PERSISTENT SYSTEMS Momentum returns after a pause

(1)

Persistent

Systems’

(Persistent)

Q3FY16

revenue

at

USD89.7mn

(up

8.1%

QoQ)

was

ahead

of

Street’s

5.8%

estimate.

Organic

revenue

grew

4.4%

QoQ,

while

inorganic

contributed

the

rest.

EBITDA

margins,

at

18.8%,

was

in

line

with

estimates.

The

company’s

enterprise

and

IP

‐

led

businesses

grew

16.2%

and

34.1%

QoQ,

respectively,

while

ISV

declined

3.1%

QoQ.

We

believe

Persistent

has

witnessed

severe

pain

due

to

high

exposure

(>50%)

to

ISV’s,

which

have

been

suffering

due

to

cloud

based

disruption.

However,

the

company

has

simultaneously

also

significantly

increased

its

exposure

to

enterprise

business

(now

28.6%).

While

its

overall

growth

will

still

be

in

low

to

mid

teens

due

to

high

ISV

exposure,

we

believe

in

few

quarters

rising

contribution

from

enterprise

will

lead

to

higher

growth.

We

continue

to

prefer

Persistent

for

its

niche

offerings

and

capability

led

growth

model.

Maintain

‘BUY’

with

revised

TP

of

INR820.

Revenue

beat

after

a

pause;

increase

in

non

‐

ISV

business,

a

relief

Persistent after 8 consecutive quarters of pause beat estimates in Q3FY16, led by strong 16.2% and 34.1% QoQ growth in enterprise and IP businesses, respectively. Contribution of enterprise and IP businesses is now at 28.6% and 20.1%, respectively, while that of ISV’s 51.3%. The ISV business has been struggling impacted by cloud based disruptions, but the rising proportion of non‐ISV business (48.7%) is a relief and implies that the company can post low to mid teen growth going forward.

Increasing

enterprise

business,

acquisitions

key

drivers

The non‐ISV business declined 3.1% QoQ versus 8.1% growth logged by overall business and contribution of non‐ISV business increased from 42.8% to 48.7%. Persistent’s acquisitions complement its offerings in the digital transformation space, evident from its recent buys ‐ RGEN and Aepona. We believe acquisitions and their quick integration will be key to succeed in the digital run, evident from the precedent set by larger peers, Accenture, SAP Labs , Infosys and Cognizant in the recent past.

Outlook

and

valuations:

Long

term

bet;

maintain

‘BUY’

We remain confident that Persistent will achieve our 14.7% USD revenue and 17.4% EPS CAGR over FY16‐18E. The stock trades at 13.0x FY17E EPS. We maintain ‘BUY/SP’ with a revised target price of INR820 as we roll‐over to FY18 (16x FY18E EPS; INR740 earlier).

PERSISTENT

SYSTEMS

Momentum

returns

after

a

pause

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Performer

Risk Rating Relative to Sector Low

Sector Relative to Market Underweight

MARKET DATA (R: PERS.BO, B: PSYS IN) CMP : INR 609

Target Price : INR 820

52‐week range (INR) : 944 / 574

Share in issue (mn) : 80.0

M cap (INR bn/USD mn) : 49 / 697

Avg. Daily Vol.BSE/NSE(‘000) : 151.1

SHARE HOLDING PATTERN (%)

Current Q2FY16 Q1FY16

Promoters * 38.5 39 38.5

MF's, FI's & BK’s 11.8 11.8 11.0

FII's 16.6 16.6 20.4

Others 33.1 33.1 30.1

* Promoters pledged shares (% of share in issue) : NIL PRICE PERFORMANCE (%) Stock Nifty EW Technology Index 1 month (6.4) (5.4) (1.1) 3 months (8.3) (10.4) (3.7) 12 months (33.3) (15.8) (2.9) Sandip Agarwal +91 22 6623 3474 [email protected] Pranav Kshatriya +91 22 4040 7495 [email protected]

India Equity Research| IT

Financials (INR mn)

Year to March Q3FY16 Q2FY16 Growth % Q3FY15 Growth % FY15 FY16E FY17E

Revenue 5,921 5,427 9.1 4,946 19.7 18,913 22,529 26,859 EBITDA 1,110 1,018 9.1 995 11.6 3,906 4,287 5,555 Adjusted profit 775 718 7.8 745 4.1 2,906 2,969 3,738 Dil. EPS (INR) 9.7 9.0 7.9 9.3 4.1 36.3 37.1 46.7 Dil. P/E (x) 16.8 16.4 13.0 EV/EBITDA (x) 10.8 9.5 6.9

(2)

Why

Persistent

is

a

BUY?

We had initiated coverage on Persistent in August 2012 and the stock has given handsome 56.5% returns since then. In past 1 year, the stock corrected by 33% as the growth rate slowed to 12.6% in FY15 from 21.8% in FY12. Our detailed analysis of the company’s financials of past few quarters clearly shows that the primary reason for the poor show was cloud based disruption caused in its key ISV (independent software vendors) business, which accounted for ~58.6% of its business. We are enthused by Persistent’s agility to foresee this disruption and redirect its efforts and capability to build the enterprise business, which looks promising driven by digital demand. In past 7 quarters, enterprise business contribution has risen from mere 19.7% in Q1FY15 to 28.6% in Q3FY16. While the company’s overall growth looks muted on a small base, significant presence in the fast‐ growing digital business will compensate for loss of business in ISV (ISVs contributed 51.3% to overall business in Q3FY16).

In our view, Persistent’s target multiple of 16x looks very high for a mid cap company with low to mid teen growth, but we believe it’s fast changing business mix tilting more towards enterprise implies higher growth rates going ahead. We expect the company to once again post higher growth of 15% plus once it shirks the high dependency on ISV business.

While we maintain that Persistent is still not out of the storm, it is headed in the right direction with its strategy of ramping up enterprise business. We believe it is a long term bet and needs to be seen beyond 12 months. In the near term, the stock may not give significant returns, but once losses in its ISV business bottoms out along with higher contribution by enterprise business, we believe growth based re‐rating of the stock will take place.

We maintain ‘BUY/SP’ as we roll over to FY18E with a target price of INR820.

Key

highlights

 Reported revenue of USD89.7mn, up 8.1% QoQ, ahead of Street’s estimate of 5.8% QoQ growth. Services and IP‐led business reported 3.0% and 34.1% QoQ growth, respectively. Organic revenue growth was 4.4% QoQ, while Aepona acquisition contributed revenue of USD3mn.

 Gross margin, at 38.8%, was down by 10bps QoQ. EBITDA margin, at 18.8%, was up by 10bps QoQ versus Street’s estimate of 18.9%.

 Net profit, at INR775mn, improved 7.8% QoQ, helped by lower tax rate. Net margin stood at 13.1% (13.2% in Q2FY16).

 IP‐led revenue: Stood lower at 20.1% (from 16.2% in Q2FY16).

Table 1: Trend of IP‐led revenue growth (QoQ)

Source: Company, Edelweiss research

 Client data: 337 clients were billed in product engineering & platform solutions (311 in Q2FY16). IP‐led revenue clients further declined to 291 (299 in Q2FY16).

Period Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Growth (%) (4.8) 14.4 2.1 2.9 1.2 (4.1) (0.1) (7.1) 34.1

(3)

 Performance across client categories: Top clients grew a robust 6.8% QoQ, top‐5 and top‐10 posted 4.7% and 6.6% QoQ growth, respectively. Beyond top‐10 clients saw sequential growth of 9.2%.

 Pricing: Onsite pricing dipped 2.4% QoQ, while offshore pricing fell 0.8% QoQ.

 Geo split: North America and APAC reported robust 6.9% and 29.7% QoQ growth, respectively; Europe moved up by 0.1% QoQ.

Chart 1: Geography‐wise QoQ revenue growth

Source: Company, Edelweiss research  Utilisation declined 160bps QoQ to 74.5%. Attrition stood at 17.1% (17.1% in Q2FY16).  Net employee addition: The company added 421 employees taking total employees to

8,966.

 Total cash and equivalents in hand is currently at INR8,699mn.

 Hedge: Currently, has outstanding hedge worth USD109mn, at an average rate of NR68.46/USD.

(25.0) (12.8) (0.6) 11.6 23.8 36.0

Asia‐Pacific North America Europe

(%

)

(4)

Financial snapshot (INR mn)

Year to March Q3FY16 Q2FY16 % Change Q3FY15 % Change YTD16 FY16E FY17E

Net revenues 5,921 5,427 9.1 4,946 19.7 16,352 22,529 26,859 Direct costs 3,622 3,314 9.3 2,959 22.4 9,951 13,765 16,039 Gross profit 2,298 2,114 8.7 1,987 15.7 6,401 8,764 10,819 Selling & marketing exp 576 538 7.1 465 23.7 1,623 2,210 2,417 General & admin exp 612 558 9.6 526 16.3 1,681 2,268 2,847 Overhead expenditure 1,188 1,096 8.4 992 19.8 3,304 4,477 5,264

EBITDA 1,110 1,018 9.1 995 11.6 3,097 4,287 5,555

Depreciation 246 236 4.4 246 0.0 709 962 1,129

EBIT 864 781 10.6 749 15.4 2,388 3,325 4,427

Other income 119 111 6.3 115 3.2 358 453 573

Forex Loss/ (Gain) 42 71 (40.8) 130 (67.7) 182 222 120 Profit before tax 1,024 964 6.3 994 3.1 2,928 4,000 5,120

Tax 250 245 1.7 249 0.2 763 1,031 1,382

Reported net profit 775 718 7.8 745 4.1 2,166 2,969 3,738 Adjusted Profit 775 718 7.8 745 4.1 2,166 2,969 3,738 Diluted EPS (INR) 9.7 9.0 7.9 9.3 4.1 27.1 37.1 46.7

As % of net revenues

Gross profit 38.8 38.9 40.2 39.1 38.9 40.3

Selling & marketing exp 9.7 9.9 9.4 9.9 9.8 9.0

Admin exp 10.3 10.3 10.6 10.3 10.1 10.6

EBITDA 18.8 18.7 20.1 18.9 19.0 20.7

EBIT 14.6 14.4 15.1 14.6 14.8 16.5

Reported net profit 13.1 13.2 15.1 13.2 13.2 13.9

Tax rate (% PBT) 24.4 25.5 25.1 26.0 25.8 27.0

(5)

Company

Description

Persistent was incorporated in 1990‐91 by Dr. Anand Deshpande and Mr. S. P. Deshpande as a boutique company primarily focused on database internals. Currently, it is one of the leading outsourced product development (OPD) companies in India. It offers a wide range of services from database internals to data management, data warehousing, data analytics etc., and across various stages of the product life cycle. The company has successfully delivered more than 3,000 product releases in the past five years on behalf of its customers. It has deep domain expertise and over 8,300 highly skilled software professionals working currently. The company has significant domain expertise in telecom, life science & healthcare, and infrastructure & systems. Persistent derives more than 85% of revenue from the US and Canada and is fairly diversified with regards to its dependency on top 10 clients who contribute ~44% to total revenue.

Investment

Theme

With the share of outsourcing maintained at 23‐24% of total R&D spending, the offshore R&D industry is expected to surge 1.5x by 2015E (source: NASSCOM). India is expected to be a key beneficiary of the accelerating outsourcing trend as it has a large pool of manpower with the necessary skill sets. NASSCOM estimates the Indian OSPD industry to be USD1.7bn in FY14, ~10% of the offshore R&D market.

Persistent expertise in this OPD space, along with long‐term relationships and service offerings addressing each stage of the product development lifecycle starting from conceptulisation‐to‐design‐to‐development‐to‐implementaion and finally maintenance will enable it to make most of this opportunity.

Key

Risks

 High sensitivity to USD movement

 Aggressive competition from captives and lack of pricing power  High exposure to US, Canada geographies, limited industry exposure

(6)

Financial

Statements

Income statement (INR mn)

Year to March FY15 FY16E FY17E FY18E

Net revenue 18,913 22,529 26,859 30,526

Cost of revenues 11,317 13,765 16,039 18,548

Gross profit 7,596 8,764 10,819 11,977

Total SG&A expenses 3,690 4,477 5,264 5,647

S&M expenses 1,765 2,210 2,417 2,747

G&A expenses 1,925 2,268 2,847 2,900

EBITDA 3,906 4,287 5,555 6,330

Depreciation 939 962 1,129 1,215

EBIT 2,967 3,325 4,427 5,115

Add: Other income 932 675 694 530

Profit Before Tax 3,900 4,000 5,120 5,644

Less: Provision for Tax 993 1,031 1,382 1,552

Reported Profit 2,906 2,969 3,738 4,092

Adjusted Profit 2,906 2,969 3,738 4,092

Shares o /s (mn) 79 79 79 79

Adjusted Basic EPS 36.8 37.6 47.4 51.9

Diluted shares o/s (mn) 80 80 80 80

Adjusted Diluted EPS 36.3 37.1 46.7 51.2

Adjusted Cash EPS 48.7 49.8 61.7 67.3

Dividend per share (DPS) 10.0 11.8 11.8 11.8

Dividend Payout Ratio(%) 33.1 37.3 29.6 27.1

Common size metrics

Cost of revenues 59.8 61.1 59.7 60.8 Gross margin 40.2 38.9 40.3 39.2 G&A expenses 10.2 10.1 10.6 9.5 S&M expenses 9.3 9.8 9.0 9.0 SG&A expenses 19.5 19.9 19.6 18.5 EBITDA margins 20.7 19.0 20.7 20.7 EBIT margins 15.7 14.8 16.5 16.8

Net Profit margins 15.4 13.2 13.9 13.4

Growth ratios (%)

Revenues 13.3 19.1 19.2 13.7 EBITDA (9.2) 9.8 29.6 13.9 PBT 13.8 2.6 28.0 10.2 Adjusted Profit 16.6 2.2 25.9 9.5 EPS 16.6 2.2 25.9 9.5 Key Assumptions

Macro

GDP(Y‐o‐Y %) 7.2 7.4 7.9 8.3

Inflation (Avg) 5.9 4.8 5.0 5.2

Repo rate (exit rate) 7.5 6.8 6.0 6.0

USD/INR (Avg) 61.1 65.0 67.5 67.0

Company

Billed hours ‐ Onsite 899 1,186 1,364 1,562

Billed hours ‐Onsite gr. 28.5 31.9 15.0 14.5

Billed hours ‐ Offshore 9,676 10,275 11,796 13,506

Billed hrs.‐Offsh. gr. 6.0 6.2 14.8 14.5

Billing rate gr‐Onsite 3.7 0.1 ‐ ‐

Billing rate gr‐Offsh. 1.1 (0.3) ‐ ‐

Cost assumptions ‐ ‐ 1 1

Direct Cost (% of sales) 59.8 61.1 59.7 60.8

S&M expenses (% of rev.) 9.3 9.8 9.0 9.0

G&A expenses 10.2 10.1 10.6 9.5 Financial assumptions ‐ ‐ 1 1 Depreciation 10.4 9.7 10.5 10.5 Cash yield (%) 8.4 6.9 13.4 17.4 Tax rate as % of PBT 25.5 25.8 27.0 27.5 Capex (INR mn) 954 1,050 800 800 Debtor days 64 65 67 69 Payable days 16 15 15 15

(7)

Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%)

Name (USD mn) FY16E FY17E FY16E FY17E FY16E FY17E

Persistent Systems 697 16.4 13.0 9.5 6.9 19.8 21.7 Cyient 708 13.5 10.9 9.4 7.1 18.1 19.6 ECLERX SERVICES 828 12.2 11.1 7.8 6.5 44.0 40.3 HCL Technologies 17,499 16.0 13.2 12.7 9.9 27.4 28.0 Hexaware Technologies 947 15.3 12.3 10.9 9.1 32.4 37.4 Infosys 38,613 19.3 16.6 13.6 11.1 24.3 26.5 Just Dial 830 43.6 28.7 30.9 19.4 18.4 23.4

Tata Consultancy Services 66,926 18.9 16.8 13.7 11.8 37.5 34.1

Tech Mahindra 7,357 17.1 13.1 11.2 8.4 22.1 24.2

Wipro 20,106 14.7 13.5 11.4 9.9 21.0 20.0

Source: Edelweiss research

Cash flow metrics

Operating cash flow 3,116 2,849 4,109 4,967

Investing cash flow (2,315) (1,897) (1,527) (1,557)

Financing cash flow (645) (1,108) (1,107) (1,107)

Net cash Flow 155 (156) 1,475 2,303

Capex (954) (1,050) (800) (800)

Dividend paid (667) (1,107) (1,107) (1,107)

Profitability and efficiency ratios

ROAE (%) 22.1 19.8 21.7 20.4

ROACE (%) 29.6 26.6 29.7 28.1

Debtors Days 64 65 67 69

Payable Days 16 15 15 15

Cash Conversion Cycle 48 50 52 54

Current Ratio 3.1 3.3 2.8 2.4 Gross Debt/EBITDA ‐ ‐ ‐ ‐ Gross Debt/Equity ‐ ‐ ‐ ‐ Adjusted Debt/Equity ‐ ‐ ‐ ‐ Operating ratios

Total Asset Turnover 1.5 1.5 1.6 1.5

Fixed Asset Turnover 4.6 5.6 7.0 8.8

Equity Turnover 1.4 1.5 1.6 1.5

Valuation parameters

Adj. Diluted EPS (INR) 36.3 37.1 46.7 51.2

Y‐o‐Y growth (%) 16.6 2.2 25.9 9.5

Adjusted Cash EPS (INR) 48.7 49.8 61.7 67.3

Diluted P/E (x) 16.8 16.4 13.0 11.9 P/B (x) 3.5 3.1 2.6 2.3 EV / Sales (x) 2.2 1.8 1.4 1.1 EV / EBITDA (x) 10.8 9.5 6.9 5.4 Dividend Yield (%) 1.6 1.9 1.9 1.9 Balance sheet (INR mn)

As on 31st March FY15 FY16E FY17E FY18E

Share capital 800 800 800 800

Reserves & Surplus 13,255 15,117 17,747 20,732

Shareholders' funds 14,055 15,917 18,547 21,532

Long term borrowings 25 25 25 25

Total Borrowings 25 25 25 25

Def. Tax Liability (net) (313) (313) (313) (313)

Sources of funds 13,767 15,629 18,259 21,244

Gross Block 9,483 10,323 11,173 11,973

Net Block 3,081 2,960 2,681 3,261

Capital work in progress 40 250 200 200

Intangible Assets 995 995 995 ‐

Total Fixed Assets 4,117 4,205 3,876 3,461

Non current investments 2,116 2,116 2,116 2,116

Cash and Equivalents 6,036 7,180 9,955 13,558

Sundry Debtors 3,586 4,444 5,372 6,105

Loans & Advances 531 584 1,101 2,174

Other Current Assets 1,049 1,183 2,505 5,322

Current Assets (ex cash) 5,165 6,211 8,978 13,600

Trade payable 529 603 703 813

Other Current Liab 3,137 3,479 5,962 10,678

Total Current Liab 3,666 4,083 6,666 11,491

Net Curr Assets‐ex cash 1,499 2,128 2,312 2,109

Uses of funds 13,767 15,629 18,259 21,244

BVPS (INR) 175.7 199.0 231.9 269.2

Free cash flow (INR mn)

Reported Profit 2,906 2,969 3,738 4,092

Add: Depreciation 939 962 1,129 1,215

Others (989) (453) (573) (543)

Less: Changes in WC (260) 629 184 (203)

Operating cash flow 3,116 2,849 4,109 4,967

Less: Capex 954 1,050 800 800

Free Cash Flow 2,162 1,799 3,309 4,167

(8)

Holding ‐ Top10

Perc. Holding Perc. Holding

Saif Advisors 5.33 Nordea Bank 3.19

Prudential ICICI Asset Mgmt Co 2.96 HDFC Asset Management Co Ltd 2.42

Wasatch Advisors 1.50 Kotak Mahindra 1.25

Capital Group 1.18 Nordea Investment Fund 0.81

UTI Asset Management 0.77 SBI Funds 0.71

*as per last available data

Insider Trades

Reporting Data Acquired / Seller B/S Qty Traded

No Data Available

*in last one year Bulk Deals

Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Additional

Data

Directors Data

Mr Mritunjay Singh Executive Director and Chief Operating Officer Dr Anand Deshpande Founder Chairman & MD

Mr Prakash Telang Independent Director Mr S K Bhattacharyya Independent Director

Mr Pradeep Kumar Bhargava Independent Director Mr Kiran Umrootkar Independent Director

Roshini Bakshi Independant Director Dr Anant Jhingran Independent Director

Auditors ‐ M/s. Deloitte Haskins & Sells LLP; Joshi Apte and Co

(9)

Company Absolute reco Relative reco Relative risk Company Absolute reco Relative reco Relative Risk

Cyient BUY SP H ECLERX SERVICES HOLD SP M

HCL Technologies BUY SP H Hexaware Technologies HOLD SP M

Info Edge BUY SP M Infosys BUY SO L

Just Dial BUY SO M Persistent Systems BUY SP L

Tata Consultancy Services HOLD SP L Tech Mahindra BUY SP M

Wipro BUY SP L

ABSOLUTE

RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE

RETURNS

RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return Sector Performer (SP) Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE

RISK

RATING

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR

RATING

Overweight (OW) Sector return > 1.25 x Nifty return Equalweight (EW) Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return

(10)

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91‐22) 4009 4400, Email: [email protected]

Nirav Sheth

Head Research

[email protected]

Coverage group(s) of stocks by primary analyst(s): IT

Cyient, ECLERX SERVICES, HCL Technologies, Hexaware Technologies, Infosys, Info Edge, Just Dial, Persistent Systems, Tata Consultancy Services, Tech

Mahindra, Wipro

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 145 54 15 214

* stocks under review

Market Cap (INR) 147 61 6

Date Company Title Price (INR) Recos

Recent Research

19‐Jan‐16 HCL

Technologies

Weak quarter; strong outlook;

Result Update

838 Buy

18‐Jan‐16 Wipro Modest performance;

attractive valuation compels

upgrade; Result Update

547 Buy

14‐Jan‐16 Cyient Rangsons disappoints, but

outlook strong; Result Update

468 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12‐month period

Hold appreciate up to 15% over a 12‐month period

Reduce depreciate more than 5% over a 12‐month period

Rating Expected to One year price chart 0 200 400 600 800 1,000 Ja n ‐ 15 Fe b ‐ 15 Ma r ‐ 15 Ap r ‐ 15 Ma y ‐ 15 Ju n ‐ 15 Ju l ‐ 15 Au g ‐ 15 Se p ‐ 15 Oc t ‐ 15 No v ‐ 15 De c ‐ 15 Ja n ‐ 16 (I N R ) Persistent Systems

(11)

DISCLAIMER

Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance.

This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors.

This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the ESL through this report.

We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report.

ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with ESL.

(12)

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co‐managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk.

Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No

ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report.

Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

Subject company may have been client during twelve months preceding the date of distribution of the research report.

There were no instances of non‐compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer.

A graph of daily closing prices of the securities is also available at www.nseindia.com

Analyst Certification:

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Additional Disclaimers

Disclaimer for U.S. Persons

This research report is a product of Edelweiss Securities Limited, 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 Edelweiss Securities Limited 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 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 the Major Institutional Investor.

(13)

Access the entire repository of Edelweiss Research on www.edelresearch.com

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, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker‐dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").

In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.

Disclaimer for Canadian Persons

This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst.

This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31‐103 ("NI 31‐103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31‐103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons

In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors.