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INSIDE THE ISSUE

PICKUP IN MONSOON After a weak start, rainfall intensified in many parts of India after July. According to IMD rainfall (since 1st June) is normal and there is 0% deficit, with central India and southern peninsula receiving excess rainfall (14% and 4%).

Detailed story on pg. 2

DISCONNECT IN Q1 VOLUME TRENDS INDICATES RECALIBRATION OF BUSINESS STRATEGIES In the history of the sector, Q1 stands out for disconnect in volume trends of all manufacturers, which indicates a recalibration and realignment of their strategies


GRAIN-BASED DISTILLERIES ARE BENEFICIARIES OF ETHANOL BLENDING - VISIT Distilleries are now allowed to use grains to produce fuel-grade ethanol for blending with the petrol. We visited one such distillery in Bhatinda, Punjab, to understand the industry’s changing dynamics.


RETROSPECTIVE PERSPECTIVE Snippets Transfer of RBI reserves to the government

Centre scraps Article 370; makes two new Union Territories – J&K, Ladakh

Transport sector discontent and auto sector doldrums

The yield curve spook

UK PM Boris Johnson (55): Some interesting facts

News round-up of the month Detailed story on pg. 5 & 6

PICTURE-PERFECT PERFORMANCE AHEAD Meetings and telephonic conversations with 10 paint dealers across India revealed what is driving strong volume growth for the entire industry and how sustainable these trends are.


KEY TAKEAWAYS FROM CROMA MANAGEMENT MEET We met up with Croma’s management to understand the financing side of consumer durables products and how a zero-cost financing scheme is structured.


0% 20% 40% 60% 80% 100% 120%

Rice

Kharif coarse …

Oilseeds

Kharif Pulses

Cotton

Sugarcane

Total kharif …

Planting progress completed (% of normal area) as on August 8

Road Less Travelled

19 August 2019 | Vol-1, Issue-8

MONTHLY PUBLICATION

19 August 2019 | Vol-1, Issue-8 | Page - 2 Road Less Travelled | MONTHLY NEWSLETTER

Pickup in monsoon by Anjali Verma

Following a weak start, rainfall intensified in many parts of India after July. According to IMD, rainfall (since 1st June) is normal and there is 0% deficit, with central India and the southern peninsula receiving excess rainfall (14% and 4%). However, there is deficient rainfall in east, north-east (-15%), and north-west India (-11%).

As per World Weather Inc, rain will continue to support aggressive crop development in most locations and the moisture environment will gradually improve in most crop areas. Crop conditions will remain favourable, though the ground is likely to trend a little too wet at times for ideal crop development.

As on 9th August 2019, kharif production covered 82% of its normal area. Total area sown was 87mn ha vs. 92mn ha in 2018 and is 5% lower than last year. On year, sowing is currently lower for rice (-13%), pulses (-5%), coarse cereals at (-1%), oilseeds at (-3%), and sugarcane at (-6%), while it was higher for cotton (+5%).

Day: 13-08-2019

Period: 01-06-2019 to

13-08-2019

Meteorological

Subdivisions

Actual Normal % Dep.

from

Normal

Actual Normal % Dep.

from

Normal

East & North East India 13.8 12.9 7% 784.1 924.1 -15%

North West India 4.7 7.5 -37% 339.4 381.1 -11%

Central India 15.1 10.4 45% 723.5 635.1 14%

South Peninsula 5.5 7.0 -22% 481.9 462.7 4%

Country as a whole 9.8 9.2 6% 567.6 569.2 0%

Disconnect in Q1 volume trends indicates recalibration of business strategies

by Vaibhav Agarwal

Q1 stands out for disconnected volume trends of all cement manufacturers – in the quarter, different manufacturers in the same regions showed divergent volume growth trends; something not seen in the past. This indicates the recalibration and realignment of strategies of many industry leaders. Trends suggest weak volume commentary in Q2 as well, driven by heavy monsoons and lack of liquidity. Demand in Q1 was dented by elections, lack of availability of labour, and implementation of code of conduct, and given that the immediate ensuing quarter (Q2) is a monsoon quarter, the volume impact has not yet rectified.

However, surprisingly, price commentary remains directionally positive in three key regions – north, west and central India, even in Q2. South and east India have seen roll-backs in prices, driven by inappropriate discounting policies and other supply-chain inefficiencies, discussed in detail in our ground view magazine. We sense that the industry, especially few leaders, are making deliberate attempts to address issues in supply-chain and these initiatives will result in sustainable delta to earnings for them, independent of cement prices, especially in the longer term. This will also push others to look at supply-chain efficiencies, and not just production efficiencies.

Our on-the-ground checks reveal fundamental initiatives by a cement major, especially in east and central India, to address issues of ‘forward-loading’ which will significantly reduce infiltration of cement into these markets from other markets, and thereby help the inherent demand-supply equation to balance out, resulting in better price stability and sustainability.

Earnings for cement manufacturers will not just be a function of cement prices, demand, and costs, but also supply-chain efficiencies, and players who will remain ahead on the curve will have the first-mover advantage. Optimism of a demand revival after Diwali 2019 is very strong and obvious (on expectations of pent up demand) as volume slowdown in Q1 and Q2 has been unprecedented. But in our view, FY20 will be a trend change year for the industry, which will teach the manufacturers the ability to work on lower capacity utilisations and maintain price equilibrium, though few aggressive manufacturers may continue to spoil this balance. Overall, we expect the profitability of the industry to improve yoy by Rs 100-200 in FY20 (EBITDA/tonne), with a muted volume growth trend (0-3%). Expectations of a strong demand revival may not play exactly as anticipated, but such disappointments are unlikely to have significant impact on cement prices. In FY20, we are likely to see improvement in price realisation trends by the industry rather than market demand trends. Incremental capex initiatives are muted and should help longer-term price stability. The government’s structural failure in addressing on-the-ground liquidity issues and consistent fundamentally weak demand is the only immediate risk in our view. Marginal price dilutions in specific regions may happen in H2FY20 as few manufacturers are likely to commission capex in specific regions like North India, but unlikely to impact the broader price stability. Pan-India cement average prices are expected to remain directionally positive by Rs 10-20 per bag (yoy) for FY20. Cost savings with lower fuel prices in FY20 will also help improve industry profitability.

0% 20% 40% 60% 80% 100% 120%

Rice

Kharif coarse …

Oilseeds

Kharif Pulses

Cotton

Sugarcane

Total kharif …

Planting progress completed (% of normal area) as on August 8


Grain-based distilleries are beneficiaries of ethanol blending – Visit by Vikram Suryavanshi

We visited a grain-based distillery in Bhatinda, Punjab, to understand the changing dynamics in the industry after the government has allowed it (and others) to produce fuel-grade ethanol for blending with petrol. The National Policy on Biofuels-2018 notified on 8.6.2018 allows production of ethanol from damaged food grains such as wheat, broken rice, etc., which are unfit for human consumption, as well as from maize.

200 KLPD grain based distillery with 10MW power plant

The biofuel policy had a significant impact on grain-based distilleries in Punjab and Bihar, and most of the distilleries have modified capacities to produce ethanol. Before the policy announcement, these distilleries were only producing RS (Rectified Spirit) and ENA (Extra Neutral Alcohol), which are mainly consumed by potable liquor companies and chemicals industries. With the policy change, distillery manufactures have more flexibility in terms of different product outputs. Before the successful ethanol blending programme, the selling price for distillery products was very volatile and used to decline significantly in years of surplus production. Now, with additional demand from ethanol blending at attractive rates, the pricing environment has significantly changed. In fact, the industry is not able to meet the 10% requirement for ethanol blending! The price (per litre) announced by the government for ethanol from C-molasses is Rs 43.7, B-heavy molasses is Rs 52.4, cane juice is Rs 59.1, grain-based ethanol is Rs 47.13; prices of other distillery products such as ENA and RS now follow ethanol pricing.

Broken rice – raw material for the distillery

Direct conversion of RS into ethanol is cost effective In the distillery process, the intermediate product manufactured is known as Rectified Spirit (RS). After this, different final products can be produced. RS has 5% water and other

chemicals, which are removed depending on end use. ENA is produced through a six- or seven-step distillation process, while ethanol can be produced with two-step distillation. For ENA, all chemical impurities need to be removed, as it is used for human consumption. Since ethanol is used for industrial use, there is no need to remove chemical impurities and only water content needs to be removed. Ethanol for blending with petrol needs to be almost free of water, so manufacturers increase ethanol content to 99.2% from 95% (i.e., 95% ethanol, 5% water) with an additional process. Direct conversion of RS to ethanol is cost effective (cost is lower by c.Rs 2 per litre compared to producing ENA). Also, in production of ENA, around 6% production is of a lower

grade, which is sold at a lower price of Rs 20 per litre compared to ENA price of c. Rs 50 per litre.

State government push for maize over rice The Punjab state government is promoting maize for farmers rather than rice as the former consumes significantly lower water (around 80-90%). Globally, 80% of maize is used for production of ethanol along with valuable by-products known as DDGC (distiller's dried grains with solubles). Due to declining water levels, farmers are shifting to maize production over rice, and most distilleries are planning to expand capacity as the bio-fuel policy has allowed conversion of maize (even good quality, as opposed to damaged quality for other grains) into ethanol.

Picture-perfect performance ahead by Vishal Gutka & Preeyam Tolia

Phone conversations and meetings with 10 paint dealers across India revealed what is driving strong volume growth for the entire paint industry and how sustainable these trends are.

APNT reported strong volume growth in Q1FY20 based on: (1) solid growth in its waterproofing segment (where products are priced at a substantial discount to Pidilite and where it gives higher margins to dealers), (2) continued traction in the distemper segment, where the pricing premium of branded players to unorganized players reduced to 10% after GST from 20-25% earlier, (3) innovative schemes such as Cricket World Cup tickets given to dealers for meeting long-term targets across product categories and not dumping targets in one specific quarter, and (4) an intense push in institutional orders through higher discounts.

In addition, we believe healthy volume growth is likely to continue (ex-waterproofing) in coming quarters due to aggressive schemes across product categories after 50% capacity addition, launch of products in existing categories at disruptive price points, and foray into adjacent categories such as sandpaper.

Are ancillary products aiding volume growth at the aggregate level? APNT aspires to become the #1 player in waterproofing and has come out with specific schemes during the peak season (1Q is an important season for waterproofing) that focus on specific territories. Within construction chemicals, it focussed on 2-3 large products in south India. In addition, it does not want to miss having coverage over any raw material or equipment that is used in painting process. It has focussed aggressively on putty and primer, where the share of the unorganized sector is much higher. APNT plans to capture a lion’s share even in the economy distemper segment so dealers believes that competition is likely to intensify. Brush and roller categories do not contribute meaningfully to the revenue pool, but earn much higher margins because the company is able to procure them at economical costs. Another example - to increase presence in the value chain , APNT launched sand paper, which is used to remove old paints. The India sand-paper market is fragmented with a heavy presence of unorganised players. APNT’s


sandpaper is priced similar to other branded players at (Rs 12-15 MRP) while unorganised players are priced at (Rs 10). Dealers said that although APNT’s product is slightly costly to unorganised, it could gradually gain market share because its product quality is superior.

Why have Asian Paints’ waterproofing products done so well in Q1FY20? Generally, there are two types of waterproofing – one is for external walls, so that water does not enter the house through external cracks, and the other is for internal walls where waterproofing chemicals are mixed with putty and primer, so that no dampness or moisture is visible on internal wall. Contractors told us that one form of waterproofing is enough (either external or internal), but it has to be done properly.

While Asian Paints is a rather recent entrant in waterproofing solutions, Pidilite has been a strong player in this segment with stronger brand equity. APNT has been able to gain meaningful market share in internal

waterproofing based on its strong distribution network and because its prices are at a substantial discount to market leader Pidilite’s. The latter continues to be a leader in external waterproofing (way ahead), but Asian Paints has been making gradual gains here too, as civil contractors have started buying APNT waterproofing material along with exterior paints, realising that its quality is at par with Pidilite’s and price is cheaper. Civil contractors operate at low margins and try to save every penny possible while maintaining quality.

Another way APNT has gained market share over Pidilite recently, is by offering a warranty of 7 years vs. the 5-year warranty that it offered earlier. In response, Pidilite, which wasn’t offering any warranty earlier, has begun matching APNT’s revised warranty. Warranties and improved product formulations (that deliver better results) are spurring customers into bundling waterproofing with their painting jobs.

For APNT, waterproofing margins are 7-8%, whereas in paints, it earns 4-5% margin. Higher margin and training for painters has resulted in strong growth in waterproofing. It has started training centres across India for construction workers / painters about how to apply waterproofing products and construction chemicals. It has been very aggressive in government contracts (it has already big 3-4 government contracts in hand).

Are price cuts likely ahead based on softer commodity prices? APNT is unlikely to tinker with price cuts since stocking up (ahead of the festive season) will soon begin. However, it is likely to push volumes aggressively through schemes and promotions for dealers, which are currently a tad higher than normal.

Why has Kansai Nerolac seen strong growth despite APNT’s market share gains? Kansai Nerolac has reported strong volume growth because of its solid growth in distempers; it has also filled its product gaps and increased its distribution reach. Kansai has adopted the “distributor model” to drive its next leg of growth (UP, Chhattisgarh, and MP) through its flanker brand “Soldier” in order to target towns that have a population of less than 20,000. Soldier is particularly targeted at tier-2/3 cities. The Soldier range of products is priced at a 5-10% discount to its marquee brand Nerolac. For Soldier, the company has appointed separate distributors who are promoting this brand chiefly among smaller outlets and also some large dealers who do not stock the Nerolac range. This prevents conflict of interest with existing dealers of Kansai Nerolac. Berger Paints is also thinking of adopting a similar model for expanding its distribution in tier-2/3 cities

Consumer durables financing: Key takeaways from meeting with Croma’s management by Pradeep Agrawal

Croma’s presence is in 35 tier-1 cities with 135 stores. It has a 5% market share in the Rs 800bn consumer durables industry.

Its turnover is Rs 40bn+ in FY19 of which 80-85% would be large-ticket consumer durables items

Around 30% of the turnover is financed of which 45-50% is through Bajaj Finance followed by HDFC Bank, and then other lenders such as HDB, ICICI, Axis, and Kotak. Around 60% is through credit cards (with HDFC having the highest share) and around 10% is in cash.

Average ticket size increased to Rs 30,000 from Rs 25,000 few years ago helped by zero-cost financing schemes.

In zero-cost finance schemes at Chroma, 100% of the subvention is borne by OEMs. At Vijay Sales, 25% subvention is borne by the store and 75% by the OEMs.

While enquires are flat in the last couple of months, conversion rate has moved up.

SBI is starting debit card EMIs this month, Axis from next month. Even ICICI Bank and Kotak Bank are starting debit card EMI schemes. With their high customer base of debit card users, Bajaj Finance’s market share may take a hit.

Turnaround time for processing for Bajaj Finance is just a few minutes while banks take 10-15 minutes.

Financiers are becoming more aggressive in the consumer durable space.

No pricing difference between upfront payment and zero-percent financing scheme costs.

50

60

70

80

90 Crude - USD/bbl

Crude prices are down ~20% since April’19


RETROSPECTIVE PERSPECTIVE – by Roshan Sony Snippets

Transfer of RBI reserves to the government Media reports indicate that the Jalan Panel set up to review the economic capital framework of the Reserve Bank of India is likely to submit its report soon, probably on 23

rd August. The buzz is that it will recommend transfer

of funds from the RBI in tranches over 3-5 years. At present, the RBI holds 27% of total assets as reserves (+US$ 410bn) while the global norm is said to be around 14%. As of FY18, its net assets were Rs 9.6tn. The market has been abuzz with figures as high as Rs 1tn as a one-off transfer, and as low as Rs 80bn.

Centre scraps Article 370; makes two new Union Territories – J&K, Ladakh On 3

rd August, Indian authorities issued evacuation orders for thousands

of people, including tourists and Hindu pilgrims, to immediately leave Jammu and Kashmir - citing security alerts about possible militant attacks. Two days later, in a move that took most of India by surprise, statutory resolutions were introduced and passed in the Rajya Sabha under which the enabling provision of Article 370 was

scrapped. J&K was split into two separate union territories – Ladakh (without a legislative assembly) and Jammu and Kashmir (with a legislative assembly, but with curtailed powers). Later, the Lok Sabha cleared the resolutions as well. Since then, Kashmir was put into lockdown with curfews and no internet and phone services. While there has been some dissent and protests about the government’s move, by and large, it seems to have found more support than opposition among the Indian masses. The move is seen to bring in J&K at par with the rest of India, spur economic investment – both private and public – in the state, and is believed to possibly benefit women, dalits, tribal people, and minorities. However, fears of rising terrorism and violence in the valley also prevail.

Transport sector discontent and auto sector doldrums Indian transporters are a worried lot and so are auto companies. The former chiefly worry about hike in registration charges for older vehicles proposed in the Motor Vehicle Act 2019. Other issues upsetting them include higher GST on trucks, sharp hikes in

third-party insurance, and uncertainty about whether taxes are to be charged on total weight or net weight of goods being transported. Transporters had gone on a strike less than a year ago, and had been assured then by Finance Minister Piyush Goyal of their concerns being addressed.

Meanwhile, the Indian automobile industry is going through its worst slowdown in two decades; some believe it’s the worst ever. Domestic passenger vehicle sales have been shrinking for nine months, showrooms are closing down, and news of layoffs hits the market almost every day. Factors that have plagued the industry include high GST, the NBFC liquidity crisis, and the rise of the ride-share industry, and falling consumer confidence.

The yield curve spook Mid-August, the 10-year US Treasury note yield fell below that of the 2-year yield. The yield spread between 3-month and 10-year treasuries in the US, one of the most-watched yield curves, dropped below zero. A section of the market believes that these are signals that a recession will begin within the next two years.

UK PM Boris Johnson (55): Some interesting facts A controversial and polarising figure in British politics and journalism. Comes from a wealthy upper-middle-class British background. Born in New York, USA; gave up US citizenship (dual) in 2016. Mayor of London from 2008 to 2016. Foreign Secretary from 2016 to 2018. One-nation conservative. Worked with the Times as a journalist (sacked), The Daily Telegraph, The Spectator (editor until 2015). Known to have a

socially and economically liberal stance. Shot to prominence in the run up to the Brexit referendum when he used his articles to stoke growing Eurosceptic sentiment among the British right-wing. His ex mother-in-law (Dip Singh) is of Indian origin. Current rumoured girlfriend, Carrie Symonds (31), is the daughter of Matthew Symonds, co-founder of online publication The Independent.

Meanwhile.... The US-Taliban 'peace' talks in Afghanistan still haven't yielded a

deal. And with elections around the corner, the Taliban has already started threatening disruption.

In the 10% tariff on US$ 300bn worth of goods (mostly consumer) from China starting September, Trump has back-pedalled on items such as mobile phones, laptops, and video-game consoles; these will apparently now be tariffed only by mid-December.

Huawei has been in hot water with the US for a while now, accused of stealing intellectual property and threatening US national security. Recently, the Washington Post published an article saying Huawei (secretly) helped North Korea set up a 3G wireless network.


News round-up of the month

J u l y ( 1 5 - 3 1 )

INDIA India forecast cuts: Moody’s Investors Service

cautions that economic growth in India will

weaken over the next 12-18 months,

potentially creating new non-performing loans.

Crisil cuts India’s GDP growth to 6.9 per cent.

IMF lowers India’s growth projection to 7%,

down 30bps.

Exports contract 9.71% in June; rise in July;

trade deficit narrows as imports dip.

Interest rate on GPF lowered to 7.9%.

The World Bank drops the US$ 700mn

Amravati Sustainable Infrastructure and

Institutional Development Project.

IndiGo posts Rs 12bn profit in Q1FY20.

Ministry of Statistics and Programme

Implementation’s latest report for April 2019

pegs 345 infrastructure projects cost overruns

of Rs 3.28tn.

Auto slump; components sector sees 0.8-

1.0mn job cuts.

Patanjali gets control of Ruchi Soya.

For the fourth time in five decades,

Yediyurappa becomes Karnataka CM.

Maruti’s

consolidated net

dips 32% in Q1.

GST on electric

vehicles, charging

stations slashed to 5% from 12% earlier.

FPI outflow crosses Rs 37bn in July 2019.

India's June oil imports from Venezuela

touches highest levels in 7 quarters.

Govt report says India received highest-ever

FDI inflow of US$ 64.37bn in FY19.

Café Coffee Day founder VG Siddhartha goes

missing near Mangalore; his body is found

later in a suspected suicide.

Core-sector growth slows to just 0.2% in June.

Manufacturing PMI at two months high of 52.5

in July.

The Indian Space Research Organization

successfully launched Chandrayaan-2 to survey

lunar water. If successful, it will become the

first spacecraft to land on the lunar south pole

(on 7th

September).

INTERNATIONAL IMF lowers

Singapore’s 2019

growth forecast to 2%.

Singapore is

considered a

bellwether for global growth because its

international trade far surpasses its domestic

economy.

Pakistan arrests Hafiz Saeed, the founder of

Lashkar-e-Taiba.

Malaysia to add 50% voters in 2023 elections

as Mahathir lowers age limit to 18 from 21.

Iran's

Revolutionary

Guards captures a

British-flagged oil

tanker in the Gulf.

Boris Johnson becomes British PM.

Heat wave intensifies in Europe.

Pramod Mittal, brother of steel magnate

Lakshmi Mittal, arrested in Bosnia for

suspected fraud and “abuse of power”.

Saudi Arabia to ban foreigners from slew of

hospitality jobs.

Trade war impact: China’s factory activity falls

for third month.

The US Federal Reserve cuts interest rates for

the first time in more than a decade.

Mercosur – Argentina, Brazil, Paraguay and

Uruguay – in the process of negotiating a free-

trade deal with the US.

A u g u s t ( 1 - 1 5 )

INDIA GST mop-up beats estimates, reaches Rs

1.02tn in July.

200,000 laid off in the last 3 months by auto

dealers, says FADA.

EY says India needs to grow at 9% to achieve

PM’s target of US$ 5tn economy.

RBI cuts repo rate by an unconventional 35

basis points.

IIP growth slips to 4-month low of 2% in June.

Floods hit Karnataka,

Kerala, Maharashtra,

and Gujarat.

Centre scraps Article

370; makes two new Union Territories – J&K,

Ladakh.

INTERNATIONAL Saudi Arabia to let

women travel

without male

permission.

Trade war intensifies: US says will impose 10%

additional tariff on Chinese imports from

September 1.

Thousands of protestors take to Hong Kong

streets again despite China’s ‘warning’. HK

police fire tear gas at protesters. Protests turn

violent. Suspected masked triad members

armed with batons attack commuters

indiscriminately at a station.

Trump signs an executive order freezing all

assets and interests of the Venezuelan

government within the US.

EU says July was the

hottest month globally

ever recorded.

Police detain hundreds

of people at a rally calling for fair elections in

Russia.

The Singapore government cuts its forecast

range for gross domestic product in to 0-1%

from its previous 1.5-2.5% projection.

Dengue epidemic in the Phillipines.

American financier Jeffrey

Epstein is found dead in

his Manhattan jail cell in

an apparent suicide while

awaiting trial for sex

trafficking charges.

Key indicators Sensex Falling

Gold Rising

Rupee Weaker

Oil Falling

10-year G-Sec Rising

Retail inflation Steady

Interest rates Falling

Current account deficit Narrowing

IIP Falling

Business confidence Falling

Manufacturing PMI Rising

Services PMI Falling

Consumer confidence Falling

Forex reserves Rising

Gold reserves (physical) Rising

Exports Rising

Imports Falling

Car production Rising

Car registrations Falling

Trade deficit Narrowing

Aluminium price Falling

Aluminium inventory Steady

Copper price Falling

Copper inventory Rising

Zinc Falling

Inventory Falling


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Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are 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. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing. Kindly note that past performance is not necessarily a guide to future performance. For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS 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. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.


Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as

determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities

Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures

This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.

Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.

No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect. PhillipCapital (India) Pvt. Ltd. Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.

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