Accounting Thematic

January 04, 2013

Accounting Thematic THEMATIC

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to disclaimer section on the last page for further important disclaimer.

The importance of accounting quality Our analysis of the past five years of consolidated accounts of 337 companies (excluding banks and financial services) from the BSE500 suggests that the relationship between good accounting and positive investment performance appears to be tightening over time.

As one would expect, accounting quality varies by sector (refer to the table on the right), with the usual suspects—Realty, Utilities and Infrastructure—bringing up the rear. More importantly, accounting scores over time appear to have a bearing on investment returns. This can be seen in two different ways.

Firstly, sectors with better accounting scores tend to deliver better investment returns – this can be seen in the exhibits on pg 6. Secondly, within sectors, there is a strong correlation between accounting scores and investment returns – see Exhibit 1. In fact, this relationship is stronger if within a sector we focus on a specific market cap segment (see Exhibit 2).

Exhibit 1: Auto Ancillary companies - Impact of accounting on share prices

R2 = 25%

-10%

20%

50%

120 160 200 240

Blended Accounting score

Shar

e pr

ice

perf

orm

ance

Source: Ambit Capital research; Accounting score for the period FY08-12 and share price performance from 1st April ’07 to 26Th Nov. ’12.

Exhibit 2: Auto Ancillary cos in Bucket 2 – Impact of accounting on share prices

R2 = 46%

-10%

20%

50%

120 160 200 240


Shar

e pr

ice

perf

orm

ance

Source: Ambit Capital research; Accounting score for the period FY08-12 and share price performance from 1st April ’07 to 26Th Nov. ’12.

Accounting scores also vary across market cap buckets. Whilst the “top-50” stocks have the best blended scores across FY08-12, improvement in accounting scores over FY08-12 has been the greatest in the small-cap bucket (Bucket 4: the 87 stocks with a market cap below US$300mn).

So what are the implications for investors?

Given the link between accounting scores and investment returns, we have updated our proprietary model for BSE500 stocks which allows investors to assess how their holdings are performing with regards to accounting quality. Please let your Sales contact know if you would like your portfolio to be assessed by this model.

To the extent that sustained improvements in accounting quality translate into investment returns, the marked improvement in accounting quality in the following sectors is notable – Infrastructure, Agro and Media (see pg 5).

The opposite holds true for sectors where accounting quality has deteriorated over the last few years, notably, Utilities, Engineering & Construction, Capital Goods and, surprisingly, Cement (see pg 5).

We have also developed proprietary methodology for drilling into a specific sector and then into a specific company’s accounts to assess its underlying financial position. These tools are demonstrated in this note on page 17 (containing forensic analysis of the Real Estate sector) and page 19 (containing analysis of Pantaloon’s FY11 accounts; FY12 accounts for this company are not available as the company announced in June ’12 that it was moving its year end from June to December).

Analyst contacts

Bhargav Buddhadev Tel: +91 22 3043 3252 bhargavbuddhadev @ambitcapital.com

Harshit Vaid Tel: +91 22 3043 3259 [email protected]

Our three sets of accounting checks*

Revenue recognition checks Expense manipulation checks Cash pilferage checks

Source: Company. *For each category of accounting checks, we calculate a range of accounting ratios – refer to page 3 for details.

Sector-wise accounting scores

Sector Blended Accounting

Score (FY08-12)

Auto 199 Consumer Durables 196 Retail 194 Logistics 190 FMCG 190 Auto Ancillaries 188 IT 187 Fertilisers 185 Chemicals 183 Cement 180 Telecom 180 Oil & Gas 175 Industrials 174 Media 174 Capital Goods 172 Engg & Constn 170 Pharma 170 Miscellaneous 167 Agro 164 Mining 162 Metals 158 Infrastructure 158 Textiles 158 Shipping 156 Utilities 153 Realty 142 Conglomerate 138 Average 172

Source: Ambit Capital research

Avg. accounting score by mcap bucket

BSE500 Bucket Blended accounting

score (FY08-12)

Top-50 companies 178 Next 100 176 Next 100 171 Next 87 166


Accounting Thematic

Ambit Capital Pvt Ltd 2

CONTENTS

Methodology...................................................................................3 Accounting scores by sector.............................................................5 Accounting score by market cap bucket ...........................................9 Accounting quality and investment performance............................10 Delving deeper into the ‘Bottom 50’ companies ............................12 Most improved stocks ....................................................................14 Practical help for investors.............................................................15 Real Estate Thematic (Summary)....................................................17 Pantaloon Retail............................................................................19 Appendix 1 ...................................................................................21 Appendix 2 ...................................................................................23

Accounting Thematic


Methodology Using the consolidated financials from FY08-12, we have calculated nine financial ratios for the BSE500 companies (excluding Financial Services companies).

Our dataset comprises 337 companies, because we have excluded:

75 Financial Services companies (on the grounds that the forensic accounting ratios used in this note do not do justice to these companies);

9 companies on the grounds that their FY12 annual report is unavailable (See table on the left); and

79 other companies because they have gone through corporate actions such as a change in the year-end, demerger, etc., or because their data is not available in CapitaLine for the entire duration of the five-year period. The reason for unavailability of data was on account of these companies not being listed for the entire five-year period (FY08-12).

Appendix 1 gives a full list of the excluded companies with the reasons for exclusions. Appendix 2 gives the names of the companies included in the study along with their sectoral classification.

Some of the accounting ratios that we have focussed on are:

CFO/EBITDA: This ratio is a check on a company’s ability to convert EBITDA (which can be relatively easily manipulated) into operating cash flow (which is more difficult to manipulate). If this ratio is deteriorating over time it raises concerns about the company’s revenue recognition policy (because aggressive EBITDA growth alongside poor growth in CFO may imply revenue manipulation through methods such as channel stuffing). Whilst calculating EBITDA we have eliminated other income and made adjustments for notional and exceptional items such as forex gain/loss, gain/loss on sale of property, and revaluation of investments. In addition, whilst on the face of it the computation of the ratio (CFO/EBITDA) may appear simple, in practical terms, it is not, because the computation of the ratio has gone through four layers of filtering. For example, if both the CFO and EBITDA are negative, then the resultant ratio is positive. However, our filter ensures that the ratio turns negative and in the process, the company’s score gets penalised.

Miscellaneous expenditure as a percentage of revenues: This ratio is a check on the company’s expenditure policy. If this ratio is increasing consistently then it raises concerns regarding the authenticity of such an expense. Given that miscellaneous expenses also include notional and non-recurring items such as adjustments related to forex, we eliminate them whilst computing the figure for miscellaneous expenses.

Asset turnover: This ratio is calculated by dividing the gross revenue by the gross block. This ratio is a check on companies that have been incurring capex and increasing their gross block but the same does not translate into higher revenues over the period. A declining ratio highlights inefficiency on the company’s part to convert the capex into additional revenues for the company and/or raises concerns regarding how genuine the capex was in the first place.

Provision for doubtful debts as a percentage of gross debtors: This ratio is a check on the company’s provisioning policy. If this ratio is consistently declining then it raises the spectre of earnings being boosted through aggressive provisioning practices.

Contingent liabilities as a percentage of net worth: This is a check on the company’s off-balance sheet liabilities. If this ratio is increasing consistently it raises concerns regarding the strength of the company’s balance sheet in the

Exhibit 3: BSE500 Companies which have not published their FY12 Annual Report yet

Name Year End

Glodyne Techno. Mar-12

Essar Oil Mar-12

Geodesic Jun-12

IVRCL Jun-12

Amtek India Jun-12

Tulip Telecom Jun-12

D C Holdings Jun-12

Amtek Auto Jun-12

Pantaloon Retail Dec-12

Note: FY12 Annual Report for these companies was not available as on 26 November, 2012 (our cut-off date).

Accounting Thematic


event that the contingent liabilities materialise. Given that contingent liabilities also include genuine items such as letters of credit, guarantees, bill discounting and capital commitments, we eliminate them whilst computing the figure for contingent liabilities.

Audit fees: We calculate CAGR in standalone audit fees and CAGR in standalone revenues for all the five years (FY08-12). However, due to lack of information, we have considered a four-year CAGR for a few companies. We then calculate a ratio by dividing the audit fee CAGR with revenue CAGR and then sort companies in ascending order i.e. the company with the lowest ratio gets the highest score. The rationale is to penalise companies where the growth in audit fees exceeds the growth in revenues as audit fees should NOT generally grow linearly with revenues.

Change in depreciation rate: We calculate change in depreciation rates for five years (FY08-12). We then calculate the blended median scores across the five years and then sort companies on this ratio in ascending order i.e. the company with the smallest reduction in its depreciation rate gets the best score. The rationale is to penalise companies that have decreased their depreciation rate on a YoY basis.

These ratios can be broadly divided into three groups—revenue manipulation checks, expense manipulation checks, and cash pilferage checks (refer to Exhibit 4).

Exhibit 4: Defining the three broad categories of accounting checks (this is not an exhaustive list of the ratios used)

Category Ratios

Revenue recognition checks CFO/EBITDA, audit fees

Expense manipulation checks Change in depreciation rate, provision for doubtful debts as a percentage of gross debtors, contingent liabilities as a percentage of net worth

Cash pilferage checks Miscellaneous expenses as a percentage of revenues, asset turnover


For each of the five years over FY08-12, we calculate an accounting score for each company based on the above ratios. For each ratio, the best company receives a score of 337 (because there are 337 companies on the list) and the worst receives a score of 1 (i.e. the score drops by 1 point for every company when we go down the accounting quality spectrum).

Occasionally, in exceptional circumstances, we also assign a ‘0’ score if the company reports an inexplicably bad ratio. For example, if the company reports zero provisioning for debtors, we assign a ‘0’ score.

For a given ratio, we calculate the median/average (as the case may be) of five years (occasionally four years if data is not available) and thereafter assign equal weights to each of the nine ratios.

Once the scores for each year over FY08-12 are calculated, we consider the average accounting score across the five years to calculate the blended accounting score over FY08-12.

All our financial data is sourced from CapitaLine and our share price data is sourced from Bloomberg.

Accounting Thematic


Accounting scores by sector As expected based on FY08-12 blended accounting scores, the Auto, Consumer Durables and FMCG sectors come across as the best performing sectors, and Infrastructure, Utilities and Realty as the worst performing sectors. Furthermore, these accounting scores have also been manifested in their share price performance. Whilst the share prices of companies across Auto, Consumer and FMCG have outperformed the Sensex by a large margin over April ’07 – November ‘12, the share price performance of companies across Infrastructure, Utilities and Realty have either broadly been in line with the market or underperformed the Sensex. However, whilst investors are well aware that certain sectors like Infrastructure, Media and Textiles have accounts that are difficult to comprehend, our analysis highlights an improvement in their accounting scores in recent years.

Exhibit 5: Accounting score across sectors sorted by blended accounting score (the higher the score, the better the sector; hence, Auto is the best sector here)

Sector Number of

companies in the sector

Blended accounting score

(FY08-12)

Average annual percentage change in accounting score

(FY08-12)

Share price performance

(April ’07- Nov’12)

Outperformance relative to Sensex

(April ’07- Nov’12)

Auto 8 199 1.3% 15.8% 9.9% Consumer Durable 5 196 2.4% 43.6% 37.2% Retail 9 194 -1.2% 36.3% 30.7% Logistics 3 190 -2.6% 11.1% 4.7% FMCG 24 190 -0.5% 31.1% 24.7% Auto Anc 12 188 2.3% 16.9% 10.6% IT 30 187 1.3% 4.3% -1.6% Fertilizers 12 185 -5.0% 16.6% 10.2% Chemicals 13 183 1.6% 15.8% 9.5% Cement 7 180 -1.6% 12.5% 6.1% Telecom 6 180 1.4% -12.2% -18.5% Oil & Gas 11 175 -1.0% 6.8% 0.5% Industrials 11 174 1.0% 6.0% -0.3% Media 9 174 2.3% 7.4% 1.3% Capital Goods 18 172 -1.9% 0.3% -5.8% Engineering & Construction 15 170 -2.9% -8.1% -13.1% Pharma 26 170 1.3% 14.4% 8.0% Miscellaneous 25 167 0.9% 7.8% 1.6% Agro 4 164 4.8% 17.2% 10.9% Mining 5 162 -0.9% 12.8% 8.9% Metals 17 158 -0.4% 9.6% 3.2% Infrastructure 11 158 6.2% 2.5% -1.8% Textiles 7 158 5.4% 4.3% -2.1% Shipping 5 156 3.7% -13.1% -19.4% Utilities 17 153 -4.9% 2.6% -2.6% Realty 16 142 0.5% -3.8% -8.1% Conglomerate 11 138 -1.0% 7.7% 1.4% Grand Total/Average 337 173 0.5% 9.9% 3.9% Source: Ambit Capital Research

When we analyse the correlation between the blended accounting score and the share price performance across sectors, we find a correlation between share price performance and blended accounting score (i.e. higher the score, higher the share price performance for that particular sector and vice-versa) in more than 65% of the sectors within the BSE500 – see chart on following page.

Accounting Thematic


Exhibit 6: 65% of sectors show positive correlation with their blended accounting score

Oil & GasIndustrials

Media

Auto AncAuto

Capital Goods

ITMetals

TextilesInfrastructure

PharmaChemicalsAgro

Logistics

FMCG

Retail

Fertilizers

TextilesUtilitiesConglomerate

Realty

Engineering & Construction

TelecomShipping

Consumer Durable

Cement

Chemicals

R2 = 31%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

130 140 150 160 170 180 190 200 210

Blended Accounting Score (FY08-12)

Shar

e Pr

ice

Perf

orm

ance

Ist Quadrant - 3 sectors IInd Quadrant - 8 sectors

IIIrd Quadrant - 6 sectorsIVth Quadrant - 10 sectors

Source: Company, Ambit Capital research; Note: The axes cross each other at the average accounting score and the average share price performance, Share price performance is from 1st April, 07 to 26th November,12

For example, the eight sectors in the IInd quadrant have accounting scores higher than the average (over FY08-12) and have shown higher price outperformance compared with the average. Similarly, the nine sectors in the IVth quadrant have accounting scores below the average and their share prices have underperformed the average. This link between accounting quality and share prices has been explored further in this report.

Exhibit 7: However, no correlation between share price outperformance and change in accounting score (FY08-12)

Oil & GasConglomerate

Cement

MetalsMining Pharma

IndustrialsMisc.

IT

ChemicalsAuto AncAuto

Media

FMCG

Agro

TextilesInfrastructure

ShippingTelecomRealty

Retail

Fertilizers

Utilities

Logistics

E&C

Capital Goods

R2 = 0%

-20%

0%

20%

40%

60%

-6% -4% -2% 0% 2% 4% 6% 8%

Avg annual change in accounting score (FY08-12)

Shar

e pr

ice

perf

orm

ance

Consumer D bl

Source: Company, Ambit Capital Research; Note: Share price performance is from 1st April, 07 to 26th November,12

As one would expect, accounting scores vary across sectors (refer to Exhibit 5). Moreover, as shown in Exhibits 6 and 7, whilst the blended accounting scores across time have a bearing on the investment performance of the sector, the absolute change in a sector’s accounting score does not appear to have a bearing on the sector’s investment performance (refer to Exhibit 7).

Accounting Thematic


Based on the blended accounting score (over FY08-12), Utilities, Realty and Conglomerate emerge as the worst three sectors with average scores of 153, 142 and 138, respectively (whereas the average sectoral score for the BSE500 is 172).

Auto, Consumer Durables and FMCG emerge as the sectors with one of the strongest accounting quality with scores of 199, 196 and 190, respectively, which is ~ 15% above the BSE500 average score. Unsurprisingly, all the three sectors have outperformed the Sensex across April ’07 to November ‘12 by an average of 23% per annum.

Exhibit 8: Outperformance and underperformance for the best-3 and bottom-3 sectors (figures in the table are absolute ratios/values and not scores)

Scores (across FY08-12) CFO/

EBITDA ratio (%)

Change in depreciation

(bps)

Gross block turnover (x)

Contingent liability as

a percentage of net worth

Miscellaneous Expenses as

a percentage of revenue

Provision for

Doubtful Debtors

(%)

Growth in audit fees/

growth in revenues (%)

Best-3 sectors by sector outperformance

Auto 97% 45 3.0 16% 1.3% 2.4% 0.74

Consumer Durables 82% 38 5.1 12% 1.4% 8.7% 1.28

FMCG 73% 72 4.9 8% 1.9% 3.5% 0.61 BSE500 Average 58% 128 5.5 10% 1.4% 3.2% 1.42

Worst-3 sectors by sector underperformance

Utilities 71% 51 0.7 20% 1.0% 4.6% 0.74

Realty -146% 178 2.2 3% 1.6% 0.8% 3.25

Conglomerate 55% 66 1.9 20% 2.1% 1.0% 1.77 BSE500 Average 58% 128 5.5 10% 1.4% 3.2% 1.42 Source: Ambit Capital research. Note: Shaded boxes denote outperformance for the best sectors and underperformance for the worst sectors.

From an investment perspective, it is worth looking at sectors that have seen a positive change in their accounting scores but the same has not yet been reflected in their stock price performance. From this perspective, the following is worth noting:

Infrastructure companies can spring a share price surprise going forward given that accounting scores for this sector improved by 6.2% per annum whereas the sector has underperformed (-1.8%) compared to the other sectors over April ’07 to November ‘12.

Media companies could also surprise on the positive side given the 2.3% improvement in this sector’s accounting score over FY08-12 and its share price underperformance relative to the Sensex (-6.2%).

On the other hand, Consumer Durables and Retail may disappoint given these sectors’ huge share price outperformance relative to the Sensex (43% and 36%, respectively over April ’07 to November ‘12) coupled with the change in their accounting scores of 2.4% and (1.2%), respectively.

Accounting Thematic


Exhibit 9: How the five best and worst performing sectors (from an accounting perspective) have evolved over the past five years

Sectors showing the biggest improvement in accounting quality (FY08-12 CAGR in score)

Infrastructure +6.2% The Infrastructure sector has shown an improvement of 6% per annum in its accounting score over FY08-12 mainly driven by better cash generation, asset turnover, and better provisioning of debtors.

Textiles +5.4%

The Textiles sector has shown an improvement of 5% per annum in its accounting score over FY08-12 mainly driven by better cash generation, marginal changes in depreciation rate and better asset turnover over the past five years.

Agro +4.8%

The Agro sector has shown an improvement of 5% per annum in its accounting score over FY08-12 mainly driven by better cash generation, falling miscellaneous expenses, falling contingent liability and rising provision for doubtful debts.

Shipping +3.7%

The Shipping sector has shown an improvement of 4% per annum in its accounting score over FY08-12 largely driven by the modest changes in depreciation across the years and an improved capital WIP to gross block ratio.

Media +2.3% The Media sector has shown an improvement of 2% per annum in its accounting score over FY08-12 mainly driven by better cash generation and modest change in depreciation rate across all the four years.

Sectors showing the biggest deterioration in accounting quality (FY08-12 CAGR in score)

Fertilisers -5.0%

The Fertiliser sector has seen the highest deterioration in accounting score, which has fallen by 5% per annum over FY08-12, owing to poor cash generation, lower provisioning for debtors and an increasing capital WIP to gross block ratio.

Utilities -4.9%

The Utilities sector has seen a deterioration of 5% per annum in its accounting score over FY08-12 mainly driven by constant changes in depreciation, higher contingent liabilities, lower provisions on doubtful debts and higher capital WIP to the gross block across the years.

Engineering & Construction

-2.9% The Construction sector’s accounting scores have declined by 3% over FY08-12, owing to poor cash conversion, higher proportion of contingent liabilities to net worth and rising miscellaneous expenses.

Capital Goods -1.9% The Capital Goods sector’s accounting scores have also declined by 2% per annum over FY08-12 driven by poor cash generation, constant changes in depreciation and higher contingent liabilities.

Cement -1.6% The Cement sector has also shown a decline in accounting score of around 2% over FY08-12, owing to a decline in the asset turnover and a significant reduction in the provisioning for debtors.

Source: Company, Ambit Capital research.

Accounting Thematic


Accounting score by market cap bucket

Exhibit 10: Accounting score by market cap bucket

Bucket Number of companies

in the sector

Blended accounting score (FY08-12)

Average annual change in score (FY08-12)

Share price performance (CAGR over

April ’07 to November ’12)

Bucket 1 50 178 -0.85% 13.8% Bucket 2 100 176 -0.72% 15.6% Bucket 3 100 171 0.84% 10.4% Bucket 4 87 166 1.06% -0.8% Source: Ambit Capital research

The 337 companies in our study have been split across these four buckets as shown below.

Exhibit 11: Defining market cap buckets

Bucket Market cap range # of companies in bucket

Bucket 1 `234bn – `2,528bn (US$4.3bn -US$46bn) 50

Bucket 2 `37bn – `228bn (US$0.7bn -US$4.1bn) 100

Bucket 3 `15.7bn – `37bn (US$0.3bn -US$0.7bn) 100

Bucket 4 `3.0bn - `15.6bn (US$0.01bn -US$0.3bn) 87

Total 337


Based on the market capitalisation of companies as on 26 November 2012, we have divided the BSE500 into four market cap buckets:

Bucket 1 comprises the 50 largest companies by market cap

Bucket 2 consists of the next 100 largest companies by market cap

Bucket 3 consists of the next 100 largest companies by market cap

Bucket 4 comprises the remaining companies considered in our analysis.

We find that there is a broad relationship between share price performance across buckets and the blended accounting score over FY08-12 (i.e. higher the score, the better the share price performance for that particular bucket). Buckets 1, 2, 3 and 4, with blended accounting scores over FY08-12 of 178, 176, 171 and 166, respectively, have seen share price performance (CAGR over April ’07 to Nov ’12) of 13.8%, 15.6%, 10.4% and -0.8%, respectively.

However, the average annual change in the score (Exhibit 11) presents a completely different picture altogether wherein bucket 1 has performed the worst – i.e. the accounting score has deteriorated the most compared with other buckets which have shown lower deterioration or a marginal improvement in their respective scores.

Accounting Thematic


Accounting quality and investment performance So far in this note we have discussed the link between accounting scores and the investment performance of sectors (in Section 2) and the market cap buckets (in Section 3). Obviously, the question arises “Do accounting scores drive investment performance at the stock level?”

Exhibit 12: “Share prices vs. blended accounting scores (FY08-12)” for all stocks in the BSE500

R2 = 5%

-30%

0%

30%

60%

60 100 140 180 220 260


Shar

e pr

ice

perf

orm

ance

Source: Company, Ambit Capital research; Note: Share price performance is from 1st April, 07 to 26th November,12.

Exhibit 13: “Valuation vs. blended accounting scores (FY08-12)” for all stocks in the BSE500

R2 = 0%

0

10

20

30

60 90 120 150 180 210 240

Blended Accounting Score

FY12 T

TM P

/E

Source: Company, Ambit Capital research

If you look at the BSE500 as a whole (refer to the Exhibits above), accounting scores and share price returns do not appear to be linked. However, as we have seen in the previous pages of this note, across sectors there is a positive correlation between accounting scores and investment returns. Furthermore, on comparison of stocks within a sector, a clear positive relationship emerges between share price performance and blended accounting score – see exhibit 14 on the next page – as the comparison becomes more “apples-to-apples”, thereby allowing the power of accounting to drive share prices.

Exhibit 14: Share prices vs. blended accounting scores (FY08-12) for the Auto Ancillary sector

R2 = 25%

-30%

0%

30%

60%

120 160 200


Shar

e pr

ice

perf

orm

ance


Exhibit 15: Share prices vs. blended accounting scores (FY08-12) for the Auto Ancillary sector (Bucket 2)

R2 = 46%

-30%

0%

30%

60%

120 160 200


Shar

e pr

ice

perf

orm

ance


Accounting Thematic


In fact, if one takes this a step further and looks at a specific bucket (bucket definitions are on Page 9) within a sector, the relationship becomes even more striking (refer to the Exhibits below for auto ancillary stocks in Bucket 2).

Therefore, the more the factors, such as sector and the size of a company, are isolated the more clearly one can see the role of accounting quality in driving share prices.

Exhibit 16: Share prices vs. blended accounting scores (FY08-12) for the Industrials sector

R2 = 21%

-30%

0%

30%

60%

120 160 200


Shar

e pr

ice

perf

orm

ance


Exhibit 17: Share prices vs. blended accounting scores (FY08-12) for the Industrials sector (Bucket 2)

R2 = 35%

-30%

0%

30%

60%

120 160 200


Shar

e pr

ice

perf

orm

ance


Accounting Thematic


Delving deeper into the ‘Bottom 50’ companies

Exhibit 18: Bottom 50 companies by sector

Sectors # in worst 50 (A)

% of worst 50

Number of companies in the sector (B)

Probability of company in that sector being in the “bottom 50” (A/B)

Realty 8 16% 16 50%

Pharma 7 14% 26 27%

Utilities 6 10% 17 35%

Conglomerate 6 8% 11 55%

Miscellaneous 4 8% 25 16%

Metals 3 8% 17 18%

Infrastructure 3 6% 11 27%

IT 2 4% 30 7%

Capital Goods 2 4% 18 11%

Auto Ancillaries 1 4% 12 8%

Chemicals 1 4% 13 8%

Cement 1 2% 7 14%

Media 1 2% 9 11% Engineering & Construction 1

2% 15 7%

Agro 1 2% 4 25%

Mining 1 2% 5 20%

Textiles 1 2% 7 14%

Shipping 1 2% 5 20%

Auto 0 0% 8 0%

Consumer Durables 0 0% 5 0%

FMCG 0 0% 24 0%

Retail 0 0% 9 0%

Logistics 0 0% 3 0%

Fertilisers 0 0% 12 0%

Oil & Gas 0 0% 11 0%

Industrials 0 0% 11 0%

Telecom 0 0% 6 0% Source: Ambit Capital research.

Exhibit 19: Bottom 50 by market cap bucket

Buckets # in worst 50 (A)

% of worst 50

Number of companies in that size bucket (B)

Probability of company in that bucket being in the bottom 50 (A/B)

Bucket 1 2 4% 50 4%

Bucket 2 16 32% 100 16%

Bucket 3 16 32% 100 16%

Bucket 4 16 32% 87 18%

50 100% 337 15%

Source: Ambit Capital research.

Accounting Thematic


Pharma and Realty are the biggest contributors to the bottom 50 list of

companies.

That being said, given that sectors having a large number of companies in the BSE500 are more likely to have a greater presence in the bottom 50, a better way to gauge the accounting quality of a sector is to look at the ‘probability of a company in that sector being in the BSE500‘. This probability is calculated by dividing the number of entrants (from the sector) in the bottom 50 by the number of companies from that sector in the BSE500. From this perspective, the two worst-placed sectors are Conglomerate (55% probability of a company in this sector being ranked amongst “worst 50” companies in India) and Realty (50% probability).

In Conglomerate companies, their weak accounting scores appear to be on account of revenue manipulation (CFO/EBITDA is low) and expense manipulation (miscellaneous expenses as a percentage of revenues).

For Realty companies, the weak accounting score appears to be because of revenue manipulation (CFO/EBITDA is low) and expense manipulation (provision for doubtful debts is low and the depreciation rate changes consistently).

The weak accounting performance of Realty stocks (the worst in the sector) is due to weak scores on the CFO/EBITDA metric because:

90% of Indian companies in the Realty sector follow the ’percentage of completion’ method of recognising revenues—a method which can be manipulated by overstating the percentage of completion.

These companies also offer long credit periods. If we analyse the individual ratios of the companies, we find that Realty companies appear to have poor cash generation, owing to high debtor days.

For more details on Real Estate companies’ accounting and governance, please refer to our separate thematic on this sector (published on 4th Jan 2013). A summary of this thematic is given on Page 17.

Accounting Thematic


Most improved stocks Within the 337 companies in our model, the 30 stocks which have seen the greatest improvement in blended accounting scores over FY08-12 are listed below. From these 30 stocks, the ten stocks with negative share price performance over April ’07 to November ‘12 are highlighted in bold. Further, their stock performance over the same period is also highlighted in the exhibit below.

Exhibit 20: Stocks in terms of improvement in accounting scores over FY08-12

Accounting Score CAGR

Share Price Performance (April ’07 – Nov. ’12) TTM P/B Past 5 Year P/B Disc/Premium

Patel Engineering 18.6% -27.1% 0.38 1.73 -78%

Bilcare 17.6% -14.4% 0.41 1.48 -72%

Mahindra Life 16.9% -9.7% 1.50 1.55 -3%

Bajaj Hindusthan 15.6% -14.4% 0.40 1.00 -59%

Multi Comm. Exchange 15.3% 16.0% 7.46 NA NA

U B Holdings 14.2% -22.5% 0.33 4.10 -92%

IRB Infra. Developers 14.0% -9.8% 2.92 2.94 -1%

Sobha Developers 13.8% -15.8% 1.90 1.88 1%

Amara Raja Batteries 13.5% 47.0% 5.39 2.91 85%

Bombay Dyeing 12.8% -4.6% 1.57 4.35 -64%

Asahi India Glass 12.7% -18.9% 5.70 5.20 10%

Glenmark Pharma 12.3% 2.9% 6.10 5.21 17%

Bombay Rayon 12.0% 18.2% 1.15 1.63 -30%

SpiceJet 11.8% 6.6% NA 11.62 NA

Indian Hotels 11.7% -15.7% 1.60 2.06 -22%

Kesoram Industries 11.4% -21.3% 0.50 0.77 NA

TTK Prestige 11.1% 74.3% 13.66 6.73 103%

eClerx Services 10.9% 22.2% 5.87 5.85 0%

Uflex 10.9% -17.7% 0.33 0.74 -56%

Jai Corp 10.7% -16.6% 0.57 1.50 -62%

GVK Power Infra. 10.1% 10.6% 0.64 1.66 -61%

Supreme Industries 9.9% 38.8% 5.41 3.64 49%

Pidilite Industries 9.7% 19.2% 8.80 6.66 32%

Rel. Comm. 9.6% -33.8% 0.43 1.04 -59%

Tata Elxsi 9.1% -11.7% 3.98 3.95 1%

Fres.Kabi Onco. 8.7% -2.2% 2.95 5.41 -45%

Rain Commodities 8.7% 17.1% 0.65 1.73 -63%

Era Infra Engg. 8.7% 22.4% 1.40 2.16 -35%

Peninsula Land 8.7% -2.1% 1.35 1.51 -10%

Time Technoplast 8.6% -5.6% 1.38 2.16 -36%

Source: Bloomberg, Capialine, Ambit Capital research

Accounting Thematic


Practical help for investors At Ambit, we perform this annual forensic accounting exercise to help our clients in three ways:

This forensic model helps our sector leads to organise the stocks in their sector in the order of accounting quality. Wherever sector leads see this forensic model flashing a warning on the overall quality of a firm’s accounts, we usually do not cover the stock.

The structure of this forensic model allows our sector leads to publish sector specific forensic pieces. For example, on 4th Jan 2013 our Real Estate team published a forensic thematic focused on that controversial sector. Page 17 of this note summarises their current thinking on this subject.

The structure of this model gives our sector leads pointers towards investigating a company’s accounts in detail using further qualitative checks. The effectiveness of these checks is demonstrated on Page 19 using Pantaloon’s FY11 accounts (the firm’s FY12 Annual Report has not yet been published as in June 12 the company announced that it was moving its year end from June to December.

Accounting Thematic


This page has been intentionally left blank

January 04, 2013

Real Estate THEMATIC



Analyst contacts

Rakshit Ranjan, CFA Tel: +9122 3043 3201 [email protected]

Pratik Singhania Tel: +91 22 3043 3264 [email protected]

Our Coverage Summary Reco Mcap Upside

Company (US$mn) (%)

Sobha Developers BUY 696 30

Oberoi Realty BUY 1,799 12

Prestige Estates BUY 1,143 6

Source: Bloomberg, Ambit Capital research.

Growth vs debt servicing A modest revival in Real Estate demand is likely over the next six months. Against this backdrop, we expect share price outperformance from companies that demonstrate a combination of: (a) Constructive use of incremental cash flows to build a strong pipeline of forthcoming operating cash flows, rather than only focusing on debt servicing; and (b) High standards of corporate governance and accounting disclosures to help generate sustainably high levels of returns for shareholders. The best-placed developers on these metrics are Sobha, Oberoi, Prestige Estates, Brigade, and DLF. Phoenix Mills and Puravankara are likely to enter the growth phase after a revival in Real Estate demand. However, we expect others like Indiabulls and Parsvnath to struggle to service their debt until the RBI cuts rates very significantly (say, by 250-300bps).

Exhibit 1: Summary of rankings

Debt

servicing from CFO

Sales, execution &

cash collection

Accounting quality

Management and auditor

quality

Overall

Sobha +++ +++ +++ ++ +++

Oberoi Realty +++ ++ +++ ++ +++

Phoenix Mills +++ NA +++ ++ +++

Prestige Estates +++ +++ ++ ++ +++

Brigade +++ ++ +++ ++ +++

DLF +++ ++ +++ ++ +++

Puravankara ++ ++ ++ +++ ++

Peninsula Land ++ NA ++ ++ ++

Mahindra Lifespc ++ ++ + +++ ++

Godrej Properties + +++ + ++ ++

Anantraj + NA + ++ +

Unitech ++ + + + +

HDIL ++ NA ++ + +

Indiabulls Real Estate + + + ++

+

Parsvnath + NA + + +

Source: Ambit Capital research; NA = sufficient data was not available to arrive at a rating; Debt servicing ratings are based on the strength of operating cash flows and current debt/equity; Sales, execution and cash collection ratings are based on the momentum of sales for each developer; Accounting quality ratings are based on debtor days, ratio of CFO/EBITDA and revenue recognition methodology; Corporate governance rating is based on Board composition and quality of the auditor.

Exhibit 2: Classification of the sector into three main buckets Bucket 1 Bucket 2 Bucket 3 CFO higher than debt-servicing requirements

CFO at or marginally below debt servicing requirements

CFO significantly below debt-servicing requirements

Focus on growth currently Focus on de-leveraging currently

Focus on debt servicing currently

Accelerated execution and launches fuelling growth already

Revival in real estate demand will help it move into the growth phase

Significant monetary policy easing combined with a revival in macro demand needed for growth

Sobha, Oberoi, Prestige Estates, Brigade and DLF

Phoenix Mills, Puravankara, Mahindra Lifespaces and Unitech

Peninsula Land, Indiabulls Real Estate, Parsvnath, Godrej Properties and Anantraj

Source: Ambit Capital research, Company.

This Real Estate thematic was published on 4th January, 2013. To get the full 22 page report, please contact either your Ambit Sales contact or the analysts who have authored this report.

Accounting Thematic


This page has been intentionally left blank

January 04, 2013

Pantaloon Retail

ACCOUNTING ANALYSIS



Summary of accounting issues

Metric Comment

Dupont Analysis High financial leverage

Cash conversion Negative CFO to EBITDA ratio

Debtor days Higher than peer average

Inventory days Higher than peer average

Loans and advances

High proportion of loans and advances to net worth

Contingent liabilities

Non disclosure of some contingent liabilities

Auditor Small audit firm

Rotation of directors

Independent directors not rotated

Pledging of shares High level of pledging

Directorships held

Promoter holds directorships in 32 unlisted entities

Insider transactions

Numerous insider transactions after positive announcements


Based on the last available annual report for Pantaloon Retail (year ending June 2011), our checks on the company and comparisons with peers suggest significant issues around: (a) weak operating margins and high financial leverage; (b) weak cash conversion with sub-optimal working capital cycle management; (c) loans and advances; (d) undisclosed contingent liabilities; (e) multiple corporate governance issues; and (f) a high amount of leverage in the holding structure. However, it is worth highlighting that the business has undergone significant restructuring over the past 18 months and the annual report for the period ending Dec'12 is expected over the next few months.

Accounting:

Dupont Analysis: While the ROEs of the company are below par (4.5% in FY11 & 1.9% in FY10) due to weak operating margins relative to peers, they have been boosted by the high amount of financial leverage (FY11 core retail debt:equity of 2x vs 0.5x average debt equity for peers) taken on by the company. Management response: The business models and size of the peer group differ from that of Pantaloon and are hence not comparable.

Cash Conversion and working capital cycle management: The company has fared poorly on working capital management, with debtor days (14 vs a peer median of 3) and inventory days (92 vs a peer median on 33) being amongst the worst in class. It also had weak cash conversion with a negative CFO/EBITDA ratio. Management response: The business models and size of the peer group differ from that of Pantaloon and are hence not comparable.

Loans & Advances: Loans & advances stood at 144% of net worth (vs a peer median of 28%), but were influenced by advances made by Future Capital Holdings (a subsidiary of Pantaloon Retail and an NBFC). Management response: Loan & advances are high because of Future Capital Holdings which is no longer a part of the company. Further, loans & advances are also high as they are given for store deposits where stores are not yet operational but retail space has been blocked. Access to such real estate space is likely to pan out as a competitive advantage vs. peers in future.

Contingent liabilities: Pantaloon does not seem to have provided for Service Tax on rent in its books which we believe should be recorded as a contingent liability and could be a substantial amount (we believe that the amount upto FY11 before penalty could be well in excess of Rs3bn or 10% of FY11 net worth). Management response: The contingent liability pertaining to service tax not disclosed in the annual report amounted to Rs1.08bn (Rs731mn in the standalone entity and Rs352mn in Future Value Retail) till the year ending June 30, 2011.

Depreciation analysis: Vis-à-vis depreciation expenses, the company fared better than its peers as it has the highest depreciation rate in class.

Corporate Governance:

Auditor Check: Pantaloon’s books are audited by NGS and Co, a relatively small Mumbai based audit firm. The company audits the books of 3 other listed entities, none of which are in the BSE 500. Management response: NGS and Co also audits the books of other companies including subsidiaries of the Edelweiss Group. It is a 30 year old firm with 7 partners and 50 staff members.

The peer group with which we compared Pantaloon includes

1) Trent 2) Shoppers Stop 3) D-Mart

If you would like to discuss Pantaloon’s accounts in greater detail, please contact

Saurabh Mukherjea Tel: +9122 3043 3174 [email protected]

In June 2012, Pantaloon announced that it was changing its accounting year from year ending June to year ending December

Accounting Thematic


Corporate Governance: Directors: The company fares poorly on its policy of rotation of independent directors. We also have concerns on the large number of directorships (45 active directorships, which include 31 companies and 14 LLPs) held by Kishore Biyani in unlisted entities. Management response: Kishore Biyani currently holds directorships in 13 public and 22 private entities.

Insider transactions: The insider transactions of the company increased materially prior to the announcement of FDI in retail. The promoter has acquired over 1% in the company since. Management response: The promoters purchased shares in the open market only because they felt the price was low and not because of FDI related reasons. This indicates the confidence of the management in the company.

Others: The company seems to have been penalized by SEBI for not solving investor grievances on time. We also have concerns regarding the high levels of pledging by the promoter (62% of his holdings are pledged as on 30th September, 2012 as per disclosures made to the exchanges). Management response: Regarding the SEBI order, the company appealed against the order and has settled with the party as it did not want to enter into litigation with the regulator.

Accounting Thematic


Appendix 1 Exhibit 21: List of companies excluded from our accounting thematic

SN Companies Reason for Exclusion SN Companies Reason for Exclusion

1 Glodyne Techno. Annual Report Unavailable 51 St Bk of Mysore BFSI

2 Amtek Auto Annual Report Unavailable 52 I O B BFSI

3 Geodesic Annual Report Unavailable 53 St Bk of Bikaner BFSI

4 Pantaloon Retail Annual Report Unavailable 54 Vijaya Bank BFSI

5 Essar Oil Annual Report Unavailable 55 Indian Bank BFSI

6 IVRCL Annual Report Unavailable 56 Manappuram Fin. BFSI

7 Amtek India Annual Report Unavailable 57 South Ind.Bank BFSI

8 Tulip Telecom Annual Report Unavailable 58 Shri.City Union. BFSI

9 D C Holdings Annual Report Unavailable 59 City Union Bank BFSI

10 Gillette India Data for FY12 not available 60 J & K Bank BFSI

11 Indiabulls RealEst. Data for FY12 not available 61 Punjab Natl.Bank BFSI

12 P & G Hygiene Data for FY12 not available 62 Power Fin.Corpn. BFSI

13 Bajaj Holdings BFSI 63 Dev.Credit Bank BFSI

14 H D F C BFSI 64 M & M Financial BFSI

15 Tata Inv.Corpn. BFSI 65 I D F C BFSI

16 St Bk of India BFSI 66 JSW Holdings BFSI

17 Shriram Trans. BFSI 67 Yes Bank BFSI

18 Dewan Housing BFSI 68 Netwrk.18 Media BFSI

19 Reliance Capital BFSI 69 Indiabulls Fin. BFSI

20 JM Financial BFSI 70 CRISIL BFSI

21 Chola. Invest. BFSI 71 India Infoline BFSI

22 Kotak Mah. Bank BFSI 72 Max India BFSI

23 GRUH Finance BFSI 73 Blue Circle Ser. BFSI/Listed for less than five years

24 ING Vysya Bank BFSI 74 United Bank (I) BFSI/Listed for less than five years

25 SREI Infra. Fin. BFSI 75 Central Bank BFSI/Listed for less than five years

26 IFCI BFSI 76 Pun. & Sind Bank BFSI/Listed for less than five years

27 Federal Bank BFSI 77 SE Investments BFSI/Listed for less than five years

28 Bajaj Fin. BFSI 78 Rural Elec.Corp. BFSI/Listed for less than five years

29 LIC Housing Fin. BFSI 79 Muthoot Finance BFSI/Listed for less than five years

30 Oriental Bank BFSI 80 Motil.Oswal.Fin. BFSI/Listed for less than five years

31 HDFC Bank BFSI 81 Bajaj Finserv BFSI/Listed for less than five years

32 Magma Fincorp BFSI 82 Edelweiss.Fin. BFSI/Listed for less than five years

33 ICICI Bank BFSI 83 Future Capital BFSI/Listed for less than five years

34 IDBI Bank BFSI 84 Future Ventures BFSI/Listed for less than five years

35 Corporation Bank BFSI 85 SKS Microfinance BFSI/Listed for less than five years

36 Bank of Baroda BFSI 86 Stand.Chart.PLC BFSI/Listed for less than five years

37 Canara Bank BFSI 87 L&T Fin.Holdings BFSI/Listed for less than five years

38 UCO Bank BFSI 88 Electrost.Cast. Consolidated data for FY12 not available

39 Union Bank (I) BFSI 89 Gateway Distr. Consolidated data for FY12 not available

40 S B T BFSI 90 Texmaco Rail Listed for less than five years

41 Dhanlaxmi Bank BFSI 91 WABCO India Listed for less than five years

42 IndusInd Bank BFSI 92 Jaypee Infratec. Listed for less than five years

43 Dena Bank BFSI 93 P I Inds. Listed for less than five years

44 Axis Bank BFSI 94 Vikas Wsp Listed for less than five years

45 Bank of Maha BFSI 95 Oil India Listed for less than five years

46 Syndicate Bank BFSI 96 Tuni Text. Mills Listed for less than five years

47 Bank of India BFSI 97 KGN Industries Listed for less than five years

48 Allahabad Bank BFSI 98 Sh.Global Trad. Listed for less than five years

49 Andhra Bank BFSI 99 SJVN Listed for less than five years

50 Karnataka Bank BFSI 100 ICRA Listed for less than five years

Accounting Thematic


SN Companies Reason for Exclusion SN Companies Reason for Exclusion

101 MOIL Listed for less than five years 133 Schneider Elect. Listed for less than five years/Year end chnge

102 Delta Corp Listed for less than five years 134 AP Paper Year end change

103 Mahindra Holiday Listed for less than five years 135 Astrazeneca Phar Year end change

104 Pipavav Defence Listed for less than five years 136 Abbott India Year end change

105 Fortis Health. Listed for less than five years 137 Wyeth Year end change

106 Zylog Systems Listed for less than five years 138 Eicher Motors Year end change

107 SPARC Listed for less than five years 139 Alstom T&D India Year end change

108 Omaxe Listed for less than five years 140 Greaves Cotton Year end change

109 Nitin Fire Prot. Listed for less than five years 141 Hind. Unilever Year end change

110 OnMobile Global Listed for less than five years 142 JSW ISPAT Year end change

111 MVL Listed for less than five years 143 Pfizer Year end change

112 Mandhana Indus Listed for less than five years 144 Shree Cement Year end change

113 D B Corp Listed for less than five years 145 Jindal Saw Year end change

114 KSK Energy Ven. Listed for less than five years 146 H F C L Year end change

115 A2Z Maintenance Listed for less than five years 147 S Mobility Year end change

116 C Mahendra Exp Listed for less than five years 148 3M India Year end change

117 Shree Gan.Jew. Listed for less than five years 149 Balrampur Chini Year end change

118 Den Networks Listed for less than five years 150 Timken India Year end change

119 Aqua Logistics Listed for less than five years 151 GTL Year end change

120 Gravita India Listed for less than five years 152 Kemrock Inds. Year end change

121 D B Realty Listed for less than five years 153 K S Oils Year end change

122 Eros Intl.Media Listed for less than five years 154 Videocon Inds. Year end change

123 Bajaj Corp Listed for less than five years 155 MphasiS Year end change

124 Tree House Edu. Listed for less than five years 156 Prism Cement Year end change

125 Jyothy Lab. Listed for less than five years/Year end change 157 Wockhardt Year end change

126 Triveni Turbine Listed for less than five years/Year end change 158 Aptech Year end change

127 Sujana Towers Listed for less than five years/Year end change 159 Sh.Renuka Sugar Year end change

128 KGN Enterprises Listed for less than five years/Year end change 160 Adhunik Metal Year end change

129 Kirloskar Oil Listed for less than five years/Year end change 161 Allcargo Logist. Year end change

130 Indiabulls Power Listed for less than five years/Year end change 162 Sh.Ashtavinayak Year end change

131 Techno Elec. Listed for less than five years/Year end change 163 Cairn India Year end change

132 Dalmia Bhar.Ent. Listed for less than five years/Year end change


Accounting Thematic


Appendix 2 Exhibit 22: Name of the companies included in our accounting thematic SN Companies Ambit Sector SN Companies Ambit Sector SN Companies Ambit Sector

1 McLeod Russel Agro 57 SRF Chemicals 113 Agro Tech Foods FMCG

2 Tata Coffee Agro 58 Rain Commodities Chemicals 114 Akzo Nobel FMCG

3 REI Agro Agro 59 Himadri Chemical Chemicals 115 Dabur India FMCG

4 Bajaj Hindusthan Agro 60 Guj Fluorochem Chemicals 116 Tata Global FMCG

5 Hero Motocorp Auto 61 Solar Inds. Chemicals 117 United Breweries FMCG

6 Tata Motors Auto 62 Finolex Inds. Chemicals 118 Ruchi Soya Inds. FMCG

7 Maruti Suzuki Auto 63 Grasim Inds Conglomerate 119 United Spirits FMCG

8 Ashok Leyland Auto 64 Larsen & Toubro Conglomerate 120 Berger Paints FMCG

9 Bajaj Auto Auto 65 Aditya Bir. Nuv. Conglomerate 121 VST Inds. FMCG

10 Escorts Auto 66 JP Associates Conglomerate 122 Zydus Wellness FMCG

11 TVS Motor Co. Auto 67 EID Parry Conglomerate 123 Godrej Consumer FMCG

12 M&M Auto 68 Godrej Inds. Conglomerate 124 Britannia Inds. FMCG

13 Exide Inds. Auto Anc 69 Nava Bharat Vent Conglomerate 125 Radico Khaitan FMCG

14 Amara Raja Batt. Auto Anc 70 Century Textiles Conglomerate 126 Colgate-Palm. FMCG

15 Apollo Tyres Auto Anc 71 Kesoram Inds. Conglomerate 127 Kwality Dairy FMCG

16 Bosch Auto Anc 72 Adani Enterp. Conglomerate 128 Marico FMCG

17 SKF India Auto Anc 73 U B Holdings Conglomerate 129 Emami FMCG

18 Fag Bearings Auto Anc 74 Whirlpool India Consumer Durable 130 Bharat Electron Industrials

19 MRF Auto Anc 75 TTK Prestige Consumer Durable 131 AIA Engg. Industrials

20 Balkrishna Inds Auto Anc 76 Havells India Consumer Durable 132 Time Technoplast Industrials

21 Sundram Fasten. Auto Anc 77 Bajaj Electrical Consumer Durable 133 Supreme Inds. Industrials

22 Bharat Forge Auto Anc 78 VIP Inds. Consumer Durable 134 HMT Industrials

23 Asahi India Glas Auto Anc 79 Engineers India E&C 135 Jain Irrigation Industrials

24 Motherson Sumi Auto Anc 80 NCC E&C 136 Carborundum Uni. Industrials

25 Praj Inds. Capital Goods 81 Era Infra Engg. E&C 137 Sterlite Tech. Industrials

26 Siemens Capital Goods 82 Voltas E&C 138 Graphite India Industrials

27 Ingersoll-Rand Capital Goods 83 Blue Star E&C 139 Sintex Inds. Industrials

28 Thermax Capital Goods 84 VA Tech WABAG E&C 140 Lak. Mach. Works Industrials

29 Cummins India Capital Goods 85 BGR Energy Sys. E&C 141 Noida Tollbridge Infrastructure

30 Elgi Equipment Capital Goods 86 Hind.Construct. E&C 142 Adani Ports Infrastructure

31 ALSTOM India Capital Goods 87 Gammon India E&C 143 IRB Infra. Devl. Infrastructure

32 BHEL Capital Goods 88 Jyoti Structures E&C 144 IL&FS Transport Infrastructure

33 Volt.Transform. Capital Goods 89 KEC Intl. E&C 145 Rel. Indl. Infra Infrastructure

34 ABG Shipyard Capital Goods 90 Kalpataru Power E&C 146 Essar Ports Infrastructure

35 ABB Capital Goods 91 Simplex Infra E&C 147 Sadbhav Engg. Infrastructure

36 Crompton Greaves Capital Goods 92 Patel Engg. E&C 148 GVK Power Infra. Infrastructure

37 Titagarh Wagons Capital Goods 93 Punj Lloyd E&C 149 Guj Pipavav Port Infrastructure

38 Suzlon Energy Capital Goods 94 Coromandel Inter Fertilizers 150 GMR Infra. Infrastructure

39 Honeywell Auto Capital Goods 95 GSFC Fertilizers 151 GTL Infra. Infrastructure

40 BEML Ltd Capital Goods 96 Bayer Crop Sci. Fertilizers 152 Oracle Fin. Serv. IT

41 HEG Capital Goods 97 Chambal Fert. Fertilizers 153 Info Edg.(India) IT

42 Elecon Engg.Co Capital Goods 98 Natl.Fertilizer Fertilizers 154 Polaris Finan. IT

43 ACC Cement 99 G N F C Fertilizers 155 Infosys IT

44 India Cements Cement 100 Monsanto India Fertilizers 156 Persistent Sys IT

45 Birla Corpn. Cement 101 Deepak Fert. Fertilizers 157 Hexaware Tech. IT

46 Ambuja Cem. Cement 102 R C F Fertilizers 158 eClerx Services IT

47 Madras Cement Cement 103 Tata Chemicals Fertilizers 159 Multi Comm. Exc. IT

48 UltraTech Cem. Cement 104 Rallis India Fertilizers 160 HCL Technologies IT

49 JK Lakshmi Cem. Cement 105 United Phosp. Fertilizers 161 NIIT Tech. IT

50 Guj Alkalies Chemicals 106 Pidilite Inds. FMCG 162 Wipro IT

51 Clariant Chemica Chemicals 107 Nestle India FMCG 163 Firstsource Solu. IT

52 JBF Inds. Chemicals 108 ITC FMCG 164 Tata Elxsi IT

53 BASF India Chemicals 109 Asian Paints FMCG 165 Rolta India IT

54 Castrol India Chemicals 110 GlaxoSmith CHL FMCG 166 KPIT Infosys IT

55 Gulf Oil Corpn. Chemicals 111 Kansai Nerolac FMCG 167 NIIT IT

56 BOC India Chemicals 112 Godfrey Phillips FMCG 168 HCL Infosystems IT

Accounting Thematic


SN Companies Ambit Sector SN Companies Ambit Sector SN Companies Ambit Sector

169 Infotech Enterp. IT 225 Jindal Poly Film Miscellaneous 281 Phoenix Mills Realty

170 Mindtree IT 226 Uflex Miscellaneous 282 Mahindra Life. Realty

171 CMC IT 227 Indian Hotels Miscellaneous 283 Oberoi Realty Realty

172 TCS IT 228 Kajaria Ceramics Miscellaneous 284 Prestige Estates Realty

173 Tech Mahindra IT 229 S T C Miscellaneous 285 NESCO Realty

174 Financial Tech. IT 230 Hotel Leela Ven. Miscellaneous 286 H D I L Realty

175 Navneet Publicat IT 231 Opto Circuits Miscellaneous 287 Unitech Realty

176 Redington India IT 232 PTC India Miscellaneous 288 Parsvnath Devl. Realty

177 CORE Education IT 233 HSIL Miscellaneous 289 Godrej Propert. Realty

178 Everonn Educat. IT 234 Ess Dee Alumin. Miscellaneous 290 Sobha Developer. Realty

179 Vakrangee Soft. IT 235 Jet Airways Miscellaneous 291 Ansal Properties Realty

180 Educomp Sol. IT 236 Bilcare Miscellaneous 292 Peninsula Land Realty

181 3i Infotech IT 237 Tube Investments Miscellaneous 293 Sunteck Realty Realty

182 Blue Dart Exp. Logistics 238 Cox & Kings Miscellaneous 294 Rajesh Exports Retail

183 Container Corpn. Logistics 239 T N Newsprint Miscellaneous 295 Trent Retail

184 Arshiya Intl. Logistics 240 KF Airlines Miscellaneous 296 Page Industries Retail

185 HT Media Media 241 Petronet LNG Oil & Gas 297 Gitanjali Gems Retail

186 Zee Entertainmen Media 242 M R P L Oil & Gas 298 Shoppers St. Retail

187 Jagran Prakashan Media 243 I O C L Oil & Gas 299 Lovable Lingerie Retail

188 Ent. Network Media 244 C P C L Oil & Gas 300 Jubilant Food. Retail

189 Sun TV Network Media 245 H P C L Oil & Gas 301 Titan Inds. Retail

190 Dish TV Media 246 GAIL (India) Oil & Gas 302 Bata India Retail

191 Hathway Cable Media 247 B P C L Oil & Gas 303 S C I Shipping

192 TV18 Broadcast Media 248 Hind. Oil Explor. Oil & Gas 304 GE Shipping Co Shipping

193 Prime Focus Media 249 Reliance Inds. Oil & Gas 305 Great Offshore Shipping

194 Natl. Aluminium Metals 250 O N G C Oil & Gas 306 Mercator Shipping

195 Uttam Galva Metals 251 Shiv-Vani OilGas Oil & Gas 307 Aban Offshore Shipping

196 JSW Steel Metals 252 FDC Pharma 308 Idea Cellular Telecom

197 Usha Martin Metals 253 Glaxosmit Pharma Pharma 309 Bharti Airtel Telecom

198 S A I L Metals 254 Biocon Pharma 310 Rel. Comm. Telecom

199 Hind.Zinc Metals 255 Unichem Labs. Pharma 311 Tata Comm Telecom

200 Prakash Inds. Metals 256 Torrent Pharma. Pharma 312 Tata Tele. Mah. Telecom

201 Bhushan Steel Metals 257 Aurobindo Pharma Pharma 313 M T N L Telecom

202 Mah. Seamless Metals 258 Novartis India Pharma 314 S Kumars Nation Textiles

203 Welspun Corp Metals 259 Ipca Labs. Pharma 315 Vardhman Textile Textiles

204 Jindal Stainless Metals 260 Cipla Pharma 316 Bombay Dyeing Textiles

205 Hindalco Inds. Metals 261 Sanofi India Pharma 317 Raymond Textiles

206 Sterlite Inds. Metals 262 Strides Arcolab Pharma 318 Arvind Ltd Textiles

207 Tata Steel Metals 263 Sun Pharma.Inds. Pharma 319 Bombay Rayon Textiles

208 Monnet Ispat Metals 264 Divi's Lab. Pharma 320 Alok Inds. Textiles

209 Hind.Copper Metals 265 Lupin Pharma 321 NTPC Utilities

210 Jindal Steel Metals 266 Fres.Kabi Onco. Pharma 322 Guj Gas Company Utilities

211 NMDC Mining 267 Piramal Enterp. Pharma 323 Indraprastha Gas Utilities

212 G M D C Mining 268 Dr Reddy's Labs Pharma 324 Power Grid Corpn Utilities

213 Sesa Goa Mining 269 Cadila Health. Pharma 325 Torrent Power Utilities

214 Coal India Mining 270 J B Chem & Pharm Pharma 326 NHPC Ltd Utilities

215 Guj NRE Coke Mining 271 Orchid Chemicals Pharma 327 Tata Power Co. Utilities

216 EIH Miscellaneous 272 Elder Pharma Pharma 328 CESC Utilities

217 MMTC Miscellaneous 273 Apollo Hospitals Pharma 329 JSW Energy Utilities

218 Polyplex Corpn Miscellaneous 274 Jubilant Life Pharma 330 JP Power Ven. Utilities

219 Thomas Cook (I) Miscellaneous 275 Ranbaxy Labs. Pharma 331 Guj.St.Petronet Utilities

220 Balmer Lawrie Miscellaneous 276 Natco Pharma Pharma 332 Lanco Infratech Utilities

221 Jai Corp Miscellaneous 277 Glenmark Pharma. Pharma 333 Reliance Power Utilities

222 Orient Paper Miscellaneous 278 Anant Raj Inds. Realty 334 Reliance Infra. Utilities

223 SpiceJet Miscellaneous 279 DLF Realty 335 Neyveli Lignite Utilities

224 Ballarpur Inds. Miscellaneous 280 Puravankar.Proj. Realty 336 Adani Power Utilities

337 BF Utilites Utilities


Accounting Thematic


Institutional Equities Team

Saurabh Mukherjea, CFA Head of Equities (022) 30433174 [email protected]

Research

Analysts Industry Sectors Desk-Phone E-mail

Aadesh Mehta Banking / NBFCs (022) 30433239 [email protected]

Achint Bhagat Cement (022) 30433178 [email protected]

Ankur Rudra, CFA Technology / Telecom / Media (022) 30433211 [email protected]

Ashvin Shetty Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power / Capital Goods (022) 30433252 [email protected]

Chhavi Agarwal Construction / Infrastructure (022) 30433203 [email protected]

Dayanand Mittal Oil & Gas (022) 30433202 [email protected]

Gaurav Mehta Strategy / Derivatives Research (022) 30433255 [email protected]

Harshit Vaid Power / Capital Goods (022) 30433259 [email protected]

Jatin Kotian Metals & Mining / Healthcare (022) 30433261 [email protected]

Karan Khanna Strategy / Derivatives Research (022) 30433251 [email protected]

Krishnan ASV Banking (022) 30433205 [email protected]

Nitin Bhasin Construction / Infrastructure / Cement (022) 30433241 [email protected]

Nitin Jain Technology (022) 30433291 [email protected]

Pankaj Agarwal, CFA NBFCs (022) 30433206 [email protected]

Pratik Singhania Real Estate / Retail (022) 30433264 [email protected]

Parita Ashar Metals & Mining / Telecom (022) 30433223 [email protected]

Rakshit Ranjan, CFA Consumer / Real Estate (022) 30433201 [email protected]

Ritika Mankar Mukherjee Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Cement / Infrastructure / Healthcare (022) 30433292 [email protected]

Shariq Merchant Consumer (022) 30433246 [email protected]

Utsav Mehta Telecom / Media (022) 30433209 [email protected]

Sales

Name Regions Desk-Phone E-mail

Deepak Sawhney India / Asia (022) 30433295 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / Europe / USA (022) 30433053 [email protected]

Parees Purohit, CFA USA (022) 30433169 [email protected]

Pramod Gubbi, CFA India / Asia (022) 30433228 [email protected]

Sarojini Ramachandran UK / USA +44 (0) 20 7614 8374 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Joel Pereira Editor (022) 30433284 [email protected]

Accounting Thematic


Explanation of Investment Rating

Investment Rating Expected return

(over 12-month period from date of initial rating)

Buy >5%

Sell <5%

Disclaimer This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically, and, in some cases, in printed form.

Additional information on recommended securities is available on request.

Disclaimer 1. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT

Capital is a Stock Broker, Portfolio Manager and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI 2. The recommendations, opinions and views contained in this Research Report reflect the views of the research analyst named on the Research Report and are based upon

publicly available information and rates of taxation at the time of publication, which are subject to change from time to time without any prior notice. 3. AMBIT Capital makes best endeavours to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources

which the analyst(s) believes to be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. The information or opinions are provided as at the date of this Research Report and are subject to change without notice.

4. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital shall not be responsible and/ or liable in any manner.

5. If this Research Report is received by any client of AMBIT Capital or its affiliate, the relationship of AMBIT Capital/its affiliate with such client will continue to be governed by the terms and conditions in place between AMBIT Capital/ such affiliate and the client.

6. This Research Report is issued for information only and should not be construed as an investment advice to any recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities. Recipients should consider this Research Report as only a single factor in making any investment decisions. This Research Report is not an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or as an official endorsement of any investment.

7. If 'Buy', 'Sell', or 'Hold' recommendation is made in this Research Report such recommendation or view or opinion expressed on investments in this Research Report is not intended to constitute investment advice and should not be intended or treated as a substitute for necessary review or validation or any professional advice. The views expressed in this Research Report are those of the research analyst which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.

8. AMBIT Capital makes no guarantee, representation or warranty, express or implied; and accepts no responsibility or liability as to the accuracy or completeness or currentess of the information in this Research Report. AMBIT Capital or its affiliates do not accept any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of this Research Report.

9. Past performance is not necessarily a guide to evaluate future performance. 10. AMBIT Capital and/or its affiliates (as principal or on behalf of its/their clients) and their respective officers directors and employees may hold positions in any securities

mentioned in this Research Report (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). Such positions in securities may be contrary to or inconsistent with this Research Report.

11. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. 12. The value of any investment made at your discretion based on this Research Report or income therefrom may be affected by changes in economic, financial and/ or

political factors and may go down as well as up and you may not get back the full or the expected amount invested. Some securities and/ or investments involve substantial risk and are not suitable for all investors.

13. This Research Report 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. Neither this Research Report nor any copy of it may be taken or transmitted or distributed, directly or indirectly within India or into any other country including United States (to US Persons), Canada or Japan or to any resident thereof. The distribution of this Research Report in other jurisdictions may be strictly restricted and/ or prohibited by law or contract, and persons into whose possession this Research Report comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.

14. Neither AMBIT Capital nor its affiliates or their respective directors, employees, agents or representatives, shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this Report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the Report or inability to use or access our service or this Research Report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this Research Report or inability to use or access our service or this Research Report.

Conflict of Interests 15. In the normal course of AMBIT Capital’s business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one

client’s interests conflicting with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and that clients’ interests are protected. AMBIT Capital has policies and procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT Capital’s services.

16. AMBIT Capital and/or its affiliates may from time to time have investment banking, investment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same. Research analysts provide important inputs into AMBIT Capital’s investment banking and other business selection processes.

17. AMBIT Capital and/or its affiliates may seek investment banking or other businesses from the companies covered in this Research Report and research analysts involved in preparing this Research Report may participate in the solicitation of such business.

18. In addition to the foregoing, the companies covered in this Research Report may be clients of AMBIT Capital where AMBIT Capital may be required, inter alia, to prepare and publish research reports covering such companies and AMBIT Capital may receive compensation from such companies in relation to such services. However, the views reflected in this Research Report are objective views, independent of AMBIT Capital’s relationship with such company.

19. In addition, AMBIT Capital may also act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies covered in this Research Report (or in related investments) and may also be represented in the supervisory board or on any other committee of those companies.

Additional Disclaimer for U.S. Persons 20. The research report is solely a product of AMBIT Capital 21. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report 22. Any subsequent transactions in securities discussed in the research reports should be effected through J.P.P. Euro-Securities, Inc. (“JPP”). 23. JPP does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports. 24. The research analyst(s) preparing the research report is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that

therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

© Copyright 2013 AMBIT Capital Private Limited. All rights reserved.

Ambit Capital Pvt. Ltd. Ambit House, 3rd Floor 449, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Phone: +91-22-3043 3000 Fax: +91-22-3043 3100

Date post:	14-Feb-2017
Category:	Documents
Upload:	phungtu
View:	220 times
Download:	2 times

Accounting Thematic

Documents