIMITED
19
Source - Company, DSPL Research
GLOBUS SPIRITS LIMITED
20
Key Risks
Heavy tax on alcohol industry
Change in state policy
Government regulation
Outlook & Valuation
India is the third largest liquor market but also one of the lowest per capita consumption of liquor among most of
the nations across globe, there is a scope to grow consumption of liquor. With economic activity picking up, up-
coming state and national elections and normal monsoon, we expect the overall demand scenario to remain very
healthy going forward.
Indian Made Indian Liquor (IMIL) is an attractive consumer play into India’s large and growing bottom of pyramid
consumers. GSL is the prominent player in liquor industry with backward integrated 360 degree business model.
The company has an advantage as it sells each and every product produced from the process of alcohol manu-
facturing such as bulk alcohol, IMIL, IMFL, Spent Grain, DDGS and CO2. GSL has a huge presence in north
India for IMIL and IMFL. It is especially known to be an undisputed leader in the IMIL or country liquor section in
this region. A large part of its revenue comes from the sale of country liquor as it does not face much competition
in the market. GSL is no.1 private player in Rajasthan IMIL with 30% market share & no.4 player in Haryana with
9% market share. The company has already commissioned West Bengal facility and stabilizing operations at the
facility. It has strategically located where severe alcohol deficit exist. Further GSL has planned to restart Bihar fa-
cility by Q3 of FY2019.
We believe GSL will grow at a faster pace with restart of Bihar facility. GSL also enjoys strong brand value in Ra-
jasthan & Haryana. Incremental revenue growth with negligible capex, better cost management and margin fo-
cus, will lead to better profitability and improve return ratios going forward. At CMP of INR 152.9, the company
trades at P/E of 37.9x (FY19E) & 22.6x (FY 20E) EPS of INR 4.0 (FY19E) & INR 6.8 (FY20E). Thus, we initiate a
HOLD rating with target price of INR 203, valuing the company at 30x FY20E earnings which gives an upside of
10% from current levels.
GLOBUS SPIRITS LIMITED
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Financials – Standalone (in INR Cr.)
Source - DSPL Research
Ratios Analys is FY2018 FY2019E FY2020E
Per Share Value
EPS (Rs) 2.5 4.0 6.8
BVPS (Rs) 131.7 135.8 142.5
DPS (Rs) - - -
Turnover Ratio
Inventory Days 27 27 25
Debtors Days 16 19 19
Creditors Days 38 38 38
Cash Conversion Cycle 5 8 7
Asset Turnover Ratio 1.2 1.3 1.4
Pro fi tabi l i y Ratio
EBITDA Margin 7.7% 7.9% 8.0%
PAT margin 0.7% 1.2% 1.7%
ROA 0.9% 1.5% 2.5%
ROE 1.9% 3.0% 4.7%
ROCE 5.4% 5.6% 6.5%
Solvency Ratio
Debt / Equity Ratio 0.6 0.5 0.4
Current Ratio 0.6 0.6 0.6
Quick Ratio 0.3 0.3 0.3
Interest Coverage Ratio 2.8 3.5 4.6
Valuation Ratios
PE (x) 47.8 45.7 27.3
P/B (x) 0.9 1.4 1.3
EV/EBITDA (x) 7.4 9.0 7.5
Mcap/Sales (x) 0.3 0.5 0.5
Earning Yield (%) 2.1% 2.2% 3.7%
Dividend Yield (%) 0.0% 0.0% 0.0%
Free Cash Flow Yield (%) 1.9% 8.4% 6.9%
Cashflow Statement FY2018E FY2019E FY2020E
PBT 11.5 19.1 32.0
Depreciation & Amortization 36.2 36.6 37.4
Finance Cost 27.14 22.47 19.17
Others (0.4) - -
(Incr)/Decr in Working Capital (27.6) 6.6 (0.2)
Tax Paid (4.5) (7.5) (12.5)
Cash Flow from Operating 42.4 77.3 75.9
(Incr)/ Decr in Gross PP&E (8.7) (10.0) (20.0)
Others - - -
Cash Flow from Inves ting (8.7) (10.0) (20.0)
Proceeds from issue of Shares & Warrants - - -
(Decr)/Incr in Debt (27.0) (34.8) (27.5)
Interest Paid (27.1) (22.5) (19.2)
Others - - -
Dividend Paid - - -
Cash Flow from Financing (54.1) (57.3) (46.7)
Incr/(Decr) in Balance Sheet Cash (20.4) 9.9 9.2
Cash and cash equivalents at the Star t o f the Year 22.8 2.4 12.3
Other Bank Balances
Cash and cash equivalents at the End of the Year 2.4 12.3 21.6
Balance Sheet FY2018 FY2019E FY2020E
Share Capital 28.8 28.8 28.8
Reserves and Surplus 350.6 362.2 381.6
Shareholders Fund 379.4 391.0 410.4
Minority Interest - - -
Total Loan 222.1 187.2 159.7
Deferred Tax Liailities 25.9 25.9 25.9
To tal Liabi l i t ies 627.3 604.1 596.0
Net Fixed Assets 609.0 582.4 565.0
Deferred Tax Assets 3.19 3.19 3.19
Goodwill - - -
Inves tments 4.9 4.9 4.9
Sundry Debtors 48.4 54.1 60.9
Cash & Bank 2.4 12.3 21.6
Loans & Advances 9.4 9.6 10.8
Inventories 73.0 73.1 82.3
Other Current Assets 36.5 37.2 41.9
To tal Current Assets 169.6 186.3 217.4
Sundry Creditors 96.2 108.3 121.9
Provision 3.2 3.2 3.7
Other Current Liabilities 60.1 61.3 69.0
To tal Current l iabi l i t ies & Provis ion 159.5 172.8 194.5
Net Assets 10.1 13.5 22.9
To tal Assets 627.3 604.1 596.0
Pro fi t & Loss Statement FY2018 FY2019E FY2020E
Net Sales 969.0 987.8 1,112.1
To tal Revenue 969.0 987.8 1,112.1
Raw Material Cost 564.3 577.9 650.6
Gross Pro fi t 404.7 410.0 461.5
Employee Cost 22.8 23.2 27.8
Other Manufacturing Cost 312.5 314.1 351.4
Operating EB ITDA 69.4 72.6 82.3
Op. EBITDA Margin (%) 7.2% 7.3% 7.4%
Other Income 5.5 5.6 6.3
Deperication 36.2 36.6 37.4
EB IT 38.7 41.6 51.1
EBIT Margin 4.0% 4.2% 4.6%
Finance Cost 27.1 22.5 19.2
Exceptional Item - - -
PBT 11.5 19.1 32.0
Tax 4.5 7.5 12.5
Share of minority & Associate - - -
PAT 7.0 11.6 19.5
Share O/S (in cr) 2.9 2.9 2.9
Basic EPS (INR) 2.5 4.0 6.8
Diluted EPS (INR) 2.5 4.0 6.8
Cash EPS (INR) 15.0 16.7 19.8
DISCLOSURE
22
We/I, Dineshkumar Gupta, B.com, M.Sc, Lohit Bharambe, B.E., PGPM, as author / the name subscribed to this report, hereby certify that all of the views expressed in
this research report reflect my / our personal views about the subject or securities and no part of my / our compensation was / is, or will be directly or indirectly related
to the specific recommendation(s) or view(s) in this report.. We / I or my / our relative(s) or Research Entity does not have any financial interest in the subject company
other than disclosed.
Business activity of the research entity Stock Broker, Merchant Banker, Depository Participant, Mutual Fund Distribu-
tor
Disciplinary history of the research entity Nil
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Trading Rating Expected return (less than1 year)
Buy > 5%
Hold > -5% to 5%
Sell < - 5%
Investment
Rating Expected return (Over 1 year)
Buy > 15%
Hold > -10% to 15%
Sell < -10%
Not Rated We have forward looking estimates for the stock but we refrain