Aditya Birla Capital: Perfect blend of growth and quality

Aditya Birla Capital

BSE Sensex

33,034

S&P CNX

10,225

Initiating Coverage | Sector:Aditya Birla-Capital

Financials NBFCs

CMP: INR190

TP: INR231 (+22%)

Buy

Perfect blend of growth and quality

A large diversified conglomerate in the making

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

ABCAP IN

2,201

264/174

-5/-/-

418

6.4

1253

27.2

Financial Snapshot (INR b)

Y/E March

2018E 2019E 2020E

PBT Break-up

NBFC

11.6 15.1 19.6

Housing

0.1

1.4

2.9

AMC

4.9

6.9

9.9

Life Insurance

1.6

1.9

2.1

Consol PBT

16.3 23.5 33.6

Consol PAT Post MI

8.4 12.6 18.7

Growth (%)

52.9 44.6 43.0

RoE (%)

12.5 12.3 13.6

Shareholding pattern (%)

As On

Promoter

DII

FII

Others

FII Includes depository receipts

Sep-17

72.8

7.4

7.9

11.9

Aditya Birla Capital (ABCL) is one of the most diversified financial services entities

in India, operating under a single brand, with a presence in non-bank financing,

housing finance, asset management, insurance and advisory businesses. In its

major businesses, it is among the top-5 private players in terms of market share.

ABCL was a 100% subsidiary of erst-while Aditya Birla Nuvo. Post AB Nuvo’s

merger with Grasim, ABCL was carved out as a separate entity. Grasim, the

flagship company of the Aditya Birla group, owns ~57% and other promoter group

entities own ~17% in ABCL. The management team is led by Mr Ajay Srinivasan,

who has rich experience of over three decades, of which a decade has been within

the group. With a strong management team at the helm, we expect ABCL to

emerge as a strong play on financialization of savings and low penetration across

financial services businesses.

We use SOTP to value the company. We value the NBFC at 3.2x BV (~30% AUM

CAGR, with PAT CAGR of ~33%, RoE of ~15%), HFC at 2x BV (loan book of INR232b

v/s INR48 in 1HFY18; RoA of 1.1% v/s 0.5% in FY18 - in investment phase), AMC at

30x earnings (AUM CAGR of ~27%; RoE of 30%+; implied 4.5% of FY20 AUM) and

Insurance at 2.2x EV (10% premium to last deal valuation - based on IEV

reporting).

The lending business contributes 70% of the SOTP valuation (in line with the share

in net worth), followed by the AMC business (>18%) and the insurance business

(~10%). The company has been aggressively seeding investments in businesses

like insurance broking and investment advisory. However, considering their

nascent stage, we have not assigned any value to them. The implied valuation

multiples work out to 3.5x FY20E consolidated BV and 30x FY20E consolidated

EPS.

Fastest-growing NBFC business – expect ~30% loan CAGR

ABCL’s non-bank financing (NBFC) business – ABFL (Aditya Birla Finance) – has

seen a strong CAGR of 60% over FY12-17 (at INR389b as of 1HFY18). It is present

across the spectrum, with a diversified loan book – retail and SME loans

constitute 32%, mid-corporate loans 16%, large corporate loans 40%, and other

loans 12%. Despite migration of NPL recognition to 90dpd and economic

downturn, the company’s GNPA has remained at 0.5-1.2% (credit cost of 0.5%

including standard asset provisioning). We factor in loan CAGR of ~30% over

FY17-20, and expect healthy RoA (2%+) and asset quality (GNPA less than 1%).

We believe internal accruals (RoE of 15%) are unlikely to keep pace with the

growth capital requirement and factor in capital infusion of ~INR25b over FY18-

20. This business contributes almost 63% to our SOTP.

Aditya Birla Capital

Perfect blend of

growth and quality

Alpesh Metha

91 22 3982 5415

Alpesh.Mehta@MotilalOswal.com

Please click here for Video Link

16 November 2017

Aditya Birla Capital

Stock Performance (1-year)

AMC business in a sweet spot

ABCL’s asset management subsidiary, ABSLAMC is the fourth-largest AMC in India,

with AUM of USD35b (26% CAGR since March 2013), of which 30% is in equities. It

has a strong base of 4.3m investor folios. ABSLAMC has gained 350/130bp market

share in equity AUM/total AUM to 9%/10.7%. The AMC business in India is highly

concentrated, with the top-5/10 players controlling 57/81% of AUM. Due to higher

upfront commission rates on sourcing for equity schemes, near-term profitability is

under pressure. Stickiness of this AUM is the key for strong operating leverage,

going forward. As the AUM matures, we expect ROAUM to improve from the

current 11bp to 15bp. We expect PAT CAGR of 43% against AUM CAGR of 27% over

FY17-20. We value ABSLAMC at 30x FY20E EPS. The AMC business contributes 18%

of our SOTP value (implied 4.5% of FY20 AUM).

Banca tie-up to rejuvenate life insurance business

Absence of a strong bancassurance partnership and regulatory changes (high share

of ULIPs distributed by agents) led to a significant individual business market share

loss for ABCL’s life insurance subsidiary, ABSLI over FY10-17. With open architecture,

ABSLI has recently tied up with large banks like HDFCB, DBS and LVB. It also has tie-

ups with DB, DCB and KVB. With larger banking partners and a higher focus on the

direct channel (online, MRs), we expect growth to pick up. Given muted profitability

and strain of the back book, we value ABSLI at a PEV of 2.2x (50% discount to large

players and 10% premium to the last stake sale to Sunlife). This business merged

with the parent on 23 March 2017. Hence, from FY18, it will be properly reflected in

consolidated earnings. The life insurance business contributes 10% of our SOTP.

Housing finance – at a nascent stage, but huge opportunity

Over the last three years, the housing finance subsidiary has scaled up its loan book

to INR58b, with a presence across segments. It has a diversified portfolio, with 59%

as housing loans, 11% as construction finance loans, and 30% as LAP/LRD. The

company’s focus is on the larger-ticket-size and better-yield self-employed segment.

It plans to aggressively scale up in LAP and affordable housing. ABCL is growing

through a B2B2C business model, with tie-ups with developers and builders. With

strong macro tailwinds and significant investment in distribution, we expect AUM to

reach to INR232b by FY20. We factor in INR12b of additional growth capital infusion

in this business by FY20. The housing finance business contributes ~8% of our SOTP.

Diversified conglomerate with blend of quality and growth

With a strong management team at the helm of affairs, we expect ABCL to be a

strong play on financialization of savings and low penetration across financial

services business. The company is expected to report a 45%+ PAT CAGR, driven by

strong traction in the lending and asset management businesses. Lending (>70%)

and AMC (~18%) businesses are also the key valuation drivers. At the group level,

we have assumed capital infusion of INR35b by FY20. The company can raise debt

capital to fund growth (CIC structure at parent level – 30% statutory capital

requirement). The AMC, with RoE of ~30%, is also likely to return capital to the

parent. Better-than-expected performance on growth can drive valuation higher.

Ventures like insurance broking, money management advisory and PE are at a

nascent stage, and their profit contribution is likely to be marginal in the near term.

Initiate with a Buy rating and an SOTP-based target price of INR231 (implied 3.5x

FY20E BV and 30x FY20E EPS).

16 November 2017

Aditya Birla Capital

Exhibit 1: SOTP (FY20E based)

NBFC

HFC

AMC

Life Insurance

ABML

Target Value

Current market cap.

Upside (%)

Stake

(%)

100

Value

(INR B)

349

100

557

418

21.6

Value

(USD B)

5.4

0.7

1.5

0.9

0.1

8.6

6.4

21.6

INR

per share

145

231

190

21.6

% To Total

100

Rationale

3.2x PBV

2.0x PBV

30x Earnings; Implied 4.5% of AUM

2.2x EV; 10% premium to last stake sale

CMP

Source: MOSL, Company

Exhibit 2: Lending and AMC to contribute ~90% of PBT going forward

Y/E MARCH

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated PBT

Taxes

Tax Rate (%)

Consolidated PAT

Minoirty Interest

Consolidated PAT Post MI

% of Total PBT

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated PBT

2015

4,108

-56

1,816

-291

-388

5,190

2,101

40.5

3,089

696

2,393

79.2

-1.1

35.0

0.0

-5.6

-7.5

100.0

2016

6,264

-302

3,136

-331

-78

8,688

3,446

39.7

5,242

1,436

3,806

72.1

-3.5

36.1

0.0

-3.8

-0.9

100.0

2017

8,319

-155

3,371

-534

-343

10,658

3,746

35.1

6,912

1,612

5,300

78.1

-1.5

31.6

0.0

-5.0

-3.2

100.0

2018E

11,600

112

4,895

1,600

-1,450

-500

16,258

5,690

35.0

10,567

2,200

8,367

71.4

0.7

30.1

9.8

-8.9

-3.1

100.0

(INR Million)

2019E

15,147

1,434

6,887

1,850

-1,313

-500

23,505

8,227

35.0

15,279

2,640

12,639

64.4

6.1

29.3

7.9

-5.6

-2.1

100.0

2020E

19,586

2,875

9,899

2,100

-341

-500

33,619

11,767

35.0

21,852

3,168

18,684

58.3

8.6

29.4

6.2

-1.0

-1.5

100.0

Source:

16 November 2017

Aditya Birla Capital

Among the largest diversified NBFCs in India

Strong growth coupled with excellent asset quality

Aditya Birla Finance Limited (ABFL) is one of the fastest growing NBFCs in India. Its

AUM has grown at a CAGR of ~60% CAGR FY12-1H18 from INR37b to INR389b.

Unlike many other NBFCs that are mono-line players, ABFL has a wide product suite

ranging from retail consumer lending to large corporate wholesale financing.

Despite strong loan book growth, ABFL has maintained pristine asset quality. GNPL has

been less than 50bp over the past few years. Even credit costs (incl. std. asset

provisions) have averaged 30bp over the past four years, the lowest among peers.

44% AUM CAGR over FY13-

17 driven by wide product

suite

Strong AUM growth led by product diversification

Since inception of diversification in 2011, ABFL has emerged as one of the leading

diversified asset mix NBFCs in India. It reported AUM CAGR of 60% over FY12-17 to

INR389b (1HFY18). In terms of asset size, it is among the top-5 NBFCs in India (ex

HFCs and state-owned entities). Focus on product and customer diversification, rub-

off of the strong Aditya Birla brand, effective use of technology platform, superior

turnaround time (90% of back-end operations are automated), cross-selling, and

continued customer engagements have been the drivers of its strong growth. ~80%

of ABFL’s book is directly sourced and ~58% of its book comes from the western

region. We expect ABFL to report 30%+ AUM CAGR, with higher focus on retail, SME

and mid-corporate segments along with new location additions.

Exhibit 3: ~60% AUM CAGR over the past five years

118

Customer Assets (INR b)

Growth (%)

In our view, the company

can continue to deliver

30%+ AUM CAGR over the

medium term

347

FY17

451

FY18E

586

FY19E

762

FY20E

FY12

FY13

117

FY14

176

FY15

258

FY16

Source: MOSL, Company

ABFL is one of the ten

largest NBFCs in India

Exhibit 4: Among the largest private-sector NBFCs in India (INR b)

820

721

700

518

450

389

350

STF

BAF

LTFH

Tata Capital

MMFS

ABFL

CIFC

Source: MOSL, Company; Note: ABFL loan book is ex-HFC

16 November 2017

Aditya Birla Capital

Exhibit 5: Bulk of the business comes from West India

North, 20%

Exhibit 6: Bulk of the sourcing is direct

Others,

21%

West, 58%

South, 18%

East, 4%

Source: MOSL, Company

Direct, 79%

Source: MOSL, Company

Exhibit 7: Wide array of products across business segments

Retail/ HNI/

Ultra HNI

SME

Mid-Corporate

Large

Corporate

LAP

Term loan

Unsecured

Personal loans

LAP

Structured

Finance

Structured

Finance

Unsecured

Business loans

LRD

Construction

Finance

Debt

syndication/

DCM desk

Treasury

Services

Project

Finance

LAS

Vendor

Financing

Fixed Income

investment

Debt

syndication/

DCM desk

Treasury

Services

Debt syndication

Channel

Financing

IPO/ ESOP/

Promoter

Financing

Digital Lending/

Wealth

Management

Broker Funding

Wealth

Management

Wealth

Management

Source: MOSL, Company

16 November 2017

Aditya Birla Capital

Share of retail and SME

lending to increase from

33% to 50% over the

medium term

Retail and SME segment – a key focus area

ABFL started with capital market linked lending and has since diversified significantly

both in terms of products and customer segments. Capital market related lending,

which accounted for 34% of the loan book in FY13, accounted for only 14% of the

loan book in FY17. Over the same period, the share of corporate finance and

infrastructure lending increased from 21% and 26%, respectively to 29% and 32%.

In terms of loan size classification, SME (24%) and retail (10%) loans have been

ABFL’s key focus areas and it plans to increase their share to 50% of the overall

portfolio. Within retail, it has higher focus on digital and unsecured loans (3% of

overall) and plans to increase the share unsecured loans (both personal and

business) to 10%. It also plans to add education loans and consumer durables loans.

Exhibit 8: Share of infra lending on the rise

Capital Market

FY13

FY14

Corporate Finance

FY15

LAP-LRD

FY16

Infra

Others

FY17

Source: MOSL, Company

In the SME segment, ABFL has been focusing on vendors across the value chain for

the Aditya Birla group. In the mid-corporate segment, its focus is largely on

providing customized solutions and on SME relationships that are becoming big.

Term loans, construction and structured finance, and syndication are some of the

key offerings in this segment.

Mid-corporate and ultra-HNI segment – 25% of loan book

Ultra HNIs (8%) and mid-corporates (17%) now constitute ~25% of ABFL’s overall

book. In each of the focus areas, the company has product offerings across the

spectrum. Further, customized solutions help ABFL to get in roads with customers in

a highly competitive environment. The ultra-HNI segment also includes promoter

financing and such relationships can be leveraged upon.

95% of project finance is to

operational projects

Corporate loans – 40% of loan book

ABFL is sector-agnostic to grow its book and has exposure across infra, construction,

hospitality, education, healthcare, etc. Book growth has been opportunistic and

selective (high quality corporates/groups – targets top-150 corporates). Term loans,

debt syndication, and structured financing are some of the key products. The

company also provides project financing to large corporates by underwriting

solutions for mid-sized projects and syndication for large-size projects. Note that

95% of project lending is to operational projects.

16 November 2017

Aditya Birla Capital

Exhibit 9: 53% of the loan book is in large and mid-corporate lending

Source: MOSL, Company

Average GNPL ratio of 90bp

and average credit cost of

50bp over the past five

years

Asset quality – best in the sector

ABFL has a strong track record of asset quality, with GNPA of 0.5-1.3% and NNPA of

0.3-0.8% over the last five years. Despite reduction in DPD recognition and stress in

the overall economy, ABFL has managed to contain GNPA at ~0.5% and NNPA at

~0.3% over the last two years. ABFL has separate sourcing and underwriting teams

for each product. Regular monitoring including early warning signals, effective

diversification, customized product offering, and cash flow-based lending are some

of the key factors driving its strong asset quality performance.

Exhibit 11: GNPL ratio v/s peers (1HFY18, %)

12.5

4.5

8.1

5.8

Exhibit 10: Asset quality has consistently been good

GNPL ratio (%)

PCR (%)

1.16

FY12

1.23

FY13

1.29

FY14

0.90

FY15

0.63

FY16

0.47

FY17

0.53

1HFY18

0.5

ABFL

1.6

CAFL

1.7

BAF

CIFC

LTFH

STF

MMFS

Source: MOSL, Company

Source: MOSL, Company; Note: STF at 120dpd, Others at 90dpd

95% of project loans are

against operational projects

ABFL’s key success factors have been effective risk management and customer

selection. It lends largely to companies with strong promoter backing. Even in the

infrastructure segment, focus is on operational projects. Project loans constitute

15% of overall loans and 95%+ of the project loans are to operational projects.

Average credit rating (internal) for corporate loans stands at A+. Average credit cost

in the balance sheet over the last four years has been ~0.30%.

16 November 2017

Aditya Birla Capital

Exhibit 12: Credit costs have consistently been benign (%)

Exhibit 13: Credit costs (FY17, %) v/s peers

3.7

3.9

2.7

1.3

1.5

3.2

0.55

FY14

0.31

FY15

0.21

FY16

0.12

FY17

0.15

1HFY18

0.4

ABFL

CIFC

BAF

LTFH

CAFL

STF

MMFS

Source: MOSL, Company

Source: MOSL, Company; Note: Including std. asset provisions

Dependence on term loans

has been reducing gradually

Diversification of liability profile

ABFL has a strong treasury team, with focus on ALM and minimizing borrowing cost.

It has effectively leveraged the parent brand, which helps to effectively lower cost of

funds and diversify liability profile. Led by easy liquidity scenario, the share of CPs

has gone up in recent times. In November 2017, ABFL’s long term issuer rating was

upgraded to AAA by India Ratings. ABFL also has a short-term rating of A1+ from

ICRA.

Exhibit 15: Scope for further reduction in cost of funds

8.9

9.0

9.1

8.6

8.3

CPs

FY16

NCDs

FY17

Others

1HFY18

Source: MOSL, Company

Exhibit 14: Dependence on term loans reducing (%)

Term loans

FY13

FY14

FY15

8.1

7.9

7.8

Source: MOSL, Company

Calculated margins have

been steady at 3.7-4%

Healthy profitability despite heavy investments in business

With no legacy issues, ABFL has been able to leverage on technology and

relationships (lower sourcing commissions), keeping costs low. In FY17, technology-

related upfront cost and amalgamation of wealth management business increased

the cost-to-income ratio. We expect operating leverage to play out, going forward.

Further, margins have remained largely stable at 4.4-5% (reported; ~4% calculated).

With expertise in debt syndication, ABFL has higher share of fees in overall

profitability (20% of PBT). RoA (calculated) has been ~1.9% over FY14-17.

Exhibit 17: Operating leverage benefits to lower C/I ratio (%)

36.0

3.9

30.5

3.8

29.6

24.4

31.0

26.7

25.2

23.5

Exhibit 16: Margins (%) to remain stable

4.1

3.9

3.7

4.1

16 November 2017

Aditya Birla Capital

35%+ PAT growth expected

over the medium term

Exhibit 18: Profit growth robust – 33% PAT CAGR over FY17-20E

PAT (INR b)

78.4

65.2

63.3

51.0

43.2

38.7

30.6

10.6

FY19E

Growth (%)

29.3

13.7

FY20E

0.6

FY12

1.0

FY13

1.7

FY14

2.7

FY15

4.1

FY16

5.9

FY17

8.1

FY18E

Source: MOSL, Company

Exhibit 19: Marginal improvement in return ratios

27.4

20.1

RoA (%)

RoE (%)

17.2

14.9

13.8

14.2

14.3

14.2

1.7

FY13

1.6

FY14

1.8

FY15

1.8

FY16

1.9

FY17

2.0

FY18E

2.0

FY19E

2.0

FY20E

Source: MOSL, Company

INR27b capital infusion

expected in this business

over FY18-20

Growth to outpace internal accruals

ABFL has a CAR of 17.3% versus regulatory requirement of 15%. We expect it to

report RoE of ~15% over the next few years. We are not factoring in positive delta

from (a) expected benefit from shift in loan book to retail and SME, (b) increasing

share of unsecured loans in overall mix and (c) operating leverage. Average equity

leverage on the balance sheet has remained at ~7x (in line with requirement of

rating agencies). We expect leverage to remain at the same level and accordingly

factor in further capital of INR25b by FY20 in the NBFC business. Over the last five

years, the parent has infused ~INR27b in the business (50% of net worth).

Leverage at the holdco level remains low (net worth of INR46b and debt of INR5b);

hence, ABCL can infuse capital in ABFL without dilution. Regulations allow a CIC to

have 30% CAR (hence, 3.3x debt:equity). Besides, ABCL already has an enabling

resolution to raise an additional 3% equity (INR12b based on market cap).

16 November 2017

Aditya Birla Capital

ABFL: Financials and valuations

INCOME STATEMENT

Y/E MARCH

Net interest income

Change (%)

Operating Expenses

Change (%)

Operating Profits

Change (%)

Total Provisions

% to operating Profis

PAT

Change (%)

BALANCE SHEET

Y/E MARCH

Networth

Borrowings

Change (%)

Other liabilities

Change (%)

Total Liabilities

Customer assets

Change (%)

Other assets

Change (%)

Total Assets

RATIOS

Y/E MARCH

Spreads Analysis (%)

Avg. Yield on loans

Avg. Cost of funds

Interest Spreads

Net Interest Margins

Asset Quality

GNPA %

NNPA %

PCR %

Credit Cost (incl. std asset prov) %

DuPont Analysis (% of Avg Assets)

NII

Non Interest Income

Non interest to Total Income

Total Income

Operating Expenses

Cost to Income %

Operating Profits

Provisions

Profit Before Tax

Taxes

ROA

Leverage

ROE

2015

6,017

48.1

1,993

42.2

4,747

48.8

639

13.5

2,707

63.3

2016

8,002

33.0

2,305

15.6

7,126

50.1

862

12.1

4,086

51.0

2017

11,044

38.0

4,188

81.7

9,308

30.6

989

10.6

5,852

43.2

2018E

15,639

41.6

4,920

17.5

13,496

45.0

1,896

14.0

8,120

38.7

2019E

19,992

27.8

5,806

18.0

17,222

27.6

2,075

12.1

10,603

30.6

(INR Million)

2020E

25,440

27.3

6,851

18.0

22,284

29.4

2,698

12.1

13,710

29.3

2015

19,848

145,937

51.3

13,783

26.5

179,569

175,882

49.9

3,687

115.8

179,569

2015

11.7

9.1

2.5

4.1

2016

35,108

214,090

46.7

13,042

-5.4

262,239

257,552

46.4

4,687

27.1

262,239

2016

10.8

8.6

2.2

3.7

2017

49,813

289,132

35.1

15,254

17.0

354,199

347,032

34.7

7,166

52.9

354,199

2017

10.5

8.3

2.3

3.7

2018E

64,449

379,111

31.1

18,285

19.9

461,844

451,142

30.0

10,702

49.3

461,844

2018E

10.7

8.1

2.6

3.9

2019E

83,784

492,844

30.0

21,922

19.9

598,549

586,485

30.0

12,065

12.7

598,549

2019E

10.5

7.9

2.6

3.9

2020E

108,919

643,401

30.5

26,286

19.9

778,605

762,430

30.0

16,175

34.1

778,605

2020E

10.3

7.8

2.6

3.8

0.9

0.3

50.9

0.4

0.6

0.2

64.5

0.4

0.5

0.2

55.0

0.3

0.5

0.2

55.0

0.5

0.6

0.3

55.0

0.4

0.8

0.4

55.0

0.4

4.03

0.48

10.7

4.51

1.33

29.6

3.18

0.43

2.75

0.94

1.81

9.47

17.16

3.62

0.65

15.1

4.27

1.04

24.4

3.23

0.39

2.84

0.99

1.85

8.04

14.87

3.58

0.80

18.2

4.38

1.36

31.0

3.02

0.32

2.70

0.80

1.90

7.26

13.78

3.83

0.68

15.08

4.51

1.21

26.7

3.31

0.46

2.84

0.85

1.99

7.14

14.21

3.77

0.57

13.18

4.34

1.10

25.2

3.25

0.39

2.86

0.86

2.00

7.15

14.31

3.69

0.54

12.68

4.23

0.99

23.5

3.24

0.39

2.84

0.85

1.99

7.15

14.23

16 November 2017

Aditya Birla Capital

Housing Finance: At a nascent stage

Increasing presence across the spectrum

Aditya Birla Housing Finance Ltd. (ABHFL) began operations in October 2014 and has

turned profitable in seven quarters of full operations.

Its focus is on the B2B2C business model, with tie-ups with developers and builders.

We expect gradual cost reduction over time, driven by operating leverage coupled

with greater share of lending through own channels. Consequently, RoE should

improve from -5% in FY17 to 11-12% in FY20.

The company has scaled up

the housing loan book to

INR48b in three years since

inception

Strong growth – presence across the spectrum

Over the last three years, ABCL’s housing finance subsidiary, ABHFL has scaled up its

loan book to INR58b, with presence across segments. Its portfolio is diversified, with

58% as housing loans, 11% as construction finance loans, and 31% as LAP/LRD. Its

focus is on the larger-ticket-size and better-yield self-employed segment. It plans to

aggressively scale up in LAP and affordable housing. The company is banking on

government flagship schemes, PMAY, Housing for All, smart cities, etc. It is targeting

to increase its presence in Tier II and III cities. While its ticket size is higher than

most peers due to its urban presence, we expect it to gradually decline as business

from semi-urban locations picks up. We expect AUM to reach to INR232b by FY20.

Exhibit 21: High share of non-core home loans (1HFY18)

232

CF, 11%

Exhibit 20: Loan book has ramped up significantly

AUM (INR b)

145

FY15

FY16

LAP/LRD,

30%

FY18E

FY19E

FY20E

FY17

Home

loans, 59%

Source: MOSL, Company

Exhibit 22: Average ticket size in home loans (INR m)

4.0*

3.1

1.7

2.1

2.4

2.5

0.9

1.2

1.4

GRUH

Repco

DHFL

Can Fin

LICHF

HDFC

IHFL

PNBHF

ABHFL

Source: MOSL, *: Based on channel checks

16 November 2017

Aditya Birla Capital

Exhibit 23: Major LAP players among NBFCs and HFCs

ABHFL is an urban LAP

player

Company

Indiabulls

LICHF

DHFL

Shriram City Union

HDFC

Cholamandalam

Bajaj Finance

Capital First

PNBHF

ABHFL

AUM

(INR b)

219

182

141

127

Geography

Urban

Rural

Largely Urban

Largely semi-urban and rural

Largely Urban

Largely urban

Urban

Ticket size

(INR m)

7-8

1-2

4-5

0.8

4-5

Source: MOSL, Company

ABHFL has 40 branches

across 34 locations; it is

increasing its presence in

Tier 2/3 cities

Scaling up distribution network

In a short time, ABHFL has increased its presence across 42 branches (16 states and

35 locations) and has 1,900 channel partners. It is also increasing its presence in Tier

II and III cities to capitalize on the opportunity provided by government schemes

(started pilot in 21 locations). The company plans to use the hub-and-spoke model

for affordable housing segment (covering 30km). 44% of the sourcing is happening

through direct channels and the rest via channel partners.

Exhibit 25: …increased meaningfully by 1HFY18

Direct, 33%

Channel

Partners,

56%

Exhibit 24: Share of direct sourcing (FY16)…

Channel

Partners,

67%

Direct, 44%

Source: MOSL, Company

Moderate margins – upside to accrue with lower cost of funds

With ~40% of the loan book towards non-housing loans, ABHFL is able to earn a

healthy yield. However, the company still has elevated cost of funds compared to

some of its larger peers. Its NIM of 3.2% (FY17) lies in the middle of the margin

spectrum. While we forecast stable margins going forward, we believe there is

upside to our estimates if the decline in cost of funds is sharper than we expect.

Average ticket size of

INR260m in the Top 20

exposures

Risk management of paramount importance

ABHFL’s board of directors oversees its risk management framework. The risk

management committee of the board (“RMC”) is headed by an independent director

and reviews compliance with risk policies, monitors risk tolerance limits, reviews

and analyzes risk exposure, and oversees risk across the organization. In

construction finance, which is perceived to be the highest risk segment, the

16 November 2017

Aditya Birla Capital

company’s average ticket size, in our view, is INR150-200m.

The top-20 borrowers

accounted for INR5.2b exposure (as of FY17), which implies an average ticket size

of ~INR260m per account.

The low ticket size in construction finance, when

compared to other HFCs, implies that ABHFL is taking lesser risk on its book.

Exhibit 26: Reported margin performance average (FY17, %)

4.4

4.3

3.5

3.4

Exhibit 27: Superior risk management leads to lower NPLs

GNPL ratio (%)

1.14

0.96

0.80

3.2

3.0

2.6

0.34

0.42

0.67

0.78

0.43

Source: MOSL, Company

Exhibit 28: Average ticket size of Top 20 exposures for ABHFL is much lower than peers

16,090

ATS of Top 20 exposures

5,257

2,358

2,070

LICHF

260

ABHFL

Source: MOSL, Company

HDFC

IHFL

PNBHF

While return ratios are set

to improve dramatically,

they would still be modest

Near-term profitability to be under pressure

ABHFL is in expansion mode, which would keep cost-to-income ratio elevated.

Further, its leverage levels are higher than other similar-sized HFCs, which would

keep margins under pressure. We expect capital infusion of INR12b by FY20. We

factor in marginal improvement in spreads from 1.8% to 2% and improvement in

RoA/RoE to 1.1/11% in FY20.

16 November 2017

Aditya Birla Capital

ABHFL: Financials and valuations

INCOME STATEMENT

Y/E MARCH

Net interest income

Change (%)

Operating Profits

Change (%)

Total Provisions

% to operating Profis

PAT

Change (%)

BALANCE SHEET

Y/E MARCH

Networth

Borrowings

Change (%)

Other liabilities

Change (%)

Total Liabilities

Customer assets

Change (%)

Other assets

Change (%)

Total Assets

RATIOS

Y/E MARCH

Spreads Analysis (%)

Avg. Yield on loans

Avg. Cost of funds

Interest Spreads

Net Interest Margins

Asset Quality

GNPA %

NNPA %

PCR %

Credit Cost (incl std asset prov) %

DuPont Analysis (% of Avg Assets)

NII

Non Interest Income

Non interest to Total Income

Total Income

Operating Expenses

Cost to Income %

Operating Profits

Provisions

Profit Before Tax

Taxes

ROA

Leverage

ROE

2015

-48

-56

2016

298

-203

-302

2017

865

190.6

-20

-90.3

135

-684.6

-155

-48.7

2018E

1,568

81.3

362

-1,930.4

249

68.9

-150.8

2019E

3,293

110.0

1,891

423.1

457

24.2

1,004

1,176.1

(INR Million)

2020E

5,287

60.6

3,631

92.0

756

20.8

2,013

100.5

2015

458

923

1,460

1,434

1,460

2015

2016

2,048

15,055

2,866

19,969

19,790

179

19,969

2016

8.4

7.5

1.0

2.8

2017

3,675

35,869

138.3

2,303

-19.6

41,847

41,517

109.8

329

84.3

41,847

2017

9.7

8.3

1.4

2.8

2018E

8,303

72,838

103.1

2,764

20.0

83,905

83,035

100.0

870

164.2

83,905

2018E

9.5

8.0

1.5

2.5

2019E

14,531

128,594

76.5

3,317

20.0

146,442

145,311

75.0

1,131

29.9

146,442

2019E

9.5

7.5

2.0

2.9

2020E

23,250

207,587

61.4

3,980

20.0

234,817

232,498

60.0

2,319

105.1

234,817

2020E

9.3

7.3

2.0

2.8

0.3

17.4

0.4

0.3

25.0

0.4

0.3

30.0

0.4

0.5

0.3

30.0

0.4

2.78

1.12

28.8

3.90

5.80

148.5

-1.89

0.93

-2.82

0.00

-2.82

8.55

-24.12

2.80

0.55

16.4

3.35

3.41

101.9

-0.06

0.44

-0.50

0.00

-0.50

10.80

-5.42

2.49

0.43

14.69

2.92

2.35

80.3

0.57

0.40

0.18

0.05

0.13

10.50

1.31

2.86

0.32

10.10

3.18

1.54

48.4

1.64

0.40

1.25

0.37

0.87

10.09

8.79

2.77

0.25

8.16

3.02

1.12

36.9

1.90

0.40

1.51

0.45

1.06

10.09

10.65

16 November 2017

Aditya Birla Capital

AMC: On a strong footing

Financialization of savings – a key growth driver

Driven by its consistent fund performance and increasing distribution reach, Aditya

Birla Sun Life Asset Management Co. (ABSLAMC) has been sustainably gaining market

share. Over FY13-17, its equity market share has increased 350bp to 9%, while its

overall market share has expanded 130bp to 10.7%.

The company is the fourth largest AMC in the country. In terms of fixed income AUM,

it is the second largest AMC in India.

Employing a capital-light model, the company has consistently generated RoE north of

20% over the past five years. In FY17, RoE stood at 26%. With an increasing share of

equity AUM, we expect RoE to improve further hereon.

While ABSLAMC is the

fourth largest MF in India, it

is the second largest in

terms of fixed income AUM

An asset management Goliath

ABSLAMC is India’s fourth largest mutual fund in terms of domestic assets under

management (INR2.2t as of September 2017), with a market share of 10% (source:

AMFI). In the fixed income segment, it is the second largest asset manager. In the

equity segment, it is the fourth largest asset manager in the country, with an equity

base of INR686b (as of 2QFY18).

Exhibit 29: Among the top-5 AMCs in the country (Total AUM, INR b, as of Sep 30 , 2017)

2,711

2,681

2,258

1,836

1,414

1,108

958

785

2,229

653

Source: MOSL, AMFI

Exhibit 30: 2 largest debt mutual fund (INR t) in India

Exhibit 31: Largest equity mutual funds (INR t) in India

Source: MOSL, AMFI, Note: as of Sep 30, 2017

Source: MOSL, AMFI; Note: Average AUM as of Sep 30, 2017

16 November 2017

Aditya Birla Capital

Presence across multiple products and distribution channels

The company has presence across equity, debt and liquid funds in the domestic

segment. This apart, it provides services for fund of funds schemes, as well as

management and advisory services, for offshore and real estate funds. For HNI

customers, it provides PMS services (AAUM of INR42b). Apart from its owned 150

branches (82 in 2013), 230 investor service centers and 78 market representatives,

the company has roped in IFAs (57k+ empanelled), NDs and banks as distribution

partners. Direct channels contribute 43% of its AAUM.

Exhibit 32: Share of equity up significantly in past 3 years

Equity

Debt

Offshore & Alternatives

Exhibit 33: Distribution channel mix

National,

18%

Bank, 13%

FY12

FY13

FY14

FY15

FY16

FY17

1HFY18

IFA, 26%

Direct, 43%

Source: MOSL, Company

Strong growth in AAUM

ABSLAMC recorded AAUM CAGR of 27% over FY13-17. Its market share has

expanded from 5.5% to 9% in the equity market, and from 10.7% to 11.4% in debt

market. Its overall market share improved from 9.4% in 2013 to 10.7% in Sep 2017.

This has been driven by a sharp increase in the number of folios, especially in the

past two years, from 2.4m in FY15 to 4.6m in 1HFY18. The largest equity fund of the

company accounts for ~30% of the company AAUM and ~3% of industry AAUM. 11

funds of the company are now >USD1b. The BSL dynamic bond fund is one of the

largest bond funds, with INR130b of AAUM (~1% of industry AAUM). The SIP book

increased from INR870m in FY13 to ~INR7b in Sep 2017 (13.7% market share).

Exhibit 34: Increase in number of folios…

No. of folios (mn)

Exhibit 35: … and improvement in SIP traction..

Amount of SIP (mn)

No of live SIPs (mn)

1.4

0.9

0.6

0.4

2.2

FY13

2.0

FY14

2.4

FY15

2.9

FY16

4.0

FY17

4.6

1HFY18

880

FY12

869

FY13

0.4

997

FY14

1,769

FY15

2,818

FY16

5,035

FY17

Source: MOSL, Company

16 November 2017

Aditya Birla Capital

Exhibit 36: ..Improving market share in SIPs…

Exhibit 37: …leading to strong pick-up in AUM

Total AAUM

Growth (%)

8.3

9.2

10.4

10.7

11.4

11.8

12.6

13.2

13.7

644

FY12

Source: MOSL, Company

834

FY13

963

FY14

1,335

FY15

1,524

FY16

2,107

FY17

Source: MOSL, Company

Expect healthy top-line and PAT CAGR as operating leverage plays out

Over FY13-17, the company reported CAGR of 24% in total income and 32% in PAT.

Lower PAT CAGR can be partially ascribed to up-fronting of commission expenses in

the open-ended schemes. The company, on average, has earned RoAUM of 10bp

over the past five years. With a net worth of INR9.4b, the company enjoys a healthy

RoE of 26% (as of FY17). Operating leverage in this business is very high, and with

strong growth and sticky new inflows, we expect the inherent profitability to

improve. We forecast 33% revenue CAGR over FY17-20, with core revenues as % of

AAUM increasing back to FY14 levels of 53bp. As operating leverage in this business

plays out, we expect opex CAGR of only 27% over FY17-20, leading to a 4bp

improvement in the profit margin (PAT/avg. AUM) to 15bp.

Exhibit 38: 33% revenue CAGR driven by 27% AUM CAGR

Revenue (INR b)

0.52

0.50

0.49

0.45

0.46

Core Revenues to AAUM (%)

0.53

0.51

0.49

4.1

FY13

5.0

FY14

6.0

FY15

7.7

FY16

9.7

FY17

13.4

17.6

23.0

3.3

FY13

3.8

FY14

4.5

FY15

4.6

FY16

6.8

FY17

9.1

FY18E

11.4

FY19E

14.0

FY20E

Exhibit 39: Operating leverage to play out (27% opex CAGR)

Total expenses (INR b)

Growth (%)

FY18E FY19E FY20E

Source: MOSL, Company

16 November 2017

Aditya Birla Capital

Exhibit 40: Opex/AAUM to remain largely stable

Cost to Income ratio (%)

0.40

0.34

0.30

0.32

0.33

0.32

0.09

0.10

0.09

Cost to AAUM (%)

Exhibit 41: Profit margin to improve going forward

PAT (INR m)

0.13

0.11

PAT to average AUM (%)

0.12

0.13

0.15

75.6

FY13

73.2

FY14

71.2

FY15

59.6

FY16

66.8

FY17

65.1

62.4

58.6

0.7

FY13

0.9

FY14

1.2

FY15

2.0

FY16

2.2

FY17

3.2

4.5

6.5

FY18E FY19E FY20E

Source: MOSL, Company

FY18E FY19E FY20E

Source: MOSL, Company

Asset light model enjoys

superior return ratios

Exhibit 42: Trend in RoE (%)

31.9

29.9

25.9

22.9

23.4

24.0

29.3

30.5

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: MOSL, Company

16 November 2017

Aditya Birla Capital

AMC: Financials and valuations

INCOME STATEMENT

Y/E MARCH

Total Income

Change (%)

Operating Income

Other Income

Operating Expenses

Change (%)

Cost to Income (%)

Profit Before Tax

Change (%)

PBT Margins (%)

Tax

Tax Rate (%)

PAT

Change (%)

ROE (%)

BALANCE SHEET

Y/E MARCH

Networth

Borrowings

Change (%)

Other liabilities

Change (%)

Total Liabilities

Customer assets

Change (%)

Other assets

Change (%)

Total Assets

AAUM Details

Y/E MARCH

AAUM

Change (%)

Equity

Debt

Offshore and Alternate funds

AAUM Mix

Equity

Debt

Offshore and Alternate funds

Dupont (Bps of AAUM)

Total Income

Operating Income

Other Income

Operating Expenses

Profit Before Tax

Taxes

Profit after Tax

2015

6,302

20.4

5,960

342

4,486

17.1

71.2

1,816

29.4

28.8

583

32.1

1,233

30.3

24.0

2015

5,759

1,201

6,970

3,859

3,111

6,970

2015

1,334,700

38.5

253,593

934,290

146,817

19.0

70.0

11.0

2016

7,758

23.1

7,652

106

4,622

3.0

59.6

3,136

72.7

40.4

1,109

35.4

2,027

64.4

29.9

2016

7,794

1,630

9,434

3,601

5,833

9,434

2016

1,524,270

14.2

318,910

1,046,120

159,240

20.9

68.6

10.4

2017

10,145

30.8

9,685

460

6,774

46.6

66.8

3,371

7.5

33.2

1,139

33.8

2,232

10.1

25.9

2017

9,416

44.3

2,569

57.6

11,998

3,249

-9.8

8,749

50.0

11,998

2017

2,107,420

38.3

499,140

1,451,350

156,930

23.7

68.9

7.4

2018E

14,017

38.2

13,442

575

9,122

34.7

65.1

4,895

45.2

34.9

1,664

34.0

3,231

44.7

29.3

2018E

12,646

0.0

2,826

10.0

15,486

4,874

50.0

10,612

21.3

15,486

2018E

2,743,367

30.2

748,710

1,814,188

180,470

27.3

66.1

6.6

2019E

18,306

30.6

17,588

718

11,419

25.2

62.4

6,887

40.7

37.6

2,342

34.0

4,546

40.7

30.5

2019E

17,192

0.0

3,108

10.0

20,314

7,310

50.0

13,003

22.5

20,314

2019E

3,448,597

25.7

973,323

2,267,734

207,540

28.2

65.8

6.0

(INR Million)

2020E

23,893

30.5

22,995

898

13,994

22.6

58.6

9,899

43.7

41.4

3,366

34.0

6,533

43.7

31.9

2020E

23,725

0.0

3,419

10.0

27,157

10,965

50.0

16,192

24.5

27,157

2020E

4,338,659

25.8

1,265,320

2,834,668

238,671

29.2

65.3

5.5

47.2

44.7

2.6

33.6

13.6

4.4

9.2

50.9

50.2

0.7

30.3

20.6

7.3

13.3

48.1

46.0

2.2

32.1

16.0

5.4

10.6

51.1

49.0

2.1

33.3

17.8

6.1

11.8

53.1

51.0

2.1

33.1

20.0

6.8

13.2

55.1

53.0

2.1

32.3

22.8

7.8

15.1

16 November 2017

Aditya Birla Capital

Life Insurance – Banking on Banca tie-up

Tie-up with HDFC Bank to be key value driver

In absence of large bancassurance partnerships, ABSLI underperformed peers in the

past in terms of size and growth. Its market share was 7% in FY17.

However, the recent partnership with HDFC Bank under the open architecture regime

provides a strong platform for ABSLI to scale up its operations to the next level. We

expect growth to pick up meaningfully over the medium term.

The company recently reported embedded value under the IEV method.

Absence of large banca

partners has hurt ABSLI’s

growth prospects in the

past

Banca to add strength to distribution

Absence of a strong banca partner and changes in regulations (high share of ULIP

distributed by agents) led to a significant market share loss for ABSLI over FY10-17.

However, ABSLI has now tied up with large banks like HDFCB, DBS and LVB under

the open architecture model. The company has also partnered with DB, DCB and

KVB. With alliances with larger banking partners and an increased focus on the

direct channel (online, MRs), we expect growth to pick up, going forward.

Non-linked products

account for 65% of total

business. PAR is 36% of

business

Green shoots of growth recovery with focus on traditional products

In FY17, the company reported strong individual APE growth of 35%. Pre-2011, it

was more dependent on ULIPs (79% share), but now it has shifted its focus to

traditional products (70% v/s 60% in FY14). Non-PAR and term insurance are the key

growth drivers, in our view. The company’s share in overall first-year premium has

increased to 40%+ v/s 20% a year ago. The share of pure protection has increased to

4%. With banca tie-up in place, we expect ULIP’s share to rise as well.

Exhibit 44: Largely agency channel driven model (2QFY18)

Direct, 12%

Exhibit 43: Well-balanced product mix

Non PAR,

24%

Term/Prote

ction, 5%

ULIP, 36%

3rd party

distribution

, 19%

PAR, 35%

Agency,

69%

Source: MOSL, Company

16 November 2017

Aditya Birla Capital

Exhibit 45: Share of equity in total AUM declining (%)

Equity (%)

Debt (%)

Exhibit 46: Persistency picked up after 3 sluggish years

82.1

52.6

81.3

13th month (%)

60.0

40.6

62.2

38.9

61st month (%)

64.7

35.5

71.5

47.1

50.8

Source: MOSL, Company

Significant low hanging fruits

ABSLI has one of the lowest VNB margins (pre cost overrun) in the industry. The

company is trying to correct this by a) improving operating efficiency and b)

increasing the share of high-margin traditional products. VNB margins (post cost

overruns) are negative for the company. With the aforementioned initiatives,

management is targeting to break even in the next three years. Benefits of the cost

realignment exercise and improving agent productivity are visible in the cost ratio,

which is on declining trend over the past few years.

Exhibit 47: Trend in Embedded Value (INR b)

Exhibit 48: VNB margins (%) on an uptick since FY15

36.9

FY13

32.2

FY14

32.6

FY15

32.8

FY16

38.1

FY17

41.9

FY18E

46.1

FY19E

50.7

FY20E

16.6

FY13

16.2

FY14

14.1

FY15

15.2

FY16

17.0

FY17

Source: MOSL, Company; Note: FY17 onwards, EV is based on IEV

method

Source: MOSL, Company; Note: Margins are pre-cost overrun

16 November 2017

Aditya Birla Capital

Seeding new ventures

Other businesses still at a very nascent stage

ABCL has also invested in several other smaller businesses, which are currently in a

very nascent stage.

These businesses include health insurance, financial advisory, securities broking, and

insurance broking, among others.

Some of these businesses could emerge as value drivers in the long term.

Aditya Birla Health Insurance

The business was launched in November 2016. It is a JV (51:49) between ABCL and

MMI Holdings, a diversified financial services leader of South Africa. The JV partner

has strong experience in incentivised wellness and chronic care. ABHICL’s current

product portfolio includes Group Activ Health, Group Activ Secure, Retail Activ

Health, and other unique offerings (such as chronic care and incentivized wellness).

From a distribution perspective, the company has already tied up with HDFC Bank,

Deutsche Bank, DCB Bank, AU SFB and RBL Bank. Currently, it is present in 34 cities,

with 43 branches in India, over 8,800 agents and over 200+ brokers (87 retail and

112 group brokers). It has also tied up with 3,000+ hospitals in 465 cities. The

company has forged alliances with 50+ online brokers, digital and tele-assisted

partners. The key philosophy of ABHICL is to move from ‘buy and forget’ to ‘buy and

engage’ by looking beyond funding for basic sickness. In 1HFY18, the company

managed to generate insurance premium of INR960m as compared to INR540m in

the whole of FY17. Till date, it has insured 600,000 lives.

Aditya Birla PE Advisors Ltd

Aditya Birla PE Advisors Private Limited provides financial advisory and management

services, with a focus on managing venture capital funds and alternative investment

funds. ABPE is appointed as an investment manager to two SEBI-registered domestic

venture capital funds – Aditya Birla Private Equity - Fund I and Aditya Birla Private

Equity – Sunrise Fund – under which it manages gross AUM of INR11.8b (INR6.9b

net). These are the sector agnostic funds invested in 18 companies. So far, it has

done six full exists and five partial exits, with multiple of at least 1.5x of initial

investment. ABPE focuses on growth investments in mid-market companies, with

India as the investment destination.

Aditya Birla Money Ltd

This is a listed company engaged in the business of securities broking. It offers a

wide range of solutions, including broking, PMS, depository and e-insurance

repository solutions, and distribution of other financial products. It also has Aditya

Birla Commodities Broking Limited (ABCBL) as a subsidiary, which is engaged in the

business of commodities broking. The company has a combined pan-India

distribution network with over 40 branch offices. ABCL holds 75% of share capital of

ABML, and the balance is held by public.

16 November 2017

Aditya Birla Capital

Aditya Birla My Universe Ltd

Aditya Birla MyUniverse Limited (ABMUL), through its online money management

platform

www.MyUniverse.co.in

(MyUniverse), offers its customers account

aggregation of all financial services in a highly secure environment. It is a rapidly

growing platform; has ~4m (managing over INR200b+) registered customers, with 8-

15% of them using the aggregation services. MyUniverse works with over 50

financial institutions to offer their services and products. The company has

transformed into a multi-product transaction platform, with analytics-based

integrated cross-sell capabilities. The company offers a wide range of financial

products, such as mutual funds, personal loans, housing finance, education loans,

life insurance, health insurance, equity, and credit cards.

Aditya Birla Insurance Brokers Ltd

The company provides general insurance broking and risk advisory solutions to

companies and individuals. ABCL holds 50.01% of share capital of ABIBL. ABIBL is

among the leading players in the retail industry, and enjoys a strong presence in the

corporate business industry, where it provides solutions to a vast array of sectors,

ranging from manufacturing and metals to financial services.

Aditya Birla ARC is another subsidiary of the company that has just received

regulatory approvals.

16 November 2017

Aditya Birla Capital

SWOT analysis

Presence in high-growth and scalable business

segments

Brand name gives it an edge in AMC and Life

Insurance businesses

Asset quality performance in the NBFC business has

been best-in-class

Strength

Cost structure in the AMC business is higher than

peers

Post-overrun VNB margins still negative

Weaknesses

Operates in underpenetrated business segments

with huge growth potential

Tie-up with HDFC Bank in the Life Insurance business

presents a huge growth opportunity

Opportunities

High share of corporate loan exposure, especially in

project finance

Intense competition in the retail home loan segment

could result in moderate return ratios

Threats

16 November 2017

Aditya Birla Capital

Valuation and view

Superior execution + strong growth + improving return ratio = premium

valuations

With a strong management team at the helm of affairs, we expect ABCL to be a strong

play on financialization of savings and low penetration across the financial services

business. The company is expected to report ~50% PAT CAGR, driven by strong

traction in the lending and asset management business.

We value NBFC at 3.2x PBV (~30% AUM CAGR with PAT CAGR of ~33%; RoE of ~15%),

HFC at 2x PBV (loan book of INR232b v/s INR58 in 1HFY18; RoA of 1.1% v/s 0.5% in

FY18 – in an investment phase), AMC at 30x earnings (AUM CAGR of ~27%; RoE of

30%+; implied 4.5% of FY20 AUM) and Insurance at 2.2x EV (based on IEV reporting).

On our SOTP, >70% of the valuation is contributed by the lending business (in-line with

the share in networth), followed by the AMC business (>15%) and then the Insurance

business (~10%). The company has been aggressively seeding investments in

businesses like insurance broking and investment advisory. However, considering the

nascent stage of the business, we have not assigned any value to them. Our implied

PBV/PE on a consolidated basis works out to be 3.5x/30x FY20E.

Lending business is key value driver – >70% of SOTP and >75% of PBT (pre-

MI)

The company is present across the lending spectrum which offers a strong

highway to growth, especially for strong challengers. The company’s share in

system loans is small at 0.2%, and it is yet to introduce all products in the

lending business. The existing product portfolio offers strong opportunities,

especially in an environment where a major part of the system is struggling with

capital and asset quality.

ABCL has grown aggressively (60% CAGR over FY12-17), but not at the cost of

profitability/asset quality. The company has pigheaded discipline of maintaining

RoAs at ~2%+, despite aggressively investing in new product lines. Credit costs

so far have remained at ~50bp. In order to maintain/improve the credit rating,

ABCL plans to keep debt:equity at 6x. We expect the lending business to record

30% AUM CAGR, with a stable RoE of ~15%

Despite being a new player in the system, ABCL remains confident about strong

growth in the HFC business, driven by macro tailwinds and chosen

product/customer segmentation. Profitability is likely to improve with scale, and

RoAs are expected to improve to 1% by FY20 v/s 0.5% currently. On a steady

state basis, it plans to keep RoAs at 1.5%, with an AUM mix of 60: 20: 20 – HL:

LAP: Corporate.

AMC – asset light business; 25%+ of PBT (pre-MI)

AMC business is all about scale, and it is highly concentrated, with top 5/10

players controlling 57/81% of AUM. The company is the fourth largest player

with a market share of 9% in equities and 10.7% in overall asset management

business, as of FY17. Strong brand name of the parent and outperformance of

flagship funds are some of the key factors for this achievement.

16 November 2017

Aditya Birla Capital

The company profitability is below peers due to a) strong growth in equities,

where commission expenses are up-fronted and b) higher share of low-yielding

debt funds in overall AUM. However, the share of the high-profit-making

equities business in the domestic asset management business has increased to

24% v/s 17%. Further, the company has 6-7% of total AUM in the form of

offshore and alternative assets, which are high-profit-making products

This is capital light business. The company is well-capitalized, and generates RoE

of 28%+. On the back of excessive capitalization, we expect the company to

continue paying dividend to parent (started in FY17).

Other businesses – catalyst in place, but at a nascent stage

Apart from the lending and AMC businesses, insurance is the major contributor

to SOTP (~10%). Insurance has gone through a challenging period over the last

five years due to changing regulations, absence of a bank assurance partner, and

excessive reliance on ULIP products via agent-led distribution. With an open

architecture in place and tie-ups with large banks, there is a ray of hope for a

revival of this business. We have valued this business on 2.2x EV (marginally

higher than that of the recent stake sale to the foreign partner).

Other businesses (insurance broking, money management/advisory) are in a

nascent stage and an investment phase. They operate in the areas that are

highly scalable. However, considering their contribution is likely to be in low-

single-digits, we have not assigned any value to these businesses.

Multi-year growth strong – Catch them young

With a strong management team at the helm of affairs, we consider ABCL as a

strong play on financialization of savings, and low penetration levels across the

financial services business. The company is expected to report 45%+ PAT CAGR,

driven by strong traction in the lending and asset management businesses. Over

a medium-to-long term, we expect strong earnings and also other businesses to

start contributing meaningfully.

We value NBFC at 3.2x PBV (~30% AUM CAGR with PAT CAGR of ~33%; RoE of

~15%), HFC at 2x PBV (loan book of INR232b v/s INR58 in 1HFY18; RoA of 1.1%

v/s 0.5% in FY18 – in an investment phase), AMC at 30x earnings (AUM CAGR of

~27%; RoE of 30%+; implied 4.5% of FY20 AUM) and Insurance at 2.2x EV (based

on IEV reporting).

On our SOTP, >70% of the valuation is contributed by lending business (in line

with the share in net worth), followed by the AMC business (>15%) and then the

Insurance business (10%). The company has been aggressively seeding

investments in businesses like insurance broking and investment advisory.

However, considering the nascent stage of business, we have not assigned any

value to them. Our implied PBV/PE on the consolidated basis works out to be

3.5x/30x FY20E.

16 November 2017

Aditya Birla Capital

Exhibit 49: SOTP (FY20E based)

NBFC

HFC

AMC

Life Insurance

ABML

Target Value

Current market cap.

Upside (%)

Stake (%)

100

Value (INR B) Value (USD B) INR per share

349

5.4

145

0.7

100

1.5

0.9

0.1

557

8.6

231

418

6.4

190

21.6

% To Total

100

Rationale

3.2x PBV

2.0x PBV

30x Earnings; Implied 4.5% of AUM

2.2x EV; 10% premium to last stake sale

CMP

Source: MOSL, Company

Networth Break Up

Y/E MARCH

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated Networth

Minority Interest

Consolidated NW Post MI

% of Total Networth

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated Networth

Change YoY %

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated PBT

2015

19,848

458

5,759

666

6,040

32,771

3,069

29,702

2016

35,108

2,048

7,794

683

6,472

52,105

7,557

44,548

2017

49,813

3,675

9,416

18,047

782

3,739

85,472

19,518

65,954

2018E

64,449

8,303

12,646

19,647

1,332

3,239

109,617

21,718

87,899

2019E

83,784

14,531

17,192

21,497

2,020

2,739

141,762

24,358

117,404

2020E

108,919

23,250

23,725

23,597

2,879

2,239

184,608

27,526

157,082

60.6

1.4

17.6

2.0

18.4

100.0

67.4

3.9

15.0

1.3

12.4

100.0

58.3

4.3

11.0

21.1

0.9

4.4

100.0

58.8

7.6

11.5

17.9

1.2

3.0

100.0

59.1

10.3

12.1

15.2

1.4

1.9

100.0

59.0

12.6

12.9

12.8

1.6

1.2

100.0

76.9

35.3

2.7

7.1

59.0

41.9

79.5

20.8

14.4

-42.2

64.0

29.4

126.0

34.3

70.3

-13.4

28.2

30.0

75.0

35.9

9.4

51.6

-15.4

29.3

30.0

60.0

38.0

9.8

42.6

-18.3

30.2

16 November 2017

Aditya Birla Capital

Key risks

High share of corporate lending could pose asset quality risks

As of FY17, the share of mid and large corporate lending in the NBFC book stood at

54%. Project loans accounted for 14% of the loan book and structured finance

another 15%. While asset quality has been pristine so far, there is a chance of a

downturn in asset quality due to the high share of ‘risky’ lending in case of an

economic downturn.

Housing finance is a difficult business to do

Over the past few years, several HFCs have opened shop across the country. In

addition, PSU banks have become very competitive in retail lending, given the lack

of opportunities in the corporate space. Against this backdrop, it could be tough for

a new player like ABFL to scale up the loan book with healthy return ratios and

strong asset quality.

System-wide contraction in liquidity

A system-wide contraction in liquidity could impact ABFL in several ways: (1) access

to cheap cost of funds for the lending businesses could become more difficult and

(2) there could be significant outflows from equity schemes in ABSLAMC, which

would in turn impact profits.

Stickiness of equity AUM in AMC a key necessity

ABSLAMC has witnessed record equity inflows in the AMC business in the past 2-3

years. It has incurred several upfront distribution costs for the same. If there were a

scenario wherein there are equity outflows, our operating leverage assumptions

may not play out.

Slow scale-up of HDFCB partnership a risk to growth

If the new banca partnership with HDFC Bank is slow to scale up, there is a risk to

our growth and EV assumptions going forward.

16 November 2017

Aditya Birla Capital

Company Background

Aditya Birla Capital Limited (ABCL) is one of the largest financial services players

in India with presence across protection, investment and savings business.

Formerly known as Aditya Birla Financial Services Limited, ABCL is the holding

company (received CIC license on 16th October 2015) of all the financial services

businesses of the Aditya Birla Group.

It has a strong presence across life insurance, asset management, private equity,

corporate lending, structured finance, general insurance broking, wealth

management, equity, currency and commodity broking, online personal finance

management, housing finance, pension fund management and health insurance

businesses. In most of the businesses, it is one of the top 5 players.

Aditya Birla Capital serves millions of Indians in more than 400 cities through

1,300+ points of presence, anchored by 12,500+ employees, and supported by

over 150,000 agents and channel partners.

Management details

Ajay Srinivasan - CEO

Ajay Srinivasan is the Chief Executive Officer of the company. He has experience of

over 3 decades, with 16 years as a business leader. He joined the Aditya Birla Group

in 2007. Before joining the Aditya Birla Group, he was Chief Executive - Fund

Management at Prudential Corporation Asia, based in Hong Kong between 2001 and

2007. As a member of Prudential Corporation Asia’s Board of Directors, Ajay also

oversaw the development of Prudential’s retirement business in Asia. Prior to his

stint at Prudential, he was Deputy Chief Executive Officer and Chief Investment

Officer for the India operations of ITC Threadneedle Asset Management. Ajay holds

a B.A in Economics from St Stephens College an MBA from IIM Ahmedabad.

Pankaj Razdan – Deputy CEO, Financial Services

Pankaj Razdan has been with the Aditya Birla Group since July 2007 and currently

serves as Deputy CEO, Financial Services. Prior to joining the Aditya Birla Group, he

was with ICICI Prudential Asset Management Company since 1998, taking charge as

the Managing Director in 2004. He has a B.Sc. degree in Electronics from Pune

University and is a graduate in Electronics Engineering from Bombay University. He

has undergone management development programmes from the Indian Institute of

Management, Ahmedabad and leadership training from Centre of Leadership, USA.

Pinky Mehta – CFO

A qualified chartered accountant with 27 years of diversified experience, Pinky

Mehta has been a part of the Aditya Birla Group since 1991. She has handled a

number of portfolios including taxation, MIS, accounts, legal and secretarial. She

spearheaded the management services division of the Aditya Birla Group from 2011

to 2015 and helped expand its services to new businesses overseas. Prior to joining

ABCL, she was the Chief Financial Officer of ABNL.

16 November 2017

Aditya Birla Capital

Rakesh Singh has been the Chief Executive Officer of ABFL with effect from July

2011. He has over 24 years of experience and joined ABFL from Standard Chartered

Bank where he spent 16 years, starting as Retail Assets (Mumbai and Kolkata) and

moving on to become Head for Mortgages, India. His last assignment with Standard

Chartered Bank was as General Manager & Head SME Banking, India and South Asia.

He is an alumnus of the Harvard Business School and the IIM Calcutta and also holds

a post-graduation degree in International Relations.

Tushar Shah is the CEO for the Infrastructure, Project and Structured Finance

vertical of ABFL since November 2011. Prior to ABFL, he was the Chief Operating

Officer of IL&FS Financial Services. His responsibilities included asset and structured

finance, DCM business and managing the structured mezzanine credit facility. He

was with the IL&FS group for 16 years and has worked in the areas of capital

markets, investment banking and corporate banking. He is a Chartered Accountant

and holds an LLB degree.

Rakesh Singh – CEO, ABFL

Tushar Shah – CEO, Project & Structured Finance, ABFL

A Balasubramanian – CEO, ABSLAMC

A. Balasubramanian is the Chief Executive Officer for Birla Sun Life Asset

Management Company and has been with the organization since 1994. He has over

26 years of experience in the mutual fund industry as portfolio manager both in

fixed income and equity. He is an AMP, IIM Bangalore and DFM in addition to BSc. in

Mathematics. He also has a Masters in Business Administration from GlobalNxt

University, Malaysia.

D Muthukumaran – CEO, ABPE

Prior to taking over as the CEO of Aditya Birla Private Equity, Mr. D Muthukumaran

was the Head of Group Corporate Finance at the Aditya Birla Group for 12 years.

Prior to that, he was in an international investment bank for a year and in a Big 4

Accounting firm for 8 years. He holds degree as a Chartered Accountant, a Cost &

Works Accountant and bachelors of commerce from University of Madras.

Sandeep Dadia joined ABIBL in April 2011. Prior to ABIBL, he was the Principal

Officer at Enam Insurance Brokers Private Limited. He was the key person who

pioneered Enam Insurance Brokers Private Limited and served five years in Enam.

He has also worked with the renowned third party administrator TTK Healthcare

Services as Head – Business Development. He has a work experience of almost 20

years in the insurance industry. He holds an MBBS degree and has insurance

qualification.

Sandeep Dadia – CEO and Principal Officer, ABIBL

Mayank Bathwal – CEO, ABHICL

Mr. Mayank Bathwal is Chief Executive Officer at ABHICL. Mayank has a rich

experience of nearly 20 years in the industry. He joined the Aditya Birla Group in

early 1994 and has worked closely in various units and projects of the group.

Mayank is Fellow member of the Institute of Chartered Accountants of India (ICAI),

the Institute of Cost & Works Accountants of India (ICWA) and the Institute of

Company Secretaries of India (ICSI).

16 November 2017

Aditya Birla Capital

Financials and valuations

CONSOLIDATED BALANCE SHEET

Y/E MARCH

ESC

Reserves and Surplus

Networth

Non Controlling Interest

Networth Post MI

Other Capital Instruments

Borrowings

Change (%)

Insurance Business Related

Change (%)

Other liabilities

Change (%)

Total Liabilities

Customer assets

Change (%)

Fixed Assets

Change (%)

Insurance Business Related

Change (%)

Other assets

Change (%)

Total Assets

2015

7,570

10,556

18,126

3,069

15,057

15,853

148,151

17,360

196,421

188,489

2,925

5,007

196,421

2016

7,960

19,212

27,172

7,557

19,615

17,523

230,125

55.3

33,151

91.0

300,414

291,163

54.5

3,249

11.1

6,002

300,414

2017

12,322

53,632

65,954

19,518

46,436

147

329,378

43.1

333,888

71,457

115.5

781,306

410,633

41.0

8,120

149.9

345,959

16,594

176.5

781,306

2018E

22,550

87,067

109,617

21,718

87,899

147

456,822

38.7

399,689

19.7

76,315

6.8

1,020,871

558,816

36.1

8,443

4.0

411,863

19.0

41,749

151.6

1,020,871

2019E

23,255

118,508

141,762

24,358

117,404

147

626,905

37.2

478,673

19.8

82,119

7.6

1,305,248

759,990

36.0

8,823

4.5

491,710

19.4

44,724

7.1

1,305,248

(INR Million)

2020E

24,072

160,536

184,608

27,526

157,082

147

857,167

36.7

573,371

19.8

89,055

8.4

1,676,822

1,028,118

35.3

9,271

5.1

587,401

19.5

52,031

16.3

1,676,822

16 November 2017

Aditya Birla Capital

Financials and valuations

SEGMENT-WISE PROFIT

Y/E MARCH

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated PBT

Taxes

Tax Rate (%)

Consolidated PAT

Minoirty Interest

Consolidated PAT Post MI

% of Total PBT

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated PBT

Change YoY %

NBFC

Housing

AMC

Life Insurance

Other Businesses

Consolidation Adjustments

Consolidated PBT

Taxes

Consolidated PAT

Minority Interest

Consolidated PAT Post MI

Valuations

Consolidated BV

Change YoY

Con PBV

Consolidated EPS

Change YoY

Con PE

Consolidated ROE (Post MI)

2015

4,108

-56

1,816

-291

-388

5,190

2,101

40.5

3,089

696

2,393

2016

6,264

-302

3,136

-331

-78

8,688

3,446

39.7

5,242

1,436

3,806

2017

8,319

-155

3,371

-534

-343

10,658

3,746

35.1

6,912

1,612

5,300

2018E

11,600

112

4,895

1,600

-1,450

-500

16,258

5,690

35.0

10,567

2,200

8,367

2019E

15,147

1,434

6,887

1,850

-1,313

-500

23,505

8,227

35.0

15,279

2,640

12,639

(INR Million)

2020E

19,586

2,875

9,899

2,100

-341

-500

33,619

11,767

35.0

21,852

3,168

18,684

79.2

-1.1

35.0

0.0

-5.6

-7.5

100.0

72.1

-3.5

36.1

0.0

-3.8

-0.9

100.0

78.1

-1.5

31.6

0.0

-5.0

-3.2

100.0

71.4

0.7

30.1

9.8

-8.9

-3.1

100.0

64.4

6.1

29.3

7.9

-5.6

-2.1

100.0

58.3

8.6

29.4

6.2

-1.0

-1.5

100.0

52.5

72.7

13.9

-79.9

67.4

64.0

69.7

106.3

59.1

32.8

-48.7

7.5

61.3

338.8

22.7

8.7

31.9

12.3

39.3

39.4

-172.5

45.2

171.5

45.8

52.5

51.9

52.9

36.5

57.9

30.6

1,176.1

40.7

15.6

-9.5

0.0

44.6

20.0

51.0

29.3

100.5

43.7

13.5

-74.0

0.0

43.0

20.0

47.8

39.0

4.7

3.7

49.9

12.5

50.5

29.5

3.7

5.4

46.5

34.0

12.3

65.3

29.3

2.8

7.8

42.8

23.8

13.6

16 November 2017

REPORT GALLERY

RECENT INITIATING COVERAGE REPORTS

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock

broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed

public company, the details in respect of which are available on

www.motilaloswal.com.

MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock

Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited

(CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are

available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:

SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold

inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice and also sought personal

hearing. The matter is currently pending.

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in

the subject company at the end of the month immediately preceding the date of publication of the Research Report.

MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a)

from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and

earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other

potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s),

as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the

research report.

Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may have received any compensation from the subject company in

the past 12 months.

Aditya Birla Capital

NOTES

In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:

managed or co-managed public offering of securities from subject company of this research report,

received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,

received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.

Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.

MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure

of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with

companies covered in its research reports. As a result, the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research

Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

Terms & Conditions:

This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to,

copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered

true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not

been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice.

The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though

disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or

indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement

Analyst ownership of the stock

Aditya Birla Capital

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary

trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to

subject company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,

regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)

pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with

Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any

investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities,

products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research

Analysis in Hong Kong.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is

not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.

persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional

investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional

investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and

interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S.

registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and

therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a

subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in

the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following

representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person

or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of

offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or

appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations

as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to

determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative

products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the

views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time

without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities

mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities

functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already

available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is

being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, 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 MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to

certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or

representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

The

person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or

employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this

information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring

Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:

na@motilaloswal.com,

Contact No.:022-30801085.

Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;

MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset

Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth

management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities

Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

15 November 2017