Research Analyst: Hemant Nahata hemant.nahata@ysil.in Head of Research: Amar Ambani amar.ambani@ysil.in (For important information about YES SECURITIES (INDIA) LTD. and other disclosures, refer to the end of this material.)

Varun Beverages Ltd - BUY Quenching India’s Thirst

COMPANY REPORT

June 27, 2019

New Market Entry “A Big Trigger” – VBL recent acquisition of PepsiCo franchise Southern and Western territory rights would lead to a) capture ~83% of PepsiCo’s beverage sales volumes in India (cur. ~51%), b) access to low penetrated regions, c) reduce seasonality, d) lower capex requirement and e) improve revenue and earnings visibility. The Rs18bn acquisition is likely to be funded via equity/debt and internal accrual.

Strong franchise with irreplaceable PepsiCo tie - India accounts for ~7% of PepsiCo overall beverages business, while VBL now account for ~83% of the PepsiCo total beverage sales in India. Recently, VBL bottling appointment and trademark license agreement with PepsiCo has been extended till April 30, 2039; an indication of the strong and irreplaceable ties.

International operation on cusp of a turnaround – With operation in Zimbabwe and Zambia exhibiting strong momentum and Sri Lanka business getting back to normal, we see a strong possibility of international subsidiaries to turn profitable from H2 CY19.

CMP (Rs)(As on Jun 26, 2019) 931 Sector: Consumption/Beverages

12‐mts Target (Rs) 1,214 Market cap (Rs mn) 170,770

Upside 30% Enterprise value (Rs mn) 197,484 Exhibit 1: Financial summary

Y/e 31 Mar (Rs m) CY17 CY18 CY19E CY20E CY21E Revenues 40,035 51,053 70,299 87,547 96,485 yoy growth (%) 3.7 27.5 37.7 24.5 10.2 Operating profit 8,359 10,066 13,708 17,772 19,779 OPM (%) 20.9 19.7 19.5 20.3 20.5 Reported PAT 2,141 2,999 4,090 6,431 7,806 Adjusted PAT 2,076 2,810 4,090 6,431 7,806 yoy growth (%) 489.9 35.4 45.6 57.2 21.4

EPS (Rs) 11.7 16.4 21.3 33.5 40.7 P/E (x) 79.4 56.7 43.6 27.8 22.9 Price/Book (x) 9.6 8.5 5.6 4.9 4.3 EV/EBITDA (x) 23.0 19.5 15.4 11.7 10.1 Debt/Equity (x) 1.3 1.4 1.1 0.9 0.7 RoE (%) 12.3 15.8 15.7 18.8 20.0 RoCE (%) 13.0 14.4 16.4 17.7 19.9

Source: Company, YES Sec - Research

Varun Beverages Ltd

2

On a path of steady growth – Underlying triggers like a) improvement in per capita consumption, b) electrification in smaller towns, c) extreme weather and d) rising affordability & urbanization will drive growth for carbonated soft drinks (CSD) segment. While, rising health awareness should drive consumption of non-carbonated drinks (NCB).

Return ratio on an upward trajectory –Despite incurring capex on account of investments and acquisitions over last six years, capital employed has grown slower than revenue/EBITDA/profit growth. Company has managed to keep debt under control (Rs27.6bn in CY18 vs Rs20.4bn in CY13). Over the same period ROCE has inched upwards from 6.1% to 14%+. Going forward, Management expects 2x asset turnover from Pathankot unit (as against 0.9x at the group level). This, along with improving capacity utilization (CU) at existing and acquired unit, will translate into better asset turns for VBL and thereby enhancing return ratios.

QIP and strong internal accruals to keep debt under check – Management has guided the PepsiCo territories acquisition to be funded by a) raising money via QIP (diluting <5% of equity), b) debt and c) internal accruals. With no major capex lined-up, we believe money raised via QIP and strong internal accruals will keep debt under check. We see CY19 net debt/equity to remain at comfortable 1x level.

Compelling BUY available at reasonable valuation – We see VBL revenue/PAT CAGR of 24/36% over CY18-21e. Meanwhile, balance sheet strength is also set to improve, with net debt/equity to fall below 0.5x by CY21e. Further, return ratio is likely to improve on account of better economies of scale and higher asset turns. Based on the above positives, we believe VBL trades at a reasonable 10x EV/EBITDA CY21e. Initiate coverage with a Buy rating and a 1-year price target of Rs1,214/share, implying a 30% upside.

.

Company rating grid Stock performance Low High 1 2 3 4 5 Earning growth Cash flow B/S strength Valuation appeal Risk

Market Data (As on June 26, 2019) 1M 3M 1Y

Absolute return 2.8% 14.2% 25.1%

Shareholding pattern (as of Apr’19 end)

Promoter 73.6%

FII+DII 19.9%

Others 6.5%

Sensex: 39,592 52 Week h/l (Rs) 963/667 6m Avg t/o (Rs mn): 112.4 FV (Rs): 10 Div yield (%): 1 Bloomberg code: VBL IN BSE code: 540180

NSE code: VBL

80

100

120

140

Jun-18 Oct-18 Feb-19 Jun-19

VBL Sensex

Varun Beverages Ltd

3

Strong franchise with irreplaceable PepsiCo ties Having been a bottler for PepsiCo since 1990, VBL has remarkably strengthened its business association with the soft drink giant over the last 28 years. This is evident from the number of licensed territories & sub-territories: from a single state in 1996 to a Pan-India coverage (barring J&K and Andhra Pradesh) in 2019. This makes VBL the 2nd largest non-US franchise for PepsiCo and only franchise to have a bottling unit of Tropicana outside US. India accounts for ~7% of PepsiCo overall beverages business, while VBL will now account for ~83% of the PepsiCo total beverage sales in India. The relationship is moving from strength to strength, with VBL being preferred PepsiCo partner for Sri Lanka, Nepal, Zambia, Morocco & Zimbabwe operations. That PepsiCo has extended its India-specific bottling appointment and trademark license agreement with PepsiCo India till April 30, 2039 (from the erstwhile October 2022 timeline), which is further indicative of the strong and irreplaceable ties between PepsiCo and VBL. PepsiCo franchise acquisition: A mega boost for VBL VBL has acquired PepsiCo franchise rights for Bottling as well as Sales & Distribution in seven states and five union territories, predominantly in Southern and Western region of India. This Rs18bn acquisition would enable VBL to a) capture ~83% of PepsiCo’s beverage sales volumes in India (cur. ~51%), b) access to low penetrated Southern and Western region, c) reduce seasonality and hence improve cash flow, d) lower capex requirement in coming years (capacity utilization of acquired unit at ~50%) and e) improve revenue and earnings visibility.

MNC Giants going lean: Positive for bottlers MNC Cola giants, Coca-Cola and PepsiCo has been hiving off their bottling plants in an attempt to move towards an asset light model. Hiving off bottling unit to a franchise allows them to focus on branding and developing new products. Reported numbers exhibits a sharp dip in bottling revenues for MNC giant (Coca-Cola) over the past three years. We believe this provides great inorganic growth opportunities for bottlers cum marketing & sales players like VBL. Current format helps the franchise as well as franchiser to grow simultaneously. Exhibit 2: Business development role

Franchise focus on demand delivery

Franchiser works on demand creation

Source: Company, YES Sec - Research

Investment in Production Facilities–Manufacturing plants

Sales & Distribution – Vehicles

In-outlet Management – Visi – Coolers

Consumer Push Management

Owner of Trademarks Investment in R&D –

Product & Packaging innovation

Formulation through Concentrate

Consumer Pull Management

Varun Beverages Ltd

4

Exhibit 3: VBL Territories: Expanding operation in past 3Years

Source: Company, YES Sec - Research

VBL TERRITORY IN CY 16

Set-up CY 16

- 21 production facilities

- 71 owned depots

- 2,024 owned vehicles

- 1,186 primary distributors

- ~45% of PepsiCo India’s revenue

Parts of MP

POST ACQUISITION VBL

Current Infrastructure & distribution network

- 36 production facilities

- 90+ owned depots

- 2,500+ owned vehicles

- 1,400+ primary distributors

- ~83% of PepsiCo India’s beverage revenue

Sri Lanka

Nepal

Zambia

Zimbabwe

Morocco

   Existing territories

   Acquired territories

   International territories

   Territories operated by other franchises

Varun Beverages Ltd

5

Inorganic growth: VBL’s niche In past, VBL has demonstrated strong inorganic growth capabilities. Over the last five years, VBL has acquired franchise rights (for bottling as well as sales & distribution) for 11 states prior to the current acquisition (exhibit 4). This has translated into 19% revenue CAGR over CY13-18 without any significant dent in margins and return on capital employed (exhibit 13). It has successfully expanded its presence in the acquired territories. We believe the current acquisition will help better utilization of existing facilities, with utilization set to cross 70% by CY21e from the current ~61% level (blended utilization), triggered by both organic growth and improving business seasonality. We believe VBL has mastered the art of growing inorganically and expect a 24%/36% revenue/PAT CAGR over CY18-21e.

Exhibit 4: A history of acquisitions

Year Geography Purchase

Consideration (Rs mn)

Volume (mn

cases)

% of VBL volumes

CY13 Delhi 2,970 17.3 13%

CY15 Punjab, HP, Chandigarh, parts of Haryana, UP and Uttarakhand

12,685 75.1 36%

CY17 MP & Odisha 1,302 11.2 5% CY18 Chhattisgarh, Bihar, Jharkhand 1,248 17.9 8%

CY19 Selected territory of Maharashtra, Karnataka & MP 1,150 14 4%

CY19

Pepsi Co plant in Gujarat, Maharashtra, Karnataka, Telangana, Andhra Pradesh, Kerala and Tamil Nadu and five union territories

18,025 133 39%

Source: Company, YES Sec – Research

New triggers promise steady growth With PepsiCo franchise acquisition, VBL will account for more than 83% of PepsiCo beverages sales in India. As an inorganic opportunity to acquire more franchise exhausts within India, we foresee new triggers to come from improvement in both consumption and realization respectively. Consumption growth in India is likely to pick up on back of a) improvement in per capita consumption, b) electrification in smaller towns, c) extreme weather and d) rising affordability and urbanization. While, rising health awareness should drive consumption of non-carbonated drinks (NCB). Based on the arguments, we have factored in a) 8/7% volume growth for CY20/21e (for existing units), b) increase in sales mix of non-carbonated drinks from 6.5% to 9.0% by CY21 and c) 3% improvement in realization for the next two years.

Exhibit 5: VBL volume forecast & Beverages growth - India (mn cases) CY18 CY19 CY20 CY21

Domestic (mn cases) 274 307 332 355 Yoy growth (%)

12% 8% 7%

International territories (mn cases) 66 76 82 88 Yoy growth (%)

15% 8% 7%

Existing unit volume (mn cases) 340 383 414 443 Acquired territory - 88 155 166 Total Sales (mn cases) 340 471 569 609

Source: Company presentation, Euromonitor, YES Sec – Research

2351

949

33619

2017

3,655 mn Cases

6006

1122495 25

2022PBottled Water

Carbonates

Juice

Others**

7,648 mn Cases

Varun Beverages Ltd

6

Margin to expand by 100bps over CY19-21e VBL margins have expanded 600bps over CY13-18. The expansion is largely the outcome of a) packaging innovation b) benign pet prices and c) transformation of acquired unit translating into better economies of scale. As per management, operating margins for the acquired franchise are lower when compared to VBL units; this could translate into a minor squeeze in margins for the first year, but given VBL expertise, we expect them to ramp up acquired business in four quarters. Thus, we believe margins will improve post CY19 and will get further boost from commencement of Tropicana unit, increase in capacity utilization of existing & acquired unit and product mix shifting towards better margins non-carbonated juices and dairy products. We factor in a 100bps expansion in margins over CY19-21e. Exhibit 6: Margin to improve 100bps

Source: Company, YES Sec – Research

Exhibit 7: Sales mix to tilt marginally towards NCB

Source: Company, YES Sec – Research

20.9

19.7 19.5

20.3 20.5

18

18.5

19

19.5

20

20.5

21

21.5

CY17 CY18 CY19E CY20E CY21E

%OPM (%)

76%

6%

18%

CY1874%

9.0%

17% CSD

NCB

PackagedWater

CY21e

Varun Beverages Ltd

7

New facility to improve asset turns Pathankot facility partly commenced operations in March while tetra pack line for Tropicana is expected to be operational in next two months. The facility, being the sole manufacturing unit for Tropicana & second unit having a dedicated can packaging line, is likely to run at near full capacity utilization. Management expects 2x asset turnover from Pathankot unit (as against 0.9x at the group level). This, along with improving capacity utilization (CU) at existing and acquired unit, will translate into better asset turns for VBL. As Tropicana would be bottled in-house, the management expect Tropicana margins to range between 15 to 20% (vis-à-vis negligible margins currently). Exhibit 8: Higher CU and Pathankot unit to better Asset turns

Source: Company, YES Sec – Research

Turnaround of acquired PepsiCo unit Backward integration and strong distribution network have been the VBL pillars of strength over the years. In the quest to achieve operational efficiencies and quality standards, VBL did backward integration in most of its production units. Packaging materials used by VBL include preforms for PET bottles, shrink-wrap films, crowns, plastic closures, and corrugated boxes are developed in-house and most of the plants are fully backward integrated. As regards the other pillar sales and distribution strategy, VBL has created a solid infrastructure with 80+ depots, 2400+ delivery vehicle fleet and 5,50,000+ vizi cooler. Infrastructure at current acquisition of PepsiCo plants lacks backward integration, infrastructure, and it has a largely outsourced distribution. Going by its past acquisition track record, we are of the view VBL will replicate its current model (over the next four quarters), thereby improving the operational efficiency of the acquired PepsiCo territories. Exhibit 9: Scaling up acquired unit to be key

VBL (Console) Acquired PepsiCo Depot 80 10 Owned Vehicle 2,400 100 Primary Distributors 1,100 300 Manufacturing unit# 27 9 Visi Coolers 550,000 200,000 Sales (mn cases) 340 135 Mix (CSD/NCB/Water) 76%/6%/18% Water portion higher ~ Blended realisation (per cases) 150 130 ~ Revenue (Rs mn) 51,053 ~17,500

Source: Company, YES Sec – Research # Two units yet to be acquired.

0.77 0.80

0.87 0.83

0.79

0.90

1.001.06

1.14

0.6

0.7

0.8

0.9

1

1.1

1.2

CY13 CY14 CY15 CY16 CY17 CY18 CY19E CY20E CY21E

(x)Asset turnover (x)

Varun Beverages Ltd

8

Global operations: on cusp of a turnaround VBL International operations include the franchise rights for Sri Lanka, Nepal, Morocco, Zambia and Zimbabwe. In CY18, Sri Lanka operations were impacted by the sugar tax imposed by the government (majority of which has been rolled back) and are currently grappling with unrest. For Zimbabwe operation, VBL incurred Rs1.3bn (~15-16mn USD) of currency fluctuation MTM loss; a provision has already been made and accounted via P&L in the previous two quarters. Management believes provisions are adequate, and further addition won’t be significant. Leaving aside currency issues, operation of International subsidiaries could be on a cusp of turnaround with Zimbabwe and Zambia exhibiting strong momentum and condition stabilizing in Sri Lanka. This pose an upside risk to our estimates. Exhibit 10: Sugar tax in Sri Lanka impacted volumes

Source: Company, YES Sec – Research ** Zimbabwe not included as it has negligible sales in CY17

Exhibit 11: Geography wise Sales Mix

Geography Mix CY17 CY18 % change India 224.2 273.6 22.0% Nepal (100% Holding) 16.9 17.9 5.9% Sri Lanka (100% Holding) 15.1 10.5 -30.5% Morocco (100% Holding) 12.3 11.9 -3.3% Zambia (90% Holding) 10 11.1 11.0% Zimbabwe (85% Holding) 0.3 15.1 - Total 279 340 22.0%

Source: Company, YES Sec – Research

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

India Nepal (100%Holding)

Sri Lanka (100%Holding)

Morocco (100%Holding)

Zambia (90%Holding)

Volume Growth CY18 (%)

Varun Beverages Ltd

9

Steady improvement in ROCE despite inorganic growth Over the last five years, VBL has acquired franchise rights for 11 states prior to the current acquisition (exhibit 4). Despite incurring a huge capex on account of investments and acquisitions over last five years, capital employed has grown significantly slower than revenue/EBITDA and profit growth. Working capital also has remained in check with net cash collection cycle of less than 30 days. Further, VBL has managed to keep debt under control (Rs27.6bn in CY18 vs Rs20.4bn in CY13). Over the same period ROCE has inched upwards from 6% to 14%+ and is expected to improve over the next three years. Exhibit 12: Return ratio to improve over the next two years

Source: Company, YES Sec – Research

Acquisition to be EPS accretive; Compelling BUY Management has guided the current acquisition to be funded by a) raising money via QIP (diluting <5% of equity), b) debt and c) internal accruals. We pencil in 38% growth in CY19 Revenue for CY19 driven by acquisition and organic growth to the tune of 29% & 9.5% respectively. Though acquisition of lower margins PepsiCo plants will translate into a margin squeeze in first year, VBL’s proven expertise should help it ramp up the acquired business in four quarters, and we believe margins will improve post CY19. At the current price, VBL trades at an attractive PE of 23x CY21 earnings, while international franchise like Jubilant Foods and Westlife Development are trading at +30x FY22 PE (according to consensus estimates). We value VBL at EV/EBITDA of 13x on CY21e; arriving at a target price of Rs 1,214/share (+30% upside). We initiate coverage on VBL with a BUY rating.

6.1

8.1

11.3

14.7

13.0

14.4

16.4 17.7

19.9

5

7

9

11

13

15

17

19

21

CY13 CY14 CY15 CY16 CY17 CY18 CY19E CY20E CY21E

% RoCE (%)

Varun Beverages Ltd

10

Exhibit 14: Global peer’s comparison (USD mn)

Source: Bloomberg, YES Sec – Research, Peer Financials according to Bloomberg consensus. *CY18-CY20e figures used in case of VBL ** Factored in Equity dilution for VBL

Exhibit 13: Domestic companies having International Franchise Comparison (Rs mn)

Sr. No Company Name Mcap Revenue 2Yrs Revenue CAGR* OPM (%) 2Yrs EPS

CAGR** P/E EV/EBITDA

1 Varun Beverages 170,770 88,031 31.3% 20.3% 41.6% 29.9 11.7 2 Jubilant Food Works 165,608 47,798 15.8% 17.8% 21.4% 35.1 18.6 3 United Spirits 401,032 115,398 11.1% 16.0% 23.7% 37.0 23.1 4 Westlife Development 48,522 19,276 17.3% 11.4% 56.0% 49.3 22.5

Sr. No Company Name Mcap Revenue 2Yrs Revenue CAGR* OPM (%) 2Yrs EPS

CAGR** P/E EV/EBITDA

1 Varun Beverages 2,454 1,221 27.9% 19.4% 25.6% 34.7 11.7 2 Tingyi 9,560 9,628 2.4% 11.8% 1.0% 22.8 8.6 3 Coca-Cola Icecek 1,259 2,554 6.2% 17.0% 38.1% 9.0 4.6 4 Coca-Cola Femsa 13,168 10,799 6.7% 20.0% 240.3% 16.5 7.5

Varun Beverages Ltd

11

COMPANY BACKGROUND VBL is PepsiCo’s second largest carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs) global franchisee (outside US) possessing rights to manufacture, distribute and sell CSDs, fruit juice based drinks, packaged drinking water, sports drinks and energy drinks. VBL has franchise rights in 6 countries spanning 2 continents with access to combined population of 1.35bn*. Exhibit 15: Board of directors

Name Category Mr. Ravi Kant Jaipuria Chairman Mr. Varun Jaipuria Whole-time Director Mr. Kamlesh Kumar Jain Chief Financial Officer Mr. Raj Pal Gandhi Whole-time Director Mr. Kapil Agarwal Whole-time Director & CEO Mr. Naresh Trehan Independent Director Ms. Sita Khosla Independent Director Mr. Ravi Gupta Independent Director Ms. Rashmi Dhariwal Independent Director Mr. Pradeep Sardana Independent Director

Source: Company, YES Sec – Research

KEY RISKS Business Risks to our call: Any spike in sugar prices, which comprise 30-35% of VBL’s raw

material cost.

Crude impact resin prices and sharp jump could swell material prices

Adverse events/propaganda like those seen in the past: pesticides in water for colas and lead in noodles for Nestle.

Intensifying competition with FMCG players starting their own fruit juices range.

Growing health awareness.

Varun Beverages Ltd

12

FINANCIALS

Exhibit 16: Balance Sheet Y/e 31 Mar (Rs m) CY17 CY18 CY19E CY20E CY21E Equity capital 1,826 1,826 1,918 1,918 1,918 Reserves 15,868 18,159 30,151 34,472 39,877 Net worth 17,694 19,985 32,069 36,390 41,795 Minority interest (14) 78 78 78 78 Debt 23,562 27,649 35,449 31,649 27,349 Deferred tax liab (net) 1,502 1,922 1,922 1,922 1,922 Other non current liab 74 68 68 68 68 Long term Provision 733 1,053 1,753 1,753 1,753 Current Liab 9,241 9,560 10,755 11,825 12,380 Sundry creditors 1,909 3,168 4,362 5,433 5,987 Other current liabilities 7,096 5,907 5,907 5,907 5,907 Provision 236 485 485 485 485 Total Liabilities 52,791 60,314 82,092 83,683 85,344 Net Block 35,412 38,602 50,561 49,824 47,471 Intangible assets 4,394 5,268 13,768 13,768 13,768 CWIP 1,454 3,524 - - - Fixed Asset 41,260 47,393 64,329 63,592 61,239 Non-current investments

82 112 112 112 112

Long term loans and advances

202 209 209 209 209

Other Non-current Assets

1,606 1,192 1,192 1,192 1,192

Non-current assets 43,150 48,907 65,843 65,106 62,752 Current Assets 8,742 10,472 13,354 15,794 17,058 Inventories 4,389 5,784 8,183 10,190 11,231 Sundry debtors 1,502 1,280 1,763 2,195 2,420 Loans and Advances 1,318 1,420 1,420 1,420 1,420 Other current assets 1,533 1,988 1,988 1,988 1,988 Cash 900 935 2,896 2,784 5,533 Total Asset 52,791 60,314 82,092 83,683 85,344

Exhibit 17: Income Statement

Y/e 31 Mar (Rs m) CY17 CY18 CY19E CY20E CY21E Revenue 40,035 51,053 70,299 87,547 96,485 Operating profit 8,359 10,066 13,708 17,772 19,779 Depreciation 3,466 3,851 4,466 5,970 6,339 Interest expense 2,122 2,126 3,542 2,690 2,325 Other income 125 218 218 218 218 Profit before tax 2,896 4,308 5,919 9,330 11,334 Taxes 769 1,339 1,858 2,930 3,559 Minorities (14) (30) (30) (30) (30) Net profit 2,141 2,999 4,090 6,431 7,806 Other comprehensive Income (65) (189) - - - Post OCI Net Profit 2,076 2,810 4,090 6,431 7,806

Exhibit 18: Cash Flow Statement

Y/e 31 Mar (Rs m) CY17 CY18 CY19E CY20E CY21E PBIT 5,018 6,433 9,461 12,020 13,659 Depreciation 3,466 3,851 4,466 5,970 6,339 Tax paid (769) (1,339) (1,858) (2,930) (3,559) Working capital ∆ (2,238) (1,411) (1,687) (1,370) (710) Other operating items

Operating cashflow 5,478 7,533 10,381 13,691 15,729 Capital expenditure (6,615) (9,984) (21,402) (5,233) (3,985) Free cash flow (1,138) (2,451) (11,021) 8,458 11,744 Equity raised (833) (197) 9,096 - - Investments (5) (30) - - - Debt financing/disposal 4,697 4,087 7,800 (3,800) (4,300) Interest Paid (2,122) (2,126) (3,542) (2,690) (2,325) Dividends paid (549) (511) (1,102) (2,110) (2,400) Other items 193 1,263 730 30 30 Net ∆ in cash 243 35 1,961 (112) 2,749

Varun Beverages Ltd

13

Exhibit 19: Key Ratios Y/e 31 Mar CY17 CY18 CY19E CY20E CY21E Growth matrix (%) Revenue growth 3.7 27.5 37.7 24.5 10.2 Op profit growth 5.0 20.4 36.2 29.6 11.3 Net profit growth 345.6 40.1 36.4 57.2 21.4 Profitability ratios (%) OPM 20.9 19.7 19.5 20.3 20.5 Net profit margin 5.3 5.9 5.8 7.3 8.1 RoCE 13.0 14.4 16.4 17.7 19.9 RoNW 12.3 15.8 15.7 18.8 20.0 RoA 4.2 5.3 5.7 7.8 9.2 Per share ratios EPS 11.7 16.4 21.3 33.5 40.7 Dividend per share 2.5 2.5 3.3 5.0 5.0 Cash EPS 30.7 37.5 44.6 64.7 73.8 Book value per share 96.9 109.4 167.2 189.8 217.9 Payout (%) Dividend payout 25.7 17.1 26.9 32.8 30.7 Tax payout 26.5 31.1 31.4 31.4 31.4 Liquidity ratios Debtor days 13.7 9.2 9.2 9.2 9.2 Inventory days 40.0 41.4 42.5 42.5 42.5 Creditor days 17.4 22.6 22.6 22.6 22.6 27.9 29.0 29.0 29.0 Leverage ratios Interest coverage 2.4 3.0 2.7 4.5 5.9 Net debt / equity 1.3 1.3 1.0 0.8 0.5 Net debt / op. profit 2.7 2.7 2.4 1.6 1.1

14

RECOMMENDATION PARAMETERS FOR FUNDAMENTAL REPORTS Analysts assign ratings to the stocks according to the expected upside/downside relative to the current market price and the estimated target price. Depending on the expected returns, the recommendations are categorized as mentioned below. The performance horizon is 12 to 18 months unless specified and the target price is defined as the analysts’ valuation for a stock. No benchmark is applicable to the ratings mentioned in this report.

BUY > 15%

ADD 5% to 15%

HOLD -15% to +5%

SELL > - 15%

POSITIVE: Positive is rating given to stocks we like but yet to be formally included in our coverage universe.

NEGATIVE: Negative is rating given to stocks yet to be formally included in our coverage universe, but we find valuations expensive vis-a-vis fundamentals.

NEUTRAL: Neutral rating is given to stocks that are not under our formal coverage yet, but we find current valuation fairly representing fundamentals.

ABOUT YES SECURITIES (INDIA) LIMITED YES SECURITIES (INDIA) LIMITED (‘‘YSL’’) was incorporated on 14th March 2013 as a wholly owned subsidiary of YES BANK LIMITED. YSL does not have any other associates. YSL is a SEBI registered stock broker holding membership of NSE and BSE. YSL is also a SEBI registered Category I Merchant Banker, Investment Adviser and a Research Analyst. YSL offers, inter alia, trading/investment in equity and other financial products along with various value added services. We hereby declare that there are no disciplinary actions taken against YSL by SEBI/Stock Exchanges.

15

DISCLAIMER Investments in securities market are subject to market risks, read all the related documents carefully before investing.

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The information and opinions contained in the research report have been compiled or arrived at from sources believed to be reliable and have not been independently verified and no guarantee, representation of warranty, express or implied, is made as to their accuracy, completeness, authenticity or validity. No information or opinions expressed constitute an offer, or an invitation to make an offer, to buy or sell any securities or any derivative instruments related to such securities. Investments in securities are subject to market risk. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. Investors should note that each security's price or value may rise or fall and, accordingly, investors may even receive amounts which are less than originally invested. The investor is advised to take into consideration all risk factors including their own financial condition, suitability to risk return profile and the like, and take independent professional and/or tax advice before investing. Opinions expressed are our current opinions as of the date appearing on this report. Investor should understand that statements regarding future prospects may not materialize and are of general nature which may not be specifically suitable to any particular investor. Past performance may not necessarily be an indicator of future performance. Actual results may differ materially from those set forth in projections.

Technical Analysis reports focus on studying the price movement and trading turnover charts of securities or its derivatives, as opposed to focussing on a company’s fundamentals and opinions, as such, may not match with reports published on a company’s fundamentals.

YSL, its research analysts, directors, officers, employees and associates accept no liabilities for any loss or damage of any kind arising out of the use of this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject YSL and associates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

DISCLOSURE OF INTEREST Name of the Research Analyst : Hemant Nahata

The analyst hereby certifies that opinion expressed in this research report accurately reflect his or her personal opinion about the subject securities and no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendation and opinion expressed in this research report.

Sr. No. Particulars Yes/No

1 Research Analyst or his/her relative’s financial interest in the subject company(ies)

No

2 Research Analyst or his/her relative or YSL’s actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of the Research Report

No

3 Research Analyst or his/her relative or YSL has any other material conflict of interest at the time of publication of the Research Report

No

4 Research Analyst has served as an officer, director or employee of the subject company(ies)

No

5 YSL has received compensation or other benefits from the subject company(ies) or third party in connection with this research report

No

6 Broking/Investment Banking/Merchant Banking relationship with the subject company at the time of publication of Research Report

No

7 YSL has managed or co-managed public offering of securities for the subject company in the past twelve months

No

8 Research Analyst or YSL has been engaged in market making activity for the subject company(ies)

No

Since YSL and its associates are engaged in various businesses in the financial services industry, they may have financial interest or may have received compensation for investment banking or merchant banking or brokerage services or for any other product or services of whatsoever nature from the subject company(ies) in the past twelve months or associates of YSL may have managed or co-managed public offering of securities in the past twelve months of the subject company(ies) whose securities are discussed herein.

Associates of YSL may have actual/beneficial ownership of 1% or more and/or other material conflict of interest in the securities discussed herein.

YES SECURITIES (INDIA) LIMITED Registered Office: Unit No. 602 A, 6th Floor, Tower 1 & 2, Indiabulls Finance Centre,

Senapati Bapat Marg, Elphinstone Road, Mumbai – 400013, Maharashtra, India. Tel: +91-22-71123123 | Email: research@ysil.in | Website: www.yesinvest.in

CIN: U74992MH2013PLC240971 | SEBI Single Registration No.: NSE, BSE & MCX: INZ000185632 | MERCHANT BANKER: INM000012227 | RESEARCH ANALYST:

INH000002376 |INVESTMENT ADVISER: INA000007331| AMFI ARN Code – 94338 | Details of Compliance Officer: Name: Vaibhav Purohit,

Email id: compliance@ysil.in, Contact No-+91-22-33479208