key data consistent despite covid blues

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KEY DATA

Rating BUY Sector relative Outperform Price (INR) 18,023 12 month price target (INR) 20,790 Market cap (INR bn/USD bn) 1,738/23.4 Free float/Foreign ownership (%) 37.2/11.5

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Consistent despite covid blues

Nestle’s Q2CY21 revenue (up 14% YoY) came in line, while EBITDA (up 10% YoY) and PAT (up 10.7% YoY) came slightly below our estimates. Domestic sales (up 13.7% YoY) sustained double-digit growth, largely driven by volume and mix. E-commerce sustained robust growth

momentum (up 105% YoY) and now contributes 6.4% to domestic revenue. Export sales increased by 17.7% YoY due to timing of exports to affiliates. Contribution of innovations to domestic sales has been growing--now contributes 4.9%.

Overall, the company’s high innovation, ‘premiumisation’ agenda and cluster-based distribution strategy are on track, and we expect this to sustain. Maintain ‘BUY’ with revised TP of INR20,790.

FINANCIALS (INR mn)

Year to December CY20A CY21E CY22E CY23E

Revenue 1,33,500 1,50,555 1,66,277 1,83,302

EBITDA 31,158 36,438 41,534 47,118

Adjusted profit 20,824 25,257 28,636 32,770

Diluted EPS (INR) 216.0 261.9 297.0 339.9

EPS growth (%) 5.8 21.3 13.4 14.4

RoAE (%) 105.4 103.1 85.1 74.3

P/E (x) 83.4 68.8 60.7 53.0

EV/EBITDA (x) 55.2 47.1 41.2 36.1

Dividend yield (%) 1.1 1.0 1.1 1.2

PRICE PERFORMANCE

Robust revenue, ecommerce continues to shine

Key positives: Strong growth with domestic sales (up 13.7% YoY on a base of 2.6%)

and exports (17.7% YoY on base of -9.3%) jumping by double digits, largely driven by

volume and mix. On two-year basis, revenue rose 15.8%. Gross margin expanded

67bps YoY (considering wave 2 impact, very few staples companies likely to post YoY

margin improvement this quarter). E-commerce channel posted strong performance

(up 105% YoY) and contributed 6.4% to domestic sales (3.8% in Q4FY21).

Key negatives: EBITDA margin dropped 88bps YoY and 177bps QoQ. Other

expenditure rose 30.3% YoY, largely due to rising fuel prices and compares to a base

quarter impacted by restricted operations due to covid lockdown.

Key brands do well; capex plan on track

Key products Maggi noodles, Kitkat, Nestlé Munch, Maggi sauces, Maggi masala-ae-

magic posted strong double-digit growth. Of the planned capex of INR26bn over

three-four years, Nestle has already invested about INR10bn. Hyperlocal channels

(such as Big Basket, Milk basket, Supr daily etc) grew by 147% YoY. Contribution of

innovations to domestic sales, now at 4.9%, continues to grow.

Explore:

Outlook and valuations: Best quality; maintain ‘BUY’

The focus on innovation, launches, market share and premiumisation is likely to

boost volume-led growth. Considering the miss on margin we revise down our TP to

INR20,790 (from INR21,110). We retain ‘BUY/SO’. At CMP, the stock is trading at

60.7x CY22E EPS.

Financials Year to December Q2CY21 Q2CY20 % Change Q1CY21 % Change

Net Revenue 34,767 30,505 14.0 36,108 (3.7)

EBITDA 8,339 7,584 9.9 9,301 (10.3)

Adjusted Profit 5,386 4,866 10.7 6,023 (10.6)

Diluted EPS (INR) 55.9 50.5 10.7 62.5 (10.6)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

15,175

15,890

16,605

17,320

18,035

18,750

Jul-20 Oct-20 Jan-21 Apr-21 Jul-21

NEST IN Equity Sensex

India Equity Research Consumer Staples July 28, 2021

NESTLE INDIA RESULT UPDATE

Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected]

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NESTLE INDIA

Edelweiss Securities Limited

2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Financial Statements

Income Statement (INR mn) Year to December CY20A CY21E CY22E CY23E

Total operating income 1,33,500 1,50,555 1,66,277 1,83,302

Gross profit 76,761 86,823 96,202 1,06,448

Employee costs 16,471 17,245 18,554 20,081

Other expenses 21,497 24,743 27,003 29,391

EBITDA 31,158 36,438 41,534 47,118

Depreciation 3,704 3,630 4,228 4,766

Less: Interest expense 180 70 70 70

Add: Other income 1,459 2,393 2,462 3,001

Profit before tax 28,128 34,131 38,698 44,284

Prov for tax 7,304 8,874 10,061 11,514

Less: Other adj 0 0 0 0

Reported profit 20,824 25,257 28,636 32,770

Less: Excp.item (net) 0 0 0 0

Adjusted profit 20,824 25,257 28,636 32,770

Diluted shares o/s 96 96 96 96

Adjusted diluted EPS 216.0 261.9 297.0 339.9

DPS (INR) 200.0 172.9 196.0 224.3

Tax rate (%) 26.0 26.0 26.0 26.0

Important Ratios (%) Year to December CY20A CY21E CY22E CY23E

Other exp (% of rev) 16.1 16.4 16.2 16.0

Con A&P (% of rev) 5.7 5.6 5.5 5.4

Gross margin (%) 57.5 57.7 57.9 58.1

EBITDA margin (%) 23.3 24.2 25.0 25.7

Net profit margin (%) 15.6 16.8 17.2 17.9

Revenue growth (% YoY) 8.1 12.8 10.5 10.2

EBITDA growth (% YoY) 8.9 16.9 14.0 13.4

Adj. profit growth (%) 5.8 21.3 13.4 14.4

Assumptions (%) Year to December CY20A CY21E CY22E CY23E

GDP (YoY %) 4.8 (6.0) 7.0 6.0

Repo rate (%) 4.4 3.5 3.5 4.0

USD/INR (average) 70.7 75.0 73.0 72.0

Vol growth (Dom) 5.2 (0.3) 10.2 7.9

Pricing change (dom) 4.5 9.0 2.4 2.4

Milk Prods & Nutri vol 1.4 (0.4) 7.0 7.0

Beverages vol (2.3) (21.3) 10.0 7.5

Prepared dishes vol 9.6 6.6 13.0 8.5

Chocolate vol 16.2 2.7 15.0 9.5

Valuation Metrics Year to December CY20A CY21E CY22E CY23E

Diluted P/E (x) 83.4 68.8 60.7 53.0

Price/BV (x) 86.1 60.4 45.1 35.0

EV/EBITDA (x) 55.2 47.1 41.2 36.1

Dividend yield (%) 1.1 1.0 1.1 1.2

Source: Company and Edelweiss estimates

Balance Sheet (INR mn) Year to December CY20A CY21E CY22E CY23E

Share capital 964 964 964 964

Reserves 19,229 27,817 37,553 48,695

Shareholders funds 20,193 28,781 38,517 49,659

Minority interest 0 0 0 0

Borrowings 348 348 348 348

Trade payables 15,166 13,096 14,399 15,792

Other liabs & prov 43,290 42,790 42,290 41,790

Total liabilities 78,997 85,014 95,554 1,07,589

Net block 21,794 24,164 26,936 29,170

Intangible assets 0 0 0 0

Capital WIP 6,386 6,386 6,386 6,386

Total fixed assets 28,180 30,550 33,322 35,556

Non current inv 7,408 7,408 7,408 7,408

Cash/cash equivalent 17,699 20,747 26,875 34,916

Sundry debtors 1,649 1,571 1,734 1,914

Loans & advances 1,187 1,187 1,187 1,187

Other assets 15,644 16,321 17,798 19,377

Total assets 78,997 85,014 95,554 1,07,589

Free Cash Flow (INR mn) Year to December CY20A CY21E CY22E CY23E

Reported profit 20,824 25,257 28,636 32,770

Add: Depreciation 3,704 3,630 4,228 4,766

Interest (net of tax) 180 70 70 70

Others (2,461) 1,000 1,000 1,000

Less: Changes in WC 2,297 (4,169) (1,836) (1,866)

Operating cash flow 24,545 25,788 32,098 36,740

Less: Capex (363) (6,000) (7,000) (7,000)

Free cash flow 24,182 19,788 25,098 29,740

Key Ratios Year to December CY20A CY21E CY22E CY23E

RoE (%) 105.4 103.1 85.1 74.3

RoCE (%) 143.1 141.7 117.0 102.1

Inventory days 87 83 81 81

Receivable days 4 4 4 4

Payable days 97 81 72 72

Working cap (% sales) (30.1) (24.5) (21.7) (19.2)

Gross debt/equity (x) 0 0 0 0

Net debt/equity (x) (0.9) (0.7) (0.7) (0.7)

Interest coverage (x) 152.2 468.7 532.9 605.0

Valuation Drivers Year to December CY20A CY21E CY22E CY23E

EPS growth (%) 5.8 21.3 13.4 14.4

RoE (%) 105.4 103.1 85.1 74.3

EBITDA growth (%) 8.9 16.9 14.0 13.4

Payout ratio (%) 92.6 66.0 66.0 66.0


NESTLE INDIA

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Trends at a glance

Q3CY19 Q4CY19 Q1CY20 Q2CY20 Q3CY20 Q4CY20 Q1CY21 Q2CY21

Net domestic sales growth (% YoY) 10.5 10.0 10.7 2.6 10.2 10.1 10.2 13.7

Exports growth(% YoY) (7.1) (9.7) 12.9 (9.3) 9.4 (7.7) (12.9) 17.7

Net sales growth (% YoY) 9.5 8.7 10.8 2.0 10.2 9.2 8.9 13.8

Gross margin (%) 57.6 56.8 56.3 56.3 58.1 59.1 58.5 57.0

EBITDA margin(%) 23.8 21.8 24.1 24.9 25.4 22.1 25.8 24.0

Tax rate (%) 14.9 23.0 25.3 25.4 25.4 27.9 25.8 26.3

Other expenses (% of Sales) 23.9 24.9 21.6 19.4 22.4 25.4 22.5 22.2

COGS (% of Sales) 42.4 43.2 43.7 43.7 41.9 40.9 41.5 43.0

Source: Company

EBITDA margin

Source: Company

Gross margin

Source: Company

0.0

6.0

12.0

18.0

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30.0Q

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9

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NESTLE INDIA



Other expenditure

Source: Company

Tax rate

Source: Company

Outlook and valuations: Best quality; maintain ‘BUY’

Nestle is focusing on growth in various categories by stepping up launches,

promotions and penetration. To achieve double-digit growth (volume-led), the

company is strengthening the positioning of existing brands and deepening

penetration, and is in quest of innovation. We believe Nestle ranks among the top

companies that are in constant quest for innovation (61 since 2016).

Apart from this the continuing growth of e-commerce operations will help it

overcome may hindrances of the pandemic and augment its marketing efforts.

Existing portfolio is cementing Nestle’s leadership—No. 1 in seven of eight

categories (No. 2 in one). On the margin front we expect slight inflation going

forward however we expect raw material prices for nestle to be least inflationary

among consumer good companies.. We also remain confident of the company’s

ability to take price hikes whenever needed. These factors coupled with a favourable

product mix is likely to aid EBITDA margin expansion going forward.

The focus on innovation, launches, market share and premiumisation is likely to

boost volume-led growth. Besides, the company’s new strategy—top line and

0.0

6.0

12.0

18.0

24.0

30.0

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CY1

9

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NESTLE INDIA


market share focus—is encouraging. Considering the miss on margin we revise down

our TP to INR 20,790 (from INR21,110). We retain ‘BUY/SO’. At CMP, the stock is

trading at 60.7x CY22E EPS.

One year forward P/E

Source: Edelweiss Research

Cash flow statement

Year to March 30-Jun-21 30-Jun-20 % YoY

Operating profit before working capital changes 16,997 14,593 16.5

Less: Changes in WC 4,701 4,175 12.6

Less: Direct taxes paid 2,500 2,327 7.4

Operating cash flow 9,796 8,091 21.1

Financing cash flow (9,032) (6,182) 46.1

Investing cash flow (3,986) (1,773) NM

Change in cash -3,222 137 NM

Source: Company

0

5,000

10,000

15,000

20,000

25,000

Jul-

17

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-18

Jul-

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NESTLE INDIA



Balance sheet

As on date Q2CY21 Q4CY20 % change Y-o-Y

Sources of funds

Share capital 964 964 -

Reserves and surplus 21,411 19,229 11.3

Shareholders funds 22,376 20,193 10.8

Long term borrowings 296 317 (6.6)

Deferred tax liabilities - - NA

Other long term liabilities 773 879 (12.0)

Long term provisions 34,210 32,683 4.7

Total non-current liabilities 35,279 33,878 4.1

Short term borrowings 57 31 81.4

Trade payables 13,852 15,166 (8.7)

Other current liabilities 8,277 8,669 (4.5)

Short term provisions 1,056 1,060 (0.4)

Total current liabilities 23,241 24,925 (6.8)

Total sources of funds 80,896 78,997 2.4

Uses of funds

Fixed assets 19,716 19,680 0.2

Capital work in-progress 8,452 6,386 32.4

Non current investment 7,360 7,408 (0.6)

Loans and advances 487 466 4.5

Deferred tax asset 309 199 55.2

Other non current assets 2,694 3,008 (10.4)

Total non-current assets 39,018 37,147 5.0

Current investments 8,056 7,229 11.4

Inventories 17,288 14,165 22.0

Trade receivables 1,971 1,649 19.5

Cash and bank balances 13,705 17,699 (22.6)

Short term loans and advances 145 132 9.3

Other current assets 714 976 (26.9)

Total current assets 41,878 41,851 0.1

Total uses of funds 80,896 78,997 2.4

Source: Company


NESTLE INDIA


Financial Snapshot (INR mn)

Year to December Q2CY21 Q2CY20 % change Q1CY21 % change YTD21 CY21E CY22E

Net domestic sales 33,050 29,077 13.7 34,420 (4.0) 67,470

Add: Export sales 1,574 1,337 17.7 1,582 (0.5) 3,156

Net sales 34,624 30,415 13.8 36,002 (3.8) 70,626 1,49,957 1,65,661

Other operating income 144 90 58.9 106 35.1 250 598 615

Total income 34,767 30,505 14.0 36,108 (3.7) 70,875 1,50,555 1,66,277

COGS 14,948 13,319 12.2 14,976 (0.2) 29,924 63,732 70,075

Staff cost 3,783 3,696 2.4 3,681 2.8 7,464 17,245 18,554

Other expenditure 7,697 5,906 30.3 8,151 (5.6) 15,848 33,140 36,114

Total expenditure 26,428 22,921 15.3 26,808 (1.4) 53,236 1,14,117 1,24,743

EBITDA 8,339 7,584 9.9 9,301 (10.3) 17,640 36,438 41,534

Depreciation 953 924 3.1 936 1.8 1,889 3,630 4,228

EBIT 7,386 6,660 10.9 8,364 (11.7) 15,750 32,808 37,306

Interest Expense 517 408 26.7 540 NM 1,057 70 70

Other income 295 379 (22.3) 297 (0.6) 591 2,393 2,462

Provision for contingencies -141 109 (229.8) 2 NM -139 1,000 1,000

Profit Before Tax 7,305 6,523 12.0 8,119 (10.0) 15,424 34,131 38,698

Provision for Tax 1,919 1,657 15.8 2,096 (8.4) 4,015 8,874 10,061

Reported Profit 5,386 4,866 10.7 6,023 (10.6) 11,408 25,257 28,636

Adjusted Profit 5,386 4,866 10.7 6,023 (10.6) 11,408 25,257 28,636

No. of Shares outstanding (mn) 96 96 96 96 96 96

Adjusted Diluted EPS 55.9 50.5 62.5 118.3 261.9 297.0

as % of net revenues 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

COGS 43.0 43.7 (67) 41.5 152 42.2 42.3 42.1

Staff expenses 10.9 12.1 (123) 10.2 69 10.5 11.5 11.2

Others 22.2 19.4 281 22.6 (41) 22.4 22.0 21.7

EBIDTA 24.0 24.9 (88) 25.8 (177) 24.9 24.2 25.0

EBIT 21.2 21.8 (59) 23.2 (192) 22.2 21.8 22.4

PBT 21.0 21.4 (37) 22.5 (147) 21.8 22.7 23.3

Adjusted Profit 15.5 16.0 (46) 16.7 (119) 16.1 16.8 17.2

Tax rate 26.3 25.4 87 25.8 45 26.0 26.0 26.0

Source: Company, Edelweiss Research

NESTLE INDIA



Company Description

Nestle, a subsidiary of its parent Nestlé S.A. of Switzerland, is India’s third largest

FMCG company after HUL and ITC. The company set up its first factory at Moga,

Punjab, to develop milk production. Over the years, Nestle has set up seven factories

across the country and is now involved in manufacturing and marketing of a range

of quality products. It has well-established brands, including Maggi, Nescafe,

Lactogen, KitKat and Milkmaid. Nestle enjoys leadership in its core categories like

baby foods, instant noodles and instant coffee. It enjoys a distinct advantage over

competitors in the F&B space on account of its strong focus on developing products

around the nutrition, health, and wellness platform, and a culture of renovation and

innovation in its offerings, backed by strong parent support.

Investment Theme

Nestle is one of the best plays on the Indian processed food industry, which has

multiple growth drivers in place, including low penetration levels, rising income

levels, urbanisation and changing lifestyle. Nestle, with established brands across

food categories, is expected to be a major beneficiary of this growth. The new MD

has embarked on a journey of regaining growth and has already taken significant

corrective measures. Post regaining majority of the market share in Maggi, the

company is also focusing on new launches in other than noodles categories like

dairy, chocolates and beverages. This will help revive growth in other segments and

will also reduce reliance on the noodles category. The likely introduction of new

brands from the global portfolio and entry in new categories will be positive

Key Risks

Sharp increase in input costs

Sharp rise in prices of key inputs such as milk, wheat flour, edible oils and sugar could

adversely impact margin.

Competition from new entrants

ITC and Patanjali are key aggressive players in the noodles category.

Failure of new products

Nestle has launched premium variants in various categories such as chocolates,

noodles, ketchup and dairy products, which could hit margin, in case they do not

click in the market.


NESTLE INDIA


Additional Data Management

MD and Chairman Mr. Suresh Narayanan

CFO Mr. Shobinder Duggal

Director Mr. Matthias C. Lohner

Non-Executive Director

Mr. R. V. Kanoria

Auditor BSR & Co. LLP

Holdings – Top 10* % Holding % Holding

LIC 3.04 Vanguard 0.65

SBI funds 1.51 Uti AMC 0.48

Axis AMC 1.23 Standard Life A 0.34

Arisaig 1.03 Mitsubishi 0.26

Blackrock 0.82 Norges Bank 0.23

*Latest public data

Recent Company Research Date Title Price Reco

20-Apr-21 Scrumptious show; Result Update 17,090 Buy

24-Feb-21 Robust plank to drive double-digit sales; Company Update

16,170 Buy

16-Feb-21 Revenue in line; staff cost nibbles marg; Result Update

17,217 Buy

Recent Sector Research Date Name of Co./Sector Title

24-Jul-21 ITC Cigarettes impacted; FMCG resilient; Result Update

22-Jul-21 Hindustan Unilever Strong volume; margins to look up in H2; Result Update

19-Jul-21 Godrej Consumer Holy smoke: Decoding HI resurgence; Company Update

Rating Interpretation

Source: Bloomberg, Edelweiss research

Daily Volume

Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage

Buy Hold Reduce Total

Rating Distribution* 170 54 19 244

>50bn >10bn and <50bn <10bn Total

Market Cap (INR) 214 40 5 259

*1 stocks under review

Rating Rationale

Rating Expected absolute returns over 12 months

Buy: >15%

Hold: >15% and <-5%

Reduce: <-5%

TP11,502

TP11,872

TP19,215

TP21,796

TP12,850

TP15,804

9325

11820

14315

16810

19305

21800

Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

(IN

R)

NEST IN Equity Buy Hold Reduce0

2

4

6

8

10

Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

(Mn

)

NESTLE INDIA



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objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business

with ESL.

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk.

Research analyst has served as an officer, director or employee of subject Company: No

ESL has financial interest in the subject companies: No

ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report.

Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

Subject company may have been client during twelve months preceding the date of distribution of the research report.

There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer.

A graph of daily closing prices of the securities is also available at www.nseindia.com

Analyst Certification:

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

http://www.nseindia.com/


NESTLE INDIA


Additional Disclaimers

Disclaimer for U.S. Persons

This research report is a product of Edelweiss Securities Limited, 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 Edelweiss Securities Limited 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 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 the 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, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Disclaimer for Canadian Persons

This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst.

This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons

In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors.

Disclaimer for Hong Kong persons

This report is distributed in Hong Kong by Edelweiss Securities (Hong Kong) Private Limited (ESHK), a licensed corporation (BOM -874) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to Section 116(1) of the Securities and Futures Ordinance “SFO”. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The report also does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual recipients. The Indian Analyst(s) who compile this report is/are not located in Hong Kong and is/are not licensed to carry on regulated activities in Hong Kong and does not / do not hold themselves out as being able to do so. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved.

Aditya Narain

Head of Research

[email protected]

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