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AMBIT INSIGHTS 26 December 2016

DAILY

Updates

Cement

Shree or UltraTech? Not turning BUYers yet

Weeklies

Economy

Utilities

Analyst Notes: L&T (SELL): Striking the right balance will be hard Nitin Bhasin, +91 22 3043 3241

L&T’s five-year plan to increase RoE to 18% it needs to: 1) double revenue at a CAGR of 15%; 2) expand core margins by 120bps; 3) reduce working capital from 23% of revenue to 15-18%; and 4) exit loss-making businesses. Whilst the strategic focus towards increasing RoE (vs order inflow growth earlier) is positive, achieving everything is not that simple. The targets would need a revival in the Indian private sector capex, defence orders materialising into revenue and large infrastructure orders to become a norm. Moreover, when the company’s management will undergo a transition, maintaining double-digit growth, working capital and margin discipline seem difficult. In the near term, the company’s guidance on FY17E margin (50bps expansion in core) is achievable but it could marginally miss on revenue and order inflow growth guidance. Current valuation of 17x FY18E core EPS factors in the near-term positive catalysts and leaves no upsides. We remain SELLers with a TP of Rs1,250 (6% downside). Source: Ambit Capital research

Please refer to our website for complete coverage universe

http://research.ambitcapital.com

http://research.ambitcapital.com

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 26 December 2016

Cement Shree or UltraTech? Not turning BUYers yet Whilst cement volumes increased in November and early December, we now sense weakness and expect less than 4%/5% volume growth countrywide in FY17/FY18. Hence, expectations of high volume growth from UltraTech/Shree could disappoint. Firstly, as UltraTech brings Jaypee’s recently acquired inefficient capacities on stream at a time when demand is weak, it will have to support pricing by not pushing for market-share gains in extant capacities. On other hand, Shree’s capex/opex efficiencies will help it gain market share. Secondly, Shree’s industry-leading RoCE, high cash generation and smaller scale will keep growth materially higher than industry levels for the next decade. Hence, Shree’s target valuation of 13x FY19E EBITDA is higher than UltraTech’s 11.5x. We reduce near-term estimates, but more so for Shree given higher dependence on North/East (hardest hit by demonetisation). UltraTech’s target multiple reduction leads to a higher valuation cut. With Shree offering 5% upside, 10% correction could make us turn BUYers. We prefer Shree over UltraTech (SELLers on both).

Historically, UltraTech and Shree have been the preferred options to play the volume recovery story in India. With volume growth recovery now looking far-fetched as we head for another sub 5% demand growth year in FY18 (click here for our 18 Nov note on impact of demonetisation), we find valuations of these companies (14-14.5x FY18 EV/EBITDA) stretched even after the recent correction. However, if investors were to choose between the two, we prefer Shree Cement. A comparative analysis of the two companies based on structural parameters suggests that:

Shree’s industry-leading efficiency, high RoIC and scale advantage enable above-industry volume growth: We ascertain the operating efficiency of the Indian cement companies based on variable costs incurred per tonne. Unsurprisingly, Shree trumps peers both in terms of VC/tonne and change over the last few years whereas UltraTech ranks seventh. Shree’s unitary cost of capacity addition (determined by sum of capex/installed capacities) is one of the lowest in the industry, which helps it sustain industry-leading RoIC. Over FY11-16, Shree has grown capacity and volumes at ~15% CAGR, significantly higher than both UltraTech and industry (4-6% CAGR). On the back of continuous reinvestment in capacity additions and higher operating and capex efficiencies, we expect Shree to continue to grow above industry for the next decade, post which its scale could be large enough to make it difficult to beat industry.

UltraTech is likely to support pricing discipline by sacrificing market-share gains: UltraTech already has ~20% market share, which will rise to ~25% after the Jaypee acquisition. As UltraTech will be required to ramp up Jaypee’s recently acquired inefficient capacities at a time when demand growth is low, it will have to support pricing by not pushing for market-share gains in its extant capacities.

While momentum/perception factors could be a concern for Shree (low liquidity in stock and presence in North and East markets which could be worst affected by demonetisation), we believe Shree deserves a premium multiple to UltraTech. We lower our estimates to factor in the impact of demonetisation.

Shree Cement (SELL, TP Rs14,500, 7% upside): We believe Shree Cement deserves the highest valuation amongst the Indian cement companies given its continuously increasing scale alongside high utilisation and unmatched cost and capital efficiency. Our TP for Shree Cement implies 12.5x FY19 EV/EBITDA. To arrive at our implied valuation multiple, we build in 17% EBITDA CAGR over FY18-28.

UltraTech (SELL, TP Rs3,170, 2% upside): Our implied valuation for UltraTech (11x FY19 EV/EBITDA) is ~13% lower than Shree. Whilst UltraTech offers scale and pan-India exposure, its lower multiple is a function of less-than-ideal cost efficiency and capital discipline. To arrive at our implied valuation multiple, we build in 14% EBITDA CAGR over FY18-28.

NEGATIVE Quick Insight

Analysis Meeting Note News Impact

UltraTech SELL Bloomberg Code: UTCEM IN

Target Price (`): 3,170

CMP (`): 3,107

Mcap (` bn/US$ bn): 855/12.6

3M ADV (` mn/US$ mn): 1,566/23.3

Shree Cement SELL Bloomberg Code: SRCM IN

Target Price (`): 14,500

CMP (`): 13.499

Mcap (` bn/US$ bn): 471/6.9

3M ADV (` mn/US$ mn): 266/3.9

Research Analysts

Nitin Bhasin [email protected] Tel: +91 22 3043 3241

Parita Ashar, CFA [email protected] Tel: +91 22 3043 3223

mailto:[email protected]


http://reports.ambitcapital.com/reports/Ambit_Economy_Insight_MRTresetstothefore_18Nov2016.pdf

AMBIT INSIGHTS


Exhibit 1: Shree remains a preferred play both on structural factors as well as valuations

Which company is better placed? UltraTech Shree

Structural factors

Efficiency Shree: Shree ranks second best on our efficiency framework, given industry-leading cost of production and capex.

FY16 (Rs) VC/tonne Capex/tonne

SRCM 2,099 5,933

UTCEM 3,227 8,715

Scale Shree: Shree’s smaller scale and presence in fewer markets will enable the company grow volumes above the industry.

With UltraTech owning 65mt currently (16% of industry capacity) and likely to add another ~22mt (5% of industry) due to Jaypee acquisition, UltraTech will find it difficult to grow above industry at a time when demand is weak.

Shree’s current 26mt capacity is only 7% of the industry. This coupled with its entry into East India will enable Shree gain market share.

Volume growth

Shree: Higher efficiency, high cash generation and continuous reinvestment in capacity additions have enabled Shree achieve 15% volume CAGR over FY11-16 vs 4% for UltraTech and the industry. We expect this to sustain for the next decade given Shree’s relatively smaller scale. On the other hand, UltraTech will need to ramp up Jaypee’s recently acquired inefficient capacities at a time when demand growth is low. Hence, it will have to support pricing by not pushing for market-share gains in its extant capacities.

Year Volume growth (%)

FY12 3

FY13 0

FY14 2

FY15 8

FY16 7

FY17E 3

FY18E 6

FY19E 8

Year Volume growth (%)

FY12 29

FY13 1

FY14 14

FY15 13

FY16 17

FY17E 6

FY18E 15

FY19E 13

RoCE Shree: Shree’s capex efficiency and lower cost of production enable high RoICs despite being in a commodity business.

FY17E FY18E FY19E

9.6 10.8 12.8

FY17E FY18E FY19E

16.5 19.5 21.4

Momentum/Perception factors

Demonetisation

Shree: Volume growth is likely to be the most affected in North India, followed by East and West. Although UltraTech’s presence in South India makes it relatively better placed compared to Shree, Shree’s lower cost of production enables it to gain market share at a time when volumes are weak.

North East Central West South

28% 13% 12% 20% 27%

North East Central West South

81% 19% - - -

Liquidity (3M ADV US$mn)

UltraTech: Its higher liquidity, 5x of that of Shree, makes it better placed. 23.2 4.1

Valuation

EV/EBITDA (x)

Shree: On an EV/EBITDA basis, UltraTech and Shree trade at similar valuations. However, we believe UltraTech should trade at a discount given Shree’s superior RoCE profile, efficiency and scale benefit which enable it to clock above-industry growth.

FY17E FY18E FY19E

16.1 13.7 11.3

FY17E FY18E FY19E

16.4 14.0 11.1

EV/tonne (Rs)

Shree: On an EV/tonne basis, although UltraTech trades at a discount to Shree, UltraTech’s discount is justified given weaker Shree’s superior RoCE profile.

FY17E FY18E FY19E

12,549 12,549 12,549

FY17E FY18E FY19E

15,903 15,202 12,656

Source: Company, Ambit Capital research

AMBIT INSIGHTS


We discuss structural factors in detail below

#1 Operating and capex efficiencies

We ascertain the operating efficiency of the Indian cement companies based on the variable costs incurred per tonne and changes in the same over the last five years. Unsurprisingly, Shree trumps peers both in terms of VC/tonne and the change over the last few years, whereas UltraTech ranks seventh. Exhibit 2: Shree ranks the best on our efficiency framework

Company VC/tonne (FY16)

Rank – on VC/tonne

VC/tonne FY11-16 CAGR

Rank – on VC/ tonne CAGR

Overall Rank

Shree 2,099 1 -7% 1 1

Orient 2,230 2 -1% 3 2

Dalmia Bharat 2,630 3 -1% 2 3

Ramco 2,808 4 2% 4 4

JK Lakshmi 2,814 5 2% 5 5

Ambuja 2,837 6 3% 6 6

UltraTech 3,227 7 3% 7 7

ACC 3,284 8 5% 9 8

ICEM 3,920 10 3% 8 9

JK Cement 3,694 9 5% 10 10


Exhibit 3: Variable cost split for the ranking above (FY16)

Company RM Cost per tonne

P&F cost per tonne

Freight cost per tonne

Other VC per tonne

Total VC per tonne

VC Ex-freight

UltraTech 769 827 1,157 474 3,227 2,070

Ambuja 676 953 871 337 2,837 1,966

ACC 771 1,004 1,142 367 3,284 2,142

Shree 563 531 574 431 2,099 1,525

Dalmia Bharat 888 649 767 325 2,630 1,863

JK Lakshmi 976 770 927 140 2,814 1,887

Ramco 821 728 929 330 2,808 1,880

JK Cement 983 1,078 1,087 547 3,694 2,607

Orient 473 902 722 133 2,230 1,508

India 779 1,088 906 1,146 3,920 3,014


Capital efficiency helps sustain high RoCE: In the table below, Shree’s unitary cost of capacity addition (determined by sum of capex/installed capacities) is one of the lowest in the industry, which helps it sustain industry-leading RoCE.

Exhibit 4: Shree’s capacity addition costs are the lowest in the Industry

Particulars

Capacity Addition (mt) Weights Wtd. Capacity addition

Combined Cost

(FY05-16)

Wtd Cost per tonne (1) (2)

Integrated Grinding Integrated Grinding (1) X (2) (Rs mn) (Rs mn)

Shree 9.0 9.5 1 0.3 11.9 70,304 5,933

Mangalam 1.5 - 1 0.3 1.5 9,450 6,300

JK Lakshmi 4.0 1.3 1 0.3 4.4 30,427 6,931

ACC 9.5 0.8 1 0.3 9.7 69,277 7,131

ACEM 10.7 3.4 1 0.3 11.7 87,051 7,437

JK Cement 3.5 2.0 1 0.3 4.1 35,825 8,695

UltraTech 16.0 10.4 1 0.3 19.1 166,632 8,715

Ramco 6.0 3.0 1 0.3 6.9 63,710 9,233

Source: Company, Ambit Capital research. We assume 0.3 weight for grinding units, since the cost of a grinding unit is ~30% of the cost of an integrated cement plant

AMBIT INSIGHTS


#2 Scale; #3 Volume growth

Shree’s smaller scale enables above-industry volume growth: Over FY11-16, Shree Cement has expanded its capacity from 14mt in FY11 to 26mt by FY16 (14% CAGR). This is significantly higher than both UltraTech (~6% CAGR as capacity increased 49mt to 65mt) and the industry (~6%). Continuous reinvestment in capacity additions, higher operating level and capex efficiency has enabled Shree to achieve 15% volume CAGR over FY11-16 vs 4% for UltraTech and the industry.

Exhibit 5: Shree has significantly outperformed UltraTech on volume growth


Exhibit 6: Shree has scored in terms of ability to ramp up utilisation of even newer plants to >80%


Shree’s ability to grow above industry increased its volume market share from 4% in FY11 to 7% on FY16, whereas UltraTech’s market share has been largely stagnant. Despite the sharp increase in Shree’s market share, its scale is still less than half of that of UltraTech. Moreover, UltraTech is already a pan-India player whereas Shree is largely a North India player and has the ability to increase its presence in East India as well as other regions. Hence, we expect Shree to continue to grow above industry for the next decade, after which its scale would prevent it from beating industry growth. On the other hand, UltraTech has to ramp up the inefficient plants acquired from Jaypee at a time when the demand environment is weak. After the Jaypee acquisition, UltraTech would be ~25% of industry capacity. Hence, not only is UltraTech is unlikely to add capacities, it will also have to give up market share to support pricing as it will have debt on its balance sheet after the acquisition.

Exhibit 7: Sales volume market share

Source: Company, Bloomberg, Ambit Capital research

0

5

10

15

20

25

30

35

FY12

FY13

FY14

FY15

FY16

Volume Growth (%)

UTCEM SRCM

50

60

70

80

90

100

110

FY12

FY13

FY14

FY15

FY16

Utilisation (%)

UTCEM SRCM

4%6% 5% 6% 6% 7%

19% 18% 17% 17% 18% 19%

0%

5%

10%

15%

20%

25%

FY11 FY12 FY13 FY14 FY15 FY16

Market share

SRCM UTCEM

AMBIT INSIGHTS


#4 Capital allocation and RoCE

Shree’s below-industry opex and capex efficiencies (as highlighted in # 1 above) drive industry-leading EBITDA margins and invested capital turnover. On the back of focus on operating efficiencies, Shree has reported an average EBITDA margin of ~24% over FY11-16; this is significantly higher than ~20% for UltraTech despite the former’s smaller scale. Given ability to (a) complete capacity addition in shorter time span than the industry and (b) faster ramp-up in volumes at new capacity, Shree’s invested capital turnover is twice of that of UltraTech.

Exhibit 8: Shree Cement has displayed industry leading EBITDA margins and invested capital turnover

Particulars UltraTech Shree

FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16

EBITDA margin (%) 20.1 23.0 23.2 18.8 18.3 19.2 25.7 27.9 27.9 23.6 20.8 23.7 Invested capital turnover (ex-CWIP and cash) (x) 1.1 1.4 1.4 1.1 0.9 0.9 3.0 3.6 3.1 2.4 2.1 2.0

Source: Company, Ambit capital research; Note: We compare EBITDA margins for the two companies instead of usual practice of EBIT margins due to difference in depreciation policies for the two companies

Shree’s ability to quickly complete capacity additions and ramp-up volumes at new facilities is also corroborated by the fact that over FY11-15, Shree’s capex was Rs56bn (half of UltraTech’s capex) and it still achieved similar volume growth of ~9mt over FY11-16.

Exhibit 9: Sales volume market share

Source: Company, Bloomberg, Ambit Capital research; Note: We consider capex for FY11-15 and volume growth of FY16 over FY11 as there will be at least a year’s lag between capacity addition and commercial production.

Given different depreciation policies make it difficult to compare RoCE, we compare CFO with invested capital (which factors in capex and working capital efficiencies). Here, Shree remains a clear winner (refer exhibit below). Moreover, Shree has been able to continuously reinvest over 100% of cash generated back into the business.

Exhibit 10: Shree’s CFO to invested capital is significantly higher than UltraTech


Exhibit 11: Shree has invested >100% of its CFO back into business in all years except FY12


124

16 8.7

56

12.1 9.3

- 20 40 60 80

100 120 140

Capex (FY11-15) - Rsbn Capacity growth(FY11-16) (mt)

Volume growth(FY11-16) (mt)

UTCEM SRCM

0%

50%

100%

150%


UTCEM SRCM

0%

50%

100%

150%


UTCEM SRCM

AMBIT INSIGHTS


Shree - Revisions to estimates We cut our cement volume estimates for FY17/FY18 by 10%/16% given Shree’s presence in the northern and eastern markets, which will be significantly impacted by the demonetisation. We broadly maintain our realisation and EBITDA/tonne estimates. We have cut our EBITDA estimates for FY17/FY18 by 11%/12%. We revise and cut our target price by 16% to Rs14,500 (Rs17,231 earlier).

Exhibit 12: Changes to our assumptions for Shree Cement

Particulars (Rs mn unless mentioned)

Assumptions (New) Assumptions (Old) Changes

FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

Cement sales 19.7 22.6 25.6 21.8 26.9 30.8 -9.7% -16.1% -16.9%

Capacity utilisation (%) 73.0 78.3 78.8 86.0 96.0 94.8 -1292 bps -1772 bps -1600 bps

Cement Realisation 3,766 4,004 4,215 3,771 3,976 4,224 -0.1% 0.7% -0.2%

Operating costs 2,990 3,057 3,085 2,702 2,835 2,895 10.7% 7.8% 6.6%

EBITDA 1,054 1,158 1,287 1,106 1,153 1,326 -4.8% 0.4% -2.9%

Financials (Rs mn unless specified)

Net Revenues 83,624 99,576 116,579 92,188 115,839 137,933 -9.3% -14.0% -15.5%

EBITDA 24,873 30,547 37,523 27,954 34,770 44,485 -11.0% -12.1% -15.7%

EBITDA margin (%) 29.7 30.7 32.2 30.3 30.0 32.3 -58 bps 66 bps -6 bps

Adjusted PBT 16,538 21,842 27,349 17,906 26,334 34,107 -7.6% -17.1% -19.8%

Adjusted PAT 13,230 17,037 21,333 13,429 18,434 23,534 -1.5% -7.6% -9.4%

Gross Block turnover 0.8 0.8 0.8 0.9 0.9 0.9 -7 bps -13 bps -15 bps

RoCE 16.5 19.5 21.4 19.4 22.7 24.5 -291 bps -319 bps -313 bps

Target price 14,500 17,231 -16%

Source: Ambit Capital research

Our EBITDA estimates for FY17/FY18 is below consensus by 6%/3% as we believe consensus has not fully factored in the impact of the demonetisaion.

Exhibit 13: Our revenue and EBITDA estimates are lower than consensus

Consensus Ambit Divergence (%)

Revenue (Rs mn)

FY17E 88,403 83,624 -5%

FY18E 104,127 99,576 -4%

FY19E 124,302 116,579 -6%

EBITDA (Rs mn)

FY17E 26,507 24,873 -6%

FY18E 31,633 30,547 -3%

FY19E 38,944 37,523 -4%

PAT (Rs mn)

FY17E 14,824 13,230 -11%

FY18E 18,547 17,037 -8%

FY19E 23,237 21,333 -8%


AMBIT INSIGHTS


UltraTech - Revisions to estimates After the demonetisation, we expect cement demand in India to grow by 5-6% at best in FY18 versus 8% previously. Given our expectation of muted industry demand, we believe UltraTech will find it difficult to grow above the industry rate. As a result, we cut our cement volume estimates for FY17/FY18 by 4%/7% and factor in a 5% volume CAGR over FY16-18E. We marginally cut our realisation and EBITDA/tonne estimates. Cuts to our volume estimates drive 3%/8% cuts to our EBITDA estimates for FY17/FY18. We revise and cut our target price by 20% to Rs3,170 (Rs3,972 earlier).

Exhibit 14: Changes to our assumptions for UltraTech New Estimates Old Estimates Change

FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

Utilisation (%) 73.9 76.0 82.1 76.0 80.4 90.1 -3% -5% -9%

Despatches (mn tonnes) 49.2 52.2 56.4 51.3 55.9 62.7 -4% -7% -10%

Net Realisation (Rs/tonne) 4,797 5,085 5,339 4,847 5,140 5,447 -1% -1% -2%

Total cost (Rs/tonne) 3,737 3,916 4,021 3,765 3,925 4,086 -1% 0% -2%

EBITDA (Rs/tonne) 1,060 1,168 1,318 1,082 1,215 1,360 -2% -4% -3%

Revenues (Rs mn) 242,876 272,967 309,625 251,757 290,809 345,162 -4% -6% -10%

EBITDA (Rs mn) 53,649 62,712 76,445 55,539 67,949 85,235 -3% -8% -10%

PBT 40,020 49,018 64,655 39,155 52,774 70,966 2% -7% -9%

PAT (Rs mn) 27,612 33,820 44,608 27,800 37,469 50,386 -1% -10% -11%

EPS (Rs mn) 101 123 163 101 137 184 -1% -10% -11%

RoIC (%) 12.3 15.0 19.6 11.4 13.7 16.2 8% 9% 21%

RoCE (%) 9.6 10.8 12.8 10.0 11.9 14.2 -4% -9% -10%

RoE (%) 12.6 13.8 16.0 12.7 15.2 17.8 -1% -10% -11%

Target Price 3,170 3,972 -20%

Source: Ambit Capital research

Our EBITDA estimates for FY17/FY18 are 1%/7% below consensus as we believe consensus has not fully factored in the impact of the demonetisation.

Exhibit 15: Our estimates are lower than consensus

Consensus Ambit Divergence (%)

Revenue (Rs mn)

FY17 257,708 242,876 -6%

FY18 307,411 272,967 -11%

FY19 354,128 309,625 -13%

EBITDA (Rs mn) FY17 53,998 53,649 -1%

FY18 67,738 62,712 -7%

FY19 82,218 76,445 -7%

PAT (Rs mn) FY17 28,962 27,612 -5%

FY18 36,751 33,820 -8%

FY19 46,067 44,608 -3%


AMBIT INSIGHTS


Rationale for our exit multiple assumptions Shree Cement – 13x FY19 EV/EBITDA: We believe Shree Cement deserves the highest valuation amongst the Indian cement companies given its continuously increasing scale alongside high utilisation and unmatched cost and capital efficiency. Our TP for Shree Cement implies 13x FY19 EV/EBITDA. To arrive at our implied valuation multiple, we build in 18% EBITDA CAGR over FY18-28.

UltraTech – 11.5x FY19 EV/EBITDA: Our implied valuation for UltraTech Cement is ~13% lower than Shree. Whilst UltraTech offers scale and pan-India exposure, its lower multiple is a function of less-than-ideal cost efficiency and capital discipline. To arrive at our implied valuation multiple, we build in 14% EBITDA CAGR over FY18-28.

Exhibit 16: Relative valuation of Indian cement companies

Capacity

Rating

Mcap Advt 6m EV/EBITDA P/E EV/tonne CAGR (FY16-18) RoE

(mn tonnes) (Rs bn)

US$ mn

US$ mn

(x) (x) Rs Sales EBITDA EPS

(%)

FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18

Our estimates for Covered companies

UltraTech 68.7 68.7 SELL 865 12,684 18.9 16.2 13.9 31.2 25.5 12,695 12,695 6 17 25 13 14

Shree Cement 28.2 29.5 SELL 471 6,899 3.9 17.6 14.4 40.1 30.1 15,916 15,215 16 35 49 18 20

Ambuja 29.7 29.7 BUY 398 5,836 11.0 13.5 11.9 41.9 36.2 7,743 7,743 3 12 3 6 5

ACC 33.4 33.4 BUY 244 3,573 8.9 13.6 11.5 33.6 26.0 6,141 6,141 1 8 13 8 10

Orient Cement 8.0 8.0 BUY 24 355 0.8 17.3 8.3 (134.9) 17.1 4,643 4,643 23 56 51 (2) 13

Dalmia Bharat 25.0 25.0 BUY 129 1,926 2.2 11.1 9.1 37.3 20.6 7,651 7,651 14 16 75 8 13

Large cap UltraTech 68.7 68.7 SELL 865 12,684 18.9 16.1 12.9 30 23 12,697 12,697 14 19 30 13 15

Shree Cement 28.2 29.5 SELL 471 6,899 3.9 17.9 14.8 31 25 16,820 16,078 20 38 84 22 22

Grasim NA NA NR 377 5,617 12.2 6.2 5.1 12 10 10 18 27 12 12

Ambuja 29.7 29.7 BUY 398 5,836 11.0 19.1 15.3 31 26 11,734 11,734 12 21 21 9 10

ACC 33.4 33.4 BUY 244 3,573 8.9 15.4 12.0 33 24 6,878 6,878 7 13 32 9 12

Mid cap

Ramco Cements 13.5 13.5 UR 123 1,827 1.8 12.0 10.3 20 17 10,194 10,194 11 10 15 19 19

Dalmia Bharat 25.0 25.0 BUY 129 1,926 2.2 10.3 9.0 38 24 7,595 7,595 14 16 62 9 12

Century Tex 12.8 12.8 NR 83 1,241 18.3 13.4 NA 114 NA 9,733 9,733 NA NA NA 5 NA

Prism Cement 8.0 8.0 NR 41 613 0.8 14.4 9.8 59 19 7,768 7,768 5 28 NA 8 20

JK Cement 10.8 10.8 NR 45 669 0.4 10.8 8 24 13 6,807 6,807 14 28 139 12 19

JK Lakshmi Cement 11.0 11.0 NR 39 581 0.9 11.3 7.5 40 16 4,841 4,841 21 62 NA 8 17

Small Cap

Birla Corp 10.5 10.5 NR 48 710 1.2 9.5 9.5 17 14 4,305 4,305 16 48 51 10 11

OCL India 6.7 6.7 NR 39 582 0.4 6.5 5.4 11 9 5,638 5,638 9 10 39 22 23

Orient Cement 8.0 8.0 BUY 24 355 0.8 15.1 8.1 76 14 4,707 4,707 26 59 66 3 14

India Cements 18.5 18.5 NR 34 504 10.2 7.3 6.3 16 11 3,604 3,604 9 11 56 6 9

Heidelberg India 6.0 6.0 NR 25 367 0.6 11.0 8.3 30 16 5,143 5,143 9 21 101 9 15

Mangalam Cement 3.5 3.5 NR 7 98 0.4 7.4 5.5 14 8 2,843 2,843 18 104 NA 9 15

Sagar Cement 3.5 3.5 NR 11 160 0.3 7.9 6.3 24 12 3,642 3,642 19 28 41 9 13

Source: Bloomberg, Ambit Capital research

AMBIT INSIGHTS


Cross-cycle valuations On a cross-cycle basis, Shree Cement trades a 65% premium to its historical average. It has seen a significant re-rating over the past 7 years on the back of the company’s exemplary volume growth, ability to reinvest in the business with industry leading opex and capex efficiencies. Shree Cement trades at 15x one-year forward EV/EBITDA (based on consensus estimates), a 13% premium to UltraTech which trades at 13.2x. Shree deserves a premium to UltraTech given its superior RoCE profile, efficiency and the advantage of its small scale, enabling the company to grow volumes above the industry for the next decade. However, we believe valuations for both companies remain stretched and, hence, offer limited upside. We would wait for another 10% correction in Shree Cement and 15% in UltraTech before we turn BUYers.

Exhibit 17: Shree is trading at a 65% premium to historical average as the company grew 3x in last 7 years


Exhibit 18: UltraTech trades at an 18% premium to its historical average


On an EV/tonne basis, Shree trades at US$232/t, a premium to UltraTech, which trades at US$182/t (closer to replacement cost). Shree’s premium to both UltraTech and industry replacement cost is justified given its industry leading efficiencies which drive superior RoCE.

Exhibit 19: Shree is trading at a 70% premium to historical EV/tonne and 25% premium to UltraTech


Exhibit 120: UltraTech is trading at ~40% premium to historical EV/tonne


3

7

11

15

19

23

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

(X)

SHREE

One-yr fwd Ev/EBITDA Avg (FY10-17)

3

6

9

12

15

18

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

(X)

UltraTech

One-yr fwd EV/EBITDA Avg (FY10-17)

0

5,000

10,000

15,000

20,000

25,000

Jun-

09D

ec-0

9Ju

n-10

Dec

-10

Jun-

11D

ec-1

1Ju

n-12

Dec

-12

Jun-

13D

ec-1

3Ju

n-14

Dec

-14

Jun-

15D

ec-1

5Ju

n-16

Dec

-16

(Rs/

ton

ne

)

SHREE

One-yr fwd EV/tonne Avg EV/Tonne- FY09-15

0

5,000

10,000

15,000

20,000

Jun-

09D

ec-0

9Ju

n-10

Dec

-10

Jun-

11D

ec-1

1Ju

n-12

Dec

-12

Jun-

13D

ec-1

3Ju

n-14

Dec

-14

Jun-

15D

ec-1

5Ju

n-16

Dec

-16

(Rs/

ton

ne

)

UTCEM

One-yr fwd EV/tonne Avg EV/Tonne- FY09-15

AMBIT INSIGHTS


Economy Ambit’s qualitative leading indicators’ (QLI) tracker With qualitative data collected through primary data networks, often proving to be a stronger leading indicator of changes in the economy, we collate a weekly tracker that captures these critical qualitative inputs. On the positive front: (1) the Centre and states moved a step closer to GST rollout as they agreed to a compensation formula; (2) data from the Ministry of Agriculture showed that wheat sowing had been completed in 92% of the normal area; and (3) media reports suggested that Apple Inc is in talks with India's government to explore making products locally. On the negative front: (1) PM Modi indicated that the Government will soon implement more measures to crackdown on the black economy; (2) the PM also hinted that the Government could bring in long-term capital gain tax; and (3) the Tata-Mistry public spat showed that the independent company directors are vulnerable in India.

Exhibit 1: Ambit’s qualitative indicators’ tracker for the week commencing 19th December 2016

Head Description Positive/ Negative

Economy: Centre, states move a step closer to GST rollout

The second day of the GST council meeting, chaired by Finance Minister Arun Jaitley, saw both sides agree to a compensation formula wherein the Centre expressed its willingness to absorb any revenue losses accruing to the states on account of transition to the new indirect tax regime.

Similarly, the states met the Union Government halfway by agreeing to a proposal to explore alternative sources of receipts, besides the cess on so-called demerit goods including tobacco, pan masala and aerated drinks, to fund the compensation package.

The compromise sets the context for the next meeting of the GST council, on 3-4 January, to discuss the final agenda item: sharing of administrative powers between the Centre and states to govern GST (source: https://goo.gl/Nzkc6Y).

Positive

Economy : Apple in talks with India to manufacture locally

Apple Inc is in talks with the Indian government to explore making products locally as the US firm seeks to make deeper inroads in the world's second-largest mobile phone market by users.

Prime Minister Narendra Modi is trying to boost technology manufacturing in the country through his 'Make in India' initiative.

The Modi-led BJP government in June 2016 exempted foreign retailers for three years from a requirement to locally source 30% of goods sold in their stores (source: https://goo.gl/0P7FhW ).

Positive

Agriculture: Wheat sowing complete in 92% of normal area, shows farm ministry data

The sowing of rabi or winter crops have been completed in 87% of the seasonal area and that of wheat, the main crop of the season, is above normal for this time of the year, shows data released by the farm ministry.

Though sowing of wheat was delayed initially, the data shows that farmers have managed to plant the crop despite the cash crunch following the government’s demonetisation exercise.

However, the delay in planting wheat and a warmer-than-usual winter may impact yields, especially in areas, such as western Uttar Pradesh (sourcehttps://goo.gl/ouId4q).

Positive

Policy: India appoints new army, air force and intelligence chiefs

The Government has appointed new heads of its army and air force among a series of senior military and intelligence appointments, officials said, two weeks before its two most senior defence force chiefs are due to retire.

Vice Chief of Army Staff Lieutenant General Bipin Rawat was named as the new chief of the army. This appointment raised eyebrows among opposition parties because he was given the job ahead of two more senior candidates.

Separately, Air Marshal Birender Singh Dhanoa, a fighter pilot, was chosen as the new chief of India's air force to replace Air Chief Marshal Arup Raha.

The Indian government also announced senior appointments to its two main intelligence agencies (source: https://goo.gl/dq3NnE).

Neutral

Telecom: Tata-Mistry spat shows independent company directors vulnerable in India

The bitter boardroom battle at the heart of Tata Sons has put a spotlight on the vulnerability of India's independent company directors who stand-up to, or take on a dominant shareholder.

Tata Sons is not only fighting former chairman Cyrus Mistry, who has complained of mismanagement and corporate governance failures within the company, but is now also trying to oust Nusli Wadia, one of the group's most fiercely vocal independent directors, after he publicly backed Mistry.

Such corporate infighting is not rampant in India, but the latest events could set a dangerous precedent, suggesting an urgent need to relook at the role of independent company directors in the country, experts say (source: https://goo.gl/xEqwCc).

Negative

Quick Insight Analysis Meeting Note News Impact

Research Analysts

Ritika Mankar Mukherjee, CFA [email protected] Tel: +91 22 3043 3175 Sumit Shekhar [email protected] Tel: +91 22 3043 3229



AMBIT INSIGHTS



Economy: PM Modi says demonetisation only the beginning in the battle against corruption

In his last radio address of 2016, PM Narendra Modi reiterated that demonetisation of high-value currency notes was only the first step in the battle against corruption initiated by his government.

He said that the Government will soon implement the Benami property act to target other forms of illegally accumulated wealth.

Significantly, the Prime Minister also renewed his support for reform of electoral funding, a key factor stimulating accumulation of black wealth.

According to the PM, the flip flops in the guidelines for demonetisation were based on real-time feedback from the public (source: https://goo.gl/MfgzD6).

Negative

Economy: PM Narendra Modi favours higher taxes from market participants

PM Narendra Modi said tax collection from capital market participants is low and attributed it to illegal activities and fraud. The market has interpreted Modi's remark as a signal that the Government could bring in long-term capital gains tax in the upcoming Budget.

Currently, if a stock traded on an exchange is held for more than a year, gains from it are exempt from capital gains tax. If a trader books profit in a stock held for less than a year, he has to pay short-term capital gains tax of 15%.

"Those who profit from financial markets must make a fair contribution to nation-building through taxes," said Modi (source: https://goo.gl/1qXt0m).

Negative

Economy: RBI refuses to disclose deliberations of its Board on demonetisation

The Reserve Bank of India (RBI) has refused to allow access to minutes of meetings held to decide on the issue of demonetisation of Rs1,000 and Rs500 notes announced by the Prime Minister Narendra Modi on November 8.

Responding to an RTI application filed by activist Venkatesh Nayak, the RBI refused to disclose the minutes of the crucial meetings of Central Board of Directors on the issue of demonetisation citing section 8(1)(a) of the transparency law (source: https://goo.gl/9Ps0dw)

Negative


AMBIT INSIGHTS


Exhibit 2: Ambit’s qualitative indicators’ tracker for the week commencing 19th December, 2016 (continued)


BFSI: Bank credit growth remains weak

The RBI’s recent fortnightly credit data shows continued weakness in credit growth.

In the fortnight ending 9 Dec 2016, banks’ outstanding credit grew by Rs470bn vs decline of Rs1.2trn in the previous two fortnights (thanks to demonetisation’s impact) and growth of Rs1trn in the same fortnight last year. Thus, credit growth slowed to 5.8% vs 9.1% YoY at end-Oct 2016.

Deposit growth of 15.9% was boosted by deposits of old notes. Excluding such deposits of Rs12.4trn, deposits grew by a meagre 2% vs 7% YoY as on 25 Nov 2016.

The weak loan and deposit growth trends reflect subdued economic activity. We cut our FY17 bank credit growth estimate to ~3% YoY (see our note dated 13 Dec 2016). We remain negative on Indian banks amidst a weakening economy, weakening real estate sector and pressure on the informal economy.

Negative

Strategy: Channel Intermediaries Day

Channel intermediaries from across industries indicate that economic activity, more importantly discretionary consumption, remains adversely affected and any recovery in spending is at least 3-6 months away.

A Mumbai-based DSA and the SME-focused lending marketplace suggested that new applications are down 40% and risk averseness is rising as suggested by discontinuation of cash-income (or surrogate income) products and 20-30% mark-down in collateral values.

A leading auto channel partner from Patna indicated 2W are recovering better than 4W; rising inventories and 30-40% lower volumes have led to higher discounts from Maruti (click here for the note from our Channel intermediaries’ day).

Negative

Economy: An economic hammering is a given

Notwithstanding the long-term positive effects of the black money crackdown, we highlight that GDP growth is likely to surprise on the downside in 2HFY17 as well as in FY18.

Even as consensus gravitates towards our view that GDP growth in 2HFY17 could dip to a multi-year low, it is worth noting that GDP growth is unlikely to recover fully to pre-demonetisation levels in FY18 too.

This is mainly because the Government’s increased focus on tax compliance is likely to mean that the non-tax paying informal sector in India will begin to shrink in FY18, resulting in a degree of job losses and, hence, demand destruction (click here for the note).

Negative

BFSI: The brunt of collateral damage

The disbursements and collections of MFIs and SFBs are facing the impact of the ongoing cash crunch and rising political instigation against the MFI industry.

This makes things particularly difficult for SFBs amid rising opex due to bank- transition-related costs.

While the capital positions of listed SFBs (Equitas and Ujjivan) are strong, we cut earnings by 30-35%, due to both rise in credit costs and cuts in operating profit estimates. The added uncertainty around the RoE journey (sub -10%, over the next 18-24 months) has a bearing on valuation multiples (click here for the note).

Negative

Economy: India's central bank retracts directive for lenders to question depositors

The Reserve Bank of India (RBI) on 21st December retracted a directive for banks to question individuals depositing more than Rs5,000 in discontinued currency, just two days after issuing the order.

The central bank asked lenders to seek reasons why the funds were not deposited earlier in the government's crime-busting demonetisation campaign, which began on 8th Nov with the abolition of Rs500 and Rs1,000 notes, 86% of all cash.

The directive was widely criticised as diluting Government’s assurance that banks would accept the notes until the end of December.

It was withdrawn in a one-line notification for accounts verified with so-called know-your-customer documents. The central bank did not provide a reason for the withdrawal (source: https://goo.gl/5ln2y4).

Negative


http://reports.ambitcapital.com/reports/Ambit_Strategy_ChannelIntermediariesDay_19Dec2016.pdf

http://reports.ambitcapital.com/reports/Ambit_Economy_Insight_Aneconomichammeringisagiven_21Dec2016.pdf

http://reports.ambitcapital.com/reports/Ambit_BFSI_SectorUpdate_Thebruntofcollateraldamage_22Dec2016.pdf

AMBIT INSIGHTS


Utilities Weekly tracker In this weekly update, we have compiled the key news flow, regulatory developments and management/regulator interviews that occurred last week. The key positive news: (a) Third-party solar rooftop units cost 40% cheaper than rates offered by state discoms; (b) India to invest $1.9bn in solar power transmission; and (c) Haryana discom reports Rs2bn profit in 1HF17 vs a loss in FY16. The key negative news: Germany-based Senvion wins a 500MW wind contract in India, which is negative for Indian OEMs like Inox Wind.

Exhibit 1: Key news flows during last week

Sub-Segment / Company

Title Implications Description Source

Solar rooftop

Third-party solar rooftop units are 40% cheaper than discom rates

Positive

Rooftop solar units installed in industrial and corporate establishments by third parties are 30-40% cheaper than rates offered by state discoms.

https://goo.gl/TZ5YJw

Corporates end up saving at least 20-30% on their power bills as a result of the difference in tariff.

Rooftop solar is most popular in Gujarat, Tamil Nadu, Maharashtra and Karnataka (viability gap funding) as these states have the cheapest solar tariff compared to the grid.

Our view: Rooftop solar units are gaining acceptance in India with SECI (Solar Energy Corporation of India) floating 1.5GW of rooftop solar tenders recently.

We believe it makes a lot of commercial sense to install rooftop solar power, at least in cities where the share of commercial power is high; the potential is at least 100GW vs installed capacity of ~1GW.

Solar Power

India to invest $1.9bn in solar power transmission

Positive

India is planning investments worth $1.9bn in solar power transmission as part of its green corridor project.

https://goo.gl/C8JA60

About 60% will be invested in inter-state transmission projects and the remaining in intra-state capacity.

Our view: Creating a separate transmission infrastructure is key to the success of renewables given renewable is an ‘infirm power’ (i.e., supply is unpredictable).

Wind Power Senvion wins 500MW wind contract in India

Negative

Germany-based Senvion (earlier called RE Power) has received its first Indian contract for 500MW wind power for installations extending from 4QFY17 to 2019.

https://goo.gl/NQQJqC

Turbines from the recently acquired Kenersys portfolio will be used.

Our view: 500MW is a large order given we expect total ordering to be 2.6GW in FY17.

We expect foreign participation in wind power to increase, especially after MNRE relaxed rules for taking approval from it.

This is negative for Indian OEMs like Inox Wind.

Haryana Discom

Haryana discom reports Rs2bn profit in 1HF17 vs a loss in FY16

Positive

Dakshin Haryana Bijli Vitaran Nigam has become the first power utility to turn around under the UDAY scheme.

https://goo.gl/gXDGTd

It reported profit of Rs2.01bn in 1HFY17 (vs loss of Rs4.79bn in FY16).

However, Haryana's second discom Uttar Haryana Bijli Vitaran Nigam reported a loss of Rs12.33bn in 1HFY17 vs loss of Rs3.36bn in FY16.

Our view: We don’t believe SEBs' financial position has improved materially after the UDAY reforms given there is no improvement in power demand from discoms. Power demand growth has not accelerated and remained at 5% in 7MFY17.

Even in Haryana, loss for both the discoms combined has actually accelerated from Rs8.15bn in FY16 to Rs10.32bn in 1HFY17.

Source: Media reports, Ambit Capital research

NEUTRAL Quick Insight Analysis News Note Meeting Note

Research Analysts

Bhargav Buddhadev [email protected] Tel: +91 22 3043 3252

Deepesh Agarwal, CFA [email protected] Tel: +91 22 3043 3275

https://goo.gl/TZ5YJw

https://goo.gl/C8JA60

https://goo.gl/NQQJqC

https://goo.gl/gXDGTd



AMBIT INSIGHTS


Institutional Equities Team Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 [email protected] Pramod Gubbi, CFA Head of Equities (022) 30433124 [email protected]

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 [email protected] Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected] Abhishek Ranganathan, CFA Retail (022) 30433085 [email protected] Anuj Bansal Mid-caps (022) 30433122 [email protected] Aditi Singh Economy / Strategy (022) 30433284 [email protected] Ashvin Shetty, CFA Automobile (022) 30433285 [email protected] Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected] Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected] Gaurav Khandelwal, CFA Automobile (022) 30433132 [email protected] Girisha Saraf Mid-caps / Small-caps (022) 30433211 [email protected] Karan Khanna, CFA Strategy (022) 30433251 [email protected] Mayank Porwal Retail (022) 30433214 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected] Paresh Dave, CFA Healthcare (022) 30433212 [email protected] Parita Ashar, CFA Metals & Mining / Aviation (022) 30433223 [email protected] Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 [email protected] Rahil Shah Banking / Financial Services (022) 30433217 [email protected] Rakshit Ranjan, CFA Consumer (022) 30433201 [email protected] Ravi Singh Banking / Financial Services (022) 30433181 [email protected] Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected] Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected] Ritu Modi Automobile (022) 30433292 [email protected] Sagar Rastogi Technology (022) 30433291 [email protected] Sudheer Guntupalli Technology (022) 30433203 [email protected] Sumit Shekhar Economy / Strategy (022) 30433229 [email protected] Utsav Mehta, CFA E&C / Industrials (022) 30433209 [email protected] Vivekanand Subbaraman, CFA Media (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 [email protected] Dharmen Shah India / Asia (022) 30433289 [email protected] Dipti Mehta India (022) 30433053 [email protected] Krishnan V India / Asia (022) 30433295 [email protected] Nityam Shah, CFA Europe (022) 30433259 [email protected] Parees Purohit, CFA UK (022) 30433169 [email protected] Punitraj Mehra, CFA India / Asia (022) 30433198 [email protected] Shaleen Silori India (022) 30433256 [email protected]

Singapore

Praveena Pattabiraman Singapore +65 6536 0481 [email protected] Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola – CEO Americas +1(646) 793 6001 [email protected] Hitakshi Mehra Americas +1(646) 793 6002 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected] Sharoz G Hussain Production (022) 30433183 [email protected] Jestin George Editor (022) 30433272 [email protected] Richard Mugutmal Editor (022) 30433273 [email protected] Nikhil Pillai Database (022) 30433265 [email protected]

















































AMBIT INSIGHTS


Ultratech Cement Ltd (UTCEM IN, SELL)


Shree Cement Ltd (SRCM IN, SELL)


0500

1,0001,5002,0002,5003,0003,5004,0004,500

Dec

-13

Feb-

14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

Feb-

15

Apr

-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb-

16

Apr

-16

Jun-

16

Aug

-16

Oct

-16

UltraTech Cement Ltd

0

5,000

10,000

15,000

20,000

Dec

-13

Feb-

14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

Feb-

15

Apr

-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb-

16

Apr

-16

Jun-

16

Aug

-16

Oct

-16

Shree Cement Ltd

AMBIT INSIGHTS


Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs

Disclaimer This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically, and, in some cases, in printed form.

Additional information on recommended securities is available on request.

Disclaimer

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23. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It has also not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.

24. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors’ individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment decisions. Further information is available upon request. No member or employee of Ambit or ACUK accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of this report or its contents.

25. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well as go up and you may not get back the original amount invested. Some securities and/or investments involve substantial risk and are not suitable for all investors.

AMBIT INSIGHTS


26. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). Ambit and ACUK may from time to time render advisory and other services to companies referred to in this Report and may receive compensation for the same.

27. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or in related investments) or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

28. Ambit and ACUK may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this report you agree to be bound by the foregoing limitations. In the normal course of Ambit and its affiliates’ business, circumstances may arise that could result in the interests of Ambit conflicting with the interests of clients or one client’s interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified, managed and clients’ interests are protected. However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.

Disclosures 29. The analyst (s) has/have not served as an officer, director or employee of the subject company. 30. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities. 31. All market data included in this report are dated as at the previous stock market closing day from the date of this report..

Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. © Copyright 2016 AMBIT Capital Private Limited. All rights reserved.

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