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Larsen & Toubro Analysis of ~2500 pages of subsidiary annual reports

CAPITAL GOODS: Company Update 2 September 2014

PhillipCapital (India) Pvt. Ltd.

With L&T moving to reporting numbers on a consolidated basis (quarterly), it becomes all the more imperative for investors to look at the company at a group level. Our analysis of ~2500 pages of subsidiary annual reports intends to do just that and we highlight key takeaways from our analysis. Losses in Shipbuilding, Special Steel & Forging, and Development projects offset gains from Infotech and Financial Services. Contribution from subsidiaries in FY14 dropped to Rs1bn from Rs8b in FY13. Of the three key manufacturing subsidies namely, L&T Shipbuilding (Katupalli port and yard), L&T Heavy Steel and Forgings and L&T – MHI BTG JV, the first two made losses as a result of underutilized capacity and high fixed costs. L&T Shipbuilding had a loss of Rs6.5bn while the Special Steel & Forging unit reported losses of Rs3.4bn; the power BTG JV made a marginal profit for the year while the developmental projects contributed to Rs2.6bn of losses. These losses were largely offset by profits from the Services business, namely L&T Infotech (Rs6.5bn) and Financial Services (Rs3.2bn). Increase in debt on books (ex finance subs) of Rs83bn primarily from Developmental projects and manufacturing JV’s. Consolidated debt on the books has risen to Rs801bn in FY14 while subsidiary debt (ex finance) stood at Rs330bn (+83bn YoY). The increase in debt is driven by developmental projects (roads, power, and property) and manufacturing JV’s (Power and Special Steel). Consolidated debt: equity (ex finance) at a healthy 1.2x is not yet a cause of concern. Debt would continue to increase on draw down for the Hyderabad Metro, road projects and power development. Consolidated earnings and ROE’s to benefit on higher profits and/or lower losses in subsidiaries from FY16e onwards. In our view, consolidated ROE’s are set to improve from FY16e on a) Better profitability at the Power BTG JV’s as orders won in FY15e‐FY16e are executed, b) Fall in losses in road projects from FY16e as new road projects stabilize while existing projects see an improvement in traffic growth, c) Higher volumes and utilization at the Katupalli Yard, Special Steel and Heavy Forgings unit bring down losses, d) Improvement in profitability of the hydrocarbon subsidiary which has been hit by Rs9bn provisions in Q115. Over the past 6‐7 years, L&T has invested Rs202bn (including loans and advances) in its subsidiaries and with a revival in growth in the domestic market, these subsidiaries are expected to start contributing meaningfully to the group earnings over the next few years. We see ROE’s at the group level improve to 16% in FY16e from the 13% in FY14.We expect contribution from subsidiaries to increase to Rs13bn in FY16e from Rs1bn in FY14. Raise to BUY; increase target price to Rs1, 850: We upgrade the stock to a BUY as we build in higher value for the subsidiaries (Rs490) and apply a target PE of 25x to our core standalone EPS of Rs65 to obtain our target price of Rs1, 850; we believe that L&T is best placed to take advantage of the upcoming recovery in the domestic market while continuing to grow and improve its profitability in the overseas markets in M. East and S.E.Asia.

BUY LT IN | CMP RS 1,578 TARGET RS 1,850 (+17%) Company Data O/S SHARES (MN) : 928MARKET CAP (RSBN) : 1464MARKET CAP (USDBN) : 24.252 ‐ WK HI/LO (RS) : 1774 / 688LIQUIDITY 3M (USDMN) : 59.3FACE VALUE (RS) : 2

Share Holding Pattern, % PROMOTERS : 0.0FII / NRI : 22.8FI / MF : 36.5NON PROMOTER CORP. HOLDINGS : 7.2PUBLIC & OTHERS : 33.5

Price Performance, % 1mth 3mth 1yr

ABS 7.2 ‐4.1 116.9REL TO BSE 1.7 ‐13.0 74.6

Price Vs. Sensex (Rebased values)

50

70

90

110

130

150

170

Jul‐10 Jun‐11May‐12Apr‐13Mar‐14L&T BSE Sensex

Source: Bloomberg, Phillip Capital Research

Other Key Ratios Rs mn FY14 FY15E FY16ENet Sales 851,284 942,5951,143,854EBITDA 107,543 129,506 161,138Net Profit 45,680 51,200 69,566EPS, Rs 49.3 54.7 74.4PER, X 32.0 28.8 21.2EV/EBIDTA, x 20.7 17.9 15.0EV/Net Sales, x 3.9 3.6 3.2ROE, % 12.1 12.4 15.9Source: Phillip Capital India Research Ankur Sharma (+ 9122 66679759) [email protected] Hrishikesh Bhagat (+9122 6667 9986) [email protected]

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2 September 2014 / INDIA EQUITY RESEARCH / L&T COMPANY UPDATE

Losses in Shipbuilding, Special Steel & Forging and Development projects offset gains from Infotech and Financial Services Contribution from subsidiaries during FY14 dropped to Rs1bn from Rs8bn in FY13 on increased losses in manufacturing subsidiaries and developmental projects. . Of the three key manufacturing subsidiaries namely, L&T Shipbuilding (Katupalli port and yard), L&T Special Steel and Heavy Forgings and L&T – MHI BTG JV, the first two made losses as a result of underutilized capacity and high fixed costs. L&T Shipbuilding had a loss of Rs6.5bn while the Special Steel & Forging unit reported losses of Rs3.4bn; the power BTG JV made a marginal profit for the year while the developmental projects contributed to Rs2.6bn of losses. Note that key infrastructure subsidiary, L&T Oman was also turned in losses in FY14. These losses were largely offset by profits from the Services business, namely L&T Infotech (Rs6.5bn) and Financial Services (Rs3.2bn). In FY15, we build in PAT contribution from subsidiaries of Rs5.2b but this is after adjusting for Rs11.5bn for the Dhamra stake sale; adjusted for this, PAT loss is expected at Rs6.3bn on higher losses in road and power projects which are getting commissioned during FY15. However, we expect losses in the manufacturing subsidiaries to have peaked in FY14 and gradually get lower over the next few years. The BTG JV is expected to register good profits on the back of improved profitability at the Boiler unit and reduced losses at the TG unit. PAT contribution from subsidiaries – set to improve from FY16 onwards INRm FY13a FY14a FY15e FY16eStandalone PAT (recurring) 41,334 49,047 48,210 60,031PAT for the subsidiaries Power 726 310 1,313 2,808 L&T Shipbuilding (1,965) (6,475) (4,161) (3,443)L&T Special Steel and Heavy Forgings (1,562) (3,345) (3,421) (1,813)Infrastructure (37) (1,184) (853) (652)Electrical and Automation 1,199 1,162 1,279 1,420 Machinery and Industrial Products 561 1,237 1,224 1,355 Hydrocarbon 6,095 113 (7,164) 2,442 Infotech and Technology Services 5,764 6,427 12,362 13,608 Finance 5,369 4,674 6,873 9,017 IDPL (incl. power development) (6,310) (2,615) (1,684) (9,121)Property Development (1,879) 51 210 585 Total 7,960 354 5,977 16,208 PAT from associates 514 300 300 300Total subs + associates 8,474 654 6,277 16,508 Less Minority interest (343) 382 (1,037) (3,175)Contribution from subsidiaries 8,131 1,036 5,240 13,333 Less: Dividend received from subsidiaries (5,850) (8,650) (8,650) (8,650)Intra company adjustment (4,358) (4,247) (4,247) (4,247)Consolidated PAT 47,973 45,680 50,996 69,402

**this includes gain on sale of Dhamra port for Rs11.5bn Source: Company, Phillip Capital India Research

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~45% of Standalone capital employed towards subsidiaries; losses at development projects and manufacturing subsidiaries drag down ROE’s Since FY07, investment in subsidiaries (including loans and advances) has risen from Rs17bn to Rs202bn by the L&T parent. This now constitutes 45% of the standalone balance sheet as the company invested in setting up manufacturing facilities for Shipbuilding, Power BTG JV’s, fabrication yards in Sohar and Hazira as also developing its services and infrastructure (power, roads, metro) business. We note that in FY14, ~34% of the consolidated sales (Rs285bn) and 38% of EBITDA but only 2% of the consolidated PAT was accounted for by the subsidiaries (including the demerged hydrocarbon subsidiary). As the developmental subsidiaries (Power, Roads, Metro, Port) along with the manufacturing subsidiaries (Shipbuilding, Special Steel & Heavy Forgings) are currently making losses, this has lead to depressed ROE’s at the consolidated L&T level which stood at 13% in FY14. Investment in subsidiaries from the standalone balance sheet (Rs mn)

Year Investments in

subsidiaries (Rs mn) Total Total Capital

employed% of capital employed

FY07 14,726 2,732 17,458 78,587 22.2%FY08 24,492 3,598 28,090 131,745 21.3%FY09 33,841 23,601 57,442 190,396 30.2%FY10 57,408 32,719 90,127 254,785 35.4%FY11 74,008 48,692 122,701 292,487 42.0%FY12 90,847 44,891 135,738 352,518 38.5%FY13 105,227 46,669 151,896 382,192 39.7%FY14 151,684 50,748 202,432 455,307 44.5%

Source: Company, Phillip Capital India Research We do note that ROE’s are set to improve at a consolidated level on lower losses in the manufacturing JV’s (Power BTG JV, Shipbuilding, Special Steel) from FY15 while we expect lower losses in the road projects from FY16e as new road projects stabilize and profitability improves in the same. Consolidated ROE’s to improve on better performance of subsidiaries

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

FY08a FY09 FY10a FY11a FY12a FY13a FY14a FY15e FY16e

Consolidated ROE(%)

Source: Company, Phillip Capital India Research

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SOTP valuation for L&T Particulars Stake Basis of valuation Implied value

(INRmn) INR/share Multiple (x)

L&T Standalone PE (ex dividend from subs) 1,284,530 1,373 25Key Subsidiaries L&T Infotech and Technology Services 100% 12x FY16E PE and 20% holdco discount 130,641 140 12L&T Financial Services 75% On current market price and 20% holdco discount 72,056 77 L&T Hydrocarbon Engineering 100% On 15x mutiple for lower margins 24,734 26 15Power Subsidiaries Power equipment JV with Mitsubishi 51% 15x FY16e EPS 20,296 22 15Infrastructure SPV L&T IDPL 98% BV 88,153 94 2x PBL&T Shipbuilding 100% At 1x Book Value 10,638 11 1x PBL&T Realty 100% At 1x Book Value 1,980 2 Other Subsidiaries At 1x Book Value 47,569 51 1Associates 2.0x P/B 137 0 2Cash balance 58,291 62 1Total 1,668,317 1,850


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Debt rises on account of draw down in developmental projects, Power Eqt. JV’s and L&T Special steel Increase in the debt of subsidiaries (ex finance subsidiaries) of Rs83bn in FY14 is primarily on account of further draw dawn of debt in road projects (Rs140bn, +18bn YoY), Power development (+17bn), Property development(Rs35bn, +2bn YoY), Power equipment JV’s (Rs29bn, +6bn) and hydrocarbons(Rs12bn). We expect debt to increase by ~Rs67bn in FY15 primarily due to draw dawn for the Hyderabad metro project alongside other road projects. We do note that ex the finance subsidiaries, debt: equity ratio remains at a comfortable 1.2x albeit higher than the 1x in FY13 and 0.6x in FY10. Debt (Rs mn) FY13a FY14a FY15e FY16eSA debt 88,342 114,589 134,589 146,089Road Projects 121,597 139,378 144,783 141,677Power Development 41,604 58,421 72,000 67,200 Hyderabad Metro 29,952 25,717 73,216 99,840 Property Development 32,631 34,485 34,985 35,485Power Equipment JV's 23,186 28,573 30,073 31,573L&T Shipbuilding 27,537 33,648 38,648 38,648L&T Special Steel and Heavy Forgings 12,322 14,741 15,741 15,741 Dhamra Port 7,478 7,478 ‐ ‐Hydrocarbons 890 12,030 12,030 12,030 Subtotal (ex finance subs) 334,573 443,923 530,929 563,147 Finance subsidiaries 285,363 357,606 381,107 404,607 Debt on the consolidated balance sheet 619,936 801,529 912,036 967,754


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Information Technology – Strong growth continues; Engineering services businesses merged with a potential listing in FY17 alongside L&T Infotech FY14 was another strong year for the company with sales growing to Rs64bn (+28% YoY) with growth being contributed from both L&T Infotech (Rs46bn, +30% YoY) and Integrated Engineering Services (Rs.16bn, +28% YoY) seeing robust growth in sales. PAT stood at Rs9bn (+4% YoY). We note that during FY14, the IES business was demerged from the standalone parent entity and merged with the Product Engineering Services business (which in turn was demerged from L&T InfoTech). The merged entity which is called L&T Technology Services has been done with a view to consolidating the engineering services business of the company into one arm to cater to the Industrial, medical, telecom, transportation and process end markets. It also offers solutions in mechanical engineering services, embedded systems and product lifecycle management. It is primarily in the engineering services outsourcing space with 98% of its revenues from exports. L&T Infotech recorded sales of Rs46bn, an EBITDA of Rs11bn (+32% YoY) and PAT of Rs9bn, +61% YoY (includes Rs2.5bn on sale of PES to L&T TS, excl. the gain PAT was up 10% YoY). Note that there was a forex loss of Rs1bn which negatively impacted profitability during the year.

Vertical wise breakup of revenues (FY14) Geography wise breakup of revenue(FY14)

Industrial, 49%

Telecom, 8%

Services, 44%

N. America, 64.6

Europe , 19.6

Asia Pacific, 4.6

India, 4.8RoW, 6.4


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Management has cited that it is looking for an IPO for L&T Infotech and Engineering Services arm (L&T Technology Services in FY17) and in our view, this is in line with management’s strategy to unlock value for share holders in the company. L&T Infotech and Technology services(Rs mn) FY14 FY15e FY16eSales 63,537 76,851 89,893 YoY Growth (%) 27% 21% 17%EBITDA 14,590 18,167 19,909 margin % 23.0% 23.6% 22.1%Depreciation (683) (717) (753)Other Income (811) 200 200 EBIT 13,096 17,650 19,356 Interest cost 298 298 298PBT 12,798 17,352 19,058 Tax (3,878) (4,989) (5,450)Rate (%) 30% 29% 29%PAT 8,920 12,362 13,608


L&T Financial Services – reasonable show in a constrained environment The Financial Services primarily operates in the retail and corporate finance, housing finance, infrastructure finance, investment and wealth management business which are all housed under L&T Finance Holdings, the holding company for the group’s venture into finance. The General insurance business is housed under L&T General Insurance which a 100% is owned subsidiary of L&T. The chart below highlights the key area of operations for L&T Finance Holdings along with the legal entities participating in these end markets. During the year, L&T sold its stake in L&T Finance Holdings to bring it down to 75% (earlier 84%) to meet the minimum public shareholding norms as mandated by SEBI.

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The overall loan book for the company has grown to Rs400bn with 22% in mid market finance, 34% in retail and the balance 44% in Wholesale finance.


Retail and mid market Finance (L&T Finance, Family Credit, Housing Finance) L&T Finance has exited the car financing business during the year with an increased focus towards the B2B segments such as construction equipment, commercial vehicles and corporate lending. EBITDA margins during FY14 fall 220bps YoY on higher provisioning for loans advanced to certain sectors (Rs405mn). If not for this provision, margins would have sustained at ~17% for FY14. L&T Finance (Rs mn) FY13 FY14a FY15e FY16eSales 20,472 21,998 25,589 29,427 % chg 15% 7% 16% 15%Interest expenses (12,042) (12,729) (16,766) (19,280)EBITDA 3,530 3,290 5,493 6,817 margin % 17.2% 15.0% 21.5% 23.2%OI 209 457 200 200 Depreciation (604) (700) (734) (771)Tax (1,024) (1,036) (1,570) (1,995)PAT 2,111 2,012 3,389 4,251


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Wholesale Finance This segment faced a challenging time in FY14 in terms of corporate defaults as a result of tight liquidity and corporate opting for CDR. While sales grew as a result of the higher loan book, profitability was lower on higher provisions and contingencies provided during the year. Provisions provided during the year doubled to Rs1.44bn vs. Rs0.74bn in FY13 resulting in margins falling to 18% (29% in FY14). L&T Infra Finance (Rs mn) FY13 FY14a FY15e FY16eSales 15,915 17,948 21,884 25,500 YoY Growth(%) 35% 13% 22% 17%Interest (9,784) (12,338) (14,393) (16,167)EBITDA 4,633 3,239 4,161 6,002 margin % 29.1% 18.0% 19.0% 23.5%Depreciation (18) (19) (20) (21)Other Income 83 752 752 752 Tax (1,257) (1,051) (1,367) (1,974)PAT 3,441 2,921 3,526 4,759


L&T General Insurance In its third year of business, the general insurance business the company achieved Rs2.7bn of gross premiums and net of Rs1.8bn. In terms of end market, motor insurance is the highest with 52% share followed by heath and other commercial LOB’s accounting for the rest. PAT during the year was Rs ‐1bn vs. Rs ‐0.9bn in FY13. Note that the company has called off its proposed merger with Future Generalli Insurance and has chosen to focus on the insurance market in its own capacity. L&T Financial Services results (incl. General Insurance) (Rs mn) Finance Subs and Associate total FY12a FY13a FY14a FY15e FY16eSales 33,038 43,192 52,050 59,920 68,382 YoY growth 56 31 21 15 14 EBITDA 8,638 8,532 6,381 9,393 12,513 Margins(%) 26% 20% 12% 16% 18%Depreciation (2,097) (759) (996) (1,046) (1,098)OI 205 314 1,677 1,420 1,420 EBIT 6,747 8,087 7,062 9,767 12,835 EBIT margin 20 19 14 16 19 PAT 4,326 5,369 4,674 6,873 9,017


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Power Equipment JV’s – order flow remains weak but we expect a strong pickup going into FY15 – FY16 With a continued slowdown being faced in the BTG market in India, the L&T – MHI have not been able to book any significant orders during FY14. Management has cited that the company is looking at overseas markets in M. East, S.E.Asia for orders. We expect the orders to pick up from FY15 onwards driven by NTPC and state owned gencos with a further pick up from FY16 onwards from the award of UMPP’s in Orissa and Tamil Nadu for which equipment has to compulsorily be sourced from the domestic manufacturers. L&T – MHI Boilers Private Limited Sales for FY14 fell 47% to Rs13bn as a result of a lower order book and no significant order being received during the year by the company. Only Rs90mn of new orders were booked as power projects continue to get deferred/stalled on account of non availability of coal and low demand from SEB’s. We do note a sharp improvement in gross margins to 28%; this is still low compared to the ~40‐42% gross margins which BHEL has reported historically. EBITDA margins expanded to 18.4%, almost double of FY13 levels helped by higher gross margins and forex gains/derivative gains (Rs231m in total); adjusted for these one offs, EBITDA margins at 17% are still creditable. The company delivered and commissioned its first 700MW super critical boiler at Nabha Power during the year. The closing order book stood at Rs77bn as of Mar, 14. We expect orders to be booked during the year to improve substantially with orders from MP Genco (1320MW), NTPC Tanda boilers(1320MW) and at least one more NTPC order being booked by the company. We expect ~15‐18GW of orders could be placed over the coming next 2 years (including at least one UMPP) where L&T has a very good chance of winning new orders ; quite a few of these orders are on EPC basis where only L&T and BHEL can bid to qualify. L&T‐ MHI Boiler JV (Rs mn) FY13a FY14a FY15e FY16eRevenues 23,598 12,549 21,994 27,024 YoY Growth (%) ‐4% ‐47% 75% 23%Gross Profit 3,570 3,568 6,253 7,684 Margin (%) 15% 28% 28% 28%Other operating expenditure (1,318) (1,258) (2,645) (3,250)% of sales 6% 10% 10% 12%EBITDA 2,252 2,310 3,608 4,433 Margins % 9.5% 18.4% 16.4% 16.4%Interest (304) (429) (429) (429)Depreciation (314) (330) (330) (330)PBT 1,634 1,550 2,849 3,674 Tax (219) (549) (549) (549)PAT 1,415 1,002 2,300 3,125

Source: Company, Phillip Capital India Research L&T MHI Turbines Private Limited In FY14, new power projects continued to get deferred and/or completely shelved on lack of coal and lack of demand which has resulted in no major order getting booked during the year. Sales fell 25% YoY to Rs7.5bn on account of a lower starting order book combined with no major order being booked during the year. Gross margins expanded to 26% (15% in FY15) while EBITDA margins also rose to 11% on account of the lower raw material costs. Management has cited various initiatives which have been taken during the year to bring down costs including better supply chain management and cost reduction initiatives. As mentioned before, we expect orders to improve substantially during the year; the company should be able to book orders for MP Genco(1320MW),

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L&T‐ MHI Turbine JV(Rs mn) FY13a FY14a FY15e FY16e

Revenues 9,923 7,478 3,710 9,663 YoY Growth(%) ‐24% ‐25% ‐50% 160%Gross Profit 1,498 1,937 961 2,503 Margin(%) 15% 26% 26% 26%Other operating expenditure (1,170) (1,095) (543) (1,415)% of sales 12% 15% 15% 15%EBITDA 328 842 418 1,088 Margins % 3.3% 11.3% 11.3% 11.3%Interest (619) (768) (768) (768)Depreciation (603) (792) (792) (792)PBT (894) (718) (1,142) (472)Tax (137) ‐ ‐PAT (895) (855) (1,142) (472)

Source: Company, Phillip Capital India Research Power subsidiaries (Rs mn)

FY13a FY14a FY15e FY16eRevenues 36,105 21,838 27,424 38,407YoY Growth (%) ‐7% ‐40% 26% 40%EBITDA 2,785 3,315 4,181 5,677 Margins % 7.7% 15.2% 15.2% 14.8%Depreciation (917) (1,122) (1,122) (1,122)PAT 726 310 1,313 2,808

Infrastructure subsidiaries – EBITDA loss at key overseas subsidiary The biggest infrastructure subsidiary is L&T Oman which operates across the verticals of Power, T&D, Water, Metro, Civil Infra and Building & Factories. This is a JV with Zubair Corporation; L&T International FZE holds a 65% stake in this JV. The JV secured orders worth Rs35bn during the year including a major order for construction of Sultan Qaboos Youth complex in Salalah, Oman along with an order for 132kv substation at Al‐Amrat. Sales were at Rs22.6bn (+13% YoY) in FY14; however, EBITDA at Rs‐0.3bn (‐1% margins) was hit by higher construction costs. PAT at Rs‐0.8bn vs. Rs0.15bn inFY13. L&T Oman LLC (Rs mn) Description FY13 FY14 FY15e FY16eRevenues 19,952 22,575 23,704 24,889 YoY Growth(%) ‐3% 13% 5% 5%EBITDA 555 ‐283 (60) 186 margin(%) 3% -1% ‐0.3% 0.7%Depreciation 319 425 446 468Int 72 104 104 104PBT 172 ‐798 ‐596 ‐372PAT 148 (794) (507) (317)

Source: Company, Phillip Capital India Research The other subsidiaries which are part of the infrastructure vertical include L&T Saudi Arabia and L&T Hitech Products.

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Infrastructure subsidiaries consolidated financials (Rs mn) Description FY13a FY14a FY15e FY16eRevenues 27,546 25,457 27,323 31,122 EBITDA 472 (541) (322) (52)Margins (%) 2% ‐2% ‐1% 0%Depreciation 358 470 491 514 EBIT 115 (1,011) (813) (566)PAT (37) (1,184) (853) (652)


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L&T Special steel and Heavy forgings – high losses in first full year of operation; expect to decline L&T Special Steel & forgings is a JV between L&T and Nuclear Power Corporation of India with L&T Holding a 74% stake. This JV was set up at Hazira with the aim to supply heavy forgings for use in the nuclear power, hydrocarbons, fertilizers, power and general engineering applications. The facility has been set up with a cost of Rs19bn of which Rs12bn is the debt invested. The facility has a capacity to manufacture 0.1mn TPA of special steel and 40,000TPA of heavy forgings. A technology transfer up has also been done during the year with Japan Steel Works for melting and heavy forging made from steel ingots of upto 200tons which is another new opportunity for the unit. The facility began operations in FY13 and has recorded sales of Rs700mn and PAT of Rs‐3.3bn in its first full year of operations in FY14. In an environment of intense competition from foreign players alongside a depressed market environment for nuclear equipment (pos the Fukushima nuclear accident), the unit remains highly underutilized at just 10% capacity utilization. As per our estimates, it would need to do sales of Rs5‐6bn to breakeven as it has fixed costs of Rs2‐2.3bn and EBITDA margins of 35‐40%. At full capacity, this unit can do sales of Rs14‐15bn. We expect FY15 losses to remain at the same level as in FY14 but expect it to start coming down from FY16 onwards as orders won in FY15 are executed and contribute to sales in FY16. We note that more equity funding may be needed to be infused into the business since its net worth would turn negative post continued losses in FY14 – FY16. As per management commentary in the Annual report, new orders are expected to flow from investments and upgrades in the hydrocarbon space in USA, M. East and S.E.Asian markets. These are driven by availability of shale gas, clean fuel imports, GTL requirements and petrochemical requirements. Domestic fertilizer investments and nuclear projects are expected to be tendered as well in FY15; key nuclear power opportunities relate to the NPCIL Hissar plant reactors (700MW*4) and Phase II of the Kudankulam plant in Tamil Nadu . Key subsidiaries which form part of the Heavy Engineering are Heavy Steel and Forgings along with Heavy Engineering LLC. Financials of Heavy Engineering subsidiaries (Rs mn) Heavy Engineering segment FY13e Fy14e FY15e FY16eSales 1,651 2,634 4,684 6,403 YoY Growth (%) 60% 78% 37%EBIDTA (420) (988) (884) 832 Margin(%) ‐25.4% ‐37.5% ‐18.9% 13.0%Depreciation (601) (920) (884) (848)EBIT (1,021) (1,908) (1,768) (16)Margin(%) ‐61.8% ‐72.4% ‐37.7% ‐0.3%PAT (1,588) (3,377) (3,434) (1,805)


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Process flow in Heavy Forgings

L&T Shipbuilding – sharp losses on under utilization and slow ramp up of port operations L&T Shipbuilding operates the Katupalli shipyard and port at Katupalli, 40kms from Chennai in Tamil Nadu and FY14 was the first full year of commercial operation. Note that the Hazira Shipyard builds vessels which are part of the standalone L&T revenues. An investment of Rs40bn has been made into this project with L&T holding a 97% stake while the balance is held with TIDCO. L&T Shipbuilding has entered into a technical collaboration with MHI for design and construction of commercial ships. Sales stood at Rs5.3bn during FY14 while EBITDA was Rs‐2bn; loss due to high operating costs amidst an under utilization of the port and yard. PAT loss was at Rs6.5bn. It has fixed costs of Rs4.5bn every year and would need sales of Rs20bn to break even (~25% blended EBITDA margins). Katupalli Shipyard The Katupalli Shipyard had an order book of ~Rs20bn as of FY14 end and is geared to manufacture commercial as also naval ships. During the year, company bagged orders worth Rs9.4bn for four platform supply vessels and two anchor Handling vessels. During the year, the company delivered its first export vessel to Halul Offshore Services, which is amongst the first of four to be delivered to the company (total order value at Rs5bn) With the commercial shipping market expected to remain in a downturn for another two years, order prospects from this segment continue to remain bleak. However, with the technology tie up with Mitsubishi Heavy the company is looking to bag orders for LNG carriers, ethane carriers and other specialized offshore vessels. With the shoreline in Katupalli, medium sized vessels up to 200metres can be built at this yard. The focus is to get orders from domestic shipping companies for such commercial vessels.

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Management is more optimistic of winning orders from the defence segment post the new defence procurement policy being announced in 2013 where indigenous construction of ships has been given focus. Management has cited that 2 landing platform Dock (LPD’s) have been tendered to the domestic private yards which is a large opportunity (Rs40bn each); these would have to be built over a period of 3‐4 years while anather 2 would be build by Hindustan Shipyard Limited. Management also expects to bag orders for naval vessels (interceptor boats, patrol boats, naval ships) during 2H15 which would help improve utilizations and profitability at the yard. Katupalli Port The Katupalli port (1.2mn ton capacity) which has its first full year operation after commissioning in Feb, ’13 has been facing stiff competition from the nearby Chennai port which is offering steep discount to retain its customers and avoid them from shifting to Katupalli port. Also, because of certain customs issues, the container station attached to Chennai Port cannot trade with Katupalli port and hence traffic cannot be diverted here. Plus, there is an over capacity for container terminals on the east coast of the country resulting in low utilization. We note that recently ICCTS which was the port operator has also mutually agreed to terminate the agreement with L&T Katupalli port and that the company is looking to appoint a new operator for the port. L&T Shipbuilding Consolidated financials (Rs mn) Description FY13 FY14 FY15e FY16eRevenues 1,048 5,326 7,351 10,467 Other expenses (1,898) (7,376) (6,306) (8,219)EBITDA (850) (2,050) 1,045 2,249 Magins(%) ‐81% ‐38% 14% 22%Other income 116 129 16 19Interest expense ‐676 ‐2,772 ‐3,701 ‐4,251Depreciation ‐555 ‐1,791 ‐1,520 ‐1,459PBT (1,965) (6,484) (4,161) (3,443)Net PAT (1,965) (6,475) (4,161) (3,443)


Hydrocarbons – cost escalations and provisions hurt FY14 profitability; continues into Q115 During FY14, the hydrocarbon entity which was part of the standalone L&T was demerged into a fully owned subsidiary. The idea behind the demerger was to provide this entity with greater autonomy, an independent decision making board and a potential listing in the future. We do note that margins in this segment have deteriorated meaningfully during FY14 to 3% on cost overrun in tightly bid international projects; most of these projects were first of its kind being executed by L&T with respect to size, scale and technical complexity, increase in local wages and localization, specification changes, stringent QA/QC and underutilization of yards. Margins further deteriorated in Q115 with L&T taking a provision of Rs9bn during Q115 for 10 projects worth Rs100bn where cost overruns were faced. Of the Rs100bn projects, Rs50b have been executed while provisions for further cost increases have been taken for the remaining Rs50bn worth projects which implies zero margins for these projects as they are executed over the next 12 months. We see margins reverting back to 5‐% starting from FY16 onwards. Management had cited that it has learned from these projects and that it had under estimated the costs which would have to be incurred in these projects.

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Hydrocarbon Consolidated segment results (Rs mn) Hydrocarbon FY13 FY14 FY15 FY16Revenues 109,274 101,322 70,330 102,823 EBITDA 11,625 3,315 (8,314) 6,371 Margins (%) 10.6% 3.3% ‐12% 6%Depreciation (1,366) (1,519) (1,635) (1,761)EBIT 10,259 1,796 (9,949) 4,611PAT 6,095 113 (7,164) 2,442

Source: Company, Phillip Capital India Research We show below the financials of the key Hydrocarbon subsidiary which had been demerged from the parent in FY14. Financials of L&T Hydrocarbon Engineering Limited (demerged from L&T parent inFY14) (Rs mn) Hydrocarbon Engineering Limited FY13 FY14 FY15 FY16Revenues 95,400 87,159 54,279 84,569 YoY Growth (%) #DIV/0! ‐9% ‐38% 56%EBITDA 9,630 3,050 (9,200) 4,228 Margin (%) 10.1% 3.5% ‐16.9% 5.0%Depreciation (912) (1,001) (1,101) (1,211)EBIT 8,718 2,049 (10,301) 3,018 Interest expense (929) (420) (441) (463)PBT 7,789 1,638 (10,741) 2,555 Tax (2,527) (581) 3,810 (906)Tax rate (%) 32.4% 35.5% 35.5% 35.5%PAT 5,262 1,057 (6,932) 1,649 Margin(%) 5.5% 1.2% ‐12.8% 1.9%

Source: Company, Phillip Capital India Research Key subsidiaries which are part of this segment include L&T Modular Fabrication Yard(Sohar, Oman), L&T ELectromech, L&T Sapura Shipping and L&T Valdel (design and engineering services in O&G sector). We present summarized P/L’s of these subsidiaries below: L&T Valdel (Rs mn)

FY13 FY14 FY15E FY16ERevenues 840 816 856 899YoY Growth(%) 3% ‐3% 5% 5%EBITDA 86 27 28 30margin(%) 10% 3% 3% 3%PBT 86 7 28 30PAT 62 5 20 21Margin(%) 7.4% 0.6% 2.4% 2.4%

Source: Company, Phillip Capital India Research L&T Sapura Shipping(Rs mn)

FY13 FY14 FY15E FY16ERevenues ‐ L&T' share 2,324 2,048 2,252 2,478 YoY Growth(%) 130.3% ‐11.9% 10% 10%EBITDA 1,001 974 1,071 1,178 margin(%) 43% 48% 48% 48%PBT 299 274 369 476 PAT 295 269 295 381Margin 12.7% 13.1% 13.1% 15.4%


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L&T Electromech (Rs mn) FY13 FY14 FY15E FY16E

Revenues ‐ L&T' share 5,946 7,882 8,670 9,537 YoY Growth (%) 25% 33% 10% 10%EBITDA 533 ‐473 0 668margin(%) 9.0% ‐6.0% 0.0% 7.0%Depreciation 202 215 215 215 PBT 348 (683) (198) 469 PAT 305 (683) ‐169 399

Source: Company, Phillip Capital India Research L&T Modular Fabrication Yard(Rs mn)

FY13 FY14 FY15E FY16ERevenues ‐ L&T' share 4,764 3,418 4,272 5,340 YoY Growth (%) 220% ‐28% 25% 25%EBITDA 375 (263) (214) 267 margin(%) 7.9% ‐7.7% ‐5.0% 5.0%Depreciation 252 304 319 335 PBT 176 (535) (475) (10)PAT 171 (535) (380) (8)


Road assets profitability hit by higher periodic maintenance and power charges; offset by lower depreciation L&T’s road assets are housed under its holding company, L&T Infrastructure Development Private Limited. It currently has eleven operational projects with another four projects currently under implementation. We note that two road projects relating to Amravati‐ Jalgaon and Jalgaon – Maharastra/Gujarat border are stalled on non availability of land/clearances from NHAI – no work has been done on these as NHAI has still not provided the appointed date; these have already been taken out of the order book of the L&T E&C division. L&T Deccan Tollways which is doing the 4‐6 laning for the Sangareddy – Maharastra/Karnatatka border is also awaiting the approval of its premium rescheduling only after which construction work on this project is expected to begin. Total toll collections in FY14 from operational road projects stood at Rs11.4bn (+7% YoY) on account of full year revenues from 3 new projects which started tolling in FY13 (these are all based in Gujarat which started tolling but we note that management has stated that toll collections have been lower than expectations) and start of a 4th road project. EBITDA at Rs7.4bn (‐11% YoY, 65% margin) was however lower on account of periodic project maintenance and power charges. As a result of the change in the depreciation method, profitability improved by Rs4bn in FY14. We expect toll revenues to grow by 34% in FY15 to Rs15.2bn driven by the start of four new road projects. EBITDA is seen improving to Rs9bn (59% margin) while losses are expected to increase to Rs11bn; rise in losses on commissioning of four new road assets which would start to stabilize from FY15 onwards and we see losses start to reduce from thereon.

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Portfolio of road asset in L&T IDPL(Rs mn) Major SPVs _______Revenue (Rs mn) _______ _________EBITDA (Rs mn) _________ _________PAT (Rs mn) _________

Roads and Bridges: FY13 FY14 FY15e FY16e FY13 FY14 FY15e FY16e FY13 FY14 FY15 FY16e

L&T Panipat Elevated Corridor Limited – Haryana 453 519 571 628 364 257 342 502 (372) (466) (643) (333)

Narmada Infrastructure Construction Enterprise Limited 354 0 0 0 291 0 0 0 303 0 0 0

L&T Krishnagiri Thopur Toll Road Limited(TN) 1,016 1,060 1,166 1,282 846 636 699 897 (38) (267) (150) 9

L&T Western Andhra Tollways (Jadhcheria‐Kothakota) 481 504 559 620 370 100 224 310 (112) (358) (169) (99)

L&T Transportation Infrastructure‐Coimbatore Bypass(TN) 248 243 270 299 186 137 179 228 131 246 111 150.8165

L&T Interstate Road Corridor(Palanpur‐Swaroopganj) 864 864 864 864 709 693 734 734 87 8 101 101

L&T Vadodara Bharuch Tollway Limited 2,268 2,489 2,738 3,012 2011 1,610 1,917 2,560 (405) (849) (381) 149

L&T Rajkot Vadinar Tollway Limited 593 693 769 854 405 460 587 726 (1,135) (125) (985) (847)

PNG Tollway Limited 178 371 426 490 100 200 277 417 (375) (324) (711) (535)

L&T Ahmedabad‐Maliya Tollway Limited 778 1,132 1,257 1,395 622 807 942 1,186 (843) (453) (991) (747)

L&T Halol ‐ Shamlaji Tollway Limited 837 770 847 932 649 473 605 746 (1,251) (269) (1,294) (1,153)

L&T Devihalli Hassan Tollway Limited 104 207 217 0 109 166 174 16 (30) (244) (171)

L&T Chennai Tada Tollway 563 545 740 852 184 367 518 596 354 343 (87) (7)

Krishnagiri Walajahpet Tollway Limited 1,118 1,160 1,370 1,439 833 858 1,096 1,151 0 771 (128) (74)

L&T Samakhiali Gandhidham Tollway Private Limited 874 903 1,079 1,133 734 678 811 851 0 12 (2,802) (2,761)

L&T BPP(Beawar‐Pindwarara) Tollway ‐ ‐ 2,472 2,596 0 0 22 1,298 0 (2,488) (1,265)

L&T Deccan Tollway(Sangareddy ‐ MH/KNT border) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

L&T East West Tollway(Amravati ‐ Jalgaon)‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Great Eastern Tolway(Jalgaon‐ Maharastra Gujarat ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

L&T Sambalpur ‐ Rourkela(Orissa) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Total 10,624 11,355 15,335 16,613 8,303 7,384 9,120 12,376 (3,640) (1,760) (10,860) (7,583)

YoY Growth(%) 61 7 35 8 15626 ‐11 23 36 319% ‐52% 517% ‐30%


L&T Realty – Strong growth during FY14; to continue in FY15 The Realty business clocked Rs13bn of sales in FY14 which included Rs5.5bn in the standalone entity and the balance Rs7.5bn in the subsidiaries. We note that L&T Realty is the key holding company for L&T’s foray into realty projects which in turn has made investments in various subsidiaries / LLP’s. Some of the key projects currently being developed include Crescent Bay Parel, Emerald Isle, Powai, Eden Park, Chennai, Seawoods, Navi Mumbai, Elante Mall, Chandigarh, South City, Chennai. As per media reports, L&T Realty has 35mn sq ft of area currently being developed across India and is focused in the cities of Mumbai, Bangalore, Pune and Chennai. During the year, L&T Realty sold stakes in L&T Chennai Projects and Bangalore International Airport. It is also looking to divest stakes in L&T Tejomaya and L&T Tech Park (see financials below) and expects to complete this transaction by Q115. We note that the growth in FY14 sales has primarily been on account of a doubling of sales in CSJ Infrastructure which started operation of its retail mall and office buildings in Chandigarh with 50% of the office being sold while 97% of the mall has been leased out. L&T South City has started development of its Phase II flats in Chennai and intends to develop ~5mn square feet over the next 5 years.

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LL&T Real Estate subsidiaries(Rs mn) ______Revenue (Rs mn) ______ ______EBITDA (Rs mn) ______ ____EBITDA margins (%)____ ______PAT (Rs mn) ______ FY13 FY14 FY15E FY16e FY13 FY14 FY15E FY16e FY13 FY14E FY15E FY16e FY13 FY14E FY15E FY16e L&T Infocity Ltd 466 421 442 464 210 173 182 191 45% 41% 41% 41% 97 51 122 129 L&T South City Projects - Chennai 332 28 500 1,000 52 -34 250 500 16% -122% 50% 50% 23 (72) 235 485 Hyderabad International Trade Expositions 231 210 252 302 135 105 125.9 151.1 58% 50% 50% 50% 70 51 67 84 L&T Hitech City 8 8 10.1 12.1 1.9 2.0 2.4 2.9 24% 24% 24% 24% -24 (17) (9) (8) CSJ Infrastructure Private Ltd 1,248 2,283 2,511 2,763 377 1,187 1,432 1,575 30% 52% 57% 57% 115 (190) 448 544 L&T Tejomaya 161 163 171 180 138 135 142 149 86% 83% 83% 83% 14 23 35 40 L&T Realty 56 17 18 19 -204 (36) 0 0 -366% -211% 0% 0% (1,404) 205 (689) (689) Total Property Development 2,660 3,130 3,904 4,739 747 1,569 2,134 2,569 28% 50% 55% 54% (1,879) 51 210 585 Source: Company, Phillip Capital India Research

Machinery and Industrial products – full consolidation of L&T Construction and Audco helps sales and profitability Revenues and profitability in the MIP division were helped by consolidation of L&T Valves (earlier Audco Limited) and L&T Construction Equipment (earlier L&T Komatsu JV) which have both now become 100% owned subsidiaries of L&T. Overall sales for the subsidiaries stood at Rs18.4bn(+70% YoY) while was at Rs1.2bn in FY14. L&T Construction Equipment (Rs mn) Description FY13 FY14 FY15 FY16Revenues 11,889 5,100 5,610 6,171 YoY Growth(%) ‐26% ‐57% 10% 10%EBITDA 92 285 370 469 margin(%) 1% 6% 7% 8%Interest and Depreciation (124) (124) (124)PBT (28) 161 246 345 Tax ‐46 (70) (99)PAT (28) 115 176 246 YoY Growth(%) ‐157% ‐508% 52% 40%Margin(%) ‐0.2% 2.3% 3.1% 4.0%

Source: Company, Phillip Capital India Research L&T Valves Limited (Rs mn)

FY13 FY14 FY15 FY16Revenues 6,507 9,127 9,583 10,063 YoY Growth(%) 11% 40% 5% 5%EBITDA 686 1,494 1,569 1,647 margin(%) 11% 16% 16% 16%PBT 610 1,405 1490 1568PAT 398 971 998 1051YoY Growth(%) ‐35% 144% 3% 5%Margin(%) 6% 11% 10% 10%

Source: Company, Phillip Capital India Research Consolidated financials for MIP (Rs mn) Machinery and Industrial Products FY13a FY14a FY15e FY16eRevenues 10,841 18,405 19,532 20,741 YoY Growth(%) ‐7% 70% 6% 6%EBITDA 1,297 2,143 2,321 2,517 margins(%) 12% 12% 12% 12%EBIT 1,297 2,143 2,321 2,517 PAT 561 1,237 1,224 1,355


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Financials – Consolidated

Income Statement Y/E Mar, Rs mn FY13 FY14 FY15E FY16ENet sales 744,980 851,284 942,595 1,143,854Growth, % 16 14 11 21Total income 744,980 851,284 942,595 1,143,854Raw material expenses ‐112,035 ‐118,013 ‐127,996 ‐151,345Employee expenses ‐62,446 ‐80,276 ‐88,887 ‐107,866Other Operating expenses ‐471,211 ‐545,451 ‐596,206 ‐723,505EBITDA (Core) 99,287 107,543 129,506 161,138Growth, % 13.2 8.3 20.4 24.4Margin, % 13.3 12.6 13.7 14.1Depreciation ‐16,371 ‐14,458 ‐23,738 ‐24,668EBIT 82,917 93,085 105,768 136,470Growth, % 15.3 12.3 13.6 29.0Margin, % 11.1 10.9 11.2 11.9Interest paid ‐21,243 ‐31,414 ‐35,397 ‐39,726Other Non‐Operating Income 10,557 9,819 10,443 15,846Pre‐tax profit 72,485 71,374 80,907 112,683Tax provided ‐23,790 ‐26,076 ‐28,669 ‐39,941Profit after tax 48,695 45,299 52,238 72,741Others (Minorities, Associates) ‐722 382 ‐1,037 ‐3,175Net Profit 47,973 45,680 51,200 69,566Growth, % 3.4 (4.8) 12.1 35.9Net Profit (adjusted) 47,973 45,680 51,200 69,566Unadj. shares (m) 927 927 936 936Wtd avg shares (m) 927 927 936 936 Balance Sheet Y/E Mar, Rs mn FY13 FY14 FY15E FY16ECash & bank 35,715 40,966 64,699 26,067Debtors 230,149 263,846 292,146 354,524Inventory 51,874 55,275 61,204 74,271Loans & advances 404,544 535,555 644,649 735,284Other current assets 201,930 254,934 282,278 342,549Total current assets 924,213 1,150,574 1,344,976 1,532,695Investments 87,675 81,090 81,090 81,090Gross fixed assets 382,216 413,740 476,738 539,736Less: Depreciation ‐75,670 ‐88,824 ‐112,562 ‐137,230Add: Capital WIP 110,675 140,844 140,844 140,844Net fixed assets 417,220 465,760 505,020 543,350Total assets 1,429,108 1,697,423 1,931,085 2,157,135 Current liabilities 413,378 450,643 535,485 649,820Provisions 28,830 32,969 32,969 32,969Total current liabilities 442,208 483,612 568,454 682,789Non‐current liabilities 621,773 804,904 915,411 971,129Total liabilities 1,063,981 1,288,516 1,483,865 1,653,918Paid‐up capital 1,231 1,854 1,854 1,854Reserves & surplus 337,366 375,262 412,537 465,359Shareholders’ equity 365,126 408,908 447,220 503,217Total equity & liabilities 1,429,107 1,697,423 1,931,085 2,157,135 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY13 FY14 FY15E FY16EPre‐tax profit 72,485 71,374 80,907 112,683Depreciation 16,371 14,458 23,738 24,668Chg in working capital ‐89,474 ‐179,707 ‐85,826 ‐112,017Total tax paid ‐66,949 ‐24,538 ‐28,669 ‐39,941Cash flow from operating activities ‐67,567 ‐118,412 ‐9,851 ‐14,608Capital expenditure ‐90,670 ‐62,998 ‐62,998 ‐62,998Chg in investments 433 6,585 0 0Cash flow from investing activities ‐89,852 ‐56,320 ‐62,698 ‐62,698Free cash flow ‐157,419 ‐174,732 ‐72,549 ‐77,306Equity raised/(repaid) 49,561 38,519 37,275 52,822Debt raised/(repaid) 148,436 181,593 110,507 55,718Dividend (incl. tax) 12,385 15,322 13,925 16,745Other financing activities ‐60,358 ‐61,002 ‐65,126 ‐86,311Cash flow from financing activities 158,296 180,077 96,581 38,973Net chg in cash 877 5,344 24,033 ‐38,332 Valuation Ratios FY13 FY14 FY15E FY16EPer Share data EPS (INR) 51.8 49.3 54.7 74.4Growth, % 3.4 (4.8) 11.1 35.9Book NAV/share (INR) 365.3 406.9 443.0 499.4FDEPS (INR) 51.8 49.3 54.7 74.4CEPS (INR) 69.4 64.9 80.1 100.7CFPS (INR) (84.6) (138.2) (21.8) (32.7)DPS (INR) (11.5) (14.2) (12.8) (15.4)Return ratios Return on assets (%) 4.8 4.2 4.1 4.8Return on equity (%) 14.2 12.1 12.4 15.9Return on capital employed (%) 6.7 5.8 5.7 6.8Turnover ratios Asset turnover (x) 0.9 0.8 0.8 0.9Sales/Total assets (x) 0.6 0.5 0.5 0.6Sales/Net FA (x) 2.0 1.9 1.9 2.2Working capital/Sales (x) 0.6 0.8 0.8 0.7Working capital days 232.8 282.5 288.4 273.4Liquidity ratios Current ratio (x) 2.2 2.6 2.5 2.4Quick ratio (x) 2.1 2.4 2.4 2.2Interest cover (x) 3.9 3.0 3.0 3.4Dividend cover (x) (4.5) (3.5) (4.3) (4.8)Total debt/Equity (%) 183.1 212.5 220.1 207.1Net debt/Equity (%) 172.5 201.7 204.5 201.6Valuation PER (x) 30.5 32.0 28.8 21.2Price/Book (x) 4.3 3.9 3.6 3.2Yield (%) (0.7) (0.9) (0.8) (1.0)EV/Net sales (x) 2.7 2.6 2.5 2.1EV/EBITDA (x) 20.6 20.7 17.9 15.0EV/EBIT (x) 24.7 23.9 22.0 17.7

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Recommendation History

S (TP 1400)

N (TP 1350)N (TP 1330)

N (TP 1300)

N (TP 1400)

N (TP1430)

N (TP 1510) B (TP 1850)

B (TP 1850)

B (TP 1800)

N (TP 1000)

N (TP 1120)

N (TP 1700)

500

700

900

1100

1300

1500

1700

1900

1/3/2011 7/11/2011 1/18/2012 7/24/2012 1/31/2013 8/7/2013 2/14/2014 8/27/2014

Source: PhillipCapital India Research

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Management

(91 22) 2300 2999(91 22) 6667 9735

Research Engineering, Capital Goods Pharma

Dhawal Doshi (9122) 6667 9769 Ankur Sharma (9122) 6667 9759 Surya Patra (9122) 6667 9768Priya Ranjan (9122) 6667 9965 Hrishikesh Bhagat (9122) 6667 9986

Retail, Real EstateInfrastructure & IT Services Abhishek Ranganathan, CFA (9122) 6667 9952

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Neha Garg (9122) 6667 9996Paresh Jain (9122) 6667 9948 Varun Vijayan (9122) 6667 9992

TechnicalsConsumer, Media, Telecom Midcap Subodh Gupta, CMT (9122) 6667 9762Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Vikram Suryavanshi (9122) 6667 9951Vivekanand Subbaraman (9122) 6667 9766 Production ManagerManish Pushkar, CFA (9122) 6667 9764 Metals Ganesh Deorukhkar (9122) 6667 9966

Dhawal Doshi (9122) 6667 9769Cement Database ManagerVaibhav Agarwal (9122) 6667 9967 Oil&Gas, Agri Inputs Vishal Randive (9122) 6667 9944

Gauri Anand (9122) 6667 9943Economics Deepak Pareek (9122) 6667 9950 Sr. Manager – Equities SupportAnjali Verma (9122) 6667 9969 Rosie Ferns (9122) 6667 9971

Sales & Distribution Kinshuk Bharti Tiwari (9122) 6667 9946 Dipesh Sohani (9122) 6667 9756 Zarine Damania (9122) 6667 9976Ashvin Patil (9122) 6667 9991 Sales TraderShubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs

Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd

250 North Bridge Road, #06‐00 Raffles City Tower, Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

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Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report. Independence/Conflict: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its employees, directors, or affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd may not hold more than 1% of the shares of the company(ies) covered in this report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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