Ambit Strategy Good & Clean 4.0 the Great 50

May 03, 2012

Strategy

STRATEGY THEMATIC

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 consider this report as only a single factor in making their investment decision.

Please refer to disclaimer section on the last page for further important disclaimer.

Analyst contacts

Gaurav Mehta Tel: +91 22 3043 3255 [email protected]

Saurabh Mukherjea, CFA Tel: +91 22 3043 3174 [email protected]

Exhibit A: G&C 4.0- The Great 50

Stock Sector Portfolio Weight

(%) Bank of Baroda Banks/ Fin Serv 4.1 Federal Bank Banks/ Fin Serv 4.1 Kotak Mah. Bank Banks/ Fin Serv 4.1 ICICI Bank Banks/ Fin Serv 4.1 Shriram Trans. Banks/ Fin Serv 4.1 GlaxoSmith C H L FMCG 3.7 Nestle India FMCG 3.7 ITC FMCG 3.7 Dabur India FMCG 3.7 Oracle Fin.Serv. IT 3.5 TCS IT 3.5 Tech Mahindra IT 3.5 HCL Technologies IT 3.5 Hero Motocorp Auto 3.4 Eicher Motors Auto 3.4 Tata Motors Auto 3.4 Hind.Zinc Metals 2.3 NMDC Metals 2.3 M R P L Oil & Gas 1.8 Petronet LNG Oil & Gas 1.8 H P C L Oil & Gas 1.8 Cadila Health. Pharma 1.8 Lupin Pharma 1.8 Glaxosmit Pharma Pharma 1.8 Tata Power Co. Utilities 1.7 Neyveli Lignite Utilities 1.7 Idea Cellular Telecom 1.6 Bharti Airtel Telecom 1.6 Voltas Construction 1.3 Engineers India Construction 1.3 Larsen & Toubro Construction 1.3 Bajaj Electrical Industrials 1.3 Bharat Electron Industrials 1.3 Cummins India Capital Goods 1.2 Alstom Projects Capital Goods 1.2 Shree Cement Cement 1.0 ACC Cement 1.0 Titan Inds. Retail 1.0 Exide Inds. Auto Anc 0.9 Apollo Tyres Auto Anc 0.9 Castrol India Chemicals 0.7 Asian Paints Chemicals 0.7 Hathway Cable Media 0.7 IL&FS Transport Infrastructure 0.7 Oberoi Realty Realty 0.4 Prestige Estates Realty 0.4 Mcleod Russel Agro 0.2 Gateway Distr. Logistics 0.2 Coromandel Inter Fertilizers 0.2 TTK Prestige Cons Durable 0.1

Source: Ambit Capital research

Good & Clean 4.0: The Great 50 Investing in cash generative, clean companies is the theme that we have focused on in all our model portfolios. While the Good & Clean (G&C) portfolios have been more tactical and short term in nature, our “greatness” framework has sought to identify long term bets. Now we replace the existing ‘G&C 3.0: Battleships’ portfolio with the ‘Great 50’ portfolio. The new portfolio marries our greatness framework with the more tactical G&C approach. The first three iterations of the G&C portfolios have generated 20% points of outperformance relative to the BSE200 & the BSE500 over the last 14 months.

Neither the Nifty50 nor the BSE100 looks attractive Neither the Nifty50 nor the BSE100 are likely to offer investors compelling upside in the short-medium term as both of these indices are weighed down by large cap stocks which will suffer due to the new realities facing India. For example, Banks and Financial Services, Power, Infra, Construction, Real Estate, Aviation and the heavy engineering component of Capital Goods account for 37% of the BSE100. Most frontline stocks in these sectors will face heavy weather in the year ahead. So how should investors try to make money in the altered realities facing India?

Marrying the tactical with the structural While the G&C has been a tactical portfolio that provides investment ideas for the next quarter or two, the ‘greatness’ framework uses multi-year financial analysis to identify outstanding long term plays. In this note we introduce the Great 50, a portfolio which combines the two approaches.

To date our portfolios have been unconstrained with respect to sectoral weightings. However, clients have urged us to benchmark the sector weights in our portfolios to the BSE200 to make our portfolios directly relevant to the daily reality facing money managers. Hence, with this portfolio, we move towards benchmarking of sector weights. Our three biggest overweight sectors are FMCG, IT and Auto. Our three biggest underweight sectors are Oil & Gas, Banks and Financial Services.

Exhibit B: Great 50 versus the Nifty 50

Portfolio Median mcap

(US $mn) 3M ADV

(US $mn) Median

FY13 P/E Median

FY13 P/B Median

latest RoE Beta

Nifty 8,376 18.1 13.3 2.1 19.4 1.00

Great 50 2,505 3.2 13.8 2.6 22.7 0.86

Source: Bloomberg

Stock selection for “G&C Great 50” Stocks for the Great 50 are chosen using our “greatness” framework. These stocks are also filtered through our forensic accounting and corporate governance filters. Finally, liquidity (3 month ADV > $1mn) and valuation constraints (ideally the stock has to be cheaper than historical multiples on at least one of the following- P/B, P/E, EV/EBITDA) are also applied. Since our ‘greatness’ framework is not applicable on banking and financials services (BFSI) firms, we use our sector leads’ expertise to identify the best stocks from this space. The final portfolio of ‘Great 50’ stocks is presented in Exhibit A and as the table above shows, the Great 50 offers exposure to superior firms whose valuations are in-line with the broader market.

Strategy

Ambit Capital Pvt Ltd 2

CONTENTS

Section 1: G&C: The journey so far…………………………………..3

Section 2: Motivation and Methodology, G&C 4.0- The Great 50…………………………………………………. 4

Section 3: Sector weights……………………………………..……….. 5

Section 4: The ‘greatness’ framework…………………..…...……..6

Section 5: The Great 50- Portfolio…………………….…………….. 8 Appendix 1: Audit of G&C 3.0- ‘Battleships’…………………….14

Strategy


Section 1: G&C- The journey so far Investing in clean Indian companies which generate profits and cash on a sustainable basis has been the theme that most of our strategy research has focused on over the past year. For example, on 16th April we published a thematic (“Profiting from a changing India”) which explained why Investors need to exit the old India story (cash consumptive, capital hungry companies which rely on the Government to get things done) and focus on well managed, cash generative companies which feed off aspirational consumer demand.

The “G&C” portfolios which we have been publishing since March 2011 has been the common thread that has pulled together into a portfolio solution, all our investment themes, namely:

The decline of politically connected companies;

The lack of investor interest in firms with dodgy accounting quality and suspect corporate governance; and

The structurally high cost of capital in India (and hence the adverse forces bearing down upon highly indebted and non-cash generative firms)

To date, we have had three iterations of these portfolios with the latest one being the G&C 3.0- Battleships portfolio published on Oct 19, 2011. These three portfolios have generated a cumulative outperformance, vis a vis BSE500 and BSE200, of over 19.6% points on a free float market cap basis. For details, please refer to Exhibit 1 below.

Exhibit 1: Good & Clean- Performance Highlights for the first two portfolios Performance Highlights

G&C 1.0 G&C 2.0 G&C 3.0 Cumulative

Run Period 17Mar2011-

21Jun2011 22Jun2011- 18Oct2011

19Oct2011- 02May2012

17Mar2011-02May2012

Free Float MCap Wtd Returns (%) 0.9 (1.0) 15.1 15.0

BSE500 Returns (%) (2.9) (6.0) 4.2 (4.7)

BSE200 Returns (%) (3.5) (5.9) 4.5 (4.9)

Portfolio Alpha (Free Float MCap wt versus BSE500) (%) 5.0 3.8 10.9 19.7

Portfolio Alpha (Eq Wtd versus BSE500) (%) 8.9 3.3 5.7 17.9

Portfolio Alpha (Free Float MCap versus BSE200) (%) 4.4 4.9 10.6 19.9


The last iteration of G&C - the 'Battleships' portfolio from 19th Oct - has outperformed the BSE500 by over 10.8% points. Now, in this note we retire the ‘Battleships’ portfolio and introduce “G&C 4.0: the Great 50”. For constituents and performance of the ‘Battleships’ portfolio, please refer to Appendix 1 towards the end of this note.

Before we delve into the Great 50, it is worth dwelling upon briefly why we are introducing this portfolio in the first place (rather than simply letting “G&C 3.0: Battleships” run).

Between the broken Balance Sheets in Power, Infra, Real Estate, Construction, Aviation sectors plus between the large banks which have loaded up on toxic debt and the heavy engineering component of Capital Goods, up to 37% of the BSE100’s market cap (i.e. $145bn of free float market cap) will be under fundamental pressure in FY13. Part of this $145bn will seek a new home. We believe that given the uncertainty in the world around us, this new home will be high quality companies – well managed, cash generative and with competitive advantages other than political connectivity. Through this new G&C portfolio, our forensic accounting model and our “Greatness” model, we will seek to help you find such new homes.

Strategy


Section 2: Motivation & Methodology Since the Battleships note, we have published a series of notes driven by our "greatness" model that seeks to identify structurally strong companies which should serve as great long term investments. Over the last couple of months, we have received client feedback requesting us to use the “greatness” framework to create a more readily actionable portfolio. It is with this objective in mind that we have married the “greatness” model with our G&C methodology to construct the Great 50 portfolio.

Moreover, to date our portfolios have been unconstrained with respect to sectoral weightings. However, clients have repeatedly urged us to benchmark the sector weights in our portfolios to the BSE200 to make our portfolios directly relevant to the daily reality facing money managers. Hence, with this portfolio, we move towards benchmarking of sector weights rather than running an unconstrained portfolio.

Creating the Great 50 portfolios was therefore a two step process:

1. Sector weights- Starting with the BSE200’s weights as the reference, we overweight and underweight sectors to reflect our macro view and sector specific themes if any. This is discussed in more detail in the next section.

2. Stock selection- Stocks for the Great 50 are chosen using our “greatness” framework. These 50 stocks are also filtered through our quantitative forensic accounting model and our qualitative corporate governance filters. Finally, liquidity (3 month ADV has to be more than $1mn with a few exceptions) and valuation constraints (ideally the stock has to be cheaper than historical multiples on at least one of the following- P/B, P/E, EV/EBITDA) are also applied. This is discussed in more detail in section 5.

Strategy


Section 3: Sector weights Starting with the BSE200’s sector weights as the reference, we over/underweight sectors to reflect our macro views. While we generally believe that the economy should witness a cyclical improvement going forward (as evinced in our GDP growth expectation of 7.3% for FY13), we also believe that interest rates will stay high (we cannot see how the RBI can cut repo rates by more than 25 bps this point in if oil prices stay where they are). Therefore whilst cyclical sectors might benefit from a macro tailwind, such support is unlikely to be a major boost for these sectors. With that in mind our major underweight sectors are: Banks & Financial Services, Metals and Oil & Gas. Conversely, based on the Indian consumer’s unflagging appetite for spending money, our biggest overweights are Auto and FMCG. The other big overweight, IT, is a play on the US recovery.

Exhibit 2: Sector weights- Ambit vs benchmark

Sector Mkt

(BSE200) weight

Relative weighting

Ambit weight

Delta btwn Ambit

and Mkt

Ambit's sectoral stance

Rationale for over/underweight

Agro 0.2 100% 0.2 - Equal weight

Auto 6.9 150% 10.3 3.4 Overweight Cyclical sector

Auto Anc 1.2 150% 1.8 0.6 Overweight Cyclical sector

Banks 18.3 85% 15.6 (2.7) Underweight Cyclical sector BUT faces serious asset quality and liquidity headwinds

Cap Goods 2.1 110% 2.3 0.2 Overweight Cyclical sector with a healthy component (light industrials) and an unheatlhy one (heavy engineering)

Cement 1.8 110% 2.0 0.2 Overweight Cyclical sector but valuations are at historical highs for the leading names

Chemicals 1.5 100% 1.5 - Equal weight

Construction 3.4 120% 4.0 0.7 Overweight Cyclical sector

Cons Durable 0.1 150% 0.1 0.0 Overweight Aspirational consumption is an evergreen theme in India

Diversified Finan Serv

7.6 65% 4.9 (2.7) Underweight Cyclical sector BUT it faces major regulatory change (which will pull down returns)

Fertilizers 0.2 100% 0.2 - Equal weight Heavily influenced by regulations on prices & subsidies; worth being cautious in the current climate

FMCG 10.7 140% 14.9 4.3 Overweight Aspirational consumption is an evergreen theme in India

Industrials 2.3 110% 2.6 0.2 Overweight Cyclical sector; however, Heavy Industrials will be held back by policy paralysis

Infrastructure 0.7 100% 0.7 - Equal weight Cyclical sector BUT will be held back by policy paralysis

IT 10.1 140% 14.1 4.0 Overweight The weak INR and the recovery in the US should help the sector

Logistics 0.2 110% 0.2 0.0 Overweight Cyclical sector

Media 0.5 140% 0.7 0.2 Overweight Cyclical sector

Metals 6.5 70% 4.5 (1.9) Underweight Cyclical sector BUT prone to regular and adverse Govt and regulatory intervention

Miscellaneous 1.0 0% - (1.0) Underweight No logical rationale for investing in these companies

Oil & Gas 11.0 50% 5.5 (5.5) Underweight The extent of Govt intervention in this sector makes it unattractive

Pharma 5.4 100% 5.4 - Equal weight Robust pipeline and strong domestic demand are structural postives but valuations rich at current levels

Realty 0.6 140% 0.9 0.3 Overweight Cyclical sector

Retail 0.9 110% 1.0 0.1 Overweight Cyclical sector

Shipping 0.2 0% - (0.2) Underweight Global trade continues to remain weak with no obvious global economic recovery in sight

Telecom 2.5 130% 3.3 0.8 Overweight The cancelling of 122 licenses and the pro-M&A regulatory stance should held the leading listed players

Textiles 0.0 0% - (0.0) Underweight Indian companies' competitive position slipping due to competition from other South Asian countries

Utilities 4.2 80% 3.4 (0.8) Underweight Structural problems across the supply chain compounded by policy paralysis

Total 100.0 100.0

Source: Ambit Capital research, Bloomberg

Strategy


Section 4: The ‘greatness’ framework In our 19th January note “Tomorrow’s ten baggers”, we had unveiled the “greatness” framework to study a firm’s structural strengths, based on which we had identified a set of 25 firms that exhibited the ingredients to be potential 10 baggers over the next 10 years. A basic sketch of the underlying process behind the making of a great firm is recaptured in Exhibit 1 below.

Exhibit 3: The “greatness” framework


We rank the BSE500 universe of firms (excluding Financial Services firms and excluding firms with insufficient data) on our “greatness” score which is comprised of six equally weighted headings: Investments, Conversion to sales, Pricing discipline, Balance Sheet discipline, Cash generation & EPS improvement and Return ratio improvement. Under each of these six headings, we further look at two kinds of improvements:

Percentage improvements in performance in FY09-11 versus FY06-08; and

Consistency in performance i.e. improvements adjusted for standard deviations.

A complete list of factors that go into quantifying greatness can be found in Exhibit 4 on the next page.

Sectoral leaders and Laggards

“Tomorrow’s ten baggers” note was followed by our 19th March note, “Indian Leaders and Laggards”, where we had used this framework to identify the best and the worst stocks from each sector.

Amongst the motivations for that note, an important one was to help active money managers by moving one step closer towards practical portfolio construction. With many investors being required to comply with benchmarks in terms of sectoral representations, the sectoral approach taken in the note highlighted strong companies from each sector. This was aimed at helping investors benefit from the rigour of the greatness model while also respecting sectoral weightages.

b. Conversion of investment to sales (asset turnover, sales)

c. Pricing discipline (PBIT margin)

d. Balance sheet discipline (D/E, current ratio)

a. Investment (gross block)

e. Cash generation (CFO)

The “greatness” framework The framework essentially hinges on using publicly available historical data to assess which firms have over a sustained period of time (FY06-11) been able to relentlessly and consistently: (a) Invest capital; (b) Turn investment into

sales; (c) Turn sales into profit: (d) Turn profit into Balance

Sheet strength; (e) Turn all of that into

free cashflow; and (f) Invest free cashflows

again. Clearly, this approach will have limited value if there is a structural break in the sector or in the company which makes past performance a meaningless guide to future performance. (For identifying structural breaks of this sort (eg. in the Indian boiler-turbine-generator sector or in the Indian utilities sector) we look to our sector leads for help.) However, to the extent that such structural breaks tend to be the exception than the rule, the greatness model helps in creating a shortlist of stocks which investors can then analyse in greater detail. Put simply, the greatness model separates the wheat from the chaff. As yet, it does not cook the whole meal for you!

Strategy


Exhibit 4: Factors used for quantifying greatness

Heading Criteria

1 Investments a. Above median gross block increase (FY09-11 over FY06-08)*

b. Above median gross block increase to standard deviation

2 Conversion to sales a. Improvement in asset turnover (FY09-11 over FY06-08)*

b. Above median asset turnover increase to standard deviation

c. Above median sales increase (FY09-11 over FY06-08)*

d. Above median sales increase to standard deviation

3 Pricing discipline a. Above median PBIT margin increase (FY09-11 over FY06-08)*

b. Above median PBIT margin increase to standard deviation

4 Balance sheet discipline a. Below median DE decline (FY09-11 over FY06-08)*

b. Below median DE decline to standard deviation

c. Above median current ratio increase (FY09-11 over FY06-08)*

d. Above median current ratio increase to standard deviation

5 Cash generation and EPS improvement a. Above median CFO increase (FY09-11 over FY06-08)*

b. Above median CFO increase to standard deviation

c. Above median EPS increase (FY09-11 over FY06-08)*

d. Above median EPS increase to standard deviation

6 Return ratio improvement a. Improvement in RoE (FY09-11 over FY06-08)*

b. Above median RoE increase to standard deviation

c. Improvement in RoCE (FY09-11 over FY06-08)*

d. Above median RoCE increase to standard deviation

Source: Ambit Capital research. * Rather than comparing one annual end point to another annual end point (say, FY06 to FY11), we prefer to average the data out over FY06-FY08 and compare that to the averaged data from FY09-11. This gives a more consistent picture of performance (as opposed to simply comparing FY06 to FY11).

The final steps

Having identified the sectoral weights for our portfolio in the previous section, we use the ‘greatness’ framework to identify the best stocks from each sector. The final steps for arriving at the ‘Great 50’ portfolio are discussed in the next section.

Strategy


Section 5: Great 50 - The portfolio Starting with sector weights from Section 3, we move towards the eventual portfolio construction by using our ‘greatness’ framework to identify the best stocks from each sector. We also run these stocks through our ‘forensic accounting’ model while checking them for corporate governance irregularities as well.

Since the ‘greatness’ model is not applicable to the Banking and Financials Services (BFSI) firms, we use our sector leads’ expertise to identify the best stocks from this space.

Finally, we subject these stocks to liquidity and valuation constraints. While a 3month ADV of at least US$1mn is what we look for in general, we relax the constraint somewhat in a few cases (like the Real Estate sector, for example) where other liquid alternatives are not available or are not worthy of a place in the portfolio (due to deficient accounting or due to weak financials).

Moving on to valuations, recognising that good quality stocks are unlikely to be cheap, we keep the valuation constraint relatively undemanding i.e. we look for stocks that trade below their five year historical averages on at least one of the following three multiples- P/E, P/B, EV/EBITDA.

Strategy


Exhibit 5: The Great 50 portfolio

Sr. No. Ticker Company Sector

Mcap (US$ mn)

3M ADV (US$ mn)

Stock weight

(portfolio)

Stock weight (sector)

3 yr price

CAGR

RoE Chg*

PBIT Margin

Chg*

Asset Turn. Chg*

D/E Chg*

EPS Chg*

Latest D/E

FY13 P/E

FY13 P/B

1 BOB IN Bank of Baroda Banks/ Diversified Finan Serv 5,606 9.2 4.1 20% 32% 7.6 NA NA NA 170% NA 5.0 1.0

2 FB IN Federal Bank Banks/ Diversified Finan Serv 1,358 3.0 4.1 20% 30% (8.3) NA NA NA 26% NA 8.5 1.2

3 KMB IN Kotak Mah. Banks/ Diversified Finan Serv 8,204 13.0 4.1 20% 40% (5.8) NA NA NA 69% NA 20.1 3.0

4 ICICIBC IN ICICI Bank Banks/ Diversified Finan Serv 19,132 92.8 4.1 20% 19% (4.9) NA NA NA 45% NA 13.3 1.5

5 SHTF IN Shriram Trans Banks/ Diversified Finan Serv 2,437 4.2 4.1 20% 35% 1.7 NA NA NA 225% NA 8.0 1.7

6 SKB IN Glaxo Cons FMCG 2,188 1.2 3.7 25% 49% 4.4 1.4 1.3 (0.6) 75% (1.0) 23.9 7.2

7 NEST IN Nestle India FMCG 8,416 2.9 3.7 25% 38% 26.2 0.5 0.5 (0.2) 94% (0.3) 32.0 19.5

8 ITC IN ITC FMCG 36,110 36.2 3.7 25% 35% 1.6 1.9 (0.3) (0.0) 43% (0.1) 26.6 9.4

9 DABUR IN Dabur India FMCG 3,615 2.6 3.7 25% 28% (2.2) 2.0 0.1 0.1 75% 0.6 24.9 9.0

10 OFSS IN Oracle Fin IT 4,111 6.6 3.5 25% 42% 3.8 13.9 (0.7) (0.1) 151% (0.5) 18.8 2.8

11 TCS IN TCS IT 46,833 38.6 3.5 25% 57% (14.7) 0.2 (1.8) (0.2) 70% (0.3) 19.4 6.2

12 TECHM IN Tech Mah IT 1,666 3.7 3.5 25% 27% (16.6) 2.8 (0.0) 0.4 249% 0.5 10.0 1.8

13 HCLT IN HCL Tech IT 6,781 9.9 3.5 25% 50% (2.0) (3.0) (1.1) 0.3 39% 0.1 13.5 3.0

14 HMCL IN Hero Moto Auto 8,464 17.7 3.4 33% 25% 10.0 1.7 (1.3) (0.1) 78% 0.5 16.5 10.1

15 EIM IN Eicher Motors Auto 1,155 1.1 3.4 33% 125% (1.3) 2.4 0.7 (1.4) 48% (0.9) 14.2 2.8

16 TTMT IN Tata Motors Auto 17,039 71.7 3.4 33% 81% (1.2) (4.9) (1.6) 2.6 28% 1.1 7.6 2.5

17 HZ IN Hind.Zinc Metals 10,121 2.5 2.3 50% 34% (36.4) (6.5) (1.0) (0.2) 13% (0.2) 8.7 1.4

18 NMDC IN NMDC Mining 13,206 2.3 2.3 50% -4% (13.1) 4.0 1.2 (0.1) 93% (0.9) 9.3 2.3

19 MRPL IN M R P L Oil & Gas 2,035 0.8 1.8 33% 7% (2.3) 0.6 0.9 (0.9) 62% (0.1) 8.9 1.4

20 PLNG IN Petronet LNG Oil & Gas 1,908 7.1 1.8 33% 37% (2.1) (2.5) 1.2 0.1 56% 1.1 9.3 2.0

21 HPCL IN H P C L Oil & Gas 1,906 5.5 1.8 33% 3% (1.9) 0.7 (0.6) 0.9 12% 2.3 8.0 0.7

22 CDH IN Cadila Health. Pharma 2,803 1.6 1.8 33% 51% 6.3 3.1 0.1 0.0 123% 0.4 18.0 4.5

23 LPC IN Lupin Pharma 4,615 6.8 1.8 33% 55% 3.8 2.0 (0.2) (0.2) 112% 0.2 20.3 5.0

24 GLXO IN Glaxo Pharma Pharma 3,475 1.3 1.8 33% 23% (0.3) 6.2 0.3 (0.8) 1% (1.0) 24.0 7.2

25 TPWR IN Tata Power Utilities 4,618 10.7 1.7 50% 4% 3.5 3.6 0.0 0.7 95% 1.6 12.4 1.5

26 NLC IN Neyveli Lig. Utilities 2,618 0.7 1.7 50% -4% 3.7 1.7 0.1 0.2 43% 0.1 9.5 1.1

27 IDEA IN Idea Cellular Telecom 5,029 9.0 1.6 50% 9% (7.7) (7.0) 0.0 (1.9) 24% 0.9 19.6 1.8

28 BHARTI IN Bharti Airtel Telecom 22,799 40.6 1.6 50% -6% (14.6) (1.5) (0.1) 0.1 81% 1.2 14.8 2.0

29 VOLT IN Voltas Construction 693 9.9 1.3 33% 19% (2.1) 3.1 1.9 (0.1) 106% (0.3) 12.8 2.2

30 ENGR IN Engineers Ind Construction 1,587 1.6 1.3 33% 36% 17.8 (3.2) 6.8 (0.5) 152% (1.2) 12.7 3.7

31 LT IN L & T Construction 14,042 62.9 1.3 33% 8% (6.2) 2.6 (0.8) 0.5 129% 1.3 14.1 2.4

32 BJE IN Bajaj Elect. Industrials 368 0.5 1.3 50% 64% (11.2) 1.4 4.9 (1.5) 126% 0.1 10.9 2.4

33 BHE IN B E L Industrials 2,207 2.0 1.3 50% 15% (11.0) (4.8) 0.1 (0.1) 9% (1.3) 12.5 1.8

34 KKC IN Cummins Ind. Capital Goods 2,573 2.6 1.2 50% 49% 6.7 3.4 0.8 (0.0) 89% (0.0) 20.8 5.8

35 ABBAP IN Alstom Proj. Capital Goods 481 2.3 1.2 50% 4% 10.2 3.4 (0.1) (0.1) 108% (1.3) 18.5 3.6

36 SRCM IN Shree Cement Cement 1,845 0.8 1.0 50% 52% 6.8 8.1 0.3 (0.2) 224% 0.8 18.2 3.9

37 ACC IN ACC Cement 4,300 12.0 1.0 50% 23% (9.1) 0.6 0.0 (0.2) 9% (0.1) 15.3 2.7

38 TTAN IN Titan Inds. Retail 4,081 16.0 1.0 100% 83% (0.6) 0.1 3.6 (1.0) 156% (1.0) 28.9 11.3

39 EXID IN Exide Inds. Auto Anc 2,014 3.3 0.9 50% 34% 4.4 5.1 0.7 (0.4) 306% 0.0 15.4 3.5

40 APTY IN Apollo Tyres Auto Anc 836 5.1 0.9 50% 55% 5.1 1.4 (0.6) 0.1 138% 1.0 8.1 1.4

41 CSTRL IN Castrol India Chemicals 2,358 0.9 0.7 50% 44% 33.7 7.2 2.3 (0.6) 115% (1.1) 20.6 14.8

42 APNT IN Asian Paints Chemicals 6,426 6.1 0.7 50% 59% 7.6 3.1 0.8 (0.2) 133% 0.0 29.0 10.0

43 HATH IN Hathway Cable Media 500 2.4 0.7 100% -11% - 13.6 (0.1) 0.2 0% 0.3 226.6 2.7

44 ILFT IN IL&FS Trans. Infrastructure 675 0.5 0.7 100% -17% 8.6 (22.1) (6.8) 0.8 320% 2.2 6.8 1.1

45 OBER IN Oberoi Realty Realty 1,651 0.6 0.4 50% 1% (0.9) 16.1 (5.0) (0.7) -39% (0.4) 12.4 2.0

46 PEPL IN Prestige Est. Realty 684 0.7 0.4 50% -28% (9.2) 15.0 (0.5) (0.8) -32% 0.5 12.8 1.4

47 MCLR IN Mcleod Russel Agro 567 2.4 0.2 100% 52% 21.1 14.6 0.2 (0.5) 224% 0.3 9.0 1.5

48 GDPL IN Gateway Dist. Logistics 311 0.9 0.2 100% 30% (2.1) (29.0) 0.0 0.5 19% (0.1) 11.1 1.6

49 CRIN IN Coromandel Fertilizers 1,399 1.0 0.2 100% 60% 17.9 2.9 3.0 (0.2) 283% 0.4 9.8 2.6

50 TTKPT IN TTK Prestige Consumer Durable 768 10.7 0.1 100% 224% 20.9 4.9 2.3 (1.1) 306% (0.3) 26.4 9.9

Source: Bloomberg, Ambit Capital research. * “Chg” indicates change in FY09-FY11average over FY06-08 average

Strategy


Exhibit 6: Great 50- Valuation perspective

Current valuation Cheap wrt history? (1 for Yes) Sr. No. Ticker Company

FY12 P/E FY12 P/B FY12 EV/

Ebitda P/E P/B EV/Ebitda

Overall cheap on how many counts?

1 SHTF IN Shriram Trans. 9.2 2.1 DNA 1 1 1 3

2 HCLT IN HCL Technologies 16.0 3.5 10.0 1 1 1 3

3 NEST IN Nestle India 38.9 25.4 23.0 1 1 1 3

4 TTMT IN Tata Motors 8.9 3.5 5.5 1 1 1 3

5 MRPL IN M R P L 20.9 1.6 9.0 1 1 1 3

6 PLNG IN Petronet LNG 9.3 2.4 6.6 1 1 1 3

7 HPCL IN H P C L 11.3 0.7 11.4 1 1 1 3

8 NMDC IN NMDC 9.6 2.8 5.5 1 1 1 3

9 ENGR IN Engineers India 13.1 4.5 8.7 1 1 1 3

10 LT IN Larsen & Toubro 15.7 2.8 11.1 1 1 1 3

11 TPWR IN Tata Power Co. 13.9 1.7 8.7 1 1 1 3

12 NLC IN Neyveli Lignite 11.3 1.2 9.7 1 1 1 3

13 BHE IN Bharat Electron 14.8 2.1 6.3 1 1 1 3

14 ABBAP IN Alstom Projects 28.8 4.1 11.1 1 1 1 3

15 SRCM IN Shree Cement 39.2 4.6 8.9 1 1 1 3

16 CSTRL IN Castrol India 23.2 16.8 15.4 1 1 1 3

17 ILFT IN IL&FS Transport 7.7 1.3 7.5 1 1 1 3

18 GDPL IN Gateway Distr. 12.5 1.8 7.9 1 1 1 3

19 TTKPT IN TTK Prestige 34.9 14.3 23.5 1 1 1 3

20 BOB IN Bank of Baroda 6.1 1.2 DNA 1 1 NA 2

21 FB IN Federal Bank 9.9 1.3 DNA 1 1 NA 2

22 KMB IN Kotak Mah. Bank 24.3 3.4 DNA 1 1 NA 2

23 OFSS IN Oracle Fin.Serv. 20.6 3.4 16.1 1 1 0 2

24 TECHM IN Tech Mahindra 10.6 2.1 10.9 1 1 0 2

25 ICICIBC IN ICICI Bank 14.8 1.7 DNA 1 1 NA 2

26 HZ IN Hind.Zinc 9.3 1.7 7.0 1 1 0 2

27 IDEA IN Idea Cellular 36.7 2.0 7.4 0 1 1 2

28 BHARTI IN Bharti Airtel 24.5 2.3 8.0 0 1 1 2

29 BJE IN Bajaj Electrical 14.8 2.8 8.6 1 1 0 2

30 EXID IN Exide Inds. 22.8 4.0 13.9 1 1 0 2

31 TTAN IN Titan Inds. 36.4 15.1 25.8 1 1 0 2

32 PEPL IN Prestige Estates 21.5 1.6 13.2 0 1 1 2

33 MCLR IN Mcleod Russel 10.6 1.7 8.0 1 0 1 2

34 TCS IN TCS 23.3 7.9 16.9 0 1 0 1

35 SKB IN GlaxoSmith C H L 27.9 8.6 19.7 1 0 0 1

36 HMCL IN Hero Motocorp 18.9 12.4 13.7 1 0 0 1

37 EIM IN Eicher Motors 17.1 3.4 7.8 1 0 0 1

38 CDH IN Cadila Health. 21.7 5.6 15.6 0 1 0 1

39 LPC IN Lupin 25.2 6.2 18.0 1 0 0 1

40 GLXO IN Glaxosmit Pharma 26.8 8.1 18.1 0 1 0 1

41 VOLT IN Voltas 23.3 2.5 14.3 0 1 0 1

42 KKC IN Cummins India 24.3 6.6 19.4 0 1 0 1

43 ACC IN ACC 18.1 3.1 10.4 0 1 0 1

44 APTY IN Apollo Tyres 11.3 1.6 3.8 0 0 1 1

45 APNT IN Asian Paints 35.1 12.2 22.6 0 1 0 1

46 DABUR IN Dabur India 29.7 11.3 22.6 0 1 0 1

47 OBER IN Oberoi Realty 18.7 2.3 14.5 0 1 0 1

48 HATH IN Hathway Cable DNA 2.7 16.0 NA 1 0 1

49 CRIN IN Coromandel Inter 10.7 3.1 9.0 0 1 0 1

50 ITC IN ITC 31.6 10.4 20.8 0 0 0 0


Strategy


Exhibit 7: The Great 50- Forward looking data

Sr. No. Ticker Company Mcap

(US$ mn) 3-month ADV

(US$ mn) Next 2 years’ estimated

EPS CAGR (%) Next 2 years’ estimated

BVPS CAGR (%) 1 BOB IN Bank of Baroda 5,606 9.2 8 16

2 FB IN Federal Bank 1,358 3.0 21 10

3 KMB IN Kotak Mah. Bank 8,204 13.0 16 15

4 ICICIBC IN ICICI Bank 19,132 92.8 17 7

5 SHTF IN Shriram Trans. 2,437 4.2 11 21

6 SKB IN GlaxoSmith C H L 2,188 1.2 28 30

7 NEST IN Nestle India 8,416 2.9 32 64

8 ITC IN ITC 36,110 36.2 19 15

9 DABUR IN Dabur India 3,615 2.6 19 22

10 OFSS IN Oracle Fin.Serv. 4,111 6.6 2 19

11 TCS IN TCS 46,833 38.6 16 23

12 TECHM IN Tech Mahindra 1,666 3.7 16 22

13 HCLT IN HCL Technologies 6,781 9.9 26 26

14 HMCL IN Hero Motocorp 8,464 17.7 19 23

15 EIM IN Eicher Motors 1,155 1.1 38 21

16 TTMT IN Tata Motors 17,039 71.7 14 43

17 HZ IN Hind.Zinc 10,121 2.5 11 18

18 NMDC IN NMDC 13,206 2.3 8 28

19 MRPL IN M R P L 2,035 0.8 2 11

20 PLNG IN Petronet LNG 1,908 7.1 4 21

21 HPCL IN H P C L 1,906 5.5 (8) 5

22 CDH IN Cadila Health. 2,803 1.6 8 24

23 LPC IN Lupin 4,615 6.8 18 23

24 GLXO IN Glaxosmit Pharma 3,475 1.3 17 15

25 TPWR IN Tata Power Co. 4,618 10.7 (2) 10

26 NLC IN Neyveli Lignite 2,618 0.7 3 6

27 IDEA IN Idea Cellular 5,029 9.0 67 12

28 BHARTI IN Bharti Airtel 22,799 40.6 55 DNA

29 VOLT IN Voltas 693 9.9 (10) 12

30 ENGR IN Engineers India 1,587 1.6 12 24

31 LT IN Larsen & Toubro 14,042 62.9 9 14

32 BJE IN Bajaj Electrical 368 0.5 11 16

33 BHE IN Bharat Electron 2,207 2.0 14 DNA

34 KKC IN Cummins India 2,573 2.6 5 14

35 ABBAP IN Alstom Projects 481 2.3 DNA DNA

36 SRCM IN Shree Cement 1,845 0.8 51 14

37 ACC IN ACC 4,300 12.0 11 11

38 TTAN IN Titan Inds. 4,081 16.0 23 31

39 EXID IN Exide Inds. 2,014 3.3 29 18

40 APTY IN Apollo Tyres 836 5.1 12 17

41 CSTRL IN Castrol India 2,358 0.9 11 18

42 APNT IN Asian Paints 6,426 6.1 17 24

43 HATH IN Hathway Cable 500 2.4 DNA 5

44 ILFT IN IL&FS Transport 675 0.5 11 18

45 OBER IN Oberoi Realty 1,651 0.6 48 19

46 PEPL IN Prestige Estates 684 0.7 21 9

47 MCLR IN Mcleod Russel 567 2.4 17 15

48 GDPL IN Gateway Distr. 311 0.9 24 21

49 CRIN IN Coromandel Inter 1,399 1.0 15 18

50 TTKPT IN TTK Prestige 768 10.7 35 46


Strategy


Exhibit 8: The Great 50- Business activity description

Sr. No. Ticker Company Business activity description

1 BOB IN Bank of Baroda Bank of Baroda owns and operates commercial banks in India. The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.

2 FB IN Federal Bank Federal Bank Limited operates branches and regional offices throughout India. The Bank offers a wide range of financial services, including merchant banking, international banking and foreign exchange, leasing facilities, money markets and agricultural advances.

3 KMB IN Kotak Kotak Mahindra Bank Limited is a full service commercial bank. The Bank offers a wide range of products and services including personal, commercial, and corporate banking services, including deposit accounts, loans, and investments.

4 ICICIBC IN ICICI Bank ICICI Bank Limited operates a network of bank's located throughout India. The Group specializes in retail and corporate banking, in addition to Forex and treasury operations. ICICI Bank also provides a wide variety of investment banking, insurance and financial services to its clients.

5 SHTF IN Shriram Transport Shriram Transport Finance Co. Ltd. provides hire purchase finance for trucks.

6 SKB IN GlaxoSmith C H L Glaxo SmithKline Consumer Healthcare Limited manufactures and sells malted milk food products. The Group's products, which include energy & protein products, cereals, baby foods, ghee & butter, are sold under the "Horlicks", "Boost", "Viva", "Brylcream", "Eno", "Maltova" and "Gopika" brand names.

7 NEST IN Nestle India

Nestle India Ltd. manufactures brand name milk products and other food products. The Company's products include Everyday dairy whitener, milk powder and ghee, Milkmaid sweetened condensed milk and Cerelac weaning foods. Nestle's beverages include Nescafe and Sunrise coffee and Nesfit enriched glucose powder. Nestle also manufactures Maggi noodles, soups and sauces.

8 ITC IN ITC ITC Limited, a member of BAT Group of UK, is a holding company, which has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products.

9 DABUR IN Dabur India Dabur India Ltd. manufactures soaps, detergents, hair oils, tooth powders, antacids and processed foods. The Company sells its products worldwide.

10 OFSS IN Oracle Fin.Serv.

Oracle Financial Services Software Ltd. provides comprehensive information technology solutions to the financial services industry worldwide. The Company provides transaction processing and accounting software for banks, investment managers and mutual funds. Oracle Financial also provides internet delivery of financial services as well as business intelligence and analytical applications.

11 TCS IN TCS Tata Consultancy Services, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The Company, caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical, and utility industries.

12 TECHM IN Tech Mahindra Tech Mahindra Ltd. develops and markets computer software. The Company markets software for telecommunications equipment manufacturers, telecom service providers, software vendors, and systems integrators.

13 HCLT IN HCL Technologies

HCL Technologies Limited provides software development and related engineering services. The Group's technologies utilize a variety of technologies, including Internet and e-commerce, networking, internet telephony, embedded software, ASIC/VLSI design and testing, satellite and wireless communications, and component based object technologies, including COM, DCOM and COBRA.

14 HMCL IN Hero Motocorp Hero Motocorp Ltd. designs, manufactures and distributes motorcycles. The Company's products also include motorcycle parts and accessories.

15 EIM IN Eicher Motors Eicher Motors Ltd. manufactures light commercial vehicles which are sold domestically and are also exported to other countries. Eicher Motors also manufactures tractors, two-wheelers and automotive gears.

16 TTMT IN Tata Motors Tata Motors Limited manufactures cars and commercial automotive vehicles in India. The Company designs, manufactures and sells heavy commercial, medium commercial and small commercial vehicles including trucks, tankers, vans, buses, ambulances and minibuses. Tata also manufactures small cars and sports utility vehicles.

17 HZ IN Hind.Zinc Hindustan Zinc Limited specializes in the exploration, mining and smelting of zinc, lead and other non-ferrous metals. The Company's products include zinc ore, lead zinc concentrate, zinc metal, lead metal, cadmium metal, silver metal and sulfuric acid.

18 NMDC IN NMDC NMDC Limited explores for minerals. The Company is exploring for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands.

19 MRPL IN M R P L Mangalore Refinery and Petrochemicals Limited refines oil and produces petroleum and petrochemicals. The Company is a subsidiary of ONGC. Mangalore Refinery operates a refinery in Mangalore city that produces premium diesel and unleaded petrol of high octane.

20 PLNG IN Petronet LNG Petronet LNG Ltd. was formed by the Government of India to import liquefied natural gas (LNG) into the country. The Company is a joint venture between GAIL, ONGC, IOC and BPCL. Petronet LNG has also selected GAZ de France as a strategic partner. The Company has set up LNG receiving ports in Dahej (Gujarat) and Kochi (Kerala).

21 HPCL IN H P C L

Hindustan Petroleum Corporation Limited refines crude oil and manufactures petroleum and petroleum products. The Company's products, which are sold via outlets throughout India, include lube products, lubricating oil, aviation fuel, hydraulic brake fluid, greases, liquefied petroleum gas and insecticides. The Government of India is the majority shareholder in the company.

22 CDH IN Cadila Health. Cadila Healthcare Ltd. manufactures, and markets healthcare solutions ranging from formulations, active pharmaceutical ingredients, vaccines, diagnostics, health and dietetic foods, animal healthcare to cosmeceuticals. The Company's products are available in tablets, capsules, injections, liquids, dry syrups, powders, granules, and ointments.

23 LPC IN Lupin

Lupin Limited manufactures bulk actives and formulations. The principal bulk actives manufactured by it include Rifampicin, Pyrazinamide, Ethambutol (anti-TB), Cephalosporins (anti-infectives) and cardiovasculars. The company also possesses competencies in phytomedicines, in which medicines are made out of plant and herbal resources supported by the discipline of modern medicine.

24 GLXO IN Glaxosmit Pharma

Glaxosmithkline Pharmaceuticals Ltd. manufactures and distributes a wide variety of pharmaceutical drugs, veterinary products and laboratory chemicals. The Company's products include "Phexin" capsules, "Betnesol" tablets and injections, "Becoride" asthma treatment, "Betnovate" ointment, "Cetzine" antihistamine, "Zucox" and "Rizap" anti-tuberculosis products.

25 TPWR IN Tata Power Co.

Tata Power Company Limited generates and supplies electricity in Mumbai and its suburbs. The Company also constructs and operates independent power plants as well as captive power plants for industrial concerns. Tata Power also provides various services related to electricity distribution, erects and commissions transmission lines, and is diversifying into the telecommunications market.

26 NLC IN Neyveli Lignite

Neyveli Lignite Corporation Limited generates and distributes power, mines and processes lignite, manufactures fertilizers & chemicals and processes and sells clay of all kinds. The Company's other activities include the briquetting and carbonization of lignite and its main products include electric power, lignite, nekolin, pulverized nekolin, urea, coke fines and leco.

Strategy


Sr. No. Ticker Company Business activity description

27 IDEA IN Idea Cellular Idea Cellular Limited offers cellular services, SMS services, and mobile communication devices.

28 BHARTI IN Bharti Airtel Bharti Airtel Limited, a part of Bharti Enterprises, provides telecommunications services throughout India. The Company provides GSM Mobile Services, broadband, fixed line telephone services, long distance services (international & national) and enterprise services.

29 VOLT IN Voltas Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, machine tools, mining and construction equipment, materials handling, water management, building management systems, indoor air quality and chemicals.

30 ENGR IN Engineers India Engineers India Limited is a design and engineering company in the field of petroleum refineries, petrochemicals, oil and gas processing, offshore structures and platforms, fertilizers, metallurgy and power. EIL provides services such as design, engineering, procurement, construction management, commissioning assistance and project management.

31 LT IN Larsen & Toubro

Larsen & Toubro Ltd manufactures engineering equipment, undertakes large scale engineering projects, and acts as the Indian representative for a number of overseas manufacturers of heavy machinery. The Company's products include bulldozers, road rollers, dairy machinery, chemical and pharmaceutical plants, switchgears, food processing machinery and feed milling plants.

32 BJE IN Bajaj Electrical Bajaj Electricals Limited manufactures electric fans and general lighting items, such as lamps, special lamps, fluorescent tubes, and lighting fixtures. The Company also manufactures consumer durables like small electrical appliances.

33 BHE IN Bharat Electron

Bharat Electronics Ltd. manufactures electronic communication equipment, night vision equipment such as image converter tubes, night vision binoculars, and goggles, periscopes, gunsights and tank electronics. The Company's electronic communication products include HF/VHF transmitters, receivers, microwave radio relays, radars and other electronic components required by defense services.

34 KKC IN Cummins India

Cummins India Limited manufactures internal combustion engines, including diesel, reciprocating piston, gas turbine and gasoline engines. The Company also manufactures generating sets and public transport-type passenger motor vehicles, including luxury coaches and air-field buses. In addition, Cummins India Ltd. operates a computerized and fully-equipped research and development facility.

35 ABBAP IN Alstom Projects

Alstom Projects India Limited supplies power generation services and equipment. The Company provides energy generation through hydro power, gas turbine-based combined power plants, and steam power plants. The Company also designs, manufactures, and supplies large scale transportation systems, electricity transmission systems, and energy management systems.

36 SRCM IN Shree Cement Shree Cement Ltd. manufactures cement and cement products. The Company sells its products primarily in Northern India under its own brand names.

37 ACC IN ACC ACC Limited manufactures a range of cements and blended cements. The Company also manufactures gypsum and refractory products such as Brown Tabular Alumina. The Company provides turnkey and application consulting services for setting up and operating cement plants and refractories. The Company owns cement plants throughout India.

38 TTAN IN Titan Inds. Titan Industries Ltd. manufactures and retails jewelry and watches. The Company produces quartz analog electronic watches, watch movements, step motors and watch cases.

39 EXID IN Exide Inds. Exide Industries Ltd. manufactures a wide range of lead and electric storage batteries. The Company's batteries find application in automobiles, railways, aircrafts, power stations, telephone exchanges, and other uses.

40 APTY IN Apollo Tyres Apollo Tyres Limited manufactures tires and tubes for cars, trucks, farm equipment and light commercial vehicles. The Company also manufactures automobile flaps and retreading materials.

41 CSTRL IN Castrol India Castrol (India) Limited manufactures and markets automotive and industrial lubricants and specialty products. The Company's products include lubricating oils, greases and brake fluids. The Company also manufactures cable filling compounds, jellies, waxes and other items.

42 APNT IN Asian Paints Asian Paints Limited manufactures a wide range of decorative paints, varnishes, enamels, and black & synthetic resins. The Company, through its subsidiaries, also manufactures specialty industrial chemicals and vinyl pyridine latex products which are used in the manufacture of rubber tires.

43 HATH IN Hathway Cable Hathway Cable and Datacom Limited is a cable television service provider. The Company offers analog and digital cable television services. Hathway also provides cable broadband services as well.

44 ILFT IN IL&FS Transport IL&FS Transportation Networks Ltd. designs, develops, maintains and operates toll highways. The Company acquires projects either through competitive bidding or negotiated contracts. IL&FS also provides traffic inspection and emergency, rescue and search services on its highways.

45 OBER IN Oberoi Realty Oberoi Realty LTD., is a real estate development company operating in Mumbai, focused on premium developments. The Company's main focus is residential projects but they also have a diversified portfolio of projects covering segments of the real estate market, which target the upper end of the respective income or market segment.

46 PEPL IN Prestige Estates Prestige Estates Projects Ltd. develops real estate. The Company builds residential projects including apartments, villas, plotted developments and integrated townships; commercial projects including corporate office buildings and technology parks; hotels and resorts; and retail buildings.

47 MCLR IN Mcleod Russel McLeod Russel India Ltd. cultivates, manufactures, and markets tea. The Group owns tea estates in Assam and Dooars.

48 GDPL IN Gateway Distr. Gateway Distriparks Limited provides integrated logistics services both in domestic and international areas. The Company offers cargo loading and unloading, transportation, and cargo storage management services to shipping lines, freight forwarders, and buying houses.

49 CRIN IN Coromandel Inter Coromandel International Ltd. manufactures fertilizers and pesticides. The Company produces both chemical and organic fertilizers, insecticides, fungicides, herbcides, and plant biostimulant.

50 TTKPT IN TTK Prestige TTK Prestige Limited manufactures a range of domestic appliances. The Group's products include pressure cookers and non-stick cookware, stainless steel and glass vacuum flasks, and gas stoves.

Source: Bloomberg

Strategy


Appendix 1: Audit of G&C 3.0-‘Battleships’ Exhibit 9: The 'Battleships' portfolio launched on Oct 19, 2011

Bloomberg code Company Prices (`) FF Mkt cap (US$ mn)

Initial Price

Current Price

Performance

(%) (Intial)

TTMT IN Equity Tata Motors 181 304.5 68.0 6,229

VST IN Equity VST Inds. 1,342 1,957.6 45.8 239

SOBHA IN Equity Sobha Developer. 230 319.2 38.5 120

EIM IN Equity Eicher Motors 1,648 2,266.1 37.5 325

JUBI IN Equity Jubilant Food. 886 1,184.6 33.7 576

TTKPT IN Equity TTK Prestige 2,727 3,592.7 31.7 157

OFSS IN Equity Oracle Fin.Serv. 2,062 2,592.8 25.7 628

BOS IN Equity Bosch 7,008 8,792.4 25.5 1,234

BDE IN Equity Blue Dart Exp. 1,588 1,962.7 23.6 103

FAG IN Equity Fag Bearings 1,245 1,517.0 21.9 190

PSYS IN Equity Persistent Sys 315 378.1 20.0 72

ITC IN Equity ITC 204 244.6 19.8 19,429

SKB IN Equity GlaxoSmith C H L 2,325 2,755.0 18.5 1,093

PIDI IN Equity Pidilite Inds. 160 180.1 12.8 485

PWGR IN Equity Power Grid Corpn 98 109.6 11.7 2,527

TTAN IN Equity Titan Inds. 221 243.5 10.1 1,919

CSTRL IN Equity Castrol India 474 505.0 6.6 688

VTEX IN Equity Vardhman Textile 202 215.0 6.4 184

GDPL IN Equity Gateway Distr. 145 152.0 5.0 153

GSFC IN Equity G S F C 427 443.3 3.7 396

BPCL IN Equity B P C L 642 657.6 2.4 1,401

CUBK IN Equity @ City Union Bank 48 49.3 1.9 323

ONGC IN Equity O N G C 264 267.5 1.4 7,217

RBXY IN Equity Ranbaxy Labs. 503 501.0 (0.3) 1,563

HCBA IN Equity Novartis India 818 798.7 (2.4) 119

CDH IN Equity Cadila Health. 755 724.2 (4.1) 788

BOB IN Equity # Bank of Baroda 800 758.2 (5.2) 2,098

SIEM IN Equity Siemens 816 766.6 (6.0) 1,156

FB IN Equity @ Federal Bank 451 420.8 (6.7) 1,246

IH IN Equity Indian Hotels 68 63.2 (7.2) 514

AKZO IN Equity Akzo Nobel 911 840.0 (7.8) 233

SJVN IN Equity SJVN 22 19.4 (9.8) 160

GPPV IN Equity Guj Pipavav Port 70 60.3 (13.3) 310

CRIN IN Equity Coromandel Inter 308 262.2 (14.8) 547

ENIL IN Equity Ent.Network 249 208.1 (16.4) 64

ARVND IN Equity Arvind Ltd 105 85.8 (18.4) 284

SRF IN Equity SRF 299 231.9 (22.6) 189

NMDC IN Equity NMDC 240 176.4 (26.6) 967

BIOS IN Equity Biocon 345 237.4 (31.3) 420

MGFL IN Equity # Manappuram Finance Ltd 55 29.0 (47.6) 616

G&C 3.0 Battleships Portfolio Free float mkt cap weighted returns 15.1

BSE500 Returns 4.2

G&C 3.0 Battleships Alpha Free float mkt cap weighted basis 10.9

G&C 2.0 Alpha 5.0

G&C 1.0 Alpha 3.8

Cumulative Alpha (G&C 1, 2 and 3) 19.7

Source: Ambit Capital research, Bloomberg. # indicates that the stock was added later, effective 24th Jan close; @ indicates that the stock was added later, effective 21st Feb close

Strategy


Institutional Equities Team

Saurabh Mukherjea, CFA Head of Equities (022) 30433174 [email protected]

Research

Analysts Industry Sectors Desk-Phone E-mail

Aadesh Mehta Banking / NBFCs (022) 30433239 [email protected]

Anand Mour FMCG (022) 30433169 [email protected]

Ankur Rudra, CFA Technology / Telecom / Education (022) 30433211 [email protected]

Ashvin Shetty Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power / Capital Goods (022) 30433252 [email protected]

Chhavi Agarwal Construction / Infrastructure (022) 30433203 [email protected]

Dayanand Mittal Oil & Gas (022) 30433202 [email protected]

Gaurav Mehta Derivatives Research (022) 30433255 [email protected]

Hardik Shah Technology / Education Services (022) 30433291 [email protected]

Harshit Vaid Power / Capital Goods (022) 30433259 [email protected]

Jatin Kotian Metals & Mining / Healthcare (022) 30433261 [email protected]

Krishnan ASV Banking (022) 30433205 [email protected]

Nitin Bhasin Construction / Infrastructure / Cement (022) 30433241 [email protected]

Pankaj Agarwal, CFA NBFCs (022) 30433206 [email protected]

Parita Ashar Metals & Mining / Media / Telecom (022) 30433223 [email protected]

Rakshit Ranjan, CFA Mid-Cap (022) 30433201 [email protected]

Ritika Mankar Mukherjee Economy (022) 30433175 [email protected]

Ritu Modi Cement / Infrastructure (022) 30433292 [email protected]

Shariq Merchant Consumer (022) 30433246 [email protected]

Sales

Name Regions Desk-Phone E-mail

Deepak Sawhney India / Asia (022) 30433295 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / Europe (022) 30433053 [email protected]

Pramod Gubbi, CFA India / Asia (022) 30433228 [email protected]

Sarojini Ramachandran UK +44 (0) 20 7614 8374 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Kausalya Vijapurkar Editor (022) 30433284 [email protected]

Strategy


Explanation of Investment Rating

Investment Rating Expected return

(over 12-month period from date of initial rating)

Buy >5%

Sell <5%

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14. Neither AMBIT Capital nor its affiliates or their respective directors, employees, agents or representatives, shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this Report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the Report or inability to use or access our service or this Research Report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this Research Report or inability to use or access our service or this Research Report.

Conflict of Interests 15. In the normal course of AMBIT Capital’s business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one

client’s interests conflicting with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified 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.

16. AMBIT Capital and/or its affiliates may from time to time have investment banking, investment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same. Research analysts provide important inputs into AMBIT Capital’s investment banking and other business selection processes.

17. AMBIT Capital and/or its affiliates may seek investment banking or other businesses from the companies covered in this Research Report and research analysts involved in preparing this Research Report may participate in the solicitation of such business.

18. In addition to the foregoing, the companies covered in this Research Report may be clients of AMBIT Capital where AMBIT Capital may be required, inter alia, to prepare and publish research reports covering such companies and AMBIT Capital may receive compensation from such companies in relation to such services. However, the views reflected in this Research Report are objective views, independent of AMBIT Capital’s relationship with such company.

19. In addition, AMBIT Capital may also act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies covered in this Research Report (or in related investments) and may also be represented in the supervisory board or on any other committee of those companies.

Additional Disclaimer for U.S. Persons 20. The research report is solely a product of AMBIT Capital 21. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report 22. Any subsequent transactions in securities discussed in the research reports should be effected through THINKEQUITY LLC. or another U.S. broker-dealer. 23. The research analyst(s) preparing the research report 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 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.

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