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Infrastructure

The ‘fresh’ fruit basket of the EPC sector INDIA | INFRASTRUCTURE | Sector Update

2 November 2015

Read this report for: • A basket of EPC companies, which we expect will outperform their peers and the

broader markets over the next three years • Infrastructure stocks that offer exposure to different sectors/states • Initiating coverage reports on ITD Cementation, PNC Infratech, and MBL Infra EPC sector – changing order of preference The EPC sector is undergoing a radical transformation in the listed space. Old stalwarts such as Gammon, HCC, and IVRCL are being discarded in favour of new ‘kids’ on the block such as JKIL, KNR, and PNC. Asset owners (GMR, GVK, Lanco) are being ignored due to keen interest in asset‐light EPC companies such as NCC, ITD and JKIL. The underlying reason is basic – this time around, the market does not intend to reward leverage.

We believe that in this cycle highly leveraged companies (however big/famous) will continue being ignored in favour of new/smaller companies with much superior balance sheets — in fact, this aspect is an important differentiator of this cycle from the earlier one (2007‐11). Lower liquidity will make a basket approach more fruitful Most of the stocks in our recommended basket are small with <Rs25bn market capitalisation — therefore, any significant position in one of them would be associated with high impact cost. Buying a basket would spread the impact cost over 3‐5 stocks, thereby reducing overall impact cost. Fresh fruit basket – a stock for every sector/state Each of the stocks in our recommendation basket offers exposure to different segments and states. By diversifying holding across these stocks, investors would be able to spread exposure across sectors and states, thus reducing the impact of any unforeseen unfavourable policy or regulation and will benefit from a surge in infrastructure spending in each of those regions. Investment thesis – buy these stocks with specific investment rationale • ITD Cementation – Turnaround story, exposure to niche segments (ports, MRTS) • PNC Infratech – Exposure to northern belt ‐ states of maximum action • J Kumar – Growth story, exposure to urban infra segment, Maharashtra • KNR Construction – Value story, exposure to roads, AP & Telangana Valuations of quality players are expensive, will continue to be so Four of the five stocks that we are recommending (exception is MBL Infra) are trading at lifetime‐high P/E multiples (12‐16x FY17) — which are in line with NCC’s (a pan India player with robust earnings growth and strong balance sheet) valuation. However, despite this, we do not see these stocks losing sheen from here; in fact, we see them remaining expensive because of the lack of strong balance sheets in the sector. We expect these smaller ‘new’ companies to be the leaders of the cycle this time. We initiate coverage on: • ITD Cementation (BUY, PT Rs130 @ 16x average of CY16‐17 EPS) • PNC Infratech (BUY, PT Rs610 @ 16x FY17 EPS) • MBL Infra (NEUTRAL, PT Rs220 @ 9x FY17 EPS) We maintain our BUY recommendation on: • JKumar (PT Rs 960 @ 16x FY17 P/E) • KNR Construction (PT Rs 690 @ 16x FY17 P/E)

Companies ITD Cementation CMP, Rs Rs 103 Reco BUY Target Price, Rs Rs 130 Upside 26% PNC Infratech CMP, Rs Rs 513 Reco BUY Target Price, Rs Rs 610 Upside 19% MBL Infrastructures CMP, Rs Rs 210 Reco NEUTRAL Target Price, Rs Rs 220 Upside 5% KNR Construction CMP, Rs Rs 585 Reco BUY Target Price, Rs Rs 690 Upside 18% J Kumar Infraprojects CMP, Rs Rs 759 Reco BUY Target Price, Rs Rs 960 Upside 26% EPC companies – Relative Positioning

Source: Phillip Capital India Research Vibhor Singhal (+ 9122 6667 9949) [email protected] Deepak Agarwal (+ 9122 6667 9944) [email protected]

NCC J Kumar

KNR

ITDCPNC

MBL

8.0

10.0

12.0

14.0

16.0

18.0

0.0 0.3 0.5 0.8 1.0 1.3 1.5

P/E (FY17E)

Debt:Equity (FY17E)

mailto:[email protected]�


INFRASTRUCTURE SECTOR UPDATE

Table of Contents

EPC sector – Changing order of preferences ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 3

The fresh fruit basket ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 4

Fundamentals over momentum ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 5

The veterans – how did they mess up so badly? ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 7

The new crop – are they any better? ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 9

Valuations and recommendations ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 11

Companies

ITD Cementation ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 13

PNC Infratech Ltd ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 25

MBL Infrastructures ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 36

KNR Construction ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 43

JKumar Infra ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 46



EPC sector – changing order of preferences The EPC sector is undergoing a radical transformation in the listed space. Old stalwarts such as Gammon, HCC, and IVRCL are being discarded in favour of new ‘kids’ on the block such as JKIL, KNR, and PNC. Asset‐owners (GMR, GVK, Lanco) are being side‐lined by the keen interest in EPC companies such as NCC, ITD, and JKIL. The underlying reason is basic – the market doesn’t intend to reward leverage this time. Infrastructure sector share‐price returns over the last 15 months

Source: Bloomberg, PhillipCapital India Research We believe that this trend of highly leveraged companies being ignored (however big/famous they are) in favour of newer/smaller companies (with superior balance sheets) will continue in this cycle. In fact, this very important aspect is where we see this cycle to differing from the earlier one (2007‐11). We recommend a basket of EPC companies, which we believe will be the favoured ones in this cycle. These companies, relatively new to the listed space and smaller in size, have strong balance sheets and high earnings‐growth potential. We expect most of these companies, if not all, to outperform their peers and the broader markets. EPC sector – The old and the new

Company CMP Rs

Market Cap Rs bn

Free Float Rs bn

Listed In Topline(FY16E)

EBITDA(FY16E)

PAT(FY16E)

Rs mn Rs mn Rs mnITD Cementation 105 16 8 1991 25,784 1,805 134PNC Infratech 508 26 11 2015 18,732 2,529 1,259J Kumar 740 24 12 2008 17,058 3,156 1,339KNR Construction 581 16 6 2008 10,076 1,511 844MBL Infra 210 9 5 2010 21,433 2,358 705NCC 83 46 37 1992 82,975 7,260 2,625HCC 26 17 11 1991 44,535 5,790 (526)IVRCL 9 3 3 1995 38,817 1,941 (3,965)Gammon India 13 2 1 1991 17,184 673 (2,343)

Source: Bloomberg, PhillipCapital India Research

‐100%

‐50%

0%

50%

100%

150%

200%

Phase II (July‐14 to Sep15)

Supreme IVRCL GMR GVK R‐Infra

HCC Gammon ITNL IRB Infra Simplex

Adani Ports Ashoka Buildcon Sadbhav NCC Pipavav

ITD Cem MBL Infra KNR Jkumar



The ‘fresh’ fruit basket of the EPC sector While we try to focus on new, smaller names in the EPC sector, we recommend investors buy a basket of these companies rather than taking concentrated positions in a few of them. Our reasons to favour this approach: Lower impact cost in relatively illiquid stocks Most of the stocks in our recommended basket have small market capitalisation (less than Rs25bn). Hence any significant position in one would be associated with high impact cost. Buying a basket would spread this impact cost over 3‐5 stocks, thereby reducing overall impact cost. Impact cost much lower for a basket strategy _________Scenario I_________ _______Scenario II______ Investment (Rs mn) 900 900 900 _________900__________ Stocks J Kumar ITD Cem KNR J Kumar ITD Cem KNRCMP (Rs) 740 105 581 740 105 581Market Cap (Rs bn) 24 16 16 24 16 16Free float (Rs bn) 12 8 6 12 8 6Daily liquidity (Rs mn) 18 30 12 18 30 12Daily traded Vol ('000s) 24 286 21 24 286 21Allocation (Rs mn) 900 900 900 300 300 300No of shares reqd ('000s) 1,216 8,571 1,549 405 2,857 516No of days to buy at 50% volume 100 60 150 33 20 50


Diversifying exposure to segments Each of the stocks in our recommended basket offers exposure to different segments. By diversifying holding across these stocks, investors would be able to spread their exposure across sectors thus reducing the impact of any unforeseen unfavourable policy or regulation. Diversifying exposure to states Each of the stocks in our recommendation basket offers exposure to different states. By diversifying the holding cross these stocks, the investors would be able to spread their exposure across states – thus benefitting from the surge in infrastructure spending in each of those regions. Different stocks provide exposure to different segments and states Company CMP Mrkt Cap Segment State Investment argument Rs Rs bn

ITD Cementation 105 16 Ports, MRTS Pan India Turnaround story, exposure to niche segments of ports and MRTS

PNC Infratech 503 26 Roads, Airports UP, Bihar, MP Exposure to northern belt ‐ states of maximum action

J Kumar 740 24 Urban Infra, MRTS Maharashtra, Gujarat Growth story, exposure to urban infra segment, Maharashtra

KNR Construction 581 16 Roads, Irrigation AP, Telangana Value story, exposure to roads sector, AP and Telangana

MBL Infra 210 9 Roads MP, West Bengal, Delhi Inexpensive valuations, though relatively inferior fundamentals




Fundamentals over momentum Over the last 21 months, most infrastructure stocks have doubled their market caps. While the rally in the sector was driven by the conclusive mandate for the BJP‐led NDA in the 2014 general elections and the hope of economic revival, many of the stocks actually appreciated much before the election outcome. We analyse the stock returns over the last 21 months by segregating them into three buckets:

• Phase 1 – January 2014 to June 2014 • Phase 2 – July 2014 to September 2015 • Overall – January 2014 to September 2015 (Phase 1 + Phase 2) Robust returns over the last 21 months From January 2014 (last 21 months), most infrastructure stocks have risen by more than 100%, with a few appreciating more than 300% (NCC, Simplex, KNR) and a few underperforming significantly (GMR, GVK, IVRCL). Robust returns from almost all stocks over the last 21 months (Phase 1 + Phase 2)

Source: Bloomberg, PhillipCapital India Research Rally kicked in very early for a few stocks – Phase 1 Many stocks started factoring in early that the ‘non‐performing’ UPA would be ousted and that the NDA, with its promises of reviving the economy, would be the largest coalition. The higher‐than‐anticipated margin of victory further fuelled the rally after the results. While almost all infrastructure stocks rose by more than 50% in the six months leading to the elections (Phase 1), many stocks delivered over 100%. Phase 1 Phase 2


‐200%

0%

200%

400%

600%

800%

Phase I + II (Jan‐14 to Sep‐15)

GMR IVRCL Supreme R‐Infra GVK

ITNL Gammon HCC Adani Ports IRB Infra

Ashoka Buildcon Sadbhav Pipavav Jkumar NCC

Simplex ITD Cem MBL Infra KNR

0%

50%

100%

150%

200%

250%

300%

Phase I (Jan‐14 to June‐14)

GMR Jkumar Adani Ports ITNL

IVRCL R‐Infra Pipavav Supreme

GVK Sadbhav Ashoka Buildcon ITD Cem

IRB Infra Gammon MBL Infra NCC

HCC KNR Simplex

‐100%

‐50%

0%

50%

100%

150%

200%

Phase II (July‐14 to Sep15)

Supreme IVRCL GMR GVK

R‐Infra HCC Gammon ITNL

IRB Infra Simplex Adani Ports Ashoka Buildcon

Sadbhav NCC Pipavav ITD Cem

MBL Infra KNR Jkumar

Our research shows stocks that rose early did not necessarily deliver maximum returns



Men separated from the boys in the next 15 months – Phase 2 As the election results euphoria fizzed out, the market took cognizance of the real potential of the sector’s stocks. In the next fifteen months, the market’s dynamics segregated stocks that could potentially benefit from the economic revival in the country and ones that had just run up because of the euphoria, but would not be able to deliver expected shareholder returns. From July 2014 to September 2015, the men began to stand out from the boys. While many stocks lost large parts of the gains they had made in the preceding six months (GMR, GVK, HCC, IVRCL, Gammon) others continued their superior performance (NCC, JKumar, KNR, MBL). Markets are penalising leverage heavily this time A key aspect where the on‐going rally is different from the last cycle (2007‐11) is the acute focus on balance sheets. While many of the leveraged companies (especially asset owners such as GMR, GVK, and Lanco) were the leaders of the last cycle, this time around, leveraged companies have been penalised. The sector’s stock returns of the last 15 months clearly show that the market is only willing to reward companies with lean balance sheets or companies that are actively trying to deleverage their balance sheets. Last 15 months’ stock returns have strong inverse correlation to leverage Company Leverage Stock returns FY14 FY15 FY16E Last 15 months Supreme 1.7 1.4 1.4 ‐63%IVRCL 2.4 3.8 6.3 ‐57%GMR 5.3 6.3 6.3 ‐54%GVK 8.1 12.8 17.9 ‐52%R‐Infra 0.9 0.9 0.9 ‐49%HCC 3.8 3.6 3.9 ‐48%Gammon 4.2 3.6 4.7 ‐40%ITNL 3.8 4.0 4.1 ‐35%IRB Infra 3.1 2.9 2.7 ‐10%Simplex 2.2 2.4 2.2 3%Adani Ports 1.0 0.9 0.8 15%Ashoka Buildcon 2.6 2.9 2.2 27%Sadbhav 4.5 6.0 5.8 46%NCC 1.0 0.6 0.6 68%Pipavav 0.3 0.2 0.2 72%ITD Cem 1.6 1.5 1.4 75%MBL Infra 1.1 1.1 0.9 80% KNR 0.2 0.2 0.1 150%Jkumar 1.0 0.7 0.6 151%


Eventually, fundamentals took over momentum



The ‘veterans’ – how did they mess up so badly? The stalwarts of the last cycle – EPC companies such as HCC, Gammon, IVRCL, and NCC – have had a tough time in 2011‐14. Most of these stocks are currently trading at a fraction of their valuations at the peak of the economic cycle in 2010. Muted topline growth, losses at the PAT level, and continued deterioration of balance sheets caused complete lack of investor confidence in these stocks, leading to significant underperformance. Stalwarts significantly underperformed the broader index over the last five years

Source: Bloomberg, PhillipCapital India Research The lacklustre performance of EPC stocks was justified. On the operational front, lack of new orders and delays in payments by government bodies hit companies. On the financial front, high interest rates and ballooning debts kept earnings under pressure. Apart from NCC, all large EPC companies (by orderbook) reported heavy losses over FY11‐14. While revenues have shown little growth over the last four years… … earnings have been highly volatile (except NCC)

Source: Company, PhillipCapital India Research Deterioration of the balance sheets was caused by elongation of the WC cycle. While delayed payments from government bodies was partly responsible, EPC companies also committed large capital into their real estate / BOT subsidiaries as loans and advances, further aggravating the situation.

‐100%

0%

100%

200%

300%

400%

500%

1 year 3 years 5 years

IVRCL Gammon GVK GMR HCC BSE NCC MBL ITDC Jkumar KNR

‐

10

20

30

40

50

60

70

80

90

Gammon IVRCL HCC NCC

Revenu

e (Rs b

n)

Revenues

FY11 FY12 FY13 FY14 FY15

(2,500)

(2,000)

(1,500)

(1,000)

(500)

‐

500

1,000

1,500

2,000

2,500


Net Profit (Rs m

n)

Net Profit




Earnings were depressed due to high interest expense because of high interest rates and high debt levels, which in turn were primarily caused by delays in payments from government bodies Compounding effect of higher debt and interest rates meant interest expense overshot operating profits

The debt levels ballooned for most companies… …leverage crossing 1x for most of them

Higher leverage was due to elongated working capital cycle… …which was mainly due to increase in debtor days

Source: Company, PhillipCapital India Research

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000


Interest Expense (Rs m

n)

Interest expense


(1.0)

(0.5)

‐

0.5

1.0

1.5

2.0

Gammon IVRCL HCC NCCInterest coverage ratio

Interest Coverage ratio


0

10

20

30

40

50

60


Standalone

debt (Rs bn)

Standalone Debt


‐

1.0

2.0

3.0

4.0

5.0


Deb

t:Equity ratio

Leverage


0%

20%

40%

60%

80%

100%

120%

140%

160%


Net WC as % of Sales


‐

40

80

120

160

200

240

280

320


Debtor Days




The new crop – are they any better? The new companies (who we believe will benefit at the expense of the older ones) have much leaner balance sheets and superior execution track records. These companies have withstood the downturn of the last four years and have emerged stronger. Even in the downturn, they have demonstrated a high level of financial discipline and operational prudence, which has placed them at an advantage versus their senior competitors. The ‘new’ companies have managed to maintain consistent revenue profile and profitability over the last five years…

Source: Company, PhillipCapital India Research The orderbook for all these companies stands at over 3x sales (except MBL & PNC), imparting high revenue visibility. With margins moving up over the last few quarters due to lower competitive intensity, we find these companies well prepared to capitalise on the huge investment opportunity in the EPC space. …and are well prepared for the future with robust orderbooks and stable margins (excluding MBL)

Source: Company, PhillipCapital India Research (excl Mumbai Metro orders for JKIL and ITD)

‐

5

10

15

20

25

J Kumar KNR ITD PNC MBL

Revenue (Rs bn)


(100)

100

300

500

700

900

1,100


Net Profit (Rs mn)


43 35 65 30 21

3.1

4.4

2.9

2.2

1.0

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

‐

10

20

30

40

50

60

70


Book

to Sales

Orderbo

ok (Rs b

n)

Orderbook (Rs bn) Book to Sales

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16

Operating MarginsJ Kumar KNR ITD PNC MBL



Balance sheets of these new companies are much leaner vs. peers Gross debt and leverage is much lower for the new companies vs. the old ones

Working capital situation too appears more comfortable

Operationally, the new companies have reported significantly lower volatility in margins


5 1 7 4 7

0.7

0.2

1.4

0.5

1.1

‐

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0

1

2

3

4

5

6

7

8

J Kumar KNR ITD PNC MBLDeb

t:Equity

Standalone

Deb

t (Rs bn)

Standalone Debt Leverage

47 43 49 23

3.6 3.8 3.6

0.6

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

10

20

30

40

50

60


Deb

t:Equity

Standalone

Deb

t (Rs bn)

Standalone Debt Leverage

63% 44% 38% 28% 53%

45

61

74

83

92

‐

10

20

30

40

50

60

70

80

90

100

0%

10%

20%

30%

40%

50%

60%

70%


Deb

tor d

ays

Net W

C as % of Sales

NWC as % of Sales Debtor Days

151% 99% 115% 47%

268

197

142

59

‐

50

100

150

200

250

300

0%

20%

40%

60%

80%

100%

120%

140%

160%


Deb

tor d

ays

Net W

C as % of Sales

NWC as % of Sales Debtor Days

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


Operating Margins


‐10%

‐5%

0%

5%

10%

15%

20%

25%


Operating Margins




Valuations and recommendation At current prices, the stocks of almost all the companies that we are recommending are at lifetime highs. However, the valuations are still at significant discounts to peaks and average sector valuations in the last cycle (2007‐11). Current valuations still at significant discount to the multiples of the last cycle

Average P/E FY08 FY09 FY10 FY11 Current P/E Peak P/E FY08 FY09 FY10 FY11Current

P/EIVRCL 25.0 15.0 24.0 52.0 ‐ve IVRCL 30.5 29.0 29.0 70.0 ‐veGammon 42.0 32.0 15.0 20.0 ‐ve Gammon 58.0 32.0 34.0 28.0 ‐veHCC 32.0 19.0 47.1 47.1 ‐ve HCC 30.0 29.6 62.2 62.2 ‐veNCC 21.0 9.0 12.5 26.0 17.2 NCC 28.0 29.0 15.0 34.0 17.2JKIL NA 3.9 5.5 7.6 18.3 JKIL NA 6.0 7.0 10.0 18.3KNR NA 3.5 4.8 8.2 19.5 KNR NA 7.8 5.6 9.8 19.5L&T 20.9 10.5 15.4 24.9 27.0 L&T 28.0 19.0 23.8 29.2 27.0Average 28.2 13.3 17.8 26.5 20.3 Average 34.9 21.8 25.2 34.7 20.3Avg ex LT 30.0 13.7 18.2 26.8 18.0 Avg ex LT 36.6 22.2 25.5 35.7 18.0

Source: Bloomberg, PhillipCapital India Research Hence, we believe that there is still significant rerating potential and expect these stocks to remain expensive – as they are now being valued as the leaders of this cycle. Old stalwarts like HCC, IVRCL, GMR, and GVK are unlikely to find favour with investors in this cycle because the focus this time is squarely on balance sheets. Infrastructure sector – valuation table Company Mkt Cap CMP _____P/E_____ ___EV/EBITDA___ _____ROE_____ _____D/E_____ _____P/BV_____ Rs bn Rs FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17ENCC 45.0 81 17.2 12.8 8.8 7.6 7.6 9.2 0.6 0.4 1.3 1.2J Kumar 24.5 759 18.3 12.7 9.1 7.0 14.8 18.0 0.6 0.5 2.7 2.3KNR 16.5 585 19.5 14.6 11.3 9.0 13.0 14.8 0.1 0.1 2.5 2.2ITD Cementation 16.0 103 119.4 15.7 12.6 7.8 2.7 17.0 1.4 1.4 3.2 2.7PNC Infra 26.3 513 20.9 16.1 10.6 9.2 9.9 11.5 0.1 0.1 2.1 1.8MBL Infra 8.7 210 12.4 11.1 6.8 6.6 10.0 10.1 1.1 1.2 1.2 1.1

Our recommendations Per Share (Rs)

Rating CMP

Price Target

% Upside EPC Target Multiple

EPC Valuation

‘Others’ Valuation

NCC BUY 81 110 36% 16 101 8J Kumar BUY 759 960 26% 16 960 ‐KNR BUY 585 690 18% 16 640 49ITD Cementation BUY 103 130 26% 15 130 ‐PNC Infra BUY 513 610 19% 16 511 95MBL Infra NEUTRAL 210 220 5% 9 170 49 Relative positioning of EPC companies

Source: PhillipCapital India Research (*FY16 equivalent to CY15 for ITDC)

NCC J Kumar

KNR

ITDCPNC

MBL

8.0

10.0

12.0

14.0

16.0

18.0

0.0 0.3 0.5 0.8 1.0 1.3 1.5

P/E (FY17E)

Debt:Equity (FY17E)



Compa

nies Sectio

n



ITD Cementation (ITDC IN) The perfect turnaround story INDIA | Infrastructure | Initiating Coverage

2 November 2015

Perfect turnaround story ITDC is the perfect turnaround story to play in this cycle. Over the last four years, the company was reeling under the pressure of delayed payments by various government bodies (especially NHAI) and a countrywide lack of order inflows. However, in the last 12 months, many of its claims were cleared (including Rs 3bn with NHAI) leading to easing of WC cycle. ITDC has grabbed multiple large orders, taking its orderbook to 3x book‐to‐sales (4.3x including L1) and its operating margins have improved by 320bps, over the last three quarters.

Over CY14‐17, ITDC should report a robust topline CAGR of 34%, margin expansion of over 420bps, and earnings CAGR of 99%. We see ITDC’s turnaround in fortunes as another manifestation of our ‘Trinity of Forces’ hypothesis, where we expect EPC companies to benefit from three forces — order awards, reduced competition, lower interest rates — acting simultaneously on the P&L, leading to manifold earnings growth (read here). Orderbook to lead to robust growth ITDC has seen strong order inflows over the last year — its 2HCY15 orderbook is Rs 64bn vs. Rs 48bn in CY14. The management expects to end CY15 with an orderbook of Rs 100bn (L1 and increase in scope of few orders) – 4x book‐to‐sales – thus building a strong foundation for robust topline growth over the next two years. Huge opportunities in key segments ITDC’s presence in segments such as MRTS and ports will lead to high and sustained orderbook and topline growth, as we expect these two sectors (apart from roads and railways) to see maximum action and huge opportunities. Our bottom‐up analysis indicates that 415 km of metro network (entailing investments of Rs 1.5tn) and 34 port projects (requiring total investments of Rs 206bn) are on the anvil. Also, competitive intensity is much lower in these segments, than others (eg roads, buildings) – which should lead to higher margins. Asset‐light model and WC improvement to lead balance‐sheet deleveraging Over the last six months, resolution of various disputes have led to significant improvement in ITDC’s working capital situation – debtor/inventory days have come down to 63/166 in 1HCY15, from 94/240 in CY14. That, along with debt repaid using QIP proceeds, has reduced debt levels to Rs 7bn from over Rs 8bn in CY14. We see leverage coming down to 1.2x by CY17 (from current 1.2x) on strong earnings growth and low capex requirements. Significant rerating potential for non‐leveraged companies in the sector Our analysis of the average and peak multiples of infrastructure stocks in the last cycle (2007‐11) shows that current valuations are at significant discounts to peak and average sector valuations in the last cycle. Also, it is evident from the stock returns of last 12‐15 months that the market is only willing to reward companies with lean balance sheets this time. We expect ITDC to be one of the ‘rewardees’, as it actively deleverages its balance sheet. Topline and earnings CAGR of 34% and 99% over FY14‐17; comparable valuations On our numbers, ITDC is currently trading at 15.5x our CY16 earnings, in line with peers such as NJCC, KNRC, and JKIL. Along with the entire EPC sector, ITDC’s stock should be rerated on robust topline and earnings growth, driven by the huge order award opportunity in the infrastructure space. We value ITDC at 16x average CY16‐17 P/E, (accounting for FY ending December) – in line with our valuation for other EPC companies. Our price target of Rs 130 offers 26% upside. We initiate with a BUY rating.

BUY CMP RS 102 TARGET RS 130 (+26%) COMPANY DATA O/S SHARES (MN) : 155MARKET CAP (RSBN) : 16MARKET CAP (USDBN) : 0.352 ‐ WK HI/LO (RS) : 116 / 39LIQUIDITY 3M (USDMN) : 0.5PAR VALUE (RS) : 1 SHARE HOLDING PATTERN, % Jun 15 Mar 15 Dec 14PROMOTERS : 51.6 51.6 51.6FII / NRI : 4.2 3.9 3.9FI / MF : 23.9 24.0 23.0NON PRO : 5.5 5.4 5.6PUBLIC & OTHERS : 15.5 15.6 16.3 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 28.9 40.2 122.8REL TO BSE 23.5 41.3 120.9 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn CY15 CY16E CY17ENet Sales 25,784 36,098 41,513EBIDTA 1,805 3,068 3,944Net Profit 134 1,018 1,529EPS, Rs 0.9 6.6 9.9PER, x 118.2 15.5 10.4EV/EBIDTA, x 12.5 7.7 6.2P/BV, x 3.2 2.6 2.1ROE, % 2.7 17.0 20.3Debt/Equity (x) 1.4 1.4 1.2

Source: PhillipCapital India Research Est. Vibhor Singhal (+ 9122 6667 9949) [email protected] Deepak Agarwal (+ 9122 6667 9944) [email protected]

0100200300400500600700

Apr‐13 Apr‐14 Apr‐15ITD Cementing BSE Sensex

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Infrastructure_Sector_Update_-_Nov_2014_20141202151927.pdf�



ITD CEMENTATION INITIATING COVERAGE

Perfect turnaround story ITD Cementation is the perfect turnaround story to play in this cycle. Over the last four years, the company had been reeling under the pressure of delayed payments by various government bodies (especially NHAI) and lack of order inflows across the country. However, over the last 12 months, the fortunes of the company have made a U‐turn. We now expect the company to report a robust topline CAGR of 34% over CY14‐17. That coupled with margin expansion of over 420bps should translate into earnings CAGR of 99% over the same period. Over CY10‐14, ITDC reported a topline CAGR of only 4% primarily due to lack of order inflows from various government bodies. Growth was also hampered by delayed payments by these bodies, due to which its debtor/inventory days rose sharply to 200/210. EBITDA margins fell to 5% in CY14 on cost overruns and write backs. Ballooning WC led to significant increase in debt — its leverage reached 1.9x in CY14. However, the last 12 months have seen positive developments from within all corners of the company: • Many of its claims with various government bodies have been cleared (including

a settlement of Rs3bn with NHAI). • The company has grabbed large orders (JNPT, Mumbai Metro) and is sitting

pretty on a 3x book‐to‐sales orderbook. • Its margins have shown improvement of 320bps over the last three quarters,

with the legacy low‐margin orders complete and new high‐margin orders being executed.

• The company also raised Rs 1.4bn through QIP, and utilized the proceeds to reduce debt, thereby reducing leverage to 1.3x (from 1.9x at CY14).

• The WC situation also seems to be under control, with debtor/inventory days down to 63/166 in 1HCY15.

Robust revenue growth over the next three years .... ... driven by strong orderbook

Source: Company, Phillip Capital India Research

15 17

16 16

17 26 36 42

‐0.8%

17.1%

‐4.2% ‐3.4%

8.5%

50.0%

40.0%

15.0%

‐10%

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

CY10 CY11 CY12 CY13 CY14 CY15E CY16E CY17E

Growth (%

) ‐RH

S

Revenu

e (Rs b

n)

Revenue Growth (%)

35 29 29 38 48 102 116 134

2.4

1.7 1.8

2.4

2.8

3.9

3.2 3.2

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

20

40

60

80

100

120

140

160


Book

to Sales (x) ‐RH

S

Orderbo

k (Rs b

n)

Orderbook Book‐to‐Sales



EBITDA margins to expand over the next three years .... ... leading to higher PAT (adjusted)

Working capital cycle to improve significantly ... ... driving leverage levels down


Over the next two years, we expect the company to benefit from the surge of order awards in MRTS, ports, and urban infrastructure, where the competition is significantly lower than the crowded space of roads and buildings. The company is currently sitting pretty on an orderbook of Rs 65bn (3x book‐to‐sales). Over the same period, margins should expand as legacy orders are complete and new projects contribute to higher margins.

Overall impact – enhanced return ratios


1.4 1.7 1.9 1.6 0.9 1.8 3.1 3.9

9.6% 9.7%

11.4%10.3%

5.3%

7.0%

8.5%9.5%

0%

2%

4%

6%

8%

10%

12%

14%

0

1

2

3

4

5


EBITDA Margin ‐RHS

EBITDA (Rs b

n)

EBITDA EBITDA Margin (%)

94 226

220

93

‐761

134

1,01

8

1,52

9

‐1,000

‐500

0

500

1,000

1,500

2,000


PAT (Rs m

n)

144

81 8193 94

75 75 75

118

179

212 220240

150130 130

170 163205 213 208

124113 118

0

50

100

150

200

250

300


Days

Debtor Inventory Working capital

5.5 6.5 7.8 7.7 7.7 7.1 8.3 8.8

1.5

1.7

2.0 1.9

1.3 1.4 1.4 1.2

‐

0.5

1.0

1.5

2.0

2.5

0

1

2

3

4

5

6

7

8

9

10


Deb

t:Equity (x) ‐RH

S

Total D

ebt (Rs b

n)Debt (Rs Bn) Debt:Equity (x)

5.8

11.1 9.4

5.0 3.8

9.7

14.4 16.2

2.6 6.1 5.6

2.3

(9.7)

2.5

18.5

22.6

‐15

‐10

‐5

0

5

10

15

20

25

0

2

4

6

8

10

12

14

16

18


ROE (%) ‐RH

S

ROCE

(%)

ROCE ROE



The turnaround in performance will have a significant impact on the company’s returns — while ROCE/ROE had dropped to 4% each in CY14, we expect these at 23%/16% in CY17. What has and will cause the turnaround for the company Events over the last 12 months Impact Rs3bn settlement with NHAI Inventor days reduced from 200 to 120 days Settlement with other govt bodies Debtor days reduced from 200 to 150 days QIP issue to raise Rs1.4bn Debt reduced to Rs7bn (1.3x D/E) from Rs7.6bn (1.9x D/E) Legacy orders getting completed Margins have improved 320bps over last 3 quarters Major order wins from PSA, MMRDA Orderbook of Rs64.7bn (3x book‐to‐sales) providing high revenue visibility

Events expected over next two years Impact Huge order award pipeline in MRTS, Ports and Urban Infra segments Robust orderbook and topline growth expected over CY14‐17 Not many players capable of bidding for above segments Lower competitive intensity leading to higher margins Large no of EPC players are under CDR, unable to bid for major projects Lower competitive intensity leading to margin expansion Legacy orders getting completed Margins expected to expand 250bps over next two years Pending settlements with various clients Reduction in WC, possible reduction in leverage Rate cuts by RBI, leading to reversal of interest rate cycle Lowering of interest expense ‐ enhancing cash flows

Source: Company, Phillip Capital India Research We see this turnaround in fortunes of ITDC as another manifestation of our ‘Trinity of Forces’ hypothesis, where we had predicted that the EPC companies will benefit from three forces, acting simultaneously on their P&L, leading to manifold earnings growth (read our detailed report here). The ‘trinity’ is: 1) Increased order awards 2) Reduced competition 3) Lower interest rates Trinity at work for the EPC Sector

Potential triggers Income statement Impact of the trigger

Increased order awards Revenue

Robust topline growth

+ Operating Expenses

EBITDA +

Low competition EBITDA Margins Margin expansion

+ Depreciation +

Lower interest rates

Interest Expense Lower interest

expense

= Tax =

Cumulative impact

Net Profit Manifold earnings

growth

Source: PhillipCapital India Research

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Infrastructure_Sector_Update_-_Nov_2014_20141202151927.pdf�



Strong orderbook to lead to robust growth ITDC has seen strong order inflows over the last one year. Its current orderbook (at 2HCY15) of Rs 64bn has grown from Rs 47bn in CY14. Over the last two quarters, the company has announced major order awards from PSA (for CT‐4 at JNPT – Rs 21.7bn), elevated road at Noida (Rs 4bn), and container yard at JNPT (Rs 4bn). Strong growth in orderbook Orderbook well spread across niche segments

Source: Company, Phillip Capital India Research The orderbook of Rs 64bn does not include Rs 33bn of orders in which ITDC has emerged as lowest bidder (L1). These orders include a jetty at Udangudi Port (Rs 18bn) and package of Mumbai Metro Phase 3 (Rs 12bn). Including L1, its orderbook would stand at Rs 97bn – a handsome 4.3x book‐to‐sales. Orderbook expected to cross Rs100bn by CY15

Source: Company, Phillip Capital India Research The management expects to end CY15 with an orderbook of Rs 100bn. It is expecting an increase in scope of two of its orders and incremental orders of at least Rs 10bn, over and above ones in which it is already L1. We believe the company will be able to achieve this and would end CY15 with a 4x book‐to‐sales orderbook, laying a strong foundation for robust topline growth over the next two years.

35 29 29 38 48 102 116 134

‐18%

‐1%

32% 25%

114%

14% 16%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

120%

140%

0

20

40

60

80

100

120

140

160


YoY Growth (%

) ‐RH

S

Order Boo

k (R

s bn)

Orderbook Growth (%)

Hydro Power & Irrigation Projects19%

Maritime Structures

29%

Specialist Works6%

Transportation

15%

Industrial Structures

12%

Urban Infrastructur

e17%

Water & Sewage & Others2%

1,00,381

64,714

12,583

7,000

8,820

12,000

20,430

‐ 20,000 40,000 60,000 80,000 1,00,000 1,20,000

CY15 End Orderbook

Execution in 2HCY15

Incremental orders*

Increase in scope*

Mumbai Metro

Orders at L1 stage

1HCY15 Orderbook

Orderbook (Rs mn)



ITDC – Major orders won recently Segment Client/State Order Value (Rs.mn) Order ‐ Details Maritime PSA 21,681 4th container terminal at JNPT Roads ‐ 4,155 Elevated road at Noida Maritime Nhava Sheva (I) Gateway Terminal. 4,067 Reclamation and container yard at JNPT Buildings CPWD Ropar 2,732 IIT Ropar Buildings Rites Ltd 1,334 Bose Institute at Salt Lake, Kolkata Maritime ADSEZ 1,327 Container Terminal 5 at Mundra Water Vadodara Municipal Corporation 1,211 Drainage Gravity line by Micro‐Tunnelling Method Maritime IHI Corporation. 1,113 LNG storage tanks at Mundra

Source: Company, Phillip Capital India Research ITDC – Order accrual expected in 2HCY15 Status Segment Client Scope Size (Rs bn) L1 Maritime Captive Coal Jetty for 2 x 660 MW Udangudi Thermal Power Project in Tamilnadu 18,000

Maritime Development of West Quay ‐ North berth in the inner harbour of Vizag Port 2,430 MRTS MMRDA Mumbai Metro Phase 3 Package IV 12,000

Scope Exp Maritime PSA Additional scope for CT‐4 at JNPT 2,820 MRTS 3 new stations and additional scope for Kolkata Metro 6,000

Prospects Piling Nigeria 10,000 Maritime ADSEZ Development of greenfield container terminal at Vizhinjam, Kerala Total 51,250

Source: Company, Phillip Capital India Research ITDC – Major potential orders for next twelve months Segments Client/State Project Value (Rs mn) Project Marine Dharma Port Co. Ltd. 2,000 Bulk Berths & Approach at Dhamra port, Orissa Marine Indian Oil Corporation Ltd. 2,700 Marine Facilities at Ennore Port in TN Marine Vishakhapatnam Port 2,302 West Quay ‐ North berth in the inner harbor Urban Infra CIDCO 500 Navi Mumbai Metro trackworks (Installation only) Urban Infra RattanIndia Nasik Power Limited 2,500 All civil works of Railway Line Packages Urban Infra Container Corporation of India 891 Construction of Drain and development of approach road Buildings IIM Raipur at Naya Raipur 2,965 Development of Phase 1 Campus including Buildings

Buildings NIT Meghalaya at Cherrapunji 975Construction of Married Accommodation, Medical Centre, Shopping Complex etc

Buildings Visvesvaraya NIT at Nagpur 1,787 New Civil Works Buildings Ahmedabad Metro Rail 1,300 Construction of Metro Train Depot cum Workshop at Gyaspur on NSCorridor Buildings Bengdubi in Darjeeling 1,300 Construction of Hospital Building and ancillaries

Source: Company, Phillip Capital India Research We expect ITDC to report better margins over the next two years as most recent and expected orders are/will be accrued at better margins. They key to ITDC improving its margin profile is that it is present in segments (maritime, MRTS) where competition is much lower than other segments (roads, buildings) – which should lead to lower competitive intensity and superior margins. Exposure to segments with lower competition Segment No of Competitors Main Competitors Marine structures 4‐5 Afcons, Simplex, Navyuga Piling & Foundation 8‐10 Simplex Infra, Valecha, L&T and most others Industrial 6‐8 Simplex, JMC, L&T, IVRCL, Ramky Hydro, Dams &Tunnels 8‐10 Patel Engineering, HCC, Gammon, JP, Soma, NCC, L&T Airports 4‐5 L&T, PNC, NCC, Punj Lloyd, Ramky MRT 5‐6 L&T, Simplex, Gammon, JKIL, IJM, Pratibha, IL&FS Highways & Bridges 10‐15 L&T, ILFS, IRB, Gammon, HCC, NCC, KNR, MBL Water & Sewage 8‐10 IVRCL, Pratibha, NCC, L&T, Thermax




Huge opportunity in MRTS and ports MRTS is slowly becoming the poster‐boy of development in every state. Every state government and city municipality in India wants to be able to boast of a metro network. Currently, seven cities in the country have an operational metro network – four of these became operational in the last one year. We see this segment as one of the biggest opportunities in the infrastructure sector over the next three years. Our bottom‐up analysis indicates that currently 13 Metro projects spread across 415 km and entailing an investment of Rs 1.5tn, are at various stages of planning and development. Simultaneously, monorail networks spanning a length of 131kms and with an investment of Rs 192bn are also under consideration. Overall, projects entailing an investment of Rs 1.7tn could be awarded over the next 3‐5 years in this segment. Currently operational / under‐construction metros Operational Metro projects

Length (Km)

Operational Length (Km)

Operational stations (No)

Project Cost (Rs bn)

Implementing Agency

Current Status Commencement of service (expected)

Delhi Metro 329.7 189.9 143 748 DMRC Phases I (65.1km ‐ 2006); Phase II (124.8km ‐ 2011)

Phase III by 2016

Bengaluru Metro 114.4 6.7 6 380 BMRCL Reach 1 & Reach 3 operational Phase I by 2014, Phase II by 2017

Kolkata Metro 124.8 25.1 23 183 IR & KMRCL North‐South Corridor operational East‐West Corridor ‐2016Gurgaon Metro 7.0 5.1 6 12 HUDA, IL&FS Phase I operational Phase II by 2016Mumbai Metro 11.4 11.4 12 24 Reliance Infra Phase I operational in June‐2014 Multiple phases plannedJaipur Metro 9.6 9.6 9 20 JMRC Phase I operational in June‐2015 Phase II planned for 23kmChennai Metro 45.1 10.0 7 200 CMRL Line I operational in June‐2015 Line II by Oct‐16Hyderabad Metro 72.0 ‐ 65* 170 L&T Phase wise COD to start from Mar‐16 Kochi Metro 25.6 ‐ 22* 52 KMRL Expected CoD by June‐16 Total 740 258 1,788

Source: PhillipCapital India Research Planned Metro projects Planned Metro projects Phase Length (km) Cost (Rs bn)Chennai Metro Phase II 63.0 360.0Bengaluru Metro Phase II 72.1 264.0Gurgaon Metro Phase II 7.0 21.4Jaipur Metro Phase II 23.1 65.8Mumbai Metro Phase III 33.5 244.0Pune Metro Phase I 31.5 101.8Kochi Metro Phase II ‐ 15.0Ludhiana Metro ‐ 28.8 103.0Chandigarh Metro ‐ 37.6 109.0Lucknow Metro ‐ 22.9 70.0Nagpur Metro ‐ 42.0 80.0Bhopal Metro ‐ 28.0 60.0Indore Metro ‐ 32.2 75.0Total 414.6 1,547.6

Planned monorail projects Planned Monorail projects Phase Length (km) Cost (Rs bn)Mumbai Line 2 11.2 15.1Kozhikode Phase I 14.2 19.2Thiruvananthapuram Phase I 22.5 27.0Delhi ‐ 10.8 22.4Bengaluru Phase I 16.0 25.0Chennai ‐ 57.0 85.0Total 131.7 193.7



Key urban infrastructure projects executed and under execution, by ITDC Key Projects Executed: Projects under Execution: 8.3 kms of tunneling for Delhi Metro Design and construction of underground section, Kolkata Metro 7.1 kms viaduct for Delhi Metro Design and construction of tunnels under Delhi MRTS Project of Phase‐III 21 stations for Delhi metro Bangalore Metro Rail Project – Track 2 for BMRC Gurgaon Corridor on Line 3 for DMRC, Delhi Chennai Metro Central Secretariat – Badarpur Line for DMRC, Delhi Construction of Elevated Road & Metro Viaduct for Jaipur Metro




Ports is another sector where we see significant opportunity for a player such as ITDC. Currently, all the 13 major ports are in urgent need of expansion and upgradation — they operate at full capacity, further aggravated by poor infrastructure facilities such as extremely low levels of mechanisation, inadequate storage space, and poor hinterland connectivity. Major ports have also been losing market share (over the last five years) to non‐major ports. Our bottom‐up analysis reveals that 34 projects envisaging a total investment of Rs 206bn are on the anvil — these will expand major ports’ capacity by 290mtpa. Simultaneously, investments worth Rs 353bn are under execution by private players at various greenfield ports across the country. Potential opportunity at major ports

Port Development plan Capacity (MTPA)

Estimated Cost (Rs mn)

Kandla Development of 13th to 16th multipurpose cargo berth 8.0 7,550Creation of berthing and allied facilities of Tekkra near Tuna – awarded to ADSEZ 12.0 11,366Setting up of SPM and allied facilities 9.0 8,300

Paradip Construction of Deep Draft Iron Ore Berth 10.0 5,910Construction of Deep Draft Coal Berth 10.0 4,790Multipurpose Berth – Project ‐1 5.0 3,873

New Mangalore Mechanization of Iron Ore handling facilities at Berth – 14 6.6 2,772Development of Container Terminal 4.2 2,758

Mormugao Development of Berth No. – 7 for Handling Berth Cargo 7.0 2,520Construction of two berths of Vasco Bay 5.0 1,200Development of Bulk Handling Terminal 12.0 7,210

Visakhapatnam Development of Western quay (WQ‐6) for Handling Dry Bulk Cargo 2.0 1,144Installation of Mechanized handling facilities for fertilizers at EQ‐7 in the Inner Harbour 5.2 2,176Installation of Mechanized handling facilities at WQ‐8 4.6 2,089Installation of Mechanized Handling Facilities at WQ ‐7 4.5 2,139Mechanized Coal Handling facilities at General cum Cargo Berth (GCB) 10.2 4,441Development of EQ‐1 in East Dock 6.0 2,655Development of EQ‐1 – A in East Dock at Vizag – awarded to ADSEZ 6.7 2,697

Ennore Development of Container Terminal – awarded to ADSEZ 15.0 14,070Tuticorin Conversion of berth no. – 8 to Container Terminal 6.0 3,122

Construction of North Cargo Berth No. – II 5.0 3,322Construction of shallow draught Berth ( 3 Nos) 0.8 500Mechanization of Construction of Berth 9 5.0 200

Chennai Creation of Mega Container Terminal 48.0 31,250JNPT Standalone container handling facility (quay length of 330 m) North of NSICT Terminal 9.6 6,000

4th Container Terminal – awarded to PSA 57.6 67,000Mumbai Development & operation of 2 berth at Indira Dock as dry dock terminal 0.6 450

Development and operation of a Berth at Indira Dock – as conventional cargo terminal 0.6 300Kolkata Construction of 1 riverine jetty downstream of 2nd Oil Jetty 1.5 470

Construction of 1 riverine jetty upstream of 3rd Oil Jetty 2.5 990Cochin Construction of multipurpose Liquid Terminal 4.5 1,842

International Cruise Terminal / Public Plaza ‐ 550Total 284.7 205,656

Source: Phillip Capital India Research Key maritime projects executed and under execution by ITDC Key Projects Executed Projects under ExecutionSecond container terminal at Chennai for PSA Dredging and Reclamation works at JNPT CT‐4 for PSA Shiplift facility civil works for Indian Navy at Karwar PEB Foundations for Ship Repair facility at Jaigad – Ratnagiri Liquid chemical jetty at Dahej Container berths for JSW at Jaigarh portDock modernization project at Mazagon docks Container yard & Wharf Structure at JNPT

Construction of Coal & container terminal at Ennore Port SICAL Iron Ore Terminal at Ennore Port for Sical Iron Ore Terminals 330 meter wharf structure at JNPT for DP World




Balance sheet deleveraging in progress Over the last 12 months, ITDC has received payments (that were stuck in litigation/arbitration) from various government bodies. A major respite came when NHAI settled Rs 1.83bn with ITDC (against a claim of Rs 3bn, leading to a write‐off of Rs 1.24bn in CY15). This, and similar other resolutions have led to significant improvement in its working capital situation – debtor/inventory days have come down to 63/166 in 1HCY15 from 94/240 in CY14. The company still has claims worth Rs 100bn stuck with various parties and it is hopeful of receiving these over the next 12 months. In September 2014, the company raised Rs 1.4bn through QIP and used large part of it to reduce its debt and to fund working capital. Debt levels have come down to Rs 7bn from over Rs 8bn in CY14. Receivables – cleared and stuck

Cleared Expected/StuckClient/Project Amount Client/Project AmountNHAI 1,830 AP Irrigation 1,000 Working capital cycle to improve significantly ... ... leading to lower leverage

Source: Company, Phillip Capital India Research Estimates Going forward, the management intends to maintain its focus on the balance sheet and expects debt levels to remain constant. ITDC does not intend to purchase any machinery/equipment of significant size over the next two years. It plans to procure TMBs needed for the MM3 project on lease. Cash flow generation – FCF positive by CY17

CY13 CY14 CY15 CY16 CY17EBITDA 1,625 911 1,805 3,068 3,944Tax ‐146 ‐75 195 ‐501 ‐753Change in WC ‐84 ‐581 1,154 ‐2,467 ‐2,292Operating Cash flow 1,395 255 3,154 100 899Capex ‐310 ‐1,509 ‐200 ‐250 ‐250Free Cash flow 1,085 ‐1,254 2,954 ‐150 649Debt raised / paid ‐142 ‐42 ‐600 1,200 500

Source: Company, Phillip Capital India Research Estimates We believe that it will be difficult for the company to maintain its debt at current levels, given the strong growth expected in topline on its robust orderbook. However, we do expect leverage to come down to 1.2x by CY17 (from current 1.4x) on strong earnings growth and low capex requirements.

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Strong earnings growth; comparable valuations We expect ITDC to report a robust topline CAGR of 34%, margin expansion of over 420bps, and earnings CAGR of 99% over CY14‐17. Over CY14‐17, we see its leverage reducing to 1.2x from 1.4x – leading to significant improvement in ROE and ROCE.

On our numbers, ITDC is currently trading at 16x CY16E P/E – in line with its peers like NJCC, KNRC, and JKIL. As with the entire EPC sector, we expect ITDC to be rerated based on robust topline and earnings growth, driven by the huge order award opportunity in the infrastructure space. We value ITDC at 16x average of CY16 and CY17 P/E (accounting for FY ending December) – in line with our multiple for other EPC companies. We initiate with a BUY rating and price target of Rs 130. Infrastructure sector – financials Company ________Revenue________ _________EBITDA_________ ___________PAT___________ ___________Debt___________ Rs mn FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17ENCC 82,969 82,975 87,126 6,494 7,260 8,059 1,118 2,625 3,518 19,951 19,951 16,951J Kumar 13,432 17,058 22,176 2,506 3,156 4,103 944 1,339 1,928 5,334 5,334 5,834KNR 8,761 10,076 12,594 1,261 1,511 1,889 730 844 1,124 962 862 862ITD Cem* 17,189 25,784 36,098 911 1,805 3,068 (761) 134 1,018 7,653 7,053 8,253PNC Infra 15,610 18,732 22,478 2,166 2,529 3,035 1,004 1,259 1,638 3,530 1,679 1,679MBL Infra 19,485 21,433 24,648 2,247 2,358 2,711 802 705 783 7,115 7,615 9,615

_____Revenue Growth (%)_____ _____EBITDA Growth (%)_____ ____EBITDA Margins (%)____ _______PAT Growth (%)_______FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

NCC 36% 0% 5% 60% 12% 11% 7.8% 8.7% 9.2% 176% 135% 34%J Kumar 13% 27% 30% 22% 26% 30% 18.7% 18.5% 18.5% 12% 42% 44%KNR 5% 15% 25% 0% 20% 25% 14.4% 15.0% 15.0% 20% 16% 33%ITD Cem* 9% 50% 40% ‐44% 98% 70% 5.3% 7.0% 8.5% ‐918% 118% 660%PNC Infra 35% 20% 20% 53% 17% 20% 13.9% 13.5% 13.5% 43% 25% 30%MBL Infra 11% 10% 15% 28% 5% 15% 11.5% 11.0% 11.0% 7% ‐12% 11%

Infrastructure sector – valuation table Company Mkt Cap CMP _____P/E_____ ___EV/EBITDA___ _____ROE_____ _____D/E_____ _____P/BV_____ Rs bn Rs FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17ENCC 45.0 81 17.2 12.8 8.8 7.6 7.6 9.2 0.6 0.4 1.3 1.2J Kumar 24.5 759 18.3 12.7 9.1 7.0 14.8 18.0 0.6 0.5 2.7 2.3KNR 16.5 585 19.5 14.6 11.3 9.0 13.0 14.8 0.1 0.1 2.5 2.2ITD Cementation 16.0 103 119.4 15.7 12.6 7.8 2.7 17.0 1.4 1.4 3.2 2.7PNC Infra 26.3 513 20.9 16.1 10.6 9.2 9.9 11.5 0.1 0.1 2.1 1.8MBL Infra 8.7 210 12.4 11.1 6.8 6.6 10.0 10.1 1.1 1.2 1.2 1.1

Source: Bloomberg, PhillipCapital India Research (*FY16 equivalent to CY15 for ITDC)

One‐year forward P/E band EV/EBITDA band


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Company History & Management Profile

Company History

Parent Lineage

Management Profile

Board of DirectorsMr. Premchai Karnasuta

Chairman ‐ Director and Chairman of the Company since 2004 and serves as the President and Director of ITD (promoter company)‐ More than 3 decades of experience in infrastructure construction industry

Mr. Pathai Chakornbundit

Vice Chairman ‐ Director and Vice Chairman of the Company since 2004 and also the Director and Senior EVP of ITD (promoter company)‐ Holds experience of more than 4 decades in the construction industry

Mr. Adun Saraban Managing Director

‐ Director of the Company since 2009 and Managing Director of the Company from 2010 ‐ More than 3 decades of experience in Civil Engineering and Construction Project Management

Mr. Per Hofvander Independent Director

‐ Director of the Company since 2005‐ Has more than 4 decades of experience in Civil Engineering and has exposure in many overseas projects and international businesses

Mr. Darius Erach Udwadia

Independent Director

‐ Director of the Company since 1983‐ He is Solicitor and Advocate of Bombay High Court and a Solicitor of the Supreme Court of England ‐ Has spent over 49 years in active law practice and has significant experience in areas like corporate law, joint ventures, merger and acquisition, corporate restructuring, foreign collaboration etc.

Mr. Deba Prasad Roy

Independent Director

‐ Director of the Company since 2007‐ He was the Ex‐Chairman of SBI Capital Markets Limited and has a rich and wide experience in Corporate, International and Investment Banking Sector spanning over 40 years. Has held various senior executive and managerial posts in SBI

Key Management PersonnelMr. S. Ramnath Exec.Vice‐

President & CFO

‐ He is the Executive Vice President and Chief Financial Officer of the Company‐ Responsible for the overall accounting, finance, audit and taxation areas‐ Has over 35 years experience in accounting, corporate finance, investment banking and equity research

Mr. Rameshwardas Daga

Senior Vice President & CS

‐ He is the Senior Vice President and the Company Secretary of ITD Cementation India Limited ‐ Joined our Company in 1979‐ He has over 35 years of experience in handling company law and related legislations



Financials

Income Statement Y/E Mar, Rs mn CY14 CY15e CY16e CY17eNet sales 17,189 25,784 36,098 41,513Growth, % 9 50 40 15Total income 17,189 25,784 36,098 41,513Raw material expenses ‐6,439 ‐9,659 ‐13,522 ‐15,551Employee expenses ‐1,936 ‐2,905 ‐4,066 ‐4,676Other Operating expenses ‐7,903 ‐11,416 ‐15,441 ‐17,342EBITDA (Core) 911 1,805 3,068 3,944Growth, % (44.0) 98.2 70.0 28.5Margin, % 5.3 7.0 8.5 9.5Depreciation ‐427 ‐435 ‐452 ‐471EBIT 484 1,370 2,616 3,473Growth, % (59.1) 183.2 91.0 32.7Margin, % 2.8 5.3 7.2 8.4Interest paid ‐1,355 ‐1,250 ‐1,301 ‐1,403Other Non‐Operating Income 185 191 204 212Non‐recurring Items 955 ‐1,240 0 0Pre‐tax profit 269 ‐929 1,519 2,282Tax provided ‐75 195 ‐501 ‐753Profit after tax 194 ‐734 1,018 1,529Others (Minorities, Associates) 0 0 0 0Net Profit 194 ‐734 1,018 1,529Growth, % (609.8) (128.2) 660.3 50.2Net Profit (adjusted) (475) 134 1,018 1,529Unadj. shares (m) 16 155 155 155Wtd avg shares (m) 16 155 155 155 Balance Sheet Y/E Mar, Rs mn CY14 CY15e CY16e CY17eCash & bank 272 327 280 238Debtors 4,415 5,298 7,417 8,530Inventory 11,313 10,596 12,857 14,785Loans & advances 2,409 3,532 4,450 5,118Other current assets 4 4 4 4Total current assets 18,413 19,757 25,009 28,676Investments 0 0 0 0Gross fixed assets 5,701 5,901 6,151 6,401Less: Depreciation ‐2,349 ‐2,784 ‐3,236 ‐3,706Add: Capital WIP 33 33 33 33Net fixed assets 3,386 3,150 2,948 2,728Total assets 21,947 23,056 28,106 31,552

Current liabilities 8,615 11,059 13,891 15,308Provisions 0 0 0 0Total current liabilities 8,615 11,059 13,891 15,308Non‐current liabilities 7,653 7,053 8,253 8,753Total liabilities 16,269 18,112 22,144 24,061Paid‐up capital 155 155 155 155Reserves & surplus 5,523 4,789 5,807 7,336Shareholders’ equity 5,678 4,944 5,962 7,491Total equity & liabilities 21,947 23,056 28,106 31,552 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn CY14 CY15e CY16e CY17ePre‐tax profit 269 ‐929 1,519 2,282Depreciation 427 435 452 471Chg in working capital ‐581 1,154 ‐2,467 ‐2,292Total tax paid ‐11 195 ‐501 ‐753Cash flow from operating activities 104 855 ‐997 ‐292Capital expenditure ‐1,509 ‐200 ‐250 ‐250Chg in investments 0 0 0 0Other investing activities 0 0 0 0Cash flow from investing activities ‐1,509 ‐200 ‐250 ‐250Free cash flow ‐1,405 655 ‐1,247 ‐542Equity raised/(repaid) 1,400 0 0 0Debt raised/(repaid) ‐42 ‐600 1,200 500Cash flow from financing activities 1,358 ‐600 1,200 500Net chg in cash ‐47 55 ‐47 ‐42 Valuation Ratios

CY14 CY15e CY16e CY17ePer Share data EPS (INR) (30.6) 0.9 6.6 9.9Growth, % (478.4) (102.8) 660.3 50.2Book NAV/share (INR) 366.0 31.9 38.4 48.3FDEPS (INR) (30.6) 0.9 6.6 9.9CEPS (INR) (64.6) 11.7 9.5 12.9CFPS (INR) (5.2) 4.3 (7.7) (3.2)Return ratios Return on assets (%) 5.2 0.3 7.2 8.1Return on equity (%) (8.4) 2.7 17.1 20.4Return on capital employed (%) 8.4 0.5 14.1 15.8Turnover ratios Asset turnover (x) 1.4 2.1 2.9 2.8Sales/Total assets (x) 0.8 1.1 1.4 1.4Sales/Net FA (x) 6.0 7.9 11.8 14.6Working capital/Sales (x) 0.6 0.3 0.3 0.3Receivable days 93.7 75.0 75.0 75.0Inventory days 240.2 150.0 130.0 130.0Payable days 189.4 165.8 151.7 147.1Working capital days 202.3 118.5 109.6 115.4Liquidity ratios Current ratio (x) 2.1 1.8 1.8 1.9Quick ratio (x) 0.8 0.8 0.9 0.9Interest cover (x) 0.4 1.1 2.0 2.5Total debt/Equity (x) 1.3 1.4 1.4 1.2Net debt/Equity (x) 1.3 1.4 1.3 1.1Valuation PER (x) (3.4) 119.4 15.7 10.5PEG (x) ‐ y‐o‐y growth 0.0 (1.2) 0.0 0.2Price/Book (x) 0.3 3.2 2.7 2.1EV/Net sales (x) 0.5 0.9 0.7 0.6EV/EBITDA (x) 9.9 12.6 7.8 6.2EV/EBIT (x) 18.6 16.6 9.2 7.1



PNC Infratech Ltd (PNCL IN) Right place, right time INDIA | Infrastructure | Initiating Coverage

2 November 2015

Strong execution track record aided by strong balance sheet and WC PNC has a strong execution track record in roads and airport runway projects across various states (UP, Rajasthan, MP, Haryana, and Punjab). It reported 20% CAGR in topline over the last five years with 12‐14% EBITDA margins – much superior to most of its peers due to timely completion, with minimum time and cost overruns. PNC has also maintained tight control on its balance sheet – FY15 debtor/inventory days were 83/38, which translated into low leverage. In FY15, its gross debt was Rs 3.5bn, a D/E of 0.5x. We expect (1) the company to report robust topline CAGR of 25%, stable margins, and earnings CAGR of 33% over FY14‐17, (2) leverage to come down to 0.1x in FY17, and (3) ROEs and ROCEs to be stable in the range of 12‐15%. Order book focused on roads and UP – the sector and state of maximum action PNC’s current orderbook is Rs 30.3bn – a decent 2.2x book‐to‐sales. We believe this orderbook and huge opportunity in roads (both central state) will lead to robust topline growth. NHAI has plans to award ~Rs 2tn of projects over the next two years, with 70% of them under the EPC mode.

We see huge opportunity in the infrastructure space in UP and Bihar – evident from NHAI’s current bidding pipeline (to be awarded over the next six months). With a new government set to take charge in Bihar in December 2015 and state assembly elections due in UP in April 2017, we see the respective state governments’ focus on infrastructure development to continue. Fully funded and largely operational BOT portfolio PNC has a fully funded BOT portfolio of eight projects – seven of which are operational. The equity requirement for the portfolio is also well taken care off. We do not see the portfolio needing any major parent support to fulfil DSCR requirements. Leverage to remain under control Using the QIP proceeds to repay debt, PNC’s gross debt has already come down to Rs 910mn at 1QFY16 from Rs 3.5bn in 4QFY15. Over the next three years, we expect PNC’s leverage to come down to 0.1x D/E from 0.5x in FY15. The company is likely to maintain a tight control on its working capital, as it restricts itself to bidding projects in its catchment area (UP and neighbouring states). Significant rerating potential for non‐leveraged companies in the sector Our analysis of the average and peak multiples of infrastructure stocks in the last cycle (2007‐11) shows that current valuations are at significant discounts to ones in the last cycle. Also, it is evident from the stock returns of last 12‐15 months that the market is only willing to reward companies with lean balance sheets this time. We see PNC being one of the ‘rewardees’, as it actively deleverages its balance sheet. Topline and earnings CAGR of 25% and 33% over FY14‐17; comparable valuations On our numbers, PNC is currently trading at 16x FY17 P/E – in line with peers NJCC, KNRC, and JKIL. As with the entire EPC sector, we expect PNC to be rerated on robust topline and earnings growth, driven by the huge order award opportunity in the infrastructure space. We value PNC using SoTP – EPC business at 16x FY17 P/E (in line with our multiple for other EPC companies) and BOT at 1.0x P/BV. Our price target of Rs 610 offers 19% upside from current levels. We initiate with a BUY rating.

BUY CMP RS 513 TARGET RS 610 (+20%) COMPANY DATA O/S SHARES (MN) : 51MARKET CAP (RSBN) : 27MARKET CAP (USDBN) : 0.452 ‐ WK HI/LO (RS) : 538 / 346LIQUIDITY 3M (USDMN) : 0.4PAR VALUE (RS) : 10 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 8.2 21.5 ‐REL TO BSE 2.8 22.6 ‐ PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17ENet Sales 15,610 18,732 22,478EBIDTA 2,166 2,529 3,035Net Profit 1,004 1,259 1,638EPS, Rs 25.2 24.5 31.9PER, x 20.3 20.9 16.1EV/EBIDTA, x 11.0 10.6 9.2P/BV, x 2.8 2.1 1.8ROE, % 14.9 12.7 12.2Debt/Equity (%) 0.5 0.1 0.1


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PNC Infra BSE Sensex



PNC INFRATECH LTD INITIATING COVERAGE

Strong execution track record PNC has a strong execution track record across roads and airport runway projects. The company has executed over 25 projects for NHAI and various state governments (UP, Rajasthan, MP, Haryana, and Punjab). It has also executed airport runway projects across five states, with three more under execution. PNC has reported 20% CAGR in topline over the last five years. While FY13‐14 saw deceleration due to lack of order awards from NHAI and various government bodies, the company jumped back to report 35% growth in FY15. It currently has an orderbook of Rs 30.3bn – a decent 2.2x book‐to‐sales. We expect it to report a topline CAGR of 25% over FY14‐17, on its current orderbook and huge opportunity in roads segment. Robust topline growth expected over next two years ….. ….. along with stable margins

Source: Company, PhillipCapital India Research PNC has maintained its EBITDA margins in the 12‐14% range – much superior to most of its peers, mainly due to timely completion with minimum time and cost overruns. It has a gross block of Rs 4bn and 3,700 employees (including over 300 engineers) which help it to maintain these margins. Additionally, the company focuses on securing projects in regions where it can have easy access to quarries for aggregates. Due to robust execution, PNC received early‐completion bonus from NHAI on its Agra‐Gwalior project and also began toll collection three months earlier than scheduled at its Gwalior‐Bhind BOT project. In order to maintain margins, the management intends to focus on UP and neighbouring states of MP, Rajasthan, and Haryana. We believe that this strategy will yield positive results as many of NHAI’s project awards over the next three years are likely in the northern and eastern states of Haryana, UP, Bihar and MP. In fact, there should be a significant pick‐up in order‐award activity in UP as it goes to poll in 2017 – with the current state government keen to showcase development efforts in the state. PNC has maintained tight control on its balance sheet with debtor and inventory days of 83 and 38 in FY15, which translated into low leverage. In FY15, the company had a gross debt of Rs 3.5bn – 0.5x D/E.

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Working capital cycle to remain stable …. ….. and leverage to come down due to IPO proceeds

Source: Company, Phillip Capital India Research The company should report robust topline growth over the next two years, on strong orderbook and huge order award opportunity in the roads segment. It is likely to maintain its margins in the 12‐14%, which should translate into earnings CAGR of 33% over FY14‐17E. Over the same period, PNC’s tight control over WC will ensure that debt levels remain stable. In fact, we see robust earnings with stable debt levels reducing its leverage from the current 0.5x to 0.1x in FY17. ROEs and ROCEs should be stable in the range of 12‐15%. Robust PAT growth expected over next two years … … leading to superior return ratios


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Orderbook focused on roads and UP PNC currently has an orderbook of Rs 30.3bn – a decent 2.2x book‐to‐sales. The orderbook and huge opportunity in roads segment (both central and state government) will lead to robust topline growth for the company. PNC has a robust orderbook ... .. concentrated in roads and northern states

Source: Company, PhillipCapital India Research PNC’s orderbook is heavily geared to the road sector (99%), which we expect to be sector of maximum action. NHAI plans to award ~Rs 2tn of projects over the next two years, with 70% of them under the EPC mode. At the same time, many state government projects are under bidding, and should be awarded over the next few months. UP State Highway Development Authority (UPSHA) is looking to award Rs 37bn of projects over the next few months. PNC’s road projects ‐ executed and under construction

Road Project executed Authority State Completion date

Garhmukhteshwar to Moradabad and certain ROBs

NHAI UP Oct‐12

Gurgaon‐Nuh‐Rajasthan Border HSRDC Haryana Jun‐11Section III, Jaora section MPRDC MP May‐11Various stretches on SH‐44, SH‐15 and SH‐19

MPRDC MP Jan‐11

Porsa‐Mehgaon‐Mau‐Seonda section, Pkg 6, Phase II

UPSHA UP Jun‐08

Etawah bypass on NH‐2 NHAI UP May‐08Sagar Been Road MPRDC MP Apr‐07Agra‐Gwalior section on NH‐3 NHAI UP Jan‐05Agra‐Gwalior section on NH‐3 ‐Pkg NS 4 NHAI UP Jul‐01

Road project under construction Authority State Contract value (Rs m)

Agra‐Firozabad UPEIDA UP 16,350 Sonauli‐Gorakhpur MORTH UP 4,390 Barabanki‐Jarwal MORTH UP 2,650 Raibareli Jaunpur NHAI UP 2,220 Agra By‐Pass NHAI UP 1,470 Total of above 27,080 Koilwar Bhojpur NHAI Bihar 8,252 Bhojpur Buxar NHAI Bihar 6,817 Total 42,149

PNC’s airport projects ‐ executed and under construction

Airport projects completed State Completion date

Runway works at AFS Jorhat Assam Apr‐14Runway works at Devi Ahilyabai airport, Indore MP Jul‐09Airstrip works at Saifai Etawah Airport UP Feb‐07Runway works at NSCBI Airport, Kolkata WB May‐05Resurfacing works at Air Force Station Yelahanka, Bangalore

Karnataka Jan‐05

Resurfacing works at AFS Chakeri, Kanpur UP Mar‐04


Airport projects under construction State Contract value (Rs m)Air Force Station, Gorakhpur UP 975Air Force Station, Panagarh WB 745Air Force Station, Kanpur* UP 1673Total 3,392

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Roads sector – the segment of maximum action Over the next three years, we view the road sector as the low‐hanging fruit among infrastructure segments — the new government will try to capitalise on this, to break the deadlock and revive the development process. Bottom‐up analysis of the opportunity on the anvil in roads sector

Roads Length(km)

Total Opportunity(Rs bn)

EPC Opportunity (Rs bn)

Pipeline (excl Phase IV) 6,158 616 616 Phase IV pipeline 9,842 246 246 Backlog of FY12‐14 awards 5,000 500 500 Border & Coastal Roads 22,500 1,125 1,125 Total 43,500 2,487 2,487

Source: PhillipCapital India Research The key features of NHAI order pipeline are: • NHAI intends to award 20,000km of projects over the next two years. • This would translate into an investment opportunity of Rs 2.3tn – spread over

the next three years. • 70% of this opportunity is likely to be awarded on EPC basis, and the remaining

30% on BOT. • NHAI intends to borrow ~Rs 400bn to fund the projects, apart from the

budgetary support and cess/toll collections. • It expects to close FY16 with 8,500km of road awards (including MoRTH) and

award another 11,000km of projects in FY17. • YTD, NHAI has awarded 2,400km of projects, while MoRTH has awarded 1,800km

– taking the total to 4,200km – well on its way to meet the target of 8,500km. The Rs 2.3tn pipeline that NHAI intends to award over next two years is in line with our estimate of Rs 2.5tn opportunity spread over the next three years. NHDP current status — July 2015 (length in km) Phase

Description Total length

Already 4‐laned

Under Implementation

To be awarded

Phase I Golden Quadrilateral 5,846 5,846 ‐ ‐Phase II NS – EW 7,142 6,394 399 349Phase III 4‐laning of intercity connections 12,109 6,594 3,021 2,494Phase IV 2‐laning of arterial road 13,203 1,439 4,353 7,411Phase V 6‐laning of various highways 6,500 2,216 1,465 2,820Phase VI Expressways 1,000 ‐ ‐ 1,000Phase VII Ringroads, flyovers etc 700 22 19 659Total 46,500 22,511 9,257 14,733Others Port Connectivity 380 379 1 ‐Others Others 2,156 1,594 284 278NHAI 49,036 24,484 9,542 15,011

Source: NHAI The pipeline for the sector appears HUGE with a plethora of projects on the anvil: • 15,000 km of new road projects are to be awarded from the current NHDP. • Close to 5,000km of projects (awarded in FY11‐14, but which never saw the light

of day) will also be up for re‐bidding. • The NDA manifesto speaks of border and coastal road network. India has 15,000

km of international border and 7,500 km of coastline. That can translate into a potential opportunity of 22,500 km.

• Additionally, roads that have been four‐laned under the current NHDP will need to be six‐laned as traffic increases — ~20,000 km of six‐laning projects could come up in the next NHDP (not until 2017).


UP and its neighbours – the states of maximum action Over the last five years, most of the projects awarded by NHAI have been in the western belt of Rajasthan, Gujarat, Maharashtra, and Karnataka. Accordingly, the current bidding pipeline for NHAI (to be awarded over next six months) is mainly concentrated in UP, Bihar, Orissa, Jharkhand and Chhattisgarh. We see huge opportunity in the infrastructure space in UP and Bihar. Both states have neglected their infrastructure needs for long and have fallen significantly behind other states in terms of development. However, of late, the focus of governments in UP (led by CM Akhilesh Yadav) and Bihar (led by CM Nitish Kumar) has been on infrastructure development. While Bihar has seen its roads network upgraded significantly over the last five years, UP has recently awarded significant projects such as the Agra‐Lucknow expressway and Lucknow Metro. With a new government set to take charge in Bihar (December 2015) and state assembly elections due in UP (April 2017) – we see the focus on infrastructure development continuing in these states. Large part of NHAI’s order pipeline is from the Northern and Eastern states

State No of

Projects Length (km)

Cost (Rs bn)

% of length % of cost

UP 8 476 81,080 25% 29%

Bihar 4 183 34,199 10% 12%

HP 2 60 7,406 3% 3%

Delhi 1 9 6,636 0% 2%

Odisha 6 500 54,381 27% 20%

Jharkhand 3 265 39,864 14% 14%

Chhattisgarh 3 126 13,700 7% 5%

West Bengal 3 128 19,280 7% 7%

Maharashtra 1 2 1,651 0% 1%

Karnataka 2 108 15,714 6% 6%

Gujarat 1 16 2,994 1% 1%

Total 34 1,874 2,76,906

Source: NHAI, PhillipCapital India Research UP State highway projects to be awarded on PPP basis Stretch Length CostPukhrayan Ghatampur 83.7 17.0 Garh Merrut 36.5 4.2 Merrut Baghpat Road 40.0 4.5 Chandausi Badaun Road 164.2 9.0 Bahraich Gonda Road 56.0 2.5 Allahabad Shahpur 41.0 3.8 Azamgarh Dohrighat 39.0 2.6 Total 460.3 43.6

Source: UPSHA, PhillipCapital India Research

Majority of NHAI’s orders to be awarded in this belt

Large no orders in this belt have already been awarded


Fully funded and largely operational BOT portfolio PNC has a fully funded BOT portfolio of eight projects of which seven are operational. The equity requirement for the portfolio is also well take care off as the company has used part of cash proceeds from its IPO (Rs 4.35bn) for the equity requirements of the Raibareli project. PNC’s BOT Portfolio Project Type Stake Length TPC Debt Grant Equity COD Period Authority

% km (Rs mn) (Rs mn) (Rs mn) (Rs mn) yearsRaibareli Jaunpur Annuity 100.0 166 8,374 6,978 ‐ 1,396 Apr‐16 17 NHAI Bareilly Almora Toll 100.0 54 6,046 4,600 700 746 Oct‐15 25 UPSHA Ghaziabad Aligarh Toll 35.0 125 20,190 15,140 3,110 1,940 June‐15 24 NHAI Kanpur Ayodhya OMT 100.0 217 ‐ ‐ (1,557) ‐ Aug‐13 9 NHAI Kanpur Kabrai Toll 100.0 123 4,590 2,685 1,230 675 May‐15 12 NHAI Gwalior Bhind Toll 100.0 108 3,403 2,350 270 783 Mar‐13 14 MPRDC Narela Ind area Mix 100.0 33 1,750 1,400 ‐ 350 Oct‐13 15 DSIIDC Jaora Nayagaon Toll 8.5 128 9,066 6,270 (153) 2,949 Feb‐12 25 MPRDC Total 954 53,419 39,423 8,839

Source: Company, PhillipCapital India Research Salient features of PNC’s BOT portfolio: • Ghaziabad‐Aligarh project is located in a highly industrialized corridor that cuts

across four key districts of UP. Commercial vehicles account for ~50% of the traffic on this stretch.

• Bareilly‐Almora connects industrial towns like Pantnagar and Rudrapur to major cities like Agra and Lucknow.

• Kanpur‐Kabrai provides connectivity for movement of construction material/ aggregates from the mineral‐rich Kabrai region to major cities like Kanpur and Lucknow.

• Gwalior‐Bhind project is currently adversely impacted by traffic leakages and toll collection continues to be below expectations.

• Raibareli‐Jaunpur is an annuity project while Kanpur‐Ayodhya an OMT project. PNC’s BOT portfolio is likely to generate topline of Rs 8.2bn in FY17, with all projects becoming operational. Most of PNC’s portfolio is in UP and MP, and has been won at relatively conservative bids. We do not see projects falling short of their DSCR requirement. BOT Portfolio – Positive FCFE Projects Expected __________________Revenue__________________ __________________FCFE__________________Rs mn COD FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E Raibareli Jaunpur Apr‐16 ‐ ‐ 1,272 1,286 ‐ ‐ 296 (74) Bareilly Almora Sep‐15 ‐ 325 613 674 ‐ 13 (13) (11) Ghaziabad Aligarh* Jul‐15 ‐ 1,651 2,660 2,926 ‐ (53) 62 149 Kanpur Ayodhya Aug‐13 1,937 2,131 2,344 2,578 119 130 143 158 Kanpur Kabrai May‐15 ‐ 459 505 555 ‐ 50 (33) (34) Gwalior Bhind Mar‐13 330 363 399 439 (15) (23) (1) 37 Narela Industrial area Oct‐13 345 352 358 365 35 24 24 33Total 2,612 5,280 8,151 8,825 139 142 479 257

Source: Company, PhillipCapital India Research (*FCFE adjusted for 35% stake)


Leverage to remain under control Using the QIP proceeds to repay debt, PNC’s gross debt has already come down to Rs 910mn in 1QFY16 from Rs 3.5bn in 4QFY15. Over the next three years, PNC’s leverage should come down despite strong growth. We see the company maintaining tight control on its working capital as it restrains itself from bidding for projects outside its catchment areas of UP and neighbouring states. As highlighted in earlier sections, the order award opportunity in UP and its neighbouring states is so huge that PNC need not venture outside this region for its orderbook growth. We see that JKumar (JKIL) has adopted a similar model – while restricting itself to Maharashtra and neighbouring states, it will still be able to grow at significant rate due to the mammoth opportunity in the state (especially Mumbai). Working capital cycle to remain stable …. ….. and leverage to come down due to IPO proceeds

Source: Company, Phillip Capital India Research We expect PNC’s capex requirement to be limited. The company has a gross block of Rs 4.5bn with an asset turnover of only 1.5x – implying significant headroom before the entire capacity of the plant and machinery is exhausted. PNC – Use of IPO proceeds (1QFY16) Use of Funds (Rs mn) Intended Jun‐15 LeftWC 1,500 1,500 ‐BOT Investment 650 650 ‐Debt repay 351 297 55 Capex/Corporate 1,662 914 747 Expenses 184 100 84 Total 4,347 3,461 886


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Strong earnings growth; comparable valuations We expect PNC to report a robust topline CAGR of 25%, stable margins, and earnings CAGR of 33% over FY14‐17. On our numbers, PNC is currently trading at 16x FY16E P/E – in line with its peers like NJCC, KNRC, and JKIL. As with the entire EPC sector, we expect PNC to be rerated on robust topline and earnings growth, driven by huge order award opportunity in the infrastructure space. We value PNC using SoTP –

• EPC business at 16x FY17 P/E (in line with our multiple for other EPC companies)

• BOT at 1.0x P/BV (inline with our valuation of BOT portfolios for other EPC companies

We initiate with a BUY rating and price target of Rs 610. SoTP Valuation Business division FY17 EPS Equity Invested Multiple Valuation Per share Rs Rs mn Rs mn Rs

EPC 32 16.0 26,205 511BOT Road Projects 4,880 1.0 4,880 95

Total Valuation 31,084 610

Source: Phillip Capital India Research Infrastructure sector – financials Company ________Revenue________ _________EBITDA_________ ___________PAT___________ ___________Debt___________ Rs mn FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17ENCC 82,969 82,975 87,126 6,494 7,260 8,059 1,118 2,625 3,518 19,951 19,951 16,951J Kumar 13,432 17,058 22,176 2,506 3,156 4,103 944 1,339 1,928 5,334 5,334 5,834KNR 8,761 10,076 12,594 1,261 1,511 1,889 730 844 1,124 962 862 862ITD Cem* 17,189 25,784 36,098 911 1,805 3,068 (761) 134 1,018 7,653 7,053 8,253PNC Infra 15,610 18,732 22,478 2,166 2,529 3,035 1,004 1,259 1,638 3,530 1,679 1,679MBL Infra 19,485 21,433 24,648 2,247 2,358 2,711 802 705 783 7,115 7,615 9,615

_____Revenue Growth (%)_____ _____EBITDA Growth (%)_____ ____EBITDA Margins (%)____ _______PAT Growth (%)_______FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

NCC 36% 0% 5% 60% 12% 11% 7.8% 8.7% 9.2% 176% 135% 34%J Kumar 13% 27% 30% 22% 26% 30% 18.7% 18.5% 18.5% 12% 42% 44%KNR 5% 15% 25% 0% 20% 25% 14.4% 15.0% 15.0% 20% 16% 33%ITD Cem* 9% 50% 40% ‐44% 98% 70% 5.3% 7.0% 8.5% ‐918% 118% 660%PNC Infra 35% 20% 20% 53% 17% 20% 13.9% 13.5% 13.5% 43% 25% 30%MBL Infra 11% 10% 15% 28% 5% 15% 11.5% 11.0% 11.0% 7% ‐12% 11%


Source: Bloomberg, PhillipCapital India Research (*FY16 equivalent to CY15 for ITDC)


Company history and management profile Company history

Source: Company, PhillipCapital India Research Management profile Name Designation Name Designation

Mr. Pradeep Kumar Jain CMD Mr. Rakesh Kumar Gupta Independent Director Mr. Naveen Kumar Jain Whole‐time Director Mr. Chhotu Ram Sharma Independent Director Mr. Chakresh Kumar Jain Managing Director Mr. Subhash Chander Kalia Independent Director Mr. Yogesh Kumar Jain Managing Director Mr. Dharam Veer Sharma Independent Director Mr. Anil Kumar Rao Whole‐time Director Mr. Ashok Kumar Gupta Independent Director Mr. Sunil Chawla Non‐Executive Director Ms. Deepika Mittal Independent Director

Mr. Pradeep Kumar Jain, ‐ Chairman,Promoter and M D ‐ He holds a bachelor's degree in arts. He has over 37 years of experience in the construction and infrastructure sector and allied areas. He has been a Director on our Board since incorporation and was last re‐appointed as the Chairman and Managing Director of our Company with effect from October 1, 2011.

Mr. Naveen Kumar Jain, ‐ Whole‐time Director &Promoter ‐ He graduated with a bachelor's degree in arts . He has over 28 years of experience in industries such as construction, cold storage transportation, machineries and transport organization. He has been a Director on our Board since February 2006 and was last re‐appointed as a whole‐time Director of our Company with effect from October 1, 2012.

Mr. Chakresh Kumar Jain, MD,Promoter & CFO ‐ He holds a bachelor's degree in science and bachelor's degree in law. He has over 27 years of experience in development of infrastructure sector, such as, construction of highways, airports, rail over bridges among others. He has been a Director on our Board since incorporation and was last re‐appointed as a Managing Director of our Company with effect from September 11, 2014.

Mr. Yogesh Kumar Jain, MD & Promoter ‐ He holds a bachelor's degree in civil engineering. He has over 22 years of experience in planning, execution, supervision of work from the initiation of pre‐qualification and tendering. He has experience in the execution of highways, runways and bridge construction projects and has thus become an asset to our Company.

Mr. Anil Kumar Rao, Whole‐time Director ‐ He holds a bachelor's degree in engineering (civil) and a masters' degree in engineering. He has over 28 years of experience in the infrastructure industry and allied areas. He also has experience in the execution of runway related, road‐related and other infrastructure projects.

Mr. Sunil Chawla, non‐executive Director ‐ He holds a bachelor's degree in commerce and CA. He has over 20 years of experience in finance and consulting. He has been on our Board since January 12, 2011.



Financials

Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17eNet sales 11,521 15,610 18,732 22,478Growth, % ‐12 35 20 20Total income 11,521 15,610 18,732 22,478Employee expenses ‐577 ‐737 ‐885 ‐1,062Other Operating expenses ‐5,712 ‐1,352 ‐1,693 ‐2,031EBITDA (Core) 1,419 2,166 2,529 3,035Growth, % (8.9) 52.7 16.7 20.0Margin, % 12.3 13.9 13.5 13.5Depreciation ‐248 ‐364 ‐443 ‐530EBIT 1,171 1,803 2,086 2,505Growth, % (12.0) 54.0 15.7 20.1Margin, % 10.2 11.5 11.1 11.1Interest paid ‐234 ‐462 ‐354 ‐214Other Non‐Operating Income 106 138 148 154Pre‐tax profit 1,042 1,478 1,880 2,444Tax provided ‐341 ‐475 ‐620 ‐807Profit after tax 701 1,004 1,259 1,638Net Profit 701 1,004 1,259 1,638Growth, % (8.3) 43.1 25.5 30.0Net Profit (adjusted) 701 1,004 1,259 1,638Unadj. shares (m) 40 40 51 51Wtd avg shares (m) 40 40 51 51 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17eCash & bank 999 212 1,179 189Debtors 3,436 3,667 4,362 5,543Inventory 1,048 2,225 2,670 3,204Loans & advances 2,212 3,179 3,849 4,619Total current assets 7,745 9,367 12,145 13,638Investments 3,510 4,235 4,885 4,885Gross fixed assets 2,869 3,802 4,633 5,464Less: Depreciation ‐1,341 ‐1,698 ‐2,141 ‐2,671Add: Capital WIP 16 71 71 71Net fixed assets 1,544 2,175 2,563 2,863Total assets 12,800 15,777 19,593 21,387Current liabilities 3,736 5,058 5,209 5,456Total current liabilities 3,736 5,058 5,209 5,456Non‐current liabilities 2,774 3,534 1,683 1,683Total liabilities 6,510 8,592 6,892 7,138Paid‐up capital 398 398 513 513Reserves & surplus 5,892 6,786 12,188 13,736Shareholders’ equity 6,290 7,184 12,701 14,249Total equity & liabilities 12,800 15,777 19,593 21,387 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY14 FY15 FY16e FY17ePre‐tax profit 1,042 1,478 1,880 2,444Depreciation 248 364 443 530Chg in working capital 830 ‐1,086 ‐1,659 ‐2,238Total tax paid ‐315 ‐498 ‐620 ‐807Cash flow from operating activities 1,805 257 43 ‐70Capital expenditure ‐534 ‐994 ‐831 ‐831Chg in investments ‐798 ‐726 ‐650 0Cash flow from investing activities ‐1,332 ‐1,719 ‐1,481 ‐831Free cash flow 473 ‐1,462 ‐1,438 ‐901Equity raised/(repaid) 0 ‐16 4,347 0Debt raised/(repaid) 211 784 ‐1,851 0Dividend (incl. tax) ‐35 ‐70 ‐90 ‐90Cash flow from financing activities 144 697 2,406 ‐90Net chg in cash 617 ‐765 968 ‐991 Valuation Ratios

FY14 FY15 FY16e FY17ePer Share data EPS (INR) 17.6 25.2 24.5 31.9Growth, % (8.3) 43.1 (2.6) 30.0Book NAV/share (INR) 158.0 180.5 247.5 277.7FDEPS (INR) 17.6 25.2 24.5 31.9CEPS (INR) 23.9 34.3 33.2 42.3CFPS (INR) 42.7 3.0 (2.0) (4.4)Return ratios Return on assets (%) 7.1 9.1 8.4 8.7Return on equity (%) 11.7 14.9 12.7 12.2Return on capital employed (%) 9.9 13.1 11.8 11.7Turnover ratios Asset turnover (x) 2.4 2.9 2.6 2.3Sales/Total assets (x) 1.0 1.1 1.1 1.1Sales/Net FA (x) 8.2 8.4 7.9 8.3Working capital/Sales (x) 0.3 0.3 0.3 0.4Receivable days 108.8 85.8 85.0 90.0Inventory days 33.2 52.0 52.0 52.0Payable days 132.0 128.7 110.2 96.4Working capital days 95.4 95.8 112.2 129.8Liquidity ratios Current ratio (x) 2.1 1.9 2.3 2.5Quick ratio (x) 1.8 1.4 1.8 1.9Interest cover (x) 5.0 3.9 5.9 11.7Total debt/Equity (x) 0.4 0.5 0.1 0.1Net debt/Equity (x) 0.3 0.5 0.0 0.1Valuation PER (x) 29.1 20.3 20.9 16.1PEG (x) ‐ y‐o‐y growth (3.5) 0.5 (7.9) 0.5Price/Book (x) 3.2 2.8 2.1 1.8EV/Net sales (x) 1.9 1.5 1.4 1.2EV/EBITDA (x) 15.6 11.0 10.6 9.2EV/EBIT (x) 18.9 13.2 12.9 11.1



MBL Infrastructures Ltd (MBL IN)

Growth concerns INDIA | Infrastructure | Initiating Coverage

2 November 2015

Weak orderbook and weak balance sheet = growth concerns MBL Infra is a Kolkata‐based EPC company engaged in roads, housing, and railways. It has reported a robust 18% CAGR in topline over FY11‐15, driven by its strong execution capabilities and order inflows. However, margin erosion and higher leverage led to earnings CAGR of only 7%.

Currently, MBL has an orderbook of Rs 21bn – relatively weak at 1.0x book‐to‐sales. Its debtor days of 105 and inventory days of 152 remain exceptionally high. High working capital has also led to the company taking on more debt and increased its leverage. Debt:equity has increased to 1.1x in FY15 from 0.9x in FY11.

We believe it will be difficult for the company to turnaround in the next two years. We expect its leverage to increase to 1.2x by FY17 – on WC requirements, which should keep return ratios at much lower levels than peak ones in FY11‐12. Not enough cash flow to meet capex and deleverage BS MBL has never generated positive operating cash flow or free cash flow. Over the next two years, too, we do not see MBL generating enough cashflows to be able to reduce its leverage. On the contrary, we see it borrowing more to fund its working capital requirements. We expect the WC cycle to remain elongated at current levels, and leverage to increase to 1.2x in FY17 from 1.1x in FY15. BOT portfolio largely in execution stage – to add strain to the balance sheet MBL has a BOT portfolio of five projects – with two operational. It has invested Rs 2.1bn of the Rs 2.9bn equity required – Rs800mn remains to be invested in the last project. We see these BOT projects adding strain to its balance sheet. Significant rerating potential for non‐leveraged companies in the sector In the current cycle, the market is placing great emphasis on lean balance sheets – evident from the returns of the sector stocks over the last 12‐15 months. Over the last 12 months, the market’s dynamics have segregated stocks that could potentially benefit from the economic revival in the country and ones that had just run up (January 2014 to June 2014) because of the election euphoria, but would not be able to deliver expected shareholder returns.

While MBL, too, has delivered superior returns in the last 15 months (80%), we see limited upside potential because of its depleted orderbook and stretched balance sheet. We expect its leverage to increase to 1.2x in FY17 from 1.1x in FY15 and hence see the market ignoring the stock. Inexpensive valuations for relatively inferior fundamentals We expect MBL to report a topline CAGR of 12%, margins to be stable, and earnings CAGR of 1.5% over FY14‐17. On our numbers, MBL is currently trading at 11x FY17 P/E – significant discount to its peers like NJCC, KNRC and JKIL.

We value MBL using SoTP methodology: • EPC business at 9x FY17 P/E – based on weak orderbook and balance sheet ‐ significant

discount to our multiple of 16x for other EPC companies. • BOT portfolio at 0.7x P/BV – discount to our valuation of BOT portfolios for other EPC

companies, due to large part of portfolio still under execution.

While we do not see much downside from current levels, given the inexpensive valuations, we do not see much upside either, on the back of weak orderbook and stretched balance sheet. Our price target of Rs 220 offers 5% upside form current levels. We initiate with a NEUTRAL rating.

NEUTRAL CMP RS 209 TARGET RS 220 (+4%) COMPANY DATA O/S SHARES (MN) : 41MARKET CAP (RSBN) : 9MARKET CAP (USDBN) : 0.152 ‐ WK HI/LO (RS) : 330/ 159LIQUIDITY 3M (USDMN) : 0.2PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Jun 15 Mar 15 Dec 14PROMOTERS : 46.7 46.7 46.7FII / NRI : 11.5 8.8 6.6FI / MF : 28.6 30.0 29.6NON PRO : 5.1 7.2 8.1PUBLIC & OTHERS : 8.8 8.1 9.9 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS ‐11.5 ‐25.1 31.4REL TO BSE ‐16.9 ‐24.0 29.6 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17ENet Sales 19,485 21,433 24,648EBIDTA 2,247 2,358 2,711Net Profit 802 705 783EPS, Rs 38.7 17.0 18.9PER, x 5.4 12.3 11.1EV/EBIDTA, x 5.0 6.8 6.6P/BV, x 0.7 1.2 1.1ROE, % 14.5 10.4 10.5Debt/Equity (%) 1.1 1.1 1.2


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MBL INFRASTRUCTURES LTD INITIATING COVERAGE

Weak orderbook/balance sheet = growth concerns MBL Infra is a Kolkata based EPC company engaged in roads, housing, and railways. The company started operations in 1995 primarily with OMT contracts. Its flagship projects have been the outer and inner ring road in Delhi and multiple projects in north‐eastern states. It has executed projects across 14 states, which includes major projects funded by ADB and World Bank. MBL has reported a robust 18% CAGR in topline over FY11‐15, driven by its strong execution capabilities and order inflows (orderbook grew by 14% CAGR over the same period). However, margin erosion and higher leverage led to earnings CAGR of only 7%. Muted revenue growth expected over next two years ... ... on weak orderbook

Source: Company, Phillip Capital India Research Currently MBL has an orderbook of Rs21bn – relatively weak at 1x book‐to‐sales. While the management expects to end FY16 with an orderbook of Rs 35bn with Rs 35bn of order inflows on Rs 90bn bidding pipeline, the fact is, YTD, the company has achieved order inflows of only Rs 4bn. We believe the depleted orderbook will make the company report lower than industry average growth – both in topline and earnings. EBITDA margins to remain stable ... ... but earnings growth to remain subdued

Source: Company, Phillip Capital India Research MBL has a relatively stretched balance sheet vs. most of its peers. Debtor days were 105 in FY15 while inventory days were exceptionally high at 152. The management attributes this to be due to a conscious decision to procure raw material (aggregates,

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bitumen, and steel) at current low prices. It expects inventory days to fall to 90‐100 by June‐16. High working capital has also led to the company taking on more debt, thereby increasing leverage. Debt:equity has increased to 1.1x in FY15 from 0.9x in FY11. The company raised Rs 1.2bn from a QIP in January 2015 but it has not been able to alleviate debt levels. Working capital cycle to remain stable (in best case) ... .... meaning no respite from the high leverage levels

Source: Company, Phillip Capital India Research We believe it will be difficult for the company to turnaround in the next two years. In fact, we expect leverage to increase to 1.2x by FY17 on WC requirements, which will keep the return ratios at much lower levels than peaks in FY11‐12. Return ratios to remain subdued


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Not enough cash flow to meet capex, deleverage BS MBL has never generated positive operating cash flow or free cash flow. While high working capital requirements mean that this remains true for many companies in the EPC sector, most other companies are looking at a turnaround by controlling their WC and divesting assets. Over the next two years, we do not see MBL generating enough cashflows to be able to reduce its leverage from current levels. In fact, we expect that since the company will not be able to fund its working capital requirements, it will have to borrow more. We see the WC cycle remaining elongated at current levels and leverage increasing to 1.2x in FY17 from 1.1x in FY15. Cash flow situation to remain weak

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17EBITDA 836 1,275 1,557 1,314 1,762 2,247 2,358 2,711Tax ‐175 ‐296 ‐327 ‐188 ‐255 ‐366 ‐347 ‐386Change in WC ‐1,328 ‐991 ‐1,193 ‐1,194 ‐142 ‐3,594 270 ‐2,207Operating Cash flow ‐668 ‐11 37 ‐68 1,364 ‐1,713 2,280 119Capex / Investments ‐272 ‐304 ‐727 ‐585 ‐1,073 ‐573 ‐1,441 ‐660Free cash flow ‐939 ‐315 ‐690 ‐653 292 ‐2,286 840 ‐541Debt raised / paid 920 148 512 1,134 1,139 341 2,074 500

Source: Company, PhillipCapital India Research BOT portfolio largely in execution stage – to add strain to the balance sheet MBL has a BOT portfolio of five projects – of which two are operational. It has invested Rs 2.1bn of the Rs 2.9bn equity required – Rs 800mn remains to be invested in the last project. We see these BOT projects as adding further strain to the balance sheet. While the company will have to invest Rs800mn over the next two years as equity, it would also need to support the projects in the initial years, when the cashflows won’t be sufficient to service debt obligations. BOT portfolio BOT Projects Length Stake Cost Equity Debt Grant Period COD Km % Rs mn Rs mn Rs mn Rs mn Yrs Seoni‐Balaghat‐Gondia 114 100 1,082 120 612 348 15 Feb'08 Seoni‐Katangi 76 100 2,116 511 1,300 305 30 Dec'16 Waraseoni‐Lalbarra Road 18 100 569 150 419 ‐ 15 Aug'15 Garra‐Waraseoni 47 100 1,369 398 970 ‐ 15 Mar’17 Bikaner‐Suratgarh 172 100 6,201 1,701 4,500 ‐ 16 June’16 Total 427 500 11,337 2,880 7,801

Source: Company, PhillipCapital India Research We also note that four out of five projects in MBL’s BOT portfolio are in the Madhya Pradesh, where its peers (Ashok Buildcon) are seeing lower than expected traffic growth. A similar experience for MBL’s projects might lead to worsening the cash flow situation.


Inexpensive valuations, for relatively inferior fundamentals We expect MBL to report a topline CAGR of 12%, stable margins, and earnings CAGR of 1.5% over FY14‐17. We also expect its leverage to increase to 1.2x by FY17 – on WC requirements, which should keep return ratios at much lower levels than peak ones in FY11‐12.

On our numbers, MBL is currently trading at 11x FY17E P/E – significant discount to its peers like NJCC, KNRC and JKIL.

We value MBL using SoTP methodology: • EPC business at 9x FY17 P/E – based on weak orderbook and balance sheet ‐

significant discount to our multiple of 16x for other EPC companies. • BOT portfolio at 0.7x P/BV – discount to our valuation of BOT portfolios for other

EPC companies, due to large part of portfolio still under execution. While we do not see much downside from current levels, given the inexpensive valuations, we do not see much upside either, on the back of weak orderbook and stretched balance sheet. We initiate with a NEUTRAL rating and price target of Rs 220. SoTP Valuation Business division FY17 EPS Equity Invested Multiple Valuation Per share Rs Rs mn Rs mn Rs

EPC 18.9 9.0x 7,045 170 BOT Road Projects 2,880 0.7x 2,016 49

Total Valuation 9,061 220



Source: Bloomberg, PhillipCapital India Research (*FY16 equivalent to CY15 for ITDC) One‐year forward P/E band EV/EBITDA band


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Company history and management profile Company history


Management profile Name Role Background

Mr. Anjanee Kumar Lakhotia CMD A Chartered Accountant having 20 years of experience in the infrastructure industry Mr. Ashwini Kumar Singh Independent Director Electrical engineer from Jadavpur University , Fellow member of Institute of Engineers, Indian

Council of Arbitration, All India Management Association and National HRD. 20+ years experience in SAIL and Essar Steel

Mr. Kumar Singh Baghel Independent Director Master in English and CAIIB (Part I)Holding a 34+ years experience and retired as a General Manager from the State Bank of Bikaner and Jaipur

Mr. Ram Dayal Modi Independent Director Gold Medalist in MA (Pol. Sc) from the University of Udaipur and was associated with State Bank of Bikaner & Jaipur, State Bank of Patiala and State Bank of Mysore

Mr. Bhagwan Singh Duggal Independent Director Architecture from School of Planning and Architecture Delhi, Post Graduate Diploma in Housing, Planning & Building, Netherlands. Associated with planning and design, modernization & restorations marquee government

Ms. Sunita Palita Independent Director PG in Anthropology from Miranda House, Delhi University and a PG Diploma in Journalism from Indian Institute of Mass Communication, New Delhi. Has held academic positions with the World Food Programme and UNICEF on Child Rights Issues



Financials

Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17eNet sales 17,537 19,485 21,433 24,648Growth, % 31 11 10 15Total income 17,537 19,485 21,433 24,648Employee expenses ‐268 ‐366 ‐403 ‐463Other Operating expenses ‐1,746 ‐1,703 ‐1,987 ‐2,285EBITDA (Core) 1,762 2,247 2,358 2,711Growth, % 34.0 27.6 4.9 15.0Margin, % 10.0 11.5 11.0 11.0Depreciation ‐97 ‐154 ‐194 ‐240EBIT 1,664 2,093 2,164 2,472Growth, % 33.9 25.8 3.4 14.2Margin, % 9.5 10.7 10.1 10.0Interest paid ‐696 ‐953 ‐1,142 ‐1,335Other Non‐Operating Income 39 28 30 32Pre‐tax profit 1,007 1,168 1,052 1,168Tax provided ‐255 ‐366 ‐347 ‐386Profit after tax 751 802 705 783Net Profit 751 802 705 783Growth, % 35.8 6.7 (12.1) 11.1Net Profit (adjusted) 751 802 705 783Unadj. shares (m) 18 21 41 41Wtd avg shares (m) 18 21 41 41 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17eCash & bank 134 128 259 318Debtors 4,262 5,579 6,166 7,091Inventory 5,589 8,105 7,340 8,779Loans & advances 981 1,316 1,468 1,688Total current assets 11,030 15,185 15,289 17,932Investments 1,659 1,998 2,639 2,799Gross fixed assets 2,138 2,373 3,173 3,673Less: Depreciation ‐475 ‐630 ‐824 ‐1,064Add: Capital WIP 0 0 0 0Net fixed assets 1,663 1,743 2,349 2,609Total assets 14,352 18,926 20,277 23,340

Current liabilities 4,366 4,933 5,176 5,554Total current liabilities 4,366 4,933 5,176 5,554Non‐current liabilities 5,382 7,524 8,024 10,024Total liabilities 9,748 12,456 13,200 15,577Paid‐up capital 175 207 207 207Reserves & surplus 4,429 6,262 6,870 7,556Shareholders’ equity 4,604 6,469 7,077 7,763Total equity & liabilities 14,352 18,926 20,277 23,340 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY14 FY15 FY16e FY17ePre‐tax profit 1,007 1,168 1,052 1,168Depreciation 97 154 194 240Chg in working capital ‐142 ‐3,594 270 ‐2,207Total tax paid ‐211 ‐299 ‐347 ‐386Cash flow from operating activities 751 ‐2,571 1,169 ‐1,184Capital expenditure ‐392 ‐234 ‐800 ‐500Chg in investments ‐680 ‐339 ‐641 ‐160Cash flow from investing activities ‐1,073 ‐573 ‐1,441 ‐660Free cash flow ‐322 ‐3,144 ‐272 ‐1,844Equity raised/(repaid) 500 1,639 0 0Debt raised/(repaid) 341 2,074 500 2,000Dividend (incl. tax) ‐61 ‐75 ‐97 ‐97Cash flow from financing activities 280 3,138 403 1,903Net chg in cash ‐42 ‐6 131 59 Valuation Ratios

FY14 FY15 FY16e FY17ePer Share data EPS (INR) 42.9 38.7 17.0 18.9Growth, % 35.8 (9.9) (56.0) 11.1Book NAV/share (INR) 262.9 312.1 170.7 187.3FDEPS (INR) 42.9 38.7 17.0 18.9CEPS (INR) 48.5 46.1 21.7 24.7CFPS (INR) 40.7 (125.4) 27.5 (29.3)Return ratios Return on assets (%) 8.9 8.5 7.3 7.4Return on equity (%) 17.6 14.5 10.4 10.5Return on capital employed (%) 12.7 11.8 9.9 9.9Turnover ratios Asset turnover (x) 2.2 1.9 1.8 1.8Sales/Total assets (x) 1.3 1.2 1.1 1.1Sales/Net FA (x) 11.6 11.4 10.5 9.9Working capital/Sales (x) 0.4 0.5 0.5 0.5Receivable days 88.7 104.5 105.0 105.0Inventory days 116.3 151.8 125.0 130.0Payable days 97.3 97.7 92.9 87.1Working capital days 135.9 189.6 167.8 178.6Liquidity ratios Current ratio (x) 2.5 3.1 3.0 3.2Quick ratio (x) 1.2 1.4 1.5 1.6Interest cover (x) 2.4 2.2 1.9 1.9Total debt/Equity (x) 1.1 1.1 1.1 1.2Net debt/Equity (x) 1.1 1.1 1.0 1.2Valuation PER (x) 4.9 5.4 12.3 11.1PEG (x) ‐ y‐o‐y growth 0.1 (0.5) (0.2) 1.0Price/Book (x) 0.8 0.7 1.2 1.1EV/Net sales (x) 0.5 0.6 0.7 0.7EV/EBITDA (x) 4.9 5.0 6.8 6.6EV/EBIT (x) 5.1 5.4 7.4 7.3



KNR Construction (KNRC IN) A perfect value story INDIA | INFRASTRUCTURE | Company Update

2 November 2015

KNR remains our top ‘value pick’ in the infrastructure sector. The company has one of the strongest balance sheets in the sector with debt‐to‐equity of 0.3x and debtor days of less than 60. It operates at EBITDA margins of 15% ‐ one of the highest in the industry. We expect its strong focus on value creation through operational efficiency and financial discipline to lead to continuous rerating. Orderbook concerns are out: The biggest overhang on KNR’s stock over the last few months had been its depleted order book (Rs 15bn in March 2015, 1.7x book‐to‐sales). However, it won three large orders (Rs 23.4bn) in 1QFY16, adequately addressing this concern. The order book now stands at Rs 35.4bn – handsome 4.4x book‐to‐sales, providing high revenue visibility. The management expects steady order flow from NHAI in the coming months as it moves towards its target of awarding 20,000km of road projects (Rs 2.3tn) over the next two years, 70% of which will be EPC orders (Rs 1.5trn). Best placed to capitalise on the huge opportunity: We expect the huge order opportunity in the infrastructure sector (especially roads) to translate into robust topline growth for KNR over the next three years. With most other EPC companies currently under CDR, competition has significantly reduced for solvent players like KNR. We believe this will lead to significant margin expansion. Operational and financial discipline to translate into strong earnings growth: KNR’s strong focus on maintaining margins and tight control over working capital means that the company will always have a lean balance sheet. This is likely to lead to a high correlation between topline and earnings growth – which remains low for most players in the industry due to higher leverage. Outlook and valuation: We expect the potent combination of operational efficiency and financial discipline to help KNR grow at the cost of its peers in the EPC space. Few companies in this space can match KNR in terms of balance sheet strength and operating margins. We see it benefiting from a surge of orders in the roads segment (from NHAI and state governments). Its diversification into irrigation and overhead MRTS projects should also help it grow its order book beyond roads. KNR’s stock has surged 117% in the last twelve months and it is currently trading at 14.5x our FY17 earnings, at lifetime high multiple and significant premium to its historical average (6x). However, we believe it is set to enter the ‘big league’ of EPC players, leading to a significant rerating potential. We continue to value KNR at 16x our FY17 P/E – in line with other EPC companies. Our price target of Rs 690 (unchanged) represents a 18% upside from current levels. We maintain BUY.

BUY (Maintain) CMP RS 585 TARGET RS 690 (+18%) COMPANY DATA O/S SHARES (MN) : 28MARKET CAP (RSBN) : 16MARKET CAP (USDBN) : 0.352 ‐ WK HI/LO (RS) : 625 / 268LIQUIDITY 3M (USDMN) : 0.2PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Jun 15 Mar 15 Dec 14PROMOTERS : 60.9 65.5 65.5FII / NRI : 1.7 1.2 1.5FI / MF : 25.1 20.8 20.2NON PRO : 4.3 4.5 5.2PUBLIC & OTHERS : 8.5 8.4 8.4 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 5.1 0.5 117.0REL TO BSE ‐0.2 1.6 115.2 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17ENet Sales 8,761 10,076 12,594EBIDTA 1,261 1,511 1,889Net Profit 730 844 1,124EPS, Rs 26.0 30.0 40.0PER, x 22.4 19.4 14.5EV/EBIDTA, x 13.6 11.2 9.0P/BV, x 2.9 2.5 2.2ROE, % 13.5 13.8 15.9Debt/Equity (x) 0.2 0.1 0.1


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KNR CONSTRUCTION COMPANY UPDATE

KNR has stable revenue and margin profile ... ... and a robust order book

Source: Company, PhillipCapital India Research The company has one of the strongest balance sheets in the EPC space

Source: Company, PhillipCapital India Research A relatively small BOT portfolio Project Length KNR Type CoD Period TPC Equity Grant Debt Current Debt KNR Equity Annuity/ Toll km Stake Rs mn Rs mn Rs mn Rs mn Rs mn Invested Rs mn Rs mnKarnataka 60 40% Annuity Dec‐09 20 4,429 1,129 ‐ 3,300 3,527 452 329AP 48 40% Annuity Jun‐10 20 5,920 1,480 ‐ 4,440 4,954 592 444Kerala 54 100% Toll Nov‐15 20 9,005 1,365 2,640 5,000 2,823 NA 378Muzaffarpur Barauni 108 51% Toll Jul‐14 21 3,957 1,072 ‐ 2,885 2,346 400 438Total 270 23,311 5,046 13,649 1,444 1,589

Source: Company, PhillipCapital India Research SoTP valuation Business division FY17 EPS Equity Invested Multiple Valuation Per share Rs Rs mn Rs mn RsEPC 40.0 16.0x 17,987 640Kerala BOT Project 1,365 1.0x 1,365 49Total Valuation 19,352 690


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KNR CONSTRUCTION COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17eNet sales 8,348 8,761 10,076 12,594Growth, % 21 5 15 25Total income 8,348 8,761 10,076 12,594Employee expenses ‐349 ‐381 ‐438 ‐547Other Operating expenses ‐3,834 ‐3,749 ‐4,251 ‐5,314EBITDA (Core) 1,258 1,261 1,511 1,889Growth, % 8.0 0.3 19.8 25.0Margin, % 15.1 14.4 15.0 15.0Depreciation ‐572 ‐541 ‐501 ‐587EBIT 686 721 1,010 1,302Growth, % 12.8 5.1 40.1 28.9Margin, % 8.2 8.2 10.0 10.3Interest paid ‐172 ‐122 ‐139 ‐118Other Non‐Operating Income 155 125 158 187Pre‐tax profit 669 723 1,029 1,371Tax provided ‐59 7 ‐185 ‐247Profit after tax 610 730 844 1,124Net Profit 610 730 844 1,124Growth, % 17.0 19.7 15.5 33.3Net Profit (adjusted) 610 730 844 1,124Unadj. shares (m) 28 28 28 28Wtd avg shares (m) 28 28 28 28 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17eCash & bank 112 157 284 219Debtors 1,171 1,765 2,015 2,588Inventory 341 359 414 518Loans & advances 3,078 3,292 3,865 4,831Total current assets 6,387 7,211 8,215 9,793Investments 400 315 315 315Gross fixed assets 5,252 5,422 5,722 6,022Less: Depreciation ‐2,615 ‐3,156 ‐3,657 ‐4,244Add: Capital WIP 3 3 3 3Net fixed assets 2,640 2,269 2,068 1,780Total assets 9,546 10,035 10,837 12,127Current liabilities 3,505 3,380 3,472 3,671Total current liabilities 3,505 3,380 3,472 3,671Non‐current liabilities 908 962 862 862Total liabilities 4,412 4,343 4,334 4,533Paid‐up capital 281 281 281 281Reserves & surplus 4,852 5,411 6,222 7,313Shareholders’ equity 5,133 5,692 6,503 7,594Total equity & liabilities 9,546 10,035 10,837 12,127 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY14 FY15 FY16e FY17ePre‐tax profit 669 723 1,029 1,371Depreciation 572 541 501 587Chg in working capital ‐1,035 ‐903 ‐786 ‐1,443Total tax paid ‐141 ‐114 ‐185 ‐247Cash flow from operating activities 65 246 559 268Capital expenditure ‐273 ‐169 ‐300 ‐300Chg in investments 83 85 0 0Cash flow from investing activities ‐190 ‐84 ‐300 ‐300Free cash flow ‐124 162 259 ‐32Equity raised/(repaid) 15 0 0 0Debt raised/(repaid) 197 55 ‐100 0Dividend (incl. tax) ‐33 ‐33 ‐33 ‐33Cash flow from financing activities 164 ‐116 ‐133 ‐33Net chg in cash 40 46 126 ‐65 Valuation Ratios

FY14 FY15 FY16e FY17ePer Share data EPS (INR) 21.7 26.0 30.0 40.0Growth, % 17.0 19.7 15.5 33.3Book NAV/share (INR) 182.5 202.4 231.2 270.0FDEPS (INR) 21.7 26.0 30.0 40.0CEPS (INR) 42.0 45.2 47.8 60.9CFPS (INR) (3.2) 4.3 14.3 2.9Return ratios Return on assets (%) 7.5 8.3 8.9 10.4Return on equity (%) 12.6 13.5 13.8 15.9Return on capital employed (%) 12.7 12.7 13.3 15.1Turnover ratios Asset turnover (x) 1.7 1.5 1.6 1.8Sales/Total assets (x) 0.9 0.9 1.0 1.1Sales/Net FA (x) 3.0 3.6 4.6 6.5Working capital/Sales (x) 0.3 0.4 0.4 0.5Receivable days 51.2 73.5 73.0 75.0Inventory days 14.9 15.0 15.0 15.0Payable days 158.0 149.5 134.8 114.6Working capital days 121.1 153.0 161.6 171.1Liquidity ratios Current ratio (x) 1.8 2.1 2.4 2.7Quick ratio (x) 1.7 2.0 2.2 2.5Interest cover (x) 4.0 5.9 7.3 11.0Total debt/Equity (x) 0.2 0.2 0.1 0.1Net debt/Equity (x) 0.2 0.1 0.1 0.1Valuation PER (x) 26.8 22.4 19.4 14.5PEG (x) ‐ y‐o‐y growth 1.6 1.1 1.2 0.4Price/Book (x) 3.2 2.9 2.5 2.2EV/Net sales (x) 2.1 2.0 1.7 1.3EV/EBITDA (x) 13.6 13.6 11.2 9.0EV/EBIT (x) 25.0 23.8 16.8 13.0



JKumar Infra (JKIL IN) A perfect growth story INDIA | INFRASTRUCTURE | Company Update

2 November 2015

JKumar remains our top ‘growth pick’ in the sector. Its expertise in the MRTS segment (having worked on Delhi Metro and Ahmedabad Metro projects) and huge pipeline in the MRTS segment is likely to lead to a strong topline growth over the next three years. It has seen a topline CAGR of 13% over the last four years and we expect this at 29% over FY15‐17.

Strong order book: JKumar is all set to spread its wings. It has a strong order book of Rs 43.1bn (including L1) ‐ a handsome 3.1x book‐to‐sales, which provides high revenue visibility. Media reports and our interaction with the management indicate that it has emerged as L1 in two contiguous stretches of the Mumbai metro phase 3 (MM3) project. The two packages would translate into Rs 52bn of orders – taking the orderbook to Rs 95bn – an exceptionally strong 7x book‐to‐sales.

JKumar should be one of the biggest beneficiaries of the slew of large projects to be awarded in Mumbai (read our detailed report here). Apart from Maharashtra, it has also expanded its geographic presence to Gujarat, Rajasthan, and Delhi.

Entry into MRTS segment: JKIL has bought four tunnel‐boring machines in anticipation of a surge in orders as more cities are expected to join the MRTS bandwagon. We expect it to benefit from its early entry and preparedness for orders from this relatively new segment. Apart from MM3, the company expects Phase 2 of Ahmedabad’s metro project to be called for bidding soon. The pre‐bid meeting for Nagpur metro is also expected to take place in December 2015.

Focus on Maharashtra, Delhi and neighbouring states: The management continues to state that it is content to focus on orders from Maharashtra, Gujarat, Rajasthan, and Delhi. It does not intend to bid for MRTS projects in Kochi, Chennai, Bengaluru, Lucknow, and Jaipur. It expects healthy order pipeline from Mumbai itself, where Rs 600bn of Metro projects (Phase 2, 3, and 4) are expected to be awarded over the next three years.

Proposed QIP expected to be EPS dilutive near term; value accretive long term: Having emerged as L1 in two packages for MM3 project, JKIL recently has Rs 4.1bn through a QIP to fund the capex and WC requirement for executing its Rs 95bn orderbook. At the issue price of Rs 730, the QIP would translate into 17% dilution for existing shareholders, but would lead to strong topline and earnings growth in the long term. We see the fund‐raising exercise as a positive for the long‐term growth prospects of the company.

Outlook and valuation: We expect the surge of order awards in urban infrastructure (roads, flyovers, and MRTS) to catapult JKIL into being one of the leading EPC players in the next three years. Its strong balance sheet and superior margin profile should translate into robust earnings growth and superior returns to its investors.

JKIL’s stock has surged 142% in the last twelve months and currently trades at 13x FY17 earnings, a significant premium to its historical average (6.4x). However, we see major rerating potential, even from current levels, as the company is likely to break into the top bracket of infrastructure companies and command a multiple similar to them.

We have not yet factored the impact of the increase in number of shares and cash accrual from the proposed QIP, pending accrual of cash proceeds. We expect 13% dilution to our FY17 EPS. We continue to value JKIL at 16x FY17 P/E (on our pre‐QIP EPS) – in line with other EPC companies. Our price target of Rs 960 (unchanged), represents a 26% upside from current levels. We maintain BUY.

BUY (Maintain) CMP Rs 759 TARGET Rs 960 (+26%) COMPANY DATA O/S SHARES (MN) : 32MARKET CAP (RSBN) : 25MARKET CAP (USDBN) : 0.452 ‐ WK HI/LO (RS) : 900 / 310LIQUIDITY 3M (USDMN) : 0.4PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Jun 15 Mar 15 Dec 14PROMOTERS : 51.0 51.0 51.0FII / NRI : 21.9 21.2 19.7FI / MF : 10.4 10.3 10.1NON PRO : 1.4 1.5 2.1PUBLIC & OTHERS : 15.5 16.2 17.4 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 0.8 0.7 142.3REL TO BSE ‐4.5 1.8 140.5 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17ENet Sales 13,432 17,058 22,176EBIDTA 2,506 3,156 4,103Net Profit 944 1,339 1,928EPS, Rs 29.3 41.6 59.8PER, x 26.1 18.4 12.8EV/EBIDTA, x 11.3 9.1 7.0P/BV, x 3.1 2.7 2.3ROE, % 13.8 15.8 19.6Debt/Equity (x) 0.7 0.6 0.5


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http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_GZ_-_1st_June_Issue_low_res_20140602200921.pdf�



JKUMAR INFRA COMPANY UPDATE

JKIL has reported a robust revenue growth and margin profile ... ... and has a strong orderbook to take it forward

Source: Company, PhillipCapital India Research Proposed metro network for Mumbai

Name of Corridor

Length (km)

Estimated Cost (Rs bn) Status

1 Versova‐Andheri‐Ghatkopar 11.4 24 Commissioned in Aug‐142 Dahisar‐Charkop‐Bandra‐Mankhurd 40.0 265 Funding approved3 Colaba‐Bandra‐SEEPZ 33.5 244 RFPs invited4 Navi Mumbai Metro 23.4 41 Under construction5 Wadala‐Ghatkopar‐Thane‐Kasarvadavali 30.7 191 Funding approved6 Wadala‐Carnac Bunder 13.5 26 Deferred due to less ridership7 SEEPZ‐Kanjurmarg 10.5 42 Under planning stage8 Andheri (E) – Dahisar (E) 18.0 108 Under planning stage9 Sewri‐Prabhadevi 3.5 21 Under planning stage

Total 184.5 962

Source:MMRDA, PhillipCapital India Research Key projects executed by the company Project City/State Sector Order Size (Rs mn)Public Water transport platforms for 1) Nariman Point to Bandra 2) Dadar to Nerul Mumbai Transport 6,780Phase II BRTS Corridor Ahmedabad Transport 1,160Design & Construction of Amar Mahal flyover Mumbai Transport 729Design & Construction of viaducts, tunnels and elevated stations for Delhi Metro Rail Corporation Delhi Transport 15,862Widening & Improvement to Sion‐Panvel Highway Mumbai Transport 6,000Construction of barrage ‐ Lower Wardha Mail Canal Maharashtra Irrigation 926Building for UP Rajkiya Nirman Nigam Ltd Rajasthan Buildings 5,773

Source: Company, PhillipCapital India Research Proposed fund raising – QIP impact Date Price Raised O/s Shares New Shares Dilution Rs Rs bn mn mn

QIP 2014 Jul‐14 310.0 1.37 27.8 4.4 16% QIP 2015* Nov‐15 730.0 4.09 32.2 5.6 17%

________Post QIP________ _______Pre QIP_______ ______Change______ FY16E FY17E FY16E FY17E FY16E FY17E

Revenue 17,058 22,176 17,058 22,176 0% 0%EBITDA 3,156 4,103 3,156 4,103 0% 0%PAT 1,339 1,979 1,339 1,928 0% 3%EPS 35.4 52.3 41.6 59.8 ‐15% ‐13%

Source: PhillipCapital India Research (*as per BSE disclosures)

8 9 9 10 12 13 17 22

16.8%

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argins (%

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16 13 25 37 42 42 43 95

2.0 1.3

2.7

3.7 3.5 3.1 3.1

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JKUMAR INFRA COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17eNet sales 11,868 13,432 17,058 22,176Growth, % 19 13 27 30Total income 11,868 13,432 17,058 22,176Employee expenses ‐773 ‐741 ‐941 ‐1,223Other Operating expenses ‐2,216 ‐2,192 ‐3,299 ‐4,288EBITDA (Core) 2,058 2,506 3,156 4,103Growth, % 23.0 21.7 26.0 30.0Margin, % 17.3 18.7 18.5 18.5Depreciation ‐348 ‐474 ‐575 ‐642EBIT 1,711 2,032 2,581 3,460Growth, % 19.7 18.8 27.0 34.1Margin, % 14.4 15.1 15.1 15.6Interest paid ‐576 ‐768 ‐720 ‐726Other Non‐Operating Income 108 130 138 143Pre‐tax profit 1,242 1,395 1,999 2,877Tax provided ‐402 ‐451 ‐660 ‐949Profit after tax 841 944 1,339 1,928Net Profit 841 944 1,339 1,928Growth, % 11.0 12.3 41.9 44.0Net Profit (adjusted) 841 944 1,339 1,928Unadj. shares (m) 28 32 32 32Wtd avg shares (m) 28 32 32 32 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17eCash & bank 1,212 1,548 1,071 1,522Debtors 1,320 2,008 2,570 3,342Inventory 5,658 5,431 6,543 7,595Loans & advances 1,420 797 935 1,215Total current assets 11,500 11,978 13,312 15,867Investments 23 11 11 11Gross fixed assets 4,523 6,042 6,792 7,542Less: Depreciation ‐1,268 ‐1,741 ‐2,316 ‐2,959Add: Capital WIP 1,752 633 633 633Net fixed assets 5,007 4,933 5,108 5,216Total assets 16,531 16,922 18,432 21,094 Current liabilities 5,136 3,567 3,933 4,449Total current liabilities 5,136 3,567 3,933 4,449Non‐current liabilities 5,642 5,465 5,465 5,965Total liabilities 10,778 9,031 9,397 10,414Paid‐up capital 278 322 322 322Reserves & surplus 5,475 7,569 8,712 10,358Shareholders’ equity 5,753 7,891 9,034 10,680Total equity & liabilities 16,531 16,923 18,432 21,094 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY14 FY15 FY16e FY17ePre‐tax profit 1,242 1,395 1,999 2,877Depreciation 348 474 575 642Chg in working capital ‐1,924 ‐1,711 ‐1,446 ‐1,587Total tax paid ‐383 ‐391 ‐660 ‐949Cash flow from operating activities ‐717 ‐233 468 983Capital expenditure ‐2,254 ‐399 ‐750 ‐750Chg in investments ‐22 12 0 0Cash flow from investing activities ‐2,276 ‐388 ‐750 ‐750Free cash flow ‐2,992 ‐620 ‐282 233Equity raised/(repaid) 84 1,345 0 0Debt raised/(repaid) 3,208 ‐238 0 500Dividend (incl. tax) ‐122 ‐151 ‐196 ‐282Cash flow from financing activities 3,086 957 ‐196 218Net chg in cash 94 336 ‐478 451 Valuation Ratios

FY14 FY15 FY16e FY17ePer Share data EPS (INR) 30.2 29.3 41.6 59.8Growth, % 11.0 (3.1) 41.9 44.0Book NAV/share (INR) 206.9 244.9 280.3 331.4FDEPS (INR) 30.2 29.3 41.6 59.8CEPS (INR) 42.7 44.0 59.4 79.8CFPS (INR) (29.7) (11.3) 10.2 26.1Return ratios Return on assets (%) 8.6 8.6 10.2 12.1Return on equity (%) 15.6 13.8 15.8 19.6Return on capital employed (%) 12.8 11.6 12.9 15.3Turnover ratios Asset turnover (x) 1.4 1.2 1.4 1.6Sales/Total assets (x) 0.8 0.8 1.0 1.1Sales/Net FA (x) 2.9 2.7 3.4 4.3Working capital/Sales (x) 0.4 0.5 0.5 0.4Receivable days 40.6 54.6 55.0 55.0Inventory days 174.0 147.6 140.0 125.0Payable days 184.7 112.5 98.0 85.8Working capital days 158.5 186.5 177.8 162.9Liquidity ratios Current ratio (x) 2.2 3.4 3.4 3.6Quick ratio (x) 1.1 1.8 1.7 1.9Interest cover (x) 3.0 2.6 3.6 4.8Total debt/Equity (x) 1.0 0.7 0.6 0.5Net debt/Equity (x) 0.8 0.5 0.5 0.4Valuation PER (x) 25.2 26.1 18.4 12.8PEG (x) ‐ y‐o‐y growth 2.3 (8.3) 0.4 0.3Price/Book (x) 3.7 3.1 2.7 2.3EV/Net sales (x) 2.2 2.1 1.7 1.3EV/EBITDA (x) 12.4 11.3 9.1 7.0EV/EBIT (x) 14.9 14.0 11.2 8.4



Stock Price, Price Target and Rating History (J Kumar Infra)

Stock Price, Price Target and Rating History (KNR Construction)

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

B (TP 628)

B (TP 780)B (TP 900)

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300

400

500

600

700

800

900

J‐15 F‐15 M‐15 M‐15 J‐15 A‐15 S‐15

B (TP 424)

B (TP 580)

B (TP 650)

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J‐15 F‐15 M‐15 M‐15 J‐15 A‐15 S‐15



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

Management(91 22) 2300 2999

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Engineering, Capital Goods Midcap

Dhawal Doshi (9122) 6667 9769 Jonas Bhutta (9122) 6667 9759 Amol Rao (9122) 6667 9952Nitesh Sharma, CFA (9122) 6667 9965 Hrishikesh Bhagat (9122) 6667 9986

Portfolio StrategyAgri Inputs Infrastructure & IT Services Anindya Bhowmik (9122) 6667 9764Gauri Anand (9122) 6667 9943 Vibhor Singhal (9122) 6667 9949

Deepan Kapadia (9122) 6667 9992 TechnicalsBanking, NBFCs Subodh Gupta, CMT (9122) 6667 9762Manish Agarwalla (9122) 6667 9962 Logistics, Transportation & MidcapPradeep Agrawal (9122) 6667 9953 Vikram Suryavanshi (9122) 6667 9951 Production ManagerParesh Jain (9122) 6667 9948 Ganesh Deorukhkar (9122) 6667 9966

MetalsConsumer, Media, Telecom Dhawal Doshi (9122) 6667 9769 Mid‐Caps & Database ManagerNaveen Kulkarni, CFA, FRM (9122) 6667 9947 Yash Doshi (9122) 6667 9987 Deepak Agarwal (9122) 6667 9944Jubil Jain (9122) 6667 9766Manoj Behera (9122) 6667 9973 Oil & Gas Editor

Sabri Hazarika (9122) 6667 9756 Roshan Sony 98199 72726CementVaibhav Agarwal (9122) 6667 9967 Pharma Sr. Manager – Equities Support

Surya Patra (9122) 6667 9768 Rosie Ferns (9122) 6667 9971Economics Mehul Sheth (9122) 6667 9996Anjali Verma (9122) 6667 9969

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi 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

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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, may not match, or may be contrary at times with the views, estimates, rating, and 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 the 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 of future performance. This report does not regard 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 conclusions 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 realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is 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(s) 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. Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No 4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: 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 affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the 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. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised 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/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient. 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 the 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 a 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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