India Equity Research | Strategy

June 02, 2020

India Strategy

Money, microorganisms & military

Buy rural themes, financials & defence plays Based on report theme, top picks in our coverage
Mkt
Price Target
➢ Money (read liquidity), microorganisms (read COVID-19) and military are key themes Company Reco. CMP Cap Rs.
Target Date
Bn.
for the coming few quarters. Based on this, we like Indian rural plays, defence companies
AVNT LONG 463 63 600 Mar-21
and select Indian financials.
CREDAG LONG 429 62 512 Mar-21
➢ There is high probability of long-time tensions simmering on the LAC (Line of
BRIT LONG 3,451 830 3,431 Mar-21
Actual Control, China) and LOC (Line of Control, Pakistan). At the same time,
FNXP LONG 473 59 707 Mar-21
India’s fiscal situation will not let it import in a big way; hence, dependence on the
local industry is critical. In this scenario, Hindustan Aeronautics (HAL), Bharat Electronics MRF LONG 62,692 266 68,907 Mar-21

(BEL), and Bharat Dynamics (BDL) – not rated by us so far – should do well. PI LONG 1,558 215 2,054 Mar-21

UTCEM LONG 3,834 1,107 3,977 Sep-21

➢ Coronavirus has forced reverse migration (~2% of India’s labour force, 5% of
migrant workers), leading to an 70% increase in MNREGA outlay. Monsoon prognosis
is good and MSP rise has been in line with historical trends; therefore, prospects for
rural India are healthy. BUY cement, building materials.

RBI actions not working, reforms needed for risk diversification: The RBI is trying to inject
liquidity into the system – like the US Fed – but in vain. US sits on the top of the ladder with
a divine right to print, and the world is obliged to use all that dollar. Since the Indian central
bank is not so lucky, its efforts to inject liquidity have failed. It is ok to say that at present
everybody needs ‘contingent liability’ on someone else’s balance sheet. Banks are now
fearing risks and a flux of NPAs once the moratorium is lifted, and are therefore refraining
from incremental lending. It seems banks have forgotten that they are in the business of
taking risks and not conserving cash by investing in the reverse repo. We need structural
reforms in regulations. Perhaps TCI (trade credit insurance), once resumed, can bring in
some succour. Also, the regulator has notified rules for zero risk-weight lending (because of
government guarantee) to MSMEs. Hopefully, banks will not see risks in this rule and start
lending to MSMEs.
Reverse labour migration, MNREGA: wage inflation, impetus to rural demand: Around 5%
of the migrant labour force (2% of overall, ~10m) has reverse migrated. They have enhanced
MNREGA allocation wating for them, while MSP has been raised and monsoon prognosis is
good. Added to this is the misery of lockdown, which is fresh in their minds. It is reasonable
to assume that migrant labour will not return in a hurry, and labour cost inflation for industries
is inevitable. Note that overall active MNREGA workers in India were 116m. Even after
assuming all returning migrants take up MNREGA jobs, an 70% allocation increase is
disproportionately high. Hence, more people will come under the MNREGA active workers
list, which should increase rural household income.
Military – another theme in times to come; buy defence names: Tensions on the LAC and
LOC are unlikely to abate in a hurry. The genesis of tension on LOC lies in terrorism and on
LAC in One Belt One Road (OBOR)/China-Pakistan Economic Corridor (CPEC). India’s
assertion of its rights and increased rhetoric vis-à-vis POK does not bode well for CPEC’s
economic viability. It appears that China is trying to balance it with increased tension on LAC. Analysts
India will have to prepare for a two-front war. It needs to modernise its military massively but Satish kumar
at a reasonable cost. The success story of indigenous fighter planes and all-out support by Satish.kumar@equirus.com
the Indian air force for this fighter program is a welcome change in the armed forces attitude. +91 22-43320616
It appears that all domestic defence companies can have multi-year growth before them. Siddharth Gadekar
Siddharth.gadekar@equirus.com
+91 8128694102

Refer to important disclosures at the end of this report June 02, 2020| 1
India Strategy India Equity Research

Money, microorganisms and military

Money (read liquidity), microorganisms (read COVID) and military are set to be the critical theme for
Indian markets in the coming 12-18 months and beyond. Money, because despite huge liquidity, risk
taking is not coming back to the system; hence, reforms are needed. This liquidity can have serious
downsides such as inflation or bunching of credit to a few.

We have to live with coronavirus until a vaccine is developed and the world is vaccinated. In the interim,
Liquidity, coronavirus and the military – this has led to serious reverse migration of labour. Migrants will be taken care of in their respective
key themes for the next few quarters home states as MNREGA expenditure has been increased. However, this will cause labour cost inflation
in urban areas. Rise in MNREGA, a good monsoon forecast and an increase in MSP bodes well for
Indian rural demand.

The tensions on LAC and LOC will not abate in a hurry. The genesis of tension on LOC lies in terrorism
and on LAC in One Belt One Road (OBOR)/China-Pakistan Economic Corridor (CPEC). India’s
assertion of its rights and increased rhetoric vis-à-vis POK does not bode well for CPEC’s economic
viability. Hence, China is trying to balance it with increased tension on LAC. India may have to fight a
two-front war in the next decade or so. It needs to modernise its military massively but at a reasonable
cost. Unprecedented support for indigenous light combat aircraft by Indian air force is not a one-off.
Support for domestic defence production is likely to continue. All domestic defence companies can
have multi-year growth ahead of them.

The plight of RBI – New reforms needed

In a risk-averse scenario, every central bank barring the US Fed has become helpless . US sits on the
top of the ladder with a divine right to print, and the world is obliged to use all that dollar. Since the
Indian central bank is not so lucky, its efforts to inject liquidity have failed. It is ok to say that at present
Corporate sector unlikely to revive till
everybody needs ‘contingent liability’ on someone else’s balance sheet. Till banks begin to lend using
banks lend using the Rs 3trn guarantee
the Rs 3trn guarantee by GoI, the corporate sector will not revive. In the long term, reforms like trade
by GoI
credit insurance are needed.

RBI still absorbing record liquidity

The current risk aversion has not been seen in the past decade or so. However, there is some good as
well as bad news on this front. Good news is that in the past few days, money being borrowed from
the RBI is through the LTRO and TLRO window; bad news is that liquidity adsorbed by the central bank
in the reverse repo window is not falling.

Exhibit 1: Current liquidity surplus in system (driven by risk aversion) is Exhibit 2: Net liquidity absorption has declined in last few days
highest over past 10 years
Net injection/ absorbtion
0.00
Net injection/ absorbtion
6.00 -1.00

4.00 -2.00
-3.00
2.00
Rs trillion

-4.00
0.00
Rs trillion

-5.00
-2.00 -6.00
Negative number indicates absorbtion of Negative number indicates absorbtion of
-4.00 -7.00
liquidity by RBI liquidity by RBI
-6.00 -8.00

-8.00 -9.00
1/Jul/19

1/Sep/19

1/Oct/19

1/Feb/20

1/Apr/20
1/Aug/19

1/May/20
1/Jan/20
1/Jun/19

1/Nov/19

1/Dec/19

1/Mar/20

-10.00
Mar/13

Aug/18

Aug/19
May/15

Jan/16
May/16

Jan/17
May/17

Jan/18

Mar/20
Nov/12

Dec/13

Dec/18

Dec/19
Jul/13

Sep/14
Feb/15

Sep/15

Sep/16

Sep/17

Apr/19
Apr/14

Apr/18

Source: Equirus, RBI

Source: Equirus, RBI

June 02, 2020| 2

 India Strategy India Equity Research

Exhibit 3: Decline in money absorption not driven by significant decline in reverse repo but rather LTRO
and TELTRO operations

R repo
9
8
7
6
We are not witnessing any meaningful

Rs trillion
5
decline in reverse repo window
4
3
2
1
0

May/…

May/…

May/…

May/…
Mar/20
Mar/20

Mar/20

Mar/20

Mar/20
Feb/20
Feb/20

Feb/20

Apr/20

Apr/20

Apr/20

Apr/20
Source: Equirus, RBI

Key is creation of contingent liability on GoI’ book….

The US can print huge amount of dollars and the world will keep absorbing it. India does not have this
luxury, rather only two options: (1) Print money and give it free – or helicopter money; this will increase
fiscal deficit and credit downgrade can loom large over the country. (2) Do something akin to helicopter
money but kick the can far down the road, viz. give sovereign guarantee to loans.

……GoI has done the same in its recent announcement

In the recent past, the Indian government announced that it is guaranteeing incremental credit of
Rs 3trn to MSMEs. Note that the MSME definition has also been changed; hence, we expect some
increase in bank lending.

Apart from 28 May, no decline seen in reverse repo window as lending has not started yet

We have not seen any decline in the reverse repo window as lending has not started yet. While the RBI
came out with the guidelines, banks have still not formed internal procedures for lending.

Having said that, its zero risk for banks so they should lend
Rate cuts unlikely to induce more
1. As the government is guaranteeing loans, it is risk-free lending by banks i.e. risk weight on
lending by banks
loans should be ‘zero’.

2. Our first impression after reading the lending criterion is that it is simple and can be rolled
out fast.

3. The chance of misuse by promoters for individual benefits appear minimal

Bring down repo rate further – another tool for RBI to induce lending?

The RBI has been consistently bringing down the reverse repo rate in expectation to induce banks to
lend, but in vain. Reverse repo reduction is leading to a drop in interest rate banks offer to account
holders, eventually pressurizing G-Sec yields. We do not think bringing down reverse repo further is
the solution.

June 02, 2020| 3

India Strategy India Equity Research

Exhibit 4: Trend in reverse repo rates

Reverse Repo rates

8.00
7.50
7.00
6.50
Current reverse repo rate way below 6.00
GFC levels, but still not penalising 5.50

%
enough for banks to take risks 5.00
4.50
4.00
3.50
3.00

May/…

May/…
Jan/12

Aug/14
Jan/14

Jan/15

Mar/20
Dec/10

Dec/12
Jul/10

Sep/11

Jul/12

Sep/13

Sep/15

Oct/16

Oct/17

Oct/18

Oct/19
Apr/17
Apr/12

Apr/15

Apr/16

Apr/18

Apr/19
Source: Equirus, Bloomberg

Indian financial system needs confidence and a risk taker intermediary

Risk aversion is not limited to the Indian banking system but has extended to Indian corporates as well.
Trust on supply chain is at minimal levels, receivables are perceived as risks and Indian corporates
have no way to hedge that risk. IBC, a good tool for corporates and banks to force credit compliance,
has been suspended for a year.

A risk taker can be an insurance company for supply chain credit

We need a supply chain insurance company more than any other time in the history of India. Indian
trade credit insurance (TCI) market had started before GFC and was doing well. However extreme risk
averse behaviour by IRDAI led to the drying up of the Indian TCI market.

IRDAI guidelines in 2010 put India on deceleration path

The Authority at that time, concerned and alarmed with global crisis, economic slowdown, looming
claims, widespread mis-selling and frauds, stopped the product in the existing framework and
relaunched it with stringent guidelines. These guidelines (listed below) were applicable to all insurance
companies doing Credit Insurance Business except ECGC.

➢ Policy cannot be issued to banks/FIs

➢ No Assignment of Policies

➢ No factoring / Bill discounting or similar arrangement to be covered.

➢ Only whole turnover policies

➢ No Single Buyer Policy

➢ Indemnity at 80%

➢ All buyers contributing more than 2% of the total turnover to be compulsory assessed.

➢ No govt or para govt buyers to be covered

IRDAI working group has come up with a new draft report on TCI

The IRADI working group has come up with a new draft report on trade credit insurance (TCI). The
link of the report is given here:
https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo4134&flag=1).

If this is implemented, a new market will develop for risk transfer, leading to new capital for Indian
corporates.

June 02, 2020| 4

India Strategy India Equity Research

Corona – Live with it, brace for wage inflation, rural demand upsurge
Exhibit 5: Active cases in India is doubling every 20 days
Doubling rate based on 1 day growth Doubling rate based on 3 day CGAR
Doubling rate based on 5 day CAGR Doubling rate based on 7 day CAGR
30.0 Doubling rate based on 10 day CAGR

25.0
Based on 10 days active cases CAGR,
active cases in India doubling in 20 days 20.0

15.0

10.0

5.0

0.0
24/3/20

31/3/20

14/4/20

21/4/20

28/4/20

12/5/20

19/5/20

26/5/20
7/4/20

5/5/20
Source: Equirus, https://www.covid19india.org/

The end of Corona is not in sight...

Apart from in China, the end of Corona is nowhere in sight. Prof. Samika Ravi complies excellent data
on her twitter handle and we reproduce the same here.

Exhibit 6: Apart from China, no other country has tamed the Virus

China’s curve a shade too normal to

be passed on as natural

Source: Prof Samika Ravi (https://twitter.com/ShamikaRavi/status/1266944092635791361/photo/1)

June 02, 2020| 5

India Strategy India Equity Research

Economic damage to India has been immense

For India, thankfully, agricultural activities were ongoing as well as some mining. Having said that,
eight core industry data has been dismal for April; indicating this, IIP would have declined significantly
in the month of April.

Exhibit 7: Eight core industries likely see highest decline in many Exhibit 8: In May, power demand – a proxy of industrial activity – not
decades showing any secular recovery

7.1% % YoY change

10% 5.2% 3.8% 30%
3.1% 2.2%
5% 1.2% 2.6% 0.7%
20%
0%
-5% -0.2% 10%
-10% -5.1%-5.5%
-9.0% 0%
-15%
-20% -10%
-25% -20%
-30%
-30%
-35%
-40% -40%
-38.1%

05/Apr/20

12/Apr/20

19/Apr/20

26/Apr/20

03/May/20

10/May/20

17/May/20

24/May/20

31/May/20
01/Mar/20

08/Mar/20

15/Mar/20

22/Mar/20

29/Mar/20
-45%
Jun-19

Oct-19

Nov-19

Dec-19

Feb-20
Jul-19
Apr-19

Sep-19

Apr-20
May-19

Aug-19

Jan-20

Mar-20

Source: Equirus Source: Equirus

Human cost, psychological damage – another dimension of Corona damage

The human aspect is often not recognized by markets, but immense damage has been done on that
front as well. Fears that coronavirus has created will not fade any time soon.

1. After living without work for many days (although they were being provided food and shelter) and
in constant fear of virus, migrants simply gave up and walked home in desperation.

2. Government started providing for transport from 1 May’20 but the damage on psyche was already
done.

3. Close to 10mn migrant laborers have gone to their home states, and as we write this reverse
migration is well underway.

Reverse labour migration much bigger problem for industry as it may lead to wage inflation

Human misery seen during reverse migration will have a lasting impact on the psyche of the labour
force. In our estimate, migrant labourers at 122mn form 22% of the work force. Hence a reverse
migration will create problems of epic proportion for the industry. Wage inflation is obvious.

Exhibit 9: As per census, migrant labour formed 10.5% of workforce in Exhibit 10: Taking economic survey data till FY16 and extrpolating, we
FY11. We estimate they formed 22% of workforce in FY19 deduce that migrant labor was ~122 m in FY19

As % of work force Total migrant work force

25 140
22
120
20
100
15
in million

80
10.5
10 8.1 8.1 60

40
5
20
0
0
FY91 FY01 FY11 FY19
FY91 FY01 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: Equirus, economic Survey Source: Equirus, economic Survey

June 02, 2020| 6

 India Strategy India Equity Research

Historically active MNREGA workers are not highest in major migrant states like UP and Bihar

Exhibit 11: Interestingly active MNREGA workers are not highest in UP Exhibit 12: Average wages per day for MNREGA workers: ~ Rs 180 in
and Bihar UP and Bihar

Active workers Average wage per worker/ day

16 350

14 300
12 250
9.99 203
10 200 177 182
in millions

8 150
6.11
6 100
4
50
2
0

Kerala

WB
Chatt

MP

Odisha

Utt
AP

Guj

J&K

Kar
Bihar

Maha
Manipur

Mizoram
Arunachal
Assam

Goa

Har
HP

Jhar

Raj

UP
Punj

Tel
Tripura

Andman
Laksh
Pudu
Meghalaya

Nagaland

Sikkim
TN
0
Arunac…

Meghal…
Assam

Kar

Raj
J&K

MP
Laksh

Naga

Tripura
Manipur

UP
Andman

Chatt

HP

Mizoram
Bihar

Har

Sikkim

Tel

UTT
WB
AP

Goa
Guj

Jhar

Odisha
Pudu

TN
Maha
Kerala

Pun
D&N

Source: Equirus Source: Equirus

Exhibit 13: Bihar UP and AP can get lion’s share of new MNREGA allocation
Total funds in Rs bn ( LHs) as % of old allocation
80 14%

MNREGA allocation for UP, Bihar and 70 12%

AP at ~23% in old budget; they can get 60 52.75
10%
a lion’s share in the expanded budget 47.41
50 9%
38.48 8% 8%
Rs bn

40

%
6% 6%
30
4%
20
10 2%

0 0%
Meghala…

WB
Chatt

MP

Odisha
AP

Guj

Kerala

Utt
Bihar

Kar

Mizoram
Arunachal
Assam

Goa

Har
HP
J&K

Maha
Manipur
Jhar

Raj

UP
Tripura
TN

Andman
Laksh
Pudu
Nagaland

Punj

Sikkim

Source: Equirus

The coming months can be very similar to post GFC India when MNREGA demand leads to revival

We all remember post GFC India, when tier-II cities led the demand revival in cement, consumer goods
and discretionary spending. We expect history to repeat itself – we like cement, building materials, and
select FMCG names. Even tractor sales can do well as select 2Ws may post a good performance.

There has been a modest increase in MSP of Kharif crop as well

Exhibit 14: For most of the kharif crop MSP has been increased 1-3%

FY20 FY21
14%
12%
10%
8%
6%
4%
2%
0%
Maize

Ragi
Paddy, Grade A

Nigerseed
Jowar, hybrid

Urad

Cotton, Long staple

Soyabean, yellow
Arhar(Tur)
Bajra

Moong

Groundnut in shell

Sunflower seed
Jowar, Maldandi
Paddy, common

Cotton, Medium
staple

Source: Equirus

June 02, 2020| 7

India Strategy India Equity Research

Military confrontations: Nothing new, to continue in foreseeable future

While we are no strategic experts, relying on recent history we can reasonably surmise the following:

(1) There will be no let-up in border issues, but this will not impact the economy as such.

(2) Air power usage will become a norm on Indian western borders.

(3) India’s asymmetric advantage will increase after induction of Rafael; hence, we expect more
usage of air power in the coming future.

India’s borders have potential to remain active

India’s western as well as eastern borders may remain active in the coming days and months. While
anxiety because of these developments is normal in markets, we don’t think it can have any lasting
impact.

Fresh round of skirmish may happen on western border once India inducts Rafael aircrafts and terror
activities continue unabated

Most strategic experts agree that 4.5 generation Rafael is the most advanced combat aircraft in the
Indian subcontinent. At the same time, with BVR (beyond visual range) missile like Meteor, theoretically
it cannot be beaten in combat by any aircraft in the Pakistan Airforce arsenal. India will have a squadron
of Rafael by year-end which will be based at the Ambala airfield near the Pakistan border.

Balakot and post Balakot air war proves air war is nowhere near to the Pakistan’s nuclear threshold

There used to be widespread fear in India on Pakistan’s nuclear threshold. While strategic expert always
maintained that air skirmishes are nowhere near the threshold, civilian administration has had its
concerns. Balakot conclusively proved the hypothesis of strategic experts. In most skirmishes, Pakistan
denied that India managed to hit anything worthwhile on ground.

LAC with China also tense and can remain that way; the genesis is in CPEC

LOC with Pakistan is active, but LAC is tense. Genesis of the tense LAC lies in the abolition of article
370 by India, a major change in the last 70 years of statuesque. This also gave credence to the so-
called rhetoric of current political dispensation that they want to annexe POK (Pakistan occupied
Kashmir; India claims that it is the rightful owner of the land) with India.

Note that China has spent multi-billion dollars on CPEC, which passes through POK. Any war in POK
will lead to damage to the CPEC hence China may search for a reason to side with Pakistan to avoid
a conflict possibility.

A threat of war in POK will jeopardise total CPEC and OBOR which passes through POK

It is worth noting that all trade cargo that passes on OBOR will be insured (It’s the normal practise in
international trade). A threat of war in the region can raise the insurance premium too high which can
even make the total trade unviable. More over volume of returning cargo to China along OBOR can
also go down significantly which can again impact the total economic viability of OBOR

Current tensions on LAC to be seen in light of economic aspects of OBOR

China has no love for Pakistan as long as its economic interests are intact. The same has been amply
proven in the four wars India has fought with Pakistan. The key is maintenance of status quo in POK
for the lasting peace on LAC.

June 02, 2020| 8

India Strategy India Equity Research

Equirus Securities
Satish Kumar Head of Equities satish.kumar@equirus.com 91-22-43320616
Research Analysts Sector/Industry Email
Ashutosh Tiwari Auto ashutosh@equirus.com 91-79-61909517
Bharat Celly Healthcare bharat.celly@equirus.com 91-79-61909524
Depesh Kashyap Mid-Caps depesh.kashyap@equirus.com 91-22-43320671
Dhaval Dama FMCG, Mid-Caps dhaval.dama@equirus.com 91-79-61909518
Harshit Patel Capital Goods harshit.patel@equirus.com 91-79-61909522
Manoj Gori Consumer Durables manoj.gori@equirus.com 91-79-61909523
Maulik Patel Oil and Gas maulik@equirus.com 91-79-61909519
Pranav Mehta Building Materials, Cement pranav.mehta@equirus.com 91-79-61909514
Rohan Mandora Banking & Financial Services rohan.mandora@equirus.com 91-79-61909529
Ronak Soni FMCG Ronak.soni@equirus.com 91-79-61909525
Shreyans Mehta Infrastructure shreyans.mehta@equirus.com 91-22-43320611
Siddharth Gadekar Metals, Chemicals siddharth.gadekar@equirus.com 91-22-43320670
Varun Baxi Auto Ancillary varun.baxi@equirus.com 91-22-43320643
Vikas Jain Textiles vikas.jain@equirus.com 91-79-61909531
Associates E-mail
Akshay Falgunia akshay.falgunia@equirus.com 91-79-61909516
Lalit Deo lalit.deo@equirus.com 91-79-61909533
Mayank Chaturvedi mayank.chaturvedi@equirus.com 91-79-61909586
Narendra Mhalsekar narendra.mhalsekar@equirus.com 91-79-61909513
Nishant Bagrecha nishant.bagrecha@equirus.com 91-79-61909526
Parth Kamdar parth.kamdar@equirus.com 91-79-61909528
Rushabh Shah rushabh.shah@equirus.com 91-79-61909520
Shreepal Doshi shreepal.doshi@equirus.com 91-79-61909541
Equity Sales E-mail
Girish Solanki girish.solanki@equirus.com 91-22-43320634
Subham Sinha subham.sinha@equirus.com 91-22-43320631
Pooja Mehta pooja.mehta@equirus.com 91-22-43320636
Viral Desai viral.desai@equirus.com 91-22-43320635
Vishad Turakhia vishad.turakhia@equirus.com 91-22-43320633
Cash Dealing Room
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Manoj Kejriwal manoj.kejriwal@equirus.com 91-22-43320663
Vikram Patil vikram.patil@equirus.com 91-22-43320677
Compliance Officer
Jay Soni jay.soni@equirus.com 91-79-61909561
Corporate Communications
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Quant Analyst
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F&O Dealing Room
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Rating & Coverage Definitions: Registered Office:

Absolute Rating Equirus Securities Private Limited
• LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,
and ATR >= 20% for rest of the companies N M Joshi Marg, Lower Parel,
• ADD: ATR >= 5% but less than Ke over investment horizon Mumbai-400013.
• REDUCE: ATR >= negative 10% but <5% over investment horizon Tel. No: +91 – (0)22 – 4332 0600
• SHORT: ATR < negative 10% over investment horizon Fax No: +91- (0)22 – 4332 0601
Relative Rating
• OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon Corporate Office:
• BENCHMARK: likely to perform in line with the benchmark 3rd floor, House No. 9,
• UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,
Investment Horizon S.G. Highway Ahmedabad-380054
Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of Gujarat
a calendar quarter. Tel. No: +91 (0)79 - 6190 9550
Fax No: +91 (0)79 – 6190 9560

June 02, 2020| 9

India Strategy India Equity Research

© 2020 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities
Private Limited
Analyst Certification
We, Satish Kumar/Siddharth Gadekar,, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their
securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital
Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock Exchange
Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers Regulations, 1993
(Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory authority against ESPL.
ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to merchant banking services, private
equity, mergers & acquisitions and structured finance.
As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for investment
banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have received a mandate
from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their directors and employees may
from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in their proprietary position) 1% or more of
the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or Associates did not receive any compensation or
other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the
time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market
making activity for the subject company.
The Research Analyst engaged in preparation of this Report:-
(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has
not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services
other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third
party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company.
This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication,
availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be
eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession of this document are required to inform themselves of, and to observe, such applicable restrictions. Please delete this
document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this document without subjecting ESPL and
affiliates to any registration or licensing requirement within such jurisdiction.
This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on this
report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy
or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information contained herein.
While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may
be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to
in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any
particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on
the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its research report. Thus, investors should be aware that the firm may
have conflict of interest.
A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the “three
years” period in the price chart).

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

Equirus Securities Private Limited (ESPL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition
ESPL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.
Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by ESPL, including the products and services described herein are not available to or intended for U.S.
persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional
investors and will be engaged in only with major 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")
and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., ESPL has entered into a chaperoning agreement with a U.S.
registered broker-dealer name called Xtellus Capital Partners, Inc, (''XTELLUS'). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

"U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US
Persons" under certain rules.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, XTELLUS, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

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