INSTITUTIONAL EQUITY RESEARCH Aarti Industriesbackoffice.phillipcapital.in/.../PC_-_Aarti...leading to additional investments into Effluent Treatment Plant (ETP)). Additionally, its

INSTITUTIONAL EQUITY RESEARCH

Aarti Industries (ARTO IN) Art in project execution

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

INDIA | SPECIALTY CHEMICALS | Initiating Coverage

29 March 2016

One of the leading global players of benzene derivatives Aarti is the largest producers of benzene derivatives in India and has emerged as one of the leading manufacturers globally. Its global market share in this segment is 25‐40% in various products. Globally, Aarti has the 3rd largest capacity in chlorination, 2nd largest in ammonolysis and hydrogenation, and 4th largest in nitration. A key beneficiary of the Chinese slowdown Leveraging its cost advantage and quality, Aarti has long been exporting competently to China. With a visible slowdown in Chinese exports (stricter environment policy) and rising manufacturing costs in that country (due to higher compliance requirements), Aarti is well set to exploit the opportunity. Its on‐going and timely capacity expansion will help it to make the most of the enhanced export opportunity. Improving products mix in the benzene chain to drive earnings efficiency Aarti’s continued focus on downstream products and co‐product/isomer‐balancing has extended its operation towards better‐value chemical processes such as hydrogenation, fluoro‐compounding, and phthalates. Hence, improving product mix with scale would drive the earning efficiency of its benzene chain. Relatively low‐value sales (after‐chlorination, after‐nitration, and by products) will fall to 40% in FY18 from 60% in FY15. Greenfield toluene project: A strategic import‐substitution‐led driver After building a global‐scale benzene derivative chain, Aarti diversified into the toluene chain (nitro‐toluene and derivatives) by setting up a greenfield facility for ~Rs 1.3bn. The project is likely to commercialise early FY17, and will initially act as an import substitute. We estimate this project to add sales of Rs 1.03/1.73bn in FY17/18. One of the best executors of capex Aarti has been very successful in executing its capacity expansion projects as its capex of about Rs 12bn over the last five years added incremental revenue of Rs 41bn (implying an asset turnover of ~3.6x). We believe the on‐going capex projects (including the toluene project) worth ~Rs 3.5bn over FY16‐17 would ensure sustained growth. Demerger of pharma/personal care to unlock value Pharma and personal care ingredient manufacturing are non‐core to Aarti’s specialty chemicals operation and are relatively low efficient/profitable operations. Hence, in order to focus more on value‐added specialty chemicals, Aarti is likely to demerge these businesses in FY17, which will unlock value. Initiate BUY with TP of Rs 700, implying an upside of 48% We estimate Aarti to deliver 16%/21% CAGR in revenues/profit over FY16‐18 to Rs 36.2/3.72bn in FY18. Additionally, we believe its successful track record in execution of expansion projects over the last five years and its on‐going capex can surprise growth positively. We value Aarti at 9x FY18 EV/EBITDA – ~20% discount to SRF’s specialty chemical target valuation multiple – at Rs 700. Initiate coverage with a BUY rating.

BUY CMP RS 472 TARGET RS 700 (+48%) COMPANY DATA O/S SHARES (MN) : 83MARKET CAP (RSBN) : 39MARKET CAP (USDBN) : 0.652 ‐ WK HI/LO (RS) : 585 / 294LIQUIDITY 3M (USDMN) : 0.3PAR VALUE (RS) : 5 SHARE HOLDING PATTERN, % Dec 15 Sep 15 Jun 15PROMOTERS : 54.8 54.8 59.1FII / NRI : 3.0 3.2 1.3FI / MF : 12.4 12.8 12.2NON PRO : 14.8 16.4 14.9PUBLIC & OTHERS : 15.0 13.0 12.7 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 8.9 ‐7.2 36.4REL TO BSE 2.5 ‐6.2 46.7 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY16E FY17E FY18ENet Sales 27,182 32,000 36,462EBIDTA 5,328 6,336 7,365Net Profit 2,584 3,169 3,762EPS, Rs 31.0 38.0 45.1PER, x 15.2 12.4 10.5EV/EBIDTA, x 9.2 7.6 6.5P/BV, x 3.3 2.7 2.2ROE, % 20.6 20.9 20.6Debt/Equity (%) 91.7 83.3 74.4

Source: PhillipCapital India Research Est. Surya Patra (+ 9122 6667 9968) [email protected] Mehul Sheth (+ 9122 6667 9996) [email protected]

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Aarti BSE Sensex

AARTI INDUSTRIES INITIATING COVERAGE

About the Company • Started its operations in 1975 as a single‐product company. • Leading supplier to global manufacturers of dyes, pigments, agrochemicals,

pharmaceuticals, and rubber chemicals. • Largest producer of benzene‐based basic and intermediate chemicals in India. • 16 manufacturing units spread across Gujarat and Maharashtra and strong R&D

with sophisticated instruments and a pool of scientists. Evolution of Aarti

Source: PhillipCapital India Research

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In 1986 commenced 1200TPA manufacuting plant for Nitro Chloro Benzenes (NCB) in Valsad,Gujarat

In 1990, implemented its expansion of valsad facility to 4500TPA for NCB, ONCB, PNCB etc

In 1997, merged Aarti with Salvigor Labs the largest producers of chemical intermediates ONCB/PNCB and their downstream products

In 2003, Mr. Rajendra V Gogri appointed as Managing Director

In 2006, Aarti splits its stock from Face value of from Rs 10 to Rs 5

In 2008, Aarti Industry takes over Surfactants Speciality Pvt. Ltd. and get access to Home/personal care segment

In 2010, AARTI Custom Synthesis division Vapi has received USFDA approval

Upgrades Hydrogenation Technology for Manufacture of Speciality Chemicals

Commissioning of Sulfonation unit at Pithampur (MP)

Scheme of Arrangement between Anushakti Chemicals and Drugs Limited with Aarti Industries Limited has been approved by the High Court of Gujarat

Aarti Industries included in the MSCI Small Cap Index

In 1984 Aarti Organics Limited incorporated

Business model

Source: Company, PhillipCapital India Research

Aarti Industries

Specialty Chemicals(83% of sales)

Pharmaceuticals (10% of sales)

Home/Personal Care (7% of sales)

•Agro chemicals leading target industry (30%) followed by polymers (27%), pigments (19%), dyes (5%)• Global leader in processes like chlorination, nitration, hydrogenation, ammonolisation• Market leader in PNCB/ONCB and derivatives• Only Indian player with benzene base fluoro compounds• Among the few producers of toluene based products

• Focusing off‐patented generics to be supplied in regulated markets• Recently commissioned expanded capacities• 48 commercial APIs, with 33 EUDMFs, 28 US DMF• 60% exports coming from regulated markets• Sales CAGR of 21% over FY10‐15

• Application: Non‐ionic surfactance, shampoo, Hand wash, Dish wash• Relatively low‐margin business• Recently debottlenecked some operations to expand capacities• Focus on export‐oriented products• Sales CAGR of 31% over FY10‐15



Investment Rationale

Specialty chemicals: Integrated business model, focus on accreditation One of the leading global players of benzene derivatives Its specialty chemicals segment is mainly focused on benzene derivatives and contributes to 82% of sales. Aarti is the largest producers of benzene derivatives in India and one of the leading manufacturers globally. Its global market share in various products is 25‐40%. Well integrated benzene chain

A ChlorinationB NitrationC AmmonolysisD HydrogenationE OthersF Flouro Compo

Source: Company, PhillipCapital India Research Agro chemicals are the leading end‐user industry for benzene derivatives (30% share of specialty chemicals sales) followed by polymers (27%), pigments (19%), and dyes (5%). Incidentally, India is among the top‐four producers of agro chemicals (after China, USA, and Japan) and second‐largest producer of dyes and pigments in the world. Aarti has leveraged locational cost advantage and has emerged a global‐scale manufacturer of benzene derivatives. Specialty chemicals to lead steady value growth

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Source: Company, PhillipCapital India Research Estimates



Steady focus on process‐optimisation made it the lowest‐cost producer Apart from the India advantage, Aarti’s continued focus on process development, plant automation/upgradation, and quality standards made it the lowest‐cost producers of benzene derivatives in the world. Additionally, its capability in converting its by‐products from various processes into commercially viable products, and more importantly, its capability in balancing the co‐products demand, is the key to its competitive positioning globally. As a result, Aarti has built a strong base of marquee clients across end‐user industries including in polymer and additives, dyes and pigments, agro intermediates, and fertilisers. Well‐diversified global clientele

Source: Company, PhillipCapital India Research Rising contribution from better‐margin products to drive value growth In an effort to balance co‐products demand and move up the value chain for better‐margin downstream products, Aarti expanded its chemistry skills to a global scale for processes starting from chlorination (3rd largest globally), nitration (4th in the world), ammonolysis (2nd globally), to hydrogenation (2nd largest) and fluoro‐compounding (only player in India). While chlorination/nitration is the primary process, with limited value addition (in benzene), others are premium processes. Gained global scale in its chemistry skills Downstream products offer value addition

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Source: Company, PhillipCapital India Research As per our estimates, the revenue contribution of chlorination/nitration‐based products and by‐products contributed 60% to Aarti’s specialty chemicals operation in FY15. With increasing focus on downstream products, the revenue mix is likely to improve towards more value‐added products that will lead to value growth for Aarti.




Improving revenue mix – rising contribution from high‐margin products

Note: High margin products include products after Amonolysis, hydrogenation,Fluoro‐compounding & other

downstream products

Source: Company, PhillipCapital India Research Estimates One of the key beneficiaries of a Chinese slowdown Aarti is already established as one of the lowest‐cost manufacturers of benzene derivatives globally, which can be evidenced from the fact that 10% of its exports are towards China – the lowest cost base of the world. Aarti is well set to make the most of the opportunity of a slowdown in Chinese exports (led by plant shut downs due to a stricter environment policy from 1st January 2015) and rising manufacturing cost (led by enhanced compliance requirements leading to additional investments into Effluent Treatment Plant (ETP)). Additionally, its on‐going and timely capacity expansion will help it to use the enhanced export opportunity. Greenfield toluene project: A strategic import‐substitution‐led driver Toluene derivatives and ethylene product‐line add new source of growth After a successful global‐scale benzene derivative chain, Aarti diversified into toluene chain of products (nitro‐toluene and derivatives) by setting up a greenfield facility with an investment of around Rs 1.3bn. The project is expected to commercialise early FY17. Aarti expects to leverage its well‐established clientele for benzene derivatives to promote its toluene derivatives, as the end‐user industries are the same (i.e., optical brighteners, agrochemicals, pigments, and pharmaceuticals). Simultaneously, it has set up an ethylation unit by adopting Swiss technology at the Dahej SEZ, which will receive input material from its toluene plant. Aarti will be the first company ever to procure ethylene by a pipeline and operate a greener ethylation process. It plans to introduce gradually a range of ethylene‐based chemicals catering to end‐user applications of agrochemicals, engineering polymers, pigments, and additives.

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Aarti’s toluene value chain

Source: Company, PhillipCapital India Research Imports substitution is the strategy behind the toluene project The toluene chain is a more competitive market globally with many big names, led by Lanxess (Germany). Deepak Nitrite is a leading domestic player. Aarti initially strategically targets the domestic market (which imports nitro‐toluene and its derivatives – worth ~US$ 22mn per year) and to tap the export market with more downstream products gradually. We expect a gradual pick up in Aarti’s toluene operation with ~30%/50% utilisation in FY17/18 as it has to build a clientele. However, Aarti plans to fill the unutilised toluene plant with benzene products initially. Hence, we estimate this project to add incremental sales of Rs 1.03/1.73bn in FY17/18. One of the best executors of capex Aarti has been very successful in executing its capacity expansion projects, as its capex of about Rs 12bn over the last five years added incremental revenue of Rs 41bn (implying an asset turnover of ~3.6x). However, on its overall assets, Aarti maintained asset turnover of ~2x. Best executor of incremental capex amongst Indian peers

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Source: Company, PhillipCapital India Research Estimates The ongoing capex projects (including the toluene project) worth ~Rs 3.5bn over FY16‐17 would ensure sustained growth in the near future. Apart from this, Aarti is also in the process of setting up a multi‐purpose specialty‐chemicals complex at Jhagadia to manufacture a range of high‐end polymers and engineering plastics that are used in the automobile industry. This project will add value growth from FY18.




On‐going capex projects Major Projects in FY16 Details Expected Outlay

(Rs mn) Hydrogenation Unit at Jhagadia Expansion for polymer intermediate 800NCB Expansion at Vapi Expansion of NCB capacities (2nd phase)Nitration Unit at Jhagadia Expansion into toulene chemistryCalcium Chloride Granulation at Jhagadia Setup of new calcium chloride granulation

unit New Projects over FY 16 & FY 17 At Jhagadia Chlorination complex 1500 Speciality chemicals complex Power plant At Vapi Acid re‐concentration plant 250At Dahej SEZ Ethylation unit and speciality chemicals unit 750

Source: Company, PhillipCapital India Research Demerger of pharma/personal care to unlock value Aarti has two operations that are non‐core to its specialty chemicals operation – One is active‐ingredient manufacturing for pharma players and the other is surfactant manufacturing for home and personal care players – both are relatively low‐efficient and low‐profitable operations. To focus more on value‐added specialty chemicals, Aarti is likely to de‐merge these businesses in FY17, which will unlock value for the company. Pharma and home and personal care businesses are less efficient than specialty chemicals (both ROE and EBIT margin)

Source: Company, PhillipCapital India Research Technical management keeps Aarti on the forefront Aarti’s promoters are first‐generation technocrats with sound entrepreneurial skills. Mr Chandrakant Gogri founded Aarti in 1975 and took it from a small unit to a path‐breaking enterprise; he retired in 2012. Mr Rajendra Gogri – the current CMD is a qualified chemical engineer from UDCT, Mumbai, and has a master’s degree in chemical engineering from IOWA University, USA. He has many years of expertise in operations, marketing, and financial management. Five out of Aarti’s six promoter‐directors are from an engineering background and three out of four are chemical engineers from ICT (formerly known as UDCT).

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Financials Specialty chemicals will remain the highest contributor to sales (Rs mn) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18ESpecialty Chemicals 12277 13503 17578 22167 23980 22340 26451 30041YoY change (%) ‐2.7 10.0 30.2 26.1 8.2 ‐6.8 18.4 13.6% of sales 84 81 84 84 82 82 83 82Pharmaceuticals 1306 1646 1868 2490 3032 3547 4151 4898YoY change (%) 10.7 26.1 13.5 33.3 21.8 17.0 17.0 18.0% of sales 9 10 9 9 10 13 13 13

Home/ Personal Care Chems 947 1584 1516 1668 2068 1295 1398 1524YoY change (%) 75.7 67.2 ‐4.3 10.0 24.0 ‐37.4 8.0 9.0% of sales 7 9 7 6 7 5 4 4Total Sales 14530 16733 20962 26325 29080 27182 32000 36462YoY change (%) 9.2 15.2 25.3 25.6 10.5 ‐6.5 17.7 13.9 Revenue to see 16% CAGR over FY16‐18 Move into downstream products to expand EBITDA margin

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Source: Company, PhillipCapital India Research Estimates




Valuation and outlook We estimate Aarti to deliver 16%/21% revenue/profit CAGR over FY16‐18 to Rs 36.2/3.72bn in FY18. Its successful track record in execution of expansion projects over the last five years and its on‐going capex can surprise positively. Its plan to set up a specialty chemical block by FY18 (not factored into our model) to tap the ever rising demand in specialty polymer and engineering plastics could surprise our revenue and profitability estimates. The company trades at 11x/6x FY18 EPS and EV/EBITDA. Considering its track record of successful execution of expansion projects – and future growth led by continuing expansions into value‐added downstream products – we believe EV/EBITDA is the right valuation method. We value Aarti at 9x FY18 EV/EBITDA – about 20% discount to SRF’s specialty chemical target valuation multiple. We arrive at a target price of Rs 700, and initiate coverage with a BUY rating. Valuation table (FY18E) EBITDA (Rs mn) 7365EV/BITDA target Multiple (x) 9EV (Rs mn) 66288Net debt (Rs mn) 8241Mcap (Rs mn) 58047No of shares (mn) 83Target Price (Rs) 700CMP (Rs) 472Upside 48%

Source: Company, PhillipCapital India Research Estimates One‐year forward PE band One‐year forward EV/EBITDA band

So urce: Bloomberg, PhillipCapital India Research

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Steady improvement in operating efficiency Earning efficiency also sees steady progress

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Source: Company, PhillipCapital India Research Estimates Downside risk to valuation • Further slowdown in domestic and world economies can impact growth of Aarti’s

end‐user industries such as agro chemicals, dyes and pigments, and polymers. • 50% of Aarti’s sales are export oriented; any adverse movement in currency can

fluctuate earnings. • Volatility in crude could fluctuate Aarti’s revenue and profitability as it is a key

input material – benzene and toluene are crude derivatives. • Devaluation in Chinese Yuan could hurt its export anticipations. Upside risk Successful commissioning of its planned specialty chemical block to manufacture specialty polymer and engineering plastics could surprise our estimates – both revenue and profitability.




Financials

Income Statement Y/E Mar, Rs mn FY15 FY16e FY17e FY18eNet sales 29,080 27,182 32,000 36,462Growth, % 10 ‐7 18 14Total income 29,080 27,182 32,000 36,462Raw material expenses ‐18,321 ‐15,358 ‐18,112 ‐20,455Employee expenses ‐936 ‐1,114 ‐1,312 ‐1,495Other Operating expenses ‐5,165 ‐5,382 ‐6,240 ‐7,147EBITDA (Core) 4,657 5,328 6,336 7,365Growth, % 16.0 14.4 18.9 16.2Margin, % 16.0 19.6 19.8 20.2Depreciation ‐820 ‐956 ‐1,094 ‐1,250EBIT 3,837 4,372 5,242 6,115Growth, % 22.6 13.9 19.9 16.7Margin, % 13.2 16.1 16.4 16.8Interest paid ‐1,380 ‐1,154 ‐1,269 ‐1,376Pre‐tax profit 55 54 64 73Tax provided 2,548 3,272 4,037 4,812Profit after tax ‐610 ‐785 ‐969 ‐1,155Others (Minorities, Associates) 1,937 2,487 3,068 3,657Net Profit 1,937 2,487 3,068 3,657Growth, % 22.7 29.1 22.6 18.7Net Profit (adjusted) 2,002 2,584 3,169 3,762Unadj. shares (m) 89 83 83 83Wtd avg shares (m) 83 83 83 83 Balance Sheet Y/E Mar, Rs mn FY15 FY16e FY17e FY18eCash & bank 337 1,659 3,077 4,992Debtors 4,390 4,096 4,822 5,494Inventory 5,517 4,841 5,699 6,493Loans & advances 5,820 5,436 5,600 6,381Other current assets 323 323 323 323Total current assets 16,387 16,355 19,520 23,684Investments 1,392 1,392 1,392 1,392Gross fixed assets 16,851 19,118 21,449 24,041Less: Depreciation ‐7,182 ‐8,138 ‐9,231 ‐10,482Add: Capital WIP 1,930 1,949 1,949 1,559Net fixed assets 11,599 12,929 14,167 15,119Total assets 29,378 30,677 35,079 40,195 Current liabilities 2,708 3,198 3,765 4,289Provisions 3,399 3,195 3,380 3,804Total current liabilities 6,106 6,393 7,145 8,094Non‐current liabilities 13,049 12,127 13,230 14,259Total liabilities 19,156 18,519 20,376 22,353Paid‐up capital 443 417 417 417Reserves & surplus 9,721 11,682 14,228 17,367Shareholders’ equity 10,223 12,158 14,703 17,842Total equity & liabilities 29,378 30,677 35,079 40,195 Source: Company, PhillipCapital India Research Estimates

Cash Flow FY15 FY16e FY17e FY18e

PAT 2,059 2,584 3,169 3,762Depreciation 820 956 1,094 1,250Change in WC ‐724 1,640 ‐995 ‐1,299Cash flow from operating activities 2,155 5,180 3,268 3,712Capital expenditure ‐2,836 ‐2,286 ‐2,331 ‐2,203Misc Exp 66 0 0 0Cash flow from investing activities ‐2,770 ‐2,286 ‐2,331 ‐2,203Equity 4 ‐26 0 0Dividends ‐623 ‐623 ‐623 ‐623Debt 1,642 ‐923 1,104 1,029Investments ‐220 0 0 0Cash flow from financing activities 803 ‐1,572 481 406Net chg in cash 189 1,322 1,417 1,916Opening cash balance 149 337 1,659 3,077Closing cash balance 337 1,659 3,077 4,992 Valuation Ratios

FY15 FY16e FY17e FY18ePer Share data EPS (INR) 24.0 31.0 38.0 45.1Growth, % 22.7 29.1 22.6 18.7Book NAV/share (INR) 122.0 145.2 175.8 213.4FDEPS (INR) 24.0 31.0 38.0 45.1CEPS (INR) 33.9 42.5 51.2 60.2CFPS (INR) 25.9 60.3 37.2 42.4Return ratios Return on assets (%) 10.1 10.7 11.8 12.0Return on equity (%) 19.1 20.6 20.9 20.6Return on capital employed (%) 16.7 18.2 19.0 19.3Turnover ratios Asset turnover (x) 1.3 1.1 1.2 1.3Sales/Total assets (x) 1.0 0.9 1.0 1.0Sales/Net FA (x) 2.8 2.2 2.4 2.5Working capital/Sales (x) 0.5 0.4 0.4 0.4Receivable days 55.1 55.0 55.0 55.0Inventory days 69.3 65.0 65.0 65.0Payable days 40.5 53.4 53.5 53.8Working capital days 167.5 154.4 144.6 144.2Liquidity ratios Current ratio (x) 6.1 5.1 5.2 5.5Quick ratio (x) 4.0 3.6 3.7 4.0Interest cover (x) 2.8 3.8 4.1 4.4Total debt/Equity (%) 118.3 91.7 83.3 74.4Net debt/Equity (%) 115.0 78.0 62.3 46.3Valuation PER (x) 19.6 15.2 12.4 10.5PEG (x) ‐ y‐o‐y growth 0.9 0.5 0.5 0.6Price/Book (x) 3.9 3.3 2.7 2.2EV/Net sales (x) 1.8 1.8 1.5 1.3EV/EBITDA (x) 11.5 9.2 7.6 6.5EV/EBIT (x) 13.9 11.2 9.2 7.8

INITIATING COVERAGE AARTI INDUSTRIES


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

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

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

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

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Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Infrastructure & IT Services Strategy

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Nitesh Sharma, CFA (9122) 6667 9965 Logistics, Transportation & Midcap Anindya Bhowmik (9122) 6667 9764Agri Inputs Vikram Suryavanshi (9122) 6667 9951 TelecomGauri Anand (9122) 6667 9943 Media Naveen Kulkarni, CFA, FRM (9122) 6667 9947Banking, NBFCs Manoj Behera (9122) 6667 9973 Manoj Behera (9122) 6667 9973Manish Agarwalla (9122) 6667 9962 Metals TechnicalsPradeep Agrawal (9122) 6667 9953 Dhawal Doshi (9122) 6667 9769 Subodh Gupta, CMT (9122) 6667 9762Paresh Jain (9122) 6667 9948 Yash Doshi (9122) 6667 9987 Production ManagerConsumer Midcap Ganesh Deorukhkar (9122) 6667 9966Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Amol Rao (9122) 6667 9952 EditorJubil Jain (9122) 6667 9766 Oil & Gas Roshan Sony 98199 72726Cement Sabri Hazarika (9122) 6667 9756 Sr. Manager – Equities SupportVaibhav Agarwal (9122) 6667 9967 Pharma & Speciality Chem Rosie Ferns (9122) 6667 9971Economics Surya Patra (9122) 6667 9768Anjali Verma (9122) 6667 9969 Mehul Sheth (9122) 6667 9996Engineering, Capital Goods Mid‐Caps & Database ManagerJonas Bhutta (9122) 6667 9759 Deepak Agarwal (9122) 6667 9944Hrishikesh Bhagat (9122) 6667 9986Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974 ExecutionAshka Mehta Gulati (9122) 6667 9934 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

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

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

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

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

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

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

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

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

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

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

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

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

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

No

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

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

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

No

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

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




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

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

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient.

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

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

In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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