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L&T Technology Services

Attractive business model at expensive valuations

INDIA |IT Services | IPO Note

8 September 2016

L&T Technology Services (LTTS) is a mid-cap IT Services company, focussed on the Engineering

Services segment. It reported revenue of US$ 468mn in FY16, with EBITDA margins of 17%. The

company provides outsourcing services to engineering companies across the world, for their

research and design activities. Its clientele includes marquee names like BMW, Caterpillar, John

Deere and Intel. Transportation (30%) and Industrial (25%) constitute its main verticals – while

US/EU form 60%/20% of its revenues.

While the company operates in a segment with huge growth potential, we find the asking

valuations to be highly expensive. Assuming 10%/12% USD revenue growth over FY17/18 and

flat margins – we expect the company to report an EPS of Rs52 in FY18. That values the

company at 16x FY18 P/E at the upper price band of Rs860. We find the asking valuations

highly expensive – at premium to all IT Services companies (excl TCS) and even its fraternal

twin, Cyient. We would have been more comfortable with a valuation inline with Cyient (13x

FY18 P/E) – leaving something on the table for the investors. We recommend ‘Avoid’.

Engineering Research & Design (ERD) – huge growth potential: Over the last decade, Indian IT companies have developed significant capabilities and domain expertise in the field of ERD. With only 5% of the global ERD spend being currently outsourced; we see a huge opportunity over the next decade. The Indian companies are gradually moving up the value chain in this domain, with more strategic and high end design activities now being outsourced. LTTS, along with companies like Cyient, MindTree and Tata Elxsi have significant capabilities in this domain. Among the large-caps, HCL, TCS and Wipro together generate ~US$ 3bn annual revenues from this segment.

LTTS has a decent presence in ERD, with strong clientele: LTTS has a significant presence in the

ERD space, and works with 43 of top 100 global ERD spenders. The company derives 30% and

25% of its revenues from transportation and industrials, with marquee clients like BMW,

Caterpillar, John Deere and Intel. The company has a focussed strategy of ‘farming’ 30 existing customers which can be scaled up to US$ 50mn category (currently US$ 10mn) and ‘hunting’ 90 other customers (including potential customers). It employs 9,400+ engineers, with revenue productivity of US$50k – comparable with the IT Services industry. Attrition remains low at 12.1% and utilization at 71.4%.

Superior growth profile and robust ROEs; high client concentration: LTTS has reported revenue

CAGR of 23% over the last three years with stable margin profile (17%). It has followed a high

dividend payout policy, with payout of over 80% over the last two years. The same has resulted in

RoEs of 38% - much superior to the midcap and even large cap IT Services companies. Client

concentration however, remains high, with the top-5 accounting for 23% of its revenues.

Valuations expensive; especially when compared with Cyient: Amongst the listed IT Services

companies, Cyient has a similar profile as LTTS, with 65% of its revenues from ERD. It has slightly

inferior margins (13% vs 17% for LTTS) and ROEs (18% vs 38% for LTTS) – but superior clientele

(Boeing, P&W, Airbus, IBM). Yet, Cyient currently trades at 13x FY18 P/E (consensus estimates) as

compared to asking valuation of 16x for LTTS. Essentially, LTTS, with the same revenue base in

the same industry segment, is seeking 1.5x market-cap, as that of Cyient.

Recommend Avoid: We expect the growth of Indian IT Services companies to be under pressure

over the next few years (read our recent detailed reports here and here). However, we expect ERD segment to buck this trend and companies like LTTS and Cyient to be beneficiaries of the same. But the asking valuations for LTTS appear highly expensive. On our estimates of Rs 52

EPS in FY18, the upper band of the IPO is priced at 16x FY18 – at premium to all IT Services

companies (excl TCS) and even its fraternal twin Cyient. We would have been more comfortable

with a valuation inline with Cyient (13x FY18 P/E) – leaving something on the table for the

investors. We hence find the offer unattractive and recommend ‘Avoid’.

RATING - Avoid COMPANY DATA

ISSUE OPENS 12th September 2016

ISSUE CLOSES 15th September 2016

OFFER FOR SALE 10.4 mn

PRICE BAND Rs 850-860

ISSUE SIZE Rs 8.9bn

MKT CAP Rs 87bn

Vibhor Singhal (+ 9122 6667 9949) [email protected] Shyamal Dhruve (+ 9122 6667 9992) [email protected]

read

Read our detailed GV report on ERD space

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_IT_Sector_Report_-_Dec_2015_20151222145026.pdf

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_IT_Sector_Report_-_Aug_2016_20160818115747.pdf

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_GV_1st_June_2015_for_email_20150612104324.pdf


L&T TECHNOLOGY IPO NOTE

About the IPO 10.4mn shares (OFS) in a band of Rs 850-860 per share

Parent company looking to divest 10.2% share in the subsidiary

Objective of the issue; 1. To achieve the benefits of listing the equity shares on the Stock Exchanges 2. The parent company L&T to use the cash proceeds for WC requirement

Market capitalisation after the issue: ~Rs 87bn (at upper price band)

About the company L&T Technology Services (LTTS) is a pure-play ERD company incorporated in 2012. It

was formed by merger of Product Engineering division (PES – a wholly owned

subsidiary of L&T Infotech), and Integrated Engineering Services (IES – a wholly

owned subsidiary of L&T) in 2014, and is now a wholly-owned subsidiary of L&T

group. For FY16, the company has reported USD revenue of $468mn, a growth of

9.4% over the previous year. It has 9,400+ employees spread across its 12 global

delivery centres and 26 sales offices.

The only pure-play ERD player LTTS reported revenues of US$468mn in FY16 – making it the fourth largest ER&D company in India. The company has reported revenue CAGR of 23% over the last three years – above the industry average. In FY16, it reported US$ revenue growth of 9.4% - below industry growth of 12.3% (NASSCOM). It reported EBIT margin of 15% in FY16 (13.4% in FY15).

Midcap USD Revenue Comparison ($mn) Midcap EBITDA Margin Comparison (FY16)

ERD Revenue Comparison ($mn) LTTS Revenue/Margin performance

Source: Company, PhillipCapital India Research

913 887

714

490 485 472 468 411

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580 468

323 297

136 64

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16,766 20,233 26,186 30,665

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Unique business model in ERD space LTTS has a unique business model, providing outsourcing services to engineering companies across the world, for their research and design activities. Verticals: Transportation accounts for 30% of its revenues – a segment which has the highest ERD opportunities. Industrial products and Telecom & Hi-Tech contribute 25% and 20% respectively.

Transportation is the largest vertical for LTTS LTTS verticals revenue pie


Geography: US/EU form 60/20% of the total revenues – inline with most of its peers. It has very low exposure (<2%) to the UK region.

Contribution from US/Europe in-line with peers LTTS geographies revenue pie


15% 17%

7%

37% 37% 30%

47%

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Transportation, 29.9

Industrial Products,

25.3

Telecom and Hi-Tech,

19.8

Process Industry,

18.7

Medical Devices, 6.3

66% 81%

67% 69% 69%

45% 60% 63%

25%

12% 30%

17% 18%

33%

20% 24%

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Europe US

North America,

60.4

Europe, 19.8

India, 8.3

RoW, 11.5



Engineering Research & Design (ERD): Huge growth potential Over the last decade, Indian IT Services companies have developed significant capabilities and domain expertise in the field of ERD. The top-4 IT Services companies have reported CAGR of 10% over the last five years in this domain (14% excl Wipro) – higher than the overall industry growth.

ERD space has witnessed stupendous growth for the top-4 (apart from Wipro) ERD (US$ mn) FY11 FY12 FY13 FY14 FY15 FY16 CAGR % of Revs

TCS 395 473 535 632 699 753 14% 4%

Infosys 146 238 246 270 298 323 17% 3%

HCL Tech 644 774 821 881 1,087 1,172 13% 17%

Wipro 726 734 689 673 694 762 1% 9%

Total top-4 1,911 2,219 2,291 2,456 2,779 3,010 10% 8%

HCL Tech is now amongst the top-3 ERD outsourcing companies in the world

Country Market Cap (US$ bn) ERD Revenue (US$ bn)

Altran Technologies France 2.5 2.2

Alten SA France 2.1 1.8

HCL Technologies India 17.7 1.2


In FY15, global ERD spend grew by ~3% to US$ 1.5tn. Automotive and consumer electronics sectors accounted for over 25% of this spend—automotive driven by safety and emission- efficiency requirements and consumer electronics driven by increasing demand for new products and interfaces. US and Europe continued to account for over 2/3rd of this spend with Asia (excluding Japan) constituting 14% and growing fast.

Currently, the engineering services outsourcing (ESO) market stands at US$ 72bn – only 5% of the total global ERD spend. Of this US$ 72bn, China accounts for the largest market share (29%), driven by its manufacturing industry. India comes in close second (28%), driven primarily by the captives (61%) and third party outsources (39%). Of the third party outsourcers, the top-4 IT Services companies have almost 40% market share.

The global ERD-ESO market

Source: NASSCOM, Zinnov, PhillipCapital India Research

Historically most global engineering companies have been reluctant to outsource their R&D – because of obvious concerns of intellectual property theft and perception of inferior capabilities of the Indian companies. However, over the last two decades, we have seen a significant increase in the ERD outsourcing deals – with new client joining the bandwagon, as well as, existing clients outsourcing larger and more strategic share of their ERD work.

China, 29.2%

Captives, 61.3% Top-4 IT,

30.7%

Outsourced, 4.8%

India, 27.8%

Third Party, 38.8% Others,

69.3%

Others, 43.1%

0%

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40%

60%

80%

100%

Global ERD Spend Global ESO Market India ESO Market Indian Third-party ESO Market

US$ 1.5trn US$ 82bn US$ 20bn US$ 7.8bn

Read our detailed report on the potential of the ERD segment here

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_GV_1st_June_2015_for_email_20150612104324.pdf



Evolution of the ESO industry

Source: PhillipCapital India Research

Top five imperatives for engineering services providers

Source: HCL Tech

Waves Propelling the Engineering Service Industry

Technology Shift Industry Examples

Wave 1,

2000-2010

Embedded software in the

product and product ecosystem

Auto manufacturing – telematics and infotainment

Healthcare – medical devices and implants

Consumer electronics – embedded intelligence in

white goods

Wave 2,

2010-2017

IoT/M2M adoption and

Digital transformation.

(IT envelopes the product)

Auto – V2V, V2I, driver assistance

Smart homes - connected home appliances

Healthcare - remote and continuous monitoring

Engineering information management

Wave 3,

2015 onwards

Integrating manufacturing with

engineering and IT systems; and

3-D or Additive Printing

(IoT evolution)

Smart manufacturing

PLM-MES-ERP integration – leveraging social media

and analytics to drive product usage and design

Digital oil fields - integrated, optimized asset

utilization

3-D and additive printing applications

Source: ISG

The Indian IT Service companies are now able to contribute more to the client than just being a relatively inexpensive alternative. The Indian companies have also been helped by the abundant pool of engineers, which the country produces every year. ERD being a highly technical domain, requires engineers trained on specific CAD/CAM platforms, as against an IT graduate for traditional IT Services contract.

29%

22%

18% 16% 15%

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35%

Reduce operational cost

Drive product innovation

Shorten TTM Improve quality Emerging market focus



India accounts for the largest pool of engineers graduating every year

Source: OECD, AICTE

Poles apart – ERD and other traditional IT service lines

Parameter Traditional service lines Engineering research and design

Educational/technical qualification of

the 'developer'

Software developers Engineers—preferably Mechanical/Electrical

Training to be imparted to the

'developer' before induction

Various software platforms like Java, .net, C++ Various engineering design platforms like CATIA, SolidWorks,

Pro/E

Nature of project deliverable Customized software solution, with post-delivery

maintenance

Parts of the Product Life-cycle Management (PLM), that can be

integrated with various such deliverables from across the globe

Failure risk Medium - Problems in the deliverable can be

fixed in post-delivery maintenance period

High - Problems in deliverable can lead to faulty product design

for the client; can lead to potential loss of client

Major verticals BFSI, manufacturing, telecom - across the

spectrum

Manufacturing - auto, aerospace, consumer electronics;

healthcare - medical devices

Project duration Medium to long: varying from 2- 7 years (for IMS) Short: Less than 12-18 months


Key ESOs in each vertical

Automotive Aerospace Energy & Utilities Consumer Electronics

Captives Bosch Airbus Shell Samsung

Daimler Honeywell Petrofac LG

Ford

Schlumberger Phillips

Third party KPIT Cyient Wipro TCS

Infosys HCL Tech Quest MindTree

Tata Technologies Tech Mahindra Geometric HCL

TCS Aker Solutions Tata Elxsi

Key strengths of the key companies

TCS Infosys HCL Tech Wipro Tech Mahindra

All sectors - Auto/Aero/Com-

sumer Electronics

Overall weak presence -

mainly Aerospace

Avionics Medical devices Product design

Geometric Ltd Quest Cap Gemini IBM Accenture

Product Lifecycle manage-

ment

After sales - esp for

aerospace

Technical Publication /

Documentation

Process Consultation / PLM

implementation

Process Consultation / PLM

implementation


In the wake of the deal sizes shrinking in the traditional IT services domain, and cannibalization of revenues by new age digital platforms like cloud and analytics, we expect ERD to provide some respite to Indian IT Services companies. We expect more companies to focus on this segment, and acquire companies with existing capabilities/clientele in ERD.

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LTTS – placed attractively in the ERD space

LTTS has a significant presence in the ERD space, and works with 43 of top 100 global ERD spenders. The company derives 30% and 25% of its revenues from transportation

and industrials, with marquee clients like BMW, Caterpillar, John Deere and Intel. The

company has a focussed strategy of ‘farming’ 30 existing customers which can be scaled up to US$ 50mn category (currently US$ 10mn) and ‘hunting’ 90 other customers (including potential customers).

Competitive analysis of ERD companies - Zinnov

Source: LTTS, Zinnov

LTTS – Key clients

Company Industry vertical

BMW Transportation

Calsonic Kansei Transportation

Caterpillar Industrial Products

Danaher Industrial Products

Eaton Industrial Products

Intel Telecom and Hi-Tech

John Deere Industrial Products

P&G Process Industry

Rockwell Automation Industrial Products

Scania Transportation

Shell Process Industry

UTC Industrial Products

Client concentration (FY16) Number of Clients (FY16)


23% 36% 54% 0%

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US$ 20mn+ US$10-20mn US$5-10mn >US$1-5mn

No

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High dividend payout, leading to superior ROEs LTTS has followed a high dividend payout policy, with payout of over 80% over the last two years. The same has resulted in ROEs of 38% - much superior to the midcap and even large cap IT Services companies. We note that only Hexaware and LTI (same group company) come close to the payout ratio of LTTS – the high ratio at the former driven by its parent PE company.

Dividend payout & RoE highest in the industry


On employee metrics like utilization (71.4%), attrition (12.1%) and employee productivity (US$ 50k per employee) – the company is broadly in-line with the industry and the midcap average.

Utilization/Attrition in-line with the industry Revenue productivity (USD ‘000/employee)


32%

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Dividend payout

23%

27%

46%

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38%

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16% 16% 18%

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Utilization (%) Atrition (%) (RHS)

46 45 45 45 46 50

38

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Management history/profile

LTTS does not have a long history, being incorporated in 2012 – with the major contributing subsidiaries of Product Engineering division (PES – a wholly owned subsidiary of L&T Infotech), and Integrated Engineering Services (IES – a wholly owned subsidiary of L&T) merging into it in 2014. However, its sister subsidiary and recently listed, L&T Infotech has had a history of unstable management, with four CEO/COO exits over the last five years. Most recently, in Aug-2015, Mr Sanjay Jalona – who was heading Infosys’ manufacturing division – was appointed as the MD and CEO of the company. For long, one of the major concerns with L&T subsidiaries has been the management NOT being given enough freedom and independence to operate – we do not rule out the same for LTTS in near future. Key Management Personnel: Dr Keshab Panda – MD and CEO: Dr Keshab Panda has been serving as the CEO of LTSS since Jan ’15. He has 31 years of experience in IT and engineering services businesses. Before joining LTTS, he had served in Satyam Computer Services in various capacities. Mr. Kumar Prabhas – COO: Mr. Kumar Prabhas has been serving as the COO effective Nov ’15. Prior to joining LTTS, he had worked at Unisys India Private Limited as the Managing Director and General Manager of Global End User Services. He has obtained a graduate degree in technology in electrical engineering from the Indian Institute of Technology, Kanpur. He has over 19 years of experience in management. Mr. P Ramakrishnan – CFO: Mr. P Ramakrishna has been serving as the CFO of LTTS effective Jan ’16. He had been with the L&T group for last 24 years. He has worked in different areas of finance and accounts covering treasury, corporate accounts and corporate finance. He has a graduate degree in Commerce (Honours) from University of Calcutta.

Management structure




Comparison with fraternal twin – Cyient

Amongst the listed IT Services companies, Cyient has a similar profile as LTTS, with 65% of

its revenues from ERD. It has slightly inferior margins (13% vs 17% for LTTS) and ROEs

(18% vs 38% for LTTS) – but superior clientele (Boeing, P&W, Airbus, IBM etc). Yet, Cyient

currently trades at 13x FY18 P/E (consensus estimates) as compared to asking valuation of

16x for LTTS. Essentially, LTTS, with the same revenue base in the same industry segment,

is seeking 1.5x market-cap, as that of Cyient.

Financials and valuation comparison

Comparison of revenue break-up – geography and vertical

Top clients concentration No. of clients Employee metrics


80 468 17 38 16 54 472 14 18 13 0

20

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Mkt Cap (Rs bn) Revenue ($ mn) EBITDA Margins (%) ROE (%) FY18 P/E (x)

LTTS Cyient

60%

28%

12%

30%

20%

6%

44%

63%

24%

13%

49%

23%

2%

27%

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US EU, India RoW Transport Telecom & Hi-Tech

Medical Others

Geographies Verticals

LTTS Cyient

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Top-5 Top-10 Top-20

LTTS Cyient

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US$10- 20mn

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LTTS Cyient

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Utilization % Attrition % Emp Prod. (US'000)

LTTS Cyient

LTTS market cap and P/E multiple – assuming upper end of the IPO price band – Rs 860/share



Valuations expensive; recommend Avoid

We expect the growth of Indian IT Services companies to be under pressure over the next few years, on the inefficient capital allocation policy of the last decade (detailed report here) and increasing uncertainty in the business environment across the world (detailed report here). However, we expect ERD segment to buck this trend and companies like LTTS and Cyient to be beneficiaries of the same. While we expect single-digit USD revenue growth for most IT Services companies over the next three years, we expect pure/part ERD companies to fare better – on expectations of incremental outsourcing of ERD work. However, we find it difficult for LTTS to report more than 10% USD revenue growth in FY16 – given the dismal 7% yoy growth in 1QFY17. Hereafter, the company will need to deliver CQGR of 5%/7.5% over the next three quarters, to report FY17 USD revenue growth of 10%/12% respectively.

Difficult road to growth in FY17 FY17 USD Revenue growth assumption 10% 12% 15%

Required CQGR over 2Q-4Q FY17 4.7 6.0 7.7


Accordingly, we bake in 10%/12% US$ revenue growth over next two years and flat margins for LTTS – leading us to an EPS of Rs52 for FY18. At the upper band of the IPO price, that would value the company at 16x FY18 – at premium to all IT Services companies (excl TCS) and even its fraternal twin Cyient. We would have been more comfortable with a valuation inline with Cyient (13x FY18 P/E) – leaving something on the table for the investors. We hence find the offer unattractive and recommend ‘Avoid’, primarily due to expensive valuations.

Key financial projections

USD Rev Growth EBITDA EBITDA EBIT PBT PAT EPS

$mn % Rs mn Margin % Margin % Rs mn Rs mn Rs

FY16 468 9.4% 5,204 17.0 15.0 5,352 4,166 41.0

FY17E 515 10.0% 6,214 18.0 16.1 6,043 4,714 46.4

FY18E 577 12.0% 6,959 18.0 16.2 6,772 5,282 51.9


Valuation Table: Large-cap IT Services CMP M-Cap _____ROE (%)____ _____P/E (x)_____ _____P/BV (x)_____ ___EV/EBITDA (x)__ Companies Rs Rs bn FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E

TCS 2,452 4,831 31.2 28.6 17.6 16.4 5.5 4.7 14.0 13.0 Infosys 1,050 2,400 23.2 23.1 15.9 14.2 3.7 3.3 10.6 9.2 Wipro 481 1,184 16.6 16.6 13.6 12.1 2.3 2.0 9.6 8.4 HCL Tech 785 1,109 25.1 24.7 13.8 12.6 3.5 3.1 10.0 9.2 Tech Mahindra 471 407 16.9 16.3 13.5 12.5 2.3 2.0 8.4 7.6 L&T Technology 860 87 39.2 40.3 18.6 16.6 7.3 6.7 10.4 9.3

Valuation Table: Mid-cap IT Services CMP M-Cap _____ROE (%)____ _____P/E (x)_____ _____P/BV (x)_____ ___EV/EBITDA (x)__ Companies Rs Rs bn FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E

MindTree 519 87 19.2 20.2 16.0 12.9 3.1 2.6 9.5 7.9 Persistent 613 49 16.5 16.2 15.7 14.1 2.6 2.3 10.3 9.3 KPIT 130 24 13.9 13.9 11.1 9.7 1.5 1.3 5.8 5.1 NIIT Tech 400 24 16.0 15.9 8.7 7.8 1.4 1.2 4.0 3.5 Hexaware 204 62 26.9 27.4 15.5 13.6 3.9 3.3 10.8 8.6 Cyient 482 54 17.5 18.1 14.6 12.4 2.4 2.1 10.2 8.0 L&T Technology 860 87 39.2 40.3 18.6 16.6 7.3 6.7 10.4 9.3


http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_IT_Sector_Report_-_Dec_2015_20151222145026.pdf

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_IT_Sector_Report_-_Aug_2016_20160818115747.pdf



Business profile


Transportation, 30%

Industrial Products, 25%

Telecom and Hi-Tech, 20%

Process Industry, 19%

Medical Devices, 6%

US, 60% Europe, 20%

India, 8%

RoW, 12%

Verticals

Geographies

Onsite, 52.9 Offshore, 47.1

T&M, 68% FPP, 32%

Top 5, 23%

Top 6-10, 13%

Top 11-20, 18%

Non Top 20, 46%

Revenue mix

Business mix

Client mix



Financials

Profit & Loss

Y/E Mar, Rs mn FY15 FY16

Net sales 26,186 30,665 Growth, % NA 17 Other Operating Income 0 0 Total income 26,186 30,665 Employee expenses -14,866 -17,231 Other Operating expenses -7,333 -8,230 EBITDA (Core) 3,987 5,204 Growth, %

30.5

Margin, % 15.2 17.0 Depreciation -485 -589 EBIT 3,503 4,615 Growth, % NA 31.8 Margin, % 13.4 15.0 Interest paid -34 -25 Other Income 253 762 Non-recurring Items 0 0 Pre-tax profit 3,721 5,352 Tax provided -610 -1,186 Profit after tax 3,111 4,166 Others (Minorities, Associates) -2 0 Net Profit 3,109 4,166 Growth, % NA 34.0 Net Profit (adjusted) 3,109 4,166 Unadj. shares (m) 51 75 Wtd avg shares (m) 102 102


FY15 FY16

US$ Revenue ($ mn) 428 468

Growth, % NA 9.4

Re / US$ (rate) 61.1 65.5

Balance Sheet

Y/E Mar, Rs mn FY15 FY16

Cash & bank 1,153 864 Marketable securities at cost 0 0 Debtors 6,853 7,271 Inventory 0 0 Loans & advances 2,320 2,343 Other current assets 1,753 1,470 Total current assets 12,080 11,948 Investments 0 555 Net fixed assets 5,692 6,209 Less: Depreciation 0 0 Add: Capital WIP 4 143 Net fixed assets 5,696 6,352 Non-current assets 0 0 Total assets 18,143 19,214 Current liabilities 4,601 4,736 Provisions 2,971 3,493 Total current liabilities 7,573 8,228 Non-current liabilities 50 60 Total liabilities 7,622 8,288 Paid-up capital 10,500 10,500 Reserves & surplus 21 425 Shareholders’ equity 10,521 10,925 Total equity & liabilities 18,143 19,214




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

Rating Criteria Definition

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

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

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

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd

250 North Bridge Road, #06-00 RafflesCityTower,

Singapore 179101

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

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd

4-2 Nihonbashi Kabutocho, Chuo-ku

Tokyo 103-0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia

ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding

Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia

Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia

Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA

PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946

(91 22) 6667 9735

Research IT Services Pharma & Speciality Chem

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768

Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996

Banking, NBFCs Infrastructure Strategy

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947

Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Anindya Bhowmik (9122) 6667 9764

Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Telecom

Consumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947

Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973

Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 Technicals

Preeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762

Cement Dhawal Doshi (9122) 6667 9769 Production Manager

Vaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966

Economics Mid-Caps & Database Manager Editor

Anjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Roshan Sony 98199 72726

Engineering, Capital Goods Oil & Gas Sr. Manager – Equities Support

Jonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971

Vikram Rawat (9122) 6667 9986

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976

Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943

Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745

Bhavin Shah (9122) 6667 9974

Ashka Mehta Gulati (9122) 6667 9934 Execution

Archan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/



Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

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

No

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

No

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

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

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

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



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

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

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For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.-regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Decker & Co, LLC.

Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors

This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827).

This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced,

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