15July 2020_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.

Contents

Special Reports

Theme Report

Reliance Industries: The virtuous cycle

On the forefront of digital ecosystem in India targeting 4Cs of the business

model

We now ascribe US$62 bn of EV to the offline retail footprint and digital

commerce foray

Reiterate BUY with revised FV of Rs2,150, noting several catalysts in the

medium term

Daily Alerts

Result

Mindtree: A quarter that could have been worse but for top client

Revenues from travel, hospitality decline 54.6% qoq, top client

concentration increases to 30%

Thoughts on top client concentration and future of travel and

transportation vertical

Marginal cut in revenue estimates with broadly unchanged EPS estimates

Results, Change in Reco

Wipro: Upgrade to ADD on inexpensive valuations

Wipro reports sharp revenue contraction; EBIT margin increase sharply led

by cost management

Focus of CEO Thierry Delaporte to be on profitable growth

Challenges aplenty but all in the price; upside from moderate improvement

in performance

Change in Reco

Shree Cement: Efficient but expensive

FY2020 reports record margins, retains leadership in cost efficiency

Strong operating performance improves FCF yield and balance sheet

strength

Growth to sustain, expansions on track and low utilization provide

headroom

Downgrade to SELL on expensive valuations post the recent rally

INDIA DAILY July 15, 2020 India 14-Jul 1-day 1-mo 3-mo

Sensex 36,033 (1.8) 8.4 18.6

Nifty 10,607 (1.8) 8.1 18.8

Global/Regional indices

Dow Jones 26,643 2.1 3.4 13.4

Nasdaq Composite 10,489 0.9 7.8 25.0

FTSE 6,180 0.1 1.9 10.4

Nikkei 22,902 1.4 6.4 17.1

Hang Seng 25,478 (1.1) 7.2 5.5

KOSPI 2,205 1.0 8.6 18.7

Value traded – India

Cash (NSE+BSE) 572 632 598

Derivatives (NSE) 15,160 11,314 6,270

Deri. open interest 3,664 2,930 1,912

Forex/money market

Change, basis points

14-Jul 1-day 1-mo 3-mo

Rs/US$ 75.3 0 (53) (112)

10yr govt bond, % 6.1 - (17) (81)

Net investment (US$ mn)

13-Jul MTD CYTD

FIIs (11) (169) (2,610)

MFs (107) (377) 4,481

Top movers

Change, %

Best performers 14-Jul 1-day 1-mo 3-mo

IHFL IN Equity 223 (6.3) 45.6 143.5

BHEL IN Equity 39 (8.7) 33.7 81.4

RIL IN Equity 1,917 (0.9) 18.7 68.3

EDEL IN Equity 57 (0.4) 30.3 63.6

ARBP IN Equity 809 (0.0) 5.3 57.2

Worst performers

YES IN Equity 21 (5.0) (27.8) (14.5)

COAL IN Equity 128 (1.7) (2.9) (12.7)

HUVR IN Equity 2,235 (1.3) 7.2 (10.2)

DIVI IN Equity 2,218 (0.8) (5.0) (7.4)

PIDI IN Equity 1,381 (1.1) (3.6) (6.4)

[email protected]: +91 22 6218 6427

Company Report

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Reliance Industries (RIL)

Oil, Gas & Consumable Fuels

The virtuous cycle. RIL’s leadership in connectivity and retail businesses and recent

strategic partnership with Facebook will enable it to further expand its presence in

India’s digital ecosystem, which can create significant value in the long run. We expect

the foray in digital commerce business to be the next big driver of RIL stock, with the

valuation of legacy O2C and digital services segments broadly established in a

reasonable range for now. We retain BUY rating on the stock, raising our SoTP-based

Fair Value to Rs2,150 and valuing the overall retail business at an EV of US$62 bn.

On the forefront of digital ecosystem in India targeting 4Cs of the business model

RIL’s well-established connectivity business under Jio Platforms, formidable offline retail

footprint under Reliance Retail, proposed foray in the digital commerce segment under JioMart

and recent strategic partnership with Facebook, have propelled it to the forefront of consumer-

facing digital ecosystem opportunity in India. We believe RIL’s ever-expanding portfolio of

products and services to target the 4Cs of the digital ecosystem—connectivity, commerce,

content and currency—will enable it to leverage the sizeable traffic across its consumer-facing

verticals, generate new revenue streams and create significant value in the long run.

We now ascribe US$62 bn of EV to the offline retail footprint and digital commerce foray

Our analysis of the overall retail business opportunity in this report suggests that Reliance

Retail can potentially double its revenues to over US$26 bn from core segments in next four

years, while achieving an incremental GMV of US$12 bn from its foray in India’s e-commerce

market, which is all set to treble to US$100 bn by FY2025. We ascribe US$62 bn of EV to RIL’s

retail business, (1) ascribing 25X EV/EBITDA multiple to core retail segment versus 20X earlier

and (2) factoring incremental contribution of US$17 bn (~Rs1.3 tn) from the digital commerce

business based on probability-weighted scenarios that may evolve for e-commerce in India by

FY2030. (1) RIL’s proven track record of execution, (2) large customer base of Jio and retail

segments, (3) strategic tie-up with WhatsApp, (4) unmatched portfolio of private labels and

exclusive brand tie-ups, (5) India’s domestic-centric policies and (6) possible inorganic ventures,

will enable the company to overcome the head-start achieved by other e-commerce players.

Reiterate BUY with revised FV of Rs2,150, noting several catalysts in the medium term

We reiterate BUY on RIL, while raising our SoTP-based FV to Rs2,150 from Rs1,750 earlier,

ascribing higher value to the retail business and rolling forward to September 2021; our

estimates remain largely unchanged as we incorporate the recent transactions and FY2020 AR.

Progress on digital commerce business, monetization of incremental ecosystem opportunities,

increase in telecom tariffs and recovery in O2C business environment are the key catalysts to

watch out for. Potential closure of transactions related to O2C and fiber-InvIT, and further

strategic partnerships in digital services and retail business can be positive triggers as well.

Company data and valuation summary

BUY

July 15, 2020

THEME

Sector view: Attractive

CMP (`): 1,917

Fair Value (`): 2,150

BSE-30: 36,033

INSIDE

RIL has established

leadership in offline retail

.................. .pg12

Fast growing multi-

category retailer with a

formidable footprint

.................. .pg16

Aspirations to tap India’s

e-commerce

opportunity..pg22

Tarun Lakhotia

Garima Mishra

Hemang Khanna

Shubhangi Nigam

Reliance Industries

Stock data Forecasts/valuations 2020 2021E 2022E

52-week range (Rs) (high,low) EPS (Rs) 66.7 69.8 93.3

Mcap (bn) (Rs/US$) EPS growth (%) 1.2 4.6 33.7

ADTV-3M (mn) (Rs/US$) P/E (X) 28.7 27.5 20.5

Shareholding pattern (%) P/B (X) 2.5 2.3 2.0

Promoters 48.9 EV/EBITDA (X) 16.7 13.9 9.5

FIIs 25.9 RoE (%) 9.4 8.6 10.7

MFs/BFIs Div. yield (%) 0.3 0.4 0.4

Price performance (%) 1M 3M 12M Sales (Rs bn) 5,967 5,093 6,453

Absolute 21 63 51 EBITDA (Rs bn) 831 893 1,204

Rel. to BSE-30 13 39 62 Net profits (Rs bn) 396 414 593

1,948-867

11,363/150.7

5.3/6.2

35,427/470


KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Reliance Industries Oil, Gas & Consumable Fuels

ON THE FOREFRONT OF CONSUMER-FACING DIGITAL ECOSYSTEM IN INDIA

RIL’s well-established connectivity layer under Jio Platforms, formidable offline retail footprint under Reliance

Retail, proposed outlay in the digital commerce business and recent strategic partnership with Facebook,

have propelled it to the forefront of consumer-facing digital ecosystem opportunity in India. We believe RIL’s

ever-expanding offering of products and services amid the backdrop of India’s domestic-centric policies will

enable it to leverage the sizeable traffic across its consumer-facing verticals and generate new revenue

streams in the long run. We reiterate our BUY rating on the stock, while raising our fair value to Rs2,150

factoring in the digital commerce opportunity, which we expect the company to realize in the medium term.

Setting the stage to replicate established O2C legacy in consumer businesses

RIL's approach to consumer-facing businesses is evidently inspired by its well-established

legacy in O2C business—(1) identify large opportunity, (2) execute at industry-leading scale,

(3) expand across the value chain, (4) use low-cost capital and (5) leverage favorable policies.

Starting from a textile business, RIL integrated backwards in the entire value chain to create

one of the world’s largest and most complex O2C businesses. We now see RIL setting the

stage to replicate the same strategy in the consumer-facing business, underpinned by

(1) world’s largest mobile LTE network, (2) a pan-India broadband fiber network,

(3) formidable offline retail footprint, (4) growing bouquet of content/commerce

applications and (5) several related offerings including but not limited to devices, OS, cloud-

based services, AR/VR, AI/ML and IoT.

Exhibit 1: RIL’s ever-expanding presence across the consumer-facing digital ecosystem in India Existing and planned forays in the digital ecosystem

Source: Companies, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Oil, Gas & Consumable Fuels Reliance Industries

RIL targeting the 4Cs of the digital ecosystem business model

Well-established digital ecosystem companies across the world have exhibited a few

common traits and strategies—(1) a robust scalable technology backbone connecting a large

base of consumers on a best-in-class digital interface, that acts as a hook, (2) offering of

incremental layers to fulfill the customers’ requirements of products, services or content

within their own ecosystem or through an open marketplace, (3) providing transactional

capability through an integrated payments mechanism and (4) generating revenues and

profits through a combination of advertising, commissions and subscription.

We believe RIL has chartered its path in a similar way to service the entire spectrum of the

digital ecosystem in India—(1) connectivity through mobile/fiber-to-the-home/enterprise

services, (2) commerce through offline retail, online foray and digitizing large unorganized

segment, (3) content through its bouquet of media and entertainment apps and related

business verticals and (4) currency through transaction capabilities. RIL’s recent strategic tie-

up with Facebook/WhatsApp may enable it to enhance its powerful digital ecosystem

offering by connecting to customers through integrated user-friendly interfaces to meet

most, if not all, of their requirements in the digital world.

Exhibit 2: Jio Platforms + Reliance Retail can evolve into large revenue generating companies akin to their Chinese counterparts Comparison of product offerings of Jio Platforms + Reliance Retail with Alibaba and Tencent

Reliance Retail + Jio Platforms Alibaba group Tencent

B2C commerce

(1) Retail own brands: Fresh, Smart, Market, Ajio

etc. (2) Textile own brands (3) In-Store brands:

John Players, Snactac, avaasa (Ethnic

Indianwear), GoodLife (Full range grocery brand)

and LYF smartphones (4G mobile devices)

Taobao is B2C/C2C focused, enabling small

businesses and individuals to open online stores.

Tmall offers a wide selection of branded products

oriented towards China's growing middle class.

Partnered with JD.com in 2014. JD.com features

prominently on WeChat.

B2B commerceReliance Market and JioMart can evolve as a

large B2B national supplier

Alibaba B2B is a trading platform, connecting

manufacturers from countries such as China, India,

US and Thailand with international buyers.

Local commerceJioMart enabled O2O connecting offline

customers with online B2C/B2B platforms

Ele.me (connects local shops to consumers), Didi

Kuaidi (cab aggregator)Didi Kuaidi (cab aggregator)

Payment and fintech JioMoney/JioPayAlipay: online third-party payments platform,

providing transaction and escrow services. Weixin Pay, QQ Wallet, LiCaiTong, WeSure, Weiliadai

Logistics Grab (acquired in 2019)Cainiao Logistics - provides logistics support to all

of Alibaba's operations

Social media and

messagingFB, Instagram, Whatsapp, JioChat, JioCall Influencing and personal content on Taobao QQ IM, Weixin and WeChat (Free service)

Digital content JioMovies, JioTV, JioSaavn, JioNews Relevant digital content on B2C websitesAdvanced Casual Games ACGs, Mobile games,

Massively Multiplayer Online Games MMOGs

MarketingFacebook and Instagram Platforms, JioAds Cross-

device Marketing Technology Platform.

Online advertising. Alimama is an online marketing

platform that provides sellers on Alibaba Group's

marketplaces a range of marketing and advertising

services. Advertisers can choose between pay-for-

performance and display marketing. These ads are

the primary means through which Alibaba makes

money from Taobao.

Online advertising. (1) Media. Includes news, video

and music properties, e.g. Tencent News app;

QQ.com and verticals; regional portals; QQ Music

etc. (2) Social and others. Includes social properties,

app store, browser and ad networks, e.g. Qzone, QQ,

Weixin Official Accounts, Weixin Moments, Mini

Programs, QQ Browser, Mobile Ad Network,

YingYongBao etc.

Online infrastructure

JioCloud Store and Access your files from

anywhere. JioBrowser Fast, Safe & Light weight

browser. JioSecurity Protect phone, secure data

Aliyun Alibaba Cloud. Develops platforms for cloud

computing and data management, ensuring that

Alibaba's e-commerce portals can handle its

massive traffic and transaction volumes.

Utilities & Infrastructure (Cloud services, Browser)

Offline retail

Network of ~12,000 stores with US$12 bn of

core revenues across grocery, consumer

electronics and fashion & lifestyle

Hema Supermarket, Intime Retail, Suning Vipshop


We look at the growth profile of Tencent, which transformed itself from being the provider

of only a messenger service to offering multiple products in the communications, social

networking, gaming, media, fintech, cloud segments for users and enterprises (refer

Appendix 1 for more details). In the subsequent sections, we evaluate RIL’s existing offline

retail business and online B2C and B2B commerce opportunities and how we expect it to

unfold over the next few years.



We ascribe fair value of US$62 bn for RIL’s retail segment

We compute fair value of US$62 bn for retail business attributable to RIL for its 94.38%

stake, while ascribing (1) US$48 bn to existing offline retail segment at 25X EBITDA of core

retail business and 10X EBITDA on fuel and recharges based on our September 2022

estimates and (2) US$17 bn to digital commerce opportunity based on probability-weighted

scenario analysis of the industry evolution by FY2030, discounted back to September 2021.

We see further potential upside from incremental revenue-generating opportunities as RIL

capitalizes on its leadership in the retail ecosystem.

RIL’s digital commerce business comprises JioMart’s online B2C business and the kirana

digitization program. We believe the digitized kiranas will be key enablers of RR’s online

business and hence, we see limited merit in valuing the B2B distribution business separately.

We acknowledge that valuation of digital commerce businesses remains subjective for now;

that said, we remain confident that the vast under-penetration of organized retail, the huge

user base garnered by Jio, execution capabilities of RIL group and domestic-centric policies in

India can together drive significant scale-up of these new businesses in a quick time.

Valuing existing offline retail at US$48 bn

We value RR’s offline core retail business segment at US$45 bn based on 25X EV/EBITDA

multiple on September 2022 estimates, in line with our DCF-implied target multiple for

Avenue Supermarts. We include incremental value of US$3 bn for fuel and recharges

segment, valuing it at 10X EV/EBITDA multiple on September 2022 estimates.

Exhibit 3: Retail companies command higher valuation multiples given large untapped opportunity Peer valuation of retail companies in India, March fiscal year-ends, 2020-22E

2020 2021E 2022E 2020 2021E 2022E

Food and grocery retailers

Avenue Supermarts Ltd 71.4 71.9 41.7 6.1 5.5 3.9

Future Retail Ltd 8.4 5.9 5.2 0.5 0.4 0.4

Average 39.9 38.9 23.5 3.3 3.0 2.1

Apparel, footwear, jewelry retailers

Aditya Birla Fashion & Retail 9.0 11.7 7.0 1.2 1.4 1.1

Bata 44.8 34.9 22.1 8.8 7.6 4.9

Future Lifestyle Fashions Lt 4.0 4.0 3.0 0.6 0.6 0.4

Shoppers Stop Ltd 7.0 11.0 8.0 1.0 1.2 1.0

TCNS Clothing Co Ltd 13.9 18.7 9.7 2.3 2.6 1.9

Trent Ltd 40.0 55.0 33.0 6.5 7.3 5.0

Titan 36.0 53.0 30.3 4.2 5.1 3.7

Vmart Retail Ltd 16.0 25.0 15.0 2.1 2.1 1.3

Average 21.3 26.7 16.0 3.3 3.5 2.4

EV/EBITDA (X) EV/Revenue (X)

Notes: (a) KIE estimates used for Avenue Supermarts, ABFRL and TCNS Clothing.

Source: Bloomberg, Kotak Institutional Equities estimates

Valuing digital commerce business at equity valuation of US$17 bn

In our attempt to value RR’s e-commerce business, we create three plausible scenarios by

envisaging, (1) duopoly market with top-2 players commanding 80% market share, (2) an

oligopolistic market with three large players including RR commanding 80% market share

and (3) a hyper-competitive and fragmented market with several large players. We assign 40%

probability each to the first two scenarios and 20% probability to the third scenario.

Based on our FY2030 e-commerce industry GMV estimate of US$225 bn and reasonable

assumptions on market share and margins for RR in the respective scenarios, we compute

probability-weighted equity value of US$17 bn, discounted back to September 2021.



Exhibit 4: We compute US$17 bn of equity value based on probability-weighted valuation scenario for RR’s digital commerce segment Valuation scenario for digital commerce business, March fiscal year-end, 2030 (US$ bn)

Scenario A - Duopoly Scenario B - Oligopoly Scenario C - Intense competition

DescriptionTop-2 players command 80% in the e-

commerce market

Top-3 players commanding 80%

market share

All the players continue fighting for

market share

Gross Merchandise Value

(GMV, US$ bn)225 225 225

Market share of RR's e-

commerce segment (%)40 30 20

GMV of RR's e-commerce

segment (US$ bn)90 67 45

Explanation Limited discounting by top-2 players Limited discounting by top-3 playersDiscounting continues to attract new

customers and retain old ones

Operating profit / EBITDA

margin (%)8.0 7.0 (10.0)

EBITDA of RR's e-commerce

segment (US$ bn)7.2 4.7 (4.5)

EV/EBITDA valuation multiple

(X)12.0 12.0 NA

ExplanationStable cash flow generating business

will command a high valuation multiple

Unstable cash flows and hence a low

valuation multiple

Continues to burn cash; accumulated

EBITDA loss included in CAC

EV of RR's e-commerce

segment (US$ bn)86.3 56.6 —

Initial investment in customer

acquisition costs (US$ bn)18.0 20.2 22.5

Equity value of RR's e-

commerce segment (US$ bn)68.3 36.4 (22.5)

Equity value discounted to

Sep-2021 (US$ bn)31.2 16.6 (10.3)

Probability 0.4 0.4 0.2

Probability-weighted equity

value (US$ bn)17.1

Source: Kotak Institutional Equities estimates

With RR having only begun its digital commerce business (JioMart’s online grocery delivery

business and the kirana B2B distribution business), we believe value creation from this

business will happen only over the medium term (next decade or so). Our optimism for this

business segment for RR stems from various factors—(1) initial-phase development of e-

commerce market has already happened in India, (2) Jio has already brought a large

population online (nearly 400 mn subscribers); low buyer penetration implies large growth

opportunity, (3) RR’s large physical store presence and associated infrastructure provides it

with competitive advantage and (4) regulatory advantage of having the ability to store and

sell own inventory as opposed to restrictions on majority foreign-owned competitors

(Amazon and Flipkart). Overall, we think RR is best positioned amongst its peers as it has a

presence across the entire value chain of offline B2C retail, B2B retail and kirana network

which can all feed the online business.

We concede that e-commerce business model in India is marked by high competitive

intensity, which may keep customer acquisition costs elevated for some time. We also

acknowledge that RIL is presently one of the several players in the Indian e-commerce

market and ramp-up of digital commerce foray will not be without challenges. We further

see that while supply-side constraints have been addressed by retailers, demand aggregation

remains a challenge and typically results in high customer acquisition costs. It is here that

RIL’s partnership with WhatsApp may hold it in good stead. In this context, we believe a

probability-weighted model is a reasonable way to value RR’s digital commerce business.



Raise fair value to Rs2,150 factoring in the digital commerce opportunity

We raise our SoTP-based fair value of RIL to Rs2,150 from Rs1,750 earlier, ascribing higher

value to existing core retail business at 25X EV/EBITDA multiple versus 20X earlier,

incrementally factoring in Rs1.3 tn (~US$17 bn) of fair value from the digital commerce

business, which we expect the company to realize in the medium term and rolling forward

to September 2021. We have also updated our model for recent transactions related to Jio

Platform and rights issue and details from subsidiary annual reports; we have not

incorporated digital commerce business in our estimates for retail business for now.

Exhibit 5: Our SoTP valuation of Reliance is Rs2,150 per share Sum-of-the-parts valuation, September 2021E (Rs)

EBITDA EV/EBITDA EV Valuation

(Rs bn) (X) (Rs bn) (US$ bn) (Rs/share)

Energy 4,774 63 752

Petrochemicals 322 7.5 2,419 32 381

Refining and marketing 259 7.5 1,944 26 306

Upstream 46 9.0 412 5 65

Digital services 4,489 59 707

Base case 519 10.0 5,190 69 817

Telecom option value 654 9 103

Minority interest (1,355) (18) (213)

Retail 4,708 62 741

Core retail 137 25.0 3,424 45 539

Fuel and recharges 24 10.0 240 3 38

Digital commerce 1,299 17 205

Minority interest (256) (3) (40)

Total enterprise value 13,971 185 2,201

Real estate projects / others 126 2 20

Outstanding receipts from rights issue 398 5 63

Consolidated net debt 844 11 133

Fair value 13,651 181 2,150

Notes:

(a) We use 6.349 bn shares including rights issue but excluding 412.8 mn treasury shares.


Exhibit 6: We ascribe option value of Rs654 bn (US$9 bn) for telecom business Calculation of option value for Jio in a two-private player market structure (Rs bn)

Incremental revenues assuming Jio garners 50% share of VIL 268

Incremental EBITDA at 60% margins 161

EV/EBITDA (X) 10.0

Incremental EV 1,608

Incremental capex to support higher market share (300)

Net equity value accretion 1,308

Option value assuming 50% probability 654




Exhibit 7: Financial model of Reliance Retail, March fiscal year-ends, 2016-25E (Rs bn)

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Profit model

Revenues (gross) 209 333 622 1,166 1,465 1,691 2,232 2,628 2,966 3,326

Core retail 189 255 362 735 928 946 1,307 1,559 1,770 2,000

Jio and fuel 22 83 330 570 702 866 1,091 1,256 1,406 1,560

EBITDA 9 12 25 62 97 93 143 179 212 249

Core retail 9 11 22 52 83 75 121 153 183 217

Jio and fuel (0) 1 4 10 14 18 22 26 29 32

EBIT 5 8 21 55 83 74 116 146 175 208

Net income 3 5 13 33 57 54 83 105 128 155

Contribution to RIL's EPS (Rs) 0 1 2 5 9 9 12 16 19 23

Balance sheet

Net-worth 55 69 92 128 184 238 321 426 554 709

Net debt 11 (3) 32 120 28 179 200 183 125 33

Invested capital 67 66 124 248 212 417 522 609 679 743

Operating metrics (%)

Revenue growth 20.0 59.3 86.7 87.4 25.6 15.4 32.0 17.7 12.8 12.2

Core retail 34.9 42.3 102.9 26.2 1.9 38.2 19.3 13.5 13.0

Jio and fuel 277.6 296.9 73.1 23.0 23.4 26.0 15.2 11.9 11.0

EBITDA margins 4.3 3.5 4.1 5.3 6.6 5.5 6.4 6.8 7.1 7.5

Core retail 4.2 6.0 7.0 8.9 7.9 9.2 9.8 10.4 10.9

Jio and fuel 1.3 1.1 1.8 2.0 2.1 2.0 2.0 2.0 2.0

EBIT margins 2.4 2.4 3.3 4.8 5.6 4.4 5.2 5.6 5.9 6.3

RoAE 5.2 8.5 16.5 30.0 36.6 25.5 29.8 28.1 26.1 24.6

RoACE 5.0 7.8 14.2 19.4 26.7 17.4 18.4 19.2 20.2 21.8

Source: Company, Kotak Institutional Equities estimates

Exhibit 8: Financial model of Reliance Jio, March fiscal year-ends, 2018-25E (Rs bn)

2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Assumptions

Wireless subscriber base at end-period (mn) 187 307 388 432 452 471 489 509

Wireless subscriber market share (%) 17 28 34 37 38 38 39 40

Wireless ARPU (Rs/month) 102 131 130 147 165 178 186 195

Broadband subscriber base at end-period (mn) 1 1 4 7 11 15 18

Broadband ARPU (Rs/month) — — 702 720 730 740 747

Overall EBITDA margins (%) 33 39 40 46 49 51 53 55

Profit model

Revenues 202 388 543 739 920 1,063 1,189 1,318

EBITDA 67 151 216 340 452 541 630 723

Net income 7 30 56 158 234 307 387 474

Contribution to RIL's EPS (Rs) 1 5 10 20 28 36 46 56

Balance sheet

Net-worth 1,029 404 1,710 1,868 2,101 2,408 2,795 3,269

Effective net debt 1,400 1,456 495 475 237 (122) (546) (1,045)

Invested capital 2,278 1,760 2,144 2,408 2,544 2,645 2,770 2,914

Cash flow

Operating cash flow (20) 50 99 261 358 433 500 565

Working capital (29) (75) (37) 16 15 12 10 11

Capital expenditure (358) (438) (518) (240) (220) (242) (168) (189)

Free cash flow (407) (464) (455) 37 153 203 342 387

Returns (%)

RoAE 0.8 4.1 5.3 8.8 11.8 13.6 14.9 15.6

RoACE 0.9 2.6 5.2 8.0 11.0 13.7 16.6 19.6

CRoCI 2.5 6.9 8.4 11.6 14.3 16.6 19.0 21.3

Adjusted CRoCI 2.5 6.9 8.8 12.0 15.1 18.7 24.5 33.2




Exhibit 9: We expect consumer-facing businesses to drive robust growth in EBITDA over the next few years Consolidated segment-wise break-up of EBITDA, March fiscal year-ends, 2016-23E (Rs bn)

2016 2017 2018 2019 2020 2021E 2022E 2023E

EBITDA

Petrochemicals 137 165 243 379 309 260 320 325

Refining and marketing 268 286 306 261 245 186 249 269

Oil and gas 69 13 17 16 4 5 30 62

Organized retail 9 12 25 62 97 93 143 179

Digital services — (0) 68 153 225 355 472 566

Others (65) (13) (17) (32) (48) (6) (9) (12)

Total 417 462 642 839 831 893 1,204 1,389


Exhibit 10: RIL's earnings are leveraged to several business drivers Sensitivity of consolidated EBITDA, EPS and SoTP to key assumptions, March fiscal year-end, 2022

Change (Rs bn) (%) (Rs bn) (%) (Rs/share) (%)

Refining margins +US$1/bbl 39 3% 4.6 5% 46 2%

Refining operating cost+US$0.5/bbl (20) -2% (2.3) -2% (23) -1%

Petchem margins +US$25/ton 39 3% 4.6 5% 46 2%

Retail EBITDA margins +50 bps 11 1% 1.3 1% 44 2%

Jio wireless ARPU +Rs10/month 40 3% 4.7 5% 63 3%

Jio wireless subscriber +25 mn 28 2% 3.3 4% 45 2%

Exchange rate Rs1/US$ 11 1% 1.3 1% 13 1%

Base case 1,204 93 2,150

EBITDA EPS SoTP valuation




Exhibit 11: Consolidated profit model, balance sheet and cash flow statement for RIL, March fiscal year-ends, 2016-23E (Rs bn)

2016 2017 2018 2019 2020 2021E 2022E 2023E

Profit model (Rs bn)

Net sales 2,740 3,054 3,917 5,671 5,967 5,093 6,453 6,963

EBITDA 417 462 642 839 831 893 1,204 1,389

Other income 75 94 89 81 140 196 205 224

Finance cost (37) (38) (81) (165) (220) (216) (195) (173)

DD&A expense (116) (116) (167) (209) (222) (272) (332) (387)

Pretax profits 339 401 483 546 528 601 882 1,053

Minority interest/share of associates 2 (0) 1 (1) (4) (43) (64) (83)

Extraordinary items 46 — 11 5 (2) — — —

Effective tax (89) (102) (133) (154) (128) (144) (226) (270)

Net profits 299 299 361 396 394 414 593 699

Adjusted net profits 253 299 350 391 396 414 593 699

Adjusted EPS (Rs) 43 51 59 66 67 70 93 110

Balance sheet (Rs bn)

Total equity 2,316 2,637 2,935 3,871 4,533 5,040 5,993 6,643

Deferred tax liability 205 212 245 451 512 544 592 642

Minority interest 34 29 35 83 80 1,299 1,363 1,446

Total borrowings 1,807 1,966 2,188 2,875 2,914 2,450 1,937 1,930

Other liabilities 1,629 2,224 2,709 2,696 3,590 3,428 3,456 3,327

Total liabilities and equity 5,990 7,068 8,113 9,976 11,630 12,761 13,341 13,988

Cash 110 30 43 75 309 1,119 1,324 1,708

Loans and advances 29 37 50 74 224 224 224 224

Other assets 917 1,032 1,341 1,814 2,014 2,001 2,201 2,320

Total fixed assets 4,094 5,185 5,851 5,658 6,315 6,650 6,824 6,968

Investments 840 784 829 2,355 2,768 2,768 2,768 2,768

Total assets 5,990 7,068 8,113 9,976 11,630 12,761 13,341 13,988

Effective net debt 1,663 2,237 2,349 2,335 2,487 1,023 111 (469)

Free cash flow (Rs bn)

Operating cash flow, excl. working capital 211 212 353 475 504 556 829 995

Working capital 78 155 185 (251) 192 42 21 (58)

Capital expenditure (469) (781) (740) (936) (765) (788) (697) (719)

Other income 37 15 23 16 22 196 205 224

Free cash flow (143) (400) (178) (697) (47) 5 358 441

Ratios (%)

Debt/equity 78.0 74.6 74.5 74.3 64.3 48.6 32.3 29.1

Net debt/equity 71.8 84.8 80.0 60.3 54.9 20.3 1.9 (7.1)

RoAE 11.2 12.1 12.6 11.5 9.4 8.6 10.7 11.1

RoACE 6.8 6.9 7.7 7.8 7.2 7.0 8.1 8.7

Adjusted RoACE 12.3 13.3 12.3 11.8 9.9 8.3 10.7 11.9

CRoCI 6.6 6.2 7.4 7.5 7.3 7.9 9.6 10.5

Adjusted CRoCI 11.8 12.2 10.2 12.4 10.3 11.3 14.2 15.9




SETTING THE STAGE TO COMMAND LEADERSHIP IN THE COMMERCE BUSINESS

RIL’s accelerated expansion in the offline retail business over the past few years followed by its recent foray

into digital commerce via JioMart sets the stage for it to command leadership in the entire retail value chain.

The strategic commercial partnership with Facebook/WhatsApp can enable it to reach out to customers with

user-friendly interfaces to enable online shopping, payments and cross-sell other digital services, while

domestic-centric policies may allow it to overcome the head-start achieved by other e-commerce players.

Long runway of growth for organized retailers in India

India’s retail market is highly unorganized and while penetration of organized retail has been

on the rise, several categories such as food and grocery and apparel offer a long runway of

growth to organized retailers.

Exhibit 12: Food and grocery is the largest category but the least penetrated by organized retail Snapshot of India’s retail market, March fiscal year-ends, 2017-25E (US$ bn)

2020-25E CAGR

2017 2020E 2025E (%)

Nominal GDP 2,464 3,555 6,265 12

Private consumption 1,454 2,062 3,634 12

Private consumption as proportion of GDP (%) 59 58 58

Merchandise retail 710 990 1,708 12

Merchandise retail as proportion of private consumption (%) 49 48 47 (0)

Organized retail 67 119 256 17

Organized retail as proportion of retail (%) 9 12 15 5

Category-wise size of retail

Food and grocery 474 659 1,126 11

Apparel and accessories 56 79 139 12

Jewelry and watches 55 77 136 12

Consumer electronics 42 59 104 12

Home and living 31 44 77 12

Others 23 32 57 12

Pharmacy and wellness 21 30 52 12

Foot apparel 8 10 18 12

Total 710 990 1,708 12

Category-wise contribution to overall retail (%)

Food and grocery 67 67 66

Apparel and accessories 8 8 8

Jewelry and watches 8 8 8

Consumer electronics 6 6 6

Home and living 4 4 4

Others 3 3 3

Pharmacy and wellness 3 3 3

Foot apparel 1 1 1

Total 100 100 100

Penetration of organized retail (%)

Food and grocery 3 4

Apparel and accessories 24 36

Jewelry and watches 28 35

Consumer electronics 27 34

Home and living 11 13

Others 13 15

Pharmacy and wellness 11 20

Foot apparel 27 34

Source: Technopak, Kotak Institutional Equities estimates



RIL has established leadership in India’s offline retail business

Reliance Retail (RR) has gradually metamorphosed from a network of standalone stores into

a behemoth achieving core retail revenues of US$13 bn in FY2020 underpinned by an

offline presence of ~11,800 outlets across 7,000+ cities and towns. It has steadily cemented

its leadership presence in India’s organized retail space by increasing its touch-points at a

pace of 48% over FY2017-20 and adding retail trading area at a CAGR of 28%, which led

to revenues growing at a robust CAGR of 54% in the given period. In India’s largely

fragmented as well as unorganized merchandise retail landscape, RR now commands a

market-share of ~1.4% (excluding recharges and fuel retail), and is the largest retailer in

terms of presence as well as revenues.

Exhibit 13: Multi-category retailer with presence across key consumption baskets RR’s various retail categories with revenue and proportion contribution, March fiscal year-end, 2020

Source: Company, Kotak Institutional Equities

Exhibit 14: RR is a leader in India’s fragmented retail market RR’s estimated market-share in key retail categories, March fiscal year-end, 2020

Reliance Retail Overall India market RR's market-share

(US$ bn) (US$ bn) (%)

Grocery retail 5 659 0.7

Fashion and lifestyle retail 2 166 1.1

Electronics retail 6 59 10.1

Total 12 884 1.4


F&G

F&L

CE

JR

PR

Reliance Retail

Consumer electronics

(US$6 bn, 27%)

Fashion and lifestyle

(US$2 bn, 8%)

Connectivity

(US$7 bn, 34%)

Food and grocery

(US$5 bn, 21%)

Petroleum retail

(US$2 bn, 9%)

Reliance TrendsReliance Fresh

Reliance JewelsReliance Smart

Trends FootwearSmart Point

Project EveReliance Market

AJIO.comJioMart

Reliance Digital

Jio Point

RESQ

Brand Partnerships

Digital commerce portal

Offline store format

Business segmentRelianceDigital



Exhibit 15: Formidable presence across the country Segment-wise presence across the country


Online retail market in India expected to increase to US$225 bn by FY2030

We believe Indian online retail market GMV could treble from US$30 bn (in FY2020) to

reach US$100 bn by FY2025 and increase further to US$225 bn by FY2030, providing a fair

amount of growth runway for RR. This growth in online retail will be driven by rising internet

penetration, improving buyer penetration and higher online spends per shopper as online

merchandise assortment improves and the propensity to shop online (for reasons such as

ease of purchase, return, payment) continues to improve.

Exhibit 16: We expect India to be a US$2.9 tn merchandise retail market by FY2030 Consumption and retail metrics of India, March fiscal year-ends, 2017-30E

2017 2020 2025E 2030E 2020-25E 2025-30E

Nominal GDP 2,464 3,555 6,265 10,557 12 11

Private consumption 1,454 2,062 3,634 6,123 12 11

Private consumption as proportion of GDP (%) 59 58 58 58

Merchandise retail 710 990 1,708 2,878 12 11

Merchandise retail as proportion of private consumption (%) 49 48 47 47

Organized retail 67 119 256 547 17 16

Organized retail as proportion of retail (%) 9 12 15 19

CAGR (%)

Source: Technopak, Kotak Institutional Equities estimates



Exhibit 17: Number of online shoppers significantly lag internet users and can rise substantially Categorization of the Indian online user by use case, December calendar year-end, 2020E

Source: Flipkart, Bain & Company, Kotak Institutional Equities

Exhibit 18: Improving buyer penetration and spends will drive e-commerce market size to US$225 bn by FY2030 Estimated size of e-commerce market, March fiscal year-ends, 2015-30E

2020-25 CAGR 2025-30 CAGR

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2030E (%) (%)

Population (mn) 1,257 1,269 1,281 1,293 1,305 1,318 1,330 1,343 1,354 1,367 1,380 1,422 0.9 0.6

Internet penetration (%) 24 27 33 38 49 55 60 64 67 70 73 78

Internet population (mn) 302 343 422 494 637 725 798 859 907 957 1,007 1,109 6.8 1.9

Number of online shoppers (mn) 30 40 50 69 96 120 144 168 196 226 258 372 16.5 7.6

Buyer penetration (%) 10 12 12 14 15 17 18 20 22 24 26 34

Online money spent (Rs) 8,015 11,307 12,437 14,303 16,448 18,093 19,903 21,893 24,082 26,490 29,139 45,247 10.0 9.2

Yoy increase in online spend (%) 148 41 10 15 15 10 10 10 10 10 10 9

Total e-commerce market size (Rs bn) 240 452 623 980 1,579 2,173 2,870 3,683 4,713 5,975 7,506 16,846 28 18

Total e-commerce market size (US$ bn) 4 7 9 15 23 31 38 49 63 80 100 225 26.7 17.5

Yoy growth (%) 76 34 64 49 36 25 28 28 27 26

Source: IAMAI, Census 2011, TRAI, Kotak Institutional Equities estimates

The Indian online retail landscape is dominated by online marketplaces such as Flipkart and

Amazon India – both majority foreign-held and hence cannot carry out B2C retail operations.

We believe this will be a key differentiator between RR’s model and the others – being an

Indian entity, RR will have the flexibility to sell its own inventory, private labels and the like,

unlike most extant players who can only be aggregators.

RIL is getting ready to tap O2O and B2B opportunities

Alongside Facebook’s strategic investment in Jio Platforms, Reliance Retail and WhatsApp

have entered into a commercial partnership agreement to further accelerate Reliance Retail’s

digital commerce business through its JioMart platform and to support digital

transformation of small and medium-sized businesses using integration with WhatsApp.

We believe RR’s arrangement with WhatsApp can enable access to a huge untapped

opportunity to play for a bigger share of the pie in India’s huge retail market, ~98% of

which is still offline. This can give RR a higher pool of ‘transacting users’ as opposed to only

‘online users’ enabling superior user monetization in the future.

We reckon RR may look at multiple monetization streams—(1) O2O offering to end-

customers serviced by a combination of local kirana networks and RR’s own offline presence,

(2) commission-based revenues by transforming India’s retail distribution network by

aggregating distribution requirements of large clusters of kirana stores and (3) transactional

revenues by enabling transactions on ‘JioPay’.

625

360

303

180

105

- 100 200 300 400 500 600 700

Internet users

Chatting and social media

Video content

Service transactions

Product transactors

Number of users (mn)



Apart from the offline business, RIL is attempting new models to further boost its presence

in India’s fast growing organized retail space: it is partnering with small kirana stores by

digitizing them through JioPoS offering and attempting to increase its distribution reach,

and has also launched its online grocery portal, JioMart, which already has a presence in

~200 cities.

JioMart provides an interesting play by straddling both offline retail (the large but

unorganized network of kirana stores that it seeks to integrate, as well as RIL’s offline stores)

and online retail (WhatsApp enabled e-commerce which could potentially interlink with

other plays such as AJIO).

In the following sections we focus separately on Reliance Retail’s offline and online

operations, value proposition to the end-customers, new business initiatives and a

framework to value the business in the medium term.



FAST GROWING MULTI-CATEGORY RETAILER WITH A FORMIDABLE FOOTPRINT

RR has posted strong 54% CAGR in revenues of its core retail operations over FY2017-20. This has been driven

by a healthy pace of store additions (48% CAGR) as well as strong SSSG. We believe RR will continue to invest

in its offline network to maintain its dominance as well as to complement its online offering. Leveraging its

relationship with Jio’s other apps as well as WhatsApp, RR can transform into a multi-channel retail

behemoth with a large O2O play.

RR’s existing offline business comprises two broad categories: core retail (comprising food

and grocery, fashion & lifestyle and consumer electronics businesses) and others (comprising

revenues from Jio recharges and fuel retail).

Existing retail revenues to more than double in four years

We model existing offline retail revenues to more than double in FY2020-24 growing by a

robust 19% CAGR over the next four years, assuming similar growth trajectory for core

retail and Jio and fuel segments. We expect margins of core retail business to expand by

~150 bps to 10.4% in FY2024 and that of other segments to remain stable around 2%,

which will cumulatively enhance overall margins to 7.1% in FY2024 from 6.6% in FY2020.

We have assumed weaker numbers for FY2021 factoring in anticipated impact on consumer

discretionary spends amid ongoing lockdowns and bleak economic outlook.

Exhibit 19: We expect offline retail business revenues to double in four years Financial model of Reliance Retail, March fiscal year-ends, 2016-25E (Rs bn)

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Profit model

Revenues (gross) 209 333 622 1,166 1,465 1,691 2,232 2,628 2,966 3,326

Core retail 189 255 362 735 928 946 1,307 1,559 1,770 2,000

Jio and fuel 22 83 330 570 702 866 1,091 1,256 1,406 1,560

EBITDA 9 12 25 62 97 93 143 179 212 249

Core retail 9 11 22 52 83 75 121 153 183 217

Jio and fuel (0) 1 4 10 14 18 22 26 29 32

EBIT 5 8 21 55 83 74 116 146 175 208

Net income 3 5 13 33 57 54 83 105 128 155

Contribution to RIL's EPS (Rs) 0 1 2 5 9 9 12 16 19 23

Balance sheet

Net-worth 55 69 92 128 184 238 321 426 554 709

Net debt 11 (3) 32 120 28 179 200 183 125 33

Invested capital 67 66 124 248 212 417 522 609 679 743

Operating metrics (%)

Revenue growth 20.0 59.3 86.7 87.4 25.6 15.4 32.0 17.7 12.8 12.2

Core retail 34.9 42.3 102.9 26.2 1.9 38.2 19.3 13.5 13.0

Jio and fuel 277.6 296.9 73.1 23.0 23.4 26.0 15.2 11.9 11.0

EBITDA margins 4.3 3.5 4.1 5.3 6.6 5.5 6.4 6.8 7.1 7.5

Core retail 4.2 6.0 7.0 8.9 7.9 9.2 9.8 10.4 10.9

Jio and fuel 1.3 1.1 1.8 2.0 2.1 2.0 2.0 2.0 2.0

EBIT margins 2.4 2.4 3.3 4.8 5.6 4.4 5.2 5.6 5.9 6.3

RoAE 5.2 8.5 16.5 30.0 36.6 25.5 29.8 28.1 26.1 24.6

RoACE 5.0 7.8 14.2 19.4 26.7 17.4 18.4 19.2 20.2 21.8


Robust growth in offline retail driven by store additions and rising throughput

RR’s core retail revenues (excluding fuel and telecom) have increased at an impressive ~54%

CAGR over FY2017-20. Reported profitability (EBITDA) from the same has also increased at a

CAGR of 74% over the same period. RR is present across key verticals such as food and

grocery, general merchandise, apparel and footwear, jewelry, electronics and toys. Besides,

RR also operates several stores in partnership with several international brands.



Exhibit 20: RR's healthy revenue growth has been driven by increase in store count and throughput Details of RR's category-wise store count and revenues, March fiscal year-ends, 2017-20

2017-20 CAGR

2017 2018 2019 2020 (%)

Store count (#)

Grocery 447 537 605 797 21

Consumer electronics 266 287 357 400 15

Jio Points 1,645 5,381 7,684 8,201 71

Fashion and lifestyle 1,258 1,368 1,769 2,386 24

Total 3,616 7,573 10,415 11,784 48

Total excluding Jio points 1,971 2,192 2,731 3,583 22

Segment-wise revenues (Rs bn)

Grocery 108 140 234 346 47


Fashion and lifestyle 51 71 110 136 39

Total core revenues 254 363 735 928 54

Break-up of core retail revenues (%)

Grocery 43 39 32 37

Consumer electronics 38 42 53 48

Fashion and lifestyle 20 20 15 15


Store addition data reveals that RR has been most aggressive in adding stores in the fashion

and lifestyle formats. RR has consciously developed multiple formats to serve a diverse set of

customers.

Exhibit 21: RR operates multiple formats under its key segments of grocery, apparel and electronics Snapshot of RR’s various store formats

Grocery

Reliance Fresh Neighbourhood store offering fresh produce, grocery and other daily need items

Reliance Smart Supermarket store dealing in fresh foods, staples, home & personal care items, apparel and general merchandise

Reliance Market Cash and carry chain serving B2B customers

Smart PointSmaller version of Reliance Smart serving everyday needs of customers in the grocery and pharmacy categories.

Also offers assisted e-commerce.

Apparel

Trends Flagship chain catering to value focused customer. Large variety of own brands.

Reliance Footprint Offers wide range of products across footwear, luggage, handbags & accessories

Reliance Jewels Retailer of fine and precious jewelry

Project Eve Experiential store catering to women's apparel needs

AjioOnline portal offering curated fashion from over 500 national and international brands. Also retails its own

private label.

Consumer electronics

Reliance Digital Big box electronics retailer stocking 200+ national and international brands

Jio store Smaller stores focused on offering mobility & communication devices and bouquet of Jio services

Reliance Resq Dedicated service arm offering end-to-end product lifecycle support


RR’s core retail revenues also include sales of Jio-related devices such as JioPhone on which

the company possibly earns a small margin. Sale of these devices has driven a large increase

in revenues from electronics retail from FY2019 onwards.

RR has not consistently shared format-wise margins; however recent margin disclosures

reveal that RR’s margins compare favorably with its better performing peers such as Avenue

Supermarts in grocery, Trent in apparel retail and Croma in electronics retail.



Exhibit 22: Margin expansion across formats has driven a strong increase in EBITDA Segment-wise margin profile of Reliance Retail, March fiscal year-ends, 2017-20

2017-20 CAGR

2017 2018 2019 2020 (%)

Segment-wise revenues (Rs bn)

Grocery 108 140 234 346 47


Fashion and lifestyle 51 71 110 136 39

Total core revenues 254 363 735 928 54

Segment-wise EBITDA (Rs bn)

Grocery 11 23

Consumer electronics 19 28

Fashion and lifestyle 22 32

Total EBITDA 11 22 52 83 98

Segment-wise EBITDA margins (%)

Grocery 4.9 6.5

Consumer electronics 4.7 6.2

Fashion and lifestyle 19.9 23.9

Overall 4.2 6.0 7.0 8.9


While certain metrics such as format-wise retail trading area are not available, we try and

benchmark RR’s various formats with relevant peers.

Food and grocery – large growth runway

RIL’s food and grocery business comprise of its Reliance Market, Reliance Smart, and

Reliance Fresh formats. RR had 765 stores altogether under these formats as of March 2020.

Reliance Smart is the large hypermarket format retailing food and grocery, FMCG products

and general merchandise. Reliance Fresh is the smaller fresh food and grocery format.

Margins for different grocers vary on account of store ownership: Dmart, for instance, owns

its stores and hence pays very little rent. RR predominantly operates on a rental model and

hence margins are comparable more with peers such as Future Retail, Star Bazaar (Trent

Hypermarket) and Spencer’s.

The comparison below shows that RIL’s grocery retail business is notching decent margins,

despite the segment being intensely competitive. Management has attributed the margin

expansion in FY2020 to improved SSSG as well as positive impact from Ind-AS 116 adoption.

Exhibit 23: RR is one of the few profitable food and grocery retailers in India Operating metrics of Indian food and grocery retailers, March fiscal year-ends, 2019-20 (Rs mn)

2019 2020 2018 2019 2019 2020 2019 2020 2018 2019

No. of stores (#) 176 214 285 292 605 765 156 160 35 39

Revenues (Rs mn) 200,045 248,702 184,793 201,649 233,713 346,010 21,872 23,733 9,396 10,005

EBITDA (Rs mn) 16,333 21,283 8,371 10,369 11,370 22,530 139 793 (1,035) (802)

EBITDA margin (%) 8% 9% 5% 5% 5% 7% 1% 3% -11% -8%

Trent

Hypermarket Spencer's RetailAvenue Supermarts Future Retail Reliance Retail


We believe RIL’s offline food and grocery retail network will play a critical role in enabling

the company’s recent online offering JioMart.

Apparel – Reliance Trends rapidly gaining scale

Reliance Trends is RR’s flagship apparel retail format, with 1,400+ stores currently. Besides

Trends, RR has various other retail formats to cater to a wide set of customers.



Exhibit 24: RR has apparel formats spanning all customer segments Various apparel retail formats of RR

Apparel segment Reliance format

Luxury International partner brands, Ajio Gold

Mid-segment Ajio, M&S, Project Eve, Reliance Jewels

Value fashion Trends, Trends Woman, Trends Man, Trends Footwear, Payless, Vision Express

Value Reliance Market, SMART


Indian retailers have been adding the maximum number of stores in the urban mass market

family format stores such as Pantaloons (ABFRL) and Westside/Zudio (Trent). These stores

have registered impressive SSSG in FY2019-20 boosted by improved merchandising, sharper

price-quality proposition as well as focus on private label (60% for Pantaloons and 90% for

Westside). From a store count perspective, Reliance Trends is the largest and fastest growing

chain in the value fashion category.

Exhibit 25: Reliance Trends is one of the fastest growing affordable fashion retail chain Net store additions of Indian apparel retailers, March fiscal year-ends, 2015-20

2015 2016 2017 2018 2019 2020

Store count

ABFRL-Lifestyle brands 1,735 1,877 1,761 1,813 1,980 2,253

ABFRL-Pantaloons 134 163 209 275 308 342

FBB 46 51 54 61 94 95

FLFL 358 369 372 332 339 354

Reliance Trends 271 344 458 670 1,400

Trent-Westside 85 93 111 125 150 173

Vmart 108 123 141 171 214 266

Net store additions

ABFRL-Lifestyle brands 194 142 (116) 52 167 273

ABFRL-Pantaloons 27 29 46 66 33 34

FBB — 5 3 7 33 1

FLFL 31 11 3 (40) 7 15

Reliance Trends — — 73 114 212 730

Trent-Westside 5 8 18 14 25 23

Vmart 19 15 18 30 43 52 Notes: (a) FY2020 results of FLFL and Future Retail are yet to be published and hence store count is as of 9MFY20.


RR has surprised us with consistently high margin metrics for its fashion and lifestyle

segment (which includes apparel, luxury brands, jewelry businesses). A comparison with

peers also indicates that RR’s segment margins are significantly superior to its peers. This

may be a function of better store economics of Reliance Trends particularly in Tier II/III cities

and higher throughput. The jump in FY2020 EBITDA margin was in part due to Ind-AS 116

implementation.



Exhibit 26: RR has reported robust operating metrics for its Fashion and Lifestyle segment Operating metrics of Indian apparel and jewelry retailers, March fiscal year-ends, 2019-20 (Rs mn)

2018 2019 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020

No. of stores (#) 372 332 308 342 1,769 2,400 264 293 287 327 150 170

Revenues (Rs mn) 42,192 53,774 31,940 35,135 109,675 135,520 34,813 33,810 160,296 167,382 25,317 31,777

EBITDA (Rs mn) 3,885 4,632 2,310 2,220 21,830 32,420 2,533 5,494 21,472 24,177 2,365 5,632

EBITDA margin (%) 9% 9% 7% 6% 20% 24% 7% 16% 13% 14% 9% 18%

Tanishq (Titan)Pantaloons (ABFRL) Westside (Trent)

Reliance Retail

(Fashion and Lifestyle) Shoppers' Stop

Future Lifestyle and

Fashion

Notes: (a) Financials for FY2019 are pre IndAS-116 and are not comparable with FY2020; Pantaloons EBITDA for FY2019 and FY2020 is pre IndAS-116.

Source: Companies, Kotak Institutional Equities s

Other formats in the lifestyle segment include Reliance Gems and Reliance Footwear. RR also

has partnership with brands such as M&S, Mothercare, and luxury brands such as Armani,

Michael Kors and Steve Madden.

E-commerce players ramping up their offline investments; RR in driver’s seat

Large global e-commerce companies may have emerged first as online-only platforms,

however, they have also been investing into offline assets, highlighting the importance of

having presence across channels. RIL, with its large offline network has a first-mover

advantage and can capitalize on this network as it seeks to expand its online offering.

E-commerce players such as Amazon and Flipkart are working on their offline retail

strategies in India. Globally, similar strategies are being followed by Amazon and Alibaba to

fine-tune their O2O (online-to-offline) strategy.

Amazon India – picking up stakes in Indian retailers

Amazon India has picked up stakes in three offline retailers, Future Group, More Retail

and Shoppers Stop. We believe Amazon has done this with a view to improve its offline

supply chain and to get exclusive access to products of these chains to offer online. Further,

Amazon also wants to utilize the offline footprint of these stores to push its own private

labels: AmazonBasics — products include ACs, HDMI cables, batteries and cables, home

necessities, and general merchandise and apparel labels—Prowl and Just F. Amazon may use

these stores to retail its grocery brands as well.

Apart from this, recently launched ‘Local Shops on Amazon’ initiative is to enable offline

stores to do more business through their platform. It has already signed up over 5,000

offline shops, including large retailers such as Tata’s Croma, as sellers on its platform. Offline

stores will be allowed to ship orders themselves, ship it through third-party logistics or even

through Amazon’s fulfillment channel.

Smart Stores launched by Amazon Pay allows customers to scan QR codes to explore

products within offline stores and pay for them using various payment instruments. It will

provide own credit facility under the ‘buy now, pay later’ scheme. Smart Stores will also

expose product listings on the app, allowing customers to see their details and reviews.

Flipkart: partnering with local stores to ramp up its grocery sales

Flipkart has partnered with 37,000 kirana stores to leverage their network and help them

turn around as convenience stores. Flipkart has also recently partnered with retail chains like

Spencer’s and Vishal Mega Mart to enable hyperlocal deliveries of groceries and essentials

in various cities.

It has partnered with Authentic Brands to license and distribute fashion brand Nautica in

India. As a part of the agreement, Flipkart will manage Nautica’s online and offline

businesses in the country through a network of franchisees. Nautica currently has more than

40 retail stores in India.



Alibaba: rapidly developing its offline network in China

Alibaba has a majority stake in brick-and-mortar retailer Intime. It has also invested in

Hema, a 150-unit grocery chain in 21 Chinese cities. Hema seamlessly integrates physical

store conveniences with digital tools, Hema has been called ‘the most futuristic retailer’ in

the world. Hema offers free 30-minute deliveries of fresh produces within a radius of 3

kilometers from stores. Hema is the only Chinese supermarket chain operating both online

and offline channels; it virtually dominates Chinese online grocery scene. Its business has

been gaining steam during the Covid-19 crisis, with its sales more than tripling.

Alibaba Group also has acquired 36% of Sun Art Retail Group, which operate nearly 400

hypermarkets under the Auchan and RT-Mart banners. Per the agreement, Alibaba would

share its Digital commerce technology and insights of consumer trends with RT Mart to

expedite its digitization, sync its online and offline operations, improve its in-store layout and

increase efficiencies in the grocer’s inventory management.

As part the digital makeover, RT-Mart gains access to Alibaba’s customer insights, supply-

chain management, retail technologies and electronic payments via Alipay.



ASPIRATIONS TO TAP INDIA’S E-COMMERCE OPPORTUNITY

Reliance Retail is all set to tap India’s burgeoning e-commerce opportunity by leveraging its widespread

offline presence across consumption categories and benefiting from domestic-centric policies, which may

allow it to overcome the headstart by other e-commerce players. The company’s approach to target the

lowest common-denominator for consumer, food and grocery, through its JioMart platform, and its recent

strategic tie-up with WhatsApp, may allow it to expand the universe of online transactors in India. This

coupled with enhancement and expansion of existing online offerings such as AJIO and RelianceDigital may

propel it to the pole position in e-commerce business as well in the medium term.

From grocery to other categories: RIL can amass US$12 bn GMV by FY2025

RIL already has the online apparel property AJIO, which has evolved into a fashion

marketplace retailing Reliance Trend’s private label, RR’s partner luxury brands as well as

third-party brands. With RIL already targeting apparel and grocery, the two large

components of retail (76% of overall retail in FY2020), we believe it can steadily foray into

other categories such as jewelry, home and living, consumer electronics and others. It

already has offline formats offering this merchandise and hence it would be only a matter of

time before it readies its comprehensive online merchandise offering.

A steady foray into digital commerce backed by its own merchandise, partnership with a

variety of brands, pan-India network and widespread customer reach via WhatsApp and

other popular apps, and regulations favoring Indian companies can drive RIL to steadily ramp

up its share in the Indian digital commerce market. We believe it can achieve digital

commerce GMV of US$12 bn by FY2025, implying a 12% share in the e-commerce market.

Exhibit 27: RIL can achieve digital commerce GMV of US$12 bn by FY2025 RIL's estimated online GMV, March fiscal year-ends, 2020-25E (US$ bn)

2020 2021E 2022E 2023E 2024E 2025E

Estimated e-commerce market size (US$ bn) 31 38 49 63 80 100

Incremental annual GMV (US$ bn) 8 11 14 17 20

Base case

RIL's share in incremental GMV (%) 2 8 15 22 28

RIL's cumulative GMV (US$ bn) 0 1 3 7 12


Grocery to be JioMart’s biggest bet; to steadily ramp-up other segments

We believe online commerce provides RIL the opportunity to monetize its Jio customer

better, especially since it already has a large offline presence and a variety of merchandise is

being sold via Reliance Retail’s store network. RR already has e-commerce websites called

AJIO.com for sale of apparel and RelianceDigital.in for sale of electronics products.

The recent large-scale launch of JioMart gives it footprint in grocery as well. Grocery is

particularly attractive as it is currently highly unorganized and RR has the opportunity to

seize a sizeable first-mover advantage. Note that other e-commerce players such as Amazon

and Flipkart have been relatively late entrants to this category and we believe their

operations in the food and grocery category are not very sizeable yet.

RR has been tactical in focusing on the food and grocery segment via JioMart, instead of

traditional large e-commerce categories. We believe this may be deliberate as: (1) large initial

focus on electronics has led to a plateauing of user base of other competitors such as

Amazon and Flipkart and is now forcing them to look towards grocery, and (2) unlike

Amazon and Flipkart, JioMart’s access to 380 mn+ telecom subscribers and its tie-up with

WhatsApp can allow it to sell grocery to a much larger customer base.

As highlighted above, food and grocery is the largest retail category in India, and also the

highest frequency purchase item. It is also highly fragmented and unorganized, and thus

presents an opportunity for large retailers to garner a share in the business. Further, as



incomes increase, spends in this category can continue to increase at least the rate of

growth of real GDP. We believe it is this market size and customer reach that RIL intends to

tap into.

RR may benefit from regulations favoring domestic retailers

Unlike its other foreign owned peers, RIL does not have to contend with restrictions of multi-

brand retail in its B2C business. Regulations have tended to become stricter for foreign-

owned e-commerce players, as local sellers have protested against large, company-owned

sellers being active on marketplaces, effectively accusing marketplaces of buying and selling

products.

A case in point is that of Flipkart, which was recently denied permission by the DPIIT

(Department for Promotion of Industry and Internal Trade) to undertake a food retail

business in India citing violation of marketplace model. Per DPIIT, a foreign-owned

marketplace cannot be a seller on its own platform. However, rival Amazon already operates

in the space through subsidiary Amazon Retail India (ARIPL); this may also be reviewed by

DPIIT.

In April 2020, the government tweaked FDI policy, banning fresh investments from China

through the automatic route. Chinese e-commerce companies such as Alibaba are large

investors in Indian startups like BigBasket. The change in policy makes it mandatory for all

Chinese investors to seek government approval before investing in Indian firms, which may

affect further funding rounds in startups by Chinese investors.

Exhibit 28: Government has restricted foreign investment in inventory led e-commerce and multi-brand retail Details of permitted foreign investment in Indian retail

Foreign

investment cap

(%) Government approval Comments

Sale of products (other than food)

manufactured in India by the manufacturer100 Automatic Retail sale via e-commerce is allowed.

Sale of food products manufactured in

India100 Government approval Retail sale via e-commerce is allowed.

Cash and carry/wholesale trading

including B2B e-commerce100 Automatic

Wholesale/cash and carry trader can also undertake single brand retail trading.

Such traders will be mandated to maintain separate books of accounts for

these two arms of the business and duly audited by the statutory auditors.

Government regulations have to be separately complied with by the respective

business arms.

B2B e-commerce 100 Automatic

Such companies would engage only in B2B e-commerce and not in retail trading,

thus implying that existing restrictions on FDI in domestic trading would be

applicable to ecommerce as well.

Market place model of e-commerce 100 Automatic

Marketplace model of e-commerce means providing of an IT platform by an e-

commerce entity on a digital & electronic network to act as a facilitator between

buyer and seller.

An e-commerce entity will not permit more than 25% of the sales value

generated on its marketplace from one vendor or their group companies.

Inventory model of e-commerce Not allowed Foreign investment is not permitted in inventory-based model of e-commerce.

Single brand product retail trading 100

Automatic up to 49%;

government approval

beyond this

For foreign investment beyond 51%, sourcing of 30% of the value of goods

purchased be done from India preferably from MSMEs, in all sectors. The

quantum of domestic sourcing will be self-certified by the company, to be

subsequently checked by statutory auditors. The procurement requirement is to

be met in the first instance as an average five years total value of goods

purchased beginning April 1 of the year of the commencement of the business.

Thereafter it shall be met on an annual basis.

Multi brand retail trading 51 Government approval Minimum amount to be brought in as foreign investment is US$100 mn.

At least 50% of the total foreign investment brought in the first tranche of

US$100 mn shall be invested in 'back-end infrastructure' within three years.

Source: DPIIT, Kotak Institutional Equities

The presence of a large offline network will give RR an edge that its other competitors such

as BigBasket and Grofers do not have. RR can benefit from an established supply chain

(sourcing, warehousing, store inventory), something which its competitors will take a while

to establish when entering into new cities.



Exhibit 29: BigBasket and Grofers command a small share of the grocery market Standalone financials of BigBasket and Grofers, March fiscal year-ends, 2015-19 (Rs mn)

2014 2015 2016 2017 2018 2019

Revenues

BigBasket 751 1,837 5,275 10,905 15,832 27,526

Grofers — — 80 132 298 701

EBITDA

BigBasket (23) (77) (941) (1,778) (3,070) (5,580)

Grofers — — (2,279) (2,809) (2,661) (4,484)

PBT

BigBasket (23) (76) (1,034) (1,918) (3,103) (5,627)

Grofers — — (2,251) (2,683) (2,583) (4,480)

Notes: (a) Grofers reports gross commission as revenue as it does not own inventory. Its revenue figures are thus notcomparable with those of BigBasket.

Source: Tofler, MCA, Kotak Institutional Equities

Industry discussions reveal that the two specialist grocery delivery companies clocked

~US$1.5-2 bn of GMV in FY2020, implying a minuscule 0.2-0.3% share of online grocery in

the overall food and grocery pie. This is also much lower than higher shares that e-

commerce has managed to achieve in certain other categories such as electronics and

apparel. We believe grocery has been a much tougher nut to crack for most companies

given: (1) inherently low margins in the business, (2) low ATV (average transaction value)

compared to categories such as apparel and electronics, (3) demand for quick turnaround

times and deliveries, (4) high number of SKUs demanded per order, and (5) high competition

from offline channel.

JioMart: B2C model may undergo several iterations

JioMart has commenced its online grocery delivery business on a pan-India basis by

connecting local kirana shops to customers. JioMart’s model involves forming a local

network of kirana stores so as to have their entire inventory online, allocating incoming

orders to stores based on product availability and proximity, and facilitating delivery to the

customer by its own network. The grocery shop shares a certain margin with JioMart for

every order originated by JioMart. Per RIL, JioMart intends to act as a centralized

procurement and delivery platform between manufacturers and merchant partners. JioMart

will enable digitization of merchants through Jio PoS at the backend and JioMart app at the

front-end.

The local store aggregation model has not met with much success in the past as local stores

may not carry very large assortment of products resulting in a mismatch between product

shown on JioMart’s website and actual product delivered to the customer. Control of

customer experience will thus be key for JioMart to succeed in the business. We believe

these can be addressed by: (1) control of the back-end of these stores by JioMart, (2) very

localized inventory view offered by JioMart on its website, and (3) efficient delivery logistics

(either by store or JioMart).

RIL’s opportunity size in this business extends to Indian food and grocery retail market,

estimated at US$660 bn for FY2020. Grocery is a low margin category and hence revenue

opportunity will be smaller at 7-10% of GMV opportunity at US$46-66 bn.

JioMart’s kirana digitization strategy to supplement digital commerce

We believe RR’s JioMart seeks to not only become a meaningful grocery retailer by providing

customers the convenience of shopping online, it also seeks a slice of the large B2B market,

which hitherto has been driven by traditional distributors. While the proportion of modern

trade has been on the rise, we believe RIL would want to integrate its Reliance Market

offering with its network of kirana stores, thereby disintermediating the existing value chain

(company – distributor – wholesaler – stockist – retailer). We believe this business can be an



important feeder to the digital commerce business and can significantly aid supply

aggregation in a fragmented market.

RR’s intent to launch its distribution service on a large scale can help it amass sizeable

revenues. RR will need to establish a virtuous cycle by offering consistently low-priced

products to shops, the widest variety while at the same time negotiating for best prices with

FMCG companies and other large producers. As discussed above, RR has several private

labels in its grocery retail business. It can push these private labels on a large scale through

this channel and ultimately to customers ordering products online. This business is currently

in a trial phase and we expect it to be gradually ramped up, in sync with JioMart online.

JioMart: B2B operations launched but execution will be key

After piloting its operations in parts of Mumbai, RIL commenced operations of JioMart, its

online groceries delivery portal. Besides B2C operations, RR has also sought to build a

network of small stores by offering them a PoS device for refundable deposit of Rs4,000-

5,000, with the idea of: (1) connecting these stores with its own B2B supply chain, (2)

getting these chains to use JioPay on the PoS machine, and (3) garnering precious data on

revenue potential of the shop, SKUs sold, etc. It can offer stores benefits such as cheaper

procurement price of products (vs traditional distributors), lower turnaround times leading to

higher fill rates (aided by enhanced data availability via PoS), and additional customers via

WhatsApp pay.

The social commerce interface combining WhatsApp pay and JioPay can create a vast fintech

space – potentially representing ways for: (1) providing working capital loans to shop owners

with little or no credit history, and (2) potentially earning margins on transactions originating

on JioPay. Note JioPay could be a currency of transaction not only in the Reliance-PoS

enabled kirana shops, but all across the RIL ecosystem and can be used by vendors and

customers alike. Most importantly, these kiranas can act as supply aggregators and delivery

agents for the nascent JioMart online business.

We conducted interviews with shop owners who had been given the Reliance PoS systems.

Some findings: (1) the PoS did not provide massive appeal to shop owners as it mandatorily

required bar-coding of inventory; this is something shop owners find it difficult to comply

with given they don’t have manpower to do this, (2) the benefits of purchasing merchandise

from RR wasn’t clear as too much variety wasn’t available, (3) companies such as HUL had

commenced with their own direct distribution programs and some kiranas were purchasing

directly from the company, and (4) some incremental orders were being received from RIL

and the company was providing some additional discounts – however, the pattern of these

discounts wasn’t consistent .

For now, we reckon RIL will have to make its proposition to shop owners stronger for these

shop owners to switch to an end-to-end RIL powered supply chain.

We note that apart from RIL, there are others also who are trying to modernize the kiranas

and seeking to integrate their supply chain by taking over their B2B needs. We believe Metro

Cash and Carry has evolved a model that has proven beneficial for kirana owners by catering

to their twin needs of modernization as well as back-end supply chain integration with

Metro’s network. Some key highlights of the model include: (1) there is need for back-end

supplies for kiranas to be consolidated, as currently kiranas interact with 150-200 vendors

with limited price transparency, (2) there is need to hand-hold kiranas and make them aware

of new retail practices, especially in the face of competition from large e-commerce players,

and (3) kiranas need to be provided with devices and software that are easy to use and may

ultimately provide with some cost saving. Refer to appendix-1 for more details on takeaways

from a webinar with Arvind Mediratta, MD of Metro Cash and Carry, that we attended.

Our interaction with a few stores who have opted for Metro’s Smart Kirana program reveal

that these shop owners have benefited significantly from the Smart Kirana program. Their

revenues have increased by 20-40% as a result of the remodeling, and the lower priced

goods sourced from Metro have enabled them to have competitive pricing.



We believe RIL would need to come up with some such model in order to gain kirana’s trust

as well as their business. We do believe kiranas are looking to consolidate their supplier base

as well as bring down their cost of procurement; these both are aspects that RIL can take up

in their B2B program.

Regulatory regime may also favor kirana modernization

Media reports have stated that the Commerce Ministry is drafting a new e-commerce policy,

which will incentivize kiranas to integrate their operations with existing e-commerce

platforms. It is not clear as to what these incentives may be, but they may be in the form of

a one-time grant or interest subvention on investments put up by kiranas towards

digitization. Overall, this push by the government may also be beneficial for RR, which

intends to connect millions of such vendors to its own network.

B2C can be extended into O2O, and can play on synergies between RIL’s offline

and online offering

O2O generally refers to ‘online to offline’, implying that online services can be used to

generate in-store revenues. Reverse O2O refers to offline to online, implying that a physical

point-of-sale can generate online revenues. There are several benefits of O2O, important

among these being enabling a customer to research online and purchase offline; or browse

offline and purchase online. Both are important as buy rate in offline retail can be very high

(as high as 30-70% per some estimates), significantly higher than 1-3% on online platforms.

Benefits of O2O to the platform operator can be immense: (1) it can significantly increase a

user’s engagement within the ecosystem: for instance, a grocery buyer on WhatsApp can be

a customer of Reliance Trends, Reliance Jio telecom services, Jio Movies etc., and (2) the

more significantly engaged a user is, the more the platform can understand the user’s

behavior through data analytics.

RIL has acquired stakes in several start-ups over the past few years to strengthen its O2O

platform, offer support of voice assistants to customers, software services to SMEs as well as

logistic network.



Exhibit 30: RIL on a spree of acquisitions in past two years to bolster digital space offerings Details of acquired company

Year Company acquired Comment

2019 NowFloats Nowfloats offers SaaS solutions to small and medium enterprises (SMEs) that enable them to get a digital presence.

2019 Asteria AerospaceRobotics and artificial intelligence company. Asteria develops drone-based solutions to provide intelligence from aerial data

for military and industrial applications.

2019 Fynd

RIL bought the stake for Rs3 bn as it aims to push for online-to-offline (O2O) commerce giving it an 87.6% stake in the

startup. Fynd provides a technology platform and solutions to merchants to manage their inventory and sales across multiple

demand channels for consumers, including e-commerce platforms. It sources products across categories such as clothing,

footwear, jewellery from nearby outlets and brings them online.

2019 Embibe AI based education platform that uses data analytics to deliver personalized learning outcome

2019 GuavasAI-based solution for real-time customer experience analytics. The deployment will help Jio in getting predictive analytics to

automate network troubleshooting.

2019 C-Square

C-Square provides software solutions with specific focus on pharma sector for various stakeholders including C&F,

distributors, retailers, online ecommerce, sales force automation, etc. The aforesaid investment will further enable Reliance

group’s digital commerce initiatives and solutions.

2019 Reverie

Reverie provides a voice suite (called Gopal) in 12 Indian languages like Hindi, Telugu, Tamil, Bengali, Marathi, Gujarati, Indian

English, etc. which can be integrated with both chatbots and Interactive Voice Response (IVR) solutions which companies can

use to engage with non-English speaking customers. Reverie will work towards integration of its Indic language localization

services with RIL’s digital consumer platforms.

2019 TesseractTesseract has launched three hardware and two software products in the MR, AR, and VR spaces. Tesseract has developed the

Jio HoloBoard as a native mixed reality (MR) headset for JioFiber users.

2019 Haptik

Haptik is one of the world's largest conversational AI platforms that lets customers chat with their voice assistants to complete

daily tasks such as online shopping, travel bookings, food delivery among others. It is to compete against Amazon' Alexa and

Google Assistant

2019 SankhyaSutra Labs SankhyaSutra Labs offers high-performance computing software simulation services.

2019 Grab A Grub

Grab offers services ranging from on-demand, reverse deliveries, first mile, and last-mile logistics. The investment will support

Reliance Group’s “digital commerce initiatives and strengthen its logistics services, catering to both B2B and B2C segments.

The deal would help the company boost its e-commerce model to take on its rival Amazon India and Flipkart in the country.

2019 Easygov RIL announced an agreement to acquire shares in data solutions and software company Easygov for up to Rs180 mn.

2018 NetraDyne The US-based AI startup focuses on driver and fleet safety and uses artificial intelligence for the same

2018 Vakt HoldingsWith this acquisition, RIL was looking to accelerate its digital journey through active participation in an emerging and evolving

blockchain-enabled technologies.

Source: Media releases, Kotak Institutional Equities

In China, Tencent’s Wechat has shown that Chinese online consumers can use a single app

for varied uses such as social networking, instant messaging, e-commerce, payments as well

as O2O services. The service has become comprehensive enough to host a wide variety of

sellers and brands online such that a wide variety of choice is offered to the consumer

without diluting experience.

For a retailer to be present everywhere, the offline play becomes critical. This is evident from

the fact that global e-commerce players such as Amazon, Alibaba, etc. are all developing

their offline presence.



Inorganic opportunities could further cement leadership position

Per media reports, RIL is in advanced stages of discussion for acquisition of Kishore Biyani’s

stake in retail and supply chain assets of Future Group. The transaction may first involve a

merger of three Future Group entities (Future Retail (FRL), Future Lifestyle & Fashion (FLFL),

Future Supply Chain (FSC)); RIL will then purchase a stake in the merged entity. FRL operates

store formats such as Big Bazaar (hypermarket), FBB (value fashion), Easyday (local grocery

store) and Foodhall (premium food and grocery). It had a network of ~1,400 stores as of

9MFY20 with a retail trading area of 16.1 mn sq. ft. It has a presence in 414 cities, with its

flagship Big Bazaar stores present in ~140 cities. FRL reported revenues of Rs157 bn in

9MFY20. This compares with RR’s FY2020 core revenues of Rs928 bn. FLFL is an apparel

retailer and operates the Central (premium apparel large format store) and Brand Factory

(apparel discount retailer) formats. Besides, FLFL also has partnerships with foreign brands

and operates certain standalone stores (EBOs) for these brands (some of these brands

include Clarks, Scullers, Urban Yoga, Lee Cooper and Indigo Nation). It had a network of

~355 stores (including EBOs) as of December 2019 and retail trading area of 7.5 mn sq. ft.

FLFL reported revenues of Rs46.2 bn in 9MFY20. JioMart intends to supply grocery online as

well as act as a distributor to retail shops. We believe this would require an integrated supply

chain network to connect RIL Market and warehouses with local kiranas, and kiranas and

local RR outlets with customers. Assets of Future Supply Chain and Future Retail’s Easyday

network can help JioMart’s distribution and hyperlocal retail ambitions. RR’s core revenue

run-rate can increase by ~30%, should this acquisition go through and can further bolster

RR’s leadership position in offline retail

Acquisition of an existing online grocery retailer may also make strategic sense

As discussed above, online grocers such as BigBasket and Grofers amassed US$1.5-2 bn of

GMV in FY2020. These companies have built a decent presence in the 20-30 cities they are

present in and are aspiring to spread even wider. We believe these companies have created

a niche in a difficult category by offering good quality products, large product assortments

and timely delivery to customers. With competitors such as Amazon and Flipkart eyeing the

large grocery space themselves, we believe it would be prudent for RR to acquire one of the

existing online players in order to gain a time advantage over other competitors. It can also

get a headstart and learn softer aspects such as customer experience, complaints redressal,

which are key to running a successful grocery business in India.

Per last valuation rounds, BigBasket was valued at US$1.2 bn and Grofers at US$650 mn;

these companies are not profitable yet and may make reasonable acquisition targets for RR.

Expansion into online will not be without challenges

Existing e-commerce players have made significant investments to acquire users

India’s e-commerce landscape has till now been ruled by primarily foreign-capital backed

start-ups, with Amazon’s Indian entity joining the fray. Pure-play Indian corporate-backed e-

commerce players are very few (the likes of Tata Cliq) and none of these have managed to

make a mark on the digital commerce landscape.

Online retailers in India have invested significantly and incurred large losses to fuel change in

customers’ buying behavior. These losses have been on account of significant customer

acquisition costs in the form of deals and discounts offered to customers as well as other

costs such as free delivery. As shown below, losses incurred by extant Indian e-commerce

players have increased meaningfully in the past few years. Until it gains scale, RIL may also

incur some losses as it seeks to increase its share in the online retail pie.



Exhibit 31: E-commerce players have made significant investments into acquiring customers Details of financial performance of key e-commerce players (including group companies), March fiscal year-ends, 2015-19 (Rs mn)

2015 2016 2017 2018 2019

E-commerce

Flipkart group

Revenues 104,376 157,889 180,000 271,682 404,525

PBT (26,286) (44,770) (42,515) (49,823) (81,137)

Amazon India

Revenues 22,931 74,268 168,608 262,647 306,389

PBT (17,539) (37,306) (50,383) (66,557) (68,231)

Paytm E-commerce

Revenues — — 72 7,442 8,928

PBT — — (136) (18,056) (11,714)

Snapdeal

Revenues 7,664 11,589 9,038 4,361 8,138

PBT (13,192) (29,600) (14,740) (2,566) (1,884)

Shopclues

Revenues 773 1,780 1,800 2,713 2,041

PBT (1,014) (3,830) (3,471) (2,081) (686)

Total

Revenues 135,744 245,525 359,518 548,844 730,021

PBT (58,031) (115,505) (111,246) (139,084) (163,651) Notes: (a) Total revenues of various companies are not comparable given varying proportions of B2B sales.

Source: MCA, Kotak Institutional Equities

The e-commerce companies invest heavily in customer acquisition costs, in the hope that

once acquired the customer would consume a wide array of products and services from the

same portal. For instance, a customer who has purchased a mobile phone from a portal,

would purchase everything from grocery, apparel, books, etc. from the same. In addition,

the customer would also consume other services such as video, flight booking, music, e-

books, etc. from the same portal, thereby eventually helping the portal recover its initial

customer acquisition cost and perhaps make money from the consumer.

We believe RR may benefit significantly from: (1) its partnership with WhatsApp, which

already has 400 mn+ users in India; this user base can be targeted by RR to market its online

offerings, and (2) Jio may bundle some of these apps within its master Jio app to all its 380

mn users, something which none of the other e-commerce players could have done. We

also think that RR can piggyback on the heavy lifting that the larger marketplaces like

Amazon and Flipkart have already done in terms of sensitizing consumers to benefits of

online shopping.

Varied tastes and preferences of customers

Organized retail and the associated shopping experience is far less developed in India than in

western world. Further, user tastes and preferences in India are also extremely diverse,

making it contingent on online platforms to tie-up extensively with local stores, in order to

provide a holistic offering to the consumer.



Lack of clarity on data sharing between RR and Jio Platforms

JioMart can collect consumer data, but given RR and Jio Platforms are separate entities, we

do not know how and to what extent this data will be shared between entities to make

online and offline user experience sharper. Further, given that Facebook is now a partner of

Jio Platforms, it is also not clear what kind of data sharing could take place between FB,

WhatsApp, JioMart/AJIO and other apps of Jio Platforms. RIL would need to come up with

some transparent data sharing mechanism between various entities in order to ensure

maximum utilization of the said data. FB, in partnership with Shopify, has launched its own

commerce services; while these have not launched in India, we are not sure if even these

could compete with RR in the future.



STRONG PRIVATE LABEL PUSH AND BRAND PARTNERSHIPS ARE KEY ASSETS

RR has developed a plethora of private brands in its offline business across grocery, fashion and lifestyle and

electronics. We believe these private labels can help its long-term merchandising strategy, fill in white spaces

that may be there in the offerings of existing third-party brands as well as cultivate loyalty amongst both

customers and B2B kirana partners. RR’s current pricing strategy indicates that it will strive to be a price

leader in the various categories it is present in, in a bid to maximize overall turnover.

Fashion & Lifestyle: steadily ramping up brand portfolio across formats

Reliance Retail has a portfolio of 46 well-known exclusive international partner brands that

span across the entire spectrum of luxury (Armani, Burberry etc.) to high-premium and high-

street lifestyle. RR operates ~682 stores for these international brands. Many international

brands from the portfolio have made India a significant market outside of their home

countries and have the largest store presence in India than in any other country.

It has set up, built and ‘glocalized’ international brands such as Armani, Diesel, Brooks

Brothers, Marks & Spencer, Muji, Mothercare etc. RR’s fashion platform AJIO also offers

1,400+ national and international brands.

Exhibit 32: Plethora of international partner brands in the luxury to premium segments RR’s brand portfolio in fashion retail segment, March fiscal year-ends, 2020


Reliance Trends, the flagship store concept of RR for fashion retail, predominantly sells own

brand products, which constitute over 70% of its sales. Trends has developed a robust

portfolio of over 20 own brands such as Avaasa, DNMX, Netplay etc. to cater to diverse

tastes and preferences of customers. According to RIL’s FY2020 annual report, many of

these brands have an annual turnover of ~Rs5 bn, making them comparable to many

national and international brands operating in the market. Private labels fetch around 70-75%

of RR’s fashion and lifestyle revenues



Private label push in the food & grocery segment also gaining steam

In addition, RR has developed a wide range of own brand products across various categories

such as staples, food FMCG, home & personal care and general merchandise. Best Farms,

Good Life, Masti Oye, Kaffe, Enzo, Mopz, Expelz, among others are some of the brands that

have been well received by consumers.

Private labels fetch around 14% of grocery revenues. E-commerce retailers like Amazon,

Flipkart and grocery firms like BigBasket, Grofers are also increasingly focusing on such in-

house brands as they offer better margins.

Exhibit 33: Multiple private label brands launched by the online and offline retailers List of private label brands of retailers

Dmart BigBasket Easyday Amazon Flipkart Grofers

Premia BB Popular Golden Harvest Solimo Supermart Select G-Mother's Choice

BB Royal Tasty Treat Presto Supermart Home G-Happy Home

Fresho Nilgiris Vedaka Farmlife G-Happy Day

BB Home Karmiq Essentials Billion G-Fresh Milk

BB Royal Organic Desi Atta Basics MarQ O'range

Sunkist Symbol Perfect Homes

Clean Mate Fresh Cara Mia

Kara

Source: Company websites, Kotak Institutional Equities

RR’s food and HPC private labels are placed in the lowest price bucket category mainly to

attract price sensitive customers. These are possibly targeted to garner market share from

the FMCG incumbents, especially in low involvement purchases like home cleaning essentials.

Exhibit 34: RIL’s private label brands spanning across categories in value retail Portfolio of private label brands of RR


During the Covid-related lockdown, when the established online grocery players like

BigBasket, Grofers were struggling with explosive demand and disruptions in supply chain,

the strategic launch of JioMart in 200 cities indicates the sourcing power that RR enjoys

within the ecosystem.

RR has been selling its private label offerings through Reliance SMART, Market and Fresh

stores until now. With JioMart joining the league, the online marketplace will provide better

customer and demand visibility and push the company’s in-house grocery brands. Currently,



JioMart’s product listings largely include its private label brands rather than extensive listing

of known FMCG brands. As the website picks up traction, the catalogue might be extended

to the other product categories that RR operates in such as fashion and electronics.

With this strategy, RR is competing head on with online retailers such as Amazon, Flipkart

and BigBasket, which have their own brands in the e-commerce segment, and also the likes

of FMCG behemoths (HUL, ITC) in the offline segment with RR’s product offerings available

at relatively cheaper price points.

Private labels will be key differentiators across all retail formats

In addition to providing better margins and better inventory control, private labels will

enable RR to better compete with rivals such as Amazon and Flipkart, both of whom have

also introduced heir private labels across various product categories.

Exhibit 35: RR’s private labels are cheaper than competing brands across most foo and HPC categories Price comparison of RR’s products with other brands

Product Quantity RR Brand RR HUL ITC Tata Others Cheapest

Staples

Wheat/Atta 10 kg Good Life 315 330 343 na 375 RR

Chana Dal 500 gm Good Life 47 na na 60 50 RR

Salt 1 kg Good Life 15 16 18 18 20 RR

Mustard Oil 1 L Good Life 116 na na na 125 RR

Soya chunks 1 kg Good Life 105 na na na 143 RR

Snacks

Bourbon 150 gm Snactac 20 na 27 na 30 RR

Instant Noodles 300 gm Snactac 35 na 45 na 46 RR

Oats 1 kg Snactac 95 na na na 150 RR

Aloo Bhujia 150 gm Masti Oye 28 na na na 33 RR

Instant Soup (Tomato) 60 gm Snactac 25 52 na na 55 RR

Ketchup 950 gm Snactac 89 110 na na 89 RR

Tea 250 gm Aarambh 80 62 na 55 50 Others

Coffee 50 gm Kaffe 60 90 na 90 125 RR

HPC

Face Wash 100 ml Get Real 60 100 na na 98 RR

Shower Gel 250 ml Get Real 75 120 64 na 150 ITC

Detergent Powder 1 kg Sudz 65 53 na 55 55 HUL

Dishwash gel 500 ml Scrubz 125 104 na na 100 Others

Floor cleaner 1L Mopz 99 152 93 na 161 ITC

Toilet cleaner 1L Expelz 99 na na na 151 RR

Prices (Rs)

Notes: (a) Prices retrieved on July 10, 2020.


Electronics: building presence across white goods and small electronics

Reliance Reconnect is RR’s brands in the electronics segment. As seen below, its products

are very competitively priced. Further, we also observe that RR is present across large

appliances (AC, refrigerators, TV, washing machines), small appliances (air cooler, kitchen

appliances etc.) as well as other items such as smartphones and accessories.



Exhibit 36: Reliance Reconnect is a price leader across key electronics categories Price comparison of Reliance Reconnect with competing brands in the electronics category

Product Prices (Rs) Product Prices (Rs)

Mobile accessories Home Appliances

Earphones Bluetooth Wireless Split Inverter AC 1T-3 star

-Reliance Reconnect 899 -Reliance Reconnect 19,990

-Boat Rockerz 1,099 -Voltas 29,350

-Philips 1,299 -Blue Star 32,179

-JBL 1,499 -Carrier 32,259

-Skullcandy 1,537 -Samsung 37,790

Power Banks 20,000 mAh HD LED TV 32''

-Reliance Reconnect 1,299 -Reliance Reconnect 7,490

-Ambrane 1,499 -Sanyo 8,999

-Intex 1,597 -Micromax 9,299

-Redmi 1,599 -Samsung 12,490

-SYSKA 1,949 -Mi 12,499

Headsets Wireless Washing Machines 6.5kg/Fully Auto/Top Load

-Reliance Reconnect 1,499 -Reliance Reconnect 13,490

-Philips 1,849 -Whirlpool 13,990

-JBL 1,999 -LG 14,990

-Motorola 2,200 -IFB 16,399

-Sony 4,099 -Samsung 16,799

Screen Guards Steam Iron 2000W

-Reliance Reconnect 499 -Reliance Reconnect 899

-Others 50 -INALSA 1,533

-Usha 1,789

-Bajaj 1,820

-Philips 2,025




APPENDIX 1

Chinese e-commerce companies have amassed large revenues over the past decade. Key drivers for the same

have been an increase in internet penetration led by proliferation of smartphones, increase in consumption

and purchasing power and lack of foreign internet companies. We take a look at how Tencent has evolved

from a messaging company to a multi-product company, which has led to addition of new revenue streams.

Large online user base can be monetized in multiple ways

Tencent is the largest communications and social platform in China with 1.17 bn MAUs on

its Weixin and Wechat platforms and 727 mn MAUs on its QQ messenger as of December

2019. Over a period of time it has evolved from only a messenger service to a provider of

multiple products and services to its vast customer base. As a result, its revenues have

increased steeply at a CAGR of 36% over CY2013-19.

Exhibit 37: Tencent has multiple ways of monetizing users on its platforms Various revenue streams of Tencent


Exhibit 38: Tencent has consistently added new revenue streams to its business by offering new

services to its customer base Service-wise break-up of Tencent's revenues, December calendar year-ends (RMB bn)




APPENDIX 2

We present below a few snapshots related to JioPos, JioMart and a simple integration with WhatsApp at the

current juncture; we believe latter may change perhaps with an embedded offering in future.

Exhibit 39: JioPoS-lite


Exhibit 40: JioPoS device




Exhibit 41: Co-branded kirana store under JioMart


Exhibit 42: JioMart’s existing interface with WhatsApp




APPENDIX 3

We attended a webinar with Arvind Mediratta, MD of Metro Cash and Carry, who elucidated on the

company’s efforts to modernize kiranas and offer them cost-effective product distribution services. We

present key takeaways from the discussion below. We believe RR could emulate Metro’s kirana

modernization strategy in order to increase its value proposition to kiranas.

Metro Cash and Carry: decent kirana partnership model

Metro has a sizeable cash and carry retail business in India, catering to small retailers

primarily in southern India. We attended a webinar by Arvind Mediratta, CEO, Metro Cash

and Carry; key takeaways below:

Supply-side constraints for small shops. Small kiranas have to interact with 150-200+

suppliers to source stocks, and this process is difficult to manage. There is no

transparency in prices and FMCG companies have preferential schemes/discounts for

select few large retailers. The kiranas operate at thin margins of 12-15% so any kind of

cost rationalization makes a big difference.

Demand-side challenges on account of modern trade and e-commerce. E-

commerce companies are resorting to predatory pricing on the back of huge fund raises.

Kiranas can’t compete on such pricing. Customer needs are also continuously changing

with increasing demand for organic and frozen products. Kiranas don’t have the technical

knowhow to analyze customer behavior. Hence, are slow in adapting changing customer

needs. Kiranas also lack preferred digital payment options, which became a hurdle,

especially after demonetization. However, these kirana stores are champions of EDLC

operations and highest delivery speed.

Metro Cash and Carry’s value proposition to kiranas. Metro C&C is a wholesaler,

pure B2B player. It wants to ensure kiranas stay relevant in the current context of

digitization. Metro C&C has shifted gears from being only a goods supplier to a complete

solutions provider. Metro provides better terms than distributors, has a vast product

assortment, and also helps with credit facility, payments modes and cost-effective delivery

solutions. It also wants to help kiranas from a demand perspective, to increase their sales,

profits and better cash flows by helping them manage inventory days (typically 6-7 weeks;

this level can be reduced if online solutions are provided).

Smart mPOS installation. Metro has developed an ordering and assortment app for

kirana owners to see and order products. Pricing is volume linked (tier pricing/slab pricing).

All transactions are routed through this app. It helps in getting meaningful insights on

kirana’s customers like purchase behavior, ATV and frequency. Kiranas can then come out

with customized offers using targeted marketing and data analytics to improve sales and

absolute profits. From the data, we can have an auto replenishment program and top

SKUs can be identified. mPOS installations are ~30-40k with operations in 17 cities only.

The company charges a monthly maintenance rate for mPOS.

Store remodeling. Metro helps in converting kiranas into modern independent

stores/supermarkets, which offers better customer experience. The company indicates

sales increase by 50-60% due to this. Remodeling takes 24 hours in accordance to the

customers in the kirana’s catchment. Metro helps with planograms, assortment and store

layouts. Remodeling cost varies from Rs150k-300k. Payback is six months for store

remodeling and 3-4 months for mPOS device.

Kirana Success Centres. The company has customer consultants/experts to offer free

advisory services to kiranas, starting from assortment, better pricing and customer

analytics.



Technological challenges. Troubleshooting and customer service teams are always

needed on ground as kirana owners aren’t enough tech-savvy. They ensure that kiranas

are using mPOS regularly with ease for real-time data updates.

Government push. Demonetization and GST provided an impetus to kiranas to enter in

organized retail. South-based (AP, Karnataka) kirana owners are relatively more open to

adapt technology in comparison to Gujarat, UP and Punjab, which have shown reluctance

to migrate to GST.

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

Revenues from travel, hospitality decline 54.6% qoq, top client concentration increases to 30%

Mindtree reported sequential revenue decline of 9.1% to US$253 mn, worse than estimate of

7.4% decline. All verticals except communications, media and technology (CMT) declined

sequentially with travel & hospitality (T&H) leading the way at 54.6% qoq. Revenues ex-top client

declined 15.5% qoq and 16.2% yoy to US$177 mn. The top client was the bright spot and grew

at 10.5% qoq and 43.7% yoy to US$76 mn. However, this has resulted in significant increase in

top client concentration to 30% of revenues from 24.8% in 4QFY20 and 20.1% in 1QFY20. EBIT

margin at 18.2% increased 110 bps qoq despite absorbing additional cost of 30 bps from visas

and 60 bps contribution to State Funds for fight against Covid. Two key factors for EBITDA margin

increase were—(1) 80 bps from rupee depreciation and (2) 30.2% qoq and 28.6% yoy absolute

decline in other expenses with decline in travel, subcontracting costs and other miscellaneous

expenses leading the way. Depreciation costs declined due to change in estimates of useful life of

assets. Net profit at Rs 2.13 bn grew 3.3% qoq and 129.3% yoy and was 2.4% higher than our

estimate.

Thoughts on top client concentration and future of travel and transportation vertical

We do not foresee any immediate risks to revenues from the top client since—(1) the sourcing

strategy from the top client is decentralized. As long as Mindtree manages efficient operations,

growth could continue, (2) Mindtree is exposed to high growth cloud platform of the client and

(3) it gets revenues from multiple divisions across the organization. While we do not foresee any

immediate risk to the business, longer-term risks from client concentration cannot be ignored. The

sharp 54.6% revenue decline in TT&H vertical captures the impact of furloughs of clients. The

decline also indicates relative lack of presence in legacy systems; Mindtree presence could be at

the experience layer, which is relatively easier to furlough. TT&H will be under pressure in the near

term. Rebound will be sharp once economic activity starts normalizing.

Marginal cut in revenue estimates with broadly unchanged EPS estimates

We cut our revenue estimates marginally with higher revenue decline modeled in other

businesses offset by higher revenues from the top client. We are surprised with the EBITDA margin

resilience in the face of sharp revenue decline. EBITDA margin has been helped by aggressive cost

rationalization with not much left in the tank on cost takeouts anymore. High client

concentration, risks of business model in transition and high exposure to challenged verticals keep

us cautious. We maintain REDUCE with an unchanged FV of Rs890.

Mindtree (MTCL) IT Services

A quarter that could have been worse but for top client. Mindtree reported sharp

sequential revenue decline of 9% with an even sharper decline of 15.5% excluding

revenues from the top client. EBIT margin was stable helped by 26% qoq decline in

other costs. Growth from the top client is a positive but comes with the concern of

concentration at 30% of revenues. Stock valuations are expensive against the backdrop

of high discretionary spending exposure and client concentration risks. REDUCE stays.

REDUCE

JULY 15, 2020

RESULT

Sector view: Cautious

CMP (`): 978

Fair Value (`): 890

BSE-30: 36,033

Kawaljeet Saluja

Sathishkumar S

Mindtree



Mcap (bn) (Rs/US$) EPS growth (%) (16.4) 43.3 13.8

ADTV-3M (mn) (Rs/US$) P/E (X) 25.5 17.8 15.7



FIIs 11.9 RoE (%) 19.5 26.2 25.1


Price performance (%) 1M 3M 12M Sales (Rs bn) 78 79 85

Absolute 7 32 30 EBITDA (Rs bn) 11 14 15

Rel. to BSE-30 0 13 40 Net profits (Rs bn) 6 9 10

1,063-652

161/2.2

3.7/2.1

1,092/14


Mindtree IT Services


Disconnect in volume and realization explained by large deal transition effort

Mindtree’s reported volumes grew 0.4% implying that the entire revenue decline was

pricing/realization led. Management attributed the disconnect to effort expended on two

large deals that are in the transition phase without commensurate revenues. This disconnect

will be bridged in the next quarter once the large deal moves from transition to steady state

phase. Management clarified that the underlying realization was negligible in the quarter.

Demand impact: sharp decline in TT&H partially offset by growth in

communications, media and technology (CMT)

Demand in the travel vertical has been highly impacted due to Covid-19 resulting in 54.6%

sequential decline in revenues. We believe clients would have ramped down engagements,

deferred projects, imposed furloughs and demanded price discounts/rebates. Mindtree has

been quick to redeploy bench to projects in other verticals to limit the impact on utilization.

The vertical will continue to drag revenues with demand unlikely to pick up meaningfully in

the near term. Sharp decline in exposure (8.1% from 16.2% in 4QFY20) will limit further

impact.

High exposure to CMT (51% of revenues in 1QFY21) has partially offset sharp contraction in

travel vertical. The CMT vertical is less impacted by the pandemic. We note that the largest

client (30.1% of revenues in 1QFY21) has grown due to accelerated migration and adoption

of public cloud infrastructure, which will drive incremental revenues for Mindtree. However,

increase in top client concentration is worrying and needs to be balanced with higher

contribution to growth from rest of the portfolio. Mindtree has put together initiatives on

mining other strategic clients for growth.

Management confident of sustaining margin profile in FY2021

Cost rationalization has aided strong margin expansion in recent quarters – (1) sharp cut in

discretionary spends such as travel that declined to 1.5% of revenues, (2) reduction in

subcontractor usage, (3) tail account rationalization and (4) lesser lateral hiring and focus on

reskilling, improvement in onsite and offshore utilization and higher offshoring also

contributed to margin expansion. Further, Mindtree has cut back on investments not aligned

to strategy under the new CEO. The company has curtailed investments in platforms

business and Beyond Digital unit. S&M headcount has also reduced, aiding margins

presumably in line with focus on fewer clients.

Despite sharp rationalization, Mindtree is confident of sustaining margins around 18% in

FY2021. The company has guided for sequential margin improvement in 2QFY20.

Change in estimate of useful life of assets leads to dip in depreciation

Depreciation charge declined 12.1% sequentially in 1QFY21 to Rs597 mn. Mindtree has

changed estimates of useful life of some tangible assets leading to depreciation over an

extended period. The company has increased useful life of computers to 2-4 years from 2-3

years earlier. Plant and machinery will be depreciated over 4 years compared to 3-4 years

earlier. Mindtree indicated that decline in depreciation charge was mainly due to increase in

useful life for computers.

Senior management team augmented with new additions

Mindtree has hired Vinit Teredesai, ex-KPIT CFO, as the new CFO. The company has also

hired Radha Rajagopalan, ex-CTSH, as head of CX and data practice. Mindtree has made

quality additions to senior management from reputed organizations over a period of time to

fill in gaps after exit of key management personnel. Dayapatra Nevatia has joined from

Accenture as the COO. Mindtree has hired Balakrishnan Shanmugam, an ex-CTSH veteran,

as the head of global operations. The company has also hired Genpact and Infosys

personnel for key roles. Mindtree expects to add further depth to the leadership team in the

near term. The company can potentially tap into senior talent in the market made available

due to high attrition in organizations such as CTSH. The company is confident of retaining

Tier 1 hires, something the organization has had trouble with in the past.

IT Services Mindtree


Strong deal wins TCV on the back of large deal win

Mindtree reported TCV of US$391 mn in 1QFY20, a yoy increase of 20.6%. The increase

was entirely due to higher renewals. In fact, new deal TCV was unchanged at US$76 mn

yoy. Deal wins have been healthy in the last couple of quarters and helped by large deal

wins. Large deals have been a focus area under the new CEO and a key component of shift

to managed services and annuity based revenues. Focus on upselling and cross-selling has

increased. We note that most of the large deals have been through new service offerings to

existing clients. The company has taken a proactive approach and hired resources to shape

large deals, which have worked well. Mindtree is confident of building on momentum in

large deal wins although the Covid impact can lead to delay in deal closures. Large deal

ramp-ups and transition have been smooth.

Organizational restructuring in process to enable faster scaling up

Mindtree has undertaken a strategy refresh. The broad theme of new strategy will be

around (1) simplifying the organization, (2) create differentiating propositions to enable

growth leadership and (3) change management. The company is revamping organization

structure to align with new strategy. Focus is on building the right structure that will

facilitate scaling the organization to 2-3X the current size. The company has structured go-

to-market along 4 service lines – (1) interactive or customer success, (2) data and

intelligence, (3) cloud and (4) enterprise IT. Each service line targets different buyers in a

client organization. For example, interactive deals with CMO spend and data practice deals

with CDO or CIO spends. Commercial aspects of engagements will gain priority. Mindtree

plans to embed sales in delivery teams to enable better selling.

Execution risks involved in managed services push

Mindtree is gearing the organization towards aggressive push towards managed services

visible in sharp increase in TCV executable > 12 months. However, there are a few risks

worth noting—(1) execution in managed services contracts, not a traditional strength of

Mindtree. The company has historically excelled in addressing discretionary spending and

complex application development engagements, and (2) approach to addressing gaps in

service offerings. Clients in the focus verticals of Mindtree use package solutions, a weak

spot for the company.

Key highlights from earnings call

Volume growth and price realization. Mindtree indicated that volumes grew by 0.4%

sequentially. Implied realization declined by 9.1% sequentially. However, Mindtree

indicated no major impact to contractual pricing. For key clients who were struggling,

Mindtree offered temporary discounts on case by case basis. Mindtree expects longer-

term pricing to be stable. Mindtree has not provided for differential pricing for services

rendered through WFH model. Mindtree indicated that a couple of large engagements

are in knowledge transition phase. Revenues from these engagements will drive better

implied realization in the next quarter.

Top account. Mindtree indicated higher quantum of work from the top client during the

pandemic. Management indicated that work done for the top client is well-diversified

across multiple portfolios. The top client will continue to grow at a steady pace.

Revenue and margin outlook. Mindtree expects sequential revenue growth in 2QFY20.

Mindtree expects growth in hi-tech and retail verticals. Large deal ramp-ups will help

drive revenue growth. The TTH vertical has likely bottomed out in 1QFY20 but will take

longer to recover. Mindtree expects minor improvement in margin on sequential basis on

constant currency terms.



Deal transition. Mindtree indicated that Realogy large deal has successfully completed

transition. Bulk of the revenues will be recognized in 2QFY20 .Mindtree indicated

seamless transition for deals won in the previous and current quarters. Mindtree indicated

that deal closures have been delayed to some extent due to the Covid impact.

Travel vertical. The travel vertical has been the most impacted due to the pandemic.

Mindtree indicated longstanding relationship with marquee logos in the travel vertical.

The travel vertical can rebound provided activity picks up pace for clients. Mindtree

expects weak outlook for the next couple of quarters, although discussions with clients

have started in a few pockets. Mindtree indicated the company has not lost market share

to peers and expects similar ramp down across vendors.

BFSI. Mindtree is fairly strong in insurance and is working on a few deals in banking. The

company is hopeful of reviving growth in the vertical.

Facilities. Mindtree is not planning to set up new facilities. The company indicated that

facilities cost in the near term will not be material change from 1QFY21 levels.

Margin walk-through. Mindtree reported EBITDA margin at 18.2% compared to

17.1% in the previous quarter helped by 30 bps tailwinds from operational efficiencies,

especially in G&A, 80 bps tailwind from rupee depreciation and 100 bps tailwind from

one-time contribution to PM CARES fund, partially offset by 90 bps headwind from visa

cost and contribution to Covid relief. Mindtree will continue to pursue avenues for

operational efficiencies.

Client metrics. Number of US$50 mn clients was flat qoq and yoy at 1. Number of

US$25 mn clients was flat qoq and was up by 1 yoy to 5.

Tail account rationalization. Mindtree will focus more on cross sell and upsell to

strategic clients. Rationalization will not create disruption in revenues and margins in tail

accounts. Management is confident of upsell and cross sell of services across all service

lines to every account, which is strategic.

Wage hikes and promotions. Mindtree is yet to decide on wage hikes. The company

will go ahead with promotions as per usual timeline.

Fixed price projects. Contribution from fixed price projects increased sharply to 67.1%

from 58.8% in the previous quarter. Mindtree indicated that the sharp increase was due

to change in vertical mix of revenues. Management indicated that higher contribution

from fixed price projects can help drive higher operational efficiencies.



Exhibit 1: Mindtree, 1QFY21 interim results (Ind-AS), March fiscal year-ends (Rs mn)


Exhibit 2: Key changes to estimates, March fiscal year-ends, 2021-23E


1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq FY2020 FY2019 % chg. FY2021E % chg.

Revenues (US$ mn) 253.2 257.8 264.2 278.4 (1.8) (4.2) (9.1) 1,089 1,001 8.7 1,051 (3.4)

Revenues 19,088 19,538 18,342 20,505 (2.3) 4.1 (6.9) 77,643 70,215 10.6 79,298 2.1

Direct costs (12,776) (12,626) (12,532) (12,933) 1.2 1.9 (1.2) (50,647) (44,212) 14.6 (50,607) (0.1)

Gross profit 6,312 6,912 5,810 7,572 (8.7) 8.6 (16.6) 26,996 26,003 3.8 28,692 6.3

SG&A expenses (2,834) (3,556) (3,969) (4,061) (20.3) (28.6) (30.2) (16,098) (15,358) 4.8 (14,603) (9.3)

EBITDA 3,478 3,356 1,841 3,511 3.6 88.9 (0.9) 10,898 10,645 2.4 14,089 29.3

Depreciation (597) (660) (669) (679) (9.6) (10.8) (12.1) (2,754) (1,641) 67.8 (2,641) (4.1)

EBIT 2,881 2,695 1,172 2,832 6.9 145.8 1.7 8,144 9,004 (9.6) 11,448 40.6

Interest (131) (128) (130) (128) (529) (29) (524)

Other income 148 173 220 (92) (14.3) (32.7) (260.9) 673 893 (24.6) 1,349 100.5

Profit before tax 2,898 2,740 1,262 2,612 5.8 129.6 10.9 8,288 9,868 (16.0) 12,273 48.1

Tax (768) (659) (335) (551) 16.5 129.3 39.4 (1,979) (2,327) (15.0) (3,234) 63.4

Net profit 2,130 2,081 927 2,061 2.4 129.8 3.3 6,309 7,541 (16.3) 9,039 43.3

EPS (Rs/ share) 12.9 12.7 5.6 12.5 2.1 129.3 3.3 38.3 45.8 (16.4) 54.9 43.3

Shares outstanding (mn) 164.7 164.6 164.4 164.6 164.6 164.6 164.6

Margins (%)

Gross margin 33.1 35.4 31.7 36.9 34.8 37.0 36.2

SG&A as % of revenues 14.8 18.2 21.6 19.8 20.7 21.9 18.4

EBITDA margin 18.2 17.2 10.0 17.1 14.0 15.2 17.8

EBIT margin 15.1 13.8 6.4 13.8 10.5 12.8 14.4

Tax rate (%) 26.5 24.1 26.5 21.1 23.9 23.6 26.3

% chg.

2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E

Revenues (Rs mn) 79,298 85,403 92,110 79,582 86,628 93,620 (0.4) (1.4) (1.6)

Revenues (US$ mn) 1,051 1,124 1,212 1,054 1,140 1,232 (0.2) (1.4) (1.6)

Growth (%) (3.4) 6.9 7.9 (3.2) 8.2 8.1

Growth (c/c, %) (2.9) 6.9 7.9

Growth (organic c/c, %) (3.4) 6.9 7.9

EBITDA (Rs mn) 14,089 15,418 15,907 13,909 14,953 15,623 1.3 3.1 1.8

Net Profit (Rs mn) 9,039 10,284 11,034 9,037 10,119 11,060 0.0 1.6 (0.2)

Fully diluted EPS (Rs/share) 54.9 62.5 67.0 54.9 61.5 67.2 0.0 1.6 (0.2)

Re/ $ rate 75.4 76.0 76.0 75.5 76.0 76.0 (0.1) — —

EBITDA margin (%) 17.8 18.1 17.3 17.5 17.3 16.7

EBIT margin (%) 14.4 14.9 14.6 14.1 14.1 13.9

New Old Change (%)



Exhibit 3: Revenue growth across geographies, verticals and service lines (March 2020 quarter)


Exhibit 4: Mindtree: Trend in yoy revenue growth


Revenues

(US$ mn) QoQ YoY % of total

Total revenues 253 (9.1) (4.2) 100

Revenue by geography

USA 200 (6.4) 2.8 79.0

Europe 33 (22.4) (29.7) 13.1

India 10 (3.3) (3.1) 4.1

Rest of the world 10 (14.5) (18.1) 3.8

Revenue by verticals

Hi-Tech & Media Services 129 7.6 24.1 51.0

BFSI 51 (9.4) (9.8) 20.3

Retail, CPG & Manufacturing 52 (7.8) (11.2) 20.6

Travel & Hospitality 20 (54.6) (53.8) 8.1

Revenue by service offerings- NEW

Digital 94 (12.6) (6.7) 37.0

Interactive 53 (14.7) (16.1) 20.9

Data science and engineering 30 (13.4) 7.7 11.8

Cloud Services 11 2.1 23.9 4.3

Others — (100.0) —

Test Engineering 39 (22.3) (18.2) 15.5

Package Solutions 14 (16.0) (28.2) 5.5

IMS & Tech support 73 1.0 15.4 28.7

ADM 34 4.9 0.9 13.3

Revenues from client buckets

Top client 76 10.5 43.7 30.1

Top 5 clients 109 3.0 22.4 42.9

Top 10 clients 132 (0.1) 16.0 52.0

Growth (%)

20 19

16

11 10

23 25

32

28

7 4

- 1

7

11

16

21 1917

16

9 10 9 6

(4)(10)

(5)

0

5

10

15

20

25

30

35

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

US$ revenue growth (yoy %)



Exhibit 5: Strong growth in top client is a sharp contrast to sharp decline in non-top 10 accounts


Exhibit 6: Mindtree: TCV of deal wins increases 18.7% on ttm basis helped by large deal wins and strong renewals from top client


Exhibit 7: EBITDA margin increases by 110 bps in the quarter to 18.2%


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 4 qtr 8 qtr 12 qtr

Revenues (US$ mn)

Top client 30.6 33.2 35.6 40.3 46.9 49.8 50.3 51.8 53.1 55.8 63.6 69.0 76.3 9.5 6.3 7.9

Top-5 clients 60.2 62.1 67.7 72.4 78.0 83.3 85.0 86.9 88.8 90.0 99.3 105.5 108.7 5.2 4.2 5.0

Top-10 clients 83.0 86.4 93.6 98.8 105.1 110.4 110.9 112.5 113.6 116.8 125.5 132.0 131.8 3.8 2.9 3.9

Non Top-10 accounts 117.1 119.8 120.7 127.4 136.4 136.0 140.6 149.5 150.6 154.2 149.7 146.4 121.4 (5.2) (1.4) 0.3

Ex-top client 169.5 173.0 178.7 185.9 194.6 196.6 201.2 210.2 211.1 215.2 211.6 209.4 176.9 (4.3) (1.2) 0.4

Growth (%, qoq)

Top client 9.5 8.4 7.2 13.2 16.4 6.2 1.1 2.9 2.6 5.1 13.9 8.6 10.5

Top-5 clients 0.3 3.0 9.1 6.9 7.8 6.8 2.1 2.2 2.2 1.4 10.4 6.2 3.0

Top-10 clients 1.3 4.0 8.4 5.6 6.3 5.1 0.5 1.4 1.0 2.8 7.4 5.2 (0.1)

Non Top-10 accounts 3.0 2.3 0.7 5.6 7.1 (0.3) 3.4 6.3 0.7 2.4 (2.9) (2.2) (17.1)

Ex-top client 1.1 2.1 3.3 4.0 4.7 1.0 2.3 4.5 0.4 1.9 (1.6) (1.1) (15.5)

CQGR (%)

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20

Renewals 256 255 222 184 158 248 186 128 206 315

New 42 51 49 72 84 76 121 79 187 76

Total TCV (US$ mn) 298 306 271 256 242 324 307 207 393 391

Expiring within 1 year 237 259 198 212 218 271 239 174 286 265

Expiring >1 year 61 47 73 44 23 53 68 33 107 126

Digital 102 139 162 136 126 137 140 127 190 NA

Total TCV (TTM US$ mn) 1,011 1,055 1,119 1,131 1,075 1,093 1,129 1,080 1,231 1,298

18.4

20.8 19.5

21.5

20.0 19.8

20.5 19.5

17.6 18.5

17.7 17.1

14.7

12.5 13.4

14.2

11.1 11.6

15.1 16.1

14.1 15.4

15.9 15.2

10.0

13.0

15.6

17.1 18.2

5

10

15

20

25

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

EBITDA margin (%)



Exhibit 8: Travel vertical reports a loss due to sharp revenue decline


Exhibit 9: BFSI margins have improved to corporate average levels


10.4

5.1

13.0

15.6

10.4 8.8

13.2

17.8

12.0

16.8 14.9

12.8

6.0

10.3 11.6 12.1

(13.2)(15)

(10)

(5)

0

5

10

15

20

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Travel segment EBITDA margins

10.8 9.2

7.1 8.6 9.1

7.1

11.4 9.9

3.3

5.7

2.6

4.6 4.8

11.3

14.9

17.1

20.2

0

5

10

15

20

25

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

BFSI segment EBITDA margins



Exhibit 10: Mindtree: Near-term revenue and margin forecast


Exhibit 11: Mindtree: Trend in digital revenue growth (%)


264

271 275

278

253

260

266 271

10.0

13.0

15.6

17.1 18.2

17.5 17.4 17.9

0

2

4

6

8

10

12

14

16

18

20

240

245

250

255

260

265

270

275

280

285

Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20E Dec-20E Mar-21E

Digital revenues (LHS, US$ mn) EBITDA margin (RHS, %)

84 87 93

97 100

103 105 107

94

19.1 18.7

13.6

10.6

(6.7)(10)

(5)

0

5

10

15

20

25

60

65

70

75

80

85

90

95

100

105

110

Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20

Digital revenues (LHS, US$ mn) Digital revenue growth (RHS, yoy %)



Exhibit 12: Mindtree: Trend in Interactive practice growth (%)


Exhibit 13: Top client now accounts for 30.1% of revenues


52 51

56 59

63 64 61 62

53

20.5

26.5

10.4

5.3

(16.1)

(20)

(15)

(10)

(5)

0

5

10

15

20

25

30

30

35

40

45

50

55

60

65


Digital revenues (LHS, US$ mn) Digital revenue growth (RHS, yoy %)

30.1

0

5

10

15

20

25

30

35

Mar-

12

Sep

-12

Mar-

13

Sep

-13

Mar-

14

Sep

-14

Mar-

15

Sep

-15

Mar-

16

Sep

-16

Mar-

17

Sep

-17

Mar-

18

Sep

-18

Mar-

19

Sep

-19

Mar-

20

Revenue contribution from top client (%)



Exhibit 14: Mindtree: Subcontracting expenses have decline by 110 bps to 6.8% of revenues


Exhibit 15: Travel expenses have declined sharply on absolute basis


5.5

5.9 6.1 6.2

6.0

6.7 6.6

6.1 6.1 6.1

5.5 5.8

6.1 5.9 5.9

7.5 7.3 7.3 7.4

8.0

8.6

7.9 7.6

7.9

6.8

4

5

6

7

8

9

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Subcontracting charges as a % of revenues

493 518 509

747

540 528 518

695 750

813748

867 837 817744

292

3.8 4.0 3.9

5.8

4.1 3.8

3.5

4.2 4.3 4.5

4.1

4.7 4.4

4.2

3.6

1.5

-

100

200

300

400

500

600

700

800

900

1,000

0

1

2

3

4

5

6

7

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Travel expense (Rs mn) (RHS) Travel expense as a % of revenues (LHS)



Exhibit 16: Mindtree: Trends in other expenses


Exhibit 17: Useful life of computers and other tangible assets has been increased/changed


539 504 454

623 519 477

398

803

656 732 686

388

730678 728

669

4.2 3.9

3.4

4.8

3.9

3.5

2.7

4.9

3.7 4.1

3.7

2.1

3.8 3.4 3.6 3.5

-

100

200

300

400

500

600

700

800

900

0

1

2

3

4

5

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Otherl expense (Rs mn) (RHS) Otherl expense as a % of revenues (LHS)

1QFY21 4QFY20

Category

Buildings 5-30 years 5-30 years

Leasehold improvements 5 years 5 years

Computers 2 to 4 years 2 to 3 years

Plant and machinery 4 years 3 to 4 years

Furniture and fixtures 5 years 3 to 7 years

Electrical installations 3 years 3 years

Office equipment 4 years 3 to 5 years

Vehicles 4 years 4 years



Exhibit 18: Mindtree: DSO trend


Exhibit 19: Attrition rate decreases further


84

82

81

79

81

84

79

82

80 81

83

75 74

84 85

81

84 85

82 81

80 80

78 78 79

70

72

74

76

78

80

82

84

86

88

90

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Receivable days (including unbilled revenues) on quarterly annualized basis

14.1

10

12

14

16

18

20

22

24

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Quarterly annualized attrition (%)



Exhibit 20: Mindtree: Key operating metrics


Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20

Revenues (US$ mn) 226.2 241.5 246.4 251.5 262.0 264.2 271.0 275.2 278.4 253.2

Revenue by geographical segment (%)

USA 71.0 72.7 73.6 73.4 73.6 73.7 73.7 74.6 76.8 79.0

Europe 21.1 20.1 18.7 18.7 18.5 17.8 17.6 17.0 15.3 13.1

India 3.2 3.1 3.3 3.6 3.7 4.1 4.2 4.0 3.9 4.1

Rest of the world 4.7 4.2 4.4 4.2 4.2 4.4 4.5 4.4 4.0 3.8

Revenues by service offering (%)- new

Digital 34.9 35.2 36.8 37.0 38.0 38.0 38.2 38.5 37.0

Interactive 21.7 20.7 22.1 22.5 23.9 23.8 22.3 22.3 20.9

Data science and engineering 10.3 10.5 10.9 10.9 10.5 11.0 12.1 12.4 11.8

Cloud Services 2.8 3.6 3.6 3.1 3.3 3.0 3.6 3.8 4.3

Others 0.1 0.4 0.2 0.5 0.3 0.2 0.2 — —

Test Engineering 18.9 18.9 19.0 18.4 18.2 18.7 17.7 18.2 15.5

Package Solutions 9.5 8.2 8.3 8.0 7.4 7.0 6.5 6.0 5.5

Infrastructure management & Tech support 23.0 23.3 23.4 23.4 23.8 24.6 24.9 25.8 28.7

ADM 13.8 14.4 12.5 13.2 12.6 11.7 12.7 11.5 13.3

Revenue by industry (%) - new classification

Hi-Tech & Media Services 37.6 38.9 39.3 39.4 39.6 39.4 39.8 41.5 43.1 51.0

BFSI 22.5 22.3 22.4 21.7 21.8 21.6 21.6 21.3 20.4 20.3

Retail, CPG & Manufacturing 24.0 23.1 21.7 22.3 22.2 22.2 21.7 20.6 20.3 20.6

Travel & Hospitality 15.9 15.8 16.7 16.7 16.4 16.8 16.9 16.6 16.2 8.1

Others

Revenue by project type (%)

Fixed price 56.8 56.4 56.1 56.0 55.9 55.3 55.9 58.7 58.8 67.1

Time & materials 43.2 43.6 43.9 44.0 44.1 44.7 44.1 41.3 41.2 32.9

Effort mix (%)

Onsite 22.8 22.8 22.3 22.5 22.0 22.0 21.6 21.2 21.1 19.8

Offshore 77.2 77.2 77.7 77.5 78.0 78.0 78.4 78.8 78.9 80.2

Revenue mix (%)

Onsite (%) 58.9 NA

Offshore (%) 41.1 NA

Effort and Utilization

Onsite - Billled hours 1,504,976 1,603,168 1,665,289 1,662,898 1,714,802 1,762,770 1,846,329 1,752,333 1,815,092 1,708,855

Offshore - Billed hours 5,088,373 5,424,314 5,803,089 5,721,424 6,084,061 6,238,042 6,696,374 6,526,287 6,799,253 6,940,949

Total 6,116,503 7,027,482 7,468,378 7,384,322 7,798,863 8,000,812 8,542,703 8,278,620 8,614,345 8,649,804

Fee revenues (US$ mn)

Onsite 131.8 NA

Offshore 92.1 NA

Utilization (%)

Including trainees 73.8 75.4 74.5 74.6 75.3 77.2 77.0 75.9 76.5 75.5

Excluding trainees 75.2 76.3 76.5 76.4 77.1 77.9 79.0 78.0 78.8 77.4

Client metrics

Number of active clients 338 339 341 340 349 346 343 320 307 292

New clients added 23 24 18 23 15 12 14 7 5 6

US$1 mn clients 118 117 111 116 120 122 130 134 134 127

US$5 mn clients 38 39 44 44 45 46 47 47 47 44

US$10 mn clients 17 19 21 21 23 23 21 22 23 23

US$25 mn clients 4 4 4 4 4 4 4 5 5 5

US$50 mn clients 1 1 1 1 1 1 1 1 1 1

Client contribution to revenue (%)

Top customer 17.8 19.4 20.2 20.0 19.8 20.1 20.6 23.1 24.8 30.1

Top 5 customers 32.0 32.3 33.8 33.8 33.2 33.6 33.2 36.1 37.9 42.9

Top 10 customers 43.7 43.5 44.8 44.1 42.9 43.0 43.1 45.6 47.4 52.0

Revenue from repeat business 99.1 NA

Total Contract Value signed (TCV), US$ mn

Renewals 256 255 222 184 158 248 186 128 206 315

New 42 51 49 72 84 76 121 79 187 76

Total 298 306 271 256 242 324 307 207 393 391

Expiring within 1 year 237 259 198 212 218 271 239 174 286 265

Expiring >1 year 61 47 73 44 23 53 68 33 107 126

Digital 102 139 162 136 126 137 140 127 190 NA

Employee metrics

Software professionals 16,595 17,837 18,214 18,713 19,017 19,681 20,001 20,348 20,817 20,851

Sales and support 1,128 1,153 1,188 1,195 1,187 1,254 1,266 1,213 1,174 1,104

Total 17,723 18,990 19,402 19,908 20,204 20,935 21,267 21,561 21,991 21,955

Gross addition 1,102 1,934 1,126 1,214 1,072 1,684 1,400 1,202 1,322 738

Net addition 523 1,267 412 506 296 731 332 294 430 (36)

Attrition (LTM) (%) 12.5 12.2 13.0 13.4 14.2 15.1 16.5 17.2 17.4 16.6

Quarterly annualised attrition (%) 13.3 14.5 14.9 14.4 15.5 18.5 20.2 17.0 16.4 14.1



Exhibit 21: Condensed consolidated financials for Mindtree, March fiscal year-ends, 2016-23E (Rs mn)


2016 2017 2018 2019 2020 2021E 2022E 2023E

Profit model

Revenues 46,896 52,364 54,628 70,215 77,643 79,298 85,403 92,110

EBIT 6,967 5,323 5,690 9,004 8,144 11,448 12,740 13,424

Interest (expense)/income (4) (191) (169) (29) (529) (524) (524) (524)

Other income 810 445 1,902 893 673 1,349 1,761 2,326

Pretax profits 7,773 5,577 7,423 9,868 8,288 12,273 13,977 15,226

Tax (1,741) (1,363) (1,722) (2,327) (1,979) (3,234) (3,693) (4,192)

Profit after tax 6,032 4,214 5,701 7,541 6,309 9,039 10,284 11,034

Diluted earnings per share (Rs) 35.9 25.1 34.5 45.8 38.3 54.9 62.5 67.0

Balance sheet

Total equity 23,956 25,771 27,414 33,061 31,568 37,326 44,525 52,248

Deferred taxation liability (602) (624) (318) (388) (1,835) (1,835) (1,835) (1,835)

Total borrowings 433 991 3,009 5 5,663 5,139 4,615 4,091

Current liabilities 9,013 7,144 6,942 8,724 14,335 13,949 14,523 15,166

Total liabilities and equity 32,800 33,282 37,047 41,402 49,731 54,579 61,828 69,671

Cash 4,491 8,435 11,304 10,598 13,618 19,356 25,777 32,335

Other current assets 15,846 14,435 16,083 20,838 21,885 22,788 24,648 26,697

Goodwill 7,606 6,411 6,059 5,912 5,491 5,128 4,806 4,806

Tangible fixed assets 4,857 4,001 3,601 4,054 8,737 7,307 6,597 5,833

Total assets 32,800 33,282 37,047 41,402 49,731 54,579 61,828 69,671

Free cash flow

Operating cash flow, excl. WC 8,407 7,181 8,029 10,683 11,177 14,089 15,418 15,907

Tax paid (1,939) (1,771) (1,632) (2,255) (1,640) (3,234) (3,693) (4,192)

Working capital changes (2,243) 1,217 (833) (2,360) 420 (1,289) (1,285) (1,406)

Capital expenditure (1,315) (846) (1,011) (1,708) (1,220) (848) (1,646) (1,719)

Acquisitions (6,659) (467) (164) — — — — —

Free cash flow (3,749) 5,314 4,389 4,360 8,737 8,717 8,794 8,590

Ratios (%)

EBIT margin 14.9 10.2 10.4 12.8 10.5 14.4 14.9 14.6

Net debt/equity (0.2) (0.3) (0.3) (0.3) (0.3) (0.4) (0.5) (0.5)

RoAE 27.4 17.0 21.4 24.9 19.5 26.2 25.1 22.8

RoACE 24.3 15.7 15.3 21.7 17.6 21.2 20.5 18.4


Wipro reports sharp revenue contraction; EBIT margin increase sharply led by cost management

Wipro reported 7.5% sequential decline in qoq and 4.4% yoy, in line with our estimates.

Revenue decline was across all verticals with a sharper decline in the communications and

consumer business. Energy & utilities held well with a revenue decline restricted to 5.4% qoq.

Contrary to expectations, EBIT margin increased 140 bps qoq and 60 bps yoy to 19.1%.

Management attributed the increase to (1) 100 bps tailwind from currency, and (2) 100 bps

from operations. This was offset by 50 bps additional provision for doubtful debts. We believe

that the surprise expansion can be explained by a 180 bps qoq reduction in travel costs, overall

cost management and lower variable compensation payout. EPS of Rs4.2 was 8.2% ahead of

our estimate and grew 5.8% yoy and 2.7% qoq. FCF generation was strong.

Focus of CEO Thierry Delaporte to be on profitable growth

A downturn typically affords an organization the opportunity to make substantive changes since

the cost of lost growth is low. Delaporte plans to get Wipro back on the path to industry

growth without losing sight of profitability. He indicated that his key near-term priorities are—

(1) engage with leaders and be active on day to day operations; (2) increase client connects to

understand how they are doing and expectations of Wipro, (3) reinforce employee

engagement, (4) redefine and reinforce strategy and vision for the organization, (5) streamline

processes, focus on top talent, challenge status quo, make the organization more nimble and

efficient. Overall, a good balance between diving into day-to-day operations and working on a

bigger plan for the organization.

Challenges aplenty but all in the price; upside from moderate improvement in performance

We upgrade Wipro to ADD and raise fair value to Rs265 form Rs220, valuing the stock at 14X

June 2022E EPS, up from 12X earlier. Our FY2021-23E EPS increases by 1-4%. Our upgrade is

not based on Wipro’s successful turnaround and aligning to industry matching growth rates.

Instead our upgrade captures inexpensive valuations, helped by—(1) moderate tailwinds in

infrastructure management services resulting from pull-forward of cloud adoption. Security

services are additional drivers. Cloud and IMS is a core area of strength. The company

announced a couple of large deals in the quarter and (2) moderate improvement in large deal

win. Our revenue growth estimates stand at mid-single digits, below peers but marginally

higher than historical levels. Wipro has surprised us consistently with margin defense.

Our EPS estimates are based on EBIT margin of 17.9-18.3% for the next three years.

Wipro (WPRO) IT Services

Upgrade to ADD on inexpensive valuations. We upgrade Wipro to ADD noting

inexpensive valuations. The stock trades at 12X FY2022E earnings, implying negligible

2% growth to perpetuity, which is a tad pessimistic. We value the stock at 14X FY2022

leading to FV of Rs265 (Rs220 earlier). Our upgrade is not predicated on Wipro reaching

industry matching growth but based on modest mid-single digit revenue growth. The

CEO does have a challenging task to turnaround Wipro; however, the cost of lost

growth is low in a downturn, affording a chance to make meaningful changes.

ADD

JULY 15, 2020

RESULT, CHANGE IN RECO.


CMP (`): 225

Fair Value (`): 265

BSE-30: 36,033

Kawaljeet Saluja

Sathishkumar S

Wipro



Mcap (bn) (Rs/US$) EPS growth (%) 11.1 2.4 7.1

ADTV-3M (mn) (Rs/US$) P/E (X) 13.5 13.2 12.3



FIIs 10.9 RoE (%) 17.3 16.2 15.7



Absolute 8 19 (13) EBITDA (Rs bn) 127 129 136

Rel. to BSE-30 1 1 (7) Net profits (Rs bn) 97 97 104

276-159

1,286/17.1

1.5/5.6

1,764/23


IT Services Wipro


Outlook—a few verticals have bottomed out, others may take longer

The company expects the September quarter to be one of stabilization. Demand has

bottomed, as per the company, in the consumer, communications and technology verticals.

Together, these verticals account for 34% of Wipro revenues. The demand outlook is not as

clear for other verticals. Wipro did announce a couple of large deals in the quarter E.ON and

John Lewis Partnership.

Leadership changes, large deal and resource allocation—key priorities, in our

view

CEO Delaporte has excellent credentials and has handled various portfolios ranging from

operations, vertical and handled finance function in his earlier stint at CAP Gemini. We

believe the following to be strategic priorities:

Leadership changes. For a well-run, growing organization, changes may be restricted to

a few functions. Infosys’ turnaround effort under Salil Parekh was interesting since it was

accompanied by minimal changes to the leadership team with infusion of external talent

only where internal talent was not up to the industry benchmark. This approach worked

well for Infosys. Wipro’s continued growth challenges may call for sharper assessment of

performance of leaders and a different approach. It is common for a new external CEO

to pick his team in pursuit of long-term growth objectives. Irrespective of the approach, a

remodeled team is often put in place in the first 6-9 months of a new CEO. This approach

is essential for focusing entire energies on clients, delivery and the overall turnaround

effort. Incremental changes over an extended period can drain the company of much

needed momentum, while a spike in attrition in the second or third year can jeopardize a

turnaround effort.

Allocation of resources and quick wins. Quick wins are necessary to energize an

organization. Wipro’s underperformance over the past few years has sapped the

organization of energy and put it in a vicious cycle. Quick wins serve three purposes—

(1) establish credentials of the CEO in a new organization, (2) easier buy-in from

stakeholders about the efficacy of the change and (3) motivate the existing team. We also

believe that allocation of resources to growth areas is critical. A growing organization

inevitably assigns the best resources to growth areas. However, this may not hold true for

Wipro, which has seen high churn in the past (not in the past 12 months though) that

has led to suboptimal alignment of talent. This task may not be easy to execute quickly

for an external CEO.

Digital capabilities and the case of missing mega-deals. Wipro is ranked highly for

digital competencies and for good reason. Acquisitions of Appirio (Salesforce consulting

partner) and DesignIt (digital marketing agency) combined with investments in

automation and strength in cloud migration and security services make Wipro a credible

player. The company has reported strong growth in digital competencies. At the same

time, revenue contraction in legacy offerings has been sharper. We are surprised with this

peculiar divergence. This dynamic can be explained by high deflationary pressure in legacy

services or Wipro’s relatively tardy win rate in core modernization/ digital transformation

programs. Either way, this dynamic is worrying. Interlinked with this peculiar dynamic is

Wipro’s full service suite and good digital competencies, which it has not leveraged for

integrated deals. Large deals provide an important leverage for growth.

Allocation of resources. Wipro is present across multiple verticals, though it lacks

muscle in some, leading to a loss of relevance in these verticals. It is imperative to keep

the existing relationships going, but importantly, allocation of growth funds can be

directed towards core verticals such as financial services, consumer, healthcare,

technology and energy & utilities. The same holds true for geographical diversification.

Wipro IT Services


Key highlights from earnings call

Margin walk-through. EBIT margin increased by 150 bps sequentially to 19.1% in

1QFY21, aided by 100 bps tailwind from Rupee depreciation against USD, 100 bps

tailwind from operational efficiencies, partially offset by 50 bps increase in provisioning

for doubtful debts.

Demand outlook. Wipro indicated strong demand in areas such as cloud, collaboration

and cyber security. Wipro indicated demand uptick in offerings such as VDI, SD-WAN,

BPO and platform offerings. Consumer, technology and communications verticals will be

more stable compared to other verticals.

Utilization. Wipro indicated that high utilization was due to less leave taken by

employees and the induction of freshers into projects. Realization decline appears sharp

but has impact from a volume drop in outcome-based contracts in fixed-price projects.

Wipro has also aggressively reduced subcontractor headcount.

Employee expense. A sharp decline in employee expense on a sequential basis is due to

a high base and some level of variable pay cut in 1QFY21. Wipro had paid out 100%

variable pay to employees (except for the leadership team, which took pay cut) in 4QFY20

leading to high employee expense.

BFSI. Wipro indicated that banks have shored up cash to keep robust balance sheets,

resulting in lower spending. Banks are worried about delinquencies and almost zero

interest rates. Wipro is involved in discussions with clients on deals around run services.

Focus on profitable growth. New CEOs indicated strong focus on driving growth.

Wipro will focus on accounts, offerings and verticals, where the company has a strong

foothold. CEO indicated that growth will not be at the cost of profitability and was

confident of ability to drive profitable growth.

Deal bookings. Wipro indicated a pickup in order book in the latter half of the quarter.

Pipeline continues to be healthy. Decision making is slower compared to pre Covid. Order

book has increased yoy.

Furloughs. Wipro indicated that the company had furloughed some employees in

developed markets, which helped manage costs. These employees can be tapped once

demand recovers instead of hiring afresh.

Acquisition. Wipro has acquired IVIA, an IT services provider in Brazil, for US$22.4 mn.

The acquisition will help Wipro expand its geographical footprint in Brazil and set up local

delivery centers.

Client metrics. The number of US$50 mn clients was flat qoq and up by 1 yoy. The

number of US$100 mn clients declined by 2 qoq and was flat yoy. The number of US$20

mn client declined by 1 qoq and by 2 on a yoy basis.

IT Services Wipro


Exhibit 1: Wipro 1QFY21 results (IFRS) (Rs mn)


Exhibit 2: Wipro: Key changes to FY2021-23E estimates


1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq FY2020 FY2019 % chg. FY2021E % chg.

IT services revenues (US$ mn) 1,922 1,905 2,039 2,074 0.9 (5.7) (7.3) 8,256 8,120 1.7 7,714 (6.6)

- IT Services 145,956 142,515 143,514 152,960 2.4 1.7 (4.6) 594,041 568,253 4.5 582,885 (1.9)

- India State Run Enterprise 2,117 2,224 2,143 2,341 (4.8) (1.2) (9.6) 8,400 8,544 (1.7) 8,380 (0.2)

- IT Products 2,258 2,457 2,409 2,792 (8.1) (6.3) (19.1) 11,010 12,312 (10.6) 11,031 0.2

- reconciling items 5 — (47) 10 1,094 (49) 5

Total revenues 150,336 147,196 148,019 158,103 2.1 1.6 (4.9) 614,545 589,060 4.3 602,301 (2.0)

Operating Income 26,940 23,625 25,373 26,391 14.0 6.2 2.1 105,730 99,910 5.8 104,094 (1.5)

- IT Services 27,822 23,677 26,521 26,925 17.5 4.9 3.3 106,541 102,503 3.9 105,011 (1.4)

- India State Run Enterprise (100) — (636) (481) — (1,829) —

- IT Products 124 (52) (407) 116 (130.5) 6.9 (2,103) (1,047) 100.9 (9) (99.6)

- reconciling items (906) — (105) (169) 1,292 283 (908)

Other income/ (expense) 3,982 4,525 5,363 3,254 (12.0) (25.8) 22.4 16,753 15,548 7.8 19,475 16.2

Extraordinaries —

PBT 30,922 28,150 30,736 29,645 9.8 0.6 4.3 122,483 115,458 6.1 123,569 0.9

Income taxes (6,838) (5,938) (6,699) (6,206) 15.2 2.1 10.2 (24,799) (25,242) (1.8) (25,959) 4.7

PAT 24,084 22,212 24,037 23,439 8.4 0.2 2.8 97,684 90,216 8.3 97,610 (0.1)

Equity in earnings of affiliates 31 8 (16) 13 — (43) —

Minority interest (211) (136) (147) (191) (495) (142) (545)

Net income 23,904 22,084 23,874 23,261 8.2 0.1 2.8 97,218 90,031 8.0 97,096 (0.1)

EPS (Rs/share) 4.2 3.9 4.0 4.1 8.2 5.8 2.7 16.6 15.0 11.2 17.0 2.4

Operating margin

IT Services 19.1 16.6 18.5 17.6 17.9 18.0 18.0

India State Run Enterprise (0.0) — (0.3) (0.2) — (0.2) —

IT Products 5.5 (2.1) (16.9) 4.2 (19.1) (8.5) (0.1)

Net Income Margin 15.9 15.0 16.1 14.7 14.1 14.7 14.4

Tax rates (%) 22.1 21.1 21.8 20.9 20.2 21.9 21.0

Notes:

(1) Wipro carved out India State Run Enterprises (ISRE) from IT Services segment into a separate segment effective quarter ended December 31, 2018.

Financials have been adjusted for the reclassification

(2) YoY revenue growth is adjusted for divestment of Workday and Cornerstone business

% chg.

Rs mn 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E

IT Services revenues (US$ mn) 7,714 8,095 8,501 7,760 8,199 8,489 (0.6) (1.3) 0.2

Revenue growth (%) (6.6) 4.9 5.0 (6.0) 5.7 3.5

IT services c/c revenue growth (%) (5.6) 4.9 5.0 (5.0) 5.7 3.5

IT services organic c/c revenue growth (%) (6.0) 4.9 5.0 (5.5) 5.7 3.5

Rupee/ US$ rate 75.6 76.0 77.0 75.5 76.0 77.0 0.1 — —

EBITDA margin (%) 22.2 22.0 22.3 20.7 21.0 20.9

EBIT margin (%) 18.0 17.9 18.3 16.8 17.1 17.1

EPS (Rs/share) 17.0 18.2 19.8 16.4 18.0 19.2 3.9 1.1 3.3

New Old Change (%)

Wipro IT Services


Exhibit 3: Growth rates across verticals, geographies and service lines (Jun 2020)


Exhibit 4: Sharp revenue decline in non-top 10 accounts


Contribution to

Jun-20 QoQ YoY revenues (%) QoQ YoY

Revenues (US$ mn) 1,922 (7.3) (5.7) 100.0 (7.5) (4.4)

Service line split of revenues

Cloud and infrastructure services 498 (7.1) (5.0) 25.9 (6.9) (3.1)

Data, Analytics and AI 138 (7.5) (8.5) 7.2 (7.8) (7.3)

Digital operations and Platforms 284 (5.9) (5.0) 14.8 (5.9) (4.6)

Industrial & Engineering services 148 (7.5) (4.3) 7.7 (7.6) (3.5)

Modern application Services 853 (7.9) (6.2) 44.4 (8.3) (4.8)

Vertical split of revenues

Communications 98 (14.7) (18.6) 5.1 (16.2) (16.9)

Consumer 306 (12.3) (3.7) 15.9 (12.4) (2.5)

Energy, Natural Resources & Utilities 254 (4.4) (3.0) 13.2 (5.4) (1.7)

Finance Solutions 590 (6.6) (8.7) 30.7 (6.4) (6.9)

Healthcare, Life Sciences & Services 259 (7.2) (2.9) 13.5 (7.2) (2.1)

Manufacturing 156 (8.0) (3.5) 8.1 (8.1) (2.0)

Technology 259 (2.0) (2.2) 13.5 (2.1) (1.4)

Geographical split of revenues

US 1,134 (7.4) (5.3) 59.0

Europe 455 (8.9) (9.1) 23.7

RoW 332 (4.7) (2.3) 17.3

Customer concentration

Top customer 61 (2.2) (19.9) 3.2

Top 5 customers 236 (8.3) (16.9) 12.3

Top 10 customers 390 (3.0) (7.9) 20.3

Non top 10 1,532 (9.5) (7.3) 79.7

Growth (%) C/C growth (%)

4 qtr CQGR

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 (%)

Revenue(US$ mn)

Top client 56 63 63 73 74 74 76 77 75 66 63 62 61 (5.0)

Top 5 clients 203 221 227 246 237 245 266 284 281 262 258 253 236 (4.3)

Top 10 clients 344 362 359 380 372 384 403 423 422 406 402 400 390 (1.9)

ex- Top 10 clients 1,589 1,607 1,614 1,640 1,617 1,626 1,643 1,652 1,617 1,643 1,693 1,673 1,532 (1.3)

Growth (qoq %)

Top client (1.1) 12.4 0.2 15.1 1.2 1.0 1.8 1.4 (1.8) (13.1) (4.1) (1.0) (1.2)

Top 5 clients 3.9 8.7 2.9 8.6 (3.9) 3.6 8.5 6.9 (1.1) (6.8) (1.8) (1.8) (6.6)

Top 10 clients 4.2 5.3 (0.9) 5.7 (2.0) 3.2 5.0 5.0 (0.3) (3.9) (0.9) (0.5) (2.5)

ex- Top 10 clients (2.2) 1.1 0.4 1.6 (1.4) 0.5 1.1 0.5 (2.1) 1.6 3.0 (1.1) (8.5)

Client buckets

US$ 100 mn+ 9 9 9 8 8 9 10 10 13 13 14 15 13

US$ 75 mn+ 18 16 17 20 19 19 19 22 23 23 22 22 22

US$ 50 mn+ 36 39 41 39 40 39 41 41 41 41 41 40 39

Notes

(1) IT services segment has been reclassifed and does not include India PSU and India govt. business from Jun-17 quarter

IT Services Wipro


Exhibit 5: Vertical-wise margin performance (Jun 2020)


Exhibit 6: BFSI revenues decline 6.9% due to lower spending


Contribution

EBIT margin (%) qoq yoy qoq yoy to revenues (%)

Banking Financial Services & Insurance 19.0 156 (156) (6.4) (6.9) 30.7

Communications 12.0 (100) (172) (16.2) (16.9) 5.1

Consumer 19.1 135 339 (12.4) (2.5) 15.9

Energy, Natural Resources & Utilities 18.5 (73) 660 (5.4) (1.7) 13.2

Healthcare, Life Sciences & Services 13.8 116 229 (7.2) (2.1) 13.5

Manufacturing 18.8 14 39 (8.1) (2.0) 8.1

Technology 21.2 (373) (595) (2.1) (1.4) 13.5

Change (%) C/C growth (%)

5.5

2.8 4.3

7.8 8.1

10.8

14.5 14.5 14.4 16.0

17.5 15.9

11.2

5.9

1.0

(1.3)

(6.9)(10)

(5)

0

5

10

15

20

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

BFSI c/c yoy growth (%)

Wipro IT Services


Exhibit 7: Revenues decline in Consumer BU but can recover faster


Exhibit 8: Strong FCF generation


6.9

3.7

0.5 1.4

2.9

4.5 5.6

2.2

4.8

7.7

10.0

14.8

7.7

6.1

12.1

6.4

(2.5)(4)

(2)

0

2

4

6

8

10

12

14

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Consumer BU c/c yoy growth (%)

55

125

7.8

118.2

68.2

117.5 113.0

98.8

84.0

101.0

37.3

157.5

-

20

40

60

80

100

120

140

160

180

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

FCF/ net profit (%)

IT Services Wipro


Exhibit 9: Operating cash flows as a % of net income increases to 174.9%


Exhibit 10: EBIT margin improves 150 bps qoq to 19.1%


79.1

154.0

41.6

135.9

98.6

142.0 134.0

120.4 106.8

124.5

60.5

174.9

0

20

40

60

80

100

120

140

160

180

200

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

OCF/ net profit (%)

19.1

15

17

19

21

23

25

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

IT services adjusted EBIT margin (%)

Wipro IT Services


Exhibit 11: Subcontracting costs have been managed well


Exhibit 12: Sharp decline in attrition levels


14.1

8

9

10

11

12

13

14

15

16

17

18

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

Subcontracting costs as a % of revenue

10.710

13

16

19

22

25

Sep

-10

Mar-

11

Sep

-11

Mar-

12

Sep

-12

Mar-

13

Sep

-13

Mar-

14

Sep

-14

Mar-

15

Sep

-15

Mar-

16

Sep

-16

Mar-

17

Sep

-17

Mar-

18

Sep

-18

Mar-

19

Sep

-19

Mar-

20

IT Services Wipro


Exhibit 13: Sales and marketing expense as a % of revenues at multi-quarter lows

Note: (1) S&M spends adjusted for impairment of HPS receivables


Exhibit 14: Wipro: Trends in G&A expenses

Note: (1) G&A spends adjusted for write-off of receivables due to client bankruptcies in Dec-17 and Mar-18 andpayment to settle dispute with National Grid in Sep-18


7.8 7.5

8.3 7.9 7.9

7.5 7.0

7.5 7.6 7.2 7.2

6.6 6.6

0

1

2

3

4

5

6

7

8

9

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

S&M as a% of IT services revenues

5.4 5.4 5.4

6.1 6.1 5.8

6.8

4.8

5.5

4.6 5.0 5.0

6.1

0

1

2

3

4

5

6

7

8

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

Dec-

18

Mar-

19

Jun-1

9

Sep

-19

Dec-

19

Mar-

20

Jun-2

0

G&A as a % of IT services revenues

Wipro IT Services


Exhibit 15: Wipro: operating metrics



IT services revenues (US$ mn) 2,027 2,041 2,047

IT services revenues (US$ mn)- Ex ISRE 1,989 2,010 2,047 2,076 2,039 2,049 2,095 2,074 1,922

Service line split of revenues (%) - new

Global Infrastructure Services 27.4 26.5

Wipro Analytics 7.1 7.8

Business Process Services 12.1 12.7

Product Engineering 7.3 7.3

Application Services 46.1 45.7

Digital revenues 28.0 31.3 33.2 34.8 37.4 39.6 39.8 41.2 NA

Service line split of revenues (%) - new - Ex-ISRE

Cloud and Infrastructure services 26.3 25.6 25.0 25.2 25.7 25.7 25.8 25.8 25.9

Data analytics and AI 6.9 7.5 7.2 7.2 7.4 7.3 7.2 7.2 7.2

Digital Operations and Platforms 12.4 12.9 14.7 14.9 14.7 14.7 15.3 14.6 14.8

Industrial & Engineering Services 7.7 7.7 7.5 7.6 7.6 7.5 7.5 7.7 7.7

Modern Application Services 46.7 46.3 45.6 45.1 44.6 44.8 44.2 44.7 44.4

Service line split of revenues (%) - old - Ex-ISRE

Global Infrastructure Services 26.3 25.6 25.0 25.2

Wipro Analytics 7.2 7.8 7.6 7.6

Business Process Services 12.4 12.9 14.7 14.9

Product Engineering 7.4 7.4 7.1 7.2

Application Services 46.7 46.3 45.6 45.1

Vertical split of revenues (%) - new classification

Communications 5.6 5.7

Consumer 16.0 16.3

Energy, Natural Resources & Utilities 12.5 12.6

Finance Solutions 30.0 30.7

Healthcare, Life Sciences & Services 13.4 12.8

Manufacturing 8.3 8.2

Technology 14.2 13.7

Vertical split of revenues (%) - new classification- Ex-ISRE

Communications 5.7 5.8 5.8 5.7 5.9 5.7 5.7 5.5 5.1

Consumer 15.3 15.7 15.6 16.2 15.6 16.0 16.9 16.8 15.9

Energy, Natural Resources & Utilities 12.7 12.8 13.0 12.8 12.8 12.9 12.9 12.8 13.2

Finance Solutions 29.8 30.5 31.4 31.5 31.6 31.3 30.9 30.4 30.7

Healthcare, Life Sciences & Services 13.6 13.0 13.1 13.2 13.2 13.0 13.1 13.5 13.5

Manufacturing 8.4 8.3 8.1 8.0 7.9 8.1 8.2 8.2 8.1

Technology 14.5 13.9 13.0 12.6 13.0 13.0 12.3 12.8 13.5

Geographical split of revenues (%)

US 54.9 55.2

Europe 25.6 25.3

India and Middle east business 8.6 8.1

APAC & other emerging markets 10.9 11.4

ROW

Geographical split of revenues (%)- Ex ISRE

US 56.0 56.1 57.1 58.2 58.7 59.6 59.2 59.1 59.0

Europe 26.1 25.7 25.5 24.6 24.6 23.5 23.7 24.1 23.7

ROW 17.9 18.2 17.4 17.2 16.7 16.9 17.1 16.8 17.3

IT Services Wipro


Exhibit 15: Wipro: Operating metrics …continued



Client metrics

Customer size distribution (TTM)

Million dollar clients of which 624 612

> US$100 mn 8 9

>US$75 mn 19 19

>US$50 mn 40 39

>US$20 mn 91 93

>US$10 mn 173 180

>US$5 mn 278 274

>US$3 mn 368 358

>US$1 mn 624 612

Repeat business (%) 99.5 98.6

New client additions 75 76

Total active customers 1,254 1,193

Customer concentration (%)

Top customer 3.7 3.6

Top 5 customers 11.7 12.1

Top 10 customers 18.3 18.8

Employees (IT services) 179,735 175,346

Client metrics- Ex ISRE

Customer size distribution (TTM)

Million dollar clients of which 595 584 578 571 564 569 572 574 577

> US$100 mn 8 9 10 10 13 13 14 15 13

>US$75 mn 19 19 19 22 23 23 22 22 22

>US$50 mn 40 39 41 41 41 41 41 40 39

>US$20 mn 91 92 99 96 92 92 96 96 97

>US$10 mn 171 177 171 172 166 165 169 166 163

>US$5 mn 268 265 269 262 259 261 260 260 258

>US$3 mn 359 348 339 339 340 341 344 341 348

>US$1 mn 595 584 578 571 564 569 572 574 577

Repeat business (%) 99.5 98.6 97.9 97.6 99.4 98.4 97.6 97.0 99.7

New client additions 75 76 57 63 41 57 77 65 42

Total active customers 1,184 1,131 1,132 1,115 1,060 1,027 1,070 1,074 1,004

Customer concentration (%)- Ex ISRE

Top customer 3.7 3.7 3.7 3.7 3.7 3.2 3.0 3.0 3.2

Top 5 customers 11.9 12.2 13.0 13.7 13.8 12.8 12.3 12.2 12.3

Top 10 customers 18.7 19.1 19.7 20.4 20.7 19.8 19.2 19.3 20.3

Employees (IT services) 160,846 171,451 172,379 171,425 174,850 181,453 187,318 182,886 181,804

Localization rate in US (%) 58.0 60.0 62.6 64.0 65.4 67.8 70.0 NA 69.8

Utilization (%)

Global IT Services excl IFOX-Gross (a) (b) 74.5 74.4 73.4 75.4 73.9 71.4 70.2 73.4 75.0

Global IT Services excl IFOX-Net 83.9 83.2 81.9 84.1 82.8 79.9 78.5 82.4 84.5

Attrition (%)

Global IT Services - Voluntary - Qtrly annualized 17.7 18.3 17.5 16.6 17.9 16.0 12.5 12.6 10.7

Revenues by project type (%)

Fixed price 58.9 58.9 59.8 60.0 61.6 61.9 62.6 63.2 61.7

Time and material 41.1 41.1 40.2 40.0 38.4 38.1 37.4 36.8 38.3

Onsite-offshore revenue split (%)

Onsite 52.9 52.8 52.2 51.5 52.3 53.3 53.2 51.8 51.5

Offshore 47.1 47.2 47.8 48.5 47.7 46.7 46.8 48.2 48.5

Note:

(1) Wipro has carved out India State Run Enterprises (ISRE) from IT Services segment. New IT segment classification excludes India PSU and India govt. business

Wipro IT Services


Exhibit 16: Profit model, balance sheet, cash model of Wipro Limited, March fiscal year-ends, 2016-2023E (Rs mn)


2016 2017 2018 2019 2020 2021E 2022E 2023E

Profit model

Revenues 516,307 558,261 546,359 590,607 614,545 602,301 634,625 674,068

Cost of revenues (including depreciation) (356,723) (391,434) (385,575) (412,853) (436,085) (423,009) (449,205) (477,638)

Gross profit 159,584 166,827 160,784 177,754 178,460 179,292 185,420 196,430

SG&A expenses (including depreciation) (62,561) (72,950) (76,490) (80,641) (72,730) (75,198) (75,089) (76,536)

EBIT 97,023 93,877 84,294 97,113 105,730 104,094 110,331 119,894

Other income 17,698 16,477 18,169 18,346 16,753 19,475 23,077 26,711

Pre-tax profits 114,721 110,354 102,463 115,459 122,483 123,569 133,408 146,605

Provision for tax (25,305) (25,213) (22,390) (25,242) (24,799) (25,959) (28,807) (32,981)

PAT 89,416 85,141 80,073 90,217 97,684 97,610 104,601 113,625

Equity in earnings of affiliates, minority interest (net) (492) (248) 8 (185) (466) (514) (567) (625)

PAT from continuing operations 88,924 84,893 80,081 90,032 97,218 97,096 104,034 112,999

EPS (Rs) 13.5 13.1 12.7 15.0 16.6 17.0 18.2 19.8

Balance Sheet

Shareholders funds 466,078 520,304 482,936 568,116 557,458 640,827 686,523 737,752

Borrowings 17,361 19,611 45,268 28,368 17,478 12,638 12,638 12,638

Minority interest 2,224 2,391 2,410 2,637 1,875 2,420 3,018 3,677

Other liabilities 20,697 21,667 22,731 19,700 23,858 23,858 23,858 23,858

Total liabilities 506,360 563,973 553,345 618,821 600,669 679,743 726,037 777,926

Net fixed assets 64,952 69,794 64,443 70,601 97,868 96,011 95,585 95,132

Goodwill & intangibles 117,832 141,718 135,697 130,742 147,374 143,847 140,320 136,793

Cash and bank balances 306,339 351,843 301,687 386,161 343,436 346,168 403,702 458,067

Net current assets excluding cash (14,402) (31,387) (17,913) (17,556) (24,627) 57,423 49,168 49,493

Other assets 31,639 32,005 69,431 48,873 36,618 36,293 37,263 38,440

Total assets 506,360 563,973 553,345 618,821 600,669 679,743 726,037 777,926

Cashflow statement

Operating profit before working capital changes 111,823 119,261 105,289 116,396 127,829 128,720 135,622 146,366

Tax paid (26,935) (25,476) (28,105) (25,149) (6,384) (25,959) (28,807) (32,981)

Change in working capital/other adjustments (6,151) 4,541 (936) 27,165 (23,855) (8,493) 7,318 (1,469)

Capital expenditure (13,172) (19,646) (20,699) (20,841) (22,227) (19,242) (21,338) (22,493)

Acquisitions (39,373) (29,374) (6,816) 25,838 (2,544) — — —

Other income 17,086 9,843 14,956 15,728 19,603 19,475 23,077 26,711

Free cash flow 43,278 59,149 63,689 139,137 92,422 94,500 115,873 116,135

Margins and ratios

Consolidated gross profit margin (%) 30.9 29.9 29.4 30.1 29.0 29.8 29.2 29.1

Consolidated EBIT margin (%) 18.8 16.8 15.4 16.4 17.2 17.3 17.4 17.8

IT services EBIT margin (%) 20.5 17.4 15.8 17.1 17.9 18.0 17.9 18.3

RoAE (%) 20.3 17.2 16.0 17.1 17.3 16.2 15.7 15.9

RoACE (%) 17.3 14.7 13.1 14.4 15.0 13.7 13.0 13.0


FY2020 reports record margins, retains leadership in cost efficiency

SRCM’s operating margins increased to Rs1,474 (+44% yoy) led by (1) 5% yoy higher

realization given sharp price hikes at the start of the year, (2) 6% yoy lower costs on the back of

lower freight and power-fuel costs. SRCM remains the lowest-cost producer in the sector in

FY2020, led mainly by high operational efficiency, low power-fuel consumption and partially by

surplus power capacity. Key incremental data points from the annual report are (1) consumption

of green power (WHRS, AFR) increased to 45% mix from 41% mix in FY2019, (2) clinker ratio

increased to 1.55X from 1.5X in FY2019, and (3) use of alternate raw material consumption

(slag, fly ash, synthetic gypsum etc.) increased by 7.3% yoy to 8.2 mn tons, aiding cost reduction.

Strong operating performance improves FCF yield and balance sheet strength

SRCM’s working capital reduced to 53 days in FY2020 from 58 days in FY2019 led by lower

inventories. Cash conversion ratio improved to 1.1X from 0.8X in FY2019. Higher operating

cash flow and lower capex led to record high FCF of Rs23 bn or 3% yield. Strong internal

accruals and fund raise of Rs24 bn through QIP increased SRCM’s FY2020 cash balance to Rs33

bn (4% of current market cap).

Growth to sustain, expansions on track and low utilization provide headroom

SRCM’s capacity would increase from 40.4 mtpa in FY2020 to 46.4 mtpa in FY2021E. Earlier,

both the grinding units (GU) - 3 mtpa at Odisha and 3 mtpa at Pune were expected to

commission in 1QFY21E, however, Covid-19-led delays will likely push commissioning by 3-6

months (3QFY21E). SRCM has yet not announced expansion plans beyond the existing 46 mtpa

but aims to reach 56 mtpa in the medium term. The company spent Rs2 bn on acquiring land in

FY2020. With utilization of 50% in FY2021E, existing capacity itself provides strong growth

headroom.

Downgrade to SELL on expensive valuations post the recent rally

We increase EBITDA by 5%/2%/2% as we increase volumes by 2% and reduce costs/ton by 2%

for FY2021/22/23E. We revise our fair value to Rs16,000/share (from Rs15,500) as we roll

forward to June 2022E at an unchanged 10X EV/EBITDA. We downgrade to SELL from REDUCE

on expensive valuations—16X EV/EBITDA and US$210 EV FY2022E.

Shree Cement (SRCM) Construction Materials

Efficient but expensive. SRCM’s FY2020 annual report details improvement in FCF

yield, working capital and higher cash balance. Benign commodity costs and higher

realizations led to record high operating margins. Power and fuel consumption

parameters were stable, suggesting little room for further improvement. The increase in

green energy consumption and clinker ratio is encouraging. SRCM retains its sector

leadership in costs and margins. Nonetheless, valuations are expensive. We downgrade

to SELL (from REDUCE) with a revised fair value of Rs16,000/share (from Rs15,500).

SELL

JULY 14, 2020

CHANGE IN RECO.


CMP (`): 22,086

Fair Value (`): 16,000

BSE-30: 36,033

Sumangal Nevatia

Murtuza Arsiwalla

Prayatn Mahajan

Shree Cement



Mcap (bn) (Rs/US$) EPS growth (%) 34.6 (12.2) 70.5

ADTV-3M (mn) (Rs/US$) P/E (X) 50.7 57.8 33.9



FIIs 11.9 RoE (%) 13.9 10.3 15.8



Absolute (1) 28 4 EBITDA (Rs bn) 37 33 46

Rel. to BSE-30 (8) 9 11 Net profits (Rs bn) 16 14 24

25,313-15,410

797/10.6

8.4/1.3

1,358/18


Shree Cement Construction Materials


Exhibit 1: SRCM’s volumes declined 4% due to Covid-19 Cement volumes, utilization, FY2017-20, (mn tons, %)


Exhibit 2: SRCM ‘s clinker ratio continues to improve in FY2020 SRCM cement to clinker ratio , FY2016-2020


Exhibit 3: SRCM’ blended realizations grew 5% yoy on sharp

price hikes in key markets SRCM Realizations/ton, FY2017-2020, (Rs/ton, % yoy)


Exhibit 4: Incentive/ton continue to decline in FY2020 SRCM Incentive/ton, FY2018-2020, (Rs/ton)


70

65

68

62

56

58

60

62

64

66

68

70

72

-

5.0

10.0

15.0

20.0

25.0

30.0

2017 2018 2019 2020

Volumes (mn tons) Utilization (%) [RHS]

1.48

1.52

1.51 1.51

1.55

1.44

1.46

1.48

1.50

1.52

1.54

1.56

FY2016 FY2017 FY2018 FY2019 FY2020

Cement/Clinker Ratio

12

7

9

5

0

2

4

6

8

10

12

14

-

1,000

2,000

3,000

4,000

5,000

6,000

2017 2018 2019 2020

Realization (Rs/ton) Growth (%) [RHS]

117

90

75

-

20

40

60

80

100

120

140

2018 2019 2020

Incenitves/Ton (Rs/Ton)

Construction Materials Shree Cement


Exhibit 5: SRCM’s costs declined 6% yoy on lower input costs

Cost/ton for SRCM, FY2017-2020, (Rs/ton, % yoy)


Exhibit 6: SRCM’s profitability hit record highs in FY2020 EBITDA/ton, FY2017-2020, (Rs/ton, % yoy)


Exhibit 7: SRCM’s material costs declined on lower input costs Material cost/ton, FY2017-2020, (Rs/ton, % yoy)


Exhibit 8: SRCM’s material costs declined on lower gypsum costs Gypsum cost/ton, FY2017-2020, (Rs/ton, % yoy)


2

12 14

(6)

-10

-5

0

5

10

15

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2017 2018 2019 2020

Costs (Rs/ton) Growth % [RHS]

45

(5) (5)

44

-10

0

10

20

30

40

50

-

200

400

600

800

1,000

1,200

1,400

1,600

2017 2018 2019 2020

EBITDA (Rs/ton) Growth % [RHS]

3% 3%

1%

-15%-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

270

280

290

300

310

320

330

340

350

FY2017 FY2018 FY2019 FY2020

Material Costs (Rs/Ton) % Change [RHS]

-9%

3%

9%

-4%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

80

82

84

86

88

90

92

94

96

98

FY2017 FY2018 FY2019 FY2020

Gypsum (Rs/Ton) % Change (yoy) [RHS]



Exhibit 9: SRCM’s material costs declined on lower fly ash costs Fly-ash cost/ton, FY2017-2020, (Rs/ton, % yoy)


Exhibit 10: SRCM’s power cost declined by 10% yoy on improved

operational metrics and lower fuel cost Power cost/ton, FY2017-20, (Rs/ton, % yoy)


Exhibit 11: Power consumption efficiency remains stable Power consumption (kwh/ton of cement), FY2017-20


Exhibit 12: Fuel consumption/ton of clinker remains stable Fuel consumption ((Kcal/kg of clinker)


3%5%

0%

-14%

-20%

-15%

-10%

-5%

0%

5%

10%

95

100

105

110

115

120

125

130

FY2017 FY2018 FY2019 FY2020

Fly ash (Rs/Ton) % Change (yoy) [RHS]

-8%

48% 50%

-10%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

400

500

600

700

800

900

1000

1100

FY2017 FY2018 FY2019 FY2020

Power & Fuel Cost (Rs/Ton)

% Change (yoy) [RHS]

70 69 69 70.5

20

30

40

50

60

70

80

FY2017 FY2018 FY2019 FY2020

Energy consumption (kWh/ton of cement)

718

728719 721

600

620

640

660

680

700

720

740

FY2017 FY2018 FY2019 FY2020

Thermal energy consumption (KCal/kg of clinker)



Exhibit 13: Alternate raw material consumption continues to

increase resulting in lower costs Alternative raw material, FY2017-20, (mn tons)


Exhibit 14: SRCM is increasing its dependence on green energy Green Power %, FY2017-2020, (% of total power)


Exhibit 15: Number of employees declined in FY2020 Number of employees,% change yoy, FY2017-20


Exhibit 16: Cost per employee continued to increase in FY2020 Employee cost, % change yoy, FY2017-2020, (Rs mn/employee)


6.67.1

7.78.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

FY2017 FY2018 FY2019 FY2020

Alternative Raw Material Consumption (mn tons)

36% 37% 41% 45%

0%

20%

40%

60%

80%

100%

120%

FY2017 FY2018 FY2019 FY2020

Green Energy (%) Conventional Energy (%)

-4%

-14%

12%

-2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

500

1500

2500

3500

4500

5500

6500

7500

FY2017 FY2018 FY2019 FY2020

Number of employees % Change (yoy) [RHS]

5%

1%

7%

10%

0%

2%

4%

6%

8%

10%

12%

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

FY2017 FY2018 FY2019 FY2020

Cost/employee (Rs mn) % Change (yoy) [RHS]



Exhibit 17: SRCM’s freight cost declined 6% yoy on lower diesel

prices Freight cost/ton, FY2017-20, (Rs/ton, % yoy)


Exhibit 18: SRCM’s other costs declined 2% yoy on lower cost of

packing materials Other cost/ton, FY2017-20, (Rs/ton, % yoy)


Exhibit 19: SRCM’s KMP remuneration declined in FY2020 as a part of cost reduction measures taken

during pandemic KMP remuneration as a % of PAT, FY2017-20, (Rs mn, %)


14%

23%

-1%

-6%

-10%

-5%

0%

5%

10%

15%

20%

25%

500

600

700

800

900

1,000

1,100

1,200

FY2017 FY2018 FY2019 FY2020

Freight Costs (Rs/Ton) % Change (yoy) [RHS]

-4%

-14%

12%

-2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

400

450

500

550

600

650

700

750

800

FY2017 FY2018 FY2019 FY2020

Other Costs (Rs/Ton) % Change (yoy) [RHS]

Name 2016 2017 2018 2019 2020

H.M.Bangur (MD) 253 382 426 462 418

Prashant Bangur (Jt MD) 103 153 195 230 208

Total 356 535 621 693 625

% PAT 8% 4% 4% 7% 4%



Exhibit 20: SRCM’s net cash balance increased in FY2020 as the company raised Rs24 bn through a

QIP during the year SRCM's net cash balance, March fiscal year-ends, FY2016-2020E (Rs bn)


Exhibit 21: SRCM continues to reduce its working capital cycle Debtor days, inventory days, creditor days for Shree Cements, March fiscal year-ends, FY2016-2020


18

31

22

(2)

33

(5)

-

5

10

15

20

25

30

35

2016 2017 2018 2019 2020

Net Cash (Rs bn)

58 55

49

58

53

-

10

20

30

40

50

60

70

2016 2017 2018 2019 2020

Recievable Days Inventory Days

Payable Days Net Working Capital Cycle



Exhibit 22: SRCM’s CWIP continues to decline on completion of projects under construction CWIP for Shree Cements, March fiscal year-ends, FY2016-2020 (Rs bn)


Exhibit 23: Land purchases continue to remain strong in FY2020 Land purchases, March fiscal year-ends, FY2017-2020 (Rs bn)


0

2

4

6

8

10

12

14

16

2016 2017 2018 2019 2020

Capital Work in Progress (Rs bn)

0.0

0.5

1.0

1.5

2.0

2.5

2017 2018 2019 2020

Land Purchases (Rs bn)



Exhibit 24: Shree Cement's new capacity additions are in East and West regions, expected to

complete by 3QFY21 SRCM's cement capacity additions at various locations, March fiscal year-ends, FY2014-2021E (Rs mn)


Exhibit 25: Shree Cement will diversify into the East and West markets on completion of its projects SRCM's regional capacity post expansion in FY2021E (%)


Exhibit 26: SRCM’s cash conversion ratio remains high due to

strong operational cash flows and lower working capital SRCM Cash conversion ratio, FY2016-2020


Exhibit 27: SRCM’s FCF yield grew to 3% on lower capex and

working capital release SRCM FCF Yield, FY2016-2020, (%)


Location 2014 2015 2016 2017 2018 2019 2020 2021E

Aurangabad, Bihar 2.0 - - 1.6 2.0 - - -

Cuttack, Odisha - - - - - - - 3.0

Jharkhand - - - - - - 2.5 -

East 2.0 - - 1.6 2.0 - 2.5 3.0

Pune - - - - - - - 3.0

West - - - - - - - 3.0

New Cement capacity (mtpa) 2.0 - - 1.6 2.0 - 2.5 6.0

North

52%

Central

11%

East

24%

West

7%

South

6%

0.79

0.97

1.10

0.81

1.12

-

0.20

0.40

0.60

0.80

1.00

1.20

2016 2017 2018 2019 2020

Cash conversion ratio

0%

1%

0%

0%

3%

-1%

0%

1%

1%

2%

2%

3%

3%

4%

2016 2017 2018 2019 2020

FCF Yield (%)



Exhibit 28: SRCM’ ROE remains high on higher earnings SRCM ROE, FY2011-2020 (%)


Exhibit 29: SRCM ROCE remains high on higher earnings SRCM FCF Yield, FY2011-2020, (%)


Exhibit 30: Shree Cement, changes in estimates, March fiscal year ends, FY2021-2023E


Exhibit 31: We factor in 12% CAGR volume growth for SRCM over the next three years Key assumptions in the earnings model for SRCM, March fiscal year-ends, FY2017-23E


13.5

26.7

29.9

20.0

9.0 7.0

19.3 16.7

12.2 13.9

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

RoAE (%)

10.3

15.8

19.7

14.5

7.1 5.6

14.2

11.2

9.0

11.1

-

5.0

10.0

15.0

20.0

25.0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

RoACE (%)

2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E

Volume and realizations (mn tons, Rs/ton)

Cement sales (mn tons) 22.9 28.7 31.5 22.4 28.0 30.8 2 2 2

Realization (Rs/ton) 4,740 4,882 4,955 4,781 4,948 5,022 (1) (1) (1)

Costs (Rs/ton) 3,295 3,270 3,351 3,371 3,325 3,414 (2) (2) (2)

Adjusted EBITDA (Rs/ton) 1,445 1,612 1,604 1,410 1,623 1,608 2 (1) (0)

Earnings estimates (Rs mn)

Revenues 111,160 143,118 159,791 107,243 138,746 154,910 4 3 3

EBITDA 33,134 46,212 50,568 31,629 45,515 49,604 5 2 2

PAT 13,784 23,505 25,989 12,821 22,865 25,135 8 3 3

EPS 382 651 720 355 634 697 8 3 3

Revised estimate Previous estimate Change (%)

2017 2018 2019 2020 2021E 2022E 2023E 2017 2018 2019 2020 2021E 2022E 2023E

Cement segment

Cement Capacity (mn tons) 29.3 34.9 37.9 40.4 46.4 46.4 46.4 14 19 9 7 15 0 0

Utilization (%) 70 65 68 62 49 62 68

Volumes (mn tons) 20.6 22.5 25.9 24.9 22.9 28.7 31.5 45 9 15 (4) (8) 25 10

Realization (Rs/ton) 3,897 4,172 4,533 4,776 4,848 4,993 5,068 12 7 9 5 1 3 1

EBITDA (Rs/ton) 1,145 1,084 1,026 1,474 1,445 1,612 1,604 45 (5) (5) 44 (2) 12 (1)

Costs (Rs/ton) 2,752 3,088 3,507 3,302 3,403 3,381 3,464 2 12 14 (6) 3 (1) 2

Total revenues (Rs bn) 80 94 117 119 111 143 160 61 17 25 2 (7) 29 12

EBITDA (Rs bn) 24 24 27 37 33 46 51 110 4 9 39 (10) 39 9

PAT (Rs bn) 13 14 10 16 14 24 26 194 3 (31) 65 (12) 71 11

EPS (Rs/Share) 384 397 323 435 382 651 720 233 3 (19) 35 (12) 71 11

Growth (%)



Exhibit 32: Our fair value of Rs16,000/share is based on 10X June 2022E EBITDA Shree Cement, Valuation details, June 2022E financials


Exhibit 33: Shree Cement valuation is highly sensitive to realizations Sensitivity of Shree Cement to Realization, Volume and Costs, June 2022E financials


Cement

Adjusted EBITDA (Rs mn) 47,301

EV/EBITDA (X) 10

EV (Rs mn) 475,659

Net cash (Rs mn) 81,614

Equity value (Rs mn) 557,273

UAE Plant @ book value 20,000

Total (Rs mn) 577,273

No. of shares 36.1

Fair Value (Rs/share) 16,000

3.4

1.6 1.8

6.5

3.1 3.4

1.9

0.9 1.0

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1% Realisation 1% Volume -1% Costs

Sensitivity to FY2022E earnings and Fair Value

EBITDA EPS Fair Value



Exhibit 34: Shree Cement is trading at a premium on mean

EV/EBITDA SRCM EV/EBITDA 1 Year Forward, July 2012-20


Exhibit 35: Shree Cement is trading at a premium on mean

EV/Ton SRCM EV/Ton 1 Year Forward, July FY2012-20


Exhibit 36: Shree Cement, Profit model, balance sheet and cash flow model, March fiscal year-ends, FY2016-23E (Rs mn)


-

5

10

15

20

25

30

35

40

Jul-

12

Nov-

12

Mar-

13

Jul-

13

Nov-

13

Mar-

14

Jul-

14

Nov-

14

Mar-

15

Jul-

15

Nov-

15

Mar-

16

Jul-

16

Nov-

16

Mar-

17

Jul-

17

Nov-

17

Mar-

18

Jul-

18

Nov-

18

Mar-

19

Jul-

19

Nov-

19

Mar-

20

Jul-

20

x EV/EBITDA- 1Y FWD

-1sd 10Y Avg +1sd

-

50

100

150

200

250

300

Jul-

12

Nov-

12

Mar-

13

Jul-

13

Nov-

13

Mar-

14

Jul-

14

Nov-

14

Mar-

15

Jul-

15

Nov-

15

Mar-

16

Jul-

16

Nov-

16

Mar-

17

Jul-

17

Nov-

17

Mar-

18

Jul-

18

Nov-

18

Mar-

19

Jul-

19

Nov-

19

Mar-

20

Jul-

20

x EV/t ($)

-1sd 10Y Avg +1sd

2016 2017 2018 2019 2020 2021E 2022E 2023E

Profit model (Rs mn)

Net sales 55,678 85,943 98,331 117,220 119,040 111,160 143,118 159,791

EBITDA 13,203 25,132 24,728 26,528 36,745 33,134 46,212 50,568

Other Income 1,201 3,616 3,891 2,454 2,716 4,839 5,634 6,507

Interest (751) (1,294) (1,353) (2,470) (2,865) (2,772) (2,368) (2,368)

Depreciaton (9,084) (12,146) (8,994) (13,917) (16,994) (17,971) (20,096) (22,221)

Profit before tax 4,568 15,307 18,272 12,596 19,602 17,230 29,381 32,486

Extra-ordinary items 530 — — (1,754) — — — —

Current tax (1,231) (3,263) (4,466) (2,204) (5,302) (4,308) (7,345) (8,122)

Deferred tax 682 1,346 36 873 1,401 862 1,469 1,624

Net profit 4,549 13,390 13,842 9,510 15,702 13,784 23,505 25,989

Adjusted PAT 4,019 13,390 13,842 11,265 15,702 13,784 23,505 25,989

Earnings per share (Rs) 115.4 384.3 397.3 323.3 435.2 382.0 651.5 720.3

Balance sheet (Rs mn)

Equity 61,802 76,981 88,968 95,974 129,364 139,179 158,715 180,736

Borrowings 8,629 12,926 34,030 27,980 31,755 23,474 23,474 23,474

Current liabilities 17,459 21,753 17,500 14,755 16,008 23,766 30,595 34,158

Other Current Liabilities - - 10,920 13,224 16,251 16,251 16,251 16,251

Total liabilities 87,889 111,661 151,418 151,933 193,379 202,671 229,036 254,620

Fixed assets 33,147 33,096 50,043 55,862 49,214 46,243 41,147 33,926

Goodwill - - 121 106 194 194 194 194

Investments 23,661 42,426 54,343 44,439 89,154 89,154 89,154 89,154

Cash 2,830 1,110 1,209 3,078 1,082 14,780 34,993 61,071

Other current assets 25,617 29,952 32,682 36,512 36,312 34,015 43,794 48,897

Deferred tax asset 2,634 5,077 6,133 7,234 7,438 8,299 9,768 11,393

Other Non Current Assets - - 6,887 4,702 9,986 9,986 9,986 9,986

Total assets 87,889 111,661 151,418 151,933 193,379 202,671 229,036 254,620

Net Debt (17,863) (30,610) (21,523) 2,046 (32,902) (54,881) (75,094) (101,172)

Free cash flow (Rs mn)

Operating cash flow excl. working capital 12,374 25,292 26,350 25,638 30,936 30,894 42,132 46,586

Working capital changes (2,059) (509) (1,131) (5,302) 5,591 10,054 (2,950) (1,539)

Capital expenditure (7,348) (12,947) (25,263) (18,853) (12,941) (15,000) (15,000) (15,000)

Free cash flow 2,968 11,836 (43) 1,484 23,586 25,948 24,182 30,047

Ratios

EV/EBITDA 57 29 30 29 21 22 16 14

P/E 169 57 56 81 51 58 34 31

P/B 12 10 9 8 6 6 5 4

EV/Ton 448 376 332 291 266 220 210 203

Book value (Rs/share) 1,774 2,210 2,554 2,755 3,713 3,995 4,556 5,188

RoAE (%) 7.0 19.3 16.7 12.2 13.9 10.3 15.8 15.3

RoACE (%) 5.6 14.2 11.2 9.0 11.1 7.5 12.1 11.7

CRoCI (%) 13.2 29.8 31.0 26.2 28.6 24.9 31.5 31.0


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June 2020: Results calendar

Source: NSE, Kotak Institutional Equities

Mon Tue Wed Thu Fri Sat Sun

13-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 19-Jul

Mindtree Bandhan Bank Bajaj Consumer Care Britannia Industries HDFC Bank

Oberoi Realty Federal Bank L&T Finance Holdings HCL Technologies Mahindra & Mahindra Financial

Wipro Infosys L&T Technology ICICI Lombard

L&T Infotech

20-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 26-Jul

ACC Axis Bank Bajaj Auto AU Small Finance Ambuja Cements ICICI Bank

Bajaj Finance Bajaj Holding & Investment Biocon Asian Paints Supreme Industries

Bajaj Finserv Dhanuka Agritech HDFC AMC Crompton Greaves Consumer

HDFC Life Insurance Jindal Steel and Power Mphasis ITC

Hindustan Unilever L&T SKF JSW Steel

Hindustan Zinc Rallis India Schaeffler India

ICICI Prudential Life

Mahindra CIE Automotive

SBI Life Insurance

Syngene International

27-Jul 28-Jul 29-Jul 30-Jul 31-Jul 1-Aug 2-Aug

Bharat Electronics Castrol India Carborundum Universal Cholamandalam

Bharti Infratel IDFC First Bank Dr Reddy's Laboratories Dabur India

Marico Orient Cement GlaxoSmithkline Pharmaceuticals HDFC

TVS Motor Torrent Pharmaceuticals

3-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 9-Aug

Kansai Nerolac Godrej Properties Mahanagar Gas

Trent The Ramco Cement

10-Aug 11-Aug 12-Aug 13-Aug 14-Aug 15-Aug 16-Aug

Bosch Endurance Technologies


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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Fair O/S ADVT

Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) 3mo

Company Rating 14-Jul-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn)

Automobiles & Components

Amara Raja Batteries REDUCE 696 620 (11) 119 1.6 171 39 33 41 36.7 (14.8) 25.4 18 21.1 16.8 10.8 11.2 9.1 3.3 2.9 2.6 18.9 14.6 16.3 1.6 1.2 1.5 11.8

Apollo Tyres BUY 110 110 (0) 63 0.8 638 8.3 2.3 8.7 (41.9) (72.0) 273.3 13.3 47.4 12.7 6.3 6.6 4.8 0.6 0.6 0.6 4.8 1.4 4.9 2.7 1.2 2.4 12.8

Ashok Leyland BUY 50 65 29 148 2.0 2,936 1.2 (0.6) 2.2 (82.4) (150.8) 447.8 41.2 NM 23.3 14.1 24.5 9.7 2.0 2.1 2.0 4.6 NM 8.6 6.9 0.0 1.3 30

Bajaj Auto BUY 2,900 3,000 3 839 11 289 176 158 190 15.0 (10.1) 20.0 16.5 18.3 15.3 13.4 14.2 11.2 4.2 3.9 3.5 24 22 24 4.2 3.3 3.9 35

Balkrishna Industries SELL 1,252 1,100 (12) 242 3.2 193 50 50 58 25.2 0.6 16.3 25.2 25.1 21.5 17.1 14.3 12.2 4.8 4.4 3.9 19.9 18.3 19.1 1.6 1.8 1.9 12.0

Bharat Forge SELL 367 285 (22) 171 2.3 466 8 0 11 (66.2) (94.5) 2,559.2 48.9 884.0 33.2 18.3 35.4 16.2 3.3 3.3 3.0 6.6 0.4 9.5 0.5 0.0 0.8 17.3

CEAT BUY 878 940 7 36 0.5 40 63 60 78 1.9 (4.6) 30.7 14.0 14.7 11.2 7.5 7.5 6.6 1.2 1.1 1.1 8.9 8.0 9.8 1.4 1.4 1.4 2.5

Eicher Motors ADD 18,850 17,500 (7) 515 6.8 27 671 563 792 (17.7) (16.1) 40.6 28.1 33.5 23.8 20.6 24.6 17.3 6.2 5.4 4.6 24 17.3 21 0.2 — — 61

Endurance Technologies REDUCE 884 820 (7) 124 1.7 141 40 29 46 11.1 (28.4) 59.2 22 30.7 19.3 10.9 12.5 8.7 4.1 3.7 3.2 18.8 12.1 16.6 0.6 0.5 0.9 2.8

Escorts BUY 1,080 1,300 20 96 1.8 101 55 59 76 0.4 8.5 28.0 19.8 18.2 14.2 13.7 10.9 8.1 2.8 2.2 1.9 14.0 11.9 13.5 0.2 0.8 1.1 39

Exide Industries SELL 153 150 (2) 130 1.7 850 10.0 7.5 9.1 10.3 (24.3) 20.2 15.4 20.3 16.9 9.4 10.9 9.4 2.1 2.0 1.8 13.8 9.9 11.2 2.7 2.3 2.3 7.7

Hero Motocorp REDUCE 2,612 2,600 (0) 522 6.9 200 159 133 174 (6.1) (16.5) 30.8 16.4 19.7 15.0 11.0 12.1 8.9 3.7 3.5 3.2 24 18.2 22 3.7 3.3 4.0 62

Mahindra CIE Automotive BUY 114 100 (12) 43 0.6 378 9.4 5.9 9.6 (34.9) (37.7) 63.3 12.0 19.3 11.8 5.7 7.8 5.4 0.9 0.9 0.8 8.0 4.7 7.2 — — — 0.4

Mahindra & Mahindra BUY 545 650 19 678 9.0 1,138 24 31 43 (50.0) 32.1 35.5 22.9 17.3 12.8 10.5 11.1 8.3 1.8 1.6 1.5 7.8 9.9 12.1 0.4 0.6 1.2 48

Maruti Suzuki SELL 5,772 4,300 (25) 1,744 23.1 302 187 133 226 (24.7) (28.8) 69.8 31 43 26 18.9 21.6 12.7 3.6 3.4 3.1 11.9 8.1 12.7 1.0 0.8 1.0 131

Motherson Sumi Systems ADD 94 110 17 297 3.9 3,158 3.7 1.1 5.1 (27.5) (70.3) 359.1 25.3 85.3 18.6 7.0 8.9 4.6 2.6 2.7 2.3 10.5 3.1 13.2 1.6 1.4 1.8 32

MRF SELL 64,396 55,000 (15) 273 3.6 4 3,355 2,185 2,861 25.8 (34.9) 30.9 19 29.5 22.5 11.2 11.3 9.0 2.2 2.1 1.9 12.3 7.3 8.9 0.2 0.1 0.1 9.2

Schaeffler India SELL 3,578 3,200 (11) 112 1.5 31 118 105 140 (18.3) (10.5) 33.3 30 34 25 16.3 17.2 13.4 3.8 3.4 3.0 13.0 10.6 12.6 — — — 0.5

SKF ADD 1,678 1,550 (8) 83 1.1 49 58 52 65 (10.7) (10.8) 25.6 29 32 26 22.0 24.8 19.1 4.4 5.5 4.7 15.2 16.9 18.2 0.7 6.5 0.6 1.4

Tata Motors SELL 105 90 (14) 378 4.6 3,829 (20.7) (44.6) (5.1) (284.1) (115.3) 88.5 NM NM NM 6.0 12.7 4.7 0.6 0.8 0.8 NM NM NM — — — 98

Timken SELL 1,015 825 (19) 76 1.0 75 33 35 42 65.6 6.2 20.1 31 29 24 19.9 17.3 14.1 4.8 4.2 3.6 16.9 15.3 15.9 0.1 0.1 0.1 0.7

TVS Motor SELL 383 220 (42) 182 2.4 475 13.0 9.0 14.9 (7.9) (31.1) 66.7 29 43 26 14.7 16.5 12.0 5.0 4.7 4.2 17.7 11.4 17.4 0.9 1.0 1.0 16.6

Varroc Engineering BUY 207 360 74 28 0.4 135 0 (22) 17 (99.4) (11,685.4) 180.1 1,114.6 NM 12.0 5.7 8.5 4.2 0.9 1.0 1.0 0.1 NM 8.2 — — — 0.9

Automobiles & Components Neutral 6,898 91.6 (39.2) (74.7) 521.2 33.7 133.6 21.5 10.7 13.9 8.1 2.5 2.5 2.3 7.4 1.9 10.7 1.6 1.2 1.5 633

Banks

AU Small Finance Bank SELL 636 515 (19) 195 2.6 304 22.2 16.3 23.5 69.9 (26.4) 44.0 29 39 27 — — — 4.6 4.2 3.7 17.9 10.7 13.7 — — — 5.9

Axis Bank BUY 418 600 44 1,179 15.6 2,822 5.8 36 42 (68.3) 518.4 16.5 72 11.7 10.1 — — — 1.5 1.4 1.2 2.1 11.3 12.0 0.0 1.3 1.5 237

Bandhan Bank ADD 352 270 (23) 567 7.5 1,610 18.1 18.4 19.3 10.9 1.6 4.7 19.4 19.1 18.3 — — — 3.8 3.2 2.7 22.1 17.8 15.8 — — — 64

Bank of Baroda ADD 49 65 33 226 3.0 4,627 1.2 8.2 18 (27.8) 597.5 119.9 42 6.0 2.7 — — — 0.4 0.4 0.4 0.6 5.6 11.4 0.0 3.4 7.4 27

City Union Bank ADD 125 160 28 92 1.2 737 6.5 5.5 9.8 (30.5) (14.9) 79.0 19 22.7 12.7 — — — 1.9 1.8 1.6 9.4 7.4 12.3 0.9 0.8 1.4 4.0

DCB Bank BUY 80 150 88 25 0.3 310 10.9 10.7 11.6 3.6 (1.9) 9.0 7.3 7.5 6.9 — — — 0.8 0.8 0.7 11.2 10.0 9.9 — 1.3 1.5 3.8

Equitas Holdings BUY 57 100 76 19 0.3 342 6.1 6.0 9.7 (4.3) (1.1) 61.6 9.4 9.5 5.9 — — — 0.7 0.7 0.6 7.8 7.1 10.5 — — — 14.4

Federal Bank BUY 51 80 57 102 1.4 1,993 7.7 6.1 6.9 23.6 (21.1) 13.0 6.6 8.4 7.4 — — — 0.8 0.7 0.7 10.9 8.1 8.6 — 2.7 3.0 23

HDFC Bank ADD 1,059 1,200 13 5,813 77.2 5,483 48 48 53 23.7 0.8 9.5 22 22 20 — — — 3.4 3.1 2.8 16.4 14.6 14.3 — 0.9 1.0 269

ICICI Bank BUY 346 470 36 2,238 29.7 6,474 12.3 25 28 134.9 100.2 15.7 28 14.1 12.2 — — — 2.1 1.9 1.7 7.1 13.0 13.5 — 1.4 1.6 225

IndusInd Bank ADD 511 600 17 354 4.7 694 64 27 73 16.3 (57.1) 167.0 8 18.7 7.0 — — — 1.1 1.0 0.9 14.9 5.4 13.3 — 0.8 2.1 201

Karur Vysya Bank BUY 33 65 99 26 0.3 799 2.9 5 7 11.5 54.8 50.2 11 7.2 4.8 — — — 0.5 0.5 0.4 3.6 5.4 7.8 0.0 3.6 5.4 0.9

Punjab National Bank NR 34 — — 316 4.2 9,652 0 2 6 102.3 212.6 283.8 67 21.5 5.6 — — — 0.6 0.6 0.6 0.7 2.1 6.8 — — — 18.9

RBL Bank BUY 165 270 64 84 1.1 509 9.9 11 20 (51.1) 8.2 84.0 17 15.3 8.3 — — — 0.9 0.8 0.8 5.6 5.1 8.8 — 0.9 1.6 90

State Bank of India BUY 186 340 83 1,660 22.0 8,925 16 25 30 1,580.3 51.6 22.7 11 7.6 6.2 — — — 1.0 0.8 0.7 6.4 9.0 10.1 — 0.1 0.1 181

Ujjivan Financial Services BUY 249 490 97 30 0.4 121 26.9 34 44 117.0 24.9 31.6 9 7.4 5.6 — — — 1.4 1.2 1.0 15.7 17.0 19.3 1.2 1.7 2.4 19.3

Ujjivan Small Finance Bank BUY 35 37 6 60 0.8 1,728 2 2 2 38.5 (5.6) (1.9) 18 19.3 19.7 — — — 2.0 2.0 1.9 14.0 10.0 9.2 1.1 1.0 1.0 0.0

Union Bank RS 30 — — 195 2.6 9,414 (8) (2) 2 49.4 77.9 187.9 NM NM 18.5 — — — 0.5 0.7 0.7 NM NM 2.6 — (0.9) 0.8 2.6

Banks Attractive 13,593 180.4 43.1 97.6 43.7 33 16.5 11.5 1.5 1.3 1.2 4.4 7.7 10.1 0.1 0.8 1.1 1,420

P/B (X) RoE (%) Dividend yield (%)


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Building Products

Astral Poly Technik SELL 914 765 (16) 138 1.8 151 16.4 18 25 25.6 11.7 37.7 56 50 36 31.1 27.4 20.4 9.2 7.9 6.6 17.8 17.0 19.8 0.1 0.2 0.3 2.2

Building Products Cautious 138 1.8 26.6 11.7 37.7 56 50 36 31.1 27.4 20.4 9.2 7.8 6.6 16.5 15.8 18.2 0.1 0.2 0.3 2.2

Capital goods

ABB SELL 908 795 (12) 192 2.6 212 18 14 21 46.3 (19.1) 46.5 52 64 44 33.2 40.8 26.7 5.5 5.3 4.9 9.9 8.4 11.6 0.6 0.7 0.8 2.5

Ashoka Buildcon BUY 61 130 112 17 0.2 281 13.8 8.5 11.5 16.2 (38.0) 34.7 4.5 7.2 5.3 3.0 4.8 3.6 0.7 0.6 0.6 16.1 8.9 11.1 0.0 2.2 3.0 1.3

Bharat Electronics BUY 97 105 8 237 3.1 2,437 7.5 6.1 6.5 (3.3) (18.2) 6.7 13.0 15.9 14.9 8.0 9.5 8.6 2.3 2.2 2.0 18.9 14.2 14.0 2.9 2.4 2.5 21

BHEL REDUCE 39 28 (27) 135 1.8 3,482 -4.2 -1.5 2.5 (221.0) 64.0 263.0 NM NM 15.7 (52.1) (312.9) 6.3 0.5 0.5 0.5 NM NM 3.0 (5.3) (1.7) 2.6 35

Carborundum Universal ADD 244 285 17 46 0.6 189 14.4 13.7 15.9 9.9 (4.7) 16.0 16.9 17.8 15.3 11.0 10.2 8.4 2.5 2.2 2.0 15.2 13.3 13.9 1.1 1.1 1.2 0.5

Cochin Shipyard BUY 325 550 69 43 0.6 132 48 39 47 32.5 (19.7) 19.7 6.7 8.3 7.0 3.1 3.8 3.7 1.1 1.1 1.0 18.1 13.2 14.4 4.6 3.6 3.9 2.4

Cummins India BUY 387 460 19 107 1.4 277 26 16 24 (3.2) (35.4) 48.7 15.2 23 15.8 17.0 28.2 16.1 2.6 2.5 2.4 17.0 10.8 15.5 3.6 2.3 3.5 9.3

Dilip Buildcon BUY 283 495 75 39 0.5 137 30 27 45 (45.3) (10.8) 64.8 9.3 10.4 6.3 4.5 5.0 3.1 1.1 1.0 0.8 12.2 9.8 14.2 0.2 0.2 0.3 1.3

IRB Infrastructure BUY 120 150 25 42 0.6 351 21 15 11 (15.2) (27.9) (22.9) 5.9 8.1 10.5 3.5 6.4 6.1 0.6 0.6 0.6 11.1 7.6 5.6 4.2 3.2 2.1 3.9

Kalpataru Power Transmission BUY 257 470 83 40 0.5 153 25 25 39 (16.4) 0.1 53.3 10.1 10.1 6.6 4.3 4.2 3.6 1.2 1.1 0.9 12.0 11.1 15.2 1.3 1.2 1.7 2.0

KEC International BUY 268 342 27 69 0.9 257 22.0 25 31 16.3 13.4 24.4 12.2 10.8 8.6 7.1 6.5 5.3 2.5 2.1 1.7 22 21 22 1.3 1.0 1.2 1.7

L&T BUY 913 1,180 29 1,281 17.0 1,403 63 40 69 3.3 (37.1) 73.8 14.4 23 13.2 15.6 17.6 12.8 2.2 1.9 1.7 15.8 8.9 13.7 2.0 1.6 2.4 73

Sadbhav Engineering BUY 54 113 110 9 0.1 172 4.2 5.3 11.4 (61.4) 26.0 115.4 12.8 10.2 4.7 6.7 6.4 4.0 0.4 0.4 0.4 3.5 4.2 8.6 — — — 0.3

Siemens SELL 1,131 1,000 (12) 403 5.3 356 26 33 38 (14.9) 28.2 14.7 44 34 30 29.0 22.4 19.7 4.2 3.9 3.5 9.9 11.8 12.5 0.6 0.8 0.9 67

Thermax BUY 772 820 6 92 1.2 113 19 15 31 (48.8) (22.5) 109.8 41 53 25 22.0 34.3 17.8 22.0 34.3 17.8 7.0 5.4 10.7 0.9 0.7 1.2 1.1

Capital goods Neutral 2,753 36.5 (17.1) (21.7) 61.2 18.4 24 14.6 1.9 1.7 1.6 10.4 7.4 11.0 1.4 1.3 2.0 1,420

Commercial & Professional Services

SIS REDUCE 370 405 10 54 0.7 149 15 16 20 5.0 3.8 25.7 24 24 18.7 11.3 11.4 9.9 4.0 3.4 2.9 17.1 15.6 16.8 1.0 0.2 0.3 0.3

TeamLease Services ADD 1,801 1,875 4 31 0.4 17 20 50 68 (64.3) 143.7 36.4 88 36 26 32.2 26.3 20.0 5.4 4.7 4.0 6.3 13.9 16.2 — — — 0.5

Commercial & Professional Services Cautious 85 1.1 (16.7) 22.6 28.6 33 27 21 14.5 14.1 11.9 4.3 3.7 3.2 13.3 14.1 15.4 0.6 0.1 0.2 0.9

Commodity Chemicals

Asian Paints REDUCE 1,688 1,700 1 1,620 21.5 959 27.2 19.1 36.2 20.7 (29.9) 90.0 62 89 47 38.7 50.5 30.0 16.0 14.6 12.6 27 17.2 29 0.7 0.5 1.0 64

Berger Paints SELL 500 410 (18) 486 6.5 971 6.8 5.8 9.2 32.2 (15.1) 60.2 74 87 54 45.9 50.7 34.2 18.3 15.9 13.5 26 19.6 27 0.4 0.3 0.6 10.8

Kansai Nerolac BUY 437 450 3 235 3.1 539 9.9 5.7 12.5 14.6 (42.6) 120.1 44 77 35 29.5 45.9 23.0 6.2 6.0 5.5 14.8 8.0 16.5 0.7 0.7 1.0 1.6

Tata Chemicals ADD 306 320 5 78 1.0 255 31.7 31.0 37.5 (26.2) (2.1) 21.0 9.7 9.9 8.1 4.7 4.6 3.8 0.6 0.6 0.6 6.4 6.0 7.0 3.6 3.6 4.3 8.5

Commodity Chemicals Neutral 2,419 32.1 9.2 (24.4) 72.2 53 69 40 30.4 36.5 23.9 8.2 7.7 7.0 15.6 11.1 17.2 0.8 0.6 1.1 85

Construction Materials

ACC BUY 1,294 1,400 8 243 3.2 188 72.3 52.3 72.7 35.8 (27.7) 39.2 17.9 25 17.8 8.2 10.6 7.9 2.1 2.0 1.9 12.3 8.3 11.1 1.1 2.0 2.8 24

Ambuja Cements BUY 191 190 (0) 378 5.0 1,986 10.6 7.5 10.7 49.1 (29.5) 43.3 18.0 26 17.8 6.2 8.3 5.8 1.6 1.5 1.4 9.0 6.0 8.1 0.8 0.8 0.8 12.5

Dalmia Bharat BUY 699 935 34 131 1.7 192 14.0 2.0 19.2 (12.1) (85.4) 844.0 50 343 36 7.0 7.5 5.5 1.3 1.3 1.2 2.5 0.4 3.4 — — — 2.4

Grasim Industries ADD 597 735 23 393 5.2 657 52.6 40.6 71.6 (21.1) (22.9) 76.5 11.3 14.7 8.3 7.4 8.1 5.2 0.7 0.7 0.6 6.0 4.6 7.6 0.7 0.2 0.5 19.9

J K Cement BUY 1,419 1,450 2 110 1.5 77 64.2 51.8 92.2 83.6 (19.4) 78.1 22 27 15.4 10.8 11.2 7.8 3.6 3.3 2.8 17.3 12.5 19.4 0.5 0.7 0.7 1.5

JK Lakshmi Cement BUY 283 275 (3) 33 0.4 118 23.5 10.7 23.3 478.2 (54.5) 118.0 12.0 26 12.1 5.4 7.2 5.0 2.0 1.9 1.6 17.4 7.2 14.3 0.9 0.6 1.2 1.6

Orient Cement BUY 63 55 (13) 13 0.2 205 4.2 2.5 5.4 82.1 (41.2) 117.3 14.9 25 11.7 6.4 7.4 5.5 1.2 1.1 1.1 8.0 4.5 9.5 1.2 3.2 3.2 0.9

Shree Cement SELL 22,086 16,000 (28) 797 10.6 36 435.2 382.0 651.5 34.6 (12.2) 70.5 51 58 34 21.7 23.4 16.3 6.2 5.7 5.0 13.9 10.3 15.8 0.5 0.5 0.5 18.0

UltraTech Cement BUY 3,771 4,000 6 1,088 14.4 289 132.9 115.8 202.7 45.2 (12.8) 75.0 28 33 18.6 13.5 14.1 9.2 2.8 2.6 2.3 10.5 8.2 13.1 0.3 0.4 0.5 32

Construction Materials Cautious 3,186 42.3 21.1 (22.2) 70.7 24 30 17.8 10.3 11.4 7.7 2.0 1.9 1.7 8.4 6.2 9.7 0.5 0.6 0.7 112



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Consumer Durables & Apparel

Crompton Greaves Consumer SELL 243 185 (24) 153 2.0 627 7.9 5.7 7.9 33.1 (28.2) 38.5 31 43 31 26 32 24 10.4 8.2 6.9 39 21 24 0.0 0.0 1.0 2.9

Havells India SELL 580 475 (18) 363 4.8 626 11.8 8.7 13.8 (6.6) (26.1) 58.5 49 67 42 34 43 29 8.4 7.8 7.1 17.3 12.2 17.7 1.8 0.5 0.8 19.4

Page Industries REDUCE 19,502 16,000 (18) 218 2.9 11 308 277 397 (12.9) (10.0) 43.5 63 70 49 41 44 33 26.5 23.0 18.7 43 35 42 0.8 0.8 1.2 11.6

Polycab ADD 809 725 (10) 120 1.6 149 52 40 51 53.2 (21.7) 27.0 15.7 20 15.8 11 13 10 3.1 2.8 2.4 23 14.6 16.2 0.6 0.5 0.6 3.5

TCNS Clothing Co. REDUCE 345 380 10 21 0.3 66 11 4 15 (47.7) (64.3) 302.6 32 90 22 12 17 8.6 3.4 3.1 2.6 10.9 3.6 12.8 — — — 0.2

Vardhman Textiles ADD 655 800 22 38 0.5 57 85 65 101 (34.1) (23.4) 54.4 7.7 10.0 6.5 5.9 6.4 4.2 0.6 0.6 0.5 8.3 6.0 8.7 2.7 1.9 3.1 0.2

Voltas SELL 548 440 (20) 181 2.4 331 16.2 10.3 17.8 3.4 (36.5) 73.0 34 53 31 28 51 25 4.2 4.0 3.7 12.8 7.7 12.5 0.7 0.5 0.8 20

Whirlpool SELL 2,175 1,580 (27) 276 3.7 127 38 26 47 17.0 (32.0) 82.8 58 85 47 39 57 33 10.8 10.0 9.0 20 12.2 20 0.2 0.4 0.9 1.8

Consumer Durables & Apparel Cautious 1,370 18.2 2.3 (26.6) 35 48 31 24 31 21 5.7 5.2 16.3 11.0 15.1 0.9 0.5 60

Consumer Staples

Bajaj Consumer Care ADD 156 170 9 23 0.3 148 12.5 12.1 12.7 (16.6) (3.6) 5.0 12.4 12.9 12.3 9.0 9.6 8.9 3.5 3.2 2.9 33 26 25 1.3 5.1 5.1 1.4

Britannia Industries REDUCE 3,735 3,300 (12) 899 11.9 240 59 77 83 22.1 30.3 8.2 63 49 45 49 37 34 20.4 17.1 13.7 32 38 34 0.9 0.7 0.9 43

Colgate-Palmolive (India) ADD 1,430 1,450 1 389 5.2 272 28 30 36 5.9 7.4 19.7 50 47 39 32.0 30.0 25.6 24.4 24.3 23.0 51 52 60 2.0 2.0 2.4 21

Dabur India REDUCE 479 400 (17) 847 11.2 1,767 8.6 9.3 10.6 6.1 7.6 13.9 56 52 45 46 42 35 12.8 11.9 10.9 25 24 25 0.6 1.3 1.5 23

Godrej Consumer Products BUY 695 615 (11) 710 9.4 1,022 13.8 14.8 18.6 (4.8) 7.7 25.2 50 47 37 34 32 26 9.0 8.0 7.2 18.6 18.1 20 0.9 1.1 1.4 16.7

Hindustan Unilever ADD 2,235 2,300 3 5,247 69.7 2,343 31 35 44 10.9 12.8 25.8 72 63 50 54 44 36 60.1 12.1 11.5 86 32 23 1.1 1.4 1.8 224

ITC BUY 196 255 30 2,408 32.0 12,308 11.6 10.7 12.4 14.4 (7.2) 15.5 16.9 18.3 15.8 11.7 12.8 10.9 3.8 3.7 3.5 21 19.4 22 5.2 4.7 5.4 79

Jyothy Laboratories ADD 115 135 18 42 0.6 367 4.7 5.2 5.7 (15.5) 11.0 8.2 24 22 20 17.8 14.7 13.6 3.4 3.3 3.1 13.6 15.3 15.7 2.6 3.1 3.5 0.9

Marico BUY 349 350 0 450 6.0 1,290 8.1 8.2 9.4 12.4 1.5 13.7 43 42 37 30 29 26 14.9 14.1 13.4 35 34 37 1.9 2.0 2.3 16.3

Nestle India REDUCE 16,896 16,000 (5) 1,629 21.6 96 204 241 282 22.6 17.9 17.3 83 70 60 57 47 41 84.3 68.9 57.0 70 108 104 2.0 1.2 1.4 39

Tata Consumer Products ADD 419 385 (8) 384 5.1 922 8.0 8.2 10.9 13.9 2.9 33.2 53 51 38 29 26 22 2.8 2.7 2.6 6.9 5.4 6.9 0.6 0.8 1.0 25

United Breweries ADD 1,005 1,180 17 266 3.5 264 16.2 2.5 21.8 (24.0) (84.4) 760.7 62 397 46 30 65 24 7.5 7.6 6.5 12.8 1.9 15.2 0.2 0.1 0.6 11.1

United Spirits ADD 620 620 0 450 6.0 727 11.5 9.3 14.8 21.7 (19.4) 59.9 54 67 42 31 37 26 11.2 9.6 7.8 23 15.5 21 — — — 39

Varun Beverages BUY 681 800 17 197 2.6 289 16.2 14.4 29.1 51.9 (11.3) 102.1 42 47 23 16 16 11 5.9 5.2 4.3 17.6 11.7 20 0.1 0.2 0.3 3.2

Consumer Staples Cautious 13,940 185.1 13.0 3.2 22.1 44 42 35 31 29 24 11.2 8.4 7.9 26 19.9 23 1.8 1.8 2.2 543

Diversified Financials

Bajaj Finance BUY 3,191 2,700 (15) 1,920 25.5 600 104 66 126 50 (37) 92 31 49 25 — — — 5.9 5.3 4.5 20 11.5 19.3 0.3 0.2 0.4 432

Bajaj Finserv BUY 6,243 7,000 12 994 13.2 159 212 238 392 5 12 65 29 26 15.9 — — — 3.2 2.9 2.5 12.2 11.6 16.9 0.2 0.2 0.2 95

Cholamandalam BUY 199 265 33 163 2.2 820 12.8 12.1 18.7 (15) (5.8) 54.3 15.5 16.5 10.7 — — — 2.1 2.0 1.7 14.7 11.5 15.7 0.9 0.7 1.0 38

IIFL Wealth ADD 947 1,200 27 83 1.1 88 23.8 37.0 53.7 (47) 55.8 45.1 40 26 17.6 — — — 2.8 2.7 2.6 7.0 10.7 15.1 1.1 2.5 3.7 0.2

L&T Finance Holdings ADD 64 85 32 129 1.7 2,005 8 5 9 (24.1) (38) 72.6 7.6 12.2 7.1 — — — 0.9 0.8 0.8 14.7 7.0 11.3 3.0 2.3 2.5 18.9

LIC Housing Finance ADD 264 350 33 133 1.8 505 47.6 36.2 66.6 4 (24.0) 84.1 5.5 7.3 4.0 — — — 0.9 0.9 0.7 13.9 9.6 16.0 3.0 2.3 4.2 26

Muthoot Finance ADD 1,082 1,025 (5) 434 5.8 401 75 69 85 52.3 (7) 22.8 14.4 15.6 12.7 — — — 3.7 3.2 2.7 28 22 23 1.4 1.3 1.6 38

Shriram City Union Finance BUY 669 1,250 87 44 0.6 66 152 84 158 1.2 (44) 87.1 4.4 7.9 4.2 — — — 0.7 0.6 0.5 14.7 7.5 12.8 0.9 1.6 3.5 0.6

Shriram Transport BUY 675 1,050 56 153 2.0 227 110.3 81.7 119.0 (2) (25.9) 45.6 6.1 8.3 5.7 — — — 0.9 0.8 0.7 14.8 9.9 13.0 0.7 1.8 2.6 61

Diversified Financials Neutral 7,314 97.1 32.3 (25.9) 43.9 17.9 24 16.8 2.7 2.7 2.4 15.1 11.1 14.2 0.9 0.9 1.2 912



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Price (Rs) Value Upside shares 3mo


Electric Utilities

CESC BUY 631 810 28 84 1.1 133 99 102 114 9 3.3 11.8 6.4 6.2 5.5 5.3 5.0 4.4 0.7 0.6 0.6 10.7 10.4 10.7 2.0 2.0 2.1 5.7

JSW Energy BUY 45 65 46 73 1.0 1,640 6.3 -2.2 -2.4 49 (136) (5.6) 7.0 NM NM 4.6 8.1 7.0 0.6 0.6 0.7 8.9 NM NM — — — 1.7

NHPC ADD 20 26 30 201 2.7 10,045 2.8 3.0 3.2 10.7 6 8.7 7.2 6.8 6.2 7.3 7.9 7.1 0.7 0.6 0.6 9.2 9.3 9.7 7.3 8.7 9.3 1.6

NTPC BUY 88 140 60 867 11.5 9,895 11.1 13.2 15.4 (0.9) 18.7 16.8 7.9 6.6 5.7 9.7 7.6 6.0 0.8 0.7 0.7 10.0 11.1 11.9 3.6 4.5 5.3 22

Power Grid BUY 163 220 35 855 11.3 5,232 20.7 22 25 9 6.3 16.1 7.9 7.4 6.4 6.6 6.3 5.6 1.3 1.2 1.1 17.5 17.0 18.1 6.1 6.5 7.6 28

Tata Power BUY 48 55 14 130 1.7 2,705 4.4 4.9 6.5 110 11 31.8 10.8 9.7 7.4 7.3 6.5 5.9 0.7 0.7 0.6 6.9 7.1 8.7 — — — 21

Electric Utilities Attractive 2,210 29.3 8.2 5.7 16.3 7.8 7.4 6.4 0.9 0.8 0.8 11.2 11.1 11.9 4.5 5.2 5.9 79

Fertilizers & Agricultural Chemicals

Bayer Cropscience SELL 5,584 3,400 (39) 251 3.3 45 129.3 134.2 149.9 64.7 3.8 11.7 43 42 37 33 30 26 9.7 8.2 7.0 24 21 20 0.4 0.5 0.5 2.3

Dhanuka Agritech SELL 756 535 (29) 36 0.5 48 29.7 34.9 38.2 25.7 17.4 9.5 25.4 21.6 19.8 20.3 17.0 15.3 5.1 4.9 4.6 21 23 24 3.2 3.7 4.1 1.2

Godrej Agrovet SELL 441 375 (15) 85 1.1 192 11.5 12.9 17.0 0.8 11.8 32 38 34 26 22 18 14 3.8 3.5 3.2 10.4 10.7 12.9 1.2 1.0 1.3 1.5

Rallis India ADD 293 230 (21) 57 0.8 195 9.0 10.6 14.2 7.4 17.1 33.7 32.3 27.6 20.7 22.1 18.9 14.5 4.0 3.6 3.2 13.1 13.9 16.5 0.9 0.9 1.0 3.3

UPL SELL 438 350 (20) 334 4.4 765 23.2 30.3 35.7 22.7 30.4 17.8 19 14.4 12.3 8.6 7.7 6.7 2.1 1.9 1.7 11.5 13.5 14.3 1.4 1.8 2.1 40

Fertilizers & Agricultural Chemicals Attractive 1,025 13.6 26.7 22.5 18.8 30 25 20.7 13.9 12.2 10.6 4.0 3.5 3.1 13.2 14.4 15.2 0.9 1.1 1.3 53

Gas Utilities

GAIL (India) BUY 99 150 51 447 5.9 4,510 13.2 9.5 11.6 (5.5) (28.2) 22.2 7.5 10.5 8.6 5.8 7.6 6.1 1.0 1.0 0.9 13.5 9.4 10.9 6.5 4.0 5.0 23

GSPL SELL 209 210 0 118 1.6 564 17.2 12.8 11.8 21.9 (25.7) (7.6) 12.2 16.4 17.7 5.5 6.7 6.8 1.8 1.6 1.5 15.5 10.2 8.7 1.0 0.9 1.1 2.3

Indraprastha Gas SELL 415 380 (8) 290 3.9 700 16.7 16.0 20.8 38.6 (4.1) 29.8 24.9 25.9 20.0 17.7 18.3 14.1 5.7 4.9 4.2 25 20 23 0.7 0.7 1.0 26

Mahanagar Gas ADD 990 1,175 19 98 1.3 99 74.6 61.9 82.8 32.8 (17.1) 33.9 13.3 16.0 11.9 9.1 10.5 7.6 3.3 3.0 2.7 28 19.6 24 3.5 3.0 4.5 14.0

Petronet LNG BUY 266 300 13 399 5.3 1,500 17.6 18.7 22.2 17.3 6.2 18.5 15.1 14.2 12.0 8.4 8.0 6.9 3.6 3.4 3.3 25 25 28 4.7 5.3 6.7 11.6

Gas Utilities Attractive 1,352 17.9 6.8 (16.9) 20.5 11.8 14.2 11.8 7.7 8.9 7.4 1.9 1.8 1.7 16.5 12.8 14.3 4.0 3.4 4.3 77

Health Care Services

Apollo Hospitals BUY 1,442 1,700 18 201 2.7 139 18.4 1 44 9 (97) 6,877 78.2 ###### 33.1 14.6 22.3 12.8 6.0 6.0 5.4 7.7 0.3 17.2 0.8 0.0 1.2 19.5

Dr Lal Pathlabs SELL 1,893 1,180 (38) 158 2.1 83 27.1 26.1 37.7 13.4 (3.5) 44.5 70.0 72.5 50.2 43.8 45.2 31.8 15.3 13.3 11.2 23 19.6 24 0.4 0.4 0.6 3.4

HCG BUY 122 140 15 11 0.1 143 (7.7) (6.4) (1.8) (128) 16 72 NM NM NM 9.6 8.2 5.4 2.2 1.8 1.9 NM NM NM — — — 0.7

Metropolis Healthcare SELL 1,556 1,240 (20) 79 1.0 51 29.2 28.9 40.0 22.0 (1.2) 39 53.3 53.9 38.9 32.9 32.0 23.6 14.9 12.7 10.5 31 26 30 0.5 0.6 0.8 7.4

Narayana Hrudayalaya BUY 283 360 27 58 0.8 204 5.8 -3.0 8.3 101.0 (152) 376 48.6 NM 34.1 14.9 31.0 12.2 5.1 5.4 4.6 10.7 NM 14.6 — — — 0.7

Health Care Services Attractive 566 7.5 6 (79) 707 58.0 270.2 33.5 15.6 20.8 12.5 5.8 5.4 4.9 10.0 2.0 14.5 0.5 0.2 0.7 32

Hotels & Restaurants

Jubilant Foodworks ADD 1,652 1,750 6 218 2.9 133 24 9 30 (2) (62.3) 240 70.1 185.9 54.6 24.1 31.4 19.0 19.3 19.0 14.6 26 10.3 30 0.4 0.2 0.6 30

Lemon Tree Hotels BUY 24 38 60 19 0.2 790 -0.1 -0.9 0.6 (118) (655) 161 NM NM 42.9 14.0 28.7 11.1 2.3 2.5 2.4 NM NM 5.7 — 0.0 0.9 1.5

Hotels & Restaurants Attractive 237 3.1 (18) (85) 868 78.2 512.6 52.9 21.9 31.0 17.3 12.1 12.4 10.4 15.5 2.4 19.6 0.3 0.2 0.6 32

Insurance

HDFC Life Insurance ADD 598 560 (6) 1,208 16.0 2,010 6.4 3.7 5.6 1.4 (42.4) 50.5 92.8 161.1 107 — — — 17.2 16.4 15.4 20 10.4 14.8 0.0 0.2 0.2 42

ICICI Lombard SELL 1,260 875 (31) 573 7.6 454 26.3 30.8 35.7 14 17 16 48.0 40.9 35 — — — 9.3 7.7 6.6 21 21 20 0.3 0.2 0.6 18.6

ICICI Prudential Life BUY 422 500 18 606 8.0 1,436 7.4 6.3 7.6 (6) (14.7) 20.7 56.8 66.6 55 — — — 8.0 7.3 6.6 14.8 11.5 12.6 0.2 0.3 0.3 18.4

Max Financial Services ADD 554 575 4 149 2.0 343 10.1 10.3 28.1 452 2 173 54.8 53.6 19.7 — — — — — — 12.7 14.5 40 — 0.2 1.2 12.4

SBI Life Insurance BUY 860 1,050 22 860 11.4 1,001 14.2 14.9 15.6 7.2 4.9 4.5 60.5 57.7 55 — — — 10.8 9.3 8.2 18.4 17.3 15.8 — 0.3 0.3 17.5

Insurance Attractive 3,396 45.1 8.4 (6.5) 32.1 64.7 69.3 52 11.0 9.8 8.1 17.0 14.1 15.4 0.0 0.2 0.2 109

Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%)


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Internet Software & Services

Info Edge SELL 2,896 2,185 (25) 355 4.7 122.3 26.9 19.8 36.7 4.2 (26.5) 85.4 107.6 146.4 79.0 84.8 127.4 63.0 14.6 13.5 12.0 13.8 9.6 16.1 0.3 0.2 0.3 17.2

Just Dial BUY 374 420 12 24 0.3 61.8 42.0 24.3 33.0 31.4 (42.2) 35.9 8.9 15.4 11.3 3.3 8.0 4.5 1.9 2.0 1.7 24 12.2 16.1 — — — 18.4

Internet Software & Services Attractive 379 5.0 15.2 (34.9) 66.5 63.0 96.8 58.1 51.9 86.4 47.5 10.2 10.0 8.8 16.2 10.4 15.1 0.3 0.2 0.3 36

IT Services

HCL Technologies ADD 591 625 6 1,605 21.3 2,716 40.8 38.5 43.8 11.4 (5.6) 13.7 14.5 15.4 13.5 9.0 9.0 7.7 3.3 2.7 2.4 24 19.5 19.0 0.9 1.7 2.3 38

Hexaware Technologies REDUCE 354 320 (10) 106 1.4 302 21.2 19.8 22.7 9.9 (6.7) 14.6 16.7 17.9 15.6 12.2 11.5 9.7 3.9 3.4 3.0 25 20 20 2.4 1.7 2.8 4.7

Infosys BUY 783 775 (1) 3,336 44.3 4,259 38.9 37.5 42.2 10.0 (3.6) 12.3 20.1 20.9 18.6 14.1 13.7 12.1 5.1 4.7 4.4 25 24 25 2.2 3.3 3.8 100

L&T Infotech ADD 2,241 2,150 (4) 390 5.2 176 86.6 87.4 107.1 0 0.9 22.6 25.9 25.6 20.9 18.5 16.4 14.1 7.3 6.3 5.3 30 26 28 1.2 1.4 1.6 3.8

Mindtree REDUCE 978 890 (9) 161 2.1 165 38.3 54.9 62.5 (16) 43 14 25.5 17.8 15.7 14.0 10.4 9.1 5.1 4.3 3.6 19.5 26 25 3.1 1.7 1.9 15.1

Mphasis REDUCE 934 870 (7) 174 2.3 187 63.5 60.6 65.6 13 (4.7) 8.2 14.7 15.4 14.2 9.9 9.7 8.8 3.0 2.8 2.5 21 18.6 18.5 3.7 3.7 3.7 3.0

TCS REDUCE 2,172 2,040 (6) 8,150 108.2 3,752 86.2 83.6 94.1 4 (3.0) 12.5 25.2 26.0 23.1 18.3 18.2 16.4 9.5 8.8 8.2 36 35 37 3.1 3.1 3.5 107

Tech Mahindra BUY 598 660 10 521 6.9 880 45.9 34.6 48.7 (3.9) (24.5) 40.6 13.0 17.3 12.3 8.0 8.6 6.4 2.4 2.3 2.0 19.2 13.5 17.5 2.6 2.6 2.9 37

Wipro ADD 225 265 18 1,286 17.1 5,703 16.6 17.0 18.2 11.1 2.4 7.1 13.5 13.2 12.3 8.2 7.4 6.6 2.4 2.0 1.9 17.3 16.2 15.7 0.7 0.9 3.8 24

IT Services Cautious 15,729 208.8 4.3 (3.8) 13.3 20.2 21.0 18.6 14.0 13.7 12.1 5.3 4.8 4.4 26 23 24 2.4 2.7 3.4 332

Media

DB Corp. REDUCE 79 81 2 14 0.2 175 15.7 5.3 14.1 0.4 (66.5) 166.7 5.0 15.0 5.6 2.9 4.8 2.4 0.8 0.8 0.8 15.7 5.4 14.3 15.8 2.5 15.1 0.4

Jagran Prakashan REDUCE 40 35 (12) 11 0.1 281 7.0 3.3 7.0 (20.9) (52) NA 5.7 11.9 NA 1.7 2.2 NA 0.6 0.6 NA 10.3 4.9 9.9 11.3 5.0 12.6 0.4

PVR BUY 1,027 1,625 58 53 0.7 51 29.0 -32.7 59.3 (33) (213) 281 35.5 NM 17.3 10.9 32.4 7.3 2.3 3.0 2.6 8.5 NM 16.2 0.2 (0.3) 0.6 40

Sun TV Network REDUCE 391 435 11 154 2.0 394 35.5 34.9 39.7 (2) (1.6) 13.6 11.0 11.2 9.9 7.5 7.2 6.3 2.7 2.6 2.5 25 24 26 6.4 6.4 7.0 16.1

Zee Entertainment Enterprises REDUCE 166 145 (13) 160 2.1 960 17.9 13.1 16.2 8.6 (27.1) 24.4 9.3 12.7 10.2 6.2 7.8 6.0 1.7 1.6 1.4 18.5 12.6 14.6 2.7 3.3 3.3 59

Media Attractive 392 5.2 (0.4) (29.1) 46.0 10.5 14.8 10.1 6.5 8.1 5.7 1.8 1.8 1.7 17.6 12.3 16.9 4.5 4.1 5.1 115

Metals & Mining

Hindalco Industries BUY 164 225 37 368 4.9 2,220 17.8 10.5 20.0 (28.2) (41.1) 91 9.2 15.7 8.2 5.3 6.6 4.9 0.6 0.6 0.6 6.8 3.9 7.1 0.6 0.6 0.6 35

Hindustan Zinc BUY 192 215 12 810 10.7 4,225 16.1 11.5 15.3 (14.5) (28.4) 32.7 11.9 16.6 12.5 6.7 8.6 6.5 2.0 2.4 2.4 18.4 13.2 19.4 8.6 6.0 8.0 2.9

Jindal Steel and Power BUY 166 200 21 169 2.2 1,020 (7.7) (9.1) 13.8 (343) (19) 251 NM NM 12.0 6.7 7.8 5.2 0.5 0.5 0.5 NM NM 4.4 — — — 34

JSW Steel ADD 194 180 (7) 469 6.2 2,402 10.1 (0.4) 14.8 (68.3) (104) 4,298.7 19.2 NM 13.1 9.0 11.4 6.9 1.3 1.3 1.2 6.8 NM 9.5 1.1 1.1 1.1 31

National Aluminium Co. SELL 34 24 (29) 63 0.8 1,866 0.7 (0.4) 1.4 (91) (154) 461.1 45.9 NM 23.5 8.3 15.1 7.1 0.6 0.6 0.6 1.4 NM 2.7 4.4 0.0 2.1 7.3

NMDC ADD 83 105 27 253 3.4 3,062 14.6 11.9 11.1 (0.7) (18.8) (7) 5.6 6.9 7.5 3.9 4.8 5.2 0.9 0.9 0.8 16.7 12.8 11.2 6.7 7.2 6.7 7.3

Tata Steel BUY 337 400 19 382 5.1 1,146 35.2 (20.8) 63.3 (61) (159) 404 9.6 NM 5.3 8.0 9.8 5.2 0.5 0.6 0.5 5.9 NM 10.4 3.0 2.0 3.4 64

Vedanta BUY 109 120 10 405 5.4 3,717 6.5 5.5 12.3 (57) (16) 125.0 16.7 19.9 8.8 4.6 6.1 4.6 0.7 0.8 0.8 4.2 3.8 8.7 3.6 11.2 7.8 42

Metals & Mining Attractive 2,919 38.7 (45.5) (60.0) 235.2 12.4 31.1 9.3 6.4 8.0 5.4 0.9 0.9 0.9 7.1 2.9 9.3 4.2 4.4 4.6 44

RoE (%) Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X)


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Oil, Gas & Consumable Fuels

BPCL BUY 374 440 18 811 10.8 1,967 11 26 33 (71.0) 144.2 28.4 35.5 14.5 11.3 20.3 10.6 8.9 2.2 2.1 1.9 5.9 14.7 17.4 4.4 3.4 4.4 37.4

Coal India BUY 128 215 68 790 10.5 6,163 27 20 20 (4) (24.7) (3.2) 4.7 6.3 6.5 3.6 5.5 5.1 2.5 2.4 2.5 57.0 38.9 37.6 11.7 15.6 15.6 20.6

HPCL BUY 210 260 24 321 4.3 1,524 7 24 27 (82.0) 235.0 10.7 29.5 8.8 7.9 18.2 9.1 8.1 1.1 1.0 1.0 3.8 12.2 12.7 4.6 5.7 6.3 21.4

IOCL BUY 86 130 50 813 10.8 9,181 (3.9) 9.8 13.2 (121.9) 349.6 34.4 NM 8.8 6.5 23.1 5.7 5.2 0.8 0.8 0.8 NM 9.4 11.9 4.9 5.1 6.9 21.5

Oil India SELL 95 70 (26) 103 1.4 1,084 21 3 6 (32) (85.6) 105.7 4.6 31.9 15.5 3.3 8.7 7.5 0.4 0.4 0.4 8.6 1.3 2.7 11.1 1.3 2.6 2.7

ONGC SELL 77 60 (22) 973 12.9 12,580 13 4 7 (43) (71.7) 89.6 5.7 20.3 10.7 2.7 4.5 3.7 0.4 0.4 0.4 7.3 2.1 3.8 6.5 2.5 3.9 27.1

Reliance Industries BUY 1,917 2,150 12 11,362 150.8 5,926 67 70 93 1.2 4.6 33.7 28.7 27.5 20.5 16.7 13.9 9.5 2.5 2.3 2.0 9.4 8.6 10.7 0.3 0.4 0.4 480.5

Oil, Gas & Consumable Fuels Attractive 15,174 201.4 (37.3) 2.5 35.2 20.2 19.8 14.6 10.8 9.9 7.5 1.7 1.6 1.4 8.4 8.0 9.7 1.9 1.8 2.1 611.1

Pharmaceuticals

Aurobindo Pharma REDUCE 809 730 (10) 474 6.3 586 48 51 56 19.3 6 8.8 16.7 15.8 14.5 10.2 9.6 8.4 2.8 2.4 2.1 16.8 15.5 14.8 0.4 0.9 1.1 66.4

Biocon SELL 438 225 (49) 525 7.0 1,202 6.2 8.2 10.0 2 32 21.9 70 54 44 32.7 24.2 19.8 7.1 6.5 5.8 10.6 12.1 13.2 0.1 0.7 0.8 43.0

Cipla BUY 632 650 3 510 6.8 806 19.2 27 32 1.1 39 20 33 23.8 19.7 16.1 13.3 11.1 3.2 2.9 2.6 9.9 12.2 13.2 1.2 0.8 1.0 68.6

Dr Reddy's Laboratories SELL 3,983 3,100 (22) 662 8.8 166 130 147 188 30 13 27.5 31 27.0 21.2 16.1 15.1 11.7 4.3 3.8 3.3 13.9 13.9 15.5 0.6 0.6 0.8 61.1

Laurus Labs ADD 616 560 (9) 66 0.9 107 23.9 34.7 38 117.9 45 10 26 17.8 16.2 13.5 10.8 9.2 3.7 3.1 2.6 15.3 17.3 16.0 (0.6) — — 14.5

Lupin ADD 873 900 3 396 5.3 450 22 32 46 3.6 46 44 40 27 19.1 15.5 12.1 8.8 3.1 2.8 2.5 7.4 10.4 13.3 0.7 0.5 0.8 42.0

Sun Pharmaceuticals ADD 492 480 (2) 1,181 15.7 2,406 16.7 19.2 24 3.8 15 25 29 26 20.5 15.6 13.5 11.0 2.6 2.4 2.2 9.3 9.4 11.2 1.4 0.8 1.0 78.0

Torrent Pharmaceuticals REDUCE 2,421 2,350 (3) 410 5.4 169 57 70 86 22.6 22 22 42 34 28 20.1 17.3 14.8 8.5 7.3 6.2 20.1 21.2 22.2 1.8 1.0 1.2 27.2

Pharmaceuticals Neutral 4,223 56.1 12.5 20 23 31 26 21.2 16.1 13.9 11.4 3.5 3.2 2.8 11.2 12.1 13.3 0.9 0.7 0.9 400.8

Real Estate

Brigade Enterprises BUY 138 235 70 28 0.4 204 6.4 7 15 (46) 6 114 21.6 20.3 9.5 10.3 9.5 4.8 1.2 1.2 1.1 5.9 6.0 12.0 1.8 1.8 1.8 0.7

DLF BUY 140 200 43 346 4.6 2,475 (2.4) 5.0 8.7 (140) 310 74 NM 28.0 16.1 33.6 38.8 22.6 1.0 1.0 0.9 NM 3.6 6.0 — 1.4 1.4 22.3

Embassy Office Parks REIT ADD 335 400 19 259 3.4 772 9.9 12.3 14.1 110 24 15 34 27 24 16.5 15.5 14.3 1.2 1.3 1.3 3.4 4.4 5.4 7.3 7.9 8.9 7.5

Godrej Properties SELL 895 610 (32) 226 3.0 252 10.7 10.9 17.7 (2.7) 2 62.2 83 82 51 69.8 131.3 119.4 4.7 4.4 4.1 7.4 5.6 8.4 — — — 6.3

Oberoi Realty ADD 369 575 56 134 1.8 364 22 34 38 (4.0) 55.5 12 17.1 11.0 9.8 15.9 9.6 8.2 1.5 1.4 1.2 9.4 13.1 13.1 0.5 0.5 0.5 2.3

Prestige Estates Projects ADD 186 275 48 74 1.0 401 10.9 6.6 10 25.1 (39) 54 17 28 18.2 6.4 7.0 5.9 1.3 1.3 1.3 8.7 4.9 7.2 0.8 0.8 0.8 2.2

Sobha BUY 236 415 76 22 0.3 95 30 36 45 (5) 21.5 24.1 7.9 6.5 5.3 4.7 4.2 3.8 0.9 0.8 0.7 12.1 13.4 14.8 3.0 3.0 3.0 1.1

Sunteck Realty BUY 185 320 73 27 0.4 140 12.2 11.3 24 (24.7) (7) 108 15 16.3 7.9 13.2 14.3 5.8 0.9 0.8 0.8 5.9 5.2 10.1 0.5 0.5 0.5 1.6

Real Estate Neutral 1,117 14.8 (41.9) 105.5 42.1 50 24 17.1 16.0 15.0 11.7 1.3 1.3 1.3 2.7 5.4 7.4 1.9 2.5 2.7 44.0

Retailing

Aditya Birla Fashion and Retail BUY 118 150 27 93 1.2 773 (2.1) (4.2) 2.7 (151.4) (96.4) 165.1 NM NM 43 9.7 12.7 7.6 8.4 12.0 9.4 NM NM 24.3 — — — 4.1

Avenue Supermarts SELL 2,155 1,480 (31) 1,396 18.5 648 21.0 20 39 45.1 (4.4) 92.8 103 107 56 64 71 37 12.2 11.3 9.4 15.8 11.1 18.4 — — — 15.4

Titan Company BUY 974 1,215 25 865 11.5 888 16.8 10 21 (0.2) (38.6) 102.8 58 94 46 35 52 30 13.0 11.8 10.0 23.4 13.1 23.3 0.4 0.3 0.6 53.1

Retailing Cautious 2,353 31.2 (2.8) (28.4) 141.8 89 124 51 40 52 29 12.5 11.5 9.6 14.0 9.2 18.7 0.2 0.1 0.2 72.6

Speciality Chemicals

Castrol India BUY 123 165 35 121 1.6 989 8.4 6.0 8.9 16.8 (28.8) 48.8 14.7 20.6 13.8 9.7 13.7 9.3 8.9 8.6 8.2 65.3 42.4 60.8 4.5 4.5 6.7 2.3

Pidilite Industries REDUCE 1,381 1,325 (4) 702 9.3 508 23.1 17 28 30.1 (24.5) 60.9 60 79 49 44 55 35 15.7 14.2 12.2 27.2 18.8 26.6 0.5 0.5 0.7 17.9

S H Kelkar and Company BUY 71 95 35 10 0.1 141 4.6 4.6 6.2 (24.3) (1.0) 35.8 15.2 15.4 11.3 8.1 7.7 6.0 1.2 1.1 1.1 7.8 7.6 9.8 2.8 1.4 2.5 1.5

SRF ADD 3,804 3,800 (0) 219 2.9 57 138 151 197 23.5 9.2 30.9 27.6 25.2 19.3 17.1 14.7 11.7 4.4 3.8 3.2 17.5 16.3 18.2 0.4 0.4 0.5 14.2

Speciality Chemicals Neutral 1,051 14.0 22.1 (15.8) 46.5 37 44 29.9 24.4 27.2 19.3 9.1 8.1 7.1 24.7 18.6 23.6 1.0 0.9 1.4 35.9



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Telecommunication Services

Bharti Airtel BUY 589 690 17 3,215 42.7 5,456 (6.7) 5.7 14.5 NM NM NM NM 104.1 40.8 11.2 8.8 7.1 4.2 4.2 4.0 NM 4.0 10.0 0.3 1.0 1.0 183.6

Bharti Infratel BUY 209 185 (11) 386 5.1 1,850 16.5 16.5 17.7 25.7 0.2 6.9 12.7 12.6 11.8 5.3 5.1 4.8 2.9 2.8 2.8 21.7 22.5 23.9 5.2 7.7 8.1 30.4

Vodafone Idea RS 9 — — 269 3.6 28,735 (25.7) (3.6) (5.9) NM NM NM NM NM NM 8.2 7.0 5.6 4.5 -6.1 (1.3) NM NM 132 — — — 81

Tata Communications BUY 699 705 1 199 2.6 285 16.0 14.9 21.4 43.8 (6.6) 43.7 43.8 46.9 32.6 9.0 7.9 6.9 NM NM (41.0) NM NM NM 0.6 0.6 0.9 1.0

Telecommunication Services Cautious 4,069 54.0 NM 56.0 66.6 NM NM NM 9.7 7.9 6.5 4.3 4.8 5.6 NM NM NM 0.8 1.6 1.6 295.6

Transportation

Adani Ports and SEZ BUY 320 390 22 651 8.6 2,032 26.9 18.7 21.9 34.7 (30.5) 16.9 11.9 17.1 14.6 11.5 12.4 10.6 2.5 2.3 2.0 21.8 14.0 14.5 4.0 1.0 1.0 18.2

Container Corp. SELL 423 390 (8) 258 3.4 609 17.3 8.0 13.0 5.7 (53.6) 62.2 25 53 33 14.1 24.9 17.2 2.6 2.5 2.5 10.3 4.8 7.6 0.8 1.0 1.7 10.9

Gateway Distriparks BUY 88 135 54 10 0.1 109 4.2 (0.4) 5.1 (37.5) (108.6) 1,491.1 20.7 NM 17.2 7.0 8.5 6.2 0.7 0.7 0.7 3.5 NM 4.1 3.4 3.4 3.4 0.2

GMR Infrastructure BUY 20 26 31 120 1.6 7,147 (3.1) (1.8) (0.8) (25.4) 40.9 55.9 NM NM NM 15.8 18.4 16.6 (4.5) (7.1) (5.5) 106.6 55.8 25.2 — — — 3.1

Gujarat Pipavav Port BUY 81 106 31 39 0.5 483 6.0 4.5 5.8 42.2 (25.1) 28.0 13.4 18.0 14.0 7.4 7.8 6.8 1.9 1.9 1.9 14.2 10.5 13.5 6.9 5.2 6.7 0.8

InterGlobe Aviation SELL 955 925 (3) 368 4.9 383 (6.5) (189.9) 66.4 (258.9) (2,828.8) 135.0 NM NM 14.4 4.2 (8.4) 2.0 6.2 (136.8) 2.0 NM NM 253.3 — — — 42

Mahindra Logistics ADD 311 275 (12) 22 0.3 71 8.9 5.9 10.3 (29.0) (34.2) 75.8 35 53 30 14.4 16.4 11.7 4.1 3.9 3.5 12.2 7.5 12.2 — — — 0.4

Transportation Attractive 1,468 19.5 17.6 (183.9) 288.8 31 NM 19.3 10.4 21.5 8.6 3.4 3.6 3.1 11.2 NM 16.3 2.1 0.8 0.9 76

KIE universe 109,355 1451.8 (14.0) 1.3 51.6 28 27.5 18.1 12.3 12.5 9.5 2.6 2.4 2.2 9.2 8.6 12.0 1.5 1.6 2.0

Notes:

(a) We have used adjusted book values for banking companies.

(b) 2020 means calendar year 2019, similarly for 2021 and 2022 for these particular companies.

(c) Exchange rate (Rs/US$)= 75.33


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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 universe

Distribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of June 30, 2020

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 30/06/2020 Kotak Institutional

Equities Investment Research had investment ratings on 203

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.45.3%

23.6%

11.8%

19.2%

4.4%

0.5% 0.5% 1.5%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

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15July 2020_India_Daily - Kotak Securities

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