June 2017

May 2010

Forensic Accounting: Why is it done and how is it done?

A presentation to the CFA Society

Presenter:
Saurabh Mukherjea, CFA
saurabhmukherjea@ambitcapital.com
+91 22 3043 3174

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Companies with poor accounting do not deliver returns
Accounting quality drives investment performance Share price performance across time horizons
(universe: BSE500 ex Financials)

30% Share price performance (CAGR)

'Zone of Safety' Accounting decile
25%
performance (Nov '10 to

'Zone of 1 Yr 3 Yr 5 Yr
Median share price

20%
Pain'
15% Top 5 deciles 30% 29% 31%
'Zone of
Nov '16)

10%
Darkness' Bottom 5 deciles 31% 18% 20%
5%
0% Source: Bloomberg, Ace Equity, Capitaline, Ambit Capital research
-5% D1 D2 D3 D4 D5 D6 D7 D8 D9 D10
-10% Sector-neutral accounting buckets show a strong
Accounting score based deciles link between accounting quality and investment
Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note:
Accounting score is based on annual financials over FY11-FY16; stock price returns
performance is from November 2010 to November 2016. Shaded areas denote the
three zones on accounting quality. Universe for this exhibit is BSE500 (ex-financials)..
20%

performance (Nov '10

252, 15.4%

Median share price

More than any measure of profitability, the single 15% 222, 12.8%

to Nov '16)
biggest driver of investment returns in India is the 202, 10.5%
quality of a companys accounting. 10%
175, 6.4%
The power of accounting quality (to drive investment 5%
returns) stems from the fact that it captures both the Bucket A Bucket B Bucket C Bucket D

quality of the franchise and the integrity of the Sector-agnostic accounting buckets

promoter. Source: Bloomberg, Ace Equity, Capitaline, Ambit Capital research. Note:
Accounting score is based on annual financials over FY11-16; stock price
performance is from November 2010 to November 2016 on a CAGR basis.
Universe for this exhibit is BSE500 (ex-financials). The first entry is the accounting
score over FY11-FY16; the second entry is the median CAGR stock returns in that
bucket from November 2010 to November 2016.

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Even in the post-Modi world, companies with poor accounting
have struggled
Performance of the accounting deciles over the Performance of the accounting deciles over the
last 12 months (for the BSE500 universe) last 3 years (for the BSE500 universe)

Source: Bloomberg, Capitaline, Ambit Capital research. Note: Universe Source: Bloomberg, Capitaline, Ambit Capital research. Note: Universe
for this exhibit is the BSE500 (ex-financials) as of November 2016. Price for this exhibit is the BSE500 (ex-financials) as of November 2016. Price
performance has been measured over the period June 2016 to May performance has been measured over the period June 2014 to May
2017. 2017.

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Why do companies with poor accounts to struggle to deliver?
Why do companies with poor accounting quality struggle to deliver shareholder
returns?

Hiding the damage caused by overexpansion/ mismanagement

Exaggerating revenues

Theft by the promoter

Extortion by powerful third parties

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How can you spot companies that are cooking their books?

P&L

The magic of
Balance double entry Cashflow
Sheet bookkeeping statement

Key categories of accounting checks

Category Ratios
Cum. CFO/cum. EBITDA
Volatility in depreciation rate*
P&L mis-statement checks Volatility in non-operating income (NoI) (as a percentage of net revenues)

Provisioning for doubtful debts as a proportion of debtors more than six months
Cash yield
Balance sheet mis-statement checks Change in reserves (excluding share premium) to net income excluding dividends
Contingent liability as a proportion of net worth
Miscellaneous expenses as a proportion of total revenues
Pilferage checks CWIP to Gross Block
Cumulative CFO plus CFI to median revenues
Audit quality checks CAGR in auditors remuneration to CAGR in consolidated revenues
Key categories of accounting checks - Universe (excluding Financials)
Source: Bloomberg, Ambit Capital research. Note: *Depreciation accounting has undergone significant changes in FY15 (due to the requirements of the Companies Act, 2013 that became
applicable w.e.f. 01.04.2014). This has resulted in inherent volatility in the depreciation rate in FY15 across the universe. However, given that we are looking at a 6-year median in our model,
this change in depreciation accounting does not materially impact the scores for companies in the universe.

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P&L mis-statement checks: CFO/EBITDA

CFO/EBITDA: This ratio checks a companys ability to convert EBITDA (which can be
relatively easily manipulated) into operating cash flow (which is more difficult to
manipulate). A low ratio raises concerns about the companys revenue recognition policy
(because this may imply aggressive revenue recognition through methods such as channel
stuffing). We use a six-year median for this measure.

Revenue recognition 8K Miles vs peers

Pre Tax CFO/ EBITDA (%)
FY11 FY12 FY13 FY14 FY15 FY16
8K Miles 367% -52% -124% 97% 83% 24%
Take Solutions 60% 83% 76% 71% 55% 71%
Accelya Kale 73% 110% 110% 105% 82% 96%
MPS - 33% 84% 82% 77% 59%
Persistent Systems 121% 78% 83% 88% 106% 99%
eClerx 88% 111% 76% 77% 98% 79%
Peer Median 80% 83% 83% 82% 82% 79%
Source: Company, Ambit Capital research

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P&L mis-statement checks: Depreciation rate analysis
Change in the depreciation rate: We calculate change in depreciation rates for each of the
past six years (FY12-16). We then calculate the median of absolute changes and then sort
the companies on this ratio such that the company with the smallest change in its
depreciation rate receives the best score. The rationale is to penalise companies that have
high volatility in their depreciation rate on a YoY basis.

Depreciation analysis Omkar Specialty Chemicals vs peers

YoY change in depreciation
Depreciation rate
Company/metric rate (in bps)
FY12 FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Omkar Spl.Chem. 15.6% 8.8% 10.9% 6.6% 4.4% 680 212 433 214
Navin Fluo.Intl. 6.0% 5.7% 5.8% 5.2% 5.3% 25 7 58 7
Sequent Scien. 8.6% 9.5% 8.9% 7.7% 8.8% 92 65 119 108
Aarti Inds. 6.7% 8.0% 6.6% 5.2% 5.3% 125 139 135 5
Vinati Organics 4.2% 3.8% 4.3% 4.5% 4.1% 41 55 21 38
Atul 4.4% 4.6% 4.8% 4.7% 4.6% 24 16 4 10
Peer group median (ex
41 55 58 10
Omkar)
Source: Company, Ambit Capital research.

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P&L mis-statement checks: Provisions for doubtful debts

Provision for doubtful debts as a proportion of debtors more than six months: This ratio
checks the conservativeness of a companys provisioning policy. A low ratio raises the
spectre of earnings being boosted through aggressive provisioning practices. We use a six-
year median for this measure.

Tata Chemicals and Linde India - Provision for old debtors lower than peers
PFD as a % of Debtors more than Debtors more than six months as a % of
Company/metric six months Gross Debtors
FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16
Tata Chemicals 9% 4% 5% 6% 12% 16% 25% 21% 18% 15%
Guj Alkalies 69% 67% 64% 73% 78% 7% 7% 7% 6% 5%
BASF India 87% 73% 74% 76% 83% 4% 4% 4% 4% 4%
Coromandel Inter 44% 30% 11% 26% 52% 2% 5% 20% 12% 8%
Atul 16% 32% 27% 47% 45% 2% 2% 2% 1% 2%
Linde India 9% 10% 13% 7% 9% 44% 60% 60% 59% 60%
Median(ex-Tata Chemicals) 44% 32% 27% 47% 52% 4% 5% 7% 6% 5%
Divergence (Tata Chemicals vs
-35% -28% -23% -41% -41% 12% 20% 14% 12% 10%
peers)
Median(ex-Linde India) 44% 32% 27% 47% 52% 4% 5% 7% 6% 5%
Divergence (Linde India vs peers) -35% -22% -15% -40% -43% 41% 55% 53% 53% 54%

Source: Company filings, Ambit Capital research

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Balance sheet checks: Cash yield

Cash yield: This ratio is calculated as the yield earned on cash, investments and deposits.
A low ratio could be a cause for concern as it could mean that either the balance sheet
has been mis-stated or that the cash is not being used in the best interests of the firm. We
use a six-year median for this measure.

Tanla Solutions - Cash yield vs peers

Investment income yield
Company/metric
FY13 FY14 FY15 FY16 Average
Tanla Solutions 2.6% 3.4% 0.1% 1.1% 1.8%
Info Edge* 9.0% 6.4% 7.5% 6.8% 7.4%
Source: Company filings, Ambit Capital research. Note: *In FY13, detailed break up of proceeds from sale of
investments (current and non-current) is not available. Hence we have considered the total proceeds from sale of
investments in FY13.

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Balance sheet checks: Change in reserves / change in PAT
less dividends
Change in reserves (excluding share premium) to net income excluding dividends: This ratio is
calculated by dividing the change in reserves (excluding share premium) on a YoY basis and
dividing it by that years PAT excluding dividends. We then take a six-year median of this ratio.
A ratio of less than one indicates direct write-offs to equity without routing these through the
Profit & Loss account and may indicate aggressive accounting policies.

Godrej Consumer - restated earnings if amortisation of Goodknight and Hit Brands as well as other direct write-offs
from equity were routed through the P&L
(Rs mn) FY12 FY13 FY14 FY15 FY16
Profit before taxes [A] 9,773 10,246 10,297 12,487 14,760
Amortisation of Goodknight and Hit Brands directly debited to General
904 528 923 777 528
reserve/other direct write-offs from equity [B]
Profit before taxes (had these direct write-offs been charged to the P&L) [C=A-B] 8,869 9,719 9,374 11,711 14,232
Impact on profit before taxes (as a % of stated profit) [(C-A)/A)] -9% -5% -9% -6% -4%

Source: Company, Ambit Capital research.

Note that the company has always made appropriate disclosures in its notes to accounts. We are highlighting Godrej Consumer as an example
primarily to show how a few changes in accounting policies as well as a few court approvals may cause a significant change to the reported
bottom-line.

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Cash pilferage checks: Non-operating expenses/ revenue

Non-operating expenses as a proportion of total revenues: This ratio checks a companys

expenditure policy. A high ratio raises concerns regarding the authenticity of such
expenses. We use a six-year median for this measure.

Miscellaneous expenditure analysis - Wockhardt vs peers

Misc. expenses* as a % of total revenues
Company/metric
FY12 FY13 FY14 FY15 FY16 Median
Wockhardt 4.1% 5.3% 6.2% 8.2% 8.2% 6.2%
Dr Lal Pathlabs 2.2% 2.2% 2.1% 2.0% 2.3% 2.2%
Fortis Health. 0.2% 0.5% 0.7% 0.6% 0.4% 0.5%
Apollo Hospitals 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Median (ex-Wockhardt) 0.2% 0.5% 0.7% 0.6% 0.4% 0.5%
Divergence 3.9% 4.9% 5.5% 7.6% 7.8% 5.7%
Source: Company filings, Ambit Capital research. Note: *Misc. expenses include Donation and CSR expenses.

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Cash pilferage checks: CWIP / gross block
CWIP to gross block: The idea here is to penalise firms that show consistently high CWIP
relative to the gross block as this may indicate either unsubstantiated capital expenditure or a
delay in commissioning (which may in turn be motivated by a delay in the recognition of the
related depreciation expense). We calculate the proportion of capital work in progress to
gross block for each of the last six years and then take the 25th percentile observation
(Instead of a simple six-year median like in most other ratios. The reason for using the 25th
percentile over the last six years for this measure as opposed to the median (which would be
the 50th percentile observation) is to allow the benefit of doubt to firms that have invested
wisely during the ensuing downturn. Hence, we are penalising companies only if the ratio
has been consistently high over most of the last six-year period.).

Balkrishna Industries - Capex analysis

CWIP*-Gross Block
Company/metric
FY11 FY12 FY13 FY14 FY15 FY16
Balkrishna Inds 0.15 0.55 0.67 0.23 0.21 0.08
Apollo Tyres 0.07 0.05 0.05 0.01 0.03 0.16
MRF# 0.30 0.09 0.08 0.12 N/A 0.14
JK Tyre 0.06 0.22 0.02 0.04 0.17 0.02
Ceat 0.07 0.01 0.01 0.04 0.11 0.11
Median (ex-Balkrishna) 0.07 0.07 0.03 0.04 0.11 0.13
Divergence (Balkrishna) 0.08 0.48 0.64 0.19 0.10 (0.05)
Source: Company, Ambit Capital research; Note: Note: *CWIP includes Capital Advances. #N/A since MRF has
changes its year end.

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Cash pilferage checks: Cumulative CFO plus CFI to median
revenues
Cumulative CFO plus CFI to median revenues: We calculate the cumulative CFO (cash flow from operations)
plus cumulative CFI (cash flow from investing activities) over the last six years. Next, we divide this by the last
six-year median revenues for the company to normalise it for the size of a company. The higher the ratio, the
better our perception of the companys accounts.
The idea is to penalise firms which over such long periods have been unable to either generate positive cash
flows from operations or alternatively where cash flow from investments have consistently eaten away the
cash generated from operations.

Sequent Scientific: In spite of the lowest Sequent Scientifics free cash flows have been
gross block turnover vs its peers negative (Rs mn)
Gross Block Turnover Cum. CFO plus
Company/metric Cum. CFO Median
FY14 FY15 FY16 CFI to median
Company/metric plus CFI revenues
Sequent Scien. 1.2 1 1.1 revenues
(FY14-FY16) (FY14-FY16) (FY14-FY16)
Omkar Spl.Chem. 2.1 1.6 2 Sequent Scien. -6,189 4,432 -1.4
Navin Fluo.Intl. 1.2 1.4 1.4 Omkar Spl.Chem. -233 2,651 -0.09
Navin Fluo.Intl. 755 5,915 0.13
Aarti Inds. 1.9 1.8 1.5
Aarti Inds. 1,876 27,796 0.07
Vinati Organics 2 2 1.4 Atul 2,421 26,014 0.09
Atul 2 2.1 1.8 Vinati Organics 2,768 6,961 0.4
Median (ex-
Median (ex-Sequent) 2 1.8 1.5 0.09
Sequent)
Divergence -0.8 -0.8 -0.4 Divergence -1.49

Source: Company, Ambit Capital research. Source: Company, Ambit Capital research.

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Audit quality checks: CAGR in auditors remuneration /
CAGR in revenues
Unitech - Auditors remuneration vis--vis peers
FY13 FY14 FY15 FY16
Unitech
Consolidated Net Sales (Rs mn) 24,405 29,534 34,312 20,075
Consolidated auditors remuneration (Rs mn) 38.5 46.2 44.7 42.7
Standalone auditors remuneration (Rs mn) 24.3 27.7 27.2 27.3
Consolidated auditors remuneration as a % of Total revenues (%) 0.16 0.16 0.13 0.21
Standalone auditors remuneration as a % of Total revenues (%) 0.10 0.09 0.08 0.14
Sobha
Consolidated Net Sales (Rs mn) 18,645 21,734 24,406 18,651
Consolidated auditors remuneration (Rs mn) 9.4 10.1 11.6 13.5
Standalone auditors remuneration (Rs mn) 8.9 9.2 10.7 12.2
Consolidated auditors remuneration as a % of Total revenues (%) 0.05 0.05 0.05 0.07
Standalone auditors remuneration as a % of Total revenues (%) 0.05 0.04 0.04 0.07
Oberoi Realty
Consolidated Net Sales (Rs mn) 10,476 7,985 9,227 14,081
Consolidated auditors remuneration (Rs mn) 8.4 8.9 10.0
9.1
Standalone auditors remuneration (Rs mn) 4.7 5.0 5.0 5.1
Consolidated auditors remuneration as a % of Total revenues (%) 0.08 0.11 0.10 0.07
Standalone auditors remuneration as a % of Total revenues (%) 0.04 0.06 0.05 0.04
Omaxe
Consolidated Net Sales (Rs mn) 20,775 16,231 14,311 16,678
Consolidated auditors remuneration (Rs mn) 6.4 6.1 4.8 4.8
Standalone auditors remuneration (Rs mn) 4.5 4.4 3.4 3.4
Consolidated auditors remuneration as a % of Total revenues (%) 0.03 0.04 0.03 0.03
Standalone auditors remuneration as a % of Total revenues (%) 0.02 0.03 0.02 0.02
Source: Company, Ambit Capital research.

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What else should you look out for?

Check the company on watchoutinvestors

Check the Board Directors individually on watchoutinvestors

Check the auditor both the company and the specific individual signing off on
the accounts on watchoutinvestors

Read the audit disclaimer (the first page of the auditors report).

Assess the promoters lifestyle relative to what the Annual Report shows the
promoter to be capable of financing.

Look at the composition of the Board is it made up of friends and family?

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Pulling it all together: The 8K Miles example (slide 1/ 6)
Snapshot
Summary of flags
FLAGS
Accounting
RED FLAG for ad hoc and often aggressive depreciation policy, unconventional cash flow
accounting, numbers not tallying across statements.
Corporate governance
RED FLAG for low proportion of independent directors, lack of disclosure on management
compensation, the appointment of the same auditor until FY21, issue of warrants ahead of 4x
jump in stock price and discrepancy in pricing of warrants.
Revenue recognition
Pre Tax CFO/ EBITDA (%)
FY11 FY12 FY13 FY14 FY15 FY16
8K Miles 367% -52% -124% 97% 83% 24%
Take Solutions 60% 83% 76% 71% 55% 71%
Accelya Kale 73% 110% 110% 105% 82% 96%
MPS - 33% 84% 82% 77% 59%
Persistent Systems 121% 78% 83% 88% 106% 99%
eClerx 88% 111% 76% 77% 98% 79%
Peer Median 80% 83% 83% 82% 82% 79%
Source: Company, Ambit Capital research Note: MPS had reported a loss in FY11 and has been excluded from the above exhibit

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Pulling it all together: The 8K Miles example (slide 2/ 6)
Depreciation rate comparison
Depreciation as % of gross block
Intangibles
FY12 FY13 FY14 FY15 FY16
8K Miles 26.3% 0.2% 11.4% 9.1% 15.0%
Take Solutions 14.7% 19.4% 21.7% 15.0% 15.3% Source: Company, Ambit Capital research
Accelya Kale 9.7% 10.0% 8.7% 9.0% 9.4%
MPS 28.0% 16.9% 10.6% 6.6% 1.9%
Persistent Systems 11.0% 20.5% 17.4% 7.6% 14.7%
eClerx 19.1% 19.6% 13.9% 12.7% 4.1%
Peer Median 14.7% 19.4% 13.9% 9.0% 9.4%

8K Miles depreciation rate overview

FY12** FY13 FY14 FY15 FY16
Income statement depreciation as Source: Company, Ambit Capital research; Note:
13.5% 9.8% 13.7% 13.9% 15.3%
% of total gross block depreciation rate is calculated as depreciation
expense for the year divided by average gross
Depreciation rate based on block at the beginning and end of that year;
footnotes *depreciation rate for tangibles is calculated on
WDV basis, hence depreciation rate is
for tangible Assets* (as % of
2.5% 130.7% 26.4% 22.9% 25.3% considered as % of net block;** the gross block
net block) for FY12 includes Rs54.5mn of goodwill
disclosed on the balance sheet
for intangible Assets 26.3% 0.2% 11.4% 9.1% 17.4%
Intangible assets under
development 73.3% 96.0% 27.3% 20.1% 11.0%
as % of total net block

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Pulling it all together: The 8K Miles example (slide 3/ 6)
Frequent Reclassification - 8K Miles other expenses as compared to peers

as % of revenue FY12 FY13 FY14 FY15 FY16

8K Miles 14% 19% 16% 24% 21%
Source: Company, Ambit Capital
Take Solutions 19% 22% 23% 24% 23% research; Note that different companies
have different ways of reporting other
Accelya Kale 30% 21% 20% 20% 21% expenses, this comparison is meant for a
MPS 32% 26% 24% 21% 21% broad check

Persistent Systems 14% 16% 15% 15% 15%

eClerx 17% 17% 17% 20% 19%
Peer group
19% 21% 20% 20% 21%
median

Breakup of other expenses

expressed as % of revenue FY12 FY13 FY14 FY15 FY16
Auditors Remuneration 0.1% 0.1% 0.0% 0.4% 0.3%
Professional and Consultancy Fee 1.4% 0.1% 0.0% 2.1% 2.4%
Travelling and Business Promotion
0.2% 0.0% 14.5% 15.6% 4.0% Source: Company, Ambit Capital research
Expenses
Communication 0.2% 0.1% 0.1% 0.8% 1.7%
Rent 0.7% 0.5% 0.3% 1.1% 1.6%
Non-classified expenses (mainly other
general 11.3% 18.5% 0.7% 4.0% 10.6%
and administration expenses)
Total Other Expenses 13.9% 19.4% 15.6% 23.9% 20.6%

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 Pulling it all together: The 8K Miles example (slide 4/ 6)

Unclear Items Lower Tax Rates

Effective tax rate of 8K Miles is lower than peers though
Effective Tax Rate (%) FY12 FY13 FY14 FY15 FY16
8K Miles 17% 12% 19% 20% 22%
Take Solutions 18% 17% 2% 6% 14%
Accelya Kale 32% 31% 33% 37% 35%
MPS 26% 22% 34% 34% 32%
Persistent Systems 28% 29% 27% 25% 25%
eClerx 20% 19% 23% 23% 24%
Peer Median 26% 22% 27% 25% 25%
Source: Company, Ambit Capital research

other income as percentage of PBT is lower for 8K Miles

Other income as % of PBT FY12 FY13 FY14 FY15 FY16
8K Miles 1.5% 1.5% 0.5% 1.0% 0.3%
Take solutions 0.0% 0.0% 0.0% 0.0% 1.9%
Accelya Kale 3.8% -2.4% 3.4% 5.4% 7.2%
MPS 46.0% 12.5% 10.1% 11.6% 17.5%
Persistent Systems 13.0% 2.3% 4.4% 23.9% 19.0%
eClerx 11.2% -8.6% 3.3% 10.9% 8.5%
Peer group median 11.2% 0.0% 3.4% 10.9% 8.5%
Source: Company, Ambit Capital research

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Pulling it all together: The 8K Miles example (slide 5/ 6)
Cash Flow Accounting
Cash flow statement of the company is a black box
Cash used in financing activities Mar-14 Mar-15 Mar-16
Share Capital - 3.0 5.5
Application money pending allotment - 115.0 (57.5)
In Reserves & Surplus 481.1 185.1 859.6
Deferred Tax liabilities 4.3 1.2
Interest Paid (3.7) (4.5) (2.1)
Increase in Non-Current Liabilities 5.6 (94.7) 0.4
Net Cash Used In Financing Activities (3) 487.3 436.1 805.9
Net Increase in Cash and Cash Equivalents (1+2+3) 33.9 99.5 137.7
Cash and Cash Equivalents at the beginning of the year 14.5 48.3 147.8
Cash and Cash Equivalents at the end of the year 48.3 147.8 285.5
Reserves and surplus as % of net worth 78% 19% 42%
Source: Annual report

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Pulling it all together: the 8K Miles example (slide 6/ 6)

FY16 annual report of the company contradicts data in the FY15 annual report
RESERVES AND SURPLUS
As at 31 As at 31
Particulars March 2016 March 2015 Additions Deletions
As at As at
during the during the
Particulars 31.03.2014 31.03.2015
Capital Reserves year year
Balance at the beginning of the year 21,44,85,589 20,07,76,240
Additions during the year 37,45,21,091 1,37,09,349 Capital
58,90,06,680 21,44,85,589 Reserve 36,40,26,565 (5,45,61,135) - 30,94,65,430
Securities premium account* Securities
Balance at the beginning of the year 22,26,55,481 10,60,75,481 Premium
Add: Issue of shares during the year 21,37,30,000 11,65,80,000 Reserve 10,60,75,481 10,60,75,481
43,63,85,481 22,26,55,481
Source: company
Source: company

Auditors remuneration
Growth in companys revenues vs auditors remuneration
CAGR in auditor's remuneration CAGR in consolidated revenues
FY12-FY16 FY12-FY16
8K Miles 162% 90%
Source: Company, Ambit Capital research

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Ambits HAWK pulls it all together for our clients (slide 1/2)

HAWK Dashboard Forensic Deciles & Greatness Score overview

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Ambits HAWK pulls it all together for our clients (slide 2/ 2)

HAWK Dashboard Company wise Forensic Decile & Greatness Score

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Essential reading on forensic accounting

Terry Smith: Accounting for Growth.

Howard M. Schilit: Financial Shenanigans.

Ambit Capital: Forensic Accounting Beware of the Zone of Darkness.

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The national bestseller that you have to read

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Disclaimer

* In case the recommendation given by the Research Analyst becomes inconsistent with the rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures (like change in stance/estimates) to make the recommendation consistent with the
rating legend.
Disclaimer
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5. This Research Report is issued for information only and the 'Buy', 'Sell', or Other Recommendation made in this Research Report such should not be construed as an investment advice to any recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities and
should not be intended or treated as a substitute for necessary review or validation or any professional advice. 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.
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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.
7. Ambit Capital Private Limited is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. SEBI Reg.No.- INH000000313.

Conflict of Interests
8. In the normal course of AMBIT Capitals business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one clients 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 Capitals services.
9. AMBIT Capital and/or its affiliates may from time to time have or solicit investment banking, investment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same.

Additional Disclaimer for Canadian Persons

10. AMBIT Capital is not registered in the Province of Ontario and /or Province of Qubec to trade in securities and/or to provide advice with respect to securities.
11. AMBIT Capital's head office or principal place of business is located in India.
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14. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2 Canada.
15. Name and address of AMBIT Capital's agent for service of process in the Province of Qubec is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montral, Qubec H3B 2C3 Canada.

Additional Disclaimer for Singapore Persons

16. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of the First Schedule to the Financial Advisors Act (CAP
110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore.
17. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the SFA). Accordingly, if a Singapore Person is not or ceases to be such an institutional investor, such
Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Additional Disclaimer for UK Persons

18. All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover. No part of this research analysts compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed by the research analyst in this research report. This report may not be reproduced, redistributed or copied in whole or in part for any purpose.
19. This report is a marketing communication and has been prepared by Ambit Capital Pvt Ltd of Mumbai, India (Ambit) and has been approved in the UK by Ambit Capital (UK) Limited (ACUK) solely for the purposes of section 21 of the Financial Services and Markets Act 2000.
Ambit is regulated by the Securities and Exchange Board of India and is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. ACUK is regulated by the UK Financial Services Authority and has registered office at C/o Panmure Gordon & Co
PL, One New Change, London, EC4M9AF.
20. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the
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persons in the UK who are not relevant persons.
21. Neither Ambit nor ACUK is a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer, in conformity with SEC Rule 15a-6.
22. Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. Distribution of
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23. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information in this
report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It
has also not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.

Ambit Capital Private Limited Pg 26 Confidential

Disclaimer
24. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors individual circumstances and should not be taken as specific advice on the
merits of any investment decision. Investors should consider this report as only a single factor in making any investment decisions. Further information is available upon request. No member or employee of Ambit or ACUK accepts any liability whatsoever for any direct or
consequential loss howsoever arising, directly or indirectly, from any use of this report or its contents.
25. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well as go up and you may not get back the original amount invested. Some
securities and/or investments involve substantial risk and are not suitable for all investors.
26. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). Ambit and ACUK may
from time to time render advisory and other services to companies referred to in this Report and may receive compensation for the same.
27. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or in related investments) or may sell them or buy them from clients on a principal
to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.
28. Ambit and ACUK may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this report you agree to be bound by the foregoing limitations. In the normal course
of Ambit and its affiliates business, circumstances may arise that could result in the interests of Ambit conflicting with the interests of clients or one clients interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified,
managed and clients interests are protected. However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.

Additional Disclaimer for U.S. Persons

29. The research report is solely a product of AMBIT Capital
30. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report
31. Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (Enclave).
32. Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports.
33. The research analyst(s) preparing the email / Research Report/ attachment 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.
34. This report is prepared, approved, published and distributed by the Ambit Capital located outside of the United States (a non-US Group Company). This report is distributed in the U.S.by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of Ambit Capital only to
major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the Exchange Act)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected
through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). In order to receive any additional information about or to effect a transaction in any security or financial instrument mentioned herein, please contact a registered representative of Enclave
Capital LLC.
35. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securities.
36. This document does not constitute an offer of, or an invitation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources,
which Ambit Capital or its Affiliates consider to be reliable. None of Ambit Capital accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein
are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to
significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions.

Disclosures
29. The analyst (s) has/have not served as an officer, director or employee of the subject company.
30. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities.
31. All market data included in this report are dated as at the previous stock market closing day from the date of this report..

Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her
compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report.

Copyright 2017 AMBIT Capital Private Limited. All rights reserved.

Ambit Capital Private Limited Pg 27 Confidential