ambit - strategy- india’s best and worst capital allocators

16 Aug 2011

Strategy

THEMATIC

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Please refer to the Disclaimers at the end of this Report.

India’s Best And Worst Capital Allocators On a cross-cycle basis we find that RoA drives share prices in India. Unfortunately, India’s RoA seems to be on a secular downtrend driven by falling profit margins and falling asset turnover. After showing that RoA ‘persistence’ is high at the sector level (but low at the stock level), we go on to identify market neutral pair trades across a range of sectors.

Over the past five years, India’s RoA has fallen thrice as much as the MSCI EM’s RoA. As a result, India’s RoA premium to the MSCI EM has disappeared raising questions about India’s 40% P/E premium to the MSCI EM (exhibits A & B).

Second, the main drivers of India’s RoA decline over the past six years have been a reduction in PAT margins (down 130bps or 12% between FY06-FY08 (which we call phase 1) and FY09-FY11 (which we call phase 2) and a reduction in asset turnover (down 0.2x or 17% between the two phases).

Third, we show that the sectors most afflicted by falling RoA – Non-ferrous Metals, Capital Goods, Shipping, Realty, Cement, Automobile, Steel, Hotels & Restaurants – have either seen heavy capex (in a country where the cost of capital is amongst the highest in the world and rising higher still) or large-scale acquisitions or rapid foreign entry. Conversely, most sectors that have shown RoA improvement – Packaging, Entertainment, Paints, Mining & Mineral Products, Plastic Products, Media – are relatively capital light and have not been involved in the acquisition of large overseas assets.

Fourth, we show that at the sector level RoA persistence is high in India i.e. sectors which have above-average RoA in phase 1 continue to have above-average RoA in phase 2. The same applies to sectors that have “below-average” RoAs. Only 19% of the total sectors defy this rule of RoA persistence. In contrast, companies do NOT display such RoA persistence. Even more interestingly, we find that RoA varies more within sectors than across sectors.

Our findings suggest that investors should first focus on the sector call (given the relative stability of sector level RoAs and given the ability of RoAs to drive shareholders’ returns) and then make stock calls within their chosen sectors. In the table on the right we have shown the sectors which have displayed the most RoA improvement across the two phases.

For investors who would like to bet on RoA changes within sectors without taking market risk, we highlight the following pair trades:

1. Construction- Long ENGR, Short IVRC (Momentum trade)

2. FMCG- Long BRIT, Short ZYWL (Mean reverting trade)

3. Automobiles- Long AL, Short TVSL (Mean reverting trade)

4. IT- Long HCLT, Short MPHL (Mean reverting trade)

5. Banks- Long PNB, Short SBIN (Momentum trade)

6. Capital Goods (Electrical Equipment)- Long SUEL, Short CRG (Mean reverting trade)

Analyst contacts

Saurabh Mukherjea, CFA Tel: +91 22 3043 3174 saurabhmukherjea@ambitcapital.com

Gaurav Mehta Tel: +91 22 3043 3255 gauravmehta@ambitcapital.com

Exhibit A: India’s RoA premium over MSCI EM dwindles…

FY06 FY07 FY08 FY09 FY10

India RoA MSCI EM RoA

Source: Ambit Capital research

Exhibit B: …raising questions about India’s P/E premium

PE Premium

Exhibit C: The only sectors with RoA increase across the FY06-11 period

Sector RoA Change

Packaging 1.8%

Entertainment 1.8%

Mining & Mineral products 1.6%

Paints/Varnish 1.3%

Plastic products 0.3%

Media - Print/Television/Radio 0.2%

Banks 0.0%

Source: Capitaline, Ambit Capital research

Strategy: India’s best and worst capital allocators

Ambit Capital Pvt Ltd 2

Section 1: Focus on RoA Given the difficult economic environment in India and abroad and given the adverse impact political gridlock in India is having on business outcomes in this country, we looked for a way to assess companies more dispassionately. Our search led us to analyzing capital allocation decisions of companies more closely because, whilst companies cannot control the economic and political environment, they can control the capital allocation decisions that they make. One way to assess the quality of a company’s capital allocation decisions is to examine its RoA across a full business cycle. So we have taken the last six financial years – FY06-FY11 and broken it into two phases:

Phase 1 is FY06-FY08

Phase 2 is FY09-FY11.

We calculate the average RoA in phases 1 and 2 for BSE500 companies. That then allows us to calculate the change in RoA across Phase 1 & 2. This comparison of RoA across phases 1 & 2 throws up several investment implications which the rest of this note delves into:

In this section we show the link between RoA and share price returns.

In section 2 (on page 4) we analyse why RoA is on a secular downtrend in India.

Section 3 (on page 10) looks at the persistence in RoA patterns across sectors i.e. sectors which are good at generating RoA tend to remain so. Stocks, however, do not display persistence to such an extent.

Sections 4-9 (on page 12-28) then focus on specific sectors. We rank the stocks in each sector based on their change in RoA across the two phases. We then construct a pair trade for each sector using stocks with diametrically opposite RoA profiles. The intent is to build pairs which investors can use to generate returns for investors without exposing them to market risk.

The link between RoA and shareholder returns

In the table below we have broken the BSE500 into five quintiles based on individual stock’s change in RoA between the two phases. Quintile 1 consists of the stocks with the biggest improvement in RoA and Quintile 5 contains the stocks with the lowest improvement (or the sharpest drop) in RoA.

Exhibit 1: RoA change (Phase 1 vs Phase 2) and the link to market performance

Quintile Average Investment Returns Median Investment Returns

1 162% 64%

2 114% 18%

3 126% 22%

4 39% -8%

5 11% -7%

Source: Ambit Capital research Note: Returns are measured over Mar 31, 2008 to Mar 31, 2011 period

As the table above shows, whether we use average returns or median returns, investment returns drop gradually as we move from Quintile 1 towards Quintile 5.

Exhibit 2: RoE change (Phase 1 vs Phase 2) and the link to market performance

Bucket Average Investment Returns Median Investment Returns

1 260% 84%

2 126% 32%

3 20% 13%

4 34% 10%

5 12% -28%

Source: Ambit Capital research. Note: Returns are measured over Mar 31, 2008 to Mar 31, 2011 period

Just as Exhibit 1 focuses on showing the link between RoA and investment returns, Exhibit 2 shows the link between ROE and investment returns. Clearly, both ROE and RoA have a significant impact on investment returns. However, in the majority of this note we focus on RoA for two reasons:

RoA strips out the impact of capital structure. Hence by focusing on RoA we make it harder for companies which have used more gearing to outshine companies which have used less gearing.

As the next section of the note shows, our analysis shows that gearing has not changed significantly in India between Phases 1 and 2. Hence the correlation between companies with high RoA and high ROE is relatively high - 0.85 and 0.87 respectively for Phases 1 and 2 at a sector level (We remove Air Transport from our analysis because even though this sector’s PAT remains negative through the entire period, the equity values turn negative in the second phase thereby resulting in a positive RoE number which is meaningless.)

Section 2: The downtrend in RoA As shown in the charts below, RoA and ROE have been on a secular downtrend for BSE500 across the last 5 years.

Exhibit 3: RoA Trend- On a decline

FY06 FY07 FY08 FY09 FY10 FY11

Source: Ambit Capital Research.

Exhibit 4: RoE Trend- On a decline

FY06 FY07 FY08 FY09 FY10 FY11

Source: Ambit Capital Research.

Before we enter sector specific analysis, in this section we explore the drivers of this secular downtrend. Exhibit 7 on the next page - which uses Dupont analysis to breakdown RoA into PAT Margin and Asset Turnover - shows that of the two factors, a reduction in Asset Turnover has been the bigger driver.

Even more worryingly for investors in Indian Equities, other Emerging Markets have not seen this sort of RoA drop – MSCI EM’s RoA fell by only 9% between the two phases as opposed to the 27% drop seen for India (see table on the next page). Comparing India and MSCI EM RoA over the last six years highlights India’s relatively steeper decline more clearly (see chart below).

This RoA decline is all the more worrisome for investors in the Indian market because it raises questions about the sustainability of the current 40% premium that India enjoys over MSCI EM on a P/E basis.

Exhibit 5: India’s RoA premium over MSCI EM dwindles…

FY06 FY07 FY08 FY09 FY10

India RoA MSCI EM RoA

Exhibit 6: …raising questions about the P/E premium that India enjoys over MSCI EM

PE Premium Source: Ambit Capital research

Exhibit 7: RoA Declining (Phase 1 vs Phase 2)

RoA PAT Margin Asset Turnover

Phase 1 Phase 2 Change Phase 1 Phase 2 Change Phase 1 Phase 2 Change

12.6% 9.3% -3.4% 10.7% 9.4% -1.3% 1.18 0.98 -0.20

% chg -27% -12% -17%

Note: Phase 1 here is the FY06-08 average while Phase 2 is the FY09-FY11 average

Source: Capitaline, Ambit Capital research; please note that the above table if for BSE500 universe ex-Financials

Exhibit 8 (which uses Dupont analysis to breakdown ROE into PAT Margin, Asset Turnover and Equity: Asset ratio) shows that PAT margin reduction and Asset Turnover reduction have been by far the bigger drivers of ROE decline (compared to a small decline in the Equity: Asset ratio).

Exhibit 8: RoE Declines (Phase 1 vs Phase 2)

RoE PAT Margin Asset Turnover Eq to Asset Ratio

Phase 1 Phase 2 Change Phase 1 Phase 2 Change Phase 1 Phase 2 Change Phase 1 Phase 2 Change

20.1% 15% -5.1% 10.7% 9.4% -1.3% 1.18 0.98 -0.20 62.8% 62.2% -0.6%

% chg -25% -12% -17% -1%

Source: Capitaline, Ambit Capital research; please note that the above table if for BSE500 universe ex-Financials

So what has led to a PAT margin drop by 130bps over this period? And why has Asset Turnover dropped by 17% over this period? To understand this better, we turn next to sectors that have contributed to declines in each of these two parameters.

Focusing first on PAT margin decline, Exhibit 11 points towards three interesting points:

Overcapacity: A number of sectors in Exhibit 11 – Shipping, Textiles, Cement, Steel, Telecom Services - have become characterized by either global or local overcapacity (eg. Shipping and Textiles have been hit more by global overcapacity whereas Telecomm Services and Cement have been hit more by local overcapacity).

Foreign entry into India: Some sectors in Exhibit 11 – Capital Goods, Consumer Durables, Agro Chemicals – have seen rapid foreign entry over the last 3-4 years particularly from Chinese and Korean firms. Indian firms have found it particularly hard to hold their ground in the face of rising foreign competition (see table below).

Exhibit 9: Positioning of global players in their respective segments in the Indian consumer durables market (from our recent thematic “No Juicy Apples”)

Company India Sales (USD bn)

India as % of global sales

Rank in the Indian market

Nokia 3.9 6.6% 1

Samsung (Electronics) 3.54 3.4% 2

LG 2.91 5.9% 1

Sony 1.27 1.4% 4

Suzuki 6.24 23.3% 1

Unilever 3.9 6.6% 1

Colgate 0.44 2.8% 1

Reckitt Benckiser 0.44 3.3% 1

Note: Data refers to CY10 for Global and Asia Sales and FY10 for Indian Sales; Source: Bloomberg, Company, Ambit Capital research

Rising cost of capital: A number of the sectors named on the next page have been capital hungry sectors – Capital Goods, Non Ferrous Metals, Steel, Power Generation & Distribution have been highly capital consumptive sectors in a country with rising cost of capital (see chart below).

Exhibit 10: Indian banks' lending rates amongst the highest in the EM universe (from our Economy piece titled “India Inc needs affordable capital”)

.a.) Brazil

Malaysia

Philippines

Source: Ambit Capital research.

Exhibit 11: Top Sectors with declining PAT Margins (Phase 1 vs Phase 2)

Sector PAT Margin Change

Shipping -13.4%

Hotels & Restaurants -8.1%

Miscellaneous -5.7%

Cement -4.4%

Non Ferrous Metals -3.9%

Capital Goods - Electrical Equipment -3.3%

Textiles -3.2%

Consumer Durables -3.2%

Gas Distribution -2.9%

Agro Chemicals -2.3%

Auto Ancillaries -1.9%

Power Generation & Distribution -1.9%

Castings, Forgings & Fastners -1.9%

Steel -1.7%

Telecomm-Service -1.7%

Fertilizers -1.7%

IT - Hardware -1.5%

Exhibit 12: Top Sectors on Asset Turnover decline (Phase 1 vs Phase 2) Sector Turnover Change Automobile (0.59) Diversified (0.45) Refineries (0.42) Capital Goods-Non Electrical Equipment (0.37) Non Ferrous Metals (0.36) Steel (0.32) Realty (0.30) Construction (0.24) Capital Goods - Electrical Equipment (0.22) Cement (0.21) Logistics (0.19) IT - Software (0.18) Auto Ancillaries (0.18) Hotels & Restaurants (0.18) Shipping (0.15) Computer Education (0.12) Telecomm-Service (0.11) Chemicals (0.11) Plastic products (0.10)

Moving on to Asset Turnover decline, Exhibit 12 points to a number of interesting points:

Inability to sweat fresh capex – The table above has a number of sectors where we have seen heavy capex over the last 3-4 years – Auto, Steel, Non-ferrous metals, Capital Goods, Refineries, Realty– but the returns from such capex have been elusive either because of overcapacity (Auto, Steel, Metals, Realty) or because the economic environment has not been particularly conducive over the last three years (Capital Goods).

Exhibit 13: Sectors with the highest increase in assets (% increase Phase 2 vs Phase 1) Sector Asset Increase Ship Building 207% Computer Education 193% Healthcare 171% Realty 169% Infrastructure Developers & Operators 155% Construction 150% Entertainment 123% Cement 115% Automobile 108% Steel 108% Non Ferrous Metals 97% Telecomm-Service 97% Hotels & Restaurants 95% IT - Software 94% Plastic products 92% Finance 92% Retail 91%

Source: Capitaline, Ambit Capital research.

Foreign acquisitions – In some of these sectors – Auto, Steel, Non-ferrous metals – Indian firms have been notable acquirers of large foreign assets (see table below) which have had lower asset turnover ratios.

Exhibit 14: Key acquisitions by Indian firms- Materials and Automobiles

Acquirer Target Announcement Date Announced Total Value (USDmn)

Materials

Tata Steel Ltd Corus Group Ltd 17-Oct-06 12,780

Hindalco Industries Ltd Novelis Inc/GA 11-Feb-07 5,706

JSW Steel Ltd JSW ISPAT Steel Ltd 23-Dec-10 1,972

Kohinoor Foods Ltd Nagarjuna Fertilizers & Chemicals 8-Aug-11 1,432

Essar Global Ltd Essar Steel Algoma Inc 15-Apr-07 1,421

Tata Chemicals Ltd General Chemical Industrial Products Inc 31-Jan-08 1,005

Automobiles

Tata Motors Ltd Jaguar Land Rover Operations 26-Mar-08 2,300

Hero Motocorp Ltd Hero Motocorp Ltd 16-Dec-10 847

Mahindra & Mahindra Ltd Ssangyong Motor Co 23-Nov-10 703

Eicher Motors Ltd Volvo AB 10-Dec-07 625

Source: Bloomberg

In light of the challenges highlighted above (around maintaining PAT margins and Asset Turnover) it is not surprising that the sectors whose RoAs fell the most across these two phases are as follows: Shipping, Non Ferrous Metals, Realty, Capital Goods, Cements, Hotels, Steel, Auto and IT - Software (see Exhibit 15).

Exhibit 15: Top Sectors with RoA decline

Sector RoA Change PAT Margin Change

Asset Turnover Change (x)

Share Price Performance*

Non Ferrous Metals -9.8% -3.9% (0.36) 27%

Shipping -8.4% -13.4% (0.15) -36%

Capital Goods - Electrical Equipment -8.0% -3.3% (0.22) -23%

Realty -7.7% 1.3% (0.30) -66%

Cement -6.8% -4.4% (0.21) -6%

Steel -5.7% -1.7% (0.32) 4%

Hotels & Restaurants -5.6% -8.1% (0.18) -27%

Automobile -5.0% -0.2% (0.59) 117%

Capital Goods-Non Electrical Equipment -5.0% -0.7% (0.37) 20%

IT - Software -4.3% -0.1% (0.18) 105%

Average -7% -3% -29% 12%

Median -6% -3% -26% -1%

Source: Ambit Capital research.* Share price performance as calculated from Mar 31st 2008 to Mar 31st 2011.

If we focus now on the other end of the RoA spectrum – on sectors which have shown an RoA improvement across the two periods – see table below – we find that these sectors have, by and large, shown PAT margin and asset turnover improvements.

Exhibit 16: The only sectors with RoA improvements across the two phases

Sector RoA Change PAT Margin Change

Asset Turnover Change (x)

Share Price Performance*

Packaging 1.8% 2.3% 0.02 -21%

Entertainment 1.8% 4.0% (0.01) 6%

Mining & Mineral products 1.6% 0.7% 0.02 -10%

Paints/Varnish 1.3% 0.5% (0.02) 105%

Plastic products 0.3% 1.0% (0.10) 26%

Media - Print/Television/Radio 0.2% -0.7% 0.07 -27%

Banks 0.0% 0.4% (0.00) 77%

Average 1% 1% (0.0) 22%

Median 1% 1% (0.0) 6%

Source: Capitaline, Ambit Capital research. * Share price performance as calculated from Mar 31st 2008 to Mar 31st 2011.

So why have the sectors shown in the table above been able to improve their RoAs?

Relatively few acquisitions: Very few Indian firms in the sectors shown above embarked upon global acquisitions.

Capex light: The sectors shown in the table above are relatively capex light (with the exception of Mining, which has shown negative shareholder returns and Banks, which has clocked negligible change in RoA). Hence their PAT margins have not been impacted meaningfully by the rising cost of capital in India.

Section 3: Autocorrelation and Variability The whole premise of analyzing RoA is predicated on the consistency and stability of this metric. If it turns out that RoA is immensely volatile and fluctuates dramatically from one period to the next, clearly focusing on past trends will then be of limited value.

Thankfully, at the sector level RoA is relatively stable i.e. most sectors which generate above average RoA in phase 1 of our study are also likely to display above average RoA in phase 2 of our study. Also, sectors which have below average RoA in Phase 1 are also likely to stay below average in Phase 2. In fact, only 19% of sectors – the two middle columns of the table below – switch from above average to below average (or vice versa) across the two phases. In statistical terms, there is an 82% correlation between sectoral RoAs across phases 1 & 2.

Exhibit 17: Persistence in RoA across the two phases Sectors with above average RoAs in Phase 1 and 2

Sectors with above average RoA in Phase 1 but below average in Phase 2

Sectors with below average RoA in Phase 1 but above average in Phase 2

Sectors with below average RoAs in Phase 1 and 2

Mining & Mineral products Steel Plantation & Plantation Products Telecomm Equipment & Infra Services

Paints/Varnish Realty Computer Education Packaging

FMCG Shipping Tyres Entertainment

Gas Distribution Non Ferrous Metals Media - Print/Television/Radio Sugar

Chemicals Pharmaceuticals Cables

Diversified Construction Infrastructure Developers & Operators

Auto Ancillaries Healthcare

Crude Oil & Natural Gas Plastic products

IT - Software Banks

Capital Goods-Non Electrical Equipment Retail

Automobile Agro Chemicals

Logistics Power Generation & Distribution

Cement Diamond, Gems and Jewellery

Capital Goods - Electrical Equipment Finance

Edible Oil

Fertilizers

Castings, Forgings & Fastners

Alcoholic Beverages

Telecomm-Service

Textiles

Miscellaneous

Consumer Durables

Trading

IT - Hardware

Refineries

Ship Building

Glass & Glass Products

Hotels & Restaurants

Air Transport Service

At the stock level, however, the picture is very different. The correlation for stock-level RoAs across two periods is a mere 53% suggesting that sector level RoA is far more stable across time than stock level RoA. The same point also emerges from regression analysis – see table below.

Exhibit 18: Regression Results (Phase 2 over Phase 1)

Sector Level Stock Level

Correlation Coefficient 0.82 0.53

R Square 0.68 0.28

Continuing on this thread, we show in the table below that variability of return on asset ratios across sectors is lower than within sectors i.e. RoAs fluctuate more WITHIN A SECTOR THAN ACROSS SECTORS.

Exhibit 19: Variability in RoAs: Across and within sectors

Coefficient of Variation* Across Sectors Within Sector

Phase 1 0.69 1.47

Phase 2 0.72 1.46

Source: Ambit Capital research. * This is standard deviation / average.

These two points – (a) sectoral RoAs are more stable than stock level RoAs across time; and (b) at a point in time, variability in RoAs is greater within a sector than across sectors – have important investment implications:

Firstly, this suggests that the first investment call should be on the sector as, from a RoA perspective, it is a more stable unit of analysis than individual stocks are.

Secondly, once we are within sectors, making a call on RoA at the stock level is a tricky affair. Hence investors need to use tools such as our forensic accounting model to identify high quality companies within their chosen sectors. Our forensic accounting model ranks BSE500 stocks in each sector into four quartiles – quartile A is the 25% of stocks with the best accounting quality and quartile D is the worst 25% of stocks from an accounting quality perspective. In a note dated 9th May, 2011, we showed that companies with better accounting quality have generated superior stock market performance across 1, 3 and 5 years across a variety of metrics. Moreover, this flight to quality has been especially more stark in the last three year period.

Analysing RoA within sectors

In the sector specific sections which follow we look at cross-cycle RoA performance for the constituents of each sector and thereby identify the best and worst RoA performers inside each sector. You might want to think of these companies as India’s best and worst capital allocators over the past six years given that they are being compared to their closest listed peers on a like-for-like basis across a lengthy period of time. We then structure pair trades around our expectation of how RoA will evolve going forward for specific companies.

Given the high variability in RoA across stocks in a specific sector, our pair trade strategies fall under two broad categories:

Momentum pair trades: Here we go long (short) on the firm which has outperformed (underperformed) its sectoral peers on RoA over the past 6 years. We have momentum pair trades in two sectors- Construction, Banks.

Mean reverting pair trades: Here we go long (short) on the firm which has UNDERperformed (OUTperformed) its sectoral peers on RoA over the past 6 years. We have mean reverting pair trades in the following sectors- FMCG, Automobiles, Information Technology, Capital Goods (Electrical Equipment).

Section 4: Construction With the exception of EIL, a consulting firm, no other firm in this sector has been able to improve its RoA between Phase 1 and Phase 2.

Exhibit 20: Construction- How they stack up on RoA Changes

Firm Name Bloom Ticker Mkt Cap

(USD mn) RoA

2006 RoA

2007 RoA

2008 Phase 1 Average

RoA 2009

RoA 2010

RoA 2011

Phase 2 Average

RoA Change

In Top Half on

Accounting?

Engineers India ENGR IN EQUITY 2,745 16% 13% 17% 15% 25% 39% 39% 34% 19% YES

Punj Lloyd PUNJ IN EQUITY 477 2% 2% 6% 4% 6% 5% 0% 4% 0% YES

Era Infra Engg. ERIE IN EQUITY 889 8% 7% 6% 7% 8% 7% 0% 7% 0% NO

Simplex Infra SINF IN EQUITY 497 6% 6% 6% 6% 6% 5% 0% 6% 0% NO

Larsen & Toubro LT IN EQUITY 22,368 17% 18% 17% 17% 18% 17% 14% 16% -1% YES

Gammon India GMON IN EQUITY 673 10% 3% 5% 6% 6% 4% 0% 5% -1% NO

Sadbhav Engg. SADE IN EQUITY 358 8% 12% 12% 11% 11% 7% 10% 9% -1% NO

Hind.Construct. HCC IN EQUITY 490 6% 1% 4% 4% 4% 2% 1% 2% -1% NO

Ahluwalia Contr. AHLU IN EQUITY 295 21% 22% 28% 24% 23% 22% 0% 22% -2% YES

NCC NJCC IN EQUITY 577 7% 7% 7% 7% 5% 6% 3% 5% -2% YES

IVRCL IVRC IN EQUITY 981 8% 8% 8% 8% 7% 6% 4% 6% -2% NO

Patel Engg. PEC IN EQUITY 705 11% 9% 9% 10% 7% 4% 0% 6% -4% NO

C C C L CCCL IN EQUITY 208 11% 15% 15% 14% 10% 10% 5% 8% -6% NA

Vascon Engineers VSCN IN EQUITY 311 9% 16% 11% 12% 4% 6% 6% 5% -7% NA

As the table below shows, the driver for lower RoA in this sector has been a reduction in PAT margin and a reduction in Asset Turnover.

Exhibit 21: Construction- Deconstructing RoA (Change from Phase 1 to Phase 2)

Firm Absolute* Sector Relative*

Firm Name Bloom Ticker RoA Change

Profit Margin Change

Asset Turnover

Change

RoA Change

Asset turnover

change Engineers India ENGR IN EQUITY 19% -2% 0.99 19% -3% 1.07

Punj Lloyd PUNJ IN EQUITY 0% 0% (0.05) 0% -1% 0.04

Era Infra Engg. ERIE IN EQUITY 0% -1% 0.08 0% -2% 0.16

Simplex Infra SINF IN EQUITY 0% -1% 0.20 -1% -1% 0.29

Larsen & Toubro LT IN EQUITY -1% 3% (0.60) -1% 2% -0.51

Gammon India GMON IN EQUITY -1% -1% 0.06 -1% -2% 0.15

Sadbhav Engg. SADE IN EQUITY -1% 0% (0.20) -1% -1% -0.11

Hind.Construct. HCC IN EQUITY -1% -1% (0.09) -2% -2% -0.00

Ahluwalia Contr. AHLU IN EQUITY -2% 0% (0.36) -2% -1% -0.28

NCC NJCC IN EQUITY -2% -1% (0.24) -2% -1% -0.15

IVRCL IVRC IN EQUITY -2% -2% 0.20 -2% -3% 0.29

Patel Engg. PEC IN EQUITY -4% -4% (0.25) -4% -4% -0.16

C C C L CCCL IN EQUITY -6% -2% (0.36) -6% -2% -0.28

Vascon Engineers VSCN IN EQUITY -7% -6% (0.16) -7% -6% -0.07

Source: Capitaline, Ambit Capital research * The ‘Firm absolute’ figures here indicate the changes in RoA, Profit Margin and Asset Turnover for the firm in absolute terms from Phase 1 to Phase 2 while the ‘Sector Relative’ changes highlight the same measures for the firm relative to the sector. The figures here are as sourced from Capitaline and may differ somewhat from the bottom up numbers of our sector leads.

In light of EIL’s positive RoA trend and IVRCL’s negative RoA trend, we focus on our long-short trade on this pair.

Pair Idea: Long ENGR, Short IVRC (Momentum trade)

Long Trade- Engineers India (ENGR IN)

EIL provides consultancy and project management services primarily in the hydrocarbon and petrochemical sectors. In the construction segment, EIL mostly provides overall project management services and has back-to-back contracts for civil construction jobs, resulting in low capital investment requirements for this business.

The increasing proportion of lump sum turnkey EPC contracts (LSTK) in the revenue mix since FY08 (60% in FY11 versus 25% over FY05-08) has resulted in revenue CAGR of 56% over FY2008-2011 compared with a decline of 7% over FY2005-2008.

Whilst the average EBITDA margins on this fast growing LSTK projects were lower than the consultancy business, high revenue growth in LSTK businesses along with no meaningful requirement of gross block or working capital led to high operating leverage thus driving PAT by 39% CAGR over FY2008-2011.

EIL is a debt free company and works on an asset light model, with people and computers as its main assets. As the company focuses only on its core businesses and does not have any BOT aspirations, most of its capital employed remained invested in the business rather than future investments.

The company has a negative working capital cycle as it takes mobilization advances from clients to execute contracts, thus keeping the capital employed requirements low. EIL. This coupled with high revenue growth increased the capital employed turnover to 2.2X in FY2011 (0.6X in FY2008).

EIL’s order book at the end of June -2011 is Rs68bn and LSTK segment accounts for ~64% of the order book. This should allow EIL to maintain revenue growth momentum in the near-term. In the recently reported 1QFY12 numbers, EIL posted revenue growth of 41% and net earnings growth of 29%. Its foray into related engineering sectors such as renewable energy and nuclear power can add more revenue streams and also bring some more benefits of operating leverage to net margins.

Going forward whilst we do not expect similar revenue growth as in the last three years, incremental improvements in asset turnover are expected on account of continuing revenue growth in LSTK and consultancy business growth picking up. We highlight that neither of these segments require any meaningful capital investments.

Whilst company level EBITDA margin declines may lead to net margin decline (LSTK has a lower EBITDA margin), RoAs will increase from hereon on account of asset turnover increasing more than the decline in net margins.

Short Trade- IVRCL Infra (IVRC IN)

IVRCL is engaged in civil construction across different sectors (water/irrigation, transportation, building and power) and this entails heavy working capital investments in the business. Therefore, historically IVRCL’s RoAs (4%-8%) have always been significantly lower than EIL (19%-39%).

The increasing proportion of slow moving Andhra Pradesh irrigation projects and captive road projects in FY2010 and 2011 moderated revenue CAGR to 16% over FY2008-2011 from 51% CAGR over FY2005-2008.

Analyst: Nitin Bhasin nitinbhasin@ambitcapital.com Tel: +91 22 3043 3241 Analyst: Chhavi Agarwal chhaviagarwal@ambitcapital.com Tel: +91 22 3043 3203

Average EBITDA margins declined to 9.3% over FY2009-2011(9.6% over

FY2006-2008) as moderate revenue growth resulted in low fixed overhead costs absorption. High interest costs compounded the impact on net margins, pulling them lower to 2.8% in FY2011 from 5.1% in FY2008.

Increasing investments in the BOT assets (Rs6.3bn invested in subsidiaries over FY2208-11) and rising working capital requirements, increased the Debt:Equity to 1.0X in FY2011 from 0.5X in FY2008. At the end of FY2011, nearly 30% of the capital employed was invested in BOT assets, mainly in IVRAH which owns underperforming road BOT assets and stalled real estate projects.

Execution delays in the slow moving orders increased working capital requirements hence capital employed turnover declined to 2.0X in FY2011 from 2.3X in FY2008.

IVRCL’s order book at the end of June 2011 is Rs237bn and captive orders (road) continue to account for 20%~25% of the order book. Given that captive orders are slow moving due to the lack of availability of capital, we expect revenue growth to be only ~10%-12% in FY2011.

IVRCL continues to face execution issues and revenue grew by only 2% YoY in 1QFY12. Despite revenue growth picking up over next couple of years, we expect high leverage costs to keep PAT margins low.

IVRCL has to invest ~Rs1.8bn in BOT road projects in FY2012 and post that another Rs6bn over the next three years. Given that IVRCL does not generate positive cash flows, we believe IVRCL will have to raise debt in order to fund its BOT aspirations. We expect debt-equity to increase to 1.3X in FY2012 from the current level of 1.0X. A large amount of incremental capital will be invested in businesses which will not add to net margins in the near-term.

Rising working capital requirements in FY12, increasing BOT equity infusions and declining net earnings margins will keep RoAs at low levels. We expect RoA to decline by another 100bps over next couple of years.

Price Ratio

Exhibit 22: ENGR over IVRC- Parabolic outperformance; expect trend to continue

ENGR/IVRC Price Ratio

Technical analyst: Gaurav Mehta gauravmehta@ambitcapital.com Tel: +91 22 3043 3255

Section 5: FMCG Inspite of FMCG’s obvious cash generative qualities and inspite of its robust profit margins, the majority of firms in this sector have seen their RoAs fall between Phase 1&2 as rising competition and overseas acquisitions take their toll.

Exhibit 23: FMCG- How they stack up on RoA Changes

(USD mn) RoA

2006 RoA

2007 RoA

RoA 2009

RoA 2010

RoA 2011

Phase 2 Average

RoA Change

In Top Half on

Accounting?

Colgate-Palm. CLGT IN EQUITY 2,463 50% 56% 139% 82% 131% 128% 105% 121% 40% NO

Zydus Wellness ZYWL IN EQUITY 519 15% 21% 19% 18% 35% 45% 42% 40% 22% YES

Nestle India NEST IN EQUITY 8,132 78% 98% 113% 96% 113% 96% 0% 104% 8% YES

GlaxoSmith C H L SKB IN EQUITY 2,162 23% 25% 25% 24% 26% 31% 0% 28% 4% YES

ITC ITC IN EQUITY 31,202 24% 25% 25% 25% 23% 29% 31% 28% 3% YES

REI Agro REIA IN EQUITY 349 6% 5% 4% 5% 2% 3% 4% 3% -2% YES

Kwality Dairy KLD IN EQUITY 558 10% 11% 8% 10% 8% 7% 0% 7% -2% NO

Jyothy Lab. JYL IN EQUITY 274 18% 18% 16% 17% 11% 20% 13% 15% -3% NA

P & G Hygiene PG IN EQUITY 1,446 51% 31% 38% 40% 41% 34% 0% 37% -3% NO

Marico MRCO IN EQUITY 1,894 20% 33% 24% 26% 21% 25% 22% 23% -3% YES

Tata Global TGBL IN EQUITY 1,343 13% 13% 12% 13% 6% 15% 7% 9% -3% NO

Emami HMN IN EQUITY 1,345 13% 26% 28% 23% 12% 19% 25% 18% -4% NO

Britannia Inds. BRIT IN EQUITY 984 26% 17% 22% 22% 21% 14% 16% 17% -5% YES

Gillette India GILL IN EQUITY 1,254 0% 40% 28% 34% 23% 24% 0% 24% -10% NO

Dabur India DABUR IN EQUITY 3,715 40% 60% 58% 53% 42% 50% 35% 43% -10% YES

Godrej Consumer GCPL IN EQUITY 2,628 150% 59% 52% 87% 27% 30% 24% 27% -60% NO

Exhibit 24: FMCG- Deconstructing RoA (Change from Phase 1 to Phase 2)

Firm Name Bloom Ticker RoA

Change

Asset Turnover

Change

RoA Change

Asset turnover

change

Colgate-Palm. CLGT IN EQUITY 40% 6% 0.63 41% 6% 0.64

Zydus Wellness ZYWL IN EQUITY 22% 7% 0.59 24% 7% 0.60

Nestle India NEST IN EQUITY 8% 1% (0.07) 9% 2% -0.06

GlaxoSmith C H L SKB IN EQUITY 4% 0% 0.25 5% 1% 0.26

ITC ITC IN EQUITY 3% 0% 0.13 4% 0% 0.13

REI Agro REIA IN EQUITY -2% -2% (0.06) -1% -2% -0.05

Kwality Dairy KLD IN EQUITY -2% 0% (0.19) -1% 1% -0.18

Jyothy Lab. JYL IN EQUITY -3% 0% (0.16) -1% 0% -0.16

P & G Hygiene PG IN EQUITY -3% 1% (0.21) -2% 2% -0.20

Marico MRCO IN EQUITY -3% 2% (0.69) -2% 3% -0.68

Tata Global TGBL IN EQUITY -3% -10% 0.10 -2% -10% 0.11

Emami HMN IN EQUITY -4% 1% (0.39) -3% 2% -0.39

Britannia Inds. BRIT IN EQUITY -5% -3% 0.98 -3% -2% 0.99

Gillette India GILL IN EQUITY -10% -4% (0.22) -9% -3% -0.21

Dabur India DABUR IN EQUITY -10% 0% (0.67) -9% 1% -0.67

Godrej Consumer GCPL IN EQUITY -60% 0% (3.31) -59% 1% -3.31

ColPal has been the RoA star across the two phases although we note that its RoA uplift in FY08 was mainly driven by a reduction in share capital as a result of its move to return cash to shareholders.

At the other extreme, GCPL’s RoA has been dragged down from FY09 onwards due to its several acquisitions which have progressively led to lowering of RoA as against the high RoA legacy portfolio.

Pair Idea: Long BRIT, Short ZYWL (Mean reverting trade)

Long Trade- Britannia (BRIT IN)

Britannia Industries had significantly underperformed its FMCG peers on account of margin challenges during the period FY06-11. Its operating margin saw a decline by 300bps during the period FY06-11 and this trend had the maximum impact on the RoA of the company. However, asset turnover during the same period was healthy and remained above trend. In our opinion, the growth outlook for the biscuit and packaged food category is very encouraging and this should benefit the company significantly. On an aggregate basis we expect industry growth could be in the region of 20%. Raw Material Inflation trends are also moderate as compared to the recent past. Importantly, Britannia has over last several years taken significant steps to strengthen some of its key brands such as ‘Good Day’, ‘Nutri Choice’ and ‘Tiger’ which we believe will help in protecting margins. On an aggregate basis, we expect ebidta margins for the company to see an improvement by 200-300 bps and (assuming constant asset turn) overall RoA for the company could see improvement by 500 bps over the next 2-3 years.

Short trade- Zydus Wellness (ZYWL IN)

Zydus Wellness is a niche player in the FMCG space. Its strong growth during the period FY06-11 was led by brands such as ‘Sugar Free’, ‘Nutralite’ and ‘EverYuth’. During this period, it reported growth of more than 60% in sales and a 10% point expansion in margins which resulted in a nearly doubling of average RoA to 40%. Our view is that competitive intensity in these niche categories has seen a significant increase over the last 2-3 years (launch of margarine and facewash products by other players) and this in our view could have significant impact on growth profile and margin trends of the company. This increase in competitive intensity is also corroborated by a significant slowdown in sales growth momentum reported by the company over past 2-3 quarters. In our opinion, RoA for the company could see a meaningful decline by 500-700 bps led by decline in asset turn and margins over the next 2-3 years.

Price Ratio – see charts on the next page

Analyst: Vijay Chugh vijaychugh@ambitcapital.com Tel: +91 22 3043 3054 Analyst: Ashvin Shetty, ashvinshetty@ambitcapital.com Tel: +91 22 3043 3285

Exhibit 25: BRIT over ZYWL (Longer Term)- RoA improvements have led to BRIT underperforming ZYWL massively

BRIT/ZYWL Price Ratio

Exhibit 26: BRIT over ZYWL (Shorter Term)- Signs of bottom formation- Reinforcing our forward looking hypothesis on reversion

BRIT/ZYWL Price Ratio

0.400.50

0.700.80

Section 6: Automobiles Maintaining the pattern seen in the preceding sections, the majority of Auto firms have seen their RoA drop over the last 6 years. However, thanks to burgeoning demand in India, PAT margins have held up for most of the Auto companies.

Exhibit 27: Automobiles- How they stack up on RoA Changes

(USD mn) RoA

2006 RoA

2007 RoA

RoA 2009

RoA 2010

RoA 2011

Phase 2 Average

RoA Change

In Top Half on Accounting?

Bajaj Auto BJAUT IN EQUITY 9,387 0% 0% 26% 26% 19% 40% 64% 41% 15% NA

Hero Motocorp HH IN EQUITY 8,621 44% 33% 31% 36% 33% 63% 43% 46% 10% YES

Escorts ESC IN EQUITY 506 1% 0% 1% 1% 5% 7% 0% 6% 5% NO

TVS Motor Co. TVSL IN EQUITY 434 10.2% 4.6% 2.1% 6% 1.8% 4.7% 0% 3% -2% NO

M & M MM IN EQUITY 9,531 23% 21% 16% 20% 9% 19% 21% 17% -3% NO

Maruti Suzuki MSIL IN EQUITY 9,092 22% 21% 19% 20% 12% 20% 16% 16% -4% YES

Eicher Motors EIM IN EQUITY 738 35% 10% 10% 18% 9% 16% 0% 12% -6% NO

Ashok Leyland AL IN EQUITY 1,682 16% 17% 15% 16% 3% 7% 10% 7% -9% NO

Tata Motors TTMT IN EQUITY 17,594 18% 18% 14% 17% 4% 7% 5% 5% -11% YES

As is well known, Bajaj Auto has been the transformational story in the sector. At the other extreme, Tata Motors has struggled to digest JLR as evidence by its RoA drop in FY09 and weak recovery thereafter.

Exhibit 28: Automobiles- Deconstructing RoA (Change from Phase 1 to Phase 2)

Change

Asset Turnover

Change

RoA Change

Asset turnover

change

Bajaj Auto BJAUT IN EQUITY 15% 6% (0.23) 20% 6% 0.34

Hero Motocorp HH IN EQUITY 10% 2% 0.30 15% 2% 0.86

Escorts ESC IN EQUITY 5% 4% 0.12 10% 4% 0.68

TVS Motor Co. TVSL IN EQUITY -2% 0% (0.31) 3% 0% 0.26

M & M MM IN EQUITY -3% -1% (0.25) 2% 0% 0.32

Maruti Suzuki MSIL IN EQUITY -4% -3% 0.27 1% -3% 0.84

Eicher Motors EIM IN EQUITY -6% 7% (2.13) -1% 7% -1.56

Ashok Leyland AL IN EQUITY -9% -1% (1.32) -4% -1% -0.75

Tata Motors TTMT IN EQUITY -11% -3% (1.15) -6% -2% -0.58

Pair Idea: Long AL, Short TVSL (Mean reverting trade)

Long Trade- Ashok Leyland (AL IN)

Ashok Leyland’s standalone RoA has come down significantly over the years from 16% in FY06 to 10% in FY11, a drop of nearly 600bps. Similarly, the average RoA for FY09-11 is lower than the average RoA for FY06-FY08 by nearly 900bps. While the profit margin of the company has remained more or less constant: from 5.7% in FY05 to 5.5% in FY11, the major reason for decline in RoA has been the significant capex in new facilities (Pantnagar) as well as the investments made by the company in joint-ventures such as Nissan (for light commercial vehicles) and John Deere (for construction equipment). The average asset-turnover dropped from 2.53x in FY06 to 1.72x in FY11 despite sales growing at a CAGR of 16% over FY06-11. The total capex for Pantnagar along with investments in these joint-ventures constituted nearly 25% of the total net assets as at FY11-end while contributing marginally to the revenues/profits thereby suppressing the return ratios.

However, going forward, we expect contribution from these major initiatives to increase significantly specially from FY13. This should help improve the RoA. The production from the Pantnagar facility is expected to go up from 13,000 units in FY11 to 36,000 units in FY12 and with Pantnagar facility providing savings of around Rs40,000/vehicle (in the form of lower taxes and duties), it is expected contribute significantly to both the top as well bottom-line. Similarly, the investments in joint-ventures with Nissan and John Deere should start yielding positive contribution with expected launches of light commercial vehicles in 2QFY12 and construction equipment in 4QFY12.

Short Trade- TVS Motors (TVSL IN)

TVS Motors’ standalone RoA has remained more or less constant between FY06 to FY11 at 10%. Similarly, the average RoA for FY09-FY11 at 6% has remained at the same level as the average RoA for FY06-FY08. While the interim period between FY06 and FY11, especially FY08 and FY09, saw significant drop in profitability (and hence RoA), the company saw a strong bounce back in FY11 when net earnings nearly doubled over FY10 on the back of strong volume growth of 33% (helped by strong industry growth as well as market share gains).

However, going forward, we expect RoA of TVS Motors to remain at the current levels on account of following:

a) The company continues to invest increasingly in unrelated business such as TVS Energy and TVS housing. As at FY11-end the total investment in TVS energy stood at Rs518mn, nearly 7% of the standalone networth. With TVS Group appearing serious about these venture, there could be significant investments going forward in these ventures;

b) The company also continues to invest significantly into its loss making Indonesian subsidiary. Operating performance of this subsidiary continues to be weak with the company recording gross margin loss in FY09 and FY10. As at March 2010, this subsidiary accounted for nearly 36% of the total consolidated capital employed; and

c) Nearly 25% of sales are from Mopeds. Over longer term we expect this category will significantly underperform on growth relative to the overall two wheeler market.

Analyst: Ashvin Shetty ashvinshetty@ambitcapital.com Tel: +91 22 3043 3285

Price Ratio

Exhibit 29: AL over TVSL- Close to recent lows indicating good opportunity to play a reversal

AL/TVSL Price Ratio

Section 7: Information Technology Although PAT margins have held up for the majority of firms in the IT sector, Asset Turnover drops have resulted in RoA reduction for the majority of the sector. A drop in asset turnover can be attributed to falling billing rates even as these firms kept investing in new office space and computer hardware.

Exhibit 30: IT- How they stack up on RoA Changes

Whilst Financial Tech’s presence at the wrong end of the table is not surprising (given the capital consumptive nature of the exchanges in which FTech is investing in), Mphasis’ presence at the top of the table is ironic given the corporate governance issues bedeviling the firm.

(USD mn) RoA

2006 RoA

2007 RoA

RoA 2009

RoA 2010

RoA 2011

Phase 2 Average

RoA Change

In Top Half on Accounting?

MphasiS MPHL IN EQUITY 2,846 14% 16% 22% 18% 39% 34% 0% 37% 19% YES

Polaris Soft. POL IN EQUITY 416 2% 14% 9% 8% 16% 17% 20% 18% 9% YES

Hexaware Tech. HEXW IN EQUITY 375 17% -2% 6% 7% 16% 11% 0% 13% 6% YES

Patni Computer PATNI IN EQUITY 1,391 9% 15% 15% 13% 17% 22% 0% 20% 6% NO

Tech Mahindra TECHM IN EQUITY 1,892 37% 7% 25% 23% 52% 15% 13% 27% 4% YES

Oracle Fin.Serv. OFSS IN EQUITY 3,699 18% 15% 15% 16% 20% 16% 19% 18% 2% YES

KPIT Infosys. KPIT IN EQUITY 328 12% 14% 18% 15% 22% 16% 10% 16% 1% YES

Rolta India RLTA IN EQUITY 602 14% 10% 13% 12% 14% 12% 0% 13% 1% NA

Glodyne Techno. GLOT IN EQUITY 365 22% 28% 36% 29% 35% 26% 22% 28% -1% NA

Infotech Enterp. INFTC IN EQUITY 398 13% 23% 9% 15% 10% 16% 13% 13% -2% NO

Mindtree MTCL IN EQUITY 350 27% 19% 17% 21% 4% 32% 16% 17% -4% NO

Persistent Sys PSYS IN EQUITY 326 19% 23% 25% 22% 15% 18% 18% 17% -5% NA

Infosys INFO IN EQUITY 41,297 35% 34% 33% 34% 33% 26% 26% 28% -6% YES

Core Projects CPTL IN EQUITY 750 26% 12% 9% 16% 12% 11% 7% 10% -6% NO

HCL Technologies HCLT IN EQUITY 5,504 25% 32% 24% 27% 25% 17% 0% 21% -6% YES

Geodesic GEOD IN EQUITY 229 21% 29% 12% 20% 15% 13% 0% 14% -6% NO

NIIT Tech. NITEC IN EQUITY 243 23% 34% 35% 31% 29% 20% 21% 23% -7% NO

Wipro WPRO IN EQUITY 26,088 31% 30% 20% 27% 17% 21% 19% 19% -8% YES

TCS TCS IN EQUITY 51,431 48% 46% 41% 45% 35% 37% 39% 37% -8% YES

Sterling Intl SIEL IN EQUITY 929 14% 14% 10% 13% 0% 0% 0% 0% -12% NA

Allied Digital ALDS IN EQUITY 218 36% 34% 22% 31% 22% 14% 0% 18% -13% NA

Fincial Tech. FTECH IN EQUITY 1,608 31% 16% 51% 33% 17% 14% 4% 11% -21% NO

Exhibit 31: IT- Deconstructing RoA (Change from Phase 1 to Phase 2)

Firm Name Bloom Ticker RoA Change

Asset Turnover

Change

RoA Change

Asset turnover

change MphasiS MPHL IN EQUITY 19% 11% 0.18 23% 11% 0.36

Polaris Soft. POL IN EQUITY 9% 6% 0.08 13% 6% 0.26

Hexaware Tech. HEXW IN EQUITY 6% 12% (0.15) 10% 12% 0.03

Patni Computer PATNI IN EQUITY 6% 7% 0.08 10% 7% 0.26

Tech Mahindra TECHM IN EQUITY 4% 8% (1.18) 8% 8% -1.00

Oracle Fin.Serv. OFSS IN EQUITY 2% 12% (0.17) 7% 12% 0.01

KPIT Infosys. KPIT IN EQUITY 1% 1% 0.14 5% 1% 0.32

Rolta India RLTA IN EQUITY 1% 4% (0.03) 5% 4% 0.15

Glodyne Techno. GLOT IN EQUITY -1% 4% (0.82) 3% 4% -0.64

Infotech Enterp. INFTC IN EQUITY -2% 3% (0.22) 2% 3% -0.04

Mindtree MTCL IN EQUITY -4% -5% 0.23 1% -4% 0.41

Persistent Sys PSYS IN EQUITY -5% -2% (0.11) -1% -2% 0.07

Infosys INFO IN EQUITY -6% -1% (0.17) -1% -1% 0.01

Core Projects CPTL IN EQUITY -6% 3% (0.33) -2% 4% -0.15

HCL Technologies HCLT IN EQUITY -6% -1% (0.24) -2% -1% -0.06

Geodesic GEOD IN EQUITY -6% -12% (0.04) -2% -12% 0.14

NIIT Tech. NITEC IN EQUITY -7% -14% 0.36 -3% -14% 0.54

Wipro WPRO IN EQUITY -8% -1% (0.31) -4% -1% -0.13

TCS TCS IN EQUITY -8% -1% (0.27) -4% -1% -0.09

Sterling Intl SIEL IN EQUITY -12% -16% (0.46) -8% -16% -0.28

Allied Digital ALDS IN EQUITY -13% 5% (1.28) -9% 5% -1.10

Financial Tech. FTECH IN EQUITY -21% -201% (0.14) -17% -201% 0.04

Pair Idea: Long HCLT, Short MPHL (Mean reverting trade)

Long Trade: HCL Tech (HCLT IN)

HCLT has seen its RoA fall by 700bps to 11%, the top of the bottom third of the peer group, driven by 700bps margin erosion although Asset turnover improved by 0.36x.

HCLT's margin erosion has been driven by forex losses in FY09-10, higher proportion of onsite business as it acquired EAS consultant Axon, losses in its BPO operations and rising proportion of lower margin RIM revenues. RoA was further impacted from the goodwill as a result of the Axon acquisition.

As its forex losses wound to a close in FY11, Axon increasingly offshores more revenues, losses in BPO come to a close in FY12 and RIM contracts mature, RoA is expected to expand.

We expect HCLT to display the strongest long term growth rates in the sector given its strong presence in EAS and RIM with stronger margin defense from its competitive pricing. Consulting led EAS will ensure HCLT remains more relevant to its clients and wins greater proportion of difficult to break into deals, whilst RIM is likely to help HCLT be a close business optimisation partner.

Analyst: Ankur Rudra, CFA ankurrudra@ambitcapital.com Tel: +91 22 3043 3211 Analyst: Subhashini Gurumurthy subhashinig@ambitcapital.com Tel: +91 9833700195

Short Trade - Mphasis (MPHL IN Equity)

Mphasis has seen its RoA expand by 2000bps to 40%, the highest in its peer group, as its margins expanded by 800bps and asset turnover 1.01 times. This was primarily driven by unprecedented demand by its parent HP at reasonable billing rates.

Mphasis' capex slowed down substantially in FY09-10 even as subcontracted work grew from HP. Mphasis primarily utilised leased space keeping its RoA higher.

With billing rates and incremental business from HP under pressure due to HP's loss of competitiveness and near saturation of migration of existing customers Mphasis' future depends substantially on developing its non-HP business. This has been hard to come by as management has kept focussing on meeting demand from HP through FY08-10.

As Mphasis increasingly tries to develop its non-HP business by investing in Sales & Marketing, delivery capabilities and acquisitions to build credible practices outside of BPO, Application Management and ITO it is likely to see substantial erosion in its RoA. This has journey has begun with several acquisitions over the last 6 months as HP (currently ~70% of revenues) has begun to run dry.

Mphasis has also restarted making capex in new lower cost geographies such as Sri Lanka in an effort to provide lower cost delivery to HP. Rising capex and falling margins are likely to take a toll on RoA and ROCE over the next 3-5 years.

Ratio Chart

Exhibit 32: HCLT over MPHL- Reversal in place; key ratio support at 1

HCLT/MPHL Price Ratio

Section 8: Banks In stark contrast to the other sectors analysed in the note so far, RoA has gone up for the vast majority of stocks in the banking sector. Presumably, the overall health of economy, the barriers to entry into the sector, the lack of M&A (due to regulatory obstacles) and the artificially suppressed savings rates on deposits have helped banks.

Exhibit 33: Banks- How they stack up on RoA Changes

(USD mn) RoA

2006 RoA

2007 RoA

RoA 2009

RoA 2010

RoA 2011

Phase 2 Average

RoA Change

In Top Half on

Accounting?

IndusInd Bank IIB IN EQUITY 2,729 0.2% 0.4% 0.3% 0.3% 0.6% 1.0% 1.3% 1.0% 0.7% YES

Kotak Mah. Bank KMB IN EQUITY 7,481 1.3% 0.8% 1.2% 1.1% 1.1% 1.6% 1.7% 1.5% 0.4% YES

Axis Bank AXSB IN EQUITY 12,806 1.1% 1.0% 1.0% 1.0% 1.3% 1.4% 1.4% 1.4% 0.4% NO

ING Vysya Bank VYSB IN EQUITY 745 0.1% 0.5% 0.7% 0.4% 0.6% 0.8% 0.9% 0.8% 0.3% NO

Bank of Baroda BOB IN EQUITY 8,439 0.8% 0.8% 0.9% 0.8% 1.0% 1.1% 1.2% 1.1% 0.3% YES

J & K Bank J&KBK IN EQUITY 942 0.7% 1.0% 1.1% 0.9% 1.1% 1.2% 1.2% 1.2% 0.3% YES

S B T SBTR IN EQUITY 827 0.9% 0.9% 1.0% 0.9% 1.3% 1.2% 1.1% 1.2% 0.3% NA

Dena Bank DBNK IN EQUITY 772 0.3% 0.7% 1.0% 0.7% 0.9% 0.9% 0.9% 0.9% 0.2% NO

Punjab Natl.Bank PNB IN EQUITY 8,590 1.1% 1.0% 1.1% 1.1% 1.3% 1.4% 1.2% 1.3% 0.2% YES

South Ind.Bank SIB IN EQUITY 574 0.5% 0.8% 0.9% 0.7% 1.0% 0.9% 0.9% 0.9% 0.2% YES

UCO Bank UCO IN EQUITY 1,493 0.3% 0.5% 0.5% 0.4% 0.5% 0.8% 0.6% 0.6% 0.2% NO

Indian Bank INBK IN EQUITY 2,220 1.1% 1.4% 1.5% 1.3% 1.5% 1.6% 1.5% 1.5% 0.2% NO

Yes Bank YES IN EQUITY 2,391 1.4% 1.0% 1.3% 1.2% 1.4% 1.4% 1.3% 1.4% 0.1% NO

Canara Bank CBK IN EQUITY 6,164 1.1% 0.9% 0.9% 1.0% 1.0% 1.2% 1.2% 1.1% 0.1% NO

Oriental Bank OBC IN EQUITY 2,509 1.0% 0.8% 0.4% 0.7% 0.8% 0.9% 1.0% 0.9% 0.1% NO

St Bk of Bikaner SBBJ IN EQUITY 808 0.6% 1.0% 0.9% 0.8% 0.9% 0.9% 0.9% 0.9% 0.1% NA

Central Bank CBOI IN EQUITY 2,025 0.4% 0.6% 0.5% 0.5% 0.4% 0.6% 0.6% 0.5% 0.1% YES

ICICI Bank ICICIBC IN EQUITY 28,481 1.1% 1.0% 1.2% 1.1% 1.0% 1.2% 1.3% 1.2% 0.1% YES

Union Bank (I) UNBK IN EQUITY 4,048 0.8% 0.9% 1.2% 1.0% 1.1% 1.1% 0.9% 1.0% 0.1% YES

HDFC Bank HDFCB IN EQUITY 24,222 1.4% 1.5% 1.4% 1.4% 1.3% 1.5% 1.6% 1.5% 0.1% YES

Federal Bank FB IN EQUITY 1,015 1.1% 1.2% 1.2% 1.2% 1.3% 1.1% 0.0% 1.2% 0.0% YES

Bank of Maha BOMH IN EQUITY 636 0.2% 0.8% 0.8% 0.6% 0.7% 0.6% 0.4% 0.6% 0.0% YES

Bank of India BOI IN EQUITY 5,806 0.7% 0.8% 1.2% 0.9% 1.4% 0.7% 0.7% 0.9% 0.0% YES

City Union Bank CUBK IN EQUITY 403 1.5% 1.4% 1.5% 1.4% 1.4% 1.4% 1.5% 1.4% 0.0% YES

Dhanlaxmi Bank DHLBK IN EQUITY 214 0.4% 0.5% 0.8% 0.5% 1.1% 0.3% 0.2% 0.5% 0.0% NO

Vijaya Bank VJYBK IN EQUITY 833 0.4% 0.8% 0.7% 0.6% 0.4% 0.8% 0.7% 0.6% 0.0% NO

Andhra Bank ANDB IN EQUITY 1,877 1.3% 1.2% 1.1% 1.2% 1.0% 1.2% 1.2% 1.1% -0.1% NO

United Bank (I) UNTDB IN EQUITY 814 0.7% 0.7% 0.3% 0.5% 0.3% 0.4% 0.6% 0.5% -0.1% NO

St Bk of India SBIN IN EQUITY 39,058 1.0% 0.9% 1.1% 1.0% 1.0% 0.9% 0.7% 0.9% -0.1% YES

Corporation Bank CRPBK IN EQUITY 2,101 1.2% 1.1% 1.2% 1.2% 1.1% 1.1% 1.0% 1.1% -0.1% YES

IDBI Bank IDBI IN EQUITY 3,117 0.7% 0.7% 0.6% 0.7% 0.5% 0.5% 0.7% 0.5% -0.1% NO

St Bk of Mysore SBMS IN EQUITY 679 1.2% 1.0% 1.0% 1.1% 0.9% 1.0% 1.0% 1.0% -0.1% NA

Syndicate Bank SNDB IN EQUITY 1,554 0.9% 0.9% 0.8% 0.9% 0.7% 0.6% 0.7% 0.7% -0.2% NO

Dev.Credit Bank DEVB IN EQUITY 204 -2.5% 0.2% 0.5% -0.6% -1.5% -1.3% 0.3% -0.9% -0.3% NO

Allahabad Bank ALBK IN EQUITY 2,441 1.4% 1.2% 1.2% 1.3% 0.8% 1.0% 1.0% 0.9% -0.3% NO

Karnataka Bank KBL IN EQUITY 450 1.2% 1.1% 1.3% 1.2% 1.2% 0.6% 0.7% 0.8% -0.4% YES

I O B IOB IN EQUITY 1,975 1.4% 1.3% 1.3% 1.3% 1.1% 0.6% 0.6% 0.8% -0.6% YES

Pun. & Sind Bank PJSB IN EQUITY 536 1.6% 1.8% 1.3% 1.6% 1.1% 0.9% 0.8% 0.9% -0.6% NO

As is well known, Indus Ind Bank has been the RoA star of the sector as the ex-ABN management team has turned around the bank’s fortunes. A range of old private sector and public sector banks bring up the rear.

Exhibit 34: Banks- Deconstructing RoA (Change from Phase 1 to Phase 2)

Change

Asset Turnover

Change

RoA Change

Asset turnover

change

IndusInd Bank IIB IN EQUITY 0.7% 8% 0.00 1% 8% 0.00

Kotak Mah. Bank KMB IN EQUITY 0.4% 2% 0.02 0% 2% 0.02

Axis Bank AXSB IN EQUITY 0.4% 5% 0.00 0% 4% 0.00

ING Vysya Bank VYSB IN EQUITY 0.3% 4% 0.00 0% 4% 0.00

Bank of Baroda BOB IN EQUITY 0.3% 6% (0.00) 0% 5% -0.00

J & K Bank J&KBK IN EQUITY 0.3% 3% 0.01 0% 2% 0.01

S B T SBTR IN EQUITY 0.3% 3% (0.00) 0% 3% -0.00

Dena Bank DBNK IN EQUITY 0.2% 3% 0.00 0% 3% 0.00

Punjab Natl.Bank PNB IN EQUITY 0.2% 3% 0.00 0% 2% 0.00

South Ind.Bank SIB IN EQUITY 0.2% 2% 0.00 0% 2% 0.00

UCO Bank UCO IN EQUITY 0.2% 3% (0.00) 0% 2% -0.00

Indian Bank INBK IN EQUITY 0.2% 1% 0.00 0% 1% 0.00

Yes Bank YES IN EQUITY 0.1% -2% 0.01 0% -3% 0.01

Canara Bank CBK IN EQUITY 0.1% 2% (0.00) 0% 2% -0.00

Oriental Bank OBC IN EQUITY 0.1% 1% 0.00 0% 1% 0.00

St Bk of Bikaner SBBJ IN EQUITY 0.1% 1% 0.00 0% 1% 0.00

Central Bank CBOI IN EQUITY 0.1% 1% 0.00 0% 1% 0.00

ICICI Bank ICICIBC IN EQUITY 0.1% 1% 0.00 0% 0% 0.00

Union Bank (I) UNBK IN EQUITY 0.1% 2% (0.00) 0% 1% -0.00

HDFC Bank HDFCB IN EQUITY 0.1% 0% 0.01 0% -1% 0.01

Federal Bank FB IN EQUITY 0.0% -2% 0.01 0% -2% 0.01

Bank of Maha BOMH IN EQUITY 0.0% 1% (0.01) 0% 0% -0.01

Bank of India BOI IN EQUITY 0.0% 0% (0.00) 0% 0% -0.00

City Union Bank CUBK IN EQUITY 0.0% -1% 0.00 0% -2% 0.00

Dhanlaxmi Bank DHLBK IN EQUITY 0.0% 0% (0.01) 0% 0% -0.01

Vijaya Bank VJYBK IN EQUITY 0.0% -1% 0.00 0% -1% 0.01

Andhra Bank ANDB IN EQUITY -0.1% -1% 0.00 0% -2% 0.00

United Bank (I) UNTDB IN EQUITY -0.1% -1% 0.00 0% -2% 0.00

St Bk of India SBIN IN EQUITY -0.1% 0% (0.00) 0% -1% -0.00

Corporation Bank CRPBK IN EQUITY -0.1% -1% (0.00) 0% -1% -0.00

IDBI Bank IDBI IN EQUITY -0.1% -2% 0.00 0% -3% 0.00

St Bk of Mysore SBMS IN EQUITY -0.1% -3% 0.01 0% -3% 0.01

Syndicate Bank SNDB IN EQUITY -0.2% -3% 0.00 0% -3% 0.00

Dev.Credit Bank DEVB IN EQUITY -0.3% -2% 0.01 0% -2% 0.01

Allahabad Bank ALBK IN EQUITY -0.3% -4% (0.00) 0% -4% -0.00

Karnataka Bank KBL IN EQUITY -0.4% -5% 0.00 0% -6% 0.00

I O B IOB IN EQUITY -0.6% -7% (0.00) -1% -7% -0.00

Pun. & Sind Bank PJSB IN EQUITY -0.6% -9% 0.00 -1% -9% 0.00

Pair Idea: Long PNB, Short SBIN (Momentum trade)

Long Trade - Punjab National Bank (PNB IN)

Punjab National Bank (PNB) emerges as one of the most consistently performing state-owned banks with steady-state core RoAs at a little over 1% over the period FY06-FY11. In fact, when broken into the two phases of 3 years each, PNB has witnessed a ~37bps improvement in core RoAs between the periods FY06-FY08 (0.78%) and FY09-FY11 (1.15%), nearly two-thirds of which (26bps) was driven by better operational efficiency and the rest by lower credit costs.

Despite an interest rate upcycle during Phase 2, PNB has been able to broadly protect its margins even as the cost of funds rose by nearly 80bps from 4.12% of assets in FY06-FY08 to 4.92% of assets in FY09-FY11. This suggests a disciplined approach to asset pricing.

Going forward, with ~40% of its 1,560 branches located in rural India, PNB is positioned as a banker of choice in its strongest geographies (northern states) on either side of the balance sheet.

Despite running a relatively riskier loan book of a little over $50bn, we draw comfort from the fact that PNB observes pricing discipline (especially on the asset side) and generates relatively higher yields on its portfolio of risky assets.

PNB also benefits from a superior deposit franchise (CASA consistently at 40%) that manifests itself in relatively lower interest expenditure (as a proportion of interest earned, PNB spends ~57% as interest, ~10% points lower than the average for other banks in the system). This in turn helps the bank generate net interest margins of to 4%.

We expect PNB to sustain an EPS CAGR of 21% over FY11-FY13E and maintain RoEs ahead of 22% (RoAs likely to marginally improve to 1.3%). The stock quotes at 1.3x our FY12E ABVPS of Rs714 and is likely to comfortably outperform its larger peers.

Short Trade - State Bank of India (SBIN IN)

State Bank of India (SBI) has disappointed in terms of its return ratios over the period FY06-FY11 with core RoAs having declined by ~30bps from around 1.0% (during FY06-FY08) to 0.7% (during FY09-FY11), driven by weak core performance that has resulted in a 36bps decline in NIMs between the two phases.

In fact, SBI has been unable to capitalize on its strengths as its RoAs have trended down despite a 25bps benefit accruing from higher treasury profits (0.2% of assets during FY09-FY11 from -0.05% of assets during FY06-FY08) and a ~25bps benefit from better operating efficiency. This reflects SBI's mispricing of assets: the average yield on advances has actually drifted down by ~10bps across this period despite FY09-FY11 consistently witnessing higher interest rates than FY06-FY08.

While we acknowledge the impressive core performance as reflected in recent NII performance, we do not judge the P&L performance in isolation. We remain cognizant of the balance sheet risks that SBI is vulnerable to, especially in light of the sectors that have contributed to SBI's incremental loan book growth (Iron & Steel, Other Metals, Infrastructure, Gems & Jewellery, Engineering and Textiles are the highest contributors to incremental loan book growth). Given that these sectors are heavily dependent on our domestic as well as global growth outlook (on which we remain reasonably bearish), we see further stress building up in SBI's books.

While we believe that the core operating trends may indeed sustain (NIMs as % of average assets likely to improve by ~30bps), we expect higher credit costs to almost completely offset any potential improvements in core profitability trends.

Analyst: Krishnan ASV vkrishnan@ambitcapital.com Tel: +91 22 3043 3205 Analyst: Pankaj Agarwal, CFA pankajagarwal@ambitcapital.com Tel: +91 22 3043 3206

The stock quotes at 2x our standalone FY12E ABVPS estimates of Rs991 and is likely to under-perform on a risk-adjusted return basis.

Price Ratio

Exhibit 35: PNB over SBIN- Rising relative strength of PNB versus SBIN augurs well; a break above 0.5 on the price ratio to bring in accelerated outperformance

PNB/SBIN Price Ratio

Section 9: Capital Goods- Electrical Equipment The normal pattern of sagging RoAs due to falling PAT margins and falling Asset Turnovers holds true for this sector. Two T&D specialists, Alstom and Crompton Greaves, are the RoA leaders in this sector. As one would expect, Suzlon (an almost perfect case study of how a successful company can depress its RoAs through overseas acquisitions and heavy capex) brings up the rear.

Exhibit 36: Capital Goods, Electrical Equipment- How they stack up on RoA Changes

(USD mn) RoA

2006 RoA

2007 RoA

RoA 2009

RoA 2010

RoA 2011

Phase 2 Average

RoA Change

In Top Half on

Accounting?

Alstom Projects ABBAP IN EQUITY 874 15% 32% 21% 22% 33% 34% 29% 32% 9% YES

Crompton Greaves CRG IN EQUITY 3,891 21% 20% 31% 24% 31% 34% 30% 32% 8% YES

B H E L BHEL IN EQUITY 25,949 21% 27% 26% 25% 24% 27% 31% 27% 2% YES

BGR Energy Sys. BGRL IN EQUITY 860 0% 12% 9% 10% 9% 12% 15% 12% 2% NA

K E C Intl. KECI IN EQUITY 471 9% 16% 16% 14% 10% 11% 8% 10% -4% NO

Kalpataru Power KPP IN EQUITY 458 17% 16% 14% 16% 6% 11% 9% 9% -7% NO

Suja Towers SUTL IN EQUITY 341 0% 18% 9% 14% 6% 0% 6% 6% -8% NA

Thermax TMX IN EQUITY 1,595 26% 32% 38% 32% 30% 13% 29% 24% -8% YES

Havells India HAVL IN EQUITY 1,029 22% 32% 20% 25% 14% 18% 16% 16% -9% YES

Areva T&D ATD IN EQUITY 1,724 35% 33% 19% 29% 12% 10% 0% 11% -18% YES

A B B ABB IN EQUITY 3,731 28% 30% 26% 28% 15% 3% 0% 9% -20% YES

Suzlon Energy SUEL IN EQUITY 2,487 26% 22% 13% 20% -3% -11% 0% -7% -27% NO

Exhibit 37: Capital Goods, Electrical Equipment- Deconstructing RoA (Change from Phase 1 to Phase 2)

Change

Asset Turnover

Change

RoA Change

Asset turnover

change

Alstom Projects ABBAP IN EQUITY 9% 2% 0.61 17% 5% 0.79

Crompton Greaves CRG IN EQUITY 8% 4% (0.48) 15% 7% -0.31

B H E L BHEL IN EQUITY 2% -1% 0.26 9% 3% 0.43

BGR Energy Sys. BGRL IN EQUITY 2% 1% (0.12) 9% 4% 0.06

K E C Intl. KECI IN EQUITY -4% -1% (0.46) 3% 2% -0.28

Kalpataru Power KPP IN EQUITY -7% -3% (0.31) 0% 0% -0.13

Suja Towers SUTL IN EQUITY -8% -3% (0.56) -1% 0% -0.38

Thermax TMX IN EQUITY -8% -1% (0.45) -1% 2% -0.27

Havells India HAVL IN EQUITY -9% 1% (1.69) -1% 4% -1.51

Areva T&D ATD IN EQUITY -18% -4% (1.00) -11% -1% -0.83

A B B ABB IN EQUITY -20% -5% (0.90) -12% -2% -0.72

Suzlon Energy SUEL IN EQUITY -27% -37% (0.61) -20% -34% -0.44

Pair Idea: Long SUEL, Short CRG (Mean reverting trade)

Long Trade- Suzlon (SUEL IN)

Suzlon’s RoA has come down significantly over the years from 26% in FY06 to 0% in FY11. In fact since FY09 Suzlon has reported losses with average RoAs being negative 5% compared to +20% over FY06-08.

One of the main reasons for Suzlon's losses is its over leveraged balance sheet (FY11 net debt: equity was 1.3x) driven by the acquisition of REpower and Hansen coupled with lower capacity utilization (FY11 utilization was ~40%).

Its average asset-turnover dropped from 0.64x in FY07 to 0.59x in FY11 despite sales growing at a CAGR of 22% over FY07-11. The total capex in Suzlon Wind (the standalone entity) and the investments made towards acquiring Hansen and REpower constituted nearly 1.62x of the total net assets as at FY11end. This made only a marginal contribution to revenues and hence suppressed all the return ratios.

However, Suzlon has already started deleveraging its balance sheet as shown by its working capital/revenues ratio declining from 68% to 40% on a YoY basis and as evidenced by consolidated net debt remaining flat (FY11 vs FY10) at Rs105bn.

It is to be noted that in FY11 Suzlon’s business model, which is working capital intensive, reported only 6% YoY growth in working capital loan despite 30% YoY growth in revenues.

Also Suzlon managed to enter into an agreement to sell a 26% stake in Hansen for Rs8.3bn. This is equivalent to 8% of consolidated net debt. The proceeds from Hansen stake sale, much awaited payment of $202mn from Edison Mission in 4QFY12, and Suzlon’s turnaround to profitability coupled with minimal capex is likely to turn Suzlon FCFF positive. This in turn will help in lifting its RoAs.

Short Trade- Crompton Greaves (CRG IN)

Crompton's RoA has increased by 50% from 21% in FY06 to 30% FY11. This is on the back of improvement in EBITDA margins, which increased 557bps over FY06-11 despite rising competition and industry operating at lower utilizations.

It is to be noted that Crompton's peers reported average ~200bps decline in EBITDA margins over FY06-11 sighting rising competition and volatile raw material prices.

One of the main reasons for Crompton's rising margins has been falling raw material cost as a % of revenues which as per management is on the back of higher outsourcing and better product mix.

However, going forward, we expect RoAs to come under pressure as Crompton's margins are likely to come under pressure given difficulties at home and abroad.

Whilst in the home market we expect PGCIL to downgrade its capex guidance for the XII five year plan (as 80% of its capex is dependant on new generation projects which are getting delayed), on the international front we expect weakness given that 28% of Crompton's international revenues in FY11 came from Europe and North America (geographies which are facing sovereign debt crisis).

We also note that Crompton is the main cash generative entity in the Avantha Group. Avantha Power, an Avantha Group company, filed a DRHP over a year ago as it needs equity for its power plants.

Analyst: Bhargav Buddhadev, bhargavbuddhadev@ambitcapital.com Tel: +91-22-3043 3252 Analyst: Puneet Bambha, puneetbambha@ambitcapital.com Tel: +91-22-3043 3259

Price Ratio

Exhibit 38: SUEL over CRG (Longer Term)- On a downward trajectory

SUEL/CRG Price Ratio

Exhibit 39: SUEL over CRG (Shorter Term)- Pick up in relative strength

SUEL/CRG Price Ratio

Institutional Equities Team

Saurabh Mukherjea, CFA

Managing Director - Institutional Equities – (022) 30433174

saurabhmukherjea@ambitcapital.com

Research

Analysts Industry Sectors Desk-Phone E-mail

Aadesh Mehta Banking / NBFCs (022) 30433239 aadeshmehta@ambitcapital.com

Ankur Rudra, CFA IT/Education Services (022) 30433211 ankurrudra@ambitcapital.com

Ashvin Shetty Consumer/Automobile (022) 30433285 ashvinshetty@ambitcapital.com

Bhargav Buddhadev Power/Capital Goods (022) 30433252 bhargavbuddhadev@ambitcapital.com

Chandrani De, CFA Metals & Mining (022) 30433210 chandranide@ambitcapital.com

Chhavi Agarwal Construction, Infrastructure (022) 30433203 chhaviagarwal@ambitcapital.com

Gaurav Mehta Derivatives Research (022) 30433255 gauravmehta@ambitcapital.com

Hardik Shah Technology (022) 30433291 hardikshah@ambitcapital.com

Krishnan ASV Banking (022) 30433205 vkrishnan@ambitcapital.com

Nitin Bhasin Construction, Infrastructure, Cement (022) 30433241 nitinbhasin@ambitcapital.com

Pankaj Agarwal, CFA NBFCs (022) 30433206 pankajagarwal@ambitcapital.com

Parita Ashar Metals & Mining / Media / Telecom (022) 30433223 paritaashar@ambitcapital.com

Puneet Bambha Power/Capital Goods (022) 30433259 puneetbambha@ambitcapital.com

Ritika Mankar Economy (022) 30433175 ritikamankar@ambitcapital.com

Ritu Modi Cement (022) 30433292 ritumodi@ambitcapital.com

Shariq Merchant Consumer (022) 30433246 shariqmerchant@ambitcapital.com

Subhashini Gurumurthy IT/Education Services (022) 30433264 subhashinig@ambitcapital.com

Vijay Chugh Consumer (incl FMCG, Retail, Automobiles)

(022) 30433054 vijaychugh@ambitcapital.com

Name Regions Desk-Phone E-mail

Deepak Sawhney India / Asia (022) 30433295 deepaksawhney@ambitcapital.com

Dharmen Shah India / Asia (022) 30433289 dharmenshah@ambitcapital.com

Dipti Mehta India / Europe (022) 30433053 diptimehta@ambitcapital.com

Pramod Gubbi, CFA India / Asia (022) 30433228 pramodgubbi@ambitcapital.com

Sarojini Ramachandran UK / US +44 (0) 20 7614 8374 sarojini@panmure.com

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