ashok leyland - avendus report

8/2/2019 Ashok Leyland - Avendus Report

1/17

Pleaserefertothedisclaimertowardstheendofthedocument.

IndiaEquityResearch

Automobiles

February23,2012

B U Y AshokLeylandTargetPrice(INR) 41 AplayonrevivalofMHCVgrowth

INITIATINGCOVERAGE AL is likely to be the biggest beneficiary of any positive development in

domesticMHCVsasitderivesalargeportionofitstotalincomefromthis

segment. FY12f may end with an estimated 3% fall in sales volumes of

domestic MHCVs for AL. FY13f is likely to enjoy a recovery with double

digitgrowthdrivenbythefall in interestratesandrevival in investment

activity leading to rise in freight volumes. The companys focus on

increasingtouchpointsandloandisbursementsarealsolikelytoaidsales

volume growth. AL is also increasing its exposure to LCVs and other

businesses to derisk itself from the cyclicality of domestic MHCVs. We

arriveataMar13targetpriceofINR41,byapplyingthemeanEV/EBITDA

multiple

of

the

previous

CV

cycle.

The

potential

upside

stands

at

46%,

assumingvaluationsreverttothemean.InitiatewithBuy.Riskfactorsare

thehighexposuretoMHCVsandhighercommodityandfuelprices.

DomesticMHCVdemandlikelytorevivebyFY13f

ALisaplayonthedomesticMHCVsegment,asthissegmentislikelytocontribute

over75%oftotalincomeforthecompanyoverFY12fFY14f.DomesticMHCVsales

volumegrowthislikelytorecoverto10%byFY13fafteranestimatedfallof3%in

FY12f,onaccountofapickupininvestmentactivityandfreightavailabilitydueto

thelikelyreversalintheinterestratecycle.Inaddition,higherloandisbursements

andtouchpointsarealsolikelytoaidsalesvolumegrowth.

Strengtheningexistingoperationsandenteringnewbusinesses

To

strengthen

its

technological

capabilities,

AL

has

invested

in

companies

that

manufacture and supply EuroV emission compliant vehicles to developed

countries.TopenetratethehighgrowingLCVsegment,thecompanyhaslaunched

acargoLCVinJVwithNissanMotorCo(7201JP;NR)inSep11.WeestimatethisJV

tobreakevenbyFY14f.Tocontinuethediversification,ALhasalsoinvestedinnew

businesses;mostofthesebusinessesreportedlossesinFY11.Thecompanysshare

ofearningsfromthesebusinessesislikelytobreakeveninFY14f.

TotalincomegrowthtosettleataCAGRof13%overFY12fFY14f

We estimate a CAGR of 13% in total income over FY12fFY14f due to a revival in

domesticMHCVsalesvolumes,increasingcontributionoftheDostLCVandrobust

exports.Exportvolumegrowthislikelytobestrong,ataCAGRof19%overFY12f

FY14f,duetothegrowingacceptanceof IndianCVs indevelopingcountries.Rising

sales

promotion

costs,

and

the

increasing

contribution

of

lowmargin

LCVs

in

the

overallproductmix,islikelytoreduceEBITDAmarginsfrom11.0%inFY11to9.8%in

FY14f.WeestimateEBITDAandPATtogrowataCAGRof9%overFY12fFY14f.

InitiatewithaBuyratingandaMar13TPofINR41;upsideof46%

We apply an EV/EBITDA multiple of 8.6x to ALs core business to arrive at a fair

value of INR39/share. This multiple is based on the mean valuations of the

previousCVcycle.The likelyearningsrebound inALoverFY13fFY14fonaccount

of the recovery in domestic MHCV sales volume growth provides a buying

opportunity. We have valued ALs investment in IndusInd Bank (IIB IN, Buy) at

INR2/share. Our SOTPbased Mar13 TP for ALstands at INR41, whichprovides a

46%upside.InitiatewithBuy.RiskfactorsarethehighexposuretoMHCVs.

LastPrice(INR)Bloomberg code

Reuterscode

Avg.Vol.(3m)(mn)

Avg.Val.(3m)(INRmn)

52wkH/L(INR)

Sensex

MCAP(INRbn/USDbn)

Shareholding(%) 9/11 12/11Promoters

MFs,FIs,Banks

FIIs

Public

Others

StockChart(RelativetoSensex)

StockPerfm.(%) 1m 3m 1yrAbsolute

Rel.toSensex

Financials(INRmn) 03/11 03/12f 03/13f Sales

YoY(%)

EBITDA(%)

A.PAT

Sho/s(diluted)

A.EPS(INR)

YoY(%)

D/E(x)

P/E(x)

EV/E(x)

RoCE(%)

RoE(%)

QuarterlyTrends 03/11 06/11 09/11 12/11Sales(INRmn)

PAT(INRmn)

28

111,177

15.4

13.9

16.2

10.5

19.3

146,064125,995

15.8

38.6 38.6

18,145

74.77/1.52

15.6

10.6

19.4

2.6

19

10.7

14.7

669

2,661

2.2

1,541

28,798

2,661

5.4

3.0

13.1

0.1

16

30,946

7.88.9

10

14

0.8

7

0.9

11

12.8

16

10.0

5,840

13

9.9

6,966

53

11.0

6,313

0.7

2,661

2.4

48

ALIN

ASOK.BO

6.60

30.6/20.0

171

2,982

38,285

11.8

8.5

11

17

863

24,955

20

24

28

32

Feb11 Jun11 Oct11 Feb12

Ashok Leyland Sensex Rebased

SriRaghunandhan NL,+9102266842863

[email protected]


2/17

India Equity Research AshokLeyland

Automobiles 2

TableofContents

InvestmentSummary ........................................................................................................................ 3DomesticMHCVdemandlikelytorecoverto10%byFY13f .................................................................3Strengtheningexistingoperationsandenteringnewbusinesses .........................................................3TotalincomegrowthtosettleataCAGRof13%overFY12fFY14f ......................................................3InitiatewithaBuyratingandaMar13TPofINR41 ..............................................................................3

DomesticMHCVdemandlikelytorecoverto10%byFY13f ............................................................. 5DomesticMHCVsalesvolumestowitnessafallof3%inFY12f............................................................5Demandtoreviveonpickupininvestmentactivity .............................................................................5

Strengtheningexistingoperationsandenteringnewbusinesses ..................................................... 7Strengtheningfinancingandtechnologicalcapabilities ........................................................................7PartneringNissantoenterthehighgrowthcargoLCVsegment ..........................................................7Diversifyingintonewbusinesses...........................................................................................................8

TotalincomegrowthtosettleataCAGRof13%overFY12fFY14f .................................................. 9ExportstooutpacedomesticsalesvolumegrowthoverFY12fFY14f ..................................................9EBITDAgrowthlikelytolagtotalincomegrowth..................................................................................9FreecashflowlikelytoturnpositivebyFY13f ....................................................................................10

InitiatewithaBuyratingandaMar13TPofINR41 ........................................................................ 11Valuingcorebusinessat8.6xEV/EBITDA ............................................................................................11SOTPtargetofINR41;initiatecoveragewithaBuyrating..................................................................11Riskfactors ..........................................................................................................................................12

Financialsandvaluations................................................................................................................. 13


3/17


Automobiles 3

InvestmentSummary

AL is a play on domestic MHCVs as it derives a significant portion of its revenues from this segment. We estimate

domesticMHCV

sales

volumes

to

fall

by

3%

in

FY12f

due

to

postponing

of

purchases

by

freight

operatorson

account

of lower freight availability. However, domestic MHCV sales volume growth is likely to recover to 10% in FY13f on

accountofapickupininvestmentactivityandfreightavailabilityduetothelikelyreversalintheinterestratecycle.

Therehasalsobeenarevival inLCVsalesvolumegrowth(TTM);this isusuallya lead indicator forarevival inMHCV

salesvolumegrowth.ALsfocusonincreasingtouchpointsandloandisbursementsarealsolikelytoaidsalesvolume

growth.Thecompanyisalsofocusingonstrengtheningitsexistingoperationsandincreasingitspenetrationinthehigh

growing LCV segment. EBITDA margins are likely to decline from 11.0% inFY11 to 9.8% by FY14f due to rising sales

promotioncostsandtheincreasingshareofthelowmargin DostLCVintheoverallproductmix.WevalueALscore

businessatanEV/EBITDAof8.6x,whichisbasedonmeanvaluationsofthepreviousCVcycle.Afterincludingthevalue

of ALs investment in IndusInd Bank, our SOTPbased Mar13 target stands at INR41, which provides a 46% upside.

InitiatewithBuy.RiskfactorsarethehighexposuretoMHCVsandhighercommoditypricesandfuelprices.

DomesticMHCV

demand

likely

to

recover

to

10%

by

FY13f

Weestimateafallof3%indomesticmediumandheavycommercialvehicle(MHCV)salesvolumesin

FY12fduetopostponingofpurchasesbyfreightoperatorsonaccountoflowerroadfreightavailability.

Inaddition,expiryoftheJawaharlalNehruNationalUrbanRenewalMission(JNNURM)schemeisalso

likelytoimpactsalesvolumes.WeestimatedomesticMHCVsalesvolumegrowthtorecoverto10%by

FY13f,onaccountofapickupininvestmentactivityandfreightavailabilityduetothelikelyreversalin

theinterestratecycle.Therehasalsobeenarevivalinsalesvolumegrowth(TTM)forlightcommercial

vehicles(LCVs);thisisusuallyaleadindicatorofarevivalinMHCVsalesvolumegrowth.AshokLeyland

(AL)isalsoincreasingitstouchpointsandrampingupdisbursementsfromitscaptivefinancedivision

toaidgrowth.

Strengthening

existing

operations

and

entering

new

businesses

AL has been investing with three main objectives: 1) to strengthen financing and technological

capabilitiesincommercialvehicles(CVs);2)toincreasethepenetrationinLCVs;and3)todiversifyinto

otherbusinesses.Toaccesstechnology,ALhas increased itsstaketo75.1%inOptare(OPELN;NR),a

European CV manufacturer in Dec11. This was ALs second investment to access technology, post

acquisitionofAviaAshokLeylandMotors(Avia)inOct06.ToincreaseitspresenceintheLCVsegment,

thecompany launchedacargoLCV Dost in JVwithNissanMotorCo(7201JP;NR) inSep11.We

estimatethisJVtobreakevenbyFY14f.Finally,toderiskitselffromthecyclicalityofthedomesticCV

business,thecompanyhasventuredintobusinessessuchasmanufacturingofconstructionequipment

andautomotive infotronics;mostofthese businessesreported losses inFY11.ALsshareofearnings

fromthesebusinessesislikelytobreakeveninFY14f.

Total

income

growth

to

settle

at

a

CAGR

of

13%

over

FY12f

FY14f

TherecoveryindomesticMHCVsalesvolumesandrobustexportgrowtharelikelytoresultinaCAGR

of13%intotalincomeoverFY12fFY14f.Exportvolumesarelikelytobestrong,ataCAGRof19%over

FY12fFY14f, due to the growing acceptance of Indian CVs in developing countries. We estimate the

contributionofexportstooverallsalesvolumesto increasefrom11% inFY11to12%inFY14f.Rising

sales promotion costs and the increasing contribution of the lowmargin Dost LCV to overall sales

volumesarelikelytoreduceEBITDAmarginsfrom11.0%inFY11to9.8%inFY14f.EBITDAandPATare

likelytogrowataCAGRof9%overFY12fFY14f.

InitiatewithaBuyratingandaMar13TPofINR41

WearriveatMar13SOTPbasedtargetpriceofINR41,whichprovidesanupsideof46%.Weapplyan

EV/EBITDAmultipleof8.6xtoALscorebusinesstoarriveatafairvalueofINR39/share.Thismultipleis

basedonthemeanvaluationsofthepreviousCVcycle.The likelyearningsreboundinALoverFY13f

Weestimatedomestic

MHCVsalesvolume

growthtorecoverto10%

byFY13f.

Toincreaseitspresencein

theLCVsegment,the

companylaunchedacargo

LCVinJVwithNissan.

Exportvolumesarelikely

tobestrong,ataCAGRof

19%overFY12fFY14f,due

tothegrowingacceptance

ofIndianCVsin

developingcountries.

Initiatecoveragewitha

BuyratingandaMar13TP

ofINR41.


4/17


Automobiles 4

FY14f on account of the recovery in domestic MHCV sales volume growth provides a buying

opportunity. We also value ALs investment in IndusInd Bank (IIB IN, Buy) at INR2/share. Initiate

coveragewithaBuyrating.RiskfactorsarethehighexposuretoMHCVsandhighercommodityprices

andfuel

prices.

Exhibit1:OneyearforwardrollingEV/EBITDAandEV/EBITDAattargetprice

5

10

15

20

Apr07 Feb08 Dec08 Oct09 Sep10 Jul11 May12 Mar13

1yrFwdEV/EBITDA TargetEV/EBITDA Avera geEV/EBITDA

Source:Bloomberg,AvendusResearch

Exhibit2:Valuationsummary(INRmn) Totalincome EBITDA NetProfit EPS(INR) P/E(x) EV/EBITDA(x) EV/Sales(x) P/B(x)

Mar10 72,447 7,628 4,269 1.6 17.5 12.6 1.3 2.0

Mar11 111,177 12,176 6,313 2.4 11.8 8.5 0.9 1.9

Mar12f 125,995 12,653 5,840 2.2 12.8 8.9 0.9 1.8

Mar13f 146,064 14,405 6,966 2.6 10.7 7.8 0.8 1.6

Mar14f 161,394 15,864 8,160 3.1 9.2 6.8 0.7 1.5

Source:

Company,

Avendus

Research


5/17


Automobiles 5

DomesticMHCVdemandlikelytorecoverto10%byFY13f

Weestimateafallof3%indomesticMHCVsalesvolumesinFY12fduetopostponingofpurchasesbyfreightoperators

onaccount

of

lower

road

freight

availability.

In

addition,

expiry

of

the

JNNURM

scheme

is

also

likely

to

impact

sales

volumes. We estimate domesticMHCVsales volume growth to recover to 10% byFY13f,on accountofapick up in

investment activityand freightavailabilitydue to the likely reversal in the interest rate cycle. Therehas also beena

revivalinsalesvolumegrowth(TTM)forLCVs;thisisusuallyaleadindicatorofarevivalinMHCVsalesvolumegrowth.

ALisalsoincreasingitstouchpointsandrampingupdisbursementsfromitscaptivefinancedivisiontoaidgrowth.

DomesticMHCVsalesvolumestowitnessafallof3%inFY12f

AL is a play on domestic MHCVsthis segment contributed c77% of total income in FY11. Any

moderation in MHCV growth is likely to affect the company more than peers, as ALs exposure to

MHCVs is higher than that for Eicher Motors (EIM IN, Add); c66% of total income in 2011) and Tata

Motors(TTMTIN,Buy);c18%oftotalincomeinFY11).

Exhibit3:Totalincomebreakup(FY10)

LCVs

1%

Engines

5%

MHCVs

75%

Exports

8%

Defense&Spares11%

Source:Company

Exhibit4:Totalincomebreakup(FY11)

LCVs

1%

Engines

3%

MHCVs

77%

Exports

10%

Defense&Spares9%

Source:Company

Weestimateafallof3%indomesticMHCVsalesvolumesforAL inFY12f,ledbyfallof5%and2%in

passengerandcargoMHCVs,respectively.PassengerMHCVdemandislikelytobeimpactedduetothe

expiry of the JNNURM scheme in Dec11. A slowdown in passenger MHCVs sales volumes affects AL

morethanpeers,asALhasahigherproportionofpassengerMHCVsindomesticMHCVsalesvolumes

thanpeers(passengerMHCVscontributed25%,8%and11%ofdomesticMHCVsalesvolumesforAL,

EIMandTTMT,respectively,inFY11).CargoMHCVdemandislikelytobeimpactedduetopostponing

ofpurchasesbyfreightoperatorsonaccountoflowerroadfreightavailability.Inaddition,atemporary

slowdowninthesouthernregion(whichcontributesc50%ofMHCVsalesvolumesforAL)isalsolikely

toimpactsalesvolumes.

Demandto

revive

on

pick

up

in

investment

activity

WeestimateALsMHCVsalesvolumegrowth torecoverto10%byFY13fonaccountofapickup in

investmentactivityandfreightavailabilityduetothelikelyreversalintheinterestratecycle.Therehas

alsobeenarevivalinsalesvolumegrowth(TTM)forLCVs;thisisusuallyaleadindicatorofarevivalin

MHCV sales volume growth. As per our observation, a revival in LCV sales volume growth is usually

followed by a revival in MHCV sales volume growth with a lag of 46 months. In line with this

hypothesis, after LCV sales volumes saw a revival in Jun11, MHCV sales volume growth (TTM)

recoveredinOct11.Thecompanyisalsoincreasingitstouchpoints(salesandservicenetwork)andis

ramping up disbursements from its financing division HindujaLeyland Finance (HLF) in order to

revivesalesvolumegrowth.

ALisaplayondomestic

MHCVsthissegment

contributedc77%oftotal

incomeinFY11.

PassengerMHCVdemand

islikelytobeimpacted

duetoexpiryofthe

JNNURMschemein

Dec11.


6/17


Automobiles 6

The company increased its touch points to 378 in Sep11 from 358 in Mar11. AL plans to continue

increasing its touchpoints,especially in the northernandwesternregions,so that itcan reduce the

dependenceonthesouthernregion,whichcontributedc50%ofsalesvolumesinFY11.

WeestimateALsdomesticMHCVsalesvolumetogrowataCAGRof6%overFY12fFY14f,lowerthan

theindustryCAGRof10%.Salesvolumegrowthislikelytobebelowtheindustryaverageduetohigher

exposuretothesouthernregionandtopassengerMHCVs.Lowergrowthisalsolikelytoresultinloss

ofmarketshareforALfrom25.7%inFY11to22.7%byFY14f.

Exhibit5:DomesticMHCVsalesvolumegrowthforALandtheindustry(%)FY06 FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f CAGR(FY07FY11)CAGR(FY12fFY14f)

AL 17.7 37.1 1.8 37.5 21.3 45.4 3.4 10.2 10.5 8.2 5.6

Industry 4.5 32.8 0.4 33.2 33.5 31.7 6.3 10.0 13.9 9.2 10.1

Source:SIAM,AvendusResearch

Exhibit6:DomesticMHCVmarketshare(%)FY06 FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f

AL 27.0 27.9 27.5 25.7 23.3 25.7 23.3 23.0 22.7

EIM* 7.4 6.8 8.2 7.4 8.6 9.4 10.8 10.8 10.6

TTMT 62.0 62.9 60.5 61.9 63.3 59.5 60.8 60.9 61.0

Source:SIAM,AvendusResearch Note:*IncludestradedvehiclesofVolvoAB(VOLVBSS,NR)

Lowergrowth

is

likely

to

resultinlossofmarket

shareforALfrom25.7%in

FY11to22.7%byFY14f.


7/17


Automobiles 7

Strengtheningexistingoperationsandenteringnewbusinesses

ALhasbeeninvestingwiththreemainobjectives:1)tostrengthenfinancingandtechnologicalcapabilitiesinCVs;2)to

increasethe

penetration

in

LCVs;

and

3)

to

diversify

into

other

businesses.

To

access

technology,

AL

has

increased

its

staketo75.1%inOPE,aEuropeanCVmanufacturer,inDec11.ThiswasALssecondinvestmenttoaccesstechnology,

postacquisitionofAvia in Oct06. To increase its presence in theLCVsegment, thecompany launchedacargoLCV

Dost in JV with Nissan in Sep11. We estimate this JV to breakeven by FY14f. Finally, to derisk itself from the

cyclicality of the domestic CV business, the company has ventured into businesses such as manufacturing of

construction equipment and automotive infotronics; most of thesebusinesses reported losses in FY11.ALsshareof

earningsfromthesebusinessesislikelytobreakeveninFY14f.

Strengtheningfinancingandtechnologicalcapabilities

StrengtheningthecaptivefinancedivisionTTMThasahighlysuccessfulfinancingarm,whichfinanced24%of itsCVs inthedomesticmarket in

FY11.To

replicate

the

success,

AL

has

invested

INR1.4bn

in

its

captive

finance

arm

HLF.

In its first year of operations (FY11), HLF financed 6% of ALs vehicles in the domestic market, with

disbursementsofINR12bn.Weestimatethisratiotoincreaseto10%byFY14f.WeestimateALsshare

ofearningsthroughHLFtogrowfromINR0.3bninFY11toINR1.4bninFY14f.

StrengtheningthetechnologicalcapabilitiesinCVmanufacturingThe company has started focusing on strengthening its technological capabilities. AL has made

investmentsinOptare(OPELN,NR)andAviatoachievethisobjective.

InvestmentinOptarePlc(investmentofINR835mn)

ALacquired26.0%stakeinOPEinJul10,aUKfirmthatmanufacturespremiumandhybridbusesofuptoEuroVemissionstandards.ALhasincreasedthisstaketo75.1%inDec11.

WeestimateOPEtobreakevenby2013fasaresultof increasingexports,higheroutsourcingandlower interest costs. Based on current market capitalization, the value of the investment stands

lower,atINR0.5bn.

InvestmentinAviaAshokLeylandMotors(investmentofINR1,307mn)

ALacquired48%stake inAviainOct06,aCzechbasedfirmthatmanufacturestrucks(612tonnesGVW)ofuptoEuroVemissionstandardsandlargelyexportsvehiclestodevelopedcountries.The

firmalsomanufactureselectrictrucks.

AL isplanningtosellAviastrucks intheMiddleEastandIndia.WeestimateALsshareofprofitsfromAviatoincreasefromINR46mnin2010toINR98mnin2013f.

Inadditiontoacquiringnewtechnologicalcapabilities,ALisalsofocusingonbackwardintegrationfor

aluminumdie

castingsinvestment

of

INR350mn

in

the

JV

with

Alteams.

PartneringNissantoenterthehighgrowthcargoLCVsegment

Exhibit7:GrowthindomesticcargoLCVsandMHCVs(%)FY07 FY08 FY09 FY10 FY11 CAGR(FY07FY11) CAGR(FY12fFY14f)

CargoLCVs 39.0 11.6 7.6 45.0 25.5 21.1 19.9

CargoMHCVs 37.6 4.4 37.0 35.9 36.3 8.9 10.8

Source:SIAM

ThecargoLCVsegmenthaswitnessedhighergrowthandsteadierdemandpatternsincomparisonto

cargo MHCVs, mainly due to proliferation of the hub and spoke model and a shift in demand from

cargo threewheelers to LCVs. Hence, higher exposure to LCVs is an advantage for companies. AL

derived0.8%

(in

FY11)

of

its

sales

volumes

from

LCVs.

WeestimateHLFto

finance10%

of

ALs

vehiclesindomestic

marketbyFY14f.


8/17


Automobiles 8

ThecompanyistryingtoincreaseitspenetrationintheLCVsegmentthroughitsJVwithNissan.ALhas

investedINR1.8bnfor51%stakeinthisJV.ThisinvestmentislikelytobescaleduptoINR7.5bnbythe

endofFY14f.TheJVrecentlylauncheditsfirstvehicle Dost inSep11.Thisvehicleislikelytocompete

withthe

likes

of

Tata

Ace,

Mahindra

Maxximo,

Piaggio

Ape

Truk

and

Force

Trump

in

the

cargo

small

commercialvehicle(SCV)segment.

Exhibit8:MarketshareinthedomesticcargoSCVsegment(%)FY06 FY07 FY08 FY09 FY10 FY11

TataMotors 59.4 68.6 64.8 60.5 57.2 56.0

Mahindra&Mahindra 38.0 29.1 28.6 32.1 35.8 38.1

PiaggioVehicles 0.0 0.0 3.1 6.1 5.2 3.4

ForceMotors 2.6 2.2 3.5 1.3 1.7 2.4

HindustanMotors 0.0 0.1 0.0 0.0 0.1 0.1

Source:SIAM

TheJVhasannualproductioncapacityof55,000vehiclesand istargetinganetworkof60dealersby

endof

FY12.

The

business

is

estimated

to

break

even

by

FY14f.

This

JV

is

also

planning

amulti

purpose

vehicleorutilityvehiclelaunchbySep12.

Diversifyingintonewbusinesses

In an attempt to diversify, AL has entered into several new businesses such as manufacturing of

constructionequipmentandautomobileinfotronics.

JVwithJohnDeere(investmentofINR424mn)

ALenteredintoa50:50JVwithJohnDeere(DEUS,NR)tomanufactureconstructionequipment.ThisJVhasintroduceditsfirstproductbackhoeloaderinNov11.AsALisbackwardintegratedfor

manufactureofenginesforconstructionequipment,itislikelytoresultincostsavings.

AsperEscorts(ESCIN,NR),thesizeofthebackhoeloaderandtheoverallconstructionequipmentsegments is estimated at USD0.6bn and USD2.5bn, respectively. The backhoe loader segment is

likelytogrowataCAGRof14%over20122014.

Exhibit9:Estimatedsalesvolumesinbackhoeloadersandconstructionequipmentindustry(%)2011 2012 2013 2014 CAGR(20102013)

Backhoeloaders 20,000 22,500 25,000 30,000 14.5

TotalConstructionEquipmentIndustry 54,055 62,045 69,955 79,715 13.8

Source:Escorts,AvendusResearch

JVwithContinentalAG(investmentofINR158mn)

ThecompanyhasenteredintoaJVwithContinentalAG(CONGY;NR)fordesigning,developingandadapting

infotronics

products

and

services

for

automotive

customers.

Automobile

infotronics

are

information technology solutions for automobiles such as telematics, dashboard electronics and

digitaltachometers.

The initial products from this JVare likely to bedashboard electronic equipment forALsUtruckrangeofvehicles.

AL is likely to benefit from these investments over the long term. However the companys share of

lossesfromthesebusinessesstoodatcINR498mninFY11.Weestimatethesebusinessestoonlybreak

evenbyFY14f.

WeestimatetheJVwith

Nissanto

breakeven

by

FY14f.


9/17


Automobiles 9

TotalincomegrowthtosettleataCAGRof13%overFY12fFY14f

TherecoveryindomesticMHCVsalesvolumesandrobustexportgrowtharelikelytoresultinaCAGRof13%intotal

incomeover

FY12f

FY14f.

Export

volumes

are

likely

to

be

strong,

at

aCAGR

of

19%

over

FY12f

FY14f,

due

to

the

growing

acceptanceofIndianCVsindevelopingcountries.Weestimatethecontributionofexportstooverallsalesvolumesto

increase from11% inFY11 to12% in FY14f.Risingsalespromotioncostsand the increasingcontributionofthe low

marginDostLCVtooverallsalesvolumesislikelytoreduceEBITDAmarginsfrom11.0%inFY11to9.8%inFY14f.We

estimatethisnegativeoperatingleveragetobeoffsetbypositivefinancialleverage.EBITDAandPATarelikelytogrow

ataCAGRof9%overFY12fFY14f.

ExportstooutpacedomesticsalesvolumegrowthoverFY12fFY14f

Domestic sales volumes are likely to grow by 14% over FY12fFY14f, led by recovery in MHCV sales

volume growth and robust growth in Dost LCV sales. The contribution of this LCV to overall sales

volumes and total income is likely to increase from 6% and 1% in FY11 to 17% and 2% by FY14f,

respectively.

Exports are estimated to outpace domestic sales volume growth over FY12fFY14f, with the

contribution of exports to overall sales volumes improving from 11% in FY11 to 12% in FY14f. We

estimatetherobustexportvolumegrowth(CAGRof19%overFY12fFY14f)tocontinueonaccountof

the growing acceptance of Indian CVs in developing countries, despite price hikes. Withdrawal of

exportincentivessuchastheDutyEntitlementPassBook(DEPB)haveresultedinpricehikesincargo

CVs,as passengerCVswerenot apartoftheDEPBscheme.TheexportofcargoCVs stoodat6%of

totalsalesvolumesinFY11.

Exhibit10:ExportincentivesunderDEPBanddutydrawbackschemesCategory Exportincentiverates(%)

DEPBscheme Dutydrawbackscheme Reductioninrate

A B

A

BCVsofupto7.5tonnesGVW 7 4 3

CVsof7.5tonnesto16.5tonnesGVW 10 5.5 4.5

Source:CentralBoardofExciseandCustoms

Exhibit11:EstimatedsalesvolumesandtotalincomeFY11 FY12f FY13f FY14f CAGR(FY12fFY14f)

Domesticvolumes 83,799 86,667 107,279 122,609 13.5

Exportvolumes 10,306 13,137 15,186 17,356 19.0

Totalvolumes 94,105 99,804 122,464 139,965 14.1

Totalincome(INRmn) 111,177 125,995 146,064 161,394 13.2

Source:Company,AvendusResearch

Weestimate

total

income

to

grow

at

aCAGR

of

13%

over

FY12f

FY14f,

led

by

arecovery

in

domestic

salesvolumesandrobustgrowthinexportvolumes.

EBITDAgrowthlikelytolagtotalincomegrowth

Selling,GeneralandAdministrativeexpenditureasa percentageof total income is likely to increase

from4.5%inFY11to5.0%byFY14fonaccountof increasingcompetition.Highercontributionofthe

lowmargin(5%7%EBITDAmargin)DostLCVtooverallsalesvolumesisalsolikelytoimpactmargins.

EBITDAmarginsare likely todecline from 11.0% inFY11 to 9.8%byFY14f.ThedeterioratingEBITDA

margins indicate thepresenceofnegativeoperating leverage.WeestimateEBITDAgrowth(CAGRof

9.0%) to lag total income growth (CAGRof 13%)over FY12fFY14f.PAT growth is likely to be largely

similar(CAGRof9%)toEBITDAgrowth.

Robustgrowthinexports

islikelytocontinuedueto

growingacceptanceof

IndianCVs

in

developing

countries.


10/17


Automobiles 10

Exhibit12:EstimatedtotalincomeandEBITDA(INRmn) FY11 FY12f FY13f FY14f CAGR(FY12fFY14f)

Totalincome 111,177 125,995 146,064 161,394 13.2

EBITDA

12,176

12,653

14,405

15,864

9.2

PAT 6,313 5,840 6,966 8,160 8.9

Source:Company,AvendusResearch

FreecashflowlikelytoturnpositivebyFY13f

WeforecastthecapexinthestandalonebusinesstoreduceinFY13fandFY14fduetoexcesscapacity.

ThisislikelytoresultinhigherfreecashflowsandlowernetdebttoequityinFY13fandFY14f.

Exhibit13:Estimatedfreecashflowandnetdebttoequity

1,000

3,000

7,000

11,000

FY11 FY12f FY13f FY14f

0.6

0.7

0.8

0.9

1.0

Freecashflow(INRmn) Ne tdebttoequity(x)(RHS)

Source:AvendusResearch

Lowercapexislikelyto

resultinhigherfreecash

flowsandlowernetdebt

toequityinFY13fand

FY14f.


11/17


Automobiles 11

InitiatewithaBuyratingandaMar13TPofINR41

We arrive at a Mar13 SOTPbased target price of INR41, which provides an upside of 46%. We apply an EV/EBITDA

multiple

of

8.6x

to

ALs

core

business

to

arrive

at

a

fair

value

of

INR39/share.

This

multiple

is

based

on

the

mean

valuationsofthepreviousCVcycle.The likelyearningsrebound inALoverFY13fFY14fonaccountoftherecovery in

domesticMHCVsalesvolumegrowthprovidesabuyingopportunity.WealsovalueALsinvestmentinIndusIndBankat

INR2/share. Initiate coverage withaBuy rating. Risk factors are the high exposure toMHCVsand highercommodity

pricesandfuelprices.

Valuingcorebusinessat8.6xEV/EBITDA

WevaluethestandalonebusinessesofALatanEV/EBITDAof8.6x,basedonmeanvaluationsoverthe

previous CV cycle (Apr07Feb12). We apply this multiple to arrive at our Mar13 fair value of

INR39/sharefortheCVbusiness.

Exhibit14:OneyearforwardrollingEV/EBITDAandEV/EBITDAattargetprice

5

10

15

20

Apr07 Feb08 Dec08 Oct09 Sep10 Jul11 May12 Mar13

1yrFwdEV/EBITDA TargetEV/EBITDA Avera geEV/EBITDA

Source:Bloomberg,AvendusResearch

The earnings growth over FY12fFY14f is lower than historical (FY08FY11) growth on account of

moderationindomesticMHCVandPVsalesvolumesinFY12f.Weestimatethistrendtoreverseover

FY13fFY14f;earningsgrowth islikelytoberobust(CAGRof18%)overFY13fFY14fonaccountofthe

likelyrecoveryindomesticMHCVsalesvolumegrowth.

Exhibit15:ComparisonofALshistoricalandfuturegrowth(%) Totalincomegrowth EBITDAgrowth *EPSgrowth

CAGRoverFY08FY11 11.6 14.7 10.4

CAGRover

FY12f

FY14f

13.2 9.2

8.9CAGRoverFY13fFY14f 13.2 12.0 18.2

Source:Company,AvendusResearch Note:*AvendusEPS

SOTPtargetofINR41;initiatecoveragewithaBuyrating

WehavevaluedALsinvestmentinIIBatitsmarketvalue.Includingthis investmentvaluetoourcore

businessfairvalue,wearriveatourMar13SOTPbasedtargetof INR41,whichprovidesanupsideof

46%.WeinitiatecoveragewithaBuyrating.

Weapplyan8.6x

EV/EBITDAmultipleto

arriveatourMar13fair

valueofINR39/sharefor

theCVbusiness.


12/17


Automobiles 12

Exhibit16:SOTPvaluationBasisofvaluation Equityvalue(INRmn) Valuepershare(INR)

Corebusiness 8.6xEV/EBITDA 103,681 39

Investmentin

IndusInd

Bank

Market

value

5,678

2

Total 109,360 41


The book value of investments injoint ventures and associates (after applying a holding company

discount of 30%) stands at cINR2/share. We do not factor in this value in our valuations as most of

thesebusinessesareestimatedtobreakevenonlybyFY14f.

Riskfactors

HigherexposuretoMHCVs:Incomparisontopeers,ALssalesvolumegrowthismorecyclicalduetohigherexposuretoMHCVs.

Rise in raw material prices: We have assumed stable raw material cost per vehicle over FY12fFY14f. Ifpricesofsteel,aluminumandrubber increase, thenthecompanysmarginsanddemand

arelikelytobeadverselyaffected.

Riseinfuelprices:An increase infuelprices is likelyto leadtopostponementofCVpurchasesbyfreightoperators,asitnegativelyimpactstheirmargins.

Exhibit17:Sensitivityanalysis Impactonearningsonaccountof1%declinein:(%) FY12f FY13f FY14f

Salesvolumes 3.2 2.4 2.4

Blendedrealizations 15.6 14.8 14.0

Rawmaterialcostpervehicle 13.6 12.3 11.7


Exhibit18:RelativevaluationsasonFebruary22,2012CMP Rating TargetPrice Upside PriceChange(%) P/E EV/E ROCE(%) ROE(%)

(INR) (INR) (%) 1m 3m 6m 2012f/

FY12f

2013f/

FY13f

2014f/

FY14f

2012f/

FY12f

2013f/

FY13f

2014f/

FY14f

2012f/

FY12f

2012f/

FY12f

AL 28 Buy 41 46 5.4 13.1 11.3 12.8 10.7 9.2 8.9 7.8 6.8 10.2 14.3

EIM* 1724 Add 1918 11 6.9 7.8 27.1 11.9 9.7 7.7 9.5 7.4 5.4 21.5 24.0

TTMT 268 Add 303 13 22.5 55.7 82.1 8.3 7.9 7.0 4.8 4.3 3.7 21.3 45.6

Source:Bloomberg,AvendusResearch Note:*YearendingDecember,ProportionateshareofEIMinVECVconsideredforratios

Wedonotfactorthe

valueofinvestmentsin

jointventuresand

associatesinour

valuations.


13/17


Automobiles 13

Financialsandvaluations

Incomestatement(INRmn)Fiscal

year

ending 03/10 03/11 03/12f 03/13f 03/14f

Grosssal es 78,726 120,936 137,055 158,885 175,561

Less:Excise duty 6,279 9,759 11,060 12,821 14,167

Netsal es 72,447 111,177 125,995 146,064 161,394

Other operatingincome 0 0 0 0 0

Totaloperatinginco me 72,447 1 11,177 1 25,995 1 46,064 1 61,394

Totaloperatingexpenses 64,819 99,002 1 13,342 1 31,658 145,530

Netmateri als 52,041 8 0,994 9 2,319 107,002 117,735

Other directcosts 1,348 2,349 3,209 4,106 4,198

Personnel 6,716 9 ,746 10,644 12,241 14,077

SG&A 4,317 5,437 6,631 7,684 8,830

R&D 397 476 539 625 691

EBITDA 7,628 12,176 12,653 14,405 15,864

Other income 704 153 211 185 198

Depreciat ion 2,041 2,674 3 ,440 3 ,671 3 ,675

EBIT 6,292 9,655 9,423 10,920 12,386

Interest 811 1,637 2,284 2,284 2,271

RecurringPB T 5,480 8,018 7,139 8,636 10,116

Netextraordinaryitems 33 0 0 0 0

PBT (reported) 5,448 8,018 7,139 8,636 10,116

Totaltaxes 1,211 1,705 1,298 1,669 1,955

PA T(repor ted) 4,237 6,313 5,840 6,966 8,160

Add:Shareo f earningsofassociat e 0 0 0 0 0

Less:Minorityi nterest 0 0 0 0 0

Priorperiod items 0 0 0 0 0

Netincome(reported) 4,237 6,313 5,840 6,966 8,160

Avendusneti ncome 4,269 6,313 5,840 6,966 8,160

Dividend +Distribution tax 2,327 3,092 3,092 3,239 3,794

Shares outstanding(mn) 2,661 2,661 2,661 2,661 2,661

Avendusdiluted

shares

(mn) 2,661 2,661 2,661 2,661 2,661

AvendusEPS (INR ) 1.6 2. 4 2. 2 2. 6 3.1

Growthratios(%)Totaloperatingi ncome 21.1 53.5 13.3 15.9 10.5

EBITDA 62.5 59.6 3.9 13.8 10.1

EBIT 84.7 53.4 2.4 15.9 13.4

RecurringPB T 146.9 46.3 11.0 21.0 17.1

Avendusnet income 109.8 47.9 7.5 19.3 17.1

AvendusEPS 109.8 47.9 7.5 19.3 17.1

Operatingratios(%)EBITDAmargi n 10.5 11.0 10.0 9.9 9.8

EBIT m ar gin 8.7 8.7 7.5 7.5 7.7

Netprofitmargin 5.8 5.7 4.6 4.8 5.0

Other income/PBT 12.9 1.9 3.0 2.1 2.0

EffectiveTax

rate 22.2

21.3

18.2

19.3

19.3


14/17


Automobiles 14

Balance sheet(INRmn)Fiscalyearending 03/10 03/11 03/12f 03/13f 03/14f

Equity capital 1,330 1,330 2,661 2,661 2,661

Preferencecapital 0 0 0 0 0

Reserves andsurpl us 35,305 38,256 39,674 43,401 47,768

Net worth 36,636 39,586 42,334 46,062 50,429

Mino rity interest 0 0 0 0 0

Totaldebt 22,039 25,683 32,683 31,883 28,583

Deferredtax liability 4,486 5,338 5,338 5,338 5,338

Totalli abi lit ies 63,161 70,607 80,355 83,283 84,350

Grossblock 60,186 66,919 76,499 82,499 85,499

less: Accumulated depreciati on 17,691 20,581 24,021 27,692 31,368

Netblock 42,496 46,338 52,477 54,806 54,131

CW IP 5,615 3,580 3,000 1,500 750

Goodwill 0 0 0 0 0

Investments 3,262 12,300 17,300 18,550 19,800

Cash 5,189 1,795 595 152 1,175Inventories 16,382 22,089 23,438 24,640 25,680

Debtors 10,221 11,852 13,002 15,011 15,942

Loans andadvances 9,605 7,936 7,936 7,936 7,936

less: Currentliabilities 25,921 30,379 32,489 34,263 35,459

less: Prov isions 3,687 4,903 4,903 5,050 5,605

Networkingcapital 11,789 8,390 7,578 8,427 9,669

Totalassets 63,161 70,607 80,355 83,283 84,350

Cashflowstatement(INRmn)Fiscalyearending 03/10 03/11 03/12f 03/13f 03/14f

Netpr ofit 4,237 6,313 5,840 6,966 8,160

Depreciat ion 2,041 2,674 3 ,440 3 ,671 3 ,675

Deferredtax 0 0 0 0 0

Working capitalchanges 2,806 6 38 9 1,291 22 0

Less:Otheri ncome 704 153 211 185 198

Cashflowfromoperations 8,379 8,840 8,681 9,161 11,418

Capitalexpenditure 6,285 4,698 9,000 4,500 2,250

Strategicinvestmentspurchased 62 6 9,038 5,000 1,250 1,250

Marketable investmentspurchased 0 0 0 0 0

Change inotherloansan dadvances 0 0 0 0 0

Goodwill paid 0 0 0 0 0

Other income 704 153 211 185 198

Cashflowfrom investing 6,207 13,583 13,789 5,565 3,302

Equity raised 0 0 0 0 0

Change inbor rowings 2,457 3,644 7,000 80 0 3,300

Dividends paid(incl. tax) 2,327 3,092 3,092 3,239 3,794

Ot her s 2,006 798 0 0 0

Cash

flow

from

financing 2,136 1,349 3,908

4,039

7,094Net change incash 4,308 3,394 1,200 442 1,022


15/17


Automobiles 15

KeyRatiosFiscalyearending 03/10 03/11 03/12f 03/13f 03/14f

Valuationratios(x)

P/E (on Avendus EPS) 17.5 11.8 12.8 10.7 9.2

P/E (on basic,reportedEPS) 13.2 11.8 12.8 10.7 9.2

P/CEPS 11.8 8.3 8.1 7.0 6.3

P/BV 2.0 1.9 1.8 1.6 1.5

Dividend yield(%) 2.7 3.6 3.6 3.7 4.4

Marketcap. /F CF 35.2 18.1 234.5 16.0 8.2

Marketcap. /S ales 1.0 0.7 0.6 0.5 0.5

EV/Sales 1.3 0.9 0.9 0.8 0.7

EV/EBITDA 12.6 8 .5 8.9 7.8 6.8

EV/F CF 45.2 25.1 351.9 24.0 11.7

EV/TotalAssets 1.5 1.5 1.4 1.3 1.3

NetCash/Marketcap. 6.9 2.4 0.8 0.2 1.6

Pershareratios(INR)

AvendusEPS 1.6 2.4 2.2 2.6 3.1

EP S(Basic,r eported) 2.1 2.4 2.2 2.6 3.1

Cash EPS 2.4 3.4 3.5 4.0 4.4

Book Value 13.8 14.9 15.9 17.3 19.0

Dividend pershare 0.7 1.0 1.0 1.0 1.2

ROEDecomposition(%)

EBIT margin 8.7 8.7 7.5 7.5 7.7

Assetturnover(x) 1.2 1.7 1.7 1.8 1.9

Interestexpenserati o 1.4 2.4 3.0 2.8 2.7

Tax retentionratio 77.8 78.7 81.8 80.7 80.7

RO A 7.1 9.4 7.7 8.5 9.7

Totalassets/equity (x) 1.7 1.8 1.8 1.9 1.7

RO E 12.0 16.6 14.3 15.8 16.9

Returnratios (%)

EBIT /CapitalEmploy ed 10.5 14.4 12.5 13.3 14.8

ROCE

8.2 11.4 10.2 10.8 11.9RO IC 10.0 12.9 10.9 11.1 12.2

FC F/IC 4.3 7.0 0.4 5.9 11.2

OCF /S ales 11.6 8.0 6.9 6.3 7.1

FC F/Sal es 2.9 3.7 0.3 3.2 5.7

Turnoverratios (x)

Grossturnover 1.2 1 .7 1.6 1.8 1.9

Nettur nover 1.7 2.4 2.4 2.7 3.0

Revenue/IC 1.5 1.9 1.8 1.8 2.0

Inventory/Sales(day s) 74.8 63.2 65.9 60.1 56.9

Receivables(days) 49.9 36.2 36.0 35.0 35.0

Payab les(days) 152.5 1 23.3 1 20.1 1 09.6 1 04.4

Working capitalcycle(excash)(days) 40.3 21.7 19.7 19.1 19.0

Solvencyratios(x)

Grossdebttoequity 0.7 0.8 0.9 0.8 0.7

Netdebt

to

equit y 0.6 0.7 0.9 0.8 0.6

Netdebtto EBITDA 2.8 2.4 3.0 2.6 2.1

InterestCoverage (EBIT/Interest) 7.8 5.9 4.1 4.8 5.5


16/17


Automobiles 16

AnalystCertification

Thefollowinganalyst(s) is(are)primarilyresponsible forthisreportand,certifies(y)thattheopinion(s)onthesubjectcompany(ies) and itssecurity(ies)andanyotherviewsor

forecastsexpressedhereinaccuratelyreflecttheirpersonalview(s).Theyfurthercertifythatnopartoftheircompensation was,isorwillbedirectlyorindirectlyrelatedtothe

specificrecommendation(s) orviewscontainedinthisresearchreport:SriRaghunandhanNL

Disclosures

MeaningofAvendusSecuritiesPrivateLimitedsequityresearchratings

Theratingrepresentstheexpectedchangeinthepriceofthestockoverahorizonof12months.

Buy:morethan+20% Add:+10%to+20% Hold: 10%to+10% Reduce: 10%to 20% Sell:lessthan 20%

Proportionofratingsineachcategoryandinvestmentbankingrelationships

AttheendofDecember2011 Buy Add Hold Reduce Sell NR Total

Proportionofratingsineachcategory 32% 24% 29% 7% 0% 7% 100%

Proportionofcompaniestowhommaterialinvestmentbankingserviceswereofferedduringtheprevious12months 0% 13% 5% 0% 0% 20% 6%

Analystdisclosures

None of theanalysts involved in thepreparation of this researchreportoramemberof his/herhousehold isan officer, director or supervisory board memberof any of the

company(ies)that

is/are

the

subject

of

this

research

report.

None

of

the

analysts

involved

in

the

preparation

of

this

research

report

or

members

of

his/her

household

hold

any

financialinterestinthesecuritiesofthecompany(ies) thatis/arethesubjectofthisresearchreport.Noneoftheanalystsinvolvedinthepreparationofthisresearchreporthave

receivedorpurchasedsharesofthesubjectcompanypriortothepublicofferingofthoseshares

DisclosuresonpotentialconflictsofinterestforAvendusSecuritiesPrivateLimitedand/oritsassociatecompanies(Avendus)asonFebruary21,2012

Asontheabovementioneddate,theshareholdings ofAvendusdoesnotexceed5%ofthetotalissuedsharecapitalofAshokLeylandLimited(AL).Avendusdoesnotholdany

otherfinancialinterestinALthatissignificantwithregardtotheresearchrecommendation. Asontheabovementioneddate,theshareholdings ofALdoesnotexceed5%ofthe

totalissuedsharecapitalofAvendus.Avendusisnotamarketmakerorliquidityproviderinthesecuritiesoftherelevantissuerorinanyrelatedderivatives.Avendushasnotbeen

aleadmanagerorcoleadmanagerofapubliclydisclosedofferofsecuritiesofALorinanyrelatedderivativesoverthepast12months.Overthepast12months,Avendushasnot

beenpartytoanagreementwithALwithregardtotheprovisionofotherinvestmentbankingservicesthatdonotentailthedisclosureofanyconfidential commercialinformation.

Avendusisnotpartytoanagreementwiththesubjectcompany(ies) ofthisresearchreportwithregardtotheproductionofthisresearchreport.

Sharepricehistoryandratingchanges

Buy,23Feb12,41

20

26

32

38

44

Feb11 Apr11 Jun11 Jul11 Sep11 Nov11 Dec11 Feb12

AL(Initiated onFeb23, 12) Ra ting,Date,TP(INR)


17/17


Automobiles 17

Disclaimer

ThisdocumenthasbeenpreparedbyAvendusSecuritiesPrivateLimited(ASPL).Thisdocumentismeantfortheuseoftheintendedrecipientonly.Thoughdisseminationtoall

intendedrecipientsissimultaneous, notallintendedrecipientsmayreceivethisdocumentatthesametime.Thisdocumentisneitheranoffernorsolicitationforanoffertobuy

and/orsellanysecuritiesmentionedhereinand/orofficialconfirmationofanytransaction. Thisdocumentisprovidedforassistanceonlyandisnotintendedtobe,andmustnot

betakenas,thesolebasisforaninvestmentdecision.Theuserassumestheentireriskofanyusemadeofthisinformation. Eachrecipientofthisdocumentshouldmakesuch

investigationashedeemsnecessarytoarriveatanindependentevaluation,includingthemeritsandrisksinvolved,forinvestmentinthesecuritiesreferredtointhisdocument

andshouldconsulthisownadvisorstodeterminethemeritsandrisksofsuchinvestment.Theinvestmentdiscussedorviewsexpressedmaynotbesuitableforallinvestors.This

documenthasbeenpreparedonthebasisofinformation obtainedfrompubliclyavailable,accessibleresources. ASPLhasnotindependently verifiedalltheinformationgivenin

thisdocument.Accordingly,norepresentationorwarranty,expressorimplied,ismadeastoaccuracy,completeness orfairnessoftheinformationandopinioncontainedinthis

document.The informationgiven inthisdocument isasofthedateofthisdocumentandtherecanbenoassurancethat futureresultsoreventswillbeconsistentwiththis

information. Though ASPL endeavors to update the information contained herein on reasonable basis, ASPL, its associate companies, their directors, employees, agents or

representatives(ASPLanditsaffiliates)areundernoobligationtoupdateorkeeptheinformationcurrent. Also,theremayberegulatory,compliance orotherreasonsthatmay

preventusfromdoingso.ASPLanditsaffiliatesexpresslydisclaimanyandallliabilitiesthatmayarisefrominformation, errororomissioninthisconnection. ASPLanditsaffiliates

shallnotbeliableforanydamageswhetherdirect,indirect,specialorconsequential, includinglostrevenueorlostprofits,whichmayarisefromorinconnection withtheuseof

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Persons inwhosepossessionthisdocumentcomesshould informthemselvesaboutandobserveanysuchrestrictions.ASPLand itsaffiliatesmaybeperforming orseekingto

performinvestmentbankingandotherservicesforanycompanyreferredtointhisdocument.AffiliatesofASPLmayhaveissuedotherreportsthatareinconsistentwithandreach

adifferentconclusionfromtheinformationpresentedinthisdocument.

Thiscommunication isexemptfromthefinancialpromotionrestriction(inSection21oftheFinancialServicesAndMarketsAct,2000(FSMA))relatingtothecommunication ofan

invitation orinducementtoengageininvestmentactivityonthegroundsthatitismadetoaninvestmentprofessional.Anyinvestmenttowhichthiscommunicationrelatesisonly

availabletoinvestmentprofessionals. Anypersonswhodonothaveprofessional experienceinsuchinvestmentsshouldnotrelyonthiscommunication.

ASPLanditsaffiliatesmayhaveinterest/positions, financialorotherwise,inthecompaniesmentionedinthisdocument.Inordertoprovidecompletetransparency toourclients,

wehaveincorporateddisclosuresaboutinterestsofanalystsandaboutpotentialconflictsofinterestofASPLanditsassociatecompaniesinthisdocument.Thisshould,however,

notbe

treated

as

an

endorsement

of

the

view

expressed

in

the

document.

ASPL

is

committed

to

providing

high

quality,

objective

and

unbiased

research

to

our

investors.

To

this

end,wehavepolicies inplaceto identify,considerandmanagepotentialconflictsofinterestandprotecttheintegrityofourrelationshipswith investingandcorporateclients.

Employeecompliancewiththesepoliciesismandatory. AnycommentorstatementmadehereinaresolelythoseoftheanalystanddonotnecessarilyreflectthoseofASPL.

OUROFFICES

AvendusSecuritiesPrivateLimited

Mumbai: 6thFloor,BQuadrant,IL&FSFinancialCentre,BandraKurlaComplex,Bandra(E),Mumbai 400051 T:+912266480050 F:+912266842870

AvendusCapitalPrivateLimited

Mumbai: 5thFloor,BQuadrant,IL&FSFinancialCentre,BandraKurlaComplex,Bandra(E),Mumbai 400051 T:+912266480050 F:+912266480040Bangalore: TheMilleniaTower,A 10thFloor,No1&2MurphyRoad,Ulsoor,Bangalore 560008,India T:+918066483600 F:+918066483636NewDelhi: Suite22A/B,TheAmanResort,LodhiRoad,NewDelhi 110003,India T:+911145357500 F:+911145357540London: AvendusCapital(U.K.)PrivateLimited,33,StJames'sSquare,London,SW1Y4JS T:+442031594353 F:+442076619400

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