institutional equity research capital goods...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Capital Goods & Engineering

2Q preview: Earnings propped by tax cut. Lookout for working capital in absence of orders INDIA | CAPITAL GOODS | Sector Update

7 October 2019

We expect our capital-goods coverage of 14 companies to report a 12% yoy growth in Q2FY20 recurring earnings despite a muted PBT growth (+5% yoy), benefiting from the recent cut in corporate tax rate. Revenues should grow 10% yoy. However, excluding L&T services, revenue growth (+6% yoy) is expected to be sluggish for the third consecutive quarter on a general slowdown and impact of rains/floods on execution. EBITDA should grow 10% yoy as margins are likely to remain flat. Key monitorables would be: (1) outlook on ordering in 2HFY20, (2) working capital, and (3) impact of cut in tax rate.

Order inflows continue to be muted After weak ordering in previous three quarters (-8% yoy) impacted by elections, order inflows are expected to be weak even in Q2FY20 as government ordering did not resume post elections coupled with a high base of orders in the base quarter. We expect new orders for our coverage (ex-L&T services) to decline 5% yoy. Decline in order inflows of BHE (-35%), ENGR (-96%) and VATW (-86%) is attributed due to high base while KEC (-60%) would be impacted by delayed ordering particularly by Railways. Most of the other companies should register a double digit growth in new orders along with L&T, which is expected to report an 18% yoy growth (ex-services, +15%).

Pace of execution to be slow for the third straight quarter The consolidated orderbook for companies is likely to grow by 5% yoy with a book-to-bill of 2.7x TTM revenues. Revenue is expected to grow at 10% yoy aided by L&T service revenues on consolidation of MindTree. However, pace of execution will continue to be slow, as revenue (ex-L&T services) would only grow by 6% yoy. BDL should report highest revenue growth on execution of deferred deliveries. Expect a 15% growth in L&T’s revenue with 9% growth in core E&C segment along. BHE’s revenue should decline 14% yoy on a high base due to of EVM/VVPAT sales last year.

Margin to remain stable with a slight contraction in gross margins due to sales mix We expect a slight contraction in the sector’s gross margins - with six companies likely to report a contraction due to sales mix. With decline in steel and copper prices, rise in material costs are now behind us. However, EBITDA margin is expected to be flat at 10.9% for our coverage group - resulting in a 10% yoy growth in EBITDA (in-line with revenue growth). Companies that likely to see significant margin expansion include ABB, BDL, BHEL, SIEM and VATW (low base, good sales mix and operating leverage). The sharpest decline in margins would be in BHE, Cochin Shipyard, Cummins and ENGR due to weak execution and sales mix. L&T’s is expected to report a 50bps contraction in margin due to high base in services margins; while core E&C margins should improve.

Recurring earnings growth of 12% despite muted PBT led by cut in tax rates We expect recurring earnings to grow 12% yoy despite muted PBT on account of lower taxes (assumed 27% tax rate for 1HFY20). PBT growth (+5%) will be muted due to higher interest costs. However, one-time adjustment of deferred tax would result in a 56% decline in reported PAT majorly impacting BHEL and L&T, in our view.

Working capital intensity to remain high We believe companies with a skew towards government orders should see increase in working capital intensity, which would be impacted by lower advances and higher receivables.

What would we look for in management commentaries? Impact of: (1) outlook on 2HFY20 ordering, execution and margins, and (2) working capital intensity in view of continued tight liquidity, and (3) view on likely impact of cut in tax rate.

Picks for the result season Positive: ABB, Siemens. Negative: Cummins, GE T&D, Bharat Electronics.

__Growth % YoY – Q2FY20E__

Inflows Revenue EBITDA Rec.PAT

ABB* 22% 12% 105% 47%

BDL -78% 50% 253% 550%

BEL -35% -14% -34% -35%

BHEL 32% -2% nm nm

CSL nm -4% -25% -7%

Cummins nm 2% -15% -11%

EIL -96% 16% 8% 25%

GE T&D 40% -8% -8% -23%

KEC -61% 9% 13% 36%

KPP (SA) 21% 13% 12% 17%

JMC (SA) 1% 12% 16% -13%

L&T 18% 15% 10% 5%

Siemens 13% 10% 35% 77%

Thermax 47% -1% 4% 34%

Va Tech -86% -1% 16% -30%

Coverage -1% 10% 10% 12%

*ABBs PAT include profit from discontinued operations

Jonas Bhutta, Research Analyst (+ 9122 6246 4119) [email protected] Vikram Rawat, Research Associate (+ 9122 6246 4120) [email protected] Sandesh Shetty, Research Associate (+ 9122 6246 4139) [email protected]

mailto:[email protected]




CAPITAL GOODS AND ENGINEERING SECTOR UPDATE

Capital Goods – Q2FY20 Result preview

(Rs mn) Sep-19E Jun-19 qoq (%) Sep-18 yoy (%) Key expectations / assumptions

Capital goods

Order inflows 7,69,568 6,01,432 28% 7,78,171 -1% Expect muted growth in new orders due to high base Revenues likely to grow 10% yoy driven by growth in ABB, BDL, ENGR, KPP,

L&T, SIEM; while BHE and GETD revenues should decline EBITDA growth of 10% yoy led by L&T along with improved margins for ABB,

BDL, BHEL, SIEM. Excluding L&T services, our coverage EBITDA should grow by 15% Recurring PAT to grow 12% yoy supported by lower tax rates. Excluding

companies with low base (BDL, BHEL), PAT growth would be 5%. Reported PAT to decline 56% yoy on one-off deferred tax adjustments

Order book 57,00,773 55,63,301 2% 54,52,265 5%

Revenues 6,47,134 5,19,556 25% 5,90,912 10%

EBITDA 70,362 50,386 40% 63,858 10%

EBITDA Margin (%) 10.9% 9.7% 117bps 10.8% 7bps

PAT 40,760 26,014 57% 36,485 12%

ABB India

Order inflows 18,812 19,890 -5% 15,450 22% Expect strong growth in new orders from continuing operations. Revenues likely to be driven by growth across all the segments Lower EPC losses along with improved segment margins aid margins. PAT (continuing operations) should grow 170% yoy (Rs 970mn vs. 360mn).

Order book 47,599 46,560 2% 50,770 -6%

Revenues 16,653 17,258 -4% 14,916 12%

EBITDA 1,342 1,239 8% 654 105%


PAT (incl. PG) 1,588 1,304 22% 1,083 47%

EPS (Rs) 7.5 6.2 22% 5.1 47%

Bharat Dynamics

Order inflows 1000 11,878 -92% 4,466 -78% Order inflows likely to be weak due to delay in awards. Strong growth in revenues led by deferred execution of Akash missiles. Improved gross margins and operating leverage benefits to drive EBTIDA.

Order book 70,873 78,963 -10% 82,476 -15%

Revenues 9,090 4,916 85% 6,060 50%

EBITDA 2,328 1,117 108% 660 253%


PAT 1,843 655 181% 283 550%

EPS (Rs) 10.1 3.6 181% 1.5 550%

Bharat Electronics Order inflows 70,000 19,850 253% 1,07,550 -35% Order inflows should decline despite winning Akash 7sqdn (Rs 53bn) due to

high base. Revenue growth likely to be weak as base quarter included the execution of

EVM/VVAPT order– 35% of sales EBITDA margins to contract yoy on negative operating leverage.

Order book 5,58,429 5,17,150 8% 4,89,950 14%

Revenues 29,221 21,015 39% 33,814 -14%

EBITDA 5,671 3,481 63% 8,544 -34%

EBITDA Margin (%) 19.4% 16.6% 284bps 25.3% -586bps

PAT 3,692 2,047 80% 5,713 -35%

EPS (Rs) 1.5 0.8 79% 2.3 -36%

BHEL

Order inflows 67,860 38,920 74% 51,590 32% Expect strong growth in new orders driven by emission control orders. Revenue growth likely to be muted due to weak power segment revenue

because of continued execution challenges. EBITDA would be supported by lower provisions for receivables. Consequently, it should report a profit on recurring basis (vs. losses yoy). However, it will report a loss of Rs 10bn due to one-off adjustment of

deferred tax assets based on new tax rate.

Order book 10,80,974 10,78,060 0% 11,53,300 -6%

Revenues 66,417 45,317 47% 67,799 -2%

EBITDA 1,565 (3,147) nm (332) nm

EBITDA Margin (%) 2.4% -6.9% 930bps -0.5% 285bps

PAT 110 (2,465) nm (772) nm

EPS (Rs) 0.0 (0.7) nm (0.2) nm

Cochin Shipyard

Revenues 7,637 7,354 4% 7,994 -4% Expect decline in revenues due to weak ship repair sales on a high base partly offset by strong shipbuilding revenue

Margins to contract 500bps due to unfavourable sales mix and high base in ship-repair margins

EBITDA 1,419 1,417 0% 1,881 -25%

EBITDA Margin (%) 18.6% 19.3% -69bps 23.5% -495bps

PAT 1,380 1,203 15% 1,477 -7%

EPS (Rs) 10.5 9.1 15% 10.9 -3%

Cummins

Revenues 15,146 13,430 13% 14,869 2% Expect muted revenue growth impacted by weak export sales (-15% yoy) partly offset by a 9% growth in domestic sales

Margins to contract 285bps yoy due to unfavourable sales mix EBITDA 2,126 1,515 40% 2,509 -15%


PAT 1,879 1,416 33% 2,116 -11%

EPS (Rs) 6.8 5.1 33% 7.6 -11%

Engineers India

Order inflows 1,750 9,436 -81% 49,623 -96% Revenue growth would be driven by strong execution in Turnkey segment; while consultancy segment to have a moderate revenue growth.

EBITDA margins to contract 100bps due to change in sales mix Recurring PAT growth would be driven by lower effective tax rate. However, reported PAT to decline 65% yoy because of one-off deferred tax

impact.

Order book 1,08,115 1,14,290 -5% 1,14,640 -6%

Revenues 7,925 6,383 24% 6,814 16%

EBITDA 1,040 811 28% 961 8%


PAT 1,261 863 46% 1,006 25%

EPS (Rs) 2.0 1.4 46% 1.6 25%

Source: PhillipCapital India Research



(Rs mn) Sep-19E Jun-19 qoq (%) Sep-18 yoy (%) Key expectations / assumptions

GE T&D

Order inflows 10,129 4,177 142% 7,235 40% Order inflows growth likely to be strong on a weak base. Execution likely to be weak with decline in revenues due to depleting order

book EBTIDA margins to remain flat supported by lower other expenses However, PAT would decline 23% yoy despite lower effective tax rate

because of significant decline in other income

Order book 60,291 59,300 2% 62,000 -3%

Revenues 9,138 7,337 25% 9,933 -8%

EBITDA 851 424 101% 921 -8%


PAT 396 34 1076% 515 -23%

EPS (Rs) 1.5 0.1 1076% 2.0 -23%

KEC

Order inflows 8,450 11,150 -24% 21,700 -61% Order inflows likely to be weak due delay in awards of L1 projects Revenue growth would be supported by strong execution in railways and

SAE along with healthy growth in standalone T&D. Expect marginal improvement in EBITDA margin. Recurring PAT growth to be strong on lower effective tax rate

Order book 1,71,536 1,90,160 -10% 1,71,210 0%

Revenues 26,274 24,125 9% 24,085 9%

EBITDA 2,851 2,513 13% 2,532 13%


PAT 1,312 886 48% 963 36%

EPS (Rs) 5.1 3.4 48% 3.7 36%

KPP (standalone)

Order inflows 24,930 17,450 43% 20,540 21% Expect strong growth in order inflows led by T&D orders from both domestic and overseas markets

Revenue likely to grow 13% yoy while EBITDA margins remain flat at 10.8% Recurring PAT growth will be supported by lower effective tax rate offsetting

the decline in PBT due to higher interest cost

Order book 1,50,433 1,43,290 5% 1,41,790 6%

Revenues 17,787 16,550 7% 15,741 13%

EBITDA 1,921 1,920 0% 1,709 12%

EBITDA Margin (%) 10.8% 11.6% -80bps 10.9% -5bps

PAT 1,072 920 17% 914 17%

EPS (Rs) 6.9 6.0 16% 6.0 16%

JMC (standalone)

Order inflows 5,600 11,300 -50% 5,560 1% JMC (subsidiary of KPP) to report a muted growth in its new orders Revenue is expected to grow by 12% led by strong order book 3x b-t-b. EBITDA will grow 16% yoy with 40bps expansion in margins. However, higher depreciation and interest cost to impact earnings.

Order book 99,114 1,01,730 -3% 1,01,290 -2%

Revenues 8,216 9,039 -9% 7,336 12%

EBITDA 902 1,004 -10% 775 16%

EBITDA Margin (%) 11.0% 11.1% -12bps 10.6% 42bps

PAT 262 355 -26% 301 -13%

EPS (Rs) 1.6 2.1 -26% 1.8 -13%

L&T

Order inflows 4,79,610 3,87,000 24% 4,19,210 14% Expect 18% yoy (ex-services 15%) growth in new orders - announced Rs 388bn of orders in 2Q (assuming average range of new orders) led by large orders from airports, hydrocarbon, real estate and power.

Revenues to grow 10% yoy led by growth in IT services on MindTree consolidation along with 9% yoy growth in core E&C revenues.

EBITDA margins to contract 45 bps yoy due to lower margins in IT and financial services.

Recurring earnings growth would be impacted by higher interest costs. Reported PAT to decline 48% due to one-off deferred tax adjustment.

Order book 30,67,368 29,40,140 4% 28,11,660 9%

Revenues 3,52,382 2,96,360 19% 3,20,808 10%

EBITDA 39,787 33,189 20% 37,705 6%


PAT 20,095 15,661 28% 19,357 4%

EPS (Rs) 7.2 5.6 28% 6.9 4%

Siemens

Order inflows 42,205 30,230 40% 37,187 13% Order inflows are expected to grow 13% yoy Expect a moderate growth of 10% in revenues EBITDA margins to expand 215bps yoy on operating leverage benefits. Recurring earnings growth would be aided by higher other income and

lower effective tax rate.

Order book 1,22,750 1,31,134 -6% 1,23,520 -1%

Revenues 42,900 31,984 34% 38,947 10%

EBITDA 5,051 3,537 43% 3,741 35%


PAT 4,442 2,481 79% 2,509 77%

EPS (Rs) 12.5 7.0 79% 7.0 77%

Thermax

Order inflows 19,729 12,170 62% 13,440 47% Order inflows likely to be strong on a low base led by orders for emission control.

Revenue growth to be muted due to decline in Energy segment sales on weak order book.

Expect a marginal improvement in EBITDA margins led by improved margins in Environment segment

Recurring earnings to grow 34% led by lower effective tax rate Reported PAT should decline on impact of deferred tax adjustment

Order book 57,834 52,500 10% 64,110 -10%

Revenues 14,205 13,925 2% 14,276 -1%

EBITDA 1,141 991 15% 1,100 4%


PAT 1,000 628 59% 745 34%

EPS (Rs) 8.9 5.6 59% 6.6 34%

VA Tech Wabag

Order inflows 3,543 27,981 -87% 24,620 -86% Expect weak orders inflows on a high base yoy. Revenues growth likely to be muted due to weak overseas execution Improved gross margins to support 110bps expansion in EBITDA margins. PAT should decline due to higher interest costs.

Order book 1,06,204 1,10,024 -3% 85,549 24%

Revenues 7,447 4,565 63% 7,520 -1%

EBITDA 576 375 54% 498 16%

EBITDA Margin (%) 7.7% 8.2% -48bps 6.6% 111bps

PAT 192 26 633% 274 -30%

EPS (Rs) 3.5 0.5 633% 5.0 -30%



Trend of actual results vs. our quarterly estimates

Growth trend of our coverage


Average steel prices in 2Q were down 17% yoy /7% qoq....

...while copper prices declined 10% yoy /5% qoq

Source: Steelmint, Bloomberg, PhillipCapital India Research

However, interest rates are flat yoy…

…while rupee appreciated 2% yoy (but depreciated 2.5% qoq to Rs 70.9/USD

Source: SBI, Bloomberg, PhillipCapital India Research

3%

3%

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14

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14

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-15%

-10%

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20%

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Actual vs PC estimates

Order inflows Revenues EBITDA PAT

66

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18

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24

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Inflows Sales EBITDA Rec PAT

Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

30,000

32,000

34,000

36,000

38,000

40,000

42,000

44,000

46,000

48,000

50,000

Ap

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6

Jun

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Oct

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Dec

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Oct

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HRC plate prices (Rs / tn)

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6,500

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Jul-

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8

Jul-

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LME Copper (US$/tn)

7.0

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Jul-

10

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Sep

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SBI Base rate (%) SBI MCLR 1 yr

60

62

64

66

68

70

72

74

76

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Jul-

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9

Jul-

19

Oct

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USD INR



Stock price performance Price Return (%)

Company Name 03-Oct-19 1 month 3 month 6 month 12 month

ABB India 1,461 10% -9% 10% 3%

BEL 105 5% -7% 8% 26%

BDL 294 8% -12% 4% 4%

CSL 332 -2% -13% -15% -16%

HAL 704 9% -1% -2% -13%

BHEL 47 -4% -35% -36% -36%

Cummins 560 0% -27% -23% -16%

ENGR 112 9% -8% -4% -2%

GE T&D 184 22% -24% -36% -30%

KEC 110 -4% -20% -5% 40%

KPTL 480 10% -9% 2% 50%

JMC 271 11% -17% -9% -2%

L&T 1,458 13% -8% 6% 17%

Siemens 1,526 32% 15% 31% 56%

Thermax 1,138 14% 8% 20% 22%

Va Tech 265 -3% -22% -17% -8%




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

Rating Criteria Definition

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

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

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

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Sr. no. Particulars Yes/No

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

No

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

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

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No

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Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.

PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.

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Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.

No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.

PhillipCapital (India) Pvt. Ltd. Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.

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