Money Makeover Reality Check -...

INSTITUTIONAL EQUITY RESEARCH

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Money Makeover – Reality Check Ground View Conference: Key takeaways

6 December 2016

We organised a ‘Money Makeover – Reality Check Ground Conference on 2nd December 2016 in Mumbai. In this day-long event, we hosted the following eminent Indian businessmen in board-room meetings.

Boardroom meeting participants:

Large Maruti dealer

Bombay Goods Transport Association

Escorts dealer

Second-hand car dealer

Tata Motors’ CV dealer

ITC channel partner

HUL channel partner

All India Gems & Jewellery Trade

Federation (GJF)

Channel Partners - Cement

Channel Partners: Logistics

Electrical dealer

Tiles – Industry expert

Steel dealer

Petrol pump dealer and association

president, Mumbai

Private lube company distributor,

Mumbai

PSU/OMC lube company distributor,

Mumbai

India Research Team


MONEY MAKEOVER – REALITY CHECK KEY TAKEAWAYS

Panel discussion: India – Post demonetisation No light at the end of this tunnel We hosted four renowned macro experts in our panel discussion on demonetisation, to understand their views and widen our perspective on the subject. Experts were of the view that it may not have a substantial long-term impact. Near-term impact (so far): Positive on consumer expectations and no negative impact on capex. Key takeaways from the panel discussion are as follows:

This is largely a symbolic action. The mechanism and execution seems to be weak. In order to have a more lasting impact on unaccounted wealth, loopholes in the existing tax policy and tax administration need to be addressed.

There is little scope for a fiscal bonanza. The reduction in the liabilities side of the RBI balance sheet could result in transfer of wealth to the government and not income (which generally results in higher taxes). In case of any fiscal gains, it can be used only for debt payment and recapitalisation of state-owned enterprises.

GDP impact could be 50-200bps; aggressive interest rate reduction is likely.

Over the last four weeks (after demonetisation), the sentiment of the general populace has actually improved; noticed no negative impact towards capex planning. PMI and auto data is also faring well, implying short-term dent may not be as substantial as earlier anticipated.

Legal parliamentary approvals will be needed for the process of demonetisation that is underway; notification (issued currently) is insufficient.

For now, the demand-supply chains are disturbed, which could have some adverse impact on inflation. Consumption would be affected in the medium to long term.

It is possible that the informal sector, employment, and SMEs would be adversely affected. In order to keep track of the unfolding situation, keep a close eye on the unemployment numbers.

For a while, currency in circulation will be difficult to control; it will take time to normalise. Entire cash/deposits (that come to the RBI) will have to go back into the system. Online payments will not form a large share; more reliance will continue to be on cash transactions once liquidity comes back into the system.



Large Maruti dealer Not impacted yet North and East are impacted regions while West & South are doing relatively

well.

Doing comparatively better as salaried and PSU employees constitute 65% of demand, fleet operators 10%, and self-employed ~25%. Cancellations are seen majorly in fleet segment which account for 10-15% of volumes.

Bookings for November were down 10%, but not that worried as the dealership has very low inventory, especially for Wagon R and Ertiga; 6+ month waiting for Vitara, Brezza, Baleno.

Footfalls had dropped 70% in the week following demonetisation, but recovered 90% (vs. earlier levels).

Expect December 2016 deliveries to show strong yoy growth helped by various company schemes.

Collections had seen a 50% dip in the first week after demonetisation, now back to pre-demonetisation levels. Actual cash collections (including service income) declined from 10% pre-demonetisation to 2.5% currently.

Inventory (including transit) increased to 30 days now from 10-15 days at the start of November 2016. However, start of November inventory was significantly lower due to higher retails in October (festive period).

Discounts increased on older models by Rs 10-15,000, due to a mix of the ‘year-end factor’ and demonetisation.

85% of sales are financed; if interest rates fall, it will only have a sentimental impact. Savings to prop demand are marginal.

25% of sales are on exchange. Of this, 50% (7+ years car age) depends on brokers and has seen a 75% decline. Balance 50% (less than 7 years car age) has seen a 10% decline. Drop in used car prices can be a problem going ahead.

Bombay Goods Transport Association Things to improve only after cash availability; sees main recovery from Diwali 2017 50% of expenses – drivers’ food, loading/unloading charges, few penalties, and

bribes are in cash – can’t be shifted to the banking channel. Even for an organised large player who pays fuel and toll expenses by card.

80% of fleets are owned by small and unorganised operators, who are facing a huge pinch due to non-availability of cash.

Even organised players are struggling as only Rs 50,000 can be withdrawn from current accounts per week. A fleet operator with 100 trucks has an unavoidable cash requirement of Rs 300,000-500,000 per day. Large fleet operators are partly managing through cash withdrawals through multiple current accounts.

Owing to this, operators are cancelling orders and business is down by over 50%; expects it to get worse as old notes are now banned for filling diesel and toll plazas have restarted.

Does not see business picking up soon; this would lead to weak MHCV sales for some time and no pre-buying impact.

Expects things to improve from March, after which seasonally weak monsoon period will impact freight demand. Hence, sees real recovery to happen only from Diwali 2017.



Escorts Dealer Tractors demand to improve fast Initially saw 40% demand drop, now nearly normalised.

Farm income is tax free, hence sees tractor segment bouncing back soon.

November-February is a lean season, hence impact on annual volumes to be limited.

Farm income is the most critical for tractor growth. Farmers are expecting some windfall gains from the government to come to the farm community soon.

See demand coming back from January.

Over 75-80% sales are financed, only issue is with margin money; this will be resolved as cash availability improves.

Second-hand tractor deals are largely on cash basis; so this will be impacted. Exchange is ~40-50% of the fresh volumes.

Bigger challenge is farmers struggling to get seeds and fertilisers due to the cash issue; old notes are accepted only at government seed corporations, which provide weaker quality seeds with poor yields and crop realisation.

Second-hand car dealer Organised players to gain Annual sales of 500-550 cars in Rs 100,000 to Rs 4.5mn range. Average ticket size

of Rs 350,000-600,000. Target inventory of 100 cars due to higher rental costs in Mumbai.

Procure 10% cars from showrooms, remaining 90% from referrals. Have own workshop, own paint-shop, and own certification; valuation done from third-party. Planning to add ‘service’ as offering, as cost involved is Rs 2,500 (body wash and oil change) while price outside is Rs 8,000-10,000 for customer.

There are three modes of payment: o Full cheque (forms 70% of their business). o Financing – 80% from banks (20-25% of their business). o Cash (5-10% of their business).

Demand has seen some impact, but the biggest issue is people are not selling their old cars as prices have corrected and tight liquidity has led to slowing upgrades.

An educated buyer does not compare models like Kwid, Datsun, Nano, and A-star with a second-hand car of the same value.

Taxation: 2% VAT + 1% TCS. Offer given to buyer is net of taxes and paid by dealer. Not sure of what rate will be applied once GST comes.

Documents for transfer of car registration are not linked with income tax. Despite requirement of PAN from the last year, have not seen any impact on cash dealings.

Up to 40% of the second-hand car market is organised. This has increased over the last three years. However, given the high margins and centralised (business owner) decision making, much of the market is unorganised.

Many of the unorganised dealers will start getting VAT/tan registrations and tie ups with financers. Few of them might also go out of business, which will benefit organised dealers.

Average life of cars sold is 4-5 years; ideal should be three years for getting maximum value.

Customers do not preferring diesel due to the NGT ban in Delhi and low differential with petrol prices.

Finance rates are 12.5-14.0%. The resale value of T-permit cars deteriorates within a year, so potentially there can be lot of defaults. However, most of the buyers are individuals and if they default, it would impact their CIBIL score. Hence, they manage to pay off instalments and avoid defaults.

There is no funding for second-hand T-permit cars by large banks. Some of these are financed by NBFCs at higher rates.



Tata Motors CV dealer Demonetisation and GST uncertainty to slow down volumes Demonetisation has impacted demand with volumes down 35-40% in November

2016. Things are improving sequentially but do not expect growth to resume from December 2016.

Demonetisation has not had a direct impact on sales, given 99% of vehicles are financed; however, lower utilisations indirectly impacted volumes.

FTUs are more affected compared to large fleet operators.

Low activity levels and clarity on regulations is delaying demand. Clarity on GST rate (18% or 28%) and expectations of interest rate decline has seen some fleet operators delaying purchases. If GST rate is fixed at 18%, it will further delay the demand recovery given the scope for price decline.

Pre buying demand is not expected to materialise before March 2017. However, if GST rate is fixed at 18%, it could further derail this expectation.

Registrations for GST has started, but seems like April 1, 2017 GST implementation deadline will not be met.

Tata Motors has significantly changed its product profile with focus on better quality. Higher tonnage vehicles were facing quality issues 1-2 years ago. This helped competition gain market share at its cost. However, with the company revamping its product portfolio with a focus on quality, the dealer does not expect major market share losses going ahead.

Ashok Leyland has affected the market share for Tata Motors while Bharat Benz has not dented it meaningfully.

The company has hiked prices by 1.0-1.5% every quarter. Discounts had inched up in H1FY17, but were down by 0.5% in Q3.

BS-4 impact on price will be around 7-8%.

ITC distributor Cigarettes business disruption is marginal; FMCG impacted by 10-15% and on path to recovery “The first thing that any smoker did after getting cash from the bank was to buy a cigarette,” quipped one of our participant. Cigarettes as a category is recovering faster than most other categories. The impact of demonetisation is also likely on illicit cigarettes smuggled into the country. The key takeaways of the meeting are as follows:

Cigarette business saw significant disruption in the first few days into demonetisation but after about a week, the recovery started.

Wholesale channel is impacted because it is driven by cash, but cigarette sales now are back to October levels.

Maharashtra has significant inflow of cigarettes from neighbouring state Karnataka because of VAT-rate differential and MRP differential. This, to some extent, is reducing; but there is still lot of inventory in the channel from the other states.

Due to cash crunch, illicit imported cigarettes should reduce in the future and some impact is already visible, but still there is lot of inventory in the channel. The clearing and replenishment of this inventory will depend upon cash availability.

Other categories of the ‘FMCG other’ segment have been affected to the tune of 10-15% due to demonetisation, but are recovering.

Legacy issues continue to impact channel sales because of interstate movement of goods. This has significantly impacted sales of distributors in states that have higher VAT rates like Maharashtra, Tamil Nadu, Kerala and others.



For the channel, GST rates are not very critical. However, a uniform rate will be a big help – sales will start seeing a pick up as interstate goods movement will cease.

HUL distributor November sales not hit significantly; recovery has begun Most of its products are in the staples category and after the 25th of November, channel sales have started recovering. With its large share of shelf space, HUL is able to exercise market power in expediting collections from the market, which a smaller company may not be able to do. The initial throughput and collections of early December are encouraging and it should be able to track normal rate in urban centres. Rural is likely to remain sluggish for some more time. Key takeaways of the meeting are as follows:

November sales target was reduced (5% and above) to accommodate the impact of demonetisation, but it seems the channel is able to meet targets in many of the urban centres.

Wholesale sales are down, but that too seems to be reviving a little; the pace seems to be more critical. Direct reach outlets are back to normal levels and to some extent countering the sluggishness of the wholesale channel.

HUL had extended its credit period by 10 days for all distributors soon after demonetisation, which helped distributors pass on liquidity into the system. However, it was one-time (not extended again).

Cheque payments from the channel have doubled in the last week and more and more retailers are using this medium.

Most of the retailers (75%) do not have registered VAT numbers and hence they are still not geared for GST implementation.

Cash flow is improving in the FMCG channel at a healthy pace. Overall, HUL is well placed to manage the headwinds of demonetisation and it is likely to come out stronger in this phase.

All India Gems & Jewellery Trade Federation (GJF) Gems and Jewellery sales down to 20-40% levels currently; recovery will be protracted Gems and jewellery sales were strong in October and the first week of November

On 8th November (demonetisation announcement), sales surged as buyers rushed to jewellery outlets to convert their old notes into gold.

After demonetisation, gems and jewellery sales have dropped to 20-40% of normal levels for the industry; bullion sales, which account for 30% of overall sales have seen a sharper drop.

Diamond sales have been hurt more and diamonds have lost premiums due to absence of strong global market for diamonds unlike that in gold.

~90% of the transactions in gems and jewellery purchases are in cash and it will take time for the sector to shift to formal banking channels.

There are ~300,000 jewellers in the country and the sector provides sustenance to significantly more people indirectly; indirect stakeholders like contract labourers will be hurt harder.

Expect recovery to be very protracted in the gems and jewellery sector as it will take time for new currency to circulate in the system and for some customers to shift to formal banking channels for jewellery purchases.

Expect organised players to be hit harder than unorganised players in the short term due to differences in flexibility in the workings of the two channels.

Expect GST rate on gems and jewellery to be 2-3%.



Channel Partners - Cement On the ground reality not as bad as anticipated We hosted distributors from south and northeast India. Takeaways:

There is a definite volume impact – 15-30% – in various regions, but the situation is not as bad as anticipated.

While south remains a market where most of the payments are through cheques / bank transfers, northeast is cash and carry.

To avoid disruptions, south has extended credit periods in the supply-chain, but northeast has become more vigilant and cautious as far as supplies are concerned. Leads have come down in the northeast.

Traders in the northeast have acted smart by forming associations to facilitate transfer of cash from the FMCG network and exchange Rs 2,000 worth of currency with smaller denomination currency and circulate that in the market. This has helped the currency crisis in the cement supply-chain to resolve to a large extent.

In order to make the market more organised in the northeast, distributors here have started offering discounts to consumers if they are willing to pay in cheque / bank transfers.

A lot of consumers in the northeast have stocked steel and advanced money to cement suppliers in cash for their future requirements. This gives the confidence that Q4 may not very disappointing and we may expect a definite volume recovery in Q4.

Commentary on pricing remains positive in both regions. While south prices continue to remain largely firm and stable, prices in the northeast have increased by Rs 15/bag from 15

th November 2016; more hikes are not ruled out. However,

given the current realities, with demonetisation, price hikes may not be aggressive in any region.

We get a sense that the ground reality is not as bad as anticipated, especially in South, West and North East. Regions such as North, Central and East have been impacted the most. Volume drop for cement manufacturers will be in the range of 15-30% across regions for November 2016. December should see a recovery and the overall volume loss for the sector should be 10-20% for Q3. The best part is that we have not seen negative price commentary from any region and this should support earnings momentum in Q3.

Channel Partners: Logistics Focus on cash-less operation Road transport business is down by ~15% while airfreight business is down more

than 25% after demonetisation.

Impact is mainly due to demand slowdown rather than operational issues. Organised players have gradually moved to online payment through petrol card and fast-track payment at toll as well as pre-paid cards to drivers.

Freight rates are stable, not declined as there is uncertainty in return cargo and already truck transportation is already working on thin margins. Most of transporters prefer shorter lead distances in a slowdown.

Average cash requirement per driver per day is ~Rs 2000-2500. Smaller fleet operators are becoming attached to organised players as trade is moving to the latter.

Demonetisation will help companies to move towards GST compliance faster. After GST, tax compliance will increase with all-India registration and return filling in each operating state. Small players will find it difficult to operate and follow compliance requirements after GST.

GST will give operational efficiency and not tax benefit, and if any tax benefit remains, it will be passed on to customers.



Growing mobile penetration, and increase in e-com trade with digital payment will benefit air and express cargo movement.

Electrical dealer Channel filling in nov may impact sales in short-term The cables division is less impacted as compared to consumer durables & white

goods (CD & WG).

White goods and consumer durables sales have been down 50-60% for November and cables were down ~30%

In (CD & WG) retail cash sales are ~70% (majorly for high-ticket-size product); the rest are through CC, cheque, and other methods.

In the first 10 days (from 10-21 November 2016) sales for CD & WG down ~80%. After this period, sales have increased wow, but are down ~60% mom.

Companies have tried to push channels by giving additional discounts and improving the cash-flow situation at dealers and consumers ends by introducing EMI/zero down payment options. (discounts were for November 2016 only). Expect lower dispatches in December 2016.

Channel has booked inventory for the next two months.

Companies are trying to control costs by reducing production (reducing capacity utilisation) or by cutting down labour costs/any other fixed cost.

Due to the liquidity issue, small manufacturers/unorganised players are shutting down their production units.

GST – positive for the industry. Expect shift from unorganised players to organised players.

Tiles – industry expert Sales hit but govt. projects and export to drive growth Indian tile industry is ~Rs 260bn; ~30-40% dealings are in cash.

The industry has taken a production cut of ~30%.

In Morbi, out of the 650 plants, some will see a shut down for the next 2-3 months.

New capacity addition in Morbi is delayed by 2-3 months. About 60 new plants should come up in 8-10 months with an average capacity of ~13,000 sqm/per day.

November sales were impacted by only ~20%, but December 2016 and January 2017 sales will be more impacted.

Industry expects a slowdown for the next 6 months (3 months for demonetisation +3 months for GST).

GST will be positive for the industry; current tax rate is ~24-29% – expects GST rate at 18%. Expects a shift to unlisted organised, semi-organised, or organised players from unorganised.

Realisation pressure to continue, will result in margin pressure.

Lower off-take from private builders and retail/individuals caped growth from export and government projects.

Expects the industry to grow at 9-10% (volume, long-term), majorly driven by export, government projects, and the new market like - cladding.



Steel dealer To return to normalcy soon Demonetisation

In regions like Jalna, Mandi Gobindgarh, business is mainly in cash – so it has been impacted. These rolling mills relied on domestic scrap for purchase and sold in rural markets, both involving cash. Demonetisation will help organised players in the long term.

Impact is different on different products. Flat products end use like auto, engineering etc. are largely B2B; hence, impact if any will come with some lag. Products like TMT (construction) and colour-coated sheets (roofing) have significant demand from rural areas, which largely dealt in cash and hence impacted the most.

November collection was good as lot of recovery took place. Due to liquidity crunch, volumes may slow down in December and early January to OEMs. Expect cash circulation to start from January 2017, which will return to normalcy by June 2017. Steel purchasing is now conservative; once liquidity improves, there can be pent up demand.

Q4 has always been a budget utilisation quarter, hence expect demand to gain momentum from February to June 2017.

Price, cost and demand

Prices have increased by Rs 3,000/tn in flats and Rs 1,500/tn in longs in December; all of it would be absorbed. Total price hikes since the August low has been Rs 8,000/tn in flats and Rs 3,500/tn in longs.

Real impact of coking coal increase is Rs 10,500/tn. Expect further price hikes in January.

Production of coking coal in China has been stopped deliberately and it is is using only imported coal, which has led to an increase in prices – this has lifted the global cost curve in order to counter dumping duties.

Indian market is well off due to protectionism by the government, so price hikes will not threaten increase in imports. Also, people are apprehensive about imports.

Demand in recent months is due to stocking in anticipation of price hikes.

Government spending has slowed down due to want of funds; hence, demand is becoming sluggish.

Companies and others

Export prices have been good, which gives JSW Steel a good avenue.

Three years ago, Tata was a price maker – but that has changed in favour of JSW Steel due to the latter’s more aggressive marketing. At the same time, Essar was facing financial difficulties while RINL had quality issues after the expansion – both benefitted JSW Steel in the west and south regions.



Petrol pump dealer and association president, Mumbai Sales hit by fall in leisure travel Impact of demonetisation

Initial auto-fuel sales (4-5 days) in Mumbai area jumped by 20-25% as the government allowed old Rs 500/1,000 notes in PSU petrol pumps.

However, for the whole month, urban outlets saw a 15-20% mom decline in overall sales, which has baffled industry watchers. Could be due to reduction in leisure and recreational travel among city-based users and may not be the case in rural and highway outlets, which are mostly frequented by logistics and public transportation.

Near-term diesel sales outlook depends on CV activity; overall economic slowdown can impact volumes.

Lot of tanking up – both in vehicles as well as in outside storage (drums, barrels etc) – could mean lower sales in the immediate period (i.e., December).

Petrol sales in tier-1 cities could be aided by electronic payments. Outlets are increasing coverage of electronic modes like card swipers, micro ATMs, Paytm etc.

Countrywide, electronic/plastic payments account for 5-7% of total transactions while in a premium urban Mumbai outlets it was 25% before demonetisaton.

Complete disallowance of all old notes in petrol pumps in December – waiting for further impact on business.

Private competition

Competition is increasing more in the bulk category. In retail, PSUs have a formidable position.

Cannot think of any major threats to uproot PSU dominance. In the past, quality and quantity assurance, automation, superior service, etc., boosted private-sector presence. However, over the last 6-7 years, PSUs have become strong in these parameters.

Marketing however will play an important role and need to see what private players will come up with.

In the future, new players like BP may set up automatic dispensing units, which would not require any manpower and can reduce outlet opex (leading to fuel price discounts). However in India, particularly in cities, personalised service is in demand.

Private players may give discounts of ~Rs 1/litre on bulk (large quantity) sales in outlets. However, if a discount regime is replicated by PSUs and becomes rampant, it would adversely impact players as well as dealers.

Essar is very aggressive in its expansion while Reliance is a tad slower. Commissions

Dealer commissions have been raised for auto-fuels, but seeking ~1% (of RSP) additional increase. ROI is currently low considering assets.

Evaporation rate has also increased to 0.8% due to ‘unleadedness’ and ethanol blending and this is affecting dealer earnings.

Electricity cost is high at Rs 14-15/kwh (commercial rate in Mumbai) while minimum wage is also hiked periodically.

Heavy expansion of retail outlets in the last many years has reduced per outlet throughput, impacting dealer revenues.

Private sector commissions are lower than PSUs at 2.5% for petrol and 1.5% for diesel, but customer schemes and discounts may be more attractive.

A new outlet needs 200kl of monthly auto-fuel sales to breakeven while current national average is less than 150kl. Hence, the business has become unattractive.



Others

CNG outlets, though impacted by demonetisation, are less affected. A full tank for smaller vehicles (ex-buses, LCVs etc) is worth ~Rs 300 against Rs 500/1,000 earlier allowed – which should imply migration to petrol/diesel. However, it is not so because auto rickshaws and taxis have change available with them while city-based private vehicle users can use electronic methods.

Half of the revenue for core city outlets may come from non-fuel initiatives like repair and service centre for vehicles, retail, ATMs etc.

99% of outlets in Mumbai are CODO units due to high real-estate cost.

In Mumbai, premium urban outlets sell ~200kl of petrol and 140kl of diesel per month.

Private lube company distributor, Mumbai Organised players remain resilient Impact of demonetisation

Demonetisation is being properly managed by the company. The market was affected for a week, but organised trade performed well. The company also extended some support to channel partners. Mumbai sales are unlikely to be impacted much.

November sales were normal. December may see some impact on the sector as a whole, but fundamental outlook won't be adversely impacted.

50% of the lubricant trade is unorganised. Demonetisation may weed out many unorganised and counterfeit product players, which could be beneficial to blue-chip players.

Pricing and schemes

Lube players do not frequently change official prices to maintain inventory valuations. Hence, discounts and schemes are mostly used.

Discounts and schemes are generally on a quarterly basis. Intensity of schemes in the last year has increased.

Dealer and distributor incentives are generally same for premium and mass market brands.

There has been no change in incentives or margins for dealer-distributors.

Distributors and dealers remain motivated for the company. Mumbai market

Mumbai market is growing at a stable pace, with an annual growth rate of 3-5% for the last 3-5 years. Currently, sales are roughly 1,000kl/month.

New vehicles are moving towards synthetic oils.

In Mumbai, PCMO has a 30% share, MCO 30%, and CVO 40%.

Petrol pumps have a sizeable lube business in Mumbai as car repair service stations are attached in many.

Customer touch-points/retailers have not increased in Mumbai due to expensive property costs.

Others

Entire lubricant industry was doing well.

360-degree approach required in the business distribution chain. Need to motivate channel partners.

Price leader's products are 30-120% more expensive than other players, including unorganised sector players.

Do not think new players are a big threat to existing leaders.



PSU/OMC lube company distributor, Mumbai December sales may dip, but see improvement thereafter Impact of demonetisation

Crossed monthly sales target by 5% in November 2016.

Transport movement not much impacted in November as old Rs 500/1,000 notes were accepted in petrol pumps while toll charges were removed. Food stalls/dhabas are pre-decided and run on credit.

December may see sales dip. At worst, it could fall 15-20% mom, but recover thereafter, as things normalise. Before demonetisation, sales were picking up.

Pricing and schemes

The PSU OMC is very aggressive in pricing, which led to market penetration.

Pricing difference to price leader is 25%.

15-20% discounts have been effected in the last 6-12 months.

Market and products

PSUs have seen 15-20% CAGR in the last eight years in the automotive segment.

Castrol has been significantly hit in the CVO segment vis-a-vis PSUs, as it started focussing on PCMO and MCO oils.

PSU has a complete suite of products, including long drain oils. Pan-India product availability is there.

HPCL has 10% market share in the automotive segment.

BS-4 recommended oils are long-drain at 60-65,000kms nameplate interval, though the actual change may take place after 40-45,000kms.

Others

PSUs focus on bazaar trade

Focus of the PSU SBUs is on retail lubes.

Transportation is paid by the dealer, but IOCL supplies to dealers at doorstep.

Castrol offers support to dealers/distributors/retailers/mechanics in the form of upfront support, equipment, facilities, site makeovers etc.

PSUs are less decentralised due to which decision making is slower.

In fuel outlets/service stations, PSUs have to be more aggressive in lube retailing.

Kamat Hotels Institutional business impacted lower; demonetization will affect business only in short term During the initial days of demonitsation there was 15-30% decline in the business

and now it has recovered to normal; government’s demonetisation move is fantastic but they have failed in communicating the demonetisation process

Demonetisation move has impacted the economy, but it is just a short term pain and a matter of adjusting to the new life

Kamat Hotels as a group is focused more on the corporate clients and hence the business is less impacted by demonetisaion currently, The Orchid Hotels have 100% occupancy and 80% average occupancy for the entire group hotels

Majority of the Kamat’s hotel bookings are from travel websites and aggregators

During the normal season company’s F&B to room ratio is 2 to 1; during the peak season and big bookings F&B to room ratio is 50-50%

Company’s total outstanding debt stands at Rs 4.7bn and plans to pay off the entire debt by FY20



Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd

250 North Bridge Road, #06-00 RafflesCityTower,

Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd

4-2 Nihonbashi Kabutocho, Chuo-ku

Tokyo 103-0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia

ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding

Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia

Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia

Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA

PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2483 1919

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

(91 22) 6667 9735

Research IT Services Pharma & Speciality Chem

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768

Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996

Banking, NBFCs Infrastructure Strategy

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947

Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Aashima Mutneja (9122) 6667 9764

Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Telecom

Consumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947

Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973

Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 Technicals

Preeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762

Cement Dhawal Doshi (9122) 6667 9769 Production Manager

Vaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966

Economics Mid-Caps & Database Manager Editor

Anjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Roshan Sony 98199 72726

Engineering, Capital Goods Oil & Gas Sr. Manager – Equities Support

Jonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971

Vikram Rawat (9122) 6667 9986

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976

Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943

Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745

Bhavin Shah (9122) 6667 9974

Ashka Mehta Gulati (9122) 6667 9934 Execution

Archan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/



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

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

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

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

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

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

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

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

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

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

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

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

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

No

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

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

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

No

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

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



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

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

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

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

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

business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer.

If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827).

This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with

these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

http://www.phillipcapital.in/

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