Kotak Daily 06.02.23 SBI BOB MnMFin

India Daily
February 06, 2023 NIFTY-50 [Feb 03]: 17,854
Contents
Daily Alerts
Results
State Bank of India: Solid show continues
ITC: Five in a row
Bank of Baroda: Basking in glory
InterGlobe Aviation: Pricing trends yet to reflect market consolidation
Tata Consumer Products: India tea business drags domestic growth
Tata Power: 3QFY23 - coal earnings appear to be moderating
Marico: Mixed bag
Berger Paints: Growth outperformance in decorative paints
Max Healthcare: Operating excellence continues
Mahindra & Mahindra Financial: Balancing growth and collections
Crompton Greaves Consumer: A difficult quarter; near-term outlook uncertain
Sun TV Network: Ad growth ahead of industry
Aptus Value Housing Finance: Moving on smoothly
Mahanagar Gas: 3Q miss; worst of high gas prices behind
SIS: Decent print; FM segment margins impacted by one-off
Results, Change in Reco
Divis Laboratories: Chinks in the armor
Aavas Financiers: A strong quarter
Sector Alerts
Diversified Financials: AIF regulations: Between a light touch and a heavy hand
Real Estate: Taxing times
Private Circulation Only.

This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities A ct of 1933
RESULT
State Bank of India (SBIN) BUY

Banks
CMP(₹): 544 Fair Value(₹): 725 Sector View: Attractive NIFTY-50: 17,854 February 04, 2023
Solid show continues Company data and valuation summary

SBI reported ~70% yoy earnings growth due to ~35% yoy growth in operating
Stock data
profits. RoA moved to 1.1% and RoE is strong at 18%. Nearly all key metrics
CMP(Rs)/FV(Rs)/Rating 544/725/BUY
were in the right direction, with NIM expanding 20bps qoq, loan growth at 18%
52-week range (Rs) (high-low) 630-425
yoy, cost-income ratio solid at 50% and credit costs at 20bps. The bank is
Mcap (bn) (Rs/US$) 4,857/59
positioned well to handle any adverse scenario that could emerge from their
ADTV-3M (mn) (Rs/US$) 8,099/99
exposure to a specific conglomerate, in our view. We maintain BUY with FV
unchanged. Shareholding pattern (%)
Strong earnings growth, led by solid operating profit growth and low provisions 6.02.6
SBI reported a solid earnings growth of 70% yoy owing to ~35% yoy operating 10.4
profit growth. The bank has made additional standard asset provision buffer as 13.2
56.9
a matter of prudence. RoA was at ~1.1% and RoE at 18% for the quarter. Strong
10.9
operating profit growth was led by 25% yoy revenue growth and a similar NII
growth. Loans grew impressively at 18% yoy. NIM expanded ~20bps qoq. Asset
quality showed further improvement, with gross NPL declining 40bps qoq to 3% Promoters FPI s MFs BFI s Retail Others
of loans, whereas net NPL was unchanged at 0.5%. Price performance (%)
Private Circulation Only. This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities A ct of 1933
Nifty SBIN
It is all about one today 200
The results for the quarter emphasize our view of the strength of this franchise. 160
RoE is now moving well above long-term average, primarily aided by
120
exceptionally low credit costs and NIM expansion. We maintain that unless we
80
have Ind AS transition coming in immediately, the probability that we have credit
40
costs at closer to current levels is high; we also maintain that the bank’s strong
liability franchise would result in slower cost of fund expansion as compared 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
with private banks. Consequently, SBI would continue to deliver healthy RoE in
the medium term and enable to consume capital at lower pace.
Forecasts/Valuations 2023E 2024E 2025E
However, there is an overhang that would perhaps need clarity with respect to EPS (Rs) 54.9 58.6 61.0
the bank’s exposure to a specific conglomerate (<1% of loans—funded). While EPS growth (%) 54.7 6.7 4.1
we believe that the exposures to this conglomerate is lower-than-feared, it P/E (X) 9.9 9.3 8.9
would take time for investors to be comfortable with the events quickly P/B (X) 1.7 1.5 1.3
BVPS (Rs) 319.5 369.9 419.0
unfolding at this group. It is a reasonable assumption to make that the news
RoE (%) 16.3 15.3 14.1
flow of this conglomerate would dominate near-term earnings performance.
Div. yield (%) 1.7 2.0 2.3
However, we are less worried. Unlike the previous corporate NPL cycle, (a) the
Nll (Rs bn) 1,421 1,470 1,566
exposure is mostly toward operating assets, (b) the bank has adequate PPOP (Rs bn) 816 875 944
operating profits to handle, any stress, if any, from this group, and (c) there is Net profits (Rs bn) 490 523 544
little contagion risks emerging from this issue. Source: Bloomberg, Company data, Kotak Institutional Equities estimates
Prices in this report are based on the market close of

Maintain BUY, despite few noisy quarters ahead February 03, 2023
We maintain BUY with an FV of Rs725 (unchanged), valuing the bank at 1.4X (adj.)
Related Research
book and 9X December 2024 EPS for RoEs of ~15%. We have revised our estimates
upwards by ~5% for FY2023, noting the strong outperformance on the operating →
front. However, we are also mindful of the tailwind that has come through the rate →
cycle in current earnings and factor lower NIMs for FY2024-25. We are also →
conservative on our loan growth estimates.
Full sector coverage on KINSITE
M B Mahesh, CFA Nischint Chawathe Ashlesh Sonje, CFA Abhijeet Sakhare Varun Palacharla
3
Exhibit 1: SBI’s quarterly financial statements, March fiscal year-ends, 3QFY22-3QFY23 (Rs mn)
(% chg.)
3QFY23 3QFY23E 3QFY22 2QFY23 3QFY23E 3QFY22 2QFY23 9MFY23 9MFY22 (% chg.) 2023E 2022 (% chg.) 2024E
Income earned 866,160 846,326 696,781 798,596 2 24 8 2,391,520 2,047,240 17 3,268,974 2,754,573 19 3,832,545
Income on advances 588,650 562,982 437,527 523,829 5 35 12 1,577,215 1,272,132 24 2,157,135 1,718,237 26 2,647,718
Income on investments 245,254 244,131 215,931 236,696 0 14 4 706,345 630,376 12 952,985 848,772 12 995,607
Interest on balance with RBI 32,257 39,213 43,323 38,071 (18) (26) (15) 107,960 144,733 (25) 158,854 187,564 (15) 189,220
Interest expense 485,474 478,334 389,907 446,762 1 25 9 1,347,040 1,152,143 17 1,851,098 1,547,497 20 2,353,145
Net interest income (NII) 380,686 367,993 306,874 351,834 3 24 8 1,044,480 895,097 17 1,417,876 1,207,076 17 1,479,400
Non-interest income 114,677 97,142 86,734 88,739 18 32 29 226,538 286,838 (21) 336,076 405,639 (17) 439,986
Fees, commission 59,280 64,366 57,470 59,420 (8) 3 (0) 182,420 165,410 10 267,748 245,640 9 307,910
Invt. income 29,380 8,000 5,140 4,570 267 472 543 (31,540) 30,450 (204) (45,000) 32,230 (240) 25,000
Forex income 13,880 14,520 4,840 19,110 (4) 187 (27) 53,130 19,580 171 69,580 34,790 100 62,622
Other income excl. treasury 85,297 89,142 81,594 84,169 (4) 5 1 258,078 256,388 1 381,076 373,409 2 414,986
Total income 495,364 465,135 393,608 440,573 6 26 12 1,271,018 1,181,935 8 1,753,952 1,612,715 9 1,919,386
Operating expenses 243,171 239,651 208,392 229,377 1 17 6 680,103 700,363 (3) 946,808 933,975 1 1,030,778
Staff expenses 93,277 97,588 89,955 91,204 (4) 4 2 279,424 338,950 (18) 541,370 575,620 (6) 589,552
Other operating expenses 149,894 142,063 118,437 138,173 6 27 8 400,679 361,414 11 405,437 358,355 13 441,226
Pre-provision operating profit 252,193 225,484 185,216 211,196 12 36 19 590,915 481,572 23 807,145 678,740 19 888,607
Provisions and extraordinaries 57,606 45,580 69,740 30,387 26 (17) 90 131,916 172,147 (23) 172,282 244,521 (30) 200,003
Loan loss provisions 15,865 19,105 30,960 20,110 (17) (49) (21)
Standard assets 42,300 1,300 22,010 1,250 3,154 92 3,284
Investment depreciation (120) - 14,890 (1,090) (101) NM
Other provisions (439) 25,176 1,880 10,117 (102) (123) (104)
PBT 194,587 179,904 115,477 180,809 8 69 8 458,998 309,425 48 634,863 434,219 46 688,604
Less tax 52,534 48,665 31,158 48,168 8 69 9 123,623 83,804 48 162,525 117,462 38 176,283
Profit after tax 142,053 131,239 84,319 132,641 8 68 7 335,375 225,621 49 472,338 316,756 49 512,322
Key balance sheet data (Rs bn)
Advances (net) 30,582 30,398 25,784 29,513 0.6 18.6 3.6 31,077 27,340 13.7 35,154
Advances (gross) 31,336 31,261 26,646 30,351 0.2 17.6 3.2 32,101 28,187 13.9 36,360
International 4,864 4,004 4,877 21.5 (0.3)
Domestic 26,472 22,642 25,474 16.9 3.9
Corporate 9,250 7,834 9,170 18.1 0.9
SME 3,506 3,072 3,169 14.2 10.7
Agri 2,470 2,215 2,386 11.5 3.5
Retail 11,245 9,522 10,749 18.1 4.6 11,301 10,023 12.8 12,715
Housing 6,132 5,385 5,943 13.9 3.2 6,234 5,617 11.0 6,887
Xpress credit (PL) 2,880 2,287 2,718 25.9 6.0
Auto 933 774 872 20.5 7.0
Other retail 1,300 1,076 1,215 20.8 7.0
Deposits 42,136 42,322 38,478 41,903 (0.4) 9.5 0.6 43,226 40,515 6.7 47,150
TD 22,475 20,178 22,303 11.4 0.8 23,428 21,451 9.2 25,461
CASA 18,007 17,007 17,978 5.9 0.2
CA 2,277 2,272 2,326 0.2 (2.1) 3,458 2,619 32.0 3,819
SA 15,730 14,735 15,652 6.7 0.5 16,339 15,132 8.0 17,870
CASA (%) 44.5 45.7 44.6 (2.7) (0.3) 45.8 45.3 1.1 46.0
Investments 15,875 15,444 14,999 15,759 2.8 5.8 0.7 14,735 14,932 (1.3) 15,208
AFS book 5,848 5,996 6,100 (2.5) (4.1)
AFS duration (years) 1.9 2.0 1.9 (3) (1)
Key calculated ratios (%)
Yield on advances 7.6 6.7 7.1 90 bps 57 bps 7.1 6.5 55 bps
Cost of funds 4.1 3.6 3.9 48 bps 23 bps 3.9 3.6 25 bps
NIM 3.3 3.2 3.1 3.2 9 bps 25 bps 15 bps 2.9 2.8 15 bps
Cost-to-income 49.1 51.5 52.9 52.1 -243 bps -385 bps -297 bps 53.5 59.3 -575 bps
CD ratio 72.6 67.0 70.4 557 bps 215 bps 72.6 67.0 557 bps
Credit cost (%) 0.21 0.48 0.27 21 bps -27 bps -7 bps 0.4 0.6 -20 bps
Asset quality details
Gross NPLs (Rs bn) 983 1,200 1,068 (18) (8) 857 1,120 (23) 777
Gross NPLs (%) 3.1 4.5 3.5 -136 bps -38 bps 2.7 4.0 -130 bps 2.1
Net NPLs (Rs bn) 235 345 236 (32) (0) 216 280 (23) 206
Net NPLs (%) 0.8 1.3 0.8 -57 bps -3 bps 0.7 1.0 -32 bps 0.6
PCR (excl. tech. w/o, %) 76 71 78 490 bps -181 bps 76 71 490 bps 75 75 -25 bps 73
PCR (incl. tech w/o, %) 92 88 92 320 bps -2 bps 92 88 320 bps
Standard restructured loans (Rs bn) 260 329 273 (21) (5)
Standard restructured loans (%) 0.9 1.3 0.9 -42 bps -7 bps
Gross slippages (Rs bn) 32 73 26 24 (56) 24 31 158 232 (32) 273 268 2 497
(% of opening adv., annualized) 0.4 1.0 0.4 0.3 -56 bps 1 bps 9 bps 0.8 1.3 -49 bps 1.0 1.1 -9 bps 1.6
Net slippages (Rs bn) 16 3 (28) 474 NM
(% of opening adv., annualized) 0.2 0.0 (0.4) 17 bps 61 bps
Capital adequacy details (%)
CAR 13.3 13.2 13.5 4 bps -24 bps
CET-1 9.3 10.3 9.5 -106 bps -27 bps
Source: Company
State Bank of India

Banks India Research
4
Asset quality continues to be stable

 Headline NPLs stable. Gross NPL ratio was down ~40 bps qoq, whereas the net NPL ratio was flat.
Provision coverage (ex-write-offs) declined ~200 bps qoq, as the bank wrote-off loans of ~Rs100 bn
(~35 bps of advances, un-annualized) during the quarter. In addition, the bank carries additional non-
NPA provisions of Rs338 bn (~110 bps of gross advances).
 Net slippages stayed low. Gross slippages for the quarter stayed low at just ~Rs32 bn (~40 bps of
opening advances, annualized). However, the bank has a policy of reporting gross slippages, which
are adjusted against recoveries/upgradations from slippages in previous quarters of the same fiscal
year. As a result, gross slippages have a tendency to decline sequentially, as we move ahead in the
fiscal year. Hence, we prefer to look at net slippages when comparing sequential delinquencies. Net
slippages for 3QFY23 were low at ~20 bps (annualized) owing to the strong trend on
recoveries/upgradations.
 Restructured and ECLGS. Standard restructured loans (on account of Covid) stood at Rs263 bn (~90
bps of loans, flat qoq).
 Credit costs for the quarter was fairly benign at ~20 bps.
 Exposure to large conglomerate. SBI indicated that its outstanding loan exposure to a certain large
conglomerate in India stands at ~90 bps of advances. Management also indicated that majority of
the SBI loan outstanding are toward operating assets and projects that have been completed, and are
already generating cash accruals, while the projects that are under construction are on schedule, as
of now. The loans extended by SBI are secured by the project assets and there is no facility granted
on unsecured basis. Project cash flows are routed through designated accounts and escrow
mechanisms are in place to ensure timely servicing of dues; there has been no record of any delay or
default until date. The bank has not extended any finance against pledge of promoter equity, and
shares have been pledged in favor of SBI in certain entities in the nature of additional collateral
security. Furthermore, non-funded exposure of SBI to the conglomerate is mostly toward letters of
credit and bank guarantees. There are no concerns on the group's ability to service the loan book at
this point in time.
Total stressed loans (NPL + SMA1 + SMA2) continued to decline qoq

Exhibit 2: Breakup of stress loans and provisions, March fiscal year-ends, 3QFY22-3QFY23 (Rs mn)
Amount outstanding Share of total gross loans
3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23
(Rs bn) (Rs bn) (Rs bn) (Rs bn) (Rs bn) (%) (%) (%) (%) (%)
Gross NPL 1,200 1,120 1,133 1,068 983 4.5 4.0 3.9 3.5 3.1
Net NPL 345 280 283 236 235 1.3 1.0 1.0 0.8 0.7
Watchlist 42 35 70 85 47 0.2 0.1 0.2 0.3 0.2
Total stress loans 1,242 1,156 1,203 1,153 1,031 4.7 4.1 4.1 3.8 3.3
Notes:
(a) Watch-list refers to SMA-1 and SMA-2 accounts with exposure above Rs50 mn, from data submitted to CRILC.
Source: Company
State Bank of India

5
Asset quality broadly stable across segments qoq

Exhibit 3: Segmental breakup of NPLs, March fiscal year-ends (%)
Corporate International SME Agri Retail Total

25
20
15
10
3QFY23
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company
Slippages were limited

Exhibit 4: Movement of NPLs, March fiscal year-ends (Rs mn)
3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23
Opening 1,616 1,597 1,491 1,297 1,259 1,172 1,264 1,343 1,239 1,200 1,120 1,133 1,068
Addition 201 83 39 31 3 221 163 43 26 36 101 24 32
Reductions 221 189 233 69 89 129 84 146 65 116 89 89 117
Closing Gross NPL 1,597 1,491 1,297 1,259 1,172 1,264 1,343 1,239 1,200 1,120 1,133 1,068 983
Provision coverage (without w/off) 64 65 67 71 75 71 68 70 71 75 75 78 76
Provision coverage (reported) 82 84 86 88 90 88 86 88 88 90 90 92 92
Slippages (%) 3.75 1.51 0.67 0.54 0.05 3.72 2.66 0.71 0.42 0.56 1.48 0.35 0.43
Source: Company
GNPL has been stable across retail segments

Exhibit 5: GNPL in retail segment, March fiscal year-ends (%)
2018 2019 2020 2021 2022 3QFY23

Home loans 0.9 0.8 1.0 0.8 0.7 0.7
Auto loans 1.1 1.0 1.1 0.8 0.7 0.5
Xpress credit NA 0.5 0.5 0.4 0.6 0.6
Other per segment loans NA 3.1 2.6 1.9 1.0 1.0
Source: Company
State Bank of India

6
Net NPL is at multi-decadal low; healthy PCR on NPLs

Exhibit 6: Gross NPLs, net NPLs and provision coverage ratio, March fiscal year-ends (%)
Gross NPLs (LHS) Net NPLs (LHS) PCR (RHS)

15.0 100
12.9
12.0 75 76 75 73
12.0 10.9 71 71 80
65
9.3 60 57 62
55 56 54 57 57 53 56
9.0 7.7 51 51 50 51 48 50 7.5 60
42 39 43 6.9
6.5
5.9 6.1
6.0 5.0 5.0 40
4.5 4.8 4.3
6.0 5.6 3.9 5.7 4.0
3.1 3.0 2.9 3.0 3.3 3.1
4.5 2.7
3.0 2.1 1.8 20
3.4 3.8 3.7
2.6 3.0
1.9 1.6 1.8 1.8 1.4 1.6 1.8 2.1 2.6 2.1 2.2 1.5 1.0 0.8 0.7 0.6 0.6
0.0 0
3QFY23
2023E
2024E
2025E
2004
2005
2009
2010
2015
2020
2021
2001
2002
2003
2006
2007
2008
2011
2012
2013
2014
2016
2017
2018
2019
2022
Note: Data from FY2017 onward refers to merged entity.
Source: Company
Sharp reduction in Doubtful-1 and Loss category NPLs during 3QFY23

Exhibit 7: Breakup of gross NPL (consol. entity), March fiscal year-ends (Rs bn)
Sub-standard Doubtful-1 Doubtful-2 Doubtful-3 Loss

2,500
82
155
2,000
95
1,500 944 251
247
213 211 252 275
305 241 262 295
1,000 781 228 255 281 279
269 245 290 258
561 271 263 253
384 328 269 275 254
292 267 240 225
260 276 270
500 202 255 242
348 232 240 272 229 232
316 205 205
509 282 162 198 184 144
261 362 305 259 286 245
130 202 187 155 168 135 134
-
4QFY20
3QFY21
4QFY22
3QFY23
4QFY18
4QFY19
1QFY21
2QFY21
4QFY21
1QFY22
2QFY22
3QFY22
1QFY23
2QFY23
Source: Company
Exposure to power sector has steadily decreased to <7% from peak level of 9.5%
Exhibit 8: Power exposure details, March fiscal year-ends (Rs bn)
Power exposure (gross) 1,992 2,035 1,944 1,912 1,952 1,856 1,829 1,801 1,834 1,922 1,922 1,954 1,864
(% of gross advances) 9.1 8.8 8.5 8.3 8.2 7.6 7.5 7.4 7.1 7.0 6.8 6.6 6.1
Source: Company
State Bank of India

7
Sequential increase in NPLs seen in sugar, cement and gems/jewelry segments

Exhibit 9: Detailed sector-wise exposure and NPL ratios, March fiscal year-ends, 3QFY22-3QFY23 (Rs mn)
2018 2019 2020 2021 2022 1QFY23 2QFY23 3QFY23
NPL NPL ratio NPL NPL ratio NPL NPL ratio NPL NPL ratio NPL NPL ratio NPL NPL ratio NPL NPL ratio NPL NPL ratio
(Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%)
Coal and mining 17 19.6 5 7.6 22 13.1 8 5.9 3 1.6 2 1.1 6 3.0 5 2.0
Iron and steel 532 42.8 258 28.2 61 8.5 32 5.4 23 4.2 19 4.0 12 2.3 11 1.9
Metal and metal products 42 11.7 23 6.8 17 5.9 12 3.2 8 2.5 7 1.9 6 1.7 5 1.5
Engineering 120 31.5 113 26.4 59 13.9 50 15.0 44 10.8 33 10.5 32 9.0 32 9.3
of which electronics 33 49.7 44 48.7 1 3.1 1 2.4 1 2.1 1 2.0 1 1.7 1 1.5
Electricity - - - - - - - - 0 0.0 0 0.0 0 0.0 0 0.0
Textiles 150 28.2 80 18.5 41 10.6 35 10.0 24 6.1 26 7.6 23 7.2 24 7.6
Cotton 113 31.9 54 19.2 22 8.9 18 8.1 14 5.5 13 6.1 12 6.0 12 6.1
Jute 1 12.8 0 9.5 0 4.7 0 4.9 0 4.0 0 7.9 0 5.3 0 4.6
Others 36 20.8 25 17.5 19 14.1 16 14.1 10 7.4 12 10.0 11 9.4 11 10.6
Sugar 7 9.2 10 12.1 6 8.0 6 9.7 4 5.4 7 9.6 7 14.7 6 16.9
Tea 2 23.0 1 19.8 1 14.2 1 10.0 1 4.9 1 4.9 0 4.6 0 3.6
Food processing 89 15.3 65 11.9 61 9.1 52 6.2 47 8.9 47 9.0 44 8.9 42 8.1
Vegetable oil and vanaspati 25 39.5 24 41.1 7 12.9 6 11.5 5 10.3 6 13.8 5 14.4 5 11.9
Tobacco/tobacco products - 4.3 0 3.0 1 43.7 0 10.8 0 9.4 0 5.5 0 3.4 0 3.4
Paper/paper products 9 18.4 6 13.4 6 12.1 6 12.6 4 7.0 3 5.4 3 5.0 3 4.9
Rubber/rubber products 6 7.3 5 6.6 9 10.7 9 12.0 8 8.5 8 8.4 8 8.5 7 6.4
Chemicals/ dyes/ paints 38 4.2 40 3.9 29 2.9 32 3.8 25 2.7 26 3.3 23 2.7 21 2.1
Fertilizer 4 2.9 10 5.9 11 5.5 10 6.0 7 3.8 7 5.0 7 4.5 6 3.5
Petrochemicals 3 0.7 4 0.6 1 0.3 1 0.3 1 0.3 4 1.1 1 0.1 1 0.2
Drugs and pharma 19 16.1 13 9.8 3 2.1 6 5.2 4 3.0 4 2.2 4 2.1 4 1.6
Others 12 6.4 13 12.2 12 7.6 8 6.4 7 7.8 7 10.2 8 10.7 8 11.8
Cement 11 11.7 11 7.0 12 7.6 8 6.4 7 7.8 7 10.2 8 10.7 8 11.8
Leather/leather products 3 10.2 3 12.7 4 11.1 4 12.4 3 9.3 3 13.8 2 10.9 2 8.2
Gems and jewelry 22 15.0 8 6.0 8 6.1 5 4.4 16 13.8 15 11.8 14 11.4 14 13.6
Construction 18 6.8 14 4.5 13 3.0 13 2.9 14 3.1 13 3.3 13 3.2 13 3.2
Petroleum 41 12.5 21 5.6 11 2.6 3 0.8 3 0.6 3 0.4 3 0.3 3 0.4
Automobile and trucks 36 27.4 36 22.6 12 6.5 9 5.6 10 5.5 10 8.5 9 7.1 9 5.2
Computer software 1 2.7 1 3.1 0 0.4 0 0.1 0 0.1 0 0.5 0 0.5 0 0.5
Infrastructure 582 20.8 477 13.2 387 10.7 320 9.8 284 7.6 287 7.4 262 6.7 219 6.3
Power 317 17.9 253 12.4 170 8.3 124 6.9 85 4.5 85 4.2 61 3.0 58 3.1
Telecom 86 39.6 76 28.9 59 16.8 59 27.0 59 17.2 59 14.3 59 12.9 22 7.6
Roads and ports 90 24.1 83 15.1 73 12.1 72 9.1 77 9.3 81 9.0 80 8.6 78 8.6
Others 89 20.1 64 8.4 86 14.4 64 13.5 63 9.6 62 12.2 62 11.8 61 14.5
Other industries 209 7.4 208 6.4 336 13.3 330 16.5 302 10.9 308 6.4 305 5.8 304 6.3
Total industry 1,961 17.7 1,410 11.6 1,104 9.6 942 9.0 835 7.2 831 6.1 788 5.5 733 5.4
Agriculture 212 11.3 234 11.6 327 15.9 325 15.2 304 14.2 298 13.9 292 13.6 297 13.8
Retail 67 1.2 67 1.0 79 1.1 70 0.8 74 0.8 85 0.9 76 0.8 79 0.9
Total 2,251 10.9 1,736 7.4 1,501 6.1 1,282 5.2 1,128 4.1 1,142 3.9 1,078 3.5 993 3.2
Source: Company
Strong loan growth: domestic loans up ~17% yoy, foreign advances up 22% yoy
 Headline growth. Overall loan growth stood at ~18% yoy (~3% qoq)—higher than system loan growth.
Domestic advances grew 17% yoy (~4% qoq), whereas the international loan book grew 22% yoy (flat
qoq).
 Growth in domestic advances was led by retail (~up 18% yoy) and corporate (up ~18% yoy), whereas
the agri and SME books grew 12-14% yoy. Retail credit growth continues to be led by the unsecured
personal loans portfolio (Xpress credit), which was up ~26% yoy and ~6% qoq, respectively. Home
loans and auto loans also registered healthy growth in the mid-to-high teens. We are not too
concerned with the quality of growth in the retail personal loans portfolio for the bank because a large
proportion (~95%) of the borrowers in this segment are salaried employees—with 85% government
employees, 5% employees of defense and quasi-government entities, and another 5% would be
employees of well-rated large corporates.
 Corporate. Growth in the corporate book stood at ~18% yoy. Management indicated that it continues
to have a large sanction pipeline currently, which should support growth in the near future.
State Bank of India

8
SBI has much higher share of retail, which has also grown fastest for it
Exhibit 10: Loan breakup, March fiscal year-ends (%)
Corporate International SME Retail Agriculture

100
13 10 10 10 9 8 10 9 9 9 8 8 8
80 21 20 19 21 22
22 25 27 28 31 34 36 36
18 15 14 14
60 16 19 14 13 13 11
11 11 11
18 18 18
16 15 15 13
40 14 16 15 14 15 16
20 35 36 39 38 38 37 36 37 35
34 32 31 30
3QFY23
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company
Healthy and consistent yoy growth in retail; growth in SME is also picking up pace
Exhibit 11: Loan growth across segments, March fiscal year-ends (% yoy)
60 Corporate International SME Retail Agriculture
47
45
30
22
20 19 19 18
41 15 15 15 16 15
13 14
15 11
23 26
20
14
21 12 27 9 24 6 1 15 26 3 15 7 4 6 10 21 13 18
0
(2) (2) (1)(7) (3)
(15)
2QFY23
3QFY23
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Note: Numbers after 4QFY17 are for the merged entity.
Source: Company
NIM (reported) improved ~20 bps sequentially to 3.5%

Reported NIM (global) for the bank improved ~20 bps qoq to 3.5%. Domestic NIM improved ~10 bps
qoq. The improvement in NIM was driven by a ~20 bps increase in yield on advances, which was partially
offset by a marginal rise in cost of deposits.
Of the bank’s loan book, ~40% is linked to MCLR and 34% is linked to EBLR. We believe that there is room
for further improvement in yields, going forward, as the full impact of external benchmark-based pricing
takes shape and the entire MCLR-linked portfolio gets repriced.
State Bank of India

9
Deposits grew 10% yoy, but flat qoq

Deposit growth stood at 10% yoy, led by 11% yoy growth in term deposits and 6% yoy growth in CASA
balances. CASA ratio for the bank declined marginally ~15 bps qoq to ~45%.
CD ratio continues to trend higher Margins are at multi-year high

Exhibit 12: CD ratio, March fiscal year-ends (%) Exhibit 13: NIM (reported), March fiscal year-ends (%)
80 4.0
76 3.5
3.6
73 3.3
72
72 71 70 3.2 3.1 3.1 3.1 3.0 3.1 3.1 3.1
3.0
70 3.0 3.0 2.9
67 67 67 67
68 66 67 2.8
65
64
64 2.4
60 2.0
4QFY20
1QFY21
4QFY21
1QFY22
4QFY22
1QFY23
3QFY20
2QFY21
3QFY21
2QFY22
3QFY22
2QFY23
3QFY23
1QFY21
2QFY21
1QFY22
2QFY22
4QFY22
1QFY23
3QFY20
4QFY20
3QFY21
4QFY21
3QFY22
2QFY23
3QFY23
Source: Company Source: Company
MCLR rates on upward trend now

Exhibit 14: SBI MCLR rates (%)
Dec-18 Mar-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Jan-23
Overnight 8.20 8.20 7.45 6.70 6.65 6.65 6.65 6.65 6.65 6.65 6.65 7.05 7.35 7.85 7.85
One month 8.20 8.20 7.45 6.70 6.65 6.65 6.65 6.65 6.65 6.65 6.65 7.05 7.35 8.00 8.00
Three month 8.25 8.25 7.50 6.75 6.65 6.65 6.65 6.65 6.65 6.65 6.65 7.05 7.35 8.00 8.00
Six month 8.40 8.40 7.70 6.95 6.95 6.95 6.95 6.95 6.95 6.95 6.95 7.35 7.65 8.30 8.30
One year 8.55 8.55 7.75 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.40 7.70 8.30 8.40
Two years 8.65 8.65 7.95 7.20 7.20 7.20 7.20 7.20 7.20 7.20 7.20 7.60 7.90 8.50 8.50
Three years 8.75 8.75 8.05 7.30 7.30 7.30 7.30 7.30 7.30 7.30 7.30 7.70 8.00 8.60 8.60
Source: Company
SBI has hiked TD rates in recent months in 1- to 2-year bucket

Exhibit 15: Term deposit rates for deposits less than Rs20 mn (%)
Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Jan-23
7-14 days 5.75 5.75 4.50 4.50 3.50 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 3.00
15-30days 5.75 5.75 4.50 4.50 3.50 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 3.00
31-45days 5.75 5.75 4.50 4.50 3.50 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 3.00
46 -90 days 6.25 6.25 5.50 5.50 4.50 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 4.50
91-120days 6.25 6.25 5.50 5.50 4.50 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 4.50
120-180 days 6.25 6.25 6.00 5.80 4.50 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 4.50
181-210 days 6.35 6.35 6.00 5.80 5.00 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.55 4.55
211 days-1year 6.40 6.40 6.70 6.25 5.00 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.60 4.60 4.60
1 year-2year 6.80 7.00 6.50 6.25 5.70 5.10 4.90 4.90 5.00 5.00 5.00 5.00 5.10 5.30 5.45 6.75
2 year-3year 6.80 6.75 6.25 6.25 5.70 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.20 5.35 5.50 6.75
3 years-5 years 6.80 6.70 6.25 6.25 5.70 5.10 5.10 5.30 5.30 5.30 5.30 5.30 5.30 5.45 5.45 5.45
5 years-8 years 6.85 6.60 6.25 6.25 5.70 5.30 5.30 5.40 5.40 5.40 5.40 5.40 5.40 5.50 5.50 5.50
8years-10 years 6.85 6.60 6.25 6.25 5.70 5.40 5.40 5.40 5.40 5.40 5.40 5.40 0.00 0.00 0.00 0.00
Source: Company
State Bank of India

10
CASA franchise remains strong, though there has been sequential decline
Exhibit 16: CASA ratio breakup across banks, March fiscal year ends (%)
Current Savings
50
40
30 34.6
31.9 34.5 34.5 37.1 38.2 38.4 38.6 38.9
33.7 32.6 33.6 36.9 37.3
20
10
11.2 11.5 9.4 9.2 8.0 7.9 7.8 7.3 6.9 6.9 7.0 7.8 6.7 5.6
-
3QFY23
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company
Other key highlights for quarter

 Cost-income ratio declined, driven by strong revenue growth. SBI saw improvement in the cost-
income ratio, driven by better revenues, despite provisions made for wage revision.
 Non-interest income up ~32% yoy. Fee income growth was sluggish at ~3% yoy, whereas treasury
income supported profits (driven by write-back of MTM provision).
Capital position. CAR stood at ~13.3%, with CET1 ratio of ~9.3% (minimum requirement of ~9.6% CET1).
Cost-to-income ratio was supported by strong revenues Share of retirement related costs increased
Exhibit 17: Operating costs and cost-income ratio, March fiscal Exhibit 18: Retirement costs and staff costs to total income,
year-ends (%) March fiscal year-ends (%)
Operating costs (LHS) Cost-income (RHS) Retirement costs to staff costs (RHS)
(Rs bn) (%) Staff costs to income (LHS)
300 70 55 50
240 62 62 44 40
59
57 55 54 54 53 33 30
180 52 52 54 54
52
50 51 52
49
50 22 20
120 46
11 10
60 38
16 23 18 24 23 18 36 40 38 24 37
- -
0 30
3QFY23E
2015
2016
2020
2021
2013
2014
2017
2018
2019
2022
3QFY2…
4QFY19
2QFY20
3QFY20
1QFY21
3QFY21
4QFY21
2QFY22
4QFY22
1QFY23
3QFY19
1QFY20
4QFY20
2QFY21
1QFY22
3QFY22
2QFY23
Note: Data from 4QFY17 refers to merged entity.

Source: Company
Source: Company
State Bank of India

11
Share of cross-sell in fee income has increased over years

Exhibit 19: Breakup of fee income, March fiscal year-ends (%)
Loan processing charges Commission on govt. business Commission on LC/BG Cross selling Others
100
37 33 36 36 36 32 36
80 45 43 39 40 41 42
50 49 46 48 49 45 46 47
53 56 58 58
60 10 15
10 10 7 11 12 14 17
5 10 9 9
10 7 8 14 8
8 8 13 7 15 16 12 13
5 14 14 15 16 12
40 22 6 7 14 11 15 13
7 12 12 13 15 14
14 8 18 11
8 8 20 12 16 11 18
17 19 17 16 17
10 19 19 13 18 16 18 11
20 14 16 15 17 12 19
20 20 24 25 21 25 19 19 21 22
15 18 13 16 13 13 17 15 18 15 16 17
12 13 12
0
3QFY17
1QFY20
1QFY21
3QFY23
1QFY18
3QFY18
1QFY19
3QFY19
3QFY20
3QFY21
1QFY22
3QFY22
1QFY23
Source: Company
Bancassurance business continues to ramp up in scale

Exhibit 20: Fee income from Bancassurance business, March fiscal year-ends (Rs mn)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
SBI Life 1,440 1,595 2,446 3,372 4,646 7,148 9,519 11,169 12,398 15,675
SBI general insurance 339 281 700 623 1,811 2,126 2,709 3,145 3,274 3,190
Others 307 472 737 896 1,309 17 39 46 28 128
Total 2,086 2,348 3,883 4,891 7,766 9,290 12,267 14,361 15,700 18,993
Source: Company
Exhibit 21: SBI forecasts and valuation, March fiscal year-ends
Net int.
income PAT EPS PER ABVPS APBR RoE
(Rs bn) (Rs bn) (Rs) (X) (Rs) (X) (%)
2016 569 100 12.8 41.2 121 4.4 7.3
2017 619 105 13.1 40.2 130 4.1 6.3
2018 749 (65) (7.3) (72.0) 126 4.2 (3.2)
2019 883 9 1.0 546.6 159 3.3 0.4
2020 981 145 16.2 32.5 176 3.0 6.4
2021 1,107 204 22.9 23.1 207 2.6 8.4
2022 1,207 317 35.5 14.9 245 2.2 11.9
2023E 1,421 490 54.9 9.6 298 1.8 16.3
2024E 1,470 523 58.6 9.0 349 1.5 15.3
2025E 1,566 544 61.0 8.7 398 1.3 14.1
Source: Company
State Bank of India

12
SBI is trading at 1.5X one-year forward adj. P/B SBI is trading at a ~30% premium to public peers
Exhibit 22: Rolling 1-year forward APBR (consolidated) (X) Exhibit 23: PBR premium to public banks (X)
3.0
2.0
2.4
1.6
1.8
1.2
1.2
0.8
0.6
0.4
0.0 0.0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2007
2009
2011
2014
2016
2018
2020
2021
2023
2008
2010
2012
2013
2015
2017
2019
2022
Source: Company Source: Company
Exhibit 24: SBI’s SOTP valuation based on FY2024E

Value per share
SBI holding Value FY2024 FY2024 (Rs)
(%) (Rs mn) (Rs) Methodology adopted
SBI 500 Residual income model
Non banking subsidiaries and investments
SBI Life 55% 613,600 69 Based on Appraisal Value; 15% HoldCo discount
SBI MF 63% 154,400 17 20X FY2024E PAT; 20% HoldCo discount
SBI Cards 69% 478,800 54 Based on RGM FV; 15% HoldCo discount
NSE 3% 35,700 4 FV based on recent transactions; 20% HoldCo discount
SBI Caps 100% 52,000 6 10X FY2024E PAT; 20% HoldCo discount
Others 88,217 10
Non-bank subsidiaries 160
Total value of the bank 660
Source: Company
Exhibit 25: SBI’s SOTP valuation based on FY2025E

Value per share
SBI holding Value FY2025 FY2025
(%) (Rs mn) (Rs) Methodology adopted
SBI 570 Residual income model
Non banking subsidiaries and investments
SBI Life 55% 707,700 79 Based on Appraisal Value; 15% HoldCo discount
SBI MF 63% 185,300 21 20X FY2025E PAT; 20% HoldCo discount
SBI Cards 69% 551,500 62 Based on RGM FV; 15% HoldCo discount
NSE 3% 42,800 5 FV based on recent transactions; 20% HoldCo discount
SBI Caps 100% 67,600 8 10X FY2025E PAT; 20% HoldCo discount
Others 120,486 13
Non-bank subsidiaries 190
Total value of the bank 760
Source: Company
State Bank of India

13
Conversion of operating profits to net profit has improved

Exhibit 26: Profitability, asset quality and capital metrics, March fiscal year-ends (Rs bn)
Operating profit Net profit Net profit/ Operating profit (%)

1,250 80
1,000 60
750 40
500 20
250 -
- (20)
2023E
2025E
2023E
2025E
2009
2015
2007
2009
2011
2003
2005
2007
2011
2013
2017
2019
2021
2003
2005
2013
2015
2017
2019
2021
Net NPL/ Operating profit (%) Net NPL/ Net worth (%)
200 100
160 80
120 60
80 40
40 20
- -
2023E
2025E
2023E
2025E
2003
2011
2019
2005
2007
2009
2013
2015
2017
2021
2003
2013
2021
2005
2007
2009
2011
2015
2017
2019
Source: Company
Loan growth at 38% yoy led by wholesale

Advances growth was strong at 38% yoy (7% qoq), led by wholesale book (up ~70% yoy, ~15% qoq).
Retail growth was lower at 32% yoy (6% qoq). Within retail, the wheels book grew 35% yoy (3% qoq), but
growth in SBL book stayed lower at 20% yoy (4% qoq).
NPL ratios declined ~60 bps qoq; non-NPL stress also declined to ~9% of loans
Reported gross NPL ratio was lower by ~60 bps qoq to ~12.9%, whereas net NPL ratio declined 60 bps
qoq to 3.6%. Overall coverage on NPL improved ~270 bps qoq to 75%.
 Non-NPL stress. We have shared a snapshot of the other stressed portfolios for the bank and
corresponding provisions in Exhibit 5. Non-NPA stressed advances constitute ~9% of advances for
the bank. There has been a qoq decrease in 31-90 DPD portfolio. SBI carries security receipts of ~Rs21
bn, with ~85% coverage.
 Restructured loans declining steadily. Restructured loan book declined ~2% qoq to stand at ~Rs67.5
bn (~3.5% of loans; down from ~3.7% as on 1QFY23). However, this is significantly higher than the
proportion of restructured advances for the large private banks. Furthermore, the bank has ~10%
provision coverage on standard restructured advances. Of the total restructured advances, ~60% is
currently out of the repayment moratorium period.
State Bank of India

14
Other highlights for quarter

NIM (reported) improved modestly ~20 bps qoq to 2.6%. This was driven by a ~40 bps qoq increase in
yield on advances, whereas cost of funds went up only ~20 bps qoq. We believe that the scope for further
re-pricing in cost of deposits is limited for the bank. SBI has been reducing the premium over its frontline
peers over the past 12 months. It still needs to ensure deposit growth, which is faster than loan growth
(96% CD ratio).
 Non-interest income increased 18% yoy. This was driven by strong performance on retail fee income
(up 32% yoy).
 Operating expenses up ~32% yoy. SBI saw its operating expenses increase ~32% yoy, with employee
expenses growing at 17% yoy and non-employee expenses growing at ~43% yoy. The bank’s employee
base also increased 2% qoq and 12% yoy, which likely pushed up expenses. It continues to improve
its physical presence, and has added 23 branches during 1HFY23.
Exhibit 27: SBI’s estimate changes, March fiscal year-ends

New estimates Old estimates % change
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Net interest income 1,421,345 1,470,368 1,566,378 1,380,316 1,485,583 1,594,784 3.0 (1.0) (1.8)
Loan growth 13.7 12.1 13.1 13.7 13.1 14.1 0 bps -101 bps -101 bps
NIM (%) 3.0 2.8 2.7 2.9 2.9 2.8 7 bps -5 bps -7 bps
Loan loss provisions 146,041 164,792 204,191 146,041 182,134 225,826 - (9.5) (9.6)
Other income 351,076 439,986 498,321 325,639 430,593 487,800 7.8 2.2 2.2
Fee income 267,748 307,910 354,096 267,748 307,910 354,096 - - -
Treasury income (30,000) 25,000 25,000 (45,000) 25,000 25,000 (33.3) - -
Operating expenses 941,404 1,024,874 1,111,186 918,315 1,004,827 1,089,695 2.5 2.0 2.0
Employee expenses 547,069 595,758 642,883 512,877 563,601 608,182 6.7 5.7 5.7
PBT 658,735 702,820 731,374 615,359 711,346 749,116 7.0 (1.2) (2.4)
Tax 168,636 179,922 187,232 157,532 182,105 191,774 7.0 (1.2) (2.4)
Net profit 490,099 522,898 544,142 457,827 529,242 557,342 7.0 (1.2) (2.4)
PBT - treasury+LLP 849,776 852,612 920,565 821,400 878,481 959,942 3.5 (2.9) (4.1)
EPS (Rs) 54.9 58.6 61.0 51.3 59.3 62.5 7.0 (1.2) (2.4)
Adj. BVPS (Rs) 319 370 419 317 368 418 0.9 0.6 0.2
RoA (%) 0.9 0.9 0.9 0.9 0.9 0.9 6 bps -2 bps -3 bps
RoE (%) 16.3 15.3 14.1 15.3 15.6 14.6 99 bps -32 bps -42 bps
Gross NPA (%) 2.9 2.3 2.0 2.7 2.1 1.8 18 bps 18 bps 18 bps
Slippage ratio (%) 0.8 1.6 1.7 1.0 1.6 1.7 -20 bps 0 bps 0 bps
Credit cost (%) 0.5 0.5 0.6 0.5 0.6 0.6 0 bps -5 bps -5 bps
Cost-income ratio (%) 53 54 54 54 52 52 -72 bps 121 bps 149 bps
Source: Company
State Bank of India

15
Exhibit 28: SBI’s key growth rates and financial ratios, March fiscal year-ends (%)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Growth rates (%)
Net loan 12.6 7.3 23.2 13.0 6.4 5.3 11.6 13.7 12.1 13.1
Total Asset 10.3 19.8 27.7 6.5 7.3 14.8 10.0 8.9 9.4 10.2
Deposits 9.8 18.1 32.4 7.6 11.3 13.6 10.1 6.7 9.1 10.1
Current 12.2 9.0 24.8 8.3 10.4 26.1 (3.5) 25.0 10.4 11.4
Savings 13.4 27.0 33.6 7.7 10.5 14.8 10.3 7.0 9.4 10.4
Fixed 7.4 14.1 32.6 7.4 12.0 11.2 11.8 4.2 8.7 9.7
Net interest income 3.4 8.8 21.0 18.0 11.0 12.9 9.0 17.8 3.4 6.5
Loan loss provisions 50.7 14.7 93.0 (18.8) (23.1) (25.9) (39.5) (22.2) 12.8 23.9
Total other income 24.7 25.9 25.8 (17.5) 23.0 (3.8) (6.7) (13.5) 25.3 13.3
Net fee income 9.4 12.9 41.3 1.3 1.8 (0.9) 4.4 9.0 15.0 15.0
Net capital gains 42.9 108.0 24.9 (76.6) 172.5 (29.7) (46.6) (193.1) (183.3) -
Net exchange gains 9.1 13.1 4.0 (13.2) 16.7 (4.2) 44.4 100.0 (10.0) 12.0
Operating expenses 8.0 11.2 29.0 16.3 7.9 9.9 13.0 0.8 8.9 8.4
Employee expenses 6.7 5.5 25.3 23.7 11.4 11.4 13.0 (5.0) 8.9 7.9
Key ratios (%)
Yield on average earning assets 8.2 7.7 7.8 7.4 7.4 6.9 6.3 6.9 7.5 7.6
Yield on average loans 8.4 7.9 8.1 7.8 8.0 7.2 6.6 7.5 8.3 8.3
Yield on average investments 9.1 8.0 7.9 7.5 6.9 6.8 6.1 6.6 6.8 6.9
Average cost of funds 5.7 5.2 5.3 4.8 4.6 4.0 3.6 4.0 4.9 5.1
Interest on deposits 6.0 5.6 5.7 5.0 4.8 4.1 3.7 3.9 4.8 5.0
Difference 2.5 2.5 2.5 2.6 2.8 2.9 2.7 2.9 2.7 2.5
Net interest income/earning assets 2.8 2.7 2.6 2.7 2.8 2.9 2.8 3.0 2.8 2.7
New provisions/average net loans 2.2 2.3 3.8 2.6 1.9 1.3 0.7 0.5 0.5 0.6
Interest income/total income 66.9 63.6 62.7 70.6 68.4 71.8 74.8 80.2 77.0 75.9
Fee income to total income 17.0 16.7 19.3 18.6 16.6 15.3 15.2 15.1 16.1 17.2
Operating expenses/total income 49.1 47.8 50.2 55.7 52.5 53.6 57.9 53.1 53.6 53.8
Tax rate 27.8 29.4 57.8 46.4 42.2 25.9 27.1 25.6 25.6 25.6
Dividend payout ratio 20.3 20.1 - - - 17.5 20.0 16.6 18.9 20.7
Share of deposits
Current 8.1 7.5 7.0 7.1 7.0 7.8 6.8 8.0 8.1 8.2
Fixed 57.4 55.4 55.5 55.4 55.8 54.6 55.5 54.2 54.0 53.8
Savings 34.5 37.1 37.5 37.5 37.2 37.6 37.7 37.8 37.9 38.0
Loans-to-deposit ratio 84.6 76.8 71.5 75.1 71.7 66.5 67.5 71.9 73.9 75.9
Equity/assets (EoY) 6.4 7.0 6.3 6.0 5.9 5.6 5.6 5.9 6.1 6.2
Asset quality trends (%)
Gross NPL (%) 6.5 6.9 10.9 7.5 6.1 5.0 4.0 2.9 2.3 2.0
Net NPL (%) 3.8 3.7 5.7 3.0 2.2 1.5 1.0 0.7 0.6 0.6
Slippages (%) 4.9 2.7 9.1 1.7 2.3 1.2 1.0 0.8 1.6 1.7
Provision coverage (%, ex write-off) 43.2 48.1 50.4 61.9 65.2 70.9 75.0 75.4 74.2 71.8
Dupont analysis (%)
Loan loss provisions 1.4 1.4 2.2 1.5 1.1 0.7 0.4 0.3 0.3 0.3
Net other income 1.3 1.4 1.4 1.0 1.2 1.0 0.9 0.7 0.8 0.8
Invt. depreciation 0.0 0.0 0.3 (0.0) 0.0 0.1 0.1 0.0 0.0 0.0
(1- tax rate) 72.2 70.6 42.2 53.6 57.8 74.1 72.9 74.4 74.4 74.4
RoA 0.5 0.4 (0.2) 0.0 0.4 0.5 0.7 0.9 0.9 0.9
Average assets/average equity 15.8 14.9 15.1 16.2 16.9 17.5 17.8 17.3 16.6 16.2
RoE 7.3 6.3 (3.2) 0.4 6.4 8.4 11.9 16.3 15.3 14.1
Source: Company
State Bank of India

16
Exhibit 29: SBI’s key financials, March fiscal year-ends (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Income statement
Total interest income 1,636,853 1,755,182 2,204,993 2,428,687 2,573,236 2,651,506 2,754,573 3,303,027 3,948,060 4,399,510
Loans 1,156,660 1,195,100 1,413,632 1,616,402 1,797,488 1,714,291 1,718,237 2,194,227 2,747,014 3,091,527
Investments 423,040 482,053 703,376 744,062 682,047 798,081 848,772 965,075 1,040,008 1,113,902
Total interest expense 1,068,035 1,136,585 1,456,456 1,545,198 1,592,388 1,544,406 1,547,497 1,881,682 2,477,692 2,833,132
Net interest income 568,818 618,597 748,537 883,489 980,848 1,107,100 1,207,076 1,421,345 1,470,368 1,566,378
Loan loss provisions 302,907 347,463 670,766 544,545 418,986 310,341 187,639 146,041 164,792 204,191
Net interest income (after prov.) 265,911 271,134 77,771 338,944 561,863 796,759 1,019,437 1,275,304 1,305,576 1,362,187
Other income 281,584 354,609 446,007 367,749 452,215 434,964 405,639 351,076 439,986 498,321
Net fee income 144,160 162,766 229,968 233,039 237,251 235,175 245,640 267,748 307,910 354,096
Net capital gains 51,688 107,496 134,233 31,469 85,757 60,309 32,230 (30,000) 25,000 25,000
Net exchange gains 21,123 23,884 24,846 21,558 25,164 24,096 34,790 69,580 62,622 70,137
Operating expenses 417,824 464,728 599,434 696,877 751,737 826,522 933,975 941,404 1,024,874 1,111,186
Employee expenses 251,138 264,893 331,787 410,547 457,150 509,360 575,620 547,069 595,758 642,883
Depreciation on investments 1,496 2,984 80,876 (7,621) 5,386 30,145 34,401 15,000 10,000 10,000
Other Provisions (9,565) 9,480 (1,250) 1,361 6,327 99,644 22,481 11,241 7,868 7,947
Pretax income 137,741 148,552 (155,282) 16,075 250,628 275,411 434,219 658,735 702,820 731,374
Tax provisions 38,234 43,711 (89,808) 7,453 105,747 71,307 117,459 168,636 179,922 187,232
Net Profit 99,507 104,841 (65,475) 8,622 144,881 204,105 316,760 490,099 522,898 544,142
% growth (24.0) 5.4 (162.5) (113.2) 1,580.3 40.9 55.2 54.7 6.7 4.1
PBT - Treasury + Provisions 380,890 400,983 460,876 522,892 595,570 655,232 646,510 861,017 860,480 928,512
% growth 7.9 5.3 14.9 13.5 13.9 10.0 (1.3) 33.2 (0.1) 7.9
Balance sheet
Cash and bank balance 1,674,677 1,719,716 1,918,986 2,224,901 2,510,970 3,430,387 3,945,523 4,146,954 4,427,872 4,767,749
Cash 150,809 120,303 154,724 187,779 201,046 234,034 217,429 260,915 313,098 375,718
Balance with RBI 1,145,484 1,159,673 1,349,248 1,581,545 1,466,312 1,897,981 2,361,163 2,519,108 2,747,843 3,025,100
Balance with banks 31,239 69,339 16,630 46,959 226 4 - - - -
Net value of investments 4,770,973 7,659,896 10,609,867 9,670,219 10,469,545 13,517,052 14,814,455 15,110,348 15,934,664 16,827,156
Govt. and other securities 3,603,989 5,752,387 8,483,958 7,618,831 8,032,701 10,552,886 11,621,826 11,917,720 12,742,036 13,634,528
Shares 43,279 54,457 105,167 98,787 82,214 79,814 124,244 124,244 124,244 124,244
Debentures and bonds 411,268 598,474 779,629 849,484 1,023,638 2,088,886 2,158,044 2,158,044 2,158,044 2,158,044
Net loans and advances 14,637,004 15,710,784 19,348,802 21,858,769 23,252,896 24,494,978 27,339,666 31,076,714 34,840,104 39,411,125
Fixed assets 103,893 429,189 399,923 391,976 384,393 384,192 377,082 349,363 343,513 336,691
Other assets 1,404,084 1,540,077 2,269,942 2,663,277 2,896,136 3,517,687 3,399,249 3,637,196 3,891,800 4,164,226
Total assets 22,590,630 27,059,663 34,547,520 36,809,142 39,513,939 45,344,296 49,875,974 54,320,575 59,437,953 65,506,947
Deposits 17,307,224 20,447,514 27,063,433 29,113,860 32,416,207 36,812,771 40,515,341 43,225,528 47,150,406 51,907,882
Current 1,398,070 1,524,211 1,901,739 2,058,752 2,273,356 2,866,974 2,767,238 3,458,042 3,819,183 4,256,446
Fixed 9,931,693 11,333,689 15,023,949 16,137,588 18,079,132 20,099,958 22,479,535 23,428,236 25,461,219 27,926,441
Savings 5,977,461 7,589,614 10,137,745 10,917,520 12,063,720 13,845,839 15,268,568 16,339,250 17,870,004 19,724,995
Borrowings and bills payable 2,426,290 3,443,605 3,887,598 4,268,928 3,414,786 4,349,831 4,594,744 5,625,522 6,055,223 6,545,240
Other liabilities 1,414,371 1,285,683 1,405,203 1,217,216 1,362,872 1,642,943 1,965,008 2,259,759 2,598,723 2,988,531
Total liabilities 21,147,886 25,176,802 32,356,234 34,600,004 37,193,865 42,805,544 47,075,093 51,110,809 55,804,353 61,441,654
Total shareholders' equity 1,442,744 1,882,861 2,191,286 2,209,138 2,320,074 2,538,752 2,800,881 3,209,766 3,633,600 4,065,293
Source: Company
State Bank of India

RESULT
ITC (ITC) ADD

Consumer Staples
Five in a row Company data and valuation summary

ITC reported the fifth consecutive quarter of qoq improvement in cigarette
Stock data
volumes and well-rounded print across businesses — (1) cigarette revenues
CMP(Rs)/FV(Rs)/Rating 381/430/ADD
grew 16.7% yoy led by ~15% volume growth (3-year volume CAGR of 6.3%) and
EBIT grew 16.9% yoy (3-year CAGR of 7.1%), (2) FMCG segment reported 18.4%
Mcap (bn) (Rs/US$) 4,725/58
yoy growth and best-ever EBIT margin (7.2%) amid inflationary pressure, (3)
ADTV-3M (mn) (Rs/US$) 4,221/52
hotels and paperboards reported robust quarters. Given modest tax increase,
ITC has headroom to increase prices over and above that needed to offset tax Shareholding pattern (%)
increase. We upgrade FY2024-25E EPS estimates by 3-4%, roll over and revise
0.0 13.5
FV to Rs430 (Rs400 earlier). Reiterate ADD.
9.6
40.5
3QFY23 — another well-rounded quarter
23.6
Revenues grew 17.8% yoy (ex-agri) and EBITDA grew 22% yoy (10.5% 3-year CAGR)
12.8
and PAT grew 21% yoy (8.8% 3-year CAGR). Cigarette net revenues/EBIT grew
Promoters FPIs MFs BFIs Retail Others
16.8%/16.9% yoy (3-year EBIT CAGR at 7.1%), 3-4% ahead of expectations. We
estimate 15% yoy volume growth (3-year CAGR of 6.3%). FMCG revenues grew Price performance (%)
18.4% yoy and EBIT margin at 7.2% (KIE: 6.8%) was at all-time high, impressive in Nifty ITC
Private Circulation Only. This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of 1933
200
context of RM inflation. The management has called out robust growth in staples,
160
biscuits, noodles, snacks, dairy, beverages and soaps. Agri revenues declined 37%
yoy due to export restrictions on wheat and rice; EBIT grew 32.6% yoy led by leaf 120
tobacco exports and value-added agri-products. Hotels segment revenues grew 80
50.5% yoy to Rs7.1 bn and it registered EBIT of Rs1.5 bn (KIE: Rs1.2 bn). 40
Paperboards revenues/EBIT grew 12.7%/35.2% yoy aided by strong demand 0

Mar-22
Jun-22
Oct-22
Jan-22
Feb-22
Jul-22
Aug-22
Sep-22
Nov-22
Dec-22
Jan-23
Apr-22
May-22
across end-user segments and exports; EBIT margin at 26.3% was up 438 bps yoy.
Interim dividend stood at Rs6/share

Stage set for DD revenue/EBIT growth in cigarette business in FY2024E
EPS (Rs) 14.9 16.5 18.2
ITC’s 3-year cigarette volume CAGR accelerated to 6.3% in 3Q from 5.2%/2.4% in EPS growth (%) 21.7 11.2 10.2
2Q/1Q. Improving volume trend despite discretionary slowdown is attributable to P/E (X) 25.6 23.0 20.9
(1) stable taxes/pricing, and (2) clamp down on illicit trade by enforcement P/B (X) 7.4 7.4 7.0
agencies. We note that ITC has started calling out share gains from illicit trade EV/EBITDA (X) 18.7 16.8 15.2
RoE (%) 28.3 31.2 33.5
from 2Q and attributed the same to #1 and #2. In FY2024 budget, the GoI increased
Div. yield (%) 3.4 3.7 4.1
NCCD on cigarettes by 16%, implying a 2-2.5% increase in overall tax incidence on
Sales (Rs bn) 664 746 819
cigarettes. Such modest tax increase allows ITC to increase prices (after 3 years) EBITDA (Rs bn) 237 265 291
in excess of tax increase and play portfolio strategy to drive share gains. We model Net profits (Rs bn) 185 205 226
7%/11%/13% volume/revenue/EBIT growth in cigarette segment in FY2024E Source: Bloomberg, Company data, Kotak Institutional Equities estimates
assuming price increase of 4-5%. DD EBIT growth can sustain beyond FY2024E Prices in this report are based on the market close of
(not our base case, yet) so long as #1 and #2 hold. Illicit trade accounts for 1/4th February 03, 2023
of India’s cigarette consumption offers significant share gain opportunity even

after assuming that 50% of illegal cigarettes are sold at Rs10+/stick (relevant price
point/TG for ITC).
Related Research
We raise FY2024-25E EPS by 2-4% and revise FV to Rs430 (Rs400) → ITC: A good outcome
We raise FY2024-25E EPS estimate by 2-4%, roll over and revise SoTP-based FV → ITC: Strong show, quarter after quarter
to Rs430 (from Rs400). We ascribe 18X FY2025E PE (16X earlier) to cigarette → ITC: Good show across segments
segment.
Jaykumar Doshi Umang Mehta Praneeth Reddy

18
Highlights from the press release
 Cigarette business. The segment registered 16.8% yoy (3-yr CAGR 7%) net revenue growth (15%
yoy volume growth per our estimate, implying +6.3% 3-yr CAGR) led by stability in taxes and
enforcement agencies’ measures against illicit trade. ITC reinforced its market standing through
innovation, democratizing premiumization and increased product availability. Segment EBIT grew
16.9% yoy, implying 3-yr CAGR of +7.1%. ITC continued to launch differentiated variants to fortify
its portfolio. Recent interventions include Classic Verve Balanced Taste, Gold Flake XPOD, Players
Klov, Lucky Strike, Wave Boss, American Club Smash, Gold Flake Smart Mintz, etc.
 FMCG business. The FMCG business revenues grew 18.4% yoy (3-yr CAGR 13.5%) led by – (1)
robust growth in staples, biscuits, noodles, snacks, dairy, beverages and frozen foods, (2) strong
performance by agarbattis driven by range of offerings and enhanced visibility and availability, (3)
strong growth in range of personal wash products (Fiama and Vivel), and (4) strong growth across
stationery sales; exports growing as ITC leverages its state-of-the-art manufacturing facility. (5)
Hygiene segment witnessing demand moderation, but remained significantly ahead of pre-
pandemic levels. (6) Brand call-outs within the packaged foods business included Aashirvaad
Atta (strong growth reinforcing the leadership position), Bingo! snacks (robust performance),
YiPPee Noodles (buoyancy on the back of increased penetration and reach, combined with
promotional campaigns), Sunfeast biscuits and cakes (led by Dark Fantasy and Mom’s Magic
cookies), and Sunfeast portfolio of milkshakes (multiple variants launched). (7) ITC spearheaded
‘ITC Mission Millets’, given the GOI’s initiative of promoting millets, and (8) scaling up D2C
interventions (Aashirvaad ‘Meri Chakki Atta’, Dermafique, itcstore.in and Classmateshop.com)
Growth was seen across channels and markets (rural and urban). Driving growth in rural and Tier -
2 cities with digital technology. MT sales accelerated with higher store footfalls and joint business
planning with key accounts. E-commerce witnessing rapid growth. Availability in quick and social
commerce platforms is scaling up, and a number of strategic partnerships are being leveraged to
enhance product accessibility and availability. Unnati (eB2B) reached ~500K outlet penetration.
FMCG EBIT margin stood at 7.2% (KIE: 6.8%) in Dec-22 quarter, up 62 bps/127 bps qoq/yoy
despite select commodities remained at elevated prices. Management attributed this to several
interventions such as strategic cost management, premiumization, supply chain agility, judicious
pricing actions, leveraging digital, optimizing channel assortments, and fiscal incentives.
Segment EBITDA margin at 10% (50 bps/90 bps qoq/yoy) is ~2X of 3QFY20 level.
 Hotels. ITC’s hotels witnessed another stellar quarter with overall revenues up 50.5% yoy (3-yr
CAGR +8.9%) and EBITDA margin at 31.5% (versus 24.7% in 3QFY22). Segment EBIT margin stood
at 20.5% in 3QFY23 (versus 18.7% in 3QFY20). Margin expansion was on account of higher
RevPAR, operating leverage, and structural cost interventions. Both ARR and occupancy were
ahead of pre-pandemic levels driven by retail (packages), leisure, weddings, and MICE segments
with domestic business normalized and inbound foreign travel witnessing pick up. ITC Narmada
(a luxury 291-key hotel in Ahmedabad) was launched in Aug-22. During 3Q, ITC launched
Welcomhotel Jim Corbett. In line with its asset-right strategy, ITC has so far launched eight
properties in FY2023 through management contracts (under Welcomhotel, Mementos, Storii and
Fortune) and more properties are expected to be launched in next few quarters.
 Paperboard, paper and packaging’s revenues grew 12.7% yoy (+14% on 3-yr CAGR basis) led by
healthy demand across domestic and exports across - (1) Value-added paperboard (VAP) sales
grew strong, aided by higher realization, (2) Fine paper performing well, driven by pickup in
publications and notebooks, (3) scale up of the recently commissioned Nadiad unit in Gujarat.
Capacity expansion in VAP, pulp import substitution, cost-competitive fibre chain, operational
efficiency leveraging data analytics and Industry 4.0 enabled scaling up the business and margin
expansion despite escalation in key input prices. Segment EBIT margin during the quarter slightly
tapered off to 26.2% from decadal high (27.5%) in 2QFY23. By quarter end, global pulp prices have
seen some moderation, while other input costs remained elevated.
ITC
Consumer Staples India Research
19
Sustainable paperboards/packaging solutions were scaled up by 1.7X from last year level. ITC is
playing an active role in promoting substitutes for single-use plastics – (1) recyclable
paperboards ‘FiloPack’ and ‘FiloServe’ and biodegradable paperboards ‘OmegaBev’ and
‘OmegaBarr’, alternatives to plastic coated cups/containers, witnessed robust growth, (2)
‘Bioseal’, ‘Oxyblock’ and Germ-free coating are packaging solutions for QSR, personal care, and
packaged foods, and (3) proposed to set up a new wholly owned subsidiary with state-of-the-art
manufacturing facility to foray into the fast-growing premium Moulded Fibre Products (MFP)
space.
 Agri-business. The division recorded 37.1% yoy decline in revenue (3-yr CAGR of +14.2%),
impacted by the restrictions imposed on wheat and rice exports by the government. Despite the
sales decline, 32.6% yoy (+22.4% 3-yr CAGR) EBIT growth was driven by leaf tobacco exports and
value-added agri-products. ITCMAARS, a crop-agnostic full stack platform, is launched in seven
states, is scaled up to 850+ FPOs (added 390+ qoq) in 9 states encompassing more than 270K+
farmers (+90K qoq). The platform provides farmers with personalized crop advisories, access to
inputs, market linkages, pre-approved loans in addition to advanced technologies such as real-
time soil testing, quality assaying and precision farming. Value-added spices facility was
commissioned during the quarter in Guntur. A state-of-the-art facility to manufacture and export
Nicotine & Nicotine derivative products is being set up by ITC’s fully owned subsidiary, ITC
IndiVision Limited.
 ITC Infotech reported 6.2% qoq growth in revenues to Rs8.7 bn and 20.2% qoq growth in EBITDA
to Rs1.7 bn (EBITDA margin of 19%, up ~260 bps qoq). 3QFY23 EBITDA includes the impact of
certain costs associated with strategic partner agreement with PTC Inc., and on par with the
upper-end of mid-tier IT companies.
ITC
20
Exhibit 1: Interim standalone results of ITC, March fiscal year-ends (Rs mn)
(% chg.) 3-year
3QFY23 3QFY23E 3QFY22 2QFY23 KIE est yoy qoq 9MFY23 9MFY22 (% chg.) 3QFY20 CAGR
Net operating income 162,257 165,471 158,623 161,299 (1.9) 2.3 0.6 496,453 408,104 21.6 118,056 11.2
Total expenditure (100,025) (106,996) (107,602) (102,656) (6.5) (7.0) (2.6) (319,102) (271,011) 17.7 (71,930)
Material cost (66,712) (73,093) (77,204) (69,380) (8.7) (13.6) (3.8) (220,860) (189,526) 16.5 (45,465) 13.6
Employee cost (8,770) (9,565) (7,652) (9,364) (8.3) 14.6 (6.3) (26,755) (22,525) 18.8 (6,691) 9.4
Other expenditure (24,543) (24,339) (22,747) (23,912) 0.8 7.9 2.6 (71,487) (58,960) 21.2 (19,774) 7.5
EBITDA 62,232 58,475 51,021 58,643 6.4 22.0 6.1 177,351 137,093 29.4 46,127 10.5
OPM (%) 38.4 35.3 32.2 36.4 301 bps 618 bps 199 bps 35.7 33.6 213 bps 39.1
Other income 8,717 7,500 8,099 5,069 16.2 7.6 72.0 16,913 19,159 (11.7) 9,836
Interest (102) (120) (107) (107) (15.2) (4.8) (4.6) (300) (315) (4.7) (124)
Depreciation (4,072) (4,325) (4,093) (4,220) (5.8) (0.5) (3.5) (12,408) (12,062) 2.9 (4,162)
Pretax profits 66,775 61,530 54,920 59,385 8.5 21.6 12.4 181,556 143,875 26.2 51,676 8.9
Tax (16,465) (15,383) (13,358) (14,725) 7.0 23.3 11.8 (44,892) (35,206) 27.5 (12,666)
Recurring PAT 50,310 46,148 41,562 44,661 9.0 21.0 12.6 136,665 108,669 25.8 39,010 8.8
Extraordinary items 0 0 0 0 0 0 2,409
Net profit (reported) 50,310 46,148 41,562 44,661 9.0 21.0 12.6 136,665 108,669 25.8 41,419 6.7
Recurring EPS 4.1 3.7 3.4 3.6 8.9 20.1 12.5 11.0 8.8 25.1 3.2 8.6
Income tax rate (%) 24.7 25.0 24.3 24.8 -35 bps 33 bps -14 bps 24.7 24.5 25 bps 24.5
Costs as a % of sales
Material cost 41.1 44.2 48.7 43.0 -306 bps -756 bps -190 bps 44.5 46.4 -196 bps 38.5
Employee cost 5.4 5.8 4.8 5.8 -38 bps 58 bps -41 bps 5.4 5.5 -14 bps 5.7
Other expenditure 15.1 14.7 14.3 14.8 41 bps 78 bps 30 bps 14.4 14.4 -5 bps 16.7
Segment results
Gross revenues
Cigarettes 72,882 70,090 62,441 69,538 4.0 16.7 4.8 208,510 170,080 22.6 53,110 11.1
Other FMCG 48,414 49,087 40,906 48,848 (1.4) 18.4 (0.9) 141,776 118,525 19.6 33,123 13.5
Hotels 7,124 6,627 4,734 5,360 7.5 50.5 32.9 18,033 8,954 101.4 5,523 8.9
Agri business 31,238 39,699 49,624 39,970 (21.3) (37.1) (21.8) 145,937 118,297 23.4 20,947 14.2
Paperboards, paper, and packaging 23,055 24,558 20,465 22,876 (6.1) 12.7 0.8 68,603 54,589 25.7 15,554 14.0
Total segment revenue 182,713 190,061 178,169 186,591 (3.9) 2.6 (2.1) 582,860 470,445 23.9 128,257 12.5
Less: Intersegmental (11,492) (16,155) (11,831) (16,879) (28.9) (2.9) (31.9) (60,291) (41,700) 44.6 (9,135)
Total gross revenues 171,222 173,906 166,339 169,712 (1.5) 2.9 0.9 522,569 428,745 21.9 119,122 12.9
Segment EBIT
Cigarettes 46,197 44,753 39,507 44,293 3.2 16.9 4.3 132,380 107,548 23.1 37,560 7.1
Other FMCG 3,481 3,313 2,419 3,206 5.1 43.9 8.6 8,726 6,872 27.0 1,076 47.9
Hotels 1,462 1,176 506 840 24.2 189.1 74.0 3,423 (1,489) NM 873 18.7
Agri business 3,915 2,779 2,953 3,452 40.9 32.6 13.4 10,207 7,872 29.7 2,134 22.4
Paperboards, paper, and packaging 6,063 6,139 4,485 6,298 (1.2) 35.2 (3.7) 18,491 12,503 47.9 3,340 22.0
Total segment EBIT 61,117 58,161 49,869 58,088 5.1 22.6 5.2 173,225 133,307 29.9 44,983 10.8
Segment EBIT margins, %
Cigarettes 63.4 63.9 63.3 63.7 -47 bps 11 bps -32 bps 63.5 63.2 25 bps 70.7
Other FMCG 7.2 6.8 5.9 6.6 44 bps 127 bps 62 bps 6.2 5.8 35 bps 3.2
Hotels 20.5 17.8 10.7 15.7 276 bps 983 bps 484 bps 19.0 (16.6) NM 15.8
Agri business 12.5 7.0 6.0 8.6 553 bps 658 bps 389 bps 7.0 6.7 33 bps 10.2
Paperboards, paper, and packaging 26.3 25.0 21.9 27.5 129 bps 438 bps -124 bps 27.0 22.9 404 bps 21.5
Source: Company, Kotak Institutional Equities
Exhibit 2: ITC – key changes, March fiscal year-ends, 2023-25E (Rs mn)
Revised Earlier Change (% )
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Consolidat ed
Gross revenues 702,931 791,126 869,022 715,658 787,442 862,394 (1.8) 0.5 0.8
EBIT 220,491 246,370 270,791 218,854 239,370 259,400 0.7 2.9 4.4
EBIT margin (%) 31.4 31.1 31.2 30.6 30.4 30.1
PAT 184,606 205,256 226,142 183,379 200,019 217,576 0.7 2.6 3.9
EPS (Rs/share) 14.9 16.5 18.2 14.9 16.2 17.6 0.1 2.1 3.6
Key segment s
Cigarette volume growth (%) 18.0 6.5 4.5 13.9 4.0 3.0
Cigarette revenue growth (%) 21.1 11.0 7.8 18.9 7.7 6.3
Cigarette EBIT growth (%) 21.0 12.5 8.6 21.4 8.0 6.7
FMCG revenue growth (%) 20.2 12.1 10.9 20.4 11.3 10.9
FMCG EBIT growth (%) 32.0 37.7 24.4 30.5 42.4 17.8
FMCG - EBIT margin (%) 6.3 7.8 8.7 6.3 8.0 8.5
Source: Company, Kotak Institutional Equities estimates
ITC
21
Exhibit 3: ITC Sum-of-the-Parts (SoTP) valuation model, March fiscal year-ends (Rs mn)
Segment M et ric M ult iple (x) Per share Value (Rs) % of Tot al Value Comment
Cigarettes P/E 18.0 241 56 70% discount to FMCG sector (ex-ITC)
FMCG (Others) EV/Sales 5.4 104 24 30% discount to FMCG peers
Hotels EV/EBITDA 18.0 11 3 In-line with peers
Paperboards EV/EBITDA 12.0 30 7 In-line with peers
Agri-Business EV/Sales 0.8 15 3 At commodity valuations
ITC Infotech P/E 15.0 7 2 About 20-25% discount to IT sector trailing PE
Less: Net Debt (22) 5 At 1X book value
Tot al Equit y Value 430
Implied consol P/E (X) 24
Cigarette volume grew 15% yoy as per our estimate (+6.3% 3-year CAGR)
Exhibit 4: Cigarette segment volume growth, March fiscal year-ends, 1QFY14-3QFY23 (% yoy)
40
30 34
20 25
21
10 14 15
(1) - 2 1 10
(2)(4)(3)(3)(3)(4) - 3 4 7 8 7
10 9
-
(4) (7)(5) 3 3 2 (8)
(4) (11) (12)
(10) (13)
(14) (17)
(17)
(20)
(30) (36)
(40)
2QFY14
4QFY14
2QFY15
3QFY16
1QFY17
3QFY17
4QFY18
2QFY19
1QFY21
3QFY21
4QFY22
2QFY23
1QFY14
3QFY14
1QFY15
3QFY15
4QFY15
1QFY16
2QFY16
4QFY16
2QFY17
4QFY17
1QFY18
2QFY18
3QFY18
1QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
2QFY21
4QFY21
1QFY22
2QFY22
3QFY22
1QFY23
3QFY23
Cigarette EBIT grew 16.9% yoy (+7.1% on 3-yr CAGR basis)

Exhibit 5: Cigarette segment EBIT growth, March fiscal year-ends, 3QFY16-3QFY23 (% yoy)
50
36.7
40
30.1
30 23.6
14.412.2 16.9
20 11.5
8.0 8.4 8.0 9.0 7.8 7.6 8.7 8.7 8.810.08.2 7.4 5.6 7.7 10.4
10 3.4 1.7 2.3
-
(10)
(8.1)
(20) (11.7)
(15.6)
(30)
(40)
(38.8)
(50)
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
ITC
22
FMCG business grew 18% yoy FMCG EBIT margin jumped despite inflationary pressures
Exhibit 6: Other FMCG net revenue growth, yoy (%) Exhibit 7: Other FMCG EBIT (Rs mn)
25 4,000
3,500 3,481
20
21 3,000
19 3,206
18 2,719
15 2,500 2,419
15 16 2,527 2,360
2,000 2,074
10 12
13 12 1,886 2,039
11 1,500
10 10 1,734
9 10 9 1,470
5 7 7 8 1,000 1,305
6 6 1,254
5 6 1,076
3 4 3 500 767 780905
0 (3) 0
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
3QFY23
4QFY20
1QFY21
2QFY21
4QFY22
1QFY23
2QFY23
(5)
3QFY17
1QFY18
3QFY18
1QFY19
2QFY19
4QFY19
2QFY20
3QFY20
1QFY21
3QFY21
1QFY22
2QFY22
4QFY22
2QFY23
3QFY23
4QFY17
2QFY18
4QFY18
3QFY19
1QFY20
4QFY20
2QFY21
4QFY21
3QFY22
1QFY23
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities
Exhibit 8: ITC- addressing emerging consumer need spaces with agility
ITC
23
Exhibit 9: ITC- making portfolio future-ready by augmenting ‘Good For You’ range
Exhibit 10: ITC- expanding reach in emerging channels
ITC
24
Exhibit 11: ITC: key assumptions March fiscal year-ends, 2016-25E (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Revenues
Cigarettes (net revenues) 172,411 179,795 181,924 199,069 201,439 181,320 200,748 243,083 269,744 290,895
Other FMCG 97,312 105,118 113,286 125,053 128,442 147,282 159,945 192,218 215,478 238,960
Hotels 12,862 13,417 14,175 16,655 18,373 6,275 12,850 23,773 24,486 26,567
Agri business 74,569 82,646 80,677 93,965 102,407 125,822 161,961 186,255 219,781 245,140
Paperboards, paper, and packaging 53,277 53,629 52,496 58,602 61,072 56,186 76,416 92,800 98,480 108,420
Revenue grow th (%)
Cigarettes (net revenues) 4.3 1.2 9.4 1.2 (10.0) 10.7 21.1 11.0 7.8
Other FMCG 8.0 7.8 10.4 2.7 14.7 8.6 20.2 12.1 10.9
Hotels 4.3 5.6 17.5 10.3 (65.8) 104.8 85.0 3.0 8.5
Agri business 10.8 (2.4) 16.5 9.0 22.9 28.7 15.0 18.0 11.5
Paperboards, paper, and packaging 0.7 (2.1) 11.6 4.2 (8.0) 36.0 21.4 6.1 10.1
PBIT (Rs mn)
Cigarettes 117,524 125,139 133,408 145,511 148,526 127,204 148,691 179,882 202,308 219,626
Other FMCG 1,018 281 1,641 3,157 4,231 8,327 9,232 12,190 16,785 20,881
Hotels 557 1,110 1,398 1,777 1,578 (5,349) (1,831) 4,398 4,040 4,450
Agri business 9,330 9,058 8,486 7,766 7,889 8,207 10,312 13,503 14,835 16,792
Paperboards, paper, and packaging 9,076 9,658 10,422 12,392 13,053 10,987 17,000 24,592 24,128 26,021
PBIT Margin (%)
Cigarettes (net level) 68.2 69.6 73.3 73.1 73.7 70.2 74.1 74.0 75.0 75.5
Other FMCG 1.0 0.3 1.4 2.5 3.3 5.7 5.8 6.3 7.8 8.7
Hotels 4.3 8.3 9.9 10.7 8.6 (85.2) (14.2) 18.5 16.5 16.8
Agri business 12.5 11.0 10.5 8.3 7.7 6.5 6.4 7.3 6.8 6.9
Paperboards, paper, and packaging 17.0 18.0 19.9 21.1 21.4 19.6 22.2 26.5 24.5 24.0
PBIT grow th (%)
Cigarettes 5.0 6.5 6.6 9.1 2.1 (14.4) 16.9 21.0 12.5 8.6
Other FMCG 198.6 (72.4) 483.6 92.4 34.0 96.8 10.9 32.0 37.7 24.4
Hotels 13.5 99.2 26.0 27.1 (11.2) (439.1) (65.8) (340.2) (8.1) 10.1
Agri business 3.2 (2.9) (6.3) (8.5) 1.6 4.0 25.6 31.0 9.9 13.2
Paperboards, paper, and packaging (1.5) 6.4 7.9 18.9 5.3 (15.8) 54.7 44.7 (1.9) 7.8
Exhibit 12: ITC: Standalone profit model, balance sheet, cash flow model, March fiscal year-ends, 2016-25E (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Prof it model (Rs mn)
Net revenues 362,206 396,419 402,547 444,327 451,361 451,118 556,968 659,074 741,420 814,351
EBITDA 137,146 145,780 155,410 173,055 179,043 155,225 189,337 237,369 265,004 291,083
Other income 17,693 18,480 21,298 24,141 30,137 32,510 25,900 26,068 28,451 30,342
Interest (491) (230) (867) (342) (557) (475) (420) (417) (415) (413)
Depreciation (10,007) (10,380) (11,454) (13,117) (15,633) (15,618) (16,522) (16,878) (18,634) (20,291)
Pretax prof its 144,341 153,650 164,388 183,737 192,989 171,642 198,295 246,142 274,406 300,721
Tax (51,057) (52,552) (54,922) (59,559) (50,838) (41,325) (47,717) (61,535) (69,150) (74,579)
Recurring Net income 93,284 101,099 109,466 124,178 142,151 130,316 150,578 184,606 205,256 226,142
FD Earnings per share (Rs) 7.7 8.3 8.9 10.1 11.6 10.6 12.2 14.9 16.5 18.2
Balance sheet (Rs mn)
Total equity 416,564 453,410 514,001 579,498 640,292 590,046 613,996 639,841 642,602 674,262
Total borrow ings 294 180 111 79 56 53 45 45 45 45
Def errex tax liabilities 18,674 18,717 19,179 20,441 16,177 17,277 16,671 16,671 16,671 16,671
Total liabilities and equity 435,533 472,307 533,291 600,018 656,524 607,376 630,713 656,557 659,319 690,979
Net f ixed assets (Incl CWIP) 164,301 184,173 205,916 218,878 222,322 238,407 240,326 241,928 243,054 244,127
Cash 56,392 27,473 25,949 37,687 68,433 40,015 38,779 55,988 53,015 80,260
Investments 133,245 185,853 244,131 280,960 310,160 273,607 276,465 276,465 276,465 276,465
Net current assets 81,594 74,808 57,296 62,494 55,610 55,347 75,143 82,177 86,785 90,127
Total assets 435,533 472,307 533,291 600,018 656,524 607,376 630,713 656,557 659,319 690,979
Free cash f low (Rs mn)
Operating cash f low (excl w orking capital) 94,637 99,389 107,307 122,308 133,882 118,888 146,237 185,600 207,574 229,396
Working capital (2,518) 631 19,202 (4,818) 4,180 (3,948) 1,841 (7,034) (4,608) (3,342)
Capital expenditure (21,377) (28,971) (25,478) (27,595) (21,136) (15,794) (16,748) (18,480) (19,760) (21,364)
Free cash f low 70,743 71,049 101,030 89,896 116,926 99,145 131,330 160,086 183,206 204,690
Key ratios (%)
Sales grow th NM 9.6 1.3 10.8 1.4 (0.3) 23.9 17.8 12.5 9.8
Gross margin (%) 63.9 60.8 61.7 62.3 62.9 56.5 54.1 56.2 56.4 56.5
A&P (% of sales) 2.4 2.0 2.2 2.2 2.2 2.4 1.8 2.0 2.0 2.0
Employee cost (% of sales) 6.4 6.2 6.2 6.1 5.9 6.3 5.5 5.5 5.4 5.4
EBITDA margin (%) 37.9 36.8 38.6 38.9 39.7 34.4 34.0 36.0 35.7 35.7
EPS grow th NM 7.6 7.8 13.0 14.7 (8.4) 15.5 21.7 11.2 10.2
RoE (%) 25.8 23.2 22.6 22.7 23.3 21.2 25.0 29.4 32.0 34.3
RoCE (%) 33.4 29.7 28.5 28.1 25.9 21.9 27.6 33.9 37.1 39.7
ITC
RESULT
Bank of Baroda (BOB) ADD

Banks
Basking in glory Company data and valuation summary

BoB reported a solid quarter, with earnings growth of 75% yoy, led by 50% yoy
Stock data
operating profit growth. Asset quality showed further improvement, with
gross NPL declining 80bps qoq and net NPL declining 20 bps qoq. BoB is
well-placed among the large public banks. Loan growth was strong at 20%
Mcap (bn) (Rs/US$) 846/10
yoy. Valuations are attractive to maintain our positive view, though we
ADTV-3M (mn) (Rs/US$) 5,584/68
acknowledge that the near-term concern remains the potential impact of the
large conglomerate exposure that the banking system, including BoB, is Shareholding pattern (%)
exposed to. We believe that the bank has the ability to absorb any adverse
outcome from this exposure. Maintain ADD. 7.02.5
6.0
A solid earnings print led by healthy operating profit growth 11.5
BoB reported solid earnings growth of 75% yoy on the back of ~50% yoy 8.9 64.0
operating profit growth. Revenue growth of 30% yoy was driven by ~25% yoy NII
growth, which was aided by ~20% yoy loan growth. Asset-quality metrics
showed improvement with gross NPL declining ~80bps qoq, net NPLs declining Promoters FPI s MFs BFI s Retail Others
20bps qoq and slippages low at 1.3%. RoA was ~1.1% and RoE was 16%.
Price performance (%)
Nifty BOB
Going through a phase of information reconciliation 200
It is hard to ignore the strength of the headline print from the bank. RoEs are 160
now closer to comfortable levels of 15%, aided by declining credit costs. The
120
bank has shifted its focus to growth, which implies that the near-term trajectory
80
of operating profit growth should largely track loan growth, adjusted for cyclical
variations caused by the difference in pricing between loans and deposits. The 40
bank is well-capitalized and is investing in improving the quality of loan 0

Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
origination. The book is a lot more diversified and granular than before, which
we believe will help in building a strong return profile.

However, the key overhang dominating public banks, including BoB, is the EPS (Rs) 25.9 28.2 31.4
potential impact that is coming from the exposure it has to a specific large EPS growth (%) 84.3 8.9 11.4
conglomerate that is going through challenging times. The bank has indicated P/E (X) 6.3 5.8 5.2
that the exposure to this group is ~60 bps, and well below the thresholds P/B (X) 1.0 0.9 0.8
allowed under the large exposure framework. The information on the same BVPS (Rs) 162.4 183.4 210.2
RoE (%) 15.9 15.1 14.9
should ease near-term concerns, though a strong solution to the group debt
Div. yield (%) 3.2 3.4 3.8
position can potentially remove any overhang that may emerge in the near term
Nll (Rs bn) 406 414 455
as well. We see the financial risk (earnings impact) emerging from this PPOP (Rs bn) 247 261 286
conglomerate exposure as low, although the narrative is likely to dominate the Net profits (Rs bn) 134 146 163
near-term price performance. Source: Bloomberg, Company data, Kotak Institutional Equities estimates

Maintain ADD with FV of Rs185 February 03, 2023
We maintain ADD with a FV of Rs185 (Rs180 earlier), valuing the bank at 1X (adj.)
book and 6X December 2024E EPS for RoEs of ~15%. We have revised our
estimates upward by 15% for FY2023, noting the strong outperformance on the
operating front. As with all the other banks, we remain conservative, noting that
the NIM pressure is likely to be higher in FY2024-25. Barring an extraneous event,
we believe that earnings have strong support from credit costs.
M B Mahesh, CFA Nischint Chawathe Ashlesh Sonje, CFA Abhijeet Sakhare Varun Palacharla
26
Exhibit 1: Bank of Baroda – quarterly financial statements, March fiscal year-ends, 3QFY22-3QFY23 (Rs mn)
(% chg.)
3QFY23 3QFY23E 3QFY22 2QFY23 3QFY23E 3QFY22 2QFY23 9MFY23 9MFY22 (% chg.) 2023E 2022 (% chg.) 2024E
Income statement (Rs mn)
Interest income 235,401 220,435 179,630 212,542 7 31 11 637,319 517,072 23 890,767 698,808 27 1,091,207
Interest on advances 171,061 155,746 126,314 148,342 10 35 15 449,786 364,433 23 637,566 492,785 29 817,484
Income from invts 57,171 57,840 45,671 54,417 (1) 25 5 160,990 128,506 25 220,210 176,172 25 242,314
Bal with RBI 7,169 6,849 7,645 9,784 5 (6) (27) 26,542 24,132 10 32,992 29,850 11 31,408
Interest expenses 127,218 119,064 94,110 110,798 7 35 15 339,007 276,975 22 484,786 372,594 30 677,355
Net interest income 108,183 101,371 85,520 101,745 7 26 6 298,312 240,097 24 405,981 326,213 24 413,852
Non-interest income 35,520 28,842 25,193 18,258 23 41 95 65,598 89,617 (27) 99,665 114,840 (13) 119,737
Other income (excl. treasury) 32,640 26,342 20,983 20,648 24 56 58 72,838 63,697 14 104,665 87,552 20 114,737
Fee income 15,390 15,221 13,470 14,470 1 14 6 39,550 34,390 15
Forex income 2,480 4,410 2,100 (1,280) (44) 18 NM 6,130 11,230 (45)
Treasury income 2,880 2,500 4,210 (2,390) 15 (32) NM (7,240) 25,920 (128) (5,000) 27,288 (118) 5,000
Total income 143,703 130,213 110,713 120,003 10 30 20 363,909 329,713 10 505,647 441,053 15 533,589
Operating expenses 61,381 62,585 55,880 59,693 (2) 10 3 176,003 162,176 9 240,727 217,164 11 267,419
Employee expenses 33,470 34,750 31,027 31,834 (4) 8 5 95,737 92,765 3 131,480 119,788 10 146,889
Other operating expenses 27,911 27,835 24,853 27,859 0 12 0 80,266 69,412 16 109,247 97,376 12 120,530
Operating profit 82,322 67,628 54,833 60,310 22 50 36 187,907 167,537 12 264,920 223,889 18 266,170
Provisions 24,039 19,455 25,070 16,275 24 (4) 48 57,162 92,660 (38) 78,776 130,024 (39) 74,055
Loan loss 8,170 16,705 42,830 16,540 (51) (81) (51) 40,310 94,400 (57) 58,776 119,679 (51) 67,055
PBT 58,283 48,173 29,763 44,035 21 96 32 130,745 74,877 75 186,144 93,864 98 192,116
Taxation 19,755 11,561 7,793 10,901 71 154 81 37,402 19,942 88 52,120 21,142 147 46,108
Net profit 38,527 36,611 21,970 33,134 5 75 16 93,343 54,935 70 134,023 72,723 84 146,008
PBT-invt gains/losses 69,493 46,923 30,023 45,165 48 131 54 152,845 53,377 186 209,144 72,167 190 192,116
PBT-invt gains + provisions 77,663 63,628 72,853 61,705 22 7 26 193,155 147,777 31 267,920 191,845 40 259,170
Tax rate 34 24 26 25 29 27 28 23 24
Key balance sheet items (Rs bn)
Shareholder funds 963 828 918 16.3 4.8 963 828 16.3 966 859 12.5 1,083
Deposits 11,495 11,120 9,780 10,902 3.4 17.5 5.4 11,495 9,780 17.5 11,632 10,459 11.2 13,069
Foreign 1,458 1,015 1,312 43.6 11.1 11,495 9,780 17.5
Domestic 10,037 8,766 9,590 14.5 4.7
Savings 3,526 3,229 3,453 9.2 2.1 3,526 3,229 9.2 3,880 3,447 12.6 4,412
Current 652 653 649 (0.1) 0.5 652 653 (0.1) 1,000 889 12.5 1,136
Domestic CASA (%) 41.6 44.3 42.8 -266 bps -114 bps
Term deposits 5,859 4,884 5,488 20.0 6.8 5,859 4,884 20.0
Retail TD 4,096 3,997 4,121 2.5 (0.6) 4,096 3,997 2.5
Bulk TD 1,763 886 1,368 98.9 28.9 1,763 886 98.9
Borrowings 1,007 908 1,112 10.9 (9.4) 1,007 908 10.9 982 1,039 (5.5) 936
Advances (gross) 9,239 8,997 7,720 8,735 2.7 19.7 5.8 9,239 7,720 19.7 9,022 7,772 16.1 10,137
Foreign 1,636 1,177 1,568 39.0 4.4
Domestic 7,602 6,543 7,167 16.2 6.1
Corporate 3,712 3,270 3,420 13.5 8.5
Farm credit 1,192 1,057 1,150 12.8 3.7
SME 1,030 927 1,013 11.1 1.7
Retail loans 1,669 1,290 1,585 29.4 5.3
Home loans 920 769 884 19.6 4.1
Mortgage loans 162 134 155 20.5 4.7
Auto loans 298 234 283 27.5 5.4
Personal loans 172 64 153 169.6 12.5
Education loans 79 64 77 24.1 3.8
Investment 3,490 3,561 3,069 3,491 (2.0) 13.7 (0.0) 3,490 3,069 14 3,253 3,158 3 3,602
Yield on loans 7.6 7.0 6.7 6.9 59 bps 90 bps 69 bps 6.9 6.4 51 bps 7.6 6.6 95 bps 8.5
Yield on investment 6.6 6.6 6.2 6.4 -1 bps 35 bps 14 bps 6.5 6.0 43 bps 6.9 6.1 76 bps 7.1
Cost of deposits 4.5 4.3 3.9 4.2 22 bps 66 bps 37 bps 4.1 3.8 32 bps 4.4 3.7 69 bps 5.5
NIM 3.5 3.3 3.3 3.4 20 bps 20 bps 7 bps 3.3 3.1 24 bps 3.5 3.2 33 bps 3.2
Cost-income 42.7 48.1 50.5 49.7 -535 bps -776 bps -703 bps 48.4 49.2 -82 bps 47.6 49.2 -163 bps 50.1
CD ratio 80.4 80.9 78.9 80.1 -54 bps 144 bps 25 bps 80.4 78.9 144 bps 77.6 74.3 326 bps 77.6
Asset quality (Rs bn)
GNPL 419 560 464 (25) (10) 419 560 (25) 391 541 (28) 389
NNPL 89 165 97 (46) (8) 89 165 (46) 83 134 (38) 102
GNPL (%) 4.5 7.3 5.3 -272 bps -78 bps 4.5 7.3 -272 bps 4.1 6.6 -249 bps 3.6
NNPL (%) 1.0 2.3 1.2 -126 bps -17 bps 1.0 2.3 -126 bps 0.9 1.7 -80 bps 1.0
PCR (%) 79 71 79 825 bps -30 bps 79 71 825 bps 79 75 350 bps 74
Slippages (gross, Rs bn) 29 35 45 (17) (35) 117 155 (24) 155 213 (27) 180
Slippage ratio (gross, %) 1.3 - 1.9 2.1 132 bps -58 bps -81 bps 1.9 2.7 -84 bps 2.0 3.0 -101 bps 2.0
Standard restructured 167 206 177 (19) (6)
Standard restructured to loans (%) 2 3 2
Slippages (net, Rs bn) 2 2 (9) 32 NM - - #DIV/0!
Slippage ratio (net, %) 0.1 0.1 (0.4) 1 bps 57 bps - - 0 bps
Credit cost (%) 0.4 - 1.2 0.8 42 bps -83 bps -40 bps 0.6 1.5 -86 bps 0.7 1.6 -91 bps 0.7
CAR 14.9 15.5 15.3 -54 bps -32 bps
Tier-I 12.6 13.2 12.8 -62 bps -19 bps
Source: Company
Bank of Baroda
27
Asset quality continues to improve

 Asset quality continued to improve for BOB. GNPL ratio was down ~80 bps qoq to 4.5%, while NNPL
ratio was down ~20 bps qoq to 1.0%.
 Provision coverage ratio (PCR, excl. technical write-offs) was broadly flat qoq at ~79%.
 Gross slippages stood at ~Rs29 bn (~1.3% of opening advances, annualized) in 3QFY23. Gross
slippages were lower than ~2.1% in the previous quarter. The bank reported healthy recoveries and
upgrades during 3QFY23, resulting in very low net slippages (net of recoveries and upgradations) for
the quarter. Segmental slippages were as follows: ~0% in corporate book, ~1.4% in retail book, ~3.3%
in MSME book, ~2.5% in agri book, and ~0% in the international book.
 Collection efficiency (excl. agri portfolio) stood at ~98% in December 2022 – in line with what the
bank reported for the past two quarters. The SMA-1 and SMA-2 book for large loans (>Rs50 mn) stood
at ~40 bps of advances in December 2022 – broadly flat over 9MFY23.
 Credit cost for 3QFY23 stood at just ~40 bps of advances (annualized) – lower than ~80 bps seen in
the previous quarter.
 Regarding its exposure to a certain large conglomerate, management indicated that its exposure
(including fund-based, non-fund-based and unutilized working capital limits) stood at about one-fourth
of the regulatory limit of 25% of Tier-1 capital. We estimate that the bank’s exposure to the said group
stands at ~Rs50-55 bn. Management also indicated that the group is not among the largest 15 group
exposures for BOB. Further, 30% of the bank’s exposure is either in relation to a JV with a PSU entity
or backed by the guarantee of a PSU entity.
Reported NPL ratios were lower qoq

Exhibit 2: Break-up of gross NPLs and restructured loans, March fiscal year-ends (%)
Gross NPL 10.4 9.4 9.4 9.1 8.5 8.9 8.9 8.1 7.3 6.6 6.3 5.3 4.5
Net NPL 4.1 3.1 2.8 2.5 2.4 3.1 3.0 2.8 2.3 1.7 1.6 1.2 1.0
Slippages 6.9 1.7 1.6 0.8 2.5 6.6 3.3 3.3 1.9 3.0 2.1 2.1 1.3
Coverage 63.8 68.9 71.9 74.4 73.6 67.3 67.9 67.1 70.6 75.3 75.9 79.1 78.8
Coverage (write-off) 77.8 81.3 83.3 85.4 85.5 81.8 83.1 83.4 86.0 88.7 89.4 91.7 92.3
Source: Company
Bank of Baroda
28
Exhibit 3: Bank of Baroda - key metrics, March fiscal year-ends (%)
3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 YoY (%) QoQ (%)

Deposits 9,780 10,459 10,327 10,902 11,495 17.5 5.4
Domestic 8,766 9,270 9,091 9,590 10,037 14.5 4.7
CASA ratio (%) 44 44 44 43 42 -265 bps -114 bps
Foreign 1,015 1,189 1,236 1,312 1,458 43.6 11.1
Advances 7,720 8,181 8,398 8,735 9,239 19.7 5.8
Domestic 6,543 6,842 6,955 7,167 7,602 16.2 6.1
Retail loans 1,290 1,404 1,475 1,585 1,669 29.4 5.3
Home loans 769 820 845 884 920 19.6 4.1
Retail to total advances (%) 17 17 18 18 18 8.1 (0.5)
SME 927 969 970 1,013 1,030 11.1 1.7
Farm credit 1,057 1,098 1,109 1,150 1,192 12.8 3.7
Foreign 1,177 1,340 1,443 1,568 1,636 39.0 4.4
Investments 3,069 3,158 3,298 3,491 3,490 13.7 (0.0)
Domestic 2,949 3,041 3,204 3,397 3,397 15.2 0.0
International 96 96 97 97 97 1.3 0.0
AFS 1,108 1,046 1,129 1,133 1,099 (0.9) (3.0)
Duration (years) 1.9 1.8 1.4 1.4 1.8 (3.8) 24.3
Yield management measures (%)
Cost of deposits 3.5 3.5 3.5 3.6 4.0 51 bps 42 bps
Cost of deposits (domestic) 3.8 3.9 3.8 3.9 4.1 31 bps 21 bps
Cost of deposits (international) 0.5 0.5 0.8 1.3 3.3 281 bps 194 bps
Yield on advances (total) 6.9 6.8 6.6 7.2 7.8 86 bps 56 bps
Yield on advances (domestic) 7.8 7.6 7.4 8.0 8.5 66 bps 44 bps
Yield on advances (international) 2.1 2.6 2.5 3.5 4.7 257 bps 112 bps
Yield on investments (total) 6.3 6.3 6.3 6.5 6.6 30 bps 10 bps
Yield on investments (domestic) 6.5 6.4 6.4 6.6 6.8 24 bps 18 bps
(international) 2.3 2.5 2.7 2.9 2.8 55 bps -6 bps
NIM 3.1 3.1 3.0 3.3 3.4 24 bps 4 bps
NIMs (domestic) 3.2 3.1 3.1 3.4 3.5 33 bps 13 bps
NIMs (international) 1.5 1.9 1.7 2.2 1.7 29 bps -43 bps
Gross NPLs (Rs bn) 560.0 540.6 525.9 463.7 418.6 (25.3) (9.7)
Gross NPLs (%) 7.3 6.6 6.3 5.3 4.5 -272 bps -78 bps
Net NPLs (Rs bn) 164.6 133.6 126.5 96.7 88.5 (46.2) (8.5)
Net NPLs (%) 2.3 1.7 1.6 1.2 1.0 -126 bps -17 bps
Provision Coverage 70.6 75.3 75.9 79.1 78.8 825 bps -30 bps
Provision Coverage (inc write off) 86.0 88.7 89.4 91.7 92.3 639 bps 61 bps
Slippages (Rs bn) 34.9 57.8 43.5 44.7 28.8 (17.5) (35.5)
Slippages (%) 1.9 3.0 2.1 2.1 1.3 -58 bps -81 bps
CAR 15.5 15.7 15.5 15.3 14.9 -54 bps -32 bps
Tier I 13.2 13.2 13.0 12.8 12.6 -62 bps -19 bps
Tier II 2.2 2.5 2.5 2.4 2.3 8 bps -13 bps
Source: Company
Domestic advances up 16% yoy (6% qoq); international book grew 39% yoy (~4% qoq)
Overall gross advances growth was strong at 20% yoy and 6% qoq. The domestic advances book grew
16% yoy (6% qoq), while the international loan book grew 39% yoy (4% qoq). The international loan book
now stands at ~18% of overall advances for the bank (up from ~15% as on 4QFY21).
Growth in domestic advances was driven by ~29% yoy growth in retail advances, while SME and agri
books grew 11-13% yoy. The domestic corporate advances book grew 14% yoy. Strong growth in retail
loans was driven by ~20% yoy growth in home loans and mortgages, while the auto loans book grew
~28% yoy. The trajectory of the personal loans book stayed strong as the book grew ~170% yoy and 13%
qoq.
Bank of Baroda
29
Retail loans at ~18% of overall loans

Exhibit 4: Loan mix, March fiscal year-ends (%)
Retail SME Farm credit Corporate Foreign

100
17 15 16 18
24 25 26 23 21
30 32 31 32 31 28
80
33 43 43 41 40
60 33
40 37 37 32
36 34 36 33 33
40 11 12
12 12 13 13 13
12 12 11 10 9 7 9 9
13 12
14 12 13 12 11
20 10 12 12 12 14 14 14 14
19 22 16 16 17 18
14 14 14 12 12 12 12 13 15
0
3QFY23
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company
NII up 26% yoy – higher than loan growth Advances increased 20% yoy
Exhibit 5: Loan and NII growth, March fiscal year-ends (%) Exhibit 6: Growth in loans by geography, March fiscal year-ends
(%)
Loan growth NII growth
40
Domestic International Loan growth
45
30
30
20
15
10
-
-
(15)
(10)
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
(30)
1QFY21
1QFY22
2QFY22
3QFY22
3QFY23
2QFY21
3QFY21
4QFY21
4QFY22
1QFY23
2QFY23
Source: Company
Source: Company
Other highlights for the quarter

 Margins improved ~10 bps qoq to 3.4%. Global NIM was up ~10 bps qoq to 3.4%, driven by an
expansion of ~60 bps in yield on advances and ~10 bps in yield on investments. This was largely
offset by ~40 bps increase in cost of deposits. Within overall advances for the bank, ~50% are linked
to MCLR and ~30% are linked to repo, 6-7% is fixed rate, while the rest is linked to T-bills, G-sec, etc.
Management indicated that it expects NIM to expand a bit further in 4QFY23 as well.
 Overall deposit growth was good at 18% yoy; CD ratio at ~80%. Growth in domestic deposits was
lower at 15% yoy. Domestic CASA deposits grew 8% yoy, while term deposits grew at a faster clip of
20% yoy, led by ~100% yoy growth in bulk TD. Retail term deposits were broadly flat yoy and qoq.
Domestic CASA ratio declined ~110 bps qoq to ~42%.
 Non-interest income up ~40% yoy. Non-interest income increased ~40% yoy, driven by some one-
offs. Fee income (excl. FX income) grew at a healthy pace of ~14% yoy.
 Capital is adequate. Capital adequacy ratio (CAR) for the bank stood comfortable at ~14.9% with CET-
1 ratio stands at 10.8% (excluding 9MFY23 profits).
Bank of Baroda
30
NIM has gradually increased above 3%

Exhibit 7: NIM for BoB, March fiscal year-ends (%)
NIM (%) NIM domestic (%)

5
4 3.54
3 3.37
-
3QFY14
3QFY15
1QFY17
3QFY18
1QFY20
1QFY21
3QFY22
1QFY15
1QFY16
1QFY18
1QFY19
3QFY19
3QFY20
3QFY21
1QFY22
1QFY23
3QFY23
3QFY16
Source: Company 3QFY17
BoB trading at 0.9X one-year forward book (adj.) BoB is trading at a discount to peers
Exhibit 8: Rolling P/BV (One-year forward adjusted book) Exhibit 9: BoB trading premium to public bank peers (X)
multiples (X)
1.4
2.5
1.2
2.0
1.0
1.5
0.8
1.0
0.6
0.5
0.4
0.0
2016
2018
2021
2023
2015
2017
2019
2020
2022
2013
2020
2021
2022
2023
2014
2015
2016
2017
2018
2019
Source: Company
Source: Company
Bank of Baroda
31
Conversion of operating profit to net profit has improved

Exhibit 10: Bank of Baroda – profitability, asset quality and capital metrics, March fiscal year-ends
Operating profit Net profit Net profit/ Operating profit (%)

350 120
280 80
210 40
140 -
70 (40)
- (80)
2023E
2025E
2009
2011
2019
2003
2005
2007
2013
2015
2017
2021
2025E
2023E
2007
2015
2017
2003
2005
2009
2011
2013
2019
2021
Net NPL/ Operating profit (%) Net NPL/ Net worth (%)
250 100
200 80
150 60
100 40
50 20
- -
2023E
2025E
2023E
2025E
2009
2019
2003
2005
2007
2011
2013
2015
2017
2021
2007
2015
2003
2005
2009
2011
2013
2017
2019
2021
Source: Company
Exhibit 11: Bank of Baroda – estimate changes, March fiscal year-ends

New estimates Old estimates % Change
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Net interest income 405,981 413,852 455,115 382,372 419,380 478,238 6.2 (1.3) (4.8)
Loan growth (%) 16.1 12.4 12.2 11.5 12.3 12.2 461 bps 2 bps 2 bps
NIM (%) 3.2 2.9 2.9 3.0 3.0 3.0 19 bps -4 bps -14 bps
Non-treasury other income 104,665 114,737 125,902 93,767 103,832 115,075 11.6 10.5 9.4
Fee income 31,866 34,097 36,484 27,710 30,481 33,529 15.0 11.9 8.8
Operating expenses 240,727 267,419 295,072 240,233 261,375 285,584 0.2 2.3 3.3
Employee expenses 131,480 146,889 164,105 131,480 144,312 158,397 - 1.8 3.6
Provisions and contingencies
Loan loss provisions 58,776 67,055 69,923 69,850 73,585 82,618 (15.9) (8.9) (15.4)
PBT 186,144 192,116 214,022 154,056 181,251 218,111 20.8 6.0 (1.9)
PAT 134,023 146,008 162,657 117,083 137,751 165,764 14.5 6.0 (1.9)
PBT- invt gains + provisions 269,920 261,170 285,945 235,906 261,836 307,728 14.4 (0.3) (7.1)
EPS (Rs) 25.9 28.2 31.4 22.6 26.6 32.0 14.5 6.0 (1.9)
Adjusted BVPS (Rs) 162 183 210 160 180 207 1.5 1.9 1.4
Gross NPA (%) 4.1 3.6 3.3 4.5 3.3 2.9 -37 bps 34 bps 32 bps
Slippages (%) 2.0 2.0 2.0 2.3 2.0 2.0 -25 bps 0 bps 0 bps
Credit cost (%) 0.7 0.7 0.7 0.9 0.8 0.8 -15 bps -10 bps -15 bps
Cost-income ratio (%) 47.3 50.8 51.0 50.7 50.2 48.4 -334 bps 64 bps 267 bps
RoA (%) 1.0 1.0 1.0 0.9 0.9 1.0 13 bps 6 bps -2 bps
RoE (%) 15.9 15.1 14.9 14.0 14.5 15.4 189 bps 60 bps -55 bps
Source: Company
Bank of Baroda
32
Exhibit 12: Bank of Baroda – key growth rates and financial ratios, March fiscal year-ends (%)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Growth rates (%)
Net loan (10.3) (0.1) 11.5 9.7 47.2 2.3 10.0 16.1 12.4 12.2
Total Asset (6.1) 3.5 3.6 8.5 48.3 (0.2) 10.6 9.6 10.8 10.9
Deposits (7.0) 4.8 (1.7) 8.0 48.1 2.2 8.2 11.2 12.4 12.2
Current (34.4) 22.8 8.3 1.8 37.7 21.8 13.0 12.5 13.7 13.5
Savings 5.9 29.4 9.8 6.7 52.2 15.0 11.3 12.6 13.7 13.6
Fixed (7.0) (3.4) (7.0) 9.3 47.5 (5.5) 5.8 10.3 11.4 11.3
Net interest income (3.4) 6.1 14.9 20.4 46.9 4.9 13.2 24.5 1.9 10.0
Loan loss provisions 197.2 (37.4) 63.7 (12.2) 60.3 (25.3) (17.8) (50.9) 14.1 4.3
Total other income 13.6 35.2 (1.5) (8.5) 69.4 25.4 (11.2) (13.2) 20.1 9.3
Net fee income 1.3 4.3 13.9 11.5 30.2 (2.7) 9.9 15.0 7.0 7.0
Net capital gains 17.1 122.1 (28.3) (47.3) 178.0 22.7 (19.2) (118.3) (200.0) 0.0
Net exchange gains 24.5 (22.1) (6.8) (23.8) 46.6 3.3 10.0 (10.0) 15.0 15.0
Employee expenses 16.8 (6.8) (0.7) 9.4 74.0 30.5 4.7 9.8 11.7 11.7
Key ratios (%)
Yield on average earning assets 6.6 6.5 6.5 7.0 8.3 6.5 6.1 7.0 7.7 7.7
Yield on average loans 7.3 7.2 7.2 7.7 9.3 7.2 6.6 7.6 8.5 8.4
Yield on average investments 9.2 8.7 7.3 7.6 8.1 6.5 6.3 7.0 7.2 7.4
Average cost of funds 5.0 4.6 4.4 4.6 5.5 4.0 3.4 4.0 5.1 5.1
Interest on deposits 4.9 4.6 4.4 4.5 5.5 3.9 3.3 3.9 5.0 5.1
Difference 1.7 1.9 2.1 2.4 2.8 2.5 2.7 3.0 2.6 2.6
Net interest income/earning assets 1.9 2.1 2.3 2.6 3.0 2.7 2.8 3.2 2.9 2.9
New provisions/average net loans 3.3 2.2 3.4 2.7 3.4 2.1 1.6 0.7 0.7 0.7
Interest income/total income 77.1 76.8 77.0 79.1 78.6 75.3 79.2 79.8 78.6 78.7
Fee income to total income 8.5 7.7 8.0 8.0 6.9 6.0 6.3 6.3 6.4 6.2
Operating expenses/total income 54.0 52.8 50.4 47.8 54.0 53.7 52.7 47.3 50.8 51.0
Tax rate 19.4 44.1 12.9 37.9 130.3 85.1 22.5 28.0 24.0 24.0
Dividend payout ratio 0.0 20.0 0.0 0.0 0.0 0.0 20.3 20.0 20.0 20.0
Share of deposits
Current 6.0 7.1 7.8 7.3 6.8 8.1 8.5 8.6 8.7 8.8
Fixed 73.6 67.8 64.2 65.0 64.7 59.8 58.5 58.0 57.5 57.0
Savings 20.3 25.1 28.0 27.7 28.5 32.0 33.0 33.4 33.8 34.2
Loans-to-deposit ratio 66.9 63.7 72.3 73.4 73.0 73.0 74.3 77.6 77.6 77.6
Equity/assets (EoY) 6.0 5.8 6.0 6.5 6.2 6.7 6.7 6.9 7.0 7.0
Asset quality trends (%)
Gross NPL 10.0 10.5 12.3 9.6 9.4 8.9 6.6 4.1 3.6 3.3
Net NPL 5.1 4.7 5.5 3.3 3.1 3.1 1.7 0.9 1.0 0.9
Slippages 6.5 3.5 6.3 3.2 3.6 2.9 3.0 2.0 2.0 2.0
Provision coverage (ex writeoff) 52.1 57.7 58.4 67.6 68.9 67.3 75.3 78.8 73.6 74.7
Dupont analysis (%)
Loan loss provisions 1.9 1.2 2.0 1.6 2.0 1.3 1.0 0.4 0.5 0.4
Net other income 0.7 1.0 0.9 0.8 1.1 1.1 0.9 0.7 0.8 0.8
Pre -tax pre extraordinary income (1.0) 0.4 (0.4) 0.1 (0.2) 0.5 0.8 1.4 1.3 1.3
(1- tax rate) 80.6 55.9 87.1 62.1 (30.3) 14.9 77.5 72.0 76.0 76.0
ROA (0.8) 0.2 (0.3) 0.1 0.1 0.1 0.6 1.0 1.0 1.0
Average assets/average equity 18.5 17.0 16.9 15.9 17.3 16.8 16.1 15.8 15.3 15.0
ROE (14.4) 3.4 (5.8) 0.9 1.0 1.2 9.7 15.9 15.1 14.9
Source: Company
Bank of Baroda
33
Exhibit 13: Bank of Baroda – key financials, March fiscal year-ends (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Income statement
Total interest income 440,613 421,999 436,485 499,741 759,837 704,951 698,808 890,767 1,091,207 1,210,061
Loans 297,962 275,239 290,698 343,890 541,158 500,521 492,785 637,566 817,484 900,243
Investments 106,732 105,963 104,202 127,867 180,974 170,771 176,172 220,210 242,314 276,503
Cash and deposits 35,918 40,797 41,586 27,984 37,705 33,658 29,850 32,992 31,408 33,315
Total interest expense 313,214 286,865 281,268 312,903 485,324 416,860 372,594 484,786 677,355 754,945
Deposits from customers 292,001 267,835 260,079 276,211 436,570 375,644 332,898 429,015 622,084 703,648
Net interest income 127,398 135,134 155,218 186,838 274,513 288,090 326,213 405,981 413,852 455,115
Loan loss provisions 135,078 84,564 138,427 121,569 194,904 145,657 119,679 58,776 67,055 69,923
Net interest income (after prov.) (7,680) 50,570 16,791 65,269 79,609 142,433 206,535 347,205 346,797 385,193
Other income 49,989 67,581 66,572 60,910 103,173 129,340 114,840 99,665 119,737 130,902
Net fee income 15,015 15,661 17,845 19,894 25,903 25,209 27,710 31,866 34,097 36,484
Net capital gains 11,789 26,180 18,776 9,895 27,507 33,760 27,288 (5,000) 5,000 5,000
Net exchange gains 12,523 9,759 9,092 6,932 10,161 10,495 11,543 10,389 11,947 13,739
Operating expenses 89,231 92,964 101,734 112,880 188,724 205,437 217,164 240,727 267,419 295,072
Employee expenses 49,780 46,378 46,069 50,391 87,695 114,456 119,788 131,480 146,889 164,105
Depreciation on investments 3,415 293 7,682 1,586 9,867 8,794 5,590 18,000 5,000 5,000
Other Provisions 16,644 167 1,854 4,731 2,212 1,982 4,756 2,000 2,000 2,000
Pretax income (66,981) 24,727 (27,907) 6,982 (18,021) 55,560 93,864 186,144 192,116 214,022
Tax provisions (13,025) 10,896 (3,589) 2,646 (23,483) 47,271 21,142 52,120 46,108 51,365
Net Profit (53,955) 13,831 (24,318) 4,335 5,462 8,290 72,723 134,023 146,008 162,657
% growth (259) (126) (276) (118) 26 52 777 84 9 11
PBT - treasury gains + provisions 76,367 83,571 101,279 124,974 161,455 178,234 196,601 269,920 261,170 285,945
% growth (14) 9 21 23 29 10 10 37 (3) 9
Balance sheet
Cash and bank balance 1,339,003 1,504,699 928,974 892,296 1,219,011 1,204,128 1,226,550 1,130,012 1,196,543 1,271,239
Cash 37,564 29,554 30,245 33,367 47,616 41,782 44,391 44,391 44,391 44,391
Balance with RBI 179,160 198,248 196,752 233,250 278,843 346,628 507,453 395,479 444,362 498,763
Balance with banks 46,602 248,650 99,698 45,181 46,966 43,435 54,153 64,983 77,980 93,576
Net value of investments 1,204,505 1,296,305 1,631,845 1,822,981 2,746,146 2,612,203 3,157,954 3,252,810 3,601,904 4,004,774
Govt. and other securities 1,004,284 1,109,847 1,407,785 1,589,038 2,440,561 2,267,965 2,732,661 2,812,650 3,146,201 3,532,014
Shares 12,599 17,044 18,585 22,657 27,889 28,427 25,975 26,494 27,024 27,565
Debentures and bonds 25,586 29,274 66,190 61,139 100,289 161,311 209,505 209,505 209,505 209,505
Net loans and advances 3,837,702 3,832,592 4,274,318 4,688,187 6,901,207 7,063,005 7,771,552 9,021,698 10,136,820 11,377,825
Fixed assets 62,538 57,584 53,674 69,903 88,893 80,162 99,219 98,303 100,551 99,054
Net Owned assets 62,538 57,584 53,674 69,903 88,893 80,162 99,219 98,304 100,552 99,055
Other assets 270,017 257,574 311,186 336,507 623,898 594,149 524,724 503,735 483,585 464,242
Total assets 6,713,765 6,948,754 7,199,998 7,809,874 11,579,155 11,553,648 12,779,998 14,006,558 15,519,404 17,217,134
Deposits 5,740,375 6,016,752 5,913,148 6,386,897 9,459,844 9,669,969 10,459,386 11,631,738 13,069,473 14,669,509
Borrowings and bills payable 351,473 327,517 645,669 690,912 951,918 695,072 1,078,786 1,025,775 984,080 951,648
Other liabilities 219,923 201,453 207,233 222,234 448,831 418,150 382,729 382,729 382,729 382,729
Total liabilities 6,311,771 6,545,722 6,766,050 7,300,043 10,860,593 10,783,191 11,920,901 13,040,243 14,436,282 16,003,886
Paid-up capital 4,620 4,621 5,304 5,304 9,254 10,355 10,355 10,355 10,355 10,355
Reserves & surplus 397,369 398,412 428,644 504,527 709,308 760,102 848,742 955,961 1,072,767 1,202,892
Total shareholders' equity 401,989 403,033 433,948 509,831 718,562 770,457 859,097 966,316 1,083,122 1,213,248
Source: Company
Bank of Baroda
RESULT
InterGlobe Aviation (INDIGO) BUY

Transportation
CMP(₹): 2,098 Fair Value(₹): 2,550 Sector View: Neutral NIFTY-50: 17,854 February 04, 2023
Pricing trends yet to reflect market consolidation Company data and valuation summary
The sharp beat in 3Q was driven by a combination of better volumes and
Stock data
yields. Such yields more than covered the qoq dip in 2Q, though they have
CMP(Rs)/FV(Rs)/Rating 2,098/2,550/BUY
declined meaningfully in January. Externalities and the inability of airlines to
52-week range (Rs) (high-low) 2,282-1,512
second-guess competitive moves on pricing in a seasonally weak quarter are
coming in the way of pricing reflecting the consolidated nature of the market.
ADTV-3M (mn) (Rs/US$) 1,428/17
We stay put and broadly retain FY2025 estimates due to a combination of
higher volumes and a higher crude price assumption. We roll forward to a 6% Shareholding pattern (%)
higher Rs2,550 FV. BUY for ~21% upside in the next year.
1.2
1.5
5.51.8
Sharp beat driven by higher load factor and yields
INDIGO reported strong results on volumes, yields and the ex-forex bottom-line, 18.1
much ahead of our and the Street’s estimates. Yields grew 6% qoq, while fuel
cost per ASK declined faster than ATF price decline at 11% qoq. Load factors 71.9
also improved ~600 bps qoq to pre-Covid levels of 85%. CASK (ex-fuel and
forex) was only marginally above the pre-Covid levels, partly on account of the Promoters FPI s MFs BFI s Retail Others
non-compensation of the costs of grounding aircraft. INDIGO generated ~Rs20
bn in operational profit (KIE: Rs10 bn) and saw cash accretion of ~Rs23 bn for
Nifty INDIGO
the quarter. Operational RASK-CASK was Rs0.53 versus KIE estimate of Rs0.34-
200
0.39 for FY2024/25E. INDIGO added ~22 aircraft in the quarter to breach the
160
300 aircraft mark. INDIGO has guided for the upper-end of its ASK guidance of
120
13-17% growth over the FY2020 base for a similar yoy growth in FY2024E.
80
Seasonality and resurgence of Covid fear impacting yields at start of 4Q
40
January has seen a weak start to yields, with management hinting at a qoq
decline for 4Q at the higher end of the range or ~10%; it would still yield a 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
positive operational spread in 4Q, in our view. Adding to the effects
of seasonality is (1) the resurgence of Covid fears in late-December and its
flow-through in bookings in January, (2) high base of 3Q yields, driven by pent- Forecasts/Valuations 2023E 2024E 2025E
up demand, and (3) difficulty in second-guessing competitor’s price moves in a EPS (Rs) (10.5) 122.1 149.7
seasonally weak quarter. Essentially, the sector still has not reached the stage EPS growth (%) 93.5 1,268.4 22.5
P/E (X) (200.7) 17.2 14.0
of deciding pricing such that all airlines make profits in all quarters. To limit the
P/B (X) (12.5) (45.6) 20.2
effects of seasonality on volumes and yields, INDIGO is aiming for and
EV/EBITDA (X) 10.1 4.2 3.1
benefiting from increasing focus on international bookings and gaining share
RoE (%) 6.4 (114.1) 519.0
in the higher-yielding, closer-to-the-travel date bookings in domestic travel. Div. yield (%) 0.0 0.0 0.0
Sales (Rs bn) 543 627 723
Focus shifting to international, leveraging existing strengths
EBITDA (Rs bn) 67 145 172
INDIGO is at 105% of its pre-Covid international volumes and is gaining market Net profits (Rs bn) (4) 47 57
share. In our view, INDIGO is uniquely positioned to grow its international share Source: Bloomberg, Company data, Kotak Institutional Equities estimates
by leveraging its 78 destination-strong domestic network, code-share
partnerships and strong presence in North and South halves of India. The February 03, 2023
interplay between INDIGO’s domestic and international operations will continue
to make both these parts more competitive.
We increase volume estimates and roll forward to a 6% higher FV of Rs2,550

We increase ASK estimates by 7% (in line with guidance). We, however,
marginally increase FY2025E EPS by 1%. We factor in a higher crude price
assumptions, higher lease rentals and recent volatility in prices.
Aditya Mongia Teena Virmani

35
Key highlights from conference call

 International operations to grow faster than domestic operations. The company expects international
operations to grow faster than domestic operations, as international markets are recovering at a
difference pace with the opening up of several economies. Indigo is developing its international
network by adding more destinations, having code share arrangements and partnership with airlines
to expand the network. International markets contribute to nearly 23% of overall ASKs, which the
company plans to scale up to 30% in FY2024.
 Capacity to grow in mid-teens for FY2024E. For FY2023, the company had guided for 13-17% capacity
growth and despite challenges in supply chain. It has been able to maintain the higher end of its
capacity growth guidance for the year. Indigo expects to grow its capacity at a similar rate in FY2024
around mid-teens, as demand has now started recovering and it has already crossed its passenger
volumes above pre-Covid levels. The company added two new domestic destinations in the quarter
and expects to add 8-9 destinations every year.
 Yield compression seen in 4QFY23. Yields remained fairly strong at Rs5.37 for 3QFY23. However, due
to seasonality and lower ATF prices, yields have started correcting since the beginning of 4QFY23.
 Future growth strategy. For future growth strategy, Indigo is continuously focusing on providing
affordable fares, on-time performance, increased usage of digitization-led initiatives, addition of more
international locations, code share agreement with airlines, and more wide-bodied aircraft too to deal
with supply-chain issues. It would also look to retire remaining CEO fleet once supply-chain
normalizes.
Results for 3QFY23 were ahead of our estimates on both revenue/EBITDA on strong recovery seen in passenger traffic
Exhibit 1: Results snapshot of Indigo, March fiscal year-ends (Rs mn)
Change (%) Change
3QFY23 3QFY23E 3QFY22 2QFY23 KIE est YoY QoQ 9MFY23 9MFY22 (%) FY2023E FY2022
ASKs (mn) 28,766 27,795 23,000 27,664 3 25 4 83,930 50,026 68 113,997 70,414
RPKs (mn) 24,500 22,792 18,300 21,900 7 34 12 68,300 36,100 89 93,478 51,700
Yields (Rs/RPK) 5.37 5.34 4.41 5.07 1 22 6 5.23 4.18 25 5.14 4.25
Total income 149,330 136,705 92,948 124,977 9 61 19 402,860 179,102 125 543,181 259,309
Total expenditure (117,493) (113,180) (73,843) (124,238) 4 59 (5) (363,645) (171,660) 112 (472,979) (250,889)
Fuel cost (58,639) (58,438) (33,064) (63,204) 77 (7) (182,458) (65,375) 179 (237,636) (98,117)
Employee expense (11,635) (11,396) (8,773) (10,408) 33 12 (32,626) (24,032) 36 (44,259) (31,517)
Supplementary rentals and aircraft maintenance
(19,854) (20,008) (18,223) (18,393) 9 8 (57,100) (43,908) — (60,898)
Airport fees and charges (9,174) (9,047) (7,350) (8,516) 25 8 (26,204) (16,263) — (22,868)
Forex gain (loss) (5,865) (4,806) 46 (12,015) (32,126) (3,285) (34,000) (9,408)
Other expenditure (12,327) (9,485) (6,479) (11,701) 90 5 (33,131) (18,797) 76 (157,084) (28,081)
EBITDAR 31,836 23,525 19,105 739 35 67 39,215 7,442 427 70,202 8,420
EBITDAR (%) 21.3 17.2 20.6 0.6 9.7 4.2 12.9 3.2
Adjusted EBITDAR 37,701 28,331 19,059 12,754 71,341 10,727 104,202 8,420
Aircraft and engine rentals (net) (700) (844) (1,273) (485) (45) 44 (1,837) (2,444) (3,436) (3,117)
EBITDA 31,136 22,681 17,832 255 37 37,378 4,998 66,766 5,303
Depreciation (13,419) (12,527) (12,338) (12,374) 9 8 (37,490) (37,987) (51,717) (50,678)
Interest (8,293) (7,523) (6,011) (7,276) 38 14 (22,135) (17,254) (30,889) (23,580)
Other income 4,757 3,115 1,853 3,540 157 34 9,932 5,383 11,839 7,245
PBT 14,182 5,747 1,337 (15,855) 147 NA (12,315) (44,860) (4,001) (61,710)
Exceptional items — — — — — — — —
Tax expense — — (39) — — (39) — —
PAT 14,182 5,747 1,298 (15,855) 147 NA (12,315) (44,899) (4,001) (61,710)
EPS (Rs) 37 15 3 (41) (32) (117) (10) (161)
Key ratios (as % of sales)
Fuel cost 39.3 42.7 35.6 50.6 45.3 36.5 43.7 37.8
Employee expense 7.8 8.3 9.4 8.3 8.1 13.4 8.1 12.2
Supplementary rentals and aircraft maintenance
13.3 14.6 19.6 14.7 14.2 24.5 — 23.5
Airport fees and charges 6.1 6.6 7.9 6.8 6.5 9.1 — 8.8
Other expenditure 8.3 6.9 7.0 9.4 8.2 10.5 28.9 10.8
Aircraft and engine rentals (net) 0.5 0.6 1.4 0.4 0.5 1.4 0.6 1.2
InterGlobe Aviation
Transportation India Research
36
Indigo has sustained fuel consumption per ASK at levels much lower than those seen until FY2020, with sharp dip qoq in 3QFY23
Exhibit 2: Fuel consumption per ASK for Indigo, March fiscal year-ends, 4Q16-3Q23
Consumption per ASK (ml/ASK)

30
24.3
24.2
23.7
23.6
23.2
23.0
22.5
22.4
22.3
22.1
22.1
22.0
21.7
25
20.3
20.1
20.1
19.9
19.2
18.4
18.3
17.8
17.7
17.7
17.6
17.4
17.0
16.7
16.7
20
15
10
0
1Q17
3Q17
4Q17
2Q18
4Q18
2Q19
3Q19
1Q20
3Q20
1Q21
4Q21
2Q22
4Q22
3Q23
4Q16
2Q17
1Q18
3Q18
1Q19
4Q19
2Q20
4Q20
2Q21
3Q21
1Q22
3Q22
1Q23
2Q23
Yield improvement to Rs5.37 per ASK on both qoq and yoy basis was seen in a seasonally strong quarter and operational RASK less
CASK turned positive to Rs0.53 per ASK
Exhibit 3: Key operating parameters of Interglobe Aviation, March fiscal year-ends
Capacity and volumes
Metrics
ASKs (mn) 25,800 23,000 2,100 8,900 15,300 19,181 11,226 15,800 23,000 20,388 27,500 27,664 28,766
RPKs (mn) 22,600 19,100 1,300 5,800 11,000 13,500 6,600 11,200 18,300 15,600 21,900 21,900 24,500
Load factor (%) 87.6 83.0 61.9 65.2 71.9 70.4 58.8 70.9 79.6 76.5 79.6 79.2 85.2
Yoy growth (%)
ASKs 19.44 4.07 (90.99) (63.22) (40.70) (16.60) 434.57 77.53 50.33 6.29 144.97 75.09 25.07
RPKs 22.83 0.53 (93.72) (71.29) (51.33) (29.32) 407.69 93.10 66.36 15.56 231.82 95.54 33.88
Load factor (bps) 241 bps -293 bps -2694 bps -1830 bps -1570 bps -1266 bps -311 bps 572 bps 767 bps 613 bps 2084 bps 828 bps 560 bps
Operating metrics (Rs/ASK)
Metrics
RASK 3.85 3.61 3.65 3.08 3.21 3.24 2.68 3.55 4.04 3.93 4.67 4.52 5.19
CASK 3.79 4.32 19.01 4.75 3.77 3.92 5.66 4.58 4.06 4.85 5.12 5.22 4.86
RASK-CASK (ex forex) 0.11 (0.27) (15.00) (2.24) (0.69) (0.62) (2.65) (1.05) (0.02) (0.62) 0.07 (0.27) 0.53
Fuel CASK 1.30 1.24 0.61 0.73 0.75 1.00 1.08 1.26 1.42 1.58 2.18 2.26 2.01
RASK-fuel CASK 2.55 2.36 3.04 2.35 2.46 2.25 1.60 2.29 2.62 2.35 2.50 2.26 3.18
CASK (ex-fuel) 2.50 3.07 18.41 4.02 3.02 2.92 4.57 3.32 2.64 3.27 2.94 2.96 2.85
RASK-CASK ex-fuel 1.35 0.54 (14.76) (0.94) 0.19 0.32 (1.89) 0.23 1.40 0.66 1.73 1.56 2.34
CASK (ex-fuel, ex-forex) 2.45 2.63 18.05 4.60 3.15 2.86 4.25 3.34 2.64 2.97 2.42 2.52 2.65
RASK-CASK ex-fuel, ex-forex 1.40 0.98 (14.39) (1.52) 0.06 0.38 (1.57) 0.21 1.40 0.96 2.25 2.00 2.54
Yoy growth (%)
RASK 5.0 1.2 (9.7) (8.0) (16.6) (10.1) (26.6) 15.3 25.9 21.3 74.5 27.3 28.5
CASK 1.9 24.8 434.9 19.9 (0.6) (9.2) (70.3) (3.5) 7.8 23.7 (9.5) 13.9 19.7
RASK-CASK NM NM NM NM NM NM NM NM NM NM NM NM NM
Fuel CASK (18.0) (1.2) (54.9) (43.6) (42.3) (19.7) 78.4 73.4 90.3 58.3 101.1 79.7 41.5
CASK (ex-fuel) 16.5 39.7 733.5 50.5 21.1 (4.9) (75.2) (17.4) (12.6) 11.9 (35.6) (11.0) 8.0
RASK-CASK ex-fuel (11.0) (60.9) (904.3) (238.4) (86.1) (40.0) (87.2) (124.2) 645.8 106.8 (191.4) 586.7 67.2
CASK (ex-fuel, ex-forex) 11.7 19.4 710.1 85.1 28.9 8.7 (76.5) (27.3) (16.2) 3.8 (42.9) (24.6) 0.2
RASK-CASK ex-fuel, ex-forex (4.9) (28.4) (892.9) (275.3) (96.1) (60.8) (89.1) (113.6) 2,422.8 152.3 (243.6) 870.2 82.0
Pricing and margins
Metrics
EBITDAR margins ex-fuel cost (%) 52.3 34.9 (184.3) 34.0 42.1 41.1 (6.4) 40.3 56.1 42.1 52.3 51.2 60.6
Yield (Rs per RPK) 3.88 3.73 4.50 3.81 3.70 3.70 3.48 4.21 4.41 4.41 5.24 5.07 5.37
Ticket price (Rs/pax) 4,321 4,081 4,919 4,230 3,948 3,955 3,859 4,401 4,849 5,150 5,916 5,640 5,902
Yoy growth (%)
EBITDAR margins ex-fuel cost (bps) -1145 bps -2689 bps -24617 bps -610 bps -1016 bps 621 bps 17786 bps 630 bps 1402 bps 97 bps 5874 bps 1090 bps 446 bps
Yield 1.1 0.8 10.4 8.3 (4.7) (0.9) (22.7) 10.6 19.3 19.3 50.4 20.5 21.8
Ticket price 3.1 (0.6) 9.1 10.5 (8.6) (3.1) (21.6) 4.0 22.8 30.2 53.3 28.2 21.7
InterGlobe Aviation
37
Fuel cost per ASK has declined by ~11% qoq, while seasonality effect led to 6% qoq improvement in yields
in 3QFY23
Exhibit 4: Comparison of yields and fuel cost per ASK for INDIGO, March fiscal year-ends, 1Q18-3Q23
Yield (Rs per ASK, LHS) Fuel cost (Rs per ASK, RHS)
6.0 2.5
5.0
2.0
4.0
3.0 1.5
5.37
5.24
5.07
4.50
4.41
4.41
4.21
4.08
3.88
3.84
3.83
3.81
3.73
3.70
3.70
3.70
3.70
2.0
3.63
3.57
3.52
3.48
3.31
3.22
1.0
1.0
0.0 0.5
1QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
2QFY21
4QFY21
2QFY22
4QFY22
2QFY23
2QFY18
1QFY21
3QFY21
1QFY22
3QFY22
1QFY23
3QFY23
Load factors for Indigo and industry have breached 87% levels in the seasonally strongest month of
December
Exhibit 5: Monthly load factors of Indigo and industry (%)
(%) IndiGo (LHS) Difference versus industry average (RHS)

100 3.0
2.0
90
1.0
80
-
70
(1.0)
60
(2.0)
50 (3.0)
Nov-18
Nov-21
Nov-22
Nov-19
Nov-20
Sep-20
Sep-21
Sep-22
Sep-18
Sep-19
May-19
May-20
May-21
May-18
May-22
Jul-19
Jul-20
Jul-21
Jul-22
Jul-18
Jan-19
Jan-20
Jan-21
Jan-22
Mar-19
Mar-20
Mar-21
Mar-22
Source: DGCA, Company, Kotak Institutional Equities
InterGlobe Aviation
38
Interglobe Aviation has signed six code-share agreements for the domestic leg of international travel across key regions
Exhibit 6: Code-share agreements signed by Interglobe Aviation
Month of
Airline Region signing Nature Benefits
Offers Turnkish Airlines access of undisclosed number of cities in India
Turkish Airlines Europe Dec-18 Two-way
Offers Indigo access to 20 international destinations
Qatar Airways Doha Nov-19 One-way Offers Qatar Airways more flights into Delhi, Mumbai and Hyderabad
American Airlines America Sep-21 One-way Offers American Airlines access to 29 new cities in India
Offers Air-France KLM access to 30 new cities in India
Air France-KLM Europe Dec-21 Two-way
Offers Indigo access to 300 European routes
Sydney
One-way Offers Qantas direct flights to South India to start with, cutting travel time
Qantas (as of Apr-22
(for now) by three hours. Also offers 50 cities in India one-stop access to Sydney
now)
One-way Offers Virgin Atlantic flights to seven Indian cities and it will later this year
Virgin Atlantic Sep-22
(for now) be expanded to include nine more cities.
ATF prices have been coming down and are at Rs112/Kl as on February 1, 2023
Exhibit 7: Trend in monthly Delhi ATF price (Rs per liter)
ATF Price (Rs per litre)

160
120
80
40
0
16-Nov-21
16-Nov-22
16-Sep-21
16-Dec-21
16-Sep-22
16-Dec-22
16-Apr-22
16-Apr-21
16-May-21
16-Oct-21
16-May-22
16-Oct-22
16-Jul-21
16-Jul-22
16-Feb-22
16-Jun-21
16-Mar-22
16-Jun-22
16-Aug-22
16-Jan-23
16-Aug-21
16-Jan-22
Source: IOCL, Kotak Institutional Equities
InterGlobe Aviation
39
Daily passenger traffic remained healthy in 3QFY23

Exhibit 8: Daily passenger traffic and departures data (‘000s, #)
Departures (rhs) Passengers

500,000 3,500
450,000
3,000
400,000
350,000 2,500
300,000 2,000
250,000
200,000 1,500
150,000 1,000
100,000
500
50,000
0 0
25-Jul
25-Jul
25-Jul
25-Sep
25-Sep
25-Sep
25-Mar
25-May
25-Mar
25-May
25-May
25-Nov
25-Nov
25-Jan
25-Nov
25-Jan
Source: MoCA, Kotak Institutional Equities
We increase ASK by 7%, however, broadly maintain FY2025E EPS on account of higher crude price assumptions
Exhibit 9: Changes in estimates for INDIGO, March fiscal year-ends, 2023E-25E
New estimates Old estimates Change (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Financials
Revenues (Rs mn) 543,181 626,543 722,917 520,785 569,569 626,346 4 10 15
EBITDAR (Rs mn) 70,202 148,994 177,847 60,231 129,306 156,528 17 15 14
EBITDA (Rs mn) 66,766 144,575 172,301 56,940 125,368 151,697 17 15 14
Depreciation (Rs mn) (51,717) (62,048) (71,572) (49,480) (54,702) (60,516) 5 13 18
Interest cost (30,889) (38,456) (42,535) (29,338) (31,335) (33,571) 5 23 27
PAT excluding forex (Rs mn) 29,999 46,749 57,285 15,960 43,213 56,848 88 8 1
PAT (Rs mn) (4,001) 46,749 57,285 (10,040) 43,213 56,848 (60) 8 1
EPS (Rs) (10) 122 150 (26) 113 149 (60) 8 1
Operating metrics
ASKs (mn) 113,997 131,097 148,139 111,111 122,222 138,111 3 7 7
Yield (Rs/RPK) 5.14 5.07 5.14 5.18 5.03 4.78 (1) 1 8
Load factor (%) 82.0 83.5 84.0 80.0 82.0 84.0 2 2 —
Fuel CASK 2.08 1.91 1.93 2.13 1.81 1.63 (2) 5 18
RASK-CASK (Rs/ASK) 0.16 0.34 0.39 0.04 0.32 0.42 329 4 (6)
Other assumptions
Exchange rate (US$/INR) 80 81 82 80 81 82 — — —
Brent crude price (US$/bbl) 95 90 90 105 90 80 (9.5) — 12.5
InterGlobe Aviation
40
We assume ~Rs0.34/Rs0.39 per ASK RASK less CASK prior to forex for FY2024/25E versus Rs0.53 per ASK reported in 3QFY23
Exhibit 10: Key assumptions for Indigo, March fiscal year-ends
2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
USD/INR rate 61 66 67 65 70 71 74 76 80 81 82
Crude price, Dated Brent (US$/bbl) 86 47 49 57 70 61 43 78 95 90 90
Indigo's fleet size 94 107 131 159 218 262 285 275 305 350 375
Indigo's ASKs (mn units) 35,327 42,826 54,583 63,510 81,028 96,200 45,481 70,414 113,997 131,097 148,139
Yoy growth (%) 18 21 27 16 28 19 (53) 55 62 15 13
Indigo RPKs (mn units) 28,177 35,968 46,288 55,524 69,811 82,500 31,600 51,700 93,478 109,466 124,437
Yoy growth (%) 22 28 29 20 26 18 (62) 64 81 17 14
Load factor (%) 80 84 85 87 86 86 69 73 82 84 84
Average ticket price (Rs) 4,882 4,248 3,721 3,825 3,886 4,190 4,041 4,706 5,694 5,609 5,693
Yoy growth (%) (4) (13) (12) 3 2 8 (4) 16 21 (2) 1
Yield (Rs per RPK) 4.4 3.9 3.5 3.6 3.6 3.8 3.8 4.2 5.1 5.1 5.1
Yoy growth (%) 2 (10) (10) 3 0 6 (2) 13 21 (2) 1
Ancilliary revenues (as % of ticket revenues) 13.3 14.8 14.7 15.4 13.3 13.7 26.2 18.0 13.0 13.0 13.0
RASK-CASK (Rs) 0.41 0.54 0.25 0.34 (0.12) (0.03) (1.55) (0.8) 0.16 0.34 0.39
EBITDAR margins ex-fuel cost (%) 68.7 64.5 62.5 62.2 58.7 47.5 29.5 40.6 56.2 63.2 63.7
We assume Rs122 and Rs150 per share EPS in FY2024 and FY2025
Exhibit 11: Profit and loss model, balance sheet and cash flow statement for Indigo, March fiscal year-ends (Rs mn)
2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Profit model (Rs mn)
Sales 139,253 161,399 185,805 230,209 284,968 357,560 149,669 259,309 543,181 626,543 722,917
EBITDAR 38,219 56,247 52,687 65,667 47,940 45,348 5,812 8,420 70,202 148,994 177,847
EBITDA 18,697 30,125 21,432 29,565 (2,054) 40,382 3,008 5,303 66,766 144,575 172,301
Other income 3,838 5,151 7,891 9,469 13,249 15,362 10,363 7,245 11,839 17,403 17,403
Interest (1,155) (3,041) (3,308) (3,398) (5,090) (18,759) (21,420) (23,580) (30,889) (38,456) (42,535)
Depreciation (3,022) (5,055) (4,573) (4,369) (7,596) (39,736) (46,987) (50,678) (51,717) (62,048) (71,572)
Profit before tax 18,357 27,181 21,443 31,267 (1,490) (2,751) (55,035) (61,710) (4,001) 61,474 75,597
Tax expense (5,402) (8,373) (4,852) (8,843) 3,052 269 — — — (14,725) (18,313)
PAT 12,956 18,807 16,591 22,424 1,561 (2,482) (55,035) (61,710) (4,001) 46,749 57,285
Year-end number of shares 307 360 360 383 383 383 383 383 383 383 383
Fully diluted number of shares 344 351 360 383 383 383 383 383 383 383 383
EPS-fully diluted (Rs) 38 54 46 59 4 (6) (144) (161) (10) 122 150
Equity 4,207 27,232 37,792 70,774 69,448 58,624 709 (60,353) (64,354) (17,605) 39,679
Total borrowings 39,262 30,071 23,957 22,414 21,937 3,466 25,056 38,968 38,968 38,968 38,968
Deferred incentives 17,516 15,832 21,838 26,017 51,883 2,682 2,206 1,730 12,230 27,980 36,730
Other long term liabilities 24,784 20,302 25,602 36,297 37,605 256,627 305,204 368,909 408,829 464,426 511,747
Current liabilities and provisions 21,914 32,750 42,908 55,791 69,245 99,085 96,567 109,348 120,283 132,311 145,542
Total liabilities 107,682 126,187 152,098 211,293 250,117 420,485 429,742 458,602 515,955 646,080 772,666
Net fixed assets 48,765 47,794 38,190 46,113 56,857 169,184 188,872 214,073 248,795 297,065 340,565
Investments 27,237 22,318 19,443 18,865 12,228 27,186 34,718 43,056 48,848 57,537 62,364
Cash & cash equivalent 25,161 47,048 83,459 129,245 151,229 203,286 185,171 181,490 172,362 238,477 308,585
Loans and advances/other current assets 6,519 9,027 11,005 17,070 29,804 20,829 20,982 19,981 45,948 53,000 61,152
Total assets 107,682 126,187 152,098 211,293 250,117 420,485 429,742 458,600 515,954 646,078 772,665
Cash flow statement (Rs mn)
Operating cash flow 15,966 19,730 16,582 20,722 997 40,651 (57,700) (59,138) (6,811) 43,699 56,521
Working capital changes 7,765 7,082 22,361 22,269 34,532 (26,657) (15,308) 12,402 (5,065) 19,928 13,385
Capital expenditure (10,170) (4,084) 5,031 (12,291) (18,340) 68,271 23,987 16,799 (9,183) (11,494) (13,351)
Free cash flow 13,561 22,728 43,974 30,700 17,189 82,265 (49,020) (29,937) (21,058) 52,132 56,555
Ratios (%)
EBITDAR 27.4 34.8 28.4 28.5 16.8 12.7 3.9 3.2 12.9 23.8 24.6
EBITDA margin 13.4 18.7 11.5 12.8 (0.7) 11.3 2.0 2.0 12.3 23.1 23.8
Net debt/equity (X) 6.6 0.3 (0.5) (0.7) (1.0) (1.7) (74.8) 0.6 0.4 5.2 (4.1)
Book value (R/share) 12.2 77.7 104.9 184.9 181.5 153.2 1.9 (157.7) (168.1) (46.0) 103.7
ROAE 312.8 126.4 51.0 41.3 2.2 NM NM NM NM NM NM
ROACE 32.3 51.4 68.9 72.4 NM NM NM NM NM NM NM
InterGlobe Aviation
RESULT
Tata Consumer Products (TATACONS) ADD

Consumer Staples
India tea business drags domestic growth Company data and valuation summary
TCPL reported (1) 5%/9% yoy decline in India tea volume/value (3.1%/8.7% 3-
Stock data
yr CAGR), (2) 4%/29% yoy growth in India foods volume/value (6.5%/21% 3-
yr CAGR), and (3) stable/weak profitability in India/overseas business on
expected lines. We trim FY2023-25E EPS by 1-3%, roll over and revise FV to
Rs770 (Rs785 earlier). ADD.
ADTV-3M (mn) (Rs/US$) 1,008/12
3QFY23— Weak quarter on expected lines

Shareholding pattern (%)
Standalone (India tea + foods): Revenues grew 6% yoy (+13.7% 3-yr CAGR) with
4.7
(1) volume/value decline of 5%/9% (KIE: -4%/-9%) in India tea (3-yr volume
CAGR at 3.1%; market share loss partly due to stress in North India and (2) 20.4
34.7
4%/29% volume/value growth (KIE: +26% value) in India foods, led by 27%
8.3
growth in salt (pricing-led) and 37% growth in Sampann. Growth businesses
6.3
(NourishCo, Sampann, Soulfull) grew 53% yoy and now contribute 13% to India 25.7
business. GM rose 20 bps yoy to 38.9% (KIE: 40%), aided by cost-saving
initiatives and the foods segment. EBITDA margin was maintained at ~15%
levels as slight miss in GM was offset by the cut in A&P spends. Price performance (%)
Nifty TATACONS
Consolidated: Revenues grew 8.3% yoy to Rs34.8 bn. International business 200
grew 4% yoy (+3% 3-yr CAGR). US Coffee (EOC) revenue grew 11% (1% c/c), led 160
by pricing (volume decline of 17% yoy). International tea reported a 1% revenue 120
decline (2% c/c) and flat volumes. GM at 41.5% (KIE: 41.9%) declined 220/25
80
bps yoy/qoq, largely due to high inflation in international businesses
40
(inflation/GBP depreciation in the UK; renewal of coffee purchase contracts in
EOC). EBITDA margin at 13.1% (KIE: 12.9%) was down 135 bps yoy as the cut in 0
Mar-22
Aug-22
May-22
Feb-22
Nov-22
Jan-22
Jun-22
Jan-23
Oct- 22
Apr-22
Sep-22
Dec -22
Jul-22
A&P spends partly offset GM pressure. EBITDA declined 2% yoy (3-yr CAGR
+12.6%). Exceptional items included fair valuation gain on conversion of SA JV
(Rs880 mn) to a subsidiary, offset partly by restructuring costs (Rs90 mn). Forecasts/Valuations 2023E 2024E 2025E
EPS (Rs) 11.2 14.5 17.3
Key takeaways: (1) Tea: delayed winter impacted 3Q sales; volumes improved EPS growth (%) 4.7 29.6 19.0
in December 2022/January 2023. TCPL expects recovery in 4Q, (2) NourishCo P/E (X) 64.8 50.0 42.0
P/B (X) 4.3 4.1 3.9
to cross Rs6 bn in FY2023E versus Rs1.8 bn at acquisition, (3) steady-state
EV/EBITDA (X) 35.9 30.5 26.2
growth—MSD/HSD-to-LDD volume/value growth in tea/salt and DD volume
RoE (%) 6.7 8.4 9.6
growth in Sampann, (4) TCPL is planning a serious move in snacking space Div. yield (%) 0.9 1.0 1.2
(organically/inorganically), (5) EOC volume decline was due to grammage cuts Sales (Rs bn) 136 145 158
rather than price hikes, (6) international margins to improve in 4Q, led by price EBITDA (Rs bn) 18 21 24
hikes and cost initiatives, (7) current reach—1.4 mn direct, 3.6 mn numeric (~2.7 Net profits (Rs bn) 10 13 16
mn each in tea/salt, 2.2-2.4 mn in Sampann, 300k+ in Soulfull, 600K+ in Source: Bloomberg, Company data, Kotak Institutional Equities estimates
NourishCo), (8) TCPL plans to expand its DSR network by 35-40% and to split Prices in this report are based on the market close of
February 03, 2023
GTM routes across foods/beverages, (7) Sampann is margin-dilutive, but
margins are improving with scale, (7) in the past 3 years, TCPL’s staff/other Related Research
overheads were reduced by 100/150 bps, (8) net cash at Rs21 bn (+10% yoy).
→ TCPL: Bisleri: A good fit in TCPL portfolio
We trim FY2023-25E EPS by 1-3%; maintain ADD with FV of Rs770 → TCPL: Mixed bag
We tweak FY2023-25 EPS estimates, roll over and revise the SoTP-based FV to → TCPL: A tad soft
Rs770 (Rs785 earlier).
earlier).

42
Exhibit 1: Key changes to consolidated estimates (Ind-AS), Tata Consumer Products, March fiscal year-ends, 2023-25E
Revised Earlier Change (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Consolidated financials
Revenues (Rs mn) 136,022 145,018 157,782 137,219 145,274 158,472 (0.9) (0.2) (0.4)
Gross margin (%) 42.3 43.3 43.7 42.3 43.2 43.5 0 bps 4 bps 14 bps
EBITDA (Rs mn) 18,161 21,138 24,322 18,046 20,957 23,860 0.6 0.9 1.9
EBITDA margin (%) 13.4 14.6 15.4 13.2 14.4 15.1 20 bps 14 bps 35 bps
Net income (Rs mn) 10,343 13,403 15,949 10,542 13,845 16,170 (1.9) (3.2) (1.4)
EPS (Rs/share) 11.2 14.5 17.3 11.4 15.0 17.5 (1.9) (3.2) (1.4)
Standalone financials
Revenues (Rs mn) 84,192 93,490 104,578 85,792 94,705 106,308 (1.9) (1.3) (1.6)
Gross margin (%) 39.2 40.5 40.6 39.5 40.6 40.7 -30 bps -15 bps -15 bps
EBITDA (Rs mn) 12,992 15,345 17,412 13,228 15,317 17,461 (1.8) 0.2 (0.3)
EBITDA margin (%) 15.4 16.4 16.6 15.4 16.2 16.4 1 bps 24 bps 22 bps
Net income (Rs mn) 9,584 11,366 12,953 9,741 11,331 12,971 (1.6) 0.3 (0.1)
Standalone EPS (Rs/share) 10.4 12.3 14.1 10.6 12.3 14.1 (1.6) 0.3 (0.1)
Exhibit 2: Tata Consumer Products: sum-of-the-parts (SoTP) valuation model, March fiscal year-ends (Rs mn)
Segment Metric Multiple (x) Per share value (Rs) % of total value Comment
India branded business P/E 45 616 80
Tata Sampann EV/Sales 3.0 40 5 At 3.5X EV/sales for Tata Sampann portfolio
Tata coffee business 25 3 Based on Tata Coffee Mcap
EOC (TCPL's 50% stake) EV/EBITDA 12.0 19 3 Value for TCPL's stake in EOC
Tetley/other businesses P/Sales 1.5 27 4 Tetley plus other subsidiaries/acquisitions
Starbucks JV DCF 43 6 Based on DCF model; attributable value (50% stake)
Total Equity Value 770
Implied consol P/E (X) 45 2-yr forward
Consolidated EPS 17.3
Tata Consumer Products

43
Exhibit 3: Interim consolidated results of Tata Consumer Products, March fiscal year-ends (Rs mn)
% chg. 3-year
3QFY23 3QFY23E 3QFY22 2QFY23 KIE Est yoy qoq 9MFY23 9MFY22 % chg 3QFY20 CAGR
Net revenue from operations 34,746 34,540 32,084 33,631 0.6 8.3 3.3 101,644 92,500 9.9 24,930 11.7
Material cost (20,320) (20,075) (18,066) (19,592) 1.2 12.5 3.7 (59,003) (53,253) 10.8 (14,078)
Gross profit 14,425 14,465 14,018 14,038 (0.3) 2.9 2.8 42,641 39,247 8.6 10,851 10.0
Gross margin (%) 41.5 41.9 43.7 41.7 -37 bps -218 bps -23 bps 42.0 42.4 -48 bps 43.5
Employee cost (2,830) (2,814) (2,589) (2,738) 0.6 9.3 3.4 (8,343) (7,800) 7.0 (2,194) 8.9
A&P spends (2,284) (2,502) (2,453) (2,169) (8.7) (6.9) 5.3 (6,569) (6,154) 6.7 (2,014) 4.3
Other expenditure (4,774) (4,702) (4,359) (4,793) 1.5 9.5 (0.4) (14,281) (12,548) 13.8 (3,462) 11.3
Total expenditure (30,209) (30,094) (27,467) (29,292) 0.4 10.0 3.1 (88,196) (79,755) 10.6 (21,748)
EBITDA 4,537 4,446 4,617 4,338 2.0 (1.7) 4.6 13,448 12,745 5.5 3,181 12.6
EBITDA margin (%) 13.1 12.9 14.4 12.9 18 bps -134 bps 15 bps 13.2 13.8 -55 bps 12.8
Other income 489 300 250 293 63.1 95.4 66.9 1,136 927 22.6 285
Interest (237) (168) (162) (196) 41.0 46.5 21.1 (595) (564) 5.6 (201)
Depreciation (752) (752) (698) (731) 0.0 7.7 2.8 (2,212) (2,059) 7.4 (614)
Pretax profits 4,038 3,826 4,007 3,705 5.5 0.8 9.0 11,777 11,049 6.6 2,651 15.1
Tax (1,129) (995) (999) (1,267) 13.4 13.0 (10.9) (3,425) (2,817) 21.6 (750)
PAT 2,909 2,831 3,009 2,438 2.7 (3.3) 19.3 8,351 8,231 1.5 1,901 15.2
Minority interest (127) (380) (250) (615) (66.7) (49.4) (79.4) (954) (579) 64.9 (153)
Share of associate earnings (50) 200 24 345 (125.1) (310.0) (114.6) 296 (136) (317.8) (46)
PAT after MI/Associates 2,732 2,651 2,782 2,167 3.0 (1.8) 26.0 7,694 7,517 2.4 1,702 17.1
Extraordinary items 786 — (132) 1,112 1,658 (334) (596.3) (8)
Net profit (reported) 3,518 2,651 2,651 3,280 32.7 32.7 7.3 9,352 7,182 30.2 1,694 27.6
Recurring EPS (Rs) 2.96 2.88 3.02 2.35 3.0 (1.8) 26.0 8.3 8.2 2.4 1.85 17.1
Income tax rate (%) 28.0 26.0 24.9 34.2 195 bps 303 bps -625 bps 29.1 25.5 358 bps 28.3
Material cost 58.5 58.1 56.3 58.3 36 bps 217 bps 22 bps 58.0 57.6 47 bps 56.5
Employee cost 8.1 8.1 8.1 8.1 -1 bps 7 bps 0 bps 8.2 8.4 -23 bps 8.8
A&SP 6.6 7.2 7.6 6.4 -68 bps -108 bps 12 bps 6.5 6.7 -20 bps 8.1
Other expenditure 13.7 13.6 13.6 14.3 12 bps 15 bps -51 bps 14.1 13.6 48 bps 13.9
Segment results
Revenues
India - Beverages 12,183 12,777 12,380 (4.6) (1.6) 8,731 11.7
India - Foods 9,470 7,324 9,220 29.3 2.7 5,311 21.3
International - Beverages 9,299 8,966 8,389 3.7 10.9 8,516 3.0
Total branded business 30,953 29,067 29,988 6.5 3.2 22,558
Non branded business 3,913 3,123 3,718 25.3 5.2 2,385
Others 108 45 137 82
Less: intersegmental revenues (228) (150) (213) (96)
Total segment revenue 34,746 32,084 33,631 8.3 3.3 24,930
Segment EBIT
India Branded business 3,004 2,629 3,077 14.3 (2.4) 1,276 33.0
International - Beverages 884 1,442 597 (38.7) 48.1 790 3.8
Total branded business 3,888 4,071 3,674 (4.5) 5.8 2,728
Non branded business 272 232 300 17.3 (9.3) 162
Total segment EBIT 4,160 4,303 3,974 (3.3) 4.7 2,889
Segment EBIT margins, %
India Branded business 13.9 13.1 14.2 79 bps -38 bps 14.6 -73 bps
International - Beverages 9.5 16.1 7.1 -658 bps 239 bps 9.3 20 bps
Total branded business 12.6 14.0 12.3 -145 bps 31 bps 12.1
Non branded business 6.9 7.4 8.1 -48 bps -112 bps 6.8
Total segment EBIT 12.0 13.4 11.8 -144 bps 15 bps 11.6

44
Exhibit 4: Interim standalone results of Tata Consumer Products, March fiscal year-ends (Rs mn)
% chg. 3-year
3QFY23 3QFY23E 3QFY22 2QFY23 KIE Est yoy qoq 9MFY23 9MFY22 % chg 3QFY20 CAGR
Net operating revenues 21,533 21,560 20,305 21,308 (0.1) 6.0 1.1 63,610 59,839 6.3 14,635 13.7
Material cost (13,151) (12,936) (12,445) (12,942) 1.7 5.7 1.6 (38,986) (37,768) 3.2 (9,004)
Gross profit 8,382 8,624 7,860 8,366 (2.8) 6.6 0.2 24,624 22,071 11.6 5,630 14.2
Gross margin (%) 38.9 40.0 38.7 39.3 -108 bps 21 bps -34 bps 38.7 36.9 182 bps 38.5
Employee cost (1,008) (1,000) (909) (957) 0.8 10.8 5.4 (2,943) (2,681) 9.7 (691) 13.4
A&P spends (1,418) (1,622) (1,501) (1,443) (12.5) (5.5) (1.7) (4,136) (3,692) 12.0 (1,077) 9.6
Other expenditure (2,675) (2,689) (2,643) (2,606) (0.5) 1.2 2.6 (7,836) (7,465) 5.0 (2,871) (2.3)
EBITDA 3,281 3,314 2,806 3,360 (1.0) 16.9 (2.4) 9,710 8,233 17.9 992 49.0
EBITDA margin (%) 15.2 15.4 13.8 15.8 -14 bps 141 bps -54 bps 15.3 13.8 150 bps 6.8
Other income 434 250 238 241 73.7 82.4 80.2 1214 2011 (39.6) 248
Interest (73) (78) (73) (73) (6.0) 0.7 0.4 (218) (226) (3.6) (72)
Depreciation (366) (372) (357) (362) (1.6) 2.3 1.0 (1,078) (1,067) 1.1 (294)
Pretax profits 3,276 3,114 2,614 3,166 5.2 25.3 3.5 9,628 8,951 7.6 875 55.3
Tax (824) (794) (645) (802) 3.7 27.6 2.7 (2,371) (1,989) 19.2 (513)
Recurring PAT 2,453 2,320 1,969 2,365 5.7 24.6 3.7 7,257 6,962 4.2 361 89.3
Extraordinary items (80) — (94) (70) (261) (166) (8)
Net profit (reported) 2,373 2,320 1,875 2,295 2.3 26.6 3.4 6,996 6,796 2.9 353 88.7
Income tax rate (%) 25.1 25.5 24.7 25.3 -36 bps 45 bps -18 bps 24.6 22.2 58.7
Material cost 61.1 60.0 61.3 60.7 107 bps -22 bps 33 bps 61.3 63.1 -183 bps 61.5
Employee cost 4.7 4.6 4.5 4.5 4 bps 20 bps 19 bps 4.6 4.5 14 bps 4.7
A&SP 6.6 7.5 7.4 6.8 -94 bps -81 bps -19 bps 6.5 6.2 33 bps 7.4
Other expenditure 12.4 12.5 13.0 12.2 -5 bps -60 bps 19 bps 12.3 12.5 -16 bps 19.6
Exhibit 5: Interim consolidated results of Tata Coffee, March fiscal year-ends (Rs mn)
% chg.
3QFY23 3QFY22 2QFY23 yoy qoq
Net revenue from operations 7,467 6,261 7,183 19.3 4.0
Material cost (4,232) (3,095) (4,023) 36.7 5.2
Gross profit 3,234 3,165 3,159 2.2 2.4
Gross margin (%) 43.3 50.6 44.0 -725 bps -67 bps
Employee cost (1,045) (941) (1,000) 11.0 4.4
Other expenditure (1,262) (1,069) (1,338) 18.0 (5.7)
Total expenditure (6,538) (5,105) (6,362) 28.1 2.8
EBITDA 928 1,156 821 (19.7) 13.1
EBITDA margin (%) 12.4 18.5 11.4 -603 bps 100 bps
Other income 81 75 44 8.6 82.8
Interest (213) (104) (154) 104.8 38.1
Depreciation (219) (205) (207) 7.0 5.8
Pretax profits 577 922 504 (37.4) 14.6
Tax (187) (223) (402) (16.1) (53.5)
PAT 391 699 102 (44.1) 281.7
Minority interest (118) (252) (45) (53.3) 159.8
Share of associate earnings — — —
PAT after MI/associate earnings 273 447 57 (39.0) 378.6
Extraordinary items (7) (4) 1,367
Net profit (reported) 266 443 1,424 (39.9) (81.3)
Recurring EPS (Rs) 1.5 2.4 0.3 (39.0) 378.6
Income tax rate (%) 32.4 24.2 79.7 820 bps -4734 bps
Material cost 56.7 49.4 56.0 724 bps 66 bps
Employee cost 14.0 15.0 13.9 -104 bps 6 bps
Other expenditure 16.9 17.1 18.6 -18 bps -174 bps
Eight O' Clock, EOC (US$ mn)
Total Income 46.4 45.9 47.5 1.2 (2.2)

45
Exhibit 6: Interim standalone results of Tata Coffee, March fiscal year-ends (Rs mn)
% chg.
3QFY23 3QFY22 2QFY23 yoy qoq
Net revenue from operations 2,730 2,205 2,614 23.9 4.4
Material cost (1,351) (958) (1,084) 41.1 24.6
Gross profit 1,379 1,247 1,530 10.6 (9.8)
Gross margin (%) 50.5 56.6 58.5 -605 bps -801 bps
Employee cost (607) (554) (545) 9.6 11.3
Other expenditure (549) (478) (665) 14.9 (17.4)
Total expenditure (2,507) (1,989) (2,295) 26.1 9.3
EBITDA 223 216 320 3.6 (30.2)
EBITDA margin (%) 8.2 9.8 12.2 -161 bps -406 bps
Other income 224 189 120 18.6 86.5
Interest (39) (13) (19) 203.9 103.2
Depreciation (65) (60) (58) 9.4 13.5
Pretax profits 343 332 363 3.4 (5.5)
Tax (77) (47) (398) 66.2 (80.6)
PAT 266 286 (35) (6.8) (862.5)
Extraordinary items 0 0 1,470
Net profit (reported) 266 286 1,436 (6.8) (81.5)
Recurring EPS (Rs) 1.4 1.5 (0.2) (6.8) (862.5)
Income tax rate (%) 22.5 14.0 21.7 850 bps 79 bps
Material cost 49.5 43.4 41.5 604 bps 800 bps
Employee cost 22.2 25.1 20.9 -289 bps 136 bps
Other expenditure 20.1 21.7 25.4 -156 bps -533 bps
Exhibit 7: Key financials of different businesses of Tata Consumer Products, March fiscal year-ends (Rs mn, %)
4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 yoy qoq
TCPL consolidated
Revenue 17,755 23,924 23,471 24,930 24,050 27,139 27,813 30,696 30,372 30,085 30,331 32,084 31,754 33,268 33,631 34,746 8 3
EBITDA 1,743 3,509 3,148 3,182 3,084 4,827 3,996 3,613 3,002 3,995 4,133 4,617 4,443 4,573 4,338 4,537 (2) 5
EBITDA margin (%) 9.8 14.7 13.4 12.8 12.8 17.8 14.4 11.8 9.9 13.3 13.6 14.4 14.0 13.7 12.9 13.1 -134 bps 15 bps
TCPL Standalone (India beverages and foods)
Revenue 7,841 14,640 14,272 14,635 13,353 16,054 17,361 19,627 18,501 19,659 19,875 20,305 19,484 20,769 21,308 21,533 6 1
EBITDA 591 1,603 1,071 992 525 2,692 2,537 1,971 1,421 2,740 2,687 2,806 2,876 3,068 3,360 3,281 17 (2)
EBITDA margin (%) 7.5 10.9 7.5 6.8 3.9 16.8 14.6 10.0 7.7 13.9 13.5 13.8 14.8 14.8 15.8 15.2 141 bps -54 bps
TCPL overseas subsidiaries (acquisitions) excluding EOC (Predominantly Tetley and Good Earth)
Revenue 5,309 4,617 4,387 5,281 5,530 5,210 5,018 5,741 5,959 5,099 4,971 5,518 5,707 5,877 5,140 5,746 4 12
EBITDA 522 1,117 1,282 1,339 1,788 1,029 572 679 638 353 423 654 457 338 157 327 (50) 108
Tata Coffee consol
Revenue 4,605 4,667 4,812 5,014 5,167 5,875 5,434 5,328 5,912 5,327 5,485 6,261 6,563 6,622 7,183 7,467 19 4
EBITDA 630 789 794 851 771 1,106 887 964 944 902 1,023 1,156 1,110 1,166 821 928 (20) 13
Tata Coffee Standalone (B2B + plantantions business)
Revenue 2,013 2,003 1,857 1,662 1,673 1,756 1,856 1,578 2,177 1,795 1,899 2,205 2,271 2,322 2,614 2,730 24 4
EBITDA 135 229 175 148 7 152 115 190 241 161 191 216 244 319 320 223 4 (30)
EBITDA margin (%) 6.7 11.4 9.4 8.9 0.4 8.7 6.2 12.1 11.1 9.0 10.1 9.8 10.8 13.7 12.2 8.2 -161 bps -406 bps
Eight O'Clock (US coffee business) + Vietnam= Tata Coffee consol - Tata Coffee standalone
Revenue 2,593 2,664 2,956 3,353 3,494 4,119 3,578 3,750 3,736 3,532 3,587 4,056 4,291 4,301 4,568 4,736 17 4
EBITDA 495 560 619 703 764 954 772 773 703 741 831 940 866 848 501 705 (25) 41

46
Exhibit 8: Geography/business-wise key highlights and takeaways from earnings conference call
Geography Comments
India business
India packaged beverages-Revenues declined 9% yoy (KIE -9%) (versus India branded tea market grew 2.4% yoy) led by 5% yoy decline (KIE: -4%) in
volume (3-yr volume CAGR at +3.1% versus 2Q’s +4.1%). Revenue decline was attributable to pricing corrections, demand slowdown, and share loss
(46/113 bps share loss on MAT Dec-22 basis per Nielsen) as some of its salient markets (especially North India) witnessed continued stress in rural
- Tea, Coffee
and delayed winter. Premium products like Tata Tea Gold Care, Chakra Gold Care and Tata Tea Gold Darjeeling continued to see strong traction.
Coffee revenue grew 34% YTD. India beverages segment’s headline revenue (-5% yoy) was aided by NourishCo (+66% yoy; 9MFY23 revenue crossed
Rs4 bn). Tata Copper+ grew 113% yoy.
India foods—Revenues grew 29% yoy (KIE +26%) and volumes (ex-Soulfull/Tata Q) grew 4% yoy (3-yr CAGR at +6.5% versus 2Q’s 7.1%). Salt revenues
grew 27% yoy, implying 3-yr revenue CAGR of 19%. Salt witnessed 90 bps market share gain in MAT Dec-2022. Rock salt grew by 97% yoy. Tata
- Foods Sampann portfolio registered 37% yoy growth led by broad-based performance across staples and dry fruits. Tata Soulfull continued its strong growth
trajectory. Soulfull Masala Oats+ is tracking ahead of target metrics and already has DD share in some MT outlets. Tata Raasa RTE range was
launched within select ethnic grocery stores during 3Q.
International business
US Coffee (EOC) revenue grew 11% yoy on reported basis (volumes declined 17% yoy) and 1% in c/c driven by pricing (3-yr value CAGR of +9%). EOC K
Cups grew 2X the category growth led by focused execution. US markets saw category value growth in Coffee (both Bags and K-cups) and Tea on
- USA
account of price increases but volumes declined. TCPL's market share in coffee bags stood at 4.3% (MAT Dec-22). Tea revenue declined 8% (c/c) led
by weak performance in Tetley Black Iced tea.
Revenue grew 5% (constant currency) while revenue growth in specialty tea stood at 1% (c/c). TCPL gained significant value/volume market share
- Canada
during the quarter and Tetley's value market share stood at 27.7% based on MAT Dec-22 basis.
UK revenues grew 1% yoy (c/c) even as Teapigs declined (offline growth more than offset by post-Covid decline in online). Tetley held share in
- UK Everyday black segment. Inflation and GBP depreciation (tea costs are USD denominated) impacted profitability but price hikes announced across all
brands, is likely to mitigate impact going ahead.
Non branded business
Tata Coffee (Standalone (B2B + plantations business) + Vietnam)—Revenues were up 25% yoy (volumes declined 9% yoy) led by strong growth in
extraction (+33% driven by both domestic and Vietnam; Vietnam sales grew 33% c/c). Plantations business (-14% yoy) saw lower volumes of
- Instant Coffee/Plantations
coffee/pepper (due to timing of sales to take advantage of price arbitrage—more coffee sales in last quarter and pepper in next). Tata Coffee
Standalone EBITDA margin stood at 8.2% (down 160/400 bps yoy/qoq).
Other businesses
- NourishCo (100% Revenues grew 66% yoy to Rs1.19 bn and 9MFY23 revenue crossed Rs4 bn. Tata Copper+ grew 113% yoy. NourishCo business now reaches nearly
subsidiary) 600K from just 150K outlets at the time of acquisition. NourishCo has a separate distribution than India Tea.
Tata Starbucks—Revenues grew 42% yoy led by network expansion and revival in OOH. Tata Starbucks opened 11 net new stores (gross +15) during
- Tata Starbucks (JV with
the quarter taking the total store count to 311 stores across 38 cities. The business remained EBIT positive during the quarter. ‘My Starbucks
Starbucks)
Rewards’ program has crossed 2 mn enrollments. TCPL reiterated that store additions will accelerate going forward.
Others
(1) TCPL has increased direct distributor coverage in semi-urban areas. While initially TCPL had combined F&B distribution to drive synergies (had
reached-3.5K DSRs taking both foods/beverages from a common distributor, servicing 1.9-2 mn/0.5 mn numeric/direct outlets in both tea/salt) , it is
now splitting the sales force for foods and beverages (in all towns with population > 1 mn) to release bandwidth and increase depth considering the
significantly expanded product portfolio today.
(2) There is a 10-12% gap between TCPL and HUVR's distribution reach and market shares in India tea. TCPL believes it can close the market share
gap by addressing distribution gap (high value gap in Tamil Nadu, high volume gap in East UP, MH).
(3) Management claimed that both large branded tea players in India lost share to loose/local tea players during 3Q.
(4) India pulses is a Rs1 tn market with sub-1% branded share, presenting enough space for multiple players to operate. Sampann's revenue split
across pulses, spices etc would be similar to the market. Pulses GM is at the lower end whereas spices is near corporate average. Yumside RTE is GM
accretive. International RTE is 10X the size of India RTE (Rs1.5 bn).
(5) MT/E-commerce grew 17%/34% yoy respectively to 14.8%/ 8.8% of sales. 11% NPD contribution in e-commerce and placed 30 new SKUs on MT
shelves in 3QFY23. MT/E-commerce salience is 2X over the past three years.
Other key takeaways
(6) TCPL launched Tata Coffee grand premium to cater to non-South region consumer tastes/preferences and Tetley Green Tea Immune Tulsi.
Shuddh by Tata Salt was re-launched with a renewed marketing mix. TCPL has also relaunched Soulfull Ragi bites with extra creamy fill and an iodized
rock salt variant for the value seeking consumers. Tata Sampann spices' foray into Karnataka expanded its TAM. South markets constitute 40% of
India spices market.
(7) North India tea prices came off sequentially towards the end of plucking season. South India tea prices saw an uptick. Arabica coffee prices saw a
sharp correction during the quarter due to favorable weather in Brazil/rising global stocks.
(8) NPD contribution in FY2023E will likely be 3%+ versus 0.8% few years back
(9) Profitability of JV/associates was impacted due to lower margins in plantations business and one-off costs in Starbucks
(10) Tata Soulfull's current reach of 300K is just 40% of a large competitor. Eventually, Soulfull can cover a significant part of current 3.6 mn outlets.
(11) Management is looking to beef up R&D, digital, distribution, analystics muscles of India business

47
Exhibit 9: TCPL—new product launches during the quarter

48
Exhibit 10: Key assumptions for TCPL, March fiscal year-ends (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Key assumptions
India packaged beverages revenues (Rs mn) 33,769 46,007 46,570 43,892 47,843 52,148
India Foods revenues (Rs mn) 20,637 24,417 29,130 36,604 41,878 48,585
EOC (US Coffee) revenues (Rs mn) 8,430 7,892 8,619 11,011 11,466 12,433 12,566 15,559 14,631 14,808
International Tea revenues (Rs mn) 20,987 21,852 20,307 20,179 19,811 20,077 17,856 16,963 16,624 16,790
Tata Coffee (Standalone + Vietnam) (Rs mn) 7,081 7,413 7,054 7,029 8,194 10,116 11,069 13,375 12,856 13,299
Standalone revenues (Rs mn) 29,868 30,639 32,173 34,297 56,902 71,544 79,323 84,192 93,490 104,578
Subsidiaries' revenues (Rs mn) 36,498 37,157 35,980 38,218 39,472 44,477 44,931 51,831 51,528 53,205
Revenue growth (%)

India packaged beverages 36.2 1.2 (5.8) 9.0 9.0
India Foods 18.3 19.3 25.7 14.4 16.0
EOC (US Coffee) (6.4) 9.2 27.8 4.1 8.4 1.1 23.8 (6.0) 1.2
International Tea 4.1 (7.1) (0.6) (1.8) 1.3 (11.1) (5.0) (2.0) 1.0
Tata Coffee (Standalone + Vietnam) 4.7 (4.8) (0.4) 16.6 23.5 9.4 20.8 (3.9) 3.4
Standalone revenue growth 2.6 5.0 6.6 65.9 25.7 10.9 6.1 11.0 11.9
Subsidiaries' revenue growth 1.8 (3.2) 6.2 3.3 12.7 1.0 15.4 (0.6) 3.3
Standalone Gross margin (%) 36.5 38.3 40.9 39.4 39.0 33.9 37.7 39.2 40.5 40.6
Subsidiaries Gross margin (%) 52.7 55.0 50.1 49.6 50.9 51.2 52.4 47.2 48.3 49.7
Consolidated Gross margin (%) 45.4 47.5 45.7 44.7 43.9 40.5 43.0 42.3 43.3 43.7
Standalone EBITDA margin 12.0 11.8 15.6 12.8 14.1 12.8 14.0 15.4 16.4 16.6
Subsidiaries EBITDA margin 8.1 11.5 9.4 9.1 12.4 14.1 13.5 10.0 11.2 13.0
Consolidated EBITDA margin 9.9 11.7 12.3 10.8 13.4 13.3 13.8 13.4 14.6 15.4
Notes: (1) India packaged beverages revenues above excludes NourishCo.

49
Exhibit 11: TCPL: consolidated profit model, balance sheet, cash model, March fiscal year-ends, 2016-25E (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Net operating revenues 66,365 67,796 68,154 72,515 96,374 116,020 124,254 136,022 145,018 157,782
EBITDA 6,543 7,911 8,389 7,859 12,922 15,438 17,188 18,161 21,138 24,322
Other income 820 831 942 1,571 1,116 1,214 1,401 1,573 1,827 2,183
Interest (1,169) (915) (428) (525) (779) (687) (728) (726) (566) (536)
Depreciation (1,168) (1,260) (1,160) (1,226) (2,417) (2,547) (2,780) (2,976) (3,216) (3,470)
Pretax profits 5,026 6,567 7,743 7,680 10,842 13,417 15,081 16,032 19,183 22,499
Tax (2,000) (1,983) (2,389) (2,609) (2,742) (3,173) (3,770) (4,489) (5,179) (6,075)
PAT 3,026 4,584 5,354 5,071 8,100 10,244 11,310 11,543 14,003 16,424
Minority interest 316 (654) (609) (488) (4) (738) (794) (1,150) (750) (775)
Share of associate earnings (68) (89) (108) (169) (751) (633) (638) (50) 150 300
PAT after MI/Associates 3,274 3,841 4,637 4,415 7,345 8,873 9,878 10,343 13,403 15,949
Extraordinary items (3,329) 53 319 (333) (2,748) (307) (521) — — —
Net profit (reported) (55) 3,894 4,956 4,082 4,598 8,567 9,358 10,343 13,403 15,949
Recurring Net profit 3,274 3,841 4,637 4,415 7,345 8,873 9,878 10,343 13,403 15,949
Earnings per share (Rs) 5.2 6.1 7.3 7.0 8.0 9.6 10.7 11.2 14.5 17.3
Total equity 62,472 62,655 70,316 73,317 138,149 145,345 151,419 155,495 161,941 170,010
Minority interest 8,618 9,195 10,090 10,277 10,925 10,925 11,516 12,666 13,416 14,192
Total borrowings 13,541 7,866 10,562 11,169 11,825 7,206 10,106 9,106 8,106 8,106
Deferred tax liabilities (net) 786 1,454 167 1,043 3,033 5,469 7,764 7,764 7,764 7,764
Total liabilities and equity 85,416 81,169 91,135 95,806 163,931 168,945 180,806 185,032 191,227 200,071
Net fixed assets (Incl CWIP) 47,713 46,358 49,333 53,377 114,579 117,496 122,531 122,276 121,931 121,554
Investments 12,959 14,510 11,613 11,877 13,229 8,059 7,973 7,923 8,073 8,373
Cash 5,010 5,748 12,381 10,336 16,215 30,748 25,999 29,970 35,667 43,549
Net current assets (excl cash) 19,734 14,553 17,807 20,216 19,909 12,643 24,303 24,863 25,555 26,595
Total assets 85,416 81,169 91,135 95,806 163,931 168,945 180,806 185,032 191,227 200,071
Free cash flow (Rs mn)
Operating cash flow (excl working capital) 3,879 5,927 4,945 6,314 11,643 14,729 15,135 13,672 15,959 18,247
Working capital (2,719) 1,485 (1,389) (4,215) (820) 1,834 23 (560) (692) (1,040)
Free cash flow (303) 6,088 55 (467) 8,305 12,247 5,223 10,391 12,395 14,115
Key assumptions
Net revenue growth (%) - 2.3 0.4 6.2 33.6 21.2 7.0 9.5 6.6 8.8
EBITDA growth (%) (15.6) 20.9 6.0 (6.3) 64.4 19.5 11.3 5.7 16.4 15.1
EPS growth (%) (4.6) 17.3 20.7 (4.8) 13.9 20.8 11.3 4.7 29.6 19.0
EBITDA margin (%) 9.9 11.7 12.3 10.8 13.4 13.3 13.8 13.4 14.6 15.4
Gross margin (%) 45.4 47.5 45.7 44.7 43.9 40.5 43.0 42.3 43.3 43.7
A&P (% of sales) 8.7 8.6 7.5 7.6 7.0 6.3 6.8 6.9 7.1 7.1
Tax rate (% of PBT) 39.8 30.2 30.9 34.0 25.3 23.6 25.0 28.0 27.0 27.0
Ratios (%)
ROAE (%) 5.6 6.1 7.0 6.1 6.9 6.3 6.7 6.7 8.4 9.6
ROAIC (%) 6.3 7.7 8.2 7.0 7.9 7.5 7.9 8.0 9.2 10.3
ROAE (ex-Goodwill) (%) 17.9 16.1 16.9 14.0 21.0 22.6 22.5 21.4 25.0 26.2
ROAIC (ex-Goodwill) (%) 8.5 11.6 13.8 11.6 18.7 24.3 23.5 20.1 23.6 26.8
Note: Tata Chemicals' Consumer product business consolidated starting FY2020

RESULT
Tata Power (TPWR) SELL

Electric Utilities
3QFY23 — coal earnings appear to be moderating Company data and valuation summary
Tata Power’s consolidated earnings continue to be supported by higher coal
Stock data
profits (+52% yoy) as well as larger base of renewable projects. However,
CMP(Rs)/FV(Rs)/Rating 205/192/SELL
coal earnings are moderating sequentially (-13% qoq), even as the tariff
order for Mundra UMPP boosted standalone earnings for the quarter and
year. In our view, CMP fully factors the growth of renewable projects, while
ADTV-3M (mn) (Rs/US$) 2,186/27
coal margins have likely peaked, and resolution of Mundra UMPP does not
appear imminent. Maintain SELL with a revised FV of Rs192 (Rs212 earlier). Shareholding pattern (%)
Earnings aided by one-time order for Mundra as well as coal earnings 3.7
Tata Power reported consolidated revenues, EBITDA and PAT of Rs143 bn 25.2
(+30% yoy, +1% qoq), Rs25 bn (+47% yoy, +34% qoq) and Rs9.4 bn (+122% yoy, 46.9
+15% qoq). Coal continued to remain the mainstay of earnings, though we 9.7
highlight the 13% qoq decline in coal earnings signaling a peaking of margins 4.3
10.3
(similar to prices of imported coal). Standalone earnings were boosted by tariff
order at Mundra that allowed for TPWR to recoup under-recovery for 1HFY23 Promoters FPI s MFs BFI s Retail Others
although 4QFY23 may not continue to enjoy the benefits of sale of power with Price performance (%)
pass-through of fuel cost. Nifty TPWR
200
As for the execution business, Tata Power Solar saw revenues of Rs14.3 bn 160
(-8% yoy, +26% qoq), although margins deteriorated to 7% leading to EBITDA of
120
Rs959 mn (-36%% yoy, -23% qoq) and PAT of Rs493 mn. The company
80
continues to build its EPC order book for utility scale solar projects, with orders
worth Rs154 bn for 3.9 GW of capacity as of 3QFY23. The renewable business 40
continues to gain scale — generation business has an installed capacity of 3.8 0

Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
GW (+35% yoy). However TPREL made losses of Rs494 mn despite 54% yoy
increase in revenues to Rs4.2 bn.
Coal may present headwinds to earnings hereon
EPS (Rs) 10.6 7.8 9.5
Tata Power’s stock performance over the past three years was prompted by (1) EPS growth (%) 43.8 (26.4) 22.2
rising prices of imported coal, (2) re-rating of the renewable business due to P/E (X) 19.3 26.2 21.5
underlying growth, and (3) potential resolution at Mundra UMPP. However, (1) P/B (X) 2.5 2.3 2.1
EV/EBITDA (X) 12.8 12.0 11.2
coal prices (and margins) have likely peaked and are spiraling down, (2) CMP
RoE (%) 14.1 9.2 10.2
adequately captures growth potential for the renewable business, and (3)
Div. yield (%) 0.0 0.0 0.0
resolution for Mundra UMPP appears to be an un-ending process to us. A
Sales (Rs bn) 569 583 619
quicker resolution on Mundra UMPP as expected by the management will be a EBITDA (Rs bn) 84 90 93
positive surprise, in the absence of which earnings will continue to have Net profits (Rs bn) 34 25 31
headwinds on coal even as Mundra UMPP starts operating at lower utilizations. Source: Bloomberg, Company data, Kotak Institutional Equities estimates

Maintain SELL rating with revised FV of Rs192 February 03, 2023
We maintain SELL rating on Tata Power with a revised FV of Rs192 (Rs212

earlier). The key revision is on account of lowering sustainable coal margins to
US$30/ton (from US$35/ton). Earnings upgrade in FY2023E (+40%) factors the
CERC order which allowed for additional revenues of Rs6 bn, while lower coal
margins lead to downward revision of 14% in FY2024E.
Murtuza Arsiwalla Abhishek Khanna

51
Strong contribution from international coal business continues to drive earnings

Exhibit 1: Interim results for Tata Power (consolidated), March fiscal year-ends (Rs mn)
(% Chg.)
3QFY23 3QFY23E 3QFY22 2QFY23 KIE yoy qoq 9MFY23 9MFY22 (% chg.) 2023E 2022 (% chg.) 2024E
Net sales 143,391 148,823 110,149 141,628 (4) 30 1 432,778 303,475 43 569,342 425,762 34 583,287
Employee cost (9,172) (10,187) (9,702) (9,164) (10) (5) 0 (27,731) (25,086) (37,922) (36,116) (39,818)
Cost of power purchased (44,209) (49,221) (36,317) (51,657) (10) 22 (14) (147,098) (109,345) (190,150) (146,406) (203,026)
Cost of fuel (37,491) (45,883) (24,889) (40,122) (18) 51 (7) (119,771) (60,500) (155,629) (82,909) (138,471)
Cost of raw material and components (9,262) (8,772) (9,461) (5,674) 6 (2) 63 (24,709) (20,825)
Other expenditure (17,809) (16,102) (12,425) (16,087) 11 43 11 (49,459) (34,940) (101,885) (87,613) (112,469)
EBITDA 25,448 18,659 17,356 18,925 36 47 34 64,011 52,779 21 83,755 72,717 15 89,502
Depreciation (8,533) (8,584) (7,581) (8,376) (1) 13 2 (25,129) (22,765) (32,894) (31,222) (34,897)
EBIT 16,915 10,075 9,774 10,549 68 73 60 38,882 30,014 50,861 41,495 54,605
Other income 2,728 1,632 1,056 1,504 67 158 81 5,665 6,606 7,301 9,200 4,928
Net interest (10,983) (10,696) (9,526) (10,518) 3 15 4 (31,761) (28,444) (43,013) (38,590) (43,671)
PBT 8,661 1,010 1,304 1,534 757 564 464 12,786 8,176 56 15,149 12,104 25 15,862
Tax (8,119) (505) (2,366) (4,377) (14,281) (9,412) (15,814) (3,796) (18,424)
Minority interest and share of associates 8,908 8,829 5,320 11,033 27,082 13,620 34,597 15,287 27,534
Net profit 9,450 9,334 4,258 8,191 1 122 15 25,587 12,384 107 33,932 23,596 44 24,972
Extraordinary — — — — — — — (6,181) —
Reported profit 9,450 9,334 4,258 8,191 1 122 15 25,587 12,384 107 33,932 17,415 95 24,972
EPS (Rs/share) 3 3 2 3 9 5 10.6 8.7 7.8
EBITDA margin (%) 18 13 16 13 15 17 15 17 15
Effective tax rate (%) 94 50 181 285 112 115 104 31 116
Highlights from the results

Coal — benefit from elevated prices beginning to peak
Tata Power saw strong contribution from its coal companies owing to elevated coal prices, with revenue,
EBITDA and PAT of Rs52 bn (+45% yoy), Rs11 bn (-25% yoy) and Rs9.5 bn (+59% yoy) respectively, during
the quarter. Consequently, share of profit from associates increased to Rs10 bn in 3QFY23 from Rs6.6
bn in 3QFY22, though lower than Rs12 bn in 2QFY23. As previously highlighted, operational data on
profitability of coal mines has not been separately disclosed. We highlight that prices of imported coal
have dropped to US$232/ton in 3QFY23 from US$164/ton in 3QFY22 but down from US$320/ton in
2QFY23.
We currently factor sustainable coal margins of US$30/ton (from US$35/ton) though note that elevated
coal prices over the coming months could help sustain coal margins in the near term. We highlight that
a US$5/ton increase in coal margins (without cost increase at Mundra) increases FV by Rs13.
Maithon — maintaining its earning trajectory
Maithon reported revenues of Rs8.1 bn in 3QFY23, an increase of +21% yoy primarily on account of +16%
yoy increase in unit sales during the quarter, with 4% growth in realizations. Regulated equity for Maithon
plant remained flattish at Rs16.7 bn. EBITDA rose 56% yoy to Rs2.1 bn, and margins improved to 25.5%
(19.7% in 3QFY22).
Tata Power Solar — modest revenue, weak margins
Tata Power Solar’s revenues rose 26% yoy to Rs14.3 bn, but declined 8% qoq. EBITDA margin declined
to 7% (vs 10% in 3QFY22 and 11% in 2QFY23). Tata Power’s solar rooftop revenues moderated
sequentially to Rs5.3 bn (+41% yoy, -7% qoq). Revenues from solar pumps segment nearly doubled
sequentially to Rs2.1 bn in 3QFY23. The company’s recognized revenues from solar EPC business rose
30% sequentially to Rs5.8 bn, with the order book rising marginally to Rs154 bn as of 3QFY23. We factor
Tata Power Solar’s margin profile in the 6-7% range over FY2023E and FY2024E.
Renewables — healthy capacity addition continues although wind capacities saw drop in PLF
TPREL’s reported EBITDA declined 24% sequentially to Rs3.1 bn (+41% yoy) in 3QFY23 as revenues
declined 19% qoq (generation at -14% qoq, tariff at -5% qoq). PLFs for solar plants were stable at 23%
while PLFs for wind plants weakened to 11% (from 29% in 2QFY23). Installed capacity increased
marginally to 2,851 MW in the quarter with solar capacity standing at 2.07 GW and wind capacity at 0.78
GW.
Tata Power
Electric Utilities India Research
52
Elevated input prices led to tepid earnings growth across key non-coal subsidiaries
Exhibit 2: Subsidiary-wise key financial and operational metrics (Rs mn)
(% Chg.) (% Chg.) (% Chg.)
3QFY23 3QFY22 2QFY23 (yoy) (qoq) 9MFY23 9MFY22 (% chg.) 2023E 2022 (% chg.) 2024E
Tata Power Delhi Distribution
Net sales 21,360 19,893 27,420 7 (22) 75,370 61,074 23 94,884 79,784 19 107,544
EBITDA 3,000 2,909 3,120 3 (4) 9,290 9,064 2 12,200 11,687 4 12,984
PAT 1,070 1,083 1,130 (1) (5) 3,410 3,264 4 4,288 4,387 (2) 5,185
Regulated equity 18,610 17,690 18,460 5 1 18,487 17,606 5 19,267 18,310 5 20,225
Maithon Power Ltd
Net sales 8,087 6,710 8,100 21 (0) 23,737 21,475 11 31,700 27,820 14 34,430
EBITDA 2,066 1,320 1,840 56 12 5,716 5,137 11 7,874 6,794 16 9,536
PAT 1,033 312 820 231 26 2,663 2,079 28 3,466 2,807 23 4,607
Sales (MU) 2,029 1,756 2,030 16 (0) 6,019 5,572 8 8,043 7,449 8 8,043
Realization (Rs/kwh) 4.0 3.8 4.0 4 (0) 3.9 3.9 2 3.9 3.7 6 4.3
Cost of Production (Rs/kwh) 3.0 3.1 3.1 (3) (4) 3.0 2.9 2 3.0 2.8 5 3.1
EBITDA (Rs/kwh) 1.0 0.8 0.9 35 12 0.9 0.9 3 1.0 0.9 7 1.2
Coal
Net sales 51,930 35,749 54,520 45 (5) 155,040 94,053 65 84,630 85,740 (1) 19,650
EBITDA 11,190 14,866 16,220 (25) (31) 41,780 36,805 14 14,680 20,180 (27) 3,770
PAT 9,550 6,009 10,960 59 (13) 30,190 16,246 86 4,670 9,330 (50) 990
Coal + Infra
Net sales 52,440 36,459 55,010 44 (5) 156,040 96,114 62 206,876 119,140 74 189,959
EBITDA 11,730 15,586 16,870 (25) (30) 42,970 38,856 11 54,479 38,860 40 44,479
PAT 9,840 6,479 11,350 52 (13) 30,870 17,560 76 38,708 19,510 98 31,550
TPREL
Capacity (MW) 2,851 1,751 2,803 63 2 2,690 1,632 65 2,851 2,184 31 3,551
Generation (MU) 1,223 701 1,430 74 (14) 3,966 2,410 65 5,245 3,302 59 6,843
Tariff (Rs/kwh) 3.5 4.0 3.7 (12) (5) 3.7 4.1 (10) 3.7 4.6 (20) 3.1
Net sales 4,232 2,750 5,200 54 (19) 14,342 9,635 49 18,992 14,970 27 21,065
EBITDA 3,109 2,210 4,070 41 (24) 11,239 7,726 45 14,868 12,380 20 15,413
PAT (449) (180) 310 150 (245) 441 648 (32) 399 1,920 (79) 3
WREL
Capacity (MW) 1,010 1,010 1,010 - - 1,010 1,010 - 1,010 1,010 - 1,010
Generation (MU) 366 360 381 2 (4) 1,238 1,237 0 1,681 1,676 0 1,681
Tariff (Rs/kwh) 7.3 7.2 7.2 2 2 7.4 7.2 4 7.4 7.6 (2) 7.6
Net sales 2,688 2,600 2,750 3 (2) 9,248 8,874 4 12,521 12,770 (2) 12,772
EBITDA 2,112 2,170 2,400 (3) (12) 7,942 7,832 1 10,977 11,483 (4) 11,150
PAT 1,359 750 930 81 46 3,989 2,895 38 5,572 4,413 26 5,345
Tata Power Solar
Net sales 14,300 15,611 11,350 (8) 26 39,180 50,249 (22) 68,052 85,065 (20) 85,065
EBITDA 959 1,503 1,240 (36) (23) 2,329 2,848 (18) 4,048 3,582 13 6,512
PAT 493 805 500 (39) (1) 663 1,328 (50) 1,732 1,605 8 3,465
Earnings growth in 3QFY23 was driven primarily on account of tariff order for CERC
Exhibit 3: Interim results for Tata Power (standalone), March fiscal year-ends (Rs mn)
(% Chg.)
3QFY23 3QFY22 2QFY23 yoy qoq 9MFY23 9MFY22 (% chg.) 2023E 2022 (% chg.) 2024E
Net sales 54,960 21,589 48,878 155 12 156,540 58,444 168 204,139 112,423 82 197,254
Cost of electrical energy purchased (3,522) (1,989) (3,286) 77 7 (10,671) (4,860) (14,385) (7,976) (15,833)
Cost of fuel (33,330) (9,773) (34,853) 241 (4) (105,503) (25,481) (136,442) (65,690) (118,687)
Personnel costs, other expenses and provisions (7,002) (4,266) (5,423) 64 29 (18,449) (11,880) (25,316) (21,939) (25,724)
Total expenses (43,854) (16,028) (43,561) 174 1 (134,623) (42,221) (176,143) (95,605) (160,245)
EBITDA 11,106 5,561 5,317 100 109 21,916 16,223 35 27,997 16,818 66 37,008
Depreciation (2,887) (1,473) (2,864) 96 1 (8,657) (4,437) (11,796) (11,342) (12,084)
EBIT 25,522 4,637 13,964 450 83 49,289 21,861 62,512 35,346 65,724
Other income 17,303 549 11,510 3049 50 36,029 10,076 46,312 29,871 40,800
Net interest (5,388) (3,652) (5,558) 48 (3) (16,574) (11,099) (21,542) (21,889) (2) (20,954)
PBT 20,134 985 8,406 1944 140 32,715 10,763 204 40,969 13,457 204 44,770
Tax (5,091) (498) (3,285) (8,335) (4,734) (11,062) 4,930 (12,088)
Net profit 15,043 487 5,121 2991 194 24,379 6,029 304 29,908 18,387 63 32,682
Extraordinary — — 6,881— 6,881 15,189 6,881 9,443 —
Reported PAT after statutory appropriation 15,043 487 12,002 2991 25 31,260 21,218 47 36,789 27,829 32 32,682
EPS (Rs/share) 4.7 0.2 1.9 8.3 2.2 9.4 6.8 10.2
EBITDA margin (%) 20 26 11 14 28 14 15 19
Effective tax rate (%) 25 51 39 25 44 27 (37) 27
Tata Power
53
Net debt position reduced by Rs13 bn for Tata Power in 3QFY23

Exhibit 4: Movement of net debt for Tata Power, March fiscal year-ends, 1QFY21-3QFY23 (Rs mn)
1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23
Opening net debt 435,782 400,991 368,396 363,634 359,457 388,978 397,186 395,365 397,085 423,430 394,860
Re-statement (1) 5 8 193 1 7,508 (2,591) (0) (5) - 1
Adjusted opening 435,781 400,996 368,404 363,827 359,458 396,486 394,595 395,365 397,080 423,430 394,862
Cash from operations 18,910 21,040 17,000 13,590 18,350 15,290 20,330 13,480 17,980 19,420 29,270
Dividend from JVs / Associates — 2,130 880 12,110 4,900 5,340 5,360 6,020 7,110 13,390 11,530
Working capital 3,460 — 2,500 1,290 (19,740) 8,830 (6,060) 14,670 (20,690) 7,390 (7,560)
Interest (10,070) (10,190) (10,720) (8,590) (9,130) (8,590) (8,840) (8,990) (10,130) (16,370) (10,040)
Dividend — (4,970) (340) — — (4,910) — — — — —
Others 10,060 (680) 190 — (15,000) — 710 420 220 (220) 840
Equity — 26,000 — — — — — — — 20,000 -
Divestment 17,800 7,140 6,480 — — — — — — — —
Capex / Acquisition (5,370) (7,870) (11,220) (14,030) (8,900) (16,660) (12,270) (27,320) (20,840) (15,040) (10,490)
Movement 34,790 32,600 4,770 4,370 (29,520) (700) (770) (1,720) (26,350) 28,570 13,550
Closing 400,991 368,396 363,634 359,457 388,978 397,186 395,365 397,085 423,430 394,860 381,312
Source: Company estimates, Kotak Institutional Equities
TPWRs fair value is highly sensitive to margins for the coal business
Exhibit 5: Sensitivity of fair value to margins on mining and coal cost for Mundra (US$/ton)
Coal cost (US$/ton)
192 80 90 100 110 120
20 178 172 166 160 154
25 191 185 179 173 167
Margin (US$/ton) 30 204 198 192 186 180
35 217 211 204 199 193
40 230 224 217 212 206
Exhibit 6: Tata Power sum-of-the-parts valuation based on March 2024E

Base Multiple Ownership Value Old valu
(Rs mn) Methodology (X) (%) (Rs mn) (Rs/share)
Mumbai Distribution Regulated equity 51,800 P/B 1.5 100 77,699 24
Delhi Distribution Regulated equity 19,662 P/B 1.5 51 15,041 5
Odisha Distribution Regulated equity 11,500 P/B 2.0 51 11,730 4
Tala Transmission Regulated equity 4,680 DCF 51 1,151 0
Mundra Generation DCF 100 (133,286) (42)
Maithon Generation Regulated equity 16,329 DCF 74 14,020 4
IEL Generation DCF 74 5,876 2
Renewable Generation EBITDA 26,563 EV/EBITDA 12.0 100 165,364 52
Coal Coal EBITDA 44,479 EV/EBITDA 6.0 30 250,037 78
Solar Equipment EBITDA 6,512 EV/EBITDA 12.0 100 64,745 20
Investments 139,760 44
Total 612,138 192
Tata Power
54
Our estimates factor no compensation for under-recovery at Mundra UMPP

Exhibit 7: Subsidiary-wise key operational and financial assumptions, March fiscal year-ends, 2020 - 25E
(Rs mn)
2020 2021 2022 2023E 2024E 2025E
Delhi
Revenue 83,507 72,969 79,784 94,884 107,544 122,062
EBITDA 12,188 11,392 11,687 12,200 12,984 13,832
PAT 4,141 4,282 4,387 4,288 5,185 6,272
Regulated equity 15,410 16,790 18,310 19,267 20,225 21,182
Mundra
Revenue 70,169 69,890 31,090 87,000 78,184 78,342
EBITDA 7,902 9,053 (4,570) (13,752) (4,135) (3,988)
PAT (8,905) (6,373) (16,500) (29,270) (17,763) (18,455)
Capacity (MW) 4,000 4,000 4,000 4,000 4,000 4,000
Generation (MU) 24,463 24,536 8,361 22,566 20,954 20,954
PLF (%) 76 73 25 70 65 65
Tariff (Rs/unit) 2.61 2.47 3.04 3.41 3.25 3.26
Fuel cost (Rs/unit) 2.34 2.31 3.76 4.28 3.73 3.73
Coal (US$/ton) 50 48 84 120 100 100
Under-recovery 0.46 0.85 1.79 1.82 1.51 1.50
Net debt 150,984 148,100 177,698 148,352 158,028 164,776
Maithon
Revenue 27,412 25,034 27,820 31,700 34,430 35,396
EBITDA 8,653 6,815 6,794 7,874 9,536 9,338
PAT 3,378 3,110 2,807 3,466 4,607 4,876
Regulated equity 15,090 14,400 16,610 16,559 16,329 16,798
Capacity (MW) 1,050 1,050 1,050 1,050 1,050 1,050
Generation (MU) 6,348 5,819 7,449 8,043 8,043 8,043
PLF (%) 71 69 86 90 90 90
Tariff (Rs/unit) 4.32 4.30 3.73 3.94 4.28 4.40
Fuel cost (Rs/unit) 2.48 2.58 2.38 2.45 2.52 2.60
TPREL
Revenue 9,175 9,599 14,970 18,992 21,065 21,065
EBITDA 7,845 7,965 12,380 14,868 15,413 14,848
PAT (472) 211 1,920 399 3 (1,086)
Capacity (MW) 1,139 1,146 2,184 2,851 3,551 3,551
Generation (MU) 2,056 2,175 3,241 5,140 6,707 6,707
Tariff (Rs/unit) 4.46 4.41 4.62 3.70 3.14 3.14
Net debt 94,263 96,303 119,519 112,188 127,090 120,221
WREPL
Revenue 12,027 11,895 12,770 12,521 12,772 13,027
EBITDA 10,705 10,485 11,483 10,977 11,150 11,324
PAT 1,828 3,199 4,413 5,572 5,345 5,940
Capacity (MW) 1,010 1,010 1,010 1,010 1,010 1,010
Generation (MU) 1,527 1,645 1,663 1,681 1,681 1,681
Tariff (Rs/unit) 7.88 7.23 7.68 7.45 7.60 7.75
Net debt 47,730 45,069 39,819 24,070 15,752 6,795
Coal
Revenue 87,820 80,711 119,140 206,876 189,959 193,702
EBITDA 17,840 22,934 38,860 54,479 44,479 45,306
PAT 6,580 7,604 19,510 38,708 31,550 32,142
Volumes (mn tons) 62 59 54 55 56 57
Net realization (US$/ton) 47 42 71 129 116 116
Cost (US$/ton) 37 32 41 91 86 86
Gross profit (US$/ton) 10 10 30 38 30 30
Solar
Revenue 21,407 51,189 85,065 68,052 85,065 102,078
EBITDA 1,887 3,058 3,582 4,048 6,512 8,952
PAT 1,227 2,084 1,605 1,732 3,465 5,085
Consolidated
Revenue 289,477 330,791 425,762 569,342 583,287 619,416
EBITDA 77,541 75,387 72,717 83,755 89,502 92,872
PAT 12,015 12,829 23,596 33,932 24,972 30,504
Tata Power
55
Exhibit 8: Change in estimates for Tata Power, March fiscal year-ends, 2023 - 25E (Rs mn)
Revised estimates Old estimates Change (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Revenues 569,342 583,287 619,416 554,881 589,171 633,650 2.6 (1.0) (2.2)
EBITDA 83,755 89,502 92,872 68,371 81,489 84,824 22.5 9.8 9.5
Net profit 33,932 24,972 30,504 24,196 28,988 34,466 40.2 (13.9) (11.5)
Exhibit 9: Tata Power: Profit model, balance sheet, cash model (consolidated), March fiscal year-ends, 2020 - 25E (Rs mn)
2020 2021 2022 2023E 2024E 2025E
Net sales 289,477 330,791 425,762 569,342 583,287 619,416
EBITDA 77,541 75,387 72,717 83,755 89,502 92,872
Other income 5,626 4,392 9,200 7,301 4,928 9,865
Interest (44,937) (40,104) (38,590) (43,013) (43,671) (43,652)
Depreciation (26,336) (27,449) (31,222) (32,894) (34,897) (36,283)
Pretax profits 11,895 12,226 12,104 15,149 15,862 22,802
Tax (6,415) (5,019) (3,796) (15,814) (18,424) (20,445)
Minority interest & profit from associates 6,535 5,621 15,287 34,597 27,534 28,147
Net profits 12,015 12,829 23,596 33,932 24,972 30,504
Extraordinary items (1,841) (1,555) (6,181) — — —
Earnings per share (Rs) 4.4 4.0 7.4 10.6 7.8 9.5

Total equity 180,660 208,223 224,416 258,348 283,320 313,823
Deferred taxation liability 11,740 9,762 11,833 11,833 11,833 11,833
Total borrowings 498,399 446,709 475,900 498,106 520,895 523,756
Currrent liabilities 177,080 288,236 380,828 463,007 478,498 498,892
Minority interest 23,320 29,273 35,869 40,093 44,402 48,797
Total liabilities and equity 891,200 982,202 1,128,846 1,271,388 1,338,948 1,397,102
Cash 20,882 61,217 66,407 85,319 106,774 136,216
Current assets 127,439 149,791 261,570 343,422 355,401 374,992
Total fixed assets 555,309 585,365 650,714 653,671 655,955 632,534
Investments 132,027 119,206 141,603 180,424 212,267 244,809
Deferred expenditure 55,544 66,622 8,552 8,552 8,552 8,552
Total assets 891,200 982,202 1,128,846 1,271,388 1,338,948 1,397,102
Key ratios
Net debt / equity (X) 2.3 1.6 1.6 1.4 1.3 1.1
ROE (%) 6.9 6.6 10.9 14.1 9.2 10.2
BVPS (Rs) 67 77 83 96 105 116
Source: Kotak Institutional Equities estimates
Tata Power
RESULT
Marico (MRCO) REDUCE

Consumer Staples
Mixed bag Company data and valuation summary

Marico reported domestic volume/value growth of +4%/2% yoy, aided by
Stock data
robust volume in edible oils and partial recovery CNO post price cuts, and
CMP(Rs)/FV(Rs)/Rating 494/525/REDUCE
steady progress in foods. Marico is witnessing steady/improving trends in
CNO, edible oil and foods, but VAHO continues to struggle and Bangladesh
faces macro/currency headwinds. We trim FY2023-25E EPS by 2-3%, roll over
ADTV-3M (mn) (Rs/US$) 739/9
and maintain DCF-based FV to Rs525 (implies 40X FY2025E PE).
3QFY23—margin-led beat in India business
MRCO reported 2.6%, 5.8%, 5.8% yoy growth in consolidated revenues, EBITDA 4.22.5
5.9
2.9
and net profit (3-yr CAGR 10.6%, 6.9%, 6.4%). Domestic volume/value grew
4%/2% yoy (3-yr CAGR +6.1%/9.7%), as right consumer pricing resumed loose
25.0 59.5
to branded conversions in CNO. Pack size reductions in VAHO impacted volume
growth by 100 bps. The international business was impacted by currency and
macro headwinds; grew 4.9% yoy (reported) and 8% on cc basis. GM was up
125/130 bps yoy/qoq to 44.9% (KIE: 44.9%), as strength in India margins (stable
RM prices and mix) were offset by currency devaluation in international Price performance (%)
markets. Copra prices remained soft (+1%/(-)18% qoq/yoy), whereas Rice Nifty MRCO
bran/LLP/HDPE were down 4%/5%/7% qoq. EBITDA margin stood at 18.5% (KIE: 200
18.1%), up 55/110 bps yoy/qoq, largely led by GM expansion. A&P spends (% of 160
sales) declined 35 bps yoy at 8.9%. 120
80
On a 3-yr CAGR basis, (1) Parachute volumes grew 3.6%, (2) VAHO value grew
40
6.8%, (3) Saffola oils volumes grew ~6.7%, (4) Saffola foods value grew +49%.
We note that MRCO’s 3-yr volume CAGR of 6.1% in 3QFY23 was better than its 0
Mar-22
Aug-22
May-22
Feb-22
Nov-22
Jan-22
Jun-22
Jan-23
Oct- 22
Apr-22
Sep-22
Dec -22
Jul-22
FMCG peers—DABUR (+5.3%), BRIT (+4.3%), HUVR (+3.7%), GCPL (+3.3%), and
CLGT (+1.1%), partly led by relatively benign pricing in both CNO and edible oils
(post recent cuts). Forecasts/Valuations 2023E 2024E 2025E
EPS (Rs) 10.0 11.5 13.0
Growth outlook likely to improve slightly, margin rangebound EPS growth (%) 5.3 15.1 12.7
Management is confident of maintaining an upward trajectory in volume and P/E (X) 49.4 42.9 38.1
P/B (X) 18.8 18.6 18.4
earnings growth in the coming quarters, as the worst of inflation is likely over.
EV/EBITDA (X) 34.6 30.0 26.5
MRCO management expects (1) recovery in CNO volume growth to normalized
RoE (%) 38.3 43.7 48.6
levels (5-7%), after four sluggish quarters, led by stable Copra prices, (2) stable Div. yield (%) 2.0 2.3 2.6
and robust trends in edible oils, (3) slightly better volume trends in VAHO with Sales (Rs bn) 97 108 119
rural bottoming out, (4) foods business to hit Rs8.5-10 bn in FY2024E, (5) EBITDA (Rs bn) 18 21 24
sequential GM improvement, and (6) EBITDA margin at 18-19%/>19% in Net profits (Rs bn) 13 15 17
FY2023/24E. Source: Bloomberg, Company data, Kotak Institutional Equities estimates

We trim estimates by 2-3%, roll over and maintain FV at Rs525 February 03, 2023
We tweak revenue growth and margin forecasts and trim FY2023-25E estimates Relate d Research
by 2-3%. We roll over and maintain DCF-based FV at Rs525, implying 40X
→ Marico: Some more volatility ahead
FY2025E PE. We believe that the stock has bottomed out (do not see much
downside from current levels), but we do not see any triggers or earnings → Marico: Weakness across core segments
upgrades as well. Maintain REDUCE. → Marico: Growth moderates

57
Key call takeaways

 Improving demand. MRCO noted a gradual improvement in consumption trends, led by moderating
retail inflation. The Indian FMCG sector registered a marginal volume decline (-0.3%) in December
2022, the lowest volume decline in five quarters. While HPC posted a 4.6% volume decline, F&B’s
volume growth of 1.6% was resilient. Rural was weaker than urban, but the trajectory seems to be
improving, led by healthy rabi sowing season, indications of higher farm incomes and increased
budget allocations. Pack size reduction in VAHO weighed on MRCO’s reported volume growth (4%) by
~100 bps in 3Q. Most of MRCO’s brands gained market share during the quarter. Management is
confident of maintaining an upward trajectory in volume and earnings growth in the coming quarters,
as the worst of inflation is likely behind us now.
 Gross margin improvement was backed by stabilizing raw material/consumer pricing environment
and a healthy mix in India business. MRCO is now focused on improving the cost structure of both
Foods and Digital-first brands, as the two brands have reached a certain scale. India margins are
expected to sequentially improve, but international profitability will continue to be impacted by
currency volatility (BD Taka depreciation has impacted international margins by 200-300 bps). Gross
margins should remain steady with an upward bias, whereas EBITDA margin is expected to be 18-
19%/>19% in FY2023/24E. The acceleration in foods journey is unlikely to weigh on blended GM, as
per management.
 Parachute CNO—volume/value grew 2%/(-) 6% yoy (+3.6% 3-yr volume CAGR versus 2Q’s +4.5%). After
four sluggish quarters in branded CNO, MRCO noted volume growth revival in the month of December
2022 (‘it is the first instance when we were able to establish the right pricing in the market by mid-
December). Typically, there is a 6-8 weeks lag for consumer price discovery after a price cut/hike.
Loose to branded conversions have picked up with copra prices firming up favorably. MRCO gained
30 bps volume market share during 3Q. MRCO is maintaining CNO prices for now but if there is
deflation next year, it may evaluate price cuts. As copra is expected to remain rangebound in the near
term, the company expects volume growth in line with medium term targets (5-7%), going forward.
 Saffola edible oils — Saffola franchise (oil + foods) value grew 10% yoy wherein Saffola oils volume
grew in low-teens, driven by stable trade inventory and consumer pricing. We estimate volume/value
growth in Saffola oils to be about 12%/4% yoy (+6.7% 3-yr volume CAGR versus 2Q’s +9.7%).
 Saffola Foods posted 31% value growth (3-yr CAGR +42.9%), led by robust 20% growth in Oats
franchise and scale up of new launches. Consumers have moved from indulgent to guilt-free healthy
snacking post the pandemic, but they are unlikely to compromise on taste. To address this demand
space, MRCO has forayed into the RTE market with Saffola Munchiez, under which it has launched
Ragi chips and Roasted makhana (two flavors in each). These products are priced at some premium
to competition and will be available in MT and e-commerce. MRCO will continue to drive meaningful
innovation in the Foods category in the next few quarters. MRCO is rapidly scaling its food GTM in top
8-11 cities, and any new product now potentially covers 50%+ retail distribution of relevant premium
segments. The foods business is poised to achieve FY2024E aspiration of Rs8.5-10 bn.
 Value-added hair oils’ value growth was (-)3% yoy (+6.8% 3-yr CAGR versus 2Q’s +5.4%), dragged
down by persistent weakness in rural consumption (VAHO has higher rural salience) of mass
discretionary categories. Mid/premium segments outperformed the economy-end, even as Marico
gained 80 bps value market share. Unlike other HPC categories that witnessed downgrading due to
high inflation, VAHO consumers moved back to loose mustard. MRCO expects better volume/market
share gains going ahead, led by (1) substantial price hikes taken by economy players can drive
upgradations, (2) bottoming of rural demand for HPC categories, (3) competitors had earlier made
significant shifts from ATL to BTL which is expected to reverse going forward (driving investments
and category growth). MRCO has launched its onion oil in GT and is exploring plays in mustard oil to
cater to bottom-of-pyramid demand.
 Premium Personal care continued to clock double-digit growth during the quarter. Livon has crossed
pre-pandemic levels while Set Wet is just about there. MRCO aims to deliver 20% growth in PPC
consistently over the next 2-3 years even as it improves distribution in cosmetic/chemist channels.
Even as the Digital-first brands are scaling in line with internal targets, MRCO is now charting a
sustainable path to profitability. The DTC portfolio is expected to hit Rs2.5 bn ARR by March 2023 and
Rs4.5-5 bn by March 2024.
Marico
58
 International business. Marico registered 8% c/c yoy revenue growth in the international business
with 9% c/c in Bangladesh, 13% c/c in Vietnam, 13% c/c in MENA and South Africa. Myanmar business
declined due to forex-led challenges. Despite macro headwinds in Bangladesh, MRCO’s strong
portfolio/distribution strength and brand equity has ensured resilient performance. MRCO has forayed
into the female personal care category in Vietnam through acquisition of Purite de Provence and Oliv
(range of premium and differentiated hair care and skin care products). Management believes there
is a significant profit pool in MENA market where it was a marginal player so far.
 Other points. (1) various categories, including noodles, have now vacated the Rs10 price point; Saffola
oats succeeded despite its launch at Rs15 price point versus competition at Rs10, (2) VAHO segment
will witness some new launches in coming quarters, (3) foods + digital businesses can reach a mid-
teens salience over next 2-3 years, (4) M&A—MRCO is open to evaluate brands that fulfill unmet needs
while delivering on basic unit economics and founders that build to last than build to sell, (5) If both
foods and DTC businesses meet revenue aspirations in FY2024E, GM dilution due to foods will be
offset by higher GM of DTC, (6) Beardo has opened a prototype store at Ahmedabad airport, while
Just Herbs is experimenting with beauty advisors in GT in 1-2 markets, and (7) higher consolidated
other income was led by higher yields on surplus and FX gains on receivables.
Exhibit 1: Interim consolidated results of Marico, March fiscal year-ends (Rs mn)
(% change)
3QFY23 3QFY23E 3QFY22 2QFY23 KIE Est yoy qoq 9MFY23 9MFY22 (chg %.) 3QFY20 3-yr CAGR (%)
Net operating income 24,700 24,660 24,070 24,960 0.2 2.6 (1.0) 75,240 73,510 2.4 18,240 10.6
Material cost (13,600) (13,592) (13,550) (14,070) 0.1 0.4 (3.3) (41,730) (42,360) (1.5) (9,280)
Gross Profit 11,100 11,068 10,520 10,890 0.3 5.5 1.9 33,510 31,150 7.6 8,960 7.4
Gross Margin (%) 44.9 44.9 43.7 43.6 5 bps 123 bps 130 bps 44.5 42.4 216 bps 49.1
Employee cost (1,600) (1,654) (1,440) (1,660) (3.3) 11.1 (3.6) (4,820) (4,470) 7.8 (1,160) 11.3
Advertising and promotion (2,200) (2,189) (2,230) (2,130) 0.5 (1.3) 3.3 (6,320) (5,920) 6.8 (1,850) 5.9
Other expenditure (2,740) (2,756) (2,540) (2,770) (0.6) 7.9 (1.1) (8,200) (7,410) 10.7 (2,220) 7.3
Total expenditure (20,140) (20,191) (19,760) (20,630) (0.3) 1.9 (2.4) (61,070) (60,160) 1.5 (14,510)
EBITDA 4,560 4,469 4,310 4,330 2.0 5.8 5.3 14,170 13,350 6.1 3,730 6.9
Other income 400 100 220 190 300.0 81.8 110.5 760 740 2.7 290
Interest (140) (180) (100) (150) (22.2) 40.0 (6.7) (390) (280) 39.3 (120)
Depreciation (390) (470) (360) (370) (17.0) 8.3 5.4 (1,120) (1,020) 9.8 (320)
Pretax profits 4,430 3,919 4,070 4,000 13.0 8.8 10.8 13,420 12,790 4.9 3,580 7.4
Tax (1,100) (851) (900) (930) 29.2 22.2 18.3 (3,250) (2,810) 15.7 (820)
Minority Interest (50) (33) (70) (60) 50.1 0.0 (16.7) (170) (230) (26.1) (40)
Recurring PAT (after MI) 3,280 3,034 3,100 3,010 8.1 5.8 9.0 10,000 9,750 2.6 2,720 6.4
Extraordinary items - - - - - - -
Net profit (reported) 3,280 3,034 3,100 3,010 8.1 5.8 9.0 10,000 9,750 2.6 2,720
Recurring EPS 2.5 2.4 2.4 2.3 8.1 5.8 9.0 7.8 7.6 2.6 2.1 6.4
Income tax rate (%) 24.8 21.7 22.1 23.3 311 bps 271 bps 158 bps 24.2 22.0 224 bps 22.9
Employee cost 6.5 6.7 6.0 6.7 -24 bps 49 bps -18 bps 6.4 6.1 32 bps 6.4
Advertising and promotion 8.9 8.9 9.3 8.5 3 bps -36 bps 37 bps 8.4 8.1 34 bps 10.1
Other expenditure 11.1 11.2 10.6 11.1 -9 bps 54 bps -1 bps 10.9 10.1 81 bps 12.2
Marico
59
Exhibit 2: Interim standalone results of Marico, March fiscal year-ends (Rs mn)
(% change)
3QFY23 3QFY23E 3QFY22 2QFY23 KIE Est yoy qoq 9MFY23 9MFY22 (chg %.) 3QFY20 3-yr CAGR (%)
Net operating income 18,910 18,673 18,550 19,090 1.3 1.9 (0.9) 57,760 58,140 (0.7) 14,340 9.7
Material cost (11,230) (11,297) (11,410) (11,790) (0.6) (1.6) (4.7) (34,800) (36,630) (5.0) (7,790)
Gross Profit 7,680 7,376 7,140 7,300 4.1 7.6 5.2 22,960 21,510 6.7 6,550 5.4
Gross Margin (%) 40.6 39.5 38.5 38.2 111 bps 212 bps 237 bps 39.8 37.0 275 bps 45.7
Employee cost (980) (1,030) (920) (1,000) (4.9) 6.5 (2.0) (3,010) (2,870) 4.9 (730) 10.3
Advertising and promotion (1,280) (1,188) (1,320) (1,120) 7.7 (3.0) 14.3 (3,490) (3,520) (0.9) (1,200) 2.2
Other expenditure (2,020) (2,063) (1,910) (2,100) (2.1) 5.8 (3.8) (6,160) (5,760) 6.9 (1,760) 4.7
Total expenditure (15,510) (15,578) (15,560) (16,010) (0.4) (0.3) (3.1) (47,460) (48,780) (2.7) (11,480)
EBITDA 3,400 3,095 2,990 3,080 9.9 13.7 10.4 10,300 9,360 10.0 2,860 5.9
Other income 350 1,000 740 1,310 (65.0) (52.7) (73.3) 2,980 2,310 29.0 760
Interest (90) (100) (80) (100) (10.0) 12.5 (10.0) (270) (220) 22.7 (70)
Depreciation (280) (275) (260) (250) 1.8 7.7 12.0 (780) (730) 6.8 (270)
Pretax profits 3,380 3,720 3,390 4,040 (9.1) (0.3) (16.3) 12,230 10,720 14.1 3,280 1.0
Tax (840) (790) (610) (700) 6.3 37.7 20.0 (2,480) (2,020) 22.8 (590)
Recurring PAT 2,540 2,929 2,780 3,340 (13.3) (8.6) (24.0) 9,750 8,700 12.1 2,690 (1.9)
Net profit (reported) 2,540 2,929 2,780 3,340 (13.3) (8.6) (24.0) 9,750 8,700 12.1 2,690
Recurring EPS 2.0 2.3 2.2 2.6 (13.3) (8.6) (24.0) 7.6 6.7 12.1 2.1 (1.9)
Income tax rate (%) 24.9 21.3 18.0 17.3 360 bps 685 bps 752 bps 20.3 18.8 143 bps 18.0
Employee cost 5.2 5.5 5.0 5.2 -34 bps 22 bps -6 bps 5.2 4.9 27 bps 5.1
Advertising and promotion 6.8 6.4 7.1 5.9 40 bps -35 bps 90 bps 6.0 6.1 -2 bps 8.4
Other expenditure 10.7 11.0 10.3 11.0 -37 bps 38 bps -32 bps 10.7 9.9 75 bps 12.3
Exhibit 3: Marico - Key changes to earnings model, March fiscal year ends, FY2023-25E, (Rs mn)

2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Revenues (Rs mn) 97,449 107,555 118,864 98,803 109,797 121,496 (1.4) (2.0) (2.2)
Revenue growth (%) 2.4 10.4 10.5 3.9 11.1 10.7
Gross profit (Rs mn) 43,717 49,865 55,251 44,691 51,348 56,986 (2.2) (2.9) (3.0)
EBITDA (Rs mn) 18,177 20,984 23,753 18,568 21,627 24,457 (2.1) (3.0) (2.9)
EBITDA (%) 18.7 19.5 20.0 18.8 19.7 20.1 -15 bps -19 bps -15 bps
PAT (Rs mn) 12,899 14,846 16,734 13,182 15,266 17,254 (2.1) (2.7) (3.0)
EPS (Rs/share) 10.0 11.5 13.0 10.2 11.8 13.4 (2.1) (2.7) (3.0)
Marico
60
Marico - Domestic volume growth was 6.1% on 3-yr CAGR basis

Exhibit 4: Marico: Trends in domestic volume growth, March fiscal year-ends (%)
30
25
25
21
20
15
12 11
15 9
8 8
10 6 6 6
8 3 4
5 1 1 - 1
(1)
0 (3)
-5 (9) (6)
-10 (14)
-15
2QFY18
3QFY18
3QFY19
4QFY19
4QFY20
1QFY21
1QFY22
2QFY22
2QFY23
3QFY23
1QFY18
4QFY18
1QFY19
2QFY19
1QFY20
2QFY20
3QFY20
2QFY21
3QFY21
4QFY21
3QFY22
4QFY22
1QFY23
Marico - Parachute Rigids volumes grew 3.6% on 3-yr CAGR basis

Exhibit 5: Marico: Trends in parachute coconut oil volume growth, March fiscal year-ends (%)
35
30
25 29
20
15
10 15
12 12 7
5 9 9 9 10
8 (1) (2) 8 (1) (2)
6 (3)
- (5)
1 2
(5) (9) (8)
(11)
(10)
(15)
2QFY18
3QFY18
3QFY19
4QFY19
4QFY20
1QFY22
2QFY23
1QFY18
4QFY18
1QFY19
2QFY19
1QFY20
2QFY20
3QFY20
1QFY21
2QFY21
3QFY21
4QFY21
2QFY22
3QFY22
4QFY22
1QFY23
3QFY23
Marico
61
Marico - value added hair oil volumes grew 5.5% on 3-yr CAGR basis (KIE estimate)
Exhibit 6: Marico: Trends in VAHO volume growth, March fiscal year-ends (%)
40
30 34
20
21 22 15
10 15
12 11 (2) (3)
- 8 7 7
(8) 5 (7) 4 3
1 - (11) - -
(10)
(20)
(30)
(30)
(40)
1QFY19
4QFY19
3QFY20
2QFY21
4QFY21
3QFY22
2QFY23
1QFY18
2QFY18
3QFY18
4QFY18
2QFY19
3QFY19
1QFY20
2QFY20
4QFY20
1QFY21
3QFY21
1QFY22
2QFY22
4QFY22
1QFY23
3QFY23
Marico – Saffola edible oil volumes grew 6.8% on 3-yr CAGR basis
Exhibit 7: Marico: Trends in Saffola refined edible oil growth, March fiscal year-ends (%)
28
24
20 25
16 20
12 18 17 17
16
8 11 12 12
7
4 (1) 10
- 5
3 2 3 3 (7)
(4) (9) - 1 -
(8)
(12)
(16)
(20)
(24) (27)
(28)
(32)
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
Marico
62
Exhibit 8: Trends in Copra price (Rs per 100Kg) Exhibit 9: Trends in LLP price (Rs per liter)
15,000 84
80
76 80
13,000 72 78 76
68
64 5458
11,000 60 64
56
52 5957
9,000
48 53
44 48 49 46 50
7,000 40 45 47 444545
36 42 47 42
40 39 38
32 35
5,000 28
24
20
3,000
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
Exhibit 10: Trends in Rice Bran oil (Rs per 10Kg) Exhibit 11: Trends in HDPE price (Rs per Kg)
1,350 160
1,250 150
152
1,150 140
1,050 140
130 136
950 130
120 127 125
850 124
121 120
110 117
750 113 114
100
650 103
101 101 100 103 101
90 98 97
550 92 93
450 80 858784
350 70
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
3QFY17
1QFY18
3QFY18
1QFY19
2QFY19
4QFY19
2QFY20
4QFY20
1QFY21
3QFY21
1QFY22
3QFY22
4QFY22
2QFY23
4QFY17
2QFY18
4QFY18
3QFY19
1QFY20
3QFY20
2QFY21
4QFY21
2QFY22
1QFY23
3QFY23
Marico
63
Exhibit 12: New launches in 3Q
Exhibit 13: Marico—market share in key categories in India business (MAT Dec-22)
Marico
64
Exhibit 14: Marico - Key assumptions for our earnings model, March fiscal year-ends, 2017-25E
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Key assumptions
Domestic sales growth (%) (0.2) 6.6 15.5 (2.0) 8.3 18.4 (0.1) 10.6 10.5
- Parachute CNO growth (%) (9.5) 24.0 21.8 (2.1) 7.3 10.5 (6.5) 7.0 6.5
- Saffola growth (%) 8.0 (4.4) 9.5 12.0 25.0 28.0 (3.0) 10.0 10.0
- VAHO growth (%) 4.1 3.6 11.5 (7.0) (2.2) 14.0 1.5 7.0 8.0
International business sales growth (%) (7.7) 7.9 18.3 7.3 17.0 17.6 11.9 9.5 10.5
Consolidated sales growth (%) (1.7) 6.8 16.0 (0.3) 10.0 18.2 2.4 10.4 10.5
Gross margin (%) 52.2 47.0 45.2 48.8 46.9 42.9 44.9 46.4 46.5
EBITDA margin (%) 19.6 18.0 17.5 20.1 19.8 17.7 18.7 19.5 20.0
A&SP % of sales 11.1 9.3 9.0 9.9 8.7 8.4 8.4 9.5 9.3
Exhibit 15: Marico - Consolidated Profit model, balance sheet of Marico (based on Ind-AS), March fiscal year-ends, 2017-2025E
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Profit model
Net sales 59,178 63,222 73,340 73,150 80,480 95,120 97,449 107,555 118,864
EBITDA 11,593 11,378 12,810 14,690 15,910 16,810 18,177 20,984 23,753
Other income 973 846 1,030 1,240 940 980 919 891 825
Interest expense (166) (162) (240) (500) (340) (390) (354) (272) (220)
Depreciation (903) (891) (960) (1,400) (1,390) (1,390) (1,365) (1,489) (1,622)
Pretax profits 11,497 11,171 12,640 14,030 15,120 16,010 17,377 20,113 22,736
Tax (3,377) (2,896) (3,160) (3,358) (3,208) (3,460) (4,170) (4,928) (5,627)
Minority Interest (134) (131) (180) (220) (290) (300) (307) (339) (375)
Net income 7,986 8,145 9,300 10,453 11,623 12,250 12,899 14,846 16,734
Extraordinary items — — 1,880 (243) 98 — — — —
Reported Net income 7,986 8,145 11,180 10,210 11,720 12,250 12,899 14,846 16,734
Earnings per share (Rs) 6.2 6.3 7.2 8.1 9.0 9.5 10.0 11.5 13.0
Balance sheet
Total shareholder's equity 23,257 25,429 29,990 30,230 32,400 33,480 33,814 34,199 34,633
Total borrowings 2,388 3,093 3,490 3,350 3,480 3,450 2,450 0 0
Minority interest 133 125 110 130 180 570 877 1,217 1,591
Total liabilities and equity 25,778 28,647 33,590 33,710 36,060 37,500 37,142 35,416 36,224
Net fixed assets 5,883 5,613 6,170 7,120 5,960 6,390 6,487 6,579 6,669
Goodwill 5,075 5,463 5,580 5,790 8,430 9,600 9,600 9,600 9,600
Investments 6,082 5,724 4,670 7,500 8,710 8,500 8,500 8,500 8,500
Cash 2,273 2,001 5,520 2,790 9,440 5,790 5,364 3,088 3,312
Net current assets 6,590 10,140 9,890 8,980 2,500 6,440 6,411 6,869 7,364
Deferred tax asset (Net) (125) (294) 1,760 1,530 1,020 780 780 780 780
Total assets 25,778 28,647 33,590 33,710 36,060 37,500 37,142 35,416 36,224
Free cash flow
Operating cash flow (excl. working capital) 8,901 8,651 9,970 11,850 13,380 13,580 14,006 16,056 18,126
Working capital changes (2,785) (3,490) 210 330 7,300 (3,420) 29 (459) (494)
Capital expenditure (981) (1,280) (1,620) (1,940) (1,420) (1,320) (1,462) (1,581) (1,712)
Free cash flow 5,135 3,881 8,560 10,240 19,260 8,840 12,574 14,016 15,919
Ratios
Sales growth (%) -1.7 6.8 16.0 -0.3 10.0 18.2 2.4 10.4 10.5
EPS growth (%) 12.2 2.0 14.3 12.4 11.2 5.4 5.3 15.1 12.7
EBITDA margin (%) 19.6 18.0 17.5 20.1 19.8 17.7 18.7 19.5 20.0
Gross margin (%) 52.2 47.0 45.2 48.8 46.9 42.9 44.9 46.4 46.5
A&SP % of sales 11.1 9.3 9.0 9.9 8.7 8.4 8.4 9.5 9.3
Employee cost % of sales 6.8 6.7 6.4 6.5 7.1 6.2 6.6 6.5 6.4
ROE (%) 34.3 32.0 31.0 34.6 35.9 36.6 38.1 43.4 48.3
ROCE (%) 41.0 36.0 34.9 37.5 37.8 38.8 42.7 51.8 57.6
Note:
(1) FY2016 financials and forecasts based on Ind-AS and hence not strictly comparable to pre-FY2016 financials.
Marico
RESULT
Berger Paints (BRGR) REDUCE

Commodity Chemicals
CMP(₹): 541 Fair Value(₹): 510 Sector View: Cautious NIFTY-50: 17,610 February 03, 2023
Growth outperformance in decorative paints Company data and valuation summary

Berger reported ~7%/6%+ yoy volume/value growth in decorative paints,
Stock data
ahead of APNT (flat value/volume). On a 3-yr CAGR basis, BRGR (17%/15%)
CMP(Rs)/FV(Rs)/Rating 541/510/REDUCE
is now at par with APNT, indicating an improvement in execution, driven by
distribution expansion. High-cost RM inventory weighed on GM and EBITDA
margins (expect 300-400 bps qoq recovery in 4Q). Berger is a credible #2
player in decorative paints, but the changing competitive landscape (Grasim’s
foray) merits a better risk-reward. We cut FY2023-25E EPS estimate by 6- Shareholding pattern (%)
17%, as we factor in a slowdown in demand and trim margin forecast. Revise
7.9 3.0
FV to Rs510 (38X FY2025E PE) from Rs600. REDUCE. 1.5
1.4
11.1
3QFY23—decent growth; high-cost RM inventory drags margin down
Berger reported 5.6% yoy (+16.7% 3-yr CAGR) growth in consolidated revenues, 75.0
3.7% below our estimate. Standalone revenues grew 7.2% yoy (17.2% 3-yr
CAGR), led by 6.6% yoy (15.3% 3-yr CAGR) volume growth. On a 3-yr value CAGR
basis, BRGR is now on par with APNT (17.4%). The industrial business was Price performance (%)
driven by a strong show in GI, auto and protective coatings (DD growth aided by Nifty BRGR
200
infra spending), even as powder coatings declined significantly. Consolidated
160
GM was down 200/60 bps yoy/qoq to 34.7% (KIE: 36%) due to high-cost
inventory. EBITDA declined 10.8% yoy (5.7% 3-yr CAGR), due to lower operating 120
leverage. EBITDA margin declined 240/65 bps yoy/qoq to 13% (KIE: 15%). 80
Recurring PAT declined 20.5% (+3.3% 3-yr CAGR) to Rs2 bn. 40
0
Conference call takeaways Mar-22
Jun-22
Oct-22
Jan-22
Feb-22
Jul-22
Aug-22
Sep-22
Nov-22
Dec-22
Jan-23
Apr-22
May-22
(1) Standalone volumes grew by 6.6% yoy (+15.3% 3-yr CAGR), (2) decorative
paints growth improved progressively in 3Q, with DD growth in December 2022,
(3) the value-volume gap narrowed due to inferior mix (lower exterior paints, EPS (Rs) 9.7 13.1 13.5
higher stocking of premium products in base), (4) BRGR added ~8k/4.3k retail EPS growth (%) 13.5 34.4 3.4
points/tinting machines in 9MFY23 and targets ~10k/6k by March 2023, (5) P/E (X) 55.6 41.4 40.0
powder coatings declined due to a regulatory change in the fan industry but P/B (X) 11.7 10.0 8.8
normalized in January, (6) capacity constraints forced a build-up of high-cost EV/EBITDA (X) 34.3 26.4 25.4
RoE (%) 22.5 26.1 23.4
inventory ahead of the festive season, which weighed on GM in 3Q, (7) benefits
Div. yield (%) 0.7 1.0 1.0
of lower crude/inputs will be partially/fully visible in 4QFY23/1QFY24, (8) new
Sales (Rs bn) 107 116 129
Sandila unit will be operational in February 2023, (9) BRGR is confident to deliver EBITDA (Rs bn) 15 20 20
DD value/volume growth with 37-38% GM in 4QFY23, (10) industry discounting Net profits (Rs bn) 9 13 13
has normalized after 2Q/3Q aberrations, (11) growth gap versus market leader Source: Bloomberg, Company data, Kotak Institutional Equities estimates
was the highest in 17 quarters, with gains across most segments, (12) BRGR’s Prices in this report are based on the market close of
exterior luxury is performing well, but interior luxury is still below potential, (13) February 02, 2023
North India remains a concern for BRGR, whereas East/West/South are growing
well; no significant variation between Tier-1/2/3 towns, (14) putty growth was
only slightly above headline growth, (15) BRGR has not witnessed any
Related Research
meaningful downtrading given that labor is 50-70% of total painting cost, (16)
the projects business’ salience stood at ~10%, and (17) industrial price hikes → Berger Paints: Narrowing growth gap
are still lagging inflation. → Berger Paints: CEO meeting notes

→ Berger Paints: Steady execution
We cut FY2023-25E EPS by 6-17%, roll over and cut FV to Rs510 (from Rs600)

66
Exhibit 1: Berger Paints - Interim consolidated results, March fiscal year-ends, (Rs mn)
(% change) 3-year
3QFY23 3QFY23E 3QFY22 2QFY23 KIE Est yoy qoq 9MFY23 9MFY22 (% chg.) 3QFY20 CAGR
Net operating revenue 26,936 27,956 25,508 26,709 (3.7) 5.6 0.8 81,242 65,743 23.6 16,959 16.7
Material cost (17,591) (17,585) (16,153) (17,281) 0.0 8.9 1.8 (52,603) (40,927) 28.5 (10,039)
Gross profit 9,345 10,372 9,355 9,429 (9.9) (0.1) (0.9) 28,639 24,816 15.4 6,919 10.5
Gross margin (%) 34.7 37.1 36.7 35.3 -241 bps -199 bps -61 bps 35.3 37.7 -250 bps 40.8
Employee cost (1,481) (1,592) (1,360) (1,604) (6.9) 8.9 (7.7) (4,545) (4,090) 11.1 (1,047) 12.3
Other expenditure (4,367) (4,583) (4,074) (4,185) (4.7) 7.2 4.3 (12,909) (10,880) 18.7 (2,910) 14.5
Total expenditure (23,439) (23,759) (21,587) (23,070) (1.3) 8.6 1.6 (70,058) (55,896) 25.3 (13,996)
EBITDA 3,497 4,197 3,921 3,640 (16.7) (10.8) (3.9) 11,184 9,846 13.6 2,963 5.7
EBITDA margin (%) 13.0 15.0 15.4 13.6 -204 bps -240 bps -65 bps 13.8 15.0 -122 bps 17.5
Other income 109 150 155 126 (27.5) (29.6) (13.5) 365 455 (19.7) 143
Interest (296) (165) (139) (241) (699) (361) 93.7 (127)
Depreciation (644) (640) (561) (625) 0.6 14.8 3.0 (1,896) (1,668) 13.7 (483)
Pretax profits 2,666 3,543 3,377 2,899 (24.7) (21.0) (8.0) 8,954 8,272 8.2 2,496 2.2
Tax (680) (921) (842) (735) (26.2) (19.3) (7.5) (2,300) (2,132) 7.9 (637)
PAT before MI/AI 1,987 2,622 2,535 2,165 (24.2) (21.6) (8.2) 6,654 6,140 8.4 1,859 2.2
Minority interest/Associate income 23 10 (8) 29 84 (19) (35)
Net profit 2,009 2,632 2,527 2,194 (23.6) (20.5) (8.4) 6,737 6,122 10.1 1,823 3.3
Recurring EPS 2.1 2.7 2.6 2.3 (23.6) (20.5) (8.4) 6.9 6.3 10.1 1.9 3.3
Income tax rate (%) 25.5 26.0 24.9 25.3 -52 bps 55 bps 13 bps 25.7 25.8 -9 bps 25.5
Costs as a % of net operating revenues
Material cost 65.3 62.9 63.3 64.7 240 bps 198 bps 60 bps 64.7 62.3 249 bps 59.2
Employee cost 5.5 5.7 5.3 6.0 -20 bps 16 bps -51 bps 5.6 6.2 -63 bps 6.2
Other expenditure 16.2 16.4 16.0 15.7 -19 bps 24 bps 54 bps 15.9 16.5 -66 bps 17.2
Exhibit 2: Berger Paints - Interim standalone results, March fiscal year-ends, (Rs mn)
(% change) 3-year
3QFY23 3QFY22 2QFY23 yoy qoq 9MFY23 9MFY22 (% chg.) 3QFY20 CAGR
Net operating revenue 24,189 22,562 23,738 7.2 1.9 72,813 58,131 25.3 15,018 17.2
Material cost (16,009) (14,437) (15,546) 10.9 3.0 (47,658) (36,558) 30.4 (8,918)
Gross profit 8,180 8,126 8,192 0.7 (0.1) 25,155 21,573 16.6 6,100 10.3
Gross margin (%) 33.8 36.0 34.5 -220 bps -70 bps 34.5 37.1 -257 bps 40.6
Employee cost (1,115) (983) (1,205) 13.4 (7.4) (3,427) (3,023) 13.4 (839) 9.9
Other expenditure (3,952) (3,706) (3,804) 6.6 3.9 (11,695) (9,866) 18.5 (2,655) 14.2
Total expenditure (21,076) (19,126) (20,555) 10.2 2.5 (62,780) (49,447) 27.0 (12,412)
EBITDA 3,113 3,436 3,183 (9.4) (2.2) 10,033 8,684 15.5 2,606 6.1
EBITDA margin (%) 12.9 15.2 13.4 -237 bps -54 bps 13.8 14.9 -116 bps 17.4
Other income 395 140 142 182.6 177.8 644 442 45.8 138
Interest (256) (123) (208) (604) (312) (88)
Depreciation (569) (495) (550) 14.9 3.4 (1,674) (1,459) 14.8 (429)
Pretax profits 2,684 2,958 2,567 (9.3) 4.5 8,399 7,355 14.2 2,227 6.4
Tax (613) (756) (660) (19.0) (7.2) (2,077) (1,884) 10.2 (571)
Recurring PAT 2,071 2,202 1,907 (5.9) 8.6 6,322 5,471 15.6 1,656 7.7
Extraordinary items - - - - - -
Net profit (reported) 2,071 2,202 1,907 (5.9) 8.6 6,322 5,471 15.6 1,656 7.7
Recurring EPS 2.13 2.3 2.0 (5.9) 8.6 2.00 2.00 1.7 7.7
Income tax rate (%) 22.8 25.6 25.7 -274 bps -290 bps 24.7 25.6 -89 bps 25.6
Costs as a % of net operating revenues
Material cost 66.2 64.0 65.5 219 bps 69 bps 65.5 62.9 256 bps 59.4
Employee cost 4.6 4.4 5.1 25 bps -47 bps 4.7 5.2 -50 bps 5.6
Other expenditure 16.3 16.4 16.0 -9 bps 31 bps 16.1 17.0 -92 bps 17.7
Note: (1) About 80% of standalone revenues is domestic decorative paints segment and 20% is domestic industrial coatings segment (normative mix pre-Covid)
Berger Paints
Commodity Chemicals India Research
67
Exhibit 3: Key changes to estimates, Berger Paints, March fiscal year-ends, 2023-24E
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Revenues (Rs mn) 107,467 116,303 128,787 106,228 116,424 129,175 1.2 (0.1) (0.3)
Revenue growth (%) 22.7 8.2 10.7 21.2 9.6 11.0
EBITDA (Rs mn) 15,407 19,814 20,331 17,977 20,940 22,330 (14.3) (5.4) (9.0)
EBITDA margin (%) 14.3 17.0 15.8 16.9 18.0 17.3 -259 bps -96 bps -150 bps
Net income (Rs mn) 9,450 12,700 13,132 11,435 13,571 14,651 (17.4) (6.4) (10.4)
EPS (Rs/share) 9.7 13.1 13.5 11.8 14.0 15.1 (17.4) (6.4) (10.4)
Exhibit 4: Trends in gross margins of Asian Paints, Berger Paints and Kansai Nerolac
Crude price- Brent (LHS, Rs per 10 Barrels) APNT's standalone GM (RHS, %)

KNPL's GM (RHS, %) Berger's standalone GM (RHS, %)
100,000
47.0
90,000 43.7 43.8
42.3 42.9 42.3 44.0
80,000
38.9 40.2 40.1 40.6 40.2
39.2 41.0
70,000 41.3 40.5 37.7 37.9 37.7 38.3
36.8
38.0
60,000
36.0 35.3 34.5 33.8
35.0
50,000
40,000 32.0
30,000 29.0
20,000 26.0
4QFY18
4QFY19
4QFY20
1QFY22
1QFY23
2QFY18
3QFY18
1QFY19
2QFY19
3QFY19
1QFY20
2QFY20
3QFY20
1QFY21
2QFY21
3QFY21
4QFY21
2QFY22
3QFY22
4QFY22
2QFY23
3QFY23
Berger has narrowed its gap versus APNT in 3-yr CAGR

Exhibit 5: Growth comparison in decorative paints, March fiscal year-ends (Rs mn)
Growth (yoy %) 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23
APNT Standalone (India decorative paints) 18.2 9.3 2.7 (8.4) (44.1) 5.8 26.1 46.2 95.6 35.9 27.6 21.5 59.0 19.6 0.7
Berger Standalone 15.5 7.5 2.9 (13.2) (47.9) 7.4 24.0 53.0 96.0 26.1 22.0 7.3 50.0 22.5 7.2
Berger underperformance versus Asian

Paints (ppts) 2.7 1.8 (0.2) 4.7 3.7 (1.6) 2.1 (6.8) (0.4) 9.8 5.6 14.2 9.0 (2.9) (6.5)
3-yr CAGR growth (%)

APNT Standalone (India decorative paints) 8.9 16.3 18.2 17.6 20.2 19.8 17.4
Berger Standalone 5.7 13.4 15.9 12.5 15.3 18.4 17.5
Berger Paints
68
Exhibit 6: Consolidated financials of Berger Paints, March fiscal year-ends, 2016-25E

2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Profit model
Revenues 42,231 45,523 51,657 60,619 63,658 68,176 87,618 107,467 116,303 128,787
EBITDA 6,447 7,186 8,070 8,816 10,610 11,880 13,311 15,407 19,814 20,331
Depreciation (987) (1,081) (1,242) (1,378) (1,910) (2,111) (2,265) (2,569) (2,822) (3,112)
Other income 347 545 459 600 685 515 646 578 761 1,112
Interest expense (273) (162) (246) (323) (470) (441) (507) (701) (651) (651)
PBT 5,535 6,488 7,041 7,715 8,915 9,842 11,184 12,715 17,101 17,679
Tax (1,886) (2,294) (2,439) (2,732) (2,271) (2,589) (2,893) (3,306) (4,446) (4,597)
PAT before MI and EO 3,649 4,194 4,602 4,984 6,644 7,253 8,291 9,409 12,655 13,083
Minority Interest/Associate income 57 101 6 (9) (66) (56) 37 41 45 50
Extraordinary items - 442 - - - - - - - -
Recurring PAT 3,705 4,451 4,608 4,975 6,578 7,197 8,328 9,450 12,700 13,132
Recurring EPS (diluted) (Rs) 3.8 4.6 4.7 5.1 6.8 7.4 8.6 9.7 13.1 13.5
Balance sheet
Total equity 15,621 19,016 21,945 24,727 26,601 33,769 39,270 44,831 52,304 60,032
Total borrowings 3,095 4,062 4,222 4,839 5,359 3,838 6,679 6,679 6,679 6,679
Current liabilities 9,373 10,511 12,435 13,148 13,820 17,867 21,300 25,978 27,955 30,779
Other liabilities 684 814 832 913 3,270 3,737 4,877 4,878 4,877 4,878
Total equity and liabilities 28,773 34,403 39,434 43,627 49,050 59,211 72,127 82,366 91,816 102,368
Cash and cash equivalents 4,053 4,697 4,326 4,893 3,993 6,494 4,002 3,828 8,446 14,842
Other current assets 13,407 16,017 19,472 21,112 22,087 29,128 36,572 44,563 47,908 52,698
Net fixed assets 7,765 9,571 10,026 11,029 13,288 14,221 14,885 17,308 18,793 18,161
CWIP 511 622 972 1,699 1,785 1,068 6,055 6,055 6,055 6,055
Goodwill 1,865 1,789 2,646 2,693 2,790 2,876 2,756 2,756 2,756 2,756
Total assets 28,773 34,403 39,434 43,627 49,050 59,211 72,127 82,366 91,816 102,368
Cash flow
Operating cash flow excl. w-cap 4,807 5,220 5,499 6,542 8,245 9,638 10,565 12,142 15,413 15,784
W-cap changes 1,138 (1,275) (1,280) (925) (999) (1,680) (4,900) (3,313) (1,369) (1,965)
Operating cash flow 5,946 3,945 4,219 5,617 7,246 7,958 5,665 8,829 14,044 13,818
Interest expense (net) (155) (116) (189) (182) (140) (108) (3) (124) 110 460
Acquisitions/divestment (15) (71) 51 (387) (1,400) - - - - -
Free cash flow 4,558 1,072 1,152 1,866 2,757 5,989 (1,934) 3,714 9,845 11,799
Key ratio and assumptions
Revenue growth (%) 7.4 7.8 13.5 17.3 5.0 7.1 28.5 22.7 8.2 10.7
Decorative volume growth estimate (%) 23.0 13.0 10.0 10.5
Gross margin (%) 41.5 43.1 41.7 39.0 41.5 43.3 38.0 36.2 39.5 38.8
A&P (% of sales) 4.9 5.3 4.8 3.3 4.1 3.4 3.1 3.0 3.8 4.3
EBITDA margin (%) 15.3 15.8 15.6 14.5 16.7 17.4 15.2 14.3 17.0 15.8
PAT margin (%) 8.8 9.8 8.9 8.2 10.3 10.6 9.5 8.8 10.9 10.2
Net debt (957) (635) (104) (54) 1,366 (2,656) 2,677 2,852 (1,767) (8,162)
Net debt/equity (X) (0.1) (0.0) (0.0) (0.0) 0.1 (0.1) 0.1 0.1 (0.0) (0.1)
Book value (Rs/share) 16.1 19.6 22.6 25.5 27.4 34.8 40.4 46.2 53.9 61.8
RoAE (%) 26.3 25.7 22.5 21.3 25.6 23.8 22.8 22.5 26.1 23.4
RoACE (%) 19.2 18.9 18.1 17.2 21.1 20.7 19.6 19.5 22.8 20.3
Berger Paints
RESULT
Max Healthcare (MAXHEALT) ADD

Health Care Services
Operating excellence continues Company data and valuation summary

Max’s healthy performance continued in 3QFY23, with its sales and EBITDA
Stock data
coming in ahead our estimates by 4% and 9%, respectively. Despite slight
hiccups toward its goal of achieving 15% institutional bed mix and expansion
plans, we expect Max to deliver a robust ~16% EBITDA CAGR over FY2022-
25E. While launch timelines broadly stay on track, we would be mindful of
ADTV-3M (mn) (Rs/US$) 864/11
any delays, given the criticality of the expansion plans for growth beyond
FY2024. Maintain ADD with an unchanged SoTP-based FV of Rs490. Shareholding pattern (%)
A fine quarter despite minor setbacks in bed mix and capex timelines 4.5
0.1 1.4
23.8
Similar to the last few quarters, Max reported a good performance, higher than 20.9
our expectations but in-line with consensus. Max posted 3QFY23 network
revenues of Rs14.7 bn (+13.5% yoy, +3.7% versus KIE). ARPOB (calculated as net
revenues per occupied bed days) for 3QFY23 grew by 9% yoy to Rs61.3k (flat qoq).
49.3
Occupancy for 3QFY23 stood at 77.2%, down 90 bps qoq, due to festive season.
EBITDA of Rs4 bn was up 20.7% yoy (flat qoq, +9.5% versus KIE). EBITDA margin Promoters FPI s MFs BFI s Retail Others
at 27.7% expanded 50 bps qoq (+166 bps yoy). The 100 bps sequential increase Price performance (%)
in institutional bed mix to 29% is a bit concerning, especially given the company’s Nifty MAXHEALT
guidance of reducing it to 15% in the next one year. Further, capex incurred by Max 200
in 9MFY23 stands at only Rs1.4 bn, compared to our capex estimate of Rs4.7 bn 160
for FY2023E. While there will be some spillover of FY2023 capex into 1QFY24E, 120
Max reiterated that all its launch timelines, particularly the upcoming ones in
80
Shalimar Bagh and Dwarka, are on track. However, management highlighted that
40
there was a slight delay in the 350 beds to be set up at Max Smart.
0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
Seamless execution to continue; growth levers intact
We believe the pruning of institutional mix to 15% of beds from 29% in 3QFY23
can alone drive ~25% higher EBITDA in the next 2-3 years. In addition, from 8.6% Forecasts/Valuations 2023E 2024E 2025E
in 3QFY23, Max expects to improve the international sales mix significantly EPS (Rs) 13.6 13.0 14.8
further. Apart from these levers, we expect its ARPOBs to stay above peers due to EPS growth (%) 49.5 (4.4) 14.3
the rising contribution from metros and complex procedures. This, along with P/E (X) 32.2 33.6 29.4
P/B (X) 5.3 4.6 4.0
steady traction in case mix and bed additions, should drive 14% and 16% sales
EV/EBITDA (X) 26.3 22.4 19.8
and EBITDA CAGRs over FY2022-25E, respectively.
RoE (%) 17.9 14.6 14.5
Div. yield (%) 0.0 0.0 0.0
Maintain ADD rating with unchanged FV of Rs490
Sales (Rs bn) 58 65 77
Max stands out among hospital peers, given its best-in-class operating metrics EBITDA (Rs bn) 16 18 21
and razor-sharp focus on costs and capital efficiency. Despite its extensive plans Net profits (Rs bn) 13 13 14
for doubling capacity, we expect Max to generate positive FCF over FY2023-25E Source: Bloomberg, Company data, Kotak Institutional Equities estimates
(cumulative FCF of Rs 12 bn). We do not assign an optionality to any incoming Prices in this report are based on the market close of
M&A, the possibility of which appears high, considering it has taken board February 03, 2023
approval to issue NCDs worth ~Rs42 bn. While high concentration from Delhi NCR Related Research
is a risk, we believe it remains an attractive market. We cut our FY2025 sales and
→ RAINBOW: Pediatric pioneer
EBITDA estimates by 2-4% due to the slight delay in Max Smart. We roll forward
to December 2024E and assign an unchanged 24X pre-Ind AS-116 EV/EBITDA → MAXHEALT: Solid delivery continues
multiple to Max’s network hospitals to derive a FV of Rs490. Key risks to our ADD → MAXHEALT: The efficient practitioner
rating are any further delays in launch timelines.
Alankar Garude, CFA Samitinjoy Basak

70
MAXHEALT – 3QFY23 interim results

Exhibit 1: March fiscal year-ends, 2022-23E (Rs mn)
3QFY23 3QFY23E 3QFY22 2QFY23 %KIE %yoy %qoq 9MFY23 9MFY22 % chg. FY2023E FY2022 % chg.
Financials
Net revenues 14,638 14,122 12,899 14,719 3.7 13.5 (0.5) 43,259 39,507 9.5 57,922 51,709 12.0
Medical consumables (3,483) (3,404) (3,172) (3,446) 2.3 9.8 1.1 (10,254) (10,522) (2.5) (13,728) (13,503) 1.7
Gross profit 11,155 10,719 9,727 11,273 4.1 14.7 (1.0) 33,006 28,985 13.9 44,195 38,206 15.7
Staff costs (3,017) (3,067) (2,806) (2,996) (1.6) 7.5 0.7 (9,002) (8,455) 6.5 (12,016) (11,024) 9.0
Other expenses (doctor fees + SG&A costs) (4,088) (3,955) (3,565) (4,279) 3.4 14.7 (4.5) (12,279) (10,096) 21.6 (16,335) (13,751) 18.8
EBITDA 4,050 3,697 3,355 3,998 9.5 20.7 1.3 11,725 10,435 12.4 15,844 13,431 18.0
Depreciation & amortisation (634) (680) (607) (628) (6.7) 4.4 1.0 (1,913) (1,829) 4.6 (2,755) (2,484) 10.9
EBIT 3,416 3,017 2,748 3,370 13.2 24.3 1.3 9,812 8,606 14.0 13,089 10,947 19.6
Other income 131 70 272 98 86.6 (51.9) 32.9 259 420 (38.4) 300 472 (36.5)
Finance costs (68) (180) (242) (142) (62.2) (71.8) (52.1) (412) (850) (51.6) (657) (1,118) (41.3)
Share in associates — — — — — — — — — — — — —
Exceptional (182) — (6) (112) NM 2,936.7 63.4 (403) (433) (7.0) (500) (502) (0.5)
Profit before tax 3,296 2,907 2,772 3,215 13.4 18.9 2.5 9,256 7,743 19.5 12,233 9,799 24.8
Tax & deferred tax (608) (436) (248) 1,898 39.4 145.1 (132.0) 831 (1,090) (176.2) 398 (1,432) (127.8)
Minority interest — — — — — — — — — — — — —
Net income (reported) 2,688 2,471 2,524 5,113 8.8 6.5 (47.4) 10,087 6,653 51.6 12,631 8,367 51.0
FD no. of shares (mn) 970 970 970 970 — — — 970 966 — 970 970 —
EPS (reported) (Rs) 2.8 2.5 2.6 5.3 8.8 6.5 (47.4) 10.4 6.9 51.3 13.0 8.6 51.0
As % of sales
Gross margin 76.2 75.9 75.4 76.6 30 bps 80 bps -38 bps 76.3 73.4 293 bps 76.3 73.9 241 bps
Staff costs to sales 20.6 21.7 21.8 20.4 20.8 21.4 20.7 21.3
Other expenses to sales 27.9 28.0 27.6 29.1 28.4 25.6 28.2 26.6
EBITDA margin 27.7 26.2 26.0 27.2 149 bps 166 bps 50 bps 27.1 26.4 69 bps 27.4 26.0 138 bps
Segmental revenues (Rs mn)
Consolidated hospitals 10,777 10,065 9,252 10,723 7.1 16.5 0.5 31,590 28,332 11.5 41,775 37,202 12.3
Partner healthcare facilities 4,359 4,342 4,021 4,388 0.4 8.4 (0.7) 12,861 12,192 5.5 17,380 15,777 10.2
Network hospitals 14,002 13,467 12,392 14,071 4.0 13.0 (0.5) 41,408 37,885 9.3 55,405 49,569 11.8
Max Lab 277 290 222 302 (4.6) 24.8 (8.5) 832 795 4.6 1,139 1,038 9.8
Max@Home 359 365 285 346 (1.7) 26.0 3.9 1,020 826 23.4 1,379 1,103 25.0
Segmental EBITDA (Rs mn)
Consolidated hospitals 3,105 2,858 2,438 3,149 8.6 27.4 (1.4) 9,056 7,121 27.2 12,157 9,242 31.5
Partner healthcare facilities 915 790 900 809 15.8 1.7 13.1 2,586 3,138 (17.6) 3,563 4,031 (11.6)
Network hospitals 4,020 3,649 3,337 3,958 10.2 20.5 1.6 11,642 10,258 13.5 15,720 13,273 18.4
Max Lab (9) 7 (17) 3 (228.9) (50.6) (368.8) (25) 61 (141.2) (21) 13 (262.7)
Max@Home 38 42 35 37 (8.0) 8.5 2.4 109 115 (5.6) 145 145 (0.5)
Segmental EBITDA margins (%)
Consolidated hospitals 28.8 28.4 26.3 29.4 41 bps 246 bps -55 bps 28.7 25.1 353 bps 29.1 24.8 426 bps
Partner healthcare facilities 21.0 18.2 22.4 18.4 280 bps -138 bps 256 bps 20.1 25.7 -563 bps 20.5 25.6 -505 bps
Network hospitals 28.7 27.1 26.9 28.1 162 bps 178 bps 58 bps 28.1 27.1 104 bps 28.4 26.8 160 bps
Max Lab (3.1) 2.3 (7.8) 1.1 -541 bps 474 bps -417 bps (3.0) 7.7 -1073 bps (1.8) 1.2 -301 bps
Max@Home 10.7 11.4 12.4 10.8 -73 bps -172 bps -15 bps 10.7 14.0 -329 bps 10.5 13.2 -268 bps
Key highlights from Max Healthcare’s 3QFY23 concall

Growth levers: Max reiterated the following growth drivers – international patient growth from existing
and new markets, improved payor mix, 100 beds additions through internal reconfigurations within
existing hospitals, 100 bed additions in 4QFY23 at Shalimar Bagh, 300 beds in 1HFY24 at Dwarka,
followed by significant bed expansion in FY2025. Max is actively looking at acquisition opportunities in
hospitals.
Occupancies: Occupancies decreased in 3QFY23 due to the festive season.
Institutional mix: Max has maintained its guidance of reducing institutional volume mix to 15% of total
beds in 3-4 quarters, compared to 29% in 3QFY23.
International patients: International patient footfalls are higher than pre-Covid levels by 4-5%. Max has
more than compensated for the loss of inflow from Afghanistan. In terms of pre-Covid revenues,
Afghanistan used to contribute 12% of international sales. As per Max, the government is quite focused
on medical tourism, especially with the latest ‘Heal in India’ program.
Transplants: Max does 40-45 liver transplants and 50-55 kidney transplants and 20-30 bone marrow
transplants every month. It is also starting programs in Vaishali, Mohali, and a few other facilities.
Overheads: There was reduction in overheads due to better collection and reduction in power costs.
EBITDA/bed: Max operated at an EBITDA per bed of Rs6.4 mn in 3QFY23 (up 2.8% qoq).
Max Healthcare
Health Care Services India Research
71
Margin levers: 80% of the planned 3,000 bed expansion is brownfield. Hence, no major fixed costs will
be added because of this expansion. As a result, the company does not envisage any major hit on EBITDA
margins due to the expansion.
ESOPs: 271 employees are covered by the ESOP plan.
Expansion: Expansion plans for FY2023 and FY2024 in Shalimar Bagh and Dwarka, respectively, are on
track. The ramp-up of Shalimar Bagh will happen quickly, while Dwarka will take a year, as it is not a
brownfield expansion. Max expects to launch Shalimar Bagh in 4QFY23, and commented that the 100
beds in Shalimar Bagh have been handed over to the operational team. It has completed construction in
Dwarka, and expects to commence operations in 2QFY24. Max also expects to commission Phase 1 in
Nanavati by end-FY2025. The first phase in Gurgaon will involve 300 beds, for which Max expects
completion of excavation work by FY2024. It also guided that the 350 beds in Max Smart have been
delayed due to lack of tree cutting permission, and work will resume in 4QFY23. Management expects
to make up for the lost time. Max also expects to add 100+ beds in the hospitals by internal
reconfiguration over the next two months. The Sector 53 project in Gurgaon will not impact revenues or
expansion till FY2028.
Capex: Capex was low in 9MFY23 at Rs1.4 bn due to a timing issue in 1HFY23. A typical brownfield
expansion capex costs Rs13-14 mn/bed for Max.
M&A: Max is actively scouting for inorganic expansions in the hospital segment. It does not intend to
breach net-debt to EBITDA of 2-2.5X.
Seasonality: 3Q is typically a seasonally weaker quarter, being characterized by the festive season.
Hence, occupancies are lower, but ARPOBs are higher as patients come mostly for quaternary care.
Covid vaccination: Max had Rs70 mn sales contribution from Covid vaccination in the base quarter
(3QFY22). In comparison, Max reported negligible Covid vaccination sales in 3QFY23.
Digital: Digital contribution stood at 17% in 3QFY23 versus 15% in 2QFY23.
MAXHEALT – 3QFY23 overview: A fine quarter; network EBITDA grew 21% yoy
Financial highlights
Max posted 3QFY23 network revenues of Rs14.7 bn (+13.5% yoy, +3.7% versus KIE). The hospital
business reported sales of Rs14 bn (+13%yoy, flat qoq). Vaccination revenues stood at Rs20 mn in
3QFY23 versus Rs30 mn in 2QFY23. International patient revenues improved 62% yoy and was 10%
higher than pre-Covid levels, on an absolute basis (albeit contributing 8.6% to overall sales, lower than
pre-Covid contribution levels). Max Lab generated revenues of Rs277 mn, with non-Covid business
growing 44% yoy. Gross margins increased 80 bps yoy to 76.2% (-38 bps qoq). Employee costs and SG&A
grew 7.5% yoy and 14.7% yoy, respectively. EBITDA at Rs4 bn was up 20.7% yoy (flat qoq, +9.5% versus
KIE estimate). EBITDA margin at 27.7% expanded 50 bps qoq (+166 bps yoy), exceeding our estimates
by 149 bps. Adjusted PAT stood at Rs2.8 bn (+12.2% yoy). Cash generated from operations (after
interest, tax and replacement capex) was Rs3.3 bn in 3QFY23 versus Rs2.9 bn in 2QFY23. Capex for the
quarter stood at Rs1 bn in 3QFY23. Net cash as on 3QFY23 stood at Rs3.7 bn, compared to net cash of
Rs420 mn post 2QFY23. This includes Rs1 bn received from HSVP after unilateral cancellation of the
6.11 acre of land allotted pursuant to e-auction in August 2021.
Operating highlights
ARPOB (calculated as net revenues per occupied bed days) for 3QFY23 grew by 9% yoy to Rs61.3k (flat
qoq) led by improvement in revenue share from oncology, orthopedics, increase in OP revenues including
pharmacy and price increase. Occupancy for 3QFY23 stood at 77.2% versus 73.7% in 3QFY22 and 78.1%
in 2QFY23, down qoq due to the festive season. ALOS stood at 4.2 days in 3QFY23 versus 4.3 days in
2QFY23. Less than 1% of the occupied beds were used for Covid-19 patients. The share of occupied
beds for institutional patients increased to 29% from 28% in 2QFY23, mainly due to an increase in ER
footfalls for the segment leading to an increase in oncology, orthopedics and medical patients.
Max Healthcare
72
Other highlights
Board approval was granted, enabling Max to issue NCDs to raise funds worth ~Rs42 bn.
MAXHEALT – quarterly network capacity beds MAXHEALT – quarterly network operational beds
Exhibit 2: March fiscal year-ends, 2021-23 (#) Exhibit 3: March fiscal year-ends, 2021-23 (#)
Bed capacity Operational beds
3,412
3,412
3,412
3,412
3,412
3,271
3,271
3,420
3,280
3,250
3,410
3,243
3,243
3,240
3,392
3,260
3,233
3,233
3,233
3,233
3,400
3,240
3,390
3,202
3,371
3,371
3,371
3,371
3,371
3,380 3,220
3,370 3,200
3,360 3,180
3,350 3,160
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
MAXHEALT – quarterly network ARPOB MAXHEALT – quarterly network occupancy

Exhibit 4: March fiscal year-ends, 2021-23 (Rs ‘000/day) Exhibit 5: March fiscal year-ends, 2021-23 (%)
ARPOB (Rs '000/day) 100 Occupancy rate (%)

70
60.7 60.9 61.3 80.8
58.2 56.3 57.6 76.2 78.1 77.2
60 80 75.2 73.7 74.0
53.2 69.8
50.6 67.8 67.9
50 46.1
40.6 42.1 60
40 45.6
30 40
20
20
10
0 0
1QFY21
1QFY22
2QFY22
1QFY23
2QFY23
2QFY21
3QFY21
4QFY21
3QFY22
4QFY22
3QFY23
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY21
1QFY23
2QFY23
3QFY23
Max Healthcare
73
MAXHEALT – quarterly network sales MAXHEALT – quarterly network gross profit

Exhibit 6: March fiscal year-ends, 2021-23 (Rs bn, %) Exhibit 7: March fiscal year-ends, 2021-23 (Rs bn, %)
Net revenues (Rs bn, LHS) yoy growth (%, RHS) Gross profits (Rs bn, LHS) Gross margin (%, RHS)
16 131.9 14.7 14.6 140 12 11.3 11.2 78
13.9 10.6
14 13.2 13.4 12.9 77
12.2 120
10 9.5 9.8 9.7 9.2
76
12 10.8 10.8 7.9 8.0 76.6
100 76.1 76.2 75
10 8 75.4 75.6
8.7 6.4 74
80
74.4
8 6 73
5.7 60 73.3
6 3.9 72.9 72.7 72
54.1 40 4 72.0 71
4
12.8 13.5 70
2 5.5 9.6 20 2
69.5 69
19.5
0 0 0 68
3QFY21
1QFY22
2QFY22
4QFY22
2QFY23
3QFY23
1QFY21
2QFY21
4QFY21
3QFY22
1QFY23
1QFY21
3QFY21
1QFY22
2QFY22
4QFY22
2QFY23
3QFY23
2QFY21
4QFY21
3QFY22
1QFY23
MAXHEALT – quarterly network EBITDA MAXHEALT – quarterly network PAT

EBITDA (Rs bn, LHS) EBITDA margin (%, RHS) Reported PAT (Rs bn, LHS) PAT margin (%, RHS)
27.7 30 6 40
5 27.1 26.2 26.0 26.5 27.2 5.3
23.5 24.6
22.8 4.0 4.0 25 5 30
3.7 35.9
4 3.6 3.5 19.6 19.4
3.4 4 16.8 16.9 17.1
15.5 3.0 20 14.5 20
12.5 11.0 2.8
3 2.5 2.5 3
15 2.5 2.4
4.9 2.2 2.3 1.8
10
2 10 2 1.3 1.2
1.4 0
5 1 0.4
1
(10)
0 0
(4.7) (21.9)
0 (20)
(5) (1)
(0.3) (1.2)
(1) (10) (2) (30)
3QFY21
4QFY21
1QFY22
1QFY23
2QFY23
3QFY23
1QFY21
2QFY21
2QFY22
3QFY22
4QFY22
1QFY21
2QFY21
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
3QFY21
4QFY21
1QFY22
2QFY22
Max Healthcare
74
Majority of Max’s launch timelines stay on track, despite minor delay in Max Smart
Exhibit 10: MAXHEALT – bed capacity expansion, March fiscal year-ends, 2022-28E (#)
2022 2023E 2024E 2025E 2026E 2027E 2028E
Consolidated hospitals
Max Super Speciality Hospital, (West Block) Saket 201 201 201 201 201 201 201
Max Hospital, Gurugram 92 92 92 392 592 592 1,092
Max Super Speciality Hospital, Mohali 220 220 220 410 410 410 410
Max Super Speciality Hospital, Shalimar Bagh 280 380 380 380 380 380 380
Max Super Speciality Hospital, Dehradun 201 201 201 201 201 201 201
Max Super Speciality Hospital, Bathinda 200 200 200 200 200 200 200
Max Super Speciality Hospital, Vaishali 378 378 378 378 378 378 378
Bed capacity 1,572 1,672 1,672 2,162 2,362 2,362 2,862
Managed healthcare facilities
Nanavati Max Hospital, Mumbai (a) 328 328 328 657 657 768 768
BLK-Max Super Speciality Hospital, Rajendra Place 540 540 540 540 540 540 540
Dwarka Hospital — — 300 300 300 300 300
Bed capacity 868 868 1,168 1,497 1,497 1,608 1,608
Partner healthcare facilities
Max Super Speciality Hospital, (East Block) Saket (b) 320 320 320 320 620 620 820
Max Super Speciality Hospital, Patparganj 402 402 402 402 402 402 402
Max Smart Super Speciality Hospital, Saket 250 250 250 600 600 850 1,350
Eqova Healthcare, East Delhi — — — — 250 250 400
Bed capacity 972 972 972 1,322 1,872 2,122 2,972
Total beds 3,412 3,512 3,812 4,981 5,731 6,092 7,442
Notes:
(a) 160 beds need to be demolished before commencement of Phase 2. So, there is a 271-bed addition on gross basis.
(b) All expansions are in Vikrant foundation, which is a PHF. Due to negligible contribution as of FY2022, it has been included with the already existing PHF, Saket
Complex (East Block).
We cut our FY2025E sales and EBITDA estimates by 2-4% due to minor capex delays beyond FY2024
Exhibit 11: MAXHEALT – changes in estimates, March fiscal year-ends, 2023-25E (Rs mn, %)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Revenues 57,922 65,193 77,103 57,596 65,048 78,622 0.6 0.2 (1.9)
Gross profits 44,195 49,808 59,061 43,888 49,696 60,303 0.7 0.2 (2.1)
Gross margin (%) 76.3 76.4 76.6 76.2 76.4 76.7 10 bps 0 bps -10 bps
EBITDA 15,844 18,431 20,764 15,705 18,522 21,637 0.9 (0.5) (4.0)
EBITDA margin (%) 27.4 28.3 26.9 27.3 28.5 27.5 9 bps -20 bps -59 bps
Net income (reported) 12,631 12,108 13,857 12,507 12,277 14,637 1.0 (1.4) (5.3)
EPS (reported) (Rs) 13.0 12.5 14.3 12.9 12.7 15.1 1.0 (1.4) (5.3)
Max Healthcare
75
We value Max at Rs490/share, ascribing a multiple of 24X to the hospital segment

Exhibit 12: MAXHEALT – SOTP valuation, March fiscal year-end, 2024E (Rs mn, %)
Dec-2024E Multiple Value
SOTP valuation (Rs mn) (X) Rs mn
Network hospitals pre-Ind AS-116 EBITDA 19,303 24.0 463,281
Max Lab EBITDA 70 16.0 1,120
Max@Home sales 1,878 2.0 3,755
Enterprise value 468,156
Net debt (8,884)
Equity value 477,040
Minority interest —
Equity value attributable to parent 477,040
Number of shares (mn) 970
Fair value per share (Rs) 492
We forecast 14.2% network revenue CAGR over FY2022-25E

Exhibit 13: MAXHEALT – KPIs, March fiscal year-ends, 2019-26E (Rs mn)
Units 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Overall
Net revenues Rs mn 35,722 39,908 36,007 51,709 57,922 65,193 77,103 95,715
EBITDA margin % 13.4 17.2 16.9 26.0 27.4 28.3 26.9 27.1
Network hospitals
Bed capacity # 3,354 3,371 3,371 3,412 3,512 3,812 4,981 5,731
Operational beds # 3,242 3,236 3,233 3,271 3,349 3,613 4,433 5,173
Occupancy rate % 72.1 72.5 64.7 74.5 74.3 73.9 67.6 68.7
ARPOB Rs/day 40,869 45,207 45,361 55,739 60,965 63,466 66,681 69,954
ALOS days 4.4 4.3 5.1 4.7 4.3 4.2 4.4 4.4
Net revenues Rs mn 34,853 38,728 34,652 49,569 55,405 61,830 72,973 90,719
EBITDA margin % 13.8 17.6 17.1 26.8 28.4 29.4 28.0 28.1
Max Lab
Number of patients thousands 215 348 660 1,370 1,519 2,303 2,994 3,832
Realizations/patient Rs 1,127 1,182 998 757 750 742 727 713
Net revenues Rs mn 242 411 659 1,038 1,139 1,709 2,178 2,732
EBITDA margin % 0.7 3.5 10.1 1.2 (1.8) 3.0 3.5 4.0
Max@Home
Net revenues Rs mn 626 768 696 1,103 1,379 1,654 1,952 2,264
EBITDA margin % (3.8) 2.0 12.1 13.2 10.5 12.0 13.0 14.0
Max Healthcare
76
We forecast 15.6% network EBITDA CAGR over FY2022-25E

Exhibit 14: MAXHEALT – network summary financials, March fiscal year-ends, 2019-26E (Rs mn)
2019 2020 2021 2022 2023E 2024E 2025E 2026E
Profit and loss
Net revenues 35,722 39,908 36,007 51,709 57,922 65,193 77,103 95,715
Gross profit 25,320 28,544 26,273 38,206 44,195 49,808 59,061 73,605
EBITDA 3,216 5,556 6,085 13,431 15,844 18,431 20,764 25,919
Pre-Ind AS-116 EBITDA 3,216 5,065 5,345 12,939 15,405 17,940 20,171 25,188
Depreciation & amortisation (1,856) (2,077) (2,161) (2,484) (2,755) (3,404) (4,150) (4,617)
EBIT 1,360 3,479 3,924 10,947 13,089 15,027 16,614 21,302
Interest expense (1,553) (2,147) (1,875) (1,118) (657) (559) (416) (260)
Profit before tax (419) 1,258 (441) 9,799 12,233 14,279 16,313 21,457
Tax & deferred tax (183) 33 (499) (1,432) 398 (2,170) (2,456) (3,286)
Net income (reported) (602) 1,290 (940) 8,367 12,631 12,108 13,857 18,171
EPS (repoeted) (Rs) (1.1) 2.4 (1.0) 8.6 13.0 12.5 14.3 18.7
Balance sheet
Fixed assets (incl. goodwill) 33,760 36,390 72,050 79,230 81,292 89,337 98,437 102,450
Cash & equivalents 3,240 4,110 6,660 6,150 12,730 14,542 13,989 23,179
Inventories 860 940 740 830 1,287 1,811 2,356 3,190
Total assets 57,708 66,592 82,871 91,114 102,441 113,828 125,878 143,526
Borrowings 20,680 19,260 11,280 9,180 7,680 6,680 5,180 3,680
Lease liabilities — 2,440 1,980 2,020 1,700 1,300 760 31
Total liabilities 27,281 32,732 25,491 23,934 22,630 21,909 20,102 19,579
Shareholders' equity 30,427 33,860 57,380 67,180 79,811 91,919 105,776 123,947
Total equity and liabilities 57,708 66,592 82,871 91,114 102,441 113,828 125,878 143,526
Cash flow statement
Net cash generated from / (used in) operating activities 4,013 6,422 6,137 10,426 15,037 15,031 16,605 19,989
Capex (3,656) (4,707) (7,771) (9,664) (4,647) (11,200) (12,860) (8,052)
Net cash generated from / (used in) investing activities (6,288) (9,294) (18,932) (9,694) (6,497) (11,940) (14,935) (10,016)
Interest paid (962) (2,147) (1,875) (1,118) (657) (559) (416) (260)
Principal payment of lease liabilities — (250) (460) (290) (320) (400) (540) (729)
Net cash generated from / (used in) financing activities (2,872) 614 (4,839) (3,069) (1,961) (1,280) (2,223) (783)
Change in cash and equivalents (5,147) (2,258) (17,633) (2,337) 6,580 1,811 (553) 9,190
Free cash flow to firm (2,275) (3,122) (13,254) 442 8,221 2,691 1,130 9,244
Ratios
EBITDA margin (%) 9.0 13.9 16.9 26.0 27.4 28.3 26.9 27.1
RoAE (%) (2.0) 4.0 (2.1) 13.4 17.2 14.1 14.0 15.8
RoCE (%) 3.8 6.7 13.2 12.5 16.1 13.5 13.3 15.1
RoIC (%) 6.1 11.5 17.8 13.7 18.4 16.1 15.9 18.7
Net debt / EBITDA (X) 0.5 (1.1) 0.8 0.2 (0.4) (0.5) (0.6) (1.0)
Max Healthcare
RESULT
Mahindra & Mahindra Financial (MMFS) ADD

Diversified Financials
Balancing growth and collections Company data and valuation summary

Mahindra Finance (MMFS) fared well on asset-quality performance in
Stock data
3QFY23 and is all set for strong collections in the next few months. Loan
growth, cooling off from 2QFY23 elevation, provides comfort, making us
more assertive on business quality and trajectory. We retain ADD with a FV
of Rs265 (up from Rs240).
ADTV-3M (mn) (Rs/US$) 989/12
Strong asset-quality performance

Mahindra Finance reported strong asset-quality performance, with gross stage-
3 loans declining by 7% qoq to 5.9% of loans from 6.7% in 2QFY23. GNPLs 7.01.9
11.2
(defined by RBI norms) were higher at 7.6%. NNPLs were in control at 4.2%
(even without the readjustment of excess standard asset provisions). This 10.8 52.2
supported the reduction in overall ECL coverage to 5% from 5.7% in 2QFY23, in
16.9
turn supporting earnings for the quarter; PAT at Rs6.5 bn (down 30% yoy) versus
KIE estimate of Rs35 bn. Core PBT was Rs10 bn (Rs10.5 bn in 3QFY22 and KIE
Promoters FPI s MFs BFI s Retail Others
estimate of Rs9.5 bn). Write-offs moderated to 2.7% of loans from 3.4% in
1HFY23. The RBI has recently lifted the ban on repossessions for MMFS; this Price performance (%)
will likely prompt better recoveries, coupled with the seasonal buoyancy of 4Q. Nifty MMFS
200
Growth strong, cooling off from 2Q highs 160
Mahindra Finance reported 5% qoq loan growth in 3QFY23, cooling off from 120
elevated levels of 9% qoq in 2QFY23. The company further reported 1% mom
80
growth in January. We find comfort in qoq moderation from very high levels of
40
2Q. Overall growth for the year will remain strong at 24%. M&M vehicles and
cars are the key growth drivers. Dealer financing is strong but seasonal. We 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
expect the momentum across business lines to continue, augmented by M&M’s
new product and MMFS’s plans to diversify into the rural affluent and MSME
segments. Forecasts/Valuations 2023E 2024E 2025E
EPS (Rs) 15.8 18.5 23.4
More assertive; ADD EPS growth (%) 96.9 16.9 27.1
P/E (X) 15.5 13.2 10.4
We find comfort in (1) MMFS’s smooth compliance with the RBI’s NPL norms,
P/B (X) 1.9 1.8 1.6
(2) consistent mom improvement in collections, which will be augmented by the
BVPS (Rs) 126.6 138.4 153.9
lifting of the ban on repossession, and (3) more importantly, moderation in the
RoE (%) 12.1 13.1 14.9
pace of growth. MMFS’ business has historically been pro-cyclical with volatile Div. yield (%) 2.9 1.5 1.9
asset-quality trends. As such, while it is crucial to capitalize on the macro Nll (Rs bn) 61 75 92
tailwinds, excessive growth can be a cause of concern as well. In that sense, PPOP (Rs bn) 38 48 61
MMFS is now faring well, with 24% yoy growth (FY2023E) and a significant Net profits (Rs bn) 19 23 29
reduction in stressed loans. New initiatives by M&M Group’s management seem Source: Bloomberg, Company data, Kotak Institutional Equities estimates
to be paying off. Mr Raul Rebello is now all set to take over the business. Prices in this report are based on the market close of
February 03, 2023
Currently, chief operating officer, Raul, is now elevated as ‘MD & CEO-
Designate’. Current MD & CEO Mr Ramesh Iyer’s tenure ends in April 2024.
We are revising our estimates by -1% to +4%, reflecting slightly lower growth
and margins. We expect loan growth to remain strong at 24% in FY2023E,
followed by 20% in the next two years; RoA may remain moderate at 2.3-2.4% in
the medium term, as expense levels remain high for now. Retain ADD with a FV
of Rs265 (11X earnings and 1.6X book FY2025E).

Nischint Chawathe M B Mahesh, CFA Varun Palacharla Abhijeet Sakhare Ashlesh Sonje, CFA
78
Exhibit 1: Mahindra - quarterly summary, March fiscal year-ends, 3QFY23, (Rs mn)
Ind-AS Ind-AS Ind-AS Ind-AS (% chg.) Ind-AS Ind-AS Ind-AS
3QFY23 3QFY23E 3QFY22 2QFY23 3QFY23E 3QFY22 2QFY23 2023E 2022 (%chg.) 2024E
Operational income 28,625 28,203 25,317 25,858 1 13 11 108,467 96,580 12 137,244
Interest income 27,947 27,522 24,867 25,163 2 12 11 107,079 94,756 13 135,604
Rental income 241 220 67 224 9 258 8 150 263 (43) 150
Fees and commission income 555 361 271 375 54 105 48 1,113 1,053 6 1,365
Net gain on fair value change (118) 100 111 97 (218) (206) (221) 100 508 (80) 100
Interest expense 12,419 11,966 9,514 10,688 4 31 16 45,848 39,202 17 60,559
NII 15,528 15,556 15,353 14,475 (0) 1 7 61,231 55,554 10 75,045
Net operational income 16,206 16,237 15,802 15,170 (0) 3 7 62,619 57,378 9 76,685
Other income 291 302 113 235 (4) 156 24 1,500 608 147 1,750
Total income 16,496 16,539 15,916 15,405 (0) 4 7 64,119 57,986 11 78,435
Operating expenses 6,513 6,868 5,294 6,768 (5) 23 (4) 26,144 20,734 26 30,516
Fee and commission expenses 131 160 120 171 (18) 10 (23) 570 449 27 717
Employee expenses 3,997 3,842 3,027 3,762 4 32 6 15,440 11,714 32 17,255
Depreciation expense 522 475 294 459 10 77 14 1,736 1,268 37 2,299
Other expense 1,864 2,391 1,853 2,376 (22) 1 (22) 8,398 7,303 15 10,246
PPOP 9,983 9,671 10,622 8,637 3 (6) 16 37,975 37,252 2 47,919
Provisions 1,551 4,884 (1,474) 1,985 (68) NM (22) 11,810 23,683 (50) 17,334
PBT pre extraordinary items 8,431 4,787 12,096 6,652 76 (30) 27 26,164 13,569 93 30,585
Extraordinary items — — — (545) — — —
PBT 8,431 4,787 12,096 6,107 76 (30) 38 26,164 13,569 93 30,585
Tax 2,142 1,321 3,158 1,624 62 (32) 32 6,698 3,682 82 7,830
PAT 6,290 3,466 8,938 4,483 81 (30) 40 19,466 9,888 97 22,755
Tax rate (%) 25 28 26 27 26 27 -153 bps 26
Core PBT 10,100 9,571 10,511 8,540 6 (4) 18 37,850 36,745 3 47,794
Standalone disbursements 145 80 118 80 22 433 276 57 545
Loans 773 770 639 738 0 21 5 808 650 24 970
Auto/ utility vehicles 255 205 229 25 12 261 208 25 324
Tractors 116 109 103 7 12 114 104 9 132
Cars 155 141 148 10 5 157 143 10 182
Commercial vehicles 85 83 81 2 5 85 78 9 100
Refinance and others 93 102 177 (9) (48) 193 117 65 231
Borrowings 711 705 572 677 1 24 5 726 560 30 865
Banks 396 263 364 51 9
Insurance 130 102 127 27 2
MFs 60 64 60 (7) 1
Others 124 142 126 (12) (1)
Yield on loans (% of on-balance
14.8 14.6 15.6 14.2 19 bps -80 bps 57 bps 14.7 14.6 6 bps 15.3
sheet loans)
Cost of borrowings 7.2 6.9 6.7 6.7 23 bps 44 bps 43 bps 7.1 6.8 29 bps 7.6
NIM 8.2 8.3 9.6 8.2 -3 bps -141 bps 3 bps 8.4 8.6 -18 bps 8.4
Cost-to-income 39.5 41.5 33.3 43.9 -204 bps 622 bps -445 bps 40.8 35.8 502 bps 38.9
Cost-to-average loans 3.4 3.6 3.3 3.8 -20 bps 13 bps -38 bps 3.6 3.2 39 bps 3.4
Credit cost (% of loans) 0.8 2.6 (0.9) 1.1 -177 bps 175 bps -30 bps 1.6 3.7 -204 bps 1.9
CAR 23.4 26.8 23.8 -340 bps -40 bps
Tier-I 20.5 23.3 20.5 -280 bps 0 bps
Asset quality (calculated)
Gross stage-3 (Rs mn) 45,890 72,230 49,430 (36) (7) 52,537 49,760 6 65,471
Gross stage-3 (%) 5.9 11.3 6.7 -540 bps -80 bps 6.5 7.7 -116 bps 6.8
GNPL (%) 7.6 11.3 6.7 -370 bps 90 bps
Net stage-3 (%) 2.5 5.6 2.9 -311 bps -39 bps 3.2 3.4 -13 bps 3.5
ECL coverage on stage-3 (%) 59 53 58 580 bps 81 bps 52 58 -608 bps 50
ECL coverage on stage-1 and 2 (%) 1.6 3.2 2.0 -157 bps -34 bps 1.5 2.7 -120 bps 1.6
Overall ECL coverage (%) 5.0 8.9 5.7 -381 bps -71 bps 4.8 6.9 -216 bps 4.9
Write-off (% of opening loans) 2.7 3.8 3.2 -107 bps -51 bps 2.8 3.9 -109 bps 1.1
Other key business parameters (#)
Branches 1,386 1,386 1,385 1,386 — 0 — 1,475 1,425 4 1,525
Mahindra & Mahindra Financial

Diversified Financials India Research
79
Key highlights of 3QFY23 results

 PAT down 30% yoy. MMFS reported a PAT of Rs6.3 bn, down 30% yoy, as the base period had large
provision reversals, 81% higher than our PAT estimate of Rs3.5 bn. The beat was largely on credit
cost, we expected higher provisions on account of RBI norms on asset recognition kicking in, but the
RBI requirement was Rs14 bn lower than the ECL provisions. Core PBT was down 4% yoy and 6%
above our estimates.
 NII flat yoy. NII was up flat yoy and in line with estimates.
 Loan book was up 21% yoy and 5% qoq (disclosed in pre-results release) on the back of a sharp
bounce-back in disbursements on a low base. Auto/utility vehicles and SME business drove growth
during the quarter. Tractor AUM grew for the first time in since Covid (declined from 3QFY21-
1QFY23). While growth in cars has picked up to 10% yoy in 3QFY23 from 5.5% in 2QFY23 and 6.5%
in 1QFY23.
 NIM was down 141 bps yoy to 8.2%, owing to an 80 bps yoy decline in yields. Cost of funding was
up 44 bps yoy and 43 bps qoq. Management indicated that the lending rates were hikes 80 bps,
but as the interest rate on advances is fixed at disbursement the benefit will accrue over the next
3-4 quarters.
 Operating expenses were up 23% yoy. Operating expenses grow was in line with asset growth, leading
to a cost/AUM ratio of 3.4% compared to 3.8% in 2QFY23 and 3.3% in 3QFY22.
 Credit cost moderates at 1.1%. MMFS’ reported credit cost was Rs1.6 bn (0.8% of loans), lower than
our estimate of Rs4.8 bn. The improvement in asset quality led to a moderation in write-offs to 2.7%
from 3.8% in 3QFY22 and 3.2 % in 2QFY23.
Business expansion to support strong trend in disbursements

Disbursements were up 80% yoy in 3QFY23 and 95% yoy in 9MFY23. We expect the trend in
disbursements to remain strong, driven by (1) strong pace of business expansion (the company plans to
add 150 branches in FY2023E), (2) incremental volumes from new product lines, and (3) revival of market
share in the car/UV segment.
We expect disbursements growth to remain strong at 138% for full-year FY2023E and 80-83% over
FY2024-25E. Repayment rates will likely normalize at ~47-48% over FY2024-25E; higher than 42% in
FY2022 and 33% in FY2021 (impact of lower collections). As such, we build in a gradual improvement in
AUM growth to 20% CAGR over FY2023-25E (up 24% yoy in FY2023E).

80
80-83% disbursements growth during FY2024-25E Disbursement mix to remain stable

Exhibit 2: Disbursements, March fiscal year-ends, 3QFY19- Exhibit 3: Disbursements, March fiscal year-ends, 3QFY19-
3QFY23 3QFY23 (%)
Value of assets financed (LHS) UV Tractors Cars CV Used/SME
(Rs bn) (%)
YoY (RHS) 100
175 180 12 7
138 16 15 18 15 39
24 21 22 22
30 16 24
4 35 4 28 24
130 80 25
140 18 22 18 6 5 4
83 80 14 25 20 7 12 11
16 15 10
15
46 54 50 80 60 19
21 5
105 20 32 18 17
24 25 20 20 18 19 15 23 16
(1) 3 (10)(4) 30 21 25 24
(15) 16
70 (21) 40 17 34 11 10 13 9 13
21 15 17 15 19
(45)(35) (20) 14
(67)
35 20 38 36 34 36 33 36
(70) 33 35 34
26 28 27 27 27 32 23 26
0 (120) 0
4QFY21
1QFY20
4QFY22
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
3QFY19
4QFY19
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
1QFY23
2QFY23
3QFY23
We expect 20% CAGR in loan book over FY2023-25E AUM mix to remain broadly stable
Exhibit 4: Loans and yoy growth, March fiscal year-ends, 2011- Exhibit 5: AUM mix, March fiscal year-ends, 2011-2025E (%)
2025E
Auto/utility vehicles Tractors
(Rs bn) Loans (LHS) YoY (RHS) Cars CVs
(%) SME Pre-owned vehicles
1,200 60
100 6 7 7 13
15 16 9 8 9 10 9 11 9 8 8
42 9 12 13 8 12 9 6 6 7 15 16 17
960 45
35 80 15 13 12 13 16 12
34 14 18 19
29 31 10 10 10
24 31 32
720 22 30 60 24 23 24 23 22 22 19 19 18
20 21 22 21 21
14 23 20
11 11 40 19 19 18 17 17 17 17 16 14 14 13
480 8 8 15 17 17
1
20
240 (5) 0 31 30 29 29 31 31 30 27 26 27 30 32 32 33 33
0
2023E
2024E
2025E
- (15)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
2011
2020
2012
2013
2014
2015
2016
2017
2018
2019
2021
2022

Pressure on NIM in the near term

We expect NIM to remain stable at 8.2% in 4QFY23E before inching up to 8.4% in FY2024E and 8.6% in
FY2025E. The company reported stable NIMs qoq, as lending rate hikes offset the rise in cost of funds.
We model a moderate NIM expansion of 4 bps in FY2024E and 19 bps in FY2025E, as the lending rate
hikes start showing their impact and cost of borrowing stabilizes.

81
NIMs to expand in the medium term

Exhibit 6: Yields, cost of funds and NIM, March fiscal year-ends, 2011-2025E (%)
Yields on AUM (LHS) Cost of funds (LHS) NIM (RHS)

24 15
18.0 13
18 16.3 16.4 16.5 15.9
15.3
14.4 15.0 15.2 15.5 14.6 14.7 15.3 15.4
10.7 13.4 11
12
8.3 8.6 8.4 8.4 8.6
8.2 8.1 8.1 9
7.8 7.8
7.4 7.2 7.1
6 6.6
7
8.2 9.3 9.6 9.9 9.8 9.2 8.6 8.1 8.4 8.6 8.0 6.8 7.1 7.6 7.6
0 5
2023E
2024E
2025E
2011
2014
2015
2018
2019
2020
2022
2012
2013
2016
2017
2021
Borrowing mix broadly stable

Exhibit 7: Borrowing's mix, March fiscal year-ends, 2014-2022, 1QFY23-3QFY23 (%)
NCDs Retail NCDs Bank loans FDs CP/ ICD Securitisation/ assignment Offshore
100 5 2 2 5 4 3 2
10 6 8 5 7
10 12 12 12 11
12 9 15 14 13
14 8 18 7 8
80 16 12 0 2 7
11 2
17 15 15 10 8
13
30 16
60 27 28
35 30 28 36 39
54 31
43 3 5 25
40 8
7 8
7 6 6 5
20 43 43
35 36
28 25 29 25 27 26
22 22
0
2014 2015 2016 2017 2018 2019 2020 2021 2022 1QFY23 2QFY23 3QFY23
Stressed loans declined sharply

MMFS reported ~262 bps qoq decline in stressed loans (gross stage-2 + gross stage-3 + restructured
loans + write-offs) in 3QFY23 to 17%, driven by a 135 bps decline in gross stage-2 loans, a 76 bps decline
in gross stage-3 loans and write-offs moderating 51 bps qoq to 2.7%. Asset-quality improvement led to
a reversal in provisions. Coverage on stage -3 loans dropped 46.1%, owing to a change in methodology
in asset recognition. Augmented by asset-quality improvement, overall ECL coverage declined to 5.0%,
down 71 bps qoq.
Medium-term credit cost at 1.6-2.1%

Given the significant improvement in asset quality, we expect write-offs to moderate to 1% in FY2024-
25E from 4.3% in FY2022. We expect overall ECL coverage to remain low at 4.8-5% in FY2023-25E (4.5-
7.2% in FY2020-2022), leading to moderate credit cost of 1.6-2.1% in the medium term.

82
Stressed loans down 262 bps qoq

Exhibit 8: Stressed loans, March fiscal year-ends, 3QFY22-3QFY23, 2018-2022 (%)
Including Excluding Excluding Excluding Excluding Including Excluding Including Excluding Excluding
impact of impact of impact of impact of impact of impact of impact of impact of impact of impact of
RBI RBI RBI RBI RBI RBI RBI RBI RBI RBI
circular circular circular circular circular circular circular circular circular circular
3QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 3QFY23 YoY YoY QoQ 2019 2020 2021 2022 YoY
Stressed loans mix
Gross stage-2 (%) 12.0 17.8 14.3 11.7 9.7 6.7 8.4 -530 bps -939 bps -135 bps 8.2 9.2 12.6 14.3 170 bps
Gross stage-3 (%) 17.0 11.3 7.7 8.0 6.7 7.6 5.9 -946 bps -536 bps -76 bps 6.4 8.4 9.0 7.7 -130 bps
Write-off during the quarters (% of opening AUM) 3.8 3.8 7.6 3.5 3.2 2.7 2.7 -107 bps -107 bps -51 bps 3.4 1.3 3.2 4.3 116 bps
Restructured loans (%)-classified in stage-2/3 6.8 6.8 6.7 5.3 4.1 3.9 3.9 -296 bps -296 bps -19 bps 0.1 6.7 664 bps
ECLGS to loans (%) NA NA NA NA NA NA NA 0.8 NA
Overall stressed loans (%)-excluding ECLGS 32.8 32.8 29.5 23.3 19.6 17.0 17.0 -1583 bps -1583 bps -262 bps 18.1 18.9 25.6 33.0 738 bps
ECL coverage
ECL coverage on stage 1 and 2 (%) 3.2 3.2 2.7 2.3 2.0 1.7 1.6 -154 bps -157 bps -34 bps 1.8 2.1 2.2 2.7 48 bps
ECL coverage on stage 3 (%) 53.2 53.2 58.1 58.1 58.2 46.1 59.0 -704 bps 580 bps 81 bps 19.2 31.0 57.9 58.1 15 bps
Overall ECL coverage (%) 8.9 8.9 6.9 6.8 5.7 5.0 5.0 -381 bps -381 bps -71 bps 2.9 4.5 7.2 6.9 -26 bps
ECL to stressed loans (%)-excluding write-offs 30.4 30.4 31.7 34.3 34.9 35.2 35.2 473 bps 473 bps 23 bps 20.0 25.6 32.1 31.6 -55 bps
Write-offs to taper off

Exhibit 9: Asset quality details, March fiscal year-ends, 2018-2025E
2018 2019 2020 2021 2022 2023E 2024E 2025E
Asset quality details (Rs mn)
Gross loans (Rs mn) 515,519 631,164 680,890 646,080 649,600 808,261 969,938 1,169,973
Gross stage 3 (%) 9.8 6.4 8.4 9.0 7.7 6.5 6.8 7.0
Gross stage 3 (Rs mn) 50,419 40,706 57,467 57,860 49,760 52,537 65,471 81,898
Overall ECL provisions (Rs mn) 30,049 18,529 30,739 46,540 45,080 38,667 47,110 58,803
Overall ECL coverage (%) 5.8 2.9 4.5 7.2 6.9 4.8 4.9 5.0
ECL coverage on stage 1 and 2 (%) 2.8 1.8 2.1 2.2 2.7 1.5 1.6 1.6
ECL provision on stage 1 and 2 (Rs mn) 12,888 10,730 12,937 13,020 16,180 11,348 14,374 17,854
Stage 3 ECL provisions (Rs mn) 17,161 7,799 17,802 33,520 28,900 27,319 32,735 40,949
ECL coverage on stage 3 (%) 34 19 31 58 58 52 50 50
Stage 1-2 provisions/ECL (%) 43 58 42 28 36 29 31 30
Credit cost details (%)
Overall credit cost 1.2 1.1 3.1 5.6 3.7 1.6 1.9 2.1
Write-offs 2.1 3.1 1.3 3.3 4.3 2.5 1.0 1.0
Provision on loans and others (0.9) (2.0) 1.9 2.4 (0.7) (0.9) 0.9 1.1
Credit cost to remain moderate at 1.6-2.1%

Exhibit 10: Credit cost, March fiscal year-ends, March fiscal year-ends, 2011-2025E (%)
Credit cost (% of loans)

6.5
5.6
5.2
3.9 3.7
3.0 3.1
2.7
2.6 2.3
1.9 2.1
1.7 1.6
1.3 1.4
1.2 1.1
1.3 0.9
0.0
2023E
2024E
2025E
2011
2012
2013
2014
2019
2020
2021
2022
2015
2016
2017
2018

83
Cost ratios to remain high

We expect cost ratios to remain high in the next few quarters, owing to (1) new initiatives, (2) high
collection-related spends, and (3) rise in training cost of employees. We bake in cost-to-average AUM of
~3.3-3.6% over FY2023-25E, marginally higher than pre-Covid levels. The company reported a ratio of
3.45% in 3QFY23, and we model a moderation to 3.37% for 4QFY23E. Operating leverage should play out
in the next two years.
Cost ratios to remain elevated

Exhibit 11: Cost ratios, March fiscal year-ends, 2011-2025E (%)
Cost-to-income (LHS) Cost-to-average loans (RHS)

(%) (%)
45 7.0
36 5.6
4.1
27 3.5 3.6 3.4 4.2
3.2 3.3 3.2 3.2 3.3
3.0 3.0 2.9 3.1
2.8
2.5
18 2.8
9 1.4
36.5 35.4 31.7 33.0 32.6 36.1 42.9 39.8 38.0 37.3 28.2 35.8 40.8 38.9 36.3
0 0.0
2024E
2023E
2025E
2012
2013
2015
2017
2019
2020
2022
2011
2014
2016
2018
2021
RoEs to rise to 15% in the medium term

Exhibit 12: Key parameters of MMFS, March fiscal year-ends, 2007-2025E (%)
IGAAP IGAAP IGAAP IGAAP IGAAP IGAAP IGAAP IGAAP IGAAP IGAAP IGAAP Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Mahindra Finance
Disbusements (% yoy) 22 8 7 42 62 35 22 7 (5) 10 19 49 22 (8) (41) 42 60 26 22
Loan growth (% yoy) 32 13 3 22 49 42 35 29 11 8 14 11 22 8 (5) 1 24 20 21
NIM (% of laons) 8.1 9.9 10.6 10.9 10.6 8.2 8.1 7.8 7.4 7.2 6.6 7.1 8.1 7.8 8.3 8.6 8.4 8.4 8.6
Credit cost (% of loans) 2.2 3.7 3.9 2.7 1.4 0.9 1.2 1.7 2.3 2.7 3.0 1.2 1.1 3.1 5.6 3.7 1.6 1.9 2.1
Cost-to-average loans (%) 3.5 3.8 3.7 3.9 4.3 3.5 3.2 3.0 2.8 3.0 3.3 2.9 3.2 3.1 2.5 3.2 3.6 3.4 3.3
Gross stage 3 (%) 5.5 7.6 9.6 7.0 4.2 3.1 3.1 4.4 5.9 8.0 9.0 9.8 6.4 8.4 9.0 7.7 6.5 6.8 7.0
Net stage 3 (%) 2.5 2.9 2.9 1.0 0.6 0.7 1.1 1.9 2.5 3.4 3.8 6.9 5.4 6.1 4.1 3.5 3.3 3.5 3.7
RoA (%) 2.4 2.7 3.0 4.2 4.1 3.8 4.1 2.8 2.2 1.6 0.9 2.2 2.6 1.3 0.4 1.3 2.3 2.3 2.4
RoE (%) 18.1 16.9 15.4 21.5 22.0 22.8 24.5 18.6 15.5 11.4 6.4 13.4 15.2 8.1 2.6 6.5 12.1 13.1 14.9
Highlights of key subsidiaries

MRHFL- asset quality remains under pressure. Gross stage-3 loans were up 130 bps qoq to 16.4%.
Disbursements were up 4% qoq, but the loan book declined 4% qoq. Management has guided that it
wants to increase disbursements in the affordable housing segment with average ticket sizes of Rs0.6-
1.5mn as against the lower ticket-size home improvement loans, the key segment earlier.

84
Exhibit 13: MRHFL, March fiscal year-ends, 1QFY22-3QFY23, 2019-2022

Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 YoY (%) 2019 2020 2021 2022 YoY(%)
Disbursements (Rs mn) 1,000 3,640 4,880 6,510 3,950 4,250 4,440 (9) 25,811 18,764 7,968 16,030 101
Loan book (Rs mn) 69,320 69,310 70,300 70,290 69,740 69,270 68,350 (3) 76,892 78,701 71,280 70,290 (1)
Total income (Rs mn) 3,340 3,610 3,530 3,300 3,290 3,280 3,380 (4) 13,839 15,276 14,549 13,780 (5)
PBT (Rs mn) (940) 670 850 (10) 20 420 140 (84) 3,662 2,056 1,954 570 (71)
PAT (Rs mn) (650) 470 670 (10) 20 310 140 (79) 2,505 1,486 1,515 480 (68)
RoA (%) (3.7) 2.7 3.8 (0.1) 0.1 1.8 0.8 -303 bps 3.7 1.9 2.0 0.7 -134 bps
Net worth (Rs mn) 13,390 13,850 14,540 14,550 14,560 14,890 15,060 4 11,271 12,481 14,030 14,550 4
RoE (%) (19) 14 19 (0) 1 8 4 -1514 bps 27 13 11 3.36 -807 bps
Asset/ equity (X) 5 5 5 5 5 5 5 -30 bps 7 6 5 5 -25 bps
GNPL-IGAAP (%) NA NA NA NA NA NA NA 9.7 11.1 NA NA
NNPL-IGAAP (%) NA NA NA NA NA NA NA 6.8 6.6 NA NA
GNPL-Ind-AS (%) 18.2 17.0 16.2 11.3 14.5 15.1 16.4 23 bps 13.0 15.1 13.2 11.3 -183 bps
NNPL-Ind-AS (%) 13.8 12.7 11.8 8.5 10.0 11.4 11.8 7 bps 10.8 10.8 9.9 8.5 -140 bps
Exhibit 14: Mahindra Insurance Brokers, March fiscal year-ends, 1QFY22-3QFY23, 2019-2022 (Rs mn)
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 YoY (%) 2019 2020 2021 2022 YoY (%)
Premium 4,480 4,940 6,100 8,260 6,350 7,430 9,790 60 19,328 20,791 17,944 23,780 33
Income 600 770 970 1,140 890 940 1,230 27 3,234 3,369 2,684 3,480 30
Expenses 550 640 730 860 860 860 1,050 44 2,205 2,630 2,248 2,780 24
PBT 50 130 240 280 30 80 180 (25) 1,029 739 436 700 61
PAT 30 100 180 210 20 60 130 (28) 715 534 324 520 60
Policies (#) 312,937 430,654 525,623 580,701 502,358 635,351 996,025 89 2,265,146 2,233,711 1,439,023 1,849,915 29
Exhibit 15: Change in estimates, March fiscal year-ends, 2023-2025E (Rs mn)

2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Net interest income 61,231 75,045 92,289 61,804 76,288 92,390 (0.9) (1.6) (0.1)
Loans (Rs bn) 808 970 1,170 822 977 1,152 (1.6) (0.8) 1.6
Loan growth (%) 24 20 21 26 19 18 -207 bps 105 bps 278 bps
NIM (% of average loans) 8.4 8.4 8.6 8.4 8.5 8.7 0 bps -4 bps -5 bps
NPL provisions 11,810 17,334 22,393 13,428 18,353 23,790 (12.0) (5.6) (5.9)
Other income 2,888 3,390 3,883 2,934 3,449 3,919 (1.6) (1.7) (0.9)
Operating expenses 26,144 30,516 34,920 26,177 30,558 34,946 (0.1) (0.1) (0.1)
Employee 15,440 17,255 19,613 15,440 17,255 19,613 - - -
Others 10,704 13,262 15,308 10,737 13,303 15,333 (0.3) (0.3) (0.2)
PBT 26,164 30,585 38,860 25,132 30,826 37,573 4.1 (0.8) 3.4
Tax 6,698 7,830 9,948 6,434 7,892 9,619 4.1 (0.8) 3.4
PAT 19,466 22,755 28,912 18,698 22,935 27,955 4.1 (0.8) 3.4
Core PBT 37,850 47,794 61,107 38,435 49,054 61,218 (1.5) (2.6) (0.2)
Cost-to-income (%) 40.8 38.9 36.3 40.4 38.3 36.3 34 bps 58 bps 2 bps
Cost-to-average AUM (%) 3.6 3.4 3.3 3.6 3.4 3.3 3 bps 4 bps -2 bps
Credit cost (% of average loans) 1.6 1.9 2.1 1.8 2.0 2.2 -21 bps -9 bps -14 bps
ROA (%) 2.3 2.3 2.4 2.2 2.3 2.4 11 bps 0 bps 6 bps
ROE (%) 12.1 13.1 14.9 11.6 13.2 14.5 46 bps -13 bps 45 bps
EPS (Rs) 15.8 18.5 23.4 15.2 18.6 22.7 4.1 (0.8) 3.4
BVPS (Rs) 134 148 166 134 148 166 0.2 0.1 0.5

85
Exhibit 15: Mahindra Finance - key growth rates and ratios, March fiscal year-ends, 2018-2025E
Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS
2018 2019 2020 2021 2022 2023E 2024E 2025E
Growth in key parameters (%)
Operating income NA 31 16 3 (7) 12 27 21
Interest income NA 31 15 3 (8) 13 27 21
Interest expense NA 28 22 (2) (17) 17 32 19
Net interest income NA 33 9 8 0 10 23 23
Net operational income NA 35 10 7 1 9 22 23
Total income NA 35 11 7 0 11 22 23
Operating expense NA 29 9 (19) 27 26 17 14
Employee expense NA 31 5 (12) 15 32 12 14
PPOP NA 39 13 22 (10) 2 26 28
Provisions NA 12 223 82 (37) (50) 47 29
PBT NA 43 (48) (66) 221 93 17 27
PAT NA 45 (42) (63) 195 97 17 27
Net assets 14.8 27 10 4 (2) 23 17 18
Borrowings 13.6 32 12 (1) (5) 30 19 20
Gross loans 10.6 22 8 (5) 1 24 20 21
Key ratios (%)
Yield on loans (%) 13.4 15.0 15.2 15.5 14.6 14.7 15.3 15.4
Cost of borrowings 8.1 8.4 8.6 8.0 6.8 7.1 7.6 7.6
NIM (% of average loans) 7.1 8.1 7.8 8.3 8.6 8.4 8.4 8.6
Cost-to-income 39.8 38.0 37.3 28.2 35.8 40.8 38.9 36.3
Cost-to-average loans 2.9 3.2 3.1 2.5 3.2 3.6 3.4 3.3
Credit cost (% of average loans) 1.2 1.1 3.1 5.6 3.7 1.6 1.9 2.1
Tax rate 35.4 34.6 26.9 20.7 27.1 25.6 25.6 25.6
Dividend payout ratio 22.8 25.7 — 29.2 44.9 44.9 20.0 20.0
ROE decomposition - % of average loans
Net interest income 7.1 7.8 7.2 7.3 7.3 7.3 7.4 7.8
Net operational income 7.2 8.0 7.5 7.5 7.5 7.4 7.6 8.0
Total income 7.3 8.1 7.7 7.7 7.6 7.6 7.8 8.1
Operating expense 2.9 3.1 2.9 2.2 2.7 3.1 3.0 3.0
Provisions 1.2 1.1 2.9 4.9 3.1 1.4 1.7 1.9
Extraordinary items 0.1 — (0.1) 0.0 — — — —
(1- tax rate) 0.6 0.7 0.7 0.8 0.7 0.7 0.7 0.7
ROA 2.2 2.6 1.3 0.4 1.3 2.3 2.3 2.4
Average assets+off-balance sheet/equity (X) 6.1 5.8 6.3 5.8 5.0 5.2 5.8 6.1
ROE 13.4 15.2 8.1 2.6 6.5 12.1 13.1 14.9

86
Exhibit 16: Mahindra Finance- financial summary, March fiscal year-ends, 2018-2025E
Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS Ind-AS
2018 2019 2020 2021 2022 2023E 2024E 2025E
Income statement
Operating income 66,335 87,229 100,979 103,952 96,580 108,467 137,244 166,466
Interest income 65,842 86,146 99,417 102,670 94,756 107,079 135,604 164,533
Interest on loans 64,080 83,696 97,120 97,841 88,320 102,657 130,440 159,014
Fee and commission income 474 869 970 707 1,053 1,113 1,365 1,638
Net gain on fair value change 2 68 262 404 508 100 100 120
Rental income 0 7 87 171 263 150 150 150
Dividend income 17 139 243 0 — 25 25 25
Interest expense 30,816 39,446 48,287 47,332 39,202 45,848 60,559 72,244
Interest on debt securities 16,934 19,979 22,841 20,576 13,949 16,917 20,969 25,049
Interest on other borrowings 7,193 12,407 16,246 13,129 14,213 16,041 23,062 27,549
Interest on deposits 3,485 3,571 6,751 8,175 7,669 9,347 12,446 14,868
Interest on subordinated liabilities 2,637 2,968 3,166 2,933 2,834 3,042 3,581 4,278
Other interest expense 568 521 (718) 2,519 537 500 500 500
Net interest income 35,025 46,700 51,130 55,338 55,554 61,231 75,045 92,289
Net operational income 35,519 47,783 52,691 56,620 57,378 62,619 76,685 94,222
Other income 517 869 1,473 1,216 608 1,500 1,750 1,950
Total income 36,036 48,653 54,164 57,836 57,986 64,119 78,435 96,172
Operating expense 14,336 18,476 20,182 16,325 20,734 26,144 30,516 34,920
Fee and commission expense 133 305 409 311 449 570 717 871
Employee expense 8,325 10,901 11,484 10,152 11,714 15,440 17,255 19,613
Depreciation expense 442 602 1,183 1,259 1,268 1,736 2,299 1,937
Other expense 5,437 6,668 7,105 4,602 7,303 8,398 10,246 12,500
PPOP 21,700 30,177 33,982 41,511 37,252 37,975 47,919 61,252
Provisions 5,681 6,352 20,545 37,348 23,683 11,810 17,334 22,393
PBT 16,668 23,824 12,398 4,224 13,569 26,164 30,585 38,860
Tax 5,907 8,254 3,334 873 3,682 6,698 7,830 9,948
PAT 10,761 15,571 9,064 3,351 9,888 19,466 22,755 28,912
Core PBT 21,681 29,969 33,478 41,107 36,745 37,850 47,794 61,107
EPS (Rs) 18 25 15 3 8 16 18 23
BPS (Rs) 157 177 185 120 127 134 148 166
Balance sheet
Loans on balance sheet 485,470 612,496 649,935 599,470 604,446 769,594 922,828 1,111,171
Total Investments 27,341 37,917 59,110 116,070 84,403 84,403 84,403 84,403
Cash & deposits 4,111 9,585 14,258 32,700 39,507 43,853 48,676 54,031
Net fixed assets 1,124 1,325 3,379 3,120 3,831 10,044 8,394 7,107
Other assets 9,881 9,457 14,030 19,000 20,700 21,323 22,097 22,909
Total assets 527,927 670,780 740,712 770,360 752,887 929,215 1,086,398 1,279,620
Total Borrowings 403,130 531,120 594,623 586,750 559,620 726,195 865,413 1,035,847
Other liabilities 28,578 30,580 32,451 36,500 36,986 37,491 38,023 38,662
Total liabilities 431,708 561,700 627,074 623,250 596,606 763,686 903,436 1,074,509
Share capital 1,229 1,230 1,231 2,460 2,466 2,466 2,466 2,466
Reserves 94,990 107,850 112,408 144,650 153,815 163,064 180,497 202,645
Shareholders' fund 96,219 109,080 113,639 147,110 156,281 165,530 182,963 205,111
Gross loans 515,519 631,164 680,890 646,080 649,600 808,261 969,938 1,169,973

RESULT
Crompton Greaves Consumer (CROMPTON) ADD

Consumer Durables & Apparel
CMP(₹): 305 Fair Value(₹): 340 Sector View: Cautious NIFTY-50: 17,854 February 06, 2023
A difficult quarter; near-term outlook uncertain Company data and valuation summary
Crompton reported much weaker-than-expected results for 3QFY23. The key
Stock data
reasons were weak demand across categories, the company’s unwillingness
to play the discounting game in fans (amid marketplace disruption due to the
new BEE norms), and its continued underperformance in lighting. The near-
term outlook is uncertain. We cut FY2023-25E EPS by 22-28% and our FV to
Rs340 (from Rs415) and would continue to await better entry points.
Much lower-than-expected earnings for 3QFY23
EBITDA/PAT fell 24%/42% yoy despite the inclusion of Butterfly (which was 5.02.5
9.3
absent last year), missing our estimates by 17%/19% and the consensus by
10.3
39.7
21%/27%. Both ECD and Lighting segment EBIT fell sharply (-24% and -21% yoy,
respectively). Within ECD, Crompton’s unwillingness to play the discounting
game in fans amid marketplace disruption led to a decline in revenues and 33.1
sharp underperformance versus peers such as Havells, Orient and Bajaj. Also,
the pumps business within ECD continued to struggle amid stiff competition
and has now cut prices. And, in Lighting, management acknowledged the Price performance (%)
company’s underperformance in recent years, owing to a lack of nimble- Nifty CROMPTON
footedness and heavy dependence on street lighting and, previously, B2G. 200
Appliances growth, though impressive in recent years, slowed on weak demand. 160
120
Near-term outlook is uncertain
80
Management expects fans business revenue growth to resume in the upcoming
40
summer season (late-4Q/early-1Q); however, the stockpiling of older models by
the channel (2-3 weeks’ worth) could potentially weigh on primary sales in 0
Mar-22
Aug-22
May-22
Feb-22
Nov-22
Jan-22
Jun-22
Jan-23
Oct- 22
Apr-22
Sep-22
Dec -22
Jul-22
4QFY23 as well. Besides, the newer models come at price points 5-6 ppt higher
than the older ones, and given the apparent price-sensitivity of the fans market,
this may dampen demand. In the pumps business, the price cuts taken toward Forecasts/Valuations 2023E 2024E 2025E
the end of 3Q could impact margins. And, in lighting, management does not see EPS (Rs) 6.8 8.9 10.7
a quick pick-up in B2B demand, as the street lighting category remains slow. EPS growth (%) (27.3) 30.3 20.7
Actions taken to increase reach in the B2C LED category are also seen as taking P/E (X) 44.7 34.3 28.4
P/B (X) 7.1 6.2 5.3
9-12 months to conclude. For all these reasons, we consider the near-term
EV/EBITDA (X) 28.0 23.6 19.9
outlook uncertain, with appliances perhaps the only bright spot.
RoE (%) 16.8 19.3 20.1
Div. yield (%) 0.8 0.8 0.8
Cut estimates and FV, await a better entry point Sales (Rs bn) 67 74 82
As explained by management on the earnings call, Crompton is handicapped by EBITDA (Rs bn) 7 8 10
its relatively high exposure (versus peers) to the slow-growing pumps business. Net profits (Rs bn) 4 6 7
In lighting, the company has, by its own admission, underachieved. And fans – Source: Bloomberg, Company data, Kotak Institutional Equities estimates
the company’s largest business – is a highly penetrated category in which it Prices in this report are based on the market close of
February 03, 2023
already holds a ~28% market share, so growth here is unlikely to sustain beyond
10-12%. Therefore, the key growth driver for the company is going to be the
appliances business (including Butterfly), and here Crompton has scaled up
impressively within a few years. Yet, all things considered, we tone down our
growth assumptions and also assume a more gradual pick-up in margins, given
the competitive scenario. Our DCF-based FV drops to Rs340, and we would look
for more suitable entry points to turn constructive.
Abhijit Akella, CFA

88
Key takeaways from the earnings call

 Management’s diagnosis of reasons for the ECD segment’s underperformance versus peers.
Dissecting the ECD segment into its three key components (fans, pumps and appliances),
management shared the following perspective. In the fans business, Crompton has not been under-
performing versus the industry; if anything, it has been growing faster than Havells. Crompton has
recorded consistent market share growth in fans for the last 16 quarters (the 3-year CAGR for this
business stands at 11%). Second, Crompton has a large business in pumps, whereas its competitors
(e.g., Havells, Orient) do not have significant pumps businesses. Havells had launched pumps
aggressively a few years ago but could not make headway and now sells only a few crores a month.
The pumps business is inherently slower-growing than some other ECD segments, in which Havells
has shown growth. Finally, in small appliances (including water heaters), Havells got a lot of growth
over time, including significantly from the personal care category where Crompton does not
participate. According to management, the small appliances category is among Havells’ largest and
fastest-growing. But in the last three years, Crompton has grown faster in that category than have
competitors. Now, small appliances is almost as big a business as pumps for Crompton, and that
change in mix matters. On lighting, management said there is no denying that Crompton has
underachieved there in the last 3-4 years, and needs to be nimble in responding to rapid fluctuations
(in terms of technology, etc.). On the question of how to accelerate growth, management shared a
three-pronged strategy: (1) scale up in kitchen appliances – just as Havells had a white space in water
purifiers and personal care, Crompton has picked kitchen appliances as a segment with a large growth
opportunity; its total revenues (including Butterfly) are approaching Rs20 bn here, ranking it among
the largest in the industry; (2) fix the Lighting business, where Crompton has stagnated after having
gained market share from 2% to 9-10% a few years ago; and (3) grow the newly-setup large appliances
business, which management expects to be a long-term growth area. Separately, the fans business
should benefit over time as energy efficiency norms continue to be tightened in coming years.
 Fans business. Revenues from the fans business declined amid the transition to the new BEE norms.
Management said Crompton did not overload channel partners with non-BEE stock (heading into the
deadline of December 31) based on heavy discounting. In contrast, the competition must have pushed
2-3 weeks of additional old inventory than Crompton, having started their promotional schemes and
discounting as far back as November 2022. Offering the example of Havells, management said that
Havells has three brands in fans (Havells, Reo and Standard), of which the two brands serving the
lower-end segments (Reo and Fanta) delivered most of the growth this quarter. Such competitive
disruption led to market share loss for Crompton versus competition. However, management believes
this was the right strategy to follow, since consumers will lay their hands early on the company’s newer
models post January 1, as Crompton does not have excessively large inventories in the channel in the
mid-market segment. On reasons for the decline in margins, management said gross margins in fans
have held up at historical levels. The problem lies in opex below the gross margin line, as operating
leverage played out. In addition, while volumes have declined, the company did not slash costs, and
instead kept A&P spending up yoy and continued to invest in go-to-market investments, etc.
Management believes that as sales pick up in the summer, and Crompton regains share due to early
placement of products, the business should benefit from operating leverage. With regard pricing on
the newer, BEE-compliant models, management said the steady-state price premium on star-rated
products should be 5-6% relative to the non-star models. However, in the initial months, the company
may offer 1-2 ppt of discounts.
 Pumps business. The pumps business registered a 10% decline this quarter. Management said
Crompton has a 27% share in the residential pumps segment, which has seen the entry of many new
local/regional competitors, leading to a price differential between them and Crompton. Therefore, the
pumps business has been performing softly for Crompton, prompting the company to take significant
pricing interventions toward the back-end of 3Q; management believes this will pay dividends in the
summer season. The company has also revamped its entire product range based on consumer needs.
Historically, pumps were differentiated based on technical factors such as head (the height to which
the pump draws water). Now, Crompton believes the consumer is interested less in head and more in
speed of tank-filling, so the company has revamped its back-end architecture, and combining this with
strong advertising, will look to drive demand in the summer.
Crompton Greaves Consumer

Consumer Durables & Apparel India Research
89
 Appliances business. In spite of a generally slow festive season and a sluggish demand environment,
Crompton’s appliances business has continued to grow aggressively (+13% yoy this quarter),
significantly ahead of most domestic competitors. Management said the small appliances business
is now approaching ~Rs10 bn p.a., making it a strong player, especially after adding Butterfly to it.
 Lighting segment. The segment experienced a difficult quarter, both in the B2B & B2C categories.
Management said competitors have shown a sharp decline in margins, but Crompton’s B2C gross
margins have sharply improved yoy. The company is now trying to grow its reach in the B2C category,
and the exercise will take 9-12 months. Management believes the B2C business will recover next
quarter, but B2B will take more time because government business is slow and the street lighting
business (the biggest area for Crompton within B2B) is also sluggish. The company has addressed
pressure on margins via in-housing of manufacturing and finding the right vendors.
 Butterfly. The business delivered marginal growth despite the challenging external environment.
Management said they feel very good about how the integration of the acquisition is going. Crompton
is beginning to bring new capabilities into Butterfly, including new products such as an innovative
pressure cooker that changes the metal make-up of the device leading to increased speed of cooking,
quality of cooking, less oil consumption, etc. 25 new products have been launched across the Butterfly
range. Crompton has also corrected a significant price disparity between the e-commerce and open
trade channels at Butterfly, leading to improved growth in open trade. People integration is also on
track. Management has also commenced the process of operational integration across various
functions including IT, Finance and Marketing. The business is also benefiting from combining
purchases, etc. Management said they are tracking ahead of their commitments made to the Board
and the acquisition is on track to be earnings-neutral in FY2023. Butterfly may end FY2023 slightly
lower than expected on revenues (1-2 ppt) due to the weak festive season, but management expects
to slightly over-deliver on synergies and margins. Butterfly PBT should approach Rs1 bn in FY2023.
Rs6 bn of the acquisition-related debt will be paid off in March 2023, and another large part in FY2024,
following which interest cost will fall, leading to significant EPS accretion.
 Management churn. Responding to a question regarding attrition at Crompton, management

said while the durables industry has always had high levels of churn at the front-end sales level, this
had gone down during Covid and later come back up to old levels and not higher. At the senior
management level, executives typically spend 5-6 years with an organization and then move for better
opportunities. However, management offered numerous examples regarding the fairly long tenures
of several senior management personnel at Crompton, including the erstwhile CFO, the Head of Sales,
the Fans business head (who now heads Butterfly), etc.

90
Exhibit 1: Consolidated quarterly results of Crompton Greaves Consumer, March fiscal year-ends (Rs mn, unless specified)
Crompton, Interim results (consolidated), March fiscal year-ends (Rs mn)
Change (%) 3-year
3QFY23 3QFY23E 3QFY22 2QFY23 KIE yoy qoq 3QFY20 CAGR (%) 9MFY23 9MFY22 Yoy (%)
Net revenue 15,162 16,100 14,106 16,995 (5.8) 7.5 (10.8) 10,713 12.3 50,787 38,462 32.0
Total expenditure (13,638) (14,259) (12,091) (15,064) (4.4) 12.8 (9.5) (9,346) 13.4 (45,132) (33,055) 36.5
Material consumed (10,230) (10,809) (9,638) (11,534) (5.4) 6.1 (11.3) (7,290) (34,544) (26,161) 32.0
Employee expenses (1,341) (1,300) (941) (1,332) 3.2 42.5 0.7 (774) (4,108) (2,789) 47.3
Other expenses (2,067) (2,150) (1,511) (2,198) (3.9) 36.8 (6.0) (1,283) (6,481) (4,106) 57.9
EBITDA 1,524 1,841 2,015 1,931 (17.2) (24.4) (21.1) 1,367 3.7 5,654 5,407 4.6
Margins (%) 10.1 11.4 14.3 11.4 12.8 11.1 14.1
Other income 213 180 140 183 18 52 16 175 500 505 (1)
Depreciation (297) (285) (102) (283) 4.1 191.8 5.0 (64) (855) (278) 207.6
EBIT (including other income) 1,440 1,736 2,054 1,831 (17.0) (29.9) (21.4) 1,478 (0.9) 5,299 5,634 (5.9)
Margins (%) 9.5 10.8 14.6 10.8 13.8 10.4 14.6
Interest expenses (294) (280) (67) (299) 5.1 341.1 (1.5) (87) (818) (248) 230.4
PBT 1,146 1,456 1,987 1,533 (21.3) (42.3) (25.2) 1,391 4,481 5,386
Extraordinaries — — — - — (64) —
PBT 1,146 1,456 1,987 1,533 (21.3) (42.3) (25.2) 1,391 (6.3) 4,417 5,386 (18.0)
Tax (264) (364) (505) (226) (27.5) (47.7) 17.1 219 (969) (1,368)
Tax rate (%) 23.0 25.0 25.4 14.7 (15.7) 21.9 25.4
Minority interest (29) (45) - (49) (128) -
PAT 853 1,047 1,483 1,307 (18.6) (42.5) (34.8) 1,610 3,321 4,018 (17.4)
EPS (Rs) 1.4 1.7 2.3 2.1 (19.3) (41.0) (32.8) 2.6 5.5 6.3 (14.1)
Key ratios (%)
RM as % of sales 67.5 67.1 68.3 67.9 33 bps -86 bps -39 bps 68.0 68.0 68.0
Employee cost as % of sales 8.8 8.1 6.7 7.8 77 bps 217 bps 101 bps 7.2 8.1 7.3
Other expenditure as % of sales 13.6 13.4 10.7 12.9 28 bps 292 bps 70 bps 12.0 12.8 10.7
Effective tax rate 23.0 25.0 25.4 14.7 -196 bps -236 bps 833 bps (15.7) 21.9 25.4
Segmental
Revenue
Lighting products 2,477 2,750 3,113 2,696 (9.9) (20.4) (8.1) 2,843 (12.9) 7,796 7,661 1.8
Electric consumer durables 10,201 10,100 10,993 10,622 1.0 (7.2) (4.0) 7,870 29.6 34,295 30,801 11.3
Butterfly Gandhimathi 2,484 3,250 3,677 (23.6) 8,696
Total 15,162 16,100 14,106 16,995 (5.8) 7.5 (10.8) 10,713 41.5 50,787 38,462 32.0
EBIT
Lighting products 255 248 324 215 2.9 (21.4) 18.5 196 30.3 702 831 (15.5)
Electric consumer durables 1,617 1,697 2,130 1,814 (4.7) (24.1) (10.9) 1,561 3.5 5,716 5,988 (4.5)
Butterfly Gandhimathi 181 341 403 (47.1) 802
Unallocables (612) (550) (400) (601) 52.9 1.9 (279) 119.4 (1,921) (1,184) 62.2
Total EBIT 1,440 1,736 2,054 1,831 (29.9) (21.4) 1,478 (2.6) 5,299 5,634 (5.9)
EBIT margins (%)
Lighting products 10.3 9.0 10.4 8.0 128 bps -12 bps 231 bps 6.9 9.0 10.8 -184 bps
Electric consumer durables 15.8 16.8 19.4 17.1 -95 bps -353 bps -123 bps 19.8 16.7 19.4 -277 bps
Butterfly Gandhimathi 7.3 10.5 -323 bps 9.2 923 bps
Unallocables (4.0) (3.4) (2.8) (3.5) -62 bps -120 bps -50 bps (2.6) (3.8) (3.1) -70 bps
Total EBIT margin (%) 9.5 10.8 14.6 10.8 -128 bps -506 bps -128 bps 13.8 10.4 14.6 -421 bps
Exhibit 2: Change in estimates, consolidated, March fiscal year-ends (Rs mn, unless specified)
New estimates Old estimates Change in estimates (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Revenues 67,305 73,857 82,286 72,610 82,677 92,874 (7.3) (10.7) (11.4)
Gross profit 21,470 23,856 26,825 23,162 26,705 30,277 (7.3) (10.7) (11.4)
Gross margin (%) 31.9 32.3 32.6 31.9 32.3 32.6
EBITDA 7,287 8,432 9,676 8,648 10,945 12,948 (15.7) (23.0) (25.3)
EBITDA (%) 10.8 11.4 11.8 11.9 13.2 13.9
PAT 4,277 5,654 6,827 5,527 7,837 9,537 (22.6) (27.9) (28.4)
EPS (Rs) 6.9 9.0 10.9 8.9 12.5 15.2 (22.4) (27.9) (28.4)

91
Exhibit 3: Key assumptions for Crompton Greaves Consumer, March fiscal year-ends, 2017-25E (Rs mn, unless specified)
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Segmental revenue breakup (Rs mn)
Fans 17,098 17,781 20,271 21,082 22,768 27,094 27,907 29,581 32,540
Lighting 10,970 12,770 12,653 11,312 10,464 10,831 10,506 11,031 11,804
Pumps 8,500 8,160 9,221 9,498 9,973 10,123 10,224 10,531 11,057
Appliances 2,441 2,339 2,644 3,311 4,830 5,893 7,661 9,346 11,029
Butterfly Gandhimathi 10,757 12,742 14,607
Built-in kitchen appliances 250 625 1,250
Net sales 39,009 41,051 44,789 45,203 48,035 53,941 67,305 73,857 82,286
Segmental revenue growth assumptions (%)
Fans 11.0 4.0 14.0 4.0 8.0 19.0 3.0 6.0 10.0
Lighting (0.8) 16.4 (0.9) (10.6) (7.5) 3.5 (3.0) 5.0 7.0
Pumps 13.0 (4.0) 13.0 3.0 5.0 0.0 1.0 3.0 5.0
Appliances 10.4 (4.2) 13.0 25.2 45.9 22.0 30.0 22.0 18.0
Butterfly Gandhimathi 18.5 14.6
Built-in kitchen appliances 150.0 100.0
Overall 8.8 5.2 9.1 0.9 6.3 12.3 24.8 9.7 11.4
EBITDA margin (%) 12.4 13.6 13.0 13.3 15.0 14.3 10.8 11.4 11.8
EBIT margins (%)
Lighting products 9.0 11.5 8.4 6.2 12.6 11.8 9.2 10.3 10.5
Electric consumer durables 17.7 18.9 19.2 19.9 19.7 19.2 16.2 16.0 16.4
Butterfly Gandhimathi 8.8 9.1 9.4
Built-in kitchen appliances (4.0) (0.5) 2.6
Total EBIT margin (%) 15.2 16.6 16.1 16.5 18.1 17.7 13.9 14.0 14.3
Other key assumptions
Raw material / sales (%) 70.1 68.2 69.0 67.9 68.0 68.6 68.1 67.7 67.4
Employee expenses (excl. ESOP) / sales (%) 6.0 6.9 6.5 6.9 7.0 6.7 8.4 8.5 8.5
Other expenses / sales (%) 11.6 11.4 11.4 11.9 10.0 10.4 12.7 12.4 12.3

92
Exhibit 4: Consolidated financial summary, March fiscal year-ends, 2017-25E (Rs mn, unless specified)
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Income statement
Operating income 39,009 41,051 44,789 45,203 48,035 53,941 67,305 73,857 82,286
Total operating expenses (34,163) (35,486) (38,946) (39,212) (40,830) (46,247) (60,018) (65,425) (72,610)
EBITDA 4,847 5,565 5,843 5,991 7,205 7,694 7,287 8,432 9,676
Other income 195 308 480 591 758 727 650 650 800
Interest expense (655) (637) (596) (407) (429) (353) (1,111) (530) (355)
Depreciation (110) (126) (129) (268) (297) (423) (1,150) (1,189) (1,241)
Pre-tax profit 4,276 5,109 5,598 5,907 7,236 7,645 5,675 7,363 8,880
Tax (1,419) (1,617) (1,869) (943) (1,070) (1,732) (1,135) (1,473) (1,776)
Minority interest (199) (236) (277)
Recurring net profits 2,857 3,493 3,729 4,964 6,167 5,891 4,341 5,654 6,827
Extraordinary items (25) — 285 — — (130) (64) — —
PAT 2,832 3,493 4,014 4,964 6,167 5,792 4,277 5,654 6,827
EPS (Rs) 4.5 5.6 5.9 7.9 9.8 9.4 6.9 9.0 10.9
Balance sheet
Shareholders funds 5,178 7,895 10,973 14,683 19,314 24,530 27,281 31,397 36,686
Equity share capital 1,254 1,254 1,254 1,255 1,255 1,267 1,272 1,272 1,272
Reserves and surplus 3,924 6,641 9,659 13,369 17,999 23,203 25,949 30,066 35,355
Loan funds 6,478 6,486 6,486 3,500 2,988 16,075 10,075 5,075 5,075
Total sources of funds 11,656 14,381 17,459 18,183 22,302 48,429 38,720 38,072 43,638
Net block 758 760 786 1,251 1,328 4,045 3,395 2,806 2,265
Intangible assets 63 62 52 45 28 15,124 15,124 15,124 15,124
CWIP 1 6 10 199 109 130 130 130 130
Net current assets (excl. cash) (1,141) (169) 1,373 2,499 (1,279) 746 628 284 316
Cash 3,886 5,450 6,843 5,889 13,737 15,548 6,607 6,891 12,966
Net deferred tax asset 295 479 603 507 586 (18) (18) (18) (18)
Total application of funds 11,656 14,381 17,459 18,183 22,302 48,429 38,720 38,072 43,638
Free cash flow
Operating profit before wcap. changes 3,674 4,087 4,197 4,830 6,858 6,229 6,466 7,337 8,278
Change in working capital / other adjustments (548) (933) (1,208) (721) 1,445 1,005 118 344 (32)
Capex (148) (133) (156) (483) (198) (1,706) (500) (600) (700)
Free cash flow (CFO + net capex) 2,977 3,021 2,834 3,627 8,105 5,528 6,084 7,080 7,545
Ratios
EBITDA margin (%) 12.4 13.6 13.0 13.3 15.0 14.3 10.8 11.4 11.8
Debt/equity 1.3 0.8 0.6 0.2 0.2 0.7 0.4 0.2 0.1
Net debt/equity (0.4) (0.3) (0.2) (0.4) (0.3) (0.7) (0.8) (0.8) (0.7)
Book value per share (Rs) 8.2 12.6 17.5 23.4 30.8 39.1 43.4 50.0 58.4
RoAE (%) 76.5 53.4 39.5 38.7 36.3 26.9 16.8 19.3 20.1
RoACE (%) 32.3 30.2 25.9 29.8 32.3 17.4 12.5 16.4 18.1

RESULT
Sun TV Network (SUNTV) ADD

Media
Ad growth ahead of industry Company data and valuation summary

Sun reported flat ad revenues on a yoy basis (10% above 3QFY20), better than
Stock data
the industry (HSD/DD decline per KIE estimate) on the back of stable
viewership. The stock has corrected 20% in the past three months despite
stable operating performance. At CMP, the stock is trading at 3.3X FY2023E
core TV business earnings, if we ascribe Rs80 bn to IPL team and exclude
cash of ~Rs50 bn. The stock offers upside even after factoring in structural
risks. We tweak estimates. Maintain ADD with a revised FV of Rs555 (Rs600 Shareholding pattern (%)
earlier).
6.9
4.4
3QFY23—earnings in line with expectations 1.0
2.9
9.8
Sun’s revenues declined 17% yoy to Rs8.6 bn (KIE: Rs8.6 bn), largely due to IPL
and movies in the base quarter. Ad revenues stood at Rs3.8 bn (KIE: Rs3.6 bn),
flat yoy and 10% above 3QFY20 levels, though decent in the context of the 75.0
pressure on ad budgets across corporates due to inflationary pressures. We

gather that TV ad spends declined in HSD/DD in 3QFY23. Sun has likely Promoters FPIs MFs BFIs Retail Others
outperformed Zee on ad growth for the sixth-consecutive quarter (we expect

Zee to report a 10% yoy decline in ad revenues in 3QFY23E; about 8% below
Nifty SUNTV
3QFY20), largely due to Zee’s viewership loss and Sun’s stable viewership. 200
160
Direct costs were up 1%/9% yoy/qoq. Employee costs were up 3% yoy (promoter
120
compensation remains capped at Rs1.75 bn since FY2018). Movie amortization
80
expense was about Rs7.7 bn (versus Rs1.2 bn in 3QFY20), partly due to a
change in accounting policy starting 1QFY22. EBIT (Rs4.6 bn, down 18% yoy 40
largely due to profits from IPL and big movie releases in the base quarter, up 0
Mar-22
Aug-22
May-22
Feb-22
Nov-22
Jan-22
Jun-22
Jan-23
Oct- 22
Apr-22
Sep-22
Dec -22
Jul-22
6% versus 3QFY20) was 4% above estimate. PAT of Rs4.2 bn (down 9% yoy, up
11% versus 3QFY20) was in line with our estimate. The contributions of IPL and
Sun Pictures were negligible in 3QFY23 Forecasts/Valuations 2023E 2024E 2025E
EPS (Rs) 43.9 51.1 53.6
Sun should increase dividend payout, in our view EPS growth (%) 5.4 16.5 4.8
Sun’s cash balance is Rs50 bn+. Interim dividend was Rs3.75/share in 3Q P/E (X) 10.2 8.7 8.3
(cumulative Rs12.5/share in 9MFY23). At this run rate, Sun’s total dividend P/B (X) 1.9 1.7 1.6
EV/EBITDA (X) 6.2 5.0 4.5
could be Rs16.25-17.5/share, implying a 40% payout ratio in FY2023. In our
RoE (%) 20.1 21.0 19.9
view, management should increase distribution of earnings/surplus cash
Div. yield (%) 4.5 5.6 6.7
through dividend or other tax-efficient approaches, especially as the business
does not have any major capital requirements. EBITDA (Rs bn) 21 25 26
Net profits (Rs bn) 17 20 21
We tweak estimates and revise FV to Rs555 (Rs600 earlier) Source: Bloomberg, Company data, Kotak Institutional Equities estimates
We tweak estimates and revise FV to Rs555, valuing Sun on a SoTP basis: (1) Prices in this report are based on the market close of
core media business: Rs89 bn (Rs225/share) at 6X FY2024E PE (7X earlier), (2) February 03, 2023
IPL team: Rs80 bn (Rs203/share) at 31X FY2024 PE, and (3) cash balance:
Related Research
~Rs50 bn (Rs127/share). Sun is trading at 3.3X FY2023E core business
earnings (excluding IPL and cash/other income). While the valuation is → Sun TV Network: Steady quarter
inexpensive, re-rating is contingent on progress on key investor concerns: (1) → Sun TV Network: Good recovery in core
underinvestment in the core business and a lack of focus on digital and (2) → business EBIT Core TV business at 3X TTM
Sun TV Network:
governance concerns (lower dividend payout versus pre-FY2016 levels). earnings; Upgrade to BUY

94
Exhibit 1: Interim standalone financials of Sun TV Network (Rs mn)

% chg. 3-yr
3QFY23 3QFY23E 3QFY22 2QFY23 KIE yoy qoq 9MFY23 9MFY22 % chg. 3QFY20 CAGR (%)
Total revenues 8,575 8,571 10,331 7,964 0.1 (17.0) 7.7 28,478 26,719 6.6 8,150 1.7
Ad revenues (incl slot sales) 3,800 3,566 3,793 3,425 6.6 0.2 10.9 10,657 9,691 10.0 3,460 3.1
Domestic subscription rev 4,055 4,255 4,225 3,990 (4.7) (4.0) 1.6 12,155 12,455 (2.4) 4,120
- DTH 2,105 2,155 2,200 2,100 (2.3) (4.3) 0.2 6,275 6,490 (3.3) 2,070
- Cable 1,950 2,100 2,025 1,890 (7.1) (3.7) 3.2 5,880 5,965 (1.4) 2,050
International subscription rev 250 250 250 240 0.0 0.0 4.2 740 750 (1.3) 410
IPL revenues 67 — 579 5 2,503 2,335 7.2 —
Others (incl. Sun Pictures) 403 500 1,483 304 2,423 1,488 160 35.7
Total expenditure (3,937) (4,090) (4,645) (3,471) (3.8) (15.3) 13.4 (13,788) (11,563) 19.2 (3,782) 1.3
Direct costs (programming) (1,604) (1,550) (1,589) (1,475) 3.5 0.9 8.7 (4,598) (4,070) 13.0 (1,106) 13.0
Employee costs (682) (700) (664) (693) (2.6) 2.7 (1.6) (2,059) (2,021) 1.9 (710) -1.3
SG&A expenses (556) (600) (540) (547) (7.4) 2.9 1.6 (1,684) (1,764) (4.5) (531) 1.5
IPL expenses (3) - (319) (2) (1,520) (1,490) 2.1 —
Depreciation expense (325) (340) (265) (320) (4.4) 22.6 1.6 (1,075) (790) 36.1 (220) 13.7
Movie amortization (767) (900) (1,268) (435) (14.8) (39.5) 76.5 (2,851) (1,428) 99.6 (1,216)
EBIT 4,639 4,481 5,686 4,493 3.5 (18.4) 3.2 14,691 15,156 (3.1) 4,367 2.0
EBIT margin (%) 54.1 52.3 55.0 56.4 181 bps -94 bps -232 bps 51.6 56.7 -514 bps 53.6
Other income 942 800 420 861 17.8 124.2 9.4 2,812 1,641 71.4 636
Interest expense (11) (20) (8) (13) (43.0) 42.5 (14.9) (39) (253) (84.6) (19)
PBT 5,569 5,261 6,098 5,341 5.9 (8.7) 4.3 17,464 16,543 5.6 4,985
Extraordinaries — — — — — — —
Tax provision (1,406) (1,315) (1,524) (1,334) 6.9 (7.8) 5.4 (4,377) (4,139) 5.8 (1,250)
Minority interest — — — — — — —
Reported PAT 4,163 3,945 4,574 4,007 5.5 (9.0) 3.9 13,087 12,405 5.5 3,735 3.7
Adjusted PAT 4,163 3,945 4,574 4,007 5.5 (9.0) 3.9 13,087 12,405 5.5 3,735 3.7
EPS (Rs/share) 10.6 10.0 11.6 10.2 5.5 (9.0) 3.9 33.2 31.5 5.5 9.5 3.7
Tax rate (%) 25.2 25.0 25.0 25.0 25.1 25.0 25.1
Core business financials (excluding IPL)

Revenues 8,508 8,571 9,752 7,959 (0.7) (12.8) 6.9 25,975 24,384 8,150 1.4
Adjusted EBITDA (a) 4,899 4,821 5,691 4,810 1.6 (13.9) 1.9 14,783 15,101 (2.1) 4,587 2.2
EBITDA margin (%) 57.6 56.2 58.4 60.4 56.9 61.9 56.3
IPL franchise
Revenues 67 579 5 2,503 2,335 7.2 —
Operating costs (3) (319) (2) (1,520) (1,490) 2.1 —
Operating profit 64 260 3 983 845 16 —
Notes:
(a) EBITDA of core business (excludes IPL) after deducting amortization costs associated with movies.
(b) Core business and IPL frachise are in standalone financials. Radio business is in subsidiary and JV.
(c) Quarterly financials are standalone whereas full year numbers are consolidated (includes radio subsidiaries).
Sun TV Network
Media India Research
95
Exhibit 2: Sun TV: Estimate revision, March fiscal year-ends, 2023-24E (Rs mn)
Revised Previous Change (%)
2023E 2024E 2023E 2024E 2023E 2024E
Advertising revenues (incl. slot sale) 14,150 15,270 14,150 15,270 — —
Domestic subscription revenues 16,948 18,134 16,948 18,642 — (2.7)
- DTH subscription revenues 8,915 9,539 8,915 9,806 — (2.7)
- Cable subscription revenues 8,033 8,595 8,033 8,836 — (2.7)
Overseas subscription revenues 1,001 1,001 1,001 1,001 — —
Radio revenues 910 983 910 983 — —
Sun Pictures (movie production) 3,750 3,750 3,750 3,750 — —
Other operating revenues (incl IPL) 2,555 6,025 2,555 6,025 — —
Total revenues 39,313 45,163 39,313 45,671 — (1.1)
Direct expenses 5,975 6,519 5,975 6,558 — (0.6)
Employee expenses 3,075 3,304 3,075 3,304 — —
SG&A expenses 4,139 5,569 4,139 5,571 — (0.0)
D&A expenses (incl movie amortization) 6,049 6,249 6,049 6,249 — —
Total expenditure 19,239 21,641 19,239 21,683 — (0.2)
EBIT 20,075 23,522 20,075 23,988 — (1.9)
EBIT margin (%) 51.1 52.1 51.1 52.5
PAT 17,297 20,148 17,297 20,148 — —
EPS (Rs/share) 43.9 51.1 43.9 52.0 — (1.7)
Key assumptions
Ad revenue (incl slot sale) growth (%) 8.8 7.9 8.8 7.9
Domestic subs revenue growth (%) 2.0 7.0 2.0 10.0
- DTH subscription revenue growth (%) 2.0 7.0 2.0 10.0
- Cable subscription revenue growth (%) 2.0 7.0 2.0 10.0
Overseas subscription revenue growth (%) — — — —
IPL operating profit / (loss) 1,014 3,390 1,014 3,390 — —
Exhibit 3: Sun TV: sum-of-the-parts (SoTP) valuation model, March fiscal year-ends (Rs mn)
Segment Metric Multiple (X) Per share value (Rs) % of total value
Media business P/E 6 225 41
IPL P/E 31 203 37
Cash balance (Sep-22) 127 23
Total Equity Value 555
Implied consol P/E (X) 11
Consolidated EPS (FY2024E) 51.1
Sun TV Network
96
Exhibit 4: BARC ratings market share, 1-Apr-19 to 23-Sep-22 (Week 14, 2019 to Week 38, 2022) (%)
1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23
Tamil GEC (Urban + Rural)- Viewership share in t he t op 6 channels (% )
Sun TV 39.6 41.1 44.2 45.8 47.0 42.1 38.4 38.3 40.7 39.8 41.9 42.5 42.1 42.6
STAR Vijay 23.5 25.7 22.6 20.8 18.1 20.8 27.0 28.0 26.0 28.9 28.7 27.8 29.0 27.1
Zee Tamil 22.5 19.6 20.3 19.1 14.7 20.9 20.9 19.7 15.9 16.1 15.7 14.5 14.2 15.3
Polimer 1.7 1.4 1.3 1.3 2.3 1.5 1.3 1.3 1.6 1.2 1.3 1.2 1.2 1.1
Kalaignar TV 3.9 3.5 3.5 4.0 5.1 3.7 2.9 2.7 3.8 3.7 4.2 5.8 5.1 5.7
Jaya TV 1.3 1.8 1.7 2.8 4.3 3.3 2.7 2.8 3.3 2.5 1.5 1.5 1.9 1.9
Colors Tamil 3.3 3.0 2.8 3.1 4.0 3.4 3.0 3.6 4.3 4.0 3.2 3.0 2.7 2.7
Sun Lif e 4.1 3.9 3.5 3.1 4.6 4.3 3.7 3.7 4.3 3.7 3.5 3.7 3.8 3.7
Tot al of t op 8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Telugu GEC (Urban + Rural)- Viewership share in t he t op 4 channels (% )

Zee Telugu 23.6 21.1 20.9 21.8 20.0 25.4 25.2 26.7 26.6 25.2 24.9 25.0 25.9 26.5
Star Maa TV 33.4 36.3 36.6 33.8 29.8 33.2 38.1 36.8 37.8 39.6 41.6 42.0 41.1 41.3
Gemini TV (Sun) 20.5 19.9 19.6 21.2 26.2 18.2 15.2 14.8 14.0 15.0 14.1 13.8 14.0 12.5
ETV Telugu 22.5 22.7 22.8 23.2 24.1 23.1 21.6 21.7 21.5 20.2 19.4 19.2 19.0 19.7
Tot al of Top 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Kannada GEC (Urban + Rural)- Viewership share in t he t op 5 channels (% )

Colors Kannada 28.1 23.9 24.7 19.1 16.1 19.7 23.8 24.6 23.8 24.1 23.3 24.6 23.8 25.7
Colors Super 10.2 9.6 7.4 6.4 5.2 2.7 3.1 3.4 3.8 3.2 3.2 3.0 3.4 3.3
Zee Kannada 32.1 35.9 38.1 39.5 31.3 34.4 34.0 35.6 33.0 38.5 40.8 39.8 42.2 41.9
Udaya TV (Sun) 16.9 16.9 15.6 18.2 30.8 22.7 16.9 16.1 19.5 16.1 16.6 17.4 15.8 14.9
Star Suvarna 12.7 13.7 14.3 16.8 16.6 20.4 22.1 20.3 19.8 18.1 16.1 15.1 14.8 14.2
Tot al of Top 5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
M alayalam GEC (Urban + Rural)- Viewership share in t he t op 4 channels (% )

St ar Asianet 43.9 46.0 49.1 49.6 33.6 43.1 49.9 52.1 45.0 51.4 53.5 52.4 54.9 52.5
Surya TV (Sun) 12.6 11.2 11.0 12.3 22.3 14.6 10.5 9.7 12.3 8.9 9.2 10.4 9.7 10.1
Mazhavil Manorama 17.8 16.0 15.3 14.4 18.5 14.3 13.7 12.5 15.7 14.2 13.1 12.9 12.2 13.9
Flowers TV 19.8 18.3 14.2 12.9 15.5 16.3 13.9 14.1 14.7 15.1 13.3 13.6 12.8 12.7
Zee Keralam 5.9 8.5 10.4 10.8 10.2 11.6 12.0 11.6 12.2 10.4 10.8 10.7 10.4 10.8
Tot al of Top 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Notes:
(1) Top 5-7 channels (relevant channels) in each genre are considered for market share calculation.
(2) Colors Tamil's viewership share was 4.5% in the month of March 2018 (Channel ratings were released starting March)
Source: BARC data, Kotak Institutional Equities estimates
Exhibit 5: Sun TV: Break-up of EBITDA and EPS, March fiscal year-ends, 2022-24E (Rs mn)
2022 2023E 2024E

Break-up of EBITDA (post movie amortization expense)
Core media business (TV+Radio) 20,008 20,266 21,306
IPL Franchise 980 983 3,390
Total 20,988 21,249 24,696
Break-up of EPS (Rs/share)
Core media business (TV+Radio) 34.9 35.6 37.5
IPL Franchise 1.9 1.9 6.5
Post-tax other income 4.9 6.4 7.2
Total 41.7 43.9 51.1
Sun TV Network
97
Exhibit 6: Consolidated financial summary of Sun TV Network, FY2014-25E (Rs mn)

2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Net sales 25,698 26,457 29,630 37,825 35,199 31,769 35,848 39,313 45,163 47,767
EBIT 12,693 13,694 15,538 19,438 15,937 16,675 19,814 20,075 23,522 24,830
Other income 1,106 1,538 1,423 2,271 2,607 3,068 2,560 3,360 3,760 3,760
Interest (expense)/income (22) (10) (11) (17) (128) (269) (333) (80) (80) (80)
Pretax profits 13,777 15,222 16,950 21,693 18,416 19,474 22,041 23,355 27,202 28,510
Tax-cash (4,755) (5,203) (5,822) (7,511) (4,340) (4,158) (5,535) (5,955) (6,936) (7,270)
Tax-deferred — — — — — — — — — —
Minority interest (68) 288 224 137 (45) (66) (89) (102) (117) (135)
Recurring PAT 9,015 10,307 11,351 14,320 13,989 15,250 16,418 17,297 20,148 21,105
Recurring EPS (Rs) 22.9 26.2 28.8 36.3 35.5 38.7 41.7 43.9 51.1 53.6
Total equity 35,263 40,285 46,121 54,502 56,481 70,537 81,552 90,968 101,264 110,547
Deferred Tax 176 521 763 1,056 851 0 0 0 0 0
Total borrowings — — — — — — — — — —
Currrent liabilities 2,765 2,941 5,832 5,612 6,936 8,878 7,378 7,760 8,245 8,750
Total capital 40,894 43,782 52,756 61,214 64,315 79,464 88,981 98,778 109,560 119,348
Cash 16,850 15,925 20,812 29,479 29,536 41,878 42,697 52,306 59,369 66,655
Current assets 14,950 11,519 15,632 16,788 19,944 23,143 22,877 22,591 25,601 27,412
Total fixed assets 4,544 7,841 7,763 7,785 7,330 7,454 14,676 14,001 13,327 12,653
Intangible assets 4,551 4,421 4,246 4,166 3,925 2,638 4,466 5,716 7,216 8,716
Total assets 40,894 43,782 52,756 62,786 65,233 79,464 88,981 98,778 109,560 119,348
Operating cash flow, excl. WC 13,300 12,794 14,216 18,903 19,049 16,636 16,125 20,168 22,835 24,009
Working capital (WC) (254) (293) (1,221) (662) (2,492) (1,410) (548) 667 (2,525) (1,306)
Other income 938 1,089 1,423 1,021 2,217 1,532 2,264 3,360 3,760 3,760
Free cash flow 10,249 8,267 10,061 13,709 12,173 14,464 6,545 17,571 16,995 19,188
Ratios (%)
Ad revenue (incl slot sale) growth (%) 5.6 (3.7) 9.7 7.0 (8.3) (27.2) 30.6 8.8 7.9 5.0
Domestic subs revenue growth (%) 10.5 15.7 18.9 16.9 19.3 10.1 (3.5) 2.0 7.0 7.0
- DTH subscription revenue growth (%) 11.3 12.2 12.3 15.2 (2.8) 7.7 (1.8) 2.0 7.0 7.0
- Cable subscription revenue growth (%) 8.3 24.6 33.9 20.2 60.1 12.8 (5.2) 2.0 7.0 7.0
Overseas subscription revenue growth (%) 5.5 7.4 7.1 8.5 (8.4) (15.2) (28.0) — — —
Radio revenue growth (%) 11.2 (47.7) 15.3 8.0 (10.0) (64.9) 100.0 30.0 8.0 8.0
Movies amortization expense 4,292 3,442 3,783 5,900 5,988 2,998 1,887 4,875 5,075 5,275
Source: Company , Kotak Institutional Equities estimates
Sun TV Network
RESULT
Aptus Value Housing Finance (APTUS) ADD

Moving on smoothly Company data and valuation summary

Aptus reported strong performance in 3QFY23 with 31% loan growth on the
Stock data
back of 33% growth in disbursements. Stressed loans declined 18 bps qoq
with most improvement in gross stage-2 loans. NIM compressed marginally
due to increase in cost of funds. The business remains on right track; ADD,
FV Rs330.
24% earnings growth in 3QFY23

Aptus reported 24% yoy growth in PAT in 3QFY23. NII was up 29% yoy on the
back of 31% yoy loan growth. Higher expense growth (up 36% yoy) pulled down 13.0
3.5
overall earnings growth; these expenses reflect recruitment of middle-level 0.0
1.3
management in sales and collections, apart from higher disbursements-related

20.0
62.2
expenses. Asset quality parameters continue to improve.
Aptus remains high RoA model

Aptus reported 7%+ RoA in 3QFY23, ahead of ~3-4% reported by affordable
housing peers. While a part of this could be explained by leverage (~2X as Price performance (%)
1933
compared to ~4X for peers), the company earns higher yields as well – overall Nifty APTUS
Private Circulation Only. This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of
yield of 17.5% (augmented by LAP and business); home loan yields of 15% 200
versus 12-13% by other affordable housing peers. One of the reasons for higher 160
yield is less competition for Aptus till now in its geographies and large share of 120
fixed rate loans (~80% of overall loan book). It has managed expenses ratios at
80
tight levels (2.3% of assets in FY2022 versus 2.3-2.9% for peers), the company
40
is now investing in technology and hiring middle-level managers that will be
needed to support growth, driving higher expenses ratios. Credit costs have 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
been low pre-2022 and increased since but still below 1% despite high (41%)
share on non-home loans.
We believe that Aptus’ yields are somewhat higher and will trend down. The EPS (Rs) 9.7 11.2 13.0
company cut lending rates marginally last year and resisted rate hike till EPS growth (%) 29.3 14.8 16.3
recently. Higher share of non-housing will lead to higher credit costs over time P/E (X) 28.3 24.6 21.2
P/B (X) 4.0 3.5 3.0
but still comfortable for yields it earns. Expenses ratio may be higher. Despite
BVPS (Rs) 68.4 79.6 92.6
these yield cuts/higher expenses, we expect Aptus’ RoA to remain healthy at
RoE (%) 15.3 15.1 15.1
6.4% in FY2025E as compared to 7.3% in FY2022 and 7.6% in FY2023E. With Div. yield (%) 0.0 0.0 0.0
high growth, leverage levels will likely inch up to 2.4X by FY2025E as compared Nll (Rs bn) 8 9 11
to 2X currently. PPOP (Rs bn) 6 7 9
Retain ADD; FV Rs330 Source: Bloomberg, Company data, Kotak Institutional Equities estimates
We are raising our estimates by 3-12% for Aptus to reflect better-than-expected Prices in this report are based on the market close of
NIM with rate hikes taking a pause; we continue to build yield compression in February 03, 2023
our forecasts as discussed above. The company carries 80% fixed rate home
loan book; as such, NIM pressure can be high in a rising rate scenario and vice
versa. Aptus remains a highly profitable housing finance business with a strong
growth momentum, commanding its rich valuations. Comfort on scalability with
management succession will further drive stock performance. Retain RGM-
based FV of Rs330 (29X/25X earnings and 4.1X/3.6X book FY2024E/FY2025E).
99
Exhibit 1: Aptus Value Housing Finance (consolidated) - quarterly summary, March fiscal year-end, 3QFY23 (Rs mn)
Change (%)
3QFY23 3QFY23E 3QFY22 2QFY23 3QFY23E 3QFY22 2QFY23 2023E 2022 (% chg.) 2024E
Income statement
Operational income 2,863 2,846 2,102 2,682 1 36 7 10,819 8,147 33 13,500
Interest income 2,773 2,761 2,037 2,575 0 36 8 10,554 7,917 33 13,141
Fee and commission income 69 65 52 63 6 33 9 234 177 32 319
Net gain on FV change 21 20 14 45 3 50 (54) 30 53 (44) 40
Interest expense 772 753 486 668 2 59 15 2,784 2,086 33 3,802
Net interest income 2,002 2,007 1,551 1,906 (0) 29 5 7,771 5,831 33 9,339
Net operational income 2,091 2,092 1,616 2,014 (0) 29 4 8,035 6,061 33 9,698
Other income 85 80 61 88 7 41 (3) 249 255 (2) 286
Total income 2,176 2,172 1,677 2,102 0 30 4 8,284 6,316 31 9,984
Operating expenses 414 454 272 446 (9) 52 (7) 1,683 1,171 44 2,299
Employee expenses 309 340 206 330 (9) 50 (6) 1,230 844 46 1,701
D&A expense 17 24 15 23 (27) 18 (24) 68 66 3 78
Other expenses 88 90 51 93 (2) 72 (5) 385 262 47 520
PPOP 1,762 1,718 1,405 1,657 3 25 6 6,601 5,145 28 7,684
Provisions 78 138 94 91 (44) (17) (14) 353 345 2 510
PBT 1,684 1,580 1,312 1,566 7 28 8 6,249 4,800 30 7,174
Tax 429 348 297 333 23 44 29 1,412 1,099 29 1,621
Profit after tax 1,256 1,233 1,015 1,233 2 24 2 4,837 3,701 31 5,553
Tax rate (%) 25.5 22.0 22.6 21.3 346 bps 283 bps 420 bps 22.6 22.9 (1.3) 22.6
Core PBT 1,656 1,618 1,331 1,524 2 24 9 6,322 4,836 31 7,358
Balance sheet
Loans 61,776 62,729 46,981 58,129 (2) 31 6 65,030 50,787 28 83,980
Net assets 69,155 70,482 49,925 69,570 (2) 39 (1) 69,732 56,840 23 88,400
Reported borrowings 36,591 37,002 21,491 37,400 (1) 70 (2) 35,268 27,284 29 48,300
AUM and disbursement details
Overal AUM (Rs mn) 63,070 63,373 48,050 59,320 (0) 31 6 66,650 51,796 29 86,202
Overal disbursements (Rs mn) 6,050 6,129 4,540 6,040 (1) 33 0 23,431 16,410 43 31,852
Repayment rate (%) 15.5 14.0 11.7 13.8 151 bps 382 bps 167 bps 16.6 13.0 27.3 18.5
30+ dpd (%) 6.3 12.3 6.3 -600 bps -5 bps
Gross stage-3 (%) 1.4 1.5 1.5 -9 bps -2 bps 1.5 1.2 2.1
ECL coverage on stage-1 and 2 (%) 0.7 0.5 0.7 19 bps 6 bps 0.6 0.5 0.6
ECL coverage on stage-3 (%) 25.0 25.2 25.0 -16 bps 0 bps 25.0 25.0 25.0
Overall ECL coverage (%) 1.1 0.9 1.0 16 bps 5 bps 0.9 0.8 1.1
Key ratios (%)
Yield on loans 18.1 18.0 17.5 18.0 13 bps 58 bps 14 bps 18.0 17.2 17.5
Cost of borrowings 8.3 8.1 8.6 8.0 24 bps -22 bps 34 bps 8.9 8.0 9.1
Spread 9.8 9.9 9.0 10.0 -12 bps 80 bps -20 bps 9.1 9.3 8.4
NIM 13.1 13.1 13.4 13.3 0 bps -27 bps -23 bps 13.2 12.7 12.4
Cost-to-income 19.0 20.9 16.2 21.2 -187 bps 283 bps -216 bps 20.3 18.5 23.0
Cost-to-average AUM 2.7 3.0 2.3 3.1 -25 bps 37 bps -41 bps 2.9 2.6 3.1
Credit cost 0.5 0.9 0.8 0.6 -39 bps -30 bps -13 bps 0.6 0.8 0.7
Aptus Value Housing Finance

100
3QFY23 result highlights

Aptus reported 24% growth in PAT, led by strong NII growth (up 29% yoy) and higher operating expense
growth of 52% yoy. Core PBT growth was strong at 24% yoy.
 NII growth strong driven by AUM growth. NII was up 29% yoy, in line with estimates. NII growth was
driven by 31% yoy growth in AUM while NIM compressed 27 bps yoy and 23 bps qoq to 13.1%.
 Yields were up 58 bps yoy and 14 bps qoq to 18.1%, while cost of borrowings inched up 34 bps
qoq to 8.3% (down 2 bps yoy). As such, calculated NIM compressed 27 bps yoy and 23 bps qoq.
 Strong trend in disbursements drive AUM growth. Disbursements were up 33% yoy (flat qoq) driving
the 31% yoy growth in AUM. AUM mix was largely stable with home loans growing at faster pace of
41%. Repayment rates normalized to 15.5% from the trough of 13.8% in 2QFY23, but still lower than
18% pre-Covid (FY2019).
 Operating expenses elevated. Operating expense grew 52% yoy to Rs414 mn but lower than Rs446
mn last quarter. Consequently cost-to-AAUM moderated 41 bps qoq to 2.7%.
Growth to remain strong

Aptus reported strong growth in disbursements in 3QFY23 (up 33% yoy) and 9MFY23 (up 55% yoy). We
model moderation in disbursement growth (up 17% yoy) in 4QFY23E as the base gets adjusted. We
expect the trend in disbursement to remain strong in the medium term, growing at 35-36% in FY2024-
25E.
The penetration levels are high in Tamil Nadu and Andhra Pradesh with ~ 80 branches in each states.
Higher penetration in Telangana and Karnataka (33 and 20 branches, respectively) and expansion into
adjacent states such as Orissa will drive growth. We expect the company to add 30 new branches every
year over FY2023- 25E. The core Southern states should drive bulk share of incremental AUM growth.
We model repayment rates of 15.9% in 4QFY23E (16.6% for FY2023E) inching up to 18.5% in FY2024E
and 20.7% in FY2025E due to increasing competition. Overall, we expect strong AUM growth at 29%
CAGR over FY2022-25E. The share of home loans will likely inch up to ~60% by FY2025E from ~56% in
FY2022; this will be yield dilutive. The company has slowed down a bit in the non-housing loans in the
backdrop of volatility in cash flows of the underlying borrower in the non-housing loan segment.
We expect 29% AUM CAGR during FY2022-25E driven by… … 38% CAGR in disbursements
Exhibit 2: AUM, March fiscal year-ends, 2014-2025E Exhibit 3: Disbursements, March fiscal year-ends, 2014-2025E
AUM (LHS) YoY (RHS) Disbursements (LHS) YoY (RHS)

(Rs bn) (%) (Rs mn) 76 (%)
125 67 75 45,000 68 80
61 59
100 60 36,000 52 60
47
47 43
42 41 34 36 35
75 45 27,000 40
26
28 27 29 29 29 17
50 30 18,000 20
2
25 15 9,000 0
3 4 5 8 14 22 32 41 52 67 86 111
- - - -20
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
2024E
2023E
2025E
2014
2016
2018
2019
2021
2022
2015
2017
2020
Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

101
Share of home loans to inch up to 60% by FY2025E

Exhibit 4: AUM mix, March fiscal year-ends, 2018-2025E (%)
Home loans Loans against property Business loans

100
20.0 18.6 17.1 15.9
29.4 26.4
36.0 32.3
80
24.4 24.6 24.4
24.0
60 7.2 13.5 18.3 21.9
40
56.8 54.3 56.0 57.0 58.3 59.6

52.3 51.7
20
2023E
2024E
2025E
2019
2021
2018
2020
2022
NIM compression over the medium term

Calculated yields were up 14 bps qoq to 18.1% and cost of borrowings inched up 34 bps qoq to 8.3%.
Despite the lending rate being hiked 50 bps, we expect yields to moderate to 17.9% in 4QFY23E due to
increase in share of low-yielding home loans in disbursements. We expect cost of funding to hike up to
8.9%, leading to a 37 bps yoy NIM compression to 12.9% (13.3% in 2QFY23 and 13.4% in 1QFY23). Over
the medium term, NIM should compress further to 12.2% in FY2024E and 11.4% in FY2025E from 13.1%
in FY2023E.
NIM compression will be an interplay of (1) increasing share of low-yielding housing loans in overall AUM
mix (~60% by FY2025E from ~56% in FY2022), (2) lower incremental lending rates on home loans (~50
bps) due to higher competition, (3) interest rate hardening in the borrowings side, coupled with high
(~79%) share of the fixed-rate loan book, (4) benefit of credit rating upgrade and (5) a marginal decline
in liquidity buffers.
Aptus’ home loan rates are higher than most peers for similar customer cohorts (around 100 bps higher
in housing loans and ~200- 400 bps higher in LAP). We continue to hold on to our long-term view that
increasing competition will likely put pressure on yields as the company continues to ramp up its AUM
at a sharp pace.
On the borrowings side, Aptus has 62% of bank loans and NHB contributes 23%. There is pressure on
the cost of funds with repricing of floating rate borrowings and higher incremental cost of funds.
Management plans to control the weighted average cost of funds by utilizing the Rs4 bn NHB funding
that was sanctioned at 6%. We model moderate hike in cost of borrowing to 9.1% in FY2025E from 8%
in FY2022 (8.3% in 3QFY23)

102
NIMs to moderate as the cost of borrowings inches up

Exhibit 5: Yields, cost of borrowings and NIM, March fiscal year-ends, 2017-2025E
Yield on AUM (LHS) Cost of borrowings (LHS) Core spread (RHS) NIM (RHS)
13.1
20 12.6 13.5
12.2 12.2
11.8 11.5 11.4
11.1
16 10.6 11.5
12 9.5
17.0 16.9 17.0 17.9 17.2 17.1

8.7 17.8 17.2 16.7
8 8.5 7.5
12.1 7.7 7.4 7.7 7.7
7.1
10.2 7.2
9.3 9.5 9.1 8.9 9.1 9.1
4 8.0 5.5
0 3.5
3.9
2023E
2024E
2025E
2019
2017
2018
2020
2021
2022
Asset quality lags peers

 Stressed loans down 18 bps qoq. Overall stressed loans (stage 2+3 + write-offs) for Aptus were down
18 bps qoq to 6.3% driven largely by improvement in gross stage-2 loans, down 21 bps qoq. Peers
reported stressed loans in the range of 3.3-3.6% in 3QFY23.
 Collection efficiency stable. Aptus reported qoq stable collection efficiency of 100.3%, higher than
98.3% in 3QFY22, but lower than 101-103% reported in 4QFY22 and 1QFY23.
 Early bucket delinquencies decline but remain high. Aptus reported 30+dpd at 6.3%, stable qoq but
higher than 4.7% in FY2020. Early warning indicators for peers are almost back to pre-Covid levels.
 Credit costs elevated. Credit costs remain elevated at 51 bps, down 12 bps qoq (13-16 bps in FY2020
and FY2021). ECL coverage on stage-3 was flat at 25% with overall ECL coverage at 1.1%, up 5 bps
qoq.
We build in higher credit costs for Aptus

We expect Aptus’ credit costs to remain a tad higher than pre-Covid levels. Aptus’ ECL coverage has
increased to 80 bps in FY2022 from 35 bps in FY2021. We expect ECL coverage to increase to 1.2% in
FY2025E from 0.9% in FY2023E. With higher write-offs from the sticky hard bucket NPL, we expect credit
costs of 60-69 bps over FY2023-25E (51 bps in 3QFY23). We believe that high yields of Aptus will drive
higher credit cost for the company. The company is catching up with peers on ECL coverage.
Aptus’ early bucket indicators improved in 3QFY23. 30+dpd was flat qoq at 6.3% down from the peak of
12.3% in 3QFY22. The company lagged peers in delinquency improvement in 3QFY23 with Aavas and
Home First reporting 4.1-4.4% 1+dpd ratio (6.3% for Aptus).

103
Lags peers on asset quality parameters

Exhibit 6: Stressed loans, March fiscal year-ends, 1QFY22-3QFY23, 2019-2022 (%)
Change
3QFY22 2QFY23 YoY
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 (bps) (bps) 2019 2020 2021 2022 (%)
Aavas Financier
1+ dpd (1) 12.7 8.9 6.5 4.5 4.7 4.5 4.1 (240) (40) 3.4 2.4 6.4 4.5 (190)
SMA-0 (0-30 dpd) 4.6 1.8 0.8 0.5 1.1 1.0 0.8 1 (19) 2.5 0.5 (196)
Gross stage-2 loans (30-90 dpd, 2) 6.9 6.1 3.9 3.0 2.5 2.4 2.1 (182) (25) 1.6 1.0 2.9 3.0 5
Restructured loans 1.5 1.8 1.8 1.5 1.2 1.2 1.1 (63) (5) 1.5
Gross stage-3 loans (3) 1.1 1.0 1.7 1.0 1.1 1.1 1.1 (59) 4 0.5 0.5 1.0 1.0 2
ECLGS (% of AUM, 4) 0.2 0.1 0.1 0.1 0.1 0.1 0.1 (3) (0) — — 0.0 0.1 12
Write-offs (% of opening AUM, annualized, 5) 0.0 0.0 0.1 0.2 0.0 0.0 0.0 (5) (2) 0.1 0.1 0.1 — (11)
Overall stressed loans (6:1+4+5) 12.8 9.1 6.7 4.8 4.8 4.6 4.2 (248) (42) 3.5 2.5 6.5 4.6 (189)
Stressed loans (excluding 0-30 dpd, 7: 2+3+4+5) 8.1 7.1 5.7 4.1 3.6 3.5 3.3 (246) (23) 2.2 1.6 4.0 4.1 7
Aptus Value Housing
Collection efficiecny (%) 95.0 99.7 98.3 103.1 101.2 100.2 100.3 203 10
30+ dpd 11.0 10.1 12.3 9.9 6.5 6.3 6.3 (600) (5) 2.4 4.7 8.7 400
Gross stage-2 (8) 9.9 9.3 10.7 8.7 4.7 5.0 4.8 (592) (21) 1.3 3.1 9.0 590
Restructured loans under stage-2 — 1.6 1.3 1.2 1.1 1.1 1.1 — — —
Gross stage-3 (9) 1.1 0.8 1.5 1.2 1.7 1.5 1.4 (9) (2) 0.4 0.4 0.4 —
Write-offs (% of opening AUM, 10) (0.1) (0.0) (0.1) 1.0 0.0 0.0 0.1 18 5 0.0 0.0 (0.0) (1)
Stressed loans (excluding 0-30 dpd, 11:8+9+10) 10.9 10.1 12.1 10.9 6.5 6.5 6.3 (582) (18) 2.4 4.7 8.7 400
Home First Finance
Bounce rate 18.3 16.5 15.7 14.5 14.0 15.6 14.9 (80) (70)
1+ dpd 8.9 7.6 6.5 5.3 5.0 4.7 4.4 (209) (34) 6.2 5.3 (92)
Gross stage-1 94.2 94.8 95.3 96.3 96.5 96.7 97.0 176 29 98.3 98.0 95.9 96.3 49
Current 91.1 92.4 93.5 94.7 95.0 95.3 95.6 209 34 93.8 94.7 92
1-29 dpd (12) 3.1 2.4 1.8 1.6 1.5 1.5 1.4 (33) (5) 2.1 1.6 (43)
Gross stage-2 (13) 3.8 3.5 2.2 1.3 1.4 1.3 1.2 (99) (14) 0.9 0.9 2.3 1.3 (98)
Gross stage-3 (14) 1.9 1.7 2.6 2.3 2.1 1.9 1.8 (77) (14) 0.8 1.0 1.8 2.3 49
Write-offs (% of opening AUM, 15) 1.2 0.1 0.7 0.2 0.4 0.1 0.2 (52—) 13 0.1 0.1 0.4 0.6 20
Overall stressed loans (16:12+13+14+15) 10.1 7.7 7.2 5.5 5.3 4.8 4.6 (261) (20) 6.6 5.9 (72)
Stressed loans (excluding 1-29 dpd, 17:16-12) 7.0 5.3 5.4 3.8 3.9 3.3 3.2 (229) (15) 1.8 2.0 4.5 4.2 (29)
Shriram Housing
1+ dpd (18) 10.4 8.2 7.3 5.4 5.3 4.8 4.6 (268) (21) 7.2 5.4 (189)
0-30 dpd (19) 3.9 3.0 3.1 2.4 2.5 2.1 2.4 (69) 33 2.4 2.4 4
Gross stage-3 (20) 2.3 1.9 2.5 1.7 1.6 1.5 1.2 (132) (37) 2.8 2.4 1.9 1.7 (15)
Standard restructured loans (21) 0.6 0.6 0.6 0.6 0.6 0.6 0.6 — 0.6
Write-offs (% of opening AUM, 22) (0.3) (0.2) 0.3 (0.1) 0.3 (0.1) 0.7 44 89 2.4 1.4 0.3 — (33)
Overall stressed loans (23:18+21+22) 10.7 8.6 8.2 5.8 6.2 5.3 6.0 (224) 68 7.6 5.9 (162)
Stressed loans (excluding 0-30 dpd, 24:23-19) 6.8 5.7 5.1 3.4 3.6 3.2 3.6 (155) 35 13.4 8.1 3.7 3.6 (12)

104
Credit cost to remain elevated at 60-68 bps over the medium term
Exhibit 7: Detailed asset quality, March fiscal year-ends, 2018-2025E
2018 2019 2020 2021 2022 2023E 2024E 2025E
Gross loan mix (Rs mn)
Gross stage-1 13,540 21,673 22,471 35,762 46,662 60,726 77,183 99,612
Gross stage-2 172 283 8,262 4,001 4,516 3,939 5,944 7,688
Gross stage-3 72 97 521 276 618 985 1,783 2,526
Overall gross loans 13,784 22,052 31,254 40,040 51,796 65,650 84,909 109,825
Gross loan mix (%)
Gross stage-1 98.2 98.3 71.9 89.3 90.1 92.5 90.9 90.7
Gross stage-2 1.2 1.3 26.4 10.0 8.7 6.0 7.0 7.0
Gross stage-3 0.5 0.4 1.7 0.7 1.2 1.5 2.1 2.3
ECL provisions (Rs mn)
Stage-1 16 25 9 43 160 334 425 598
Stage-2 0 1 9 22 102 39 59 77
Stage-3 21 24 64 76 155 246 446 631
Overall ECL provisions 38 50 83 142 417 620 930 1,306
Overall ECL coverage (%)
Stage-1 0.1 0.1 0.0 0.1 0.3 0.6 0.6 0.6
Stage-1 0.3 0.3 0.1 0.6 2.3 1.0 1.0 1.0
Stage-3 29.5 25.0 12.4 27.5 25.0 25.0 25.0 25.0
Overall ECL coverage 0.3 0.2 0.3 0.4 0.8 0.9 1.1 1.2
Credit cost break-up (%)
Overall credit cost 0.07 0.06 0.13 0.16 0.75 0.60 0.67 0.68
Provision for loans 0.06 0.12 0.16 0.60 0.34 0.41 0.38
Write-offs 0.00 0.00 (0.00) 0.15 0.25 0.26 0.30
Cost ratios to inch up, driven by investment in new business

Aptus has managed its expenses in a stringent manner in the past two years at 2.6-2.7% compared to
3.3-3.7% during FY2019-20. Over the past two quarters, operating expense growth was high at 43% yoy
in 2QFY23 owing to higher disbursements and 52% yoy in 3QFY23 owing to higher recruitment at the
second level of management. We expect the cost-to-AAUM ratio to settle at 3.1% in 4QFY23E ( 2.7% in
3QFY23 and 3.1% in 2QFY23) and 3-0-3.1% during FY2024-25E.

105
Cost ratios to inch up to 3.1% by FY2025E from trough of 2.5% in FY2022

Exhibit 8: Cost ratios, March fiscal year-ends, 2017-2025E
Cost-to-income (LHS) Cost-to-average AUM (RHS)
4.7
40 5
4.2
32 3.7 4
3.3
3.0 3.1
2.8
24 2.7 3
2.5
16 2
8 1
35.9 31.6 30.3 26.1 21.8 18.5 20.3 23.0 25.3

0 0
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Exhibit 9: Change in estimates, March fiscal year-ends, 2023-2025E

New estimates Old estimates Change in estimates (%) YoY (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Key business parameters
AUM (Rs mn) 66,650 86,202 111,498 66,533 84,995 109,037 0 1 2 29 29 29
YoY (%) 29 29 29 28 28 28 22 bps 159 bps 106 bps 134 bps 66 bps 1 bps
Disbusrements (Rs mn) 23,431 31,852 43,117 22,610 30,741 41,618 4 4 4 43 36 35
YoY (%) 43 36 35 38 36 35 500 bps -2 bps -2 bps 1637 bps -684 bps -58 bps
Repayment rate (%) 16.6 18.5 20.7 15.2 18.5 21 136 bps 0 bps -1 bps 224 bps 189 bps 222 bps
Key ratios (%)
Yield on loans 17.8 17.2 16.7 17.4 16.2 16 40 bps 95 bps 95 bps 70 bps -63 bps -49 bps
Core yield on loans 17.4 16.8 16.3 17.0 15.8 15 40 bps 95 bps 96 bps 71 bps -60 bps -45 bps
Cost of borrowings 8.9 9.1 9.1 8.6 8.8 9 30 bps 30 bps 10 bps 94 bps 20 bps 0 bps
Spread 8.9 8.1 7.6 8.8 7.4 7 10 bps 65 bps 85 bps -24 bps -83 bps -49 bps
Core spread 8.5 7.7 7.2 8.4 7.0 6 10 bps 65 bps 86 bps -23 bps -80 bps -45 bps
NIM 13.1 12.2 11.4 12.9 11.4 10 25 bps 80 bps 92 bps 51 bps -90 bps -82 bps
Cost-to-income 20.3 23.0 25.3 20.8 23.7 26 -44 bps -62 bps -78 bps 177 bps 272 bps 223 bps
Cost-to-average AUM 2.8 3.0 3.1 2.85 2.90 2.94 -1 bps 11 bps 14 bps 31 bps 17 bps 8 bps
Credit cost 0.60 0.67 0.68 0.68 0.66 0.68 -8 bps 1 bps 0 bps -15 bps 7 bps 2 bps
ROA 7.6 7.0 6.4 7.4 6.5 6 26 bps 52 bps 59 bps 39 bps -62 bps -62 bps
ROE 15.3 15.1 15.1 14.8 14.0 14 49 bps 107 bps 132 bps 20 bps -22 bps 0 bps
Core PBT ratio 10.0 9.3 8.6 9.7 8.6 8 26 bps 68 bps 77 bps 51 bps -68 bps -73 bps
Key income statement items (Rs mn)
Net interest income 7,771 9,339 11,273 7,614 8,655 10,173 2.1 7.9 10.8 33 20 21
Total income 8,284 9,984 12,068 8,119 9,288 10,953 2.0 7.5 10.2 31 21 21
Operating expenses 1,683 2,299 3,048 1,685 2,197 2,852 (0.1) 4.7 6.9 44 37 33
Employee expenses 1,230 1,701 2,323 1,187 1,599 2,127 3.6 6.4 9.2 46 38 37
Others 453 598 725 498 598 725 (9.1) - - 38 32 21
Provisions 353 510 676 402 498 661 (12.2) 2.4 2.4 2 45 33
Profit before tax 6,249 7,174 8,344 6,032 6,593 7,440 3.6 8.8 12.1 30 15 16
Profit after tax 4,837 5,553 6,458 4,669 5,103 5,759 3.6 8.8 12.1 31 15 16
Core PBT 6,323 7,359 8,657 6,156 6,766 7,738 2.7 8.8 11.9 31 16 18
Other data -
EPS (Rs) 10 11 13 9 10 12 3.6 8.8 12.1 29 15 16
BVPS (Rs) 68 80 93 68 78 90 0.5 1.6 2.9 17 16 16

106
Exhibit 10: Aptus - key growth rates and ratios, March fiscal year-ends, 2020-2025E
2020 2021 2022 2023E 2024E 2025E
Key growth rates (%)
Income statement growth rates
Interest income 56 29 27 33 25 26
Interest expense 59 12 1 33 37 38
Net interest income 54 39 40 33 20 21
Total income 54 32 41 31 21 21
Operating expenses 32 11 20 44 37 33
Employee expenses 35 10 18 46 38 37
Other expenses 26 12 24 38 32 21
Pre-provision operating profit 63 40 47 28 16 17
Provisions 193 70 493 2 45 33
Profit before tax 62 40 39 30 15 16
Taxes (12) 115 41 29 15 16
Profit after tax 89 27 39 31 15 16
Core PBT 64 48 46 31 16 18
Balance sheet growth rates
Cash and bank balances 443 (27) 2 (9) (9) 10
Loans 42 28 27 28 29 29
Other assets 64 243 72 (59) 13 14
Net assets 61 21 26 23 27 28
Borrowings 26 24 8 29 37 38
Other liabilities (31) 60 54 18 18 18
Total liabilities 25 25 9 29 37 38
Shareholders' funds 145 16 47 17 16 16
AUM and disbursement growth rates (%)
AUM 41 28 27 29 29 29
Home loans 36 27 38 31 32 32
Loans against property 92 53 40 31 31 28
Business loans 29 15 (4) 20 19 21
Disbursements 17 2 26 43 36 35
Key ratios (%)
Yield on AUM 17.9 17.2 17.1 17.8 17.2 16.7
Core yield on AUM 17.3 16.8 16.7 17.4 16.8 16.3
Cost of borrowings 10.2 9.1 8.0 8.9 9.1 9.1
Core spread 7.1 7.7 8.7 8.5 7.7 7.2
Net interest margin 11.1 11.5 12.6 13.1 12.2 11.4
Cost-to-income 26.1 21.8 18.5 20.3 23.0 25.3
Cost-to-average AUM 3.3 2.7 2.5 2.8 3.0 3.1
Credit cost 0.1 0.2 0.7 0.6 0.7 0.7
ROA 6.9 6.5 7.3 7.6 7.0 6.4
Average assets/average equity 2.5 2.2 2.1 2.0 2.2 2.4
ROE 17.5 14.5 15.1 15.3 15.1 15.1
Core PBT ratio 7.4 8.0 9.5 10.0 9.3 8.6

107
Exhibit 11: Aptus - financial summary, March fiscal year-ends, 2019-2025E

2019 2020 2021 2022 2023E 2024E 2025E
Interest income 3,109 4,852 6,239 7,917 10,554 13,141 16,508
Interest expense 1,162 1,845 2,065 2,086 2,784 3,802 5,235
Net interest income 1,947 3,007 4,174 5,831 7,771 9,339 11,273
Net operational income 2,076 3,158 4,301 6,061 8,035 9,698 11,749
Other income 133 234 186 255 249 286 319
Total income 2,209 3,392 4,487 6,316 8,284 9,984 12,068
Operating expenses 669 885 978 1,171 1,683 2,299 3,048
Employee expenses 481 648 714 844 1,230 1,701 2,323
Depreciation expenses 54 58 57 66 68 78 87
Other expenses 134 178 207 262 385 520 638
Pre-provision operating profit 1,540 2,507 3,509 5,145 6,601 7,684 9,020
Provisions 12 34 58 345 353 510 676
Profit before tax 1,528 2,473 3,451 4,800 6,249 7,174 8,344
Taxes 412 363 781 1,099 1,412 1,621 1,886
Profit after tax 1,116 2,110 2,669 3,701 4,837 5,553 6,458
Core PBT 1,369 2,244 3,316 4,836 6,323 7,359 8,657
Cash and bank balances 1,109 6,027 4,378 4,459 4,054 3,690 4,058
Loans 22,002 31,171 39,898 50,787 65,030 83,980 108,519
Other assets 164 270 926 1,594 647 731 832
Net assets 23,276 37,467 45,202 56,840 69,732 88,400 113,410
Borrowings 16,061 20,216 25,151 27,284 35,268 48,300 66,751
Other liabilities 232 161 256 395 466 550 650
Total liabilities 16,293 20,377 25,407 27,679 35,733 48,850 67,401
Share capital 788 945 949 994 994 994 994
Reserves and surplus 6,195 16,145 18,845 28,168 33,004 38,557 45,015
Shareholders' funds 6,983 17,090 19,795 29,162 33,998 39,551 46,009
AUM (Rs mn)
Overall AUM 22,472 31,787 40,678 51,796 66,650 86,202 111,498
Home loans 12,194 16,616 21,032 29,006 37,995 50,265 66,490
Loans against property 3,029 5,810 8,903 12,431 16,259 21,220 27,231
Business loans 7,249 9,361 10,742 10,359 12,395 14,718 17,777
Disbursements (Rs mn)
Overall disbursements 10,890 12,710 12,982 16,410 23,431 31,852 43,117

RESULT
Mahanagar Gas (MAHGL) BUY

Gas Utilities
CMP(₹): 850 Fair Value(₹): 1,080 Sector View: Attractive NIFTY-50: 17,854 February 04, 2023
3Q miss; worst of high gas prices behind Company data and valuation summary
MGL’s 3Q EBITDA was up 1% qoq (versus IGL -19% qoq), but it came in 23%
Stock data
below our estimates. The key reason for the miss was higher gas costs (+10%
CMP(Rs)/FV(Rs)/Rating 850/1,080/BUY
qoq, 57% yoy) on elevated APM prices/more spot LNG usage. But the worst
of gas pricing is behind us. After new HPHT rules, MGL has tied-up
~0.3mmscmd more HPHT gas. Now the need for spot LNG will be minimal.
APM price revision soon will bring further relief. Maintain Buy, with a FV
Rs1,080 (Rs1,110 earlier). Shareholding pattern (%)
3QFY23: margin miss on higher gas costs; high prices impact volumes 12.0
MGL’s 3Q EBITDA of Rs2.6 bn (+1% qoq) and PAT (+5% qoq) were both 23% 11.7 32.5
below our estimates. Increased gas cost at Rs39.5/scm (+10% qoq, + 57% yoy,
9% higher than our estimates) was the key reason for the miss. Despite lower 12.9
2.6
volume qoq, increased gas costs were likely driven by a higher-than-estimated
28.4
APM short-fall of 8% and the higher share of spot LNG.
Elevated prices (yoy CNG +73%, domestic PNG +70%, overall realization +57%)
are impacting volumes. Overall volume at 3.4mmscmd declined 1.4% qoq (up
Nifty MAHGL
just 3.3% yoy). CNG volume declined 2.6% qoq (up by a modest 3.5% yoy). 200
160
Worst of pricing behind: HPHT brings relief, APM revision likely soon
120
After the recent HPHT rule changes (caps traders’ margins at 20 cents; first
80
priority to CNG/D-PNG), MGL has already tied up additional ~0.3mmscmd with
Reliance, on interim basis ahead of auctions. This tie-up will lead to minimal 40
need for LT LNG usage in CNG/D-PNG, and no need for spot LNG usage in I&C 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
(earlier contracted 0.1mmscmd HPHT gas, and LT LNG contracts will suffice).
This arrangement reduces costs, and to pass on part-benefit MGL has already
reduced CNG prices by Rs2.5/kg (3%). The effective cost of HPHT should Forecasts/Valuations 2023E 2024E 2025E
marginally decline, as the unified pipeline tariff is implemented in April 2023. EPS (Rs) 76.7 82.5 85.5
EPS growth (%) 26.9 7.5 3.6
In our view, the bigger catalyst would be APM gas price reduction, based on Dr P/E (X) 11.1 10.3 9.9
Kirit Parikh committee recommendation of ceiling price of US$6.5/mmbtu. A P/B (X) 2.1 1.9 1.7
EV/EBITDA (X) 6.7 6.0 5.6
US$2/mmbtu APM price reduction will enable further reductions in CNG prices
RoE (%) 19.9 19.1 17.9
by Rs8-9/kg (9-10%), and likely help revive demand, in our view.
Div. yield (%) 3.9 4.3 4.5
Reiterate Buy with a revised FV Rs1,080 (Rs1,110 earlier)
EBITDA (Rs bn) 12 12 13
We have marginally cut our FY2023E earnings by 3%, driven by the 3QFY23 Net profits (Rs bn) 8 8 8
miss. In our view, as spot LNG needs are low after new-HPHT tie-up, the unit Source: Bloomberg, Company data, Kotak Institutional Equities estimates
EBITIDA margins will significantly move up in 4QFY23. Our earnings are largely Prices in this report are based on the market close of
unchanged for FY2024-25E. February 03, 2023
Related Research
We have rolled forward our valuation to December 2024E (earlier September
2024E). Our revised FV is Rs1,080 (Rs1,110 earlier). We reiterate our BUY rating → Gas Utilities: Kirit Parikh panel
on MGL. An early decision on APM gas price is a key near-term catalyst, in our → New HPHT rules positive for CGDs
view. → Gas Utilities: Tariff regulation amended
Anil Sharma Aditya Bansal

109
Interim results of MGL, March fiscal year-ends (Rs mn)

(% chg.)
3QFY23 3QFY23E 3QFY22 2QFY23 vs KIE yoy qoq 9MFY23 9MFY22 (% chg.) FY2023E
Net sales 16,714 16,941 10,278 15,627 (1.3) 62.6 7.0 46,888 24,734 89.6 60,843
Raw material (12,407) (11,904) (7,652) (11,475) 4.2 62.1 8.1 (33,921) (13,381) 153.5 (42,283)
Staff cost (219) (237) (220) (319) (7.9) (0.5) (31.6) (755) (646) 17.0 (1,050)
Other expenditure (1,528) (1,486) (1,376) (1,304) 2.8 11.1 17.2 (4,267) (3,619) 17.9 (5,972)
EBITDA 2,561 3,314 1,031 2,528 (22.7) 148.4 1.3 7,945 7,089 12.1 11,537
Other income 323 250 218 260 29.0 47.7 24.1 782 630 24.1 1,066
Interest (24) (28) (15) (25) (13.6) 57.1 (2.0) (72) (53) (83)
Depreciation (585) (560) (482) (551) 4.5 21.4 6.2 (1,673) (1,408) 18.9 (2,275)
Pre-tax profits 2,274 2,976 752 2,213 (23.6) 202.5 2.8 6,982 6,259 11.6 10,245
Tax (553) (749) (184) (573) (1,770) (1,607) (2,667)
Net income 1,721 2,227 568 1,640 (22.7) 203.0 4.9 5,212 4,652 12.1 7,578
Adjusted EPS (Rs) 17.4 22.5 5.7 16.6 (22.7) 203.0 4.9 52.8 47.1 12.1 76.7
Tax rate (%) 24.3 25.2 24.5 25.9 25.3 25.7 26.0
Volume break-up
Volumes (mcm/d) 3.41 3.55 3.30 3.46 (4.0) 3.3 (1.4) 3.44 2.94 16.8 3.43
Volumes (mscm) 314 327 304 318 (4.0) 3.3 (1.4) 946 810 16.8 1,253
CNG (mscm) 228 241 220 234 (5.5) 3.5 (2.6) 693 567 22.2 914
PNG (mscm) 86 86 84 84 0.2 2.8 2.2 253 243 4.3 339
Industrial/commercial 40 42 40 41 (3.7) 0.1 (1.8) 121 115 5.3 162
Domestic PNG 46 44 44 43 3.8 5.4 5.9 132 128 3.4 177
Revenue break-up (Rs mn)

CNG (Rs mn) 11,809 12,241 6,599 10,941 (3.5) 79.0 7.9 32,524 15,475 110.2 41,086
PNG (Rs mn 4,905 4,700 3,590 4,685 4.4 36.6 4.7 14,319 9,062 58.0 19,467
I&C 2,460 2,345 2,225 2,576 4.9 10.5 (4.5) 7,915 5,385 47.0
Domestic PNG 2,445 2,355 1,365 2,110 3.8 79.1 15.9 6,404 3,677 74.2
Realisation and margins

Net realization (Rs/scm) 53.2 51.8 33.8 49.1 2.7 57.4 8.4 49.6 30.6 62.3 48.5
CNG (Rs/scm) 51.9 50.8 30.0 46.8 2.0 73.0 10.8 47.0 27.3 72.0 44.9
PNG (Rs/scm) 56.9 54.6 42.8 55.5 4.2 32.8 2.5 56.5 37.3 51.5 57.4
I&C 60.9 55.9 55.2 62.7 8.9 10.4 (2. 8) 65.2 46.7 39.6
Domestic PNG 53.3 53.3 31.4 48.7 0.0 70.0 9.4 48.5 28.8 68.5
Raw material cost (Rs/scm) 39.5 36.4 25.2 36.1 8.5 57.0 9.6 35.9 16.5 117.0 33.7
Gross margin (Rs/scm) 13.7 15.4 8.6 13.0 (10.9) 58.8 5.2 13.7 14.0 (2.2) 14.8
Other operating costs (Rs/scm) 5.6 5.3 5.2 5.1 5.6 6.0 9.1 5.3 5.3 0.8 5.6
Operating profit (Rs/scm) 8.2 10.1 3.4 7.9 (19.5) 140.5 2.7 8.4 8.8 (4.1) 9.2
Notes:
a) Break-up of PNG revenue among I&C and domestic PNG is our estimate based on domestic PNG price and volumes
Mahanagar Gas
Gas Utilities India Research
110
Overall volume declined 1.4% qoq, and were up just 3.3% yoy (10.7% yoy in 2Q)
Exhibit 2: MGL’s CNG and PNG volume; March fiscal year-ends, 1QFY17 onward (mmscmd, %)
(mmscmd) PNG (LHS) CNG (LHS) yoy growth (RHS) (%)

5 40
30
4 20
10
3
0
(10)
2
(20)
1 (30)
(40)
0 (50)
1QFY17
3QFY17
4QFY17
2QFY18
3QFY18
1QFY19
3QFY19
4QFY19
2QFY20
3QFY20
1QFY21
2QFY21
4QFY21
2QFY22
3QFY22
1QFY23
2QFY23
2QFY17
1QFY18
4QFY18
2QFY19
1QFY20
4QFY20
3QFY21
1QFY22
4QFY22
3QFY23
CNG volumes weak: -2.6% qoq, +3.5% yoy (+14% yoy in 2Q) PNG volume was +2% qoq and +2.8% yoy
Exhibit 3: MGL's CNG volumes; from 1QFY18 (mmscmd, %) Exhibit 4: MGL's CNG volumes; from 1QFY18 (mmscmd, %)
(mmscmd) CNG (LHS) yoy (RHS) (%) (mmscmd) (%)

3.0 80 I&C domestic yoy growth (RHS)
1.0 20
2.5 60
0.8 15
2.0 40
0.6 10
1.5 20
0.4 5
1.0 0
0.2 0
0.5 -20
0.0 -40 0.0 (5)

1QFY21
1QFY18
3QFY18
1QFY19
3QFY19
1QFY20
3QFY20
3QFY21
1QFY22
3QFY22
1QFY23
3QFY23
1QFY18
3QFY18
1QFY19
3QFY19
1QFY20
3QFY20
1QFY21
3QFY21
1QFY22
3QFY22
1QFY23
3QFY23
Mahanagar Gas
111
Unit gross margins recovered to Rs13.7/scm (Rs13/scm in 2Q), but below our estimate of Rs15.4/scm
Exhibit 5: MGL’s quarterly and annual gross margins, March fiscal year-ends, 1QFY16 onwards (Rs/scm))
(Rs/scm) Gross margin Annual average

19.4
20
15.6 14.4
16 13.7
13.0
12
8.6
8
0
2QFY16
3QFY16
4QFY16
3QFY17
4QFY17
1QFY18
4QFY18
1QFY19
2QFY19
1QFY20
2QFY20
3QFY20
1QFY21
2QFY21
3QFY21
2QFY22
3QFY22
4QFY22
3QFY23
1QFY16
1QFY17
2QFY17
2QFY18
3QFY18
3QFY19
4QFY19
4QFY20
4QFY21
1QFY22
1QFY23
2QFY23
Per unit opex at Rs5.6/scm moved up from Rs5.1/scm in 2Q (Rs5.2/scm yoy)

Exhibit 6: MGL’s volumes and per unit opex, March fiscal year-ends, 1QFY16 onward (mmscmd and Rs/scm)
(Rs/scm) Opex (LHS) Volume (RHS)

8 4.0
7 3.5
6 5.5 5.6 3.0
5.2 5.1
5 2.5
4 2.0
3 1.5
2 1.0
1 0.5
0 -
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
2QFY18
3QFY18
2QFY19
3QFY19
4QFY19
2QFY20
3QFY20
4QFY20
2QFY21
3QFY21
4QFY21
3QFY22
4QFY22
3QFY23
4QFY16
4QFY17
1QFY18
4QFY18
1QFY19
1QFY20
1QFY21
1QFY22
2QFY22
1QFY23
2QFY23
Mahanagar Gas
112
MGL's per unit EBITDA margins recovered to Rs8.2/scm (Rs7.9/scm in 2Q)

Exhibit 7: MGL’s quarterly and annual EBITDA margins, March fiscal year-ends, 1QFY16 onward (Rs/scm)
(Rs/scm) EBITDA annual average

13.9
14
12
10.5 9.1
10
7.9 8.2
8
4 3.4
0
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
2QFY23
3QFY23
3QFY17
4QFY17
1QFY18
2QFY18
1QFY20
2QFY20
3QFY20
4QFY20
3QFY22
4QFY22
1QFY23
CGD’s gas costs are up 5.5-6x versus 1HFY22; HPHT brings relief, but APM price cut critical
Exhibit 8: CGD's gas cost increase estimates; current versus Sep-21 and Sept-22 (US$ or Rs/mmbtu)
change %
Sep-21 Sep-22 Current vs Sep-21 vs Sep-22
Rs/USD 73.8 80.2 81.7 10.7 1.8
APM gas price
US$/mmbtu 1.8 6.1 8.6 379 40
Rs/mmbtu 132 489 700 430 43
APM shortall assumption (%) 0.0 6.0 8.5

If short-fall met with LT LNG
LT LNG price (US$/mmbtu) 15.0 13.0
Blended gas cost
US$/mmbtu 1.8 6.6 8.9 400 35
Rs/mmbtu 132 532 731 453 37
If short-fall met with Spot LNG
Spot LNG price assumption (US$/mmbtu) 35 25
Blended gas cost
US$/mmbtu 1.8 7.8 10.0 457 27
Rs/mmbtu 132 628 814 516 30
If short-fall met with HPHT
HPHT gas price (US$/mmbtu) 9.9 12.5
Blended gas cost
US$/mmbtu 1.8 6.3 8.9 397 41
Rs/mmbtu 132 508 727 450 43
Mahanagar Gas
113
Recent retail hikes have been low and with a lag But, MGL has been more proactive in changing prices versus IGL
Exhibit 9: MGL's pre-tax retail price versus gas cost (Rs/scm) Exhibit 10: IGL/MGL's ex-VAT CNG prices, from January 2020
(Rs/kg)
(Rs/scm) CNG Domestic PNG Input gas
60 (Rs/kg) IGL MGL
90
50
80
40
30 70
20 60
10
50
0
Apr-19
Apr-20
Apr-21
Apr-22
Oct-19
Oct-20
Oct-21
Oct-22
Jul-19
Jul-20
Jul-21
Jul-22
40
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
Jul-20
Jul-21
Jul-22
Oct-20
Oct-21
Oct-22
Apr-20
Apr-21
Apr-22
Jan-20
Jan-21
Jan-22
Jan-23
Source: Company, PPAC, Kotak Institutional Equities estimates
Since July-2021, CNG prices up ~80%, while petrol/diesel are CNG's price advantage versus petrol/diesel has declined to
nearly unchanged lowest levels in past 7-8 years
Exhibit 11: Delhi CNG versus petrol/diesel prices, April 2017 Exhibit 12: CNG advantage over petrol/diesel, April 2017
onward (Rs/liter or kg) onward (%)
(Rs/liter) Petrol Diesel CNG (RHS) (Rs/kg) (% vs petrol vs diesel

120 100 advantage)
80
110 90
100 80 70
90 70 60
80 60
50
70 50
40
60 40
50 30 30
40 20 20
Oct-19
Oct-20
Oct-17
Oct-18
Oct-21
Oct-22
Apr-20
Apr-17
Apr-18
Apr-19
Apr-21
Apr-22
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Apr-20
Apr-17
Apr-18
Apr-19
Apr-21
Apr-22
Mahanagar Gas
114
After the impact of pandemic, CNG vehicle sales had picked up; after the slowdown in
last few months, volumes recovered in January
Exhibit 13: All India monthly CNG vehicle addition trend, from January 2019 (numbers)
CNG vehicle additions

80,000
70,000
pandemic impact
60,000
50,000
40,000
30,000
20,000
10,000
0
Nov-19
Nov-20
Nov-21
Nov-22
Sep-19
Sep-20
Sep-21
Sep-22
May-19
May-20
May-21
May-22
Jul-19
Jul-20
Jul-21
Jul-22
Jan-19
Mar-19
Jan-20
Mar-20
Jan-21
Mar-21
Jan-22
Mar-22
Jan-23
Source: Ministry of Road Transport & Highways; Kotak Institutional Equities
For alternate like FO, prices further declined qoq Commercial LPG prices were also weaker qoq
Exhibit 14: Fuel oil prices, March fiscal-year ends (US$/bbl) Exhibit 15: Commercial LPG prices, from Jan-2021
(Rs/cylinder)
(US$/bbl) Fuel oil (US$/bbl)
120 (Rs/ 4QFY21 1QFY22
105 cylinder)
100 2,500 2,257
86
74 1,842 1,918
80 71 2,000
68 1,735
61 62
56
60 1,500
40
1,000
20
500
-
-
1QFY23
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
2QFY23
3QFY23
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23

Mahanagar Gas
115
Exhibit 16: Key assumptions for MGL, March fiscal year-ends, 2018-26E
2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Sales volume (mcm)
CNG 724 791 784 517 772 914 961 1,006 1,050
PNG 262 286 296 291 323 339 353 370 389
Domestic 124 138 148 170 170 177 182 191 201
Commercial 62 66 66 48 59 63 67 70 73
Industrial 75 83 82 74 93 99 104 109 115
Total volumes 986 1,077 1,080 807 1,095 1,253 1,314 1,376 1,439
Average daily volumes (mcm/d) 2.7 2.9 3.0 2.2 3.0 3.4 3.6 3.8 3.9
Growth in volumes (%) 5.1 9.2 0.3 (25.3) 35.6 14.5 4.8 4.8 4.5
Operating metrics (Rs/scm)

Gross margin 12.2 13.0 14.7 17.4 13.8 14.8 15.4 15.7 16.1
Operating cost 4.3 4.7 5.0 5.8 5.4 5.6 5.9 6.2 6.6
Operating profit 7.9 8.3 9.7 11.6 8.4 9.2 9.5 9.5 9.5
MGL has de-rated significantly in past year and now trades at about 10.5x P/E
Exhibit 17: 12-month forward P/E for MGL (X)
(X) 12-month forward P/E for MGL (X) LT average (X)

25
20
15
10
-
Oct-17
Oct-19
Oct-20
Oct-21
Jul-17
Jul-18
Oct-18
Jul-21
Jul-22
Jul-19
Jul-20
Oct-22
Apr-17
Apr-19
Apr-20
Apr-21
Apr-18
Apr-22
Jan-17
Jan-19
Jan-20
Jan-21
Jan-22
Jan-18
Jan-23
Source: Bloomberg, Kotak Institutional Equities estimates
Mahanagar Gas
116
We value MGL at Rs1,080 using DCF methodology

Exhibit 18: Calculation of equity value using discounted cash flow analysis (Rs mn)
2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E
Assumptions
Volumes (mcm/d) 3.4 3.6 3.8 3.9 4.1 4.3 4.4 4.6 4.8 5.0 5.2 5.4
Growth (%) 14.5 4.8 4.8 4.5 4.3 4.2 3.9 4.0 4.0 4.0 4.0 4.0
Unit margins (Rs/scm) 9.2 9.5 9.5 9.5 9.5 9.6 9.6 9.6 9.7 9.7 9.8 9.8
DCF model
EBITDA 11,537 12,478 13,071 13,666 14,318 14,944 15,587 16,272 16,985 17,758 18,571 19,432
Adjusted tax expense (2,201) (2,487) (2,608) (2,707) (2,817) (2,923) (3,024) (3,164) (3,312) (3,479) (3,654) (3,839)
Change in working capital 1,433 162 674 544 602 740 776 785 829 915 836 876
Operating cash flow 10,769 10,154 11,137 11,503 12,103 12,761 13,339 13,893 14,502 15,194 15,752 16,469
Capital expenditure (6,401) (6,396) (5,925) (5,466) (4,997) (4,625) (4,515) (4,507) (4,414) (4,379) (4,613) (4,860)
Free cash flow 4,368 3,757 5,212 6,037 7,106 8,137 8,823 9,386 10,088 10,816 11,139 11,609
Discounted cash flow-now 4,289 3,279 4,043 4,163 4,355 4,432 4,272 4,039 3,859 3,676
Discounted cash flow-1 year forward 3,690 4,549 4,683 4,900 4,987 4,806 4,544 4,341 4,137 3,786
Discounted cash flow-2 year forward 5,119 5,269 5,512 5,610 5,408 5,112 4,884 4,654 4,261 3,946
Now +1-year +2-years

Discount rate (%) 12.5% 12.5% 12.5%
Total PV of free cash flow 40,407 44,423 49,775
Terminal value assumption
Growth in perpetuity 3.0% 3.0% 3.0% Sensitivity of 12-month fair value to WACC and perpetual growth
FCF in terminal year 10,816 11,139 11,609 Perpetual growth (%)
Exit FCF multiple (X) 10.8 10.8 10.8 1,082 1.0% 2.0% 3.0% 4.0% 5.0%
Exit EV/EBITDA multiple (X) 6.9 7.1 7.4 11.5% 1086 1132 1190 1262 1357
WACC (%)
Terminal value 117,264 120,773 125,869 12.0% 1042 1083 1133 1195 1275
PV of terminal value 39,859 41,051 42,783 12.5% 1003 1039 1082 1135 1203
Enterprise value 80,266 85,474 92,559 13.0% 967 999 1036 1083 1140
Net debt (15,527) (18,152) (19,423) 13.5% 934 962 995 1036 1085
Equity value 95,792 103,626 111,982
Shares outstanding (mn) 99 99 99
Fair value of MGL, including dividends (Rs) 970 1,082 1,203
Mahanagar Gas
117
Exhibit 19: Profit model, balance sheet, cash model, March fiscal year-ends, 2018-25E (Rs mn)
2018 2019 2020 2021 2022 2023E 2024E 2025E
Net sales 22,330 28,040 29,721 21,525 35,602 60,843 60,263 66,252
EBITDA 7,801 8,985 10,528 9,338 9,243 11,537 12,478 13,071
Other income 577 777 990 805 857 1,066 1,139 1,187
Interest (1) (3) (65) (72) (75) (83) (91) (96)
Depreciation (1,112) (1,259) (1,617) (1,737) (1,963) (2,275) (2,428) (2,661)
Pretax profits 7,265 8,499 9,835 8,335 8,063 10,245 11,099 11,502
Extraordinary items — (129) 567 — — — — —
Current tax (2,118) (2,614) (2,332) (1,978) (1,858) (2,457) (2,765) (2,898)
Deferred tax (369) (291) (136) (163) (235) (210) (185) (160)
Adjusted net profits 4,779 5,549 7,367 6,195 5,970 7,578 8,148 8,443
Adjusted EPS (Rs) 48.4 56.2 74.6 62.7 60.4 76.7 82.5 85.5

Total equity 20,953 23,989 29,527 32,324 35,973 40,295 44,861 49,507
Deferred tax liability 1,748 2,048 1,636 1,802 2,038 2,248 2,433 2,593
Borrowings 12 18 6 8 8 — — —
Customer deposits 4,432 5,179 5,817 6,355 7,150 7,231 7,639 8,068
Currrent liabilities 2,957 3,176 4,299 5,522 7,169 10,523 10,571 11,358
Total liabilities and equity 30,102 34,410 41,285 46,011 52,338 60,297 65,504 71,526
Cash 919 2,988 2,295 5,119 4,652 7,269 8,540 10,971
Current assets 3,421 3,551 3,602 4,574 6,011 7,226 7,195 7,522
Total fixed assets 18,886 21,331 24,174 26,069 30,792 34,919 38,887 42,151
Investments 6,877 6,540 11,215 10,250 10,883 10,883 10,883 10,883
Total assets 30,102 34,410 41,285 46,011 52,338 60,297 65,504 71,526

Operating cash flow, excl. working capital 5,692 6,422 8,378 7,448 7,380 8,998 9,622 10,077
Working capital 822 418 1,374 602 1,657 2,219 489 888
Capital expenditure (2,690) (3,625) (4,349) (3,397) (6,490) (6,401) (6,396) (5,925)
Free cash flow 3,824 3,216 5,403 4,653 2,547 4,815 3,714 5,040
Investments (1,794) (1,138) (3,765) 1,287 (357) — — —
Other income 296 377 475 (2,331) 1,440 1,066 1,139 1,187
Ratios (%)
Debt/equity — — 0.0 0.0 0.0 — — —
Net debt/equity (4.3) (12.4) (7.8) (15.8) (12.9) (18.0) (19.0) (22.2)
RoAE 22.5 22.4 27.7 19.0 16.6 18.8 18.1 17.0
RoACE 18.8 19.0 22.1 16.1 14.1 16.1 15.7 14.8
Adjusted CRoCI 26.2 24.6 26.5 20.5 18.3 19.7 18.5 17.1
Mahanagar Gas
RESULT
SIS (SECIS) BUY

Commercial & Professional Services
CMP(₹): 346 Fair Value(₹): 480 Sector View: Neutral NIFTY-50: 17,854 February 04, 2023
Decent print; FM segment margins impacted by one-off Company data and valuation summary
The healthy performance of the India business in 3QFY23 led to an in-line
Stock data
revenue growth of 12% yoy. The EBITDA margin print of 4.4% (up 40 bps qoq)
CMP(Rs)/FV(Rs)/Rating 346/480/BUY
was driven by: (1) better-than-expected India security margins of 4.9%, (2)
52-week range (Rs) (high-low) 1,379-342
marginally lower-than-expected international security margins of 4%, and (3)
one-off impact on FM margins of 4%. We trim FY2024-25 EPS estimates by
11-15% on account of weaker FM business margins. This, coupled with the
roll-forward, leads to an unchanged SoTP-based FV of Rs480. BUY. Shareholding pattern (%)
India business grows at a healthy pace 5.04.2

0.0
4.2
SIS posted revenue growth of 12% yoy, in line with KIE estimates. Segmentally,
15.0
(1) international business revenues declined 2% yoy (3% below estimates), (2)
FM business revenues grew 35% yoy (2% behind estimates), and (3) India
71.5
security revenues inched up 21% yoy (3% ahead of estimates). India business
(security+FM) was led by wins in retail, healthcare and education segments.
SIS’ position will be strengthened by: (1) vendor consolidation in the FM Promoters FPI s MFs BFI s Retail Others
segment, and (2) healthy ramp-up of high-margin cash logistics and VProtect Price performance (%)
businesses. Nifty SECIS
200
Margins in recovery phase; FM segment margins hit by one-off 160
EBITDA declined 3% yoy (4% below estimates) due to: (1) lower-than-expected
120
margins of the FM business (4% versus KIE estimate of 4.5%) due to certain
80
exceptional items and mismatch in price revision with wage hikes and (2)
40
international security business margin of 4% (KIE: 4.2%) was impacted by the
absence of Covid contracts and labor shortages, though recovered ~70 bps qoq 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
on catch-up in price revisions and wage hikes. Further, India security segment
margins improved to 4.9% (from 4.5% in 2Q). Tax credits offset the lower-than-
expected EBITDA, leading to a 50% beat in PAT versus KIE estimates. Forecasts/Valuations 2023E 2024E 2025E
EPS (Rs) 21.8 24.2 29.4
Buyback payouts increased net debt in 3QFY23 EPS growth (%) (1.2) 11.0 21.3
SIS’ net debt (incl. lease liabilities) increased to Rs9.9 bn (as of December 2022) P/E (X) 15.9 14.3 11.8
from Rs8.4 bn (as of September 2022). Net debt/EBITDA was 2.1 as of P/B (X) 2.1 1.8 1.6
EV/EBITDA (X) 11.3 9.2 7.6
December 2022, which is higher than 1.74 in September 2022. The increase in
RoE (%) 14.4 13.8 14.6
Net debt/EBITDA was a result of payouts from buyback and growth in the India
Div. yield (%) 0.0 0.0 0.0
business which led to an increase in working capital. OCF/EBITDA, on a Sales (Rs bn) 113 127 144
consolidated basis, was 1.1% for the quarter. EBITDA (Rs bn) 5 6 7
Inexpensive valuations; retain BUY Source: Bloomberg, Company data, Kotak Institutional Equities estimates
We reckon that SIS, with its integrated offering, is well-positioned to benefit Prices in this report are based on the market close of
from vendor consolidation in India. We make minor revisions to our revenue February 03, 2023
estimates; lower FM business margin expectations and higher depreciation

charges drive an 11-15% EPS cut for FY2024-25E. FY2023E EPS increase of 10%
is due to changes in the blended tax rate assumption. The roll-forward to
December 2024E leads to an unchanged SoTP-based FV of Rs480. The stock is
currently trading at an implied FY2024 P/E of 14X, marginally higher than global
peers at 12X (average), with sharply lower growth rates. Retain BUY.
Garima Mishra Shubhangi Nigam

119
India business beats revenues and margin expectations due to wage revision and new order wins
Exhibit 1: Consolidated quarterly financials of SIS, March fiscal year-ends (Rs mn)
Change (%) Yoy growth Yoy growth
3QFY23 3QFY23E 3QFY22 2QFY23 KIE yoy qoq 9MFY23 9MFY22 (%) FY2024E FY2023E (%)
Total operating income 29,043 29,142 26,008 27,677 (0.3) 11.7 4.9 83,501 74,111 12.7 127,437 113,170 13
Cost of materials consumed (149) (219) (101) (146) (418) (279) (646) (717)
Purchases of stock in trade (128) — (62) (105) (283) (267) — —
Change in inventory 19 — 2 (19) (18) 12 — —
Employee expenses (23,694) (23,376) (19,992) (22,781) 1.4 18.5 4.0 (67,944) (57,589) 18.0 (105,884) (93,980) 13
Other operational cost (3,828) (4,234) (4,559) (3,529) (9.6) (16.0) 8.5 (11,269) (12,247) (8.0) (15,052) (13,620) 11
EBITDA 1,264 1,314 1,297 1,098 (3.8) (2.6) 15.1 3,569 3,741 (4.6) 5,855 4,854 21
Other income 30 91 278 81 (66.9) (89.2) (63.0) 179 478 283 241
Financial charges (310) (275) (245) (275) 12.4 26.4 12.4 (832) (737) (1,026) (1,166)
Depreciation (342) (331) (283) (331) 3.4 21.0 3.4 (959) (817) (1,414) (1,310)
Pre-tax profit 642 798 1,048 572 (19.6) (38.7) 12.2 1,956 2,664 3,699 2,620
Taxation 379 (120) (38) 80 539 (362) (185) 537
Profit after tax 1,021 679 1,010 653 50.5 1.1 56.4 2,495 2,303 3,514 3,157 11
Minority interest and associate profits 13 10 (3) 22 39 (17) 41 45
Net profit 1,034 689 1,007 674 2,534 2,285 3,554 3,202
EPS (Rs) 7.0 4.7 6.9 4.6 50.2 2.6 53.4 17.3 15.6 10.8 24.2 21.8 11
EBITDA margin (%) 4.4 4.5 5.0 4.0 4.3 5.0 4.6 4.3
Tax rate (%) (59.0) 15.0 3.6 (14.1) (27.5) 13.6 5.0 (20.5)
Segment-wise revenues
Security services (India) 12,032 11,709 9,945 11,491 2.8 21.0 4.7 34,112 28,203 20.9 54,219 46,374 17
Security services (International) 12,191 12,509 12,469 11,613 (2.5) (2.2) 5.0 35,855 36,040 (0.5) 50,434 48,293 4
Facilities management 4,973 5,076 3,678 4,724 (2.0) 35.2 5.3 13,962 10,092 38.4 55,612 43,918 27
Less: intersegment revenue (154) (152) (83) (152) (428) (224) — —
Total operating income 29,043 29,142 26,008 27,677 (0.3) 11.7 4.9 83,501 74,111 12.7 160,265 138,585 16
Segment-wise EBITDA
Security services (India) 584 562 426 513 4.0 37.3 14.0 1,514 1,258 20.3 2,554 2,098 22
Security services (International) 483 521 696 379 (7.4) (30.6) 27.4 1,458 2,021 (27.9) 2,147 1,944 10
Facilities management 197 231 176 207 (14.7) 11.9 (4.8) 597 461 29.4 2,603 1,837 42
Total EBITDA 1,264 1,314 1,297 1,098 (3.8) (2.6) 15.1 3,569 3,741 7,304 5,878 24
Other income and gains 30 — 21 81 179 228
Gains (losses) arising from business
(28) — 227 (15) (52) 160
combination accounting
Financial charges (309) — (245) (275) (831) (737)
Depreciation (315) — (253) (316) (907) (727)
PBT 642 — 1,048 572 1,956 2,664
Other operating metrics
Billed India security guard count (#) 181,198 182,106 162,237 178,106 (0.5) 11.7 1.7 181,198 162,237 11.7
Billed Australia security guard count (#) 8,773 — 8,100 8,743 8.3 0.3 8,773 8,100 8.3
Facility management employee count (#) 81,288 — 64,969 76,758 25.1 5.9 81,288 64,969 25.1
India security drives EBITDA margin improvement; International business margin recovered on a sequential basis
Exhibit 2: Segmental revenue and EBITDA snapshot of SIS, March fiscal year-ends, Rs mn
3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23
Segmental revenues
India security 7,252 7,787 8,084 8,759 9,089 9,219 8,581 8,392 8,894 9,013 8,806 9,453 9,945 10,366 10,588 11,491 12,032
International security 8,626 9,019 9,134 9,034 9,397 9,490 10,199 10,677 11,897 12,530 12,007 11,563 12,469 12,366 12,051 11,613 12,191
India facility management 2,507 2,774 2,897 3,139 3,326 3,420 2,928 2,557 2,831 2,957 3,050 3,363 3,678 3,855 4,265 4,724 4,973
Less: intersegment elimination (16) (31) (31) (43) (31) (31) (40) (47) (47) (48) (70) (71) (83) (106) (123) (152) (154)
Total 18,368 19,549 20,084 20,889 21,782 22,097 21,667 21,579 23,575 24,452 23,793 24,309 26,008 26,480 26,782 27,677 29,043
Segmental EBITDA
India security 422 494 530 538 549 495 462 488 508 442 441 391 426 398 417 513 584
International security 397 465 537 490 544 641 600 747 839 733 641 685 696 671 596 379 483
India facility management 164 193 181 209 240 249 150 62 121 57 131 154 176 174 194 207 197
Total 984 1,152 1,248 1,237 1,334 1,385 1,212 1,297 1,469 1,232 1,213 1,231 1,297 1,243 1,207 1,098 1,264
Segmental EBITDA margin (%)
India security 5.8 6.3 6.6 6.1 6.0 5.4 5.4 5.8 5.7 4.9 5.0 4.1 4.3 3.8 3.9 4.5 4.9
International security 4.6 5.2 5.9 5.4 5.8 6.8 5.9 7.0 7.1 5.8 5.3 5.9 5.6 5.4 4.9 3.3 4.0
India facility management 6.6 7.0 6.2 6.7 7.2 7.3 5.1 2.4 4.3 1.9 4.3 4.6 4.8 4.5 4.5 4.4 4.0
Total 5.4 5.9 6.2 5.9 6.1 6.3 5.6 6.0 6.2 5.0 5.1 5.1 5.0 4.7 4.5 4.0 4.4
SIS
Commercial & Professional Services India Research
120
Overall billed employee count improved 15% yoy

Exhibit 3: Segmental operating metrics of SIS, March fiscal year-ends
Yoy change
1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 (%)
India security
Billed employees 149,200 154,700 157,922 157,590 141,469 146,617 151,062 155,028 148,567 157,287 162,237 167,011 172,227 178,106 181,198 12
Segment EBITDA (Rs mn) 530 538 549 495 462 488 508 442 441 391 426 398 417 513 584 37
EBITDA per employee (Rs) 3,555 3,477 3,479 3,142 3,263 3,328 3,364 2,850 2,971 2,489 2,623 2,383 2,422 2,879 3,225 23
International security
Billed employees 10,500 9,000 9,200 9,500 9,000 8,800 9,150 8,816 8,296 8,074 8,100 8,260 8,675 8,743 8,773 8
Segment EBITDA (Rs mn) 537 490 544 641 600 747 839 733 641 685 696 671 596 379 483 (31)
EBITDA per employee (Rs) 51,096 54,438 59,183 67,446 66,657 84,880 91,731 83,132 77,238 84,806 85,883 81,180 68,738 43,331 55,026 (36)
India facility management
Billed headcount 58,300 58,300 64,000 64,500 54,000 50,700 52,700 55,656 56,765 60,800 64,969 66,712 73,793 76,758 81,288 25
Segment EBITDA (Rs mn) 181 209 240 249 150 62 121 57 131 154 176 174 194 207 197 12
SIS witnessed an increase in net debt on account of higher growth and WC requirements of the business
Exhibit 4: Debt-profile of SIS, March fiscal year-ends, Rs mn
Sep-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Gross debt (Rs mn) 11,420 12,140 12,798 12,286 12,710 13,550 14,030 13,710 13,640 13,280 14,200 14,880 15,500
Net debt (Rs mn) 6,589 5,915 5,581 3,454 3,759 2,590 4,830 5,410 6,100 5,640 6,120 7,180 8,650
Lease liabilities 1,060 1,110 1,172 1,164 1,160 1,170 1,190 1,130 1,080 1,230 1,260 1,240 1,250
Net debt incl. lease liabilities (Rs mn) 7,649 7,025 6,753 4,618 4,919 3,760 6,020 6,540 7,180 6,870 7,380 8,420 9,900
SIS is trading at FY2024 P/E of 14X versus global peers at 12X on an average
Exhibit 5: Global security players valuation comps, December calendar year-ends, 2023-25E
Market-cap P/E (X) EV/EBITDA (X) Revenue CAGR
Company (US$ mn) 2022 2023E 2024E 2022 2023E 2024E 2022-24E (%)
ISS A/S 3,983 46 12 10 11.3 7.2 6.3 4
Rentokil 15,391 32 22 20 19.2 12.2 10.8 23
Securitas 5,578 12 11 10 9.3 7.8 7.1 8
Prosegur 1,277 29 14 11 6.1 4.7 4.1 12
Brink's 3,054 30 11 10 na na na 8
Sohgo Security Services 2,784 12 14 13 4.1 4.0 3.5 1
Loomis 2,389 15 12 10 6.2 5.3 4.9 5
Average 25 14 12 9.4 6.9 6.1
Source: Bloomberg, Kotak Institutional Equities
Takeaways from the earnings call

 Margin performance. India security margins have witnessed continuous improvement from 4.0% in
1QFY23 to 4.4% in 2QFY23 to 4.9% in 3QFY23. EBITDA margin of the international security segment
improved from 3.3% in 2QFY23 to 4.0% in 3QFY23, with the catch-up of price increases due to
minimum wage increase as expected. However, EBITDA margin of the FM business reduced from
4.4% in 2QFY23 to 4.0% in 3QFY23. This decline was mainly contributed by the time lag between wage
and price increase and additional repair and maintenance cost in 3Q toward equipment deployed at
mechanized cleaning sites.
 India Security business. SIS India security posted another strong quarter, with 4.6% growth qoq on
the back of new wins of more than Rs210 mn of monthly revenue in the quarter, with major
contributions from financial, retail, healthcare, and education segments. It currently operates across
182 branches and has 181,198 employees (an increase of 3,092 over 2QFY23). Technology and
electronic security solutions businesses continued to grow, with 693 new installations in VProtect in
3Q; SIS’ alarm monitoring and response business now services 13,146 customer connections. In
addition, the VProtect business has a strong pipeline with 3,600 sites of confirmed orders to
implement in the coming quarters. DSO days for the segment remained flat at 78 days.
SIS
121
 International business. New wins/commencement of new business of AUD14 mn of annualized

revenue, the catch-up of price increases due to the minimum wage increase and the full quarter effect
of the SDS acquisition drove revenues. On a constant currency basis, the International Security
segment reported revenue growth of 6.1% qoq.
 Facilities management. The segment continued its growth momentum in the quarter, with a revenue
increase of 5.5% qoq. This growth was primarily driven by new wins of ~Rs110 mn of monthly revenue
in healthcare, education, and retail segments.
 Cash logistics business. SIS might evaluate spinning-off the cash business in the future. The business
currently operates over 2,700 cash vans and 60 vaults, covering ~300 cities across India. It reported
strong revenue growth, with the highest-ever quarterly revenue of Rs1.43 bn for 3QFY23 (up 51.7% yoy
and 11.5% qoq). 9MFY23 revenue exceeded the full-year FY2022 segmental revenue, driven by growth
in business aided by ongoing increase of RBI/MHA implementation. EBITDA grew 85.6% yoy, mainly
driven by ATM and DSB segments. Higher pricing on account of RBI/MHA implementation and growth
in Door step banking (DSB), further led to margin growth. DSO remained stable at 85 days.
 Miscellaneous. (1) SIS operates VProtect, an alarm monitoring business at 20% EBITDA margins on
an opex model. (2) All contracts in India and international have an in-built clause of automatic price
escalation in pro-rata basis. There is catch-up period of three months for the same. (3) Gross margin
has remained static, but the SG&A expenses have inched up post Covid; hence, the margins are taking
time to recover to pre-Covid levels. (4) Blended tax rate should remain at 0% in the next few quarters.
Key changes in estimates

We marginally tweak FY2023-25E revenues by 0.5-1.5% due to the adjustment of 3QFY23 performance.
FY2023E EPS increase by 10% on account of the change in blended tax rates due to tax credit. We reckon
that the FM business’ margins will take a longer-than-expected trajectory to recover to pre-Covid levels.
This, along with marginally trimmed expectations for the international segment’s margins and the
realignment of interest and depreciation charges, drives our FY2023-25E EBITDA cut of 14-17%.
We cut FY2024-25 EPS estimates by 11-15%

Exhibit 6: Key changes in estimates for SIS, March fiscal year-ends, 2023-25E (Rs mn)
New estimates Old estimates % revision
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Total
Sales (Rs mn) 113,170 127,437 143,989 111,644 126,699 143,358 1.4 0.6 0.4
Sales growth (%) 12.5 12.6 13.0 11.0 13.5 13.1
EBITDA (Rs mn) 4,854 5,855 6,987 5,080 6,277 7,449 (4.5) (6.7) (6.2)
EBITDA margin (%) 4.3 4.6 4.9 4.6 5.0 5.2
PBT (Rs mn) 2,620 3,699 4,857 3,165 4,417 5,613 (17.2) (16.3) (13.5)
Tax rate (%) (20.5) 5.0 12.0 8.0 10.0 10.0
Net Profit (Rs mn) 3,202 3,554 4,310 2,935 3,996 5,071 9.1 (11.1) (15.0)
EPS (Rs) 21.8 24.2 29.4 19.9 27.1 34.4 9.7 (10.6) (14.5)
EPS growth (%) (1) 11 21 (10) 36 27
India security
Security guard count (#) 185,382 209,482 232,525 192,063 217,031 240,904 (3.5) (3.5) (3.5)
Revenue (Rs mn) 46,374 54,219 63,322 45,795 54,439 63,587 1.3 (0.4) (0.4)
EBITDA (Rs mn) 2,098 2,554 3,093 2,051 2,570 3,121 2.3 (0.6) (0.9)
EBITDA margin (%) 4.5 4.7 4.9 4.5 4.7 4.9
International security
Revenue (Rs mn) 48,293 50,434 52,603 48,685 50,843 53,031 (0.8) (0.8) (0.8)
EBITDA (Rs mn) 1,944 2,147 2,300 1,985 2,190 2,345 (2.1) (2.0) (1.9)
EBITDA margin (%) 4.0 4.3 4.4 4.1 4.3 4.4
Facility management + others
Revenue (Rs mn) 18,503 22,784 28,064 17,164 21,417 26,741 7.8 6.4 4.9
EBITDA (Rs mn) 812 1,154 1,595 1,044 1,518 1,983 (22.2) (23.9) (19.6)
EBITDA margin (%) 4.4 5.1 5.7 6.1 7.1 7.4
SIS
122
Exhibit 7: SoTP-based Fair Value of Rs480/share
Parameter Valuation
DCF based EV of Indian businesses - (1) 58,829
EV/EBITDA multiple ascribed to International business (X) 7.0
December 2024 EBITDA of International business 2,261
EV of the Australian business - (2) 15,830
Consolidated EV - (1) + (2) 74,659
Net debt 3,919
Equity value 70,740
Diluted share count (mn) 147
Equity value (Rs/sh) 482
We expect revenue CAGR of 13% over FY2023-25E

Exhibit 8: Details of the assumptions for SIS, March fiscal year-ends, 2016-25E (Rs mn)
2023-25 CAGR
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E (%)
Segment revenues (Rs mn)
Security guarding (India) 5,603 7,994 10,175 12,320 15,950 21,441 26,988 35,151 34,879 38,569 46,374 54,219 63,322 16.9
Facility management (India) 390 499 602 1,051 3,882 6,588 9,210 12,553 10,790 13,943 18,026 22,187 27,348 23.2
Others (India) 748 1,128 2,122 3,050 84 119 154 94 301 (327) 477 597 716 22.5
Security services (International) 19,696 21,355 22,607 21,940 23,956 30,186 34,581 37,054 45,303 48,405 48,293 50,434 52,603 4.4
Total revenues 26,437 30,977 35,506 38,362 43,872 58,334 70,933 84,852 91,273 100,591 113,170 127,437 143,989 12.8
Yoy growth (%)
Security guarding (India) 40 43 27 21 29 34 26 30 (1) 11 20 17 17
Facility management (India) 16 28 21 75 269 70 40 36 (14) 29 29 23 23
Others (India) (4) 51 88 44 (97) 41 30 (39) 218 (209) (246) 25 20
Security services (International) 4 8 6 (3) 9 26 15 7 22 7 (0) 4 4
Total 10 17 15 8 14 33 22 20 8 10 13 13 13
Revenue contribution of domestic and international businesses (%)
Domestic business 25 31 36 43 45 48 51 56 50 52 57 60 63
International business 75 69 64 57 55 52 49 44 50 48 43 40 37
Segment EBITDA (Rs mn)
Security guarding (India) 478 532 579 771 1,014 1,486 1,507 2,111 1,900 1,657 2,098 2,554 3,093 21.4
Facility management (India) 7 1 (4) 22 158 354 636 848 334 548 700 1,004 1,406 41.8
Others (India) (29) 1 37 (45) (29) (21) (7) 30 55 88 112 151 188 29.4
Security services (International) 794 934 982 967 1,060 1,296 1,515 2,211 2,920 2,692 1,944 2,147 2,300 8.8
Total 1,250 1,467 1,594 1,715 2,204 3,116 3,651 5,200 5,208 4,985 4,854 5,855 6,987 20.0
Segment EBITDA margin (%)
Security guarding (India) 8.5 6.6 5.7 6.3 6.4 6.9 5.6 6.0 5.4 4.3 4.5 4.7 4.9
Facility management (India) 1.8 0.2 (0.7) 2.1 4.1 5.4 6.9 6.8 3.1 3.9 3.9 4.5 5.1
Others (India) (3.9) 0.0 1.7 (1.5) (33.8) (17.3) (4.7) 31.9 18.1 (26.9) 23.6 25.3 26.3
Security services (International) 4.0 4.4 4.3 4.4 4.4 4.3 4.4 6.0 6.4 5.6 4.0 4.3 4.4
Total 4.7 4.7 4.5 4.5 5.0 5.3 5.1 6.1 5.7 5.0 4.3 4.6 4.9
SIS
123
We bake in EPS CAGR of 14% over FY2023-25E

Exhibit 9: Consolidated financial snapshot of SIS, March fiscal year-ends, 2016-25E (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Profit model
Revenue from operations 38,362 43,872 58,334 70,933 84,852 91,273 100,591 113,170 127,437 143,989
EBITDA 1,694 2,204 3,120 3,652 5,204 5,208 4,985 4,854 5,855 6,987
Depreciation and amortisation expense (432) (358) (560) (660) (1,283) (1,130) (1,116) (1,310) (1,414) (1,519)
EBIT 1,263 1,845 2,560 2,992 3,921 4,078 3,869 3,544 4,442 5,468
Other income 139 87 365 177 531 4,778 527 241 283 275
Finance costs (475) (767) (925) (938) (1,517) (1,273) (984) (1,166) (1,026) (887)
Profit before tax 926 1,165 2,000 2,231 2,935 7,583 3,413 2,620 3,699 4,857
Taxation (296) (8) (244) 52 (636) (1,154) (179) 537 (185) (583)
Profit after tax 630 1,158 1,756 2,282 2,299 6,429 3,233 3,157 3,514 4,274
Conversion to JV from Subsidiary 93 — — — — — — — — —
Minority interest in profit/(loss) for the year 34 (60) (118) (135) (44) 5 26 45 41 36
Reported PAT 757 1,097 1,639 2,147 2,255 6,435 3,259 3,202 3,554 4,310
Diluted EPS (Rs/share) 11 16 23 29 24 43 22 22 24 29
Weighted average number of shares - diluted (mn) 68 70 73 74 93 149 148 147 147 147
Balance sheet
Shareholders' funds 4,492 5,906 10,283 12,499 13,884 18,308 20,713 23,908 27,462 31,773
Minority Interest 26 3 14 3 3 21 31 31 31 31
Loan funds 4,466 6,996 5,569 9,498 11,722 11,646 13,283 11,783 10,283 8,783
Total sources of funds 8,984 13,273 16,262 22,351 26,127 30,449 34,396 36,092 38,146 40,956
Net fixed assets 1,377 2,165 2,532 3,546 4,401 4,354 4,603 4,503 4,386 4,332
Goodwill 1,704 1,859 4,691 12,284 12,323 11,413 11,647 11,647 11,647 11,647
Investments 120 989 921 1,214 931 935 963 963 963 963
Cash balances 3,493 4,292 5,428 5,429 6,137 10,880 7,384 6,253 5,804 5,051
Net current assets excluding cash 1,817 2,972 3,164 4,241 3,464 (214) 5,393 7,272 8,413 10,087
Deferred tax assets 473 1,587 2,105 3,397 4,374 3,993 5,306 6,354 7,834 9,776
Total application of funds 8,984 13,273 16,262 22,351 26,127 30,449 34,396 36,092 38,146 40,956
Key ratios (%)
Revenue growth 8 14 33 22 20 8 10 13 13 13
EBITDA growth 6 30 42 17 43 — (4) (3) 21 19
Net profit growth 21 45 49 31 5 185 (49) (2) 11 21
EBITDA margin 4 5 5 5 6 6 5 4 5 5
Tax rate 32 1 12 (2) 22 15 5 (21) 5 12
Net debt/equity (X) 0.2 0.5 0.0 0.3 0.4 0.0 0.3 0.2 0.2 0.1
RoE 18 21 20 19 17 40 17 14 14 15
RoCE 12 17 17 16 14 27 13 13 12 13
Cash flow
Operating cash flow before WCchanges 1,501 1,489 2,407 2,790 4,113 4,859 3,234 4,584 4,474 4,737
Change in working capital/ other adjustments (771) (487) (256) (742) (2,100) 1,537 (899) (1,879) (1,141) (1,674)
Capital expenditure (548) (2,886) (1,164) (5,224) (2,759) (1,635) (1,224) (1,209) (1,296) (1,466)
Free cash flow 183 (1,884) 986 (3,176) (745) 4,761 1,111 1,496 2,036 1,598
SIS
RESULT, CHANGE IN RECO.
Divis Laboratories (DIVI) SELL

Pharmaceuticals
CMP(₹): 2,884 Fair Value(₹): 2,380 Sector View: Cautious NIFTY-50: 17,854 February 05, 2023
Chinks in the armor Company data and valuation summary

Divi’s 3QFY23 margins slumped to all-time lows, as the core business
Stock data
continued to reel under pricing pressure in the generic API segment. The
CMP(Rs)/FV(Rs)/Rating 2,884/2,380/SELL
huge 40+% miss each on EBITDA and PAT was driven by weaker CSM sales
as Divi’s failed to make up for lower Molnupiravir sales, sequentially higher
pricing erosion in generic API as well as higher RM costs. Even as we expect
ADTV-3M (mn) (Rs/US$) 1,784/22
margins to recover hereon, we reset our expectations on Divi’s long-term
margins. The stock stays expensive at ~40X FY2024E EPS. Downgrade to Shareholding pattern (%)
SELL from REDUCE with lower FV of Rs2,380 (Rs3,180 earlier).
3.9
9.2
A quarter to forget for Divi’s; Kakinada green signal the only positive 5.9
Divi’s 3QFY23 sales at Rs17.1 bn missed our estimates by 12% (-31% yoy, -8%
13.6 51.9
qoq). We believe Divi’s reported <US$5 mn Molnupiravir sales in 3QFY23,
compared to US$40 mn in 2QFY23 and US$130 mn in 3QFY22. generic API sales 15.4
at Rs8.7 bn grew 5% yoy (-12% vs KIE), primarily driven by volume growth. The
weakness was more pronounced in the CSM segment which registered a steep Promoters FPI s MFs BFI s Retail Others
14% qoq and 54% yoy decline (albeit 26% yoy higher on an ex-Molnupiravir basis).
We continue to await a meaningful scale up in Nutraceuticals (-10% yoy). Owing
Nifty DIV I
to change in product mix, shift in production schedules, and pricing pressure in 200
generics, EBITDA stood at Rs4.1 bn (-63% yoy) with EBITDA margin of 23.9% (-958 160
bps qoq, -1,257 bps vs KIE). A silver lining in Divi’s 3QFY23 mishap was the green
120
signal for resuming construction at the Kakinada project, which has been delayed
80
for ~7 years. Divi’s is guiding for Rs10 bn capex in Phase 1 (to be completed in
one year post commencement) and gradual revenue contribution in 2-3 years 40
from Kakinada. 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
New filings and CSM projects to drive growth; margin recovery to follow
We factor in a recovery in the base business and bake in 19% overall sales CAGR Forecasts/Valuations 2023E 2024E 2025E
over FY2023-25E, on an ex-Molnupiravir basis. We expect the 16% generic API EPS (Rs) 70.7 72.9 93.2
sales CAGR over FY2023-25E to be driven by continued DMF filings, especially the EPS growth (%) (36.6) 3.1 27.9
10 molecules going off-patent over CY2023-25, as well as opportunities in P/E (X) 40.8 39.6 30.9
contrast media and sartans. Similarly, excluding Molnupiravir, we expect 23% P/B (X) 5.9 5.4 4.8
EV/EBITDA (X) 30.7 27.3 20.9
CSM sales CAGR over FY2023-25E aided by upcoming Phase 2/3 opportunities,
RoE (%) 14.5 13.6 15.6
including couple of fast-track projects. Although Divi’s remains optimistic about
Div. yield (%) 0.9 0.9 1.1
its growth prospects across generic API and CSM in FY2024-25E, we believe near-
term growth pangs will continue given most of these levers are unlikely to kick in EBITDA (Rs bn) 24 26 34
over the next couple of quarters. On the profitability side, we remain cautious, as Net profits (Rs bn) 19 19 25
we bake in 32-36% EBITDA margins over FY2024-25E. Source: Bloomberg, Company data, Kotak Institutional Equities estimates

-6% EPS CAGR over FY2022-25E; downgrade to SELL with lower FV of Rs2,380 February 03, 2023
We reduce our FY2023-25E EPS by 19-25% to factor in muted base business sales
Related Research
and lower margins. At ~40X FY2024E EPS, we find valuations expensive. We now
value Divi’s at 27X EPS (30X earlier) on a lower long-term margin profile and roll- → Divis: The burden of expectations
forward to Dec 2024E to attain an FV of Rs2,380 (Rs3,180 earlier). On an elevated → Divis: AGM highlights
FY2022 base, our FV implies a 10-year sales and EBITDA CAGR of 10% and 9%, → Divis: Core recovery still elusive
respectively. Downgrade to SELL from REDUCE earlier.
Alankar Garude, CFA Samitinjoy Basak

125
DIVIS – 3QFY23 interim results

3QFY23 3QFY23E 3QFY22 2QFY23 %KIE %yoy %qoq 9MFY23 9MFY22 (% chg.) FY2023E FY2022 (% chg.)
Sales 17,077 19,491 24,932 18,545 (12.4) (31.5) (7.9) 58,167 64,414 (9.7) 76,517 89,598 (14.6)
Raw material (7,396) (6,841) (8,316) (6,746) 8.1 (11.1) 9.6 (22,261) (21,285) 4.6 (29,519) (29,671) (0.5)
Employee expenses (2,389) (2,381) (2,446) (2,321) 0.3 (2.3) 2.9 (7,174) (6,894) 4.1 (9,887) (9,462) 4.5
Other expenses (3,210) (3,158) (3,199) (3,268) 1.6 0.3 (1.8) (9,972) (8,562) 16.5 (13,275) (11,748) 13.0
EBITDA 4,083 7,111 10,972 6,210 (42.6) (62.8) (34.3) 18,760 27,673 (32.2) 23,835 38,717 (38.4)
Other income/FX losses 1,143 850 166 801 34.4 587.4 42.7 2,827 717 294.3 3,665 1,241 195.3
Interest (1) (1) (2) (2) 30.0 (43.5) (23.5) (4) (7) (40.3) (6) (8) (31.3)
Depreciation (868) (890) (799) (857) (2.5) 8.6 1.2 (2,562) (2,305) 11.1 (3,429) (3,115) 10.1
Pretax profits 4,356 7,070 10,337 6,152 (38.4) (57.9) (29.2) 19,022 26,078 (27.1) 24,065 36,835 (34.7)
Tax (1,288) (1,697) (1,314) (1,216) (24.1) (2.0) 5.9 (3,997) (5,420) (26.2) (5,294) (7,231) (26.8)
Minority interest - - - - - - - -
Net income 3,068 5,373 9,022 4,936 (42.9) (66.0) (37.8) 15,024 20,658 (27.3) 18,771 29,605 (36.6)
Adjusted EPS (Rs) 11.6 20.2 34.0 18.6 (42.9) (66.0) (37.8) 56.6 77.9 (27.3) 70.7 111.6 (36.6)
Tax rate (%) 29.6 24.0 12.7 19.8 21.0 20.8 22.0 19.6
Segment wise sales
Generics 8,746 9,976 8,313 8,941 (12.3) 5.2 (2.2) 26,423 23,454 12.7 33,533 30,804 8.9
Custom synthesis 6,831 7,607 14,959 7,975 (10.2) (54.3) (14.3) 26,754 36,239 (26.2) 36,254 52,504 (30.9)
Nutraceuticals 1,500 1,909 1,660 1,630 (21.4) (9.6) (8.0) 4,990 4,720 5.7 6,730 6,290 7.0
Total 17,077 19,491 24,932 18,545 (12.4) (31.5) (7.9) 58,167 64,414 (9.7) 76,517 89,598 (14.6)
% margin
Gross margin 56.7 64.9 66.6 63.6 -821 bps -996 bps -693 bps 61.7 67.0 -523 bps 61.4 66.9 -546 bps
Staff cost 14.0 12.2 9.8 12.5 12.3 10.7 12.9 10.6
Other expenditure 18.8 16.2 12.8 17.6 17.1 13.3 17.3 13.1
EBITDA 23.9 36.5 44.0 33.5 -1257 bps -2010 bps -958 bps 32.3 43.0 -1071 bps 31.1 43.2 -1206 bps
Key highlights from Divi’s 3QFY23 concall
Generic APIs
 Overall segment: The top generic product (Naproxen) continued to grow, driven by volumes, despite
pricing pressure. Divi’s has filed multiple DMFs. Prices of some of the APIs came down 5-10%, while
for some APIs, Divi’s was able to maintain good prices. Divi’s positions itself as an API supplier where
it can sell good quality APIs consistently, and customers will prefer them.
 Outlook: In 4QFY23 Divis expects better growth from generics API segment. It has already seen
double digit growth in some of the generic products. From pre-Covid levels, volume growth has
happened, and Divi’s expects this to continue in double digits.
 10 molecules going off-patent between CY2023-25: Patent expiry of these new molecules would be
from CY2023-25. Divi’s is confident of revenues from FY2025. Divi’s has filed few DMFs and is in the
process of filing the remaining. Shortly, some of the qualifications of customers will be completed.
These molecules have a combined innovator market size of US$20 bn.
 Contrast Media: Prices of iodine have increased multi-fold. 2 of the CM products are Divis’ own
products. It will start commercial supply for CSM projects as well as its own generics by 1QFY24. As
per Divi’s, it has excellent relationships with customers and big pharma companies. Divi’s is working
on intermediates for Gadolinium based CM products.
Custom synthesis
 Overall segment: As per Divi’s, CSM segment should not be looked on a qoq basis. As per Divi’s, in
the coming quarters, few of the CSM products will do well.
 Outlook: Management is very optimistic on the prospects of the CSM business. Divi’s is seeing
multiple projects across therapeutic companies, coming from big pharma companies. It has a couple
of fast-track Phase 3 CSM projects. Divi’s has validated and completed both these projects (non-
pandemic related), and both are in commercial ramp-up. There will be some sales in 4QFY23, and full
ramp-up in 1QFY24.
Divis Laboratories
Pharmaceuticals India Research
126
Margins
 RM price inflation: RM procurement and availability issues have stabilized. Prices of materials like
lithium, iodine have multiplied yoy, and Divis expects this to continue. Some of the cost increases have
been partially contained due to long-term contracts and Divi’s backward integration initiatives.
 Gross margins: Change in product mix led to decline in GM. Profitability was affected by lesser sales
from Molnupiravir, pricing pressure in some APIs, and increase in RM costs. There was lesser impact
in CSM, due to lack of pricing pressure, and only RM cost inflation was there.
 Operating expenses: There were minimal supply chain disruptions in 3QFY23. Global logistics
scenario has improved with receding freight costs. However, manpower shortages continue and the
company remains cautious about inbound and outbound logistics. Divi’s is trying to work on each of
these to see how to lower dependence on them. Its critical supplier base is growing and it continues
to geographically diversify its supplier base. Divi’s is coming back to pre-Covid production schedule.
Some of the costs went into this shifting and restructuring.
 Outlook: Divi’s will take 2 years to get back to normalized pre-Covid level margins, as it increases
throughput. It expects double-digit growth in topline and profitability. Pricing pressure is mainly in
generic APIs. With upcoming new generics, and contrast media products, where there is no pricing
pressure, Divis expects better margins in coming quarters.
Nutraceuticals: Nutraceuticals business posted sales of Rs1.5 bn in 3QFY23 and Rs5.1 bn in 9MFY23.
Some competing big pharma companies might be exiting some molecules due to pricing pressure in
these products. Divi’s is ready to grasp any of these opportunities and has plans to expand further in this
segment.
Sales mix: generic API contributed to 60% sales in 3QFY23, while custom synthesis contributed to 40%
sales. The same split of generics: CSM was 55:45 in 9MFY23.
Exports: Exports stood at 87% of total sales in 3QFY23. Exports to regulated markets accounted for 69%
of total sales in 3QFY23 and 70% in 9MFY23.
Utilization: Currently, Divi’s is operating at 75-77% capacity.
Technologies: Divi’s is developing new technologies like electrochemistry, flow chemistry, etc. which will
aid re-usage of RMs and solvents in an eco-friendly way.
KMP: Finance, accounting, supply chain purchases are managed by Nilima Divi, while sales, technology
development, R&D are managed by Dr. Kiran Divi. This has been happening for past 5 years.
Kakinada: Unit 3 facility near Kakinada received necessary clearances from govt, and management will
provide further update in 4QFY23. Project planning is under progress. In terms of product planning, Divis
is planning to manufacture KSMs, intermediates as well as APIs. Divis has been handed over the land in
the past couple of weeks. Once the project starts, capex will be completed in a year. In Phase 1, Divi’s
will incur a capex of Rs10 bn. Requalification of molecules will be needed post that. Post
commencement of capex, it will take another 2-3 years before revenues from Kakinada start coming in.
Financials:
 Capex: Divi’s has incurred capex of Rs750 mn in 3QFY23 and Rs2.75 bn in 9MFY23.
 CWIP: Rs5.25 bn. This does not include Kakinada.
 Cash: Rs38.5 bn.
 Receivables: Rs16.6 bn
 Inventory: Rs29.8 bn
 Tax rate: 29%
Divis Laboratories
127
DIVIS – 3QFY23 highlights: Alarmingly poor performance
Divi’s 3QFY23 sales at Rs17.1 bn missed our estimates by 12% (-31% yoy, -8% qoq). generic API sales at
Rs8.7 bn grew 5% yoy (-12% vs KIE), primarily driven by volume growth. The weakness was more
pronounced in the CSM segment which registered a steep 14% qoq and 54% yoy decline. We estimate
<US$5 mn Molnupiravir sales in this quarter, compared to US$40 mn in 2QFY23 and US$130 mn in
3QFY22. Gross margin stood at 56.7% (-693 bps qoq, -821 bps vs KIE). Employee expenses declined 2%
yoy, while other expenses remained flattish yoy. EBITDA stood at Rs4.1 bn (-63% yoy, -34% qoq) with
EBITDA margin of 23.9% (-958 bps qoq, -1257 bps vs KIE). Higher other income (+43% qoq) led to a
reported PAT of Rs3.1 bn (-66% yoy, -43% vs KIE).
DIVIS – quarterly generic API sales DIVIS – quarterly custom synthesis sales
generic API (Rs bn) %yoy

Custom synthesis manufacturing (Rs bn) %yoy
10 9.0 8.8 9.2 60 18 16.3 160
8.6 8.4 8.7 8.9 8.7
9 8.3 50 16 15.0
8 7.4 40 110
6.7 14 11.9
7 11.5
30 12
6 9.8 60
20 10
5 8.0
10 8 7.2 7.0 6.8 7.2 6.8
4 10
3 0 6
2 (10) 4 (40)
1 (20) 2
0 (30) 0 (90)
4QFY22
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
1QFY23
2QFY23
3QFY23
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
DIVIS – quarterly overall sales DIVIS – quarterly gross profit

Sales (Rs bn) %yoy Gross profits (Rs bn) %gross margin
30 60 20 80
24.9 25.2 50 16.6 16.8
70
25 22.5 40 14.4
19.6 19.9 15 13.2 13.3 60
18.5 30 11.7 11.7 12.1
20 17.3 17.5 17.0 17.9 17.1 10.9
11.8
50
20
9.7
15 10 10 40
0 30
10 (10)
5 20
5 (20)
(30) 10
0 (40) 0 0
1QFY21
2QFY21
1QFY22
2QFY22
3QFY22
2QFY23
3QFY23
3QFY21
4QFY21
4QFY22
1QFY23
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
Divis Laboratories
128
DIVIS – quarterly EBITDA DIVIS – quarterly reported PAT

EBITDA (Rs bn) %EBITDA margin PAT (Rs bn) %yoy
12 11.0 11.0 50 10 9.0 8.9 100

45 80
10 40 8
8.5 8.2 8.5 7.0 60
35
8 7.0 7.4 6.9 7.2 5.6
6.1 40
6.2 30 6 4.9 5.2 4.7 5.0 4.9 20
6 25
4.1 0
20 4 3.1
4 15 (20)
10 2 (40)
2
5 (60)
0 0 0 (80)
1QFY21
3QFY21
4QFY21
3QFY22
4QFY22
1QFY23
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
1QFY21
2QFY21
1QFY22
2QFY22
2QFY23
3QFY23
We forecast barely any Molnupiravir contribution for Divi’s from FY2024E

2022 2023E 2024E
Molnupiravir data
Number of Molnupiravir courses for which API is estimated to be supplied (mn) 25 15 2
Number of pills per course 40 40 40
Grammage per pill (mg) 200 200 200
Total API requirement (kg) 200,000 119,200 16,000
Average API price (US$/kg) 1,850 1,610 1,050
Total API value (US$ mn) 370 192 17
Share of Divi's in global Molnupiravir API market (%) 80 60 60
Total Molnupiravir sales for Divi's (US$ mn) 296 115 10
Contribution of Molnupiravir to overall sales (%) 24.6 12.1 1.0
DIVIS – ex-Molnupiravir overall sales DIVIS – ex-Molnupiravir custom synthesis sales

Exhibit 9: March fiscal year-ends, 2021-25E (Rs mn, %) Exhibit 10: March fiscal year-ends, 2021-25E (Rs mn, %)
Divi's net sales ex-Molnupiravir (Rs mn) Divi's custom synthesis sales ex-Molnupiravir (Rs mn)
%yoy growth %yoy growth
150,000 25
20.5 27.1
50,000 30
17.4 20 40,687 25
120,000
95,173 40,000 34,350 20
15 30,449
90,000 81,065 15
30,000 27,416 27,016 18.4
68,955 67,543 67,279 10
10
60,000 11.1 5
20,000
5 0
(0.4)
30,000 (2.0) 10,000 (11.3) (5)
0
(10)
0 -5 0 (15)
2021 2022 2023E 2024E 2025E 2021 2022 2023E 2024E 2025E
Divis Laboratories
129
We reduce our FY2023-25E EPS by 19-25% to factor in muted base business, lower margins and higher tax rate assumptions
Exhibit 11: DIVIS – changes in estimates, March fiscal year-ends, 2023-25E (Rs mn))
New estimates Old estimates % change
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Revenues 76,517 81,882 95,583 84,781 90,770 103,572 (9.7) (9.8) (7.7)
Gross profit 46,998 50,888 60,637 54,443 59,561 67,988 (13.7) (14.6) (10.8)
EBITDA 23,835 26,471 34,212 31,315 35,298 41,564 (23.9) (25.0) (17.7)
EBITDA margin (%) 31.1 32.3 35.8 36.9 38.9 40.1 -579 bps -656 bps -434 bps
PAT 18,771 19,345 24,739 23,352 25,704 30,545 (19.6) (24.7) (19.0)
EPS 70.7 72.9 93.2 88.0 96.9 115.1 (19.6) (24.7) (19.0)
We expect 2% sales CAGR over FY2022-25E on a high base, largely driven by generic APIs
Exhibit 12: DIVIS – revenue segments, March fiscal year-ends, 2016-25E (Rs mn))
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Revenues (Rs mn)
Generics 16,713 20,180 18,978 24,447 27,397 35,589 30,804 33,533 38,638 44,955
Custom synthesis 19,190 18,088 16,884 20,647 22,118 28,156 52,504 36,254 35,168 41,097
Nutraceuticals 1,857 2,390 2,510 3,810 4,430 5,950 6,290 6,730 8,076 9,530
Total 37,760 40,658 38,372 48,904 53,945 69,695 89,598 76,517 81,882 95,583
Revenue Mix (%)
Generics 44.3 49.6 49.5 50.0 50.8 51.1 34.4 43.8 47.2 47.0
Custom synthesis 50.8 44.5 44.0 42.2 41.0 40.4 58.6 47.4 42.9 43.0
Nutraceuticals 4.9 5.9 6.5 7.8 8.2 8.5 7.0 8.8 9.9 10.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Growth (%)
Generics 20.9 20.7 (6.0) 28.8 12.1 29.9 (13.4) 8.9 15.2 16.3
Custom synthesis 21.5 (5.7) (6.7) 22.3 7.1 27.3 86.5 (30.9) (3.0) 16.9
Nutraceuticals 20.9 28.7 5.0 51.8 16.3 34.3 5.7 7.0 20.0 18.0
Total 21.2 7.7 (5.6) 27.4 10.3 29.2 28.6 (14.6) 7.0 16.7
Divis Laboratories
130
We expect Divi’s to report EPS decline over FY2022-25E

Exhibit 13: DIVIS – summary financials, March fiscal year-ends, 2016-25E (Rs mn)
2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Net revenues 37,760 40,640 38,910 48,797 53,944 69,694 89,598 76,517 81,882 95,583
Gross profit 22,720 24,965 23,198 30,418 32,859 46,453 59,927 46,998 50,888 60,637
Adjusted EBITDA 14,217 14,484 12,685 18,490 18,222 28,599 38,717 23,835 26,471 34,212
Depreciation & amortisation (1,180) (1,230) (1,420) (1,688) (1,862) (2,556) (3,115) (3,429) (4,177) (4,727)
EBIT 13,037 13,254 11,265 16,802 16,359 26,044 35,602 20,406 22,294 29,485
Other income 890 700 1,050 1,531 1,835 617 1,233 3,659 3,500 3,500
Profit before tax 13,927 13,954 12,315 18,332 18,195 26,660 36,835 24,065 25,794 32,985
Tax & deferred Tax (2,646) (3,349) (3,571) (5,006) (4,429) (6,818) (7,231) (5,294) (6,448) (8,246)
Net income (reported) 11,281 10,605 8,743 13,327 13,765 19,843 29,605 18,771 19,345 24,739
EPS (reported) Rs. 42.5 40.0 33.0 50.2 51.9 74.8 111.6 70.7 72.9 93.2
Balance sheet
Cash & equivalents 8,742 17,094 20,017 15,035 10,940 21,560 28,189 35,046 43,810 49,642
Debtors 8,809 9,009 10,144 12,822 14,134 16,765 24,239 23,072 22,000 24,648
Inventories 12,078 13,199 13,507 16,632 18,639 21,452 28,286 29,498 28,128 31,513
Other current assets 1,317 803 1,684 1,985 3,086 1,969 2,801 2,801 2,801 2,801
Current assets 30,946 40,105 45,351 46,475 46,798 61,747 83,515 90,416 96,739 108,605
Fixed assets (incl. goodwill) 16,998 16,668 21,094 25,753 36,979 44,053 47,841 54,412 60,235 65,509
Other non-current assets 1,740 4,812 1,386 8,174 1,579 1,941 2,392 2,392 2,392 2,392
Total assets 49,684 61,585 67,832 80,402 85,357 107,741 133,747 147,220 159,366 176,505
Short-term loans — — — — — — — — — —
Creditors and other liabilities 5,195 6,595 6,507 8,325 9,268 11,125 11,956 13,227 12,798 13,858
Current liabilities 5,195 6,595 6,507 8,325 9,268 11,125 11,956 13,227 12,798 13,858
Long-term loans 5 — — — — — — — — —
Other liabilities (incl. deferred) 1,608 1,417 2,076 2,344 2,990 3,670 4,510 4,510 4,510 4,510
Total liabilities 6,807 8,011 8,584 10,669 12,258 14,795 16,465 17,737 17,308 18,367
Equity (inc. minority interest) 42,877 53,574 59,248 69,733 73,099 92,946 117,282 129,483 142,057 158,137
Total equity and liabilities 49,684 61,585 67,832 80,402 85,357 107,741 133,747 147,220 159,366 176,505
Cash flow
CF from operations pre WC 11,589 9,618 12,180 14,541 14,342 22,110 32,823 22,200 23,522 29,465
Working capital (1,209) (371) (2,164) (4,998) (2,183) (2,641) (13,705) 1,227 2,013 (4,974)
Capex (3,957) (3,767) (2,739) (7,331) (11,832) (9,102) (7,132) (10,000) (10,000) (10,000)
FCF 6,422 5,480 7,277 2,212 327 10,367 11,986 13,427 15,535 14,491
Ratios
Gross margin (%) 60.2 61.4 59.6 62.3 60.9 66.7 66.9 61.4 62.1 63.4
EBITDA margin (%) 37.7 35.6 32.6 37.9 33.8 41.0 43.2 31.1 32.3 35.8
RoAE (%) 29.0 22.0 15.5 20.7 19.3 23.9 28.2 15.2 14.2 16.5
RoACE (%) 32.2 26.6 19.4 25.2 22.1 30.2 32.6 16.0 15.9 19.1
Net debt to equity (X) (0.2) (0.3) (0.3) (0.2) (0.1) (0.2) (0.2) (0.3) (0.3) (0.3)
Divis Laboratories
RESULT, CHANGE IN RECO.
Aavas Financiers (AAVAS) ADD

CMP(₹): 1,999 Fair Value(₹): 2,150 Sector View: Attractive NIFTY-50: 17,854 February 05, 2023
A strong quarter Company data and valuation summary

Aavas reported strong performance in 3QFY23 with 23% yoy loan growth,
Stock data
reduction in stressed loans and visible expansion in calculated NIM. With
CMP(Rs)/FV(Rs)/Rating 1,999/2,150/ADD
continuous investments in ensuring scalability, Aavas remains long-term
growth story, deep penetrated in the interiors. Post the sharp stock price
appreciation, we revise rating to ADD from BUY with FV of Rs2,150.
A strong 3Q
Aavas’ core PBT was up 30% yoy and 14% above our estimates – this was driven
7.9
by 32% growth in NII on the back of 23% AUM growth and 51 bps yoy expansion 6.3
in calculated NIM. Per management, AUM growth would have been 26% 3.7
5.3 39.2
(reducing the gap with other affordable HFCs that reported 30%+ growth) but
for last subsidy received from NHB under CLSS. Reported margins (reversing
upfront income on loan assignment) were flat even as calculated NIM were up. 37.6
In the past, Aavas has reported stable reported spreads with lower calculated
NIM; thus, 3Q was quarter of reversion. Asset quality performance was strong
as well – stressed loans were down 42 bps qoq driven by improvement in early Price performance (%)
1933
bucket delinquencies. Nifty AAV AS
Private Circulation Only. This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of
200
Focus on long-term growth 160
Aavas continues to retain focus on making investments in growth. Per 120

management, Aavas carries 40% excess capacity to deliver steady growth, even
80
if they need to tighten screens during downturns. Management takes concerted
40
efforts to build scalability to its business model by constantly investing in
people and systems. The company is implementing Salesforce, Flexcube and 0
Mar-22
May-22
Nov-22
Feb-22
Aug-22
Jan-22
Jan-23
Jun-22
Apr- 22
Oct-22
Sep- 22
Dec -22
Jul-22
Oracle ERP in order to be able to handle significantly higher business volumes;
it will also seek regulatory approvals for adjacent products such as overdraft
facility for MSMEs etc. This will lead to higher opex ratio (3.7% of AUM in Forecasts/Valuations 2023E 2024E 2025E
3QFY23, 3.5% in 3QFY22) to continue for the next four quarters. EPS (Rs) 51.6 62.1 74.1
EPS growth (%) 14.2 20.3 19.3
The board has elevated Sachinder Bhinder as CEO of Aavas. He has been the P/E (X) 38.7 32.2 27.0
P/B (X) 4.9 4.3 3.7
CEO of the Aavas’ MSME business for the past three years. Aavas has applied
BVPS (Rs) 407.4 469.5 543.6
for a separate NBFC license, which was rejected by RBI. Mr Bhinder will take
RoE (%) 13.5 14.2 14.6
over as the CEO to look after the affairs of the company. Sushil Kumar Agarwal Div. yield (%) 0.0 0.0 0.0
will continue to be the MD of the company and look at strategic initiatives. Prior Nll (Rs bn) 8 10 12
to joining Aavas, Mr Bhinder was head of home finance at Kotak Mahindra PPOP (Rs bn) 5 7 8
Bank. Net profits (Rs bn) 4 5 6
Source: Bloomberg, Company data, Kotak Institutional Equities estimates
Revise rating to ADD even as we retain positive stance Prices in this report are based on the market close of
We are tweaking our estimates post the results. We continue to like the Aavas February 03, 2023
growth strong with high conviction in its long -term growth trajectory. However,
post the sharp stock price appreciation (about 15% since our upgrade a month
back), we revise rating to ADD with RGM-based FV of Rs2,150 (4.6X/4X book
and 35X/29X earnings FY2024E/FY2025E, Rs2,100 earlier).
132
Exhibit 1: Aavas Financiers - quarterly results, March fiscal year-end, 3QFY22 (Rs mn)
YoY (%)
3QFY23 3QFY23E 3QFY22 2QFY23 3QFY23E 3QFY22 2QFY23 2023E 2022 YoY (%) 2024E
Revenue from operations 4,113 4,223 3,426 3,948 (3) 20 4 15,739 13,044 21 19,166
Interest income 3,585 3,499 2,830 3,287 2 27 9 13,721 11,288 22 17,105
Fees and commission income 149 149 125 140 0 19 7 562 462 22 702
Net gain on de-recognition of financial assets360 550 452 494 1,400 1,240 13 1,300
Net gain on fair value change 19 25 19 27 (26) (3) (32) 56 53 5 59
Interest expenses 1,504 1,605 1,251 1,410 (6) 20 7 5,833 4,775 22 7,328
Net interest income 2,082 1,893 1,579 1,877 10 32 11 7,888 6,513 21 9,777
Other income 7 4 3 3 76 147 112 12 12 - 12
Total income 2,616 2,621 2,178 2,541 (0) 20 3 9,918 8,281 20 11,850
Operating expenses 1,201 1,145 910 1,147 5 32 5 4,590 3,506 31 5,337
Employee expenses 803 601 772 34 4 2,889 2,322 24 3,304
Fees and commission expense 11 16 23 (31) (51) 74 57 30 93
Depreciation expense 69 57 69 20 (0) 248 238 4 286
Other expenses 318 235 282 35 13 1,378 889 55 1,655
PPOP 1,415 1,477 1,268 1,394 (4) 12 1 5,328 4,775 12 6,513
Provision 35 32 113 16 9 (69) 118 107 226 (53) 230
Profit before tax 1,380 1,448 1,155 1,378 (5) 19 0 5,222 4,549 15 6,283
Taxes 307 326 264 310 (6) 16 (1) 1,149 981 17 1,382
Profit after tax 1,073 1,123 891 1,068 (4) 20 0 4,073 3,568 14 4,901
Core PBT 1,029 906 794 870 14 30 18 3,860 3,469 11 5,143
Tax rate (%) 22.2 22.5 22.9 22.5 -25 bps -62 bps -23 bps 22.0 21.6 44 bps 22.0
Loans 105,528 104,993 84,775 100,818 1 24 5 109,388 90,534 21 134,035
Net assets 125,695 137,153 101,595 118,880 (8) 24 6 126,385 110,204 15 151,177
Borrowings 91,613 100,431 72,291 85,712 (9) 27 7 91,833 79,725 15 111,724
Net worth 31,489 31,437 26,655 30,314 0 18 4 32,159 28,086 15 37,060
Business parameters (Rs mn)
Total AUM 130,887 131,241 106,126 125,437 (0) 23 4 137,630 113,502 21 168,640
Home loans 91,752 92,655 75,986 88,935 (1) 21 3 96,914 81,835 18 119,039
Mortgage loans 39,135 38,586 30,140 36,502 1 30 7 40,716 31,667 29 49,601
Total disbursements 12,025 12,614 9,509 11,467 (5) 26 5 46,829 36,022 30 58,536
Home loans 7,720 7,500 6,337 7,488 3 22 3 31,446 24,567 28 41,508
Mortgage loans 4,305 4,000 3,172 3,979 8 36 8 15,383 11,455 34 17,027
Key ratios (%)
Yield on loans 13.8 13.4 13.3 36 bps 53 bps 13.6 13.5 11 bps 14.0
Cost of borrowings 6.8 7.1 6.7 -29 bps 9 bps 6.8 6.7 13 bps 7.2
Net interest margin 8.0 7.4 7.5 7.6 66 bps 51 bps 44 bps 7.8 7.8 3 bps 8.0
Cost-to-income 45.9 43.7 41.8 45.1 225 bps 414 bps 79 bps 46.3 42.3 394 bps 45.0
Cost-to-average AUM 3.7 3.6 3.5 3.8 18 bps 24 bps 0 bps 3.7 3.4 28 bps 3.5
Credit cost 0.1 0.1 0.4 0.1 1 bps -33 bps 6 bps 0.1 0.2 -13 bps 0.2
Asset quality (Rs mn)
1+ dpd 4.1 6.5 4.5 -240 bps -40 bps
Gross stage-3 1,204 1,473 1,113 (18) 8 1,046 904 16 1,214
Gross stage-3 (%) 1.1 1.7 1.1 -59 bps 4 bps 1.0 1.0 -4 bps 0.9
ECL provisions on stage-3 288 344 265 (16) 9 235 208 13 270
ECL provisions on stage-1 and 2 388 449 385 (14) 1 480 435 10 607
Overall ECL provisions 675 794 649 (15) 4 716 643 11 877
ECL coverage on stage-3 23.9 23.4 23.8 51 bps 10 bps 22.5 23.1 -55 bps 22.3
ECL coverage on stage-1 and 2 0.4 0.5 0.4 -16 bps -1 bps 0.4 0.5 -4 bps 0.5
Overall ECL coverage 0.6 0.9 0.6 -29 bps 0 bps 0.7 0.7 -6 bps 0.7
Write-offs (% of opening AUM) 0.0 0.1 0.0 -5 bps -2 bps 0.0 0.1 -5 bps 0.1
Other key parameters
Branches (#) 321 325 298 321 (1) 8 - 344 314 10 374
Aavas Financiers
133
3QFY23 highlights
 PAT was 20% yoy, 4% below our estimates, the miss was largely on account of lower assignment
income. Core PBT was up 30% yoy and 14% above our estimates.
 NII was up 32% yoy, 10% above estimates, driven by 23% AUM growth and 51 bps yoy expansion in
NIM.
 Aavas received Rs2.9 bn as subsidy from the government, adjusting for this AUM growth was 26%
yoy 7% qoq driven by 26% growth in disbursements
 Yields were up 53 bps qoq to 13.8%, while cost of borrowings were up only 9 bps to 6.8% leading
to 44 bps qoq to 8%.
 Operating expenses were up 32% yoy leading to cost to AAUM ratio inching up 24 bps yoy (flat qoq).
 Stressed loans were down 23 bps qoq driven by improvement in early bucket delinquencies.
 Credit cost was moderate at 11 bps (up 6 bps qoq).
Footprint expansion to support growth

We expect disbursements to remain strong for Aavas. Further pick-up in business expansion (branch
additions likely to pick up pace incrementally) will support overall growth. Most affordable housing
finance companies have guided a strong pipeline for FY2023E. We expect the housing loan growth to
pick up over FY2024-25E at 23% compared to 20-22% growth on the mortgage business, driving about
22% AUM CAGR during the period. Over the medium term, we expect strong traction in disbursements
led by (1) increasing penetration in existing geographies (addition of ~90-100 branches over the next
five years) and (2) footprint expansion in new states (entered Odisha and Karnataka in CY2021) led by
opening of ~50-60 branches over the next five years.
We model 22% AUM CAGR over FY2022-25E

Exhibit 2: AUM, March fiscal year-ends, 2017-2025E
(Rs bn) AUM (LHS) YoY (RHS) (%)

225 150
180 120
135 90
60
90 51 60
46
31
21 20 21 23 23
45 30
27 41 59 78 95 114 138 169 207

- -
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
Aavas Financiers
134
Disbursements growth to remain strong at 23-25% over FY2024- Repayment rate to stabilize at ~20%
25E Exhibit 4: Repayment rate, March fiscal year-ends, 2014-2025E
Exhibit 3: Disbursements, March fiscal year-ends, 2014-2025E
Overall repayment rate (LHS)
Disbursements (LHS) (%) Home loan repayment rate (RHS) (%)
(Rs bn) 35 35
92 96 (%)
75 100 29 25
28 25 25 30
28 22 30
60 75 20 20 20
20
52 21 18 18 25
47
45 50 25 25 23 24 22
32 36 13
30 30 14 20 19 20 20 20 20
25 23
20 20 20
30 25 19 17
10 7 18 18 15
13
15 (9) -
- 10
3 5 11 14 21 27 29 27 36 47 59 72
2023E
2024E
2025E
2016
2017
2020
2021
2014
2015
2018
2019
2022
- (25)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2025E
2024E
AUM mix to remain broadly stable

Exhibit 5: AUM mix, March fiscal year-ends, 2014-2025E (%)
(%) Home loan Mortgages
100
6 12
18 22 24 27 27 28 30 29 29
80
60
100
94 88
40 82 78 76 74 74 72 70 71 71
20
-
2023E
2024E
2025E
2015
2016
2017
2022
2014
2018
2019
2020
2021
NIMs to remain stable at 7.9-8.0% over the medium term

While overall yields were flat qoq, core yields inched up 43 bps qoq due to lending rate hikes. Cost of
borrowings inched up marginally by 9 bps qoq to 6.8% in 3QFY23. We expect the yields to remain flat in
4QFY23E and cost of borrowings to inch up 8 bps qoq leading to NIM of 7.9% (8% in 3QFY23). We expect
NIM to remain range-bound at 7.9-8% over the medium term as the interest rates stabilize.
Aavas Financiers
135
Exhibit 6: Core NIM calculation, March fiscal year-ends, 1QFY22-3QFY23 (Rs mn)
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 YoY (%)
Overall interest income 2,630 2,787 3,282 3,041 3,365 3,781 3,945 20.2
Interest on loans (including processing fees) 2,668 2,827 2,864 3,097 3,200 3,358 3,635 26.9
Interest income of fixed deposits 142 144 175 174 197 198 237 35.7
Reversal of income on ealier assigned loans (180) (184) (209) (231) (248) (269) (287) 37.7
Upfronting Income on Fresh Assigned Loans 452 217 494 360 (20)
Interest expenses 1,128 1,160 1,267 1,237 1,347 1,410 1,504 18.7
NII 1,502 1,627 2,015 1,804 2,019 2,370 2,442 21.2
Core yields (%) 13.9 14.0 13.6 14.0 13.6 13.6 14.0 40 bps
Yields (%) 14.6 14.8 14.4 14.8 14.5 14.4 14.9 48 bps
Calculated overall yields 13.7 13.8 13.4 13.8 14.3 15.3 15.2 175 bps
Core NIM (%) 8.0 8.3 7.6 8.4 7.9 7.9 8.2 62 bps
NIM (%) 8.7 9.0 8.4 9.2 8.7 8.7 9.1 71 bps
Calculated NIM (%) 7.8 8.1 7.4 8.2 7.7 7.6 8.0 59 bps
Stable NIM of 7.9-8.0% over the medium term

Exhibit 7: Yields, cost of borrowings and NIM, March fiscal year-ends, 2014-2025E (%)
Core yield on loans (LHS) Cost of borrowings (LHS)
(%) Spread (RHS) NIM (RHS) (%)
17.5 10
8.4
7.9 7.8 7.8 8.0 7.9
7.3 7.5
14.0 6.9 7.0 7.2 8
6.7
5.9 6.1 6.1 6.0 6.0
5.3 5.4 5.6
10.5 5.2 5.2 6
14.1 4.0
7.0 3.2 4
11.5
10.1 9.9 8.9 8.0 7.9
3.5 7.8 7.2 7.2 2
6.7 6.8
17.3 15.5 15.3 15.1 14.3 13.9 13.5 13.1 12.8 12.9 13.2 13.2
0.0 0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E

 Gross stage-3 up 4 bps qoq. Gross stage-3 loans inched up marginally by 4 bps to 1.1% in 3QFY23.
Adjusting for the impact of RBI circular, gross stage-3 loans were flat qoq at 0.94%. The impact of RBI
circular has narrowed to 19 bps in 3QFY23 from 89 bps in 3QFY22.
 Gross stage-2 down 25 bps qoq. Gross stage-2 loans declined 25 bps qoq to 2.1%, this includes 1.1%
restructured loans, which were down 5 bps qoq.
 Credit cost moderate at 11 bps. Write-offs were low at 3 bps, overall ECL coverage was flat qoq at 64
bps leading to moderate credit cost of 11 bps in 3QFY23.
 1+ dpd declined 40 bps qoq to 4.0%, higher than 3% pre-Covid.
Credit cost to moderate going ahead

We expect write-offs to remain low at 5 bps given the improvement in asset quality. But as the
momentum of business continues, credit cost will normalize to ~15 bps over FY2024-25E. We expect
gross stage-3 loans to be restricted to <1% of AUM.
Aavas Financiers
136

Exhibit 8: Stressed loans for peers, March fiscal year-ends, 1QFY22-3QFY23, 2019-2022 (%)
Change
3QFY22 2QFY23 YoY
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 (bps) (bps) 2019 2020 2021 2022 (%)
Aavas Financier
1+ dpd (1) 12.7 8.9 6.5 4.5 4.7 4.5 4.1 (240) (40) 3.4 2.4 6.4 4.5 (190)
SMA-0 (0-30 dpd) 4.6 1.8 0.8 0.5 1.1 1.0 0.8 1 (19) 2.5 0.5 (196)
Gross stage-2 loans (30-90 dpd, 2) 6.9 6.1 3.9 3.0 2.5 2.4 2.1 (182) (25) 1.6 1.0 2.9 3.0 5
Restructured loans 1.5 1.8 1.8 1.5 1.2 1.2 1.1 (63) (5) 1.5
Gross stage-3 loans (3) 1.1 1.0 1.7 1.0 1.1 1.1 1.1 (59) 4 0.5 0.5 1.0 1.0 2
ECLGS (% of AUM, 4) 0.2 0.1 0.1 0.1 0.1 0.1 0.1 (3) (0) — — 0.0 0.1 12
Write-offs (% of opening AUM, annualized, 5) 0.0 0.0 0.1 0.2 0.0 0.0 0.0 (5) (2) 0.1 0.1 0.1 — (11)
Overall stressed loans (6:1+4+5) 12.8 9.1 6.7 4.8 4.8 4.6 4.2 (248) (42) 3.5 2.5 6.5 4.6 (189)
Stressed loans (excluding 0-30 dpd, 7: 2+3+4+5) 8.1 7.1 5.7 4.1 3.6 3.5 3.3 (246) (23) 2.2 1.6 4.0 4.1 7
Aptus Value Housing
Collection efficiency (%) 95.0 99.7 98.3 103.1 101.2 100.2 100.3 203 10
30+ dpd 11.0 10.1 12.3 9.9 6.5 6.3 6.3 (600) (5) 2.4 4.7 8.7 400
Gross stage-2 (8) 9.9 9.3 10.7 8.7 4.7 5.0 4.8 (592) (21) 1.3 3.1 9.0 590
Restructured loans under stage-2 — 1.6 1.3 1.2 1.1 1.1 1.1 — — —
Gross stage-3 (9) 1.1 0.8 1.5 1.2 1.7 1.5 1.4 (9) (2) 0.4 0.4 0.4 —
Write-offs (% of opening AUM, 10) (0.1) (0.0) (0.1) 1.0 0.0 0.0 0.1 18 5 0.0 0.0 (0.0) (1)
Stressed loans (excluding 0-30 dpd, 11:8+9+10) 10.9 10.1 12.1 10.9 6.5 6.5 6.3 (582) (18) 2.4 4.7 8.7 400
Home First Finance
Bounce rate 18.3 16.5 15.7 14.5 14.0 15.6 14.9 (80) (70)
1+ dpd 8.9 7.6 6.5 5.3 5.0 4.7 4.4 (209) (34) 6.2 5.3 (92)
Gross stage-1 94.2 94.8 95.3 96.3 96.5 96.7 97.0 176 29 98.3 98.0 95.9 96.3 49
Current 91.1 92.4 93.5 94.7 95.0 95.3 95.6 209 34 93.8 94.7 92
1-29 dpd (12) 3.1 2.4 1.8 1.6 1.5 1.5 1.4 (33) (5) 2.1 1.6 (43)
Gross stage-2 (13) 3.8 3.5 2.2 1.3 1.4 1.3 1.2 (99) (14) 0.9 0.9 2.3 1.3 (98)
Gross stage-3 (14) 1.9 1.7 2.6 2.3 2.1 1.9 1.8 (77) (14) 0.8 1.0 1.8 2.3 49
Write-offs (% of opening AUM, 15) 1.2 0.1 0.7 0.2 0.4 0.1 0.2 (52—) 13 0.1 0.1 0.4 0.6 20
Overall stressed loans (16:12+13+14+15) 10.1 7.7 7.2 5.5 5.3 4.8 4.6 (261) (20) 6.6 5.9 (72)
Stressed loans (excluding 1-29 dpd, 17:16-12) 7.0 5.3 5.4 3.8 3.9 3.3 3.2 (229) (15) 1.8 2.0 4.5 4.2 (29)
Shriram Housing
1+ dpd (18) 10.4 8.2 7.3 5.4 5.3 4.8 4.6 (268) (21) 7.2 5.4 (189)
0-30 dpd (19) 3.9 3.0 3.1 2.4 2.5 2.1 2.4 (69) 33 2.4 2.4 4
Gross stage-3 (20) 2.3 1.9 2.5 1.7 1.6 1.5 1.2 (132) (37) 2.8 2.4 1.9 1.7 (15)
Standard restructured loans (21) 0.6 0.6 0.6 0.6 0.6 0.6 0.6 — 0.6
Write-offs (% of opening AUM, 22) (0.3) (0.2) 0.3 (0.1) 0.3 (0.1) 0.7 44 89 2.4 1.4 0.3 — (33)
Overall stressed loans (23:18+21+22) 10.7 8.6 8.2 5.8 6.2 5.3 6.0 (224) 68 7.6 5.9 (162)
Stressed loans (excluding 0-30 dpd, 24:23-19) 6.8 5.7 5.1 3.4 3.6 3.2 3.6 (155) 35 13.4 8.1 3.7 3.6 (12)
Aavas Financiers
137
Gross stage-3 loans have peaked Sharp qoq decline in 1+ dpd ratio
Exhibit 9: GNPL, March fiscal year-ends, 2013-2025E (%) Exhibit 10: 1+ dpd, March fiscal year-ends, 2014-2022, 1QFY23-
3QFY23 (%)
(%) GNPL/gross stage 3
1.50 (%) 1+ dpd
15 14.51
1.20
0.980.990.95
0.90 12
0.85
0.90
0.63 9
0.510.48 0.460.470.46 6.17 6.34 6.37
0.60
5.05 4.77
0.27
6 4.47 4.67 4.454.05
0.22 3.43
0.30 2.43
3
0.00
0
2023E
2024E
2025E
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1QFY23
2QFY23
3QFY23
2014
2015
2016
2017
2018
2019
2020
2021
2022
Provisions to dip in FY2023E before rising to Rs283 mn We model muted credit cost during the medium term
Exhibit 11: Provisions, March fiscal year-ends, 2013-2025E Exhibit 12: Credit cost, March fiscal year-ends, 2013-2025E
(bps)
(Rs mn) Provisions (LHS) YoY (RHS) (%)
400 244 280 Credit cost (bps of AUM)
50
320 210 43
142 40 38 37
136
116 34
240 140 31
99
72 30
160 43 70 22 22
27 23 18
20 15 15
80 (39) - 8
(53) 10 8
(61)
8 10 23 47 67 26 89 153371226107230283
- (70)
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
2023E
2024E
2025E
2018
2019
2020
2021
2022
2014
2015
2016
2017

Aavas Financiers
138
Overall ECL coverage to remain stable at 65 bps

Exhibit 13: Asset quality details, March fiscal year-ends, 2018-2025E
2018 2019 2020 2021 2022 2023E 2024E 2025E

Loans mix (Rs mn)
Gross stage 3 155 223 284 739 904 1,046 1,214 1,407
Gross stage 1 and 2 33,261 47,150 61,735 74,990 90,274 109,058 133,698 164,122
Loans mix (%)
Gross stage 3 0.5 0.5 0.5 1.0 1.0 1.0 0.9 0.9
Gross stage 1 and 2 99.5 99.5 99.5 99.0 99.0 99.1 99.1 99.2
ECL coverage (Rs mn)
Stage 3 25 49 74 201 208 235 270 310
Stage 1 and 2 57 79 137 294 435 480 607 766
Overall ECL 82 128 211 496 643 716 877 1,076
ECL coverage (%)
Stage 3 16.0 21.8 26.0 27.2 23.1 22.5 22.3 22.0
Stage 1 and 2 0.17 0.17 0.22 0.39 0.48 0.44 0.45 0.47
Overall 0.24 0.27 0.34 0.65 0.71 0.65 0.65 0.65
Credit cost (% of AUM)
Credit cost 0.08 0.18 0.22 0.43 0.22 0.08 0.15 0.15
Provision for loans 0.01 0.07 0.10 0.32 0.13 0.05 0.10 0.10
Write-offs 0.07 0.11 0.12 0.11 0.08 0.03 0.05 0.05
Cost ratios to peak in FY2023E
Opex was elevated due to (1) higher employee expenses driven by hiring at senior levels, (2) higher
collection-related spends and (3) investment in technology initiatives. These drivers will continue to
hike up the operating expenses by 15% yoy in 4QFY23E leading to elevated cost-to-AAUM ratio of
3.7% in FY2023E (3.7% in 3QFY23) moderating to 3.4% by FY2025E as operating leverage kicks in .
Operating expense growth to moderate to 16-20%in FY2024-25E from 31-37% during FY2022-23E
Exhibit 14: Operating expenses, March fiscal year-ends, 2013-2025E
(Rs mn) Operating expenses (LHS) YoY (RHS) (%)

5,000 150
131
117
4,000 108 120
3,000 90
63
2,000 60
40 37
31
1,000 21 20 30
15 16
12
69 160 224 466 758 1,645 1,890 2,296 2,566 3,506 4,590 5,337 6,387
- -
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Aavas Financiers
139
Improving operating leverage to drive reduction in cost ratios We bake in muted employee expense growth over the medium
Exhibit 15: Cost ratios, March fiscal year-ends, 2014-2025E (%) term
Exhibit 16: Employee expenses, March fiscal year-ends, 2019-
Cost-to-income (LHS) Cost-to-average AUM (RHS)
2025E
75 5.5 6.0
Employee expense yoy (LHS)
4.9
Employees yoy (LHS)
60 4.8 Cost per employee (RHS)
(%) (Rs mn)
3.8 50 0.80
3.6 3.7 3.5 3.7 3.5
3.4
3.3 3.4
45 3.0 3.6
40 0.70
30 60.6 2.4 0.6
54.6
46.5 44.3 42.3 46.3 45.0 45.1 30 0.60
41.7 41.5 42.0 39.7 0.5
15 1.2 0.5
44
20 0.50
0.4
0 0.0
0.4 0.4 24
2023E
2024E
2025E
2015
2016
2017
2018
2022
2014
2019
2020
2021
10 0.40
0.3 16
52 25 17 35 24 14 2 18 2
- 0.30
Source: Company, Kotak Institutional Equities estimates 2019 2020 2021 2022 2023E 2024E 2025E
Exhibit 17: Change in estimates, March fiscal year-ends, 2023-2025E

New estimates (Rs mn) Old estimates (Rs mn) Change (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
AUM (Rs bn) 138 169 207 141 172 211 (2) (2) (2)
YoY (%) 21 23 23 24 22 23 -263 bps 26 bps 17 bps
NIM (%) 7.8 8.0 7.9 7.6 7.7 7.7 19 bps 27 bps 25 bps
Interest income 13,721 17,105 20,837 13,873 17,879 21,901 (1) (4) (5)
Interest expenses 5,833 7,328 8,957 6,088 8,239 10,177 (4) (11) (12)
NII 7,888 9,777 11,880 7,785 9,640 11,723 1 1 1
Assignment income 1,400 1,300 1,350 1,400 1,300 1,350 — — —
Other operational income 618 761 926 626 772 939 (1) (1) (1)
Other income 12 12 12 12 12 12 — — —
Total income 9,918 11,850 14,168 9,824 11,724 14,024 1 1 1
Operating expenses 4,590 5,337 6,387 4,492 5,220 6,241 2 2 2
Employee expenses 2,889 3,304 3,884 2,889 3,304 3,884 — — —
Other expenses 1,701 2,033 2,502 1,603 1,917 2,357 6 6 6
PPOP 5,328 6,513 7,781 5,331 6,503 7,783 (0) — (0)
Provisions 107 230 283 122 233 287 (13) (1) (1)
PBT pre extraordinaries 5,222 6,283 7,498 5,209 6,270 7,496 — — —
PBT 5,222 6,283 7,498 5,209 6,270 7,496 — — —
Tax 1,149 1,382 1,649 1,146 1,379 1,649 — — —
PAT 4,073 4,901 5,848 4,063 4,891 5,847 — — —
Core PBT 3,860.5 5,142.5 6,357.5 3,863.6 5,132.6 6,359.4 (0) — (0)
EPS (Rs) 52 62 74 51 62 74 — — —
BVPS (Rs) 407 469 544 407 469 543 — — —
Cost-to-income (%) 46.3 45.0 45.1 45.7 44.5 44.5 55 bps 51 bps 58 bps
Cost-to-average AUM (%) 3.7 3.5 3.4 3.5 3.3 3.3 12 bps 14 bps 14 bps
ROA (%) 2.8 2.9 2.9 2.8 2.8 2.8 4 bps 6 bps 5 bps
ROE (%) 13.5 14.2 14.6 13.5 14.1 14.6 3 bps 2 bps 0 bps
Core PBT ratio (%) 2.7 3.0 3.1 2.7 3.0 3.1 3 bps 6 bps 5 bps
Aavas Financiers
140
Exhibit 18: Aavas - key growth rates and ratios, March fiscal year-ends, 2020-2025E
2020 2021 2022 2023E 2024E 2025E
Key income statement growth rates (%)
Operational revenues 27 22 18 21 22 21
Interest income 32 24 16 22 25 22
Other operational revenues (0) 9 38 15 2 10
Net interest income 27 20 26 21 24 22
Net operational income 20 18 28 20 20 20
Other income (20) 170 (44) — — —
Total income 20 18 28 20 19 20
Operating expenses 21 12 37 31 16 20
Employee expenses 25 17 35 24 14 18
Other expenses 15 2 40 44 20 23
PPOP 19 23 22 12 22 19
Provisions 72 142 (39) (53) 116 23
PBT 17 17 29 15 20 19
PAT 42 16 23 14 20 19
Core PBT 34 27 16 11 33 24
Key balance sheet and other item growth rates (%)
Cash and bank balances 76 (6) 37 (14) 0 5
Loans 31 22 20 21 23 23
Other assets 28 11 38 (11) 3 3
Net assets 36 17 23 15 20 21
Borrowings 47 19 26 15 22 23
Other liabilities 52 2 12 — — —
Total liabiities 47 18 25 15 21 22
Shareholders' funds 14 14 17 15 15 16
AUM 31 21 20 21 23 23
Disbursements 10 (9) 36 30 25 23
Core yields (% of loans on-balance sheet) 13.5 13.1 12.8 12.9 13.2 13.2
Yield on advances (% of loans on-balance sheet) 14.4 14.2 13.5 13.6 14.0 13.9
Cost of borrowings 7.9 7.8 6.7 6.8 7.2 7.2
Core NIM (% of loans on-balance sheet) 7.0 6.4 7.0 7.1 7.3 7.3
NIM (% of loans on-balance sheet) 7.9 7.5 7.8 7.8 8.0 7.9
Cost-to-income 42.0 39.7 42.3 46.3 45.0 45.1
Cost-to-average AUM 3.3 3.0 3.4 3.7 3.5 3.4
Credit cost 0.2 0.4 0.2 0.1 0.2 0.2
Key asset quality ratios (%)
Gross stage 3 mix 0.5 1.0 1.0 1.0 0.9 0.9
ECL coverage on stage 3 loans 26.0 27.2 23.1 22.5 22.3 22.0
ECL coverage on stage 1 and 2 loans 0.2 0.4 0.5 0.4 0.5 0.5
Overall ECL coverage 0.3 0.7 0.7 0.7 0.7 0.7
Aavas Financiers
141
Exhibit 19: Aavas - financial summary, March fiscal year-ends, 2020-2025E

2020 2021 2022 2023E 2024E 2025E
Operational revenues 9,023 11,032 13,044 15,739 19,166 23,113
Interest income 7,864 9,764 11,288 13,721 17,105 20,837
Interest on loans 7,368 8,994 10,647 12,940 16,228 19,896
Direct incremental cost 265 246 415 445 556 684
Others 7,103 8,748 10,232 12,495 15,671 19,212
Fee and commission income 333 366 462 562 702 864
Net gain on fair value change 60 39 53 56 59 62
Assignment income 766 864 1,240 1,400 1,300 1,350
Other operational revenues 0 0 - - - -
Interest expense 3,561 4,582 4,775 5,833 7,328 8,957
Net interest income 4,304 5,182 6,513 7,888 9,777 11,880
Net operational income 5,462 6,449 8,269 9,906 11,838 14,156
Other income 8 22 12 12 12 12
Total income 5,470 6,471 8,281 9,918 11,850 14,168
Operating expenses 2,296 2,566 3,506 4,590 5,337 6,387
Employee expenses 1,471 1,721 2,322 2,889 3,304 3,884
Depreciation expenses 196 206 238 248 286 326
Other expenses 630 639 946 1,453 1,747 2,176
PPOP 3,174 3,905 4,775 5,328 6,513 7,781
Provisions 153 371 226 107 230 283
On loans 115 335 147 73 161 199
Write-offs 39 37 79 34 69 84
PBT pre extraordinary items 3,020 3,533 4,549 5,222 6,283 7,498
Extraordinary items - - - - - -
PBT 3,020 3,533 4,549 5,222 6,283 7,498
Taxes 529 638 981 1,149 1,382 1,649
PAT 2,491 2,895 3,568 4,073 4,901 5,848
Core PBT 2,340 2,981 3,469 3,860 5,143 6,357
Tax rate (%) 18 18 22 22 22 22
EPS (Rs) 31 37 45 52 62 74
BVPS (Rs) 265 306 356 407 469 544
Cash and cash equivalents 3,502 219 423 444 466 490
Banks balances and others 8,418 10,991 14,879 12,647 12,647 13,280
Investment 45 45 675 50 50 50
Loans 61,808 75,233 90,534 109,388 134,035 164,453
Property, plant and equipment 270 251 269 341 396 456
Intangible assets 49 39 58 40 40 40
Other assets 2,488 2,824 3,365 3,474 3,542 3,612
Net assets 76,580 89,600 110,204 126,385 151,177 182,380
Borrowings 53,520 63,454 79,725 91,833 111,724 137,079
Provisions 83 37 40 40 40 40
Other liabilities 1,998 2,095 2,352 2,352 2,352 2,352
Total liabilities 55,601 65,586 82,117 94,226 114,117 139,472
Share capital 783 785 789 789 789 789
Reserves and surplus 20,196 23,229 27,297 31,370 36,271 42,119
Shareholders' funds 20,979 24,014 28,086 32,159 37,060 42,908
Net liabilities and shareholders' funds 76,580 89,600 110,204 126,385 151,177 182,380
AUM mix (Rs bn)
Loans on-balance sheet 62,019 75,729 91,177 110,104 134,912 165,529
Assigned loans 15,942 18,814 22,325 27,526 33,728 41,382
AUM 77,961 94,543 113,502 137,630 168,640 206,911
Home loans 57,301 69,489 81,835 96,914 119,039 147,117
Mortgage loans 20,660 25,054 31,667 40,716 49,601 59,794
Aavas Financiers
UPDATE
India
Sector View: Attractive NIFTY-50: 17,854 February 06, 2023
AIF regulations: Between a light touch and a heavy hand

The SEBI’s proposed rule changes to AIFs is expected to introduce more
discipline to protect investor interests – a logical outcome given the current
scale of the industry in comparison to highly regulated mutual funds. 360 One
(IIFLW), which has a large exposure to AIFs, is likely well-placed to manage
this transition. The head start on building a fee-only advisory platform
improves its relative positioning amongst peers.
SEBI launches series of consultations on the AIF space

The SEBI has put out a number of proposals for consultations relating to
alternative investment funds (AIFs). These include: (1) moving to trail commission
for category-III (largely long-only funds) and allowing up to one-third commissions
upfront for category-I&II funds; (2) introducing direct plan for AIFs; (3) providing
option to AIFs to carry forward unliquidated investments at revised valuations; (4)
dematerialization of AIF units; and (5) investor consent for AIFs dealing with their
associates while buying or selling investments.
Shift to trail commissions on expected lines and partly removes arbitrage
Moving AIFs to trail-based commissions follows a similar shift for mutual funds in
2019 and PMS in 2020. AIF distribution was significantly more remunerative for
distributors (4-5% commissions), leading to concerns of mis-selling. The SEBI has
tried to balance investor interests with over-regulation (AIFs is considered to be a
product for sophisticated investors) by proposing full trail only for category-III,
which has overlap with traditional long-only style, while allowing up to one-third
trail for VC/PE-type of funds.
AIFs have grown large; challenges with redemption cycle need to be addressed
While the SEBI introduced AIF regulations in 2012, the industry has grown
exponentially (~50% CAGR) after 2017 with commitments of ~Rs7 tn and
investments of ~Rs3 tn – this compares with ~Rs20 tn of equity MF assets. Nearly
~55% of ~880 AIF as of FY2022 were registered in the last four years. The SEBI
has been receiving requests for extensions beyond the permitted two years due to
issues such as liquidity, etc. This has been addressed by proposing that the fund
can roll over its assets by establishing a price by seeking bids for at least 25% of
its unliquidated investments and acceptable to 75% of investors by value.
360 One: Well-placed for transition; advisory platform gains more importance
While we await more detailed color from management, we believe the proposed
regulations are unlikely to be disruptive for IIFL Wealth (Exhibit 1 for AUM break-
up). Key points (1) distribution side of the business is almost fully trail-based
already; (2) the introduction of direct plans may see clients preferring to buy
directly, but wealth clients generally tend to have much deeper engagement versus
mutual funds – this shift, if any, will play out over a longer time-frame; (3) fund
distribution back to investors is not yet a major constraint as a large part of the
fund-raising occurred after 2017. 360 One’s (previously IIFL Wealth) early foray into
building an advisory platform that removes the dependence on commission will
likely put the business on a stronger footing among wealth managers, with the
potential to attract higher vintage relationship managers to its platform.
Abhijeet Sakhare Nischint Chawathe M B Mahesh, CFA Ashlesh Sonje, CFA Varun Palacharla
143
AIFs have grown exponentially in the last few years

AIFs – commitments, funds raised and investments made, March fiscal year-ends, 2013-23 (Rs bn)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Jun-22
Commitments raised
Category-I 4 63 87 106 206 280 335 388 446 534 581
Category-II 10 61 121 241 517 1,058 2,054 2,608 3,566 5,192 5,619
Category-III 1 7 19 42 120 313 433 482 500 688 745
Total 14 131 226 389 843 1,651 2,821 3,478 4,512 6,414 6,945
Funds raised
Category-I 0 4 19 40 78 108 138 176 244 290 324
Category-II 4 29 59 145 247 505 836 1,127 1,620 2,235 2,403
Category-III 1 7 17 41 85 240 369 414 437 614 662
Total 5 40 95 227 410 853 1,342 1,717 2,300 3,139 3,389
Investments made
Category-I 0 2 10 28 58 82 109 139 186 238 258
Category-II 3 25 49 115 211 340 681 924 1,401 1,995 2,204
Category-III 0 5 15 39 82 192 308 358 418 608 651
Total 4 32 74 182 351 614 1,098 1,421 2,005 2,841 3,113
Source: SEBI, Kotak Institutional Equities
IIFLW’s AUM is well-diversified with low exposure to upfront commission assets

Exhibit 2: IIFLW AUM break-up, December 2022 (%)
IIFL One
15%
Brokerage assets
36%
AMC
22%
Trail-fee based
Upfront-fee assets assets
4% 23%
Key excerpts from SEBI’s proposals (emphasis added by us)
1. Trail-based commissions
 Industry feedback suggests that at least in some cases, the quantum of upfront commissions for AIF
distribution has gone up to around 4%-5% of committed amount. Such high upfront commissions,
particularly in sharp contrast to the trail commissions for other products, increase the chances of mis-
selling of AIF schemes.
 It is recommended that in case of Category III AIFs, which are somewhat more directly comparable
with mutual funds/PMS, investors may be charged placement fee/distribution fee on a trail basis.
 In the case of Category I and Category II AIFs, investors may also be charged on a trail basis; however,
certain higher amount of distribution fee (viz: one-third of the present value of the total distribution
fee) may be paid upfront in the first year. This is to acknowledge the need for some reasonable
incentives to ensure the flow of savings into private capital markets.
India Research
144
2. Introducing direct plan for AIFs
 AIF regulations permits AIFs to raise funds from investors only on a private placement basis. An
investor may also invest in an AIF through a SEBI-registered Investment Adviser or Portfolio Manager.
 Investors who look to invest in an AIF through an Investment Adviser or Portfolio Manager are prone
to be charged twice, once in the form of Investment Adviser’s advisory fee or Portfolio Manager’s
portfolio management fee, and separately via the AIF distribution fee.
 To address this issue of potential double charge to the investors, a proposal to mandate AIFs to offer
the option of direct plan to investors was placed before AIPAC. AIPAC deliberated and recommended
the proposal.
3. Carry forward of unliquidated investments
 The SEBI has, in the recent past, received requests/intimation from a few AIFs regarding extension of
the tenure of their schemes, citing reasons such as lack of liquidity and legal/regulatory impediments.
 In this context, sample data collected by the SEBI for expiry of the tenure of schemes of AIFs suggests
that the two-year extension period for 24 schemes of AIFs with a valuation of Rs30 bn will expire in
FY2024. Further, the tenure of another 43 schemes with a valuation of Rs135 bn will expire in FY2025.
 In light of this, the SEBI is now considering whether an additional option may be provided to AIFs and
their investors to carry forward unliquidated investments of a scheme beyond the currently allowed
extended tenure.
 At the same time, there is a clear regulatory and financial stability objective of ensuring proper
recognition and disclosure of true asset quality, liquidity, and fund performance by AIFs/Managers.
Repeated extensions should not become a means to delay such recognition.
 A full closure of the scheme, recognition of the true asset value, and re-opening of a fresh fund at that
value would satisfy both objectives of providing additional flexibility to investors/funds, while ensuring
disclosure and tracking of true asset value and fund performance.
 Proposal: At the end of tenure of a scheme beyond two years and at the end of extended tenure of
large value funds, the AIF/manager may close the existing scheme and transfer the unliquidated
investments to a new scheme, subject to obtaining consent of 75% of investors by value.
 With a view to establish a reliable market price and closing valuation, the AIF/manager must
arrange bids for a minimum of 25% of the unliquidated investments to provide exits to the investors
who do not wish to continue in the new scheme. The AIF/manager shall offer pro-rata exit to all
participating investors who choose to redeem their units through this option.
 The value at which the aforementioned exit is proposed to be provided to such investors, along
with the valuation carried out by two in dependent valuation agencies, shall be disclosed to all
investors.
 In case such fresh bids for a minimum of 25% of unliquidated investments cannot be arranged, the
closing valuation of the scheme will be based on the liquidation value as determined under IBBI
(Insolvency Resolution Process for Corporate Persons) Regulations, 2016, or other applicable IBC
norms.
India Research
UPDATE
Real Estate
India
Sector View: Attractive NIFTY-50: 17,854 February 06, 2023
Taxing times
The Union Budget amended the Finance Bill to tax distributions by REITs in
the form of repayment of capital in the hands of the unit holders at the
marginal rate of tax. Previously, distributions in the form of dividends and the
repayment of capital were not taxable in the hands of the unit holder, while
payment in the form of interest was taxable. While the debate on the
applicable marginal tax rate for the repayment of capital continues, managers
of REITs are likely to make representations to the government on the
proposed amendment. Among the listed REITs, Embassy and Brookfield pay
as much as 40-50% of their distributions in the form of repayment of capital,
which would impact the post-tax yield by 60-150 bps, depending on the
category of the investor.
Taxation of repayment of capital will impact post-tax yields by 60-150 bps

The tax on the repayment of capital will impact the post-tax yields of Embassy
and Brookfield by 63/74 bps in the hands of foreign portfolio investors and 127-
148 bps in the hands of high-net-worth individuals, while mutual funds will have
no impact on post-tax yields. Mindspace, which has large accumulated profits
and consequently an ability to pay a higher dividend, is not impacted by the
proposed changes in the near term. Our interactions with managers of REITs
suggest representations to the government to consider the impact on post-tax
yields and the limitations of regulations to pay out a higher dividend.
Net distributable cash flows and the limitation of dividend payouts

Our interactions with industry participants highlight the dichotomy in the
definition of distributable income between REIT regulations and the Companies
Act. While the former requires distribution of cash profit, the latter allows
payment of dividends to the extent of accounting profits (current and
accumulated), which is post depreciation. The restrictions of the Companies
Act prevent REITs from distributing a higher proportion of “dividend” primarily
on account of depreciation, and therefore, requires the project SPVs to
repatriate funds in the form of interest on borrowed money from the trust
and/or repayment of capital.
The contention of the tax authorities is that while dividend is paid from post-tax
income and interest is taxable in the hands of the unit holders, distributions in the
form of repayment of capital went entirely untaxed. Accordingly, they proposed to
tax distribution in the form of repayment of capital in the hands of the unit holders
at the marginal tax rate. The debate on the applicable tax rate for repayment of
capital in the case of foreign portfolio investors continues, as both interest and
capital gain get the benefit of various tax treaties, but the classification of
repayment of capital may not fall under this bracket.
Murtuza Arsiwalla Abhishek Khanna

146
Mindspace pays out a high proportion of dividend in distributions

Exhibit 1: Composition of distribution among the various REITs and InVITS
Dividend Interest Capital
100
9 10
90 15
80
45
50
70
60
50 13 81
91
40 85
30
48
20 42
10
9
0 2
Embassy Mindspace Brookfield Powergrid Indigrid
Note: Composition is on the basis of 3QFY23, barring Brookfield which is on the basis of 2QFY23 distribution.
Mindspace REIT is not immediately impacted by the proposed changes in tax structure
Exhibit 2: Impact on distributable income of various REITs and InVITs
Embassy Mindspace Brookfield Powergrid Indigrid
Distribution (Rs/unit) 3QFY23 3QFY23 2QFY23 3QFY23 3QFY23
Dividend 2.2 4.4 0.1 0.3 —
Interest 0.7 0.4 2.4 2.4 2.8
Capital 2.4 — 2.6 0.3 0.5
Distribution (Rs/unit) 5.3 4.8 5.1 3.0 3.3
CMP 302 320 278 121 134
Pre-tax yield (%) 7.0 6.0 7.3 9.9 9.9
Post-tax (Pre-budget)
MF 7.0 6.0 7.3 9.9 9.9
FPI 7.0 6.0 7.2 9.5 9.5
HNI 6.7 5.8 5.9 6.7 6.5
Post-tax (Post-budget)
MF 7.0 6.0 7.3 9.9 9.9
FPI 6.4 6.0 6.4 9.3 9.2
HNI 5.4 5.8 4.5 6.3 5.9
Impact (bps)
MF — — — — —
FPI 63 — 74 20 30
HNI 127 — 148 40 59
Real Estate
India Research
147
Trading yields do not differentiate sufficiently between taxable component of the distribution
Exhibit 3: Comparable valuations of Embassy, Mindspace and Brookfield, March fiscal year-ends, 2022-25E (Rs mn)
Embassy Mindspace Brookfield Nexus
2022 2023E 2024E 2025E 2022 2023E 2024E 2025E 2022 2023E 2024E 2025E
Valuation
Gross asset value 418,619 420,931 430,161 435,068 231,667 238,473 245,417 252,500 142,682 130,803 133,980 135,215
Net debt 132,630 134,942 144,172 149,079 40,881 47,687 54,631 61,714 49,612 37,733 40,910 42,144
Market cap. 285,989 285,989 285,989 285,989 190,786 190,786 190,786 190,786 93,070 93,070 93,070 93,070
Under-construction 56,684 56,684 56,684 56,684 19,214 19,214 19,214 19,214 9,840 9,840 9,840 9,840
Gross asset value (operating) 372,344 374,656 383,886 388,793 209,827 216,633 223,577 230,660 132,842 120,963 124,140 125,375
Cap. rate
Overall (%) 6.4 7.4 8.4 9.8 6.4 7.5 8.1 8.7 4.7 7.0 7.7 8.0
Operational (%) 7.2 8.3 9.4 11.0 7.1 8.3 8.9 9.5 5.1 7.6 8.3 8.6
NOI (Rs mn) 24,911 28,429 33,350 39,724 14,863 17,924 19,905 21,857 6,730 9,176 10,275 10,840
Adjusted NOI (Rs mn) 26,859 31,051 36,088 42,672 14,863 17,924 19,905 21,857 6,730 9,176 10,275 10,840
NDCF 20,638 17,903 22,355 28,262 10,941 12,407 13,312 13,960 6,884 6,601 7,093 7,066
NDCF (%) 7.2 6.3 7.8 9.9 5.7 6.5 7.0 7.3 7.4 7.1 7.6 7.6
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Real Estate
India Research
148
December 2022: Results calendar
Mon Tue Wed Thu Fri Sat

6-Feb 7-Feb 8-Feb 9-Feb 10-Feb 11-Feb
Adani Transmission Adani Green Energy 3M India Adani Total Gas ABB Balkrishna Industries
LIC Housing Finance Adani Ports and SEZ Adani Power Aurobindo Pharma Abbott India City Union Bank
Muthoot Finance Aditya Birla Fashion and Retail Adani Wilmar Brigade Enterprises Alkem Laboratories
Nuvoco Vistas Corp Ambuja Cements Cummins India Devyani International BHEL
Tata Steel Astral Endurance Technologies GIC Cochin Shipyard
Varun Beverages Bayer CropScience Equitas Small Finance Bank Hindalco Industries Delhivery
Vinati Organics Bharti Airtel Escorts Kubota Hindustan Aeronautics Indigo Paints
Computer Age Management Services Godrej Agrovet HPCL Info Edge
Deepak Nitrite Gujarat Pipavav Port Indian Overseas Bank Lemon Tree Hotels
GlaxoSmithkline Pharma Honeywell Auto IRCTC Mahindra & Mahindra
Gujarat Fluorochemicals Narayana Hrudayalaya Kalpataru Power Transmission National Aluminium Co.
Hero MotoCorp Oberoi Realty KIMS Oil India
Navin Fluorine Restaurant Brands Asia LIC PB Fintech
NHPC Samvardhana Motherson Lupin Rategain Travel
Phoenix Mills Shree Cement MRF
Sobha SKF Page Industries
The Ramco Cements Trent Pfizer
Thermax Uno Minda Rainbow Children's Medicare
Varroc Engineering Sapphire Foods
United Breweries
Voltas
Zomato
13-Feb 14-Feb 15-Feb 16-Feb 17-Feb 18-Feb
Castrol India Apollo Hospitals Nestle India
GSPL Bata India Schaeffler India
Gujarat Gas Bharat Forge
IRFC Biocon
PFC Bosch
Zee Entertainment Enterprises Ipca Laboratories
NMDC
ONGC
PI Industries
Source: BSE, NSE, Kotak Institutional Equities
India Research
149
Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3M
Company Rating 3-Feb-23 (Rs) (%) (Rs bn) (US$ bn) (mn) 2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E (US$ mn)
Automobiles & Components
Apollo Tyres SELL 330 240 (27) 210 2.6 638 14 17 21 36 23 24 24 19 16 8 7 6 1.7 1.6 1.5 7 8 10 1.1 1.2 1.4 16
Ashok Leyland ADD 154 160 4 452 5.5 2,936 3 7 9 516 113 30 46 22 17 19 13 10 5.5 4.8 4.1 12 24 26 0.9 1.8 2.4 20
Bajaj Auto REDUCE 3,853 3,625 (6) 1,115 14 283 202 219 237 22 8 8 19 18 16 14 13 12 4.4 4.2 4.0 22 24 25 4.2 4.5 4.9 14
Balkrishna Industries SELL 2,291 1,650 (28) 443 5.4 193 68 79 84 (8) 15 7 34 29 27 22 17 16 5.7 5.1 4.5 18 18 17 1.1 1.2 1.3 9
Bharat Forge REDUCE 868 810 (7) 404 4.9 466 18 32 40 (20) 75 23 47 27 22 24 16 14 5.6 4.8 4.1 13 19 20 0.7 0.8 0.8 13
CEAT SELL 1,548 1,200 (22) 63 0.8 40 42 85 109 115 102 28 37 18 14 9 7 6 1.9 1.7 1.6 5 10 12 0.8 1.2 1.3 5
Eicher Motors SELL 3,317 2,800 (16) 907 11.1 272 106 124 141 72 17 14 31 27 24 23 20 18 7.1 6.0 5.1 24 24 24 0.8 0.8 0.8 27
Endurance Technologies SELL 1,425 1,280 (10) 200 2.4 141 37 55 68 8 47 24 38 26 21 18 13 11 4.6 4.1 3.5 12 16 17 0.6 0.8 1.0 1
Escorts Kubota SELL 2,077 1,600 (23) 230 3.3 111 54 76 89 (28) 41 17 38 27 23 30 23 19 2.7 2.5 2.3 7 9 10 0.4 0.6 0.6 11
Exide Industries REDUCE 180 175 (3) 153 1.9 850 11 12 13 25 8 10 16 15 14 9 8 7 1.3 1.3 1.2 9 9 9 1.4 1.4 1.4 8
Hero Motocorp REDUCE 2,654 2,600 (2) 530 6.5 200 143 174 190 16 22 9 19 15 14 10 9 8 3.2 3.0 2.8 18 20 21 3.8 4.6 5.0 13
Mahindra CIE Automotive SELL 395 270 (32) 150 1.8 378 19 21 22 75 13 7 21 19 18 12 10 9 2.6 2.4 2.1 13 13 13 — — — 5
Mahindra & Mahindra BUY 1,388 1,435 3 1,726 21.1 1,159 58 66 74 31 15 12 24 21 19 17 14 13 3.6 3.2 2.8 16 16 16 0.6 0.7 0.8 38
Maruti Suzuki SELL 8,942 7,850 (12) 2,701 33.0 302 264 314 357 112 19 13 34 28 25 21 17 15 4.6 4.2 3.8 14 15 16 1.2 1.4 1.6 60
MRF SELL 92,853 66,000 (29) 394 4.8 4 1,693 3,235 4,098 7 91 27 55 29 23 17 11 10 2.7 2.5 2.2 5 9 10 0.1 0.2 0.2 13
Samvardhana Motherson ADD 76 85 12 514 6.3 6,776 2 4 5 136 97 33 40 20 15 11 8 6 2.4 2.2 2.0 6 11 13 0.8 0.9 1.0 15
Schaeffler India SELL 2,584 2,600 1 404 4.9 156 55 65 74 37 19 14 47 40 35 31 26 22 9.7 8.4 7.4 22 23 23 0.1 0.1 0.1 5
SKF SELL 4,388 3,550 (19) 217 2.6 49 112 127 140 40 13 10 39 35 31 27 24 21 9.3 7.6 6.3 24 22 20 0.4 0.4 0.5 2
Sona BLW Precision ADD 445 500 12 260 3.2 583 7 9 13 9 38 37 66 48 35 38 27 21 11.2 9.5 7.9 18 22 25 0.3 0.5 0.7 7
Tata Motors ADD 445 450 1 1,706 19.5 3,829 (5) 31 42 84 787 35 NM 14 11 8 5 4 3.8 3.0 2.4 NM 24 25 0.0 0.0 0.0 82
Timken SELL 3,100 2,400 (23) 233 2.8 75 51 68 82 18 34 20 61 45 38 43 31 26 11.8 9.7 8.0 21 23 23 0.1 0.1 0.1 8
TVS Motor SELL 1,036 830 (20) 492 6.0 475 31 36 42 67 16 16 33 28 25 18 16 14 8.5 7.0 5.9 28 27 26 0.9 0.9 1.0 28
Uno Minda ADD 488 575 18 279 3.4 571 11 14 17 77 29 21 44 34 28 23 19 16 6.8 5.7 4.8 16 17 17 0.3 0.4 0.4 2
Varroc Engineering ADD 281 350 25 43 0.5 153 (53) 17 25 27 133 42 NM 16 11 9 7 5 3.5 2.9 2.3 NM 18 20 — — — 1
Automobiles & Components Cautious 13,929 169.3 128.3 65.8 19.2 37.1 22.4 18.8 14.4 10.5 8.9 4.2 3.7 3.2 11.3 16.5 17.2 1.0 1.2 1.4 413
Banks
AU Small Finance Bank SELL 629 575 (9) 419 5.1 664 21 24 32 16 17 31 30 26 20 — — — 4.0 3.5 3.0 15 14 16 — — — 11
Axis Bank BUY 883 1,100 25 2,714 33.1 3,070 69 76 82 62 11 8 13 12 11 — — — 2.1 1.9 1.7 17 17 16 1.2 0.6 1.4 97
Bandhan Bank ADD 228 270 19 367 4.5 1,611 14 27 27 1,643 96 1 17 9 8 — — — 2.0 1.6 1.4 12 20 17 0.3 1.8 1.8 29
Bank of Baroda ADD 164 185 13 846 10.3 5,178 26 28 31 84 9 11 6 6 5 — — — 1.0 0.9 0.8 16 15 15 3.2 3.4 3.8 68
Canara Bank ADD 297 365 23 538 6.6 1,814 55 62 66 75 12 7 5 5 4 — — — 1.0 0.8 0.7 14 14 14 3.8 4.3 4.6 44
City Union Bank REDUCE 158 180 14 117 1.4 740 13 14 18 27 10 22 12 11 9 — — — 1.8 1.6 1.4 14 14 15 1.7 1.8 2.2 8
DCB Bank BUY 105 140 33 33 0.4 311 15 20 23 60 35 16 7 5 5 — — — 0.8 0.7 0.6 11 14 14 2.2 3.0 3.5 4
Equitas Small Finance Bank ADD 54 65 21 67 0.8 1,110 5 6 8 108 27 36 12 9 7 — — — 1.3 1.1 1.0 11 12 14 — — — 2
Federal Bank BUY 133 160 20 282 3.4 2,103 14 14 18 52 5 22 10 9 8 — — — 1.4 1.2 1.1 14 13 15 2.1 2.1 2.6 23
HDFC Bank BUY 1,659 1,800 9 9,252 113.0 5,546 79 82 105 19 4 28 21 20 16 — — — 3.4 2.8 2.5 17 17 16 1.1 1.2 1.5 142
ICICI Bank BUY 864 1,070 24 6,028 73.6 6,950 46 47 53 38 2 13 19 18 16 — — — 3.2 2.8 2.4 18 16 16 1.1 1.1 1.2 148
IndusInd Bank ADD 1,104 1,350 22 856 10.4 775 92 107 125 54 17 17 12 10 9 — — — 1.6 1.4 1.3 14 15 15 1.2 1.4 1.6 46
Karur Vysya Bank BUY 106 125 18 85 1.0 800 14 17 20 61 27 15 8 6 5 — — — 1.1 0.9 0.8 14 15 16 3.3 4.2 4.9 8
Punjab National Bank ADD 52 58 12 570 7.0 11,011 3 7 9 8 106 33 15 7 6 — — — 0.7 0.6 0.6 4 8 10 1.3 2.7 3.6 84
SBI Cards and Payment Services BUY 754 960 27 713 8.7 943 23 26 39 36 13 49 32 29 19 — — — 7.2 5.9 4.5 25 23 27 0.2 0.2 0.3 13
State Bank of India BUY 544 725 33 4,857 59.3 8,925 55 59 61 55 7 4 10 9 9 — — — 1.7 1.5 1.3 16 15 14 1.7 2.0 2.3 99
Ujjivan Small Finance Bank ADD 30 33 12 58 0.7 1,955 5 5 6 304 (1) 14 6 6 5 — — — 1.4 1.2 0.9 29 21 20 0.0 0.0 0.0 5
Union Bank ADD 74 90 22 505 6.2 6,835 11 14 15 39 29 10 7 5 5 — — — 0.8 0.7 0.6 11 12 12 3.6 4.6 5.1 32
YES Bank SELL 16 17 3 473 5.8 28,751 0 1 1 (31) 90 84 56 30 16 — — — 1.2 1.2 1.1 2 4 7 0.0 0.0 0.0 71
Banks Attractive 28,780 351.4 45.1 18.5 15.7 14.3 12.1 10.4 2.0 1.6 1.4 13.8 13.5 13.9 1.3 1.6 1.9 934
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150

Capital goods
ABB BUY 2,806 3,100 10 595 7.3 212 27 43 53 41 56 24 103 66 53 65 48 38 11.7 10.3 8.9 13 17 18 0.2 0.3 0.3 15
Bharat Electronics REDUCE 94 98 4 686 8.4 7,310 4 4 5 17 10 7 24 22 21 16 14 13 4.9 4.5 4.1 21 21 20 1.9 2.1 2.2 21
BHEL SELL 75 34 (55) 261 3.2 3,482 (1) 2 4 (169) 286 190 NM 50 17 (89) 25 9 1.0 1.0 0.9 NM 2 6 (0.4) 0.6 1.6 30
Carborundum Universal BUY 991 1,070 8 188 2.3 190 20 28 35 16 39 25 49 35 28 30 22 17 7.0 6.1 5.2 15 18 20 0.4 0.6 0.7 2
Cochin Shipyard SELL 472 580 23 62 0.8 132 39 40 44 (13) 3 11 12 12 11 6 6 5 1.3 1.3 1.2 11 11 11 2.9 3.1 3.3 14
Cummins India BUY 1,446 1,560 8 401 4.9 277 37 47 56 25 25 20 39 31 26 36 28 23 7.6 6.9 5.5 20 23 24 1.4 1.8 0.0 11
G R Infraprojects SELL 1,130 1,070 (5) 109 1.3 97 84 93 110 6 11 18 14 12 10 9 8 7 2.1 1.8 1.5 17 16 16 0.0 0.0 0.0 0
IRB Infrastructure BUY 276 340 23 166 2.0 604 15 16 23 149 11 39 19 17 12 9 7 6 1.3 1.2 1.1 7 7 10 1.0 1.4 1.8 17
Kalpataru Power Transmission BUY 507 635 25 82 1.0 164 35 46 61 77 33 31 15 11 8 7 5 4 1.7 1.5 1.3 13 15 17 0.6 0.7 0.9 2
KEC International BUY 468 530 13 120 1.5 257 10 29 39 (35) 210 31 49 16 12 17 9 8 3.1 2.7 2.2 7 18 20 0.2 0.7 0.9 3
L&T ADD 2,167 2,260 4 3,045 37.2 1,405 76 101 122 25 33 20 28 21 18 20 16 14 4.1 3.8 3.4 15 18 20 1.5 1.9 2.3 53
Siemens SELL 3,028 2,550 (16) 1,078 13.2 356 44 53 76 23 20 44 69 57 40 47 39 27 8.5 7.7 6.8 13 14 18 0.4 0.5 0.7 15
Thermax ADD 1,920 2,400 25 229 2.8 113 40 59 71 45 47 20 48 32 27 35 24 20 35.2 23.9 19.7 13 17 20 1.3 1.8 2.3 1
Capital goods Attractive 7,023 85.8 19.8 33.2 25.0 34.6 26.0 20.8 21.3 16.9 14.0 4.0 3.7 3.3 11.5 14.2 16.1 1.1 1.4 1.6 184
SIS BUY 346 480 39 50 0.6 147 22 24 29 (1) 11 21 16 14 12 11 9 8 2.1 1.8 1.6 14 14 15 0.0 0.0 0.0 0
TeamLease Services REDUCE 2,324 2,275 (2) 40 0.5 17 68 77 101 197 12 32 34 30 23 30 25 19 4.9 4.2 3.6 15.6 15.0 16.8 — — — 1
Neutral 90 1.1 19.7 11.3 24.1 20.6 18.5 14.9 15.1 12.2 9.9 2.8 2.4 2.1 13.7 13.2 14.1 0.0 0.0 0.0 2
Commodity Chemicals
Asian Paints REDUCE 2,760 2,800 1 2,648 32.3 959 42 52 55 28 24 6 66 53 50 43 35 33 17.2 15.4 17.3 28 30 32 0.9 1.2 1.3 41
Berger Paints REDUCE 558 510 (9) 542 6.6 971 10 13 14 13 34 3 57 43 41 35 27 26 12.1 10.4 9.0 22 26 23 0.7 1.0 1.0 5
Indigo Paints REDUCE 1,136 1,475 30 54 0.7 48 27 36 40 52 33 11 42 32 29 25 19 17 7.0 6.0 5.1 18 20 19 0.4 0.6 0.8 2
Kansai Nerolac REDUCE 416 430 3 224 2.7 539 10 13 14 47 25 11 41 33 29 25 21 19 5.0 4.7 4.4 13 15 15 1.1 1.6 2.0 1
Tata Chemicals BUY 970 1,210 25 247 3.0 255 85 88 89 71 4 1 11 11 11 6 5 5 1.2 1.1 1.0 11 11 10 1.7 2.0 2.0 12
Commodity Chemicals Cautious 3,716 45.4 37.0 19.7 5.0 47.6 39.8 37.9 29.3 24.8 23.5 8.2 7.4 7.3 17.3 18.7 19.2 0.9 1.2 1.3 60
Construction Materials
ACC REDUCE 1,927 1,950 1 362 4.4 188 58 96 134 (40) 65 39 33 20 14 15 11 9 2.5 2.3 2.1 8 12 15 1.5 2.5 3.5 19
Ambuja Cements SELL 374 400 7 742 9.1 2,105 13 14 21 (13) 15 46 30 26 18 11 7 5 2.4 1.9 1.7 9 9 10 1.1 1.3 1.9 62
Dalmia Bharat ADD 1,868 1,800 (4) 350 4.3 185 37 57 81 (40) 55 41 51 33 23 15 11 9 2.1 2.0 1.9 4 6 8 0.3 0.5 0.6 7
Grasim Industries ADD 1,616 1,850 14 1,064 13.0 658 122 142 155 12 17 9 13 11 10 8 6 6 1.3 1.2 1.1 10 11 11 0.5 0.7 0.8 14
J K Cement SELL 2,629 2,235 (15) 203 2.5 77 81 110 131 (9) 37 18 33 24 20 15 12 10 4.2 3.6 3.1 14 16 17 0.4 0.4 0.4 4
Nuvoco Vistas Corp ADD 352 420 19 126 1.5 357 2 15 22 107 688 50 189 24 16 12 8 - 1.4 1.3 1.2 1 6 8 0.0 0.0 0.0 1
Orient Cement REDUCE 120 125 4 25 0.3 205 6 12 12 (53) 105 (5) 20 10 10 7 6 7 1.5 1.4 1.2 8 15 12 1.7 1.7 1.7 2
Shree Cement SELL 24,320 15,775 (35) 877 10.7 36 449 733 797 (32) 63 9 54 33 31 28 19 17 4.7 4.2 3.8 9 13 13 0.3 0.5 0.5 12
The Ramco Cements SELL 683 550 (19) 161 2.0 236 15 33 42 (60) 115 29 45 21 16 19 12 10 2.3 2.1 1.9 5 11 12 0.2 0.5 0.6 5
UltraTech Cement REDUCE 7,189 6,350 (12) 2,075 25.3 289 194 301 354 (1) 55 17 37 24 20 20 14 12 3.8 3.4 3.0 11 15 15 0.4 0.6 0.7 34
Construction Materials Cautious 5,986 73.1 (9.1) 41.8 20.3 28.7 20.3 16.9 13.2 9.9 8.3 2.5 2.1 1.9 8.6 10.5 11.5 0.5 0.8 1.0 158
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Consumer Durables & Apparel
Crompton Greaves Consumer ADD 305 340 11 194 2.4 636 7 9 11 (27) 30 21 45 34 28 28 24 20 7.1 6.2 5.3 17 19 20 0.8 0.8 0.8 5
Havells India SELL 1,197 1,075 (10) 750 9.2 627 17 23 29 (12) 38 27 71 52 41 48 35 27 11.5 10.3 9.1 17 21 24 0.6 0.8 1.0 12
Page Industries SELL 39,816 42,500 7 444 5.4 11 643 746 922 34 16 24 62 53 43 42 36 29 34.1 29.5 25.5 60 59 63 1.2 1.5 1.9 11
Polycab REDUCE 2,949 2,810 (5) 442 5.4 149 82 92 106 44 12 16 36 32 28 24 22 19 6.9 6.0 5.2 20 20 20 0.7 0.8 0.9 15
TCNS Clothing Co. SELL 475 510 7 29 0.4 69 8 13 18 1,056 60 41 58 36 26 16 12 9.3 4.5 3.8 3.2 8 11 14 — — — 1
Voltas SELL 813 860 6 269 3.3 331 14 19 25 (11) 43 29 60 42 33 44 32 27 4.7 4.4 4.1 8 11 13 0.5 0.9 1.1 12
Whirlpool SELL 1,261 1,240 (2) 160 2.0 127 19 26 37 2 32 44 65 49 34 35 27 19 4.5 4.2 3.8 7 8 11 0.2 0.3 0.4 2
Consumer Durables & Apparel Cautious 2,288 27.9 6.8 26.4 24.3 54.8 43.4 34.9 35.6 28.8 23.4 8.5 7.6 6.8 15.5 17.6 19.34 0.7 0.9 1.1 58
Consumer Staples
Britannia Industries ADD 4,629 4,775 3 1,115 13.6 241 79 92 106 24 17 15 59 50 44 41 35 31 40.0 32.4 27.4 70 71 67 1.4 1.7 1.9 20
Colgate-Palmolive (India) ADD 1,461 1,630 12 397 4.9 272 37 42 46 (8) 15 10 40 35 31 26 23 21 22.7 21.6 20.6 57 64 67 2.4 2.7 3.0 7
Dabur India ADD 534 600 12 946 11.5 1,768 11 12 14 2 16 13 51 44 39 40 36 31 10.3 9.3 8.4 21 22 23 1.1 1.3 1.5 16
Godrej Consumer Products BUY 935 1,020 9 956 11.7 1,023 17 21 24 (2) 25 12 54 44 39 39 31 27 7.9 7.4 7.0 15 18 19 1.2 1.6 1.9 12
Hindustan Unilever ADD 2,649 2,825 7 6,223 76.0 2,350 43 50 56 15 18 13 62 53 47 43 37 33 12.3 11.8 11.3 20 23 25 1.4 1.7 1.9 48
ITC ADD 381 430 13 4,725 57.7 12,412 15 17 18 22 11 10 26 23 21 19 17 15 7.4 7.4 7.0 28 31 34 3.4 3.7 4.1 52
Jyothy Labs ADD 209 220 5 77 0.9 367 7 9 10 59 26 9 30 24 22 23 17 15 4.8 4.3 3.9 17 19 19 1.4 1.7 2.2 1
Marico REDUCE 494 525 6 639 7.8 1,290 10 12 13 5 15 13 49 43 38 35 30 26 18.8 18.6 18.4 38 44 49 2.0 2.3 2.6 9
Nestle India ADD 19,004 20,500 8 1,832 22.4 96 257 315 358 4 23 14 74 60 53 49 40 35 78.3 69.4 67.5 112 122 129 1.2 1.5 1.8 13
Tata Consumer Products ADD 727 770 6 675 8.2 922 11 15 17 5 30 19 65 50 42 36 31 26 4.3 4.1 3.9 7 8 10 0.9 1.0 1.2 12
United Breweries ADD 1,584 1,750 10 419 5.1 264 24 34 39 70 43 17 67 47 40 40 29 25 9.8 8.9 8.2 15 20 21 1.1 1.6 1.9 4
United Spirits ADD 769 925 20 559 6.8 727 13 15 19 (5) 17 23 60 51 41 37 33 27 8.3 7.6 7.0 16 16 18 0.7 0.9 1.3 13
Varun Beverages ADD 1,155 1,200 4 750 9.2 650 23 28 33 115 21 19 50 42 35 28 23 20 13.7 10.5 8.3 31 29 26 0.1 0.2 0.2 37
Consumer Staples Attractive 19,313 235.8 17.2 16.0 12.4 44.8 38.6 34.4 31.6 27.3 24.2 10.7 10.2 9.6 24 27 28 1.8 2.1 2.4 245
360 One BUY 1,899 2,150 13 169 2.1 89 75 83 97 17 10 16 25 23 20 — — — 5— 5— 5— 22 23 25 3— 3— 4— 4—
Aavas Financiers ADD 1,999 2,150 8 158 1.9 79 52 62 74 14 20 19 39 32 27 — — — 4.9 4.3 3.7 14 14 15 0.0 0.0 0.0 3
ABSL AMC ADD 406 460 — 117 1.4 288 21 24 27 (8) 12 11 19 17 15 — — — 4.8 4.3 3.9 NM NM NM 3.2 3.5 3.9 1
Aptus Value Housing Finance ADD 275 330 — 137 1.7 497 10 11 13 29 15 16 28 25 21 — — — 4.0 3.5 3.0 15 15 15 0.0 0.0 0.0 1
Bajaj Finance REDUCE 6,014 6,150 2 3,641 44.5 603 191 231 276 64 21 20 32 26 22 — — — 6.7 5.4 4.4 24 23 22 0.3 0.4 0.5 88
Bajaj Finserv ADD 1,337 1,525 14 2,130 26.0 1,592 48 60 75 69 25 24 28 22 18 — — — 5.1 4.3 3.7 19 21 22 0.1 0.1 0.1 43
Cholamandalam ADD 781 875 12 642 7.8 821 30 35 45 14 18 27 26 22 18 — — — 4.9 4.2 3.5 19 19 20 0.3 0.3 0.4 15
Computer Age Management Services SELL 2,265 2,050 (9) 111 1.4 49 59 68 82 1 15 20 38 33 28 — — — 14.6 12.5 10.7 41 40 42 1.7 1.9 2.3 4
Five Star Business Finance ADD 562 700 25 164 2.0 291 20 25 31 29 25 24 28 22 18 — — — 3.8 3.3 2.8 15 16 16 — — — —
HDFC BUY 2,695 3,050 13 4,923 60.1 1,813 83 95 108 10 14 14 32 28 25 — — — 3.7 3.4 3.0 12 13 13 0.9 1.1 1.2 94
HDFC AMC REDUCE 1,856 2,100 13 396 4.8 214 66 76 87 0 17 14 28 24 21 — — — 6.5 5.8 5.3 24 25 26 2.3 2.7 3.0 8
Home First Finance BUY 740 1,000 35 65 0.8 88 25 29 35 33 16 20 30 26 21 — — — 3.6 3.2 2.8 13 13 14 — — — 1
L&T Finance Holdings REDUCE 87 90 3 216 2.6 2,474 8 8 9 88 (0) 16 11 11 9 — — — 1.0 0.9 0.9 8 9 10 0.0 1.7 2.0 11
LIC Housing Finance BUY 400 550 38 220 2.7 550 55 69 79 33 25 15 7 6 5 — — — 1.1 0.9 0.8 12 13 14 2.8 3.5 4.0 12
Mahindra & Mahindra Financial ADD 244 265 9 301 3.7 1,233 16 18 23 97 17 27 15 13 10 — — — 1.9 1.8 1.6 12 13 15 2.9 1.5 1.9 12
Muthoot Finance BUY 1,028 1,250 22 412 5.0 401 94 122 144 (4) 29 18 11 8 7 — — — 1.9 1.6 1.4 19 21 21 1.8 2.4 2.8 9
Nippon AMC ADD 231 280 21 144 1.8 622 11 13 14 (5) 15 11 20 18 16 — — — 4.0 4.0 3.9 20 23 25 4.4 5.1 5.7 1
Shriram Finance BUY 1,279 1,700 33 479 5.8 373 170 192 224 70 13 16 8 7 6 — — — 1.1 1.0 0.9 18 15 16 2.1 2.3 2.6 17
UTI AMC BUY 696 880 26 88 1.1 127 36 43 49 (14) 20 13 19 16 14 — — — 2.3 2.3 2.2 12 14 16 3.1 5.0 5.6 4
Diversified Financials Attractive 14,513 177.2 35.5 18.5 18.5 24.3 20.5 17.3 3.6 3.1 2.7 14.8 15.3 15.8 0.8 0.9 1.1 329
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Electric Utilities
CESC BUY 73 100 38 96 1.2 1,326 10 13 14 (0) 29 8 7 5 5 5 5 4 0.7 0.7 0.6 11 13 13 5.7 6.9 7.4 2
JSW Energy SELL 221 130 (41) 363 4.4 1,640 7 8 11 13 5 42 30 29 20 13 13 9 2.0 1.9 1.7 7 7 9 0.9 0.9 0.9 3
NHPC ADD 41 47 15 412 5.0 10,045 3 4 5 (1) 13 18 12 10 9 12 10 6 1.1 1.1 1.0 10 11 12 5.0 5.6 6.6 7
NTPC ADD 166 186 12 1,605 19.6 9,895 18 20 23 9 9 13 9.0 8.2 7 7 7 6 1.1 1.0 0.9 13 13 13 4.1 4.5 4.9 24
Power Grid BUY 215 255 19 1,499 18.3 6,975 22 24 24 12 10 3 10.0 9.1 9 6 6 5 1.8 1.7 1.6 19 19 18 6.3 6.5 6.5 25
Tata Power SELL 205 192 (6) 656 8.0 3,196 11 8 10 44 (26) 22 19 26 22 13 12 11 2.5 2.3 2.1 14 9 10 — — — 27
Electric Utilities Attractive 4,631 56.5 11.1 7.4 10.7 10.9 10.1 9.1 7.8 7.2 6.2 1.4 1.3 1.2 13.1 13.1 13.4 4.1 4.4 4.7 88
Fertilizers & Agricultural Chemicals
Bayer Cropscience SELL 4,376 4,845 11 197 2.4 45 160 189 209 19 18 11 27 23 21 19 16 14 6.3 5.2 4.3 26 25 23 0.7 0.9 1.0 1
Godrej Agrovet ADD 447 510 14 86 1.0 192 14 22 29 (35) 55 31 31 20 15 18 13 10 3.0 2.7 2.4 10 14 17 1.4 2.1 2.7 0
Rallis India REDUCE 205 220 7 40 0.5 195 8 11 12 (1) 31 12 25 19 17 14 11 10 2.2 2.1 1.9 9 11 12 1.7 2.0 2.2 2
UPL ADD 716 830 16 537 6.6 751 60 64 77 21 5 20 12 11 9 6 6 5 2.1 1.8 1.6 17 16 16 1.4 1.8 2.1 19
Fertilizers & Agricultural ChemicalsCautious 860 10.5 11.8 12.0 17.4 16.4 14.6 12.5 8.0 7.0 5.9 2.6 2.2 2.0 15.6 15.3 15.8 1.3 1.6 1.9 22
Gas Utilities
GAIL (India) SELL 93 80 (14) 610 7.5 6,575 9 7 8 (42) (23) 14 10 13 12 9 11 9 1.0 1.0 1.0 10 8 9 5.0 5.4 5.7 16
GSPL BUY 260 380 46 147 1.8 564 15 14 14 (11) (13) 1 17 19 19 7 7 7 1.6 1.5 1.4 10 8 8 1.3 1.4 1.7 5
Indraprastha Gas BUY 419 495 18 293 3.6 700 25 28 31 14 12 10 17 15 14 12 11 9 3.7 3.2 2.9 24 23 22 1.6 2.1 2.6 9
Mahanagar Gas BUY 850 1,080 27 84 1.0 99 77 82 85 27 8 4 11 10 10 7 6 6 2.1 1.9 1.7 20 19 18 3.9 4.3 4.5 4
Petronet LNG REDUCE 209 215 3 314 3.8 1,500 17 20 23 (17) 17 15 12 11 9 7 6 5 2.1 1.9 1.8 18 19 20 4.6 5.3 6.7 5
Gas Utilities Attractive 1,448 17.7 (28.4) (6.7) 11.7 12.3 13.1 11.8 8.3 8.8 7.8 1.5 1.5 1.4 12.5 11.1 11.8 3.8 4.2 4.8 39
Health Care Services
Apollo Hospitals BUY 4,252 5,470 29 611 7.5 144 72 97 128 22 34 32 59 44 33 27 22 18 9.2 7.8 6.5 17 19 21 0.3 0.3 0.5 29
Aster DM Healthcare BUY 210 300 43 105 1.3 500 11 14 17 21 22 23 18 15 12 7 6 5 2.4 2.1 1.8 14 15 16 — — — 1
Dr Lal Pathlabs SELL 1,885 1,610 (15) 157 1.9 83 30 37 47 (31) 21 29 62 51 40 30 26 21 9.5 8.6 7.7 16 18 21 0.7 0.9 1.1 8
KIMS BUY 1,441 1,725 20 115 1.4 80 42 48 55 0 15 15 35 30 26 19 16 13 6.7 5.5 4.5 21 20 19 0.0 0.0 0.0 2
Max Healthcare ADD 436 490 13 423 5.2 970 14 13 15 49 (4) 14 32 34 29 26 22 20 5.3 4.6 4.0 18 15 15 0.0 0.0 0.0 11
Metropolis Healthcare REDUCE 1,224 1,350 10 63 0.8 51 31 38 47 (20) 24 22 39 32 26 20 18 15 6.3 5.6 4.9 17 19 20 0.8 0.9 1.1 5
Narayana Hrudayalaya ADD 715 775 8 146 1.8 204 21 21 25 23 1 20 35 34 29 18 16 14 7.6 6.2 5.1 25 20 20 — — — 2
Rainbow Children's Medicare ADD 715 825 15 73 0.9 96 20 24 27 40 19 13 35 30 26 20 16 14 9.0 7.1 5.8 28 27 24 0.4 0.5 0.6 5
Health Care Services Attractive 1,693 20.7 19.5 14.1 22.4 39.5 34.7 28.3 20.8 17.7 15.0 6.5 5.6 4.8 16.4 16.1 16.8 0.2 0.3 0.3 63
Hotels & Restaurants
Devyani International REDUCE 152 177 17 183 2.2 1,204 2 2 3 45 4 28 72 69 54 27 21 18 19.6 15.3 13.4 32 25 27 0.0 0.0 0.0 5
Jubilant Foodworks ADD 430 530 23 284 3.5 660 6 8 10 (3) 23 24 67 54 44 23 20 16 12.3 10.3 8.5 20 21 21 0.2 0.2 0.2 16
Lemon Tree Hotels REDUCE 75 84 11 60 0.7 791 1 3 5 200 153 64 68 27 17 18 12 8 7.1 6.4 5.3 10 25 35 1.0 1.8 2.3 6
Restaurant Brands Asia ADD 107 120 13 53 0.6 493 (1) 0 1 59 147 230 NM 297 90 26 15 11 2.7 2.7 2.6 NM 1 3 0.0 0.0 0.0 1
Sapphire Foods BUY 1,160 1,600 38 74 0.9 64 17 20 28 128 23 38 70 57 41 16 13 10 6.6 5.9 5.2 10 11 13 0.0 0.0 0.0 5
Westlife Foodworld ADD 687 820 19 107 1.3 156 8 11 14 7,755 37 28 84 61 48 28 23 19 18.1 14.0 10.8 24 26 25 0.0 0.0 0.0 3
Hotels & Restaurants Attractive 760 9.3 102.1 38.4 35.8 79.0 57.0 42.0 23.1 18.0 14.2 9.9 8.6 7.4 12.5 15.1 17.7 0.2 0.2 0.3 35
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Insurance
HDFC Life Insurance BUY 489 775 59 1,051 12.8 2,020 6 8 9 15 28 11 75 59 53 — — — 6.6 6.2 5.9 9 11 11 0.3 0.4 0.5 27
ICICI Lombard REDUCE 1,133 1,225 8 557 6.8 491 37 42 48 45 11 15 30 27 24 — — — 5.3 4.6 4.0 19 18 18 0.8 0.9 1.1 11
ICICI Prudential Life BUY 418 650 56 601 7.3 1,437 6 7 8 20 14 15 66 58 50 — — — 6.1 5.6 5.1 10 10 11 0.8 0.8 0.8 12
LIC BUY 599 1,000 67 3,789 46.3 6,325 44 34 41 240 (22) 19 14 17 15 — — — 11.9 7.9 5.6 128 54 45 — — — 20
Max Financial Services BUY 719 1,050 46 248 3.0 - 11 12 13 281 8 8 64 59 54 — — — — — — 6 6 6 — — — 14
PB Fintech BUY 428 730 71 193 2.4 467 (12) (6) (0) 34 48 96 NM NM NM — — — NM NM NM — — — 23
SBI Life Insurance BUY 1,138 1,650 45 1,139 13.9 1,003 17 19 20 14 12 6 66 59 56 — — — 8.9 7.9 7.1 14 14 13 0.2 0.3 0.3 19
Star Health and Allied Insurance BUY 512 715 40 298 3.6 576 10 17 21 156 71 24 51 30 24 — — — 5.8 4.8 4.0 12 18 18 — — — 2
Insurance Attractive 7,875 96.2 374.8 (12.8) 18.5 23.2 26.6 22.5 8.6 6.9 5.6 37 26 25 0.1 0.2 0.2 128
Internet Software & Services
Cartrade Tech REDUCE 502 500 (0) 23 0.3 51.5 6 9 12 122 56 30 87 56 43 45 27 18 1.3 1.3 1.2 1.5 2.3 2.9 0.0 0.0 0.0 1
FSN E-commerce Ventures BUY 142 230 62 404 4.9 2,875.0 0 1 1 126 117 84 437 202 110 132 85 53 28.4 24.9 20.3 6.7 13.2 20 — — — 40
Info Edge ADD 3,657 4,900 34 472 5.8 128.7 52 65 81 214 24 25 70 56 45 58 45 35 3.3 3.1 3.0 4.7 5.7 6.8 0.4 0.4 0.6 19
Just Dial BUY 622 800 29 52 0.6 83.6 16 31 37 93 89 20 38 20 17 16 8 5 1.4 1.3 1.2 3.8 6.9 7.7 — — — 2
Zomato BUY 49 85 74 417 5.1 8,966 (2) (1) (1) (12) 20 52 NM NM NM (18) (22) (44) 2.2 2.3 2.3 NM NM NM 0.0 0.0 0.0 56
Internet Software & Services Neutral 1,369 16.7 70 126 756 NM 966 113 (273) 356 71 3.3 3.3 3.2 NM 0.3 2.8 0.1 0.2 0.2 118
IT Services
HCL Technologies BUY 1,146 1,280 12 3,110 38.0 2,714 54 60 69 9 11 14 21 19 17 13 12 10 4.6 4.4 4.1 23 23 25 3.9 4.4 4.8 42
Infosys BUY 1,599 1,775 11 6,659 81.3 4,184 58 67 78 11 15 16 28 24 21 18 16 14 9.1 8.0 7.3 33 36 37 2.2 2.8 3.6 113
L&T Technology Services SELL 3,447 3,200 (7) 364 4.4 106 113 123 144 24 9 17 31 28 24 20 19 16 7.3 6.2 5.2 26 24 24 0.8 0.9 1.0 16
LTIMindtree REDUCE 4,502 4,600 2 1,332 16.3 296 152 176 207 13 16 18 30 26 22 20 18 14 7.6 6.3 5.2 28 27 26 1.0 1.2 1.4 27
Mphasis ADD 2,090 2,330 11 394 4.8 189 90 101 121 18 12 21 23 21 17 15 13 11 5.2 4.7 4.2 23 24 26 2.6 2.9 3.1 13
TCS ADD 3,482 3,500 1 12,740 155.6 3,660 116 130 148 12 12 14 30 27 24 21 18 16 13.6 12.4 11.2 46 48 50 3.2 3.0 3.4 72
Tech Mahindra BUY 1,011 1,200 19 886 10.8 889 58 66 79 (8) 15 19 17 15 13 10 9 7 3.2 3.1 2.8 19 21 23 4.0 4.1 4.3 30
Wipro REDUCE 408 425 4 2,238 27.3 5,487 21 24 27 (6) 15 11 20 17 15 12 10 9 3.0 2.7 2.4 16 17 17 1.2 2.2 2.2 27
IT Services Attractive 27,724 338.5 7.4 13.1 14.7 26.3 23.3 20.3 17.2 15.3 13.3 7.5 6.9 6.2 28.6 29.4 30.6 2.7 2.9 3.3 341
Media
PVR ADD 1,692 1,850 9 104 1.3 61 5 38 48 107 651 25 331 44 35 28 16 14 4.3 3.9 3.6 1 9 11 0.0 0.2 0.3 14
Sun TV Network ADD 446 555 24 176 2.1 394 44 51 54 5 16 5 10 9 8 6 5 4 1.9 1.7 1.6 20 21 20 4.5 5.6 6.7 6
Zee Entertainment Enterprises ADD 221 300 36 212 2.6 960 9 13 15 (21) 48 14 25 17 14 15 10 9 1.9 1.7 1.6 8 11 11 1.1 1.4 1.8 17
Media Attractive 491 6.0 13.1 34.5 9.5 18.7 13.9 12.7 11.6 8.6 7.6 2.1 2.0 1.8 11.5 14.1 14.2 2.1 2.6 3.2 37
Metals & Mining
Hindalco Industries BUY 460 525 14 1,033 12.6 2,220 43 44 46 (31) 4 3 11 10 10 5.5 5.6 5.2 1.2 1.0 1.0 11 11 10 0.9 1.0 1.0 45
Hindustan Zinc SELL 346 270 (22) 1,463 17.9 4,225 26 22 22 13 (14) (2) 13 16 16 7.7 8.9 8.9 6.0 6.0 6.0 37 39 38 14.3 6.4 6.3 4
Jindal Steel and Power REDUCE 583 580 (0) 594 7.3 1,011 48 57 86 (44) 19 52 12 10 7 6.5 6.2 4.4 1.5 1.3 1.1 13 13 18 0.4 0.5 0.7 25
JSW Steel SELL 732 685 (6) 1,769 21.6 2,417 24 71 91 (73) 195 28 30 10 8 12.1 7.0 5.7 2.5 2.1 1.7 8 22 23 0.7 1.4 1.8 19
National Aluminium Co. SELL 78 70 (11) 144 1.8 1,837 5 7 6 (70) 34 (19) 15 11 14 7.2 5.9 7.1 1.1 1.0 1.0 7 9 7 2.0 2.6 2.2 14
NMDC BUY 119 160 35 348 4.2 2,931 17 18 17 (47) 9 (7) 7 6 7 4.6 4.4 4.8 1.9 1.9 1.9 27 30 28 14.2 15.6 14.5 13
SAIL SELL 86 55 (36) 355 4.3 4,130 6 7 7 (81) 21 (3) 15 12 13 7.6 6.5 6.3 0.6 0.6 0.6 4 5 5 3.9 3.9 3.9 24
Tata Steel REDUCE 120 115 (4) 1,471 18.0 12,224 15 10 13 (56) (32) 22 8 12 9 5.4 6.1 5.3 1.1 1.0 1.0 15 9 11 1.9 1.4 1.6 70
Vedanta SELL 314 240 (24) 1,168 14.3 3,717 27 28 30 (50) 7 7 12 11 10 5.4 5.2 4.9 2.6 2.4 2.3 18 23 23 25.8 6.8 6.9 47
Metals & Mining Attractive 8,345 101.9 (51.7) 10.4 14.3 12.3 11.1 9.7 6.7 6.2 5.6 1.7 1.6 1.4 14.0 14.1 14.7 7.5 3.6 3.7 261
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Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3mo
Oil, Gas & Consumable Fuels
BPCL SELL 327 315 (4) 709 8.7 2,093 (15) 34 45 (135) 332 30 NM 10 7 24.9 5.7 4.8 1.4 1.3 1.2 NM 14 17 (1.7) 4.0 5.2 15
Coal India REDUCE 219 225 3 1,349 16.5 6,163 40 23 26 42 (43) 12 5 10 9 4.5 8.0 6.7 2.4 2.4 2.2 50 25 27 9.1 9.1 9.1 25
HPCL SELL 228 200 (12) 323 3.9 1,419 (88) 58 61 (298) 166 5 NM 4 4 (8.8) 6.8 6.5 1.2 1.0 0.9 NM 28 26 - 10.1 10.7 12
IOCL REDUCE 78 80 2 1,108 13.5 14,121 (0) 14 16 (103) 2,903 18 NM 6 5 16.7 4.6 4.2 0.8 0.8 0.7 NM 14 16 - 8.7 10.2 14
Oil India SELL 216 180 (17) 235 2.9 1,084 50 46 44 44 (10) (4) 4 5 5 4.3 4.4 4.3 0.7 0.6 0.6 17 14 13 9.3 8.4 8.1 3
ONGC SELL 144 105 (27) 1,815 22.2 12,580 40 36 34 5 (11) (4) 4 4 4 2.5 2.5 2.3 0.6 0.6 0.5 18 15 13 12.3 10.9 10.5 26
Reliance Industries BUY 2,329 3,000 29 14,787 180.6 6,352 104 131 150 14 26 14 22 18 16 11.6 9.4 8.1 1.8 1.6 1.5 8 9 10 0.4 0.4 0.4 169
Oil, Gas & Consumable Fuels Neutral 20,326 248.2 (21.5) 39.5 9.7 15.6 11.2 10.2 8.7 6.5 5.8 1.4 1.3 1.2 9.2 11.8 11.8 2.0 2.7 2.8 264
Pharmaceuticals
Aurobindo Pharma ADD 404 525 30 237 2.9 586 37 46 52 (18) 26 13 11 9 8 5 4 4 0.9 0.8 0.8 8 10 10 2.7 3.2 3.8 10
Biocon REDUCE 233 285 22 280 3.4 1,202 7 11 13 14 61 14 33 21 18 14 10 8 2.8 2.5 2.3 8 12 12 1.1 1.7 1.9 8
Cipla BUY 1,022 1,255 23 825 10.1 806 36 51 59 17 41 15 28 20 17 15 11 10 3.5 3.1 2.7 13 15 16 0.7 1.0 1.1 20
Divis Laboratories SELL 2,884 2,380 (17) 766 9.4 265 71 73 93 (37) 3 28 41 40 31 31 27 21 5.9 5.4 4.8 14 14 16 0.9 0.9 1.1 22
Dr Reddy's Laboratories ADD 4,358 4,725 8 726 8.9 166 243 275 318 30 13 16 18 16 14 11 9 8 3.1 2.7 2.3 17 17 17 0.7 0.8 0.9 22
Gland Pharma REDUCE 1,211 1,375 14 199 2.4 164 58 66 80 (21) 13 20 21 18 15 14 12 9 2.5 2.2 1.9 12 12 12 — — — 11
Laurus Labs REDUCE 331 350 6 179 2.2 536 17 14 19 8 (16) 34 20 24 18 12 13 10 4.2 3.6 3.0 21 15 17 — — — 10
Lupin ADD 739 750 1 336 4.1 450 16 37 46 (32) 132 23 46 20 16 16 10 8 2.6 2.3 2.1 6 12 13 — 0.8 0.9 11
Sun Pharmaceuticals ADD 1,028 1,140 11 2,467 30.1 2,406 36 41 47 11 13 15 28 25 22 19 16 14 4.5 3.9 3.4 16 16 16 0.7 0.8 0.9 30
Torrent Pharmaceuticals REDUCE 1,532 1,600 4 518 6.3 338 39 48 60 12 24 25 39 32 25 18 15 13 7.4 6.2 5.1 19 19 20 0.4 0.5 0.7 4
Pharmaceuticals Cautious 6,533 79.8 1.7 21.3 17.4 26.7 22.0 18.7 15.6 12.7 10.7 3.6 3.2 2.8 13.4 14.3 14.8 0.5 0.7 0.8 148
Real Estate
Brigade Enterprises BUY 479 565 18 110 1.3 230 14 13 19 304 (9) 48 34 37 25 15 9 6 3.5 3.2 2.9 11 9 12 0.5 0.5 0.5 1
Brookfield India Real Estate Trust ADD 278 320 15 93 1.1 335 5 11 12 (35) 117 2 53 24 24 16 13 13 1.1 1.1 1.1 2 4 5 4.7 5.3 5.5 0
DLF BUY 354 400 13 875 10.7 2,475 7 20 18 8 196 (11) 52 17 20 71 21 27 2.3 2.1 1.9 5 13 10 0.6 0.6 0.6 18
Embassy Office Parks REIT ADD 302 390 29 286 3.5 948 8 11 16 (18) 42 44 39 28 19 15 13 11 1.2 1.2 1.3 3 4 6 6.3 7.8 9.9 3
Godrej Properties SELL 1,151 1,100 (4) 320 3.9 278 31 43 85 143 39 99 37 27 14 94 140 25 3.4 3.0 2.4 9 12 20 — — — 9
Macrotech Developers BUY 975 1,300 33 470 5.7 482 32 53 87 27 69 62 31 18 11 24 13 8 3.8 3.1 2.4 12 19 24 — — — 6
Mindspace REIT ADD 322 360 12 191 2.3 593 8 12 14 (7) 53 11 40 26 24 15 14 13 1.2 1.3 1.3 3 5 5 6.5 7.0 7.3 0
Oberoi Realty ADD 829 950 15 302 3.7 364 54 46 68 86 (14) 47 15 18 12 15 13 8 2.5 2.2 1.9 17 13 16 0.2 0.2 0.2 6
Phoenix Mills ADD 1,390 1,640 18 248 3.0 179 44 60 83 149 38 38 32 23 17 16 10 8 3.2 2.8 2.4 11 13 16 0.2 0.3 0.3 3
Prestige Estates Projects BUY 396 560 41 159 1.9 401 15 27 33 73 86 22 27 14 12 11 8 5 1.6 1.5 1.3 6 11 12 0.4 0.4 0.4 2
Sobha BUY 583 860 48 55 0.7 95 33 51 84 169 54 66 18 12 7 9 7 4 2.0 1.8 1.4 12 16 23 1.2 1.2 1.2 2
Sunteck Realty BUY 347 500 44 51 0.6 140 10 23 38 942 130 70 35 15 9 26 10 7 1.7 1.5 1.3 5 10 16 0.3 0.3 0.3 1
Real Estate Attractive 3,159 38.6 42.9 66.2 30.8 33.1 19.9 15.2 21.2 14.0 10.4 2.1 2.0 1.8 6.5 10.0 12.0 1.4 1.5 1.8 51
Retailing
Aditya Birla Fashion and Retail BUY 251 380 52 238 2.9 965 4 6 7 453 42 25 61 43 34 13 10 9 6.1 4.3 3.8 12 12 12 — — — 8
Avenue Supermarts SELL 3,470 3,550 2 2,248 27.5 648 39 45 58 69 17 28 90 77 60 59 48 38 13.9 11.8 9.9 17 17 18 — — — 18
Titan Company ADD 2,463 2,700 10 2,187 26.7 888 38 41 49 49 9 17 65 59 51 43 39 33 18.8 15.8 13.5 32 29 29 0.5 0.7 0.9 33
Trent REDUCE 1,236 1,320 7 439 5.4 356 12 17 23 570 44 34 106 74 55 40 30 24 15.8 13.0 10.5 16 19 21 — — — 11
Vedant Fashions REDUCE 1,233 1,150 (7) 299 3.7 248 16 19 23 30 16 20 75 65 54 46 40 33 22.4 17.8 14.2 33 31 29 — — — 2
Retailing Neutral 4,672 66.1 77.0 16.5 23.2 76.4 65.6 53.3 43.1 36.4 30.0 15.1 12.3 10.4 19.7 18.8 19.5 0.2 0.3 0.4 72
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Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3mo
Specialty Chemicals
Aarti Industries SELL 531 620 17 193 2.4 363 15 22 26 (31) 49 15 36 24 21 20 16 14 3.8 3.4 2.9 10 15 15 0.3 0.5 1— 5
Atul SELL 7,248 6,720 (7) 214 2.6 30 184 252 305 (10) 37 21 39 29 24 26 19 15 4.4 3.9 3.4 12 14 15 0.3 0.5 0.8 4
Castrol India BUY 117 130 12 115 1.4 989 9 10 11 14 12 14 13 12 10 9 8 7 6.9 6.6 6.0 52 57 60 7.3 7.7 8.2 1
Clean Science & Technology ADD 1,490 1,600 7 158 1.9 106 28 34 46 30 22 35 53 44 32 39 32 24 15.5 11.9 9.1 33 31 32 0.3 0.3 0.5 1
Navin Fluorine REDUCE 4,010 4,420 10 199 2.4 50 62 107 148 19 72 38 64 37 27 43 26 19 9.5 7.8 6.2 16 23 26 0.3 0.4 0.4 7
Pidilite Industries REDUCE 2,342 2,285 (2) 1,190 14.5 508 26 37 45 11 40 22 89 63 52 59 43 36 17.1 15.0 12.9 20 25 27 0.6 0.7 0.9 11
PI Industries REDUCE 3,028 3,500 16 459 5.6 152 78 99 123 40 27 24 39 31 25 29 23 18 6.4 5.4 4.5 18 19 20 0.3 0.4 0.5 14
S H Kelkar and Company BUY 122 175 44 17 0.2 138 9 11 - (21) 23 (100) 13 11 - 8 7 - 1.5 1.4 #DIV/0! 12 14 NM 2.7 3.5 - 0
SRF BUY 2,210 2,800 27 655 8.0 296 71 83 100 12 17 21 31 27 22 20 17 14 6.3 5.2 4.3 22 21 21 0.5 0.5 - 17
Vinati Organics ADD 1,867 2,250 21 192 2.3 104 45 62 78 34 36 26 41 30 24 32 23 18 8.2 6.8 5.5 22 25 25 0.4 0.7 0.8 1
Specialty Chemicals Attractive 3,393 41.4 9.9 29.2 20.3 43.6 33.7 28.0 28.8 22.6 18.9 8.0 6.8 5.9 18.3 20.2 21.0 0.7 0.8 0.8 61
Telecommunication Services
Bharti Airtel ADD 793 900 14 4,579 55.9 5,759 18 28 45 304 53 61 43 28 17 8 7 5 5.8 4.6 3.8 15 19 24 0.3 0.5 0.8 55
Indus Towers REDUCE 144 165 15 387 4.7 2,695 8 14 15 (65) 64 11 17 11 10 4 3 3 1.8 1.6 1.5 10 16 16 3.5 4.2 4.9 7
Vodafone Idea RS 7 — — 220 2.7 32,119 (9) (10) (10) NM NM NM NM NM NM 14 15 16 (0.2) (0.2) (0.1) NM NM NM — — — 17
Tata Communications ADD 1,227 1,150 (6) 350 4.3 285 59 55 63 21 (7) 16 21 22 19 9 9 8 17.6 12.2 8.6 114 64 52 1.9 1.8 2.0 10
Telecommunication Services Attractive 5,535 67.6 12 44 107 NM NM 891.8 9.0 7.6 6.6 53 96 (345) NM NM NM 0.6 0.8 1.2 89
Transportation
Adani Ports and SEZ BUY 499 860 72 1,078 13.2 2,157 35 40 48 35 13 19 14 12 10 11 9 8 2.4 2.1 1.8 19 18 18 0.2 0.7 0.7 91
Container Corp. REDUCE 613 660 8 374 4.6 609 19 22 26 11 15 15 32 28 24 18 16 14 3.4 3.3 3.1 11 12 13 1.9 2.2 2.5 14
Delhivery BUY 303 395 30 221 2.7 725 (13) (8) (5) 24 36 44 NM NM NM (62) 184 34 2.4 2.4 2.4 NM NM NM — — — 8
Gateway Distriparks BUY 61 90 47 31 0.4 500 4 5 6 (3) 4 23 14 14 11 9 7 6 1.7 1.6 1.5 13 12 14 2.5 2.7 3.0 0
GMR Airports BUY 38 43 15 227 2.8 6,036 (1) (1) (2) (105) (39) (12) NM NM NM 26 20 16 (17.8) (11.5) (8.2) 59 53 41 — — — 6
Gujarat Pipavav Port BUY 89 112 26 43 0.5 483 6 7 7 41 14 13 15 13 12 7 6 5 2.1 2.1 2.1 14 16 18 6.3 7.1 7.7 3
InterGlobe Aviation BUY 2,098 2,550 22 809 9.9 383 (10) 122 150 94 1,268 23 NM 17 14 10 4 3 (12.5) (45.6) 3.1 6 NM 519 — — — 17
Mahindra Logistics REDUCE 446 430 (3) 32 0.4 71 4 9 18 16 132 102 119 51 25 15 10 8 5.2 4.9 4.2 4 10 18 — — — 1
Transportation Neutral 2,813 34.3 2,355.9 87.5 23.3 38.1 20.3 16.5 13.6 8.8 7.1 4.6 3.8 3.2 12.0 18.8 19.3 0.4 0.7 0.7 141
KIE universe 198,417 2,422 7.0 23.8 16.4 23.6 19.1 16.4 13.2 10.8 9.4 3.2 2.8 2.5 13.4 14.7 15.4 1.7 1.8 2.0
Notes:
(a) We have used adjusted book values for banking companies.
(b) 2022 means calendar year 2021, similarly for 2023 and 2024 for these particular companies.
(c) Exchange rate (Rs/US$)= 81.36
India Research
156
DISCLAIMERS, DISCLOSURES & LEGAL

Distribution of ratings/investment banking relationships
Kotak Institutional Equities Research coverage universe
Percentage of companies covered by Kotak Institutional

70%
Equities, within the specified category.
60%
Percentage of companies within each category for which
Kotak Institutional Equities and or its affiliates has
50%
provided investment banking services within the previous
12 months.
40% * The above categories are defined as follows: Buy = We
30.7% expect this stock to deliver more than 15% returns over
30% 27.2% the next 12 months; Add = We expect this stock to deliver
22.8% 5-15% returns over the next 12 months; Reduce = We
19.3% expect this stock to deliver -5-+5% returns over the next
20% 12 months; Sell = We expect this stock to deliver less than
-5% returns over the next 12 months. Our target prices
10% are also on a 12-month horizon basis. These ratings are
4.4% 4.4%
2.2% used illustratively to comply with applicable regulations. As
1.3%
of 31/12/2022 Kotak Institutional Equities Investment
0%
Research had investment ratings on 228 equity securities.
BUY ADD REDUCE SELL
Source: Kotak Institutional Equities

As of December 31, 2022
Ratings and other definitions/identifiers

Definitions of ratings
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
ADD. We expect this stock to deliver 5-15% returns over the next 12 months.
REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.
SELL. We expect this stock to deliver <-5% returns over the next 12 months.
Our Fair Value estimates are also on a 12-month horizon basis.Our Ratings System does not take into account short-term volatility in stock prices related
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Other definitions
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following designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
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strategic transaction involving this company and in certain other circumstances.
CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
NC = Not Covered. Kotak Securities does not cover this company.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and fair value, if any, for this stock, because there is not a
sufficient fundamental basis for determining an investment rating or fair value. The previous investment rating and fair value, if any, are no longer in
effect for this stock and should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful. The information is not meaningful and is therefore excluded.
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Kotak Daily 06.02.23 SBI BOB MnMFin

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Kotak Daily 06.02.23 SBI BOB MnMFin

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India Daily

February 06, 2023 NIFTY-50 [Feb 03]: 17,854

Private Circulation Only.

State Bank of India (SBIN) BUY

Solid show continues Company data and valuation summary

Prices in this report are based on the market close of

State Bank of India

Asset quality continues to be stable

Total stressed loans (NPL + SMA1 + SMA2) continued to decline qoq

State Bank of India

Asset quality broadly stable across segments qoq

Corporate International SME Agri Retail Total

Slippages were limited

GNPL has been stable across retail segments

2018 2019 2020 2021 2022 3QFY23

State Bank of India

Net NPL is at multi-decadal low; healthy PCR on NPLs

Gross NPLs (LHS) Net NPLs (LHS) PCR (RHS)

Sharp reduction in Doubtful-1 and Loss category NPLs during 3QFY23

Sub-standard Doubtful-1 Doubtful-2 Doubtful-3 Loss

State Bank of India

Sequential increase in NPLs seen in sugar, cement and gems/jewelry segments

State Bank of India

Corporate International SME Retail Agriculture

60 Corporate International SME Retail Agriculture

Note: Numbers after 4QFY17 are for the merged entity.

NIM (reported) improved ~20 bps sequentially to 3.5%

State Bank of India

Deposits grew 10% yoy, but flat qoq

CD ratio continues to trend higher Margins are at multi-year high

Source: Company Source: Company

MCLR rates on upward trend now

SBI has hiked TD rates in recent months in 1- to 2-year bucket

State Bank of India

Other key highlights for quarter

Note: Data from 4QFY17 refers to merged entity.

State Bank of India

Share of cross-sell in fee income has increased over years

Bancassurance business continues to ramp up in scale

Exhibit 21: SBI forecasts and valuation, March fiscal year-ends

State Bank of India

Exhibit 24: SBI’s SOTP valuation based on FY2024E

Exhibit 25: SBI’s SOTP valuation based on FY2025E

State Bank of India

Conversion of operating profits to net profit has improved

Operating profit Net profit Net profit/ Operating profit (%)

Loan growth at 38% yoy led by wholesale

State Bank of India

Other highlights for quarter

Exhibit 27: SBI’s estimate changes, March fiscal year-ends

State Bank of India

State Bank of India

State Bank of India

ITC (ITC) ADD

Five in a row Company data and valuation summary

tobacco exports and value-added agri-products. Hotels segment revenues grew 80

Paperboards revenues/EBIT grew 12.7%/35.2% yoy aided by strong demand 0

Forecasts/Valuations 2023E 2024E 2025E

of India’s cigarette consumption offers significant share gain opportunity even

Jaykumar Doshi Umang Mehta Praneeth Reddy

Highlights from the press release

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities estimates

Source: Company, Kotak Institutional Equities estimates