June 26, 2013

Light Electricals
Quarterly
QUARTERLY UPDATE

At a time when the lights go off Analyst contact

In this inaugural edition of Light Electricals, we highlight key takeaways from Bhargav Buddhadev
our Light electrical goods dealer checks quarterly. Dealers checks in April and Tel: +91 22 3043 3252
May suggest strong ~25% YoY value growth in Electronics in primarily led by bhargavbuddhadev@ambitcapital.com
UPS/Inverters. Within Electricals, fans are witnessing a growth after two years
of decline. HT and LT Cables yet again witnessed a decline of ~2-3% YoY.
Switchgears, lightings and domestic appliances continue to grow in the range
of 8-15% YoY in value terms. We also analyze Bajaj Electricals’ (Bajaj) strategy Bajaj Electricals BUY
with respect to Morphy Richards (Morphy), making latter a successful brand Bloomberg Code: BJE IN
(30% sales CAGR over FY04-13 compared to industry growth of ~20%) in CMP (`): 175
India. Premium brand positioning, offering limited variants compared to in UK
and sensible pricing is the reason for Morphy’s success in India. TP (`): 251
Mcap (` bn/US$ mn): 17/0.29
Dealers highlight strong sales growth: Dealer checks suggest strong ~25% YoY
value growth in Electronics primarily led by UPS/Inverters. South India is leading the 3M ADV (` mn/US$ mn): 16/0.3
growth with ~23% and ~40% YoY growth in stabilizers and UPS/Inverters respectively.
Within Electricals, fans are witnessing a growth after a year of decline; fans posted 25-
28% YoY value growth. Non-South led the growth with a 30-35% YoY growth given Havells India BUY
harsh summer and delivery of new residential units. Premium category fans are driving Bloomberg Code: HAVL IN
a large part of this growth with their share increasing to ~55% compared to 25% five CMP (`): 673
years back. HT and LT Cables which is the largest product category within Electricals
yet again witnessed a value decline of ~2-3% YoY given 6% YoY decline in copper TP (`): 754
prices in rupee terms. Switchgears, lightings and domestic appliances continue to grow Mcap (` bn/US$ bn): 84/1.42
in the range of 8-15% YoY in value terms. Bajaj has tied up with Big Bazaar in Q1 to 3M ADV (` mn/US$ mn): 302/5.1
aggressively market domestic appliances. Havells has found limited success in
appliances primarily due to its aggressive pricing.
V-Guard BUY
Stable copper prices to boost sequential EBITDA margin for all companies:
Since 31st March 2013, Copper prices have remained flat on a rupee/tonne basis. Bloomberg Code: VGRD IN
Consequently companies this time around will not be reporting any inventory write CMP (`): 451
downs in Q1. In the last quarter EBITDA margin had declined by ~300 bps YoY on an
TP (`): 591
average for companies under our coverage on account of a 7% fall in copper prices
between 1st Jan and 31st March. This EBITDA margin reduction was primarily led by a Mcap (` bn/US$ bn): 13/0.23
reduction in gross margins which declined by ~250bps YoY due to fall in copper prices 3M ADV (` mn/US$ mn): 47/0.8
in March which also led to inventory write downs.
Bajaj remains our top pick. Our top pick in the sector is Bajaj, followed by V-Guard
and Havells. This is because we expect the valuation for the company to re-rate on the
back of the E&P business turning around. Currently the consumer business trades at Stock performance (%) – an inspiring
~40% discount compared to Havells’ consumer business despite 4.2% points higher performance in the last 12 months
earnings and EBITDA CAGR over FY13-15 and higher pre tax ROCE (91% for Bajaj’s 1M 3M 12M YTD
consumer business in FY13 and FY14 compared to 56% for Havells). We have valued
V-Guard 1.2 0 93.3 (11)
the consumer business at `295 per share which implies a multiple of 18.8x. We also
like V-Guard for its strong franchise in South India. We expect the company to grow at Bajaj 3 0 (9) (17)
an earnings CAGR of 35% over FY13-15. Our DCF value is at `591 per share which Havells 3 17 25 10
implies a P/E of 21.6x. The implied target multiple for V-Guard is higher than Bajaj
Sensex (6) (1.2) 9.0 (5.1)
because V-Guard is growing at virtually double the pace of Bajaj given its small base
and abysmally low market share in Non-South markets which are 3x compared to the Source: Bloomberg, Ambit Capital research
market in South.
Successful strategies: Bajaj with Morphy Richards: In this edition on Light
Electricals we analyze the key factors that led to the successful re-launch of Morphy in
India. Despite Bajaj and Morphy being present in the same product category they
complement each other very well. This is because the positioning of both the brands is
very different. Whilst Morphy is positioned as a premium brand, Bajaj is positioned as
a mass brand. Secondly the product variants and the pricing of Morphy’s products in
India are different compared to in UK. Whilst in India the number of variants is lower
(compared to in UK), the difference between the minimum and the maximum price
between a lower and a premium product in the same category is lower in India. This is
because people in India do not like more variants as they get confused. Further if the
pricing gap between the lower and the superior category is high then they prefer to
choose the lower variant over the premium.
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit
Capital may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to disclaimer section on the last page for further important disclaimer.
 Light Electricals - Quarterly

Dealer Survey
Exhibit 1: Key findings of the dealer survey
% of
Revenue % of Ranking
Market industry
Growth in Unorganised industry in %
Product size Organized sales in Other comments
April and May share sales in organised share
(` bn) share Non-
(YoY) South market
South
Electronics

Stabilizers 21 18-20% 50% 50% 40% 60% V-Guard 25% V-Guard sells products at a premium of 7-
10%, V-Guard share in South is ~60%
23% in South Capri 9%
17% in Non
Premiere 7%
South
UPS/Inverters 80 30-35% 90% 10% 20% 80% Luminous 23% 60% of the cost is battery. Life is 8-9 years. If
power deficit is 9-10 hours then the utility of
40% in South Microtech 12%
the product is lost
30% in Non
Sukam 11%
South
V-Guard 1%

Electricals

PVC Wires 70 12-15% 60% 40% Polycab 30% Industry enjoys pricing power, organised
players sell at a premium of 3-5%, make EBIT
15-18% in
Finolex 27% margins of 7-10% and ROCE of ~15%
South
10-12% in Non
Havells 14%
South
V-Guard 7%
LT and HT Value growth is negative because copper
100 Minus 2-3% 60% 40% Polycab 31%
Cables prices have declined by 6% YoY in rupee
Minus 2-3% in terms. Consequently companies have
KEI 18%
South reduced finished goods prices as it is a
Minus 3-5% in commodity market. Volume growth is also
Havells 12%
Non South benign at 3-5% YoY

Domestic Pumps 20 4-5% 45% 55% 35% 65% Crompton 40% Pumps sales were impacted as water wells
had dried up. In April and May only bore
wells were selling. If monsoons are good then
sales will pick up
Texmo 21%

CRI 18%

Vguard 15%

Fans 50 25-28% 70% 30% 40% 60% Crompton 28% A harsh summer and delivery of new
30-35% in Non residential stocks has led to volume growth of
Usha 21%
South ~25% YoY. Also Prices have increased by ~5-
25-30% in 7%. Share of premium fan (pricing is 5-8%
Havells 14%
South higher compared to economy) is rising to
V-Guard 2% ~55% compared to 25% five years back
Organized players sell at 25% premium to
Electric water 10-12% 55% 44% 35% 65% Racold 28%
12 unorganized players. V-Guard is increasing
heaters market share.
Bajaj 20%

Venus 19%

V-Guard 12%

Solar water 20-25% 65% 35% 40% 60% Emmnee 12% Main customers are hotels, schools, Villas.
6.5
heaters Cost of geyser is `10,000 per unit more than
Tata BP 9% Electric Water heater. However, 30% subsidy
is given by the government which makes the
Anu Solar 9%
pay back less that 2 years
V-Guard 6%

Switchgears
Domestic
12-15% 55% 45% 30% 70% Havells 28% Havells is very strong in this segment as the
switchgear 16
same is driven by wholesalers and retail
Legrand 25% distributors

Scheider 16%

Ambit Capital Pvt Ltd 2

 Light Electricals - Quarterly

% of
Revenue % of Ranking
Market industry
Growth in Unorganized industry in %
Product size Organized sales in Other comments
April and May share sales in organised share
(` bn) share Non-
(YoY) South market
South
Industrial Slowdown in industrial capex has impacted
30 8-10% 70% 30% 30% 70% L&T 15%
switchgear the growth in this segment. This is also
Schneider 13% reflected in the weak IIP data

Siemens 12%

ABB 10%

Havells 6%

Lighting & Fixtures

CFLs is virtually fully penetrated. Trend is now
CFLs 20 4-5% 65% 35% 30% 70% Philips 15%
shifting more to LEDs
Havells 11%

Osram 9%

Luminaries 20 12-15% 65% 35% 35% 65% Philips 23% High-end market with the main customers
being hoteliers, malls and HNIs. Earlier
Bajaj 17% luminaries were imported from China, but
now domestic players are gaining share.
Crompton 13% Bajaj has become agressive and is focussing
more on consumer luminaries (premium
Havells 12%
category)
Wipro 9%

Domestic appliances

50 15-20% 65% 35% 35% 65% Philips 35% Bajaj has tied up with Big Bazaar to
aggressively market domestic appliances. It is
Bajaj 25% also looking at selling pressure cookers in
Non South region where TTK is weak. Havells
has found limited success primarily due to its
aggressive pricing

Source: Company, Ambit Capital research, * represents average revenue growth of V-Guard, Havells standalone and Bajaj Non E&P

Strong sales growth: Dealers suggest strong ~25% YoY value growth in
Electronics primarily led by UPS/Inverters. South India is leading the growth with
~23% and ~40% YoY growth in stabilizers and UPS/Inverters respectively. Within
Electricals, fans are witnessing a growth after two years of decline; fans posted 25-
28% YoY value growth. Non South led the growth with a 30-35% YoY growth
given harsh summer and delivery of new residential stocks. Premium category fans
are driving a large part of this growth with their share increasing to ~55%
compared to 25% five years back. HT and LT Cables which is the largest product
category within Electricals yet again witnessed a decline of ~2-3% YoY given 6%
YoY decline in copper prices in rupee terms and sub dued volume growth of 3-5%
YoY. Switchgears, lightings and domestic appliances continue to grow in the range
of 8-15% YoY in value terms. Bajaj has tied up with Big Bazaar in Q1 to
aggressively market domestic appliances. It is also looking at selling pressure
cookers in Non South region aggressively in FY14 (TTK the leader is weak in Non
South). Havells has found limited success in appliances primarily due to its
aggressive pricing. In some products its pricing is similar to Philips which is an
industry leader.
Market share changes in April and May on a YoY basis: In Stabilizers, UPS
and Inverters, V-Guard continued to gain market share in Non South given limited
competition (Havells, Bajaj, Crompton have limited presence in this segment).
Advertisement in the Indian Premiere League (popular cricket tournament in India)
which was held in April’13 has helped V-Guard immensely. Note that in the last
five years it has increased its revenue share in Non South from 5% in FY08 to 25%
in FY13. In fans, Bajaj has done very well with volume growth in excess of 20%
and price increase of ~5% in the most popular category ‘Bahar’. In April it
launched 7 new fans in the premium category which has margins of ~10%
compared to 3-3.5% for Bahar. In luminaries, Bajaj is increasing focus on
consumer luminaries (includes LED) given that it’s a growing market (industry

Ambit Capital Pvt Ltd 3

 Light Electricals - Quarterly

growth rate of 25% in FY13) and is dominated by a single player Philips which did
sales of ~`4bn compared to per annum industry size of `15bn. EBIT margin in this
category is ~20% compared to 7% in the segment. In domestic appliances Havells
is trying hard to grow but is struggling given faulty pricing. The reason why we say
so is because in several categories it has priced its products similar to Philips which
is a market leader.
Changes in incentive schemes and advertisement budgets: Bajaj is
launching aggressive ad campaigns (target is to increase the spending by 100%
this year to `750mn given this is its 75th anniversary) prima facie in South India to
improve its market share. It has also entered into a partnership with Big Bazaar to
market its entire range of domestic appliances. We do not think this will impact
margins as we are modeling corresponding increase in sales and profits.

Investment implications
Our top pick in the sector is Bajaj, followed by V-Guard and Havells. This is
because we expect the valuation for the company to re-rate on the back of the E&P
business turning around. Currently the consumer business trades at ~40%
discount compared to Havells’ consumer business despite 4.2% points higher
earnings and EBITDA CAGR over FY13-15 and higher pre tax ROCE (91% for
Bajaj’s consumer business in FY13 and FY14 compared to 56% for Havells). We
have valued the consumer business at `295 per share which implies a multiple of
18.8x. We also like V-Guard for its strong franchise in South India. We expect the
company to grow at an earnings CAGR of 35% over FY13-15. Our DCF value is at
`591 per share which implies a P/E of 21.6x. The implied target multiple for V-
Guard is higher than Bajaj because V-Guard is growing at virtually double the
pace of Bajaj given its small base and abysmally low market share in Non-South
markets which are 3x compared to the market in South.

Ambit Capital Pvt Ltd 4

 Light Electricals - Quarterly

Q4FY13 result round up

Q4FY13 result season was a disappointment for light Electrical companies as far
as EBITDA margin performance is concerned. Whilst the companies under our
coverage (Havells, V-Guard and Bajaj) recorded strong revenue growth of 22%
YoY; their EBITDA margins declined by ~300 bps YoY and came lower than our
estimates. The reduction in margin was primarily led by a reduction in gross
margins which declined by ~250bps YoY. This decline was primarily due to a huge
fall in copper prices in March which led to raw material inventory write downs.
Also higher discounts on finished goods due to a slow pick-up in demand as
summer season got delayed led to lower margins. However, our discussions with
dealers suggests that the demand for products like fans, water coolers, stabilizers,
UPS, Inverters etc has picked up since the summer season this time is harsh as
compared to last year. On a YoY basis Q1 seems to be going strong with dealers
highlighting volume growth in the range of 15-18% YoY and price increase in the
range of 7-8% across the products mentioned earlier. Consequently, despite lower
than expected EBITDA margins in Q4, we continue to maintain our FY14 EBITDA
margin assumptions which implies 40bps and 100bps higher margins for V-Guard
and Bajaj on a YoY basis. For Havells standalone we expect margins to decline by
40bps YoY to 12.3% in FY14.

The story of the last results season

Based on the results reported by the three light electrical stocks that we cover
some of the key trends of the results are as below:
a) Strong revenue growth for V-Guard, in line for Havells and Bajaj
Whilst V-Guard reported strong 36% YoY revenue growth surpassing our estimates
by 7% points, Bajaj and Havells reported modest YoY revenue growth of 5% and
7% respectively. Revenue performance of V-Guard was surprising given delayed
summers (picked up in March instead of February) and lower power deficits in
South India (75% of revenues come from here) due to legislative assembly
elections in Karnataka (in the run up to the elections outages are low) and board
exams in Karnataka and Tamil Nadu. Peak power deficit in South India stood flat
YoY at 15% in Q4. Despite this, Electronic sales which comprises of stabilizers, UPS
and Inverters (driven by power deficits) increased 38% YoY compared to 36% YoY
growth in overall revenues.

Ambit Capital Pvt Ltd 5

 Light Electricals - Quarterly

Exhibit 2: VGuard reported yet another strong quarter Exhibit 3: Thanks to strong revenue growth witnessed
of revenue growth (LHS figs in `mn) in Electronic and Electro-Mechanical (LHS figs in `mn)
4,000 60% 3,000 70%
3,500 50% 2,500 60%
3,000 2,000 50%
2,500 40% 40%
1,500
30%
2,000 30% 1,000 20%
1,500 500 10%
20%
1,000 0 0%
10%

Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A
500
- 0%
Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A
Electronic
Electronic / Electro-Mechanical
Electronic (YoY)
Revenues YoY Electronic / Electro-Mechanical (YoY)

Source: Ambit Capital research Source: Ambit Capital research

For Bajaj, the Non E&P business delivered yet again with a revenue growth of 20%
YoY primarily led by the consumer business which grew 22% YoY. Growth in the
lighting business recovered to 15% YoY after growing at 6.6% and 11% YoY in Q2
and Q3 respectively. This is primarily because of a shift in strategy to focus more
on LEDs wherein Philips is a market leader with sales of ~`4bn compared to less
that `1bn for domestic companies like Havells and Bajaj. E&P business continued
to disappoint with revenues declining by 22% YoY.

Exhibit 4: Bajaj’ Non E&P business reported yet Exhibit 5: Thanks to consumer durables business which
another quarter of strong revenue growth (LHS figs in continues to do well and also lighting now picking up
`mn) (LHS figs in `mn)

9,000 30% 6,000 35%

8,000 5,000 30%
20%
7,000 4,000 25%
6,000 10% 20%
5,000 3,000
0% 15%
4,000 2,000 10%
3,000 -10% 1,000 5%
2,000
-20% 0 0%
1,000
Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A

- -30%
Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A

Lighting
Consumer durable
Non E&P E&P Lighting Growth (YoY)
Non E&P Growth E&P Growth Consumer durable Growth (YoY)
Source: Ambit Capital research Source: Ambit Capital research

For Havells the biggest surprise was the lower revenue growth in the consumer
durables business which grew only 18% YoY (average in 9MFY13 was 47%)
despite aggressive launch of domestic appliances in FY12. Our interaction with
primary data suggests that Havells is struggling in domestic appliances due to
aggressive pricing. In some products it competes heads on with MNC players like
Philips. This poor performance in the domestic appliance is worrisome given that
the management is targeting 40%+ growth in this segment over FY13-15;
domestic appliance market in India is at `50bn and 15-20% CAGR over the last
five years. Bajaj and TTK Prestige, leaders in this segment did sales of more than
`10bn per annum in this category compared to less than `2bn for Havells.

Ambit Capital Pvt Ltd 6

 Light Electricals - Quarterly

The cables and wires business which is its largest segment by revenues reported a
decline of 3% on a YoY basis which is in line with the industry given the sharp
decline in the copper prices in the last fortnight of March. Copper prices declined
by 10% YoY during this period on dollar terms and 5% in rupee terms. Note that a
large part of the quarter’s sales happen in the last fortnight as dealers start
pushing sales to meet their annual targets. Also as copper prices fall, the prices of
cables and wires also fall given the commoditized nature of the business.

Exhibit 6: Electricals consumer durables sales after Exhibit 7: Cables and wires business is struggling (LHS
doing so well in 9mFY13 disappointed in Q4FY13 (Figs represent % YoY cables and wires sales and RHS copper
represent % YoY growth) prices in $/tonne)

60% 35% 10,000

30% 9,000
50% 8,000
25%
40% 7,000
20% 6,000
30%
15% 5,000
20% 10% 4,000
3,000
10% 5%
2,000
0% 0% 1,000
-5% -
Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A

Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A
Switchgears Lighting & Fixtures
Electrical Consumer Durables Average copper prices Cables and Wires

Source: Ambit Capital research Source: Ambit Capital research

b) However gross margins disappointed for all the players

Gross margins for all the companies under our coverage i.e. Havells, V-Guard and
Bajaj declined in the range of 60bps to 500bps on a YoY basis and came below
our expectations. Margins for V-Guard got impacted due to poor demand primarily
in South India as power deficits were under control given delayed onset of summer
season (started in March instead of February) and state elections in Karnataka. The
margins for Bajaj and Havells got impacted due to inventory write downs and
introduction of new products like Reo switches and domestic appliances which
have lower margins.
V-Guard reported the biggest YoY decline. Its gross margins declined by 480bps
YoY primarily on account of inventory write downs (106bps impact) and discounts
on finished goods (160bps impact). Havells and Bajaj too reported 60 and 200bps
decline in segmental margins for standalone and Non E&P business respectively.
All of them were caught unaware on the subdued demand which meant that they
had to liquidate stock by offering higher discounts given seasonal nature of the
business. Historically fourth quarter has been the strongest quarter for these
companies with revenues in this quarter accounting for ~29% of full year revenues
as marketing teams push sales to meet their year-end targets. Also, as copper
prices declined sharply (by 10% YoY in dollar terms and 5% YoY in rupee terms on
a YoY basis) in the last fortnight of March margins further came under pressure.
This is because of the commoditized nature of the business. Copper price
movement impacts cables and wires followed by stabilizers, UPS and Inverters.
Consequently, whilst V-Guard reported 1%, 16.3%, 6.4% and 2.6% EBITDA margin
in LT cables, Stabilizers, UPS and Inverters (v/s 4%, 17.9%, 8% and 6.8% in
9MFY13), Havells reported losses (-3% EBITDA margin).

Ambit Capital Pvt Ltd 7

 Light Electricals - Quarterly

Outlook
Q1 gross margins likely to improve sequentially for Bajaj and V-
Guard
We expect sequential improvement in margins for Bajaj and V-Guard. In case of V-
Guard we expect at least 200bps sequential improvement in margins. This is
because it has already increased prices of stabilizers, UPS and Inverters by 4-5%
QoQ. Volume growth for these products has been in the range of 22-28% YoY as
highlighted by dealers across North, South and West excluding Maharashtra. Note
that stabilizers, UPS and Inverters contributed 50% of V-Guard’s EBIT in FY13.
Exhibit 8: Electronic (stabilizer, UPS and Inverter) Exhibit 9: ..and this impacted V-Guard gross margin as
segment’s margin declined significantly in Q3 and Q4 contribution of this segment to overall profit is high
(LHS represent Electronic margins and RHS Electro- (LHS represent contribution to total EBIT and RHS
Mechanical)… represent absolute gross margin)

9.0% 30%
95%
16.0% 8.0% 29%
85%
7.0%
14.0% 75% 28%
6.0%
65% 27%
12.0% 5.0%
55%
4.0% 26%
10.0% 45%
3.0% 25%
35%
8.0% 2.0%
25% 24%
1.0%

Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A
6.0% 0.0%
Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A

Electronic / Electro-Mechanical
Electronics
Electronics Electronic / Electro-Mechanical Gross margin

Source: Ambit Capital research Source: Ambit Capital research

For Bajaj we expect the Non E&P margin to improve by at least 100bps QoQ in the
current quarter. Whilst we expect ~35bps improvement due to improvement in
margins in the fans segment, we expect ~56bps improvement due to higher share
of LEDs which enjoy ~28% gross margins.
Fans segment for Bajaj has been a laggard given that in FY13 it made EBIT margin
of ~3.5% compared to Havells’ ~13%, given low share of premium products for
Bajaj in fans. Also, Bajaj had not increased the realization for its most popular
category ‘Bahar’ for couple of years. However, in Q1 Bajaj has launched seven
new fans in the premium category. Also the realization for ‘Bahar’ has been
increased by ~5%. Our interactions with dealers suggest good response for the
new fans and also no impact to volumes of ‘Bahar’ despite an increase in average
realization. This is partly also attributable to the strong growth in the fans segment
in April and May. Note that air conditioners have been witnessing 30% YoY
volume growth in April and May. Consequently we expect margins in this business
to improve by at least 150bps YoY. In FY13 fans with a margin of 3.5% contributed
to 9% of Non E&P’s EBIT. In FY14 we expect 15% YoY revenue growth in fans and
150bps YoY improvement in margins.
Lightings & Luminaries segment for Bajaj has been growing at ~18% CAGR over
the last six years primarily on the back of ~21% growth in lightings (luminaries has
grown by 13%). However, margins have fluctuated from 5% to 8%, given the
commoditized nature of the business. Our recent interaction with dealers suggest
rising focus on consumer luminaries which have higher margins. Bajaj has
launched several new products in consumer luminaries and also given dealers a
target to grow by 100% YoY in FY14. In FY13, consumer luminaries’ sales stood at
`750mn and posted EBIT of ~20%. The industry size in FY13 stood at ~`12bn
which was a ~25% higher from FY12. Philips was the market leader with sales of
~`4bn annually. All other players posted sales below `1bn.

Ambit Capital Pvt Ltd 8

 Light Electricals - Quarterly

Exhibit 10: FY12 and FY13 have been tough years for Exhibit 11: Margins in the lightings has been low (LHS
Fans (LHS represents contribution of fans in Non E&P represent lighting contribution in Non E&P and RHS
and RHS % YoY growth in fans) represents % YoY growth in Non E&P)

105% 40% 100% 35%

90% 35% 30%

80%
75% 30% 25%
25% 60% 20%
60%
20%
45% 40% 15%
15%
30% 10% 10%
20%
15% 5% 5%
0% 0% 0% 0%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Fans Non E&P Growth in Fans Lighting Non E&P Growth in Lightings

Source: Ambit Capital research Source: Ambit Capital research

For Havells we expect Q1 EBITDA margins to decline by ~50bps YoY basis on

account of its focus on new products like Reo switches and new categories like
domestic appliances to drive growth. We expect lower margins in Reo switches due
to their positioning as a commodity product vis-à-vis premium for other products;
in domestic appliances due to presence of established large players like TTK and
Bajaj we expect lower margins. For selling appliances Havells will have to tap the
multi brand retail format which solicit higher margins compared to other dealers.

Copper prices stable thanks to depreciating rupee

Copper price in dollar terms since 31st March 2013 till 21st June has declined by
~7% to 6,755$ per tonne. However, thanks to INR depreciating by ~8% during
this period, copper price in rupee terms has remained flat as compared to 31st
March. If this trend holds true as on 30th June, it augurs well for margins of all the
companies under our coverage. This is because they will not have to report any
inventory write downs (60% of inventory as a thumb rule is copper) which actually
eroded gross margins in 4QFY13. Copper prices as on 31st March 2013 compared
to 1st Jan 2013 had declined by ~7% which led to companies reporting inventory
write down for raw material and finished goods.
Exhibit 12: Copper prices after falling 8% between 1st Exhibit 13: This augurs well for V-Guard and Havells
Jan to 28th March in `/tonne has been flat since 28th as the fall in copper prices in Jan-March had impacted
March till date. (LHS represents copper prices in their margins (LHS represents V-Guard’s gross margins
`/Tonne and RHS in $/tonne) and RHS Havells’ cables and wires margins)

530,000 8,500 30.0% 12.0%

27.5% 10.0%
8,000
490,000 25.0% 8.0%
7,500 22.5% 6.0%
450,000
20.0% 4.0%
7,000
17.5% 2.0%
410,000
6,500 15.0% 0.0%
Q112

Q212

Q312

Q412

Q113A

Q213A

Q313A

Q413A

370,000 6,000
Jan-13 Mar-13 May-13
V-Guard Gross margin
Copper prices (INR/tonne) Copper prices ($/tonne) Havells EBIT margin of cables and wires

Source: Ambit Capital research Source: Ambit Capital research

Ambit Capital Pvt Ltd 9

 Light Electricals - Quarterly

Rupee depreciation not to impact Light Electrical companies materially

Net forex exposure of Light Electrical companies under our coverage as on FY12
was 5-8% of revenues (FY13 data not available). Furthermore, most of the forex
exposure is in buying raw materials/finished goods (see exhibit below) of which
~60% as a thumb rule is copper. Given that copper price in rupee terms has
remain unchanged, to that extent the gross margin dilution is lower. To that extent
the net forex exposure as % of revenues further goes down. Whilst in FY12 the net
forex exposure as % of revenues for Havells, Bajaj and V-Guard stands at 6.2%,
8.5% and 5.1%, adjusting for copper prices assuming that 60% of raw
materials/finished goods imported is copper, the net forex exposure for Havells,
Bajaj and V-Guard in FY12 comes to 0%, 3.9% and 2.1% respectively.

Exhibit 14: Net forex exposure of Light Electrical companies in our coverage is not significant (Figs in `mn unless
mentioned otherwise)
Net forex exposure as % of revenues FY12 FY11 FY10 FY09 FY08 FY07 FY06
Havells
CIF value of imports 3,923 3,158 2,303 1,310 3,009 1,206 973
Expenditure in foreign currency 41.7 64.7 47.6 64.4 40.3 40.1 26.74
Earnings in forex 1,726 1,751 2,147 2,121 1,417 961 728
Net forex exposure (A) 2,239 1,471 204 (747) 1,632 285 271
Net Revenues (B) 36,156 28,816 23,714 21,983 20,694 15,526 10,071
Net forex exposure as % of revenues (A/B) 6.2% 5.1% 0.9% -3.4% 7.9% 1.8% 2.7%
Imported raw material as % of revenues 5.9% 5.4% 8.4% 5.6% 11.8% 7.2% 9.1%
Bajaj
CIF value of imports 2,510 1,638 1,104 1,075 666 421 442
Expenditure in foreign currency 141.4 74.4 53.3 45 43.5 30.3 17.4
Earnings in forex 22.6 32 41.9 81.2 26.3 2.8 21.4
Net forex exposure (A) 2,628 1,681 1,115 1,039 684 448 438
Net Revenues (B) 30,942 27,394 22,272 17,641 13,732 10,773 8,453
Net forex exposure as % of revenues (A/B) 8.5% 6.1% 5.0% 5.9% 5.0% 4.2% 5.2%
Imported finished goods as % of revenues 7.2% 5.6% 4.8% 5.9% 4.8% 3.8% 4.4%
V-Guard
CIF value of imports 509.8 366.4 159.3 62.44 15.6 13.32 10.2
Expenditure in foreign currency 0.57 0.6 0.6 0.25 0.5 0.02 0.04
Earnings in forex 0.9 0.2 0.8 0.76 0.14 0.3 0.5
Net forex exposure (A) 509 367 159 62 16 13 10
Net Revenues (B) 9,936 7,266 4,541 3,167 2,781 2,222 1,705
Net forex exposure as % of revenues (A/B) 5.1% 5.0% 3.5% 2.0% 0.6% 0.6% 0.6%
Imported finished goods as % of revenues 4.6% 4.6% 2.5% 1.1% 0.0% 0.0% 0.1%
Source: Company, Ambit Capital research

Ambit Capital Pvt Ltd 10

 Light Electricals - Quarterly

Power deficits set to increase in FY14, positive for stabilizers, UPS and
Inverters.
As per the Load Generation Balance Report by CEA released in May 2013, whilst
peak power deficit in India is likely to reduce from 9% in FY13 to 2.3% in FY14, in
southern region the same is likely to increase to 26.1% in FY14 compared to
18.5% in FY13. This is primarily on account of increase in peak deficits in the
southern states like Karnataka, Tamil Nadu and Kerala from 13.5%, 13.2% and
8.8% to 27.4%, 34.4% and 24.6% respectively. This augurs well for V-Guard as
south India contributed to 75% of its sales in FY13. Note that power deficit is the
biggest driver for V-Guard’s Electronic sales (includes Stabilizers, UPS and
Inverters) which contributed 50% of its profits in FY13.

Exhibit 15: CEA expects significant increase in peak Exhibit 16: This augurs well for V-Guard as majority of
power deficit in South India in FY14 (Figs represent its sales which are driven by power deficit come from
peak power deficit) South India
FY13 FY14E % of % of
Profits from Electronic
revenues revenues
All India -9.0% -2.3% Year segment* as % of overall
from from Non-
profits
Northern -8.9% -1.3% South South
FY09 91% 9% 60%
Western -1.5% 6.8%
Southern -18.5% -26.1% FY10 85% 15% 57%

Karnataka -13.5% -27.4% FY11 78% 22% 51%

Tamil Nadu -13.2% -34.1% FY12 79% 21% 54%

Kerala -8.8% -24.6% FY13 75% 25% 51%

Andhra Pradesh -20.2% -12.4% Average 82% 18% 55%
Source: CEA, Ambit Capital research Source: Industry, Ambit Capital research*Power deficit is the biggest
driver of sales

Ambit Capital Pvt Ltd 11

 Light Electricals - Quarterly

Successful strategies: Bajaj with

Morphy Richards
In this edition on Light Electricals we analyze the key factors that led to the
successful re-launch of Morphy Richards (Morphy) in India. In 1980, when Morphy
(UK’s leading small appliances brand) launched its brand in India it was a big
disaster given that it neither had any distribution network nor the right product
portfolio to suit the Indian market. In 2003, when Morphy was re-launched, now
with a tie up with Bajaj, it became a big success as it was able to leverage upon
Bajaj’s strong distribution network, stellar market intelligence (given that the tastes
of the Indian consumer are quite different from that of a UK consumer) and a
strong supply chain management. Since 2003, Morphy’s revenues have grown at a
CAGR of ~30% compared to industry growth rate of ~20%.

Exhibit 17: Bajaj has a strong distribution network

Companies Distributors Retailers Other formats
Locals
Havells 5,000 100,000 135 Havells Galaxy stores
V-Guard 280 12000 retailers and 1200 channel partners
Bajaj 1,000 400,000 retail outlets 4,000 authorized dealers and 20 Bajaj World stores
Finolex Cables 20,000 dealers and 2,500 channel partners
MNCs
ABB 23 marketing offices
Schneider 255 7 panel builders and 61 system integrators
Siemens 500 channel partners 19 sales offices
Source: Ambit Capital research

About Morphy
Morphy is a part of the $1.3bn Glen Dimplex Goup, a leading worldwide
manufacturer of electric heating and domestic appliances having strong presence
in UK, Europe, America, Canada and Middle East. It owns major brands in various
categories namely Morphy Richards, EIO Morphy Richards, Dimplex, Aqua Vac,
Belling EWT, Goblin, Electromode, Faber, AKO, Glen, Stoves, New World &
Riedel. For over 66 years, it has been a leader in household appliances in Europe,
both in terms of latest designs as well as technology. More than 90% of British
homes use Morphy’s products for chores ranging from hair drying to bread
making. Every year, more than 5 million units are sold causing the turnover to
exceed US$200 million.

Analyzing the successful tie up between Morphy

and Bajaj
In Nov, 2002 Morphy re-entered into India by forming a strategic alliance with
Bajaj. The alliance allowed Morphy to use Bajaj’s sales and distribution network
for marketing its products in India and also its service network for offering after
sales support to the customers. Off late it has also started sourcing some of its
products from Bajaj for its global sales. Bajaj in turn gets access to Morphy’s
technology know-how which can be used to introduce new products under the
Bajaj brand in India. For each such new product sold, Bajaj pays a royalty of
~2.5% of revenues.

Ambit Capital Pvt Ltd 12

 Light Electricals - Quarterly

Analyzing Bajaj and Morphy’s winning strategy

Despite Bajaj and Morphy being present in the same product category they
complement each other very well. This is because the positioning of both the
brands is very different. Whilst Morphy is positioned as a premium brand, Bajaj
is positioned as a mass brand. Secondly the product variants and the pricing of
Morphy’s products in India are different compared to in those of UK. Whilst
in India the number of variants is lower (compared to in UK), the difference
between the minimum and the maximum price between a lower and a premium
product in the same category is lower in India. This is because people in India do
not like more variants as they get confused. Further if the pricing gap between the
lower and the superior category is high then they prefer to choose the lower
variant over the premium.

Exhibit 18: Positioning of Bajaj and Morphy’s product is very different

Price comparison across
Product Type Bajaj Electricals Preethi Havells Morphy Richards TTK Prestige
products
Domestic Appliances
Mixer Grinder 3 Jar - 500W 3,190 2,890 3,595 3,695 3,195
Induction Cooktop 2000W 2,970 2,980 4,195 3,995 3,643
Iron Dry Iron - 1000 W 575 NA 895 950 745
Water Heater 15 litre 6,850 NA 8,300 NA NA
Fans 1200 MM 1,450 NA 2,045 NA NA
Lightings (CFLs) 8W TU 150 NA 165 NA NA
Source: Company, Ambit Capital research; in Rs/unit

Exhibit 18: Morphy UK has more variant than Morphy Exhibit 19: Also prices for Morphy UK are higher than
India (Figs represent number of variants) Morphy India (Figs represent minimum and maximum
price for Morphy India and UK)

60 21,000
50 18,000
40 15,000
30 12,000
20 9,000
10 6,000
- 3,000
-
Kettles
Toasters

machines

preparations
Cooking and

Floor care

Ironing
Coffee

Kettles
Toasters

machines

Vaccum

Steam
cleaner
baking

Iron
Coffee
Food

Morphy India Min Morphy India Max

Morphy Richards India Morphy Richards UK Morphy UK Min Morphy UK Max

Source: Ambit Capital research Source: Ambit Capital research

Why did Morphy prefer Bajaj as a partner?

a) Gained access to a strong distribution network with a strong brand
recall: Bajaj’s distribution network is the strongest courtesy its existence for 72
years. Also it is spread across the country which leads to superior brand recall. This
is corroborated in its sales which are spread almost equally across all geographies.
This is unlike TTK Prestige (~60% sales come from south India), Hawkins (~70%
sales from north India) and V-Guard (~78% sales from south region) which are
strong regional players but struggle at the national level. Havells is the only player,
apart from Bajaj, which is strong at the national level.

Ambit Capital Pvt Ltd 13

 Light Electricals - Quarterly

Another way to corroborate Bajaj’s brand strength is its revenues in small

appliances. Since several years Bajaj has been the market leader in this segment
with a market share of 15% in the organized market. This is despite it competing
with players like Philips, Black & Decker, Havells, Braun and Kenwood in the
premium segment. In the lower segment it competes with Preethi and Prestige.

Exhibit 20: Bajaj has the strongest distribution network

Companies Distributors Retailers Other formats
Locals
Havells 5,000 100,000 135 Havells Galaxy stores
V-Guard 280 12000 retailers and 1200 channel partners NA
Bajaj Electricals 1,000 400,000 retail outlets 4,000 authorized dealers and 20 Bajaj World stores
Finolex Cables 20,000 dealers and 2,500 channel partners NA
MNCs
ABB 23 marketing offices NA
Schneider 255 NA 7 panel builders and 61 system integrators
Siemens 500 channel partners 19 sales offices
Source: Ambit Capital research

Why is distribution network important?

If we analyze the recent M&A transactions that have happened in the Light
Electrical segment wherein MNCs have bought over Indian companies with strong
distribution network, we notice that all of them have been done at punchy
multiples. Our discussion with investment bankers who have been part of some of
these deals suggests that the punchy multiples are driven by the multiple
challenges in replicating a distribution network built by incumbents. Note that
India is a huge country and hence covering the whole country is a daunting task.
Also to break into an established dealer network is a big challenge. Established
regional players like TTK, Hawkins, V-Guard are struggling to expand beyond their
regional territories. Also a lot of investment in the form of opening new
warehouses is to be made as new dealers will not take inventory on their books
given they do not have the confidence on a new product.

Exhibit 21: Recent transactions in the Electrical segment have been at punchy multiples
Deal value (%) Stake EV/EBITDA
Acquirer-Target Number of distributors Year PE(x)
(`mn) acquired (x)
Matsushita-Anchor 10,000 dealers and 300,000 retailers 2010 20,000 80 14 15
Legrand-Indo-Asian 250 distributors and 15,000 dealers
2010 6,000 100 20 NA
Fusegear and retailers
900 distributors and 25,000 retail
SchneiderElectric-Luminous 2011 14,000 74 16 NA
outlets
Schneider-Digi Link 3,000 retail stores 2011 5,030 100 NA 23
Source: Ambit Capital research

b) Bajaj has an advantage for market intelligence? Bajaj having present in

India since the last 72 years and having been the leader in the small appliances
segment since several years has the ability to understand the consumer behavior
much better than others. Additionally the company also conducts monthly surveys
across several cities in India to understand the pulse of the market. In our recent
meeting with the ED of the consumer business they showed us their survey’s
results which revealed that in South India whilst their brand recall is ~50%, their
market share is less than 20%. To increase share, Bajaj is targeting to increase its
ad and promotion spend aggressively (target is to spend `750mn in FY14 which is
up 100% YoY) by hiring local film-stars and changing packaging so as to
customize it to suit the local requirements.

Ambit Capital Pvt Ltd 14

 Light Electricals - Quarterly

c) Bajaj has a strong supply chain management: Bajaj has one of the most-
efficient supply chain management practices in India. This is corroborated by its
inventory days, which are the lowest in the industry. In FY12, BJE’s inventory days
for its electrical durables segment were at 37 days as against 66 days for Havells
and 54 days for V-Guard. Also, the average inventory days over the past three
years for BJE’s electrical durables segment were at ~37 days as compared to 56
days for Havells and 55 days for V-Guard.
This, to a great extent, is responsible in maximising dealers’ Return on Investment
(RoI), according to Mr Tandon, the head of Bajaj’s electrical durables segment. In
the past three years, the ROI of some of Bajaj’s dealers has almost tripled to
~65%.
Lastly the lower inventory days help in better cash conversion. After Havells, Bajaj
has the second best cash conversion cycle.

Exhibit 22: Bajaj’s inventory days are the lowest amidst peers
Bajaj Havells* V-Guard
Debtor days 63 14 54
Inventory days 37 56 55
Creditor days (including acceptances) 45 30 30
Cash Conversion 55 40 79
Source: Company, Ambit Capital research * We have calculated this on a standalone basis

Relative valuation
Exhibit 23: Bajaj trades at a discount to Havells despite higher earnings CAGR and higher ROE improvement
FY13
Mrkt Sales EBITDA EPS
Div
Cap CAGR EV/Sales (x) CAGR EV/EBITDA (x) CAGR P/E (x) ROE (%)
Yield
(`bn) (%) (%) (%)
(%)
FY13-15 FY14 FY15 FY13-15 FY14 FY15 FY13-15 FY14 FY15 FY13 FY14 FY15
Havells 87.8 1.1 11.7 1.17 1.04 19.2 11.3 9.9 21.3 18.2 15.4 32.3 29.6 27.8
V-Guard 13.5 0.9 26.1 0.84 0.67 33.1 9.9 7.5 35.2 16.5 11.7 20.1 27.9 31.3
Bajaj 16.7 1.2 22.7 0.43 0.35 86.8 6.3 4.6 91.2 12.7 9.0 7.0 17.0 20.8
Average 1.1 20.2 0.80 0.69 46.4 9.2 7.3 49.2 15.8 12.0 19.8 24.8 26.6
Source: Ambit Capital research

Bajaj clearly looks the most attractive on a relative basis. Whilst it trades at
a discount of 25% and 32% based on FY14 P/E and EV/EBITDA compared to peers,
its earnings and EBITDA CAGR is 1.8x compared to peers. Also the growth in ROE
in FY15 over FY13 is the highest for Bajaj (13% points) compared to peers. This is
primarily on the back of an expected turnaround in its E&P division. After reporting
an EBIT loss of `1.2bn in FY13, we expect this division to report an EBIT break even
in FY14 and 4% EBIT margin in FY15 compared to average 10% over F07-12.
If we eliminate the E&P business for a like to like consumer business comparison,
Bajaj’s consumer business despite having superior ROCE relative to peers is
trading at an unjustifiable discount to Havells and V-Guard.

Ambit Capital Pvt Ltd 15

 Light Electricals - Quarterly
Exhibit 24: Bajaj’s consumer business trades at a discount to Havells’ standalone
business despite higher EBITDA and earnings CAGR and better ROCE
Sales EBITDA
EV/EBITDA EPS FY13 *Pre-
CAGR EV/Sales (x) CAGR P/E (x)
(x) CAGR (%) tax ROCE
(%) (%)
(%)
FY13-15 FY14 FY15 FY13-15 FY14 FY15 FY13-15 FY14 FY15
Havells 18.1 1.60 1.43 15.3 13.7 11.8 15.4 20.5 17.5 51
V-Guard 26.1 0.84 0.67 33.1 9.9 7.5 35.2 16.5 11.7 24
Bajaj 17.8 0.79 0.66 19.5 8.7 7.5 19.5 12.7 10.9 91
Average 20.7 1.08 0.92 22.6 10.8 8.9 23.4 16.6 13.4 55
Source: Ambit Capital research*For Havells we have taken standalone business; for Bajaj we have excluded
E&P business

Based on FY14 earnings and EBITDA, Bajaj trades at ~40% discount to Havells
EBITDA and earnings despite 4.2% points higher earnings and EBITDA CAGR and
significantly higher FY13 pre tax ROCE. Note that we calculate the P/E multiple of
Bajaj’s consumer business by adding `31 per share to the current share price of
`168 per share. This is because we have valued the E&P business in our DCF
based valuation method at negative `31 per share which is equivalent to ~65% of
the FY13 capital employed. For Havells also we follow the same approach. We
calculate the P/E multiple of Havells’s standalone business by deducting `25 per
share from the current share price of `704 per share. This is because we have
valued Sylvania’s business in our DCF based valuation method at `25 per share.

Also when compared to V-Guard, Bajaj’s consumer business is unjustifiably cheap.

Based on FY14 P/E, Bajaj’s consumer business is trading at 12.7x compared to V-
Guard’s 16.5x. Whilst the EPS CAGR of V-Guard is 1.8x of Bajaj, the pre tax ROCE
of Bajaj at 91% is ~3x of that of V-Guard.

Ambit Capital Pvt Ltd 16

 Light Electricals - Quarterly

Institutional Equities Team

Saurabh Mukherjea, CFA Head of Equities (022) 30433174 saurabhmukherjea@ambitcapital.com

Research

Analysts Industry Sectors Desk-Phone E-mail

Aadesh Mehta Banking / NBFCs (022) 30433239 aadeshmehta@ambitcapital.com
Achint Bhagat Cement / Infrastructure (022) 30433178 achintbhagat@ambitcapital.com
Ankur Rudra, CFA Technology / Telecom / Media (022) 30433211 ankurrudra@ambitcapital.com
Ashvin Shetty Automobile (022) 30433285 ashvinshetty@ambitcapital.com
Bhargav Buddhadev Power / Capital Goods (022) 30433252 bhargavbuddhadev@ambitcapital.com
Dayanand Mittal Oil & Gas (022) 30433202 dayanandmittal@ambitcapital.com
Gaurav Mehta Strategy / Derivatives Research (022) 30433255 gauravmehta@ambitcapital.com
Jatin Kotian Metals & Mining / Healthcare (022) 30433261 jatinkotian@ambitcapital.com
Karan Khanna Strategy (022) 30433251 karankhanna@ambitcapital.com
Krishnan ASV Banking (022) 30433205 vkrishnan@ambitcapital.com
Nitin Bhasin E&C / Infrastructure / Cement (022) 30433241 nitinbhasin@ambitcapital.com
Nitin Jain Technology (022) 30433291 nitinjain@ambitcapital.com
Pankaj Agarwal, CFA NBFCs (022) 30433206 pankajagarwal@ambitcapital.com
Pratik Singhania Real Estate / Retail (022) 30433264 pratiksinghania@ambitcapital.com
Parita Ashar Metals & Mining (022) 30433223 paritaashar@ambitcapital.com
Rakshit Ranjan, CFA Consumer / Real Estate (022) 30433201 rakshitranjan@ambitcapital.com
Ravi Singh Banking / NBFCs (022) 30433181 ravisingh@ambitcapital.com
Ritika Mankar Mukherjee Economy / Strategy (022) 30433175 ritikamankar@ambitcapital.com
Ritu Modi Healthcare (022) 30433292 ritumodi@ambitcapital.com
Shariq Merchant Consumer (022) 30433246 shariqmerchant@ambitcapital.com
Tanuj Mukhija E&C / Infrastructure (022) 30433203 tanujmukhija@ambitcapital.com
Utsav Mehta Telecom / Media (022) 30433209 utsavmehta@ambitcapital.com
Sales
Name Regions Desk-Phone E-mail
Deepak Sawhney India / Asia (022) 30433295 deepaksawhney@ambitcapital.com
Dharmen Shah India / Asia (022) 30433289 dharmenshah@ambitcapital.com
Dipti Mehta India / Europe / USA (022) 30433053 diptimehta@ambitcapital.com
Parees Purohit, CFA USA (022) 30433169 pareespurohit@ambitcapital.com
Pramod Gubbi, CFA India / Asia (022) 30433228 pramodgubbi@ambitcapital.com
Praveena Pattabiraman India / Asia (022) 30433268 praveenapattabiraman@ambitcapital.com
Sarojini Ramachandran UK +44 (0) 20 7614 8374 sarojini@panmure.com
Production
Sajid Merchant Production (022) 30433247 sajidmerchant@ambitcapital.com
Joel Pereira Editor (022) 30433284 joelpereira@ambitcapital.com
E&C = Engineering & Construction

Ambit Capital Pvt Ltd 17

 Light Electricals - Quarterly

Explanation of Investment Rating

Investment Rating Expected return

(over 12-month period from date of initial rating)

Buy >5%

Sell <5%

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16. AMBIT Capital and/or its affiliates may from time to time have investment banking, investment advisory and other business relationships with companies covered in this
Research Report and may receive compensation for the same. Research analysts provide important inputs into AMBIT Capital’s investment banking and other business
selection processes.
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preparing this Research Report may participate in the solicitation of such business.
18. In addition to the foregoing, the companies covered in this Research Report may be clients of AMBIT Capital where AMBIT Capital may be required, inter alia, to prepare
and publish research reports covering such companies and AMBIT Capital may receive compensation from such companies in relation to such services. However, the views
reflected in this Research Report are objective views, independent of AMBIT Capital’s relationship with such company.
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companies covered in this Research Report (or in related investments) and may also be represented in the supervisory board or on any other committee of those
companies.
Additional Disclaimer for U.S. Persons
20. The research report is solely a product of AMBIT Capital
21. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report
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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.
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