17june 2021_india_daily - kotak securities

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

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Contents

Daily Alerts

Results

LIC Housing Finance: Higher-than-expected stress; buffering up rapidly

CESC: Steady improvement

Lemon Tree Hotels: Wait and watch

Change in Reco

Wipro: Downgrade on steep run-up in stock price

Company alerts

Reliance Industries: FY2021 annual report analysis

KEC International: De-risking portfolio

INDIA DAILY June 17, 2021 India 16-Jun 1-day 1-mo 3-mo

Sensex 52,502 (0.5) 5.9 5.4

Nifty 15,768 (0.6) 5.7 7.1

Global/Regional indices

Dow Jones 34,034 (0.8) (0.9) 3.1

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FTSE 7,185 0.2 2.2 6.2

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KOSPI 3,256 (0.7) 3.9 6.8

Value traded – India

Cash (NSE+BSE) 746 828 654

Derivatives (NSE) 30,372 25,368 32,56

8

Deri. open interest 7,446 5,980 6,228

Forex/money market

Change, basis points

16-Jun 1-day 1-mo 3-mo

Rs/US$ 73.7 (9) 46 115

10yr govt bond, % 6.0 0 6 (14)

Net investment (US$ mn)

14-Jun MTD CYTD

FIIs 110 2,473 23,258

MFs (3) (68) (7,012)

Top movers

Change, %

Best performers 16-Jun 1-day 1-mo 3-mo

JSTL in Equity 705 (2.7) (0.2) 65.6

TATA in Equity 1,142 (2.7) 0.9 57.7

UPLL in Equity 838 (0.4) 12.8 35.1

GCPL in Equity 917 (1.8) 7.7 34.8

NMDC in Equity 179 (1.2) (3.7) 31.3

Worst performers

MMFS in Equity 170 (1.1) 12.3 (19.6)

HMCL in Equity 2,975 (1.1) 5.8 (8.6)

RBK in Equity 216 (1.7) 15.0 (8.2)

HAVL in Equity 1,007 (1.1) 0.9 (7.5)

KMB in Equity 1,761 (0.6) 3.2 (7.5)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.


Significantly high stress; more to come

LICHF reported significantly higher-than-expected rise in delinquencies – with gross stage 3

rising to 4.1% from 2.7%, in addition to restructuring of 1.3%; this compares with the

management’s guidance of about 1.5-2% rise in stressed loans (GNPLs + restructuring) last

quarter. The rise in gross stage 3 loans was reflected across segments. Gross stage 3 in the

individual segment galloped to 1.89% from 1.07%, a ratio among the highest in the home

loan segment. The non-core segment (15% of total loans) reported ~9% gross stage 3 loans,

almost doubling from 4.4% in 3QFY21 – this segments reflects LAP, LRD and small corporate

loans; the management highlighted that delayed rentals and loans to the hospitality sector were

some of the drivers. Gross stage 3 loans increased to 18% from 16% in the developer segment

and additional 11.3% was restructured during the quarter. While the management expects

some rollbacks, it has guided for additional 1% restructuring due to lockdowns on account of

the second Covid wave. We hence remain watchful of LICHF’s asset quality performance.

Buffering up rapidly provides some comfort

Amid increasing stress formation at LICHF, we derive comfort from two factors. LICHF’s ECL

coverage increased to 1.7% from 1.3% qoq, although still lower than HDFC (2.6%), LICHF has

covered up the difference significantly. Further, the company is raising capital in the form of

preferential placement to LIC in 1QFY22; at current market prices, this will add 10% to its

March 2021 net worth. This provides the much-needed buffer against further shocks as well as

headroom for growth. LICHF reported asset/equity ratio of 11.5X in March 2021 as compared

to the proposed regulatory cap of 12X.

Revise estimates; retain ADD with higher FV

We are revising our estimates to reflect the proposed capital issuance by LIC, strong core

growth reflecting momentum in the retail business and continued tailwinds on the liability side.

We are however raising our credit cost estimates as well, reflecting our view on incremental

stress formation on account of the second Covid wave. Post our revision, we expect the

company to deliver about 15% EPS CAGR during FY2022-24E and medium-term RoE of 13-

14% on the back of 1.2-1.3% RoA. Increase in buffer on the balance sheet (discussed above) is

significantly more comforting, driving higher medium-term growth and rise in FV (Rs600; 1.1X

book June 2023E, up from Rs430). We expect to get a better handle on asset quality stress by

2HCY21E, when the complete impact of the second wave as well as likely rollbacks from

FY2021 delinquencies will be reflected, to make us more assertive on the stock.

https://ultraviewer.et/en/ownload.html

LIC Housing Finance (LICHF) Diversified Financials

Higher-than-expected stress; buffering up rapidly. LICHF reported higher-than-

expected stress in 4QFY21. More importantly, rise in stage 3 loans was sharp in the

non-core segment, in addition to suspected developer loans. We expect slippages to

remain high over the next 2-3 quarters, reflecting the pain from the second wave, even

as increasing ECL coverage and proposed capital issuance provide the much-needed

buffer. Retain ADD; raise FV to Rs600 from Rs430.

LIC Housing Finance

Stock data Forecasts/valuations 2021 2022E 2023E

CMP(Rs)/FV(Rs)/Rating 495/600/ADD EPS (Rs) 54.2 54.5 66.9

52-week range (Rs) (high-low) 542-255 EPS growth (%) 12.1 0.6 22.8

Mcap (bn) (Rs/US$) 250/3.5 P/E (X) 9.1 9.1 7.4

ADTV-3M (bn) (Rs/US$) 1.9/0.1 P/B (X) 1.2 1.1 0.9

Shareholding pattern (%) BVPS 406.4 460.0 516.4

Promoters 40.3 RoE (%) 14.1 13.1 13.7

FPIs/MFs/BFIs 28.2/9.3/7.3 Div. yield (%) 1.7 1.7 2.1

Price performance (%) 1M 3M 12M NII (Rs bn) 52 59 65

Absolute 15.1 15.1 74.4 PPOP (Rs bn) 47 53 58

Rel. to BSE-30 6.8 10.4 11.6 Net profits (Rs bn) 27 30 37

ADD

JUNE 16, 2021

RESULT

Sector view: Attractive

CMP (`): 495

Fair Value (`): 600

BSE-30: 52,502

QUICK NUMBERS

Core PBT up 49%

yoy

AUM up 10% yoy

Gross stage 3 up 145

bps qoq to 4.1%

Nischint Chawathe

M B Mahesh, CFA

Dipanjan Ghosh

Abhijeet Sakhare

Ashlesh Sonje

LIC Housing Finance Diversified Financials

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Exhibit 1: LIC Housing Finance – quarterly results Quarterly data, 4QFY21 (Rs mn)

Source: Company, Kotak Institutional Equities estimates

Elevated provisions dent earnings; NIM expansion support core PBT

LIC Housing Finance reported PAT of Rs4 bn, down 45% qoq owing to sharp qoq rise in

provisions (PAT decline was lower at 5% on yoy basis – impact of low base in 4QFY20). Core

PBT (PBT+provisions+loss on de-recognition of financial instruments-gain on de-recognition

of financial instruments) was up 49% yoy, due to strong NII growth even as expenses were

high during the quarter.

(% chg.)

4QFY21 4QFY21E 4QFY20 3QFY21 4QFY21E 4QFY20 3QFY21 2022E 2021 (% chg.) 2023E

Operational income 49,677 50,055 49,202 49,067 (1) 1 1 212,595 198,472 7 236,055

Interest income 48,978 49,774 48,985 48,761 (2) (0) 0 210,827 196,971 7 234,610

Fee and commission income 459 174 50 139 163 810 231 974 788 24 771

Net gain on de-recognition of financial instrumeents 42 48 5 25 (12) 840 72 100 95 6 100

Other operational income 198 59 162 143 236 22 38 694 618 12 574

Interest expense 33,929 36,703 37,642 35,951 (8) (10) (6) 151,895 144,526 5 169,598

NII 15,049 13,071 11,342 12,810 15 33 17 58,932 52,445 12 65,012

Net operational income 15,748 13,351 11,559 13,117 18 36 20 60,701 53,946 13 66,457

Other income (33) (189) (332) 173 5 5 (7) 5

Total income 15,715 13,163 11,227 13,289 19 40 18 60,706 53,951 13 66,462

Operating expenses 2,347 1,703 2,288 1,686 38 3 39 8,148 7,015 16 8,580

Employee expenses 592 797 877 759 (26) (32) (22) 3,133 2,932 7 3,487

Depreciation expenses 123 133 129 126 (8) (5) (3) 519 494 5 545

Fee and commission expense 554 228 254 252 143 118 120 1,624 1,092 49 1,388

Other expenses 1,078 545 1,027 550 98 5 96 2,872 2,497 15 3,159

PPOP 13,368 11,459 8,939 11,603 17 50 15 52,558 46,936 12 57,883

Provisions 9,848 3,350 672 1,907 194 1,365 416 14,617 13,450 9 11,271

Net loss on de-recognition of financial instruments 76 222 400 97 (81) (22) 420 (2,172) NM 5,020

PBT 3,520 8,110 8,267 9,696 (57) (57) (64) 37,941 33,486 13 46,613

Tax (469) 1,765 4,053 2,426 (127) (112) (119) 7,968 6,142 30 9,788

PAT 3,989 6,344 4,214 7,270 (37) (5) (45) 29,974 27,343 10 36,824

Core PBT 13,326 11,412 8,935 11,579 17 49 15 52,458 46,842 12 57,784

Tax rate (%) (13.3) 21.8 49.0 25.0 -3509 bps -6235 bps -3835 bps 21.0 18.3 266 bps 21.0

Loan book (Rs bn)

Disbursements 224 175 113 169 28 97 33 650 552 18 771

Individual 212 109 160 94 33 0 522 (100) 0

Individual housing loans 190 89 145 114 31 573 469 22 687

Non-retail individual loans 22 20 15 6 48 42 52 (20) 44

Developer loans 12 4 9 190 35 0 30 (100) 0

Outstanding portfolio (Rs bn) 2,320 2,273 2,106 2,202 2 10 5 2,579 2,322 11 2,908

Individual housing loans 1,807 1,619 1,696 12 7 2,055 1,807 14 2,372

Non-retail individual loans 355 343 348 3 2 365 355 3 376

Developer loans 160 143 158 11 1 159 160 (0) 160

Key calculated ratios (%)

Yield on loans on balance sheet 8.7 9.4 9.0 -69 bps -34 bps 8.6 8.9 -29 bps 8.6

Cost of borrowings 6.7 8.0 7.5 -127 bps -72 bps 7.0 7.2 -25 bps 7.0

Spread 1.9 1.4 1.5 58 bps 39 bps 1.6 1.6 -4 bps 1.5

NIM 2.7 2.3 2.2 2.4 33 bps 50 bps 30 bps 2.4 2.4 4 bps 2.4

Cost-to-income 14.9 12.9 20.4 12.7 199 bps -544 bps 225 bps 13.4 13.0 42 bps 12.9

Cost-to-average AUM 0.4 0.3 0.4 0.3 11 bps -2 bps 10 bps 0.3 0.3 2 bps 0.3

Credit cost (% of AUM) 1.7 0.6 0.1 0.4 114 bps 161 bps 139 bps 0.6 0.6 -1 bps 0.4

Asset quality (%)

Gross stage 3 loans (%) 4.1 2.9 2.7 126 bps 144 bps 5.2 4.1 107 bps 4.7

Gross stage 3 loans (Rs mn) 95,585 60,225 59,013 59 62 133,819 95,585 40 136,496

Gross stage 1 and 2 loans (Rs mn) 2,224,445 2,045,555 2,142,957 9 4 2,445,172 2,224,445 10 2,771,350

Gross stage 1 loans (Rs mn) 2,080,835 1,947,847 1,989,920 7 5 0 2,080,835

Gross stage 1 ratio (%) 89.7 92.5 90.4 -281 bps -68 bps 0.0 89.7

Gross stage 2 loans (Rs mn) 143,610 97,708 153,037 47 (6) 0 143,610

Gross stage 2 ratio (%) 6.2 4.6 7.0 155 bps -76 bps 0.0 6.2

ECL provisions on stage 3 loans (Rs mn) 38,171 26,122 29,464 46 30 52,190 38,171 37 54,598

ECL provisions on stage 1 and 2 loans (Rs mn) 1,543.2 18.0 16.5 8473 9253 1,711.6 1,543.2 11 5,542.7

ECL coverage on stage 3 loans (%) 39.9 43.4 49.9 -344 bps -999 bps 39.0 39.9 -93 bps 40.0

ECL coverage on stage 1 and 2 loans (%) 0.07 0.00 0.00 7 bps 7 bps 0.07 0.07 0 bps 0.20

Overall ECL coverage (%) 1.71 1.24 1.34 47 bps 37 bps 2.09 1.71 38 bps 2.07

Segmental gross stage 3/GNPLs (%)

Individual loans 3.1 1.8 1.6 130 bps 145 bps

Individual housing loans 1.9 1.3 1.1 59 bps 82 bps

Non-retail individual loans 9.1 4.0 4.4 509 bps 474 bps

Developer loans 18.0 17.8 16.2 23 bps 178 bps

Borrowings (Rs bn)

Net borrowings 2,076 2,047 1,912 1,955 1 9 6 2,265 2,076 9 2,555

Banks 519 421 480 23 8

NCDs 1,121 1,243 1,109 (10) 1

Tier-II 21 19 10 9 108

Deposits 187 134 171 40 9

NHB 104 19 92 443 13

CP and others 125 76 94 63 32

Diversified Financials LIC Housing Finance

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

NII was up 33% yoy led by 10% yoy AUM growth and sharp margin expansion. Calculated

NIM expanded 50 bps yoy/30 bps qoq to 2.7% in 4QFY21, impact of sharp decline in

borrowing costs.

AUM growth at 10% yoy to Rs2.3 bn was higher than expectations and led by strong

momentum in individual housing loan disbursements. AUM growth at 5% qoq was the

highest since 1QFY20. The company clocked highest ever individual disbursements at Rs212

bn in 4QFY21 on the back of strong traction in home loan disbursements.

LICHF reported strong growth in operating expenses at 39% qoq/up 3% yoy (on a high

base). While employee expenses were down 32% yoy/22% qoq, other expenses increased

96% qoq/5% yoy (high base of 4QFY20 due to one-off CSR expenses). Cost-to-average

AUM was up 11 bps qoq to 42 bps (down 2 bps yoy).

Provisions increased 14% yoy/4.2X qoq in 4QFY21 to Rs9.8 bn; credit cost was up 160 bps

yoy/140 bps qoq to 1.7%. Rise in provisions reflects (1) impairment reserves of Rs2 bn

created during the quarter, (2) rise in gross stage 3 loans by 145 bps qoq to 4.1% and (2)

focus on increasing coverage on stage 1 and 2 loans; it however remains lower than industry

peers. Overall ECL coverage increased 47 bps yoy/36 bps qoq to 1.7%.

The company reported a net tax credit during the quarter. This is due to settlement of its tax

disputes under the recent government amnesty scheme.

Rise in stressed loan higher than initial expectations

Stressed loans up ~400 bps yoy in FY2021. Overall stressed loans (gross stage 2 +

gross stage 3 + restructured loans + write-offs during the year) increased ~400 bps yoy to

11.5%; this includes (1) 125 bps yoy increase in gross stage 3 loans to 4.1%, (2) 155 bps

yoy increase in gross stage 2 loans to 6.2% and (3) 1.3% of restructured loans. Overall

qoq increase in gross stage 3 loans and restructured loans at ~270 bps was higher than

the management expectation of 150-200 bps. Higher delinquencies from stage 2 loans

and stress in lower buckets have led to asset quality deterioration.

On qoq basis, gross stage 3 loans increased Rs36.5 bn while gross stage 2 loans

declined by Rs9.5 bn, indicating higher net (net of rollbacks) delinquencies from softer

buckets. Notably, all restructured loans are classified under stage 1 bucket.

Collections in standard buckets held up well in April and May 2021 at levels similar to

4QFY21, as highlighted by the management.

Individual home loan GNPLs at ~1.9%, higher than select peers. Overall stressed

loans in the individual home loan segment is ~7% for LICHF (~5% gross stage 2 and

~1.9% gross stage 3). Gross stage 3 loans increased to 1.9% in 4QFY21 from ~1.5% in

3QFY20 (pre-Covid). Current individual home loan GNPLs for LICHF is higher than select

peers (HDFC has home loan GNPL of ~1%, Indiabulls housing loan GNPL is ~50-60 bps

and CanFin Homes has GNPL of <1%).

Stress in developer loans at ~45% and ~20% in non-core individual loans. Overall

stressed loans (gross stage 2+gross stage 3+restructured loans) are ~45% in the

developer book. ~18% of developer loans are in gross stage 3 bucket while another 15%

is in stage 2 category. Stressed loans in the non-retail individual segment is also high at

~20%; this includes (1) gross stage 3 loans of ~9% (LAP GNPL of ~5.8%, LRD GNPL of

~3-4% and elevated GNPLs in other categories like hospitality) and (2) gross stage 2 ratio

of ~9%. We believe delinquencies to remain high in the non-retail individual segment led

by stress in cash flows for the underlying borrower due to the ongoing lockdown related

disruptions.



The company has submitted application to SWAMIH fund for last mile funding in 14-

16 projects (~Rs 14bn). Out of this, final approval has been received in five projects

and project has resumed for three cases. Management has however not mentioned

any timeline for completion of these projects or recovery of dues.

Ramping up ECL buffers in 4QFY21; stage-1 and 2 coverage still remains lower than

peers. LIC Housing Finance ramped up its ECL coverage buffers during the quarter.

Additionally, the company created Rs2 bn of impairment reserves (apart from ECL

provisions). Overall ECL coverage (excluding impairment provisions) increased to 47 bps

yoy/36 bps qoq to 1.7%. A low coverage on stage-1 and 2 loans resulted in sharp rise in

provisions in 4QFY21 due to steep rise in delinquencies.

Despite ramping up its coverage buffers, overall ECL coverage on stage-1 and 2 loans

(16 bps including impairment reserves) remains low at 7 bps versus 2.2-4.1% for other

peers.

Overall coverage on stressed loans (including impairment reserves) is ~15.5%.

Credit cost likely to remain elevated in FY2022E due to elevated slippages

Gross stage-3 loans will likely increase to >5% in FY2022E. We expect LICHF’s asset

quality to deteriorate over the next few quarters led by increase in delinquencies from

stressed loans in softer buckets (or under restructuring). Management has guided further

rise in restructured loans by ~1% in FY2022E. We expect gross stage-3 loans to peak in

FY2022E at ~5.2% and moderate thereafter.

Individual home loan delinquencies are expected to remain range bound as collections

in standard buckets have held up well during the second wave.

A significant portion of the developer book is already recognized as gross stage-2 or

gross stage-3 (~33%). We however do not rule out the possibility of further rise in

delinquencies from the restructured pool (~11%).

We expect delinquencies some increase in the non-core individual segment (LRD, LAP

and other corporate loans) due to high gross stage-2 loans and cash flow stress for the

underlying borrower due to the Covid-19-related disruptions. Rise in 4Q reflected

stress in hospitality sector, lower rental realization etc.; management is hence assertive

about recovering some of the slippages.

Scope of recoveries from the developer book going ahead. LICHF’s management

guided that the company is in discussion to resolve stressed developer accounts through

the SWAMIH scheme. This can drive recoveries in FY2022-24E. We have however not

incorporated the same in our estimate for asset quality parameters (gross stage-3 and

credit cost).

Credit cost likely to remain elevated in FY2022E; it however remains difficult to

forecast. Forecasting credit cost is challenging at this juncture as (1) the company has

high stressed loans with low coverage ratios and prefer to increase coverage only on

slippage to stage-3 bucket, (2) likely rise in delinquencies post the second wave and (2)

lack of clarity on the quantum of restructuring post the second wave. We bake-in

elevated credit cost in FY2022E at 60 bps (flat yoy) owing to further rise in stage-3 loans.

As business environment stabilize, we expect credit cost to gradually moderate to 40 bps

over FY2022-24E.



Exhibit 2: ~4% increase in stressed loans in FY2021 Stressed loans for LIC Housing Finance, March fiscal year-ends, 2019-2021, 3QFY20-4QFY21

Notes: (1) Gross stage-3 loans for 3QFY21 is including the impact of asset freeze. (2) Management had guided ~100-200 bps of incremental stressed loans in 3QFY21 (including asset freeze and restructured loans). (3) We have assumed restructured loans of Rs29.7 bn in FY2021 and no overlap between restructured loans and stage-2/stage-3.

Source: Company, Kotak Institutional Equities

Exhibit 3: ~40% of the developer book is stressed; ~21% for non-individual segment Segmental AUM and asset quality mix for LIC Housing Finance, March fiscal year-end, 2021

Notes: (1) Developer loan stage-2 loans has been assumed to be ~15%. (2) We have assumed 60% overall restructured loans as developer loans and entire personal loans restructured as only individual home loans. The residue has been assumed to be restructured loans from the non-retail individual segment.


Exhibit 4: Sharp rise in individual NPLs in 4QFY21 Segment-wise asset quality, March fiscal year-ends, 1QFY19-4QFY21 (%)


YoY YoY

3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 (bps) 2019 2020 2021 (bps)

Stressed loans (%)

Gross stage-2 5.7 4.6 4.0 1.3 7.0 6.2 155 bps 4.4 4.6 6.2 155 bps

Gross stage-3 2.7 2.9 2.8 2.8 2.7 4.1 126 bps 1.6 2.9 4.1 126 bps

Restructured loans 1.3 1.3

Write-offs (% of average AUM, annualised) 0.0 0.1 0.0 0.0 0.0 (0.4) -50 bps (0.0) 0.0 (0.1) -12 bps

Total stress 8.5 7.6 6.8 4.1 9.7 11.2 359 bps 6.0 7.5 11.5 397 bps

Overall ECL provisions (Rs bn) 25.8 26.1 26.7 27.7 29.5 39.7 51.9 16.6 26.1 39.7 51.9

Overall ECL coverage 1.2 1.2 1.3 1.3 1.3 1.7 47 bps 0.9 1.2 1.7 47 bps

Impairment reserves 2.0 2.0

Coverage on overall stress (excluding write-offs) 14.7 16.6 18.7 31.6 13.9 15.5 -102 bps 14.2 16.6 15.5 -102 bps

Gross stage-2 GNPL/gross stage-3 Restructured loans Overall stressed loans AUM mix

(Rs bn) (% of AUM) (Rs bn) (% of AUM) (Rs bn) (% of AUM) (Rs bn) (% of AUM) (Rs bn) (% share)

Individual segment 120 5.5 67 3.1 12 0.5 198 9.2 2,162 93

Individual home loans 89 4.9 34 1.9 6 0.3 129 7.1 1,807 78

Non-retail 31 8.8 32 9.1 6 1.6 70 19.6 355 15

Developer loans 24 15.0 29 18.4 18 11.3 70 44.7 158 7

Overall 144 6.2 96 4.1 30 1.3 269 11.6 2,320

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21

Individual loans 0.8 0.8 0.9 1.1 1.3 1.5 1.9 1.8 1.7 1.7 1.6 3.1

Individual home loans 0.7 0.8 0.8 0.9 1.0 1.1 1.5 1.3 1.2 1.2 1.1 1.9

Non-core retail NA 0.0 1.4 1.6 2.2 2.4 3.7 4.0 3.9 3.9 4.4 9.1

Developer NA 8.0 6.5 7.0 10.8 14.8 14.1 17.8 17.6 16.5 16.2 18.0



Exhibit 5: Gross stage-3 loans has gradually increased over the past few quarters Asset quality metrics, March fiscal year-ends, 4QFY18-4QFY21 (Rs mn)


Exhibit 6: Credit cost likely to remain elevated in FY2022E Asset quality details, March fiscal year-ends, 2018-2024E


4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 YoY (%) QoQ (%)

Gross AUM break-up

Gross stage 1 and 2 1,661,105 1,677,563 1,737,184 1,792,836 1,915,511 1,938,522 1,982,047 2,025,842 2,045,555 2,038,792 2,073,966 2,142,957 2,224,445 9 4

Gross stage 1 1,596,630 1,612,525 1,663,988 1,703,330 1,829,672 1,844,780 1,885,808 1,906,712 1,947,847 1,955,494 2,045,804 1,989,920 2,080,835 7 5

Gross stage 2 64,475 65,038 73,196 89,506 85,839 93,742 96,240 119,130 97,708 83,297 28,162 153,037 143,610 47 (6)

Gross stage 3 13,565 20,547 22,346 22,694 30,754 39,158 48,323 56,858 60,225 59,378 59,524 59,013 95,585 59 62

Gross AUM 1,674,670 1,698,110 1,759,530 1,815,530 1,946,265 1,977,680 2,030,370 2,082,700 2,105,780 2,098,170 2,133,490 2,201,970 2,320,030 10 5

Gross AUM mix (%)

Gross stage 1 and 2 99.2 98.8 98.7 98.8 98.4 98.0 97.6 97.3 97.1 97.2 97.2 97.3 95.9 -126 bps -144 bps

Gross stage 1 95.3 95.0 94.6 93.8 94.0 93.3 92.9 91.6 92.5 93.2 95.9 90.4 89.7 -281 bps -68 bps

Gross stage 2 3.9 3.8 4.2 4.9 4.4 4.7 4.7 5.7 4.6 4.0 1.3 7.0 6.2 155 bps -76 bps

Gross stage 3 0.8 1.2 1.3 1.3 1.6 2.0 2.4 2.7 2.9 2.8 2.8 2.7 4.1 126 bps 144 bps

ECL provisions

Stage 1 and 2 1,223 2,639 3,897 67 1,354 1,561 1,110 331 18 3 2 17 1,543 8,473 9,253

Gross stage 1 1,163 1,899 2,788 47 239 276 287 40 3 1 1 16 1,172 38,950 7,315

Gross stage 2 60 740 1,109 19 1,115 1,286 823 291 15 1 1 1 372 2,378 53,000

Stage 3 9,084 6,524 11,696 15,487 15,240 17,567 20,830 25,516 26,122 26,686 27,717 29,464 38,171 46 30

Total ECL provisions 10,307 9,163 15,593 15,553 16,595 19,128 21,940 25,847 26,140 26,689 27,719 29,481 39,714 52 35

Coverage ratios (%)

Stage 1 and 2 0.07 0.16 0.22 0.004 0.071 0.081 0.056 0.016 0.001 0.000 0.000 0.001 0.069 7 bps 7 bps



Stage 3 67.0 31.8 52.3 68.2 49.6 44.9 43.1 44.9 43.4 44.9 46.6 49.9 39.9 -344 bps -999 bps

Total coverage 0.62 0.54 0.89 0.86 0.85 0.97 1.08 1.24 1.24 1.27 1.30 1.34 1.71 47 bps 37 bps

2018 2019 2020 2021 2022E 2024E 2024E

Gross loans mix (Rs bn)

Stage 1 and 2 1,648 1,899 2,046 2,226 2,445 2,771 3,174

Stage 3 14 31 60 96 134 136 139

Overall gross loans 1,662 1,930 2,106 2,322 2,579 2,908 3,313

Gross loans mix (%)

Stage 1 and 2 99.2 98.4 97.1 95.9 94.8 95.3 95.8

Stage 3 0.8 1.6 2.9 4.1 5.2 4.7 4.2

ECL provisions mix (Rs bn)

Stage 1 and 2 1 1 0 2 2 6 10

Stage 3 9 15 26 38 52 55 56

Overall ECL provisions 10 17 26 40 54 60 65

ECL coverage (%)

Stage 1 and 2 0.07 0.07 0.00 0.07 0.07 0.20 0.30

Stage 3 67.0 49.6 43.4 39.9 39.0 40.0 40.0

Overall ECL coverage 0.6 0.9 1.2 1.7 2.1 2.1 2.0

Credit cost (% of AUM)

Overall credit cost 0.3 0.5 0.6 0.6 0.4 0.4

Provisions 0.3 0.5 0.7 0.6 0.2 0.2

Write-offs (0.0) 0.0 (0.1) 0.0 0.2 0.3



Exhibit 7: GNPLs inched up to >4% for the first time since FY2006 GNPL ratio for LICHF, March fiscal year-ends, 2001-2021

Notes: (1) Data for FY2018 onwards is based on Ind-AS and represent gross stage 3 loans.


Exhibit 8: LICHF’s coverage on stage-1 and 2 loans is lower than most peers; stage 3 coverage is comparable Asset quality details of HFCs, March fiscal year-ends, 2018-2020, 1QFY21-4QFY21


3.4

3.9 4.1

3.6

4.5

3.4

2.6 2.8

1.1

0.7 0.5 0.4

0.6 0.7 0.5 0.5 0.4

0.8

1.6

2.9

4.1

0

1

2

3

4

5

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

GNPL ratio (%)

2018 2019 2020 1QFY21 2QFY21 3QFY21 4QFY21 YoY (bps)

Overall gross stage 3/GNPL (%)

Aavas 0.5 0.5 0.5 0.5 0.5 1.0 1.0 52 bps

Bajaj Housing NA 0.1 0.1 0.1 0.1 0.4 0.3 27 bps

Can Fin Homes 0.4 0.6 0.8 0.8 0.7 0.7 0.9 15 bps

HDFC 1.3 1.4 2.3 2.2 2.2 2.3 2.3 6 bps

L&TFH (housing segment) 0.9 0.8 1.0 1.0 1.2 1.3 1.5 49 bps

LIC Housing Finance 0.8 1.6 2.9 2.8 2.8 2.7 4.1 126 bps

Piramal 0.3 0.9 2.4 2.5 2.5 3.7 4.5 210 bps

PNB Housing Finance 0.3 0.5 2.7 2.8 2.6 4.5 4.4 169 bps

Repco Home Finance 2.9 3.0 4.3 4.0 4.0 4.3 NA NA

Stage-3 coverage (%)

Aavas 16.0 21.8 26.0 30.3 32.4 28.5 27.2 124 bps

Bajaj Housing NA 35.8 38.0 38.6 37.5 37.5 38.0 -2 bps

Can Fin Homes 53.1 30.0 28.8 33.7 36.4 39.2 33.5 464 bps

HDFC 41.8 43.5 47.6 47.5 49.0 49.5 52.1 445 bps

L&TFH (housing segment) 44.0 30.0 31.0 33.0 34.0 32.0 32.0 100 bps

LIC Housing Finance 67.0 49.6 43.4 44.9 46.6 49.9 39.9 -344 bps

Piramal 40.0 38.6 38.6 52.9 51.3 1129 bps



Stage 1 and 2 coverage (%)

Aavas 0.2 0.2 0.2 0.3 0.4 0.4 0.4 17 bps

Bajaj Housing NA 0.1 0.4 0.5 0.7 0.9 0.9 51 bps

HDFC 1.0 0.8 1.4 1.6 1.6 1.5 1.4 5 bps

LIC Housing Finance 0.1 0.1 0.0 0.0 0.0 0.0 0.2 16 bps

Piramal NA NA 5.0 5.0 5.1 4.5 4.1 -86 bps





Exhibit 9: LICHF’s overall coverage on the book continues to remain lower than peers albeit sharp qoq rise in 4QFY21 Overall ECL coverage of HFCs, March fiscal year-ends, 1QFY19-3QFY21 (%)


Strong momentum in home loan disbursements

Highest ever disbursements in individual loans 4QFY21. LICHF clocked highest ever

individual disbursements at Rs212 bn in 4QFY21 on the back of strong traction in home

loan disbursements. Home loan disbursements were up 1.1X yoy/33% qoq to Rs190 bn

in 4QFY21. Non-retail individual disbursements were muted (up 4% yoy) – the company

continues to maintain a cautious stance. Developer loan disbursements were up 1.9X yoy.

AUM up 10% yoy. AUM growth at 10% yoy to Rs2.3 bn in FY2021 was higher than

initial expectations and was led by strong momentum in individual housing loan

disbursements in 2HFY21. AUM growth at 5% qoq in 4QFY21 was the highest since

1QFY20.

Retail home loan disbursements to remain strong

~19% disbursement CAGR over medium term. We expect strong growth in individual

home loan disbursements to support overall disbursements going ahead (~19% CAGR

over FY2021-24E). Pick-up in housing sales post the second wave, competitive pricing

and higher balance transfers are likely drivers. We bake in strong 22% disbursements

growth in individual home loan in FY2022E (on a low base) and ~20% CAGR over

FY2022-24E.

We expect the company to maintain a cautious stance on incremental disbursements

in non-retail individual segment going ahead while construction finance is likely to

grow at a robust pace (on a low base). Our estimates bake-in ~20% yoy decline in

non-retail individual disbursements in FY2022E and muted ~5% CAGR thereafter over

FY2022-24E. We build ~15% disbursement CAGR for construction finance over

FY2021-24E. We will however need some comfort on the quality of the book owing to

historically weak asset quality in this segment.

Repayment rates are expected to marginally inch up from trough levels observed in

FY2021. As such, we expect ~11% yoy AUM growth in FY2022E and ~13% AUM

CAGR over FY2022-24E.

Significant scope to increase market share in individual home loans. Absence of

significant competition from smaller HFCs, comfortable liquidity position and strong

demand in affordable housing segment places LICHF in a sweet spot to increase market

share at a faster pace in retail home loans. However, management bandwidth, in the

near term may be occupied in maintaining asset quality performance. LICHF’s home loans

rates are similar to HDFC, SBI and other frontline private banks and despite intensifying

competition, the company remains well placed to capture incremental market share

going ahead. Additionally, the company has launched few new products targeted at

specific customer segments.


Housing Finance companies

Aavas 0.27 0.26 0.26 0.27 0.28 0.31 0.30 0.34 0.42 0.51 0.69 0.65

Bajaj Housing 0.14 0.13 0.15 0.17 0.19 0.18 0.19 0.43 0.57 0.78 1.06 1.04

Can Fin Homes 0.54 0.57 1.01 NA

HDFC 1.37 1.31 1.33 1.44 1.55 1.72 2.25 2.44 2.64 2.60 2.56 2.62

LIC Housing Finance 0.54 0.89 0.86 0.85 0.97 1.08 1.24 1.24 1.27 1.30 1.34 1.71

Piramal NA NA NA NA NA 1.80 1.80 5.80 5.90 5.90 6.30 6.30

PNB Housing Finance 0.52 0.58 0.62 0.59 0.79 0.98 1.28 2.61 2.70 2.99 3.47 4.09

Repco Home Finance 0.71 0.70 0.80 1.50 1.52 1.40 1.50 1.80 2.00 2.01 2.18 NA



Exhibit 10: AUM growth to gradually pick up AUM, March fiscal year-ends, 2007-24E


Exhibit 11: Disbursements to remain strong Disbursements, March fiscal year-ends, 2007-24E


Exhibit 12: Strong growth in individual disbursements in 4QFY21 Disbursement growth, March fiscal year-ends, 4QFY17-4QFY21

Notes: (1) Numbers post FY2017 are based on Ind-AS.


Exhibit 13: Share of individual housing loans to inch up a bit AUM mix for LICHF, March fiscal year-ends, 2007-24E (%)


25 26

38 34

23 23

17 19 16 16 16 16

8 10 11

13 14

-10

0

10

20

30

40

0

650

1,300

1,950

2,600

3,250

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

E

20

23

E

20

24

E

(%)(Rs bn)AUM (LHS) YoY (RHS)

38

23

72

34

1

21

4

20 19 15 19 9

(13)

18 18 19 19

-70

-35

0

35

70

105

-

200

400

600

800

1,000

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

E

20

23

E

20

24

E

(%)(Rs bn)

Disbursements (LHS) YoY (RHS)

(80)

(40)

0

40

80

120

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

1Q

FY

21

2Q

FY

21

3Q

FY

21

4Q

FY

21

Disbursements (total) - yoy growth (%)

Disbursements (individual) - yoy growth (%)

97 94 91 89 91 95 97 94 93 88 84 81 76 77 78 80 82 84

3 5 9 13 14

17 16 15 14 13 11

3 6 9 11 9 5 3 3 3 3 4 5 7 7 7 6 5 5

0

20

40

60

80

100

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

E

20

23

E

20

24

E

Individual housing LAP/LRD/non-core Developer



NIM to marginally decline over medium term

NIM expansion in 4QFY21. On a qoq basis, NIM expanded 30 bps due to (1) further rise

in share of low-cost CPs to 6% of overall borrowings from 4.8% in 3QFY21 and (2) sharp

decline in weighted borrowing cost across all instruments. Reported weighted average

borrowing cost declined 25 bps qoq to 5.9% for bank lending, 20 bps qoq decline in cost

of NCDs to 7.8% and 50 bps qoq decline in cost of deposits to 6.75%. Incremental cost

of borrowings for 4QFY21 was down 10 bps qoq to 5.15% (down 275 bps yoy in

4QFY21/down 230 qoq to 5.6% in FY2021). Strong parentage and favourable interest

rate movement has supported sharp decline in borrowing cost in FY2021.

Calculated yields declined further by 35 bps qoq (down 70 bps yoy) to 8.7% - impact

of (1) increasing share of low yielding home loans (up 100 bps yoy/90 bps qoq to

77.9%), (2) lower incremental cost of home loans and (3) back book repricing.

Expect marginal NIM compression over medium term. We expect NIM to marginally

inch up in FY2022E to 2.4% from 2.37% in FY2021 and gradually decline over medium

term to 2.26% by FY2024E. LICHF’s NIM was flat yoy in FY2021 despite sharp

compression in yields (due to increase in share of low-yielding home loan, decline in

incremental home loan rates and back book repricing). Sharp decline in cost of

borrowings across all instruments and marginal tweaking of borrowings mix led to stable

yoy NIM. We expect borrowing cost to further decline a bit in FY2022E reflecting lower

cost of incremental borrowings in 2HFY21; this is expected to offset yield pressure.

Additionally, proposed capital infusion (~10% of networth) is expected to support NIM in

FY2022E.

Over FY2022-24E, we expect NIM to compress a bit from current levels. We bake in

marginal rise in borrowing cost from FY2022E to reflect hardening of interest rates

from 2HFY22E/FY2023E. Additionally, increasing share of low-yielding individual home

loans to ~84% by FY2024E from ~78% in FY2021 is expected to drive yield

compression.

Exhibit 14: NIM to compress a bit Average yields, borrowing costs and margins, March fiscal year-ends, 2007-24E (%)



9.2

10.3 11.1

10.0 10.0 10.5 10.6 10.7 10.6 10.5 10.3

9.4 9.5 9.7 8.9 8.6 8.6 8.5

7.9 8.5 8.8 8.0 7.8 9.1 9.5 9.5 9.3 9.0 8.6 8.2 8.2 8.2 7.2 7.0 7.0 7.1

2.4

3.0 3.0

2.7

3.1

2.5

2.2 2.3 2.3

2.5

2.7

2.3 2.4 2.4 2.4 2.4 2.4

2.3

1.5

1.9

2.3

2.7

3.1

3.5

0.0

2.5

5.0

7.5

10.0

12.5

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

E

20

23

E

20

24

EYields on loans (LHS) Cost of funds (LHS) NIM (RHS)



Exhibit 15: Repayments increased in 4QFY21 Calculated repayment and pre-payment rates, March fiscal year-ends, 2012-16, 1QFY17-4QFY21 (%)



Exhibit 16: Share of bank borrowings has increased Break-up of borrowings, March fiscal year-ends, 3QFY18-3QFY21 (%)


Exhibit 17: Weighted average borrowing has declined across most instruments Weighted average cost of borrowings, March fiscal year-ends, 2018-21 (%)



7.8 9.3

8.4

11.9 11.5 10.0 9.7 10.1

10.9 10.6 10.2 8.9

10.7 10.3 9.2

8.4

9.8 9.6 9.8 9.8

5.3

14.3

10.9 10.9

15.2 15.0 14.6

17.8 17.0 17.1 16.5

17.6 17.3 18.0

19.0

15.7

17.4

19.2

16.3

9.1

14.7 14.0

15.7

17.3

8.2

17.0

18.8 19.2

2.5

6.5

10.5

14.5

18.5

22.5

20

13

20

14

20

15

20

16

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

1Q

FY

21

2Q

FY

21

3Q

FY

21

4Q

FY

21

Prepayment rate Repayment rate

4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21

Bank 10 12 16 14 15 14 15 19 22 20 23 25 25

NCD 79 74 68 74 75 73 72 68 65 62 60 57 54

Tier-II 2 2 1 1 1 1 1 1 1 1 1 1 1

Deposit 5 5 4 5 4 5 6 6 7 8 9 9 9

NHB 1 1 1 1 1 1 1 1 1 5 5 5 5

CP and others 3 7 9 5 4 6 5 5 4 4 3 5 6

FY2018 1QFY19 1HFY19 9MFY19 FY2019 1QFY20 1HFY20 9MFY20 FY2020 1QFY21 2QFY21 3QFY1 4QFY21

Bank 8.2 8.3 8.3 8.5 8.7 8.7 8.5 8.1 7.8 7.2 6.6 6.2 5.9

NCD 8.4 8.4 8.4 8.5 8.5 8.2 8.4 8.4 8.3 6.3 8.2 8.0 7.8

Tier-II 9.2 9.2 8.9 8.9 8.9 8.9 8.9 8.9 9.0 9.0 9.0 7.1 7.3

Deposit 7.9 7.9 7.9 8.1 8.3 8.3 8.3 8.1 7.9 7.8 7.4 7.3 6.8

NHB 8.1 8.1 8.1 8.1 8.3 7.8 7.8 7.7 7.6 7.8 6.3 6.2 5.9

CP 7.4 7.5 7.5 8.2 8.3 7.7 7.5 6.9 6.5 6.2 5.7 4.7 4.1



Exhibit 18: Bond borrowing rates have dropped for LIC Housing Finance LICHF – yields on 1-5 year bonds, March fiscal year-ends, June 2013-June 2021 (%)

Source: Bloomberg, Prime Database, Kotak Institutional Equities

Sharp jump in other expenses; 4Q anyway tends to be higher

LICHF reported strong growth in operating expenses at 39% qoq/up 3% yoy (on a high

base). Expenses anyway tend to be high in 4Q due to high annual payouts and other one-off

expenses. While employee expenses were down 32% yoy/22% qoq, other expenses

increased 96% qoq/5% yoy (high base of 4QFY20 due to one-off CSR expenses). LICHF

debits NPV of EIS on re-pricing down of loans to its P&L. This added to expenses for the

quarter.

We expect operating expense growth to remain modest at 10% CAGR over FY2022-24E (up

16% yoy in FY2022E). Cost-to-average AUM will likely remain stable at ~30-31 bps over

FY2022-24E. The company has invested a digital transformation project, which is likely to

improve operating leverage. We have not baked in the same in our estimates as we await

more details and granular understanding of cost benefits.

Exhibit 19: Cost-to-average AUM likely to remain stable Cost ratios, March fiscal year-ends, 2007-24E


4.5

5.9

7.3

8.7

10.1

11.5

Jun

-13

Dec-

13

Jun

-14

Dec-

14

Jun

-15

Dec-

15

Jun

-16

Dec-

16

Jun

-17

Dec-

17

Jun

-18

Dec-

18

Jun

-19

Dec-

19

Jun

-20

Dec-

20

Jun

-21

25 20 18 17 16 16 17 15 15 15 17 12 11 13 13 13 13 13

0.7 0.7 0.6

0.6

0.5 0.4 0.4 0.4 0.4 0.4

0.5

0.3 0.3 0.3 0.3 0.3 0.3 0.3

0.0

0.2

0.4

0.6

0.8

1.0

0

6

12

18

24

30

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

E

20

23

E

20

24

E

(%)(%)Cost-to-income (LHS) Cost-to-average AUM (RHS)



Exhibit 20: LICHF is trading at 1.1X book (one-year forward) Rolling PER and PBR, March fiscal year-ends, June 2009-June 2021 (X)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Exhibit 21: LIC Housing Finance – old and new estimates March fiscal year-ends, 2022-24E (Rs mn)

Notes: (1) Core PBT: PBT pre provisions-gain on de-recognition of financial instruments.


-

0.7

1.4

2.1

2.8

3.5

0

4

8

12

16

20

Jun

-99

Jun

-00

Jun

-01

Jun

-02

Jun

-03

Jun

-04

Jun

-05

Jun

-06

Jun

-07

Jun

-08

Jun

-09

Jun

-10

Jun

-11

Jun

-12

Jun

-13

Jun

-14

Jun

-15

Jun

-16

Jun

-17

Jun

-18

Jun

-19

Jun

-20

Jun

-21

Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

New estimates Old estimates Old vs New (%)

2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E

NIMs(%) 2.5 2.4 2.3 2.3 2.3 2.3 13 bps 10 bps -2 bps

AUM growth (%) 10.7 12.8 14.0 8.9 11.7 13.7 178 bps 110 bps 39 bps

Net interest income 57,615 63,593 68,935 53,261 58,391 66,486 8.2 8.9 3.7

Other income 3,090 2,870 3,110 3,123 3,171 3,248 (1.1) (9.5) (4.3)

Total income 60,706 66,462 72,045 56,385 61,563 69,735 7.7 8.0 3.3

Loan loss provisions 14,617 11,271 13,102 3,117 3,345 4,201 369.0 236.9 211.9

Operating expenses 8,148 8,580 9,713 6,628 7,686 8,942 22.9 11.6 8.6

Employee expenses 3,133 3,487 3,952 3,430 4,036 4,769 (8.7) (13.6) (17.1)

Other expenses 5,015 5,093 5,761 3,198 3,650 4,173 56.8 39.5 38.1

PBT 37,941 46,612 49,230 46,640 50,532 56,591 (18.7) (7.8) (13.0)

Tax 7,968 9,788 10,338 9,794 10,612 11,884 (18.7) (7.8) (13.0)

PAT 29,974 36,823 38,892 36,845 39,920 44,707 (18.7) (7.8) (13.0)

Core PBT 52,458 57,784 62,234 49,657 53,778 60,695 5.6 7.4 2.5

EPS (Rs) 54 67 71 73 79 89 (25.4) (15.4) (20.2)

BVPS (Rs) 460 516 576 466 530 601 (1.4) (2.6) (4.2)

ABVPS (Rs) 341 397 455 397 462 534 (14.0) (14.0) (14.9)

Cost-to-income (%) 13.4 12.9 13.5 11.8 12.5 12.8 167 bps 42 bps 66 bps

Cost-to-average AUM (%) 0.3 0.3 0.3 0.3 0.3 0.3 5 bps 2 bps 1 bps

ROA (%) 1.2 1.3 1.2 1.5 1.5 1.5 -31 bps -16 bps -25 bps

ROE (%) 13.1 13.7 12.9 16.7 15.9 15.7 -362 bps -217 bps -272 bps



Exhibit 22: LIC Housing Finance – key growth rates and financial ratios March fiscal year-ends, 2018-24E (%)


Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS

2018 2019 2020 2021 2022E 2023E 2024E

Growth (%)

NII NA 22 10 9 12 10 8

Opertaing expense NA 8 30 14 16 5 13

PBT NA 22 (3) 2 13 23 6

PAT NA 21 (1) 14 10 23 6

Spread calculation (%)

Yield on loans NA 9.5 9.7 8.9 8.6 8.6 8.5

Cost of borrowings NA 8.2 8.2 7.2 7.0 7.0 7.1

Spreads NA 1.4 1.5 1.6 1.6 1.5 1.4

Core NIM NA 2.4 2.4 2.4 2.4 2.4 2.3

Other ratios (%)

Tax rate NA 28 27 18 21 21 21

Cost-to-income 11.9 10.6 12.6 13.0 13.4 12.9 13.5

Cost-to-average AUM NA 0.26 0.30 0.32 0.33 0.31 0.31

Credit cost NA 0.34 0.49 0.61 0.60 0.41 0.42

Du Pont analysis (% of average assets and off-balance sheet assets)

Net interest income NA 2.3 2.3 2.3 2.4 2.4 2.3

Net operational income NA 2.4 2.4 2.4 2.5 2.4 2.3

Total income NA 2.4 2.3 2.4 2.5 2.4 2.3

Operating expenses NA 0.3 0.3 0.3 0.3 0.3 0.3

Provisions NA 0.3 0.5 0.6 0.6 0.4 0.4

(1- tax rate) NA 0.7 0.7 0.8 0.8 0.8 0.8

RoA NA 1.3 1.2 1.2 1.2 1.3 1.2

Average assets/average equity (X) NA 12.2 12.1 11.7 10.8 10.3 10.4

RoE (%) NA 15.9 13.9 14.1 13.1 13.7 12.9



Exhibit 23: LIC Housing Finance – income statement and balance sheet March fiscal year-ends, 2018-24E (Rs mn)


Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS

2018 2019 2020 2021 2022E 2023E 2024E

Income statement

Operational income 148,370 173,550 196,967 198,472 212,595 236,055 265,930

Interest income 147,297 172,561 196,054 196,971 210,827 234,610 264,306

Fee and commission income 356 348 394 788 974 771 917

Net gain on de-recognition of financial instrumeents 239 107 59 95 100 100 100

Other operational income 477 534 461 618 694 574 606

Interest expense 111,439 128,916 147,839 144,526 151,895 169,598 193,889

NII 35,859 43,646 48,215 52,445 58,932 65,012 70,417

Net operational income 36,931 44,635 49,128 53,946 60,701 66,457 72,040

Other income 36 68 (269) 5 5 5 5

Total income 36,968 44,703 48,859 53,951 60,706 66,462 72,045

Operating expenses 4,396 4,726 6,167 7,015 8,148 8,580 9,713

Employee expenses 2,232 2,479 2,991 2,932 3,133 3,487 3,952

Depreciation expenses 100 117 481 494 519 545 572

Fee and commission expense 463 323 606 1,092 1,624 1,388 1,651

Other expenses 1,601 1,806 2,090 2,497 2,872 3,159 3,538

PPOP 32,572 39,977 42,692 46,936 52,558 57,883 62,332

Provisions 4,917 6,181 10,002 13,450 14,617 11,271 13,102

PBT 27,655 33,796 32,690 33,486 37,941 46,613 49,232

Tax 7,630 9,486 8,672 6,142 7,968 9,788 10,338

PAT 20,025 24,311 24,018 27,343 29,974 36,824 38,894

EPS (Rs) 36 46 48 54 54 67 71

BVPS (Rs) 276 300 306 315 341 397 455

Core PBT 32,333 39,870 42,634 46,842 52,458 57,783 62,232

Balance sheet

Disbursements 493,690 539,080 469,360 552,220 649,528 771,384 917,033

Yoy growth (%) 19 9 (13) 18 18 19 19

AUM 1,674,670 1,946,460 2,105,780 2,321,828 2,578,992 2,907,846 3,312,852

Cash & deposits 20,964 29,949 19,790 13,467 12,803 12,171 12,771

Loans on balance sheet 1,661,623 1,929,927 2,079,880 2,281,143 2,525,090 2,847,705 3,247,641

Investment 19,722 35,951 54,964 46,356 44,038 46,240 48,552

Fixed assets owned 947 1,330 1,350 1,303 1,303 1,303 1,303

Other assets 7,642 8,678 12,073 14,064 14,582 14,994 15,447

Total assets 1,710,898 2,005,835 2,168,056 2,356,333 2,597,816 2,922,414 3,325,715

Deposits 67,717 76,674 126,090 183,357 203,890 229,947 262,911

Total borrowings 1,453,390 1,706,290 1,912,090 2,075,770 2,265,450 2,554,969 2,921,238

Other liabilities 115,096 136,952 74,035 75,350 79,185 83,219 87,462

Total liabilities 1,568,486 1,843,242 1,986,125 2,151,120 2,344,635 2,638,188 3,008,700

Share capital 1,010 1,010 1,010 1,010 1,101 1,101 1,101

Reserves 141,402 161,583 180,921 204,203 252,081 283,125 315,914

Shareholders' funds 142,412 162,593 181,931 205,213 253,182 284,226 317,015



Improved earnings profile at Dhariwal bodes well for consolidated earnings

CESC’s reported consolidated profits of Rs4.2 bn (-3.6% yoy) in 4QFY21 led by (1) modest

standalone performance with PAT of Rs2.7 bn (+8% yoy) supported by higher other income, (2)

profit of Rs310 mn at Dhariwal and (3) positive PAT of Rs760 mn (+12.2% yoy) at Haldia which

operated at a PLF of 70% in 4QFY21. Driven by operational improvements, Noida distribution

reported PAT of Rs310 mn while Cresent Power along with distribution circles in Rajasthan

lowered losses and reported negative PAT of Rs30 mn and Rs40 mn, respectively.

For the year FY2021, CESC reported consolidated profits of Rs13.3 bn (+2% yoy) driven by (1)

positive PAT of Rs1 bn at Dhariwal (loss of Rs97 mn in FY2020) and (2) modest standalone

performance with PAT of Rs8.1 bn (-11.3% yoy) despite impact on demand due to Covid-19

during the year. Haldia reported PAT of Rs3.6 bn (+13.6% yoy) in FY2021. While PAT

contribution from the distribution circles in Rajasthan, Noida and Malegaon declined to Rs850

mn in FY2021 (from Rs1.1 bn in FY2020), decline in T&D losses at the new circles bodes well

for the company.

Modest standalone operational performance; other income boosts reported profits

CESC reported standalone revenues of Rs18 bn (-4% yoy) even as units sold showed modest

growth of 5.8% yoy to 2.2 BU. Higher purchased units at 1 BUs (+12.6%) made up for lower

generation of 1.4 BU. However, an increase in fuel costs to Rs2.4/unit (+4.9% yoy) due to

higher coal prices led to a 22% yoy decline in EBTIDA at Rs4.3 bn in 4QFY21. Higher other

income of Rs1 bn led to a 7.3% yoy increase in reported PAT to Rs2.7 bn. Realized tariff

declined 9.2% yoy to Rs8.1/unit in 4QFY21.

Maintain BUY with revised Fair Value of Rs840/share

We maintain our BUY rating for CESC with revised FV of Rs840/share (from Rs815/share), with

the results for FY2021 further strengthening our investment thesis—(1) stability of regulated

business, (2) moderating losses from new distribution circles and (3) improving utilization for

Dhariwal. Valuations remain reasonable at 6X P/E and 0.8X P/B on FY2023E.

We have revised our earnings for FY2022E (+7.9%) and for FY2023E (+7%) factoring improved

profitability at Dhariwal and lower losses at recently acquired distribution circles.


CESC (CESC) Electric Utilities

Steady improvement. CESC reported consolidated profits of Rs4.2bn (-3.6% yoy) and

standalone profits of Rs2.7 bn (+8% yoy) in 4QFY21. Profits at Dhariwal (600 MW)

improved to Rs1 bn for FY2021 compared to loss of Rs97 mn in FY2020—a key driver

for strong consolidated performance. CESC trades at 6X P/E on earnings of FY2023E,

with continued improvement from earnings of Dhariwal. A healthy Rs45/share of interim

dividend shows the company’s intent to increase the pay-out ratio and right-size the

balance sheet. Maintain BUY with revised FV of Rs840/share (from Rs815/share).

CESC


CMP(Rs)/FV(Rs)/Rating 771/840/BUY EPS (Rs) 100.4 114.6 125.5


Mcap (bn) (Rs/US$) 103/1.4 P/E (X) 7.7 6.7 6.1

ADTV-3M (mn) (Rs/US$) 399/5 P/B (X) 0.8 0.7 0.7

Shareholding pattern (%) EV/EBITDA (X) 5.9 5.1 4.6

Promoters 49.9 RoE (%) 12.1 11.6 11.5


Price performance (%) 1M 3M 12M Sales (Rs bn) 121 133 139

Absolute 14.4 24.9 27.1 EBITDA (Rs bn) 36 39 39

Rel. to BSE-30 6.2 19.8 (18.7) Net profits (Rs bn) 13 15 17

BUY

JUNE 17, 2021

RESULT


CMP (`): 771

Fair Value (`): 840

BSE-30: 52,502

Murtuza Arsiwalla

Samrat Verma

Electric Utilities CESC


Exhibit 1: Profit of Rs1 bn at Dhariwal and modest standalone performance helped CESC report 2% yoy increase in PAT in FY2021 Quarterly results (consolidated) for CESC, March fiscal year-ends (Rs mn)


Other highlights from the results

Dhariwal reported PAT of Rs310 mn in 4QFY21 taking total profits in FY2021 to Rs1 bn,

an improvement from loss of Rs97 mn in FY2020. Improvement in performance was led

by 25.1% yoy increase in sales volume to 3.9 MUs as PLF for FY2021 increased to 80.4%

(64% in FY2020) even as realizations declined to Rs3.9/unit (-8.3% yoy). Dhariwal has

fully tied up 300 MW of Unit -2 under long term PPA while Unit-1 PPA (185 MW) with

MERC has been extended up to 31st October 2021.

Haldia reported 12.2% yoy increase in PAT to Rs760 mn due to 4% yoy increase in sales

to 833 MUs, although realizations declined 28.6% yoy to Rs5.8/unit in 4QFY21. PLF for

the plant remained low at 70% in 4QFY21. In FY2021, Haldia reported 13.6% yoy

increase in PAT to Rs3.6 bn.

Distribution circles in Rajasthan reported losses of Rs40 mn as against profit of Rs210 mn

reported in 3QFY21. Rajasthan distribution circle achieved reduction in losses during the

year despite lower sales at 1765 MU in FY`21 as compared to 1952 MU in FY`20. Bikaner

and Bharatpur continued to remain profitable while Kota was able to reduce losses

during the year.

Malegaon, where CESC won distribution franchise license for a period of 20 years

starting from March 1, 2020, reported loss of Rs230 mn in FY2021.

CESC declared stock-split in the ratio 1:10.

(% chg.)

4QFY21 4QFY21E 4QFY20 3QFY21 yoy qoq 2021 2020 (% chg.) 2022E

Net sales 29,900 28,920 27,450 26,960 8.9 10.9 120,630 116,772 3.3 133,258

Operating costs

Cost of electrical energy purchased (5,900) (5,100) (4,780) (5,020) (27,780) (22,636) (33,692)

Cost of fuel (7,790) (8 ,504) (7,390) (7,160) (31,300) (34,487) (35,299)

Personnel costs (2,340) (2,593) (2,920) (2,440) (10,740) (10,830) (11,814)

Other expenses and provisions (4,470) (3,341) (2,990) (3,470) (14,710) (13,464) (13,436)

Total operating expense (20,500) (19,538) (18,080) (18,090) (84,530) (81,417) (94,241)

EBITDA 9,400 9,382 9,370 8,870 0.3 6.0 36,100 35,355 2.1 39,017

EBITDA margin (%) 31.4 32.4 34.1 32.9 29.9 30.3 29.3

Depreciation (2,180) (2,057) (2,050) (2,030) (8 ,670) (7,814) (8 ,936)

EBIT 7,220 7,325 7,320 6,840 (1.4) 5.6 27,430 27,541 (0.4) 30,080

Other income 1,130 478 1,010 420 2,350 2,025 3,085

Interest (2,900) (3,085) (3,600) (3,040) (12,260) (13,574) (13,418)

PBT 5,450 4,718 4,730 4,220 15.2 29.1 17,520 15,993 9.5 19,748

Tax (1,160) (1,274) (360) (1,060) (3,890) (3,627) (5,376)

Net profit 4,290 3,445 4,370 3,160 (1.8) 35.8 13,630 12,366 10.2 14,372

Profit from associates / minority interest (60) 328 20 80 (320) 693 820

Net profit 4,230 3,772 4,390 3,240 (3.6) 30.6 13,310 13,059 1.9 15,192

Extraordinary income/ (expenses) — — — — — — —

EPS (Rs/share) 32 26 33 24 100 99 115

CESC Electric Utilities


Exhibit 2: Higher other income of Rs1 bn led to PAT of Rs2.7 bn (+8% yoy) for standalone operations in 4QFY21 Quarterly results for CESC (Standalone), March fiscal year-ends (Rs mn)


Exhibit 3: Dhariwal operated at a higher PLF of 85.2% in 4QFY21 in comparison to 77.5% in 4QFY20 Gross generation (MUs) and PLF of key plants of CESC, March fiscal year-ends, 2020 – 22


(% chg.)

4QFY21 4QFY21E 4QFY20 3QFY21 KIE yoy qoq 2021 2020 (% chg.) 2022E

Net sales 18,050 19,293 18,800 17,730 (6.4) (4.0) 1.8 73,780 83,680 (11.8) 91,945

Operating costs

Cost of electrical energy purchased (5,920) (6,478) (5,630) (6,710) (8 .6) 5.2 (11.8) (26,490) (29,660) (35,128)

Cost of fuel (3,410) (3,096) (3,360) (2,610) 10.1 1.5 30.7 (13,170) (15,510) (16,656)

Personnel costs (1,940) (2,280) (2,620) (2,120) (14.9) (26.0) (8.5) (9,000) (9,690) (10,317)

Other expenses and provisions (2,510) (2,256) (1,710) (2,160) 11.3 46.8 16.2 (8 ,800) (9,170) (9,940)

Total operating expense (13,780) (14,110) (13,320) (13,600) (2.3) 3.5 1.3 (57,460) (64,030) (72,041)

EBITDA 4,270 5,183 5,480 4,130 (17.6) (22.1) 3.4 16,320 19,650 (16.9) 19,904

EBITDA margin (%) 23.7 26.9 29.1 23.3 22.1 23.5 21.6

Depreciation (1,170) (1,228) (1,210) (1,160) (4,630) (4,480) (4,896)

EBIT 3,100 3,955 4,270 2,970 (21.6) (27.4) 4.4 11,690 15,170 (22.9) 15,008

Other income 1,040 451 490 280 1,800 1,460 1,225

Interest (1,280) (1,215) (1,700) (1,170) 5.4 (24.7) 9.4 (5,020) (5,440) (4,880)

PBT 2,860 3,192 3,060 2,080 (10.4) (6.5) 37.5 8,470 11,190 (24.3) 11,352

Tax (160) (675) (560) (260) (76.3) (71.4) (38.5) (330) (2,010) (2,129)

Net profit 2,700 2,516 2,500 1,820 7.3 8.0 48.4 8,140 9,180 (11.3) 9,223

Extraordinary income/ (expenses) — — — — — — —

EPS (Rs/share) 20 19 19 14 61 69 70

Key operating parameters

Units sold (MU) 2,229 2,249 2,107 2,157 (0.9) 5.8 3.3 8,930 9,991 (10.6) 11,931

Units generated - gross (MU) 1,435 1,347 1,483 1,209 6.5 (3.2) 18.7 5,525 6,137 (10.0) 6,825

Units purchased (MU) 1,052 1,195 934 1,267 (12.0) 12.6 (17.0) 4,875 5,631 (13.4) 6,919

Overall PLF (%) 70 — 72 59 50 56 62

Tax rate (%) 6 21 18 13 4 18 19

Tariff (Rs/kwh) 8.10 8 .58 8 .92 8 .22 (5.6) (9.2) (1.5) 8.26 8 .38 (1.4) 7.71

Fuel cost(Rs/kwh) 2.38 2.30 2.27 2.16 3.4 4.9 10.1 2.38 2.53 (5.7) 2.44

Power purchased (Rs/kwh) 5.63 5.42 6.03 5.30 3.8 (6.6) 6.3 5.43 5.27 3.2 5.08

(% chg.)

4QFY21 4QFY20 3QFY21 yoy qoq 2021 2020 (% chg.) 2022E

Haldia

Revenue (Rs mn) 4,810 6,485 5,710 (25.8) (15.8) 21,920 24,195 (9.4) 23,105

PAT (Rs mn) 760 677 900 12.2 (15.6) 3,610 3,177 13.6 4,140

Sales (MU) 833 802 1,022 3.9 (18.5) 3,895 4,085 (4.7) 4,040

Tariff (Rs/kwh) 5.8 8 .1 5.6 (28.6) 3.4 5.5 5.8 (5.2) 5.6

Dhariwal (Chandrapur)

Revenue (Rs mn) 4,190 3,829 3,790 9.4 10.6 15,040 13,199 13.9 16,788

PAT (Rs mn) 310 543 280 (42.9) 10.7 1,060 (97) NA 2,553

Sales (MU) 1,023 934 1,004 9.5 1.9 3,880 3,102 25.1 3,861

Tariff (Rs/kwh) 4.1 4.1 3.8 (0.1) 8.5 3.9 4.2 (8 .3) 4.3

Crescent

Revenue (Rs mn) 590 (389) 630 (251.9) (6.3) 2,540 1,421 78.7 2,904

PAT (Rs mn) (30) 98 60 (130.6) (150.0) 220 118 86.2 563

Noida

Revenue (Rs mn) 4,560 3,550 4,140 28.5 10.1 17,200 17,090 0.6 19,494

PAT (Rs mn) 310 189 230 63.8 34.8 1,010 1,399 (27.8) 1,469

Kota/Bharatpur /Bikaner

Revenue (Rs mn) 3,210 3,980 3,330 (19.3) (3.6) 14,480 16,310 (11.2) 17,023

PAT (Rs mn) (40) (90) 210 (55.6) (119) (344) (380) (9.6) (181)

Electric Utilities CESC


Exhibit 4: Haldia operated at lower PLF of 70% in 4QFY21 Gross generation (MUs) and PLF of key plants of CESC, March fiscal year-ends, 2018–21


Exhibit 5: Our fair value estimate for CESC is Rs840/share on March 2023E Sum-of-the-parts valuation for CESC


Exhibit 6: Change in estimates for CESC, March fiscal year-ends, 2022 - 24E (Rs mn)

Source: Kotak Institutional Equities estimates


Generation (MUs)

Haldia 1,206 1,273 1,169 958 1,151 1,248 1,158 873 1,007 1,209 1,107 902

Chandrapur 1,021 645 965 561 927 551 887 1,013 991 1,028 731 1,105

PLF (%)

Haldia 92.0 96.1 88.2 74.0 87.8 94.2 87.4 66.9 76.9 91.3 83.5 69.6

Chandrapur 77.9 48.7 72.8 43.0 70.9 41.6 66.8 77.5 75.6 77.6 83.5 85.2

Value

Methodology (Rs bn) (Rs/share)

Standalone DCF-to-equity Business enjoys very high predictability of cash flows and profitability (>20% RoE) 72 542

Cash Book value Marketable securities & cash on books 10 72

Chandrapur DCF-to-equity 287 MW tied-up so far with Tamil Nadu and Noida Power 12 93

Haldia DCF-to-equity 600 MW sold to Kolkatta distribution business 16 123

Crescent Power DCF-to-equity 40 MW capacity based on coal rejects available for merchant sale 1 9

Total 111 840

Revised estimates Old estimates Change (%)

2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E

Revenue 133,258 138,847 145,260 132,414 138,029 144,469 0.6 0.6 0.5

EBITDA 39,017 39,220 39,997 37,774 37,986 38,773 3.3 3.2 3.2

Net profit 15,192 16,639 19,251 14,079 15,553 18,127 7.9 7.0 6.2

CESC Electric Utilities


Exhibit7: Profit model, balance sheet and cash model of CESC, March fiscal year-ends, 2019 - 24E (Rs mn)


2019 2020 2021 2022E 2023E 2024E

Profit model (Rs mn)

Net sales 112,340 116,772 120,630 133,258 138,847 145,260

EBITDA 33,870 35,355 36,100 39,017 39,220 39,997

Other income 2,040 2,025 2,350 3,085 3,864 4,794

Interest (13,250) (13,574) (12,260) (13,418) (12,691) (11,940)

Depreciation (7,640) (7,814) (8,670) (8,936) (9,145) (9,353)

Pretax profits 15,020 15,993 17,520 19,748 21,248 23,498

Minority interest 690 693 (320) 820 852 849

Tax (3,730) (3,627) (3,890) (5,376) (5,461) (5,097)

Net profits 11,980 13,059 13,310 15,192 16,639 19,251

Extraordinary items — — — — — —

Earnings per share (Rs) 90.4 98.5 100.4 114.6 125.5 145.2

Balance sheet (Rs mn)

Total equity 89,742 96,270 98,730 112,077 126,540 143,491

Total borrowings 126,120 121,810 124,650 118,300 111,743 104,977

Consumer security deposits 14,850 16,280 19,980 17,833 18,792 19,583

Advance against depreciation (23,200) (29,850) (36,200) (34,071) (35,811) (37,552)

Deferred tax liability 39,950 40,950 41,590 41,590 41,581 41,570

Minority interest 820 860 3,970 3,150 2,299 1,450

Total liabilities and equity 248,282 246,320 252,720 258,880 265,144 273,519

Cash 10,310 17,910 18,580 24,320 34,675 46,840

Net current assets (11,988) (15,776) (12,260) (14,139) (15,150) (15,651)

Total fixed assets 238,100 237,333 243,310 245,609 242,529 239,240

Investments 11,860 6,853 3,090 3,090 3,090 3,090

Deferred Expenditure — — — — — —

Total assets 248,282 246,320 252,720 258,880 265,144 273,519

Free cash flow (Rs mn)

Operating cash flow, excl. working capital 19,040 20,874 23,470 23,308 24,923 27,744

Working capital 2,313 3,789 (3,516) 1,879 1,011 501

Capital expenditure (7,234) (9,441) (14,647) (11,236) (6,064) (6,064)

Investments (123) 5,007 3,763 — — —

Free cash flow 13,996 20,229 9,070 13,952 19,870 22,180



Occupancy improves in 4QFY21 even as room rates languish; 1QFY22 could be another story

Lemon Tree’s 4QFY21 results were in line with our expectations with the company posting 42%

sequential improvement in EBITDA to Rs285 mn (-55% yoy) (KIE: 298 mn). Lemon Tree

maintained tight control over costs, a 38% qoq increase in costs to Rs666 mn (-55% yoy) was

in sync with 39% qoq increase in revenues to Rs951 mn (-46% yoy) leading to an EBITDA

margin of 30%. Interest costs showed modest decline of 6% qoq to Rs445 mn, while deferred

tax credit of Rs142 mn yielded a reported loss of Rs247 mn against our estimate of Rs325 mn.

Operational inventory (owned/leased) increased to 93.4% in 4QFY21 from 91.2% in 3QFY21

with easing of lockdown across various states. Occupancy in operational hotels was 59.9%

(46.5% in 3QFY21) while overall occupancy for the portfolio improved to 59% (42.4% in

3QFY21) with demand from wedding, staycations and social events. Decline in ARRs to

Rs2,498/day in 4QFY21 (Rs2,528/day in 3QFY21 and Rs2,654/day in 2QFY21) remains an area

of concern.

Maintain REDUCE rating with revised Fair Value of Rs38/share

Exit occupancy of 59% for March 2021 reflects LTH’s ability to bounce-back once normalcy

returns. The second wave of Covid-19 from April 2021 will likely mean another subdued

quarter in 1QFY22. Lemon Tree’s performance in the year has been impressive taking

cognizance of the challenges in front of the hotel industry. However, the impact on ARRs will

likely take time to reverse till normal business travel resumes. In the absence of a visible

improvement in room rates (we factor pre-Covid levels back in FY2023E) stock performance will

likely remain in check. Accordingly, we maintain REDUCE with a revised FV of Rs38/share (from

Rs39/share).

We have revised our EBITDA for FY2022E/2023E downwards by 14%/4% to factor continued

weakness in ARR as we factor lowered occupancy of 54% in FY2022E (from 67% previously)

and ARR of Rs3,284/day (from Rs3,402/day previously). Our revised estimates also factor some

of the aggressive cost-containment measures adopted in FY2021 to continue in FY2022E.

shttps://ultraviewer.et/en/ownload.html

Lemon Tree Hotels (LEMONTRE) Hotels & Restaurants

Wait and watch. Lemon Tree did well to aggressively (1) cut operating cost down 56%

yoy in FY2021, (2) infuse additional capital in the company to address liquidity concerns,

and (3) work on aggressively improving occupancy (exit occupancy of 59% in March

2021 from 29% in 1QFY21) by attracting non-traditional demand in an otherwise

challenging year. However, the path from hereon (partially disrupted by the second

wave) will be to patiently wait for resumption of business travel that will allow for a

revival of ARR (-41% yoy). Maintain REDCUE with revised FV of Rs38/share (from

Rs39/share).

Lemon Tree Hotels


CMP(Rs)/FV(Rs)/Rating 42/38/REDUCE EPS (Rs) (1.6) (0.5) 0.6

52-week range (Rs) (high-low) 50-23 EPS growth (%) (1,232.5) 70.9 225.8

Mcap (bn) (Rs/US$) 34/0.5 P/E (X) (26.1) (89.6) 71.2

ADTV-3M (mn) (Rs/US$) 111/2 P/B (X) 3.6 3.6 3.5


Promoters 25.9 RoE (%) (14.6) (4.0) 4.9

FPIs/MFs/BFIs 22.8/15.3/0.0 Div. yield (%) 0.0 (1.2) 0.3



Rel. to BSE-30 2.3 2.5 (6.4) Net profits (Rs bn) (1) 0) 0

REDUCE

JUNE 17, 2021

RESULT


CMP (`): 42

Fair Value (`): 38

BSE-30: 52,502

Murtuza Arsiwalla

Samrat Verma

Lemon Tree Hotels Hotels & Restaurants


Exhibit 1: Occupancy improved sharply to 59% in 4QFY21; though absence of increase in ARRs delayed earnings recovery Quarterly results for Lemon Tree Hotels (Consolidated), March fiscal year-ends, 2020 - 2022E (Rs mn)


Cash loss at Rs790 mn in FY2021 despite being severely hit by pandemic

For FY2021, Lemon Tree reported revenues of Rs2.5 bn (-67% yoy), EBITDA of Rs613 mn (-

74% yoy) and loss of Rs1.3 bn (loss of Rs95 mn in FY2020) with EBTIDA margins declining

to 24.3% from 35.6% in FY2020. Cash loss (PAT + depreciation) for the company was

limited to only Rs790 mn for the year despite hospitality sector being one of the worst

affected by the pandemic.

Decline in power and fuel cost to Rs327 mn (-47% yoy) was in line with drop in occupancy,

cost-optimization measures led to higher decline in employee expenses to Rs704 mn (-55%

yoy) and other overhead costs to Rs695 mn (-56% yoy), paving way for margin expansion

with normalization of operations.

On the operational front, occupancy for the total portfolio declined to 41% (from 70% in

FY2020) along with a 41% yoy drop in ARRs to Rs2,577/day leading to RevPAR of

Rs1,050/day (-66% yoy).

We highlight that gross debt for the company is at Rs16.8 bn (as of March 2021) which

after adjusting for cash equivalents of Rs1.4 bn, led to only 0.5% yoy increase in net debt

for the company at Rs15.4 bn. Additionally, LTH has lowered its cost of borrowing by 132

bps yoy to 8.28% (as of March 2021).

Existing cash balance of Rs1.4 bn gives headroom to survive without dilution

On liquidity front, the management expressed confidence in tiding over the situation for the

next six quarters, through use of existing cash balance (Rs1.4 bn) to meet its debt

obligations and operating expenses. Of outstanding debt of Rs16.8 bn (as of March 2021),

debt repayment of Rs1.5 bn is due in FY2022. Deployment of capital for construction of

MIAL (669 keys) will be largely through internal accruals and restricted to Rs50 mn per

month in CY2022.

Change (%)

4QFY21 4QFY21E 4QFY20 3QFY21 KIE yoy qoq 2021 2020 (% chg) 2022E

Net sales 951 933 1,761 684 2 (46) 39 2,517 6,694 (62) 4,836

F&B (69) (82) (146) (54) (15) (53) 30 (178) (570) (69) (547)

Employee costs (226) (175) (429) (158) 29 (47) 43 (704) (1,553) (55) (974)

Power and fuel costs (102) (124) (145) (87) (17) (30) 17 (327) (613) (47) (783)

Other expenses (268) (255) (402) (184) 5 (33) 46 (695) (1,575) (56) (1,243)

Total expenses (666) (635) (1,122) (483) 5 (41) 38 (1,905) (4,311) (56) (3,546)

EBITDA 285 298 639 201 (4) (55) 42 613 2,383 (74) 1,290

EBITDA (%) 30.0 31.9 36.3 29.4 (6.3) 0.6 24.3 35.6 26.7

Other income 33 99 4 44 133 58 56

Depreciation (261) (278) (277) (273) (1,076) (872) (1,077)

EBIT 57 118 366 (29) (330) 1,570 268

Interest (445) (491) (487) (475) (1,817) (1,565) (1,834)

PBT (388) (373) (121) (504) 4 220 (23) (2,147) 5 (1,566)

Tax 142 48 (56) 48 322 (109) 122

PAT (247) (325) (177) (457) (24) 39 (46) (1,826) (104) 1,658 (1,444)

Extraordinaries — — — — — — —

Share of profit from Associates (21) (11) (13) (0) (40) (27) 20

Non-controlling interest 99 120 11 145 595 35 1,054

Adjusted PAT (168) (216) (179) (312) (22) (6) (46) (1,271) (95) 1,233 (370)

Operational details (Owned + Leased)

Keys (#) 5,192 5,192 5,192 5,192 — — — 5,192 5,192 — 5,192

ADR (Rs/day) 2,498 2,869 4,530 2,528 (13) (45) (1) 2,577 4,347 (41) 3,284

Occupancy (%) 59 51 61 42 17 (3) 40 41 76 (47) 54

RevPAR (Rs/day) 1,481 1,456 2,763 1,072 2 (46) 38 1,052 3,056 (66) 1,788

Hotels & Restaurants Lemon Tree Hotels


Other highlights from the results

Change in business mix. In 4QFY21, occupancy increased to 59% as retail demand

primarily for weddings, staycations and social events. However, with overall industry

occupancy continuing to remain low at (40-45% in 4QFY21), pressure on ARR remained

leading to 1% qoq decline to Rs2,498/day.

With the onset of the second wave of COVID-19 in 1QFY22, Lemon Tree has also

converted six of its hotels to quarantine facilities, thereby, depressing ARRs in 1QFY22.

Management highlighted that operational performance in 1HFY22 will be similar to

1HFY21 as demand from large corporates (20% of pre-COVID demand) remains largely

absent due to restricted business travel even as SME/MSME segment has started to pick-

up.

Tiding over liquidity crisis. With majority of debt repayments for LTH due only over the

next 7-8 years, management appeared confident of meeting its debt obligations of Rs1.5

bn in FY2022 through internal accruals and cash balance of Rs1.4 bn. Lemon Tree has

additional option of raising Rs1.25 bn from APG besides an option to borrow up to Rs3.5

bn under the recently approved ECLGS scheme for hospitality sector. We highlight LTH

infused Rs1.75 bn of capital from APG at the onset of the pandemic.

Structural shift in demand. LTH estimates that change in work practices with adoption

of new meeting formats could lead to structural demand loss of 6%. However, with the

current crisis being faced by hotels across the country, the future supply of branded

hotels is expected to be impaired by up to 15% which is likely to push occupancy across

operational inventory with pick-up in corporate demand. Pricing, a function of

occupancy, is expected to follow an upward trend thereafter.

Cost optimization. Focusing on cost optimization, Lemon Tree has tried to contain its

fixed cost. Lemon Tree has currently reduced the number of employees (on account of

natural attrition) and will not replace them until normalcy of demand returns. The

company endeavors to bring down its staff/room ratio to 0.75X. In FY2021, its biggest

cost item— employee expenses have decline by 55% yoy down to Rs704 mn. While F&B

and power & fuel expenses still continue to remain a function of portfolio occupancy,

other expenses too have come off by 56% yoy to Rs695 mn reflecting cost rationalization

measures taken up by the company.

As per management, many of the cost optimization strategies are permanent in nature

and could lead to 5-6% expansion in EBITDA margin on a sustainable basis. LTH

estimates permanent cost reduction of Rs400 mn.

Geographical performance. Lemon Tree’s performance in Delhi improved in 4QFY21 as

both occupancy and ARRs increased sequentially by 1,915 bps and 2.9% qoq,

respectively. Gurgaon on the other hand reported 2,163 bps increase in occupancy to

51.33% though ARRs declined 8.7% qoq to Rs2,091/day.

Hyderabad, which traditionally has been a stronger market for the company, witnessed a

4.7% qoq increase in ARR to Rs2,228/day though improvement in occupancy to 57%

(+1,175 bps qoq) led to EBITDA margin of 35.8% (from 36.7% in 3QFY21). Performance

in Bengaluru market remained subdued as the company saw 29% qoq decline in ARR to

Rs1,567/day even as occupancy improved 2,501 bps to 49.2% leading to 422 bps qoq de

decline in EBITDA margin to 14%.

Lemon Tree expects to spend Rs50 mn/month for construction at MIAL with its date of

commissioning pushed further to end CY2023. Total estimated cost for two upcoming

hotels is at Rs10 bn of which Rs3.7 bn has been incurred till March 2021.



During the quarter, LTH added 125 keys under management contract. Additionally, the

company also signed a license agreement for its hotel in Nepal under management

contract.

Exhibit 2: Lemon Tree has demonstrated constantly improving operational efficiency over the course of the pandemic Monthly earnings computation for Lemon Tree, March fiscal year-ends, 2018-21 (Rs mn)


Exhibit 3: Same hotels saw an improvement in occupancy to 61% in 4QFY21 resulting in 43% qoq increase in EBITDA Break up of financials across same hotels, new hotels and Keys portfolio for Lemon Tree Hotels, March fiscal year-ends (Rs mn, %)


Annual Monthly

2018 2019 2020 2021 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

Keys (#) 3,277 3,570 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192 5,192

RNA (mn) 1.16 1.23 1.61 1.85 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16

RNS (mn) 0.88 0.94 1.13 0.76 0.03 0.05 0.05 0.05 0.05 0.05 0.06 0.07 0.08 0.08 0.10 0.09

Occupancy (%) 76 76 70 41 22 30 35 33 31 33 35 42 50 52 60 56

ARR (Rs/day) 3,896 4,180 4,347 2,577 2,881 2,625 2,564 2,638 2,796 2,539 2,396 2,472 2,664 2,490 2,582 2,422

RevPAR (Rs/day) 2,955 3,190 3,056 1,050 619 782 887 873 858 845 848 1,028 1,340 1,297 1,544 1,354

CostPAR (Rs/day) 2,640 2,688 2,320 931 711 721 735 761 757 765 874 892 919 1,175 1,198 1,183

MarginsPAR (Rs/day) 315 502 736 119 (92) 61 152 112 101 80 (26) 137 421 122 346 171

Room Revenue 3,416 3,939 4,920 1,949 96 126 138 141 138 132 137 166 216 209 249 218

Food and beverage 853 932 1,081 374 12 15.21 17 17 17 16 21.49 26 34 33 39 34

Other services 1,891 1,317 694 194 1 (1) 3 2 3 14 16 25 38 54 36 58

Revenue 6,160 6,188 6,694 2,517 109 140 158 159 158 162 174 216 287 296 324 310

F&B (Rs mn) 436 498 570 178 6 8 9 11 11 11 14 17 22 21 25 22

F&B Margin (%) 51 53 53 48 53 53 53 62 63 66 66 66 66 65 65 65

Employee (Rs mn) 1,096 1,205 1,553 704 59 61 59 48 48 47 53 53 53 75 75 75

Employee (Rs/day) 948 976 963 380 377 377 377 300 300 300 327 327 327 468 468 468

Other expenses

Power and fuel 485 527 613 327 21 22 21 25 25 25 29 29 29 34 34 34

Power and fuel (Rs/day) 419 427 380 177 134 134 134 158 158 158 180 180 180 212 212 212

Lease rent 306 292 80 80 6 6 6 6 6 6 6 6 6 6 6 6

Lease rent (Rs/day) 265 237 49 43 40 40 40 40 40 40 40 40 40 40 40 40

Guest transportation 111 106 128 85 4 5 6 6 6 6 6 8 9 9 11 10

Transportation (Rs/day sold) 126 113 113 113 113 113 113 113 113 113 113 113 113 113 113 113

Advertisement and business promotion 21 21 23 8 — — — — — — — — — — — —

Commission -other than sole selling agent 135 224 280 111 5 7 8 8 8 8 8 9 12 12 14 12

Repairs 180 223 241 100 — — — — — — — — — — — —

Other expenses 711 710 812 300 15 14.73 14.73 28 28 28 38.46 38 38 52 52 52

Auditor 8 11 11 11 1 — — — — — — — — — — —

Expenses 3,488 3,818 4,311 1,905 117 124 123 133 132 130 155 161 170 211 218 213

EBITDA 2,671 2,371 2,383 613 (8) 16 35 26 25 32 19 55 117 85 106 98

Total without Keys hotel Keys hotel Total

4QFY20 4QFY21 Change (%) 4QFY20 4QFY21 Change (%) 4QFY20 4QFY21 Change (%)

Inventory 4,256 4,256 — 936 936 — 5,192 5,192 —

ARR 4,856 2,745 (43) 2,751 1,209 (56) 4,530 2,498 (45)

Occupancy (%) 62.9 60.7 (3.5) 52.4 53.0 1.1 61.0 59.3 (2.8)

RevPAR 3,055 1,666 (45) 1,441 640 (56) 2,764 1,481 (46)

Net sales 1,587 868 (45) 175 83 (53) 1,761 951 (46)

Expenses 967 591 (39) 155 75 (52) 1,122 666 (41)

EBITDA 620 277 (55) 20 8 (60) 639 285 (55)

EBITDA margin (%) 39.1 31.9 (18.3) 11.4 9.6 (15.7) 36.3 30.0 (17.4)

PBT (79) (365) NA (56) (44) NA (135) (409) NA



Exhibit 4: Commissioning of Aurika Mumbai has been pushed back to CY2023 Upcoming hotels pipeline for Lemon Tree Hotels, March fiscal year-ends, 1QFY20 - 4QFY21


Exhibit 5: Hotels under management contracts continue to experience delays due to involvement of third party owners Upcoming management contract pipeline for Lemon Tree Hotels, March fiscal year-ends, 1QFY20 - 4QFY21


Exhibit 6: Stabilization of hotels over the next few years is likely to result in margin expansion Key assumptions for Lemon Tree Hotels, March fiscal year-ends, 2017 - 2024E


Keys Ownership

City (#) (%) Commissioning timeline

Owned hotels 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21

Lemon Tree Mountain Resort Shimla 69 100.0 Apr-21 Apr-21 Apr-21 TBD TBD TBD TBD TBD

On licensed land

Aurika Mumbai 669 58.9 Nov-21 Nov-21 Nov-21 Dec-22 Dec-22 Dec-22 Dec-22 CY2023

Total 738

Keys

City (#) Tenure Est. opening

Managed rooms to be operational in FY2022 435 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21

Lemon Tree Premier Coorg 63 15 Mar-20 Mar-20 Aug-20 Nov-20 Mar-21 Apr-21 Mar-21 Jun-21

Keys Prima Dehradun 40 15 Sep-20 Dec-20 Feb-21 Mar-21 Mar-21 Aug-21

Red Fox hotel Neelkanth 80 12 Jan-20 Jun-20 Nov-20 Jan-21 Jan-21 Mar-21 Apr-21 Jul-21

Lemon Tree Hotel Mumbai 70 15 Jan-20 Mar-20 May-20 Sep-20 Jan-21 Mar-21 May-21 Oct-21

Lemon Tree Resort Mussoorie 40 12 Apr-20 May-20 Sep-20 Oct-20 May-21 May-21 Oct-21 Jan-22

Lemon Tree Hotel Sonamarg 40 10 Sep-20 Uncertain Mar-21 Mar-21 Uncertain Uncertain Nov-21 Nov-21

Lemon Tree Hotel Rishikesh 102 12 Nov-20 Nov-20 Mar-21 Mar-21 Oct-21 Dec-21 Jan-22 Jan-22

Managed rooms to be operational in FY2023 936

Serviced Suites Mansesar 260 10 Sep-20 Sep-20 Sep-20 Feb-21 Sep-21 Oct-21 Jan-22 Jun-22

Lemon Tree Hotel Bokaro 70 10 Sep-20 Sep-20 Sep-21 Sep-21 Sep-21 Oct-21 Jan-22 Aug-22

Lemon Tree Hotel Gulmarg 35 10 Apr-20 Uncertain Uncertain Uncertain Oct-21 Uncertain Aug-21 Aug-22

Lemon Tree Hotel Agra 62 10 Jan-22 Mar-22 Feb-22 Sep-22

Lemon Tree Hotel Trivandrum 100 10 Sep-21 Sep-21 Sep-21 Sep-21 Sep-21 Mar-22 Oct-22 Jan-23

Lemon Tree Hotel Darjeeling 55 15 Apr-22 Apr-22 Apr-22 Apr-22 Jan-23 Jan-23

Lemon Tree Hotel Kathmandu, Nepal 75 12 Apr-21 Apr-21 Sep-21 Sep-21 Sep-21 Dec-21 Sep-23 Sep-23

Lemon Tree Hotel Biratnagar, Nepal 80 Sep-23

Lemon Tree Hotel Nagarkot, Nepal 51 10 Mar-21 Sep-21 Dec-21 Sep-23 Sep-23

Lemon Tree Hotel Thimpu, Nepal 38 10 Oct-20 Oct-20 Oct-20 Mar-21 Oct-21 Dec-21 Oct-22 Oct-23

Lemon Tree Hotel Ludhiana 60 10 Dec-20 Uncertain Oct-21 Oct-21 Oct-21 Uncertain Uncertain Uncertain

Lemon Tree Premier Dindy 50 10 Sep-20 Jan-21 Uncertain Uncertain Uncertain Uncertain Uncertain Uncertain

Total 1,371

2017 2018 2019 2020 2021 2022E 2023E 2024E

Keys (#) (a) 2,855 3,277 3,570 5,192 5,192 5,192 5,838 5,838

Occupancy (%) 77 76 76 70 41 54 72 74

ARR (Rs/day) 3,449 3,896 4,180 4,347 2,577 3,284 4,060 4,934

RevPaR (Rs/day) 2,648 2,955 3,190 3,056 1,052 1,788 2,938 3,645

CostPAR (Rs/day) 2,536 2,634 2,680 2,320 931 1,619 1,948 2,088

MarginsPAR (Rs/day) 112 321 510 736 120 169 989 1,558

EBITDA margin (%) 28 28 31 36 24 27 44 51



Exhibit 7: Mumbai saw a sharp increase occupancy on sequential basis in 4QFY21 Region-wise classification of inventory for Lemon Tree hotels, March fiscal year-ends, 2020 – 2021


Exhibit 8: Change in estimates, March fiscal year-ends, 2022 – 2024E


Chg. (bps)

4QFY21 4QFY20 3QFY21 4QFY20 3QFY21

Occupancy (%)

Delhi 74.45 72.1 55.3 235 1,915

Gurugram 51.33 64.6 29.7 (1,327) 2,163

Hyderabad 56.95 64.3 45.2 (735) 1,175

Bengaluru 49.21 63.4 24.2 (1,419) 2,501

Mumbai 80.82 59.43 59.2 2,139 2,162

Hotel level EBITDAR margin (%)

Delhi 29.86 44.3 42.1 (1,444) (1,224)

Gurugram 20.29 40.5 22.6 (2,021) (231)

Hyderabad 35.76 52.6 36.7 (1,684) (94)

Bengaluru 13.68 37 17.9 (2,332) (422)

Mumbai 41.87 — 35.9 4,187 597

ADR (Rs) Chg. (%)

Delhi 2,382 5,169 2,314 (53.9) 2.9

Gurugram 2,091 4,537 2,290 (53.9) (8 .7)

Hyderabad 2,228 4,780 2,128 (53.4) 4.7

Bengaluru 1,567 4,504 2,202 (65.2) (28.8)

Mumbai 2,892 — 2,908 (0.6)

Hotel level EBITDAR/room (Rs mn)

Delhi 0.06 0.2 0.07 (70.0) (14.3)

Gurugram 0.03 0.15 0.02 (80.0) 50.0

Hyderabad 0.05 0.19 0.04 (73.7) 25.0

Bengaluru 0.01 0.13 0.01 (92.3) —

Mumbai 0.1 — 0.06 66.7

Revised estimate Old estimate Change (%)

2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E

Operational metrics

Keys (#) 5,192 5,838 5,838 5,202 5,848 5,848 (0) (0) (0)

Occupancy (%) 54.4 72.4 73.9 66.9 72.4 73.9 (19) 0 0

ARR (Rs/day) 3,284 4,060 4,934 3,402 4,521 5,483 (3) (10) (10)

RevPAR (Rs/day) 1,788 2,938 3,645 2,276 3,272 4,051 (21) (10) (10)

EBITDA Margin (%) 27 44 51 25 41 49

Earnings estimates (Consolidated) (Rs mn)

Revenues 4,836 8 ,312 11,206 6,122 9,247 12,430 (21) (10) (10)

EBITDA 1,290 3,658 5,693 1,507 3,800 6,075 (14) (4) (6)

PAT (370) 466 1,630 (344) 470 1,780 8 (1) (8)

EPS (0.5) 0.6 2.1 (0.4) 0.6 2.3 8 (1) (8)



Exhibit 9: Lemon Tree Hotels (Consolidated), Financial Summary, March fiscal year ends, FY2019 - 2024E


2019 2020 2021 2022E 2023E 2024E

Profit model

Net sales 5,495 6,694 2,517 4,836 8 ,312 11,206

EBITDA 1,688 2,383 613 1,290 3,658 5,693

Depreciation (541) (872) (1,076) (1,077) (1,374) (1,671)

EBIT 1,147 1,512 (463) 212 2,284 4,022

Interest (847) (1,565) (1,817) (1,834) (2,039) (1,762)

Other income 145 58 133 56 (1) 76

Pre-tax profits 445 5 (2,147) (1,566) 244 2,336

Tax 111 (109) 322 122 (179) (532)

Net income 556 (104) (1,826) (1,444) 65 1,804

Adjusted net income 529 (95) (1,271) (370) 466 1,630

Earnings per share (Rs) 0.7 (0.1) (1.6) (0.5) 0.6 2.1

Balance sheet

Total equity 8,750 8 ,230 9,176 9,280 9,620 10,911

Minority interests 4,322 7,218 6,174 5,120 4,739 4,914

Total borrowings 11,360 19,724 20,401 22,498 21,675 17,788

Deferred tax liability - (44) (367) 3 3 3

Current liabilities 3,287 2,456 2,397 4,564 5,140 5,236

Total liabilities and equity 27,718 37,584 37,782 41,466 41,178 38,853

Net fixed assets 16,038 30,172 30,987 28,422 32,370 30,699

CWIP 6,639 1,896 2,418 4,355 — —

Goodwill — 951 951 951 951 951

Current assets 4,693 4,425 3,371 7,599 7,717 7,062

Investments 349 140 55 140 140 140

Total assets 27,718 37,584 37,782 41,466 41,178 38,853

Free cash flow

Operating cash flow excl. working capital 1,097 768 (750) (367) 1,439 3,475

Working capital changes 951 (469) 1,999 (333) 288 670

Capital expenditure (3,042) (10,285) (925) (1,937) (968) 0

Free cash flow (994) (9,986) 324 (2,637) 760 4,145

Ratios (%)

Net debt/equity 1.3 2.3 2.1 2.1 1.9 1.4

RoE (%) 6.3 (1.1) (14.6) (4.0) 4.9 15.9

RoCE (%) 5.5 5.3 (0.9) 0.7 6.3 11.8



Sharp rise in stock price: downgrade to REDUCE, Fair Value Rs530

Turnaround plays require a margin of safety to take care of bumps along the way. Wipro,

trading at 23.4X FY2023E earnings, does not provide that margin of safety. Here’s the math,

for Wipro to generate 10% return (COE) from the current market price requires 13% EPS CAGR

over the next 10+ years. Assuming no margin expansion, this translates into 11% revenue

CAGR and ~2% depreciation of INR against USD. For reference, Wipro’s US$ revenue CAGR

over the past 5 and 10 years stands at 2.4% and 4.7%, respectively.

The Wipro story does not hold up well on a relative basis either. The stock trades at premium to

Infosys and only marginal discount to TCS. Here’s the catch—to trade at the same multiple as

the sector leaders, Wipro needs a far higher growth. Reason? Wipro’s sustainable RoIC will be

lower than these two companies; its RoIC of 27.7% in FY2021 compares poorly to TCS (64.6%)

and Infosys (41.7%). Wipro’s gaps in verticals and select competencies require acquisitions that

are inherently returns dilutive and feed into lower valuation multiple. The stock trades at 23.4X

FY2023E earnings; we value Wipro at 22X June 2023E earnings and bake in US$ revenue CAGR

of 9.5% over the next 10 years.

What can generate returns?—sustainably higher growth than peers

Wipro has outlined hopes of peer-matching growth on an organic basis by FY2023E and

exceeding them by FY2024E. Our estimates bake in organic revenue CAGR of 9.9% over the

next three years, higher than 1.7% over the past five years but 3/1.4% lower than Infosys/TCS.

Growth rates that match peers may yield marginal earnings upgrades and yet it will not lead to

meaningful stock price upsides. Upsides can accrue if Wipro hits better-than-peer growth rates

sustainably, a scenario that requires high win rate in large deals, success in large account and

better profile of customer to the existing clients and flawless execution of the new organization

design and people changes.


Wipro (WPRO) IT Services

Downgrade on steep run-up in stock price. We downgrade Wipro to REDUCE from

ADD following 29% increase in the stock price in the past three months. The stock now

trades at expensive 23.4X FY2023E EPS and implies consistent double-digit revenue

growth. Even such a scenario does not leave much on the table. The turnaround

journey has started off on the right note with smart organization changes, customer

centricity and deal wins—these are good beginnings in a long journey ahead.

Wipro


CMP(Rs)/FV(Rs)/Rating 555/530/REDUCE EPS (Rs) 19.1 20.5 23.7


Mcap (bn) (Rs/US$) 3,043/41.5 P/E (X) 29.1 27.0 23.4

ADTV-3M (mn) (Rs/US$) 6,475/88 P/B (X) 5.7 4.8 4.1


Promoters 73.0 RoE (%) 19.5 19.0 18.9




Rel. to BSE-30 3.4 24.1 67.3 Net profits (Rs bn) 108 113 130

REDUCE

JUNE 16, 2021

CHANGE IN RECO.


CMP (`): 555

Fair Value (`): 530

BSE-30: 52,502

Kawaljeet Saluja

Sathishkumar S

IT Services Wipro


Turnaround stories require safety in multiples

Turnaround themes can be fairly rewarding for investors since they allow scope for returns

from all three dimensions—(1) accelerated revenue growth, (2) potential margin surprises

and (3) P/E multiple normalization. Wipro fit that bill extremely well over the past 12 months

with resilient performance under Mr Delaporte’s leadership. He has energized the

organization through a customer-centric organization structure, leadership augmentation

and customer focus.

The turnaround plan has begun on the right note. However, turnaround plans are never

smooth or linear and have bumps along the way. Safety in multiples is of essence. The

current valuations do not afford that luxury. Wipro now trades at a premium to Infosys. An

argument made to justify valuations by a section of the Street is to look at EV/ EBITDA

multiples since Wipro has a high amortization charge resulting from acquisitions. Even by

that measure, Wipro only trades at discount of 13% to Infosys and discount of 23% to TCS.

Further, a simple EV/ EBITDA multiple analysis ignores the cost of acquisitions that has

dented return profile (RoIC) and yet it is a necessity as the company sets out to plug gaps in

the portfolio to execute the turnaround plan.

Wipro is executing well on the turnaround plan

Wipro is progressing well on its turnaround journey. A remodelled team is in place with a

blend of internal talent and external talent. Wipro has hired quite a few leaders for roles of

country/geo heads to complement the shift to a geography-based operating model. P&L

ownership, driving growth through account mining and large deals are key mandates for

new hires. New leaders have been hired in Europe, Brazil (part of LATAM in Americas 1) and

Japan.

Wipro has hired local leaders in these regions to leverage a better understanding of the

market and drive deeper client relationships. Europe in particular has been a key area of

focus. We note that the Europe CEO and country/region heads for three out of six sub-geos

in Europe are external hires. The company has cranked-up deal momentum with good large

and mega-deal wins. Growth from large clients is encouraging. A new customer-centric

organization has been rolled out effective January 2021.

Four steps to turn around—done well on two, work in progress on others

Turnarounds in IT services require creation of a virtuous cycle where confidence on growth

seeps into the organization, providing growth and retention for human resources, which

leads to lower attrition and motivated employees, which feed into customer satisfaction

scores and growth.

To get to this turnaround phase, a five-step process is required—

Identify the bottlenecks and remove them. The company has removed the

bottlenecks through a customer-centric new organization structure.

Make necessary leadership changes, if required. Be aggressive and have a new team

in place in the first 6-9 months. Senior positions have been filled up. Upgrade and

changes for global accounts executive (senior account captains) are in progress.

The best validation of any strategy is growth. Quick wins are necessary and serve

three purposes— (1) establish credentials of the CEO in a new organization, (2) ensure

easier buy-in from stakeholders about the efficacy of the change and (3) motivate the

existing team. The easiest place for quick wins is existing large clients. Large accounts

normally trust the company as a partner and are hence willing to provide opportunities to

grow as long as the vendor commits costs or differentiated outcome in return. Buy deals,

if required.

Wipro IT Services


Large deals. This is a necessity for growth. Organization struggles in large deals are not

due to competencies but due to silos and ineffective mechanism of cross-team

collaboration. Build a centralized group that can work with business heads in shaping

large deals. Hire external leadership, if required and enhance presence with deal advisory

groups.

Fill gaps in competencies. Struggling companies do end up with gaps in their portfolios.

Use acquisitions, if required. However, betting the farm for acquisitions carries high risks.

Wipro has made progress in the first two steps and on path to working up growth

momentum. Large deal momentum will take time. Momentum on growth from large

accounts needs close monitoring. Gaps in competencies and verticals will take some time to

fill.

Acquisition-led changes to revenue estimates

We incorporate revised guidance issued on April 30 in our earnings model. Wipro’s revenue

growth guidance of 2-4% earlier did not bake in Capco acquisition. Revised guidance bakes

in revenues for two months of the June quarter and stands at 8-10% in c/c. We now

forecast c/c revenue growth of 22% in FY2022 and organic c/c revenue growth of 11.8%.

Exhibit 1: Key changes to FY2022-24E estimates, March fiscal year ends


Exhibit 2: Relative market share of Wipro with Tier-1 peers, March fiscal year-ends, 2011-21


Rs mn 2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E

IT Services revenues (US$ mn) 9,996 11,047 12,037 9,779 10,815 11,692 2.2 2.1 2.9

Revenue growth (%) 22.8 10.5 9.0 20.2 10.6 8.1

IT services c/c revenue growth (%) 22.0 10.5 9.0 19.4 10.6 8.1

IT services organic c/c revenue growth (%) 11.8 9.6 9.0 11.2 8.5 8.1

Rupee/ US$ rate 75.0 77.0 78.0 75.0 77.0 78.0 (0.0) 0.0 —

EBITDA margin (%) 22.7 22.6 22.3 22.9 22.6 22.4

EBIT margin (%) 17.9 18.3 18.4 18.1 18.4 18.5

EPS (Rs/share) 20.5 23.7 26.3 20.4 23.4 25.8 0.8 1.4 1.9

New Old Change (%)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Revenues (US mn)

Wipro IT 5,221 5,920 6,218 6,618 7,081 7,347 7,734 8,060 8,242 8,373 8,257

TCS 8,186 10,170 11,569 13,441 15,454 16,543 17,575 19,089 20,913 22,031 22,174

Infosys 6,042 6,995 7,398 8,249 8,711 9,501 10,208 10,939 11,799 12,781 13,577

HCLT 3,545 4,152 4,686 5,360 5,953 6,236 6,975 7,838 8,632 9,936 10,175

US$ growth (%)

Wipro IT 18.9 13.4 5.0 6.4 7.0 3.7 5.3 4.2 2.2 1.6 (1.4)

TCS 29.1 24.2 13.8 16.2 15.0 7.0 6.2 8.6 9.6 5.3 0.6

Infosys 25.8 15.8 5.8 11.5 5.6 9.1 7.4 7.2 7.9 8.3 6.2

HCLT 23.6 31.1 17.1 12.9 14.4 7.1 12.4 12.4 10.1 15.1 2.4

Relative market share (%)

Wipro IT 22.7 21.7 20.8 19.7 19.0 18.5 18.2 17.6 16.6 15.8 15.2

TCS 35.6 37.3 38.7 39.9 41.5 41.7 41.4 41.6 42.2 41.5 40.9

Infosys 26.3 25.7 24.8 24.5 23.4 24.0 24.0 23.8 23.8 24.1 25.1

HCLT 15.4 15.2 15.7 15.9 16.0 15.7 16.4 17.1 17.4 18.7 18.8

Notes:

(a) Wipro revenues include ISRE

(b) HCLT has June fiscal year-end till 2015

IT Services Wipro


Exhibit 3: Wipro revenue trend (includes ISRE), March fiscal year-ends, 2011-21 (US$ mn)


Exhibit 4: Annual constant-currency revenue growth comparison of Wipro, TCS and Infosys, March fiscal year-ends, 2017-24E

Source: Companies, Kotak Institutional Equities estimates

Exhibit 5: Quarterly yoy c/c revenue growth trend for Wipro, Infosys and TCS, Dec 2015-Mar 2021 (%)

Source: Companies, Kotak Institutional Equities

5,221

5,920 6,218

6,618 7,081

7,347 7,734

8,060 8,242 8,373 8,257

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Revenues (US$ mn)

2017 2018 2019 2020 2021 2022E 2023E 2024E

Wipro IT 2.3 0.7 5.2 3.7 (3.2) 22.0 10.5 9.0

Infosys 8.0 5.8 8.5 8.4 4.1 16.4 12.4 10.1

TCS 8.3 7.2 11.4 7.1 (0.8) 15.1 10.0 9.0

Note:

(a) Wipro IT excludes ISRE from 2019 as per revised classification

(b) Wipro IT growth is adjusted for impact of divestments

Notes:

(a) Wipro reclassified IT services business in 2019

(b) Wipro revenue growth is adjusted for divestments

0.5

5.9

9.6

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

Dec

-15

Mar-

16

Jun-1

6

Sep-1

6

Dec

-16

Mar-

17

Jun-1

7

Sep-1

7

Dec

-17

Mar-

18

Jun-1

8

Sep-1

8

Dec

-18

Mar-

19

Jun-1

9

Sep-1

9

Dec

-19

Mar-

20

Jun-2

0

Sep-2

0

Dec

-20

Mar-

21

Wipro IT TCS Infosys

Wipro IT Services


Exhibit 6: Relative revenue of Wipro with Tier-1 peers in energy & utilities vertical, March fiscal year-ends, 2011-21


Exhibit 7: Relative revenue of Wipro with Tier-1 peers in communications vertical, March fiscal year-ends, 2011-21


2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

E&U revenues (US$ mn)

Wipro 496 781 933 1,059 1,147 1,073 1,009 1,040 1,049 1,065 1,066

TCS 344 407 428 511 634 678 773 954 1,103 NA NA

Infosys 369 413 385 421 436 456 500 613 755 856 854

Cumulative 1,208 1,601 1,745 1,990 2,216 2,207 2,283 2,607 2,906 1,921 1,920


Wipro 41.0 48.8 53.4 53.2 51.8 48.6 44.2 39.9 36.1

TCS 28.5 25.4 24.5 25.7 28.6 30.7 33.9 36.6 37.9

Infosys 30.5 25.8 22.0 21.1 19.7 20.7 21.9 23.5 26.0

Cumulative 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Notes:

(a) Definitions of verticals vary across companies

(b) Verticals reclassified for Infosys in FY2019; KIE estimates for 2019-2021 to align with previous classification

(c) Verticals reclassified for TCS in FY2018; KIE estimate for 2019 to align with previous classification; TCS stopped disclosing E&U vertical from 2020

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Telecom revenues (US$ mn)

Wipro 888 929 889 913 984 977 1,002 975 934 941 887

Tech Mahindra 1,126 1,156 1,206 1,527 1,916 2,097 2,079 2,065 2,050 2,157 2,028

Infosys 779 713 718 685 758 779 960 1,160 1,251 1,431 1,438

TCS 1,162 1,292 1,388 1,586 1,777 1,803 1,951 2,004 2,091 2,225 2,151

Cumulative 3,068 3,161 3,312 3,798 4,451 4,679 4,990 5,229 5,392 5,814 5,616


Wipro 28.9 29.4 26.8 24.0 22.1 20.9 20.1 18.7 17.3 16.2 15.8

Tech Mahindra 36.7 36.6 36.4 40.2 43.0 44.8 41.7 39.5 38.0 37.1 36.1

Infosys 25.4 22.6 21.7 18.0 17.0 16.6 19.2 22.2 23.2 24.6 25.6

TCS 37.9 40.9 41.9 41.8 39.9 38.5 39.1 38.3 38.8 38.3 38.3

Cumulative 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Notes:



(c) Verticals reclassified for TCS in FY2018; KIE estimates for 2019-2021 to align with previous classification

IT Services Wipro


Exhibit 8: Relative revenue of Wipro with Tier-1 peers in manufacturing & hi-tech verticals, March fiscal year-ends, 2011-21


Exhibit 9: RoIC profile of Tier-1 companies, March fiscal year-ends, 2012-21 (%)

Source: Companies, Kotak Institutional Equities

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Manufacturing & hitech revenues (US$ mn)

Wipro 1,070 1,137 1,188 1,231 1,289 1,367 1,734 1,830 1,778 1,726 1,717

Infosys 1,184 1,434 1,628 1,889 2,038 2,214 2,307 2,396 2,655 2,940 3,133

TCS 1,007 1,393 1,631 1,868 2,411 2,597 2,812 2,940 3,911 4,076 4,058

HCL Tech 972 1,203 1,495 1,765 1,954 1,992 2,337 2,798 3,142 3,587 3,592

Cumulative 4,233 5,166 5,941 6,754 7,692 8,170 9,189 9,963 11,485 12,328 12,499


Wipro 25.3 22.0 20.0 18.2 16.8 16.7 18.9 18.4 15.5 14.0 13.7

Infosys 28.0 27.8 27.4 28.0 26.5 27.1 25.1 24.0 23.1 23.8 25.1

TCS 23.8 27.0 27.5 27.7 31.3 31.8 30.6 29.5 34.0 33.1 32.5

HCL Tech 23.0 23.3 25.2 26.1 25.4 24.4 25.4 28.1 27.4 29.1 28.7

Cumulative 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Notes:



(c) Verticals reclassified for TCS in FY2018

(d) HCLT has June fiscal end till 2015; 9MFY16 annualized

Note

(a) RoIC is defined as EBIT (1-tax rate)/ average capital where Capital is defined as (Equity + lease liabilities + minority interest + net debt)

(b) HCLT has June fiscal till 2015; March fiscal from 2016

64.6

41.7

27.7 31.4

24.7

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

TCS Infosys HCL Wipro TechM

Wipro IT Services


Exhibit 10: Trends in historical 1-year forward PE multiple, Wipro, Infosys and TCS

Source: Bloomberg consensus estimates, Kotak Institutional Equities

Exhibit 11: Wipro 1-year forward PE multiple premium/(discount) to Infosys and TCS (%)

Source: Bloomberg consensus estimates, Kotak Institutional Equities

10.0

15.0

20.0

25.0

30.0

35.0

Jun-0

9

Dec

-09

Jun-1

0

Dec

-10

Jun-1

1

Dec

-11

Jun-1

2

Dec

-12

Jun-1

3

Dec

-13

Jun-1

4

Dec

-14

Jun-1

5

Dec

-15

Jun-1

6

Dec

-16

Jun-1

7

Dec

-17

Jun-1

8

Dec

-18

Jun-1

9

Dec

-19

Jun-2

0

Dec

-20

Jun-2

1

TCS Infosys Wipro

(60.0)

(50.0)

(40.0)

(30.0)

(20.0)

(10.0)

-

10.0

20.0

30.0

Jun-0

9

Dec

-09

Jun-1

0

Dec

-10

Jun-1

1

Dec

-11

Jun-1

2

Dec

-12

Jun-1

3

Dec

-13

Jun-1

4

Dec

-14

Jun-1

5

Dec

-15

Jun-1

6

Dec

-16

Jun-1

7

Dec

-17

Jun-1

8

Dec

-18

Jun-1

9

Dec

-19

Jun-2

0

Dec

-20

Jun-2

1

PE multiple premium/(discount) to TCS (%) PE multiple premium/(discount) to Infosys (%)

IT Services Wipro


Exhibit 12: Key external hires in senior leadership roles under new CEO

Source: Company, media reports, Kotak Institutional Equities

Exhibit 13: Large and mega deals signed by Wipro in past 12 months

Source: Company, media reports, Kotak Institutional Equities

Period Name Designation Previous Role

Jun-21 Anup Purohit CIO CIO, Yes Bank

Apr-21 Subha Tatavarti CTO Senior Director, Technology Commercialization, Walmart

Apr-21 Suzanne Dann SVP, head, Capital markets and insurance, NA Corporate VP, General Manager, Avanade

Apr-21 Sarah-Adam-Gedge MD and head, ANZ MD, Publicis Sapient

Mar-21 Philippe Dintrans Head, Domain & consulting, iDEAS Global consulting leader, BFS, Cognizant

Feb-21 Stephanie Trautman Chief Growth Officer MD, Global Strategic Account Lead, NE Leadership Team, Accenture

Feb-21 Pierre Bruno CEO, Europe VP & MD, South Europe, DXC

Feb-21 Graziella Neuvéglise Regional head, MD, Southern Europe VP, Manufacturing, France, CGI

Feb-21 Tomoaki Takeuchi MD, Head, Japan President, Cognizant Japan

Feb-21 René Mulder MD, Head, Switzerland MD, Chairman, DXC Technology Switzerland

Jan-21 Douglas Silva MD, Head, Brazil Sales Director, Brazil, AWS

Dec-20 Tony Buffomante SVP, Head, Cybersecurity & Risk services Principal, Head, US, Cyber Security Services, KPMG

Nov-20 Michael Seiger MD, Head, Germany and Austria Global head, Application management, Atos

Period Client Deal value Tenure Geography Description

Mega deals (>US$500 mn)

Feb-20 Estee Lauder Potential for US$1 bn NA US Integrated applications and infrastructure deal

Dec-20 Metro AG US$700 mn+ 5 years GermanyWipro will take over captive centers, acquire 1,300 staff and provide IT

and application services

Large deals (<US$500 mn)

Jun-21 Levi Strauss & Co. NA 4 USWipro will provide global IT support services across Levi Strauss & Co.'s

consumer digital technology space

Feb-20 Telefonica Germnay NA 5 years Germany Wipro will provide BSS and QA services for Telefonica's B2B segment

Dec-20 Verifone NA NA USWipro will develop engineering services - new features, capabilities &

interfaces for Verifone’s cloud services offerings

Nov-20 Thoughtspot NA 5 years US Wipro will deliver software engineering services

Oct-20 Fortum NA 5 years FinlandWipro will provide application management and service Integration &

management services

Sep-20 Marelli US$200 mn+ NA Japan+ItalyWipro will provide automotive engineering services expanding upon

existing partnership for IT services

Jul-20 Metro Bank NA NA UK

Wipro will deliver testing and environment management services. In

addition Wipro has been chosen as one of the preferred partners for

business-IT services

Jun-20 John Lewis NA NA UK Wipro will take over 244 staff and provide infrastructure services

Jun-20 E.ON NA NA Germany Wipro will provide digital infrastructure services

Wipro IT Services


Exhibit 14: Strong large deal TCV in 2HFY21 on the back of mega deal wins


Exhibit 15: Wipro has acquired quite a few companies in FY2021, including largest acquisition of Capco


Note: Deals with TCV > US$30 mn are classified as large by Wipro

1.2

1.4

1.1

1.15

1.2

1.25

1.3

1.35

1.4

1.45

Dec-20 Mar-21

Large deal TCV (US$ bn)

Date Target Country Business Description Consideration (mn) Sales (mn) Price/Sales

1 Apr-21 Ampion Australia Cybersecurity, DevOps & quality eng services US$117 US$85.5 1.4

2 Mar-21 Capco UK Global management and technology consultancy US$1450 US$720 2.0

3 Oct-20 Encore Theme India Finastra trade finance solutions' implementation INR 950 INR 545 1.7

4 Oct-20 Eximius Design US VLSI and systems design engineering services US$80 US$35 2.3

5 Jul-20 4C Belgium Salesforce services EUR 68 EUR 31.8 2.1

6 Jul-20 IVIA Brazil IT services provider in Brazil US$22.4 US$13.5 1.7

7 Feb-20 Rational Interaction USA CRM, digital marketing US$52 NA NA

8 Jun-19 International TechneGroup US Engineering services firm US$45 US$23.2 1.9

9 Dec-18 Syfte Australia Strategic design consultancy NA NA NA

10 Oct-17 Cooper Software Inc US Design and User Experience firm US$8.5 US$8 1.1

11 Jun-17 IBM IP deal US IP partnership US$90 US$30 3.0

12 Jan-17 InfoSERVER Brazil A specialized IT services provider for BFSI in Brazil US$8.7 US$11 0.8

13 Oct-16 Appirio US Cloud services provider US$500 US$196 2.6

14 Feb-16 HealthPlan Services US BPaaS provider US$460 US$223 2.1

15 Dec-15 celllent AG Germany IT services EUR 73.5 EUR 87.0 0.8

16 Jul-15 Designit Denmark Strategic design firm EUR 85.0 EUR 27.0 3.1

17 Mar-15 Drivestream Inc US Consulting in Oracle cloud services US$5 NA NA

18 Jan-14 Opus Capital Markets Consultants US Risk management solutions for mortgage industry US$75 EUR 43.0 1.7

19 Apr-12 Promax Applications Group Australia Trade promotion planning and optimization US$36.75 US$16.8 $2.2

20 Apr-11 SAIC US IT Services - Oil & Gas US$150 EUR 188.0 0.8

21 Dec-08 Citos US Infrastructure Management Services, ADM for BFSI US$127 US$80 $1.6

IT Services Wipro


Exhibit 16: Wipro IT services EBIT margin trend


Exhibit 17: Key assumptions, March fiscal year-ends, 2015-24E


Note

(a) IT services excludes India PSU and India govt. business from June-17 quarter

21

15

17

19

21

23

25

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19

Sep-

19

Dec

-19

Mar

-20

Jun-

20

Sep-

20

Dec

-20

Mar

-21

IT services adjusted EBIT margin (%)

2015 2016 2017 2018 2019 2020 2021 2022E 2023E 2024E

INR/USD rate 62.2 66.3 68.6 65.6 70.0 72.0 74.5 75.0 77.0 78.0

Revenues (US$ mn)

IT services revenues (US$ mn) 7,082 7,346 7,705 8,060 8,190 8,256 8,137 9,996 11,047 12,037

US$ growth (%) 7.0 3.7 4.9 4.6 3.8 2.5 (1.4) 22.8 10.5 9.0

C/c revenue growth (%) 8.7 7.6 7.0 2.9 5.4 3.9 (2.3) 21.2 10.5 9.0

C/c revenue growth (organic %) 7.3 6.4 2.3 0.7 5.2 3.7 (3.2) 11.0 9.6 9.0

IT services EBITDA margin (%) 24.9 23.5 21.8 19.8 20.5 21.4 24.8 22.7 22.6 22.3

IT services EBIT margin (%) 22.0 20.5 17.4 15.8 17.1 17.9 20.3 17.9 18.3 18.4

Note

(a) Growth is adjusted for impact of divestments

(b) Wipro reclassified IT services in 2019

Wipro IT Services


Exhibit 18: Key quarterly operating metrics


Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21

IT services revenues (US$ mn) 2,039 2,049 2,095 2,074 1,922 1,992 2,071 2,152

Digital revenues 37.4 39.6 39.8 41.2 NA NA NA NA

Global Business Lines Mix (%) - new

iDEAS 58.4 58.0 57.6 57.3 56.8

iCORE 41.6 42.0 42.4 42.7 43.2

Service line split of revenues (%) - old

Cloud and Infrastructure services 25.7 25.7 25.8 25.8 25.9 25.6 25.6

Data analytics and AI 7.4 7.3 7.2 7.2 7.2 7.0 6.9

Digital Operations and Platforms 14.7 14.7 15.3 14.6 14.8 15.5 15.9

Industrial & Engineering Services 7.6 7.5 7.5 7.7 7.7 7.4 7.2

Modern Application Services 44.6 44.8 44.2 44.7 44.4 44.5 44.4

Vertical split of revenues (%)

Communications 5.9 5.7 5.7 5.5 5.1 5.3 5.2 5.0

Consumer 15.6 16.0 16.9 16.8 15.9 16.2 16.4 17.0

Energy, Natural Resources & Utilities 12.8 12.9 12.9 12.8 13.2 12.9 13.1 13.2

Finance Solutions 31.6 31.3 30.9 30.4 30.7 31.2 30.5 30.5

Healthcare, Life Sciences & Services 13.2 13.0 13.1 13.5 13.5 13.7 13.9 13.0

Manufacturing 7.9 8.1 8.2 8.2 8.1 8.2 8.3 7.9

Technology 13.0 13.0 12.3 12.8 13.5 12.5 12.6 13.4

Strategic market units mix (%) - new

Americas 1 30.1 29.2 29.7 29.4 29.2

Americas 2 29.6 30.3 30.1 29.1 29.3

Europe 26.9 26.7 26.1 28.0 28.4

APMEA 13.4 13.8 14.1 13.5 13.1

Geographical split of revenues (%)- old

US 58.7 59.6 59.2 59.1 59.0 58.4 57.6

Europe 24.6 23.5 23.7 24.1 23.7 23.8 25.2

ROW 16.7 16.9 17.1 16.8 17.3 17.8 17.2

Client metrics

Customer size distribution (TTM)

Million dollar clients of which 564 569 572 574 577 573 567 566

> US$100 mn 13 13 14 15 13 11 10 11

>US$75 mn 23 23 22 22 22 24 24 27

>US$50 mn 41 41 41 40 39 39 38 40

>US$20 mn 92 92 96 96 97 100 97 93

>US$10 mn 166 165 169 166 163 166 168 167

>US$5 mn 259 261 260 260 258 257 260 257

>US$3 mn 340 341 344 341 348 342 341 349

>US$1 mn 564 569 572 574 577 573 567 566

Revenue from new customers

Repeat business (%) 99.4 98.4 97.6 97.0 99.7 98.6 97.4 96.4

New client additions 41 57 77 65 42 97 89 52

Total active customers 1,060 1,027 1,070 1,074 1,004 1,089 1,136 1,120

Customer concentration (%)

Top customer 3.7 3.2 3.0 3.0 3.2 3.2 3.1 3.1

Top 5 customers 13.8 12.8 12.3 12.2 12.3 12.0 11.9 12.2

Top 10 customers 20.7 19.8 19.2 19.3 20.3 19.6 18.9 19.5

Employees (IT services) 174,850 181,453 187,318 182,886 181,804 185,243 190,308 197,712

Sales and support (IT servuces) 14,116 14,990 15,232 14,908 14,567 14,806 14,838 15,368

Localization rate in US (%) 65.4 67.8 70.0 NA 69.8 71.9 NA NA

Utilization (%) (a)

Global IT Services Gross (b) 73.9 71.4 70.2 73.4 75.0 76.4 74.8 76.7

Global IT Services excl IFOX-Net 82.8 79.9 78.5 82.4 84.5 86.9 86.3 86.0

Attrition (%)

Global IT Services - Voluntary - Qtrly annualized 17.9 16.0 12.5 12.6 10.7 NA NA NA

IT services excluding DOP (ttm) 17.6 17.0 15.7 14.7 13.0 11.0 11.0 12.1

DOP (Post training quarterly) 10.0 9.9 9.6 10.8 10.1 6.1 7.0 7.4

Revenues by project type (%) - new (a)

Fixed price 63.5 61.8 60.4 62.7 63.0

Time and material 36.5 38.2 39.6 37.3 37.0

Revenues by project type (%)- old (a)

Fixed price 61.6 61.9 62.6 63.2 61.7 60.3 63.2 NA

Time and material 38.4 38.1 37.4 36.8 38.3 39.7 36.8 NA

Onsite-offshore revenue split (%)- new (a)

Onsite 50.2 50.0 48.1 46.1 45.5

Offshore 49.8 50.0 51.9 53.9 54.5

Onsite-offshore revenue split (%)- old (a)

Onsite 52.3 53.3 53.2 51.8 51.5 49.6 47.3 NA

Offshore 47.7 46.7 46.8 48.2 48.5 50.4 52.7 NA

Note:

(a) Excluding DOP, Designit, Cellent, Cooper, InfoServer, Topcoder, Rational, ITI, IVIA, 4C, Eximius & Encore

IT Services Wipro


Exhibit 19: Profit model, balance sheet, cash model of Wipro, March fiscal year-ends, 2016-24E (Rs mn)


2016 2017 2018 2019 2020 2021 2022E 2023E 2024E

Profit model

Revenues 516,307 558,261 546,359 590,607 614,545 622,344 766,490 867,534 955,923

Cost of revenues (including depreciation) (356,723) (391,434) (385,575) (412,853) (436,085) (423,205) (538,010) (602,730) (663,910)

Gross profit 159,584 166,827 160,784 177,754 178,460 199,139 228,480 264,804 292,014

SG&A expenses (including depreciation) (62,561) (72,950) (76,490) (80,641) (72,730) (76,085) (93,082) (107,981) (118,943)

EBIT 97,023 93,877 84,294 97,113 105,730 123,054 135,398 156,823 173,071

Other income 17,698 16,477 18,169 18,346 16,753 15,824 12,590 13,469 20,199

Pre-tax profits 114,721 110,354 102,463 115,459 122,483 138,878 147,987 170,292 193,270

Provision for tax (25,305) (25,213) (22,390) (25,242) (24,799) (30,345) (34,473) (39,306) (48,074)

PAT 89,416 85,141 80,073 90,217 97,684 108,533 113,514 130,986 145,196

Equity in earnings of affiliates, minority interest (net) (492) (248) 8 (185) (466) (586) (586) (586) (651)

PAT from continuing operations 88,924 84,893 80,081 90,032 97,218 107,947 112,928 130,400 144,545

EPS (Rs) 13.5 13.1 12.7 15.0 16.6 19.1 20.5 23.7 26.3

Balance Sheet

Shareholders funds 466,078 520,304 482,936 568,116 557,458 553,095 638,505 741,387 836,400

Borrowings 17,361 19,611 45,268 28,368 17,478 20,971 20,971 20,971 20,971

Minority interest 2,224 2,391 2,410 2,637 1,875 1,498 2,214 2,930 3,718

Other liabilities 20,697 21,667 22,731 19,700 23,858 25,830 25,830 25,830 25,830

Total liabilities 506,360 563,973 553,345 618,821 600,669 601,394 687,520 791,118 886,919

Net fixed assets 64,952 69,794 64,443 70,601 97,868 101,612 109,900 115,550 125,101

Goodwill & intangibles 117,832 141,718 135,697 130,742 147,374 152,212 249,931 239,096 228,983

Cash and bank balances 306,339 351,843 301,687 386,161 343,436 356,076 312,432 408,345 493,421

Net current assets excluding cash (14,402) (31,387) (17,913) (17,556) (24,627) (47,996) (29,468) (20,305) (12,287)

Other assets 31,639 32,005 69,431 48,873 36,618 39,490 44,725 48,433 51,700

Total assets 506,360 563,973 553,345 618,821 600,669 601,394 687,520 791,118 886,919

Cashflow statement

Operating profit before working capital changes 111,823 119,261 105,289 116,396 127,829 150,456 171,013 192,971 210,066

Tax paid (26,935) (25,476) (28,105) (25,149) (6,384) (24,915) (34,473) (39,306) (48,074)

Change in working capital/other adjustments (6,151) 4,541 (936) 27,165 (23,855) 22,922 (23,633) (12,741) (11,148)

Capital expenditure (13,172) (19,646) (20,699) (20,841) (22,227) (18,824) (30,881) (30,962) (36,434)

Acquisitions (39,373) (29,374) (6,816) 25,838 (2,544) (9,873—) (110,741) — —

Other income 17,086 9,843 14,956 15,728 19,603 16,293 12,590 13,469 20,199

Free cash flow 43,278 59,149 63,689 139,137 92,422 136,059 (16,126) 123,431 134,609

Margins and ratios

Consolidated gross profit margin (%) 30.9 29.9 29.4 30.1 29.0 32.0 29.8 30.5 30.5

Consolidated EBIT margin (%) 18.8 16.8 15.4 16.4 17.2 19.8 17.7 18.1 18.1

IT services EBIT margin (%) 20.5 17.4 15.8 17.1 17.9 20.3 17.9 18.3 18.4

RoAE (%) 20.3 17.2 16.0 17.1 17.3 19.4 19.0 18.9 18.3

RoACE (%) 17.3 14.7 13.1 14.4 15.0 17.3 17.4 17.5 16.5

Wipro IT Services


Exhibit 20: Kotak Institutional Equities: valuation summary of key Indian technology companies


16-Jun-21

Company Price (Rs) Rating (Rs m) (US$ m) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E

HCL Technologies 979 ADD 2,657,764 36,246 48.1 51.2 56.9 20.4 19.1 17.2 12.4 11.4 10.1 23.5 21.0 20.4

Infosys 1,481 BUY 6,309,035 86,041 45.5 52.4 60.9 32.5 28.3 24.3 21.7 19.0 16.3 27.3 27.4 28.3

L&T Infotech 4,210 REDUCE 735,662 10,033 110.0 126.9 149.3 38.3 33.2 28.2 25.7 23.4 20.1 30.5 27.7 27.1

L&T Technology Services 2,845 ADD 298,809 4,075 62.8 87.7 105.6 45.3 32.4 26.9 27.9 21.1 17.6 21.3 24.4 24.7

Mindtree 2,467 SELL 406,330 5,541 67.4 82.0 88.3 36.6 30.1 27.9 23.2 20.5 18.9 29.7 28.6 26.1

Mphasis 2,098 REDUCE 392,576 5,354 65.0 76.5 86.4 32.3 27.4 24.3 20.8 18.0 15.8 19.7 20.8 21.3

TCS 3,274 REDUCE 12,111,989 165,180 89.3 108.4 122.5 36.7 30.2 26.7 24.9 20.6 18.5 38.2 41.5 41.5

Tech Mahindra 1,069 BUY 931,256 12,700 50.9 61.1 68.0 21.0 17.5 15.7 12.0 10.5 9.2 19.2 20.4 20.3

Wipro 555 REDUCE 3,042,339 41,491 19.1 20.5 23.7 29.1 27.1 23.4 18.5 16.6 14.2 19.5 19.0 18.9

KIE universe 171,761,828 2,341,692 31.6 23.6 20.0 15.1 12.2 10.7 10.7 13.1 14.1

Target O/S shares EPS CAGR (%)

Company Price (Rs) (mn) 2021-23E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E

HCL Technologies 1,080 2,714 8 .8 17.8 6.6 11.0 130,401 139,022 154,303 200,885 213,251 230,395 753,786 855,018 947,588

Infosys 1,600 4,250 15.6 16.9 15.0 16.2 193,510 222,611 258,651 278,900 316,805 364,698 1,004,730 1,192,130 1,376,150

L&T Infotech 3,850 176 16.5 27.0 15.4 17.6 19,361 22,341 26,276 27,251 29,557 33,889 123,698 147,746 175,760

L&T Technology Services 2,800 106 29.7 (19.0) 39.5 20.5 6,632 9,255 11,152 10,074 13,155 15,483 54,497 64,305 76,126

Mindtree 1,620 165 14.5 75.8 21.7 7.6 11,104 13,514 14,546 16,567 18,474 19,629 79,678 93,753 105,654

Mphasis 1,650 187 15.2 2.4 17.7 12.9 12,167 14,316 16,157 18,028 20,638 23,097 97,223 112,281 126,497

TCS 3,250 3,699 17.1 3.7 21.3 13.0 333,921 400,801 453,084 465,501 559,117 620,202 1,641,770 1,927,608 2,177,370

Tech Mahindra 1,150 880 15.6 11.1 20.0 11.2 44,789 53,769 59,816 68,471 78,560 86,927 378,551 425,196 478,207

Wipro 530 5,504 11.5 14.7 7.7 15.5 108,201 112,928 130,400 150,710 171,013 192,971 622,344 766,490 867,534

KIE universe 33.3 34.1 18.0 5,429,391 7,283,140 8,596,101 9,341,900 11,445,282 12,779,339 57,760,756 67,430,379 74,767,525

EPS growth (%) Net Profit (Rs mn) EBITDA (Rs mn) Sales (Rs mn)

Mkt cap. EPS (Rs) P/E (X) EV/EBITDA (X) RoE (%)



Reiteration of strategic objectives with limited details on roadmap to achieve them

RIL’s FY2021 AR reiterates medium-to-long term strategic objectives for each business, albeit

with limited details on roadmap to achieve these—(1) de-carbonization (net zero by 2035),

transition from B2B to B2B2C and fuel to chemicals integration for O2C and New Energy and

New Materials business, (2) expanding presence in retail ecosystem through value-creating

partnerships with producers, brands and merchants and (3) leveraging technology to accelerate

digital transition for the next 300 mn mobile subscribers, 50 mn homes and 50 mn MSMBs.

Lower O2C and Jio capex offset by higher capex in others segment; large net debt in RPPMSL

Overall capex remained steady at Rs797 bn (US$10.7 bn), as a sharp decline in capex for O2C

to US$1.1 bn and Jio (ex-spectrum) to US$2.8 bn was offset by US$2 bn of spectrum advance

and allocation of US$2.9 bn to others and unallocable segment. Cash capex was higher at

Rs1.06 tn (US$14.3 bn) as RIL repaid capex creditors of US$4.1 bn. Effective net debt declined

to Rs594 bn (US$8.1 bn) including call money, while heavy lifting seems to be done by Reliance

Projects & Property Management Services Ltd (RPPMSL), wherein net debt increased by US$5.4

bn to US$8.2 bn. Proportion of FC debt remained at 51%, while borrowing cost declined to

6.4% remaining below other income yield of 7.1%. Jio’s operating costs increased sharply

despite lower accounting of fiber usage charges; retail operating costs remained curtailed.

Several transactions related to Jio and retail business routed through RPPMSL

We understand that several transactions related to Jio and retail business are routed through

RPPMSL, which operates as O&M and project execution contractor for fiber/tower entities and

also provides IT/ITES, manpower, project and property management services for the group.

RPPMSL reported revenues of Rs285 bn including Rs59.7 bn from group entities and remaining

Rs225 bn from fiber/tower entities. It reported a large increase in fixed assets, intangible assets,

inventories and debt and also acquired device rights of Rs152 bn from a group entity.

Fine tune estimates, already factoring in a robust recovery across segments

We revise our FY2022-23 consolidated EPS estimates by 1-2% factoring in (1) higher O2C

margins, (2) near-term headwinds for retail and Jio, (3) details from FY2021 AR and (4) other

minor changes. We rule out any meaningful upside to our below-consensus estimates, which

are already factoring in a healthy rebound in downstream margins, rising subscriber/ARPU

trajectory for Jio and robust recovery in retail. We raise our SoTP-valuation to Rs2,200 from

Rs2,050 reflecting modestly higher O2C EBITDA and roll-forward to June 2023 estimates.


Reliance Industries (RIL) Oil, Gas & Consumable Fuels

FY2021 annual report analysis. RIL’s AR reiterates long-term strategic targets for each

business, while providing limited details on the roadmap. Key takeaways include—(1)

petchem production and retail rollout remained unaffected, (2) large capex attributed

to others segment and debt to RPPMSL, (3) several transactions related to Jio/retail

routed through RPPMSL and (4) operating cost increased for Jio, while remaining steady

for retail. We fine tune estimates and revise SoTP-based FV to Rs2,200 on higher O2C

estimates and rollover. We retain ADD for now, awaiting strategic updates on AGM.

Reliance Industries


CMP(Rs)/FV(Rs)/Rating 2,250/2,200/ADD EPS (Rs) 72.1 81.1 102.0

52-week range (Rs) (high-low) 2,369-1,561 EPS growth (%) 8.0 12.4 25.9

Mcap (bn) (Rs/US$) 14,286/194.9 P/E (X) 31.2 27.8 22.1

ADTV-3M (mn) (Rs/US$) 18,322/250 P/B (X) 1.9 1.9 1.8


Promoters 49.1 RoE (%) 7.5 7.1 8.3


Price performance (%) 1M 3M 12M Sales (Rs bn) 4,669 6,601 7,478

Absolute 16.1 6.7 39.4 EBITDA (Rs bn) 807 1,123 1,378

Rel. to BSE-30 7.2 1.9 (12.3) Net profits (Rs bn) 435 515 648

ADD

JUNE 16, 2021

UPDATE


CMP (`): 2,250

Fair Value (`): 2,200

BSE-30: 52,773

Tarun Lakhotia

Hemang Khanna

Reliance Industries Oil, Gas & Consumable Fuels


Key highlights from FY2021 annual report

Petchem production volumes remained steady

RIL’s disclosures on production volumes meant for sale suggest that volumes for polymers

and polyester value chain remained steady yoy at 6.2 mn tons and 10 mn tons respectively

despite headwinds from lockdowns. Transportation fuels expectedly declined by 13% to

37.6 mn tons reflecting a sharp drop in demand for ATF and gasoline.

Exhibit 1: Petchem production volumes remained steady, while fuels declined

expectedly RIL's production volumes meant for sales, March fiscal year-ends, 2020-21 (mn tons)


Lower O2C and Jio capex offset by higher allocation in others segment

Overall capex remained steady at Rs797 bn (US$10.7 bn) in FY2021, as a sharp decline in

capex for O2C and Jio (ex-spectrum) was offset by higher allocation to others segment and

unallocable portion—(1) O2C capex declined to US$1.1 bn in FY2021 from US$2.6 bn in

FY2020 reflecting completion of all projects, (2) Jio’s ex-spectrum capex declined to US$2.8

bn in FY2021 from US$5.5 bn in FY2020 and US$13 bn in FY2019; Jio paid advance of

US$2 bn for the spectrum awarded in recent auction, (3) capex for the retail segment

increased modestly to US$1.4 bn from US$1.3 bn in FY2020 and (4) capex in others

segment increased sharply to US$2.5 bn from US$1.5 bn in the previous year and

unallocable amount increased to US$0.4 bn from a negligible level in the previous year.

2020 2021 Change (%)

Gasoil 26.3 24.9 (5)

Gasoline / Alkylate 12.1 10.5 (13)

ATF 4.9 2.2 (55)

Total (a) 43.3 37.6 (13)

PP 2.9 2.9 —

PE 2.2 2.3 5

PVC 0.8 0.7 (13)

Elastomers and feedstock 0.3 0.3 —

Total (b) 6.2 6.2 —

PX 2.8 3.4 21

Benzene and derivatives 0.5 0.5 —

PTA 2.4 2.0 (17)

MEG 1.2 1.3 8

Filament 1.2 1.0 (17)

Staple 0.8 0.7 (13)

PET 1.2 1.1 (8)

Total (c) 10.1 10.0 (1)

Others Fuels, solids and others 11.5 9.7 (16)

Total (a+b+c) 71.1 63.5 (11)

Volumes (mn tons)

Transportation

Fuels

Polymers and

Elastomers

Intermediates and

Polyesters

ProductsSegment

Oil, Gas & Consumable Fuels Reliance Industries


Exhibit 2: Sharp decline in O2C and Jio (ex-spectrum) capex offset by others and

unallocable segment Segment-wise capex break-up, March fiscal year-ends, 2015-21 (Rs bn, US$ bn)


Higher cash capex of US$14.3 bn including US$4.1 of repayment of capex creditors

Cash capex was higher, increasing to Rs1.06 tn (US$14.3 bn) in FY2021 from Rs765 bn

(US$10.8 bn) in the previous year, as the company repaid US$4.1 bn of capex creditors and

liabilities. Interest capitalized declined to Rs46 bn (US$0.6 bn) in FY2021 from Rs83 bn

(US$1.2 bn) in the previous year. RIL capitalized a modest forex-related gain of Rs2.8 bn as

compared to a loss of Rs62 bn in FY2020.

Exhibit 3: Cash capex was higher as the company repaid capex creditors Consolidated capex reconciliation, March fiscal year-ends, 2015-21 (Rs bn, US$ bn)


Effective net debt including call money declined to US$8.1 bn from US$33 bn

RIL’s effective consolidated net debt declined to Rs594 bn (US$8 bn) as on March 31, 2021

versus Rs2.49 tn (US$33 bn) a year ago; effective net debt would have been higher at Rs992

bn excluding Rs398 bn of call money receivable on rights issue, that RIL accounted in

financial assets.

2015 2016 2017 2018 2019 2020 2021

Segment-wise capex (Rs bn)

O2C 394 441 352 243 156 181 79

E&P 158 97 62 (13) 59 31 39

Organized retail 4 3 8 48 50 93 103

Telecom 269 459 721 502 885 390 360

Others 125 49 (9) 61 158 107 183

Unallocable 54 81 15 (49) 17 3 33

Total capex 1,002 1,130 1,147 793 1,324 805 797

Segment-wise capex (US$ bn)

O2C 6.4 6.7 5.2 3.8 2.2 2.6 1.1

E&P 2.6 1.5 0.9 (0.2) 0.8 0.4 0.5

Organized retail 0.1 0.0 0.1 0.7 0.7 1.3 1.4

Telecom 4.4 7.0 10.7 7.8 12.7 5.5 4.9

Others 2.0 0.7 (0.1) 0.9 2.3 1.5 2.5

Unallocable 0.9 1.2 0.2 (0.8) 0.2 0.0 0.4

Total capex 16.4 17.3 17.1 12.3 18.9 11.4 10.7

2015 2016 2017 2018 2019 2020 2021

Capex reconciliation (Rs bn)

Gross capex 1,002 1,130 1,147 793 1,324 805 797

Less: forex-related capitalization 69 99 46 12 51 62 (3)

Net capex 934 1,031 1,101 780 1,273 743 799

Cash capex 634 469 781 740 936 765 1,058

Interest capitalization 44 81 109 100 113 83 46

Capex creditors/deferred liabilities 256 481 210 (60) 224 (105) (305)

Capex reconciliation (US$ bn)

Gross capex 16.4 17.3 17.1 12.3 18.9 11.4 10.7

Less: forex-related capitalization 1.1 1.5 0.7 0.2 0.7 0.9 (0.0)

Net capex 15.3 15.7 16.4 12.1 18.2 10.5 10.8

Cash capex 10.4 7.2 11.6 11.5 13.4 10.8 14.3

Interest capitalization 0.7 1.2 1.6 1.6 1.6 1.2 0.6

Capex creditors/deferred liabilities 4.2 7.3 3.1 (0.9) 3.2 (1.5) (4.1)



Exhibit 4: Consolidated effective net debt declined to US$8.1 bn, including call money for rights issue Consolidated net debt reconciliation, March fiscal year-ends, 2015-21 (Rs bn)


Large debt attributed to RPPMSL as standalone and retail turns net cash

Our calculations based on financial assets and liabilities across business segments suggest

that standalone and retail businesses turned net cash after large capital raising program,

while effective net debt at Jio remained steady. Debt of Rs332 bn related to the US shale

business (RHUSA) was transferred to the standalone entity. RPPMSL, O&M and project

execution contractor for fiber/tower entities and project and property management service

provider for the group entities, reported a large increase in net debt to Rs599 bn (US$8.2

bn) at end-FY2021 versus Rs213 bn (US$2.8 bn) a year ago.

2015 2016 2017 2018 2019 2020 2021

Consolidated net debt reconciliation

Gross borrowings 1,609 1,807 1,966 2,188 2,875 2,914 2,238

Deferred payment liability 74 140 209 211 202 188 188

Other financial liabilities 335 756 999 957 834 1,636 946

Gross debt and financial liabilities 2,017 2,703 3,174 3,355 3,912 4,738 3,372

Cash and bank balances 125 110 30 43 75 309 174

Investments 765 840 784 738 1,255 1,443 1,968

Other financial assets 307 90 122 134 247 498 637

Cash, investments and financial assets 1,197 1,040 937 915 1,577 2,251 2,778

Effective net debt 820 1,663 2,237 2,440 2,335 2,487 594

Effective net debt (US$ bn) 13.2 25.1 34.5 37.5 33.6 33.0 8.1

Notes:

(a) RIL excluded US$18 bn of debt related to fiber/tower SPVs, post their demerger on March 31, 2019.



Exhibit 5: Large increase in net debt for RPPMSL, while standalone and retail turns net cash post

large capital raising program; Jio’s net debt remained steady Net debt calculation for key business segments, March fiscal year-ends, 2020-21 (Rs bn)


31-Mar-20 31-Mar-21

Standalone

Borrowings 2,300 1,938

Other financial liabilities 1,250 652

Total financial liabilities 3,550 2,589

Cash and bank balance 84 56

Investments 1,377 1,531

Other financial assets 755 1,263

Total financial assets 2,216 2,850

Net debt 1,334 (260)

Jio

Borrowings 232 111

Other financial liabilities 184 232

Deferred spectrum liabilities 188 188

Total financial liabilities 605 532


Investments 25 15

Other financial assets 11 6

Total financial assets 110 27

Net debt 495 505

Retail (RRL) (RRVL)

Borrowings 47 88



Investments 8 423


Net debt 20 (335)

RPPMSL

Borrowings 148 518




Investments 0 0



Net debt 213 599

RCITPL

Borrowings 138 123




Net debt 182 176

Shale

Net debt 360 —

Others (implied)

Net debt (115) (90)

Consolidated

Borrowings 2,914 2,238

Other financial liabilities 1,636 946

Deferred spectrum liabilities 188 188

Total financial liabilities 4,738 3,372


Investments 1,443 1,968


Total financial assets 2,251 2,778

Net debt 2,487 594



Proportion of foreign currency debt remained steady at 51%

The proportion of debt denominated in foreign currencies out of overall borrowings and

deferred spectrum liabilities remained steady yoy at 51% as of March 31, 2021 and up from

42% over FY2018-19.

Exhibit 6: Proportion of foreign currency debt remained stable at 51% RIL's debt in foreign currency and INR, March fiscal year-ends, 2015-21 (Rs bn)


Maturity profile of RIL’s borrowings suggests limited repayments due in FY2022-23

The maturity profile of borrowings disclosed by RIL suggests that limited repayments are due

in FY2022-23. We note that the spectrum-related payments are also expected to start

during FY2023, once the ongoing moratorium of two years gets over.

Exhibit 7: Limited debt repayments due in FY2022-23 Maturity profile of RIL's borrowings, March fiscal year-ends, 2021 onwards (Rs bn)


Borrowing cost declined to 6.4%, remaining below implied treasury yield of 7.1%

RIL’s average borrowing cost including forex-related charges declined to 6.4% at the

consolidated level, based on our computation including debt, capex creditors, deferred

payment liabilities and other financial liabilities in the denominator.

Capitalized interest at the consolidated level declined to Rs45.9 bn in FY2021 from Rs82.5

bn in FY2020, including Rs7.9 bn pertaining to Jio and Rs40.5 bn for the standalone entity.

Implied average treasury yield reduced to 7.1% from 7.3% in the previous year, based on

our calculation including cash, investments and other financial assets in the denominator.

2015 2016 2017 2018 2019 2020 2021

RIL's consolidated debt

Borrowings 1,609 1,807 1,966 2,188 2,875 2,914 2,238

Denominated in foreign currency 1,045 1,127 1,188 1,005 1,304 1,580 1,241

USD 982 1,038 1,086 890 1,142 1,284 985

EUR 39 69 85 98 106 188 126

JPY 24 21 17 17 57 107 130

Denominated in Rupee 563 679 778 1,183 1,571 1,335 997

Deferred spectrum liability 74 146 209 211 202 188 188

Proportion of FC debt (%) 62 58 55 42 42 51 51

Total FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028+

Non-current borrowings

Unsecured bonds 383 116 6 6 79 6 4 166

Secured NCDs 134 55 10 49 10 10

Unsecured NCDs 533 70 149 172 35 28 80

Secured term loans 24 0 4 4 4 4 4 7

Unsecured term loans 865 41 144 144 144 144 144 105

Total 1,940 282 313 374 272 191 152 357

Current borrowings

Secured working capital loans 33

Unsecured loans 103

Commercial paper 465

Total 601

Notes:

(a) We have equally distributed term loans for period of 1-5 years over FY2023-27.



Exhibit 8: Borrowing cost declined to 6.4%, while treasury yield was at 7.1% Calculation of borrowing costs and treasury yield, March fiscal year-ends, 2015-21 (Rs bn)


Overall cash and investments increased to Rs2.29 tn as of end-FY2021, excluding

value of treasury shares and JDFPL preference shares

RIL’s cash and investments balance, excluding value of treasury shares and JDFPL preference

shares, increased to Rs2.29 tn as of end-FY2021 from Rs1.87 tn a year ago. The amount

included (1) mutual funds of Rs1.32 tn, (2) NCDs of Rs372 bn provided to fiber/tower InvITs

at a spread over bank rates, (3) government securities and treasury bills of Rs180 bn and (4)

cash and bank balance of Rs174 bn.

Exhibit 9: Overall cash and investments portfolio increased to Rs2.29 tn, excluding value of RIL’s

treasury shares and JDFPL’s preference shares Details of treasury portfolio, March fiscal year-ends, 2019-21 (Rs bn)


2015 2016 2017 2018 2019 2020 2021

Borrowing cost

Reported finance costs 33.2 36.9 38.5 80.5 165.0 220.3 211.9

Capitalized interest 44.1 81.0 109.4 100.4 112.5 82.5 45.9

Total finance cost 77.3 117.9 147.9 180.9 277.5 302.8 257.8

Gross debt and financial liabilities 2,017 2,703 3,174 3,355 3,912 4,738 3,372

Before InvIT adjustment 4,619

Average borrowing cost (%) 4.4 5.0 5.0 5.5 7.0 7.0 6.4

Treasury yield

Other income 85.0 74.8 94.4 88.6 81.4 139.6 163.3

Cash, investments and financial assets 1,197 1,040 937 915 1,577 2,251 2,380

Before InvIT adjustment 1,011

Average treasury yield (%) 6.9 6.7 9.6 9.6 8.5 7.3 7.1

Notes:

(a) Average borrowing cost includes forex-related loss.

(b) Calculations include all financial liabilities and assets as reported under Ind-AS.

(c) FY2019 calculation includes fiber/tower liabilities; SPVs were demerged on March 31, 2019.

(d) Financial assets exclude call money of Rs398 bn pertaining to rights issue as on March 31, 2021.

FY2019 FY2020 FY2021

Cash and cash equivalents 111 309 174

Current investments

Government securities 129 148 48

Treasury bills — 109 132

Mutual funds 332 438 1,316

Others 250 34 30

Total current investments 710 729 1,524

Non-current investments

Investment in associates/JVs

Corpus of Petroleum Trust — 271 462

Reliance Services and Holdings Limited — 162 295

Others 27 40 45

Total investment in associates/JVs 27 473 802

Other investments

Jio Digital Fibre Private Limited NCDs 453 274 253

Summit Digitel Infrastructure Private Limited (erstwhile Reliance Jio Infratel) NCDs 118 128 119

Jio Digital Fibre Private Limited - preference shares 777 777 779

Pipeline Infrastructure Private Limited - preference shares 40 40 41

Others 230 347 131

Total other investments 1,619 1,566 1,322

Total non-current investments 1,646 2,039 2,124

Overall cash and investments 2,467 3,077 3,822

Overall cash and investments, excluding treasury shares and JDFPL preference shares 1,690 1,867 2,286



Balance sheet and cash flow movement

Increase in CWIP and IAUD for subsidiaries other than Jio

Consolidated CWIP and IAUD increased to Rs1.26 tn as of end-FY2021 from Rs1.09 tn in

the previous year. The yet-to-be-capitalized amount increased sharply in entities other than

parent and Jio to Rs761 bn from Rs599 bn a year ago, largely attributed to RPPMSL, which

reported CWIP and IAUD of Rs147 bn versus Rs26 bn in the previous year.

Other non-current assets increased to Rs650 bn, including Rs150 bn of advance paid against

spectrum. Other financial assets increased to Rs611 bn including Rs398 bn of call money

pertaining to remaining tranches of rights issue.

Exhibit 10: Borrowings and other financial liabilities declined in FY2021, while CWIP and IAUD increased further

Standalone, Jio and consolidated balance sheet, March fiscal year-ends, 2020-21 (Rs bn)


31-Mar-20 31-Mar-21 31-Mar-20 31-Mar-21 31-Mar-20 31-Mar-21 31-Mar-20 31-Mar-21

ASSETS

Non-current assets

Property, plant and equipment 2,978 2,921 1,029 1,151 352 438 4,359 4,511

Capital work-in-progress 156 208 212 169 223 335 591 712

Goodwill — — — — 103 102 103 102

Other intangible assets 86 147 606 560 173 92 865 800

Intangible assets under development 123 121 1 1 376 426 500 548

Financial assets

Investments 4,191 2,526 11 11 (2,163) (413) 2,039 2,124

Loans 443 657 0 0 (226) (632) 217 25

Other non-current assets 45 50 275 384 84 228 403 661

Total non-current assets 8,023 6,630 2,133 2,277 (1,079) 576 9,077 9,482

Current assets

Inventories 388 374 — — 351 442 739 817

Financial assets

Investments 700 947 14 4 15 574 729 1,524

Trade receivables 75 42 16 14 106 134 197 190

Cash and bank balance 84 56 75 6 150 112 309 174

Loans 150 10 — — (144) (9) 7 1

Other financial assets 161 596 11 6 103 9 274 611

Other current assets 107 83 169 194 51 136 328 413

Total current assets 1,666 2,107 284 224 632 1,399 2,583 3,730

Total assets 9,689 8,737 2,417 2,501 (447) 1,975 11,659 13,212

EQUITY & LIABILITIES

Equity

Equity share capital 63 64 450 450 (450) (450) 63 64

Other equity 4,182 4,680 1,260 1,380 (972) 877 4,470 6,937

Non-controlling interest — — — — 80 993 80 993

Total equity 4,246 4,745 1,710 1,830 (1,342) 1,420 4,613 7,994

Non-current liabilities

Financial liabilities

Borrowings 1,788 1,606 — 4 189 27 1,976 1,637

Other financial liabilities 43 40 135 151 10 24 188 216

Deferred payment liabilities — — 188 188 — — 188 188

Deferred tax liabilities (net) 506 308 — 25 36 37 541 370

Long-term provisions 5 20 — — 18 11 23 31

Total non-current liabilities 2,341 1,974 323 369 252 99 2,917 2,442

Current liabilities

Financial liabilities

Borrowings 513 332 232 108 193 162 938 601

Trade payables 710 870 47 22 211 197 968 1,089

Other financial liabilities 1,206 612 50 81 192 38 1,448 731

Other current liabilities 662 196 55 91 40 44 757 330

Short-term provisions 11 9 1 1 8 15 19 25

Total current liabilities 3,102 2,018 384 302 643 455 4,129 2,776

Total equity and liabilities 9,689 8,737 2,417 2,501 (447) 1,975 11,659 13,212

Standalone Jio Other subsidiaries Consolidated



Significant increase in transactions and balance sheet for RPPMSL

RPPMSL operates as O&M and project execution contractor for fiber/tower entities and also

provides IT/ITES, manpower, project and property management services for the group.

RPPMSL reported revenues of Rs285 bn including Rs59.7 bn from group entities and

remaining Rs225 bn from fiber/tower entities pertaining to services provided for O&M and

erection, commission and installation of passive infrastructure.

RPPMSL also reported a large increase in fixed assets, intangible assets, inventories and debt

and acquired device rights of Rs152 bn from a group entity.

Exhibit 11: RPPMSL reported a large increase in fixed assets, CWIP, IAUD and borrowings Financials of Reliance Projects & Property Management Services, March fiscal year-ends, 2020-21 (Rs mn)


2020 2021

Liabilities and equity

Share capital 1,000 1,000

Reserves and surplus 1,691 4,491

Total equity 2,691 5,491

Deferred tax liability (net) 1,952 —

Long-term borrowings 147,974 517,586

Total borrowings 147,974 517,586

Creditors for capital expenditure 453 565

Provisions 781 721

Other liabilities 153,829 225,411

Total liabilities and equity 307,680 749,775

Assets

Cash 323 251

Gross block 62,062 105,508

Less: accumulated depreciation 9,357 15,371

Net fixed assets 52,705 90,137

Gross intangible assets 121 244

Less: accumulated amortization 47 76

Net intangible assets 74 168

Capital work-in-progress 3,487 89,149

Intangible assets under development 22,804 57,607

Total fixed assets 79,069 237,062

Trade receivables 48,575 33,199

Loans and advances — —

Current assets 164,812 320,029

Investments 114 114

Other assets 14,788 159,119

Total assets 307,680 749,775

P&L statement

Revenue break-up

IT / ITES support services 7,175 4,200

Business and infrastructure support services 36,345 62,901

Manpower services 981 1,288

Erection, commissioning and installation services 97,511 216,620

Others 310 51

Total revenues 142,321 285,061

Cost of materials and services consumed 90,739 300,924

Change in inventory (66,877) (60,097)

Employee benefits expense 7,894 17,012

Other expenses 103,086 7,754

Total expenses 134,842 265,593

EBITDA 7,479 19,468

Other income 59 2,286

Finance cost 1,397 15,239

Depreciation 2,223 6,049

Profit before tax 3,918 467

Current tax 168 —

Deferred tax 788 (2,120)

Profit after tax 2,963 2,587



Net working capital turns negative

Consolidated net working capital (receivables + inventory – payables) turned negative to –

Rs82 bn from Rs191 bn at end-1HFY21 reflecting a sharp jump in trade payables due to

higher crude prices and higher days. Standalone net working capital turned a large negative

at –Rs454 bn due to a sharp increase in accounts payable; we note that the number of days

of inventory and accounts payable are overstated due to lower volumes/revenues in FY2021

and sharply higher crude prices as on end-FY2021 as compared to the average for the year.

Exhibit 12: Net working capital turned negative to –Rs82 bn for consolidated business and –Rs454 bn

for the standalone entity reflecting increase in accounts payable Working capital, March fiscal year-ends, 2015-21 (Rs bn)


Consolidated adjusted RoACE moderated to 9.2% from 9.9% in FY2020

Consolidated business RoACE, adjusted for Rs1.26 tn of CWIP and Rs4.43 tn of investments

and financial assets, declined to 9.2% from 9.9% in FY2020. Reported RoACE and RoAE

remained low at 7.2% and 7.5% respectively.

Exhibit 13: Consolidated adjusted RoACE moderated to 9.2% from 9.9% in FY2020 Return ratios based on reported numbers, March fiscal year-ends, 2015-21 (%)


Large negative FCF of Rs888 bn

FCF was a large negative at –Rs888 bn in FY2021 (–Rs693 bn in 1HFY21) and –Rs47 bn in

FY2020 due to repayment of capex creditors and working capital liabilities, most of which

were accounted by the company during 1HFY21. Cumulative capital raise of Rs2.2 tn during

FY2021 along with cash profits (ex-WC) of Rs798 bn were utilized to (1) reduce effective net

debt (including capex creditors) by Rs1.89 tn, (2) reduce working capital by Rs507 bn, (3)

reduce other liabilities by Rs201 bn and (4) fund capex of Rs797 bn.

2015 2016 2017 2018 2019 2020 2021

Standalone working capital

Account receivables 47 35 55 105 121 75 42

Days of sales 5 5 8 13 12 8 6

Inventory 366 280 340 396 441 388 374

Days of CoGS 48 58 69 66 55 53 72

Accounts payable 545 545 682 887 882 710 870

Days of CoGS 69 110 134 143 108 94 160

Net working capital (133) (230) (287) (386) (320) (248) (454)

Days of sales (15) (36) (43) (49) (31) (27) (67)

Consolidated working capital

Account receivables 49 45 82 176 301 197 190

Days of sales 5 6 10 16 19 12 15

Inventory 524 465 535 608 676 739 817

Days of CoGS 70 103 112 109 89 100 149

Accounts payable 585 603 766 1,069 1,083 968 1,089

Days of CoGS 72 114 129 143 98 84 132

Net working capital (12) (93) (150) (285) (107) (32) (82)

Days of sales (1) (12) (18) (27) (7) (2) (6)

2015 2016 2017 2018 2019 2020 2021

Standalone

RoAE 10.3 10.7 10.5 10.2 8.7 6.6 5.6

RoACE 7.8 8.2 8.3 8.4 7.8 6.0 6.2

Adjusted RoACE (a) 12.8 16.8 19.7 21.4 20.4 12.1 8.5

Consolidated

RoAE 11.3 11.2 12.1 12.6 11.5 9.4 7.5

RoACE 6.9 6.8 6.9 7.7 7.8 7.2 7.2

Adjusted RoACE (a) 11.1 12.3 13.3 12.3 11.8 9.9 9.2

Notes:

(a) RoACE adjusted for investments, CWIP and IAUD.



Exhibit 14: Repayment of working capital liabilities and capex creditors led to large negative FCF in FY2021

Cash flow statement, March fiscal year-ends, 2019-21 (Rs bn)


Operating cost for Jio increased sharply

Jio’s network operating expenses increased sharply to Rs220.6 bn in FY2021 from Rs169.3

bn in FY2020 reflecting increase in rent/service charges, power and fuel cost, repair and

maintenance and other costs. We note that other cost including fiber usage charges

remained low at Rs38.3 bn as compared to expected revenues of Rs95.7 bn disclosed by the

fiber InvIT entity in its placement document.

Exhibit 15: Sharp rise in Jio’s operating cost even as accounted fiber usage charges remained low Break-up of operating cost for Reliance Jio Infocomm, March fiscal year-ends, 2018-21 (Rs bn)


Operating cost for retail business increased modestly

Overall operating cost for Reliance Retail increased modestly to Rs106.7 bn from Rs102.2 bn

in the previous year as a reduction in rent and sales promotion expenses was offset by

increase in employee cost and warehousing and distribution expenses.

2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021

Operating

Profit before tax 469 446 272 46 76 161 43 16 116 557 538 549

DD&A 106 97 92 64 74 115 40 51 58 209 222 266

Taxes (94) (53) (17) (10) (12) (1) (18) (20) (14) (122) (84) (32)

Interest expenses 98 121 162 41 66 38 26 32 10 165 219 210

Interest paid (116) (145) (143) (92) (103) (23) (26) (37) (17) (233) (285) (183)

Other income (104) (112) (112) 0 (2) (6) 8 10 (49) (96) (104) (168)

Extraordinaries 5 (42) (43) — — — (10) 40 (13) (5) (2) (56)

Working capital (151) 309 (359) (75) (37) 19 (26) (80) (167) (251) 192 (507)

Total operating [A] 212 621 (148) (25) 62 303 37 12 (76) 224 696 78

Investing

Capital expenditure [B] (250) (232) (218) (438) (518) (261) (248) (16) (580) (936) (765) (1,058)

Investment in group companies (287) 318 (277) (1) 0 0 210 (342) 277 (78) (24) —

Other investments (net) (70) (1,309) 1,202 1 (11) 14 69 1320 (1217) — — —

Asset sales 1 (246) (73) 0 0 0 7 256 96 8 10 23

Interest/dividends received [C] 31 42 108 (4) 10 4 (11) (30) (20) 16 22 92

Total investing (576) (1,427) 743 (442) (519) (243) 28 1189 (1443) (990) (757) (943)

Financing

Share issuance 1 0 132 0 1250 0 1 (1249) 2004 2 1 2,136

Loans (net) 415 898 (717) 460 (558) (128) (20) 16 (2) 856 356 (847)

Dividends (43) (46) (39) — — — — — — (43) (46) (39)

Others — — — — — — (23) (52) (47) (23) (52) (47)

Total financing 374 852 (624) 460 692 (128) (41) (1285) 1954 792 260 1,202

Net change in cash 10 47 (29) (7) 235 (69) 23 (83) 436 26 198 338

Opening cash 27 38 84 7 0 71 15 224 154 49 261 309

Closing cash 38 84 55 0 235 2 37 140 590 75 460 647

Free cash flow [A] - [B] + [C] (7) 431 (257) (467) (446) 45 (223) (33) (676) (697) (47) (888)

Standalone Jio Other subsidiaries Consolidated

2018 2019 2020 2021

Network operating cost break-up

Rent / service charges 17.3 42.7 77.3 87.6

Power & fuel cost 22.5 50.8 67.1 77.3

Repairs and maintenance 8.6 17.0 11.1 17.4

Other cost, including fiber usage charges 0.7 2.9 13.8 38.3

Total network operating expenses 49.2 113.4 169.3 220.6



Exhibit 16: Operating costs for retail business remained under control amid reduced operations Break-up of operating cost for Reliance Retail, March fiscal year-ends, 2018-21 (Rs bn)


RRL added 927 stores in FY2021 expanding its geographical reach across categories

Reliance Retail’s total store count increased to 12,711 in FY2021 from 11,784 stores as of

end-FY2020. RRL added 1,456 stores during FY2021; net store addition of 927 stores

implies 529 stores were shut down during the year. As of FY2021, RIL’s store counts were—

(1) fashion and lifestyle at 2,927, (2) grocery at 1,103 and (3) consumer electronics including

Jio Point stores at 8,681, with Jio Point stores being over 8,200 stores.

Exhibit 17: RIL disclosed geographical distribution of stores for broader retail categories Geographical distribution of retail stores for each segment, March fiscal year-ends, 2020-21 (#)


Updates on 5G

Jio’s 5G RAN Platform crossed the milestone of 1 GB/s on the 5G core network and 5G

smartphones. Jio is at advanced stages in the development of Multiple-in Multiple-out

(MIMO) and indoor 5G small cells. The company is carrying out—(1) radio frequency

capacity and coverage planning based on 4G data traffic profiles and (2) standardizing 5G

device configurations by collaborating with OEMs.

2018 2019 2020 2021

Operating cost break-up

Employee cost 7.2 9.0 9.4 12.2

Operating lease — 21.5 39.0 38.8

Brokerage and commissions 10.2 20.0 14.3 13.5

Rent 6.2 6.9 9.0 6.8

Store running expenses 6.0 7.4 8.3 9.0

Warehousing and distribution cost 4.0 5.5 6.1 9.8

Sales promotion and ad expenses 4.5 7.1 5.4 4.6

Power & fuel cost 1.6 1.9 2.5 1.9

Other operating costs 7.1 16.5 8.3 9.8

Total operating expenses 46.8 95.8 102.2 106.7

2020 2021 Increase

Grocery

North 108 154 46

East 91 132 41

West 261 356 95

South 337 461 124

Total 797 1,103 306

Fashion and lifestyle

North 566 675 109

East 350 479 129

West 538 601 63

South 932 1,095 163

Total (a) 2,386 2,927 541

Consumer electronics

North 2,022 2,030 8

East 2,142 2,167 25

West 2,343 2,367 24

South 2,094 2,117 23

Total 8,601 8,681 80

Total retail stores 11,784 12,711 927

Total retail area (mn sq ft) 28.7 33.8 5.1

Notes:

(a) Fashion and lifestyle total includes 77 stores outside India in FY2021.



Other takeaways

Select transactions between RIL’s subsidiaries.

Exhibit 18: RIL has significant related party transactions between its subsidiaries Select related party transactions of key subsidiaries, March fiscal year-ends, 2020-21 (Rs bn)


Modest decline in payments to related parties. RIL’s payments to related parties

declined to Rs86.68 bn in FY2021 from Rs89.47 bn in FY2020 led by—(1) Rs47.67 bn of

power, fuel and water charges paid to Jamnagar Utilities and Power Private Limited as

compared to Rs48.98 bn in the previous year and (2) Rs33.83 bn pertaining to port

infrastructure and equipment hiring charges to Sikka Ports and Terminals Limited as

compared to Rs36.22 bn in the previous year.

Entity Related party Nature of transaction FY2020 FY2021

RIL — 6.2

RJIL — 5.0

RPPMSL — 6.8

RRL — 5.5

RIL Business support services / professional fees — 5.9

RIL 18.2 20.5

RJIL 3.2 4.9

RRL 14.2 2.3

RPPMSL — 6.6

RSMSL 5.7 —

RSMSL Hire charges contracted manpower 6.6 —

RIL Finance charges 8.2 12.1

RRL Rent 10.3 —

RSMSL Cost of material / services consumed 5.2 —

RCITPL Infrastructure usages charges 1.0 4.9

RRL Commission on customer acquisition and recharges 8.0 13.8

RRL Revenue received in advance 576.1 741.1

RRL 23.9 39.0

RCITPL 2.0 9.5

RRL Rent 31.0 41.0

RSMSL Hire charges contract manpower 6.1 5.2

RSMSL Cost of material / services consumed 2.0 17.0

RIL 7.5 15.4

RIIHL 1.5 5.4

RJIL 11.0 17.6

RCITPL 25.1 0.1

RPPMSL 29.1 49.8

RJIL 581.2 743.4

RPPMSL — 8.7

RRVL Interest cost 0.1 5.1

RPPMSL Rent including lease rent 3.9 5.8

JPL Professional fee — 6.4

RRVL Warehousing and distribution expenses 1.5 17.3

RRL Revenue from operations 1.9 19.3

RRL Other income 0.1 5.1

RCITPL 14.9 —

RPPMSL 8.1 22.1

Notes:

(a) FY2020 transactions for RPPMSL pertain to period from 19.06.2019 to 31.03.2020.

Purchases

Amount (Rs bn)

Jio Platforms

Limited (JPL)

Revenue from operations

Reliance Corporate

IT Park Limited

(RCITPL)


Professional fees

Reliance SMS

Limited (RSMSL)Revenue from operations

Reliance Retail

Ventures Limited

Reliance Jio

Infocomm Limited

(RJIL)

Reliance Projects &

Property

Management

Services Limited

(RPPMSL)


Finance charges

Reliance Retail

Limited (RRL)




Exhibit 19: RIL’s related-party transactions, March fiscal year-ends, 2015-21 (Rs mn)


Effective tax rate declined to 3.5% in FY2021 on restructuring of the O2C

business.

Exhibit 20: Income tax schedule, March fiscal year-ends, 2018-21 (Rs bn)


2015 2016 2017 2018 2019 2020 2021

Payments made

East West Pipeline Limited 1,970 2,140 2,030 4,750 7,590 — —

Reliance Industrial Infrastructure Limited 810 870 980 980 810 710 510

Sikka Ports and Terminals Limited 32,960 34,190 35,840 34,340 33,620 36,220 33,830

Jamnagar Utilities & Power Private Limited 15,790 17,190 24,880 46,570 51,400 48,980 47,670

RP Chemicals (Malaysia) Sdn.Bhd. 10,520 7,450 — — — — —

Reliance Commercial Dealers Limited (a) 2,820 4,180 1,390 — — — —

Gujarat Chemical Port Terminal Company Limited 1,090 1,500 1,440 1,950 2,230 2,270 2,370

Others 440 660 1,270 820 480 1,290 2,300

Total payments 66,400 68,180 67,830 89,410 96,130 89,470 86,680

Loans and advances balances

Reliance Ports and Terminals Limited 3,530 3,530 3,530 3,530 3,530 3,530 3,530

Reliance Commercial Dealers Limited 1,550 3,250 — 2,390 2,400 — —

Jamnagar Utilities & Power Private Limited 1,180 1,180 1,180 1,180 1,180 1,180 1,180

Gujarat Chemical Port Terminal Company Limited 1,100 1,380 1,470 1,370 1,120 710 480

Others 5,900 5,820 5,760 3,710 4,090 5,930 5,930

Total loans and advances 13,260 15,160 11,940 12,180 12,320 11,350 11,120

Notes

(a) Reliance Commercial Dealers Limited became subsidiary from 10.01.2017.

2018 2019 2020 2021

Standalone

Profit before tax 457 474 446 229

Applicable tax rate (%) 35 35 35 35

Computed tax expense 158 166 156 80

Exempted income (26) (31) (31) (1)

Additional allowances net of MAT credit (78) (80) (89) (128)

Expenses disallowed 35 40 36 49

Current tax provision (a) 90 94 72 —

Incremental DTL on account of tangible and intangible assets 28 34 33 24

Incremental DTA on account of financial assets and other items 4 (7) (11) (71)

Deferred tax provision (b) 32 28 22 (47)

Reported tax expenses (a+b) 121 122 94 (47)

Effective tax rate (%) 26.5 25.8 21.1 (20.7)

Consolidated

Profit before tax 494 552 581 498

Applicable tax rate (%) 35 35 35 35

Computed tax expense 171 193 203 174

Exempted income (26) (32) (31) (2)

Additional allowances net of MAT credit (76) (77) (105) (149)

Expenses disallowed 41 46 44 64

Non taxable subsidiaries and effect of differential tax rate 2 7 (5) (22)

Carried forward losses utilised (11) (20) (20) (43)

Others 0 (0) 1 (1)

Current tax provision (a) 101 117 86 22

Incremental DTL on account of tangible and intangible assets 131 83 57 80

Incremental DTA on account of financial assets and other items (99) (46) (6) (85)

Deferred tax provision (b) 32 37 51 (5)

Reported tax expenses (a+b) 133 154 137 17

Effective tax rate (%) 27.0 27.9 23.6 3.5



Contingent liabilities declined in FY2021.

Exhibit 21: Contingent liabilities, March fiscal year-ends, 2015-21 (Rs bn)


Substantial write-offs by Reliance Holding USA. RIL accounted large loss from the US

shale operations in FY2021 including (1) loss of Rs332.17 bn on acquisition of RHUSA

loan by standalone entity, adjusted from retained earnings and (2) impairment of

Rs156.91 bn, offset by recognition of Rs155.7 bn of related deferred tax assets. RHUSA

ceased to be a subsidiary in the year as it was merged with Reliance Energy Generation

and Distribution Limited, which was in turn merged with RIL. Cumulative provisions and

write-offs pertaining to the shale entities were at US$5.4 bn during CY2014-19 amid a

sharp fall in global crude prices.

Moderation in power costs. RIL’s standalone power, fuel and water charges moderated

to Rs124.2 bn as compared to Rs137.6 bn in FY2020 presumably reflecting a decline in

fuel costs and reduced operations.

Modest increase in expenses on R&D and CSR. RIL incurred higher expenses of (1)

Rs25.72 bn on R&D in FY2020 as compared to Rs25.38 bn in the previous year and (2)

Rs11.4 bn on CSR in FY2021 versus Rs10.22 bn in the previous year. Expenditure on HSE

declined to Rs5.92 bn on HSE in FY2021 versus Rs6.68 bn in the previous year.

RIL’s activities and strategies pertaining to environmental conservation

RIL has implemented annual environmental and sustainability action plans, which are

monitored and reviewed across the lifecycle of assets, their implementation, operating and

closure phases. RIL has set a strategy to achieve—(1) de-carbonization, (2) transitioning from

B2B to B2B2C and (3) fuel to chemicals integration through Reliance O2C, New Energy and

New Materials. The key enablers for its strategy are—

Net Carbon Zero. RIL has set a target to become a Net Carbon Zero company by

CY2035. RIL is developing new technologies in the O2C business to minimize CO2

emissions and is planning to develop advanced carbon capture, utilization and storage

technologies to convert CO2 into useful products and chemicals.

Maximizing O2C conversion. The O2C business will leverage technology and its existing

assets and streams to maximize conversion of crude to chemicals and materials, with an

aim to create a sustainable, holistic and circular materials business.

New energy and new materials Business. RIL will complement its traditional fuels

with—(1) clean electricity, (2) hydrogen, and (3) build an optimal mix of clean energy and

storage using solar, wind and batteries. The business will be based on the principles of—

(1) carbon recycle and (2) circular economy, with a portfolio of advanced and specialty

materials.

2015 2016 2017 2018 2019 2020 2021

Outstanding guarantees furnished to Banks/FIs including Letters of credit 182 358 152 51 138 147 105

Guarantees to Banks/FIs against credit facilities extended to third parties 96 71 84 49 35 88 23

Liability in respect of bills discounted with banks 11 7 4 — — — —

Claims against the company/disputed liabilities not acknowledged as debts 31 40 47 35 53 69 86

Performance guarantees 1 2 12 13 17 20 21

Sales tax deferral liability assigned 8 — — — — — —

Total 330 478 298 149 242 323 234

Consolidated



RIL carried out several projects for managing its—(1) environmental impact, (2) air emissions,

(3) water consumption and recycling, (4) waste, (5) energy efficiency and (6) renewable and

alternate energy.

Exhibit 22: RIL’s key environment conservation activities in FY2021


Managing environmental impact. RIL adopts a cross-business approach to reduce

environmental footprint. RIL carries out activities in relation to—(1) clean air and water,

(2) preventing soil contamination, (3) preserving biodiversity, (4) optimal utilisation of

resources and digitization of operations by utilizing technology for direct energy savings

and (5) online collaborations for reducing travel needs. RIL sourced over 2 mn bbls of

the world’s first carbon-neutral oil.

Air emissions management. RIL’s GHG emissions declined 6.2% yoy in FY2021 partly

reflecting reduced operations for the refining unit. The sharp increase in FY2020 reflected

the impact of the full year of operations for RIL’s cracker complex and stabilization of the

petcoke gasification complex at Jamnagar; nearly two-third of the increase in emissions

was on account of petcoke, which is now consumed in-house instead of being sold to

external customers. Petcoke gasification is used to maximize Hydrogen production which

is gaining ground to combat climate change and achieve de-carbonization across

industries. It significantly reduced the cost of carbon capture and utilization by fixing CO2

and converting it to value-added chemicals in a sustainable manner.

Exhibit 23: RIL's GHG emissions moderated 6.2% yoy in FY2021 GHG emissions, March fiscal year-ends, 2018-21 (mn tons, ‘000 tons)


Water management. Reliance has undertaken several measures to recycle water and

reduce its dependency on freshwater. In FY2021, RIL has—(1) withdrawn 219 mn kl of

water, (2) discharged 33 mn kl and (3) recycled 99 mn kl.

Waste management

Circular economy. In the short term, RIL focuses on increasing the company’s PET

recycling footprint and usage of Multi-layered Plastics (MLP) for road construction. In

the medium term, it is focusing on polyolefin recycling and ‘waste to oil’ strategy. In

the long term, the company is looking at chemical recycling, plastic waste composites

and design for circularity. RIL plans to more than double its recycling capacity to ~5 bn

PET bottles/year. In FY2021, RIL has recycled ~2.3 bn PET bottles.

Areas Key developments in FY2021

Managing environmental impact RIL sourced over 2 mn bbls of the world's first carbon neutral oil

Air emissions management GHG emissions moderated 6.2% yoy

Water management Recycled 99 mn kiloliters of water out of 219 mn kl withdrawn

Waste management Recycled ~2.3 bn PET bottles

Energy efficiency Energy savings of 5.15 mn GJ

Renewable and alternative energy Sourced 0.69 mn GJ of energy from renewable sources

2018 2019 2020 2021

GHG Emissions

Scope 1 CO2 (mn ton) 31.5 29.7 47.5 44.7

Scope 2 CO2 (mn ton) 0.8 1.1 1.5 1.3

TPM ('000 ton) 3.0 2.3 1.9 2.0

Sox ('000 ton) 22.3 22.6 22.5 21.6

Nox ('000 ton) 36.7 34.4 42.0 39.9

VOC ('000 ton) 42.9 41.9 46.2 41.3



Reliance Retail. In its retail business, RR is adopting responsible plastic and e-waste

management strategies and is authorized to collect e-waste and fulfill extended

producer responsibilities.

Energy efficiency in operations. For its digital services business, RIL has set-up energy-

saving systems that ensure one of the lowest carbon intensities per TB of data usage

compared to other service providers. Across manufacturing sites, RIL has undertaken

projects pertaining to—(1) energy optimization, (2) waste heat recovery, (3) opportunistic

equipment upgrades and (4) phase-wise implementation of Advance Process Control &

Real Time Optimizer (APC & RTO) systems to improve on energy efficiency and resource

conservation. RIL’s various processes have led to energy savings of 5,15 mn GJ.

Renewable and alternative energy. RIL has installed rooftop solar panels, conducted

trials of co-firing biomass with coal and invested in alternate energy solutions such as fuel

cells and biofuels. These steps are helping the company steadily reduce its dependency on

conventional fuels. RIL used 0.69 mn GJ of renewable energy for its operations.

Key assumptions behind earnings model

Jio. We assume wireless subscriber base to increase to 499 mn by end-FY2023E with

blended ARPU of Rs149/month. We expect revenues and EBITDA to increase substantially

to Rs980 bn and Rs491 bn in FY2023 with margins expanding to 50%.

Exhibit 24: Financial model of Reliance Jio, March fiscal year-ends, 2018-24E (Rs bn)


Retail. We expect the retail segment to rebound in FY2022-23 led by a recovery in

demand, continued store expansions, omni-channel operations and operating leverage.

We expect core revenues to recover to Rs1.17 tn in FY2022E and rise to Rs1.56 tn in

FY2023E and EBITDA margins to increase to 9.3% in FY2022E and 10% in FY2023E.

2018 2019 2020 2021 2022E 2023E 2024E

Assumptions

Wireless subscriber base at end-period (mn) 187 307 388 424 469 499 520

Wireless subscriber market share (%) 17 28 34 36 39 40 41

Wireless ARPU (Rs/month) 96 131 130 141 145 159 167

Broadband subscriber base at end-period (mn) 1 1 3 6 11 15

Broadband ARPU (Rs/month) — — 683 526 537 548

Overall EBITDA margins (%) 33 39 40 44 49 50 53

Profit model

Revenues 202 388 543 699 805 980 1,104

EBITDA 67 151 216 309 395 491 580

Net income 7 30 56 120 155 216 285

Contribution to RIL's EPS (Rs) 1 5 10 13 16 23 30

Balance sheet

Net-worth 1,029 404 1,710 1,830 1,985 2,200 2,486

Effective net debt 1,400 1,456 495 511 878 634 323

Invested capital 2,278 1,760 2,144 2,295 3,012 3,119 3,249

Cash flow

Operating cash flow (20) 50 99 283 294 375 450

Working capital (29) (75) (37) 19 (3) (5) (3)

Capital expenditure (358) (438) (518) (261) (171) (146) (239)

Free cash flow (407) (464) (455) 41 121 225 208

Returns (%)

RoAE 0.8 4.1 5.3 6.8 8.1 10.3 12.2

RoACE 0.9 2.6 5.2 6.4 7.5 8.9 11.0

CRoCI 2.5 6.9 8.4 11.5 10.9 13.1 14.9

Adjusted CRoCI 2.5 6.9 8.8 11.4 11.0 13.6 16.4



Exhibit 25: Financial model of Reliance Retail, March fiscal year-ends, 2018-24E (Rs bn)


Refining. We model higher crude throughput at 68 mn tons in FY2022E and 70.6 mn

tons in FY2023E and recovery in margins to US$7.7/bbl in FY2022 and US$9/bbl in

FY2023 underpinned by anticipated recovery in demand and expected reduction in

refining capacity due to permanent shutdowns.

Exhibit 26: Major assumptions for RIL's refining segment, March fiscal year-ends, 2018-24E (US$/bbl)


Petchem. We expect volumes to increase to 20.6 mn tons and margins to improve to

US$211-221/ton in FY2022-23E underpinned by sustained strong demand for petchem

products amid ongoing recovery in the global economy.

2018 2019 2020 2021 2022E 2023E 2024E

Profit model

Revenues (gross) 622 1,166 1,465 1,362 1,994 2,567 2,960

Core retail 362 735 928 767 1,165 1,557 1,823

Jio recharges 330 570 702 777 829 1,010 1,137

EBITDA 25 62 97 85 126 178 214

Core retail 22 52 83 69 108 156 190

Jio recharges 4 10 14 16 17 21 24

EBIT 21 55 83 66 97 135 159

Net income 13 33 54 55 82 107 122

Contribution to RIL's EPS (Rs) 2 5 9 8 11 14 16

Balance sheet

Net-worth 92 128 184 253 336 443 564

Net debt 32 120 28 118 158 188 180

Invested capital 124 248 212 371 494 631 745

Operating metrics (%)

Revenue growth 86.7 87.4 25.6 (7.0) 46.4 28.7 15.3

Core retail 42.3 102.9 26.2 (17.3) 51.9 33.7 17.1

Jio and fuel 296.9 73.1 23.0 10.8 6.6 21.8 12.6

EBITDA margins 4.1 5.3 6.6 6.2 6.3 6.9 7.2

Core retail 6.0 7.0 8.9 9.0 9.3 10.0 10.4

Jio and fuel 1.1 1.8 2.0 2.0 2.1 2.1 2.1

EBIT margins 3.3 4.8 5.6 4.9 4.9 5.3 5.4

RoAE 16.5 30.0 34.9 25.1 28.0 27.5 24.2

RoACE 14.2 19.4 26.7 16.9 16.7 17.9 17.2

Stores (#) 7,573 10,415 11,784 12,711 13,661 14,436 15,161

Notes:

(a) Fuel retail business transferred to RIL-bp JV during FY2021.

2018 2019 2020 2021 2022E 2023E 2024E

Exchange rate (Rs/US$) 64.5 69.9 70.8 74.2 75.0 77.0 78.5

Crude throughput (mn tons)

DTA refinery 32.8 31.4 32.8 34.1 31.2 32.8 32.8

SEZ refinery 37.0 37.0 37.8 31.6 36.9 37.8 37.8

Total crude throughput 69.8 68.3 70.6 65.7 68.0 70.6 70.6

Blended refining margins (US$/bbl) 11.7 9.2 8.9 6.0 7.7 9.0 10.2

Implied operating costs (US$/bbl) 3.3 2.8 2.3 2.5 2.5 2.6 2.6



Exhibit 27: Major assumptions for RIL's petchem segment, March fiscal year-ends, 2018-24E (US$/ton)


Exhibit 28: Segment break-up of consolidated EBITDA, March fiscal year-ends, 2018-24E (Rs bn)


Exhibit 29: RIL's earnings are leveraged to several business drivers Sensitivity of consolidated EBITDA, EPS and SoTP to key assumptions, March fiscal year-end, 2022-23


2018 2019 2020 2021 2022E 2023E 2024E

Exchange rate (Rs/US$) 64.5 69.9 70.8 74.2 75.0 77.0 78.5

Production volumes (mn tons)

Polymers 4.9 5.8 6.0 5.9 6.0 6.0 6.0

PE 1.4 2.1 2.3 2.3 2.3 2.3 2.3

PP 2.8 2.9 2.9 2.9 2.9 2.9 2.9

PVC 0.7 0.7 0.8 0.7 0.8 0.8 0.8

Polyesters 2.4 3.5 3.4 2.9 3.5 3.5 3.5

PFY 0.8 1.7 1.6 1.4 1.7 1.7 1.7

PSF 0.6 0.7 0.7 0.6 0.7 0.7 0.7

PET 1.0 1.2 1.2 1.0 1.2 1.2 1.2

Fiber intermediates 9.0 10.9 10.8 9.6 11.0 11.1 11.1

PX 3.7 4.3 4.2 3.9 4.5 4.5 4.5

PTA 4.1 4.9 4.9 4.3 4.9 4.9 4.9

MEG 1.2 1.7 1.7 1.5 1.7 1.7 1.7

Total volumes 16.4 20.1 20.2 18.4 20.6 20.6 20.6

Petchem EBITDA per ton (US$/ton) 244 263 212 177 211 221 223

Notes:

(a) Volumes include Recron Malaysia from FY2019 onwards.

2018 2019 2020 2021 2022E 2023E 2024E

EBITDA

Petrochemicals 243 379 309 249 334 358 368

Refining and marketing 306 261 245 132 200 265 313

Oil and gas 17 16 4 3 52 80 89

Organized retail 25 62 97 85 126 178 214

Digital services 68 153 225 340 433 533 628

Others (17) (32) (48) (3) (24) (27) (31)

Total 642 839 831 807 1,120 1,387 1,580

FY2022E FY2023E

Change (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs/share) (%)

Refining margins +US$1/bbl 37 3% 4.5 6% 40 3% 4.7 5% 47 2%

Refining operating cost +US$0.5/bbl (19) -2% (2.3) -3% (20) -1% (2.4) -2% (24) -1%

Petchem margins +US$25/ton 39 3% 4.7 6% 40 3% 4.7 5% 47 2%

Retail EBITDA margins +50 bps 10 1% 1.2 1% 13 1% 1.5 1% 50 2%

Jio wireless ARPU +Rs10/month 40 4% 4.9 6% 44 3% 5.2 5% 69 3%

Jio wireless subscriber +25 mn 25 2% 3.0 4% 27 2% 3.3 3% 43 2%

Exchange rate Rs1/US$ 11 1% 1.3 2% 12 1% 1.4 1% 14 1%

Base case 1,123 81 1,378 102 2,119

SoTP valuation

EBITDA EPS EBITDA EPS Mar-23



Exhibit 30: Our SoTP valuation of RIL is Rs2,120 per share Sum-of-the-parts valuation of RIL based on March 2023 estimates (Rs)


Exhibit 31: Our SoTP valuation of RIL is Rs2,450 per share Sum-of-the-parts valuation of RIL based on March 2024 estimates (Rs)


EBITDA EV/EBITDA EV Valuation

(Rs bn) (X) (Rs bn) (US$ bn) (Rs/share)

Energy 5,242 70 826

Petrochemicals 358 7.5 2,687 36 423

Refining and marketing 260 7.5 1,952 26 307

Upstream 80 7.5 603 8 95

Digital services 4,244 57 669

Base case 530 10.0 5,303 71 835

Telecom option value 638 9 100

Minority interest (33.52%) (1,696) (23) (267)

Retail 4,523 60 712

Core retail 156 25.0 3,906 52 615

Connecivity (Jio) 20 10.0 202 3 32

New commerce option value 1,268 17 200

Minority interest (14.94%) (853) (11) (134)

Total enterprise value 14,010 187 2,207

Others 75 1 12

Consolidated net debt 634 8 100

Fair value 13,451 179 2,119

Notes:

(a) We use 6.349 bn shares including rights issue but excluding 412.8 mn treasury shares.

EBITDA EV/EBITDA EV Valuation

(Rs bn) (X) (Rs bn) (US$ bn) (Rs/share)

Energy 5,526 72 870

Petrochemicals 368 7.5 2,759 36 435

Refining and marketing 306 7.0 2,144 28 338

Upstream 89 7.0 623 8 98

Digital services 4,812 62 758

Base case 628 10.0 6,278 82 989

Telecom option value 638 8 100

Minority interest (33.52%) (2,104) (27) (331)

Retail 5,248 68 827

Core retail 189 25.0 4,727 61 745

Connecivity (Jio) 23 10.0 229 3 36

New commerce option value 1,268 16 200

Minority interest (14.94%) (976) (13) (154)

Total enterprise value 15,585 202 2,455

Others 66 1 10

Consolidated net debt 100 1 16

Fair value 15,552 202 2,449

Notes:

(a) We use 6.349 bn shares including rights issue but excluding 412.8 mn treasury shares.



Exhibit 32: Global petrochemical valuations summary, calendar year-ends, 2021-22E

Source: Bloomberg, Kotak Institutional Equities

Exhibit 33: Global refiners valuation summary, calendar year-ends, 2021-22E

Source: Bloomberg, Kotak Institutional Equities

Year Price Market cap. EV Sales P/E (X) EV/EBITDA (X)

ending 16-Jun (US$ mn) (US$ mn) (US$ mn) CY2021E CY2022E CY2021E CY2022E

China

Sinopec Shanghai Petrochem (CNY) Dec 3.8 5,271 4,117 10,838 12.6 13.2 6.6 6.3

Europe

BASF SE (EUR) Dec 67.0 74,565 96,117 67,532 13.8 13.3 8.0 7.8

AKZO NOBEL (EUR) Dec 107.1 24,781 22,932 9,739 22.6 20.0 13.6 12.7

India

Reliance Industries (Rs) Mar 2,250 200,890 199,480 62,906 25.4 20.4 14.9 12.4

Japan

Mitsui Chemicals (JPY) Mar 3,770 7,007 9,703 11,430 9.6 9.6 6.0 5.9

Mitsubishi Chemical Holdings (JPY) Mar 889 12,165 31,333 30,729 11.3 9.5 7.5 7.0

Sumitomo Chemical Co. (JPY) Mar 607 9,128 NA 21,573 10.0 8.9 7.6 7.1

Tosoh Corp. (JPY) Mar 1,957 5,779 6,302 6,913 7.9 8.3 4.1 4.2

Korea

Daelim Industrial Co. (W) Dec 81,400 1,525 2,519 1,330 3.1 3.3 3.1 3.2

Hanwha Chemical Corp. (W) Dec 45,100 7,714 11,267 7,807 9.4 9.3 7.4 6.9

Honam Petrochemical Corp. (W) Dec 275,000 8,429 9,265 10,378 5.9 6.4 3.3 3.4

LG Chem (W) Dec 820,000 51,765 56,376 25,537 19.4 20.4 8.7 8.3

US

Eastman Chemical Co. (US$) Dec 122 16,609 20,245 8,473 14.1 13.3 10.0 9.7

Olin Corp. (US$) Dec 48 7,671 9,922 5,758 8.7 8.6 5.6 5.6

Avient Corp. (US$) Dec 67 4,571 5,694 3,242 17.6 15.2 10.4 9.6

Mean 13.0 12.1 7.9 7.4

Median 11.3 9.6 7.5 7.0

Year Price Market cap. EV Sales P/E (X) EV/EBITDA

ending 16-Jun (US$ mn) (US$ mn) (US$ mn) CY2021E CY2022E CY2021E CY2022E

Europe

MOL Hungarian Oil & Gas plc (HUF) Dec 2,438 6,876 8,633 13,041 7.0 6.9 4.1 4.0

Omv Ag (Eur) Dec 50 19,912 38,610 18,897 8.8 8.5 5.4 5.3

Polski Koncern Naftowy Orlen (PLN) Dec 83 9,471 11,696 22,149 9.8 8.7 5.4 4.9

India

Bharat Petroleum Corp. (Rs) Mar 482 14,249 16,710 31,008 11.6 9.9 8.9 7.9

Hindustan Petroleum Corp. (Rs) Mar 298 5,769 9,669 31,278 6.7 5.6 7.1 5.8

Indian Oil Corp. (Rs) Mar 116 14,853 24,885 49,033 7.0 6.0 6.3 5.7

Reliance Industries (Rs) Mar 2,215 200,890 199,480 62,906 25.4 20.4 14.9 12.4

Japan

Fuji Oil (JPY) Mar 280 199 1,022 3,251 NM 5.1 12.7 9.1

Idemitsu Kosan Co. (JPY) Mar 2,729 7,384 18,633 42,983 8.2 7.4 7.5 7.2

Tonengeneral Sekiyu KK (JPY) Dec 471 13,816 37,587 72,239 7.5 6.7 6.6 6.2

Korea

S-Oil Corp. (KW) Dec 105,500 10,617 12,357 14,289 11.4 11.9 7.3 7.7

SK Innovation Co. (KW) Dec 288,500 23,845 25,521 29,008 51.8 25.2 11.7 10.3

Thailand

Thai Oil plc (THB) Dec 57 3,750 7,543 7,930 17.1 14.4 11.7 10.7

US

Hollyfrontier Corp. (US$) Dec 34 5,556 8,695 11,184 NM 10.3 10.0 5.5

Marathon Petroleum (US$) Dec 63 41,424 76,100 69,779 NM 18.2 11.5 9.3

Sunoco Inc (US$) Dec 38 3,777 6,696 10,710 8.4 9.3 9.2 9.1

Valero Energy Corp. (US$) Dec 82 33,704 42,603 64,912 NM 14.2 12.3 7.1

Mean 13.4 10.7 9.0 7.5

Median 8.6 9.0 8.9 7.2



Exhibit 34: Consolidated profit model, balance sheet, cash model, March fiscal year-ends, 2018-24E (Rs bn)


2018 2019 2020 2021 2022E 2023E 2024E

Profit model (Rs bn)

Net sales 3,917 5,671 5,967 4,669 6,601 7,478 8,019

EBITDA 642 839 831 807 1,123 1,378 1,572

Other income 89 81 140 163 143 155 172

Finance cost (81) (165) (220) (212) (189) (178) (158)

DD&A expense (167) (209) (222) (266) (324) (380) (422)

Pretax profits 483 546 528 493 752 975 1,164

Minority interest/share of associates 1 (1) (4) (41) (64) (89) (115)

Extraordinary items 11 5 (2) 56 — — —

Effective tax (133) (154) (128) (17) (173) (239) (298)

Net profits 361 396 394 491 515 648 751

Adjusted net profits 350 391 396 435 515 648 751

Adjusted EPS (Rs) 59 66 67 72 81 102 118

Balance sheet (Rs bn)

Total equity 2,935 3,871 4,533 7,002 7,475 8,072 8,769

Deferred tax liability 245 451 512 370 403 453 519

Minority interest 35 83 80 993 1,057 1,146 1,261

Total borrowings 2,188 2,875 2,914 2,238 1,811 1,556 1,324

Other liabilities 2,709 2,696 3,590 2,610 3,178 3,236 3,172

Total liabilities and equity 8,113 9,976 11,630 13,212 13,923 14,462 15,044

Cash 43 75 309 174 399 619 957

Loans and advances 50 74 224 25 25 25 25

Other assets 1,341 1,814 2,014 2,794 2,466 2,613 2,722

Total fixed assets 5,851 5,658 6,315 6,570 7,385 7,557 7,691

Investments 829 2,355 2,768 3,648 3,648 3,648 3,648

Total assets 8,113 9,976 11,630 13,212 13,923 14,462 15,044

Effective net debt 2,349 2,335 2,487 594 634 100 (601)

Free cash flow (Rs bn)

Operating cash flow, excl. working capital 353 475 504 586 782 1,011 1,179

Working capital 185 (251) 192 (507) 204 (30) (43)

Capital expenditure (740) (936) (765) (1,058) (834) (611) (683)

Other income 23 16 22 92 143 155 172

Free cash flow (178) (697) (47) (888) 295 525 625

Ratios (%)

Debt/equity 74.5 74.3 64.3 32.0 24.2 19.3 15.1

Net debt/equity 80.0 60.3 54.9 8.5 8.5 1.2 (6.9)

RoAE 12.6 11.5 9.4 7.5 7.1 8.3 8.9

RoACE 7.7 7.8 7.2 7.2 6.6 7.5 8.1

Adjusted RoACE 12.3 11.8 9.9 9.2 9.5 10.8 11.9

CRoCI 7.4 7.5 7.3 7.4 7.6 8.7 9.4

Adjusted CRoCI 10.2 12.4 10.3 10.1 10.7 12.4 13.7



Beneficiary of strong tender pipeline across segments

With a strong tender pipeline of Rs650 bn, the company is optimistic of inflows of Rs160-180

bn for FY2022. We expect KEC to benefit from (1) improvement in spending in the Middle-East

and SAARC region on T&D side, (2) planned investments in urban infrastructure and railways

and (3) diversification of projects on the civil side. We expect growth in inflows to be largely

driven by railways and civil going forward. The company is facing near-term challenges due to

localized lockdowns, higher commodity prices and cost overruns in projects in Brazil, which will

keep margins in check during 1HFY22. The company hedges aluminum as soon as it gets letter

of award while there is no hedging mechanism for steel. Nearly 35% of order backlog will have

an impact of higher commodity prices in FY2022 while the remaining has pass-through clauses.

Diversification and de-risking of portfolio in line with our expectations

KEC has emphasized on continuously de-risking its portfolio by diversifying into new areas. This

strategy has already worked well for the company for the railways segment and now it intends

to grow the civil segment by diversifying profile of projects across cement, metals, residential,

water, warehousing, data center and defense. It has also shared a positive outlook for expanding

oil and gas and solar in a similar way. We expect the non-T&D segment to grow to nearly 50%

of revenues by FY2024. Despite growing the non-T&D portfolio in the past few years, the

company has been able to grow its cash flows on improved collections across projects. We expect

margin improvement for the civil segment to commence once it reaches a scale beyond Rs20 bn.

Remains focused on ESG and expects to come up with a roadmap by next year

KEC is working with external consultants to outline a roadmap for ESG implementation. It is

already working towards (1) waste management by recycling steel and zinc, achieving water

positive approach by zero discharge and rain water harvesting, (2) CSR initiatives and (3) limited

related party transactions within group companies and no promoter share pledges. We expect

the company to come up with a detailed roadmap by next year.

Retain estimates and BUY rating

We broadly retain our estimates and revise Fair Value to Rs450 based on 12X two-year forward

earnings (Rs430 earlier) on roll-forward. Retain BUY.


KEC International (KECI) Capital Goods

De-risking portfolio. KEC in its annual investor meet highlighted its focus towards

continued diversification to de-risk its portfolio. It expects to grow the international T&D

portfolio to hedge against sluggish domestic T&D ordering. It is enhancing the scope of

civil projects across a wider set of industries and expects to leverage opportunities in

international markets for expanding the railways vertical. We expect near-term challenges

to margins on higher commodity prices and cost overruns in SAE but expect margins to

normalize by FY2023. Retain estimates; BUY with a revised FV of Rs450 on roll-forward.

KEC International


CMP(Rs)/FV(Rs)/Rating 403/450/BUY EPS (Rs) 21.5 26.5 35.1

52-week range (Rs) (high-low) 486-221 EPS growth (%) (2.3) 23.1 32.6

Mcap (bn) (Rs/US$) 104/1.5 P/E (X) 18.7 15.2 11.5

ADTV-3M (mn) (Rs/US$) 172/2 P/B (X) 3.1 2.6 2.2


Promoters 51.8 RoE (%) 18.0 18.6 20.8



Absolute 3.3 (12.3) 75.5 EBITDA (Rs bn) 11 14 17

Rel. to BSE-30 (4.2) (15.8) 12.4 Net profits (Rs bn) 6 7 9

BUY

JUNE 16, 2021

UPDATE


CMP (`): 403

Fair Value (`): 450

BSE-30: 52,502

Teena Virmani

Aditya Mongia

KEC International Capital Goods


Key takeaways from the annual investor conference

Assessing the impact of higher commodity prices in FY2022. KEC has an annual

requirement of 1 lakh metric tons of steel for worth Rs8 bn. Out of the total order book

of Rs191 bn as of March 2021, nearly 35% is on fixed price basis comprising largely

international projects (excluding from SAARC region) and domestic GEC projects. Since

the time of bidding and award of project, we expect an incremental impact of Rs1-1.2 bn

on account of rise in steel prices. This would impact margins for FY2022 to an extent of

1% while the company is building sufficient cushion in bids for new projects. We thus

expect margins of 9.5% in FY2022 and expect margins to normalize to 10.4% from

FY2023 onwards.

Focus on digitization and mechanization. Since the last year, it has invested its capex

largely towards digitization and mechanization and enhanced productivity by 25-30% in

some of the projects.

International T&D to remain strong. FY2021 witnessed delays in finalization of green

energy corridor projects and railway projects. Domestic T&D segment may continue to see

delays in order finalization but pipeline from international is looking stronger. The

company is witnessing strong traction from the Middle-East due to higher oil prices while

pipeline from SAARC and Africa is also looking very strong. Overall for the T&D segment,

the company is expecting inflows of Rs80-90 bn for FY2022. We expect T&D segment

revenues to grow at 7% CAGR over FY2021-24 driven by 8% CAGR in inflows over the

similar period.

Improved profile of railway projects. Over the past few years, KEC has diversified into

technologically enabled areas of OHE, third rail, BLT for metros and next generation S&T

for DFC. It has also enhanced its railways portfolio by adding projects related to speed

upgradation, construction of depots and workshops for metro projects along with tunnel

ventilation and other civil works. KEC now expects to leverage opportunities in

international markets for expanding the railways vertical. The company is already L1 in a

few projects in international markets. The railways segment also has a strong pipeline of

Rs110 bn worth of projects but Covid has delayed the order finalization. We expect

railways segment revenues to grow at 15% CAGR over FY2021-24.

Enhancing civil projects base. The company is adopting a similar strategy for civil

projects by diversifying across various sectors like auto, cement, residential, water and

other urban infra projects. It has also started bidding for oil and gas projects and is

building partnership with global players for both domestic and international projects. We

have already witnessed inflows from areas like warehousing, hospital and defense during

last year and now we expect the company to target opportunities from data center,

warehousing, hydrocarbon, metals and mining and building segments. We expect civil

segment revenues to grow at 33% CAGR driven by 32% growth in order inflows over

FY2021-24.

Capital Goods KEC International


Exhibit 1: KEC has reduced the share of T&D projects in overall revenue mix from 77% in FY2018 to

57% in FY2021. We expect non-T&D to contribute nearly 50% by FY2024 Revenue mix across segments, March fiscal year-ends (%)


Exhibit 2: Inflows from international have grown in past few quarters Mix of order book and inflows, March fiscal year-ends (%)


7767 67

57 55 52 49

817 21

2523 25 28

4 53 10 17 16 16

10 11 9 8 5 8 8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2018 2019 2020 2021 2022E 2023E 2024E

T&D including SAE Railways Civil Cables

67.0

52.0

78.0

56.0

33.0

48.0

22.0

44.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2018 2019 2020 2021

Domestic inflows (%) Overseas inflows (%)

India 62%

Overseas38%

FY2021-end backlog (Rs191 bn)



Exhibit 3: Impact of commodity price hike will be felt on the T&D portion of order book, largely for

international T&D order book and recently awarded GEC projects Split of order backlog across segments, March fiscal year-ends (%)


Exhibit 4: Steel prices moved up sharply in past few quarters Trend in domestic HRC steel prices (Rs/ton)

Source: Steelmint, Kotak Institutional Equities

Transmission & Distribution

58%

Cables1%

Water/Civil/Solar17%

Railways24%

FY2021-end backlog (Rs191 bn)

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

4-J

an-1

9

4-M

ar-1

9

4-M

ay-1

9

4-J

ul-19

4-S

ep-1

9

4-N

ov-

19

4-J

an-2

0

4-M

ar-2

0

4-M

ay-2

0

4-J

ul-20

4-S

ep-2

0

4-N

ov-

20

4-J

an-2

1

4-M

ar-2

1

4-M

ay-2

1

HRC prices (Rs/ton)



Exhibit 5: Working capital has largely remained stable in 2021 despite a challenging year. We expect

working capital cycle to come down on increased diversification and timely payments Net working capital levels of KEC International, March fiscal year-ends, 2014-24E (days of sales)


Exhibit 6: We expect net debt levels (including acceptances) to come down on improved cash flows Net debt levels of KEC International, March fiscal year-ends, 2014-24E (Rs bn)


86 84

107 100

87

97 100 98 96 96 94

-

20

40

60

80

100

120

2014 2015 2016 2017 2018 2019 2020 2021 2022E 2023E 2024E

(days of sales) Net working capital (excl. cash)

32 33

30 29 29

28

30 31

27 27

24

-

5

10

15

20

25

30

35

2014 2015 2016 2017 2018 2019 2020 2021 2022E 2023E 2024E

(Rs bn) Net debt



Exhibit 7: KEC remains committed to ESG compliance Roadmap for meeting ESG compliance




Exhibit 8: Key segmental financials of KEC (consolidated), March fiscal year-ends, 2013-24E (Rs mn)


2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E 2023E 2024E

Total

Order inflows 78,770 84,905 82,230 87,140 123,580 150,980 128,510 113,310 118,739 154,447 190,330 218,046

Yoy growth (%) 19.6 7.8 (3.2) 6.0 41.8 22.2 (14.9) (11.8) 4.8 30.1 23.2 14.6

Revenues 69,795 79,018 84,678 85,178 85,844 100,580 110,005 119,650 131,140 144,406 163,106 183,718

Yoy growth (%) 20.0 13.2 7.2 0.9 2.7 15.1 9.9 10.1 9.7 10.1 12.9 12.6

Order backlog 94,700 102,000 95,080 94,868 126,310 172,980 190,740 205,030 191,091 201,132 228,357 262,685

Bill to book ratio (%) 55.8 57.6 59.2 61.6 56.0 50.0 46.8 49.3 50.6 54.9 56.2 55.6

EBITDA 3,814 4,933 5,118 6,923 8,179 10,062 11,499 12,344 11,412 13,653 16,943 19,056

EBITDA margin (%) 5.5 6.2 6.0 8.1 9.5 10.0 10.5 10.3 8.7 9.5 10.4 10.4

T&D total

Inflows 57,506 59,544 55,916 63,612 76,620 81,529 70,295 38,525 68,881 64,899 77,114 86,543

Inflows growth (%) 20.1 3.5 (6.1) 13.8 20.4 6.4 (13.8) (45.2) 78.8 (5.8) 18.8 12.2

Revenues 49,980 61,160 64,840 62,800 60,300 67,950 64,293 66,360 64,910 73,214 75,354 79,188

Backlog 77,559 80,784 71,310 70,868 90,943 103,788 115,461 100,465 105,100 96,784 98,545 105,900


EBITDA 2,706 4,280 5,384 5,649 6,217 7,297 7,183 7,241 6,293 7,252 8,289 8,711

EBITDA margin (%) 5.4 7.0 8.3 9.0 10.3 10.7 11.2 10.9 9.7 9.9 11.0 11.0

Cables

Inflows 5,104 8,567 11,512 9,585 9,886 10,569 9,539 10,198 8,313 12,470 13,717 15,088

Inflows growth (%) (13.9) 67.8 30.0 (16.7) 3.1 6.9 (9.7) 6.9 10.0 50.0 10.0 10.0

Revenues 5,520 6,310 9,070 10,260 10,540 10,090 11,830 11,050 10,620 7,739 12,826 14,324

Backlog 1,042 2,448 5,705 4,725 1,263 3,460 3,741 6,151 1,911 6,642 7,533 8,298


EBITDA (110) (316) (272) 205 527 706 946 884 850 619 1,026 1,146

EBITDA margin (%) (2.0) (5.0) (3.0) 2.0 5.0 7.0 8.0 8.0 8.0 8.0 8.0 8.0

Railways

Inflows 3,627 2,375 2,467 2,614 14,830 39,255 26,885 31,727 16,626 41,959 56,645 67,974

Inflows growth (%) 207.7 (34.5) (25.0) 6.0 467.3 164.7 (31.5) 18.0 (47.6) 152.4 35.0 20.0

Revenues 2,700 1,690 1,330 2,100 4,460 8,440 19,180 25,510 34,080 33,421 41,361 51,835

Backlog 4,356 4,488 4,754 5,669 15,157 41,515 48,698 61,509 45,862 54,400 69,684 85,822


EBITDA — (51) (40) 126 312 760 1,918 2,602 3,067 3,342 4,343 5,443

EBITDA margin (%) — (3.0) (3.0) 6.0 7.0 9.0 10.0 10.2 9.0 10.0 10.5 10.5

Civil/solar

Inflows 2,464 4,411 — 1,743 6,179 4,529 11,266 27,194 15,418 24,669 30,836 35,461

Inflows growth (%) (21.5) 79.0 (20.0) 254.5 (26.7) 148.7 141.4 (10.0) 60.0 25.0 15.0

Revenues 1,270 1,310 1,410 1,960 2,380 4,230 5,950 3,760 12,810 24,651 26,357 30,092

Backlog 4,451 5,712 3,803 2,268 6,316 5,189 4,682 26,654 32,485 32,503 36,983 42,352


EBITDA — (39) (42) 59 143 381 565 365 1,153 2,219 2,609 2,979

EBITDA margin (%) — (3.0) (3.0) 3.0 6.0 9.0 9.5 9.7 9.0 9.0 9.9 9.9

SAE

Inflows 10,069 10,009 12,335 9,585 16,065 15,098 10,526 5,666 9,501 10,451 12,019 12,980

Inflows growth (%) 29.9 — — (22.3) 67.6 (6.0) (30.3) (46.2) 15.0 10.0 15.0 8.0

Revenues 10,320 8,540 8,030 8,300 10,020 10,250 9,655 15,390 11,460 8,328 10,537 12,028

Backlog 7,292 8,568 9,508 11,339 12,631 19,028 18,157 10,252 5,733 7,855 9,337 10,288


EBITDA 1,290 837 80 415 902 923 917 1,493 917 500 1,022 1,167

EBITDA margin (%) 12.5 9.8 1.0 5.0 9.0 9.0 9.5 9.7 8.0 6.0 9.7 9.7



Exhibit 9: Key financials for KEC (consolidated), March fiscal year-ends, 2013-24E (Rs mn)


2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E 2023E 2024E

Income statement

Total operating income 69,795 79,018 84,678 85,178 85,844 100,580 110,005 119,654 131,142 144,406 163,106 183,718

Total operating costs (65,981) (74,085) (79,560) (78,255) (77,665) (90,518) (98,506) (107,310) (119,730) (130,753) (146,163) (164,662)

Raw materials consumed (53,301) (59,594) (64,527) (61,798) (59,489) (72,716) (81,230) (84,182) (96,076) (105,416) (119,067) (134,114)

Employee expenses (4,829) (5,661) (5,865) (6,392) (7,327) (7,984) (8,322) (11,044) (11,151) (13,640) (13,884) (15,667)

Operating and other expenses (7,852) (8,831) (9,168) (10,064) (10,849) (9,819) (8,954) (12,084) (12,503) (11,697) (13,212) (14,881)

EBITDA 3,814 4,933 5,118 6,923 8,179 10,062 11,499 12,344 11,412 13,653 16,943 19,056

Other income 160 138 1,462 103 289 404 226 111 299 257 284 344

Interest expense (1,944) (2,633) (3,089) (2,794) (2,536) (2,466) (3,119) (3,080) (2,627) (2,834) (2,929) (2,906)

Depreciation (561) (705) (881) (1,318) (1,297) (1,097) (1,171) (1,472) (1,525) (1,626) (1,767) (1,923)

PBT 1,470 1,733 2,611 2,914 4,634 6,902 7,435 7,903 7,559 9,450 12,531 14,572

Taxes paid (818) (883) (1,001) (1,436) (1,587) (2,298) (2,571) (2,248) (2,032) (2,646) (3,509) (4,080)

Net PAT 652 850 1,610 1,478 3,048 4,604 4,864 5,655 5,527 6,804 9,023 10,492

Earnings per share (Rs) 2.5 3.3 6.3 5.8 11.9 17.9 18.9 22.0 21.5 26.5 35.1 40.8

Balance sheet

Shareholders funds 11,472 11,916 13,298 12,904 15,864 19,974 24,351 27,976 33,597 39,514 47,362 56,487

Equity share capital 514 514 514 514 514 514 514 514 514 514 514 514

Reserves & surplus 10,958 11,402 12,784 12,390 15,349 19,460 23,837 27,462 33,083 39,000 46,848 55,973

Loan funds 16,690 21,273 21,894 32,212 20,957 17,663 18,394 20,618 18,434 16,434 13,934 10,934

Deferred tax liability 621 514 527 1,034 1,240 1,007 1,183 527 552 552 552 552

Total source of funds 28,783 33,702 35,719 46,150 38,060 38,645 43,929 49,121 52,583 56,500 61,848 67,973

Net fixed assets 10,114 9,922 8,811 10,109 9,216 9,983 9,860 12,132 12,000 12,119 12,469 12,875

Goodwill on consolidation 3,424 3,778 3,943 1,952 1,910 1,920 2,037 2,226 2,154 2,154 2,154 2,154

Cash balances 1,556 1,440 2,063 853 2,080 2,313 2,762 1,637 2,492 3,546 3,564 5,042

Net current assets excluding cash 13,689 18,562 20,902 32,982 23,550 24,036 29,138 32,902 35,307 38,052 43,032 47,272

Total application of funds 28,783 33,702 35,719 46,150 38,060 38,645 43,929 49,121 52,583 56,500 61,848 67,973

Cash flow statement

Operating profit before working capital changes 3,157 4,188 5,579 5,590 6,881 8,168 9,154 10,207 9,679 11,263 13,719 15,320

Change in working capital/other adjustments (4,365) (4,873) (2,340) (12,080) 9,432 (486) (5,101) (3,764) (2,405) (2,745) (4,979) (4,241)

Net cash flow from operating activites (1,209) (686) 3,239 (6,490) 16,312 7,682 4,053 6,443 7,274 8,518 8,740 11,079

Cash (used)/realised in investing activities (1,542) (866) 65 (879) (1,412) (963) (905) (4,025) (1,107) (1,744) (2,118) (2,329)

Free cash flow (OCF + net capex) (2,751) (1,552) 3,305 (7,115) 15,950 5,808 2,887 2,511 5,952 6,774 6,622 8,750

Cash (used)/realised in financing activities 2,098 1,725 (2,695) 5,652 (13,880) (6,253) (2,875) (2,887) (4,716) (5,720) (6,604) (7,272)

Cash generated/utilised (546) (116) 623 (1,210) 1,227 233 449 (1,125) 1,475 1,054 18 1,478

Net cash at end of year 1,556 1,440 2,063 853 2,080 2,313 2,762 1,636 3,111 3,546 3,564 5,042

Key ratios

EBITDA margin (%) 5.5 6.2 6.0 8.1 9.5 10.0 10.5 10.3 8.7 9.5 10.4 10.4

PAT margin (%) 0.9 1.1 1.9 1.7 3.6 4.6 4.4 4.7 4.2 4.7 5.5 5.7

Effective tax rate (%) 55.6 51.0 38.3 49.3 34.2 33.3 34.6 28.4 26.9 28.0 28.0 28.0

Net debt to equity 1.3 1.7 1.5 2.4 1.2 0.8 0.6 0.7 0.5 0.3 0.2 0.1

Return on Equity (%) 5.8 7.3 12.8 11.3 21.2 25.7 21.9 21.6 18.0 18.6 20.8 20.2

ROCE (%) 5.7 6.9 10.1 7.1 11.2 16.3 16.7 16.9 14.6 16.2 18.8 19.4

Book value per share (Rs) 44.6 46.3 51.7 50.2 61.7 77.7 94.7 108.8 130.7 153.7 184.2 219.7


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March 2021: Results calendar

Source: NSE, Kotak Institutional Equities

Mon Tue Wed Thu Fri Sat

14-Jun 15-Jun 16-Jun 17-Jun 18-Jun 19-Jun

Coal India Jubilant Foodworks CESC D B Corp. Ashoka Buildcon NTPC

Indian Overseas Bank Lemon Tree Hotel HCG GMR Infrastructure

LIC Housing Finance Natco Pharma Timken India

Power Finance Corporation Power Grid

Whirlpool of India

21-Jun 22-Jun 23-Jun 24-Jun 25-Jun 26-Jun

Info Edge (India) Aster DM Healthcare Apollo Hospitals Enterprise Ashok Leyland

Oil India Bharat Electronics

TCNS Clothing Co, NMDC


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Kotak Institutional Equities: Valuation summary of KIE Universe stocks


Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) ADVT-3M

Company Rating 16-Jun-21 (Rs) (%) (Rs bn) (US$ bn) (mn) 2,021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E (US$ mn)

Automobiles & Components

Amara Raja Batteries SELL 772 725 (6) 132 1.8 171 38 42 48 (2) 10 16 20 19 16 11.7 10.2 8 .8 3.1 2.8 2.5 16.4 15.9 16.3 1.4 1.3 1.6 21

Apollo Tyres ADD 233 240 3 148 2.0 638 13 15 19 57 17 24 18 15 12 6.9 6.3 5.2 1.3 1.2 1.1 7.8 8.3 9.5 1.5 1.2 1.2 22

Ashok Leyland REDUCE 126 125 (1) 370 5.0 2,936 (1) 2 6 (207) 239 254 NM 69 19 105.5 24.5 11.3 5.4 5.1 4.3 NM 7.6 24 0.0 0.4 1.5 35

Bajaj Auto BUY 4,110 4,600 12 1,189 16 289 157 199 239 (11) 27 20 26 21 17 19.7 15.1 12.0 4.7 4.3 3.9 20 22 24 3.4 2.9 3.5 33

Balkrishna Industries SELL 2,245 1,500 (33) 434 5.9 193 61 67 79 23 10 19 37 34 28 23.4 20.6 17.4 7.2 6.3 5.4 21 20.0 20 0.8 0.8 0.9 16

Bharat Forge SELL 732 485 (34) 341 4.6 466 (3) 16 23 (136) 669 49 NM 47 32 44.3 23.8 18.1 6.3 5.7 4.9 NM 12.7 16.6 0.3 0.4 0.4 25

CEAT ADD 1,373 1,500 9 56 0.8 40 114 98 126 82 (15) 29 12 14 11 7.0 7.1 5.9 1.7 1.5 1.4 14.9 11.4 13.3 1.3 1.3 1.7 5

Eicher Motors SELL 2,741 2,200 (20) 749 10.2 272 49 75 103 (26) 51 38 55 37 27 37.7 27.6 21.0 7.7 6.6 5.6 15.0 19.3 23 0.6 0.5 0.5 31

Endurance Technologies SELL 1,571 1,260 (20) 221 3.0 141 38 49 62 (7) 30 27 42 32 25 20.8 16.0 13.0 6.2 5.3 4.5 14.6 16.6 17.9 0.4 0.5 0.7 3

Escorts BUY 1,191 1,700 43 120 2.2 101 86 91 101 58 6 11 14 13 12 9.5 8 .6 7.3 2.2 2.0 1.7 16.2 14.9 14.6 0.6 1.1 1.3 25

Exide Industries REDUCE 191 180 (6) 162 2.2 850 9 10 12 (10) 16 12 21 18 17 11.9 10.0 9.1 2.4 2.2 2.0 11.5 12.3 12.8 1.0 2.4 2.4 9

Hero Motocorp REDUCE 2,975 2,900 (3) 594 8 .1 200 148 195 211 (7) 32 8 20 15 14 12.1 9.8 8 .8 3.9 3.5 3.2 20 24 24 3.5 3.9 4.2 38

Mahindra CIE Automotive SELL 214 150 (30) 81 1.1 378 3 8 15 (70) 178 88 76 27 15 18.5 9.4 7.6 1.7 1.6 1.5 2.2 5.9 10.4 — — — 1

Mahindra & Mahindra BUY 806 975 21 1,002 13.7 1,138 29 39 53 22 34 36 28 21 15 14.0 12.9 9.9 2.6 2.3 2.1 9.4 11.9 14.5 1.1 0.7 1.0 53

Maruti Suzuki SELL 7,114 5,600 (21) 2,149 29.3 302 140 213 266 (25) 52 25 51 33 27 31.9 19.3 15.0 4.2 3.8 3.5 8 .5 12.0 13.6 0.6 0.8 0.9 69

Motherson Sumi Systems ADD 245 260 6 775 10.6 3,158 3 9 12 (7) 160 29 72 28 21 18.9 9.8 7.8 6.2 4.9 3.9 9.1 19.9 21 0.6 0.7 0.9 53

MRF SELL 82,554 69,150 (16) 350 4.8 4 3,012 3,140 3,841 (10) 4 22 27 26 21 10.4 10.5 8 .5 2.6 2.4 2.1 10.0 9.5 10.5 0.2 0.1 0.1 26

Schaeffler India SELL 5,230 4,350 (17) 163 2.2 31 93 153 191 (21) 65 25 56 34 27 28.2 18.7 14.9 5.2 4.7 4.1 9.5 14.4 16.1 — — — 1

SKF SELL 2,576 1,890 (27) 127 1.7 49 60 75 90 3 25 19 43 34 29 29.1 24.2 19.9 8 .1 6.8 5.7 19.0 20.0 20.0 4.2 0.5 0.6 1

Tata Motors SELL 349 205 (41) 1,338 16.9 3,829 (4) 19 25 82 609 34 NM 18 14 7.2 5.0 4.3 2.4 2.1 1.9 NM 12.3 14.4 — — — 246

Timken SELL 1,373 830 (40) 103 1.4 75 22 36 43 (34) 65 20 63 38 32 36.5 23.5 19.6 7.6 6.4 5.4 11.1 18.1 18.4 0.1 0.1 0.1 1

TVS Motor SELL 622 425 (32) 296 4.0 475 13 20 26 (1) 55 28 48 31 24 20.8 16.0 13.1 7.1 6.1 5.2 15.7 21 23 0.5 0.8 1.0 24

Varroc Engineering ADD 378 450 19 58 0.8 135 (47) 11 34 (25,185) 125 200 NM 33 11 20.2 7.0 4.8 1.7 1.6 1.4 NM 4.8 12.6 — — — 1

Automobiles & Components Cautious 10,959 148.7 13 89 30 48 25 19 14.6 10.4 8.6 3.8 3.4 3.0 8.0 13.5 15.4 1.0 1.0 1.2 741

Banks

AU Small Finance Bank SELL 1,041 800 (23) 325 4.4 312 39 27 34 75 (29) 24 27 38 31 — — — 5.5 4.8 4.2 22.9 12.9 13.9 — — — 27

Axis Bank BUY 750 810 8 2,298 31.3 3,064 22 48 58 273 122 21 35 16 13 — — — 2.4 2.1 1.9 7.1 13.6 14.6 0.4 1.0 1.2 149

Bandhan Bank ADD 321 350 9 517 7.0 1,611 14 23 28 (27) 65 26 23 14 11 — — — 3.3 2.6 2.2 13.5 19.1 20.0 — 1— 1— 39

Bank of Baroda ADD 84 95 13 436 6.0 5,178 2 16 20 35 890 29 53 5 4 — — — 0.8 0.7 0.6 1.2 11.0 12.8 0.0 3.8 4.8 66

Canara Bank REDUCE 152 150 (1) 251 3.4 1,647 16 17 20 172 7 21 10 9 8 — — — 0.7 0.7 0.6 4.6 4.5 5.3 — — — 45

City Union Bank REDUCE 168 160 (5) 124 1.7 739 8 8 11 24 (2) 45 21 21 15 — — — 2.5 2.3 2.1 10.6 9.6 12.7 1.4 0.9 1.4 6

DCB Bank BUY 112 150 34 35 0.5 311 11 12 17 (1) 8 43 10 10 7 — — — 1.1 1.0 0.9 10.0 9.9 12.8 1.0 1.0 1.5 3

Equitas Holdings BUY 95 100 5 33 0.4 342 8 8 16 30 5 97 12 12 6 — — — 1.1 1.0 0.9 9.2 8 .8 15.4 — — — 2

Equitas Small Finance Bank ADD 60 65 9 68 0.9 1,139 3 4 5 46 21 22 18 15 12 — — — 2.0 1.8 1.6 12.5 12.8 13.7 — — — 1

Federal Bank BUY 85 100 18 169 2.3 1,996 8 9 13 3 9 54 11 10 6 — — — 1.1 1.0 0.9 10.4 10.3 14.4 0.8 1.8 2.8 29

HDFC Bank ADD 1,485 1,650 11 8 ,192 111.7 5,513 56 65 75 18 15 16 26 23 20 — — — 4.1 3.6 3.2 16.6 16.5 17.0 0.0 1.1 1.3 186

ICICI Bank BUY 640 710 11 4,432 60.4 6,917 23 33 36 91 41 10 27 19 18 — — — 3.2 2.9 2.5 12.3 14.6 14.3 0.3 1.0 1.1 178

IndusInd Bank ADD 1,014 1,050 4 784 10.7 773 37 65 85 (41) 73 31 27 16 12 — — — 1.9 1.7 1.5 7.6 11.1 13.1 0.5 0.9 1.2 90

Karur Vysya Bank BUY 52 65 24 42 0.6 799 4 7 11 53 63 53 12 7 5 — — — 0.7 0.7 0.6 5.3 8 .2 11.6 1.0 3.6 5.6 1

Punjab National Bank REDUCE 42 36 (14) 460 6.3 11,011 2 4 6 287 130 36 22 9 7 — — — 0.7 0.7 0.6 2.8 5.5 7.0 — — — 88

RBL Bank BUY 216 240 11 129 1.8 598 8 17 32 (15) 103 85 25 13 7 — — — 1.1 1.0 0.9 4.4 7.9 13.3 0.6 1.2 2.2 42

SBI Cards and Payment Services ADD 1,077 1,100 2 1,013 13.8 941 10 17 27 (21) 65 56 103 62 40 — — — 16.1 13.0 9.9 16.9 23 28 0.1 0.1 0.1 48

State Bank of India BUY 426 520 22 3,801 51.8 8,925 23 40 51 41 74 27 19 11 8 — — — 2.1 1.7 1.4 8 .4 13.1 14.5 0.9 0.0 0.0 270

Ujjivan Financial Services BUY 215 345 61 26 0.4 121 34 44 — 25 32 (100) 6 5 - — — — 1.0 0.9 — 17.0 19.3 NM 2.0 2.8 0.0 2

Ujjivan Small Finance Bank ADD 33 34 4 56 0.8 1,728 (0) 1 3 (103) 2,275 112 NM 25 12 — — — 2.1 1.9 1.6 0.3 7.4 13.5 0.0 0.0 0.0 2

Union Bank REDUCE 37 34 (9) 256 3.5 6,407 5 5 7 154 5 56 8 8 5 — — — 0.6 0.5 0.5 5.0 4.9 7.1 0.0 0.0 0.0 9

YES Bank SELL 14 11 (21) 351 4.8 25,055 (1) (1) (0) 89 37 89 NM NM NM — — — 1.3 1.5 1.4 NM NM NM 0.0 0.0 0.0 27

Banks Attractive 23,800 324.6 110 56 25 26 17 13 2.0 1.9 1.7 7.8 11.1 12.4 0.3 0.8 1.0 1,310

P/B (X) RoE (%) Dividend yield (%)


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Company Rating 16-Jun-21 (Rs) (%) (Rs bn) (US$ bn) (mn) 2,021 2022E 2023E 2,021 2022E 2023E 2,021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E 2021 2022E 2023E (US$ mn)

Building Products

Astral SELL 1,960 1,100 (44) 394 5.4 201 20 23 27 63 17 16 97 84 72 60.4 51.1 44.0 20.8 17.2 14.6 24 23 22 0.1 0.2 0.3 10

Building Products Cautious 394 5.4 63 17 16 97 83 72 60.4 51.1 44.0 20.8 17.2 14.5 21 21 20 0.1 0.2 0.3 10

Capital goods

ABB BUY 1,717 1,850 8 364 5.0 212 8 21 28 (54) 157 35 212 83 61 123.9 57.9 42.3 10.1 9.3 8 .4 4.8 11.7 14.5 0.3 0.3 0.4 4

Ashoka Buildcon BUY 101 145 44 28 0.4 281 12 12 13 (14) 1 9 9 8 8 6.9 5.8 4.9 1.0 0.9 0.8 12.2 11.2 11.2 1.9 1.9 2.1 3

Bharat Electronics BUY 150 150 0 365 5.0 2,437 8 8 8 4 (1) 7 19 19 18 12.5 11.8 10.7 3.3 3.0 2.8 17.9 16.1 15.7 1.9 1.9 2.0 31

BHEL SELL 67 34 (49) 233 3.2 3,482 (8 ) (0) 2 (84) 97 840 NM NM 37 (6.9) 54.1 17.0 0.9 0.9 0.9 NM NM 2.4 (5.2) (0.1) 1.0 87

Carborundum Universal ADD 575 545 (5) 109 1.5 190 15 21 26 4 37 26 38 28 22 22.0 17.0 13.5 5.1 4.6 4.0 14.3 17.2 19.2 0.7 1.0 1.2 2

Cochin Shipyard BUY 419 550 31 55 0.8 132 41 48 43 (15) 16 (10) 10 9 10 5.7 5.5 5.5 1.3 1.2 1.1 13.8 14.6 12.0 2.8 3.1 3.4 2

Cummins India BUY 849 890 5 235 3.2 277 23 31 39 (10) 36 25 37 27 22 38.4 26.4 20.1 5.3 5.0 4.7 14.8 19.0 22 1.8 2.0 2.5 15

Dilip Buildcon BUY 551 630 14 80 1.1 146 22 40 58 (23) 84 45 25 14 9 7.7 6.2 5.2 2.1 1.6 1.4 8 .5 13.1 15.6 0.2 0.1 0.2 3

IRB Infrastructure BUY 152 145 (5) 54 0.7 351 3 9 12 (84) 178 28 46 16 13 8 .4 7.7 6.3 0.8 0.7 0.7 1.7 4.6 5.7 2.5 1.0 1.4 7

Kalpataru Power Transmission BUY 435 525 21 65 0.9 153 33 37 46 29 12 27 13 12 9 5.6 5.5 4.4 1.8 1.4 1.3 14.2 13.4 14.5 2.0 0.9 1.2 2

KEC International BUY 403 450 12 104 1.4 257 21 26 35 (2) 23 33 19 15 11 10.5 8 .5 6.7 3.1 2.6 2.2 18.0 18.6 21 0.6 0.7 0.9 2

L&T BUY 1,491 1,850 24 2,094 28.6 1,405 49 71 95 (23) 46 34 31 21 16 21.0 15.4 13.4 3.3 3.1 2.9 11.3 15.2 19.0 2.4 2.0 2.6 63

Siemens SELL 2,027 1,740 (14) 722 9.8 356 35 40 48 63 14 21 59 51 42 41.0 35.7 29.5 7.0 6.4 5.8 12.5 13.1 14.4 0.5 0.5 0.7 13

Thermax SELL 1,477 1,200 (19) 176 2.4 113 23 33 42 22 42 28 64 45 35 44.9 33.5 25.9 44.9 33.5 25.9 8 .3 11.1 13.5 0.5 1.1 1.4 1

Capital goods Attractive 4,684 63.9 (25) 67 31 43 26 19 3.1 2.9 2.7 7.3 11.5 14.0 1.3 1.4 1.8 236

Commercial & Professional Services

SIS BUY 418 430 3 62 0.8 149 25 20 23 63 (20) 20 17 21 18 11.9 12.1 10.7 3.4 3.0 2.7 23 15.1 16.0 1.4 1.1 1.4 2

TeamLease Services ADD 3,550 3,950 11 61 0.8 17 34 85 112 68 148 32 103 42 32 58.7 38.3 28.7 9.3 7.6 6.1 9.6 20 21 — — — 1

Commercial & Professional Services Attractive 123 1.7 64 3 24 29 28 23 19.3 17.7 15.0 4.9 4.3 3.7 17.2 15.4 16.4 0.7 0.6 0.7 3

Commodity Chemicals

Asian Paints REDUCE 3,019 2,500 (17) 2,896 39.5 959 33 38 47 20 15 24 92 80 65 58.9 52.2 43.9 22.6 20.2 17.9 27 27 29 0.6 0.7 0.9 68

Berger Paints SELL 818 630 (23) 794 10.8 971 7 10 12 9 32 25 110 83 67 66.6 52.0 42.6 23.5 20.3 17.5 24 26 28 0.3 0.4 0.6 12

Kansai Nerolac REDUCE 578 610 6 311 4.2 539 10 12 15 1 21 26 58 48 38 37.3 31.6 25.3 7.5 6.9 6.2 13.6 15.1 17.3 0.5 0.7 0.9 2

Tata Chemicals SELL 737 540 (27) 188 2.6 255 11 32 36 (66) 198 14 69 23 20 11.4 7.9 7.2 1.3 1.3 1.3 2.0 5.7 6.5 1.4 4.3 4.9 58

Commodity Chemicals Neutral 4,189 57.1 1 29 23 90 69 57 49.4 40.6 34.2 12.1 11.3 10.5 13.5 16.3 18.5 0.6 0.8 1.0 140

Construction Materials

ACC REDUCE 2,021 1,950 (3) 379 5.2 188 75 95 106 4 27 11 27 21 19 12.9 10.8 9.4 3.0 2.7 2.5 11.7 13.5 13.5 0.7 1.2 1.3 24

Ambuja Cements REDUCE 339 320 (6) 673 9.2 1,986 13 13 16 28 1 22 25 25 21 11.4 9.3 7.6 3.0 2.7 2.4 11.3 11.2 12.4 5.3 0.8 0.9 26

Dalmia Bharat BUY 1,836 1,800 (2) 343 4.7 187 54 58 80 286 7 37 34 32 23 12.1 11.2 8 .8 2.7 2.5 2.3 8 .7 8.2 10.3 — — — 5

Grasim Industries ADD 1,470 1,520 3 967 13.2 657 68 86 108 (22) 27 25 22 17 14 9.3 7.7 6.2 1.5 1.3 1.2 7.3 8.3 9.4 0.6 0.6 0.5 34

J K Cement REDUCE 2,769 2,450 (12) 214 2.9 77 94 122 137 46 30 13 30 23 20 14.8 12.9 11.4 5.7 4.7 3.8 21 23 21 0.5 0.4 0.4 2

JK Lakshmi Cement ADD 559 550 (2) 66 0.9 118 38 39 43 60 4 11 15 14 13 7.9 7.1 6.5 3.1 2.6 2.2 23 20 18.7 0.7 1.1 1.2 5

Orient Cement ADD 135 140 4 28 0.4 205 10 10 11 147 (6) 9 13 14 13 6.2 6.0 6.2 2.1 1.9 1.7 17.7 14.5 14.2 1.5 1.5 1.5 2

Shree Cement SELL 28,225 20,000 (29) 1,018 13.9 36 641 833 983 47 30 18 44 34 29 25.2 19.8 16.8 6.7 5.6 4.8 16.4 18.1 18.0 0.2 0.2 0.2 24

The Ramco Cements SELL 1,022 800 (22) 241 3.3 236 32 34 43 26 4 27 32 30 24 17.4 14.9 12.0 4.2 3.7 3.3 14.2 13.0 14.6 0.3 0.3 0.4 9

UltraTech Cement REDUCE 6,587 6,300 (4) 1,901 25.9 289 193 245 282 (3) 27 15 34 27 23 17.0 14.1 12.5 4.3 3.8 3.4 13.4 15.0 15.3 0.6 0.3 0.4 48

Construction Materials Attractive 5,831 79.5 7 21 20 30 25 21 13.7 11.4 9.7 3.1 2.8 2.5 10.5 11.4 12.2 1.0 0.5 0.5 178



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Consumer Durables & Apparel

Crompton Greaves Consumer SELL 423 305 (28) 266 3.6 628 9 10 11 19 4 15 45 43 37 38 32 27 13.8 11.2 9.1 35 29 27 0.5 0.6 0.6 12

Havells India SELL 1,007 845 (16) 630 8 .6 626 17 20 24 41 23 18 61 49 42 40 34 28 12.8 11.1 9.7 23 24 25 0.6 0.7 0.8 22

Page Industries REDUCE 29,982 30,500 2 334 4.6 11 305 486 598 (1) 59 23 98 62 50 63 42 34 37.8 31.4 26.6 40 56 57 0.8 1.2 1.5 15

Polycab ADD 1,922 1,700 (12) 287 3.9 149 59 62 69 14 6 10 33 31 28 24 20 18 6.0 5.2 4.5 20 18.1 17.1 0.4 0.4 0.4 8

TCNS Clothing Co. REDUCE 553 390 (29) 34 0.5 68 (7) 11 15 (162) 269 37 NM 49 36 112 17 13.6 5.5 4.7 4.0 NM 10.4 12.2 — — — 1

Voltas SELL 1,028 830 (19) 340 4.6 331 13 24 29 (21) 85 23 80 43 35 62 35 29 6.8 6.1 5.5 9.2 15.0 16.4 0.3 0.6 0.7 27

Whirlpool SELL 2,273 1,920 (16) 288 3.9 127 26 43 60 (30) 64 38 87 53 38 52 37 26 10.2 8 .9 7.6 12.4 18.1 21 0.2 0.4 0.5 4

Consumer Durables & Apparel Cautious 2,180 29.7 4 34 20 61 46 38 42 32 26 10.4 9.0 17.0 19.7 20 0.5 0.6 91

Consumer Staples

Bajaj Consumer Care ADD 295 325 10 44 0.6 148 15 16 18 21 8 9 20 18 17 15.5 14.5 12.8 5.8 5.2 4.7 32 30 30 3.4 3.7 3.7 5

Britannia Industries ADD 3,639 3,650 0 877 12.0 241 78 70 82 32 (9) 16 47 52 45 35 37 32 24.7 45.1 41.7 46 61 96 3.0 2.1 1.6 28

Colgate-Palmolive (India) ADD 1,713 1,760 3 466 6.4 272 38 39 44 34 3 12 45 44 39 30.3 28.8 25.8 40.0 40.1 37.2 75 92 99 2.2 2.2 2.4 14

Dabur India ADD 581 555 (4) 1,026 14.0 1,767 10 10 12 11 8 18 61 56 48 50 45 39 13.4 12.9 11.7 24 24 26 0.8 0.9 1.1 19

Godrej Consumer Products ADD 917 925 1 938 12.8 1,023 17 18 21 25 6 16 53 50 43 39 35 30 9.9 8 .9 8 .1 20 18.7 19.5 0.0 1.0 1.3 24

Hindustan Unilever ADD 2,408 2,650 10 5,658 77.2 2,350 34 40 48 9 19 18 71 60 50 49 41 35 11.9 11.5 11.2 29 19.7 23 1.3 1.6 1.9 63

ITC BUY 208 257 24 2,558 34.9 12,330 11 12 13 (8 ) 10 12 20 18 16 14.7 12.8 11.3 4.3 4.2 4.1 21 23 25 5.2 5.0 5.4 95

Jyothy Laboratories ADD 158 170 8 58 0.8 367 6 6 7 26 3 19 27 26 22 18.2 18.7 15.9 4.1 3.9 3.7 16.4 15.3 17.4 2.5 2.8 3.2 2

Marico ADD 506 465 (8 ) 653 8 .9 1,290 9 10 11 11 11 13 56 50 44 40 36 31 20.1 18.9 17.6 37 39 41 1.5 1.7 1.9 16

Nestle India ADD 17,972 18,250 2 1,733 23.6 96 216 255 301 6 18 18 83 71 60 54 46 40 85.8 62.1 47.1 106 102 90 1.1 1.0 1.2 21

Tata Consumer Products ADD 736 650 (12) 678 9.2 922 10 11 15 21 16 32 76 66 50 42 37 30 4.7 4.5 4.2 6.3 7.0 8.7 0.6 0.6 0.7 35

United Breweries ADD 1,370 1,365 (0) 362 4.9 264 5 14 31 (72) 212 119 301 96 44 94 49 25 10.1 9.2 7.9 3.4 10.0 19.2 0.0 0.4 1.2 11

United Spirits ADD 652 680 4 474 6.5 727 6 11 16 (45) 75 48 103 59 40 48 35 25 11.1 9.3 8 .0 11.1 17.3 22 — — 0.8 18

Varun Beverages BUY 788 1,150 46 341 4.7 289 14 26 37 (16) 89 42 58 30 21 31 20 16 6.5 5.4 4.4 11.5 19.4 23 0.2 0.4 0.4 6

Consumer Staples Attractive 15,866 216.4 3 14 18 48 42 36 35 30 25 9.8 9.4 8.9 20 22 25 1.8 1.9 2.2 355

Diversified Financials

Aavas Financiers ADD 2,505 2,500 (0) 197 2.7 79 37 45 57 17 21 27 68 56 44 — — — — — — 12.9 13.6 15.0 0.0 0.0 0.0 3

Aditya Birla Capital NR 123 — — 298 4.1 2,414 4 6 8 4 36 43 29 21 15 — — — — — — 7.8 9.7 12.4 45.7 50.3 57.0 7

Bajaj Finance SELL 6,082 4,200 (31) 3,671 50.1 602 73 123 169 (16) 67 37 83 50 36 — — — 9.9 8 .4 6.9 12.8 18.4 21 0.2 0.2 0.3 202

Bajaj Finserv ADD 11,856 11,450 (3) 1,887 25.7 159 281 426 526 33 52 24 42 28 23 — — — 5.3 5.1 4.4 13.3 18.7 21 0.1 0.1 0.1 66

Cholamandalam BUY 564 625 11 463 6.3 820 18 30 36 44 62 20 31 19 16 — — — 5.1 4.2 3.4 17.1 23 23 0.4 0.6 0.7 40

Computer Age Management Services SELL 2,869 1,900 (34) 140 1.9 49 42 49 56 18 17 14 68 58 51 — — — 27.1 22.9 19.5 39 43 41 2.2 1.1 1.3 7

HDFC BUY 2,521 3,050 21 4,552 62.1 1,804 67 72 86 (35) 8 19 38 35 29 — — — 4.2 3.9 3.5 12.0 11.5 12.6 0.8 0.9 1.0 126

HDFC AMC SELL 3,055 2,260 (26) 651 8 .9 213 62 71 83 5 14 17 49 43 37 — — — 13.6 11.8 10.2 30 29 30 1.1 1.3 1.5 11

IIFL Wealth ADD 1,140 1,300 14 100 1.4 89 42 50 60 75 20 21 27 23 19 — — — 3.6 3.4 3.2 12.7 15.1 17.6 6.1 3.1 3.7 1

L&T Finance Holdings ADD 96 115 19 238 3.2 2,469 4 8 10 (55) 111 24 25 12 10 — — — 1.3 1.2 1.0 4.8 10.2 11.4 0.0 0.6 0.6 19

LIC Housing Finance ADD 495 600 21 250 3.4 550 54 54 67 12 1 23 9 9 7 — — — 1.6 1.5 1.2 14.1 13.1 13.7 1.7 1.7 2.1 25

Mahindra & Mahindra Financial ADD 170 200 18 210 2.9 1,230 3 14 16 (81) 421 15 62 12 10 — — — 1.5 1.4 1.3 2.6 11.4 12.0 0.5 1.7 1.9 26

Muthoot Finance REDUCE 1,515 1,375 (9) 608 8 .3 401 93 110 125 23 19 14 16 14 12 — — — 4.0 3.3 2.7 28 26 24 1.3 1.5 1.7 27

Shriram City Union Finance BUY 1,707 1,725 1 113 1.5 66 153 173 196 1 13 13 11 10 9 — — — 1.4 1.3 1.2 13.2 13.3 13.4 1.9 1.5 1.7 1

Shriram Transport BUY 1,434 1,575 10 403 5.5 253 98 139 167 (11) 41 20 15 10 9 — — — 1.8 1.5 1.3 12.6 15.2 16.0 1.3 1.5 1.7 48

Diversified Financials Attractive 13,899 189.6 (11) 33 20 37 28 23 4.3 3.8 3.5 11.6 13.9 15.1 0.6 0.7 0.8 614



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Electric Utilities

CESC BUY 771 840 9 102 1.4 133 100 115 126 2 14 10 8 7 6 5.9 5.1 4.6 0.8 0.7 0.7 12.1 11.6 11.5 5.9 1.8 2.1 5

JSW Energy REDUCE 165 70 (58) 271 3.7 1,640 6 5 7 (12) (1) 25 30 30 24 11.8 11.0 10.7 2.2 2.0 1.9 7.5 6.9 8.0 — — — 14

NHPC ADD 27 30 11 271 3.7 10,045 3 3 4 20 (2) 10 8 8 7 8 .8 8 .5 7.0 0.8 0.8 0.8 10.7 9.8 10.4 6.7 7.5 8.4 3

NTPC BUY 120 125 4 1,162 15.8 9,697 15 15 17 32 4 8 8 8 7 9.0 6.9 5.8 1.0 0.9 0.8 12.2 11.8 11.8 3.3 3.8 4.1 31

Power Grid BUY 242 250 3 1,267 17.3 5,232 25 28 30 18 15 7 10 9 8 7.1 6.2 5.8 1.8 1.6 1.4 18.8 19.4 18.7 4.1 4.9 6.5 39

Tata Power ADD 126 110 (13) 402 5.5 3,196 4 6 6 (10) 52 (1) 31 21 21 9.8 8 .6 8 .4 1.9 1.8 1.6 6.6 8.9 8.2 — — — 88

Electric Utilities Attractive 3,476 47.4 20 10 8 10 9 9 1.3 1.2 1.1 12.6 12.6 12.5 3.3 3.7 4.5 181

Fertilizers & Agricultural Chemicals

Bayer Cropscience SELL 5,656 4,600 (19) 254 3.5 45 130 159 184 0 22 15 44 36 31 30 25 21 10.0 8 .1 6.7 23 25 24 0.4 0.6 0.6 2

Dhanuka Agritech SELL 984 775 (21) 46 0.6 48 44 43 47 49 (3) 10 22 23 21 16.4 16.8 15.2 5.9 5.0 4.3 28 23 22 0.4 1.3 1.7 3

Godrej Agrovet SELL 556 455 (18) 107 1.5 192 16 20 23 41 25 12 34 27 24 21 17 15 4.3 4.0 3.6 13.4 15.2 15.5 1.4 1.8 2.0 2

PI Industries REDUCE 2,895 2,420 (16) 439 6.0 152 50 61 74 50 22 23 58 48 39 42 34 27 8 .1 7.2 6.2 18.5 16.0 17.1 0.2 0.3 0.4 15

Rallis India ADD 340 310 (9) 66 0.9 195 11 14 17 26 26 20 30 24 20 20.5 16.3 13.4 4.2 3.7 3.2 14.8 16.5 17.4 0.9 1.0 1.1 5

UPL SELL 838 650 (22) 640 8 .7 765 38 46 55 62 22 20 22 18 15 10.3 8 .7 7.4 3.6 3.1 2.7 16.8 18.3 19.1 1.2 1.5 1.7 80

Fertilizers & Agricultural Chemicals Cautious 1,553 21.2 47 22 19 31 26 22 15.5 13.1 11.2 5.1 4.4 3.8 16.1 17.1 17.6 0.8 1.0 1.2 107

Gas Utilities

GAIL (India) BUY 162 190 18 718 9.8 4,440 11 14 15 (18) 32 4 15 11 11 11.9 8 .4 7.9 1.5 1.4 1.3 10.6 13.1 12.7 3.1 3.7 4.0 41

GSPL SELL 313 200 (36) 177 2.4 564 13 12 8 (23) (11) (32) 24 27 39 11.1 12.1 16.3 2.4 2.2 2.1 10.6 8.7 5.6 0.6 0.8 0.6 5

Indraprastha Gas ADD 534 575 8 374 5.1 700 16 23 26 (4) 43 11 33 23 21 23.6 16.8 14.8 6.3 5.4 4.6 21 25 24 0.5 1.0 1.3 17

Mahanagar Gas BUY 1,249 1,350 8 123 1.7 99 63 75 105 (16) 20 39 20 17 12 12.7 10.4 7.3 3.8 3.4 2.9 20 22 26 1.8 2.4 3.8 10

Petronet LNG BUY 230 275 19 346 4.7 1,500 20 20 23 11 3 11 12 11 10 6.6 6.1 5.5 3.0 2.7 2.4 26 25 25 5.0 5.2 5.7 15

Gas Utilities Attractive 1,737 23.7 (11) 21 7 17 14 13 11.4 9.1 8.4 2.3 2.1 2.0 13.7 15.2 14.9 2.6 3.0 3.4 87

Health Care Services

Apollo Hospitals ADD 3,294 2,860 (13) 474 6.5 144 5 48 65 (71) 785 36 609 69 51 43.2 26.1 21.7 10.4 9.5 8 .6 2.0 14.4 17.8 0.1 0.6 0.8 39

Aster DM Healthcare BUY 156 220 41 78 1.1 500 3 10 12 (52) 245 21 55 16 13 9.4 6.5 5.6 2.3 2.0 1.8 4.3 13.6 14.5 — — — 2

Dr Lal Pathlabs SELL 3,153 1,810 (43) 263 3.6 83 35 43 46 29 23 7 90 73 69 58.0 45.7 43.1 21.1 18.3 15.9 26 27 25 0.5 0.6 0.7 21

HCG BUY 209 175 (16) 26 0.4 143 (8 ) (2) (2) 30 71 21 NM NM NM 20.3 11.7 10.1 3.1 3.2 3.3 NM NM NM — — — 1

Metropolis Healthcare SELL 2,785 1,800 (35) 142 1.9 51 36 44 47 21 21 7 77 64 60 48.3 38.4 34.7 20.0 16.7 14.2 30 29 26 0.4 0.5 0.5 8

Narayana Hrudayalaya ADD 474 540 14 97 1.3 204 (1) 12 15 (112) 1,762 27 NM 41 32 54.8 17.8 15.3 8 .7 7.1 5.8 NM 19.2 20.0 — — — 4

Health Care Services Attractive 1,080 14.7 (41) 250 24 193 55 45 33.9 21.5 18.7 9.0 8.1 7.1 4.7 14.7 16.1 0.2 0.5 0.6 74

Hotels & Restaurants

Burger King SELL 162 115 (29) 62 0.8 382 (4) (1) 1 (66) 78 167 NM NM 248 592.2 38.2 23.2 9.2 9.7 9.4 NM NM 3.9 0.0 0.0 0.0 7

Jubilant Foodworks BUY 3,232 3,400 5 427 5.8 132 17 34 53 (26) 94 55 185 95 62 54.5 37.4 28.1 29.7 23.7 18.2 17.9 28 33 0.2 0.3 0.6 25

Lemon Tree Hotels REDUCE 42 38 (10) 33 0.5 790 (2) (0) 1 (1,233) 71 226 NM NM 72 85.5 40.8 14.2 3.6 3.6 3.5 NM NM 4.9 — (1.2) 0.3 2

Westlife Development ADD 484 460 (5) 75 1.0 156 (5) 1 6 (1,655) 125 346 NM 378 85 103.4 30.5 21.1 15.0 14.5 12.4 NM 3.9 15.7 — 0.0 0.0 2

Hotels & Restaurants Attractive 597 8.1 (162) 368 117 NM 151 70 66.3 36.7 24.5 16.9 15.4 13.0 NM 10.1 18.7 0.1 0.2 0.4 36



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Insurance

HDFC Life Insurance ADD 692 750 8 1,399 19.1 2,011 7 8 9 5 13 14 102 90 79 — — — 16.5 15.3 14.0 17.6 17.5 18.5 0.3 0.3 0.3 28

ICICI Lombard SELL 1,516 1,150 (24) 689 9.4 490 32 35 40 23 8 15 47 44 38 — — — 9.3 8 .1 6.9 22 21 19.6 0.5 0.5 0.5 12

ICICI Prudential Life BUY 578 660 14 830 11.3 1,436 7 7 9 (10) 11 15 86 78 68 — — — 9.1 8 .3 7.6 11.5 11.2 11.7 0.3 0.0 0.0 24

Max Financial Services BUY 1,022 1,150 13 353 4.8 345 3 10 10 (72) 237 7 355 106 98 — — — — — — 2.2 4.9 5.0 0.0 0.0 0.0 11

SBI Life Insurance BUY 992 1,360 37 992 13.5 1,002 15 16 18 2 12 9 68 61 56 — — — 9.8 8 .7 7.7 15.3 15.2 14.6 0.3 0.3 0.3 39

Insurance Attractive 4,263 58.1 2 18 13 80 68 60 10.2 9.1 8.2 12.8 13.4 13.6 0.2 0.2 0.2 114

Internet Software & Services

Info Edge SELL 4,897 3,170 (35) 631 8 .6 128.3 22 43 53 (19) 98 23 225 114 93 194.2 106.6 84.7 13.9 12.7 11.6 8 .0 11.7 13.1 0.1 0.2 0.3 44

Just Dial SELL 1,070 595 (44) 67 0.9 61.9 35 31 36 (17) (11) 17 31 35 30 33.2 29.0 25.5 5.2 4.6 3.9 16.8 14.1 14.2 — — — 34

Internet Software & Services Cautious 697 9.5 (18) 51 21 141 94 77 140.2 88.4 72.3 12.1 10.9 9.8 8.5 11.7 12.7 0.1 0.2 0.2 78

IT Services

HCL Technologies ADD 979 1,080 10 2,658 36.2 2,714 48 51 57 18 7 11 20 19 17 12.4 11.4 10.1 4.3 3.8 3.3 24 21 20 2.3 2.1 2.1 78

Infosys BUY 1,481 1,600 8 6,309 86.0 4,250 46 52 61 17 15 16 33 28 24 21.7 19.0 16.3 8 .2 7.3 6.5 27 27 28 1.8 2.0 2.4 144

L&T Infotech REDUCE 4,210 3,850 (9) 736 10.0 176 110 127 149 27 15 18 38 33 28 25.7 23.4 20.1 10.1 8 .4 7.0 30 28 27 0.6 0.8 0.9 18

L&T Technology Services ADD 2,845 2,800 (2) 299 4.1 106 63 88 106 (19) 40 21 45 32 27 27.9 21.1 17.6 8 .6 7.3 6.1 21 24 25 0.6 0.8 0.9 14

Mindtree SELL 2,467 1,620 (34) 406 5.5 165 67 82 88 76 22 8 37 30 28 23.2 20.5 18.9 9.4 7.9 6.8 30 29 26 0.8 1.3 1.4 36

Mphasis REDUCE 2,098 1,650 (21) 393 5.4 187 65 77 86 2 18 13 32 27 24 20.8 18.0 15.8 6.0 5.4 4.9 19.7 21 21 3.1 1.9 2.1 15

TCS REDUCE 3,274 3,250 (1) 12,112 165.2 3,699 89 108 122 4 21 13 37 30 27 24.9 20.6 18.5 13.8 11.6 10.7 38 42 42 1.2 2.0 3.0 124

Tech Mahindra BUY 1,069 1,150 8 931 12.7 880 51 61 68 11 20 11 21 17 16 12.0 10.5 9.2 3.8 3.4 3.0 19.2 20 20 3.6 2.2 2.4 52

Wipro REDUCE 555 530 (5) 3,042 41.5 5,504 19 21 24 15 8 15 29 27 23 18.5 16.6 14.2 5.7 4.8 4.1 19.5 19.0 18.9 0.4 0.9 0.9 88

IT Services Attractive 26,886 366.7 10 15 14 31 27 24 20.6 17.8 15.7 8.2 7.1 6.3 26 26 26 1.4 1.8 2.4 571

Media

DB Corp. REDUCE 113 81 (29) 20 0.3 175 5 14 14 (66) 167 1 21 8 8 7.2 3.7 3.9 1.1 1.1 1.2 5.4 14.3 14.6 1.8 10.6 11.5 1

Jagran Prakashan REDUCE 62 37 (40) 16 0.2 281 4 7 8 (44) 87 NA 16 8 NA 4.1 2.7 NA 0.9 0.9 NA 5.7 10.3 11.5 3.2 8.0 8.0 1

PVR BUY 1,441 1,525 6 88 1.2 61 (110) (33) 45 (478) 70 239 NM NM 32 (19.7) 137.7 11.6 3.2 3.4 3.1 NM NM 10.3 (0.8) (0.2) 0.3 25

Sun TV Network REDUCE 530 490 (7) 209 2.8 394 39 43 44 9 10 4 14 12 12 9.8 8 .1 7.6 3.0 2.6 2.4 24 22 21 0.9 3.8 4.7 20

Zee Entertainment Enterprises REDUCE 228 210 (8 ) 219 3.0 960 12 15 18 5 29 16 19 15 13 11.1 9.0 7.7 2.2 2.0 1.8 11.6 13.9 14.9 1.1 1.8 2.0 49

Media Cautious 551 7.5 (29) 55 24 25 16 13 13.6 9.4 7.5 2.3 2.2 2.0 9.3 13.5 15.4 0.8 2.7 3.3 96

Metals & Mining

Hindalco Industries BUY 380 500 31 854 11.7 2,220 26 43 45 44 67 4 15 9 9 7.5 5.5 5.0 1.3 1.1 1.0 9.1 13.4 12.4 0.8 0.8 1.1 98

Hindustan Zinc BUY 334 370 11 1,412 19.3 4,225 19 24 24 17 25 1 18 14 14 10.7 8 .2 8 .0 4.4 4.4 4.4 22 31 31 6.4 7.1 7.1 14

Jindal Steel and Power ADD 407 520 28 416 5.7 1,020 63 74 55 3,790 18 (25) 6 5 7 4.4 3.6 4.0 1.3 1.1 0.9 20 21 13.4 — — — 80

JSW Steel REDUCE 705 640 (9) 1,705 23.3 2,417 33 59 51 227 79 (13) 21 12 14 11.1 7.4 8 .1 3.6 2.9 2.5 19.1 27 19.3 0.9 1.3 1.0 155

National Aluminium Co. SELL 70 65 (7) 129 1.8 1,866 4 7 6 452 71 (10) 17 10 11 7.8 5.1 5.9 1.4 1.3 1.2 7.8 13.1 11.1 2.9 5.0 4.5 34

NMDC REDUCE 179 110 (38) 524 7.1 2,931 20 14 8 34 (28) (40) 9 13 21 8 .7 16.2 28.2 1.7 1.6 1.6 19.8 13.2 7.5 2.7 4.0 2.4 42

Tata Steel BUY 1,142 1,400 23 1,375 18.8 1,219 71 256 143 26 260 (44) 16 4 8 7.1 3.6 4.9 1.9 1.4 1.2 11.8 36 16.0 2.2 2.5 1.5 327

Vedanta REDUCE 264 270 2 982 13.4 3,717 33 40 36 406 21 (11) 8 7 7 4.8 3.3 3.3 1.6 1.4 1.3 21 22 17.8 3.6 6.6 6.7 64

Metals & Mining Attractive 7,398 100.9 109 68 (22) 13 8 10 7.4 5.0 5.6 2.1 1.8 1.6 15.7 22 15.4 2.6 3.4 3.1 814



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Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) ADVT-3mo


Oil, Gas & Consumable Fuels

BPCL BUY 481 550 14 1,044 14.2 2,093 67 34 41 541 (49) 20 7 14 12 5.8 9.0 7.7 1.8 2.2 2.0 32.2 14.3 17.9 16.4 3.6 4.3 60

Coal India BUY 156 185 19 959 13.1 6,163 19 17 18 (31) (8 ) 4 8 9 9 7.8 7.6 6.8 3.1 3.2 3.4 36.2 34.7 38.1 12.9 12.9 12.9 34

HPCL BUY 304 310 2 432 5.9 1,419 80 34 37 1,014 (58) 11 4 9 8 5.1 8 .7 8 .0 1.2 1.1 1.0 34.7 12.7 13.1 7.7 4.4 4.9 24

IOCL BUY 116 125 8 1,091 14.9 9,181 26 14 16 755 (46) 17 4 8 7 4.1 5.4 4.9 1.0 0.9 0.9 23.2 11.3 12.4 10.4 6.1 7.1 34

Oil India SELL 147 85 (42) 160 2.2 1,084 0 8 9 (100) 8 ,787 13 1,580 18 16 11.6 7.6 7.3 0.6 0.6 0.6 0.0 3.6 4.0 2.3 2.2 2.6 2

ONGC SELL 127 90 (29) 1,593 21.7 12,580 8 14 15 (42) 85 4 16 9 8 5.4 3.9 3.6 0.7 0.6 0.6 4.2 7.5 7.4 2.0 4.3 4.6 44

Reliance Industries ADD 2,212 2,200 (1) 14,042 191.5 6,349 72 81 102 8 12 26 31 27 22 18.1 13.1 10.3 1.9 1.9 1.7 7.5 7.1 8 .3 0.3 0.3 0.4 250

Oil, Gas & Consumable Fuels Attractive 19,321 263.5 52 (7) 18 17 18 16 10.2 9.1 7.7 1.6 1.5 1.4 9.6 8.4 9.3 2.6 1.9 2.0 448

Pharmaceuticals

Aurobindo Pharma REDUCE 988 930 (6) 579 7.9 586 55 60 65 13 8 10 18 17 15 10.6 10.0 8 .8 2.6 2.3 2.1 14.7 14.0 13.6 0.4 0.9 1.1 36

Biocon SELL 403 300 (26) 484 6.6 1,202 6 8 10 1 31 26 64 49 39 29.1 21.2 17.4 5.7 5.2 4.7 8 .9 10.6 12.1 - 0.7 0.9 20

Cipla BUY 957 1,040 9 772 10.5 806 30 34 48 55 15 40 32 28 20 17.6 16.0 11.4 4.2 3.7 3.2 12.9 13.3 16.1 (0.0) 0.7 1.0 85

Divis Laboratories REDUCE 4,301 3,750 (13) 1,142 15.6 265 75 94 107 44 26 14 58 46 40 39.2 32.4 28.2 12.3 10.5 8 .9 21.3 22.9 22.3 - (0.8 ) (0.9) 41

Dr Reddy's Laboratories SELL 5,406 4,700 (13) 899 12.3 166 156 184 251 20 18 37 35 29 22 20.1 16.6 12.5 5.3 4.6 3.9 15.2 15.6 18.0 0.5 0.6 0.6 80

Gland Pharma REDUCE 3,142 2,550 (19) 515 7.0 163 61 78 92 23 28 18 51 40 34 37.2 30.3 24.9 8 .7 7.1 5.9 16.9 17.8 17.4 — — — 14

Laurus Labs REDUCE 619 390 (37) 332 4.5 536 18 21 25 284 15 17 34 29 25 22.3 19.0 15.9 12.8 8 .9 6.6 37.9 30.4 26.2 (—) — — 28

Lupin BUY 1,177 1,320 12 534 7.3 450 27 41 54 24 51 31 44 29 22 19.2 14.0 11.0 3.8 3.4 3.0 8 .8 11.9 13.8 0.5 0.5 0.7 46

Sun Pharmaceuticals ADD 669 740 11 1,604 21.9 2,406 25 25 30 47 3 19 27 26 22 17.9 15.6 13.2 3.5 3.1 2.8 12.8 12.4 12.6 1.0 0.8 0.9 70

Torrent Pharmaceuticals REDUCE 2,890 2,800 (3) 489 6.7 169 74 86 103 29 16 20 39 34 28 20.6 18.2 15.9 8 .4 7.2 6.2 21.4 21.3 22.0 0.7 1.0 1.2 12

Pharmaceuticals Attractive 7,349 100.2 36 15 23 34 30 24 20.5 17.5 14.3 4.9 4.3 3.8 14.2 14.4 15.5 0.4 0.4 0.5 432

Real Estate

Brigade Enterprises BUY 284 310 9 60 0.8 204 (4) 14 19 (158) 480 38 NM 20 15 24.0 7.8 7.0 2.7 2.5 2.2 NM 12.7 15.6 0.9 0.9 0.9 1

DLF REDUCE 306 270 (12) 758 10.3 2,475 4 7 10 284 65 31 70 42 32 55.9 41.1 35.0 2.1 2.1 2.0 3.1 5.0 6.3 0.3 0.7 0.7 37

Embassy Office Parks REIT ADD 342 360 5 325 4.4 948 7 10 12 (26) 35 20 46 34 29 21.5 16.7 14.2 1.2 1.3 1.3 2.8 3.6 4.5 5.7 7.1 8 .3 5

Godrej Properties SELL 1,411 890 (37) 392 5.3 278 (7) 13 27 (163) 286 113 NM 112 52 (119) 183.4 72.8 4.7 4.5 4.2 NM 4.1 8 .3 — — — 17

Mindspace REIT ADD 289 320 11 171 2.3 593 5 14 18 (39) 170 25 56 21 17 24.6 14.2 12.0 1.1 1.0 1.0 3.3 5.0 6.2 3.3 6.7 7.3 1

Oberoi Realty ADD 643 610 (5) 234 3.2 364 20 29 39 8 40 37 32 22 16 25.0 20.3 11.3 2.5 2.3 2.0 8 .2 10.6 12.9 0.3 0.3 0.3 5

Phoenix Mills BUY 810 940 16 139 1.9 172 3 11 31 (72) 244 193 264 77 26 34.5 21.4 12.6 2.8 2.8 2.5 1.2 3.7 10.1 0.1 0.3 0.4 2

Prestige Estates Projects ADD 284 340 20 114 1.6 401 7 14 25 (27) 105 73 41 20 11 6.6 7.2 5.4 1.7 1.5 1.3 4.7 8 .0 12.1 - 0.5 0.5 3

Sobha BUY 503 480 (4) 48 0.6 95 11 38 54 (65) 259 43 48 13 9 8 .1 5.4 4.6 1.9 1.7 1.5 4.1 13.8 17.4 1.4 1.4 1.4 3

Sunteck Realty BUY 296 345 17 43 0.6 140 7 18 17 4 141 (8 ) 40 16 18 26.4 13.1 14.8 1.4 1.3 1.2 3.5 8 .1 6.9 0.3 0.3 0.3 2

Real Estate Attractive 2,284 31.1 17 113 42 74 35 24 29.4 19.7 14.9 2.0 1.9 1.8 2.7 5.5 7.5 1.2 1.9 2.1 77

Retailing

Aditya Birla Fashion and Retail BUY 203 230 13 188 2.6 938 (8 ) (4) 4 (277) 47 184 NM NM 57 34.1 26.7 12.1 7.0 7.7 6.7 NM NM 12.6 — — — 7

Avenue Supermarts SELL 3,310 1,950 (41) 2,144 29.2 648 17 22 39 (19) 32 77 196 149 84 122 96 57 17.6 15.7 13.3 9.4 11.2 17.1 — — — 18

Titan Company ADD 1,714 1,625 (5) 1,522 20.8 888 11 19 27 (35) 76 43 156 89 62 88 55 41 20.3 17.5 14.6 13.7 21.2 25.6 0.2 0.4 0.5 44

Retailing Attractive 3,854 52.6 (50) 106 93 289 140 72 95 67 42 17.3 15.5 13.1 6.0 11.1 18.1 0.1 0.1 0.2 69



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Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) ADVT-3mo


Speciality Chemicals

Castrol India BUY 150 165 10 149 2.0 989 6 8 9 (28) 39 13 25 18 16 16.3 12.0 10.6 10.5 9.9 9.3 43.0 56.8 60.4 3.7 5.0 5.7 4

Pidilite Industries REDUCE 2,132 1,760 (17) 1,083 14.8 508 22 26 34 (3) 15 32 95 83 63 64 56 44 19.4 17.0 14.5 22.6 21.8 24.9 0.4 0.5 0.6 18

S H Kelkar and Company BUY 162 185 14 23 0.3 141 10 10 12 107 4 18 17 16 14 11.2 9.8 8 .3 2.4 2.2 1.9 15.2 14.0 14.8 1.1 1.5 2.0 1

SRF SELL 7,147 6,000 (16) 423 5.8 59 205 240 303 49 17 26 35 30 24 20.8 18.0 14.6 6.1 5.2 4.4 20.3 19.0 20.2 0.3 0.4 0.5 20

Speciality Chemicals Attractive 1,678 22.9 7 20 25 55 45 36 34.5 28.9 23.5 11.3 9.8 8.4 20.7 21.7 23.2 0.7 0.9 1.0 44

Telecommunication Services

Bharti Airtel BUY 537 700 30 2,948 40.2 5,492 (5) 11 22 NM NM NM NM 49 24 9.0 7.4 5.8 5.0 5.0 4.4 NM 10.1 19.6 - 1.1 1.1 86

Indus Towers ADD 252 250 (1) 679 9.3 2,695 20 19 19 10 (8 ) 2 12 13 13 5.5 5.2 5.0 4.3 4.1 3.9 32.8 31.3 30.3 8 .0 6.3 6.3 11

Vodafone Idea RS 10 — — 274 3.7 28,735 (8 ) (6) (4) NM NM NM NM NM NM 10.5 8.1 6.6 (0.8) (0.6) (0.5) 176.3 47.4 25.7 — — — 27

Tata Communications BUY 1,301 1,375 6 371 5.1 285 47 52 62 28 11 19 28 25 21 11.0 9.8 8 .5 321.2 31.4 14.9 NM 226 95.6 1.1 1.2 1.4 15

Telecommunication Services Attractive 4,272 58.3 40 72 213 NM NM 66 8.9 7.4 6.0 10.3 12.6 14.2 NM NM 21.4 1.3 1.9 1.9 139

Transportation

Adani Ports and SEZ ADD 707 825 17 1,443 19.7 2,112 21 30 37 (18) 44 21 33 23 19 21.8 15.4 11.9 4.9 3.6 3.1 15.9 17.8 17.2 0.7 0.5 0.5 235

Container Corp. SELL 683 540 (21) 416 5.7 609 10 14 18 (41) 39 31 68 49 37 37.9 30.0 18.6 4.1 3.8 3.5 6.0 8 .0 9.8 0.7 - 0.5 33

Gateway Distriparks BUY 313 215 (31) 39 0.5 125 8 9 12 79 20 28 41 35 27 14.1 13.4 11.3 2.6 2.5 2.4 6.8 7.5 9.1 1.6 1.0 1.0 2

GMR Infrastructure BUY 30 25 (16) 179 2.4 6,036 (5) (3) (2) (54) 26 33 NM NM NM 71.4 20.7 15.4 (3.4) (2.5) (2.6) 71.3 33.3 21.8 — — — 7

Gujarat Pipavav Port BUY 116 119 2 56 0.8 483 5 6 7 (25) 38 17 26 19 16 11.6 9.9 8 .4 2.8 2.8 2.8 10.6 14.9 17.6 3.9 5.3 6.1 2

InterGlobe Aviation BUY 1,734 2,200 27 667 9.1 383 (152) (96) 125 (2,249) 37 231 NM NM 14 NM 19.0 4.0 935.8 (18.5) 4.0 NM 208.1 NM — — — 23

Mahindra Logistics REDUCE 577 490 (15) 41 0.6 71 5 13 18 (43) 161 36 114 44 32 29.6 19.4 15.1 7.3 6.4 5.6 6.5 15.6 18.6 — — — 1

Transportation Attractive 2,842 38.8 (165) 165 510 NM 137 22 30.5 17.6 9.7 7.2 6.1 4.9 NM 4.5 21.8 0.6 0.4 0.5 304

KIE universe 171,762 2,342 33.3 34.1 18.1 31.6 23.6 20.0 15.1 12.2 10.7 3.4 3.1 2.8 10.7 13.1 14.1 1.2 1.4 1.6

Notes:

(a) We have used adjusted book values for banking companies.

(b) 2021 means calendar year 2020, similarly for 2022 and 2023 for these particular companies.

(c) Exchange rate (Rs/US$)= 73.33


Disclo

sure

s

Disclosures

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our Fair Value estimates are also on a 12-month horizon basis.

Our Ratings System does not take into account short-term volatility in stock prices related to movements in the market. Hence, a particular Rating may not

strictly be in accordance with the Rating System at all times.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following

designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and fair value, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)

and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction

involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and fair value, if any, for this stock, because there is not a sufficient

fundamental basis for determining an investment rating or fair value. The previous investment rating and fair value, if any, are no longer in effect for this stock

and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of March 31, 2021

Percentage of companies covered by Kotak Institutional

Equities, within the specified category.

* The above categories are defined as follows: Buy = We

expect this stock to deliver more than 15% returns over the next

12 months; Add = We expect this stock to deliver 5-15% returns

over the next 12 months; Reduce = We expect this stock to

deliver -5-+5% returns over the next 12 months; Sell = We

expect this stock to deliver less than -5% returns over the next

12 months. Our target prices are also on a 12-month horizon

basis. These ratings are used illustratively to comply with

applicable regulations. As of 31/12/2020 Kotak Institutional

Equities Investment Research had investment ratings on 212

equity securities.

Percentage of companies within each category for which Kotak

Institutional Equities and or its affiliates has provided

investment banking services within the previous 12 months.

32.5%

27.4%

16.5%

23.6%

3.8% 4.7%

0.5%2.8%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Corporate Office Overseas Affiliates

Kotak Securities Ltd.

27 BKC, Plot No. C-27, “G Block”

Bandra Kurla Complex, Bandra (E)

Mumbai 400 051, India

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8th Floor, Portsoken House

155-157 Minories

London EC3N 1LS

Tel: +44-20-7977-6900

Kotak Mahindra Inc

369 Lexington Avenue

28th Floor, New York

NY 10017, USA

Tel:+1 212 600 8856

Copyright 2021 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

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This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. 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We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: LIC Housing Finance, Reliance Industries - YES Nature of Financial interest: Holding equity shares or derivatives of the subject company. Our associates may have 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 Research Report. 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