Life Insurance - Institute of Actuaries of India in valuing Life... · Kotak Institutional Equities...

®

Life InsuranceChallenges in valuing Life Insurance Companies in India – an analyst perspective

August 2007

Tabassum Inamdar +91-22-5634-1252 [email protected]

FOR REG AC CERTIFICATION, SEE PAGE 38. FOR OTHER IMPORTANT DISCLOSURES, REFER TO THE END OF THIS MATERIAL.FOR DISCLOSURES REGARDING KOTAK SECURITIES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research 2

An analyst perspective

I. Indian insurance companies – a case for investment

II. The arrival of the private insurance player

III. Valuing insurance companies

IV. Corporate governance issues – inadequate disclosure

®

I. Why invest in Indian insurance companies?


Why invest (1)Insurance companies add significant value to parent

Contribution to SOTP is now substantialValue addition to parent SOTP from insurance business (Rs per share of holding company)

Source: Kotak Institutional Equities.

Insurance company Parent/Holding company

Addition to SOTP of parent

(Rs/share)% of current market

price of parent Bajaj Allianz Bajaj Auto Ltd 754 35.6

Birla Sun Life Aditya Birla Nuvo 283 22.3

HDFC Standard Life HDFC Ltd 173 9.8

ICICI Ltd ICICI Bank 207 22.9

Max India Max India 112 46.0

SBI Ltd SBI Ltd 135 10.1


Why invest (2)Good macro environment: India’s economic growth among top-3

Nominal GDP on a higher growth trajectory (%)

Source: RBI

0

2

4

6

8

10

12

14

16

2000

-01

2001

-02

2002

-03

2003

-04

P

2004

-05

QE

2005

-06

RE

2006

-07

RE

Comparison of GDP growth across countries (%)

Source:

-

2

4

6

8

10

12

Japa

n

UK

USA

S. K

orea

Thai

land

Indo

nesi

a

Mal

aysi

a

Russ

ia

Indi

a

Chi

na

2006 2008E


Why invest (3)Rapidly-growing middle class…

Rising middle and high income HH (mn)

Source: NCAER

33

50

98

1 310

0

20

40

60

80

100

120

1996 2002 2010E

HH income Rs90,000 to Rs0.5mn pa

HH income > Rs0.5mn pa


12.3

40.5

4.6

18.226.0

31.9

66.1

11.6

1.26.4

-

20

40

60

80

Mot

orca

r/je

ep

Air

cool

er

Mot

orcy

cle/

Scoo

ter

Refr

iger

ator TV

1994

2005

% of urban households possessing

Why invest (4) …evident in higher ownership of consumer goods…

Prosperity levels have improved in Urban… … rural India

Source: NSS Report No.509, Household Consumption of Various Goods and Services in India, 2004-05.

Source: NSS Report No.509, Household Consumption of Various Goods and Services in India, 2004-05.

0.2 0.9 2.1

7.0

0.82.9 4.4

7.7

25.6

0.5-

5

10

15

20

25

30

Mot

orca

r/je

ep

Air

cool

er

Refr

iger

ator

Mot

orcy

cle/

Scoo

ter TV

1994

2005

% of rural households possessing


Why invest (5) …and rising life insurance premium income

New premium income (Rs bn) Total premium income including renewals (Rs bn)

Source:IRDA Source:IRDA, Kotak Institutional Equities

0

100

200

300

400

500

600

700

800

2001 2002 2003 2004 2005 2006 2007E

40% CAGR over the last six years

0

200

400

600

800

1,000

1,200

1,400

1,600

2001 2002 2003 2004 2005 2006 2007E

28% CAGR over the last six years


Why invest (6) Demand for new investment avenues

Rising level of investment of HH in life insurance fundProportion of investment in various investment class (%)

Life fund as % of household savings

Source:RBI Source:RBI

10

13

16

19

22

25

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

-

0.5

1.0

1.5

2.0

2.5

3.0As % of HH savings (LHS)

% of GDP (RHS)

14.3 21.2

26.824.5

32.2 29.7

0

15

30

45

60

75

90

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

Life insurance Net Bank deposits Other investments


Why invest (7) Scope to increase premium-to-GDP ratios adds lustre…

Source: Swiss Re, SIGMA No 2/2006.

Life insurance premium (US$bn)

4 7 14 17 28 37 41 4572 95

178

312363

534

5-

100

200

300

400

500

600

Taila

nd

Mal

yasi

a

Sing

apor

e

Braz

il

Hon

g K

ong

Aus

tral

ia

Indi

a

Taiw

an

Chi

na

Sout

h K

orea

Ger

man

y

Fran

ce UK

Japa

n

Uni

ted

Stat

es

Life insurance premium as % of GDP

0.8 1.31.9

3.1 3.23.8 4.0 4.1

5.4

7.9 7.9 8.39.2

11.6

13.1

1.7

0

2

4

6

8

10

12

14

Arg

entin

a

Braz

il

Chi

na

Thai

land

Ger

man

y

Mal

aysi

a

Aus

tral

ia

Uni

ted

Stat

es

Indi

a

Sing

apor

e

Fran

ce

Sout

h K

orea

Japa

n

Hon

g K

ong

Taiw

an UK


Why invest (8) …as per capita penetration is low

Source: Swiss Re, SIGMA No 2/2006. 2001 data.

Premium per capita (US$)

34 44 60 73

189

1,13

6 1,38

9 1,79

0

1,80

0

2,45

6 2,82

9

2,92

3

5,14

0

1,48

0

1,61

7

33

(200)

300

800

1,300

1,800

2,300

2,800

3,300

Indi

a

Chi

na

Arg

entin

a

Thai

land

Braz

il

Mal

aysia

Ger

man

y

Aus

tral

ia

Sout

h K

orea

Sing

apor

e

Uni

ted

Stat

es

Taiw

an

Hon

g K

ong

Japa

n

Fran

ce UK

Premium per capita ($) adjusted for PPP

7

126

128

156

176 38

2

1,00

5

1,23

2 1,75

9

1,79

0

1,92

0

2,54

4

116

-

500

1,000

1,500

2,000

2,500

3,000

Russ

ia

Braz

il

Arg

entin

a

Chi

na

Indi

a

Thai

land

Mal

aysi

a

Ger

man

y

Aus

tral

ia

Sing

apor

e

Uni

ted

Stat

es

Sout

h K

orea

Fran

ce

®

II. Private players arrive and thriveNatural corollary to macro growth trends


Private promise (1)LIC and private players grow rapidly

Private players helping expand the marketInsurance companies APE and growth, March fiscal year-ends

Source: IRDA.

FY2005 FY2006 FY2007Bajaj Allianz 184.2 199.1 135.9 86.5

Birla Sunlife 39.2 8.1 29.3 22.1 HDFC Standard Life 183.7 110.5 60.4 57.4 ICICI Prudential 128.7 60.7 91.0 19.1 Max NY 71.4 98.3 75.6 61.5 Reliance Life 24.1 155.4 748.1 77.8 SBI Life 78.7 173.9 260.9 57.9 Private players 110.4 79.0 103.2 43.4 LIC 3.0 18.0 90.7 35.4 Total Premium 19.2 34.2 95.1 38.6

YTD till June 2007% growth


0

50

100

150

200

250

FY2003 FY2004 FY2005 FY2006 FY2007 FY2007

0

5

10

15

20

25

30

FYP of private players (Rs bn), LHS Market share private players (%), RHS

Private promise (2)Private players likely to keep gaining market share

Private players have been gaining share… (March fiscal year-ends)

Source: IRDA


Private promise (3)A few private players dominate the market…

Private players36%

LIC64%

Reliance 6% Birla Sunlife

6%Max NY

7%

HDFC SL10%

SBI Life11%

Bajaj Allianz27%

ICICI Pru33%

Market share of key players in individual business (APE)

Source:


Private promise (4)…as they expand their network rapidly

Growing network Growing agency force

Source:Company Source:Company

0

100

200

300

400

500

600

700

FY03 FY04 FY05 FY06 FY07

ICICI Prudential Life no of branches

Cities covered

-

50,000

100,000

150,000

200,000

250,000

FY03 FY04 FY05 FY06 FY07

HDFC SL

Bajaj Allianz

ICICI Prudential Life


Private promise (5)Growth likely to come from across the country, for LIC too

The top 2,000 towns (40% of total account for 87% of urban population)Distribution of population across India's 5,161 towns

Source: Census of India 2001, Kotak Institutional Equities estimates.

0

10

20

30

40

50

60

70

80

Top 20% 20-40 40-60 60-80 Bottom 20%

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III. The valuation challengeLimited disclosures compound the issues


The valuation challenge (1)Appraisal value method = EV+structural value

Source: Watson, Wyatt Insurance Consulting Private Ltd., Kotak Institutional Equities.

Adjusted net asset value = Market value of shareholders assets -market value of shareholders' liabilities

Value of in-force business I.e policies already sold = Present value (PV) of transfers to shareholders - Expense overrun

adjustments - Solvency margin adjustment

PV of transfers to shareholders = PV of any amounts projected to be available for distribution to shareholders (10% of surplus in case of participating

policies and 100% of surplus in case of non-participating business. In case of unit linked business,

shareholders earn fees)

Expense overrun adjustment = Excess of

projected actual expenses over long term unit costs

Solvency margin adjustment -

x

Structural Value

Embedded Value

+

-

+

PV of transfers to shareholders from one year's new business x Capitalisation factor

Value of one year's new business is the profitability of the new business done over the past one year. This is post cost of capital.

Capitalisation factor is similar to PE multiple - reflecting how stable the franchise is and how fast it is expected to grow.


The valuation challenge (2)Key challenges: Nascency, lack of disclosures, assumptions

• Business in nascent stages• Projecting growth trends for

individual players and multiple on income

• Lack of disclosures

– Margins

– EV• Changing product profile – variations in

margins

• Changing competitive environment – will margins sustain?

• Inadequate experience/ history/ trend– Lapse ratio– Expense overruns– Mortality

• Business in nascent stages• Projecting growth trends for

individual players and multiple on income

• Lack of disclosures

– Margins

– EV• Changing product profile – variations in

margins

• Changing competitive environment – will margins sustain?

• Inadequate experience/ history/ trend– Lapse ratio– Expense overruns– Mortality

• Uniformity in assumptions while calculating EV/NBAP

• Future capital requirement

• Lack of experience on inflows, sustainability of assets in volatile market

• Investment v/s returns

• Tax rate

• Uniformity in assumptions while calculating EV/NBAP

• Future capital requirement

• Lack of experience on inflows, sustainability of assets in volatile market

• Investment v/s returns

• Tax rate


The valuation challenge (3)Assumptions: We assume growth will stay strong

Premium income estimates

Source: IRDA Kotak Institutional Equities

YoY growth (%)

FY06A FY07A FY08E FY09EBajaj Allianz 199 136 66 49

Birla Sunlife 8 29 26 25

HDFC Standard Life 111 60 55 40

ICICI Prudential 61 91 60 50

Max NY 98 76 50 40

SBI Life 174 261 64 50


The valuation challenge (4)Risk : Not all companies have been showing consistent growth in premium collections

Bajaj Allianz

-

50

100

150

200

250

2005 2006 2007 YTD

ICICI Prudential

-

20

40

60

80

100

120

140

2005 2006 2007 YTD

HDFC Standard Life

-

50

100

150

200

2005 2006 2007 YTD

Birla Sunlife

-

10

20

30

40

50

2005 2006 2007 YTD


The valuation challenge (5)Progress on disclosures: ICICI Prudential Life the first to declare margins, Bajaj makes a beginning

ICICI Prudential Life NBAP (March fiscal year-ends)

Source: Company

Rs mn

FYP adjtd for single premium

(Rs mn)%

growthNBAP

(Rs mn)%

growthNBAP/ FYP

(%)2003 2,960 710 24

2004 6,414 117 2,040 187 32

2005 14,670 129 3,120 53 21

2006 23,581 61 5,280 69 22

2007 45,416 93 8,810 67 19

1QFY08 8,830 12 1,650 (11) 19


-

4

8

12

16

SBI Life Birla Sunlife HDFC StandardLife

ICICI Prudential Max NY Bajaj Allianz

The valuation challenge (6)We use a discount on estimated margins

• We adjust margins for higher tax rate

• Assume some margin pressure going forward due to increasing competition

• Adjust for product mix – i.e individual v/s group

NBAP Margin assumption (%)



The valuation challenge (7)Multiple to be used – how much growth should be factored?


Multiple on NBAP assuming discount rate of 15%Growth rate (%)

Years of growth 25 35 4510 20 35 52 25 28 46 65

Multiple on NBAP assuming discount rate of 20%Growth rate (%)

Years of growth 25 35 4510 16 27 39 25 22 35 48


The valuation challenge (8)Key assumptions made in the valuation of company

Key assumptionsPremium collection (Rs mn)

Individual Single

Premium

Individual regular

premium

Group Single

Premium

Group regular

premium Total

premium

Total annualized premium % growth

2005 1,281 13,444 19 1,096 15,841 14,670 2006 2,510 21,010 594 2,260 26,375 23,581 61 2007 4,578 39,252 3,036 5,014 51,880 45,027 91 2008E 6,867 62,803 4,858 8,022 83,008 71,998 60 2009E 10,301 94,205 7,286 12,034 123,825 107,997 50

NBAP assumption NBAP margin (%)

individual SP (%)

Individual regular

premium (%)

Group Single

Premium (%)

Group regular

premium (%)

Avg margin on annlzd prem. (%)

Avg margin on annlzd prem.

individual bus. (%)

NBAP (Rs mn)

1.00 13.00 — — 11.44 12.97 12,350 1.25 14.00 — — 12.33 13.98 13,317

Base case 1.50 15.00 — — 13.23 15.00 14,285 1.75 16.00 — — 14.12 16.02 15,253 2.00 17.00 — — 15.02 17.03 16,221 2.25 18.00 — — 15.92 18.05 17,189


The valuation challenge (9)Calculation of EV

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007E FY2008E FY2009ETotal shareholders fund (A) 847 1,725 2,009 2,393 2,555 4,815 5,315 6,815 Opening balance of VIF business (B) — 92 442 1,462 3,853 7,891 15,671 27,231 New business premium income 615 2,253 6,413 14,673 23,581 45,027 71,998 107,997 NBAP margin 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 13.2% 13.2%New Business value (NBV) (C) 92 338 962 2,201 3,537 6,754 9,523 14,285 Inforce business unwinding (13%) (D) — 12.0 57.5 190.0 501 1,026 2,037 3,540 Estimated VIF at close of the year = E = (B+C+D) 92 442 1,462 3,853 7,891 15,671 27,231 45,056 Y/e EV (A + E) 939 2,167 3,471 6,246 10,445 20,485 32,546 51,871

Source: Company, Kotak Institutional Equities.

Most of ICICI Prudential Life value continues to be driven by future business, and less by Embedded Value Embedded value calculation (Rs mn)


The valuation challenge (10)Calculation of structural value

Sensitivity analysis indicating value of firm at different margin and multiple assumption

Structural value (Rs bn) = NBAP * multipleMargin (%)

Multiple (X) 11.4 12.3 13.2 14.1 15.0 15.9 14 172.9 186.4 200.0 213.5 227.1 240.6 16 197.6 213.1 228.6 244.0 259.5 275.0 17 209.9 226.4 242.8 259.3 275.8 292.2 18 222.3 239.7 257.1 274.6 292.0 309.4 20 247.0 266.3 285.7 305.1 324.4 343.8

Appraisal value (Rs bn) = Structural value + Embedded valueMargin (%)

Multiple (X) 11.4 12.3 13.2 14.1 15.0 15.9 14 224.8 238.3 251.9 265.4 279.0 292.5 16 249.5 264.9 280.4 295.9 311.4 326.9 17 261.8 278.3 294.7 311.2 327.6 344.1 18 274.2 291.6 309.0 326.4 343.8 361.3 20 298.9 318.2 337.6 356.9 376.3 395.6



The valuation challenge (11)Most companies believe our EV value is low

EVs now accounts for 20%-25% of insurance company fair values


FY2009 EV Fair value EV as % of Fair value to (Rs bn) (Rs bn) fair value EV (X)

Bajaj Allianz 38.1 236.3 16.1 6.2

Birla Sunlife 13.3 39.5 33.7 3.0

HDFC Standard Life 20.3 87.7 23.1 4.3

ICICI Prudential 51.9 309.0 16.8 6.0 Max NY 14.7 55.4 26.5 3.8 SBI Life 23.8 106.6 22.3 4.5


The valuation challenge (12)Indian insurance business valuations are similar to China

Fair value estimates for insurance businesses similar to Chinese companiesFair value of firm (Rs bn)


NBAP2008E (Rs bn)

NBAP2009E (Rs bn)

Fair Value (Rs bn)

Fair value to 2008E NBAP

(X)

Fair value to 2009E NBAP

(X)Bajaj Allianz 7.8 11.7 236.3 30.3 20.3Birla Sunlife 1.2 1.5 39.5 32.0 25.6HDFC Standard Life 2.7 3.7 87.7 32.8 23.4ICICI Prudential 9.5 14.3 309.0 32.4 21.6Max NY 1.6 2.3 55.4 34.3 24.5SBI Life 3.1 4.6 106.6 34.8 23.2


The valuation challenge (13)Fair value v/s Capital invested: Significant

The fair-value-to-BV-ratio is not strictly comparable due to the variation in the types of policies sold. For e.g., the sale of traditional products by

would require higher capital.

Fair value assumed is significantly high relative to invested capital


C apital invested (FY2007) (R s bn)

Fair value to FY2007 invested

capital(X)

B irla S unlife 6.7 39 5.9

HDF C S tandard L ife 8.3 88 10.6

ICICI P rudential 21.0 309 14.7

Max NY 7.3 55 7.6

S B I L ife 5.0 107 21.3

Fair value (R s mn)


The valuation challenge (14)Fair value v/s AUM: High, reflects high growth and annuity business

In the past, AMCs have been acquired at valuations of 5%-7% of AUMs. Higher values assigned for insurance companies likely reflect:

(1) The fast pace of growth, (2) long-term annuity benefit and likely (3) higher profitability.

Fair value of firm v/s AUMs


Rs mn AUM FY2007Estimated fair value of firm

Fair value to AUM (%)

Bajaj Allianz 68 236 350

Birla Sunlife 40 39 98

HDFC Standard Life 50 88 176

ICICI Prudential 158 309 195

Max NY 18 55 300

SBI Life 47 107 225


The valuation challenge (15)Should insurance companies be valued like AMCs?

Almost 90% of policy sales driven by ULIPShare of ULIP in premium collected (%)

Source: IRDA.

0

20

40

60

80

100

SBI Max New YorkLife

HDFC StandardLife

Bajaj Allianz Life ICICI Prudential Birla Sunlife

FY2004 FY2005 FY2006 FY2007


The valuation challenge (16)What is the risk of high dependence on equity products?

A large part of which is invested in equitiesProportion of equity investment in policy holders funds and asset linked investments (%)

Source: Companies.

Policyholders funds including asset linked funds

FY2004 FY2005 FY2006 FY2007 FY2004 FY2005 FY2006Bajaj Allianz — 25.3 57.4 — — 34.2 67.3

Birla Sunlife 19.0 22.1 28.3 27.4 19.9 22.9 29.1

HDFC Standard Life 10.2 28.2 43.8 45.4 34.1 46.0 65.6

ICICI Prudential 23.3 30.3 53.8 58.1 27.5 33.8 59.0

SBI Life 11.4 4.2 16.2 29.4 — 27.6 54.0

The first set of ratios pertain to all policies including traditional policies. The second set of ratio pertains to ULIP

Asset linked investment


The valuation challenge (17)Will companies generate satisfying returns on investments?

Most companies will need to infuse capital over the next three yearsIncremental capital infusion by companies (Rs mn)

Source: Companies

O/s C apital FY2006 (R s bn)

O/s C apital FY2007 (R s bn)

New capital infused as % of o/s

FY2006 capitalMax NY 7.3 6.7 46.0 HDF C S tandard L ife 8.3 8.3 31.7 ICICI P rudential 21.0 21.0 73.8 S B I L ife 5.0 7.3 30.8 B irla S unlife 6.7 5.0 16.3


The valuation challenge (18)Key risks

• Competition from pension funds and mutual funds

• Regulatory risk—changes in tax rate, restrictions on certain products

• Quality of agency force—long-term issues relating to impact of mis-selling


DisclosureThe time has come

What companies should do

• EV and NBAP

– Trend, experience so far and how assumptions have changed over time

• Disclose key assumptions

– Lapsation ratios used

– Policy life term

– Equity/debt proportion

What companies should do

• EV and NBAP

– Trend, experience so far and how assumptions have changed over time

• Disclose key assumptions

– Lapsation ratios used

– Policy life term

– Equity/debt proportion

What companies should avoid

• Giving wide range of margin “Our margin is around 15-20%”. This is a good 30% variation

• Avoid selective disclosures of margins and annual reports – it is unethical and illegal

• Bad excuse: Let other companies declare EV and NBAP first

What companies should avoid

• Giving wide range of margin “Our margin is around 15-20%”. This is a good 30% variation

• Avoid selective disclosures of margins and annual reports – it is unethical and illegal

• Bad excuse: Let other companies declare EV and NBAP first

What companies could do: Tell analysts and investors that their stock is overvalued


Disclosures

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities. As of June 30, 2007

Percentage of companies covered by Kotak Institutional Equities, within the specified category.

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

* The above categories are defined as follows: Buy = OP; Hold = IL; Sell = U. Buy, Hold and Sell are not defined Kotak Institutional Equities ratings and should not be constructed as investment opinions. Rather, these ratings are used illustratively to comply with applicable regulations. As of 06/30/07 Kotak Institutional Equities Investment Research had investment ratings on 144 equity securities.

17.4%

32.9%

49.7%

11.4%

4.7%2.0%

0%

10%

20%

30%

40%

50%

60%

70%

Buy Hold Sell


Analyst coverageCompanies that the analyst(s) listed on the cover follow:

Covering Analyst: Tabassum Inamdar

Company name Ticker

Andhra Bank ADBK.BO

Bank of Baroda BOB.BO

Canara Bank CNBK.BO

Centurion Bank of Punjab CENB.BO

Corporation Bank CRBK.BO

Federal Bank FED.BO

HDFC HDFC.BO

HDFC Bank HDBK.BO

ICICI Bank ICBK.BO

Indian Bank INBA.BO

Indian Overseas Bank IOB.BO

Infrastructure Development Finance Company IDFC.BO

Jammu & Kashmir Bank JKBK.BO

LIC Housing LICH.BO

Mahindra & Mahindra Financial Services MMFS.BO

Oriental Bank of Commerce ORBC.BO

Punjab National Bank PNBK.BO

Srei Infrastructure Finance SREI.BO

Sriram Transport Finance Corporation SHTF.BO

State Bank of India SBI.BO

UTI Bank UTBK.BO

Source: Kotak Institutional Equities Research.


Ratings and other definitions/identifiers

Current rating system

Definitions of ratings

OP = Outperform. We expect this stock to outperform the BSE Sensex over the next 12 months.

IL = In-Line. We expect this stock to perform in line with the BSE Sensex over the next 12 months.

U = Underperform. We expect this stock to underperform the BSE Sensex over the next 12 months.

Other definitions

Coverage view. The coverage view represents each analyst's overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive (A), Neutral (N), Cautious (C).

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.


Disclaimer

Copyright 2007 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund.Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition , investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and Kotak Mahindra Inc.

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