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Company Update

Rating matrix
Rating Target Target Period Potential Upside : : : : Buy | 673 12 months 15%

PVR Ltd (PVRLIM)


| 584
WHATS CHANGED
PRICE TARGET ....................................................................... Changed from | 482 to | 673 Diluted EPS (FY14E) ............................................................. Changed from | 18.5 to | 18.2

December 12, 2013

Key Financials
| Crore Net Sales EBITDA Net Profit EPS (|) FY12 513.1 79.4 25.4 9.8 FY13 805.3 116.9 44.5 11.2 FY14E 1,413.7 256.3 72.2 18.2 FY15E 1,623.5 313.7 120.4 30.3

Diluted EPS (FY15E) ............................................................. Changed from | 28.4 to | 30.3 RATING ........................................................................................ Changed from Sell to Buy

Valuations reflecting strong fundamentals!!!


PVR had a net addition of 38 screens in H1FY14. We expect it to add 45 screens during the rest of the fiscal. However, PVR has given a guidance of 90 screens for FY14. It currently has an impressive ~25% market share (inclusive of Cinemax) of the total 1600 (approximately) multiplex screens in the country. Moreover, PVR commands a revenue share of 20-22% (Bollywood) and 30-35% (Hollywood) of multiplex revenues, which gives it the ability to negotiate better deals from movie producers. We have built in FY13-15E revenue and EBITDA CAGR of 42.0% and 59.1%, respectively. The company has exhibited strong execution in property rollout and been able to effectively pass on price hikes. This is reflected in the improving margin profile. We value PVR at 10x FY15E EV/EBITDA to arrive at a target price of | 673 and upgrade the stock to BUY. Improving fundamentals PVR is strategising to augment its advertising revenues by about 2530% on a YoY basis. According to media sources, the company has entered into new advertisement agreements Heavy investment by movie production houses such as Eros, UTV, Fox and Endemol India augurs well for PVR PVR has managed to expand properties at a rapid pace with net addition of 38 screens in H1FY14. We have built in an addition of 45 screens to be launched in this fiscal with another 37 in FY15 PVR is expected to become FCF positive from FY15E and would also be able to bring down its debt to comfortable levels Valuations catching up with fundamentals, recommend BUY Though PVR has rallied significantly over the past few months, it looks relatively cheap compared to other media stocks. Unlike broadcasters, which operate in a tougher competitive environment and require higher investments in movie acquisition, PVR follows an asset light model. This would help it to improve return ratios as further operating leverage kicks in. Also, it is a clear market leader in the segment with a dominant reach. Historically, PVR has traded between 6x and 8x one year forward EV/EBITDA. However, over the past few months, with improving market dynamics (dominant market share, higher number of movies released and higher box office collections), the stock has been trading at an average one year forward EV/EBITDA of 9x. We value PVR at 10x FY15E EV/EBITDA to arrive at a target price of | 673 and upgrade it to BUY.
Exhibit 1: Key metrics
Units Footfalls Occupancy SPH ATP Mn % | | FY13 36 31 46 142 FY14E 64 33 52 169 FY15E 73 31 54 174

Valuation summary
P/E Target P/E EV / EBITDA P/BV RoNW (%) RoCE (%) FY12 59.6 68.0 31.2 5.4 9.0 9.1 FY13 52.1 59.4 24.4 3.6 6.9 4.6 FY14E 32.1 36.7 11.4 3.2 10.1 12.1 FY15E 19.3 22.0 8.9 2.8 14.4 14.6

Stock data
Market Capitalization Total Debt (FY13) Cash and Investments (FY13) EV 52 week H/L Equity capital Face value MF Holding (%) FII Holding (%) | 2321.8 Crore | 601.4 Crore | 73.4 Crore | 2849.9 Crore 642 / 255 | 39.7 Crore | 10 18.7 15.2

Price movement
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Sep-13 Oct-13 Oct-13 Price (R.H.S) Nifty (L.H.S) 700 600 500 400 300 200 100 0 Nov-13 Dec-13

Analysts name
Karan Mittal karan.mittal@icicisecurities.com Sneha Agarwal sneha.agarwal@icicisecurities.com

*FY13 numbers includes Cinemax Q4FY13 figures

ICICI Securities Ltd | Retail Equity Research

Impressive execution in property rolls out Till date, the company has 93 properties with 409 screens in total. PVR recently launched a property in Vijayawada taking the new screens opened in H1FY14 count to 54 screens (net additions being 38 for H1FY14). The company has guided at an addition of about 90 screens by the end of FY14 while the run rate would reduce to 50-60 screens per year thereafter.
Exhibit 2: Properties rolled out and to be rolled out
S.No Location 1 Lulu Mall, Cochin 2 Orion Bangalore Gold class 3 Andheri, Mumbai 4 Market City, Bangalore 5 Elante Mall, Chandigarh 6 PVR 3Cs Lajpat Nagar, Delhi 7 Koregaon Park, Pune 8 Fun City Mall, Panipat 9 Diamond Mall , Kolkata 10 Ripples Mall, Vijaywada 11 Novelty Mall, Pathankot 12 Garuda Mall, Mysore 13 Pacific Mall, Dehradun 14 North Country Mall, Mohali 15 Aura Mall, Bhopal 16 Treasure Bazaar, Bhillai PVR Total 17 Chennai 18 Milap (Mumbai) Cinemax Total Grand Total Screens 9 3 5 9 8 1 7 3 5 4 4 4 5 9 3 4 83 5 2 7 90 Q-3 Q-4 Expected Opening Schedule Opened in April, 2013 Opened in May, 2013 Opened in May, 2013 Opened in June, 2013 Opened in June, 2013 Opened in July, 2013 Opened in Sept, 2013 Opened in Sept, 2013 Opened in Sept, 2013 Opened in Dec, 2014 Q-3 Q-3 Q-3 Q-4 Q-4 Q-4

Source: Company, ICICIdirect.com Research

Heavy investments by movie production houses under way The investments inflow in the movie production space is set to multiply as several foreign movie studios foray into Bollywood. Richard Branson, in collaboration with Cinema Capital India, launched Virgin Produced India and intends to reach out to the Indian youth with its movies. Moreover, Fox Star Studio is gearing up to roll out about 28 movies this year. In addition, the listing of the international holding company of Eros would also lead to additional investments by them in the movie production space. Eros, in collaboration with Endemol India, also has aggressive plans in the digital space. Such investments would lead to higher footfalls and benefit PVR in improving its operating leverage. Advertisement revenues to grow manifold!!! PVR is strategising to augment its advertising revenues by about 25-30% on a YoY basis. It expects Cinemax alone to witness about 40% advertising growth owing to its lower base and a decent rate of about 1015% in PVR. The company has already earned about | 66.8 crore in H1FY14 and the management guidance of | 125 crore seems achievable. According to media sources, the company has entered into new advertisement agreements with pricing clauses on the basis of the guaranteed eyeballs, adding to the comfort of advertisers.

ICICI Securities Ltd | Retail Equity Research

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ATP following upward trajectory The company has been able to effectively pass on price hikes. This is reflected in rising ATP that has expanded from | 161 in the year ending March 2013 to | 165 in Q2FY14. We expect PVR to end the fiscal with an ATP of | 169 and reach | 174 by FY15E.
Exhibit 3: Footfalls and ATP trend PVR Standalone
190 180 170 160 150 140 130 120 FY12 FY13 PVR Cinemax FY14E Blended FY15E 133 156 162 155 175 158 180 163

FY13 ATP calculation includes Q4 footfalls and gross ticketing revenues from Cinemax

Source: Company, ICICIdirect.com Research

Exhibit 4: Key metrics


Units ATP Footfalls Occupancy SPH | Mn % | FY13 162 32 32 48 FY14E 175 41 31 54 FY15E 180 48 31 56

Source: Company, ICICIdirect.com Research

Blu-O meets expectations!!! The company is also expanding the Blu-O segment foraying into new markets with Blu-O Chandigarh being its latest launch. The segment contributes healthy EBITDA margins of about 20% with contribution of about 3% to overall revenues.

ICICI Securities Ltd | Retail Equity Research

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Outlook & valuation


The impressive property rollout and acquisition of Cinemax has catapulted PVR to a dominant position in the domestic exhibition industry. Moreover, PVRs strategy to position itself as a premium offering has paid off. This is reflected in its ability to comfortably pass on price hikes. With robust property expansion planned in the near future, we expect 42% and 59.1% revenue and EBITDA CAGR, respectively, over FY13-15E. Moreover, PAT is expected to grow at 51.8% CAGR over the same period. Though the stock has rallied significantly over the past few months, it looks relatively cheap compared to other stocks in the media space. Unlike broadcasters that operate in a tougher competitive environment and require higher investments in movie acquisition, PVR follows an asset light model, which would help it to improve its return ratios as further operating leverage kicks in. Also, it is a clear market leader in the segment with a dominant reach.
Exhibit 5: Peer valuation
ROE (%) FY14E PVR Limited Hathway Cable Dish TV Zee Entertainment Sun TV TV18 Broadacast ENIL Average 10.07 3.60 NA 18.54 24.29 2.27 13.82 12.10 FY15E 14.45 4.71 NA 19.47 24.98 3.72 13.18 13.42 ROCE (%) FY14E 12.13 7.05 NA 23.86 33.27 4.19 15.33 15.97 FY15E 14.59 7.71 NA 26.34 34.31 6.31 15.79 17.51 EV/EBITDA (x) FY14E 11.36 12.47 11.01 23.25 8.44 21.13 8.68 13.76 FY15E 8.88 10.42 9.10 17.18 7.42 14.29 6.75 10.58 Mcap/Sales (x) FY14E 1.64 2.55 2.73 6.39 6.38 2.15 3.80 3.66 FY15E 1.43 2.30 2.44 5.31 5.62 1.92 3.35 3.20

* Dish TV had negative PAT

Source: Company, ICICIdirect.com Research

Historically, PVR has traded between 6x and 8x one year forward EV/EBITDA. However, over the past few months, with improving market dynamics, the stock has been trading at an average one year forward EV/EBITDA of 9x. We have valued PVR at 10x FY15E EV/EBITDA to arrive at a target price of | 673 and upgrade the stock to BUY.
Exhibit 6: EV/EBITDA trend
4,000 3,500 3,000 EV (| Cr) 2,500 2,000 1,500 1,000 500 0 Apr-09 Oct-09 Apr-10 EV Oct-10 Apr-11 12x Oct-11 10x Apr-12 8x Oct-12 6x Apr-13 4x Oct-13

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Exhibit 7: EV/EBITDA based valuation


EV/EBITDA FY15 EBITDA EV/EBITDA multiple Target EV Net Debt Target Market Cap Number of Equity Shares Target Price per Share Upside Potential | crore | crore | crore Crore | | crore 313.7 10.0 3,136.6 462.6 2,674.0 4.0 673.4 15.2%

Source: Company, ICICIdirect.com Research

Exhibit 8: Valuation
Sales (| cr) FY12 FY13 FY14E FY15E 513.1 805.3 1413.7 1623.5 Growth (%) 12% 57% 76% 15% EPS (|) 9.8 11.2 18.2 30.3 Growth (%) 226% 14% 62% 67% PE EV/EBITDA (x) 59.6 52.1 32.1 19.3 (x) 31.2 24.4 11.4 8.9 RoNW (%) 9.0 6.9 10.1 14.4 RoCE (%) 9.1 4.6 12.1 14.6

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Financial summary
Profit and loss statement
(Year-end March) Total operating Income Growth (%) Film Distributors Cost F&B Cost Employee Expenses Other Expenses Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income Exceptional Items PBT MI/PAT from associates Total Tax PAT Growth (%) EPS (|) FY12 513.1 12.2 125.2 33.9 56.3 218.4 433.7 79.4 -7.0 36.5 18.5 9.0 2.4 31.0 -0.1 5.7 25.4 210.8 9.8 FY13 805.3 57.0 200.4 54.8 79.6 353.5 688.4 116.9 47.3 56.0 36.8 9.1 1.2 31.9 -0.2 -12.4 44.5 75.1 11.2

Company Description The company is present in the entire value chain in film entertainment industry with leadership position in Film Exhibition, Distribution and Production. It has also forayed into retail entertainment Cash flowsuccessfully statement formats such as bowling Centres with BluO. The company also operates a (| Crore) (| Crore) film distribution and production Pictures, a 100% (Year-end March) business through FY12 PVR FY13 FY14E FY15E FY14E FY15E subsidiary of PVR Ltd. PVR operates about 46 cinemas with 213 screens PAT Before Provisions 25.3 44.5 72.2 120.4 1,413.7 1,623.5 spread over cities. It recently acquired Cinemax which has Add: Depreciation 36.5 56.0 79.8 99.2 75.5 14.8 27 different Add: Interest 36.8 PVR 82.8 66.2 355.5 411.6 about 39 cinemas with 138Paid screens. This has18.5 catapulted to largest (Inc)/dec in Current Assetsa total of -62.3 -106.6 way -173.4 -39.1 98.4 111.4 Mutliplex chain in the country with 351 screens, ahead of Inc/(dec) in CL and Provisions 58.8 120.5 85.6 24.0 132.4 149.8 the second largest multiplex company. The combined entity would have Others -19.1 0.0 0.0 0.0 571.1 637.0 footfalls of roughly 64.2 million in FY14E.
CF from operating activities 1,157.4 1,309.9 (Inc)/dec in Investments 256.3 313.7 Exhibit 9: Recommendation History (Inc)/dec in Fixed Assets 119.2 22.4 600 Others 79.8 99.2 CF from investing activities 82.8 66.2 500 Issue/(Buy back) of Equity 7.4 9.0 Inc/(dec) in loan funds 6.4 0.0 400 Dividend paid & dividend tax 94.7 157.3 Inc/(dec) in Sec. premium 0.5 0.0 300 Less: Interest Paid 22.0 37.0 Others 72.2 120.4 200 CF from financing activities 62.3 66.6 Net Cash flow 18.2 30.3 100 57.6 -0.1 0.1 -2.7 -2.6 -1.2 11.9 -3.0 -83.3 18.5 -55.4 151.2 -37.4 -837.0 32.0 -842.3 13.7 427.9 -4.6 309.4 36.8 -76.6 706.5 15.4 21.6 147.0 0.0 -130.0 3.4 -126.6 0.0 50.0 -4.6 0.0 82.8 -158.8 -30.7 -10.3 37.0 270.5 0.0 -74.0 0.0 -74.0 0.0 -100.0 -4.6 0.0 66.2 -132.3

-112.7 -57.7 79.3 21.6 Jun-13

-170.8 25.7 26.7

Source: Company, ICICIdirect.com Research

0 Nov-12 Dec-12

Opening Cash Closing Cash Feb-13 Mar-13

May-13

37.0 26.7 52.5 Aug-13 Sep-13 Oct-13

Source: Company, ICICIdirect.com Research Price Target Price Source: Reuters, ICICIdirect.com Research

Balance sheet
(Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Others Total Liabilities Assets Total Fixed Assets Investments Debtors Inventory Loans and Advances Other Current Assets Cash Total Current Assets Total Current Liabilities Net Current Assets Other Non Current Assets Application of Funds FY12 25.9 257.1 283.1 173.6 27.5 484.1 FY13 39.6 603.4 643.0 601.4 93.6 1,338.0

Key ratios
(Year-end March) (| Crore) Exhibit 10: Recent Releases Per share data (|) FY14E FY15E Event Date EPS Preview 8-Oct-12 Q2FY13 Result Cash EPS 39.6 39.6 31-Oct-12 Q2FY13 Result Update BV Preview 677.7 8-Jan-13 793.4 Q3FY13 Result DPS Update 717.3 4-Feb-13 833.0 Q3FY13 Result Cash Per Share 651.4 551.4 8-Apr-13 Q4FY13 Result Preview Operating Ratios (%) 97.0 97.0 30-May-13 Q4FY13 Result Update EBITDA Margin 1,465.8 5-Jul-13 1,481.5 Q1FY14 Result Preview PBT Update / Net Sales 1-Aug-13 Q1FY14 Result PAT Margin 7-Oct-13 Q2FY14 Result Preview Inventory days 1,191.6 1,166.4 Source: Company, ICICIdirect.com Research 38.0 38.0 Debtor days Creditor days 74.7 85.8 Return Ratios (%) 18.9 21.7 RoE 353.4 373.4 35.3 40.6 RoCE RoIC 26.7 52.5 509.1 573.9 Valuation Ratios (x) P/E 334.6 358.6 174.4 215.3 EV / EBITDA
61.8 1,465.8 61.8 1,481.5

FY12

FY13

FY14E

FY15E

360.4 0.6 27.0 7.9 165.7 1.8 21.6 223.9 128.5 95.4 27.6 484.1

1,141.3 38.0 42.5 10.7 255.1 0.5 37.0 345.9 249.0 96.9 61.8 1,338.0

CMP 9.8 205 23.9 233 109.3 280 6.0 264 8.4 290 341 15.5 330 6.0 351 5.0 541 5.6 19.2 35.1
9.0 9.1 9.9 59.6 31.2 4.8 4.5 5.4 2.2 0.6 1.7 1.7

Target Price 11.2 220 18.2 25.4 270 38.3 162.3 282 180.6 1.0 261 1.0 9.3 280 6.7 369 14.5 369 18.1 4.0 405 6.7 5.5 405 5.1 4.9 4.9 19.3 19.3 46.3 40.0
6.9 4.6 4.9 52.1 24.4 3.5 2.9 3.6 5.1 0.9 1.4 1.3 10.1 12.1 12.8 32.1 11.4 2.1 1.6 3.2 2.5 0.9 1.5 1.5

Rating 30.3 HOLD 55.3 BUY 209.8 HOLD 1.0 HOLD 13.2 HOLD HOLD 19.3 BUY 9.7 BUY 7.4 SELL 4.9 19.3 38.0
14.4 14.6 15.7 19.3 8.9 1.7 1.4 2.8 1.8 0.7 1.6 1.5

Source: Company, ICICIdirect.com Research

EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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ICICIdirect.com coverage universe (Media)


Sector / Company DB Corp (DBCORP) DISH TV (DISHTV) ENIL (ENTNET) Eros (EROINT) Hathway Cables (HATCAB) HT Media (HTMED) PVR (PVRLIM) Sun TV (SUNTV) TV18 (GLOBRO) ZEE Ent. (ZEETEL) CMP M Cap (|) TP(|) Rating (| Cr) 274 286 Hold 4,974 61 55 Sell 6,516 312 380 Buy 1,487 164 174 Hold 1,509 249 320 Buy 3,568 78 99 Buy 1,840 585 482 Sell 2,322 365 460 Buy 14,386 23 20 Sell 3,971 280 268 Hold 26,842 EPS (|) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E 11.9 15.4 17.9 23.0 17.8 15.3 13.3 9.9 8.4 27.2 31.4 30.7 21.2 22.8 22.2 -0.6 -0.5 0.1 NM NM 530.5 11.6 10.9 9.0 NM NM 3.6 42.4 24.0 NM 14.3 16.7 18.2 21.8 18.7 17.2 11.1 8.9 7.0 14.5 15.3 15.8 13.6 13.8 13.2 16.8 17.4 22.4 9.8 9.5 7.3 7.6 7.7 6.1 15.9 14.1 16.3 15.7 14.1 15.6 1.1 2.8 3.8 227.3 89.5 65.2 15.6 11.7 9.8 6.1 7.0 7.7 1.9 3.6 4.7 7.1 8.6 9.0 11.0 9.1 8.7 7.3 5.9 4.5 9.0 9.3 10.4 10.5 11.3 10.6 11.2 18.5 28.4 52.1 31.7 20.6 23.8 11.3 9.3 6.0 10.6 12.4 6.9 10.3 13.7 18.0 19.6 23.0 20.3 18.6 15.9 9.9 8.3 7.3 33.2 33.3 34.3 24.6 24.3 25.0 -0.1 0.4 0.8 NM 52.2 30.7 37.3 20.3 13.7 1.9 4.2 6.3 NM 2.3 3.7 7.5 8.9 11.2 37.1 31.5 25.1 27.6 23.2 17.1 23.3 23.9 26.3 18.4 18.5 19.5

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Karan Mittal MBA, Anil Shenoy MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Karan Mittal MBA Anil Shenoy MBA research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Karan Mittal MBA Anil Shenoy MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. 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