pc - itc company update - ii - july 2014 first...

Please refer to Disclosures and Disclaimers at the end of the Research Report.

ITC Limited Difficult choices ahead

FMCG: Company Update 22 July 2014

PhillipCapital (India) Pvt. Ltd.

The secondary market for cigarettes has started cooling off after the recent frenzied trading activity and price rise. Traders are now worried that the accumulated stocks (at high prices) may not fetch the desired prices as: 1) channel inventory is at an all time high and 2) the company is worried about a decline in consumption and may not hike prices to the extent initially envisaged. In our budget review (click here), our channel checks had indicated that the weighted average price hikes could be in the range of ~30% by August. However, now, the secondary market is showing clear signs of sluggishness and we have revised our price‐hike estimates for FY15 accordingly. Based on the new market developments, it is likely that price hikes in FY15 may translate to some margin erosion. Here are our observations and estimates:

64mm likely to grow in the long term, but the near term is uncertain: 64mm has been ITC’s most promising category and contributed to ~13‐14% of volumes at the end of FY14. The sharp increase in excise duty (up 72%) could disrupt the price structure of the products in this category, as the company might have to take significant price hikes to improve the category’s profitability. However, sharp price hikes will also defeat the category’s saliency of recruiting new customers and providing avenues for long‐term growth through price hikes. About a week ago, the secondary market was buoyant with expectations of a price hike exceeding 50%, but now these expectations have tempered. ITC will hike prices to pass on the excise duty hike of Rs 0.5 per stick to maintain profitability, but the hikes in 64mm may not be very steep (expect ~25‐30%) — also, it is not necessary that the EBIT/stick will increase in line with the price growth. Volume growth in FY15 may remain under pressure. The hikes will also affect the long‐term growth prospects of the category.

Calibrated price hikes; channel inventory at an all time high: The demand scenario continues to remain bleak and channel inventory is at an all‐time high. Market sources have also indicated that ITC has a huge excise‐paid inventory (at least one month), and the impact of price hikes is likely to be reflected from Q3FY15 onwards. While this will help in managing volumes in FY15, earnings growth is likely to be muted because of the high base. The weighted average price hike on cigarettes will be ~14% — considerably lower than our previous estimate of ~20%.

EBIT growth can surprise negatively: Based on our price growth estimate of ~14‐15% in FY15, EBIT/stick growth should be ~12%. Cigarette business margins are likely to contract in FY15 if the company is unable to manage its cost structure. Considering the high channel inventory, volume growth in FY15 is likely to be muted — volume should decline by ~1% in FY15 (earlier ~4% and price growth of ~20%) translating to category EBIT growth of ~11%. Our estimates are significantly lower than consensus estimates of ~15‐18% category EBIT growth.

Lowering estimates; maintain SELL: We have lowered our estimates, taking into consideration the lower pricing growth in the year. With sluggishness in earnings in FY15 and FY16, and the present government’s adverse view towards the category, its profitability will suffer in the forthcoming years. We maintain our Sell recommendation on the stock.

SELL ITC IN | CMP RS 350 TARGET RS 300 (‐14%) Company Data O/S SHARES (MN) : 7958MARKET CAP (RSBN) : 2778MARKET CAP (USDBN) : 46.152 ‐ WK HI/LO (RS) : 387 / 285LIQUIDITY 3M (USDMN) : 48.5FACE VALUE (RS) : 1

Share Holding Pattern, % FII / NRI : 50.4FI / MF : 34.7NON PROMOTER CORP. HOLDINGS : 4.5PUBLIC & OTHERS : 10.5

Price Performance, % 1mth 3mth 1yr

ABS 3.9 ‐1.1 ‐5.4REL TO BSE 1.5 ‐14.1 ‐33.0

Price Vs. Sensex (Rebased values)

70100130160190220250280310

Apr‐10Apr‐11Apr‐12Apr‐13Apr‐14

ITC Rel. to BSE

Source: Bloomberg, Phillip Capital Research

Rs mn FY14E FY15E FY16ENet Sales 328,826 367,047 406,256EBIDTA 124,548 139,193 148,228Net Profit 87,850 94,407 101,116EPS, Rs 11.1 11.9 12.8PER, x 31.6 29.4 27.4EV/EBIDTA, x 22.0 19.5 18.2P/BV, x 10.6 9.1 7.9ROE, % 33.5 31.1 28.9Source: PhillipCapital India Research Naveen Kulkarni, CFA, FRM (+ 9122 6667 9947) [email protected] Manish Pushkar, CFA (+ 9122 6667 9764) [email protected]

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22 July 2014 / INDIA EQUITY RESEARCH / ITC LIMITED COMPANY UPDATE

Price hikes could lag excise duty hikes in FY15 Protecting the 64mm category will be critical The weighted‐average excise duty hike for ITC’s portfolio works out to ~25%. The steepest hike is in the 64mm category at 72% to Rs 1.15 per stick. This sharp hike in excise duty could disrupt this category’s price structure — 64mm is a recruiter category and provides avenues for long‐term growth visibility through both volumes and pricing. Excise duty structure for FY15

Total Length FY14 (Rs per 1000 sticks) Length

FY15 (Rs per 1000 sticks)

Volumecontribution (%)

% excise hike

Non Filter <65 mm 669 <65 mm 1150 0 <65 mm 669 <65 mm 1150 14 71.9Filter 65 ‐ 70 mm 1409 65 ‐ 70 mm 1650 68 17.1 70 ‐ 75 mm 2027 70 ‐ 75 mm 2250 8 11.0 75 ‐ 85 mm 2725 75 ‐ 85 mm 3290 10 20.7Effective excise hike (%) 15.5 24.7

Source: Ministry of Finance, India In the past, ITC has raised product prices in line with excise duty hikes to maintain and grow its operating margins. However, the recent sharp excise hike on filter cigarettes is unprecedented and ITC may not be able to hike prices to match it, as such steep hikes could almost kill this fast‐growing category. We have assumed a price hike of ~25‐30% for the category, which will maintain its saliency. Our sources in the market say that a new pack of Goldflake Superstar (64mm) cigarettes will have an MRP of Rs 35 (earlier Rs 28) implying a hike of 25%. 64mm product realisations 64 mm category Rs/Stick 64 mm FY15 64 mm FY14Gross MRP (blended MRP) 3.2 2.5Excise duty 1.2 0.7VAT 0.8 0.6Dealer Margins 0.4 0.3Net Realizations 0.93 0.96RM 0.26 0.25Manufacturing and Freight 0.25 0.24Depreciation 0.03 0.03EBIT per stick 0.42 0.47EBIT Margin % 45.3 49.2

Source: Company, PhillipCapital India Research Estimates Even with such a sharp price hike in the category, net realization could decline. This indicates that ITC is willing to take a hit on margins for volume growth. This is a marked deviation from the operating performance strategy in the previous years, when EBIT growth has been a priority over volume growth. Price hikes in other categories likely to be less aggressive According to our market sources, prices of some key brands have been announced. The GoldFlake Kings (84mm) prices will be hiked to Rs 9.5 per stick from the current Rs 8.5 per stick. This is lower than our earlier estimated price of Rs 10/stick. ITC will probably hike prices by ~18% (weighted average price hike) by August and the full impact of these price hikes could be seen from end of Q2FY15 and the beginning of Q3FY15 onwards as the company still has excise‐paid inventory and market is still seeing supply products packed in May and June.

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Estimated price hikes for FY15

Brand Length (in mm)

Current MRP (Rs/stick)

Expected MRP (Rs/stick) by

Aug 2014

Volume contribution

(%) Weighted

Current Price

Weighted Expected

PriceScissors 4.0 5.0 10 0.4 0.5Bristol 69 4.5 5.5 8 0.4 0.4Gold Flake regular 69 5.9 6.9 27 1.6 1.9Wills Navy Cut 74 6.9 8.0 9 0.6 0.7GoldFlakeKings (announced) 84 8.5 9.5 5 0.4 0.5Classic (announced) 84 8.5 9.5 4 0.3 0.4Flake and others 69 3.9 4.5 12 0.5 0.5Capstan (announced) 69 3.9 4.7 9 0.4 0.4555 84 8.5 10.0 1 0.1 0.1Flake Excel 69 4 5.0 1 0.0 0.1Benson & Hedges 84 8.5 10.0 1 0.1 0.164 mm category 64 2.5 3.2 13 0.3 0.4Effective Price Per Stick 5.1 6.0Price Increase (%) 17.9

Source: Company, PhillipCapital India Research Estimates Market participants also indicated that ITC may not hike prices in some of its key brands such as Goldflake Premium (69mm) and will wait for competitor pricing actions to protect its market share. 69mm is the largest contributor to its profitability and Goldflake 69mm is its most profitable brand. Protecting market share in the brand is a critical success factor for the company. However, market share protection could also mean that pricing actions in the segment could be lower than expected and brand profitability could trend lower if competition is aggressive.

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EBIT per stick growth likely to be uninspiring in FY15 As pricing growth is likely to lag excise duty growth, growth in EBIT per stick is likely to be sluggish vs. the last 5 years. Also, margins are likely to trend lower in FY15 after 5 years of sharp expansion. After the sharp price hike in the fastest‐growing 64mm category, volume growth is likely to be muted. Volumes will decline by ~1% for FY15E, but the decline could be more severe depending on the channel inventory, which is at an all time high. The growth in EBIT/stick is the slowest in the last 4 years at 12% YoY. While the company may be able to manage the cost structure (better than we expect it to) and report higher growth, it would have utilized significant cost levers in FY14 itself as costs growth in the segment was largely muted during the year. EBIT per stick

0

5

10

15

20

25

‐

0.20

0.40

0.60

0.80

1.00

1.20

1.40

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E

EBIT per stick % Growth (rhs)

54.853.6

53.0

54.556.1

59.6

64.163.1

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

EBIT margin per stick

Source: Company, PhillipCapital India Research Estimates While Q1FY15 and Q2FY15 numbers may not fully reflect the impact of pricing, there is likely to be a significant slowdown in volume growth from Q3FY15. Even FY16 volume growth could be sluggish considering the possibility of the government raising excise duties again.

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Price growth vs Volume growth (cigarettes)

‐20.0

‐15.0

‐10.0

‐5.0

0.0

5.0

10.0

15.0

20.0

‐5.0

‐2.0

1.0

4.0

7.0

10.0

13.0

16.0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

volume growth price growth

Source: Company, PhillipCapital India Research Estimates Cigarette EBIT growth sensitivity to Price and Volume Price Growth 13 14 15 16 17 18

Volume growth ‐3 4.9 7.6 10.3 13.0 15.7 18.4‐2 6.6 9.4 12.1 14.8 17.5 20.2‐1 8.3 11.1 13.8 16.6 19.3 22.10 10.0 12.8 15.6 18.4 21.1 23.91 11.8 14.5 17.3 20.1 22.9 25.72 13.5 16.3 19.1 21.9 24.8 27.6

Source: Company, PhillipCapital India Research Estimates Taking into account a price hike of 14% and volume de‐growth at ‐1%, segment EBIT should rise by only 11% YoY in FY15 vs. the 20% rise in FY14 and FY13. This is mainly due to sharp excise hike of ~25% in FY15. Change in estimates (Rs mn) Earlier estimates Revised estimates Upgrade/(downgrade) (%) FY15E FY16E FY15E FY16E FY15E FY16ENet Sales 375,549 412,480 367,047 403,264 ‐2.3% ‐2.2%EBITDA 144,568 152,460 139,193 146,180 ‐3.7% ‐4.1%EBITDA margin (%) 38.5 37.0 37.9 36.2 ‐57 bps ‐71 bpsPBT 146,106 155,803 140,889 148,871 ‐3.6% ‐4.4%Adj PAT 97,891 104,388 94,407 99,744 ‐3.6% ‐4.4%Adj EPS (Rs) 12.3 13.1 11.9 12.6 ‐3.2% ‐4.1%Source: Company, PhillipCapital India Research Estimates

SOTP Valuation Business Valuation Metric Fair Multiple Value Value/ ShareCigarettes PER 27 1,982,661 260 Other FMCG EV/ Sales 2.0 182,757 24 Paper and Paperboard EV/ EBIT 6 77,659 10 Agri and Agri Products EV/Sales 1 51,301 7 Hotels EV/ EBIT 8 9,629 1 Total Enterprise Value 2,304,007Add: Cash 121,128 16 Fair Market Capitalization 2,425,134 306 CMP 340(Downside)/Upside % ‐10%Source: Company, PhillipCapital India Research Estimates

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Fair Value Calculation We have valued ITC on a DCF basis at Rs 302. We have assumed its 6‐year consolidated revenue CAGR at 11.4% with cigarette business CAGR at 10% and other FMCG business CAGR at 13.4%. We have assumed normalized (long‐term) consolidated EBIT margins of 38%. Medium‐term forecasts

Rs mn Sales

FY2014CAGR

(6 years)Sales

2020 E EBIT

margin (%) EBIT (N) EBIT %Cigarettes 156,164 10.0 276,082 63.0 173,932 72.8Other FMCG 80,831 13.4 172,086 10.0 17,209 7.2AgriBusiness 51,301 11.0 95,875 17.0 16,299 6.8Hotels 11,215 11.5 21,511 30.0 6,453 2.7PaperBoards 30,017 13.5 64,327 39.0 25,087 10.5Group 329,527 11.4 629,881 37.9 238,980 100.0

Source: Company, PhillipCapital India Research Estimates Our exit multiple for its: • Cigarettes business is 25x implying an earnings yield of 4% (terminal growth rate of

9%) • Other FMCG businesses are lower, considering limited potential to expand EBIT

margins. • Hotels and agribusiness are conservative. Derivation of Enterprise value 2020 (excluding intermediate FCF) Rs mn EBIT (N) Yield req (%) P/E EV/EBIT EV (2020)Cigarettes 173,932 4.0 25 17.5 3,043,808 Other FMCG 17,209 5.0 20 14.0 240,921 AgriBusiness 16,299 20.0 5 3.5 57,046 Hotels 6,453 10.0 10 7.0 45,172 PaperBoards 25,087 10.0 10 7.0 175,612 Group 238,980 4.7 21 14.9 3,562,559

Source: Company, PhillipCapital India Research Estimates We have discounted the cash flows at 13%, considering a risk‐free rate of 8% and market‐risk premium of 6.7%, implying a beta of 0.75. Medium‐term cash flow generation Rs mn 2015E 2016E 2017E 2018E 2019E 2020EEBIT 136998 146599 166539 183553 203949 225577NOPLAT 94407 101116 114765 126451 140393 155165Depreciation 9969 11082 11829 13000 14193 15407Capex 22000 22000 22000 22000 22000 22000FCF 82375 90198 104593 117451 132586 148572% conversion 60.1 61.5 62.8 64.0 65.0 65.9Discount factor 1.0 0.9 0.8 0.7 0.6 0.5PV 82375 79821 81912 81399 81317 80639NPV 82375 79821 161733 243132 324449 405089

Source: Company, PhillipCapital India Research Estimates On a DCF basis, the fair value of the company is Rs 302 (vs. our SOTP valuation of Rs 306), which implies a decline of 14% than the current market price. Hence, our Sell recommendation.

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Derivation of Fundamental value Rs mn/ Rs per share ValueEnterprise value‐2020 3,562,559 NPV Intermediate FCF 405,089 Net cash‐ end of FY2014 56,922 Return requirement 13%EV Future value end of FY2014 2,338,703 Target value end of FY2014 2,395,625 Target value per share (end Mar 2015) 302Implied FY15 multiple (P/E) 25Implied 2 ‐year forward multiple (P/E) 24CMP 350CMP at 1‐year forward multiple (P/E) 29% upside ‐2

Source: Company, PhillipCapital India Research

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Absolute Rolling Valuation Band Charts

PE band

15x

20x

25x

30x

0

50

100

150

200

250

300

350

400

450 Rs

PBV band

4x

6x

8x

10x

050

100150200250300350400450500 (Rs)

MCap/Sales band

2x

4x

6x

8x

0

500000

1000000

1500000

2000000

2500000

3000000

3500000 (Rs mn)

EV/EBIDTA band

8x

12x

16x

20x

0

500000

1000000

1500000

2000000

2500000

3000000

3500000 Rs mn

EV/Sales band

2x

4x

6x

8x

0

500000

1000000

1500000

2000000

2500000

3000000

3500000 (Rs mn)

Source: PhillipCapital India Research Estimates

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Financials

Income Statement Y/E Mar, Rs mn FY13 FY14 FY15E FY16ENet sales 296,056 328,826 367,047 406,256Growth, % 19 11 12 11Other income 2,957 3,560 3,892 4,320Total income 299,013 332,386 370,938 410,576Raw material expenses ‐120,658 ‐131,563 ‐147,279 ‐166,206Employee expenses ‐13,870 ‐16,084 ‐17,618 ‐20,597Other Operating expenses ‐58,210 ‐60,191 ‐66,848 ‐75,545EBITDA (Core) 106,275 124,548 139,193 148,228Growth, % 20.1 17.2 11.8 6.5Margin, % 35.9 37.9 37.9 36.5Depreciation ‐7,959 ‐9,001 ‐9,969 ‐11,082EBIT 98,317 115,547 129,224 137,146Growth, % 20.6 17.5 11.8 6.1Margin, % 33.2 35.1 35.2 33.8Interest paid ‐865 ‐30 0 0Other Non‐Operating Income 9,387 11,071 11,665 13,773Pre‐tax profit 106,839 126,589 140,889 150,919Tax provided ‐32,658 ‐38,739 ‐46,483 ‐49,803Profit after tax 74,181 87,850 94,407 101,116Net Profit 74,181 87,850 94,407 101,116Growth, % 20.4 18.4 7.5 7.1Net Profit (adjusted) 74,181 87,850 94,407 101,116Unadj. shares (m) 7,853 7,921 7,921 7,921Wtd avg shares (m) 7,853 7,921 7,921 7,921 Balance Sheet Y/E Mar, Rs mn FY13 FY14 FY15E FY16ECash & bank 36,150 32,893 57,533 77,370Debtors 11,633 21,654 12,972 13,579Inventory 66,002 73,595 70,613 75,134Loans & advances 28,815 32,832 38,092 41,072Total current assets 142,600 160,975 179,211 207,155Investments 70,603 88,234 88,234 88,234Gross fixed assets 169,595 185,678 207,678 229,678Less: Depreciation ‐57,350 ‐65,321 ‐75,290 ‐86,372Add: Capital WIP 14,728 22,729 33,228 45,936Net fixed assets 126,972 143,086 165,616 189,241Total assets 345,201 396,937 437,506 489,076 Current liabilities 51,902 56,088 57,578 60,532Provisions 52,588 60,150 58,353 61,104Total current liabilities 104,490 116,238 115,930 121,636Non‐current liabilities 17,839 18,080 18,025 18,025Total liabilities 122,329 134,318 133,955 139,660Paid‐up capital 7,902 7,953 7,953 7,953Reserves & surplus 214,970 254,665 295,598 341,462Shareholders’ equity 222,872 262,618 303,551 349,415Total equity & liabilities 345,201 396,937 437,506 489,076

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY13 FY14 FY15E FY16EPre‐tax profit 106,839 126,589 140,889 150,919Depreciation 7,959 9,001 9,969 11,082Chg in working capital ‐9,723 ‐10,191 6,237 ‐2,402Total tax paid ‐29,348 ‐37,807 ‐46,483 ‐49,803Cash flow from operating activities 75,727 87,593 110,612 109,795Capital expenditure ‐21,101 ‐25,115 ‐32,499 ‐34,707Chg in investments ‐7,437 ‐17,631 0 0Cash flow from investing activities ‐28,538 ‐42,746 ‐32,499 ‐34,707Free cash flow 47,189 44,847 78,113 75,088Equity raised/(repaid) 83 51 0 45,864Dividend (incl. tax) ‐48,535 ‐55,829 ‐52,949 ‐55,252Cash flow from financing activities ‐48,451 ‐55,778 ‐52,949 ‐9,387Net chg in cash ‐1,262 ‐10,931 25,164 65,701 Valuation Ratios & Per Share Data FY13 FY14 FY15E FY16EPer Share data EPS (INR) 9.4 11.1 11.9 12.8Growth, % 15.6 17.4 7.5 7.1Book NAV/share (INR) 28.4 33.2 38.3 44.1FDEPS (INR) 9.4 11.1 11.9 12.8CEPS (INR) 10.5 12.2 13.2 14.2CFPS (INR) 8.4 9.7 12.5 12.1DPS (INR) 5.3 6.0 5.8 6.0Return ratios Return on assets (%) 23.4 23.7 22.6 21.8Return on equity (%) 33.3 33.5 31.1 28.9Return on capital employed (%) 27.7 27.7 26.2 25.0Turnover ratios Asset turnover (x) 1.8 1.7 1.7 1.7Sales/Total assets (x) 0.9 0.9 0.9 0.9Sales/Net FA (x) 2.5 2.4 2.4 2.3Working capital/Sales (x) 0.2 0.2 0.2 0.2Working capital days 67.3 79.9 63.7 62.2Liquidity ratios Current ratio (x) 2.7 2.9 3.1 3.4Quick ratio (x) 1.5 1.6 1.9 2.2Interest cover (x) 113.7 3,916.9Dividend cover (x) 1.8 1.8 2.1 2.1Net debt/Equity (%) (16.2) (12.5) (19.0) (22.1)Valuation PER (x) 37.1 31.6 29.4 27.4Price/Book (x) 12.3 10.6 9.1 7.9Yield (%) 1.5 1.7 1.6 1.7EV/Net sales (x) 9.2 8.3 7.4 6.6EV/EBITDA (x) 25.5 22.0 19.5 18.2EV/EBIT (x) 25.5 22.0 19.5 18.2

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Recommendation Chart

B (TP 225)

B (TP 245)

N (TP 230)

N (TP 250)

N (TP 250)

S (TP 245)

S (TP 260)

S (TP 260)

S (TP 290)S (TP 300)

S (TP 300)

100

150

200

250

300

350

400

1/3/2011 6/27/2011 12/22/2011 6/12/2012 12/5/2012 5/29/2013 11/21/2013 5/19/2014

Source: PhillipCapital India Research

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Management

(91 22) 2300 2999(91 22) 6667 9735

Research Engineering, Capital Goods Retail, Real Estate

Deepak Jain (9122) 6667 9758 Ankur Sharma (9122) 6667 9759 Abhishek Ranganathan, CFA (9122) 6667 9952Priya Ranjan (9122) 6667 9965 Neha Garg (9122) 6667 9996

Infrastructure & IT ServicesVibhor Singhal (9122) 6667 9949 Technicals

Manish Agarwalla (9122) 6667 9962 Varun Vijayan (9122) 6667 9992 Subodh Gupta, CMT (9122) 6667 9762Sachit Motwani, CFA, FRM (9122) 6667 9953Paresh Jain (9122) 6667 9948 Midcap Production Manager

Vikram Suryavanshi (9122) 6667 9951 Ganesh Deorukhkar (9122) 6667 9966

Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Metals Database ManagerVivekanand Subbaraman (9122) 6667 9766 Dhawal Doshi (9122) 6667 9769 Vishal Randive (9122) 6667 9944Manish Pushkar, CFA (9122) 6667 9764

Oil&Gas, Agri Inputs Sr. Manager – Equities SupportCement Gauri Anand (9122) 6667 9943 Rosie Ferns (9122) 6667 9971Vaibhav Agarwal (9122) 6667 9967 Deepak Pareek (9122) 6667 9950

PharmaAnjali Verma (9122) 6667 9969 Surya Patra (9122) 6667 9768

Sales & Distribution Kinshuk Bharti Tiwari (9122) 6667 9946 Sales Trader Zarine Damania (9122) 6667 9976Ashvin Patil (9122) 6667 9991 Dilesh Doshi (9122) 6667 9747 Shubhangi Agrawal (9122) 6667 9964 Suniil Pandit (9122) 6667 9745Kishor Binwal (9122) 6667 9989Sidharth Agrawal (9122) 6667 9934 ExecutionDipesh Sohani (9122) 6667 9756 Mayur Shah (9122) 6667 9945

Corporate Communications

Economics

Consumer, Media, Telecom

Vineet Bhatnagar (Managing Director)Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs

Contact Information (Regional Member Companies)

SINGAPORE

Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 Raffles City Tower,

Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, C‐Block, 2nd Floor, Modern Center , Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 400011 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

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Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report. Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the company(ies) covered in this report. 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. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized 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 in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. For U.S. persons only: 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. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities andExchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). 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 the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: 2nd Floor, C‐Block, Modern Centre, Mahalaxmi, Mumbai – 400011

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