NiveshDaily. December 14, From Research Desk. Economy Updates. Index of industrial production growth at 9.8% in October 2015.

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1 NiveshDaily December 14, 2015 Daljeet S. Kohli Head of Research Tel: From Research Desk Economy Updates Index of industrial production growth at 9.8% in October 2015 Company Updates TCS: Chennai s Flooding to Weigh Q3FY16 Performance Ajanta Pharma (AJP) receives final approval for Irbesartan Sector Update Auto National Green Tribunal bans registration of new diesel cars in Delhi till January 6,2016 Delhi government to issue permits to 10,000 new autorickshaws Global Markets Outlook IndiaNivesh Research IndiaNivesh Securities Limited Research Analyst SEBI Registration. INH & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai Tel: (022) IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

2 Daljeet S. Kohli Head of Research Tel: Kaushal Patel Research Associate Tel: Economy Update Index of industrial production growth at 9.8% in October 2015 Don't get lured by headline number as it was supported by pre festive season coupled with favourable base Description Weightage Growth YoY (%) Growth YoY (%) (%) Oct 14 Sep 15 Oct 15 Apr'14 Oct'14 Apr'15 Oct'15 IIP Mining Manufacturing Electricity Index of Industrial Production (IIP) increased by 9.8% y o y (+1.6% m o m) in October 2015 as against 3.8% y o y expansion in September 2015 and (2.7)% y o y contraction in October IIP number was much above market expectations of 7.6% y o y growth. The cumulative growth in the IIP during Apr October 15 has been 4.8% y o y as against 2.1% y o y in Apr October 14. October 2015 IIP numbers were in positive zone mainly because of positive performance by all the three sectors. Mining, Manufacturing and Electricity sectors showed positive growth of 4.7% y o y, 10.6% y o y and 9.0% y o y, respectively in October The cumulative growth in the mining, manufacturing and electricity during Apr October 15 over the corresponding period has been 2.0% y o y, 5.1% y o y and 5.2% y o y, respectively. Manufacturing: Manufacturing segment index (76.0% weight in IIP index) exhibited a positive performance as it increased 10.6% y o y (+0.5% m o m) in October 2015 as compared to 2.9% y o y growth in September 2015 and (5.6)% y o y de growth in October In terms of industries, 17 out of the 22 industries in the manufacturing sector registered a positive growth during October Industries with considerable positive growth in October 2015 include Furniture; manufacturing n.e.c. (+138.9%), Office, accounting & computing machinery (+48.4%) and Radio, TV and communication equipment & apparatus (+47.5%). On the other hand, industries with considerable negative growth in October 2015 include Publishing, printing & reproduction of recorded media ( 10.2%), Medical, precision & optical instruments, watches and clocks ( 6.8%) and Coke, refined petroleum products & nuclear fuel ( 2.9%). Mining: Mining segment index, forming 14.0% weight in the IIP index, reported positive growth of 4.7% y o y (+9.4% m o m) in October 2015 as compared to 3.0% y o y growth in September 2015 and 4.5% y o y growth in October Electricity: Electricity segment (10.0% weight in IIP index) index continue to register positive growth and increased by 9.0% y o y in October 2015 (+3.0% m o m) as compared to 11.4% y o y growth in September 2015 and 13.7% y o y growth in October 2014.

3 User Based Classification: As per user based classification, Basic goods production index increased 4.1% y o y (+4.0% m o m) for the month of October 2015 as compared to 4.2% y o y growth in September 2015 and 9.7% y o y growth in October The segment has shown 4.5% y o y cumulative growth in Apr October 15. Capital goods production index, a barometer of demand, growth for the month of October 2015 reported positive growth of 16.1% y o y ( 3.5% m o m) as compared to growth of 10.3% in September 2015 and (3.2)% y o y negative growth in October The segment has shown cumulative positive growth of 9.0% in Apr October 15. Intermediate goods production index for the month of October 2015 increased 6.7% y o y (+0.5% m o m) as compared to 2.1% y o y growth in September 2015 and (3.4)% y o y negative growth in October The segment has shown cumulative positive growth of 2.6% in Apr October 15. Consumer goods production index for the month of October 2015 increased 18.4% y oy (+1.1% m o m) in October 2015 as compared to 1.2% y o y growth in September 2015 and (18.2)% y o y negative growth in October The segment has shown cumulative growth of 4.6% in Apr October 15. The consumer durables reported robust growth of 42.2% y o y (+4.1% m o m) helped by low base effect as compared to growth of 8.4% y o y in September 2015 and negative growth of (35.2)% in October The segment has shown cumulative growth of 11.8% in Apr October 15. The consumer non durables reported growth of 4.7% y o y ( 1.2% m o m) in October 2015 as compared to (3.5)% y o y negative growth in September 2015 and (3.6)% y o y negative growth in October The segment has shown cumulative negative growth of 0.1% in Apr October 15. Taking into account the weights of different items, top five items with positive contribution and top five items with negative contribution are given below: Item Group Weights (%) Contribution High Positive Contributors Gems And Jewellery Cable, Rubber Insulated Electricity Telephone Instruments Including Mobile Phone And Accessories Passenger Cars High Negative Contributors H R Coils/Skelp sponge iron Conductor, Aluminium Polythene Bags Incl. Hdpe & Ldpe Bags Stainless/ alloy steel Our Take: The index of industrial production (IIP) for October 2015 stood at 5 year high at 9.8% y o y. IIP number was much above market expectations of 7.6% y o y growth. However, one has to be careful while interpreting these data. The higher growth in IIP was expected due to pre festive ramp up and growth in mining, electricity as well as the favourable base. Though manufacturing registered a high growth of 10.6% in October 2015, the low base in major sectors like capital goods and consumer durables has contributed significantly to this high growth. In addition, there could be stocking up of goods in October 2015 due to pre festive season since as Diwali was in the month of vember this time unlike last year when it was in the month of October.

4 So, it is usual to see such high growth on the back of festive season coupled with favourable base. Historically, the IIP numbers remained high either in the month of September or October due to higher consumer goods demand during Diwali festival (see the table at the end of our note). The September 2015 IIP growth was revised upwards to 3.8% from 3.6%. Overall, one shouldn't read too much into October 2015 IIP number as the spike in industrial growth is likely to be a short lived. With reversal in the base effect, we expect the IIP growth for vember 2015 would be lower considering the fact that there is no major pickup in the corporate activity. The global slowdown continues to impact trade and affect India's exports adversely thus impacting manufacturing growth especially when the domestic demand is likely to remain sluggish. We believe that there is slow and gradual improvement in IIP but this kind of growth (October 2015) will not be sustainable and we continue to see moderate growth in FY16 over FY15. Description Weightage Index Value Growth YoY (%) Growth MoM (%) Growth YoY (%) (%) Oct 14 Sep 15 Oct 15 Oct 14 Aug 15 Sep 15 Oct 15 Oct 14 Aug 15 Sep 15 Oct 15 Apr'14 Oct'14 Apr'15 Oct'15 IIP Industry based classification: Mining Manufacturing Electricity Use based classification: Basic goods Capital goods Intermediate goods Consumer goods Consumer durables Consumer non durables Months General Y o Y Consumer goods Y o Y Consumer durables Y o Y Consumer nondurables Y o Y Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % % Sep % % % % Oct % % % %

5 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct IIP growth (%) Apr/11 Jul/11 Oct/11 Jan/12 Apr/12 Jul/12 Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15 Oct/ IIP index value IIP growth (%) Apr/11 Jul/11 Oct/11 Jan/12 Apr/12 Jul/12 Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15 Oct/ IIP index value IIP growth (%) Apr/11 Jul/11 Oct/11 Jan/12 Apr/12 Jul/12 Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15 Oct/ Mining index value Mining growth (%) Apr/11 Jul/11 Oct/11 Jan/12 Apr/12 Jul/12 Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15 Oct/ Electricity index value Electricity growth (%)

6 Daljeet S. Kohli Head of Research Tel: Amar Mourya Research Analyst Tel: Company Updates TCS: Chennai s Flooding to Weigh Q3FY16 Performance TCS operations in Chennai was impacted due to heavy rainfall and flooding, which led to major disruptions in the functioning of operations. Chennai is one of the company s largest delivery locations, with over 65,000 employees. However, mission critical activities had been shifted to other TCS centers in India and overseas, ensuring no disruptions to customers critical operations. Given that normal activity was halted, management expect some impact on Q3FY16 revenue performance in seasonally weak quarter. Our Take: Out of the total 3,35,620 employee base nearly 19.4% (65,000) of employees were not able to deliver their man hours. As a result, TCS utilization and revenue performance is likely to take a hit in Q3FY16. We estimate $ revenue growth of 2.7% Q/Q to $4,267 mn in Q3FY16. In our view, TCS should deliver below industry level $ revenue growth in FY16. We estimate $ revenue growth of 11% Y/Y in FY16E (v/s 15% 3Yrs Avg). We reduce our rupee revenue growth estimate to 15.1% Y/Y in FY16E (v/s 16.3% earlier). FY16E FY17E (Rs Mn) OLD NEW Ch % OLD NEW Ch % Sales 11,01,192 10,89, ,35,188 12,11, EBITDA 3,07,210 2,97, ,41,614 3,22, PAT 2,38,949 2,31, ,57,734 2,43, EPS Source: Company Filings; IndiaNivesh Research Valuations: At CMP of Rs. 2,387, the stock is trading at 20.2x FY16e, and 19.2x FY17e EPS estimate. We maintain HOLD with downward revision in target price to Rs.2,297 (valuing 18.5x FY17E) from Rs.2,436 on TCS.

7 Daljeet S. Kohli Head of Research Tel: Tushar Manudhane Research Analyst Tel: Ajanta pharma (AJP) receives final approval for Irbesartan USFDA has granted final approval for generic version of Avapro (Irbesartan 75mg, 150mg, & 300mg). Avapro is used for treating hypertension and nephropathy in type II diabetic patients. The total market size for Irbesartan Tablets would be sub US$50mn on annualised basis. Our view: Given the market size of sub US$50mn and about 15 companies having final approval, we believe this to be less attractive opportunity for AJP. However, this is 4th ANDA approval in past 8 9 months, which is sentiment positive. AJP has about 17 ANDAs pending for approval whose overall market size is about US$1.5bn. Valuation: At CMP of Rs1,260, the stock is trading at 29x FY16E EPS of Rs43.5 and 20.1xFY17E EPS of Rs62.7. We remain positive on AJP on the back of healthy ANDA pipeline and sustained outperformance in domestic formulation market. Currency headwinds in emerging market may impact earnings to some extent. We maintain HOLD with price target of Rs1,317, based on valuation.

8 Abhishek Jain Research Analyst Tel: Aman Vij Research Analyst Tel: Sector update Auto National Green Tribunal bans registration of new diesel cars in Delhi till January 6,2016 The National Green Tribunal (NGT) has ordered the state government not to register any new diesel vehicles at least till January 6; that is the date the NGT will hear this pollution case again. This would affect sales of around 10,000 to 12,000 diesel vehicles during the period unless it is overruled by court as around 1400 vehicles are added to Delhi roads everyday out of which 25% are Diesel. This order also prevents purchase of diesel vehicles by government agencies and comes in addition to previous NGT order (given on 8 April 2015) according to which all vehicles (including commercial vehicles) which are more than 10 years old cannot ply in Delhi. There is still lack of clarity regarding fate of all the vehicles which were already in the showrooms before the ban was ordered on December 11. There are customers who have purchased vehicles, but registrations have not happened yet. Also there is no clarity regarding inventory of diesel vehicles as inventory levels are high in anticipation of high year end sales as most automakers effect price hikes in the month of January, due to which many customers tend to buy the vehicles in the year end period when discounts are also available The order comes after the Delhi government decided to restrict private cars in the city through an odd even formula to contain pollution. Delhi government has earlier taken number of initiates after New Delhi was declared as the most polluted city on the planet by the World Health Organization. Delhi market accounts for the about 7% of the total sales of passenger car (PC) in India. For Ford, Toyota and Honda, Delhi market contributes of 9 15% of their total PC, while Maruti and Hyundai derives 7% of total sales and Tata Motors and M&M it accounts of 4% of total sales volume, according to SIAM data for the first half of current fiscal year. There will also be impact on the luxury car makers (Audi, BMW, JLR and Mercedes) as most luxury cars sold in India are diesel but the impact should be only in short term as most of the manufacturers offer vehicles in both options as per customer needs. Industry experts have mostly negative views regarding the decision. According to the separate studies conducted by IIT Delhi and IIT Kanpur only 4 % of the particulate matter in Delhi air comes from private diesel vehicle. Out of this 85 % comes from old diesel vehicle. Only 0.5% of the total particulate matter is contributed by BS IV complaint diesel vehicle. Moreover, the automobile sector contributed just 25% to Delhi's pollution and only 10% of transport pollution came from passenger cars. So this decision affects only 2.5% of the overall problem. Since the deregulation of diesel prices, the automotive industry has also made huge investments in diesel technology. Moreover, industry is now working towards moving to higher BS V emission norms by 2019, which also include next generation diesel technologies. With this order it appears these investments made by the industry and the technology development would be in serious jeopardy. Lastly people switching to petrol from diesel would increase greenhouse gas emission by 25 30% (as petrol vehicles release more carbon dioxide gas) and increase the usage of fuel in terms of liters, which will have impact on imports and foreign exchange and it will also hinder in meeting the reduction in carbon footprint committed. In long term, it could be a blessing in disguise for the Maruti, Hyundai and Honda, which derives sizeable portion of their sales from the petrol vehicles, so consumer shift to petrol vehicles may benefit them. The impact of diesel ban will be more conspicuous in companies such as M&M, Toyota and Tata Motors where share of diesel variant is significantly higher. For instance, M&M existing model such as XUV 500, Scorpio, Bolero and Xylo do not have petrol variant model. On the financial side, ban on diesel vehicle means that it would lead to average selling price of passenger vehicles may come down

9 as Diesel cars typically fetches about Rs premium to its petrol variant and enjoys higher margins. This means major shift could be margin dilutive for the automakers. There are two important event risks emerging for auto makers in the next 30 days. One, Supreme Court is hearing a petition on December 15 to ban diesel vehicles in 16 different cities and second, on January 6 NGT will give final order on diesel car vehicles. Our Take We believe this order is more of a knee jerk reaction by the authorities as most of the new diesel cars in the capital are BS IV complaint and adhere strictly to emission norms. Moreover according to most studies, most of the pollution in Delhi is caused by commercial vehicles and vehicles coming from other states. Lastly such dramatic steps should be taken after consultation with industry players as this will lead to inventory losses in billions of rupees not taking in account much bigger losses in terms of heavy investments made by the auto companies to move towards BS V emission norms. The order is likely to have negative impact on all the Auto players like Ashok Leyland, Eicher Motors, Force Motors, Hyundai, Honda, Maruti Suzuki, M&M and Tata Motors which was already seen in stock price movement of the companies as order was issued during market hours at around 3pm on Friday. We have to wait for further clarification from the government and also see the outcome of two events (Supreme Court ruling on 15 December and NGT final order on January 6) lined up in next few days before we can estimate the impact of the ruling. As of now, we have BUY rating on Tata Motors, Force motors and HOLD rating on Maruti Suzuki, M&M.

10 Abhishek Jain Research Analyst Tel: Aman Vij Research Analyst Tel: Delhi government to issue permits to 10,000 new autorickshaws Delhi government will issue permits to 10,000 new autorickshaws by the end of December in a bid to strengthen the public transport system in the national capital ahead of the odd even vehicle scheme coming into force from January 1. The Delhi government is taking number of initiates after New Delhi was declared as the most polluted city on the planet by the World Health Organization. After implementation of the odd even scheme from January 1, around 1 million oddnumbered cars will go off the city's roads on even dates and vice versa during a 15 day trial period. There are currently 80,000 autos plying in the capital. Delhi Government is also planning to allow autorickshaws to ply in double shifts where owners will be authorised to give their autos on rent on a shift basis to drivers who have valid licenses In vember 2015, passenger three wheelers were sold in domestic market in India out of which Bajaj Auto had sold units, Piaggio units, M&M 3241 units, Atul Auto 2302 units and TVS Motor 1290 units. For the 8 months ending vember 2015, Bajaj Auto occupies 55.28% market share followed by Piaggio at 25.87%, M&M at 8.8%, Atul Auto at 5.49% and TVS Motor at 3.5%. Last year, Delhi government had sought the Supreme Court's permission to add 200,000 more autorickshaws to the existing fleet saying absence of adequate and cheap mode of public transport in the capital. Our Take We believe this will be positive for Auto players like Atul Auto, Bajaj Auto, M&M, Piaggio and TVS Motor. Out of the above we have BUY rating on Bajaj Auto, HOLD rating on Atul Auto, M&M and SELL rating on TVS Motor due to stretched valuation.

11 Dharmesh Kant VP Equity and Derivatives Strategist Tel: Global Markets Outlook US Markets: U.S. major stock market indexes came unhinged Friday as falling prices in crude oil and worries about junk bond markets rattled Wall Street. Losses in equities throughout the week were fueled by a rout in crude oil prices and culminated in the harshest selloff in the major stock indexes in more than two months. The main benchmark S&P 500 recorded its steepest weekly losses since August, when stocks plunged on fears of a slowdown in China. Demand for Treasurys surged, sending the yield on the 10 year note down 6 basis points to 2.13% its lowest level this month, while global equities sold off. The economic data had no impact on expectations that the Fed will raise interest rates for the first time in almost a decade when it meets next week. The probability of an interest rate hike on Wednesday is at 79%, according to CME Group s FedWatch. The producer price index for vember rose 0.3%, but the so called core number, excluding food, energy and trade, was up just 0.1%. Over the past 12 months, producer prices are 1.1% lower in unadjusted terms, compared with a 1.6% decline in October. That s considered a more accurate barometer of wholesale price trends. Excluding trade margins and the volatile categories of food and energy, core wholesale prices inched up 0.1% in vember. Core price have risen a scant 0.3% over the past year. U.S. retail sales showed a bit more strength in vember, Commerce Department data released Friday revealed, pointing to a continued moderate pace of economic growth in coming months. Sales at U.S. retail stores rose 0.2% in vember, in line with expectations. This continues a string of little or no gains in sales since July. Day s Performance: The S&P 500 slid points, or 1.9%, to 2, and posted a 3.8% loss over the week. The energy sector slumped 3.4%, while all 10 main sectors closed sharply lower. The Dow Jones Industrial Average dropped points, or 1.8% to 17, and recorded a 3.3% decline over the week. The Nasdaq Composite fell points, or 2.2%, to 4, dropping below the psychologically significant 5,000 level. The tech heavy index fell 4.1% over the week. Set ups on S&P 500, Dow Industrial Average and Nasdaq 100 witnessed are back in correction mode. We expected this and have been constantly maintaining this view in our daily note. Emerging markets: Asian indices are trading deep in red this morning on weak global cues and falling crude oil prices. Meanwhile, China s central bank signaled Friday morning its intention to change the way it manages the yuan s value by loosening its peg to the U.S. dollar and instead letting it track the currencies of its broader trading partners. The foreign exchange trading system run by the central bank will start calculating a yuan exchange rate index Friday to provide a reference against a basket of currencies, the PBOC said. The central bank didn t offer additional details on the makeup of the basket or a timetable for when it actually would change the way it manages the yuan. Bullions & Commodities: Gold is trading at $1073 per troy ounce this morning down (0.25%) from previous close. WTI Crude future is trading at $35.42 per barrel while Brent Crude future is trading at $37.75 per barrel. Currencies: The U.S. Dollar Index tracking the U.S. currency against a basket of six others currencies trading at this morning up 0.01% from previous close. Long term set up on Dollar Index remain strong, a break above 100 on a weekly closing basis will initiate a new up move for a target of 120. The dollar and U.S. stocks often trade on opposite paths, with a weak dollar seen as providing investors with cheap funding to buy stocks. Plus the dollar s drop generally helps U.S. companies overseas sales. Source: Bloomberg

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(Choose name of company in the list browse companies and select 1 year in icon YTD in the price chart) IndiaNivesh Securities Limited Research Analyst SEBI Registration. INH & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai Tel: (022) / Fax: (022) e mail: research@indianivesh.in Website: