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Cochin Shipyard Ltd Good company at reasonable valuations leaves room for upside INDIA | DEFENCE | IPO Note

31 July 2017

Cochin Shipyard (CSL) is a government‐owned company, India’s largest public‐sector shipyard by capacity, and the most profitable in the domestic industry (including private shipyards). Even though it is registered as a commercial shipyard, it derived 85% of its FY17 revenues from building/repairing defence ships. CSL is building India’s first Indigenous Aircraft Carrier (IAC‐1) for the Indian Navy. In FY17, its revenues/EBITDA/PAT was Rs 20.6/3.8/3.1bn, translating into 18.5% EBITDA and 15.2% PAT margins. CSL has an order book of Rs 110bn, implying a robust book‐to‐bill of 5.5x FY17 revenues. About CSL Incorporated in March 29, 1972, CSL is a government‐owned company with 'Miniratna' status. It is the second‐largest shipyard and the largest public‐sector shipyard in India with a dock capacity to accommodate vessels up to 110,000 DWT. CSL also has the second‐largest ship‐repair capacity and largest among the public sector in India, which can accommodate vessels up to 125,000 DWT. CSL's shipyard is strategically located along the west coast of India, midway on the main sea route connecting Europe, West Asia, and the Pacific Rim. IPO rationale: Raising funds for capex and offer for sale by government CSL is raising Rs 14.4bn through this IPO to meet part of its capex requirement (Rs 9.5bn) and an offer from sale by the government (Rs 4.9bn). At the IPO price band of Rs 424‐432, the stock trades at 19x FY17 PE on a diluted equity base against a global average of 24x. Key strengths • Under the Indian Navy’s plan for 2027, it targets a fleet of 198 ships and submarines

against its current strength of 136. While 42 vessels are under construction, this still leaves a gap of 20 ships that need to be built over the next ten years. CSL should be a beneficiary of this proposed investment.

• It is by far the most efficient company among all public sector shipyards. Its EBITDA margins and revenue per employee are almost twice that of its peers.

• Robust orderbook of Rs 110bn offers CSL long‐term revenue visibility with a book‐to‐bill of 5.5x FY17 revenues. It also has Rs 15bn of net cash excluding customer advances.

• In commercial shipbuilding, CSL focuses on engineering‐heavy rather than standard merchant vessels. This helps maintain superior margins in an otherwise highly competitive global industry.

• CSL had/has technological collaborations with tier‐1 equipment suppliers such as Wartsila, Rolls Royce, GTT, and Samsung Heavy.

Key risks (1) over dependence on a single project (IAC), (2) variability in profitability due to long execution period in shipbuilding, (3) high share of ‘bought‐outs’ or outsourced supplies, and (4) increased competition due to opening up of defence shipbuilding to the private sector. Our view: SUBSCRIBE Over the next five years (FY18‐22) CSL has to execute ~Rs 120bn of pending work on IAC‐1, which will lead to acceleration in its revenues. We expect FY18‐22 revenues/EBITDA/PAT CAGR at 20%/19%/15% vs. FY12‐17’s 5%/2%/4%. However, due to equity dilution and capex, RoEs will be subdued over this period at 12‐15% against its historical average of ~20%. We rate this IPO as ‘SUBSCRIBE’. We believe CSL offers a unique opportunity to investors to play the India defence theme backed by a strong management and a robust order book. Our estimates for FY18‐22 do not factor in any additional orders, even as CSL is targeting Rs 110bn of opportunities over the next three years. It is likely to be favourably placed for the Navy’s order of its next aircraft carrier (IAC‐2, possibly over the next five years).

SUBSCRIBE COMPANY DATA ISSUE OPENS 01st August 2017ISSUE CLOSES 03rd August 2017PRE‐ ISSUE EQUITY SHARES 113.3mnPRICE BAND Rs 424 ‐ 432NO OF SHARES TO BE ISSUED 34.0mnISSUE SIZE Rs 14.1‐14.4bnMKT CAP Rs 59bn STANDALONE FINANCIALS Y/E Mar, Rs mn FY17 FY18E FY19E FY20ENet Sales 20.6 23.4 27.3 31.4 EBIDTA 3.8 4.1 5.0 5.6 Net Profit 3.1 3.4 4.0 4.2 EPS, Rs. 27.6 25.3 29.6 30.9 P/E@Rs 432 15.7 17.1 14.6 14.0

Jonas Bhutta (+ 9122 6246 4119) [email protected] Vikram Rawat (+ 9122 6246 4120) [email protected]


COCHIN SHIPYARD LTD IPO NOTE

About the IPO • Rs 14.1‐14.4bn issue of 34mn shares at a price band of Rs 424‐432 per share. • Issue includes 11.3mn shares offer for sale by promoter "Government of India

(GoI)" and fresh issue of 22.7mn shares. • Market capitalisation at price band: Rs 57.6‐58.7bn. • Post‐issue, GoI's shareholding to reduce to 75% from 100% and the company’s

outstanding shares to increase by 20% to 135.9mn shares from 113.3mn. Cochin Shipyard ‐ Issue details Share holding pattern post‐issue ISSUE OPENS 01st August 2017ISSUE CLOSES 03rd August 2017PRE‐ ISSUE EQUITY SHARES 113.3mn ‐ LOWER BAND Rs 424 ‐ UPPER BAND Rs 432PRICE BAND Rs 424 ‐ 432 ‐ FRESH ISSUE 22.7mn ‐ OFS 11.3mnNO OF SHARES TO BE ISSUED 34.0mnRETAIL AND EMPLOYEE SHARE (%) 37%RETAIL DISCOUNT (RS) Rs 21ISSUE SIZE Rs 14.1‐14.4bnPOST‐ ISSUE EQUITY SHARES 135.9mnMKT CAP Rs 57.6‐58.7bn

Source: RHP, PhillipCapital India Research • Of the Rs 9.5bn proceeds from the fresh issue, Rs 6.7bn will be utilised for setting

up: (1) a new dry dock (Rs 4.4bn) at the existing facility, and (2) an international ship‐repair facility (Rs 2.3bn) at the Cochin Port.

Net proceeds will be used for Rs mnSetting up of a new dry dock 4,430 Setting up of an international ship repair facility (ISRF) 2,295 General corporate purpose NA

Source: RHP, PhillipCapital India Research

GOI75%

Others25%



About the company Cochin Shipyard Ltd (CSL), incorporated on March 29, 1972, is a government owned company with 'Miniratna' status. It is the second‐largest shipyard and the largest public sector shipyard in India with dock capacity to accommodate vessels up to 110,000 DWT. CSL has also the second‐largest ship repair capacity and largest among the public sector in India, which can accommodate vessels up to 125,000 DWT. Its shipyard is strategically located along the west coast of India, midway on the main sea route connecting Europe, West Asia, and the Pacific Rim – a busy international maritime route. In addition, its shipyard is located close to the Kochi port and to offshore oil fields on the western coast of India, and relatively close to the Middle East. India's second‐largest shipyard, largest in the public sector Second‐largest ship‐repair capacity in India

Source: RHP, PhillipCapital India Research Key milestones Year Major events Apr‐72 Laid foundation for hull shop Jul‐75 Signed contract for the first bulk carrier Jul‐81 Delivered first ship ‘Rani Padmini’ Oct‐90 Delivery first tanker ‘007 Motilal Nehru’ May‐99 Delivered the Double Hull Motor Tanker ‘M.T. Abul Kalam Azad’ of 83576 DWT to Shipping Corporation of India Feb‐03 Delivered first export order, LB II Barge to National Petroleum Construction Co, Abu Dhabi Jan‐04 Contract for six bulk carriers for Clipper Group, Bahamas Nov‐06 Delivered nine fire‐fighting tugs to Saudi Seaport Authority from December 2004 Feb‐09 Keel laying of the first Indigenous Aircraft Carrier for the Indian Navy Oct‐10 Order of 20 Fast Patrol Vessels for Indian Coast Guard Sep‐11 Set up the 500 tn Bollard Pull facility at Vizhinjam, largest facility for bollard pull test in Asia Dec‐12 Signed contract for setting up of ISRF at Cochin Port Trust Aug‐13 Launched the first Indigenous Aircraft Carrier for the Indian Navy Mar‐14 Delivered the 100th ship built by our Company Dec‐15 Obtains license from GTT to build LNG Ships using the containment system known as the Mark‐III Technology Dec‐16 Delivered last ship of the 20 Fast Patrol Vessel to Indian Coast Guard Jun‐17 Delivered double ended Ro‐Ro ferry ‘Sethusagar – I and II’ to Kochi Municipal Corporation Source: RHP, PhillipCapital India Research

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Business segments CSL has two major business segments: (1) Shipbuilding, which has contributed 82% of its revenues over the last five years (FY13‐17), and (2) ship repair (18% of revenues). It caters to clients from the defence sector in India and clients from commercial sectors globally for shipbuilding and ship repair. Defence shipbuilding is a complex and time‐consuming activity. While commercial shipbuilding is relatively less complex, it is subject to cyclical weaknesses. Over the last five years, CSL’s defence clients have contributed to 80% of its revenues and have helped the company to overcome cyclical fluctuations or weaknesses in commercial shipbuilding. Shipbuilding contributed 82% of its last five years revenues… ...driven by 80% contribution from defence‐sector clients

Source: RHP, PhillipCapital India Research Shipbuilding (82% of last five years’ revenues): CSL has begun its shipbuilding operations in 1975 and has transformed its capability from building bulk carriers to building smaller and more technically sophisticated vessels such as PSVs and AHTS’. It has built a wide range of vessels including bulk carriers, tankers, platform supply vessels (PSVs), anchor‐handling tug‐supply vessels (AHTSs), launch barges, tugs, passenger vessels, fast‐patrol vessels (FPVs), and roll‐on/roll‐off (Ro‐Ro) vessels. It has also worked with several leading technology firms including Rolls Royce Marine (Norway), and GTT (Gaztransport & Technigaz SA), which helped increase its credibility in international markets. • Defence shipbuilding: Indian Navy and Indian Coast Guard are its two clients

from the defence sector. CSL is currently building India's first indigenous aircraft carrier (IAC‐1) for the Indian Navy, which is a major contributor (79%) to its defence shipbuilding revenues. It has already completed phase‐1 contract of IAC‐1 and currently executing phase‐2 contract. The phase‐3 contract is yet to be signed, and as per CAG, the delivery of IAC‐1 is likely to be completed by 2023. CSL has also completed the delivery of FPVs to the Indian Coast Guards. Defence has contributed 85% of its shipbuilding revenues in the last five years.

• Commercial shipbuilding: CSL has derived 15% of its shipbuilding revenues in the last five years from this segment. Currently, it is constructing four passenger‐cum‐cargo vessels for the Andaman and Nicobar administration and a vessel for one of GoI's projects. It has delivered two of India's largest double‐hull oil tankers to SCI. It has also exported 45 ships to various international clients such as NPCC, Clipper Group (Bahamas), Vroon Offshore (Netherlands), and SIGBA AS (Norway).

Shipbuilding82%

Ship repair18%

Segment‐wise Revenue mix FY13‐17

Defence80%

Commercial20%

Client‐wise Revenue mix FY13‐17



Defense contributed 85% to shipbuilding revenues driven by the execution of IAC‐1

Source: RHP, PhillipCapital India Research Ship repair (18% of last five years’ revenues): CSL started its ship‐repair operations in 1978, and since then it has developed adequate capabilities to handle complex and sophisticated repair jobs. It has undertaken repairs of various types of vessels, including upgradation of ships for the oil‐exploration industry and periodical maintenance, repairs, and life extension of ships. It has also partnered with Techcross Inc. for technical support, engineering, service support, and sharing of information in relation to the Ballast Water Treatment System (BWTS)’s products. • Defence ship repair: CSL undertakes ship repair for the Indian Navy. In FY14‐16,

it repaired about 15 naval ships with scope of work varying from routine to complex. It has also completed refits of INS Aditya, INS Sukanya, INS Shardul, INS Viraat, and INS Vikramaditya for the Indian Navy. It is the only commercial shipyard to have undertaken repair work of Indian Navy's aircraft carriers ‐ INS Viraat and INS Vikramaditya.

• Commercial ship repair: It has also undertaken major revamping and refurbishing of oil rigs in almost all major offshore vessels and rigs of ONGC, involving steel renewal, upgradation of drilling, cementing, mechanical, HVAC, and piping systems. It has MoUs with the Lakshadweep Development Corporation Ltd (LDCL), Directorate General of Lighthouses and Lightships (DGLL), and Dredging Corporation of India (DCI), to undertake ship‐repair work on a bulk‐volume basis. Key clients from the commercial sector include SCI, ONGC, and DCI.

Defense and commercial sector contributed 60% and 40% of revenues respectively


Commercial 15%

IAC 79%

Defence others 21%

Defence 85%

Shipbuilding revenues mix FY13‐17

Defence60%

Commercial40%

Ship Repair Revenue mix FY13‐17



About IAC‐1 Project background CSL is constructing India’s first Indigenous Aircraft Carrier (IAC‐1), a 37,500 tn air‐defence ship (code name Project 71). The ship will be commissioned into the Indian Navy as INS Vikrant. Indigenous Aircraft Carrier (IAC‐1) ‐ Key features Displacement (tn) 37,500 Length (mtr) 260 Beam (mtr) 60 Propulsion CGOG with 2 shafts, each coupled to 2 x LM2500 Gas Turbines developing a total power of 80MW Max speed (km) 28 Endurance 7,500nm at 18 kts Aircraft operations Short Take‐off But Arrested Recovery (STOBAR) Long T/O (mtr) 206 Short T/O (mtr) 145 Power generation (MW) 24 Crew 160 Officers, 1400 Sailors Weapons Long Range Surface to Air Missile (LRSAM), Close‐In Weapon System (CIWS) Aircraft complement 12 MiG‐29Ks, 8 LCA Navy, 10 anti‐submarine (Ka‐31) and Reconnaissance (ALH) helicopters on its 2.5acre flight

deck and hangars Sensors Selex RAN‐40L 3D long range early warning radar with fully solid state active phased array antenna which is

capable of detecting an aircraft up to 400km, Multi‐Function Radar (MFR) for LR‐SAM, Carrier Control Approach Radars to aid air operations

Electronics V/UHF Tactical Air Navigational and Direction Finding systems, Jammer over the expected Electro Magnetic (EM) environment, Combat Management System, developed by Tata Power systems, Integration with Navy's Network Centric Operation

Source: Media reports, PhillipCapital India Research Timelines... 15 years in the making CSL won the order to construct IAC‐1 in 2007 and laid the keel in February 2009. The carrier was floated out of the dry dock in December 2011 and launched in August 2013. The project has missed multiple completion deadlines due to scale‐ and complexity‐related issues and is expected to be complete by 2022‐23 (against earlier estimate of December 2018); it may enter service by 2025. Structure of the contract The contract of the IAC is structured into three packages and sub divided into a fixed‐price contract and a cost‐plus contract. Fixed price contract is for the scope that CSL will execute internally, while the cost‐plus contract is for equipment to be procured from third‐party approved vendors. The fixed‐price contract has a high‐value‐add from CSL, and yields higher margins; the cost plus revenues are booked with a normative margin of 12.5%. IAC‐1 contract structure

Source: Media reports, PhillipCapital India Research

IAC Contract

Infra Services~Rs 2.5bn

Phase‐III (2019‐22)~Rs 110bn

Phase‐II (2014‐19)~Rs 50bn

Phase‐I (2009‐14)~Rs 30bn

Fixed Price Cost Plus Fixed Price Cost Plus Fixed Price Cost Plus



Current progress of the project: Rs 120bn pending execution CSL completed Phase ‐1 of the project in 2014‐15 and has completed 60% of Phase‐2 as of FY17. It expects to complete execution of Phase‐2 by FY19, and will begin Phase‐3 concurrently. As of FY17, CSL has booked cumulative revenues of Rs 70bn on the project. The pending execution on the project is Rs 120bn, in our view, which should accrue as revenues between FY18‐22. After delivery of the ship in FY22‐23, the navy will conduct sea trials of the ship for about two years and it should induct the ship by FY25.



Business segments’ outlook Commercial shipbuilding Even as the global market for commercial ships is undergoing a prolonged downturn, the domestic‐market outlook is buoyant. The government’s key initiatives should drive demand for small and midsized commercial ships. CSL is banking on the following to drive demand for ships in the domestic market: • Shipbuilding policy, 2015 • Development of inland water ways • Sagarmala project • Make in India Shipbuilding policy, 2015 The government approved the new shipbuilding policy in December 2015, granting financial assistance and infrastructure status to the industry. The government has set aside Rs 40bn to implement the scheme over the next 10 years. Key features of the policy include: • Granting infrastructure status to shipbuilding and ship‐repair industry, making it

entitled to various government incentives and tax benefits. • Financial assistance to both state‐owned and private shipbuilders on each ship

that they build, except for smaller boats and fishing vessels. Development of inland waterways Inland waterways account for only 3% of India’s total transport compared with about 9% in China, 8% in the USA, and 7% in the European Union. Inland‐waterways transport is a viable alternative for existing modes of transportation, as it helps decongest these and results in fuel and cost savings. The government’s initiative to develop inland waterways is a big business opportunity for the Indian shipbuilding industry in the form of future orders for building dredgers and small bulk‐carrier vessels. India has identified 111 inland waterways that will be developed progressively, depending on the financial viability of each project. The World Bank will fund 1,620kms National Waterway‐1 on the Ganga from Haldia to Allahabad. Sagarmala project India’s Sagarmala project is expected to tackle underutilised ports by focusing on port modernisation, efficient evacuation, and coastal economic development. It will also complement the Golden Quadrilateral project and provide sea connectivity to major industrial centres. In the future, higher marine‐transport activity will also lead to increased demand for commercial vessels. Notably, the project envisages setting up a shipbuilding and repair cluster. Make in India initiative Under the Make in India programme, Indian shipyards will have the right of first refusal for government purchases, implying that even if the shipyard is not the lowest bidder, an option is provided to the shipyard to match the lowest foreign bid and secure the contract. This is part of the New Shipbuilding Policy, 2015.



Defence shipbuilding Navy’s capital budget has seen 9% CAGR in the past 10 years... The CAGR for India’s allocation to the navy for capital expenditure has seen a decent pace of 9% in the past 10 years (FY09‐18). …but the share in the total budget has largely been stagnant The navy’s share in the total capital budget, at 24% in FY18, is virtually the same as in FY09 (while the navy’s share did increase to 30% in FY12, it subsequently fell to current levels). Indian navy’s capital budget saw 9% CAGR, but its share in the total is stagnant

Source: PhillipCapital India Research Huge deficit in navy’s vessel strength, based on its 2027 perspective plan Navy’s aspirational force strength, as per a 2012 directive of the Defence Acquisition Council, is 198 ships and submarines by 2027 against a current strength of 121 ships and 15 submarines. This leaves a gap of 62 vessels to be constructed and delivered in the next 10 years. Based on our checks, 42 vessels are under construction, still leaving a deficit of 20 ships. This, we believe, offers an efficient shipyard like CSL a very strong opportunity for future orders. Navy still has a deficit of 20 ships to meet its 2027 perspective plan target

(Nos.)Current strength 136Proposed in 2027 perspective plan 198Gap 62Already under construction 42Deficit 20Source: PhillipCapital India Research

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Navy capital budget ex‐land & construction % of Defense capital budget



Indigenous Aircraft Carrier ‐ 2 (IAC‐2) Even before the Navy inducts the IAC‐1 in 2024‐25, it is already in the process firming its plans for IAC‐2. The designing of the ship has already begun. After IAC‐1, India will have two aircraft carriers. However, as it takes almost 10 years to construct an aircraft carrier, existing INS Vikramaditya (bought from Russia ‘Admiral Gorshkov’) will be nearing its end of service. Since CSL has had the experience of building IAC‐1, it makes it a favourable shipyard to build IAC‐2 as well. However, other shipyards such as Garden Reach and Reliance Defense are also in the fray for the IAC‐2 project. Initial cost estimates for the IAC‐2 are US$ 2bn, but there could be upsides risks to the project cost as the initial estimate is as per 2015 costs but the ship would be ordered in 2025. Initial details of IAC 2 Displacement 65,000 tn Length 300 mtr Max Speed > 30 km Power plant Nuclear or CDOG Flight Deck Operations Catapult Assisted Take‐Off But Arrested Recovery (CATOBAR),

Possibly Electromagnetic Aircraft Launch System (EMALS) Aircraft Complement 30‐35 Fighters, 20 Helicopters Cost US$ 2bn Source: Media reports, PhillipCapital India Research



Ship repair: A potent opportunity Global ship‐repair industry According to the Ministry of Shipping, the global ship‐repair market is approximately US$ 12bn. Shipyards in Singapore, Bahrain, Dubai, and the Middle East account for a major share of this market. These locations have achieved a dominant position despite higher cost of ship‐repair services compared with other Asian countries, largely due to the availability of a skilled workforce and latest technology, which allows these shipyards to attract demand from other low‐cost locations like India, Malaysia, and Indonesia. Indian ship‐repair industry Cochin Shipyard (39% revenue share of India’s ship repair industry in FY15) leads in ship repairs, followed by Goa Shipyard (20% revenue share in FY15). Private‐sector shipyards in this segment include Sembmarine Kakinada, Larsen & Toubro, and ABG Shipyard. CSL has the highest domestic market share in ship repair

Source: RHP, PhillipCapital India Research India’s strategic positional advantage and relatively low‐cost structures makes it a viable option along the east‐bound and west‐bound international trade routes. Indian yards are also expected to benefit from the increasing strength of the Indian Navy along with the Coast Guard’s operational and support fleet, which will drive the repairs business. Moreover, higher indigenization in ships, for clients engaged in the defence sector, are likely to augment revenue per refit and repair – driving growth and increasing the proportion of defence repairs over the next five years. To cater to the growing demand for ship repairs, CSL is setting up an International Ship Repair Facility (ISRF) with a capex of Rs 9.7bn. It will take three years to complete and it will be funded through IPO proceeds and internal accruals. This new 130‐mtrs facility will enable CSL to increase its annual throughput by 70‐90 ships, translating into a 60‐70% increase in volumes. According to the Ministry of Shipping, the Indian ship‐repair industry’s market potential is approximately US$ 1.5bn (Rs 100bn). The domestic ship‐repair industry is expected to see 8‐10% CAGR in FY16‐21 (Source: CRISIL).

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Market share in ship repair



Key strengths A play on India defence CSL offers investors an opportunity to play the India defence sector, as there are not many sizeable companies currently. Even though CSL is rated a commercial shipyard, it derives 85% of its revenues and orderbook from the defence sector. It is also a play on the naval shipbuilding opportunity in India, as major government shipyards remain in the unlisted space. There are listed shipyards in the private sector such as Reliance Defense, ABG, and Bharati, but they are loss‐making and still haven’t won sizeable orders in defence. Revenues from defence contributed 85% of CSL’s FY17 revenues; seen increasing

Source: PhillipCapital India Research Efficient and cost‐competitive compared to other public shipyards CSL is able to execute projects efficiently due to its system of sub‐contracting, which helps it in ship‐repair projects and production planning. Against a full‐time employee size of 1,824 (May 2017) it employs 612 contract employees and 3,178 daily sub‐contract workers, which allows it to maintain a flexible work force. Its integrated structure (build yard and repair facilities in the same location) allows inter‐changeability of employees, depending on workload on either business segments. In our view, CSL is the most efficient shipyard among all public sector ones. We analysed its employee‐cost intensity to revenues and gather that employee costs accounted for 11% of sales in FY16 vs. 18%/17%/19%/24% for MDL/GRSE/GSL/HSL. Also on the revenue per employee parameter, CSL ranks higher than all other shipyards at Rs 11.9mn vs. Rs 4.6/9.7/4.6/2.9mn for MDL/ GRSE/GSL/HSL. Its EBITDA margins are also almost twice that of the next public yard. Even compared to global listed shipyards, CSL’s margins are significantly higher than mean margins.

90% 85% 84% 82% 85% 87% 90%

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Public shipyards ‐ Revenue per employee Public shipyards ‐ Employee costs as % of sales

Source: RHP, PhillipCapital India Research CSL has strong margins compared to other Indian Its margins are in line with its Singapore peers; other public‐sector shipyards global peers had weak margins... EBITDA margins (%) Company FY14 FY15 FY16Cochin Shipyard 23.2 5.7 19.5 Mazgaon Dock 0.1 5.9 5.2 Garden Reach 7.7 1.3 4.6 Goa Shipyard (12.9) (7.4) 10.5 Hindustan Shipyard (20.1) (61.9) (4.7)

Source: RHP, PhillipCapital India Research, Bloomberg, *Year ending March 2017 Healthy balance sheet compared to peers Company _____Networth_____ _____RoE (%)_____ _______FCF_______(Rs bn) FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16Cochin Shipyard 14.9 15.4 17.2 20.8% 4.6% 17.7% (4.5) 10.4 3.4Mazagon Dock 20.9 24.6 28.5 20.2% 21.6% 23.0% (12.0) 20.3 6.1Garden Reach 9.6 9.7 10.6 13.1% 3.0% 14.2% (6.4) 15.2 4.1Goa Shipyard 5.8 6.2 6.7 ‐10.0% 13.0% 9.6% (0.8) (2.2) (3.1)Hindustan Shipyard (8.2) (10.2) (10.0) nm nm nm (0.4) 0.5 (2.0)

Source: PhillipCapital India Research Focuses on engineering heavy products The global ship building‐industry is dominated by Asian shipyards in South Korea, Japan, and China due to their sheer size, government subsidies, and low interest costs to manage working capital. Asian shipyards accounted for 91% of global ship deliveries in CY15. This puts India at a disadvantage in bidding for large‐sized ships such as VLCCs and LNG carriers. However, the commercial shipping industry is in a prolonged downturn due to weak economic activity (mainly in China) and low oil prices. This has led to high competition among shipyards, leading to lower margins and even losses in some cases. As a result, CSL does not focus on aggressively bidding for standard commercial ships (bulk carriers or merchant vessels) but rather on engineering heavy products such as dredgers. This helps it to maintain high profitability, short construction timelines, and higher throughputs.

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Strong technical tie ups CSL has been successful in entering business partnerships with leading technology players right from its inception. Its original yard layout was designed by Mitsubishi Heavy Industries; over the years, CSL has entered into various technology MOUs. Business partnerships and technological tie‐ups Business Partner Scope of work LDCL Dry‐dock and afloat repairs of their vessels. DGLL Dry‐dock repairs of their vessels on a nomination basis. DCI Repair of DCI's dredgers on a nomination basis. Techcross Receive Technical support and engineering and provide shipyard support services to Techcross such as office,

warehousing and installation services. Also operate a joint marketing framework with Techcross for marketing of various BWTS products and operate a preferential price tier system to allow CSL customers access to Techcross' BWTS products at competitive rates.

Gaztransport & Technigaz, SA (GTT)

Obtained license from GTT to use the patented membrane containment system known as the Mark III Flex Membrane Technology to construct liquefied gas carriers. This license allows CSL to utilise any of GTT's integrated tank techniques for transporting liquid gas, particularly liquefied natural gas.

Samsung Heavy Industries

Entered into technology agreements for the construction of LNG vessels for GAIL

Rolls Royce Marine First shipyard worldwide to have built and delivered the new high‐tech Rolls Royce series of PSV which is based on the UT 755 CD design of Rolls Royce

Wartsila Wartsila has set up a containerised, self‐sufficient workshop within CSL shipyard, primarily catering to propeller metallurgical repairs. CSL derive rental income from this workshop. Wartsila also provides training to personnel in relation to repair of Warstila engines.

Engineers India MOU for design and construction of small scale LNG Carriers under the ambit of ‘Make in India’ programme of the GOI and also in alignment with GOIs vision of SAGARMALA and Inland Water Ways Development initiatives.

Source: RHP, PhillipCapital India Research Robust orderbook – 5.5x FY17 revenues As of FY17, CSL has a total orderbook of Rs 110bn, which includes Rs 93bn of IAC, Rs 16bn of orders from commercial shipbuilding, and Rs 3.7bn of ship‐repair orders. This translates to 5.5x FY17 sales, providing a significantly long‐term visibility on revenues. In addition to a robust orderbook, CSL should receive Rs 30bn orders for a fixed‐price contract of Phase‐3 of IAC in FY19, in our view, and has a Rs 110bn opportunity pipeline of new orders. Strong order book with Book‐to‐Bill at 5.5x FY17 sales Strong pipeline of orders for the next three years


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9

FY13 FY14 FY15 FY16 FY17

Book to bill (x) Projects Client Rs mnAnti Submarine Warfare Shallow Water Craft Indian Navy 56Diving support Vessels Indian Navy 20Survey Vessels Indian Navy 20250 small vessels for coastguard Ministry of

Home Affairs 10

Total 106



Experienced management with bandwidth CSL has a capable management. Its current Managing Director has been with the company for 28 years, with good credentials. Similarly, its Director Operations has been with the firm for 31 years. During the IPO meet, we interacted with the middle‐management team in finance and business development and found them well experienced. Key management personnel

Name Designation Age

(years) Experience (years) Qualification

Mr. Madhu S. Nair

Chairman & Managing Director

51 28 • Joined CSL as a management trainee in June 1988• B. Tech in naval architecture and ship‐building from Cochin University, master in

engineering with specialisation in naval architecture and ocean engineering from Osaka University, Japan.

• Training course in shipbuilding‐production control at Ishikawajima Harima Heavy Industries Overseas Vocational Training Association

Mr. D. Paul Ranjan

Director (Finance) 57 32 • Joined CSL as an executive trainee in December 1984 • B. Com from Madurai Kamaraj University • Chartered accountant; course in information systems audit from ICAI

Mr. Sunny Thomas

Director (Technical)

59 35 • Joined as a management trainee in August 1981 • B. Tech in naval architecture and ship building from University of Cochin; MBA

(Finance) from IGNOU; certificate in project risk management from the Institute of Project Management Certification

Mr. Suresh Babu N. V.

Director (Operations)

56 31 • Joined as an executive trainee in 1985 • BE (mechanical) from the University of Kerala and a diploma in management

from IGNOU • Training course in shipbuilding, repairing, and maintenance conducted by

Overseas Shipbuilding Cooperation Centre. Practical training course with shipyard in Sekaidu of Kawasaki Heavy Industries Ltd

Mr. Murugaiah M

CGM (Technical & HSE)

55 31 • Joined as an executive trainee in August 1986 • B. Tech (Mechanical) from University of Kerala and of MBA from the Madurai

Kamraj University • Certificate in project risk management from the Institute of Project Management

Certification Mr. Bejoy Bhasker

CGM (Design & Defence Projects)

52 29 • Joined in June 1988 as an executive trainee • Has been involved in ship‐building outfit and ship‐repair departments. • B. Tech (mechanical) from University of Kerala and M. Tech (mechanical) from

IIT, Madras. Advanced diploma in management from IGNOU. Source: RHP, PhillipCapital India Research



Capacity expansion plans CSL is the largest public sector shipyard by capacity CSL has an existing ship building capacity of 110,000 DWT, the largest amongst public sector shipyards. The dry dock measures 255 x 42.9 x 9M and follows the Japanese system of construction using the Integrated Hull Outfit and Painting (IHOP) system. Currently the company can cater to Aframax‐sized tankers (ranging from 80,000 to 120,000 DWT). Integrated shipbuilding infrastructure at the shipyard allows CSL to undertake structural, machinery, and electrical design and to prepare detailed production engineering drawings. During the shipbuilding design process 3D hull, piping and electrical models are created, ensuring optimum, error‐free ship designs. Its ship repair yard is also the largest within the public sector with a capacity of 125,000 DWT with a 270 x 45 x 12M size. CSL is India's 2nd largest shipyard and largest among public sector ...and also has the 2nd largest in ship repair facility

Source: RHP, PhillipCapital India Research Future expansions to meet growing demand particularly for ship repair The company is investing Rs 28bn over the next three years to set up a new Dry Dock and an ISRF. Out of the total capex, Rs 6.7bn will be funded through IPO proceeds and the rest through internal accruals. Details of existing and planned capacities

Facilities Shipbuilding Ship repair New Dry Dock for ship

building & repair ISRFDock Dock 2 Dock 1 Dry Dock ISRFCapacity (DWT) 1,10,000 1,25,000 Length (mtr) 255 270 310 130Width (mtr) 43 45 75‐60Depth (mtr) 9 12 13Draught 9.5Area (mtr) 255 x 43 x 9 270 x 45 x 12 310 x (75/60) x 13Lifting capacity (tn) 6000


0

75

150

225

300

375

450

RDEL CSL HSL BDIL Sembmarine

L&T ABG Alcock Ashdown

GSL

Shipbuilding capacity ('000 DWT)

0

50

100

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300

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RDEL CSL HSL BDIL ABG GSL GRSE

Ship repair capacity

Length (mtr) Width (mtr) Depth (mtr)



Capex and funding plan of new dry dock and ISRF (Rs mn) Total New Dry Dock ISRFCapex (US$ mn) 408 265 143Exchange rate (Rs / USD) 68 68 68Capex for setting up dry dock & ISRF 27,684 17,990 9,694Deployed till June 2017 458 141 317Proposed to be financed from net proceeds 6,725 4,430 2,295Balance funding required 20,501 13,419 7,082Sanction of credit facility / term loan from SBI 8,610 4,190 4,420Funds from existing identifiable internal accruals 12,349Cash & bank balance on June 2017 20,032

Source: RHP, PhillipCapital India Research Phasing of capex (Rs mn) Capex Upto Jun'17 FY18 FY19 FY20 FY21 FY22 FY23 New Dry Dock 17,990 141 2,731 6,500 6,000 2,619 ‐ ‐ SRF 9,694 317 1,500 2,000 3,000 2,000 800 77Total 27,684 458 4,231 8,500 9,000 4,619 800 77

Source: RHP, PhillipCapital India Research New dry dock: Getting ready for IAC‐2? The new dry dock will enable the company to build larger ships (such as Suez‐size vs. Aframax presently) by using the ‘stepped’ dry‐dock method. This method enables longer vessels to fill the length of the dock and wider, shorter vessels and rigs to be built or repaired at the wider part. The company will be investing Rs 18bn to construct the new facility. The new dry dock will enable CSL to… • Construct complex technology‐intensive vessels such as LNG carriers, large

dredgers, high‐end research vessels etc. • Venture into the entire LNG vessel spectrum of the country soon. • Construct the second Indigenous Aircraft Carrier (IAC‐2) of a much larger capacity

than IAC‐1 for the Indian Navy (national interest). • Building ‘Green Ships’ such as LNG carriers in the country. Existing and proposed dry‐dock facility

Source: MOEF, PhillipCapital India Research



ISRF: Increasing the throughput of a profitable business The new International Ship Repair Facility will allow the company to increase its repair throughput by 60‐70% as it includes a ship‐lift and transfer system. It will allow CSL to repair 72 additional ships in the new ISRF and an additional 12 in the new dry dock. CSL will spend Rs 10bn on the ISRF. Details of the ship‐repair facility Ship repair facility: Workstations Number of workstations 6 Average laying time at workstation per ship 1 month Ships possible to dock at work station annually (nos) 12 Total ships possible to dock annually at workstations 1‐6 72 Ship repair facility: Dry dock Number of workstations / work area 1 Average laying time at dry dock per ship 1 month Ships possible to dock at dry dock annually (nos) 12 Total ships number of ship repair objects per year 84

Source: MOEF, PhillipCapital India Research Estimated laying times for underwater repairs Repair program On shore (workstation) At repair jetties Total laying time Large program / Type 1 22 working days 8 working days 30 working days Medium program /Type 2 18 working days 8 working days 26 working days Small program / Type 3 14 working days 8 working days 22 working days

Source: MOEF, PhillipCapital India Research Estimated laying times for above‐water repairs Repair program At repair jetties

Large ship repair program 16 up to 20 working days Medium ship repair program 12 up to 16 working days Small repair program: 10 up to 12 working days

Source: MOEF, PhillipCapital India Research



Key risks Over dependence on a single project (IAC) IAC forms a significant portion of CSL's current order book. This project has contributed 55% to company's revenues during FY13‐17 and we expect the contribution to increase to 80% by FY22 (vs. 64% in FY17). A significant part of the contract is on a fixed‐price basis. Consequently, any delays in execution and cost overruns may have a significant bearing on CSL’s profitability. As per a CAG report, the IAC project has been delayed and is likely to be completed only by 2023. Delay in procurements of critical parts and frequent changes in design have led to delay in execution. The report also highlighted CSL's lack of experience related to vessel type, size, and complexity. Hence, any further delay in execution poses a significant risk to profitability as well as reputation resulting in difficulty in securing such types of orders in the future. Revenue contribution from IAC to further increase to 80% in FY20 from 64% in FY17

Source: RHP, PhillipCapital India Research Variability in profitability due to long execution period in shipbuilding Most of CSL's contracts are fixed‐price, and all costs are forecasted at the time of entering into the contracts. Typically, its contract periods vary (depending on the size of vessels) from 18 to 24 months for small ones, 20‐36 months for medium vessels, and 40‐72 months for large ones. Given, the long execution cycle of the contracts, any adverse movement in the costs brings a risk to profitability. High share of ‘bought outs’ or outsourced supplies Raw materials and bought‐out components constitute a major part of CSL's expenditure. Any shortage in the supply and increase in the prices of these materials could pose a significant risk to its execution and profitability. Increased competition due to opening up of defence shipbuilding to private sector CSL faces competition from both domestic and global players (particularly from South Korea, Japan, and China). Due to recent policies, private companies have been allowed to bid for vessels used in defence‐related projects. In a first, recently, the Indian Coast Guard awarded an order for a series of FPVs to a private shipyard.

39%

60%

48%

58%64%

68% 67%71% 73%

79%

30%

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90%

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FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E

(Rs bn) Revenues (Rs bn) IAC share (%)



Historical financial performance in charts Revenue grew at 5% CAGR over FY13‐17 EBITDA and EBITDA margin

Source: RHP, PhillipCapital India Research PAT and PAT growth Free cash flow and RoE


‐20%

‐10%

0%

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30%

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4

8

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24


(Rs bn) Revenues % yoy

5.2% CAGR

0%

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(Rs bn)EBITDA EBITDA margins (%)

2% CAGR

‐150%

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(Rs bn) PAT % yoy

4% CAGR

0%

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(6)

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(2)

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(Rs bn) Free cash flow RoE (%)



Financial outlook in charts 20% CAGR in revenues over FY17‐22 Share of shipbuilding revenues to increase to 84%

Defence share to increase driven by execution of IAC‐1 Gross margin to decline on higher bought‐out materials, but EBITDA margin to remain flat on operating leverage benefits

While PAT will see 15% CAGR…. …free cash flow and RoE will remain subdued due to equity dilution and capex for new dry dock and ISRF


0%

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(Rs bn) Revenues % yoy

19.8% CAGR

82%74% 77% 79% 80% 80% 84%

18%26% 23% 21% 20% 20% 16%

0%

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Shipbuilding Ship repair

90% 85% 84% 82% 85% 87% 90%

10% 15% 16% 18% 15% 13% 10%

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Defence Commercial

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Gross margins (%) EBITDA margins (%)

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15% CAGR

10%

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18%

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(Rs bn) Free cash flow RoE (%)



Peer comparison Global Shipbuilding ‐ Peers valuation comp Price Mkt cap ______EPS (LC) ______ ______PE (x) ______ __EBITDA margin (%)__ ______RoE (%)______Company name (LC) (USD bn) CY17E CY18E CY19E CY17E CY18E CY19E CY17E CY18E CY19E CY17E CY18E CY19ECochin Shipyard 432 0.9 25.3 29.6 30.9 17.1 14.6 14.0 17.7 18.3 17.8 13.1 12.0 11.6Reliance Defence 63 0.7 (7.2) (4.4) (4.1) nm nm nm 5.9 8.9 9.8 (31.9) (18.3) (18.9)Yangzijiang 1.3 3.7 0.53 0.51 0.51 12.1 12.7 12.7 20.0 19.4 18.0 8.7 7.8 7.5Keppel 6.5 8.6 0.46 0.51 0.51 14.1 12.7 12.6 17.6 17.9 16.1 6.7 7.4 7.1Sembcorp 1.7 2.6 0.05 0.06 0.08 37.7 28.7 21.7 12.7 13.4 13.2 3.6 4.5 5.8Avg ‐ Singpore 21.3 18.0 15.7 16.8 16.9 15.8 6.4 6.6 6.8China Shipbuilding* 6.2 17.6 0.06 0.10 0.09 98.6 63.4 66.1 5.7 7.1 7.8 2.0 3.0 2.8China CSSC 23.3 4.8 0.04 0.20 0.71 555.7 117.9 33.1 9.0 9.7 12.4 (0.1) 1.3 3.6Jiangsu Guoxin 11.9 5.7 0.84 0.91 1.04 14.1 13.0 11.4 14.4 14.0 14.2Avg ‐ Chinese 222.8 64.8 36.9 7.3 8.4 10.1 5.4 6.1 6.9Hyundai 1,80,000 9.1 7,237 4,721 7,601 24.9 38.1 23.7 6.6 6.5 7.3 3.2 2.0 3.1Samsung 11,500 4.0 239 370 522 48.2 31.1 22.0 5.4 7.3 7.8 1.4 2.0 2.9Avg ‐ Korean 36.5 34.6 22.8 6.0 6.9 7.6 2.3 2.0 3.0Mitsubishi 456 13.9 31 33 37 14.9 13.8 12.3 9.8 10.0 10.7 6.1 6.3 6.7Fincantieri 1.0 1.9 0.0 0.1 0.1 26.4 14.8 11.0 6.3 7.0 7.6 5.9 9.0 11.6Average ‐ Global 64.4 29.2 19.7 9.2 9.8 10.3 5.2 6.0 7.0Source: Bloomberg, PhillipCapital India Research, Note CY17=FY18, *Price dated May 26, 2017

Our view: SUBSCRIBE Over the next five years (FY18‐22) CSL has to execute ~ Rs 120bn of pending work on IAC‐1, which will lead to acceleration in its revenues. We expect CSL’s revenues/EBITDA/PAT to see CAGR of 20%/19%/15% CAGR over FY18‐22 against 5%/2%/4% in FY12‐17. However, RoEs will be subdued at 12‐15% against historical average of ~20% due equity dilution and capex. We rate this IPO ‘SUBSCRIBE’. We believe CSL offers a unique opportunity to investors to play the India defence theme backed by strong management and robust order book. We also highlight that our estimates for FY18‐22 do not factor in any additional orders even as CSL targets Rs 110bn of opportunities over the next three years. Lastly, CSL should be favourably placed for the next aircraft carrier (IAC‐2) that the navy is looking to order over the next five years.



Annexure Indian shipbuilding industry structure

Source: RHP, PhillipCapital India Research Shipbuilding Process


Indian Shipbuilding Industry

Government Sector Private Sector

UnlistedListedState GovernmentCentral Government

L&T ShipyardPipavavShipyardAlcockAshdownMinistry of DefenseMinistry of Shipping

Chowgule& Company LtdBharti ShipyardShalimar Works

Tebma Shipyard etc.AGB ShipyardMazagaon Dock LtdCochin Shipyard

Goa ShipyardHooglyDock & Port Engineer Ltd

Garden Reach

Hindustan Shipyard

Planning & Production Control

CONTRACTS

DESIGN

PURCHASE

Inspection & Quality Control

CONSTRUCTION PROCESS

Steel Preparation Block Fabrication Block Outfitting Block Painting Grand Assembly

Trials & Delivery Equipment Commissioning Tank Testing Onboard

OutfittingBlock Erection & Consolidation



Financials Income Statement Y/E Mar, Rs mn FY17 FY18e FY19e FY20eNet sales 20,595 23,367 27,346 31,356 Growth, % 3.5 13.5 17.0 14.7 Raw material expenses (13,141) (14,982) (17,794) (20,880)Employee expenses (2,167) (2,714) (2,926) (3,177)Other Operating expenses (1,485) (1,534) (1,630) (1,722)EBITDA (Core) 3,802 4,137 4,996 5,575 Growth, % (3.0) 8.8 20.8 11.6 Margin, % 18.5 17.7 18.3 17.8 Depreciation (385) (408) (437) (465)EBIT 3,417 3,729 4,560 5,110 Growth, % (3.7) 9.1 22.3 12.1 Margin, % 16.6 16.0 16.7 16.3 Interest paid (105) (105) (105) (105)Other Income 1,490 1,674 1,744 1,460 Pre‐tax profit 4,802 5,298 6,199 6,465 Tax provided (1,680) (1,854) (2,170) (2,263)Net Profit 3,122 3,443 4,029 4,202 Growth, % 113 136 136 136 Net Profit (adjusted) 113 136 136 136 Unadj. shares (m) 20,595 23,367 27,346 31,356 Wtd avg shares (m) 3.5 13.5 17.0 14.7 Balance Sheet Y/E Mar, Rs mn FY17 FY18e FY19e FY20eCash & bank 21,813 29,305 24,210 19,600 Debtors 3,070 3,050 3,675 3,772 Inventory 1,865 1,853 2,230 2,289 Loans & advances 1,927 2,118 2,296 2,360 Other current assets 28,675 36,326 32,412 28,021 Total current assets 1 1 1 1 Investments 6,943 7,443 7,943 8,443 Gross fixed assets (3,236) (3,645) (4,082) (4,547)Less: Depreciation 539 4,770 13,270 22,270 Add: Capital WIP 4,245 8,568 17,131 26,166 Net fixed assets 33,164 45,138 49,787 54,431 Total assets

9,305 8,926 10,473 12,064 Current liabilities 2,319 2,664 3,085 3,515 Provisions 11,624 11,590 13,559 15,579 Total current liabilities 1,230 1,230 1,230 1,230 Non‐current liabilities 12,854 12,820 14,789 16,809 Total liabilities 1,133 1,359 1,359 1,359 Paid‐up capital 19,177 30,959 33,639 36,263 Reserves & surplus 20,310 32,318 34,998 37,622 Shareholders’ equity 33,164 45,138 49,787 54,431 Total equity & liabilities 21,813 29,305 24,210 19,600 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY17 FY18e FY19e FY20ePre‐tax profit 4,802 5,298 6,199 6,465 Depreciation 385 408 437 465 Chg in working capital (682) (194) 788 1,800 Total tax paid (1,601) (1,854) (2,170) (2,263)Cash flow from operating activities 2,123 2,089 3,615 5,113 Capital expenditure (687) (4,731) (9,000) (9,500)Chg in investments ‐ ‐ ‐ ‐Cash flow from investing activities 648 (3,056) (7,256) (8,040)Free cash flow 2,770 (967) (3,640) (2,927)Equity raised/(repaid) 2,068 12,008 2,680 2,624 Debt raised/(repaid) ‐ ‐ ‐ ‐Dividend (incl. tax) (1,223) (1,349) (1,578) (1,646)Other financing activities (1,970) (2,200) (2,556) (2,661)Cash flow from financing activities (1,125) 8,459 (1,454) (1,684)Net chg in cash 1,645 7,492 (5,095) (4,611) Valuation Ratios

FY17 FY18e FY19e FY20ePer Share data EPS (INR) 27.6 25.3 29.6 30.9 Growth, % 7.0 (8.1) 17.0 4.3 Book NAV/share (INR) 179.3 237.7 257.5 276.8 FDEPS (INR) 27.6 25.3 29.6 30.9 CEPS (INR) 31.0 28.3 32.9 34.3 CFPS (INR) 12.5 14.6 25.8 36.8 DPS (INR) 9.0 8.2 9.6 10.1 Return ratios Return on assets (%) 9.7 9.1 8.7 8.3 Return on equity (%) 16.2 13.1 12.0 11.6 Return on capital employed (%) 15.8 12.9 11.8 11.5 Turnover ratios Asset turnover (x) 14.6 5.5 2.5 1.7 Sales/Total assets (x) 0.6 0.6 0.6 0.6 Sales/Net FA (x) 5.0 3.6 2.1 1.4 Working capital/Sales (x) (0.1) (0.1) (0.1) (0.1)Working capital days (43.3) (29.8) (30.3) (42.4)Liquidity ratios Current ratio (x) 3.1 4.1 3.1 2.3 Quick ratio (x) 2.9 3.9 2.9 2.1 Interest cover (x) 32.4 35.4 43.3 48.5 Dividend cover (x) 3.1 3.1 3.1 3.1 Total debt/Equity (%) 6.1 3.8 3.5 3.3 Net debt/Equity (%) (101.3) (86.9) (65.7) (48.8)Valuation PER (x) 15.7 17.1 14.6 14.0 PEG (x) ‐ y‐o‐y growth 2.2 (2.1) 0.9 3.3 Price/Book (x) 2.4 1.8 1.7 1.6 Yield (%) 2.1 1.9 2.2 2.3 EV/Net sales (x) 1.4 1.3 1.3 1.3 EV/EBITDA (x) 7.5 7.4 7.2 7.2



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

Management Vineet Bhatnagar (Managing Director) (91 22) 2483 1919 Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6246 4101 Jignesh Shah (Head – Equity Derivatives) (91 22) 6667 9735 Research Automobiles Engineering, Capital Goods Pharma & Specialty Chem Dhawal Doshi (9122) 6246 4128 Jonas Bhutta (9122) 6246 4119 Surya Patra (9122) 6246 4121 Nitesh Sharma, CFA (9122) 6246 4126 Vikram Rawat (9122) 6246 4120 Mehul Sheth (9122) 6246 4123 Banking, NBFCs IT Services & Infrastructure Strategy Manish Agarwalla (9122) 6246 4125 Vibhor Singhal (9122) 6246 4109 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Pradeep Agrawal (9122) 6246 4113 Shyamal Dhruve (9122) 6246 4110 Paresh Jain (9122) 6246 4114 Logistics, Transportation & Midcap Telecom Consumer & Retail Vikram Suryavanshi (9122) 6246 4111 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Media Manoj Behera (9122) 6246 4118 Jubil Jain (9122) 6246 4117 Manoj Behera (9122) 6246 4118 Technicals Preeyam Tolia (9122) 6246 4129 Metals Subodh Gupta, CMT (9122) 6246 4136 Cement Dhawal Doshi (9122) 6246 4128 Production Manager Vaibhav Agarwal (9122) 6246 4124 Ganesh Deorukhkar (9122) 6667 9966 Economics Mid-Caps & Database Manager Editor Anjali Verma (9122) 6246 4115 Deepak Agarwal (9122) 6246 4112 Roshan Sony 98199 72726 Shruti Bajpai (9122) 6246 4135 Oil & Gas Sr. Manager – Equities Support

Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971

Sales & Distribution Corporate Communications Ashvin Patil (9122) 6246 4105 Sales Trader Zarine Damania (9122) 6667 9976 Shubhangi Agrawal (9122) 6246 4103 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6246 4106 Suniil Pandit (9122) 6667 9745 Bhavin Shah (9122) 6246 4102 Ashka Mehta Gulati (9122) 6246 4108 Execution Archan Vyas (9122) 6246 4107 Mayur Shah (9122) 6667 9945

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 RafflesCityTower,

Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku

Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, VorawatBuilding, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of TradeBuilding

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm INDIA

PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in



Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.



Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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