27 January 2020 India | India Chemicals | Sector Report

India Chemicals
CY20 outlook: Margins likely to improve

CY17 and CY18 were very strong years for the Indian organic chemical industry with exports Mehul Thanawala
mehul.thanawala@jmfl.com | Tel: (91 22) 66303063
growing at c. 40% on a YoY basis. During the same period, Chinese export volume grew at
Ashish Mendhekar
c. 10% YoY (Exhibit 1 inside). CY19 growth was fairly moderate with Indian export volume ashish.mendhekar@jmfl.com | Tel: (91 22) 66303073
growth at just c. 7% (till July) while Chinese export (till November) volume growth was c.
3%. Clearly, growth in CY19 slowed down in both India and China likely on back of the
trade war and slower economic growth. However, as we move into CY20, we are optimistic
that margins in CY20 will be better for the Indian organic chemical industry. Our thesis,
elaborated in this report is based on 1) Reduction in trade war tensions which could likely
improve global growth and 2) The Coronavirus, which if it continues to spread, could impact
production in Hubei (Wuhan is the largest city in Hubei) region which has a large chemical
industry.
 CY19 does not seem to suggest strong export volume growth…: Over the last 5 years,
Indian organic chemical (HS Code 29) export volume has grown at a CAGR of c.21%.
This volume growth was primarily in CY17 (c.37% growth) followed by CY18 (c. 45%
growth in CY18). However, growth in the first few months of CY19 (Indian data available
only till July 2019) was much more sedate with both India and China reporting single digit
growth. This was likely on back of trade war as well as no major capacity additions in
India. This is in-line with our last year Chemical sector review (Still Anybody’s Race)
wherein we had expected that China could still come back in CY19.

 …and for CY20 also volume growth may not be significant…: The CY17 and CY18
volume growth was likely led by the large capacities added at refining / petrochemicals
level with RIL having almost doubled Petrochemicals production across the chain,
specifically the Paraxylene (PX). This, in turn resulted into an increase in PX production
and exports – we note that Benzene and Paraxylene form c. 50% of total volume of
organic chemicals exported from India. However, with no major new capacities expected
to be added in CY20, it is unlikely that export volume can grow significantly in CY20.

 But value additions / margins may drive chemical exports in CY20, particularly if
Coronavirus impacts Chinese production: While volume growth maybe difficult, we
believe that overall chemical export value and margins could increase for Indian Organic
chemical companies in CY20 on back of a) value addition (instead of exporting basic
chemicals), b) reduction in trade war tensions resulting into improved global growth
outlook and c) the Coronavirus potentially impacting production in the Hubei region of
China. We analyse this in more detail in the following pages.

 Conclusion: We believe that CY20 should support relatively stronger margins. The
reduction in China-US trade war related tensions is likely to improve global growth.
However, there is a concern that if Coronavirus continues to spread, it could impact
global growth. However, Coronavirus would also likely impact Chinese chemical
production, specifically in Hubei region. We note that in 2016, when Hubei Chuyuan
(which had c. 30% global production capacity) was shut-down on environmental
concerns, dyestuff prices had rallied and stocks had also rallied multifold. Currently none
of the Hubei industries seem to have been impacted and our channel checks indicate that
dye intermediate prices have also not rallied. However, with people movement restricted,
if Coronavirus continues to spread, it could impact production and we could see dyestuff
JM Financial Research is also available on:
prices rally. Beneficiaries could be dye intermediate companies like Aksharchem, Bloomberg - JMFR <GO>,
Meghmani, Kiri Industries, Bhageria Industries etc. But the indirect beneficiaries could be Thomson Publisher & Reuters,
companies like Aarti Industries, whose margins were impacted last year on back of lower S&P Capital IQ, FactSet and Visible Alpha
domestic sales.
Please see Appendix I at the end of this
report for Important Disclosures and
Disclaimers and Research Analyst
Certification.

JM Financial Institutional Securities Limited

India Chemicals 27 January 2020

Organic Chemicals – India’s 5-year volume export CAGR of more

than 20% unlikely to continue but value addition / forward
integation are structural tail winds.
India’s organic chemicals volume exports grew at a CAGR of c.15.5% during CY09-
CY13. This growth increased to c. 20.8% during CY14-CY18 likely due to large
refining and petrochemicals capex under-taken by companies like RIL. However, we
believe that since no major new refinery capacities are due to be commissioned in
CY20, export volume growth may significantly slow-down. This trend is already
borne by the meager 7% export growth in the first seven months of CY19.
 CY14 – CY18 reported strong growth in Indian organic chemical exports…
India’s Organic Chemical Exports have grown at a CAGR of c.20.8% over the last 5 years
(CY14 to CY18) against a growth of c. 15.5% over the previous 5 years (CY09 to CY13),
Exhibit 1 below.

Exhibit 1. China and India Export volume (Mn.MT)

Total India Organic Chemical exports Total China Organic Chemical exports

18.00 16.88

16.00 14.83
13.91
13.32 13.03
14.00
11.85
12.00 10.48 10.49

10.00 8.92
7.38
8.00 20.8%

6.00 15.5% 7.23

4.00
4.98
2.00 3.96 3.90 3.61 3.63
3.07 3.40
2.84
2.19
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Trade Map, International Trade Centre, www.intracen.org/marketanalysis, JM Financial

This strong export volume growth also resulted into export value (USD) growth (though
crude price was volatile).

Exhibit 2. USD Exports : China and India (USD bn)

Total India Organic Chemical exports Total China Organic Chemical exports

70.00
59.80
60.00
49.74
50.00 45.44
42.20 42.67 42.16
39.29 40.41
40.00
31.45
30.00 24.23

20.00

10.00 17.74
12.55 13.30 12.04 13.57
6.97 8.59 11.15 11.30 11.25
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Trade Map, International Trade Centre, www.intracen.org/marketanalysis, JM Financial

From the above, it is worth noting that the growth in Indian Exports (in USD bn) is
relatively muted when compared with export volume growth. The average realisation (in
USD/kg) for India actually declined during this period.
…with the exports growth led primarily by commodity chemicals…
The average realisation for Indian organic chemical export has declined over the last five
years from c. USD3.5/kg to c. USD 2.5/kg while for China it has actually increased
marginally from c. USD 3.4 to c.USD 3.5/kg. This implies that India actually increased
exports of lower value commodity chemicals.
JM Financial Institutional Securities Limited Page 2
India Chemicals 27 January 2020

Exhibit 3. Average Realisation (USD/kg)

Average India Realisation Average China Realisation

4.50
3.75 3.85
4.00 3.53 3.56 3.54
3.28 3.41 3.27 3.35
3.50 3.03
3.63 3.54
3.00 3.41
3.18 3.17 3.13 3.10
2.50 3.03
2.73
2.00 2.46
1.50
1.00
0.50
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Trade Map, International Trade Centre, www.intracen.org/marketanalysis, JM Financial
…like Paraxylene and Benzene…
Exhibit 4 below reflects that Benzene exports have remained broadly constant at c. 20%
over the last decade. Note that during this period, the total volume exported has more
than tripled (Exhibit 1) and therefore, Benzene exports should also have increased by c. 3x
to broadly maintain the ratio at c. 20%.

Paraxylene exports (as a % of total exports) have almost doubled from c.16/17% to c.
35%.

From the above, it is clear that the growth in export volumes over the last few years was
primarily led by PX and this growth is on the back of increased Indian PX capacities.

Exhibit 4. Share of major organic chemicals exported from India

P-Xylene Benzene

70%

60%
22%
50%
21%

40%
18% 15% 22%
21% 19% 20%
17% 35%
30% 16%
30%
26%
20% 22%
18% 19%
16% 17% 17% 16%
10%

0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Trade Map, International Trade Centre, www.intracen.org/marketanalysis, JM Financial

…leaving scope for downstream value addition and structural tailwinds for
companies like Aarti Industries
Since almost 50% of India’s exports constitute basic chemicals like PX and Benzene; there
is scope for India to continue to increase export revenue by moving up the value chain.
Companies in the Benzene chain could be the beneficiary of this downstream potential
and Aarti Industries, being the largest Benzene based chemical producer in India, could
benefit structurally.

JM Financial Institutional Securities Limited Page 3

India Chemicals 27 January 2020

Additionally, companies like Vinati Organics, which have focussed on global leadership in
chemicals like Iso-butyl Benzene (IBB) could also benefit by focusing on other applications
/ chemicals.

 CY19 did not see the robust volume growth continuing for India …
We had, in our previous sector report (link) indicated that it is still anybody’s race and
China could come back. Global slowdown, possibly coupled with lower environment
shutdowns resulted into both India and China’s growth decelerating. During the first few
months of CY19 (data available only till July 2019), Indian chemical exports reported an
average growth of c. 7% (Exhibit 5 below). Only 3 of the 7 months (for which data is
available) reported YoY volume growth in excess of 20%+. Interestingly, June reported a
sharp (c. 40%) decline in total volume exported.

Exhibit 5. CY19 Monthwise Export Volume growth % (YoY)

30% 26%
24%
21%
20%
12%
10% 7%

0%
-3%
-10%

-20%

-30%

-40%
-40%
-50%
2019-M01 2019-M02 2019-M03 2019-M04 2019-M05 2019-M06 2019-M07
Source: Trade Map, International Trade Centre, www.intracen.org/marketanalysis, JM Financial
Clearly, CY19 Indian volume growth is unlikely to match the c.40% growth in CY17 and
CY18 or even the average 20% growth rate achieved over the last five years.

Similarly, in China, growth has moderated from c. 10% to just c. 2.7% in the 11 months
(data available till November)

Exhibit 6. Chinese Organic Chemicals YoY growth

20%
15.9%
15.0%
15% 12.2%

10% 8.8%

4.3% 4.6%
5%
1.6%

0%

-5% -3.3%
-5.3%
-10%
-9.1%
-11.5%
-15%

Source: Trade Map, International Trade Centre, www.intracen.org/marketanalysis, JM Financial

JM Financial Institutional Securities Limited Page 4

India Chemicals 27 January 2020

 CY20 Outlook : Volume growth unlikely..

It is also unlikely that Indian organic chemical exports can grow at > 20% in CY20 given
that (1) RIL’s capex cycle (in refining and petrochemicals) is complete and there are no
major refinery expansions due in CY20 and (2) Lower growth (both globally as well as in
India).

Hence, exports of organic chemicals may remain flattish for the next few years as had
happened during the period of CY13 to CY16.

Therefore, if Indian companies want to continue exports value growth, companies would
have to focus on export realisation growth through value addition.

 …but there is scope for margin/value growth in CY20, particularly for dyestuff
industry
While significant volume growth may be difficult to achieve in CY20 we believe that some
export volume growth could still be achieved by de-bottlenecking / optimal capacity
utilisation. Thus, we believe that export volume growth maybe in single digits.

However, we believe that CY20 is likely to be a better year (compared to CY19) for Indian
chemical companies through margin expansion / downstream value addition, particularly
if the Coronavirus outbreak lingers and impacts dye intermediate production in China.
Our thesis of improved margins is based on three facoronavirusctors

1) Improved global growth likely on the back of decrease in US-China trade

war tensions: The US and China have recently entered into Phase 1 treaty. This will
likely improve growth outlook and therefore demand for all chemicals including
dye/dye intermediate.

2) Coronavirus development could be negative for global growth but may

benefit Indian chemical industry… : The recent outbreak of the Coronavirus has
infected more than 1,400 people (at the time of writing).

The outbreak is centred on Wuhan, the largest city in Hubei province and 15 cities in
Hubei province have been put under lock-down with people not allowed to travel
outside city.

Exhibit 7. Restricted cities in Hubei province, China

Source: CNN, JM Financial

JM Financial Institutional Securities Limited Page 5

India Chemicals 27 January 2020

Hubei province, which is at the centre of this outbreak, has a reasonable

concentration of chemical plants (Exhibit 8), specifically in dye and dye-intermediate
production. If this Coronavirus continues to grow and restrict movement, it could
curb Chinese dye and dye intermediate production.

Exhibit 8. Chemical factories in Hubei

Source: Google Maps, JM Financial

Our channel checks have indicated that the chemical prices have still not started
increasing but they are likely to increase. In 2016, when China’s top dyestuff maker
Hubei Chuyuan (which is one of the largest dyestuff manufacturers in China) was
shutdown on environment grounds, dyestuff prices had rallied. Many listed Indian
dyestuff manufacturers had rallied and stocks were multibaggers (Exhibit 9).

Exhibit 9. YoY growth in CY16 of dye and dyestuff companies

Company Name YoY% growth

Bagheria Industries Ltd 454.5%

Ishan Dyes & Chemicals Ltd 283.9%
Aksharchem Ltd 283.6%
Sudharshan Chemical Industries Ltd 196.4%
Kiri Industries Ltd 167.7%
Vipul Organics Ltd 165.6%
Bodal Chemicals Ltd 122.2%
Ultramarine & Pigments Ltd 47.4%
Source: Bloomberg, JM Financial

Therefore, 1) if Coronavirus is brought under check quickly, Indian chemical

companies could benefit (relative to CY19) from Global growth but 2) if Coronavirus
threat grows, global growth could be impacted, which could bring down crude oil
prices. However, Coronavirus growth could also impact production of chemicals in
China and therefore, demand-supply would favour Indian chemical companies. With
lower crude oil prices (and lower raw material prices) but supply-demand favouring
manufacturers, we believe Indian organic chemical company margins should
improve.

JM Financial Institutional Securities Limited Page 6

India Chemicals 27 January 2020

Pollution Control Board actions would have to be monitored…

In our previous reports, we have highlighted how environmental concerns led to the
closure of some chemical facilities in China. We also note that Dye stuff (Dye and Dye
intermediate) manufacturing is one of the most polluting parts of the chemical chain.

Therefore, while Dyestuff industry could be the biggest beneficiary of any disruption in
China, it could also be negatively impacted by any strong actions taken by Pollution
Control Board.

Gujarat produces c. 30% of the output of the Indian chemical sector.

Exhibit 10. Total chemical output contribution of states of India

2012-13 2013-14 2014-15 2015-16

35%
30%
25%
20%
15%
10%
5%
0%

Source: Ministry of Chemicals and Fertilizers, JM Financial

GoI follows a Comprehensive Environmental Pollution Index (CEPI) to assess the

environmental degradation for industrial regions. CEPI indicates the quality of
environment at a given location accounting for source, pathway and receptors of
pollutants.

According to this index, for the regions monitored during 2018, Gujarat had 6 out of 38
regions that were termed as Critically Protected Area (CPA). These 6 regions had a CEPI
score of > 70 and 1 region was classified as Severely Polluted Area (SPA) with a CEPI score
>60.

Exhibit 11. CEPI index trend for Gujarat Industrial hubs

Chart Title

2009 2011 2013 2018

89.09
80.21

79.95

76.43
70.94

70.62
61.94
57.11

51.64

85.31

83.44
80.93
69.54

90.75

87.46
62.79

85.75
78.09

69.73

67.85
52.75
75.28

70.99

70.82

88.09

74.77
88.5

Source: CPCB, JM Financial

Based on this score, National Green Tribunal has stopped all further industrial activities /
expansions in certain industrial estates in Gujarat. Therefore, while CY20 offers hope for

JM Financial Institutional Securities Limited Page 7

India Chemicals 27 January 2020

Chemical industry in India, investors would need to monitor actions taken by Pollution
Control Boards like GPCB.

 Stocks under coverage and view for CY20…

We currently cover the following stocks in the Chemical / Agrochemical space

1) Galaxy Surfactants

2) Fine Organics,

3) Navin Fluorine

4) SRF

5) PI Industries

6) UPL

Amongst the above stocks, at current valuation, we like Galaxy Surfactants. Galaxy is
unlikely to be impacted by Chinese volatility and while it faced challenges over the
last year in Egypt, we believe that given likely revival of the Indian economy and the
current valuations, Galaxy should outperform. We maintain BUY on Galaxy
Surfactants.

While structurally Fine Organics continues to be on-track based on 50% capacity

expansion, we felt the stock had run-up ahead of fundamentals and had recently
down-graded the stock to a HOLD.

Navin Fluorine International Ltd: After a slower than anticipated ramp-up in the
CRAMS segment, we believe that now the revival in CRAMS should help NFIL in the
near-term. However, the stock has also run-up in anticipation of the revival in
CRAMS segment.

SRF: We believe that the stock has done extremely well over the last three years
primarily due to the BOPP and BOPET film segment reporting strong volume and
margin expansion. The specialty chemicals segment is expected to continue to report
a revival but current valuations broadly capture the potential revival.

PI Industries: The CSM segment revived over the last few quarters but the
management in the previous call had indicated that because of the base effect, the
second half growth may be muted. We therefore maintain a HOLD.

UPL Limited: Post Arysta acquisition, UPL has taken a hit based on the Purchase Price
Allocation (PPA). We believe that the PPA provisioning will end in FY20 and hope to
see a revival in FY21. Therefore, we maintain a BUY on UPL.

JM Financial Institutional Securities Limited Page 8

India Chemicals 27 January 2020

APPENDIX I

JM Financial Inst itut ional Secur ities Lim ited

(formerly known as JM Financial Securities Limited)
Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com

Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.

Important Disclosures

This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the
investor.

JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing
offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)
covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from
the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell
the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,
or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in,
it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.
The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations,
2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered
under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this
report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This
report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.

JM Financial Institutional Securities Limited Page 9

India Chemicals 27 January 2020

The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of
any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right to
make modifications and alterations to this statement as they may deem fit from time to time.

This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction.

This report 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 JM Financial Institutional
Securities and/or its affiliated company(ies) 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 this report may come, are required to inform themselves of
and to observe such restrictions.

Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala (ruchir.jhunjhunwala@jmfl.com) on +65 6422 1888 in
respect of any matters arising from, or in connection with, this report.

Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the
United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of
1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").

This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for
purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in Rule
15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report and are
not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it to JM
Financial Institutional Securities or to JM Financial Securities.

This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The
research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered
broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing
requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading
securities held by a research analyst account.

JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional Securities,
JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM Financial
Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.

Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the
Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)
are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are outside
the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial
Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or
relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will
be engaged in only with relevant persons.

Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the
securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as
a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an
exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable
securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or
sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or
similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities
described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your
representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as
such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the
information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the
needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized
agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the
information contained herein.

JM Financial Institutional Securities Limited Page 10