2QFY2018 Result Update | Pharmaceutical
November 20, 2017
GlaxoSmithKline Pharmaceuticals
SELL
Performance Highlights
CMP
`2,511
Target Price
`2,000
Y/E Mar (` cr)
2QFY2018
1QFY2018
% chg (QoQ) 2QFY2017
% chg (YoY)
Net Sales
Investment Period
12 months
836
607
37.7
799
4.6
Other income
15
34
(56.5)
18
(19.0)
Stock Info
Gross profit
460
316
45.6
438
5.0
Sector
Pharmaceutical
Operating profit
192
(1)
-
141
36.5
Market Cap (` cr)
21,272
Net Debt (` cr)
(936)
Adj. PAT
127
18
615.6
99
28.5
Beta
0.2
Source: Company, Angel Research
52 Week High / Low
3,343/2,309
A vg. Daily V olum e
2,050
GlaxoSmithKline Pharmaceuticals (GSK) posted better than expected results on
Face Value (`)
10
sales and OPM fronts for 2QFY2018. The revenues came in at `836cr v/s. `800r
BSE Sensex
33,343
Nifty
10,284
expected, registering a yoy growth of 4.6%, mainly on the back of GST
Reuters Code
GLAX.BO
implementation. On the OPM front, the EBDITA margins came in at 23.0% (v/s.
Bloomberg Code
[email protected]
15.3% expected) as compared to 17.6% in 2QFY2017, mainly driven by lower
expenses during the quarter. The Adj. PAT came in at `127cr v/s. `99cr in
Shareholding Pattern (%)
2QFY2017, a yoy growth of 28.5%. We recommend a Sell.
Promoters
75.0
MF / Banks / Indian Fls
10.9
F II / NRIs / OCB s
2.1
Results better than expectations: GlaxoSmithKline Pharmaceuticals (GSK)
Indian P ublic / Others
12.0
posted better than expected results on sales and OPM fronts for 2QFY2018. The
revenues came in at `836cr v/s. `800r expected, registering a yoy growth of 4.6%,
Abs. (%)
3m 1yr
3yr
mainly on the back of GST implementation. On the OPM front, the EBDITA
Sensex
4.2
24.2
15.6
Glaxo
(0.2)
(11.5)
(16.6)
margins came in at 23.0% (v/s. 15.3% expected) as compared to 17.6% in
2QFY2017, mainly driven by lower expenses during the quarter. The Adj. PAT
came in at `127cr v/s. `99cr in 2QFY2017, a yoy growth of 28.5%.
Outlook and valuation: On the operational front, we expect the company’s net sales
to post a CAGR of 6.6% to `3,324cr, while the EPS is expected to post a CAGR of 16.1%
3-year price chart
over FY2017-19E. We recommend a Sell on the stock.
4,000
Key financials (Consolidated)
3,500
Y/E Mar (` cr)
FY2016
FY2017
FY2018E
FY2019E
3,000
2,741
2,927
2,968
3,324
Net sales
2,500
(16.2)
6.8
1.4
12.0
% chg
2,000
374
291
320
414
Net profit
1,500
(26.5)
(22.2)
9.9
29.5
% chg
44.2
34.4
37.8
48.9
EPS (`)
16.5
11.8
13.8
16.9
EBITDA (%)
Source: Company, Angel Research
56.8
73.1
66.5
51.4
P/E (x)
18.7
13.9
16.7
23.5
RoE (%)
Sarabjit Kour Nangra
19.4
14.0
17.0
25.8
RoCE (%)
+91 22 39357800 Ext: 6806
9.7
10.6
11.6
12.6
P/BV (x)
[email protected]
7.3
7.0
7.0
6.4
EV/Sales (x)
44.0
58.9
50.5
37.7
EV/EBITDA (x)
Source: Company, Angel Research; Note: CMP as of November 17, 2017
Please refer to important disclosures at the end of this report
1
Glaxo Pharma | 2QFY2018 Result Update
Exhibit 1: 2QFY2018 - Standalone performance
Y/E March (` cr)
2QFY2018
1QFY2018
% chg (QoQ)
2QFY2017
% chg (YoY) 1HFY2018 1HFY2017
% chg
Net Sales
836
587
42.5
799
4.6
1,423
1,468
(3.1)
Other income
15
34
(56.5)
18
(19.0)
49
78
(37.5)
Total Income
851
621
37.1
817
4.1
1,472
1,546
(4.8)
Gross profit
460
316
45.6
438
5.0
776
792
(2.1)
Gross margin
55.0
53.8
54.8
54.5
54.0
Operating profit
192
(1)
141
36.5
191
195
(1.8)
Operating margin (%)
23.0
(0.1)
17.6
13.5
13.3
Interest
0
0
-
0
-
0
0
-
Depreciation & Amortization
8
8
2.8
7
17.5
15
12
27.1
PBT & Exceptional Items
199
26
671.2
152
30.7
225
261
(13.8)
Less : Exceptional Items
0
13
-
0
-
13
3
Profit before tax
199
38
417.8
153
30.6
238
265
(10.3)
Provision for taxation
69
12
496.8
54
28.5
80
92
(12.7)
Reported PAT
130
26
393.3
99
31.7
157
171
(8.4)
Adj. Net profit
127
18
615.6
99
28.5
145
170
(14.6)
EPS (`)
15.0
2.1
11.7
17.1
20.1
Source: Company, Angel Research,
Exhibit 2: 2QFY2018 - Actual v/s. Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net sales
836
800
4.5
Other income
15
15
0.0
Operating profit
192
122
56.9
Tax
69
8
793.6
Adj. net profit
127
86
47.7
Source: Company, Angel Research
Revenue grew by 4.6% yoy
GlaxoSmithKline Pharmaceuticals (GSK) posted lower than expected results on sales
and OPM fronts for 2QFY2018. The revenues came in at `836cr v/s. `800cr expected,
registering a yoy growth of 4.6%, mainly on the back of GST implementation.
Furthermore, the deflation in revenue by estimated 6% during the quarter was
predominately profit neutral, and was a result of the impact of the newly
implemented GST rates.
November 20, 2017
2
Glaxo Pharma | 2QFY2018 Result Update
Exhibit 3: Sales trend
900
20.0
836
799
15.0
800
763
10.0
706
5.0
700
0.0
587
600
(5.0)
(10.0)
500
(15.0)
400
(20.0)
2QFY2017
3QFY2017
4QFY2017
1QFY2018
2QFY2018
Sales
Growth (YoY)
Source: Company, Angel Research
OPM better than expected on the back of lower other expenses
On the OPM front, the EBDITA margins came in at 23.0% (v/s. 15.3% expected) as
compared to 17.6% in 2QFY2017. This was mainly driven by sales growth during
the quarter. The Gross margins were almost flat at 55.0% in 2QFY2018 v/s. 54.8% in
2QFY2017. Employee expenses and other expenses grew by 6.8% and
-22.3%
respectively.
Exhibit 4: OPM trend(%)
25.0
17.6
23.0
20.0
15.2
15.0
10.0
5.1
5.0
(0.1)
0.0
(5.0)
(10.0)
2QFY2017
3QFY2017
4QFY2017
1QFY2018
2QFY2018
Source: Company, Angel Research
Net profit much higher than estimated
The Adj. PAT during the quarter came in at `127cr v/s. `99cr in 2QFY2017, a yoy
growth of 28.5%. The reported profit came in at `130cr v/s. `99cr, a yoy growth of
31.7%. Also, during the quarter, the company posted other income of `15cr v/s.
`18cr in 2QFY2017.
November 20, 2017
3
Glaxo Pharma | 2QFY2018 Result Update
Exhibit 5: Adjusted net profit trend(`cr)
150
127
99
100
87
50
41
18
0
2QFY2017
3QFY2017
4QFY2017
1QFY2018
2QFY2018
Source: Company, Angel Research
November 20, 2017
4
Glaxo Pharma | 2QFY2018 Result Update
Recommendation rationale
Renewed focus on the Indian market: GSK is among the top ten players in the
Indian pharmaceutical market, having a market share of 3.7%. Unlike other MNCs,
the company has been amongst the few which have taken initiatives to grow their
businesses in the Indian market with consistent launch of new products.
Over the last six years, the company has strategically decided to expand its
presence in the Specialty segment. The Specialty segment’s contribution to sales
has reached 23% (as of 2013). Another segment which is strong for the company is
the area of vaccines, where GSK Vaccines has become the leading company in the
private market for vaccines in India. The recently introduced vaccine for
pneumococcal conjugate disease, Synflorix, has become the biggest brand in the
vaccine portfolio of the company in the second year of its launch. The efforts of the
company in raising awareness about vaccines and preventable diseases continue
with increasing fervor. Also, in FY2015, GlaxoSmithKline Plc (Glaxo), London, UK,
entered into three inter-conditional agreements with Novartis AG (Novartis), Basel,
Switzerland. In one such agreement, Glaxo agreed to acquire Novartis’ vaccines
business (excluding influenza vaccine) and its manufacturing capabilities and
facilities, and in the second agreement, Glaxo agreed to sell the rights of its
Marketed Oncology Portfolio, related R&D activities and AKT Inhibitors currently in
development to Novartis. Globally, these transactions with Novartis were
completed on March 2, 2015.
On the other hand, its other key segments like mass markets and mass specialty,
which contribute 60% of its sales, de-grew by 12% in CY2013. This was as a result
of a number of products of the company having come under the DPCO 2013 ruling,
resulting in reduction in prices of its drugs, which impacted its sales in CY2013.
Along with this, the supply constraints, mainly from local supplies during FY2015,
have been impacting its performance. FY2017 was another year, where the
company’s, sales got impacted on the back of the government’s pricing cuts.
Overall, for FY2017-19E, we expect the domestic formulation business of the
company to grow at a CAGR of 6.6%.
Significant capex plans ahead indicate revival in growth: Global pharmaceutical
major Glaxo announced
`864cr investment in India to set up a medicine
manufacturing unit. The new facility will substantially increase the company’s
manufacturing base. The drug maker is proactively building capacity in the country
as it delivers its portfolio of products in areas such as gastroenterology and anti-
inflammatory medicines. When complete, the factory will make pharmaceutical
products for the Indian market at a rate of up to 8bn tablets and 1bn capsules a
year. The facility will include a warehouse, site infrastructure, and utilities to support
the manufacturing and packing of medicines. It showcases GSK's latest
commitment to its manufacturing network in India where the company has invested
`1,017cr over the last decade. The development is positive and comes after a long
lull in terms of investments.
November 20, 2017
5
Glaxo Pharma | 2QFY2018 Result Update
Outlook and valuation
GSK has a strong balance sheet with cash of ~`900cr, which could be used for future
acquisitions or higher dividend payouts. The company’s parent company Glaxo
increased stake in it through a voluntary open offer, after which Glaxo holds 75%
stake in the Indian subsidiary. The buy-back of shares is a strong indicator from the
Management towards the performance of its listed Indian entity, especially as it
comes after the recent `864cr investment plan announced by the company to
further its growth prospects in the Indian pharmaceuticals market. The said
investments are expected to fructify by 2018.
On the operational front, we expect the company’s net sales to post a CAGR of 6.6%
to `3,324cr and EPS to register a CAGR of 19.3% to `48.9 over FY2017-19E. At the
current level, the stock is trading at 66.5x and 51.4x its FY2018E and FY2019E
earnings respectively. We recommend a Sell on the stock.
Exhibit 6: Key assumptions
FY2018E
FY2019E
Sales growth (%)
1.4
12.0
Growth in employee expenses (%)
11.0
9.0
Operating margin (%)
13.8
15.9
Capex (` cr)
200
200
Source: Company, Angel Research
Exhibit 7: One-year forward PE
5,500
4,500
3,500
2,500
1,500
500
Price
18x
30x
42x
54x
Source: Company, Angel Research
November 20, 2017
6
Glaxo Pharma | 2QFY2018 Result Update
Exhibit 8: Recommendation summary
Company
Reco
CMP Tgt. price Upside
FY2019E
FY17-19E
FY2019E
PE
EV/Sales
EV/EBITDA
RoCE
RoE
(`)
(`)
%
CAGR in EPS (%)
(x)
(x)
(x)
(%)
(%)
Alembic Pharma
Buy
514
600
16.8
21.5
2.5
12.9
5.7
20.6
18.4
Aurobindo Pharma
Buy
708
823
16.3
13.8
2.1
9.6
14.2
25.3
22.7
Cadila Healthcare
Reduce
446
411
(7.9)
21.7
3.5
17.3
18.9
16.5
22.2
Cipla
Sell
609
426
(24.1)
25.0
2.7
16.0
39.3
10.9
13.1
Dr Reddy's
Reduce
2,325
2,040
(12.3)
22.8
2.8
13.7
18.5
10.8
12.4
Dishman Pharma
Under Review
301
-
-
19.3
2.7
11.5
23.3
4.5
4.4
GSK Pharma
Sell
2,511
2000
(20.4)
51.4
6.4
37.7
19.3
25.8
23.5
Indoco Remedies
Sell
267
153
(42.8)
16.7
2.1
14.9
16.2
10.1
14.5
Ipca labs
Neutral
529
-
-
22.1
1.7
11.2
24.7
12.4
11.0
Lupin
Buy
829
1,091
31.6
16.7
2.1
9.7
(6.6)
13.7
13.7
Sanofi India*
Neutral
4,485
-
-
27.4
3.2
17.1
12.8
25.8
27.5
Sun Pharma
Accumulate
517
558
7.9
20.9
3.5
15.4
(12.9)
12.3
15.2
Source: Company, Angel Research; Note: * December year ending;
November 20, 2017
7
Glaxo Pharma | 2QFY2018 Result Update
Company Background
GlaxoSmithKline Pharmaceuticals (GSK) is the sixth largest pharmaceutical player in
the Indian market with a market share of ~3.7%. The company’s product portfolio
includes both, prescription medicines and vaccines. GSK sells prescription
medicines across therapeutic areas such as anti-infectives, dermatology,
gynecology, diabetes, oncology, cardiovascular diseases and respiratory diseases.
A large portion of the company’s revenue comes from the acute therapeutic
portfolio. However, the company is now scouting for opportunities in high-growth
therapeutic areas such as CVS, CNS, diabetes and oncology. Further, with a strong
parentage, the company plans to increase its product portfolio through patented
launches and vaccines. To fructify the same, the company plans to enhance its
manufacturing assets with its parent company investing `864cr in it; the capacity
expansion is expected to fructify in 2017.
November 20, 2017
8
Glaxo Pharma | 2QFY2018 Result Update
Profit & loss statement
Y/E March (` cr)
CY2013
FY2015
FY2016
FY2017 FY2018E FY2019E
Gross sales
2,589
3,328
2,800
2,999
3,029
3,392
Less: Excise duty
51
56
59
72
61
68
Net sales
2,538
3,272
2,741
2,927
2,968
3,324
Other operating income
24
32
27
28
28
28
Total operating income
2,563
3,305
2,768
2,954
2,996
3,352
% chg
(3.3)
28.9
(16.2)
6.7
1.4
11.9
Total expenditure
2,034
2,690
2,289
2,581
2,559
2,763
Net raw materials
1,164
1,510
1,233
1,398
1,336
1,463
Other Mfg costs
89
115
99
107
111
115
Personnel
362
493
443
483
490
532
Other
420
572
514
593
623
654
EBITDA
504
582
452
346
409
561
% chg
(33.6)
15.5
(22.4)
(23.5)
18.4
37.1
(% of Net Sales)
19.9
17.8
16.5
11.8
13.8
16.9
Depreciation& amortization
20
25
25
26
52
60
EBIT
484
557
427
319
357
501
% chg
(34.7)
15.0
(23.3)
(25.2)
11.8
40.3
(% of Net Sales)
19.1
17.0
15.6
10.9
12.0
15.1
Interest & other charges
-
-
-
-
-
1
Other income
177
200
125
119
100
100
(% of PBT)
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
685
789
579
465
485
627
% chg
(27.5)
15.1
(26.5)
(19.7)
4.1
29.5
Extraordinary expense/(Inc.)
(26)
33
(3)
(46)
-
-
PBT (reported)
711
756
582
511
485
627
Tax
230
279
203
174
165
213
(% of PBT)
32.3
36.9
34.8
34.1
34.0
34.0
PAT (reported)
482
477
377
337
320
414
Add: Share of earnings
-
-
-
-
-
-
of asso.
Less: Minority interest (MI)
-
-
-
-
-
-
Prior period items
-
-
-
-
-
-
Exceptional items
PAT after MI (reported)
482
477
377
337
320
414
ADJ. PAT
464
509
374
291
320
414
% chg
(29.4)
9.8
(26.5)
(22.2)
9.9
29.5
(% of Net Sales)
18.3
15.6
13.7
9.9
10.8
12.5
Basic EPS (`)
55
60
44
34
38
49
Fully diluted EPS (`)
55
60
44
34
38
49
% chg
(29.4)
9.8
(26.5)
(22.2)
9.9
29.5
November 20, 2017
9
Glaxo Pharma | 2QFY2018 Result Update
Balance Sheet
Y/E March (` cr)
CY2013
FY2015
FY2016
FY2017
FY2018E FY2019E
SOURCES OF FUNDS
Equity share capital
85
85
85
85
85
85
Preference Capital
-
-
-
-
-
-
Reserves& surplus
1,905
1,744
2,099
1,922
1,747
1,606
Shareholders funds
1,990
1,829
2,183
2,007
1,831
1,690
Minority Interest
Total loans
4
3
1
2
-
-
Other long-term liabilities
5
5
-
-
-
-
Long-term provisions
242
273
291
276
276
276
Deferred tax liability
(92)
(83)
(101)
(92)
(92)
(92)
Total liabilities
2,148
2,026
2,374
2,193
2,015
1,875
APPLICATION OF FUNDS
Gross block
323
467
725
1,105
1,305
1,505
Less: Acc. Depreciation
247
272
297
323
375
436
Net block
76
195
428
782
930
1,070
Capital work-in-progress
44
44
44
44
44
44
Goodwill
42
-
-
32
32
32
Other non-current assets
14
-
-
-
-
-
Long-term loans and adv.
238
307
302
374
386
432
Investments
10
0
5
6
6
6
Current assets
2,614
2,587
2,174
1,674
1,348
1,109
Cash
2,042
1,911
1,392
932
596
112
Loans & advances
238
122
123
132
134
150
Other
335
554
658
610
619
848
Current liabilities
889
1,107
579
720
731
819
Net current assets
1,725
1,480
1,595
954
617
290
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
2,148
2,026
2,374
2,193
2,015
1,875
November 20, 2017
10
Glaxo Pharma | 2QFY2018 Result Update
Cash flow statement
Y/E March (` cr)
CY2013
FY2015
FY2016
FY2017 FY2018E FY2019E
Profit before tax and exceptional
711
756
582
511
485
627
Depreciation
20
25
25
26
52
60
(Inc)/Dec in working capital
15
114
(633)
181
1
(157)
Direct taxes paid
230
279
203
174
165
213
Cash Flow from Operations
517
616
(229)
544
373
317
(Inc.)/Dec.in fixed assets
(49)
(144)
(258)
(381)
(200)
(200)
(Inc.)/Dec. in investments
(45)
(10)
5
1
-
-
Cash Flow from Investing
(93)
(154)
(253)
(380)
(200)
(200)
Issue of equity
-
-
-
-
-
-
Inc./(Dec.) in loans
-
-
-
-
-
-
Dividend paid (Incl. Tax)
(495)
(624)
(495)
(297)
(495)
(555)
Others
47
32
459
-
-
-
Cash Flow from Financing
(448)
(593)
(37)
(297)
(495)
(555)
Inc./(Dec.) in cash
(25)
(131)
(519)
(460)
(336)
(484)
Opening cash balances
2,067
2,042
1,911
1,392
932
596
Closing cash balances
2,042
1,911
1,392
932
596
112
November 20, 2017
11
Glaxo Pharma | 2QFY2018 Result Update
Key ratio
Y/E March
CY2013
FY2015
FY2016
FY2017
FY2018E FY2019E
Valuation Ratio (x)
P/E (on FDEPS)
45.8
41.8
56.8
73.1
66.5
51.4
P/CEPS
42.4
42.4
53.0
58.6
57.2
44.8
P/BV
10.7
11.6
9.7
10.6
11.6
12.6
Dividend yield (%)
2.0
2.0
2.0
1.2
2.0
2.3
EV/Sales
7.6
5.9
7.3
7.0
7.0
6.4
EV/EBITDA
38.2
33.3
44.0
58.9
50.5
37.7
EV / Total Assets
9.0
9.6
8.4
9.3
10.3
11.3
Per Share Data (`)
EPS (Basic)
54.8
60.1
44.2
34.4
37.8
48.9
EPS (fully diluted)
54.8
60.1
44.2
34.4
37.8
48.9
Cash EPS
59.2
59.3
47.4
42.9
43.9
56.0
DPS
50.0
50.0
50.0
30.0
50.8
56.8
Book Value
234.9
215.9
257.8
236.9
216.2
199.6
Returns (%)
RoCE (Pre-tax)
22.4
26.7
19.4
14.0
17.0
25.8
Angel ROIC (Pre-tax)
22.4
26.7
19.4
14.0
17.0
25.8
RoE
23.2
26.7
18.7
13.9
16.7
23.5
Turnover ratios (x)
Asset Turnover (Gross Block)
8.6
8.4
4.6
3.2
2.5
2.4
Inventory / Sales (days)
48
40
59
52
41
29
Receivables (days)
15
11
15
14
11
8
Payables (days)
54
55
77
43
49
48
WC cycle (ex-cash) (days)
79
69
96
94
91
95
Solvency ratios (x)
Net debt to equity
(1.0)
(1.0)
(0.6)
(0.5)
(0.3)
(0.1)
Net debt to EBITDA
(4.0)
(3.3)
(3.1)
(2.7)
(1.5)
(0.2)
Interest Coverage (EBIT / Int.)
-
-
-
-
-
-
November 20, 2017
12
Glaxo Pharma | 2QFY2018 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Glaxo Pharma
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
November 20, 2017
13