Input credit Overall Input credit Overall Sector set-off ...

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04 July 2016

Asia Pacific/India

Equity Research

India Midcap Sector SMALL & MID CAP RESEARCH

Beneficiaries amonGST midcaps

Figure 1: Impact on sectors Input credit Overall Input credit Overall

Sector set-off impact Sector set-off impact

Appliances Paints

Auto Pipes

Batteries Plyw ood

Cement Sanitaryw are

Consumer Staples Tiles

Electric Goods Amusement parks

Footw ear Branded apparel

Logistics Retail

Multiplex Textiles

Chg in

indirect tax

High share of

unorganised

Chg in

indirect tax

High share of

unorganised

Source: Company data, Credit Suisse estimates

■ GST—Four ways of impact. GST, if it goes through, can impact various

midcap sectors in the following four key ways: (1) The difference between

the final GST rate and the total indirect tax currently; (2) Market share shifts

from the unorganised sector to the organised; (3) The extent of input credits

that cannot be set off currently; and (4) Supply chain optimisation by

companies to reduce operating costs.

■ Certain midcap sectors can be affected significantly. The GST panel has

recommended the revenue neutral rate to be 18% for most sectors and to be

12% for certain sectors such as textiles. Indirect tax will reduce for home

improvement, appliances and increase for textiles. The share of the

unorganised sector is fairly high at between 40% and 70% for many

segments. Greater tax compliance by the unorganised sector and the ability

to pass on benefits of lower indirect taxes in some cases by the organised

ones, can lead to market share shifts. Sectors such as batteries, pipes,

plywood and tiles can benefit significantly from this. Input credits in some

cases cannot be set off currently due to separate central and state taxation,

and in the case where manufacturing is outsourced. This will change and

multiplexes, for example, will benefit.

■ Key beneficiaries and losers. Based on the above, sectors such as

appliances, batteries, consumer staples, footwear, multiplexes, plywood and

tiles can benefit while apparel, retail and textiles could be adversely

impacted by the implementation of GST. Within our coverage universe, we

like Exide, GSK, Havells and Kajaria as potential midcap GST beneficiaries.

Figure 12 consists of the largest midcap company in each of the sectors

discussed in the report that can benefit.

Research Analysts

Anantha Narayan

91 22 6777 3730

[email protected]

Akhil Kalluri

91 22 6777 3747

[email protected]

04 July 2016

India Midcap Sector 2

Focus charts and tables Figure 2: Current incidence of indirect taxes across various sectors

25 25 25 25 25 25 25 25

12-20

18-25 18-25

1918 15-20

15-18

5 5 4

-0

5

10

15

20

25

30

Appl

ianc

es

Auto

Batte

ries

Cem

ent

Cons

umer

Sta

ples

Pain

ts

Sani

tary

ware

Tile

s

Plyw

ood

Elec

tric

Goo

ds

QSR

Mul

tiple

x

Pipe

s

Foot

wear

Amus

emen

t par

ks

Bran

ded

appa

rel

Reta

il

Logi

stics

Text

iles

(%)

Current indirect taxes


Figure 3: Sectors with high share of unorganised players

are likely to benefit from GST

Figure 4: Examples of sectors where input credits can

now be set off

70 70

60

30-70 50 50

40-50 40 40

0

10

20

30

40

50

60

70

80

Logi

stic

s

Ply

woo

d

San

itary

war

e

App

lianc

es

Foot

wea

r

Tile

s

Ele

ctric

Goo

ds

Bat

terie

s

Pip

es

Share of unorganised (%)

Sector Benefit from input credits

Branded apparel 2-3%

Footwear 2-3%

Home improvement Minor positive impact

Multiplex 3-4%

Retail 1-1.5%

Textiles 2-3%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 5: Largest midcap companies in sectors

CMP Mkt cap ADTO 3M YoY P/E (x) EBITDA

Sector Company Rs US$ mn US$ mn Perf. Perf. FY18E ROE^ margin^ Rating Description*

Batteries Exide 170 2,137 3.1 18% 11% 18 15% 15% O Largest battery manufacturer

Consumer staples GSK Cons. 5,912 3,684 1.7 -3% -6% 27 30% 20% O Largest malted beverage manufacturer

Electrical products Havells 359 3,326 8.9 11% 28% 30 21% 14% O Largest listed fast moving electric goods manufacturer

Footwear Bata India 546 1,039 3.4 9% 4% 28 13% 11% NC Largest footwear manufacturer

Logistics T'port Corp 314 357 0.4 12% 29% 19 13% 8% NC Largest listed road logistics provider

Multiplex PVR 1,011 700 1.3 34% 55% 26 20% 18% NC Largest multiplex operator

Pipes Supreme 913 1,717 1.2 23% 35% 24 18% 13% NC Largest pipe manufacturer

Plywood Greenply 254 453 0.4 47% 50% 18 23% 15% NC Largest listed pure play panel product manufacturer

Sanitaryware Cera 2,375 458 0.3 31% 23% 25 22% 15% NC Largest listed pure play sanitaryware manufacturer

Tiles Kajaria 1,201 1,414 1.3 25% 62% 25 28% 19% O Largest tile manufacturer

Note: Not Covered: Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or

investment view on the equity security of the company or related products. ^ FY16. * Largest midcap companies in the sector by market cap.

Source: Bloomberg, Credit Suisse estimates for companies under coverage, IBES for NC (not covered) companies;

04 July 2016


GST: Four ways of impact GST, if it goes through, can impact various midcap segments in the following four key

ways.

■ Revenue Neutral Rate (RNR) is different from the current indirect tax incidence.

■ Market share gains from the unorganised sector.

■ Ability to set-off input credits.

■ Supply chain optimisation.

RNR is different from the current indirect tax

incidence

Currently, companies incur indirect taxes such as excise duties and VAT, and enjoy

exemptions in some cases—the total incidence of indirect taxes varies across segments.

Consequently, companies could benefit or lose under the new GST regime, depending on

the eventual RNR. Companies whose total tax incidence reduces under GST could either

pass on the gains to consumers or would report expansion in margins. If they do pass on

the benefits, they could become more competitive relative to unorganised players in the

same sector and could increase their market share. So either way, they could benefit.

However, there would be sectors that are likely to be adversely impacted due to a likely

increase in indirect tax incidence under the GST regime. Also, as shown in the next

section, companies that rely more on their own manufacturing rather than on outsourcing

could benefit more unless the ones outsourcing are losing input credits substantially

currently.

Market share gains from the unorganised sector

Currently, the market share of the unorganised sector is quite high in multiple sectors such

as batteries, footwear and home improvement. Prices of such products are usually

significantly lower as compared to those of the organised players. One reason for the

lower prices is the relatively low compliance levels—many unorganised players evade a

significant portion of direct and indirect taxes, which makes these companies quite

competitive versus the organised players. Any improvement in compliance levels under

GST brought about by integrated IT systems across various authorities could reduce the

competitiveness of unorganised players. Further, in sectors such as batteries and home

improvement, the RNR is likely to be significantly lower than the current incidence of

indirect taxes—if the organised players reduce prices to the extent of lower indirect taxes

while protecting margins, they can significantly dent the profitability of the unorganised

companies and gain market share (many unorganised companies currently operate at

extremely low margins and return ratios).

Ability to set off input credits

Currently, there are various indirect taxes in India such as excise duties, service tax and

VAT. Under the current regime, some of these taxes paid on inputs cannot be set off

against a different indirect tax levied on the final output. This is expected to change under

GST where these input credits can be set off against the indirect taxes being paid by these

companies. The key segments which are likely to be beneficiaries of this change are: (1)

sectors which use a higher proportion of outsourcing versus in-house manufacturing, such

as appliances; (2) sectors with a high proportion of expenses subject to service tax, such

as rent and advertising—branded apparel is one example; and (3) sectors which fall under

the ambit of state taxes which cannot be set off against central taxes such as service tax—

multiplexes, for example.

04 July 2016


Supply chain optimisation

In order to reduce the extent of indirect taxes, many Indian companies have developed

inefficient supply chains over the years. With uniform taxation across the country, there is

a significant scope for optimisation of the supply chain, and this can lead to cost savings

for many Indian companies. While it is difficult to quantify the impact of supply chain

optimisation, companies with a pan-India presence could likely be the beneficiaries.

Logistics companies, in particular, could benefit due to higher fleet efficacy (due to the

absence of wastage of time at interstate checkpoints). They could also benefit as

companies potentially outsource their non-core supply chains.

Figure 6: GST—different ways of impact

Sector

Change in

indirect tax

High share of

unorganised

Outsourcing

vs. in-house

Input credit

set-off

Overall

impact

Appliances

Auto Batteries Cement Consumer staples Electric goods Footwear Logistics Multiplex Paints Pipes Plywood Sanitaryware Tiles QSR

Amusement parks

Branded apparel Retail Textiles We have assumed RNR of 18% for this assessment (12% for textiles and branded apparel).


04 July 2016


Certain midcap sectors could be significantly affected Indirect tax will reduce for home improvement,

appliances and increase for textiles

As per the GST panel's recommendation, the revenue neutral rate for most sectors could

be 18%, it is expected to be lower at 12% for certain sectors such as textiles. If these

expectations were to play out, then sectors such as appliances, auto, batteries, cement,

footwear, paints, sanitaryware, tiles, cables, plywood and pipes are likely to be

beneficiaries, given that the current incidence of indirect taxes for them is higher than 20%.

And for a few segments and states (VAT is different across various Indian states), indirect

taxes are as high as 27-28%. Even within these, sectors with relatively low competitive

intensity (high pricing power) like paints are likely to retain the benefit of lower indirect

taxes, thereby aiding margins.

However, segments such as textiles, branded apparel and retail are likely to be adversely

impacted due to relatively lower incidence of indirect taxes. While companies in some of

these segments could pass on the higher prices to consumers, thereby preventing any

impact on their margins, demand could be somewhat impacted. As far as branded apparel

is concerned, we are not certain if it will fall under the lower rate. If it does, then the net

impact on the segment (adjusting for the benefit of input credits) is likely to be limited.

However, during the most recent Budget, the Indian government imposed excise duty on

readymade garments priced at over Rs1,000 (2% excise duty without input tax credit with

tariff value assumed at 60% of the retail price). If it uses a similar benchmark while

determining the GST rate for apparel, then the impact could be significant.

Figure 7: Current incidence of indirect taxes across various sectors

25 25 25 25 25 25 25 25

12-20

18-25 18-25

19 18 15-2015-18

5 5 4

-0

5

10

15

20

25

30

App

lianc

es

Aut

o

Bat

terie

s

Cem

ent

Con

sum

er S

tapl

es

Pai

nts

San

itary

war

e

Tile

s

Ply

woo

d

Ele

ctric

Goo

ds

QS

R

Mul

tiple

x

Pip

es

Foo

twea

r

Am

usem

ent p

arks

Bra

nded

app

arel

Ret

ail

Logi

stic

s

Tex

tiles

(%)

Current indirect taxes

Source: Company data, Credit Suisse

The benefit will be lower in the case of outsourcing versus in-house

For companies that benefit, they would do so irrespective of whether they manufacture in-

house or outsource. However, we believe that benefits are likely to be lower in the case of

companies that outsource. As these companies currently do not pay excise duty, the total

incidence of indirect taxes is lower. In case of interstate sales, due to the imposition of

CST, there are no input tax credits currently, so the benefits under GST will be more.

04 July 2016


Figure 8: Benefit to margins—an indicative example

EBITDA margins Indirect taxes as a % of MRP

In-house Outsourcing In-house Outsourcing

Current scenario

Same-state sales 19% 12% 22% 18%

Interstate sales 19% 12% 26% 23%

Under GST

Same-state sales 25% 13% 17% 17%

Interstate sales 28% 18% 18% 18%

% change

Same-state sales 534 bp 63 bp -462 bp -12 bp

Interstate sales 903 bp 586 bp -825 bp -495 bp

Note: This calculation assumes 18% RNR and assumes that the benefits of lower taxes are not passed on

by the companies. Source: Company data, Credit Suisse estimates

The shift from unorganised to organised can be an

important driver

In certain segments such as appliances, batteries, cables, pipes, plywood, sanitaryware,

textiles and tiles, the share of unorganised sector is fairly high at between 40% and 70%.

Given low compliance levels, it is possible that a significant portion of the unorganised

segment avoids paying indirect taxes. While this can theoretically continue, the increased

usage of IT systems and the integration across government departments will make this

more and more difficult. Also, if one entity in the entire chain needs to claim GST credits,

others will have to fall in line. Finally, units with annual turnover less than Rs15 mn are

currently exempted from paying excise duty; under GST, this limit for tax exemption could

be reduced, thereby bringing more entities into the tax net.

In segments where the RNR rate will be significantly lower than the current indirect tax

incidence, companies in the organised sector can choose to pass on some or all of the

benefits. In such a case, the pricing differential between the organised and unorganised

sector can become lower, even if we were to assume that low compliance levels remain

unchanged. This could help these segments to record strong growth, driven by the market

share shift from the unorganised sector to the organised one. While in any case, the

organised sector has been gaining market share over the past few years due to better

products and economies of scale, we believe GST can provide a significant boost to this

shift. This is especially true in segments where industry margins are low.

Figure 9: We expect sectors such as batteries, pipes, plywood, tiles to benefit from the

shift from unorganised to organised

Segment Share of unorganised Comments

Appliances Air coolers: 70%

Fan: 30%

Pricing gap between organised and unorganised could be as much as 50% for air-coolers and 10-15% in case of fans and other appliances. Unorganised players' margins in these segments too will be fairly low.

Batteries 40% 25%+ indirect taxes coupled with low margins for the industry and a 25% pricing gap between organised and unorganised players bodes well for organised players.

Electric goods 40-45% 20%+ indirect taxes coupled with single-digit margins even for the organised players should help organised players.

Footwear 50% Indirect taxes vary between 12% and 20% depending on states and product price. So more than reduction in indirect taxes, improvement in compliance can help the organised players.

Logistics 70% Small fleet operators owning up to five vehicles control close to 70% of the industry.

Pipes 40% Lowest indirect taxes among the home improvement sectors. However, the share of unorganised in the sector is fairly high especially in the agri segment (more than 50%). Improvement in compliance can help.

Plywood 70% Indirect taxes are in the range of 18-25% for larger players. But even the organised players make just 10% EBITDA margins and therefore any reduction in prices can help organised players.

Sanitaryware 60% 25%+ indirect taxes coupled with relatively low industry margins can boost organised players' market share.

Tiles 50% 25%+ indirect taxes coupled with low industry margins can boost organised players' market share.

Source: Company data, Credit Suisse research

04 July 2016


Input credits can now be set off

Given the different types of indirect taxes collected by the centre and states separately,

taxes paid on some of the input costs currently cannot be set off against the output taxes.

A few such common input taxes include: (1) service tax paid on certain inputs such as rent,

IT, freight and advertising (however, advertising is considered as a core part of

manufacturing, and therefore can be set off against the excise duty paid for in-house

manufactured goods); (2) in case of outsourcing, as no excise duty is paid by the company

on the final product input, tax set-off is relatively lower as compared to in-house

manufacturing; and (3) some segments such as multiplexes pay entertainment tax, a state

subject, and cannot set off a majority of the taxes paid on inputs, which can likely change

under GST.

Figure 10: Examples where input credits can now be set off

Sector Benefit from input credits Comments

Branded apparel 2-3% Under GST, branded apparel companies will get some input credits related to other

expenses such as rent and ad spends. Increase in RM costs due to imposition of GST on

textiles should be netted off from the higher taxes paid on the final product. Overall,

however, the sector is likely to be adversely impacted.

Footwear 2-3% Given the high proportion of outsourcing for some companies in this segment, input

credits such as service tax on rent are currently not being set off.

Home improvement Minor positive impact While most input credits are currently set off, input credits on expenses such as ad

expenses related to traded goods and works contracts can be availed under GST. For

companies with higher outsourcing, benefits from input credits can be higher.

Multiplex 3-4% Multiplexes pay ~25% entertainment tax on box office revenue which cannot be set off

against input taxes such as service tax on rent.

Retail 1-1.5% Input credits that are not currently being set off account for 100-150 bp. However, indirect

taxes could go up substantially.

Textiles 2-3% Given that currently there are no indirect taxes on textiles, the companies do not set off

taxes paid on costs such as dyes & chemicals, rent and advertising. The increase in raw

material costs due to GST on textiles will be netted off. Overall however, the sector is

likely to be adversely impacted


Case study: The multiplex industry could be a significant beneficiary of input

credits set off

Currently, the multiplex industry pays ~25% entertainment tax on box office revenue

(collected by the state) which cannot be set off against service tax paid on inputs such as

rent. Given that the rental expense accounts for almost 20–30% of revenue for these

companies, on a blended basis, multiplex companies can avail input credits worth ~3-4%,

which is sizeable on their current margins of 15-18%.

04 July 2016


Key sector beneficiaries and losers Based on the above, we believe that sectors such as appliances, batteries, consumer

staples, footwear, multiplexes, plywood and tiles can benefit while apparel, retail and

textiles can be adversely impacted by the implementation of GST.

Within our coverage universe we like Exide, GSK, Havells and Kajaria as potential midcap

GST beneficiaries. Figure 12 consists of the key midcap play in each of the sectors

discussed above that can benefit.

Figure 11: Impact on midcap sectors of GST

Sector Impact Comments on the sector Examples of large

companies by revenue

Appliances

Actual incidence of excise duty depends on the extent of outsourcing and production excise benefits. The incidence is 12.5% excise + about 14% VAT. Under GST for companies with significant outsourcing, input credits can set off excise and some VAT on purchased products, and some service tax on costs such as advertising, etc

Crompton Consumer, Havells, Symphony, TTK Prestige

Auto While companies may choose to pass on the benefits—there could be ~8% price reduction if RNR is 18%—demand could get a boost.

All

Batteries Share gain from unorganised is likely as: (1) pricing gap comes down due to lower indirect taxes, and (2) unorganised players might have to increase tax compliance.

Amara Raja, Exide

Cement Indirect taxes are over 25% and therefore a lower tax rate can help. However, players may pass on majority of the benefits to customers.

JK Cement, JK Lakshmi

Consumer staples Indirect taxes are over 25% and given the high pricing power in a few categories, these companies could retain majority of the benefits

GSK Consumer

Electrical

VAT varies from 4% to 12.5% across states. Depending on the revenue mix across states, RNR of 18% can be neutral to positive. Also, a high share of unorganised and low EBITDA margins could result in a shift from unorganised to organised.

Finolex Cables, Havells, V-Guard

Footwear Higher indirect taxes, high share of unorganised and likely benefit from input credits should help the organised players in this segment.

Bata, Relaxo

Logistics

Benefits include higher fleet efficiency (reduced check post delays) and growing relevance due to more efficient supply chain planning by companies. Likely increase in indirect taxes will have to be passed on to end customers given that even the larger players operate at single digit margins

Bluedart, Snowman, TCI, VRL Logistics

Multiplex

~25% entertainment tax cannot be set off against service tax on rent currently. There will however be some negative impact on F&B income where they pay a blended VAT of ~10%. However net positive margin impact could be 300-400 bp if RNR is 18%.

Inox Leisure, PVR

Paints Current indirect taxes are higher than RNR and with strong pricing power; we expect the sector's margins to improve post GST.

Berger, Kansai Nerolac

Pipes VAT is ~5% for pipes across multiple states; however, there is lower incidence of indirect taxes vs home improvement segments.

Astral, Finolex, Supreme

Plywood

Indirect taxes are a bit less than 25-26% due to certain excise exemptions. While most taxes on input costs can be currently offset, there are some portions which aren't offset such as ad expenses related to traded goods and works contracts.

Centuryply, Greenply

Sanitaryware Higher indirect taxes and high share of unorganised sector bodes well Cera Sanitaryware, HSIL

Tiles High incidence of indirect taxes, significant pricing gap with unorganised and single-digit industry margins can help large organised tile companies under GST.

Kajaria, Somany

QSR As indirect taxes are ~19%; there will be negligible impact on the sector Jubilant Food, Westlife Development

Amusement parks Amusement parks pay entertainment tax as well as service tax. Blended rate varies from state to state. Most of the input credits are set off against service tax.

Adlabs Entertainment, Wonderla

Branded apparel

Only VAT of 5% is applicable currently. However, under GST, there will be input credits related to RM costs and on expenses such as rent and ad spend. If RNR is ~12%, impact could be limited.

Arvind, Aditya Birla Fashion, KKCL, Page

Retail Currently retailers pay ~5% VAT which could increase to RNR under GST. However, input credits which currently are not being set off accounts for ~100-150 bp of revenue.

Shoppers Stop, V-Mart

Textiles

No indirect taxes for domestic textile companies currently could increase to 12% RNR. However tax on inputs such as dyes & chemicals, ad spends and rent can offset the impact to some extent. For exports, the difference between duty drawback received and the input credits could go away impacting companies differently.

Arvind, Indo Count, Welspun


04 July 2016


Figure 12: Largest midcap companies in sectors

CMP Mkt cap ADTO 3M YoY P/E (x) EBITDA

Sector Company Rs US$ mn US$ mn Perf. Perf. FY18E ROE^ margin^ Rating Description*

Batteries Exide 170 2,137 3.1 18% 11% 18 15% 15% O Largest battery manufacturer

Consumer staples GSK Cons. 5,912 3,684 1.7 -3% -6% 27 30% 20% O Largest malted beverage manufacturer

Electrical products Havells 359 3,326 8.9 11% 28% 30 21% 14% O Largest listed fast moving electric goods manufacturer

Footwear Bata India 546 1,039 3.4 9% 4% 28 13% 11% NC Largest footwear manufacturer

Logistics T'port Corp 314 357 0.4 12% 29% 19 13% 8% NC Largest listed road logistics provider

Multiplex PVR 1,011 700 1.3 34% 55% 26 20% 18% NC Largest multiplex operator

Pipes Supreme 913 1,717 1.2 23% 35% 24 18% 13% NC Largest pipe manufacturer

Plywood Greenply 254 453 0.4 47% 50% 18 23% 15% NC Largest listed pure play panel product manufacturer

Sanitaryware Cera 2,375 458 0.3 31% 23% 25 22% 15% NC Largest listed pure play sanitaryware manufacturer

Tiles Kajaria 1,201 1,414 1.3 25% 62% 25 28% 19% O Largest tile manufacturer

Note: Not Covered: Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or

investment view on the equity security of the company or related products. ^ FY16. * Largest midcap companies in the sector by market cap.

Source: Bloomberg, Credit Suisse estimates for companies under coverage, IBES for NC (not covered) companies

04 July 2016


Annexure: Indirect tax incidence Figure 13: Pre and post GST—in-house manufacturing

Raw Material Dealer Margin

Excise (RM)

VAT (RM)Add

Excise (RM)

VAT (RM)Add

Mfg cost

+

Mfg Margin

Excise (Mfg)

VAT (Mfg)

Excise (Mfg)

CST

Excise (RM)

VAT (RM)Less

Excise (RM)Less

VAT (Dealer)

VAT (Mfg)

VAT (Dealer)

Cost to consumer

Sa

le in

th

e s

am

e s

tate

S

ale

in a

diff

sta

te

CGST (RM)

SGST (RM)Add

CGST (Mfg)

SGST (Mfg)

CGST (RM)

SGST (RM)Less

CSGT (Dealer)

SGST (Dealer)

Un

de

r G

ST

CGST (Mfg)

SGST (Mfg)

Additional 1% IGST will also be added under GST for inter-state sales. Source: Credit Suisse research

Figure 14: Pre and post GST—outsourcing

COGS

incl

Mfg margin

Dealer Margin

Excise (COGS)

VAT (COGS)Add

Excise (COGS)

VAT (COGS)Add

Other costs

+

Trading Margin

VAT (Trading)

CST

VAT (COGS)Less

Less

VAT (Dealer)

VAT (Trading)

VAT (Dealer)

Cost to consumer

Sale

in t

he s

am

e s

tate

S

ale

in a

diff.

sta

te

CGST (COGS)

SGST (COGS)Add

CGST (Trading)

SGST (Trading)

CGST (COGS)

SGST (COGS)Less

CSGT (Dealer)

SGST (Dealer)

Under

GS

T

CGST (Trading)

SGST (Trading)

Additional 1% IGST will also be added under GST for inter-state sales. Source: Credit Suisse research

04 July 2016


Annexure: List of companies discussed in the report CMP Mkt cap ADTO 3M YoY P/E (x) EBITDA Sales EPS

Sector Impact Company Rs US$ mn US$ mn perf. perf. FY18E ROE^ margin^ CAGR* CAGR* Rating

Amusement parks Adlabs 76 90 0.2 -11% -52% NM -16% 16% 45% -77% NC

Wonderla 407 341 0.5 4% 62% 26 16% 41% 33% 22% NC

Appliances Havells India 359 3,326 8.9 11% 28% 30 21% 14% 13% 18% O

Symphony 2,485 1,288 0.8 4% 17% 36 41% 31% 50% 36% NC

TTK Prestige 4,716 813 0.4 10% 23% 29 17% 12% 21% 29% N

Batteries Amara Raja 869 2,198 3.7 0% -1% 22 26% 17% 18% 19% NC

Exide Industries 170 2,137 3.1 18% 11% 18 15% 15% 12% 13% O

Branded apparel Aditya Birla 143 1,626 2.0 -3% -21% 57 6% 7% 16% NA NC

Arvind Limited 328 1,256 9.2 20% 22% 16 13% 13% 14% 21% O

KKCL 1,810 331 0.1 6% -15% 23 21% 23% 15% 20% NC

Page Industries 13,986 2,314 2.4 14% -8% 44 52% 21% 20% 23% U

Cement JK Cement 665 690 0.3 -2% -1% 12 5% 15% 14% 129% O

JK Lakshmi 386 673 0.5 14% 12% 14 -2% 9% 22% NM O

Electric Goods Finolex Cables 363 854 0.6 26% 41% 17 20% 14% 13% -2% NC

Havells India 359 3,326 8.9 11% 28% 30 21% 14% 13% 18% O

V Guard 1,408 628 1.0 56% 52% 25 26% 10% 15% 21% NC

Footwear Bata India 546 1,039 3.4 9% 4% 28 13% 11% 13% 33% NC

Relaxo Footwears 503 894 0.4 37% 5% 25 27% 14% 26% 43% NC

Logistics Blue Dart Ex 5,962 2,096 0.6 -3% -5% 50 53% 15% 17% 20% NC

Snowman 81 200 1.2 53% -18% 35 4% 21% 27% 37% NC

T'port Cor India 315 358 0.4 12% 29% 19 13% 8% 13% 26% NC

VRL 318 430 2.0 -14% 4% 18 24% 16% 13% 24% NC

Multiplex INOX Leisure 241 345 0.4 22% 33% 18 13% 15% 18% 21% NC

PVR 1,011 700 1.3 34% 55% 26 20% 18% 17% 16% NC

Paints Berger Paints 277 2,848 1.4 13% 42% 34 27% 14% 16% 24% NC

Kansai Nerolac 310 2,476 1.7 11% 45% 34 16% 15% 16% 18% NC

Pipes Astral Poly 470 824 0.3 13% 20% 28 14% 12% 21% 39% NC

Finolex Pipes 426 784 0.5 17% 66% 17 21% 15% 10% 22% NC

Supreme Indust 913 1,717 1.2 23% 35% 24 18% 13% 31% 46% NC

Plywood Century 196 647 0.7 12% -2% 19 36% 18% 16% 16% NC

Greenply 254 453 0.4 47% 50% 18 23% 15% 12% 17% NC

QSR Jubilant Food 1,137 1,109 10.0 -14% -41% 38 16% 12% 18% 28% O

Westlife Dev 245 565 0.2 24% -20% 118 -4% 5% 19% NA NC

Retail Shoppers Stop 377 467 0.2 4% -4% 46 0% 4% 13% 474% NC

V-mart Retail 478 128 0.3 4% -1% 14 12% 8% 25% 52% NC

Sanitaryware Cera 2,377 458 0.3 31% 23% 25 22% 15% 18% 22% NC

HSIL 275 295 0.3 0% -21% 13 7% 16% 13% 34% NC

Textiles Arvind Limited 328 1,256 9.2 20% 22% 16 13% 13% 14% 21% O

Indo Count Inds 968 566 1.1 -3% 29% 9 49% 22% 17% 22% NC

Welspun India 109 1,616 2.2 6% 63% 11 34% 29% 21% 17% NC

Tiles Kajaria Ceramics 1,201 1,414 1.3 25% 62% 25 28% 19% 16% 29% O

Somany Ceramics

579 364 0.1 46% 48% 23 20% 8% 15% 21% NC

Note: Not Covered: Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view

on the equity security of the company or related products. ^ FY16. * FY16-18

Source: Bloomberg, Credit Suisse estimates for stocks under coverage, IBES consensus estimates for NC (not covered stocks)

04 July 2016


Companies Mentioned (Price as of 01-Jul-2016)

Aditya Birla (ADIA.NS, Rs142.95) Adlabs (ADLA.BO, Rs81.15) Amara Raja (AMAR.BO, Rs861.95) Arvind Limited (ARVN.BO, Rs327.9) Astral Poly (ASPT.NS, Rs484.55) Bata India (BATA.BO, Rs549.1) Berger Paints (BRGR.BO, Rs276.9) Blue Dart Ex (BLDT.NS, Rs5944.4) Century (CNTP.BO, Rs204.05) Cera (CERA.NS, Rs2409.2) Exide Industries (EXID.BO, Rs175.75, OUTPERFORM, TP Rs186.0) Finolex Cables (FNXC.BO, Rs361.1) Finolex Pipes (FINX.BO, Rs431.8) GlaxoSmithkline Consumer Healthcare (GLSM.BO, Rs6056.55, OUTPERFORM, TP Rs6550.0) Greenply (GRPL.BO, Rs243.0) HSIL (HSNT.NS, Rs273.05) Havells India Ltd (HVEL.BO, Rs366.3, OUTPERFORM, TP Rs400.0) INOX Leisure (INOL.BO, Rs245.05) Indo Count Inds (ICNT.BO, Rs977.65) JK Cement Ltd. (JKCE.BO, Rs668.9) JK Lakshmi Cement Ltd. (JKLC.BO, Rs401.05) Jubilant Foodworks (JUBI.BO, Rs1173.8) KKCL (KKCL.BO, Rs1813.8) Kajaria Ceramics Limited (KAJR.BO, Rs1196.15, OUTPERFORM, TP Rs1200.0) Kansai Nerolac (KANE.BO, Rs309.2) PVR (PVRL.BO, Rs1024.0) Page Industries (PAGE.BO, Rs14059.55) Relaxo Footwears (RLXO.BO, Rs497.0) Shoppers Stop (SHOP.BO, Rs382.0) Snowman (SNOW.NS, Rs79.55) Somany Ceramics (SOCE.BO, Rs581.4) Supreme Indust (SUPI.BO, Rs899.0) Symphony (SYMP.NS, Rs2450.4) T'port Cor India (TCIL.NS, Rs315.9) TTK Prestige (TTKL.BO, Rs4676.6) V Guard (VGUA.BO, Rs1399.45) V-mart Retail (VMAR.BO, Rs472.8) VRL (VRLL.BO, Rs313.55) Welspun India (WLSP.BO, Rs107.25) Westlife Dev (WEST.BO, Rs253.15) Wonderla (WOHL.BO, Rs403.15)

Disclosure Appendix

Important Global Disclosures

I, Anantha Narayan, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Exide Industries (EXID.BO)

EXID.BO Closing Price Target Price

Date (Rs) (Rs) Rating

17-Jul-13 127.45 160.00 O

28-Oct-13 123.60 156.00

15-Jan-14 104.80 108.00 N

29-Apr-14 126.80 120.00

23-Jul-14 160.05 147.00

21-Oct-14 151.55 155.00

02-Feb-15 195.10 165.00 U

01-May-15 171.20 157.00

31-Jul-15 146.15 144.00 N

28-Oct-15 160.80 150.00

21-Jan-16 119.75 154.00 O

21-Jun-16 162.50 186.00

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

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3-Year Price and Rating History for GlaxoSmithkline Consumer Healthcare (GLSM.BO)

GLSM.BO Closing Price Target Price


02-Aug-13 4449.75 4780.00 N

07-Nov-13 4676.85 5000.00

17-Mar-14 4134.70 5000.00 O

15-Sep-14 5111.50 5800.00

06-Nov-14 5407.65 5930.00

03-Feb-15 5640.45 6160.00

09-Nov-15 5872.25 6430.00

08-Jan-16 6520.40 6700.00

09-Feb-16 5847.10 6800.00

14-Mar-16 5618.75 6600.00

19-May-16 5820.65 6550.00


N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Havells India Ltd (HVEL.BO)

HVEL.BO Closing Price Target Price


28-Oct-13 137.20 NR

06-Oct-14 257.10 321.68 O *

27-Oct-14 267.04 316.73

05-Dec-14 318.02 376.12

15-Dec-14 265.01 361.27

16-Feb-15 264.47 336.53

27-Jul-15 280.31 326.63

06-Jan-16 300.70 346.42

12-May-16 342.00 400.00


N O T RA T ED

O U T PERFO RM

3-Year Price and Rating History for Kajaria Ceramics Limited (KAJR.BO)

KAJR.BO Closing Price Target Price


06-Jan-14 295.10 360.00 O

09-May-14 490.30 560.00

24-Jun-14 520.15 600.00

04-Aug-14 632.85 750.00

14-Jan-15 637.80 785.00

23-Mar-15 781.20 950.00

20-Oct-15 916.15 975.00 N

05-Jan-16 964.80 1150.00 O

09-May-16 1057.75 1200.00


O U T PERFO RM

N EU T RA L

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the

04 July 2016


most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 56% (39% banking clients)

Neutral/Hold* 34% (18% banking clients)

Underperform/Sell* 10% (40% banking clients)

Restricted 0%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Exide Industries (EXID.BO)

Method: Our target price of Rs186 for Exide Industries is based on 17x Jun-18 for the core business (in line with the historic average) and a Rs22/share insurance business valued at 1.5x invested capital. We have an OUTPERFORM rating as we believe that stable market share and gradually improving margins suggest that Exide's execution is starting to improve now.

Risk: Key downside risks to our target price of Rs186 and OUTPERFORM rating for Exide include losing further market share in the replacement segment and pricing war in the industry.

Target Price and Rating Valuation Methodology and Risks: (12 months) for GlaxoSmithkline Consumer Healthcare (GLSM.BO)

Method: Our target price of Rs6,550 for GlaxoSmithkline Consumer is based on 30x (in line with India FMCG average) our Mar-18 earnings forecast. We have an OUTPERFORM rating as the company is gaining market share even in a slow market and driving initiatives to spur demand growth.

Risk: Key risks to our Rs6,550 target price and OUTPERFORM rating for GlaxoSmithkline Consumer include: a slowdown in the packaged foods segment, and increases in prices of key raw materials such as milk and sugar.

04 July 2016


Target Price and Rating Valuation Methodology and Risks: (12 months) for Havells India Ltd (HVEL.BO)

Method: Our target price of Rs400 for Havells India Ltd is based on 32x Mar-18 earnings in line with mid-cap consumer. Our OUTPERFORM rating is based on our belief that: (1) Havells will be a direct beneficiary of an impending economic recovery given its strong brand and distribution reach, (2) sale of its European Sylvania business will improve the cash flow profile and ROIC for the business over the next two years.

Risk: Risks that could impede achievement of our Rs400 target price and OUTPERFORM rating for Havells India Ltd include: (1) weakness in consumer spend in India, driven by weak economic growth; (2) recession in Europe impacting Sylvania numbers; and (3) new products failing to gain traction.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Kajaria Ceramics Limited (KAJR.BO)

Method: Our 12-month target price of Rs1,200 for Kajaria Ceramics Limited assumes the stock trades at 25x 12-month estimated earnings at that point of time. We have an OUTPERFORM rating on the stock given the structural story of low tile penetration in India, rising share of organised players, larger players being likely beneficiaries of GST & pay commission, and falling gas prices aiding margins.

Risk: Key risks to our OUTPERFORM rating and our Rs1,200 target price for Kajaria Ceramics Limited include: (1) significant demand slowdown and (2) significant INR depreciation and crude price increase which will increase gas prices for the company and will hurt margins.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (PAGE.BO) within the next 3 months.

Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

Credit Suisse may have interest in (AMAR.BO, PVRL.BO, FNXC.BO, WLSP.BO, VRLL.BO, SYMP.NS, GRPL.BO, SHOP.BO, BATA.BO, ASPT.NS, WOHL.BO, BRGR.BO, SNOW.NS, TCIL.NS, ADLA.BO, CERA.NS, VMAR.BO, BLDT.NS, KKCL.BO, WEST.BO, SOCE.BO, RLXO.BO, FINX.BO, KANE.BO, HSNT.NS, CNTP.BO, SUPI.BO, ICNT.BO, INOL.BO, VGUA.BO, ADIA.NS, EXID.BO, KAJR.BO, HVEL.BO, GLSM.BO, ARVN.BO, JKLC.BO, TTKL.BO, PAGE.BO, JUBI.BO, JKCE.BO)

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (JUBI.BO).

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04 July 2016


Credit Suisse Securities (India) Private Limited ..................................................................................................... Anantha Narayan ; Akhil Kalluri

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

04 July 2016


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