Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.

Please refer to the Disclaimers at the end of this Report.

AMBIT INSIGHTS 9 May 2016

DAILY

G&C 10.0

Company name Weight (%)

Rating FY17 P/E (x)

PI Industries 3.3 BUY 23.6

Tata Motors 3.3 BUY 8.7

TVS Motors 3.3 BUY 21.7

MRF Ltd. 3.3 NR 7.5

Mahindra CIE. 3.3 BUY 19.9

Atul Ltd. 3.3 NR 18.1

Titan 3.3 BUY 34.2

Page Industries 3.3 BUY 47.2

ITC 3.3 BUY 21.1

HUL 3.3 BUY 35.9

Marico 3.3 BUY 35.0

AIA Engineering 3.3 BUY 23.9

Axis Bank 3.3 BUY 12.5

IndusInd Bank 3.3 BUY 21.8

Bank of Baroda 3.3 BUY 9.6

SCUF 3.3 BUY 17.2

City Union Bank 3.3 BUY 10.7

DCB Bank 3.3 NR 13.8

Havells. 3.3 BUY 31.0

Berger Paints 3.3 BUY 37.8

Supreme Industries 3.3 BUY 26.2

Gujarat Pipavav 3.3 NR 24.6

TCS 3.3 BUY 18.6

HCL Tech 3.3 BUY 12.6

IGL 3.3 BUY 15.5

Lupin 3.3 NR 22.7

Torrent Pharma 3.3 NR 18.2

Ajanta Pharma 3.3 NR 29.4

Idea Cellular 3.3 NR 23.2

Power Grid 3.3 BUY 9.2

Source: Bloomberg, Ambit Capital research

NR – Not Rated

Note: For further details, please refer our note dated Feb 05, 2016

Results Update

Titan (UNDER REVIEW)

Watches disappoint; jewellery marred by strike

Results Expectation

Hindustan Unilever: (BUY, 14% upside)

Century Plyboards: (BUY)

Weeklies

BFSI

Weekly tracker

Economy

Ambit’s qualitative leading indicators’ (QLI) tracker

Utilities

Weekly tracker

Analyst Notes: E&C, Infrastructure: Capex cycle recovery? No dice, SELL L&T Nitin Bhasin, +91 22 3043 3241

E&C, Infrastructure: Capex cycle recovery? No dice, SELL L&T

There is no evidence of a concerted recovery in industrial capex as private sector capex growth remains tepid. Given excess capacities in key industries (cement, power and metals) it is hard to see how the pace of project execution and new ordering can revive materially in FY17. Sporadic pockets of growth, either in certain segments (roads and railways) or regions (Telangana), have their own set of challenges - long payment cycles, high competition, and long cycle orders are highly prevalent. Therefore, it is hard to see L&T’s standalone revenue growth (7%) exceeding mid-single digits in FY17 and margins exceeding 10%. Valuations of 16x FY18E core earnings (ex-embedded value) already factor in the ‘halo effect’ of the largest E&C conglomerate in the country. Moreover, asset divestures and strong international segment growth (which is riddled with oil price uncertainty) are not the reasons to own the company. Reiterate SELL. Source: Ambit Capital research

Please refer to our website for complete coverage universe

http://research.ambitcapital.com

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Titan Watches disappoint; jewellery marred by strike Revenues fell by 2% in 4QFY16 as jewellery revenues remained flat due to the jewellers’ strike and watches revenues declined by 13%. Hence, EBITDA margin fell 120bps, exacerbated by a Rs210mn one-time expense in the watches business and a Rs200mn marked-to-market loss in jewellery. Therefore, PAT was at Rs2.25bn (9% below our estimate). Whilst 4QFY16 PAT was below our estimates, the underlying causes, barring headwinds to watches business, are not structural. While we continue to believe Titan will benefit from market share gains in jewellery, the stock is fairly valued (last published TP, Rs384) and we see limited upside from current levels. While the company could see gross margin expansion (higher studded share in FY17E vs FY16E) and savings from employee cost rationalisation, these are not quantifiable yet. We put our estimates and recommendation under review.

Gross margin expansion in jewellery is evident

The company’s gross margins improved during the quarter despite inventory losses, lower share of watches, absence of Golden Harvest Scheme (GHS) in the base and lower share of studded. Moreover, hedging gains (part of gross profits) of Rs310mn during the quarter were lower by Rs220mn YoY. Therefore, gross margin expansion seems have come through on the back of more value-added collection in jewellery.

Jewellery business: The jewellery business did not grow PAN due to nationwide strike by jewellers in opposition against excise duty on jewellery, following which Titan was forced to keep its stores shut. Despite having a low base (due to absence of GHS revenues in 4QFY15), revenues were flat YoY. Apart from the abovementioned reasons, advancement of activation and shifting of festivals Ugadi and Gudi Padwa from 4QFY16 to 1QFY17 led to further loss of revenues in this quarter. In light of the above, Tanishq reported LTL growth of -5% while sales value contracted by 1% YoY and Goldplus registered sales value and LTL growth of -16%.

Watch segment: The watch segment had disappointment a quarter with sales contracting by 13% YoY due to promotions and advancement of End of Season Sales (EoSS) where Titan shifted to graded activation instead of flat activation (all products used to be put on sale including best-sellers) to better manage inventory. Also, sales were affected by closure of loss-marking stores and vacation of an entire category of watches (<Rs2,000) which led to loss of volumes. To add to that, the watch segment saw VRS outlay of Rs210mn, adjusted for which, EBIT margins declined by 48% YoY.

Eyewear segment: The eyewear segment showed positive signs with revenue growth of 9% YoY and 35% YoY growth in EBITDA margins on the back of LTL growth of 7%.

Management commentary and earnings call highlights: (a) proportion of gold purchase on the spot vs gold on lease was 45:65 during the quarter; (b) GHS enrolment has been healthy; expect contributions of Rs14 bn in FY17; (c) Helios saw healthy sales; (d) tax rate will be higher from FY17 as tax benefits of diamond jewellery plant will reduce from FY17; (e) company to open 25 Tanishq stores in FY17 spanning 100,000 sqft, of which 5 were opened on a single day; (f) the company will be stocking more collections across price points in the studded category.

Ecommerce foray: Titan announced that it will be acquiring a majority stake (through internal accruals) in Carat Lane Trading Private Limited, a leading online jeweller, which caters to a different segment of customers (mainly the youth). While the details of the consideration have not been shared, the primary reason to acquire it is for technology. Carat Lane is in the manufacture and sale of jewellery since 7 years and has its own tech team and manufacturing facility. It expects synergies from the deal such as increasing online presence of its daily wear jewellery brands like Mia.

UNDER REVIEW Result Update Stock Information Bloomberg Code: TTAN IN

CMP (Rs): 360

TP (Rs): UR

Mcap (Rs bn/US$ mn): 301/4,423

3M ADV (Rs mn/US$ mn): 412/6.1

Stock Performance (%)

1M 3M 12M YTD

Absolute (3) (3) (22) (2)

Rel. to Sensex 3 6 (5) 4

Source: Bloomberg, Ambit Capital research

Research Analyst

Abhishek Ranganathan, CFA abhishekr@ambitcapital.com Tel: +91 22 3043 3085

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Where do we go from here?

While we reiterate our thesis of market share gains in jewellery business and tailwinds from return of GHS, the stock at current price offers little upside and we do not see any quantifiable/justifiable reasons for an earnings upgrade in our DCF model. Moreover, there are aspects such as gross margin expansion (higher studded share in FY17E vs FY16E), savings from employee cost rationalisation, and quantum of capital allocation for acquisition of Carat Lane (will impact other income and earnings) where we see the need to revisit our estimates. Consequently, we put our recommendation and our estimates under review.

Exhibit 1: 4QFY16 results vs expectations Rs mn 4QFY16 4QFY16E

Revenues 24,563 25799.2

Adjusted EBITDA 2,511 2,970.54

Adjusted PAT 2,085 2,480.14

Source: Company, Ambit Capital research

Exhibit 2: 4QFY16 financial performance Rs mn 4QFY15 3QFY16 4QFY16 YoY QoQ

Revenues 24,962 34,262 24,563 -2% -28%

Gross profit 7,771 8,574 7,614 -2% -11%

Employee cost 1,612 1,735 1,521 -6% -12%

Advertising 803 1,193 910 13% -24%

Other expenditure 2,655 2,547 2,671 1% 5%

EBITDA 2,701 3,099 2,511 -7% -19%

Depreciation 200 248 254 27% 2%

Other income 159 137 237 49% 73%

Interest 137 114 104 -24% -9%

PBT 2,523 2,875 2,391 -5% -17%

Tax 372 622 306 -18% -51%

PAT 2,151 2,253 2,085 -3% -7%

EPS 2.4 2.5 2.3 Gross Margins 31.1% 25.0% 31.0% 0% 24%

EBITDA Margins 10.8% 9.0% 10.2% -6% 13%

Employee % on sales 6.5% 5.1% 6.2% -4% 22%

Advertising % on sales 3.2% 3.5% 3.7% 15% 6%

Other expenses % on sales 10.6% 7.4% 10.9% 2% 46%

Tax rate 1.5% 1.8% 1.2% -16% -31%

PAT Margins 8.6% 6.6% 8.5% -1% 29%

Segment- wise performance Jewellery

Revenue (Rs mn) 18,279 28,193 18,444 1% -35%

EBIT (Rs mn) 2,321 2,892 2,256 -3% -22%

EBIT Margin (%) 12.7% 10.3% 12.2% -4% 19%

Watches

Revenue (Rs mn) 5,110 4,786 4,440 -13% -7%

EBIT (Rs mn) 489 324 255 -48% -21%

EBIT Margin (%) 9.6% 6.8% 5.7% -40% -15%

Eyewear

Revenue (Rs mn) 882 800 963 9% 20%

EBIT (Rs mn) 95 5 129 35% 2383%

EBIT Margin (%) 10.8% 0.6% 13.4% 24% 1963%

Source: Company, Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Jewellery division’s performance

Exhibit 3: Industrywide strikes resulted in a disappointing quarter

Source: Company, Ambit Capital research

Exhibit 4: Negative LTL led to 160bps YoY fall in EBIT margins

Source: Company, Ambit Capital research

Exhibit 5: Volumes grew by 4% YoY

Source: Company, Ambit Capital research

Exhibit 6: Gold prices increased marginally

Source: Company, Ambit Capital research

Exhibit 7: Share of studded declined marginally YoY impacted by advancement of activation and strike

Source: Company, Ambit Capital research

-40%

-20%

0%

20%

40%

60%

80%

100%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Jewellery Growth Tanishq growth

7%

8%

9%

10%

11%

12%

13%

0

5,000

10,000

15,000

20,000

25,000

30,000

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

Revenue Rs mn (LHS) EBIT Margin (RHS)

-40%

-20%

0%

20%

40%

60%

80%1Q

FY13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Volume growth

-15%-10%-5%0%5%10%15%20%25%30%35%

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

14

2QFY

143Q

FY14

4QFY

14

1QFY

152Q

FY15

3QFY

15

4QFY

151Q

FY16

2QFY

16

3QFY

164Q

FY16

Gold Price (Rs/gm) (LHS) Gold price growth (RHS)

15%

20%

25%

30%

35%

40%

1QFY

132Q

FY13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

141Q

FY15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

164Q

FY16

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Exhibit 8: Net space addition in the quarter was 36,000 sqft

Source: Company, Ambit Capital research

Exhibit 9: Tanishq’s LTL growth was negative due to jewellers’ strike

Source: Company, Ambit Capital research

Watch division’s performance

Exhibit 10: Revenues dropped 13%; EBIT margins declined by 400bps

Source: Company, Ambit Capital research

Exhibit 11: Volumes declined by 19% due to exit from low-value watch category

Source: Company, Ambit Capital research

Eyewear division

Exhibit 12: Eyewear division showing positive signs with LTL growth of 7%

Source: Company, Ambit Capital research

- 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

-60%

-40%

-20%

0%

20%

40%

60%

80%

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

0%2%4%6%8%10%12%14%16%18%

0

1,000

2,000

3,000

4,000

5,000

6,000

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

Revenue, Rs mn (LHS) EBIT Margin (RHS)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

16

-5%0%5%

10%15%20%25%30%35%40%45%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Balance sheet

Year to March (Rs Mn) FY15 FY16E FY17E

Share capital 888 888 888

Reserves and surplus 18,811 24,340 29,951

Total Networth 19,699 25,227 30,839

Loans 61 8,069 998

Deferred tax liability (net) 2 6 3

Sources of funds 19,762 33,302 31,840

Net block 4,639 6,142 7,214

Capital work-in-progress 418 329 552

Investments 29 31 31

Cash and bank balances 11,390 8,927 1,719

Sundry debtors 1,658 1,541 1,897

Inventories 36,803 38,694 40,493

Loans and advances 3,825 5,357 6,442

Total Current Assets 53,677 54,519 50,551

Current Liabilities 35,497 23,959 22,352

Provisions 3,584 3,854 4,353

Current liabilities and provisions 39,081 27,813 26,705

Net current assets 14,595 26,706 23,846

Miscellaneous expenditure

Application of funds 19,762 33,302 31,840

Source: Company, Ambit Capital research

Income statement

Year to March (Rs Mn) FY13 FY14 FY15

Revenue 102,180 109,690 119,493

yoy growth 7% 9%

Total operating expenses 92,055 99,247 108,009

EBITDA 10,125 10,443 11,485

yoy growth 3% 10%

Net depreciation 562 675 896

EBIT 9,563 9,768 10,589

Interest and financial charges 506 871 807

Other income 1,009 1,202 708

PBT 10,065 10,099 10,490

Provision for taxation 2,816 2,751 2,410

Adj PAT 7,249 7,348 8,163

yoy growth 1% 11%

Reported PAT 7,249 7,348 8,163

EPS (Rs) 8.2 8.3 9.2

EPS diluted (Rs) 8.2 8.3 9.2

DPS (Rs) 2.1 2.1 2.3

Source: Company, Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Cash flow statement

Year to March (Rs Mn) FY13 FY14 FY15

PBT 10,065 10,099 10,490

Depreciation 562 675 896

Interest paid (net) (493) (323) 165

CFO before change in WC 10,049 10,492 11,627

Change in working capital (1,763) (13,188) (4,153)

Direct taxes paid (2,757) (2,852) (2,449)

CFO 5,530 (5,548) 5,026

Net capex (1,650) (2,111) (2,070)

Net investments (1,000) (900) (480)

Interest received 1,232 1,123 766

CFI (1,417) (1,888) (1,187)

Proceeds from borrowings - 17,563 21,000

Change in share capital - - -

Interest & finance charges paid (506) (871) (807)

Dividends paid (1,544) (1,852) (1,852)

CFF (2,356) 4,974 (10,047)

Net increase in cash 1,756 (2,462) (6,208)

Opening cash balance 9,671 11,391 7,913

Closing cash balance 11,391 8,927 1,719

FCF 3,880 (7,659) 2,955

Source: Company, Ambit Capital research

Ratio Analysis / Valuation Parameters FY13 FY14 FY15

Revenue growth 13.7 7.3 8.9

EBITDA growth 21.2 3.1 10.0

PAT growth 20.6 1.4 11.1

EPS norm (dil) growth 20.6 1.3 11.1

EBITDA margin 9.9 9.5 9.6

EBIT margin 9.4 8.9 8.9

Net margin 7.1 6.7 6.8

RoCE 55.46 36.82 32.51

RoE 42.8 36.3 25.3

P/E (x) 43.8 43.8 39.5

P/B(x) 16.4 12.8 10.5

Debt/Equity(x) 0.3 32.0 3.2

Net debt/Equity(x) (0.6) (0.0) (0.0)

EV/Sales(x) 3.1 2.9 2.7

EV/EBITDA(x) 30.7 30.8 28.0

Source: Company, Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Hindustan Unilever: 4QFY16 results expectation (HUVR IN, mcap US$27.6bn, BUY, TP Rs966, 14% upside)

Analyst: Rakshit Ranjan, CFA, rakshitranjan@ambitcapital.com, +91 22 3043 3201

HUL will report its 4QFY16 results today. We expect revenue growth of 4% YoY to Rs79bn led by volume growth of 5% YoY and 1% impact due to price deflation and price promotions. We expect gross margin to expand ~200bps YoY due to lower input costs. EBITDA margin is likely to expand only by 50bps YoY as lower input costs are likely to be partially offset by increased A&P spends and streamlining of channel spends. We expect PAT growth of 11% YoY to Rs9.7bn, which would be higher than sales growth due to margin expansion.

Key things to watch for: (a) volume growth during the quarter; (b) EBITDA margin expansion given input cost correction; and (c) commentary on rural growth and (d) impact of Patanjali on longer-term growth.

The stock is currently trading at valuations of 29x FY18E EPS. We remain BUYers on the stock.

Exhibit 1: Results expectations (Rs mn, unless specified)

Particulars Mar'16E Mar'15 Dec'15 YoY QoQ Comments

Sales 79,403 76,041 79,810 4% -1% Assuming 5% volume growth and 1% negative impact due to price deflation and price promotions

EBITDA 13,413 12,467 14,308 8% -6% Lower input costs to support gross margin expansion by ~200bps YoY; higher A&P spends and streamlining of channel spends to partially offset gross margin gains EBITDA margin (%) 16.9% 16.4% 17.9% 50 (104)

PBT 13,793 12,746 14,882 8% -7% PAT growth to be ahead of revenues due to EBITDA margin expansion of ~50bps YoY PAT 9,655 8,664 10,510 11% -8%

Source: Company, Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Century Plyboards: 4QFY16 results expectation (CPBI IN, mcap US$0.5bn, BUY, TP Rs203)

Research Analyst: Achint Bhagat, CFA achintbhagat@ambitcapital.com, +91 22 3043 3178

We expect Century Plyboards to report a marginal 2% YoY increase in revenue driven by low single-digit volume growth in ply, rising share of mid-segment categories, and mid-single digit growth in laminates as utilisation has hit peak levels. Savings in raw material costs are likely to sustain and given unorganised players face cost pressure due to increase in price of face veneer, Century Plyboards would retain cost savings. Hence, we expect EBITDA margin to remain strong (16.9%, -50bps YoY). We expect PAT of Rs359mn, down 25% YoY, due to forex losses and assuming a higher tax rate.

We continue to believe ply is a large addressable market whose unorganised share is shrinking; this bodes well for a market leader like Century Plyboards. Stock trades at 20x FY17E EPS, which is at a significant discount to leading franchises in other building material categories like tiles, paints and electricals (20-35% discount). Our target price implies 16x FY18E EPS and multiples expansion could be hindered by poor cash conversion, low predictability of timber regulation, and possibilities of disruptions to the product category.

Exhibit 1: Result expectations (Rs mn, unless specified)

Century Plyboards Mar'16E Mar'15 Dec'15 YoY QoQ Comments

Sales (Rs mn) 4,194 4,092 3,906 2% 7% We expect only marginal revenue growth given a bleak demand environment

EBITDA (Rs mn) 709 710 665 0% 6% EBITDA margin to decline marginally on a high base of last year EBITDA margin (%) 16.9% 17.4% 17.0% (46) (14)

PBT (Rs mn) 449 593 480 -24% -7% Earnings decline is largely a function of higher finance charges due to forex losses PAT (Rs mn) 359 480 416 -25% -14%

EPS 2 2 2 -25% -14%

Source: Company, Ambit capital research. We have adjusted the above for forex gains/losses

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

BFSI Weekly tracker In this weekly update, we have compiled all the key news flows, regulatory developments, key management interviews, summary of takeaways from our meetings with management teams/primary data and summary of key notes we published last week. On the positive front, the government and BBB are moving ahead on improving selection policies for PSU bank CEOs and bad loans clean-up. On the negative front, NBFCs face rising competition from banks intensifying their focus on rural markets.

Exhibit 1: Key news-flow during last week

Title Description Implications

RBI releases “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”

News: Based on the experience of licensing two universal banks in 2014 and that of granting in-principle approvals for small finance banks and payments banks, the RBI has now worked out a new framework for granting licences for universal banks on a continuous basis. The draft rules propose a minimum capital of Rs5bn for granting on-tap license to new "universal banks". While Individual professionals having track record of more than 10 years are included, large business houses are excluded from the eligibility. Read the draft guidelines here. (Source: https://goo.gl/ZneZqX) Views: While the proposed rules reflect the RBI's willingness to allow more banks and foster competition, the restrictions bring to the fore the regulator's reluctance to let large business houses run banks. The guidelines offer no concessions to large NBFCs’ demands for relaxation of how existing lending businesses are re-organised within the bank. Thus, we don’t expect rush from existing large NBFCs for bank licences. The RBI is likely to be selective about granting new license with financial inclusion being key focus.

Neutral

India eyes cleanup of bad debt mountain as wary state banks hesitate

News: Indian government is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans in order to shield bankers from a populist backlash they say is hobbling efforts to clean up their balance sheets. The proposal, which is being examined by the government and is in its early stages, would give the panel the power to define the "haircut" a bank should face on a loan gone sour, protecting bankers from critics who want failed Indian firms to pay back in full. (Source: http://goo.gl/vIb62Q) Views: We believe BBB/FinMin/RBI will adopt a three-pronged approach to address banks’ bad loans situation, namely: 1) create incentives and penalties for banks to chase and resolve smaller NPAs faster (e.g. linking recap with bad loan resolution); 2) make Board-level policies and decision process for taking haircut for large NPAs (to comfort CEOs on individual accountability around settlements); and 3) for very large stressed loans, create a JLF like multi-bank forum to agree on resolutions/settlements. The above news flow around the bad-loan panel appears to be the measure in-line with the third point. With this, bank management will feel more secure about bad loan resolution and move towards cleaning bad loans, recapitalizing balance sheets, and induce fresh lending.

Positive

Banks Board Bureau kicks off selection process for top jobs in public sector lenders

News: Taking its first big step, Banks Board Bureau (BBB) will on 16th May conduct the selection process for managing directors in three public sector banks — Indian Overseas Bank, United Bank of India and Bank of Maharashtra. (Source: http://goo.gl/3DQdil) Views: We expect BBB to eventually open up PSU banks’ MD&CEO position to the private sector, even if in the first round for smaller PSUs it might still opt for CEOs from PSU banking (emphasizing merit and not seniority). We expect the first round of CEO selection will provide a direction for recruitment policies, such as a longer 5-6 years residual tenure for new CEOs.

Positive

IDBI NPAs may go to a stressed asset fund

News: Government is expected to clean up IDBI Bank's pool of NPAs (~Rs200bn as at Dec-15) by transferring them to a fund before offering up to 10% equity to strategic investors as part of the plan to reduce its stake below 50%. The government is planning a new fund with an initial corpus of around Rs100bn, which will be part of the National Infrastructure Investment Fund (NIIF). There have also been suggestions of increasing wages to provide some cheer to employees. (Source: http://goo.gl/CGvMpC) Views: Reduction in the government’s stake in IDBI Bank and associated reform measures are a test case for PSU bank reforms in India. Whilst there have been protests from staff unions, so far the government has shown intent to move ahead with reduction in its stake to below 50%. The NPA clean-up through transfer to a different entity could be extended to other large bad loans in PSU banking as well.

Positive

Increasing competition in rural lending for NBFCs

News: SBI has automated employees' appraisals, which will now be based on the pace and frequency at which the employees deal with customers. The new software will compare an employee's efficiency with that of peers in similar settings, and all promotions, placements and incentives will be determined by this appraisal. 70% of the marks during an appraisal will come automatically from this system. In other news-flow, IndusInd Bank is expecting to earn 10% of its operating profit by end-FY18 from rural areas. Management expects at least 20% of IndusInd's asset book to come from rural areas in the next three years, driven by loans to buy two-wheelers, small commercial vehicles, tractors and cars besides micro lending. (Source: http://goo.gl/Ko3PAv; http://goo.gl/nqKOa6) Views: IndusInd’s appetite to at least double the number of branches in rural India and SBI’s (lender with the best rural presence) efforts to improve service quality have a common underlying theme – competition is intensifying in rural areas and more specifically in auto loans. As highlighted in our 8 Oct’16 Auto-NBFC thematic (click here), we believe this headwind will meaningfully dilute the longer-term narrative of auto-NBFCs. We remain SELLers in the auto-NBFC space with CIFC and MGMA being our sole BUYs.

Negative

Source: Media reports, Ambit Capital research

Quick Insight Analysis Meeting Note News Impact

Research Analysts

Pankaj Agarwal, CFA Tel: +91 22 3043 3206 pankajagarwal@ambitcapital.com

BFSI Team researchteambfsi@ambitcapital.com

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Exhibit 2: Key Interviews given by management during last week

Interview with Summary

Chanda Kochhar, MD & CEO, ICICI Bank

Buyers for stressed assets hard to find: ICICI Bank: The additional provisions were made on account of weaknesses in five stressed sectors, i.e. iron & steel, mining, rigs, power

and cement. To calculate the stressed sector exposure list of Rs440bn, the bank has added fund and non-fund exposure and it is across

domestic book as well as international branches and covers all the “below investment” grades. Low commodity prices will make it hard to find buyers for some of bank's stressed assets.(Source: http://goo.gl/rdseb7)

Vellayan Subbiah, MD, Cholamandalam Investment and Finance

Targeting double-digit growth in FY17: A pick-up in sales of commercial vehicles may help the company clock 20% growth in FY17. There was an improvement in NIMs in FY16 due to increase in fee income and decline in cost of funds; management expects

this trend to continue. The bank expects asset quality to improve continuously. It has got most of its provisions covered and is pretty much operating

on a near 90-day basis. (Source: http://goo.gl/RKS8Xw)

Mr. Rao, CEO and MD, SKS Microfinance

Expect customer base to grow 22-25% in FY17:

27% of asset growth for FY16 came from increase in number of borrowers, 22% from increase in ticket size and 18% from change in loan duration.

Earlier, securitisation was done mostly at the end of the year, but from FY17, banks will be monitored at a quarterly basis. So, management expects securitisation to be spread over the year.

SKS will change its corporate name to Bharat Financial Inclusion Ltd. The name resonates with SKS’s rural spread given the vast rural network it has.

SKS will stick to its core business of micro-finance and cross-sell only those items which are “value-add” to the borrowers in the segment. (Source: http://goo.gl/pID1ru )

Source: Media reports, Ambit Capital research

Exhibit 3: Recent notes published by Ambit team relevant to BFSI sector

Title Description Implications

Federal Bank: Execution risks stay high

Federal Bank reported another disappointing set of quarterly results, with net profit plunging 96% YoY to Rs103bn due to continued pressure on asset quality. Delinquencies were elevated (4.2%) and all loan segments witnessed asset quality stress. Weakness in operating profit (up 11% YoY) has also persisted. With income profile under pressure (normalised NIM of 3.1% and fee income to assets of 0.7%), cost to income ratio rose as well to 57%. We have maintained that whilst any structural improvement in the bank’s assets side franchise would be a gradual affair, there remain significant risks on profitability and credit quality in the interim (underscored by FY16 results). We have marginally cut our already-below-consensus FY17-FY18 earnings estimates by 3-7% and expect average FY17-FY18E RoA of 0.9% and RoE of 11%. We remain SELLers with target price of Rs47 (0.85x FY18E BV).

Negative

Cholamandalam Finance: Strong trends + key catalysts materialising

Cholamandalam Finance (CIFC) reported PAT of Rs1.9bn (up 42% YoY), which was 30%/16% ahead of our/consensus expectations. Earnings beat was driven by better than expected performance in margins, operating efficiencies and asset quality. Operating trends continue to be strong for CIFC, with improving AUM growth (up 17% YoY), expanding NIMs (up ~100bps), improving asset quality (150dpd gross NPAs down by ~10bps YoY) and improving operating efficiencies (opex/AUM down ~15bps). With key catalysts of pick-up in used CV financing and LCV sales materialising, we upgrade our FY18 PAT estimates by 13% and target price by 10% on the back of higher growth and margins. Strong visibility of 28% EPS CAGR over FY16-18E and 20% RoEs by FY18 underpin our high-conviction BUY on CIFC, with a revised TP of Rs905/share (3.3x FY17E P/B and 20x FY17E P/E).

Positive

Motilal Oswal: One-offs impact the results

Motilal Oswal Financial Services (MOFS) reported a 6% QoQ decline in PAT (12% below our estimates) due to one-offs in brokerage and fund-based businesses. Whilst PAT from capital market business declined by 27% QoQ, a strong performance in the housing finance business (PAT up 88% QoQ) restricted earnings decline to a modest 6% QoQ. Even as operating trends in brokerage business are uncharacteristically weak this quarter, trends in AMC and HFC business continue to be strong. MOFS should re-rate as it delivers EPS CAGR of 26% over FY16-FY18E, driven by: (i) retail broking and asset management receiving a boost from savings moving away from physical assets towards equities; and (ii) new businesses like asset management and housing finance scaling up. We retain our BUY stance on the stock with an SOTP-based target price of Rs367/share, implying 23x FY17E P/E.

Positive

Shriram Transport Finance: Improving trends; but RoEs below 16%

SHTF’s standalone PAT declined by 55% YoY to Rs1.44bn. PAT would have declined 90% YoY had SHTF provided only the regulatory minimum on the new 150dpd NPAs and not lowered its coverage on legacy 180dpd NPAs. That said, SHTF’s core CV financing business demonstrated better trends across key metrics, with improving growth and margins and stabilizing asset quality. Further, performance of the CE business is also improving, with the asset quality in line with guidance and the ongoing improvement in resale values of CEs brightening the prospects of recoveries from this book. However, SHTF is unlikely to deliver RoEs beyond 16% over FY16-18E as its margins expansion will not be significant and operating costs will inch up hereon. We retain SELL with a target price of Rs813/share (from Rs789 earlier), implying a generous 1.6x 1-year fwd P/B and 11x 1-year fwd P/E.

Negative

Source: Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Economy Ambit’s qualitative leading indicators’ (QLI) tracker

With qualitative data collected through primary data networks often proving to be a stronger leading indicator of changes in the economy, we collate a weekly tracker that captures these critical qualitative inputs. On the positive front: (1) Road freight rates rose materially in 4QFY16, pointing to a pick-up in demand for transport by road; (2) The lower house of Parliament passed the New Bankruptcy Code; and (3) Passenger vehicles’ sales remained healthy in April 2016. On the negative front: (1) Both Services and Manufacturing PMI dropped in April 2016; (2) GST implementation appears likely only in mid-FY18; and (3) India's coal efficiency drive risks ire of powerful unions. Exhibit 1: Ambit’s qualitative indicators tracker for the week commencing 2nd May 2016

Head Description Positive/ Negative

Economy: Do rising freight rates point to an economic turnaround?

Demand for cargo transport by road has been boosted by higher output from industries such as cement, steel and fertilizer, higher demand, and an early onset of a summer that has forced farmers to advance their harvest.

Road freight rates for a return trip from Delhi to Mumbai and Delhi to Chennai, in April, rose 6.7% and 4.4% respectively, according to data available with the Indian Foundation of Transport Research and Training. The pace of increase is the fastest in a year (source: http://www.livemint.com/Industry/PAVZ0VVosRXBt9qXrgS6vI/Do-rising-freight-rates-point-to-an-economic-turnaround.html).

Positive

Automobile: April 2016 volume update - PVs and 2Ws race ahead

Passenger vehicle and two-wheeler volume growth was much higher than in March, while CV growth moderated. Maruti (16% YoY) beat both our estimate marginally and industry growth (9%). Maruti’s volume growth will remain strong in FY17, at 12%, led by full-year sales of Baleno/S-Cross and new launches.

In 2W, top players clocked strong growth of 16% YoY (10% in March). Hero/TVSM at 15%/20% surprised our estimates, while Bajaj (+2%) was in line.

We continue to expect a better FY17 for 2W volumes (10% vs 3% in FY16) on: 1) strong demand for scooters/premium bikes in urban areas and motorcycles in rural (normal rains, low base).

In MHCVs, Top4 posted 26% YoY growth (31% in March). Continued economic recovery, low base and pre-buying in 4QFY17 (ahead of BSIV norms) will drive volumes (16%/13% YoY in FY17/FY18) (click here for our note dated May 03 for details).

Positive

Economy: Lok Sabha passes bankruptcy bill vital to solving debt crisis

India has moved a step closer to adopting a new bankruptcy law after the Lok Sabha passed the legislation on 5th May.

If approved by Rajya Sabha, the law will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a data base of serial defaulters—all critical in resolving India’s bad debt problem which has crippled bank lending.

The creation of the law will also improve India’s position in the World Bank’s Doing Business ranking (source: http://www.livemint.com/Politics/pFJV4jYFGvP4i7bpRzxDWN/Lok-Sabha-passes-bankruptcy-bill.html)

Positive

BFSI: RBI proposes on-tap bank licences, bars conglomerates

The Reserve Bank of India (RBI) on 5th May released draft guidelines for issuing on-tap universal bank licences but excluded large industrial houses from entering the sector.

The proposed licensing policy is a change from the current stop-start policy where RBI is supposed to open the window for bank licences periodically but rarely does so in practice.

Since Rajan took over in 2013, RBI has licensed two universal banks, 11 payment banks and 10 small finance banks. It has also floated the idea of allowing more differentiated banks, such as wholesale banks. By putting universal bank licences on-tap, the RBI is clearly trying to juice up competitive intensity in the sector further (source: http://www.livemint.com/Money/PQbUkGRC25bbiVOhxogpVM/RBI-proposes-ontap-licences-for-universal-banks.html).

Positive

India amends mining law in boost to cement mergers and banks

The Rajya Sabha on Monday approved an amendment to the mining law, allowing the transfer of mines from sellers to buyers in a victory for the State Bank of India that had lobbied for the change.

Under pressure to cut corporate bad debts of more than $120 billion, lenders including SBI have been trying to forge tie-ups between distressed cement, steel and power companies and those that are in better shape.

The amendment to the Mines and Mineral Development and Regulation Act, requested by SBI some three months ago, has now cleared both houses of parliament and should soon become law (source: http://in.reuters.com/article/india-mining-law-idINKCN0XT14E).

Positive

Source: Media reports, Ambit Capital research

Quick Insight Analysis Meeting Note News Impact

Research Analysts

Ritika Mankar Mukherjee, CFA ritikamankar@ambitcapital.com Tel: +91 22 3043 3175

Sumit Shekhar sumitshekhar@ambitcapital.com Tel: +91 22 3043 3229

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Exhibit 2: Ambit’s qualitative indicators tracker for the week commencing 2nd May, 2016 (continued)

Head Description Positive/ Negative

Economy: Both Services and Manufacturing PMI drops in April

The Nikkei India Composite PMI Index dropped to 52.8 in April from a 37-month high of 54.3 in March. This means that while private sector activity is still increasing, the pace has slowed

The survey of purchasing managers also showed that slower increases in activity were seen at both goods producers and services providers. Manufacturing seems to be especially struggling, indicating that the economy has still not recovered fully.

A softer expansion in activity, combined with unchanged employment and a dip in business expectations among the latter suggest that companies are not fully convinced about the recovery and that March’s stronger numbers might have been a one-off (source: http://www.livemint.com/Money/0saDov7nm9DmWtSJqN9gLK/Slower-expansion-in-private-sector-in-April.html).

Negative

Economy: GST implementation likely only in mid-FY18

Our discussions with senior management at GST-N (Goods & Services Tax Network) suggest that the special purpose vehicle created to provide an IT backbone to GST should be functional by January 2017.

Even as the back-end work for rolling out this platform has been underway since CY13, our policy expert checks suggest that the BJP itself appears to be unsure about implementing GST at this point as this will adversely affect the trader community which is largely under-taxed at this point in time.

A leading fiscal expert further made the point that even if the GST Constitutional Amendment Bill were to be passed in the Monsoon Session of Parliament, the implementation is unlikely to materialize before mid-FY18 owing to the series of formalities that need to be completed ahead of GST implementation.

Hence, the Government's stated deadline of GST implementation by 1st April 2017 is likely to be missed. GST implementation appears likely only in in mid-FY18.

Negative

Economy: Palliatives for dodgy state-level GDP data

India’s Central Statistics Office (CSO) has come to be known for publishing some very counter-intuitive GDP data of late.

For instance, CSO data suggests: (1) GDP growth in India accelerated in FY16 vs FY15; and (2) India’s southern region grew at a slower pace than the northern belt

We at Ambit have launched a range of alternative tools to combat the poor quality national data Given increasing unreliability of state-level GDP data too, we launch a Regional Keqiang Index (RKI) i.e. an

index that draws from real economy indicators published by industry bodies/regulators. The RKI confirms that South India in fact has been consistently outperforming the North on the economic growth front (click here for our note dated 5th May for details).

Negative

Coal India: Where are the volumes?

Our discussion with management suggests production/offtake decline of 3.4%/2.5% in Apr-16 was due to: (a) weak demand from power sector in the beginning of the month; (b) liquidation of coal stock of ~2mt by power plants (~5% of April offtake); and (c) some production cuts due to rising heat.

This is surprising given coal-based power generation grew by 20% in the first 24 days in Apr-16. We plan further channel checks to probe if this volume decline poses risks to our offtake estimates of 8%

growth in FY17 and 10% CAGR over FY18-20E Our analysis of CIL’s e-auction sales for Mar-16 suggests decline in average realisations to Rs1,479/t

(Rs1,773/t in Feb-16) was due to weaker grade mix. In 4QFY16, e-auction sales should be 16.8mt (higher than our estimate of 14.8mt) which would be partially offset by lower e-auction realisations (Rs1,650 vs our estimate of Rs1,800/t).

Negative

Jubilant Foodworks: Who moved my pizza?

Our discussion with Deepinder Goyal, CEO of food search & discovery portal/app Zomato, re-affirms our thesis that intensifying competitive landscape and relevance of value proposition pose a threat to QSRs like Jubilant Foodworks.

Zomato’s 24,000 online and 200,000 phone orders each day reflect disruptive power of foodtech and empowerment of local restaurants.

Adding to competitive woes is burger QSRs increasingly adopting delivery route and waning popularity of pizza (ex. gourmet pizzas).

Our interaction also indicates growing demand for delivery boys (hyper locals, grocers, logistics companies setting up networks); implying further inflation in wage costs for Jubilant (21% of FY16E revenues)

Any resultant price hikes will further erode value proposition for Jubilant. These limit prospects of improving Jubilant’s low SSG (4% for FY16E) and profitability (800bps below peak EBITDA margins of 19%).

Negative

Economy: In Bundelkhand, cattle deaths, hunger signal looming famine

Stray cattle are everywhere in drought-hit Bundelkhand—roaming the highways at night, foraging in barren fields where no crops have grown in the past year, even just lying down and dying on bone-dry lake beds.

In Balchaur, a village of about 350 families, more than 100 cows have perished in the past three months. Villagers say they have lost count of the goats and buffaloes lost to drought.

The region is reeling from the impact of successive crop failures, brought about by back-to-back droughts that decimated the rain-fed kharif crop and the unseasonal rains that damaged the winter harvest last year, and fields that have been left unsown this year (source: http://www.livemint.com/Politics/GPVmiHEC94V9Cg0o6VKrdP/Cattle-deaths-and-hunger-signal-looming-famine-in-Bundelkhan.html).

Negative

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Head Description Positive/ Negative

Coal India: India's coal efficiency drive risks ire of powerful unions

Plans by India's coal monopoly to buy billions of dollars of new machinery and outsource work are facing resistance from powerful unions worried about job losses, in a potential blow to Prime Minister Narendra Modi's promise to bring electricity to all.

State-run Coal India Ltd. the world's biggest coal miner, has already doubled output growth since Modi came to power two years ago, owing to the removal of hurdles to production like environmental clearances and land acquisition.

The increase turned coal shortages at India's power plants to oversupply, making it one of the administration's biggest successes.

The next phase of restructuring the notoriously inefficient behemoth is likely to be harder, however, and is crucial to the government's ambition to sell 10% of the $27 billion company to raise funds for further growth and investment (source: http://in.reuters.com/article/india-coal-idINKCN0XT21Q).

Negative

Utilities: India’s power story, retold

Takeaways of meeting with former power regulatory official APTEL tariff hike for Tata Power’s Mundra is a landmark order, providing 100% fuel pass-through (includes

past under-recoveries). SEBs may appeal to Supreme Court; but order should stay as 90% of APTEL orders were upheld in previous such cases

Lowering AT&C losses is tough; high losses in cities remain despite smart metering due to political interference in SEB working.

New emission norms are too ambitious – NOx norms recommended not prevalent in US; SOx norms require re-consideration, especially for coastal/old plants.

Policies favour solar over wind given higher predictability, potential and cheaper pricing Cut in CEA power demand forecast for FY22 led by sluggish industrial use, reliance on statistical

methodologies over on-ground surveys and energy efficiency initiatives

Negative

Source: Media reports, Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Utilities Weekly tracker In this weekly update, we have compiled the key news flow, regulatory developments and key management/regulator interviews that occurred last week. The key positive news: (a) Tata Power is a turnaround candidate for Cyrus Mistry; and (b) Rajasthan invites bids for distribution franchisee in Kota and Bharatpur. The negative news: (a) outstanding dues of discoms to power generator up 16% YoY to Rs220bn; and (b) Coal India’s offtake to power utilities declines 6.8% YoY.

Exhibit 1: Key news flow during last week

Sub-Sector / Company Title Implications Description Source

Tata Power Why Tata Power can be a turnaround template for Cyrus Mistry

Positive

Cyrus Mistry’s new mantra: Sweat your existing assets, get rid of deadwood and at the same time keep looking for growth. If there are assets that have lost value, book the losses on the balance sheets.

http://goo.gl/U1ghYS

MD Anil Sardana saed the company is looking to increase revenue from non-regulated business and raise its renewables energy portfolio to 35-40% of generation capacity. “Today the non-regulated portfolio has profits of Rs0.5bn. We want them to contribute Rs5bn by 2022," Sardana says.

There are plans to grow the company by doubling power capacity to 20,000MW by 2025; open to seeking capital from outside.

Our view: Tata Power is well placed for turnaround with the favourable judgment on Mundra compensatory tariff hike from APTEL. Our sensitivity analysis suggests a likely tariff hike of ~39paise for Mundra for FY17, which will translate into PBT of Rs5.7bn vs reported loss of Rs9bn in FY15.

Distribution franchisee

Rajasthan invites private firms to manage power distribution

Positive

Rajasthan has invited private sector companies to help turn around the electricity distribution business that has so far been the monopoly of state-run enterprises.

http://goo.gl/vmHqcR

To kick off the private distribution the state has invited 20 years private distribution franchisee bid for Kota and Bharatpur.

Our view: Appointment of distribution franchisee may expedite the decline in AT&C losses. However, political support is key because of the 13 distribution franchisee awarded so far 6 have been cancelled due to lack of local support and consequent lack of improvement in performance. Instead, if distribution circles are awarded to private companies it will expedite the turnaround as seen in Mumbai, Delhi and Kolkata.

Tata Power

Tata Power set to buy Welspun’s wind, solar assets valued at $1.45 billion

Neutral

Tata Power is looking to acquire Welspun Renewables, which has a 1,152MW renewable portfolio (operational - 685MW; under-construction - 457MW) at an EV of ~US$1.45bn and equity value of Rs37bn (~1.8x invested equity). The deal is likely to conclude in 2-3 weeks.

http://goo.gl/jZL6QZ Our view: We are not sure whether Tata Power would buy Welspun's assets at such a steep valuation given it is expanding cautiously in the renewables space. This can be corroborated from the company’s conservative solar bids where it is not bidding at less than Rs4.79/unit. Also, the valuation looks expensive given Welspun’s operational portfolio is only 685MW.

NEUTRAL Quick Insight Analysis News Note Meeting Note

Research Analysts

Bhargav Buddhadev bhargavbuddhadev@ambitcapital.com Tel: +91 22 3043 3252

Deepesh Agarwal, CFA deepeshagarwal@ambitcapital.com Tel: +91 22 3043 3275

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Sub-Sector / Company Title Implications Description Source

Reliance Power

Reliance Power gets in-principle nod for LNG-based plant in Bangladesh

Neutral

Reliance Power has won an in-principle approval from Bangladesh government for the first phase of the 3GW LNG-based power plant. Under phase I 750MW is likely to be commissioned within 24 months.

http://goo.gl/leZv50

Total investment on the 3GW plant and LNG terminal is US$3bn.

Reliance will use equipment of its stranded Samalkot plant (2.4GW) in Andhra Pradesh.

Our view: We are concerned about the offtake as gas-based power is expensive and peak demand in Bangladesh is only ~10GW compared with peak supply of ~8GW.

JSW Energy JSW Energy to acquire JSPL’s 1,000MW plant Neutral

JSWE has agreed to acquire JSPL’s 1GW Tamnar1 plant for EV of Rs40bn plus value of net current assets (Rs65bn, if JSPL signs PPA and secures fuel linkage).

http://goo.gl/76td76

Our view: We believe the deal will be only marginally value-accretive for JSWE shareholders assuming 100% debt-financing and no PPA/FSA – our equity value estimate for the plant at Rs3.5bn implies only a 4% upgrade to JSWE’s valuation to Rs76/share (vs TP of Rs73).

Key negatives for JSWE: (1) FY18 net debt-equity will deteriorate to 0.7x post from 1.1x; (b) exposure to merchant power (volume terms) will rise to 46% from 33%; and (c) share of un-tied fuel will increase from 53% to 65% (volume terms).

Distribution franchisee

Outstanding dues of SEBs to power generators rise 16% YoY to Rs 220bn

Negative

This is despite about 18 states agreeing to join UDAY and 8 states issuing bonds of about Rs1tn recently.

http://goo.gl/kpyaID

Whilst UP's payable for power trebled, Rajasthan reported 7% YoY increase, and Haryana reported flat payables.

Our view: This raises questions as to where the money raised from the bond issuance has been deployed. We caution investors not to go by the UDAY template, which talks about reducing AT&C losses significantly, as a lot of political will is required to turnaround SEBs.

Coal India Coal India's supply to power utilities dips 6.8% in April

Negative

Coal India has reported 3.4% YoY decline in production volumes and 6.8% YoY decline in dispatches to power plants.

http://goo.gl/XlwrtE

Interaction with management suggests this was led by: (a) weak demand from the power sector in the beginning of the month; (b) liquidation of coal stock of ~2mt by power plants (~5% of April offtake); and (c) some production cuts due to rising heat.

Our view: This is surprising given coal-based power generation grew by 21% YoY in Apr-16 as per CEA report. Our mining analyst will do will further channel checks to understand this disconnect.

Source: Media reports, Ambit Capital research

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Institutional Equities Team Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 saurabhmukherjea@ambitcapital.com

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 nitinbhasin@ambitcapital.com

Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 aadeshmehta@ambitcapital.com

Aakash Adukia Oil & Gas / Chemicals / Agri Inputs (022) 30433273 aakashadukia@ambitcapital.com

Abhishek Ranganathan, CFA Retail / Mid-caps (022) 30433085 abhishekr@ambitcapital.com

Achint Bhagat, CFA Cement / Roads / Home Building (022) 30433178 achintbhagat@ambitcapital.com

Ashvin Shetty, CFA Automobile (022) 30433285 ashvinshetty@ambitcapital.com

Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 bhargavbuddhadev@ambitcapital.com

Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 deepeshagarwal@ambitcapital.com Dhiraj Mistry, CFA Consumer (022) 30433264 dhirajmistry@ambitcapital.com

Gaurav Khandelwal, CFA Automobile (022) 30433132 gauravkhandelwal@ambitcapital.com Girisha Saraf Mid-caps / Small-caps (022) 30433211 girishasaraf@ambitcapital.com

Karan Khanna, CFA Strategy (022) 30433251 karankhanna@ambitcapital.com

Kushank Poddar Technology (022) 30433203 kushankpoddar@ambitcapital.com Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 pankajagarwal@ambitcapital.com

Paresh Dave, CFA Healthcare (022) 30433212 pareshdave@ambitcapital.com

Parita Ashar, CFA Metals & Mining (022) 30433223 paritaashar@ambitcapital.com

Prashant Mittal, CFA Derivatives (022) 30433218 prashantmittal@ambitcapital.com

Rahil Shah Banking / Financial Services (022) 30433217 rahilshah@ambitcapital.com

Rakshit Ranjan, CFA Consumer (022) 30433201 rakshitranjan@ambitcapital.com

Ravi Singh Banking / Financial Services (022) 30433181 ravisingh@ambitcapital.com

Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 riteshgupta@ambitcapital.com

Ritesh Vaidya, CFA Consumer (022) 30433246 riteshvaidya@ambitcapital.com Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 ritikamankar@ambitcapital.com

Ritu Modi Automobile (022) 30433292 ritumodi@ambitcapital.com

Sagar Rastogi Technology (022) 30433291 sagarrastogi@ambitcapital.com

Sumit Shekhar Economy / Strategy (022) 30433229 sumitshekhar@ambitcapital.com

Utsav Mehta, CFA E&C / Industrials (022) 30433209 utsavmehta@ambitcapital.com

Vivekanand Subbaraman, CFA Media (022) 30433261 vivekanands@ambitcapital.com

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 sarojini@panmure.com

Dharmen Shah India / Asia (022) 30433289 dharmenshah@ambitcapital.com

Dipti Mehta India / USA (022) 30433053 diptimehta@ambitcapital.com

Hitakshi Mehra India (022) 30433204 hitakshimehra@ambitcapital.com

Krishnan V India / Asia (022) 30433295 krishnanv@ambitcapital.com

Nityam Shah, CFA USA / Europe (022) 30433259 nityamshah@ambitcapital.com

Parees Purohit, CFA UK / USA (022) 30433169 pareespurohit@ambitcapital.com

Praveena Pattabiraman India / Asia (022) 30433268 praveenapattabiraman@ambitcapital.com

Shaleen Silori India (022) 30433256 shaleensilori@ambitcapital.com

Singapore

Pramod Gubbi, CFA – Director Singapore +65 8606 6476 pramodgubbi@ambitpte.com

Shashank Abhisheik Singapore +65 6536 1935 shashankabhisheik@ambitpte.com

USA / Canada

Ravilochan Pola - CEO Americas +1(646) 361 3107 ravipola@ambitpte.com

Production

Sajid Merchant Production (022) 30433247 sajidmerchant@ambitcapital.com

Sharoz G Hussain Production (022) 30433183 sharozghussain@ambitcapital.com

Jestin George Editor (022) 30433272 jestingeorge@ambitcapital.com

Nikhil Pillai Database (022) 30433265 nikhilpillai@ambitcapital.com

E&C = Engineering & Construction

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Titan Co Ltd (TTAN IN, UNDER REVIEW)

Source: Bloomberg, Ambit Capital research

Hindustan Unilever Ltd (HUVR IN, BUY)

Source: Bloomberg, Ambit Capital research

Century Plyboards India Ltd (CPBI IN, BUY)

Source: Bloomberg, Ambit Capital research

0

100

200

300

400

500

Jan-

13

Mar

-13

May

-13

Jul-

13

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-

14

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-

15

Sep-

15

Nov

-15

Jan-

16

TITAN CO LTD

0

200

400

600

800

1,000

1,200

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

Feb-

14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

Feb-

15

Apr

-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb-

16

HINDUSTAN UNILEVER LTD

0

50

100

150

200

250

300

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

Feb-

14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

Feb-

15

Apr

-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb-

16

CENTURY PLYBOARDS INDIA LTD

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 9 May 2016

Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs Disclaimer This report or any portion hereof may not be reprinted, sold or redistributed without the wri tten consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically, and, in some cases , in

printed form. Additional information on recommended securities is available on request. Disclaimer 1. AMBIT Capital Private Limited (“AMBIT Capital”) and i ts affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio Manager and

Depository Participant regis tered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI 2. AMBIT Capital makes best endeavours to ensure that the research analyst(s ) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes to be reliable.

However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. The information, opinions , views expressed in this Research Report are those of the research analys t as at the date of this Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.

3. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatis fied with the contents of this complimentary Research Report or with the terms of this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital or its affiliates shall not be responsible and/ or liable for any direct/consequential loss howsoever directly or indirectly, from any use of this Research Report.

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another client. AMBIT Capital makes bes t efforts to ensure that conflicts are identi fied and managed and that clients ’ interests are protected. AMBIT Capital has policies and procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT Capital’s services .

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Additional Disclaimer for U.S. Persons 10. The research report is solely a product of AMBIT Capital 11. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report 12. Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (“Enclave”). 13. Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports . 14. The research analys t(s) preparing the email / Research Report/ attachment is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that therefore the analyst(s)

is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satis fy 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 securi ties held by a research analyst account.

15. This report is prepared, approved, published and dis tributed by the Ambit Capital located outside of the United States (a non-US Group Company”). This report is distributed in the U.S.by Enclave Capital LLC, a U.S. regis tered broker dealer, on behalf of Ambit Capital only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securi ties Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. cus tomer in the securi ties described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036).

16. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securi ties. 17. This document does not consti tute an offer of, or an invi tation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any securi ty. The information contained herein has been

obtained from published information and other sources, which Ambit Capital or i ts Affiliates consider to be reliable. None of Ambit Capital accepts any liabili ty or responsibili ty whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The abili ty to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions.

Additional Disclaimer for Canadian Persons 18. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities and/or to provide advice with respect to securi ties. 19. AMBIT Capital's head office or principal place of business is located in India. 20. All or substantially all of AMBIT Capital's assets may be situated outside of Canada. 21. It may be difficult for enforcing legal rights against AMBIT Capital because of the above. 22. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2 Canada. 23. Name and address of AMBIT Capital's agent for service of process in the Province of Montréal is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada. Additional Disclaimer for Singapore Persons 24. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securi ties and Futures Act (CAP 289) and Paragraph

11 of the Firs t Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore. 25. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a Singapore Person is

not or ceases to be such an ins titutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited. Disclosures 26. The analyst (s ) has/have not served as an officer, director or employee of the subject company. 27. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities . 28. All market data included in this report are dated as at the previous s tock market closing day from the date of this report. 29. Ambit and/or its associates have financial interes t/equity shareholding in Jubiliant Foodworks , Coal India, Tata Power, Cholamandalam Inves tment & Finance, Magma Fincorp, Federal Bank , Hindustan Unilever, ITC,

Axis Bank, Bank of Baroda, DCB Bank & TCS. 30. Ambit and/or it associates have actual/beneficial ownership of 1% or more in the securities of DCB Bank. 31. Ambit and/or it associates have received compensation for investment banking/merchant banking/brokering services from DCB Bank. Analyst Certif ication Each of the analys ts identi fied in this report certifies, with respect to the companies or securi ties that the individual analyses, that (1 ) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. © Copyright 2015 AMBIT Capital Private Limited. All rights reserved.

Ambit Capital Pvt. Ltd. Ambit House, 3rd Floor. 449, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100 CIN: U74140MH1997PTC107598 www.ambitcapital.com