retail equity research escorts ltd...

3rd November 2016

Normal monsoon to drive growth in FY17... Tractor industry has grown after a gap of two years led by the normal monsoon and government initiatives towards increasing farm productivity through farm consolidation and farm mechanization. EL will be a big beneficiary from these initiatives because 80% of the revenue comes from Tractor sales and is well placed to capitalize these opportunities given its recent product launches and strategic decisions to improve distribution channels. We expect revenue to grow at a CAGR of 20% led by 19% growth in tractor sales over FY16-18E

Recent product launches to plug the gap Apart from the conducive environment, EL has launched 12 new products including the innovative Anti-Lift Tractor (ALT) to bridge the gap in its portfolio. Secondly, EL separated its dealership for its premium and economy brands, „Farmtrac‟ (12.6% Market share) & „Powertrac‟ (11.1% market share) respectively to improve its service quality and brand visibility. Lastly, to address the lower penetration in southern market, EL has taken strategic decisions including focused support on its top dealers which is expected to

convert in the form of more volumes.

EBITDA Margin to improve… We expect EBITDA margin to expand from 4.6% in FY16 to 8.6% in FY18E on the back of strong tractor volume growth and favorable product mix. Expectation of improvement in EBITDA margin is also justifiable on the back of initiatives taken by EL to lower raw material costs through better value engineering & vendor management and to reduce employee cost through rationalization of manpower.

Valuations At CMP EL is trading at P/E of 21.7x & 14.9x on FY17E & FY18E. We expect valuation to improve ahead due to better earnings outlook. Hence, we value EL at 17x (13% premium over 3 year historical average) on FY18E EPS and arrive at a target price of Rs 425 with „Buy‟ rating.

RETAIL EQUITY RESEARCH

ESCORTS LTD Rating as per mid Cap 12 month investment period Auto – Tractors & Construction Equipments

BSE CODE:500495 NSE CODE: ESCORTS CMP Rs371 TARGET Rs425 RETURN 15%

Bloomberg CODE: ESC IN SENSEX: 27,527

Company Data

Market Cap (cr) Rs4,545

Enterprise Value (cr) Rs4,847

Outstanding Shares (cr) 12.3

Free Float 54%

Dividend Yield 0.32%

52 week high Rs414

52 week low Rs113

6m average volume (cr) 0.13

Beta 1.0

Face value Rs10

Shareholding % Q4FY16 Q1FY17 Q2FY17

Promoters 43.0 43.0 43.0

FII‟s 8.3 8.9 12.0

MFs/Insti 3.5 3.1 3.8

Public 45.2 45.0 41.2

Total 100.0 100.0 100.0

Price Performance 3mth 6mth 1 Year

Absolute Return 76.4% 177.6% 150.6%

Absolute Sensex -1.4% -3.4% -11.4%

Relative Return* 78.9% 187.4% 182.9% *over or under performance to benchmark index

Y.E Mar (Rscr) FY16 FY17E FY18E

Sales 3,472 4,182 4,988

Growth (%) (12.9) 21.5 19.2

EBITDA 160 305 429

EBITDA Margins% 4.6 7.3 8.6

PAT Adj. 89 209 306

Growth (%) 19.6 133.9 46.2

Adj.EPS 7.5 17.1 25.0

Growth (%) 19.6 133.9 46.2

P/E 49.5 21.7 14.9

P/B 2.0 1.9 1.8

EV/EBITDA 29.6 16.0 11.2

ROE (%) 4.9 10.1 14.0

D/E 0.1 0.1 0.1

20

120

220

320

420

Nov-15 Feb-16 May-16 Aug-16 Nov-16

EL Sensex Rebased

GEOJIT BNP PARIBAS Research COMPANY INITIATING REPORT

Buy

Re-rating in valuation on strong outlook... Escorts Ltd (EL) is the third largest Agricultural tractor manufacturer in India. It has a strong presence in the north and west market, with an overall market share of 10% as on FY16.

Normal monsoon and government initiatives to encourage farm mechanization will lead to strong demand for tractors.

Strong revenue growth of 22%YoY for Q2FY17 was led by higher volume growth of 35%YoY from tractor sales.

Recent product launches to plug the gap in the existing portfolio will increase volume growth.

We expect revenue to grow at a CAGR of 20% led by 19% growth in tractor sales over FY16-18E.

EBITDA margin to expand by 400bps over FY16-18E on the back of volume growth & cost rationalization.

At CMP, EL is trading at P/E of 22x & 15x on FY17E & FY18E. We value EL at a P/E of 17xFY18E EPS with a target price of Rs425 and recommend Buy.

Benign raw material cost continues to colour the margins, Gross margin improved by 328bps to 47.1% & EBITDA margin by 327bps to 19.2%.

We are factoring revenue & earnings CAGR of 13.3% and 19.7% respectively over FY15-18E.

At the CMP of Rs839 we maintain our accumulate rating on the stock while increasing our target price to Rs942, as we rollover our valuation to FY18E. Our target price is based on P/E of 37x on FY18E EPS of Rs25.5

Valuations EL‟s valuation witnessed a significant re-rating after the IMD forecast of above normal monsoon for FY17. During the last two years FY14-16, witnessing an industrial slowdown due to deficit monsoon, EL had a de -growth of 12% CAGR in its volume. EL‟s 80% of the revenue comes from tractor segment. During H1FY17, EL's domestic tractor segment reported a volume growth of 22% against the industry growth of 6%. We expect the volume growth to sustain at 21% for the entire year FY17.

Volume revival after 2 years slowdown After two year of down cycle, domestic tractor industry is showing sign of reap due to positive outlook on monsoon. Sentiment of the farmers and industry was dampened due to two consecutive years of deficient rainfall and then rain just before harvesting season. Indian tractor industry declined by 13% to 551k units and 10.5% to 493k units in FY15 and FY16 respectively. Further, sluggish growth was also due to economic slowdown, lower thrust by government and weak rural demand. The rural economy was also under stress during these years due to droughts and fall in global prices of primary agricultural commodities. During FY16-17, budget announcements and actions by the government has endeavored to provide a boost to

agricultural sector and thereby to rural economy. Government has proposed almost 84% increase in budget allocation for agriculture and irrigation sector. Other supportive actions like Leniency in credit facilities, crop insurance schemes, organic farming bodes well for the growth. These efforts have led to a visible rebound in the industry coupled with timely sufficient rainfall. Tractor industry has witnessed a 6%YoY growth during H1FY17 to 292k units, thereby bridging the gap from the base.

Tractor industry poising for double digit growth As India‟s economic growth is projected in the range of 7.6%- 8.2% for FY17-FY18 the excess agricultural farm output is essential for a sustainable growth to limit inflationary pressure. We expect tractor industry is likely to register a growth of 10–12% in FY18E driven by normal monsoon and growing farm consolidation. Increasing need for farm power per hectare and increasing substitution of manual and animal labour for various farming operation continue to drive the structural growth for higher HP tractor sales. Government‟s more focus agenda towards Krishi Abhiyan on farm mechanization through Rashtriya Krishi Vikas Yojana schemes enable large number of farmers to own tractors. The increase of tractor operation also improved owing to increase in 'custom hiring' for agricultural products, supply of famers and material for farming provided by the government through these schemes. These efforts enable the new comers who cannot afford to purchase the high end agriculture machineries and equipments to know the use of farm mechanization.

We value at a P/E of 17x At CMP, EL is trading at P/E of 22x & 15x on FY17E & FY18E. With expansion into new segment & new products launches, we believe that EL is heading towards a new growth phase. We forecast EL‟s tractor volume to grow at double digit (19% CAGR FY16-18E), supported by the normal monsoon and policy action initiated to promote agricultural & irrigation space. We expect revenue and earnings to grow at 20% & 82% CAGR for FY16-18E. The stock has been re-rated to a range of 20x-25x since April 2016 from a range of 8x-18x during FY15-16. Hence, we value EL at 17x (13% premium over 3 year historical average) on FY18E EPS and arrive at a target price of Rs 425 with „Buy‟ rating.

1 1 Yr fwd P/E band

Source: Company, Geojit BNP Paribas Research.

1 Industry Tractor volume trend


537 528

633551

493543

608

0

200

400

600

800

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Domestic tractor Volume(in '000)

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5

10

15

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25

30

Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16

I Year fwd P/E Avg 1+SD

Avg 1-SD Avg I yaer fwd P/E

Peer comparison Company Sales (cr) EBITDA Margin %

FY16 FY17E FY18E FY16 FY17E FY18E

EL 3,472 4,005 4,667 4.6 7.3 8.6

VST Tillers 648 731 830 17.5 17.7 18.0

M&M 40,397 46,982 52,682 10.5 11.5 11.8

Company P/E ROE%

FY16 FY17E FY18E FY16 FY17E FY18E

EL 30.1 21.0 14.9 20.9 22.1 23.0

VST Tillers 22.4 20.2 17.4 18.9 17.7 17.8

M&M 23.0 22.2 18.7 15.5 16.2 16.5 Source: Bloomberg, Company, Geojit BNP Paribas Research

Investment Rationale Gearing up for next phase of growth… After two years of consecutive weak monsoon during FY14-16 tractor industry is showing sign of revival due to normal monsoon this year. Escorts will benefit from the initiatives taken to introduce 12 new models, including the innovation in the Anti-lift tractor to bridge its portfolio, which accounts for 25% of the domestic market share.

EL’s Tractor volume

Source: Company, Geojit BNP Paribas Research

Escorts volume growth will be boosted by: Indian metrological department has forecasted above

normal monsoon for FY17

Launch of 12 new models including innovative Anti lift tractor to bridge gap in its portfolio.

Separate dealership for „Powertrac‟ & „Farmtrac‟ in northern India to increase service area of dealer.

Focused support to selected dealers in south and west India to increase market share.

Revival in construction segment due to rise in road sector tenders.

EL‟s business segment includes manufacturing of brakes, couplers & shockers to Railway (Government Allocation for Railway over 2015-19 Rs1,167bn).

EL is expected to grow at double digit during FY16-18 In Agricultural machinery segment EL is expected to grow at 20% CAGR above the industry growth. Desired monsoon, new models and concentration on distribution channel strengthen our positive view on the company. Additionally, increase in the minimum support price (MSP) which would support farmers to increase their farming productivity will act as a boost to EL's volume growth. Improving monsoon prospects and widening cropping area will bounce back the tractor volume in north and central India. Currently EL is focussing to increase its presence in southern and western region where M&M controls majority of shares. EL is also separating its distribution channels for its Farmtrac and Powertrac brands and also concentrating on the top dealer by providing training and support. Currently 80%of the tractor revenue is coming from the North and Western region (UP, Hariyana, Punjab, Rajasthan and bihar). In south, EL captured only 3% & 5% market share, mainly from AP and Karnataka. Given the easy financing schemes EL is expected to further penetrate from the current ~30% to ~50-60% over the medium term.

New tractor product to drive volume... Escorts „Farmtrac‟ and „Powertrac‟ brands are contributing significantly towards tractor segment revenue and both the brands have decent presence in 31-40HP (12.6% market share) and 41-50HP (11.1% market share) category respectively. The launch of its innovative product „Anti lift Tractor‟ (ATL) is high in demand due to its safety and unique features. Introducing ALT could also help to bridge the gap in its portfolio. Products in XP series, Classic series and Euro series are also in demand due to its specification as per global standards. EL launched 12 new tractors in 12HP to 110HP range under flagship brands. Apart from being aesthetically superior, fuel efficient and powerful, new range of tractors come with CRDi engines that are in compliance with international emission norms to address global market. Escorts have improved 80bps in its market share to 11.2% in Q2FY17 from last quarter.

60,236

68,054

57,565

50,698

61,219

72,238

0

20,000

40,000

60,000

80,000

FY13 FY14 FY15 FY16 FY17E FY18E

Domestic Sales

Divest auto ancillary segment to focus core business The auto components segment which was poising significant loss in its business could find a deal in its place with Badve Engineering Ltd, Pune in all cash. This was as a part of the panned strategic reorientation of the business to focus on core verticals. The segment has been a weak link having an accumulated loss of Rs16cr in FY16. The management is committed to use its sale amount on its core business and reducing the exposure in loss making entities.

Bid to gain market share Escorts Agri business has seen a market share of 14% in FY09 which has came down to 10.3% in FY16 primarily due to gaps in portfolio, lack of concentration in the south and west market and lack of training to dealers about new modern techniques. Product gaps in 41-50hp category and haulage tractors failed to move in line with the industry trends. During FY13-16 opportunity market (South & East) grew by 2.5% whereas EL‟s strong market (North & West) de-grew by -5.2%. To arrest these issues, EL has launched 12 new models including 4 new models under the 41-50hp category and 2 new models of Anti – lift tractor for haulage activity in the North-West market. To address the opportunity market, steps have been taken to focus on selected dealers by providing them high end product training to adapt to modern techniques, providing high margin, financing and sales support. To address the service quality and brand visibility EL has formed separate distribution channels for „Powertrac and Farmtrac‟ tractors in the strong market. EL has also introduced Euro 45 & Euro 50 series under the „Powertrac‟ brand and classic series brand under the 41-50hp category under the „Farmtrac‟ brand in FY16. In FY13, EL agri segment had 13.1% market share and 9.7% in FY15.

Escorts Construction Equipments (ECE) After four years of continuous decline the construction industry is showing some sign of recovery in the first quarter. The government‟s policy action and investment in key areas like road infrastructure development and smart cities likely to fuel the construction industry. It is also expected that various projects in transportation, power, and urban infrastructure will drive the market. The served industry has shown a tremendous growth of 58%. ECE is present in the major equipments segments like Earth moving, material handling, road construction. In which served industry like Backhoe loaders, crawler excavators, cranes & compactors leading the race. Similarly, after registering four years of down cycle EL's ECE segment reported a volume growth of 45.5%YoY to 739 units in 1HFY17. We expect the base effect trend to continue by registering a growth of 28% CAGR during FY16-18E. ECE currently accounts for 13% towards revenue contribution. Production capacity of 10,000 units per annum is sufficient for future requirement. Given government initiatives in the union budget for the infrastructure sector and modernizing the various key elements of the sector we expect the served industry will grow at 26% CAGR for FY16-18E.

Escorts’ Railway Division (ERD) Given the government‟s thrust for revitalizing railway sector, the future outlook of this business sounds encouraging. EL is one of the key suppliers to Indian railway for products including Brake systems, Couplers, Shock Absorbers etc with a focus on safety, comfort and environment. With the help of in house R&D facility EL is poised to capture immense opportunity from Indian railway. Railway sector has a potential to grow at a phenomenal rate in the years ahead. With focus on freight corridors, high capacity rolling stock, last mile rail linkages, high speed trains and port connectivity, the opportunities in this sector are in abundance. The current order book stands at Rs100cr which would be executed in the next 7-8 months. Currently the segment contributes 6% to the overall revenue and expected to grow by 8%CAGR in revenue for FY16-18.

Operational Efficiency EL is currently reaping the benefits from lower commodity price resulted from its strategic decision to lower raw material cost through value engineering & vendor management and to bring the cost in-line with industry at 67-68%. Also to improve the operational efficiency, steps have been taken to rationalise manpower by providing VRS to employees ( VRS provided to 350 blue collar jobs in FY15 and is likely to

Tractor industry-FY16.


increase to 600-700 employees) to reduce the head count to 1500 nos from 2500 in the next 3 years.

Export to contribute EL‟s revenue in long term. EL‟s export market constitutes 10% currently, is looking to diversify into key target market such as Middle East, Africa, SE Asia and specific European and US market. To reduce domestic cyclicality EL is planning to increase its export market to 20-30% in the served construction equipments over the next 3-5 years. EL„s larger portion is to Cambodia, Bangladesh, South Africa, Poland and Germany. In the tractors segment, EL has designed 75-90hp category tractors that will hit the international market by August. EL is seeing Asia and Africa have good potential for some of the new products.

Sufficient capacity for future growth EL has a capacity of 100k tractors per year where utilization levels are 51% in FY16. After a sluggish growth the management is aimed to achieve its full capacity with an aspiration to reach ~100k tractors over the next three to four years, assuming the market comes back to its historical growth rate. The construction business of escorts which has been struggling for the last 4 years has started showing some revival. The industry recorded a tremendous growth of 46% in 1HFY17. Current capacity is 10000 units and 26% is in utilization. The served construction equipment volumes were up by 31%YoY in H1FY17 to 1120 machines. We assume higher volume growth in all segments over base case scenario and leading to higher utilization.

Financials

Top line to grow by 20% CAGR FY16-18E After 2 years of downside till FY16 due to deficit monsoon, the tractor industry has shown sign of revival due to normal monsoon for FY17. We expect revenue to grow at a CAGR of 20% led by 19% growth in domestic tractor sales over FY16-18E. EL‟s Tractor segment constitutes 80% to overall revenue. Reason for the growth is also led by government‟s priority towards agricultural development through farm mechanism, easy credit facilities and ensuring self dependent on essential commodities. To capitalize this opportunity, EL has taken strategic decision to plug gap in the portfolio by launch of 12 new models including the innovative Anti-lift tractors. EL has separated distribution channels for „Powertrac‟ and „Farmtrac‟ in north markets to increase service quality and brand visibility. To address the lower penetration in southern

market, EL has taken strategic decisions including focused

support on its top dealers which is expected to convert in the

form of more volumes. Escorts construction Equipments (ECE) which constitutes 13% to revenue is widely depend on the infrastructure development and its speedy implementation by unveiling the struck projects in mining, road infrastructure, smart cities etc. FY17 started with 31%YoY growth in 1st half which really shows the sign of revival in the served construction industry. We expect ECE to grow at a CAGR of 28% during FY16-18E. Escorts Railway business contributes 6% to revenue has been a major player in equipment manufacturing. The Indian railway that envisages massive capital outlay in its 5 year plan throws huge opportunities for companies like Escort. H1FY17 revenues are up by 12%YoY, current order book stood at Rs110cr which will get executed in next 7-8 months..

Revenue mix


Revenue (cr.)


EBITDA margin to improve… We expect EBITDA level to improve and reach to the pre down cycle levels by FY18E. We expect EBITDA margin to improve from 4.6%% in FY16 to 7.3% in FY17E and 8.6% in FY18. We believe that improvement in the margin will be driven by sharp increase in the tractor volume, soft commodity price and continuous cost control initiatives. Additionally, the high discount per vehicle is currently at the peak and going forward once the demand stabilizes EL will reduce the discount & thereby benefit margins.

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Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17

Auto components Railway

Construction Tractors

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4 629

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88

17% 20%

62%

-37% -13%

20% 19%

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EBITDA (cr.)


About the company The Escorts Ltd. is an India-based Company operating in the sectors of Agricultural machinery, construction & material handling equipment, railway equipment and auto components. Product categories include Tractors, Construction Equipment, Auto Products such as shock absorbers, struts and telescopic front, and Railway Products. The Company offers more than 45 variants of tractors from 25 to 80 HP. Its brands of tractors include Escort, Farmtrac and Powertrac. It also manufactures diverse range of equipment like cranes, loaders, vibratory rollers and forklifts.

Risks

Unfavorable monsoon is the biggest risk for agriculture. Delayed or deficit monsoon will affect the sales growth.

Decline in price or lower MSP will reduce the demand for Agri-machinery inputs.

Tractors sales post 80% of the revenue, any subdued demand in the sector affects directly to its sales.

Anti Lift Tractors

Backhoe Tractors

231 148 182

381

161 160 305

429

8.4%

4.6% 4.7%

6.1%

4.0%4.6%

7.3%8.6%

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2.0%

4.0%

6.0%

8.0%

10.0%

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100

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500

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Standalone Financials

Profit & Loss Account

Y.E March (Rs cr) FY12-14A FY15A FY16A FY17E FY18E

Sales 6,292 3,986 3,472 4,182 4,988

% change 61.6 (36.6) (12.9) 20.5 19.2

EBITDA 381 161 160 305 429

% change 109.2 (57.7) (0.9) 90.8 40.5

Depreciation 83 66 60 61 61

EBIT 298 95 100 245 368

Interest 111 57 51 44 42

Other Income 81 61 58 70 93

PBT 187 38 49 201 326

% change 209.7 (74.9) 34.6 205.2 49.4

Tax 28 (6) 2 81 113

Tax Rate (%) 0.1 (0.1) 0.0 0.3 0.3

Reported PAT 245 75 89 199 306

Adj.* 0 0 0 (10) 0

Adj. PAT 245 75 89 209 306

% change 251.9 (69.5) 19.6 133.9 46.2

No. of shares (cr) 12.3 12.3 12.3 12.3 12.3

Adj EPS (Rs) 21 6.3 7.5 17.1 25.0

% change 251.5 (69.5) 19.6 127.9 46.2

DPS (Rs) 0.0 0.5 0.6 1.2 1.2

Cash flow


Net inc. + Depn. 321 151 158 340 479

Non-cash adj. 23 3 56 78 (8)

Changes in W.C (32) (127) 22 (328) (121)

C.F.O 347 10 229 90 356

Capital exp. (118) (52) (54) (135) (120)

Change in inv. (21) (11) (23) 10 (5)

Other invest.CF 77 39 38 0 0

C.F - investing (62) (25) (66) (125) (125)

Issue of equity 0 0 1 0 0

Issue/repay debt (117) 45 (126) 25 (55)

Dividends paid (118) (56) (59) (14) (14)

Other finance.CF - - - - -

C.F - Financing (236) (11) (184) 11 (69)

Chg. in cash 49 (25) (21) (24) 156

Closing cash 262 236 216 212 368

Balance Sheet


Cash 262 236 216 212 368

Accounts Receivable 352 397 424 481 547

Inventories 551 416 390 349 372

Other Cur. Assets 9 15 37 103 123

Investments 631 636 599 791 843

Gross Fixed Assets 2422 2410 2449 2584 2704

Net Fixed Assets 1624 1567 1557 1531 1490

CWIP 30 19 21 0 0

Intangible Assets 19 16 15 115 215

Def. Tax (Net) 7 48 40 (37) (29)

Other Assets 7 36 37 0 0

Total Assets 3,493 3,387 3,336 3,545 3,929

Current Liabilities 252 246 211 248 297

Provisions 200 201 189 206 205

Debt Funds 350 408 302 327 272

Trade Payable 830 701 729 690 790

Equity Capital 119 119 119 123 123

Reserves & Surplus 1712 1677 1753 1954 2242

Shareholder‟s Fund 1831 1796 1872 2076 2368

Total Liabilities 3,493 3,387 3,336 3,545 3,929

BVPS (Rs) 179 176 183 203 232

Ratios

Y.E March FY12-14A FY15A FY16A FY17E FY18E

Profitab. & Return

EBITDA margin (%) 6.1 4.0 4.6 7.3 8.6

EBIT margin (%) 4.7 2.4 2.9 5.9 7.4

Net profit mgn.(%) 3.9 1.9 2.6 5.0 6.1

ROE (%) 14.2 4.1 4.9 10.6 13.8

ROCE (%) 9.1 3.4 3.7 6.7 8.6

W.C & Liquidity

Receivables (days) 20.4 34.3 43.2 39.5 37.6

Inventory (days) 44.6 61.9 61.4 47.6 38.8

Payables (days) 20.4 31.9 34.8 29.6 29.4

Current ratio (x) 3.2 2.9 3.2 3.4 3.7

Quick ratio (x) 2.9 3.1 3.6 2.8 3.1

Turnover &Levg.

Gross asset T.O (x) 2.7 1.7 1.5 1.7 2.0

Total asset T.O (x) 1.8 1.2 1.0 1.2 1.3

Int. covge. ratio (x) 2.7 1.7 1.9 5.6 8.8

Adj. debt/equity (x) 0.1 0.1 0.1 0.1 0.1

Valuation ratios

EV/Sales (x) 0.8 1.2 1.4 1.2 1.0

EV/EBITDA (x) 12.8 30.7 30.3 16.0 11.2

P/E (x) - 59.3 49.5 21.7 14.9

P/BV (x) 2.1 2.1 2.0 1.9 1.8

Recommendation Summary (last 3 years)

Dates Rating Target

3rd November 2016 Buy 425

Source: Bloomberg, Geojit BNP Paribas Research

Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is 10% or more. Hold - Upside or downside is less than 10%. Reduce - Downside is 10% or more.

Buy - Upside is 15% or more. Accumulate* - Upside between 10% - 15%. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute „Accumulate‟ as Buy and „Reduce‟ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION

I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect my personal view about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit BNP Paribas Financial Services Limited, hereinafter referred to as GBNPP.

COMPANY OVERVIEW

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GBNPP and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.

FUNDAMENTAL DISCLAIMER

We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by GBNPP without any liability/undertaking/commitment on the part of itself or any of its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report.

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Geojit BNP Paribas, 34/659-P, Civil Lane Road, Padivattom, Kochi – 682024. Toll Free Number: 1800-425-5501 / 1800-103-5501, Paid Number: 91 – 0484 – 3911777, Email id: [email protected] Research Entity SEBI Registration Number: INH200000345

The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.

JURISDICTION

The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk.

REGULATORY DISCLOSURES:

GBNPP‟s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) & Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), GBNPP affirms that we are a SEBI registered Research Entity and in the course of our business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities.

In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision:

1. Disclosures regarding Ownership*:

GBNPP confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. (ii) It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein.

Further, the Analyst confirms that: (i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the

subject company. (ii) he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered

2. Disclosures regarding Compensation:

During the past 12 months, GBNPP or its Associates:

(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not * received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company and is in receipt of compensation from the subject company.” (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report.

3. Disclosure by GBNPP regarding the compensation paid to its Research Analyst:

GBNPP hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services or transactions pertaining to trading in securities of companies contained in the Research Reports.

4. Disclosure regarding the Research Analyst‟s connection with the subject company:

It is affirmed that the I Saji John Research Analyst(s) of GBNPP have not served as an officer, director or employee of the subject company

5. Disclosure regarding Market Making activity:

Neither GBNPP/its Analysts have engaged in market making activities for the subject company.

Please ensure that you have read the “Risk Disclosure Documents for Capital Market and Derivatives Segments” as prescribed by the Securities and Exchange Board of India before investing.

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