Morning Insight - Kotak Securities...FEBRUARY 18, 2019 Morning Insight Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client

FEBRUARY 18, 2019

Morning Insight

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group.

News Highlights The Goods and Services Tax (GST) Council will consider lowering the tax

rate on under-construction properties. A ministerial panel has firmed up its recommendations in this respect, which will be placed before the federal indirect tax body.(Mint)

A majority of banks expect liquidity to remain tight in the last quarter of this fiscal despite a slight improvement in the situation. The liquidity scenario remained in deficit in the third quarter of 2018-19.(ET)

Exporters body FIEO Sunday suggested a series of measures including outright exemption from GST, interest subsidy for agri-sector, and more funds for MSME players to boost outbound shipments. With increasing protectionism in several countries, domestic exporters need incentives to increase shipments.(ET)

Day after announcing that it is withdrawing most favoured nation (MFN) status to Pakistan on the backdrop of the Pulwama terror attack, India increased duties on imports from Pakistan to 200%. (ET)

The Reserve Bank of India (RBI) may impose monetary penalty on YES Bank for breaching the confidentiality norms of its communications exchange with the private bank which the central bank is said to be treating as a market-related information slip aimed at boosting the stock.(ET)

Baring, Bain and Hero Fincorp are in talks to buy a 10% stake in Dewan Housing Finance Corp Ltd (DHFL). DHFL promoters are looking to sell a 10% stake to strategic investors through various ways, including an open offer.(ET)

Mumbai-based digital cinema distribution company UFO Moviez’ planned merger with Chennai-based Qube Cinemas Technologies has hit a major roadblock in the National Company Law Tribunal .(ET)

The Expert Appraisal Committee under the Environment Ministry has given "green signal" to Indian Oil Corporation Ltd for setting up a grass root petroleum storage and distribution terminal in Telangana.(ET)

At a time when the US move to limit H1-B visas has left major tech companies perturbed as it will seriously affect their ability to get and retain talented staff, Indian company HCL has secured 5,085 foreign labour certification for the H-1B work visas.(ET)

Vodafone Idea is likely to mop up about ₹200bn from its proposed stake sale in mobile tower firm Indus Tower and monetisation of optical fibre asset. The telecom operator plans to use the funds for lowering its debt, which stood at ₹1236.60 bn at the end of 2018.(Mint)

India’s Adani Group and GMR Infrastructure Ltd have bid for all the half-a-dozen non-metro airports put up for privatization by the Union government. The Airports Authority of India (AAI) has received 32 bids for the airports in Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru.(Mint)

What’s Inside Result Update: Time Technoplast, PNC Infratech Ltd, Mirza

International Ltd, Gabriel India Ltd and Talbros Automotive Components Ltd

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Express, BL = Business Line, BQ = BloombergQuint, ToI: Times of India, BSE = Bombay Stock Exchange, MC = Moneycontrol

15-Feb 1 Day 1 Mth 3 Mths

Indian Indices SENSEX Index 35,809 (0.2) (1.4) 1.6 NIFTY Index 10,724 (0.2) (1.5) 1.0 NSEBANK Index 26,794 (0.7) (2.2) 2.4 NIFTY 500 Index 8,827 (0.5) (3.6) (1.4) CNXMcap Index 16,215 (1.0) (8.4) (7.7) BSESMCAP Index 13,253 (0.8) (9.5) (8.9) World IndicesDow Jones 25,883 1.7 4.8 1.8 Nasdaq 7,472 0.6 4.4 3.1 FTSE 7,237 0.6 3.9 3.2 NIKKEI 20,901 (1.1) 2.9 (1.9) Hangseng 20,901 (1.1) 2.9 (1.9) Shanghai 27,901 (1.9) 4.7 8.4

Value traded (Rs cr)Cash BSE (9.4) Cash NSE (0.0) Derivatives (53.5)

Net inflows (Rs cr) 14-Feb MTD YTD

FII (672) 2,567 2,062Mutual Fund 1,425 3,208 10,368

Nifty Gainers & Losers Price Chg Vol15-Feb (Rs) (%) (mn)

GainersBPCL 328 3.9 6.7 NTPC 136 3.8 21.6 Power Grid 182 3.7 9.0 LosersJSW Steel 267 (4.9) 10.2 Sun Pharma 423 (4.1) 10.2 Dr Reddy's 2,563 (3.9) 6.8

Advances / Declines (BSE)15-Feb A B T Total % total

Advances 130 356 32 518 100 Declines 298 665 59 1,022 197 Unchanged 2 23 14 39 8

Commodity15-Feb 1 Day 1 Mth 3 Mths

Crude (US$/BBL) 66.3 0.1 5.8 (0.7) Gold (US$/OZ) 1,321.6 0.7 3.4 8.5 Silver (US$/OZ) 15.8 1.1 3.2 9.9

Debt / forex market 15-Feb 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 7.4 7.3 7.3 7.8 Re/US$ 71.2 71.2 71.0 72.0

Nifty

Source: Bloomberg

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% Chg Day15-Feb

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Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2

FEBRUARY 18, 2019

TIME TECHNOPLAST LTD PRICE RS.87 TARGET RS.108 BUY After weak performance in H1FY19, Time Technoplast has reported improved numbers for the third quarter on higher volume growth across markets and easing of commodity cost pressures. Profit growth was aided by lower depreciation as the company has reworked its depreciation on certain P&M.

Key Highlights

Volume growth was at 15% during Q3FY19 with the Indian and overseas markets growing at 12% and 15% respectively in volume terms.

EBITDA margin recovered on a q-o-q basis due to easing of commodity prices coupled with company’s decision to raise prices

Valuation and Outlook At CMP, TTL is trading at P/E of 9.9x and 8.1x FY19E and FY20E earnings respectively, which is attractive as it is at a discount to midcap index valuation. In recent months, the TTL stock has been derated in line with general sell-off in the midcaps and smallcaps universe. At the current price, valuations are appealing, hence, we continue to maintain our positive stance on the company. We value the stock at 10x FY20 earnings and arrive at a price target of Rs 108 (Rs 145 ealier, based on 13x FY20E). We will consider according a higher target multiple on further progress on company’s endeavor to improve ROCE, which currently is at 11%.

Key Risk/Concerns Promoter pledge shares stand at 17% of its holding.

Q3FY19 Results

(Rs mn) Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%)

Net Sales 8727 7547 15.6 8275 5.5 Material costs 6135 5224 17.4 5927 3.5 Staff costs 395 347 13.6 378 4.4 Other expenditure 939 813 15.6 894 5.1 Total Expenditure 7468 6384 17.0 7199 3.7 PBIDT 1259 1163 8.2 1076 17.0 Depreciation 287 334 -14.0 397 -27.7 Other Income 2 2 11.1 2 32.1 EBIT 974 831 17.2 680 43.1 Interest 246 210 17.5 239 3.2 PBT 727 621 17.1 442 64.7 Tax 170 140 21.1 112 51.2 Minority Interest 15.7 13.5 16.3 13.26 18.4 Net Profit after Minority Interest 542 468 15.9 316 71.4 EPS (Rs) 2.6 2.2 1.5 EBITDA (%) 14.4 15.4 13.0 Material costs to sales (%) 70.3 69.2 71.6 Other expenditure (%) 10.8 10.8 10.8 Tax rate (%) 23.3 22.6 25.4

Source: Company

Result Update

Stock Details Market cap (Rs mn) : 19969 52-wk Hi/Lo (Rs) : 195 / 76 Face Value (Rs) : 1 3M Avg. daily vol (Nos) : 163,621 Shares o/s (mn) : 226

Source: Bloomberg

Financial Summary Y/E Mar (Rs mn) FY18 FY19E FY20E

Revenue 31,027 35,658 41,363 Growth (%) 13 15 16 EBITDA 4,731 5,209 6,287 EBITDA margin (%) 15 15 15

PAT 1,806 1,995 2,434 EPS 8 9 11 EPS Growth (%) 23 10 22

BV (Rs/share) 66 41 44 Dividend/share (Rs) 1 1 1 ROE (%) 13 13 14 ROCE (%) 15 15 16

P/E (x) 10.9 9.9 8.1 EV/EBITDA (x) 6 5 5 P/BV (x) 1 1 1

Source: Company, Kotak Securities - PCG

Shareholding Pattern (%) (%) Dec-18 Jun-18 Mar-18

Promoters 51.2 52.4 52.4 FII 21.8 19.3 19.4 DII 9.0 9.0 9.1 Others 17.9 19.3 19.2

Source: Bloomberg, BSE

Price Performance (%) (%) 1M 3M 6M

Time Technoplast (12.6) (22.7) (39.1) Nifty (1.5) 1.0 (6.2)

Source: Bloomberg

Price chart (Rs)

Source: Bloomberg

Sanjeev Zarbade [email protected] +91 22 6218 6424

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FEBRUARY 18, 2019

Estimates

(Rs mn) Reported Estimated

Net sales 8727 8604 EBITDA % 14.4% 13.9 PAT 542 395

Source: Kotak Securities – Private Client Research

Consolidated results highlights The company reported consolidated net revenues of Rs 8.7 bn in Q3FY19,

up 15.6% YoY (India market – 15%; Overseas market – 15%).

For the period 9MFY19, revenue growth stood at 14.9% y-o-y, with India and Overseas geographies contributing 70% and 30% of revenue respectively.

Volume growth was at 15% y-o-y during Q3FY19. The Indian and overseas markets volumes grew at 12% y-o-y and 15% y-o-y respectively.

The management reflected optimism in the demand scenario on account of the ongoing shift in manufacturing of chemicals from developed countries to India.

Revenue (Rs mn)

Source: Company and Kotak Securities – Private Client Research

The value added products grew by 22% y-o-y in 9M-FY19 as compared to the corresponding 9M-FY18.

The share of value added products is 20% of the total sales in 9M-FY19 as against 18% in 9M-FY18. The company’s focus remains to increase the share of value added products in its revenue.

Company-wide capacity utilization has been steadily inching up and now stands at 82% on an overall basis, while the Indian and Overseas plant utilsation levels stand at 84% and 76% respectively.

The operating margin for the quarter stood at 14.4%, a decline of 100 bps on a YoY basis.

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FEBRUARY 18, 2019

EBITDA margin (%)

Source: Company, Kotak Securities – Private Client Research

Despite easing of commodity related cost pressure in HDPE in recent months, gross margins for the quarter has contracted by 110%. This could be due to lag effect in passing of cost increases to customers, we believe.

Average prices of HDPE had increased by 20% in H1FY19 on a y-o-y basis. Add to this, the depreciation in INR, which had collectively led to the margin erosion in Q2FY19. However, HDPE prices have corrected in Q3FY19 and this should ease pressure on gross margins in the current quarter numbers.

HDPC price in Rs/ton

Source: Bloomberg

Geography-wise, the EBITDA margins in India is more or less same as in the overseas locations. However, net profit margins are higher in overseas due to lower tax rates.

The company has, based on past experience and review of useful life of Plant & Machineries, changed the working of depreciation w.e.f. 1st October, 2013, resulting in lesser depreciation of Rs 34.2 mn, in Q3FY19 and 9MFY19.

Interest cost rose 18% y-o-y to Rs 246 mn in the third quarter.

Tax rate stood at 23.3% in Q3FY19 as against 22.6% in corresponding quarter of the previous fiscal.

Gross debt on consolidated basis stands at Rs 8.3 bn (as against Rs 7.77 bn in FY18).

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FEBRUARY 18, 2019

Capex Update: The company undertook capex of Rs 1.7 bn in 9MFY19 consisting of Rs

1317 mn and Rs 399 mn on capacity expansion in established products and rest on value added products respectively.

The company has envisaged capex of Rs 2.0 bn in FY19.

Capex (Rs bn)

Source: Company, Kotak Securities – Private Client Researh

New projects update

Industrial Packaging Greenfield expansion at Silvassa completed and at Bangalore is under

progress for future growth.

Greenfield expansion at Chicago, USA for IBC Bottle manufacturing is completed.

Brownfield expansion in India and overseas locations continues for future growth and leveraging of existing infrastructures.

The board has approved withdrawal of setting up new production facility for manufacturing of steel drums at Hamriyah Free Zone, Sharjah, UAE to considering other opportunities in value added products.

Conference call highlights In the 9MFY19 period, revenue from MOX films were at Rs 870 mn. The company expects FY19E revenue to grow to Rs 1.1bn. The company’s plant can generate revenue at full capacity of Rs 1.6 bn per annum.

Company is seeing a turnaround in fortunes of its Battery business. It is now aiming at running the business as against earlier plans of divestment.

The management indicated that EBITDA margins in Q2FY19 was tag lower due to lag effect in passing off of cost increase and higher share of lower margin products (Pipes). Going into Q4FY19, the company expects EBITDA margins to recover to 15% levels.

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FEBRUARY 18, 2019

Earnings Change

FY19E FY20E (Rs mn) Earlier Revised Earlier Revised

Revenue 35534 35,658 41750 41,363 EBITDA (%) 14.8 14.6 15.0 15.2 EPS 8.7 8.8 11.1 10.8 % change 1.4% -3%


Valuation and Rating At CMP, TTL is trading at P/E of 9.9x and 8.1x FY19E and FY20E earnings respectively, which is attractive as it is at a discount to midcap index valuation. In recent months, the TTL stock has been derated in line with general sell-off in the midcaps and smallcaps universe. At the current price, valuations are appealing, hence, we continue to maintain our positive stance on the company. We value the stock at 10x FY20 earnings and arrive at a price target of Rs 108 (Rs 145 ealier, based on 13x FY20E). We will consider according a higher target multiple on further progress on company’s endeavor to improve ROCE, which currently is at 11%.

Forward PE band


Background TTL’s products are based on the polymer platform and has access to major plastic moulding technologies including blow moulding and injection moulding.

The key product categories for the company are Industrial packaging products, lifestyle products (door mats, chairs, syringes), technical products (automotive components), infrastructure products (pipes and monolithic construction) and new products (composite cylinders). The largest segment is the industrial packaging accounting for 59% of revenues.

The company enjoys dominant market share in the industrial packaging business in India. The company’s multi-locational advantage enables it to respond to customer needs in an efficient basis. Also the company keeps coming out with innovations in its product offerings.

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Close -Unit Curr 10.0 X 15.0 X 20.0 X


FEBRUARY 18, 2019

User breakup for packaging products

No. User Segment share of business (%)

1 Speciality Chemicals 31 2 FMCG 29 3 Paints & Inks 12 4 Pharmaceuticals 5 5 construction chemicals and Adhesives 13 6 Lube oils & Addictives 5 7 Food 3 8 Others 2 Total 100

Source: Company


FEBRUARY 18, 2019

Financials: Consolidated

Profit and Loss Statement (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E

Revenues 27,546 31,027 35,658 41,363 % change YoY 13.7 12.6 14.9 16.0 EBITDA 4,042 4,731 5,209 6,287 % change YoY 16.2 17.0 10.1 20.7 Other Income 22.2 21.5 10.5 40.0 Depreciation 1,155.0 1,372.3 1,496.9 1,841.1 EBIT 2,910 3,380 3,722 4,486 % change YoY 15.9 16.2 10.1 20.5 Interest 901.1 875.2 967.1 1,109.8 Profit before tax 2,009 2,505 2,755 3,376 % change YoY 29.7 24.7 10.0 22.5 Tax 494 651 710 878 as % of PBT 24.6 26.0 25.8 26.0 Minority Interest 43.4 47.6 50.3 64.1 Profit after tax 1,471.2 1,805.9 1,995.0 2,434.3 % change YoY 6.5 22.7 10.5 22.0 Exceptional items - - - - Reported PAT 1,471 1,806 1,995 2,434 Shares outstanding (m) 226.1 226.1 226.1 226.1 EPS (before exp items) (Rs) 6.5 8.0 8.8 10.8 CEPS (Rs) 11.6 14.1 15.4 18.9 DPS (Rs) 0.7 0.8 0.9 0.9 Source: Company, Kotak Securities – Private Client Research

Cash flow Statement (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E

PBDIT 4,042 4,731 5,209 6,287 Direct tax paid (396) (651) (710) (878) Adjustments -330 -41 0 0 Cash flow from operations 3,316 4,039 4,499 5,409 Net Change in Working Capital-1,460 -1,164 -1,823 -2,063 Net Cash from Operations 1,856 2,874 2,676 3,346 Capital Expenditure -2,124 -2,686 -2,600 -2,600 Cash from investing 30 21 10 40 Net Cash from Investing -2,094 -2,665 -2,590 -2,560 Interest paid -901 -875 -967 -1,110 Issue of Shares/(buyback) 1,477 0 0 0 Dividends Paid -145 -212 -225 -225 Debt Raised -239 549 1,223 500 Net cash from financing 192 -538 31 -835 Net change in cash -46 -328 118 -49 Free cash flow -267 188 76 746 cash at end 656 328 445 396 Source: Company, Kotak Securities – Private Client Research

Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E

Cash and cash equivalents 656 328 445 396 Accounts receivable 5,782 6,703 7,718 8,953 Inventories 5,473 6,409 7,327 8,953 Other current assets 1,761 1,910 2,100 2,100 Current assets 13,672 15,349 17,590 20,402 Intangible assets 6 6 6 0 Other assets 168 220 220 220 LT investments 0 0 0 0 Net fixed assets 11,873 12,932 14,035 14,794 Def tax assets 0 0 0 0 Total assets 25,719 28,507 31,850 35,415 Payables 3,861 4,789 4,982 5,779 Others 0 0 0 0 Current liabilities 3,861 4,789 4,982 5,779 Provisions 170 83 190 190 LT debt 7,227 7,775 8,999 9,499 Other liabilities 341 42 42 42 Equity 226 226 226 226 Reserves 13,039 14,605 16,375 18,585 Def tax liability 471 581 581 581 Minority Interest 384 405 455 519 Total liabilities 25,719 28,507 31,850 35,415 BVPS (Rs) 59 66 73 83 Source: Company, Kotak Securities – Private Client Research

Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E

EBITDA margin (%) 14.7 15.2 14.6 15.2 EBIT margin (%) 10.6 10.9 10.4 10.8 Net profit margin (%) 5.3 5.8 5.6 5.9 Receivables (days) 76.6 78.9 79.0 79.0 Inventory (days) 72.5 75.4 75.0 79.0 Sales/gross assets(x) 1.5 2.4 2.3 2.3 Interest coverage (x) 4.5 5.4 5.4 5.7 Debt/equity ratio(x) 0.5 0.5 0.5 0.5 ROE (%) 11.8 12.9 12.7 13.7 ROCE (%) 13.8 14.9 14.8 16.0 EV/ Sales 1.0 0.9 0.8 0.7 EV/EBITDA 6.5 5.7 5.4 4.6 Price to earnings (P/E) 13.4 10.9 9.9 8.1 Price to book value (P/B) 1.5 1.3 1.2 1.0 Source: Company, Kotak Securities – Private Client Research


FEBRUARY 18, 2019

PNC INFRATECH LTD (PNC) PRICE RS.137 TARGET RS.192 BUY PNC reported strong Q3FY19 revenue and was ahead of our estimates led by strong execution but PAT was below our estimates due to higher finance expenses and taxes.

Key Highlights

PNC reported robust 54% yoy growth in standalone revenue driven by robust execution of its projects as it has received appointed date in four out of seven HAM projects and most of EPC projects moved on expected lines. EBITDA margin at 14% was ahead of our estimates due to strong execution.

PNC has robust total order book of Rs 138 bn (including HAM projects where appointed date not yet received) which is 7.4x its FY18 revenue, gives strong revenue growth visibility for the next 3-4 years. Further, the company is targeting to add another new orders from NHAI, state road projects and airport projects.

PNC has maintained guidance of over 50% yoy growth in FY19E revenue and 35-40% yoy growth in FY20E revenue with EBITDA margins of 13.5-14% based on strong order book and execution timeline.

Valuation & outlook

We have marginally revised our FY19E and FY20E estimates based on 9MFY19 revenue and margins, capex guidance and debt. The EPC business (adjusted for Rs 30 per share value of BOT) is available at a PE of 11.8x and 9.9x based on FY19E and FY20E revised EPS of Rs 9.0 and Rs 10.8 per share, respectively.

We maintain our Buy rating on the stock with revised SOTP based target price of Rs 192 (Vs Rs 197 earlier).

Quarterly performance table (standalone)

Year to March (Rs Mn.) Q3FY19 Q3FY18 % Chg Q2FY19 % Chg

Net Revenues 7,270 4,725 53.9 5,586 30.1 Direct Expenses 4,983 3,198 55.8 3,813 30.7 Employee Expenses 552 362 52.3 422 30.6 Other Expenses 714 502 42.3 605 18.1 Operating Expenses 6,249 4,062 53.8 4,840 29.1 EBITDA 1,021 663 54.1 746 36.9 EBITDA margin 14.0% 14.0% 13.4% Adj EBITDA 1,021 663 54.1 493 107.2 Adj EBITDA margin 14.0% 14.0% 6.9% Depreciation 241 196 23.5 206 17.2 Other income 68 57 20.3 61 12.0 Net finance expense 187 65 187.9 153 22.2 Profit before tax 661 459 44.1 448 47.6 Provision for taxes Incl tax write back 187 27 602.9 96 94.1 Reported net profit 474 432 9.6 351 34.9 NPM% 6.5 9.1 6.3

Source: Company

Result Update


Source: Bloomberg


Revenue 18,566 28,171 39,224 Growth (%) 9.9 51.7 39.2 EBITDA 3,188 4,174 5,488 EBITDA margin (%) 17.2 14.8 14.0

PAT 1,836 2,319 2,779 EPS 7.2 9.0 10.8 EPS Growth (%) 20.9 26.3 19.9

BV (Rs/share) 70 79 89 Dividend/share (Rs) 0.6 0.6 0.6 ROE (%) 10.9 12.1 12.9 ROCE (%) 13.2 14.8 16.8

P/E (x) 19.1 15.2 12.6 EV/EBITDA (x) 11.1 9.4 7.3 P/BV (x) 1.9 1.7 1.5






PNC Infratech (10.3) (6.3) (17.8) Nifty (1.5) 1.0 (6.2)

Source: Bloomberg

Price chart (Rs)

Source: Bloomberg

Pankaj Kumar [email protected] +91 22 6218 6434

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FEBRUARY 18, 2019

Execution remained strong in Q3FY19 The standalone net sales (EPC Business) for the quarter grew by 54% yoy to Rs 7.3 bn driven by strong execution of its projects as it has received appointed date in four out of seven HAM projects and most of the EPC projects moved on expected lines. The company expects strong execution to continue in coming quarters as well. We believe that the similar kind of revenue run rate may continue in Q4FY19 as well. Further, the company targets to achieve average Rs 10 bn of revenue per quarter in FY20E. However, we believe that there is scope of upgradation in revenue guidance if the appointed date in balance three HAM projects is received within stipulated timeframe.

EBITDA margins ahead of estimates Standalone EBITDA for the quarter was Rs 1.02 bn, and grew by 54% yoy with EBITDA margin at 14% which is flattish on yoy and qoq and was ahead of our estimates driven by strong execution. The interest cost for the quarter increased by 188% yoy on account of increased debt in the books to Rs 4.5 bn (vs Rs 3.35 bn in Q2FY19) which includes term loan of Rs 3.2 bn. Standalone PAT for the quarter grew at a lower pace of 9.6% yoy to Rs 474 mn (Vs our estimates of Rs 5.3 bn) on account of higher finance expenses and increased tax provisioning. The management has guided for tax rate of 21-24% in FY19E and 26-28% in FY20E.

Status of HAM projects PNC has total 7 HAM projects of costing Rs 88.97 bn out of which four are in construction phase while in case of balance three, it has achieved financial closure and is awaiting appointed date. The company had earlier targeted to achieve appointed date in Chakeri Allahabad and Aligarh Kanpur project in Q3FY19. But due to some delay in land clearance, the company now targets to receive appointed date in all three balance HAM projects (including Challakere Hariyur) in Q4FY19.

In terms of status of HAM projects Dausa Lalsot HAM project is 70% completed, Chitradurga – Davanagere HAM project is 33% completed and Jhansi-Khajuraho package I & II HAM projects are 22% and 27% completed respectively. These projects are expected to contribute to company EPC revenue in full swing in FY20E.

PNC has infused Rs 2.3 bn equity in HAM projects and further requires Rs 6 bn of equity in 7 HAM projects in the next 2-3 years with Rs 2.7 bn to be infused in FY20E and Rs 3.3 bn in FY21E. The company does not see any major problem in meeting equity commitment in these as it has strong cash generation and has low net debt. Besides this, it is also looking at selling stake in BOT projects and the proceeds of the same would be utilized for meeting equity commitment. As per company, it is at advance stage of selling stake in Ghaziabad Aligarh project (as the due diligence is completed) and is expected to complete in the current financial year.

Strong order book to support future growth The order book at the end of the quarter stood at ~Rs 138 bn which includes 1) Rs 79.65 bn of confirmed projects under execution, 2) three HAM projects of EPC cost of Rs 38.3 bn where appointed date is awaited and 3) Mumbai Nagpur EPC projects of Rs 20 bn. The current order book gives very strong revenue growth visibility for the next three years. Further, the company is targeting to add new projects based on new bids expected from NHAI and state government related to expressways. The company is also bidding for brownfield airport projects (under government plans to develop and modernize airports through


FEBRUARY 18, 2019

public private participation). The company has not disclosed about the exact investment in the same, but indicated that the investment will be within the company’s financial strength.

Order Backlog details (as on 31 Dec 2018)

Project Value (Rs mn)

Nagina-Kashipur 8660 Varanasi-Gorakhpur 4450 Bhojpur-Buxar 4670 Koilwar Bhojpur 3930 Jhansi-Khajuraho I (HAM) 9540 Jhansi-Khajuraho II (HAM) 8360 Chitradurga - Davanagere (HAM) 8180 Purvanchal Expressway Project P5 (Sansarpur Gobindpur) 15660 Purvanchal Expressway Project P6 (Gobindpur Morjarpur) 9540 Other projects 6,660 Order backlog 79650 HAM (Financial Closure Achieved, Appointed Date awaited) Chakeri to Allahabad (HAM) 18660 Aligarh-Kanpur (Package II from Bhadwas to Kalyanpur) (HAM) 10330 Challakere to Hariyur Karnataka (HAM) 9350 EPC (not incl in OB, Appointed date received on 15th Jan 2019) Mumbai Nagpur Expressway 19995 Total Orders not included in OB (HAM+EPC) 58335 Total Order Book 137985

Source: Company

Maintained revenue growth guidance for FY19E and FY20E PNC has maintained its earlier guidance of over 50% yoy growth in FY19E and 35-40% yoy growth in FY20E revenue with EBITDA margins of 13.5-14% based on strong order book and execution timeline. Based on approval and execution timeline, we do not see any major challenge in surpassing growth guidance.

Other highlights The company reported Rs 5.9 mn per day toll revenue in Ghaziabad Aligarh

BOT projects in Q3FY19. It has toll collection of Rs 2.7 mn per day in Kanpur Kabrai, Rs 13.9 mn per day in Gwalior Bhind and Rs 1.1 mn per day in Bareilly Almora BOT projects

The company has standalone debt of Rs 4.5 bn with low debt to net equity ratio of 0.23x.

The company targets to do capex of Rs 750 mn in Q4FY19E in order to execute its orders.

Outlook and valuation Based on current order book of ~Rs 138 bn (including HAM & other EPC projects) and execution timeline, we expect PNC’s revenue to grow at 52% in FY19E and 39% in FY20E. Further, PNC has strong pipeline of projects in road space which will support its future order book. We have marginally revised our FY19E and FY20E estimates based on 9MFY19 revenue and margins, revised capex guidance, increased debt, etc. The EPC business (adjusted for Rs 30 per share value of BOT) is available at a PE of 11.8x and 9.9x based on FY19E and FY20E revised EPS of Rs 9.0 and Rs 10.8 per share, respectively. We maintain our Buy rating on the stock with revised SOTP based target price of Rs 192 (Vs Rs 197 earlier).


FEBRUARY 18, 2019

Valuation Table (Rs mn)

Segment Parameter Multiple P/E, P/BV Rs Per Share

Construction Business PAT 15 162 Road BOT BV 1.0 30 Consol PNC 192

Source: Kotak Securities Private Client Research

Earning estimates

Particulars (Rs Mn) Previous Revised % Chg FY19E FY20E FY19E FY20E FY19E FY20E

Revenue 28,171 39,224 28,171 39,224 0.0 0.0 EBITDA 4,174 5,488 4,174 5,488 0.0 0.0 EBITDA margin (%) 14.8 14 14.8 14.0 0 bps 0 bps Adj PAT 2,355 2,854 2,319 2,779 -1.5 -2.6 EPS (Rs) 9.2 11.1 9.0 10.8 -1.5 -2.6


Company Background PNC Infratech Ltd (PNC) is present in the business of construction and infrastructure development with expertise in highways, bridges, flyovers, airport runways, development of industrial areas, etc. The company is executing most of the projects in the states like Uttar Pradesh, Madhya Pradesh, Delhi, Rajasthan, Punjab, Haryana, Uttarakhand, Bihar, etc. PNC was incorporated as a sole proprietorship firm in 1989 and was promoted by Mr. Pradeep Kumar Jain. Over the years, it executed 44 major infrastructure contracts. The company has a long history in the Indian road sector and secured a contract from the first 10 tenders of NHDP in 1999. In FY07, it forayed in BOT business and further forayed into Hybrid Annuity Projects (HAM) in FY17. PNC has executed 38 road projects on EPC contract basis and is operating 6 BOT projects, 1 OMT project and developing 7 HAM road projects.


FEBRUARY 18, 2019

Financials: Standalone


Revenues 16,891 18,566 28,171 39,224 % change yoy (16.1) 9.9 51.7 39.2 EBITDA 2,210 3,188 4,174 5,488 % change yoy (16.9) 44.3 30.9 31.5 Depreciation 533 772 885 1,035 EBIT 1,677 2,416 3,289 4,453 Other Income 466 230 310 310 Interest 203 307 664 1,007 Profit Before Tax 1,939 2,339 2,935 3,756 % change yoy (3.2) 20.6 25.5 28.0 Tax 421 503 616 976 as % of EBT 21.7 21.5 21.0 26.0 Adj PAT 1,519 1,836 2,319 2,779 % change yoy (6.1) 20.9 26.3 19.9 PAT 2,097 2,510 2,319 2,779 % change yoy (13.6) 19.7 (7.6) 19.9 Shares outstanding (mn) 257 257 257 257 Adj EPS (Rs) 5.9 7.2 9.0 10.8 DPS (Rs) 0.6 0.6 0.6 0.6 CEPS (Rs) 8.0 10.2 12.5 14.9 BVPS (Rs) 61 70 79 89 Source: Company, Kotak Securities – Private Client Research


Pre-Tax Profit 1361 1665 2935 3756 Depreciation 533 772 885 1035 Change in WC (1143) 444 (1816) (397) Other operating activities (527) (1207) (616) (976) Operating Cash Flow 224 1674 1388 3418 Capex (1946) (1391) (2500) (500) Free Cash Flow (1722) 283 (1113) 2918 Change in Investments (1720) (261) (2700) (3300) Investment cash flow (3666) (1652) (5200) (3800) Equity Raised 0 0 0 0 Debt Raised 1356 (188) 3750 0 Dividend & others (150) (150) (150) (150) Other financing acitivity 1309 1334 0 0 CF from Financing 2516 996 3600 (150) Change in Cash (926) 1017 (213) (533) Opening Cash 971 44 1061 849 Closing Cash 45 1061 849 316 Source: Company, Kotak Securities – Private Client Research


Paid - Up Equity Capital 513 513 513 513 Reserves 15,209 17,553 19,722 22,351 Net worth 15,722 18,067 20,235 22,864 Borrowings 1,473 1,286 5,036 5,036 Total Liabilities 17,195 19,352 25,271 27,900 Net block 3,479 4,065 5,680 5,145 Capital work in progress 78 111 111 111 Total fixed assets 3,557 4,176 5,791 5,256 Investments 6,363 6,625 9,325 12,625 Inventories 1,535 1,758 2,667 3,713 Sundry debtors 6,309 6,900 10,034 12,896 Cash and equivalents 44 1,061 849 316 Loans and advances & Others 1,955 2,451 2,818 2,959 Total current assets 9,842 12,169 16,368 19,884 Sundry creditors and others 4,861 6,685 9,262 12,896 Provisions 241 172 189 208 Total CL & provisions 5,102 6,856 9,450 13,103 Net current assets 4,740 5,313 6,917 6,781 Other Assets (net) 2,512 3,223 3,223 3,223 Net Deferred tax 23 15 15 15 Total Assets 17,195 19,352 25,271 27,900 Source: Company, Kotak Securities – Private Client Research


Profitability Ratios EBITDA margin (%) 13.1 17.2 14.8 14.0 EBIT margin (%) 9.9 13.0 11.7 11.4 Net profit margin (%) 12.4 13.5 8.2 7.1 Adjusted EPS growth (%) (13.6) 19.7 (7.6) 19.9 Balance Sheet Ratios: Receivables (days) 136 136 130 120 Inventory (days) 33 35 35 35 Loans & Advances (days) 42 48 37 28 Payable (days) 105 131 120 120 Cash Conversion Cycle (days) 107 87 81 62 Asset Turnover (x) 1.0 1.0 1.1 1.4 Net Debt/ Equity (x) 0.1 0.0 0.2 0.2 Return Ratios: RoCE (%) 10.9 13.2 14.8 16.8 RoE (%) 10.3 10.9 12.1 12.9 Valuation Ratios: P/E (x) 23.1 19.1 15.2 12.6 P/BV (x) 2.2 1.9 1.7 1.5 EV/EBITDA (x) 16.5 11.1 9.4 7.3 EV/Sales (x) 2.2 1.9 1.4 1.0 Source: Company, Kotak Securities – Private Client Research


FEBRUARY 18, 2019

MIRZA INTERNATIONAL LTD (MIL) PRICE RS.54 TARGET RS.50 SELL MIL reported lower than expected results in terms of profit due to lower EBITDA margins led by cleaning up of old inventory at a discount.

Key Highlights

MIL reported revenue growth of 20.9% yoy in the quarter led by 50% yoy growth in domestic branded shoes and apparel business while exports of shoes declined by 14% yoy. Higher growth in domestic business was driven by company offering steep discount in order to liquidate old inventory in the apparels and shoes segment which also resulted in sharp fall of 900 bps in EBITDA margins. The company margins also took a hit due to shut down of tannery due to Kumbh mela in UP.

As per management, the company built up high inventory in order to roll out stores aggressively, but it could not be able to meet its store roll out target. The management indicated that the corrective measures will continue in Q4FY19 also and expects its operations to come back on track in the next year.

The management has not given any guidance for the next year as the company is focusing on reviving its operation in the domestic market.

Valuation & outlook We have cut our EPS estimates for FY19E & FY20E by 40% and 44% respectively factoring in lower margins, expected slowdown in sales for FY20E due to consolidation of business and higher debt and working capital. The stock is trading at PE of 16.3x and 13.2x based on FY19E and FY20E revised EPS of Rs 3.4 (vs Rs 5.7) and Rs 4.2 (vs Rs 7.4), respectively. We downgrade our rating on the stock to Sell (Vs Buy earlier) with revised target price of Rs 50 (Vs Rs 104 earlier). Our downgrade is based on increased near to medium term risk in its domestic operations and continuous disappointment in exports business which can negatively impact its margins, returns ratios and cash flows.

Quarterly performance table (standalone)

Year to March (Rs Mn.) Q3FY19 Q3FY18 % Chg Q2FY19 % Chg

Net Revenues 3,071 2,540 20.9 2,958 3.8 Raw Materials Cost 1,833 1,316 39.3 1,643 11.6 Employee Expenses 251 239 5.2 241 4.4 Other Expenses 691 524 31.7 649 6.5 Operating Expenses 2,775 2,079 33.5 2,532 9.6 EBITDA 296 460 (35.7) 426 (30.4) EBITDA margin 9.6% 18.1% 14.4% Depreciation 92 80 15.1 85 9.1 Other income 3 0 661.8 0.8 Net finance expense 88 66 32.0 91 (3.3) Profit before tax 119 314 (62.1) 252 (52.7) Provision for taxes 44 105 (57.9) 90 (51.0) Reported net profit 75 209 (64.3) 161 (53.6) Net Profit Margin (%) 2.4 8.2 5.4 Tax rate (% of PBT) 37.2 33.5 36.0

Source: Company

Result Update


Source: Bloomberg


Revenue 9,721 10,986 11,862 Growth (%) 3.9 13.0 8.0 EBITDA 1,740 1,309 1,555 EBITDA margin (%) 17.9 11.9 13.1

PAT 784 406 501 EPS 6.5 3.4 4.2 EPS Growth (%) 10 (48) 23

Book value (Rs/share) 48 50 54 Dividend per share (Rs) 0.9 0.5 0.6 ROE (%) 14.6 6.9 8.0 ROCE (%) 18.6 10.2 11.2







Mirza International (32.4) (33.3) (46.0) Nifty (1.5) 1.0 (6.2)

Source: Bloomberg

Price chart (Rs)

Source: Bloomberg

Pankaj Kumar [email protected] +91 22 6218 6434

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Growth in revenue driven by high discounts Net revenue for Q3FY19 grew by 20.9% yoy to Rs 3.1 bn which was inline with our estimates. The revenue was led by 46% yoy growth in branded shoes business while make to order exports business declined by 14% yoy after reporting a growth in Q2FY19. The company reported 50% yoy growth in domestic market which was contributed by 25% yoy growth in domestic branded shoes and 115% yoy growth in garments and accessories. The growth was driven by higher discounts offered by the company in its retail and online channels in order to liquidate old inventory in apparels and shoes segment. The company built up high inventory of Rs 4.62 bn in order to roll out store aggressively, but it could not be able to meet store roll out target due to various issues. Earlier, it planned to roll out 75 online stores while it could reach 40 stores only with total stores count of 194 including EBOs. As per the company, it is offering high discount to liquidate 6-9 month old inventory in apparels and shoes business. As per the management, the corrective measures will continue in Q4FY19 also and expects its operations to come back on track in the next year.

Exports declined due to 18% yoy decline in UK market. In exports business (including Red Tape exports), revenue from rest of world grew by 8% yoy (due to growth in Italy, Georgia and Sri Lanka), Red Tape brand exports was flattish in the quarter. The exports business has declined a growth in Q2FY19. As per the management, there is no clarity on improvement in exports in the near term and expects 4-5% yoy decline FY19E (Vs earlier 2-3% yoy growth).

EBITDA Margins at multi year low EBITDA for the quarter declined by 35.7% yoy to Rs 296 mn (Vs estimates of Rs 4464 mn) with EBITDA margin for the quarter was multi-year low at 9.6% and was below our estimates at 15%. This was on account of lower margins in the branded shoes business on higher discounts, closure of tannery due to Kumbh mela, increased operational cost in new stores, etc.

The EBIT margins in branded shoes business in Q3FY19 was at 9.8% (Vs 21.3% in Q3FY18) and in make to order exports business, it was at 15.3% (Vs 13.9% in Q3FY18). The margin was lower in the quarter due to higher discounts and increased overheads on account of new online stores opened by the company. The company expects lower EBITDA margin in Q4FY19 as well and expects improvement in FY20E to new normalized level of 15% (vs earlier levels of 17-18%)

PAT for the quarter declined by 64% yoy to Rs 75 mn (vs our estimates of Rs 209 mn) on lower margins and higher finance expenses. The finance expenses for the quarter grew by 32% yoy to Rs 88 mn as the debt at the end of the quarter grew to Rs 3.75 bn (Vs Rs 2.7 bn in Q4FY18) due to increased working capital. The company expects debt to increase further by Rs 350 mn in Q4FY19 on higher working capital in domestic brand business.

Uncertainty over FY20 growth guidance MIL had earlier guided for 50% yoy growth in domestic branded shoes and apparel business in FY19E which we expect to be achievable due to discounts on its inventory. But, the management has not given any revenue guidance for the next year as the company is focusing on reviving its operation and would revamp its growth strategy in domestic market. We believe that the corrective measures adopted by the company will negatively impact its earlier high growth targets for domestic markets in FY20E. We expect subdued earnings for the next 2-3 quarters due to above mention reasons.


FEBRUARY 18, 2019

Other highlights The domestic growth was also contributed by 52% yoy growth in online and

74% yoy growth in retail while wholesale channel declined 25% yoy.

The company has incurred capex of Rs 500-550 mn till date in FY19E.

The company expects improvement in margins, reduction in working capital and improved cash flows in FY20E

Outlook and valuation We believe that the company’s aggressive approach on growing its revenue in the domestic market by launching multiple products and brands have negatively impacted its balance sheet, margins, cash flows and returns ratios. We have cut our EPS estimates for FY19E & FY20E by 40% and 44% respectively factoring in lower margins, expected slowdown in sales for FY20E due to consolidation of business and higher debt and working capital. The stock is trading at PE of 16.3x and 13.2x based on FY19E and FY20E revised EPS of Rs 3.4 (vs Rs 5.7) and Rs 4.2 (vs Rs 7.4), respectively. We downgrade our rating on the stock to Sell (Vs Buy earlier) with revised target price of Rs 50 (Vs Rs 104 earlier), valuing the stock at 12x (Vs 14x earlier). Our downgrade is based on increased near to medium term risk in its domestic operations and continuous disappointment in exports business which can negatively impact its margins returns ratios and cash flows.

Revision in estimates

Particulars (Rs mn) Previous Revised % Change FY19E FY20E FY19E FY20E FY19E FY20E

Revenue 11042 12853 10986 11862 -0.5 -7.7 EBITDA margin (%) 15.8 16.6 11.9 13.1 -388 bps -349 bps PAT 681 890 406 501 -40.4 -43.7 EPS Rs 5.7 7.4 3.4 4.2 -40.4 -43.7


Company Background Mirza International Ltd (MIL), incorporated in 1979, is engaged in manufacturing and marketing of leather footwear and accessories in the domestic and the international market. 56% of the company’s business comes from international markets where it mostly meets the outsourcing requirements of global retailers and footwear companies. On the other hand, domestic market contributes 44% of its total revenue where it sells leather shoes, sports shoes, sandals, fashion garment and accessories under its brand ‘Red Tape’, ‘Bond Street’. The company is focused on mid to high-end fashion footwear segment and sells its products through exclusive brand outlets, online stores, large format stores, multi brand outlets and online channels. The company has a fully integrated in-house shoe production facility backed by its own tannery with its own pollution treatment plant, and a dedicated design studio.


FEBRUARY 18, 2019



Revenues 9,357 9,721 10,986 11,862 % change yoy 1.1 3.9 13.0 8.0 EBITDA 1,605 1,740 1,309 1,555 % change yoy (5.9) 8.4 -24.8 18.8 Depreciation 291 316 347 375 EBIT 1,314 1,424 962 1,180 Other Income 9 4 6 6 Interest 259 250 358 433 Profit Before Tax 1,064 1,178 610 752 % change yoy (8.1) 10.8 (48.2) 23.3 Tax 352 394 204 252 as % of EBT 33.1 33.5 33.5 33.5 PAT 712 784 406 501 % change yoy (8.8) 10.1 (48.2) 23.3 Shares outstanding (mn) 120 120 120 120 EPS (Rs) 5.9 6.5 3.4 4.2 DPS (Rs) 0.9 0.9 0.5 0.6 CEPS(Rs) 8.3 9.1 6.3 7.3 BVPS(Rs) 41.7 47.5 50.4 53.9 Source: Company, Kotak Securities – Private Client Research


Pre-Tax Profit 1,064 1,178 610 752 Depreciation 291 316 347 375 Change in WC 106 -1,579 -1,515 -212 Other operating activities -418 -384 -204 -252 Operating Cash Flow 1,042 -469 -762 664 Capex -351 -624 -550 -500 Free Cash Flow 691 -1,093 -1,312 164 Change in Investments -32 32 - - Investment cash flow -383 -592 -550 -500 Equity Raised - - - - Debt Raised -561 1,211 1,350 - Dividend -127 -127 -66 -81 Other financing activity -21 40 - - CF from Financing -709 1,124 1,284 -81 Change in Cash -50 64 -28 83 Opening Cash 115 65 128 100 Closing Cash 65 128 100 183 Source: Company, Kotak Securities – Private Client Research


Paid - Up Equity Capital 241 241 241 241 Reserves 4,780 5,477 5,818 6,238 Net worth 5,020 5,718 6,058 6,478 Borrowings 1,489 2,700 4,050 4,050 Net Deferred tax 167 177 177 177 Total Liabilities 6,677 8,595 10,286 10,705 Net block 3,490 3,570 3,773 3,898 Capital work in progress 19 246 246 246 Total fixed assets 3,509 3,817 4,020 4,145 Investments 38 6 6 6 Inventories 2,642 3,827 4,816 5,005 Sundry debtors 674 1,325 1,655 1,625 Cash and equivalents 65 128 100 183 Loans and advances & Others 806 888 1,155 1,328 Total current assets 4,187 6,168 7,726 8,140 Sundry creditors and others 794 1,267 1,324 1,430 Provisions 263 128 141 155 Total CL & provisions 1,057 1,395 1,466 1,585 Net current assets 3,130 4,773 6,260 6,555 Total Assets 6,677 8,595 10,286 10,705 Source: Company, Kotak Securities – Private Client Research


EBITDA margin (%) 17.2 17.9 11.9 13.1 EBIT margin (%) 14.0 14.6 8.8 9.9 Net profit margin (%) 7.6 8.1 3.7 4.2 Adjusted EPS growth (%) (8.8) 10.1 (48.2) 23.3 Balance Sheet Ratios: Receivables (days) 26 50 55 50 Inventory (days) 103 144 160 154 Loans & Advances 31 33 38 41 Payable (days) 31 48 44 44 Cash Conversion Cycle (days) 130 179 209 201 Asset Turnover (x) 1.4 1.1 1.1 1.1 Net Debt/ Equity (x) 0.3 0.4 0.7 0.6 Return Ratios: RoCE (%) 19.7 18.6 10.2 11.2 RoE (%) 15.0 14.6 6.9 8.0 Valuation Ratios: P/E (x) 9.3 8.4 16.3 13.2 P/BV (x) 1.3 1.2 1.1 1.0 EV/EBITDA (x) 5.0 5.3 8.1 6.7 EV/Sales (x) 0.9 0.9 1.0 0.9 Source: Company, Kotak Securities – Private Client Research


FEBRUARY 18, 2019

GABRIEL INDIA LTD PRICE RS.139 TARGET RS.153 ADD Gabriel reported mixed set of results in 3QFY19. While revenue growth remained healthy, EBITDA margins suffered on account of rise in input cost. Net profit remained flat YoY and came in as per estimates.

Key Highlights Company reported revenue of Rs5,100mn, 14% higher over corresponding quarter last year. Growth in revenues was supported by increased revenues from two/three wheeler and commercial vehicle segment. Higher raw material cost, led by rise in commodity prices, impacted EBITDA margin in the quarter. Net profit remained almost flat YoY, impacted by weak EBITDA margin and higher tax provision.

Valuation and Outlook Auto demand slowed down in the 3QFY19 and impacted revenue growth for the company to some extent. Current auto demand remains subdued and is expected to improve gradually going ahead. Management expects its growth in the passenger vehicle segment to likely remain under pressure in the near term. We expect automobile growth in 2HFY19 to receive boost from low base and expected pre-buying ahead of BSVI implementation. We marginally revise Gabriel’s earnings and target price lower. We rate the stock as ADD with revised price target of Rs153 (earlier Rs157).

Quarterly performance

(Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%)

Revenues 5,100 4,471 14.1 5,415 (5.8) Total expenditure 4,670 4,067 14.8 4,900 (4.7) RM consumed 3,705 3,162 17.2 3,919 (5.5) Employee cost 378 352 7.3 391 (3.3) Other expenses 587 553 6.1 591 (0.7) EBITDA 430 404 6.6 515 (16.4) EBITDA margin (%) 8.4 9.0 - 9.5 - Depreciation 100 92 8.7 100 0.1 Interest cost 6 5 27.9 8 (27) Other Income 26 15 75.5 21 23.2 Exceptional gain / (loss) PBT 350 321 8.9 428 (18.2) PBT margins (%) 6.9 7.2 7.9 Tax 130 106 22.1 138 (6.3) Tax rate (%) 37.0 33.0 - 32.3 - Reported PAT 220 215 2.4 289 (23.8) PAT margins (%) 4.3 4.8 - 5.3 - EPS (Rs) 1.5 1.5 2.4 2.0 (23.8)

Source: Company

Gabriel’s 3QFY19 revenues came in at Rs5,100mn, 14% higher over corresponding period last year. Growth in revenues is driven by two wheeler segment (strong double-digit) and commercial vehicle segment. Gabriel’s revenue in the passenger vehicle segment declined between 5-10% YoY on the back of weak car demand and loss of business from a high volume model (Gabriel is not a supplier to new Wagon R). In 3QFY19, OEM production for the two wheeler / three wheeler / commercial vehicle segment grew by 10% / 8% / 13% YoY respectively. Passenger vehicle segment witnessed 9% YoY

Result Update


Source: Bloomberg


Sales 18,331 20,905 23,416 Growth (%) 20.6 14.0 12.0 EBITDA 1,713 1,893 2,179 EBITDA margin (%) 9.3 9.1 9.3

Net profit 942 1,042 1,223 EPS (Rs) 6.6 7.3 8.5 Growth (%) 14.0 10.6 17.4


P/E (x) 21.2 19.2 16.3 EV/EBITDA (x) 11.1 9.9 8.4 EV/Sales (x) 1.0 0.9 0.8






Gabriel India (4.5) 2.5 (1.4) Nifty (1.5) 1.0 (6.2)

Source: Bloomberg

Price chart (Rs)

Source: Bloomberg

Arun Agarwal [email protected] +91 22 6218 6443

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FEBRUARY 18, 2019

production volume de-growth in the quarter. In 3QFY19, two-wheeler / passenger vehicle / commercial vehicle segment accounted for 61% / 25% / 14% of the company’s revenues. In terms of channel mix, OEM / replacement / export accounted for 83% / 12% / 5% of revenues respectively.

Despite 14% growth in revenues, EBITDA increase was restricted to 6.6% as input cost pressures impacted EBITDA margins. Commodity prices have increased over the past few quarters and with pass through with customers happening with a lag, raw material cost has increased from 70.7% in 3QFY18 to 72.7% 3QFY19. Accordingly, EBITDA margins contracted from 9.5% in 3QFY18 to 8.4% in 3QFY19 (lowest since 4QFY15).

PBT for the quarter increased by 9% YoY. However, tax provision was higher YoY and QoQ as the management revised its full year estimates. Company guided for full year tax rate of 31-32%. PAT for the quarter came in at Rs220mn as against Rs215mn reported in 3QFY18 and was in line with our estimate of Rs218mn.

Conference Call Highlights Automobile demand in 3QFY19 was impacted due to multiple headwinds.

Company expects that the rural focused budget announced by the government to be positive for the two wheeler segment. Company expects business to remain challenging over the next two quarters.

In the two wheeler segment company highlighted that its revenues grew ahead of the industry, leading to market share gains. Gabriel’s passenger vehicle performance was weak due to lower production and loss of business (Company is not a supplier to new Wagon R). However, the company remains optimistic on the passenger car business over the long term as it has won new business (new Alto, part of Volkswagen India 2.0 strategy, new XUV500 and Thar). In the replacement business, the company witnessed growth led by new product introduction. Company expects the growth in the replacement market to sustain.

From Rs1.56bn earlier, the company scaled down its FY19 capex to Rs850mn. Company has deferred its new piston rod plant (planned capex was Rs400mn). Management highlighted that they have made outsourcing arrangements for its increased piston rod requirements. Company’s current piston rod requirement are fulfilled through in-house facility and partially through outsourcing. Gabriel’s FY19 capex primarily includes the new plant at Sanand (capex of Rs460mn). Balance capex in FY19 will be towards R&D, line balancing and maintenance activity. For FY20, company guided for capex of Rs700mn that would be towards R&D, capacity debottlenecking and automation.

Management indicated that there will not be any impact of BSVI implementation on the company’s products.

Outlook and Valuations Automobile demand slowed down in 3QFY19 due to multiple headwinds. Current auto demand remains subdued and is expected to improve gradually going ahead. Management expects business environment to stay challenging over the next two quarters. In the passenger car segment, company’s performance is expected to stay weak in the near term and improve as new businesses starts to contribute towards revenues. We expect automobile growth in 2HFY19 to receive boost from low base and expected pre-buying ahead of BSVI implementation.


FEBRUARY 18, 2019

Sustained raw material cost increase has impacted company’s operating profit in the past few quarters. While the company has raw material cost pass through with its customers, the same happens with a lag. Going ahead, we expect raw material cost pressure to abate with full pass through to customers.

We revise our FY19/FY20 estimates to factor in current demand environment, raw material cost pressure and company’s revised capex plans. We rate the stock as ADD with revised price target of Rs153 (earlier Rs157). We value the company at PER of 18x (unchanged) FY20E earnings.

Change in estimates

FY19 FY20 Rs mn Old New % chg Old New % chg

Revenues 20,915 20,905 (0.0) 23,525 23,416 (0.5) EBITDA margin (%) 9.3 9.1 - 9.7 9.3 - Adjusted PAT 1,063 1,042 (1.9) 1,250 1,223 (2.2)

Source: Company

Key risk Slowdown in auto demand and significant increase in input cost are key risk to our estimates.

Company Background Gabriel is the flagship company of ANAND Group. Gabriel was set up in 1961 in collaboration with Maremont Corporation (now Gabriel Ride Control Products of Arvin Meritor Inc, USA). The company provides wide range of ride control products, including shock absorbers, struts and front forks to the automotive segment. Gabriel segment revenue mix is - 61% from two wheeler, 25% from passenger vehicle and 14% from commercial vehicle segment. In terms of channel mix – revenue from OEM / replacement/ exports stands at 83%/12%/5%. Company has seven manufacturing facility and four satellite plants in India.


FEBRUARY 18, 2019



Revenues 15,206 18,331 20,905 23,416 % change YoY 5.7 20.6 14.0 12.0 EBITDA 1,461 1,713 1,893 2,179 % change YoY 14.6 17.2 10.5 15.1 Depreciation 353 383 408 488 EBIT 1,108 1,330 1,484 1,691 % change YoY 17.4 20.0 11.6 13.9 Net interest 39 29 28 22 Other Income 58 71 88 129 Exceptional income/(loss) 0 0 0 0 Profit before tax 1,128 1,372 1,544 1,799 % change YoY 18.1 21.6 12.6 16.5 Tax 301 429 502 576 as % of PBT 26.7 31.3 32.5 32.0 Profit after tax 827 942 1,042 1,223 Adjusted PAT 827 942 1,042 1,223 % change YoY 9.0 14.0 10.6 17.4 Shares outstanding (m) 144 144 144 144 Adjusted EPS (Rs) 5.8 6.6 7.3 8.5 DPS (Rs) 1.3 1.4 1.5 1.5 Source: Company, Kotak Securities – Private Client Research


EBIT 1,108 1,330 1,484 1,691 Depreciation 353 383 408 488 Change in working capital (33) (348) (245) (220) Chg in other net current asset (74) (3) 51 29 Operating cash flow 1,354 1,361 1,698 1,988 Interest (39) (29) (28) (22) Tax (264) (372) (502) (576) Other Income 58 71 88 129 EO income - - - - Others 81 36 - - Cash flow from operations 1,191 1,067 1,256 1,520 Capex (506) (526) (850) (700) (Inc)/decrease in investments (287) (359) 623 - Cash flow from investments (793) (885) (227) (700) Proceeds from issue of equities (0) 0 - - Increase/(decrease) in debt (27) 22 (29) - Proceeds from share premium - - - - Dividends (206) (231) (277) (260) Cash flow from financing (233) (209) (306) (260) Opening cash 362 527 500 1,223 Closing cash 527 500 1,223 1,784 Source: Company, Kotak Securities – Private Client Research


Cash and cash equivalents 810 1,123 1,223 1,784 Accounts receivable 2,118 2,792 3,150 3,528 Inventories 1,312 1,491 1,705 1,904 Loans and Adv & Others 544 537 586 638 Current assets 4,784 5,942 6,664 7,854 LT investments 4 23 23 23 Net fixed assets 2,900 3,043 3,485 3,697 Total assets 7,688 9,008 10,172 11,574 Payables 2,147 2,650 2,978 3,336 Other liabilities 548 528 581 639 Current Liabilities 2,695 3,179 3,559 3,975 Provisions 268 278 325 348 Deferred Tax Liability 141 198 198 198 Debt 82 104 75 75 Equity 144 144 144 144 Reserves 4,358 5,105 5,870 6,834 Total liabilities 7,688 9,008 10,172 11,574 Source: Company, Kotak Securities – Private Client Research


Margins EBITDA margin (%) 9.6 9.3 9.1 9.3 EBIT margin (%) 7.3 7.3 7.1 7.2 Adj. net profit margin (%) 5.4 5.1 5.0 5.2 Working capital days Inventory (days) 32 30 30 30 Receivable (days) 51 56 55 55 Payable (days) 52 53 52 52 Ratios Debt/equity ratio (x) 0.0 0.0 0.0 0.0 ROE (%) 19.9 19.3 18.5 18.8 ROCE (%) 26.7 27.3 26.6 26.9 Valuations EV/ Sales 1.3 1.0 0.9 0.8 EV/EBITDA 13.2 11.1 9.9 8.4 Price to earnings (P/E) 24.2 21.2 19.2 16.3 Price to book value (P/B) 4.4 3.8 3.3 2.9 Source: Company, Kotak Securities – Private Client Research


FEBRUARY 18, 2019

TALBROS AUTOMOTIVE COMPONENTS LTD PRICE RS.190 TARGET RS.335 BUY Revenue growth for the company remained strong in 3QFY19. However contraction in EBITDA margin limited EBITDA growth to 12% YoY and PAT growth to 13% YoY.

Key Highlights TBA’s consolidated revenue in the quarter came in at Rs1,251mn, 23% growth YoY. Company witnessed strong YoY revenue growth across segments. EBITDA margin came down YoY by 100bps due to higher raw material cost and increased share of OEM revenues in the mix. Share of profit from JV was higher YoY, but declined over 2QFY19. Consolidated revenue only includes standalone gasket and forging revenue; as for joint venture, under IndAS, the net profit is taken in share of profit from JV/associates.

Outlook and Valuation In 9MFY19, TBA’s revenue has grown strongly in all business segments with forging segment reporting 69% YoY growth. EBITDA margin was lower in 3QFY19; but in 9MFY19, EBITDA margins improved by 86bps to 10.8%. We expect company’s revenue to grow on the back of execution of new order wins across segments, expected gradual pick-up in domestic auto demand, scale-up in forging division and additional revenue opportunity with BSVI implementation. EBITDA margins are expected to improve from 3QFY19 levels as full impact of input cost pass through will flow in coming quarters. We marginally revise our estimates lower. We retain BUY on the stock with revised price target of Rs335 (earlier Rs400). At the CMP, the stock is trading at a PE of 8.8x / 6.8x its estimated FY19E/FY20E earnings.

Quarterly performance - Consolidated

(Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%)

Revenues 1,251 1,020 22.7 1,283 (2.5) Total expenditure 1,127 909 24.0 1,136 (0.8) RM consumed 728 580 25.6 724 0.7 Employee cost 156 133 17.1 147 5.7 Other expenses 243 196 24.1 265 (8.2) EBITDA 124 111 11.9 147 (15.6) EBITDA margin (%) 9.9 10.9 - 11.5 - Depreciation 48 33 44.9 45 6.1 Interest cost 40 35 12.7 39 2 Other Income 27 20 35.3 9 191.1 Exceptional gain / (loss) PBT 63 62 1.4 72 (12.0) PBT margins (%) 5.0 6.1 5.6 Tax 21 20 3.6 24 (12.5) Tax rate (%) 33.6 32.8 - 33.8 - Share of profit in JV 22 15 49.6 29 (22.9) Reported PAT 64 57 13.2 76 (22.4) PAT margins (%) 5.1 5.6 - 6.0 - EPS (Rs) 5.2 4.6 13.2 6.2 (16.0)

Source: Company

Result Update


Source: Bloomberg


Sales 3,930 5,030 5,749 Growth (%) 21.0 28.0 14.3 EBITDA 408 539 650 EBITDA margin (%) 10.4 10.7 11.3

Adjusted Net profit 207 268 345 Adjusted EPS (Rs) 16.8 21.7 27.9 Growth (%) 69.7 29.0 28.9








Talbros Automotive (19.7) (17.5) (34.4) Nifty (1.5) 1.0 (6.2)

Source: Bloomberg

Price chart (Rs)

Source: Bloomberg

Arun Agarwal [email protected] +91 22 6218 6443

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225

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FEBRUARY 18, 2019

Consolidated Result Highlight TBA reported consolidated revenue of Rs1,251mn, 23% higher over 3QFY18.

Consolidated revenue only includes standalone gasket and forging revenue; as for joint venture, under IndAS, the net profit is taken in share of profit from JV/associates. Standalone gasket revenue grew by 22% YoY to Rs903mn (includes other income) on the back of volume growth, execution of new orders and market share gains. Forging business revenue continued with strong growth on the back of execution of new orders. In 3QFY19 forging segment revenue grew by 41% YoY to Rs410mn (includes other income). TBA’s revenue growth of 23% is much ahead of domestic OEM production growth reported across segments.

During the quarter, company’s EBIDTA margin witnessed pressure due to rise in input cost prices and increased OEM share in the revenue mix. Consistent rise in raw material prices and with cost pass through happening with a lag, company’s margins witnessed contraction. Further, share of OEM’s in the gasket segment increased from 73% in 3QFY18 and 75% in 2QFY19 to 78% in 3QFY19. On the back of above mentioned reasons, gross margins declined from 43.1% in 3QFY18 to 41.8% in 3QFY19. Consolidated PAT in the quarter grew by 13% YoY on the back of increase in profits from its joint venture.

Nippon Leakless Talbros (NLT) revenue growth in the quarter was low at 2% due to lower production by Honda Motorcycles and Scooters India. EBITDA for this JV remained unchanged at Rs52mn and PAT grew by 8% to Rs33mn. NLT JV revenue comes primarily from selling gasket to two wheeler segment with Hero Moto Corp and Honda Motorcycle and Scooters India as their key customers.

Marelli Talbros Chassis Systems (MMT) JV witnessed 21% YoY growth in revenues in 3QFY19, led by increased volume growth of certain key models of Maruti Suzuki and Tata Motors. MMT’s EBITDA grew by 79% YoY from higher volume and improved cost efficiencies PAT at this JV grew by 77% to Rs17mn.

Talbros Marugo Rubber (TMR) JV revenues increased by 33% YoY, EBIDTA grew by 75% YoY and the JV reported marginal profit in 3QFY19 as against loss reported in 3QFY18.

Outlook and Valuation In the gasket segment, the company enjoys 40% market share (increases to 52% including joint venture share). Growth in this segment is expected to come from volume increase, new business in both domestic and export segments, increased content per vehicle (Tata Cummins revenue increase likely to be 2-2.5x) with BSVI implementation and higher management focus on heat shield in global markets.

Forging business revenue grew by 69% YoY in 9MFY19. On the back of new order execution and company’s focus on moving towards high tonnage press, we expect revenue growth in this business to remain healthy over the medium term. Higher tonnage press will start commercial production in 2QFY19.

For MMT JV, full impact of JLR order execution, new business with Maruti Suzuki and other domestic OEM’s is expected to lead to revenue growth for the JV. For sustaining growth, MMT JV is setting up new plant in Pune and the funding for the same will be done by the JV (no additional capital infusion by TBA).


FEBRUARY 18, 2019

EBITDA margin was partly impacted on account of increasing raw material prices. Management highlighted that 75% of the input cost pass through has happened and the balance 25% will happen in 4QFY19. We expect that with full pass through and company’s internal cost control measures, EBITDA margin to witness gradual improvement going ahead.

We marginally revise our estimates lower. At the CMP, the stock is trading at a PE of 8.8x / 6.8x its estimated FY19E/FY20E earnings. We retain BUY on the stock with revised price target of Rs335 (earlier Rs400). We value the stock at a PE of 12x (earlier 14x) on FY20E earnings.

Change in estimates

FY19 FY20 (Rs mn) Old New % chg Old New % change

Revenues 4,919 5,030 2.3 5,528 5,749 4.0 EBITDA margin (%) 11.3 10.7 - 11.7 11.3 - Adjusted PAT 278 268 (3.6) 353 345 (2.2)


Company Background Talbros Automotive Components Limited, the flagship manufacturing company of the Group, manufactures automotive & industrial Gaskets in collaboration with Coopers Payen of UK. Currently company manufactures gaskets & heat shields, forgings, suspension systems, anti-vibration components and hoses. TBA has three joint ventures – Nippon Leakless Talbros Pvt. Ltd (JV partner - Leakless Corporation – Japan), Magneti Marelli Talbros Chassis Systems Pvt. Ltd. (JV partner - Magneti Marelli - Italy) and Talbros Marugo Rubber Pvt. Ltd. (JV partner - Marugo Rubber - Japan). In terms of revenue (as per Indian Gaap), 60% of revenues comes from gaskets, 26% from forging, 10% from MMT JV and 4% from TMR JV.


FEBRUARY 18, 2019

Financials: Consolidated


Revenues 3,249 3,930 5,030 5,749 % change YoY -17.1 21.0 28.0 14.3 EBITDA 315 408 539 650 % change YoY -27.2 29.8 32.0 20.7 Depreciation 123 142 182 201 EBIT 191 266 357 450 % change YoY -31.4 39.1 34.0 26.0 Net interest 159 139 159 163 Other Income 64 63 62 62 Exceptional income/(loss) 0 22 0 0 Profit before tax 96 211 260 348 % change YoY -32.1 119.4 23.0 34.0 Tax 21 52 88 118 as % of PBT 22.3 24.4 34.0 34.0 Share of profit/(loss) from asso 47.4 69.2 96.0 115.0 Profit after tax 122 229 268 345 Adjusted PAT 122 207 268 345 % change YoY 5.0 69.7 29.0 28.9 Shares outstanding (m) 12 12 12 12 Adjusted EPS (Rs) 9.9 16.8 21.7 27.9 DPS (Rs) 1.5 1.5 1.5 1.5 Source: Company, Kotak Securities – Private Client Research


EBIT 191 266 357 450 Depreciation 123 142 182 201 Change in working capital 187 (8) (275) (187) Chg in other net current asset 127 (62) (6) (5) Operating cash flow 629 337 258 458 Interest (159) (139) (159) (163) Tax / Deferred tax (65) (37) (88) (118) Other Income 64 63 62 62 EO income / Others 137 54 - - Profit from JV 47 69 96 115 Cash flow from operations 653 347 169 353 Capex (114) (249) (339) (150) (Inc)/dec in investments (496) (94) - - Cash flow from investments (610) (343) (339) (150) Proceeds from issue of equities - - - - Increase/(decrease) in debt (42) 30 179 (100) Proceeds from share premium - - - - Dividends (22) (22) (22) (22) Cash flow from financing (64) 8 157 (122) Opening cash 86 66 78 64 Closing cash 66 78 64 145 Source: Company, Kotak Securities – Private Client Research


Cash and cash equivalents 66 78 64 145 Accounts receivable 897 1,242 1,516 1,733 Inventories 988 1,092 1,374 1,581 Loans and Adv & Others 241 296 320 345 Current assets 2,191 2,708 3,274 3,804 LT investments 568 662 662 662 Net fixed assets 1,173 1,281 1,438 1,388 Total assets 3,933 4,650 5,374 5,853 Payables 931 1,372 1,654 1,890 Other liabilities 168 153 167 182 Current Liabilities 1,099 1,526 1,820 2,072 Provisions 39 46 50 55 Deferred Tax Liability 27 42 42 42 Debt 1,213 1,243 1,422 1,322 Equity 123 123 123 123 Reserves 1,431 1,671 1,916 2,238 Total liabilities 3,933 4,650 5,374 5,853 BVPS (Rs) 126 145 165 191 Source: Company, Kotak Securities – Private Client Research


Margins EBITDA margin (%) 9.7 10.4 10.7 11.3 EBIT margin (%) 5.9 6.8 7.1 7.8 Adj. net profit margin (%) 3.8 5.3 5.3 6.0 Working capital days Inventory (days) 111 101 100 100 Receivable (days) 101 115 110 110 Payable (days) 105 127 120 120 Ratios Debt/equity ratio (x) 0.8 0.7 0.7 0.6 ROE (%) 8.5 12.4 14.0 15.7 ROCE (%) 9.4 11.2 12.7 14.1 Valuations EV/ Sales 1.1 0.9 0.7 0.6 EV/EBITDA 11.1 8.6 6.9 5.4 Price to earnings (P/E) 19.2 11.3 8.8 6.8 Price to book value (P/B) 1.5 1.3 1.2 1.0 Source: Company, Kotak Securities – Private Client Research


FEBRUARY 18, 2019

RATING SCALE Definitions of ratings BUY – We expect the stock to deliver more than 15% returns over the next 12 months ADD – We expect the stock to deliver 5% - 15% returns over the next 12 months REDUCE – We expect the stock to deliver -5% - +5% returns over the next 12 months SELL – We expect the stock to deliver < -5% returns over the next 12 months NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. SUBSCRIBE – We advise investor to subscribe to the IPO. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target

for this stock, either because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA – Not Available or Not Applicable. The information is not available for display or is not applicable

NM – Not Meaningful. The information is not meaningful and is therefore excluded. NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our

internal benchmark.

FUNDAMENTAL RESEARCH TEAM Rusmik Oza Arun Agarwal Amit Agarwal Nipun Gupta Deval Shah Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Information Tech, Midcap Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6441 +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433 +91 22 6218 6423

Sanjeev Zarbade Ruchir Khare Jatin Damania Cyndrella Carvalho Ledo Padinjarathala, CFA Cap. Goods & Cons. Durables Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6424 +91 22 6218 6431 +91 22 6218 6440 +91 22 6218 6426 +91 22 6218 7021

Teena Virmani Sumit Pokharna Pankaj Kumar Krishna Nain K. Kathirvelu Construction, Cement, Buildg Mat Oil and Gas, Information Tech Midcap M&A, Corporate actions Support Executive [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6432 +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 7907 +91 22 6218 6427

TECHNICAL RESEARCH TEAM Shrikant Chouhan Amol Athawale Faisal Shaikh, CFTe Siddhesh Jain [email protected] [email protected] Research Associate Research Associate +91 22 6218 5408 +91 20 6620 3350 [email protected] [email protected] +91 22 62185499 +91 22 62185498

DERIVATIVES RESEARCH TEAM Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe [email protected] [email protected] [email protected] [email protected] +91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

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FEBRUARY 18, 2019

Disclosure/Disclaimer Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to clients as well as our prospects. 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Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. 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By referring to any particular sector, Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. Such representations are not indicative of future results. Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. "A graph of daily closing prices of securities is available at https://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)." Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: INZ000200137 (Member of NSE, BSE, MSE, MCX & NCDEX), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at

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Morning Insight - Kotak Securities...FEBRUARY 18, 2019 Morning Insight Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client