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  • 8/3/2019 Sarda Energy and Minerals

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    Please refer to important disclosures at the end of this report 1

    Particulars (` cr) 2QFY12 2QFY11 % chg (yoy) 1QFY12 % chg (qoq)Net sales 251 200 25.5 254 (1.0)EBITDA 35 16 118.9 37 (3.4)

    EBITDA margin (%) 14.1 8.1 599bp 14.4 (34)bp

    Adj. net profit 23 1 1,545.2 14 62.2Source: Company, Angel Research

    For 2QFY2012, Sarda Energy and Minerals (SEML) reported net sales growth of

    25.5% yoy to`

    251cr. Although SEML reported net loss during the quarter,its adjusted net profit stood at `23cr.We recommend Accumulate on the stock.Forex loss dents SEMLs 2QFY2012 bottom line: During 2QFY2012, SEMLs netsales grew by 25.5% yoy to `251cr due to higher realization in the steel segment

    coupled with higher sales volume of power. Blended steel realization grew by

    71.0% yoy to `33,794/tonne on account of improved product mix and higher

    product prices. EBITDA increased by 118.9% yoy to `35cr due to strong

    profitability performance from the steel segment and higher power sales.

    The company reported net loss of `10cr, primarily because of exceptional items

    mainly related to forex losses. Excluding these exceptional items of `33cr, SEMLs

    adjusted PAT stood at`

    23cr in 2QFY2012, compared to`

    1cr in 2QFY2011.Outlook and valuation: We continue to believe that SEML is well poised tobenefit from a) backward integration into coal and iron ore, b) commercial

    production of pellets and c) increased power and ferro alloy production.

    Moreover, firm sponge iron and billet prices should lead to higher capacity

    utilization in FY2012 and FY2013, thereby leading to higher sales volumes.

    A key catalyst for the stock would be restarting of its iron ore operations at

    Rajnandgaon. We recommend Accumulate on the stock with a target price of`137, valuing the stock at 5.2x FY2013E EV/EBITDA.Key financials (Standalone)Y/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet sales 523 875 992 1,070% chg (44.9) 67.4 13.3 7.9

    Net profit 18 43 50 55% chg (89.0) 133.3 15.4 10.8

    FDEPS (`) 5.4 12.0 13.2 14.7OPM (%) 14.7 13.4 13.8 17.1

    P/E (x) 22.0 9.9 9.1 8.2

    P/BV (x) 0.7 0.6 0.6 0.6

    RoE (%) 11.7 7.9 7.0 7.3

    RoCE (%) 3.6 4.9 4.5 5.3

    EV/Sales (x) 1.5 1.0 0.9 0.8

    EV/EBITDA (x) 10.1 7.8 6.7 4.9

    Source: Company, Angel Research

    ACCUMULATECMP `120

    Target Price `137

    Investment Period 12 months

    Stock Info

    Sector

    Bloomberg Code SEML@IN

    Shareholding Pattern (%)

    Promoters 66.5

    MF / Banks / Indian Fls 7.2

    FII / NRIs / OCBs 7.0

    Indian Public / Others 19.3

    Abs. (%) 3m 1yr 3yr

    Sensex (9.5) (16.0) 94.7

    SEML (44.2) (56.4) 73.5

    10

    16,939

    5,098

    SAEM.BO

    429

    1.7

    382/117

    65451

    Steel

    Avg. Daily Volume

    Market Cap (` cr)

    Beta

    52 Week High / Low

    Face Value (`)

    BSE Sensex

    Nifty

    Reuters Code

    Bhavesh ChauhanTel: 022- 39357600 Ext: 6821

    E-mail: [email protected]

    Sarda Energy and MineralsPerformance highlights

    2QFY2012 Result Update | Steel

    October 24, 2011

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 2

    Exhibit 1:2QFY2012 performance (Standalone)Y/E March (` cr) 2QFY12 2QFY11 yoy % 1QFY12 qoq %Net sales 251 200 25.5 254 (1.0)Raw material 163 140 16.5 170 (4.1)% of net sales 65.0 70.0 67.0

    Power & Fuel 3 2 30.0 4 (11.5)

    % of net sales 1.2 1.2 1.4

    Staff cost 10 8 24.9 9 3.4

    % of net sales 3.8 3.8 3.6

    Other expenditure 40 34 18.4 34 16.3

    % of net sales 16.0 16.9 13.6

    Total expenditure 216 184 17.3 217 (0.6)

    % of net sales 85.9 91.9 85.6

    Operating profit 35 16 118.9 37 (3.4)OPM (%) 14.1 8.1 14.4

    Other operating income - - - - -

    EBITDA 35 16 118.9 37 (3.4)EBITDA margins (%) 14.1 8.1 14.4

    Interest 5 6 (6.3) 6 (7.4)

    Depreciation 15 14 7.9 14 2.1

    Other income 4 12 (68.6) 2 55.3

    Exceptional items (33) 16 - (3) -

    Profit before tax (14) 25 (156.4) 16 (189.6)% of net sales (5.5) 12.3 6.1

    Tax (4) 7 (158.0) 5 (189.8)

    % of PBT 29.4 28.6 29.4

    Profit after tax (10) 18 11Adj. Profit after tax 23 1 1,545.2 14 62.2

    Source: Company, Angel Research

    Exhibit 2:Quarterly production volume(tonnes) 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 yoy % qoq %Sponge iron 59,112 50,329 59,353 51,466 57,995 61,914 56,886 (4.2) (8.1)

    Billets+ ingots 3,168 2,218 23,864 26,624 28,133 23,425 24,999 4.8 6.7

    Ferro alloys 13,522 14,463 15,994 16,195 14,580 13,876 15,878 (0.7) 14.4

    Power (mn units) 104 104 104 112 148 140 132 26.7 (5.4)

    Pellet - 54,615 18,741 45,848 54,464 56,144 71,497 281.5 27.3

    Wire rods - - 4,003 12,899 23,355 9,979 21,186 - 112.3

    Source: Company, Angel Research

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 3

    Exhibit 3:Quarterly sales volume(tonnes) 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 yoy % qoq %Sponge Iron 54,298 51,229 32,832 23,937 30,579 39,356 36,552 11.3 (7.1)

    Billets+ingots 2,564 5,104 17,078 11,644 5,611 9,716 9,798 (42.6) 0.8Ferro alloys 11,525 13,800 15,217 16,441 16,016 14,622 16,438 8.0 12.4

    Power (mn units) 21 21 3 7 42 40 20 592.9 (48.9)

    Wire rods - - 1,932 13,881 19,037 12,237 15,056 - 23.0

    Pellet - - - - 3,705 15,671 1,381 - (91.2)

    Source: Company, Angel Research

    Exhibit 4:Quarterly segment-wise sales performance(` cr) 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 yoy % qoq %Steel 94 95 99 109 139 162 157 58.8 (3.4)

    Ferro Alloys 75 113 103 105 92 79 89 (13.1) 13.2

    Others 9 10 1 15 15 14 7 830.1 (50.9)

    Less: Intersegment (0) (0) (2) (15) (2) (1) (1) (13.9) 16.0

    Net sales 178 218 200 214 245 254 251 25.5 (1.0)Source: Company, Angel Research

    Exhibit 5:Quarterly segment-wise EBIT performance(` cr) 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 yoy % qoq %Steel 10 16 4 11 18 22 24 556.2 9.1

    Ferro Alloys 21 26 14 9 6 7 10 (25.4) 44.6

    EBIT 30 43 17 19 24 29 - - -Source: Company, Angel Research

    Net sales growth driven by improved realization

    During 2QFY2012, SEMLs net sales grew by 25.5% yoy to `251cr due to higher

    realization in the steel segment coupled with higher sales volume of power.

    Blended steel realization grew by 71.0% yoy to `33,794/tonne on account of

    improved product mix and rise in product prices. Sponge iron sales volume grew

    by 11.3% yoy to 36,552 tonnes, while billets and ingots sales volume decreased by

    42.6% yoy to 9,798 tonnes in 2QFY2012. Power sales volume also increased by

    592.9% yoy to 20mn units. The company also sold 1,381 tonnes of pellets in

    2QFY2012.

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 4

    Exhibit 6:Quarterly net sales trend

    Source: Company, Angel Research

    Steel segment drives SEMLs EBITDA growth

    The companys EBITDA increased by 118.9% yoy to `35cr due to strong

    profitability performance from the steel segment and higher power sales. The steel

    segments EBIT increased by 556.2% yoy to `24cr, which was partially offset by

    lower EBIT of the ferro alloy segment, which declined by 25.4% yoy to `10cr.

    Exhibit 7:Quarterly EBITDA trend

    Source: Company, Angel Research

    Forex loss dents SEMLs bottom-line

    SEML reported net loss of `10cr during the quarter, primarily on account of

    exceptional items mainly related to forex losses. The company reported exceptional

    items of `33cr in 2QFY2012. Excluding these exceptional items, the company's

    adjusted PAT stood at `23cr in 2QFY2012 compared to `1cr in 2QFY2011.

    154174

    217

    200214

    245 254 251

    (20)

    0

    20

    40

    60

    80

    100

    120

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    160

    0

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    4QFY10

    1QFY11

    2QFY11

    3QFY11

    4QFY11

    1QFY12

    2QFY12

    (%)

    (`cr)

    Net sales (LHS) yoy change (RHS)

    3135

    50

    1621

    3137 35

    0

    5

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    0

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    1QFY11

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    (%)

    (`cr)

    EBITDA (LHS) EBITDA margin (RHS)

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 5

    Exhibit 8:Adjusted net profit trend

    Source: Company, Angel Research

    Investment rationale

    Captive iron ore mine expected to restart soon: In the recent past, SEML has notbeen able to procure iron ore from its captive mine at Rajnandgaon on account of

    Naxal activity in the region. Although there is lack of clarity on the timeline for the

    re-commencement of this mine, we believe commencement of production this

    mine should result in significant savings.

    Pellet production to lower raw-material costs: SEML started commercial productionof its 0.6mn tonne pellet plant in April 2010 and, over the last six months,structural problems have also been successfully resolved. The company expects

    steady production from 4QFY2012. Moreover, domestic prices of iron ore and

    pellets have risen over the past 18 months. Hence, we expect significant cost

    savings for the company on account of captive pellet production.

    Power capacity to increase: SEML plans to set up a greenfield power plant of350MW at Raigarh in two phases. The company has already acquired 250 acres

    of land. Although the public hearing is already complete, the consent to establish

    is pending yet. We have not factored the financial estimates from this power plant

    in our forecast model, as there are a few regulatory hurdles to be cleared.

    13

    17

    27

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    14

    23

    0

    2

    4

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    0

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    30

    3QFY10

    4QFY10

    1QFY11

    2QFY11

    3QFY11

    4QFY11

    1QFY12

    2QFY12

    (%)

    (`cr)

    Adj. Net profi t(LHS) Adj. Net margin (RHS)

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 6

    Outlook and valuation

    We continue to believe that SEML is well poised to benefit from a) backward

    integration into coal and iron ore, b) commercial production of pellets and

    c) increased power and ferro alloy production. Moreover, firm sponge iron and

    billet prices should lead to higher capacity utilization in FY2012 and FY2013,

    thereby leading to higher sales volumes. A key catalyst for the stock would be

    restarting of its iron ore operations at Rajnandgaon. We recommend Accumulateon the stock with a target price of `137, valuing the stock at 5.2x FY2013EEV/EBITDA.

    Exhibit 9:EV/EBITDA

    Source: Bloomberg, Angel Research

    Exhibit 10:P/E band

    Source: Bloomberg, Angel Research

    0

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    Apr-06 Mar-07 Feb-08 Jan-09 Dec-09 Nov-10 Oct-11

    (`

    cr)

    2x 5x 8x 11x 14x

    0

    200

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    1,000

    Apr-06 Mar-07 Feb-08 Jan-09 Dec-09 Nov-10 Oct-11

    (`)

    5x 10x 15x 20x

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 7

    Exhibit 11:P/BV band

    Source: Bloomberg, Angel Research

    Exhibit 12:Recommendation summaryCompanies CMP Target price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

    (`) (`) (` cr) (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13EBhushan Steel 326 - Neutral 6,918 - 4.1 4.1 0.5 0.5 8.5 7.5 13.8 12.2 7.9 7.4

    Monnet Ispat 463 549 Buy 2,977 18 10.3 7.8 1.3 1.1 8.6 6.2 12.9 16.1 8.1 10.5

    GPIL 113 177 Buy 358 56 3.3 2.0 0.5 0.4 2.6 1.7 14.8 20.0 15.2 19.9

    SEML 120 137 Accum. 429 14 9.1 8.2 0.6 0.6 6.7 4.9 7.0 7.3 4.5 5.3Source: Company, Angel Research

    0

    100

    200

    300

    400

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    700

    800

    900

    Apr-06 Mar-07 Feb-08 Jan-09 Dec-09 Nov-10 Oct-11

    (`)

    1x 2x 3x 4x

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 8

    Profit & Loss Statement (Standalone)

    Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EGross sales 703 1,032 556 946 1,072 1,156

    Less: Excise duty (78) (83) (33) (71) (80) (87)Net Sales 625 949 523 875 992 1,070Other operating income - - - - - -

    Total operating income 625 949 523 875 992 1,070% chg 71.6 51.8 (44.9) 67.4 13.3 7.9

    Total Expenditure 456 726 446 758 855 887

    Net Raw Materials 384 618 369 579 667 684

    Other Mfg costs 61 91 58 148 152 164

    Personnel 11 17 19 31 37 40

    Other - - - - - -

    EBITDA 168 223 77 117 137 182% chg 145.3 32.4 (65.6) 52.7 16.6 33.5

    (% of Net Sales) 26.9 23.5 14.7 13.4 13.8 17.1

    Depreciation 22 28 39 58 73 104

    EBIT 146 195 38 60 63 79% chg 217.3 33.4 (80.6) 56.9 6.4 24.5

    (% of Net Sales) 23.4 20.6 7.3 6.8 6.4 7.4

    Interest & other Charges 12 5 13 15 23 24

    Other Income 5 4 7 20 22 24

    (% of PBT) 3.6 1.9 22.4 31.0 35.1 30.5

    Share in profit of Associates - - - - - -

    Recurring PBT 139 194 32 64 62 79% chg 174.1 39.6 (83.3) 97.6 (3.0) 26.7

    Extraordinary Inc/(Expense) - (45) 45 6.5 - -

    PBT (reported) 139 149 77 71 62 79Tax 18 26 14 21 12 24

    (% of PBT) 12.8 17.4 18.1 29.8 20.0 30.0

    PAT (reported) 121 123 63 50 50 55 Add: Share of earnings of asso. - - - - - -

    Less: Minority interest (MI) - - - - - -

    Extraordinary Expense/(Inc.) - - - - - -

    PAT after MI (reported) 121 123 63 50 50 55ADJ. PAT 121 168 18 43 50 55% chg 185.1 38.7 (89.0) 133.3 15.4 10.8

    (% of Net Sales) 19.4 17.7 3.5 4.9 5.0 5.2

    Basic EPS (`) 35.6 49.4 5.4 12.0 13.9 15.4Fully Diluted EPS ( ) 35.4 49.0 5.4 12.0 13.2 14.7

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 9

    Balance Sheet (Standalone)

    Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013ESOURCES OF FUNDSEquity Share Capital 30 34 34 36 36 36Reserves& Surplus 179 367 479 658 695 738

    Shareholders Funds 208 402 513 694 731 774Share Warrants - 0.5 - - - -

    Minority Interest - - - - - -

    Total Loans 209 323 533 637 673 701

    Deferred Tax Liability 17 19 28 36 36 36

    Total Liabilities 434 745 1,075 1,367 1,440 1,511APPLICATION OF FUNDSGross Block 295 331 498 926 1,061 1,201

    Less: Acc. Depreciation 100 121 147 240 313 417

    Net Block 196 210 352 686 748 784Capital Work-in-Progress 95 255 355 136 51 26

    Goodwill - - -

    Investments 22 20 73 152 152 152Current Assets 174 382 352 502 562 623

    Cash 21 98 35 2 41 91

    Loans & Advances 36 66 199 198 198 198

    Other 117 218 118 302 323 334

    Current liabilities 53 123 57 110 73 75

    Net Current Assets 121 259 295 392 489 548Mis. Exp. not written off 1 1 - 1 1 1

    Total Assets 434 745 1,075 1,367 1,440 1,511

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 10

    Cash flow statement (Standalone)

    Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EProfit before tax 139 149 77 71 62 79

    Depreciation 22 28 39 58 73 104Change in Working Capital (76) (1) 33 (182) (58) (9)

    Less: Other income (11) 47 (7.7) 5.8 - -

    Direct taxes paid 12 22 16 10 12 24

    Cash Flow from Operations 63 201 126 (58) 65 150(Inc.)/Dec. in Fixed Assets (196) (234) (133) (80) (50) (115)

    (Inc.)/Dec. in Investments 1 (52) 6.2 (76.4) - -

    (Inc.)/Dec. in loans and adv. - - -

    Other income (0) (73) 71.5 (35.2) - -

    Cash Flow from Investing (196) (359) (55) (191) (50) (115)Issue of Equity 86 - - 92.1 - -

    Inc./(Dec.) in loans 114 94 (36) 169.8 36.5 27.5

    Dividend Paid (Incl. Tax) 1 12 12 12 13 13

    Others 11 (15) 13.7 23.4 - -

    Cash Flow from Financing 187 97 (61) 227 24 15Inc./(Dec.) in Cash 55 (61) 9 (23) 39 50

    Opening Cash balances 44 96 15 25 2 41Closing Cash balances 98 35 25 2 41 91

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    Sarda Energy| 2QFY2012 Result Update

    October 24, 2011 11

    Key ratios

    Y/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EValuation Ratio (x)P/E (on FDEPS) 3.4 2.4 22.0 9.9 9.1 8.2P/CEPS 2.8 2.1 7.1 4.3 3.5 2.7

    P/BV 1.0 0.8 0.7 0.6 0.6 0.6

    Dividend yield (%) 2.5 2.5 2.5 2.5 2.5 2.5

    EV/Sales 1.0 0.9 1.5 1.0 0.9 0.8

    EV/EBITDA 3.6 3.7 10.1 7.8 6.7 4.9

    EV/Total Assets 0.8 0.8 0.7 0.7 0.6 0.6

    Per Share Data (`)EPS (Basic) 35.6 49.4 5.4 12.0 13.9 15.4

    EPS (fully diluted) 35.4 49.0 5.4 12.0 13.2 14.7

    Cash EPS 42.1 57.6 16.8 28.1 34.3 44.3

    DPS 3.0 3.0 3.0 3.0 3.0 3.0

    Book Value 118.1 150.8 165.8 193.5 203.9 215.8

    Dupont AnalysisEBIT margin 23.4 20.6 7.3 6.8 6.4 7.4

    Tax retention ratio (%) 87.2 82.6 81.9 70.2 80.0 70.0

    Asset turnover (x) 1.2 1.2 0.5 0.8 0.8 0.9

    RoIC (Post-tax) 25.1 20.2 3.2 3.8 4.1 4.4

    Cost of Debt (Post Tax) 4.0 0.9 2.1 1.9 2.8 2.5

    Leverage (x) 0.5 0.8 0.7 0.7 0.7 0.6

    Operating RoE 35.8 36.3 4.0 5.2 5.0 5.5

    Returns (%)RoCE (Pre-tax) 24.8 21.4 3.6 4.9 4.5 5.3

    Angel RoIC (Pre-tax) 28.8 24.5 3.9 5.5 5.1 6.3

    RoE 39.8 26.9 11.7 7.9 7.0 7.3

    Turnover ratios (x) Asset Turnover (Gross Block) 2.0 2.3 0.9 1.1 1.0 0.9

    Inventory (days) 142 59 150 163 150 150

    Receivables (days) 40 7 10 18 18 18

    Payables (days) 69 3 40 40 40 40

    WC cycle (ex-cash) (days) 60 47 80 74 90 87

    Solvency ratios (x)Net debt to equity 0.5 0.8 0.7 0.7 0.7 0.6

    Net debt to EBITDA 1.2 1.9 4.8 4.1 3.5 2.5

    Interest Coverage (EBIT / Int.) 12.1 42.5 3.0 3.9 2.8 3.3

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    Sarda Energy| 2QFY2012 Result Update

    October 24 2011 12

    Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

    DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

    decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

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    Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

    Disclosure of Interest Statement Sarda Energy

    1. Analyst ownership of the stock No

    2. Angel and its Group companies ownership of the stock No

    3. Angel and its Group companies' Directors ownership of the stock No

    4. Broking relationship with company covered No

    Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

    Note: We have not considered any Exposure below`

    1 lakh for Angel, its Group companies and Directors