AMBIT INSIGHTS

16 December 2016
DAILY

Thematic
Strategy
Beware of the ‘Zone of Darkness’!
(Click here for detailed note)

Updates
Strategy
Ten interesting things that we read this week

Analyst Notes: GCPL: Headwinds from Demonetisation; reiterate Top SELL

Ritesh Vaidya, CFA, +91 22 3043 32462
Management held a conference call on the impact of demonetisation on India
business. We differ with GCPL’s view on some key points. (a) Management said
wholesale business will come back in new format (more tax complaint) and GCPL will
not support wholesale channel by giving them extra margin. Our view: given GCPL’s
higher dependence on wholesale channel (45-50% of sales) than Dabur (35-40%), Please refer to our website for
GCPL would have to support wholesale and take a 40-50bps margin impact. (b) complete coverage universe
Management plans to increase direct distribution. Our view: as per our calculation,
GCPL’s sales per month from indirectly serviced stores is a fraction of what HUL and http://research.ambitcapital.com
ITC generate, making it economically infeasible for it to reach these stores directly. (c)
Management expects to gain market share in hair colour from unorganised players.
Our view: this seems tough given the over 50% price differential between GCPL and
unorganised players. Reiterate top SELL, with TP of Rs1,150 (22% downside).
Source: Ambit Capital research
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Please refer to the Disclaimers at the end of this Report.
 Strategy
THEMATIC ACCOUNTING December 16, 2016

Beware of the ‘Zone of Darkness’! Case studies featured in this report

Company name Pg. no.
The accounting quality of India Inc. remains lower than its global peers.
Examples of companies getting
Instances of alleged accounting malpractices have only increased over penalised on our model
the last couple of decades. GTB, Satyam and Reebok India are associated 8K Miles 9
with some of the biggest accounting malpractices that have shaken the
Omkar Speciality Chemicals 10
Indian markets from time to time. Given that sub-par accounting quality
Biocon 11
is profoundly damaging for investment returns, forensic accounting has
played a pivotal role in shaping our investment philosophy over the past Tata Chemicals 12
few years. With all major listed Indian companies having published their Linde India 12
FY16 annual reports, we present this year’s edition of our annual Tanla Solutions 13
accounting thematic. We reiterate that for meaningful investment
Godrej Consumer 13
returns, the ‘Zone of Darkness’, the bottom three deciles of our
UPL 14
accounting framework, should be avoided at all costs.
Wockhardt 15
Quantifying accounting quality
Balkrishna Inds. 16
We use 11 financial ratios across four categories of accounting checks – P&L mis-
statement, balance sheet mis-statement, cash pilferage and audit quality – to Sequent Scientific 16
rank the largest 1300 listed companies (ex BFSI; with market-cap greater than Unitech 17
Rs1bn) on their accounting quality. Note, however, that whilst these aggressive Other subjective checks
accounting policies raise red flags, they may not necessarily imply fraud. Glenmark Pharma 33
Avoiding the ‘Zone of Darkness’ Arshiya 34
Analysis of long-term (i.e. six years) as well as short-term (last 12 months) share Lanco Infra. 34
price returns of deciles constructed on the basis of accounting quality suggests Crompton Greaves 35
accounting quality is a critical hygiene factor, the lack of which is severely
In-depth case studies
detrimental to portfolio returns. The bottom three deciles, D8, D9 and D10, have
been massive underperformers and are to be avoided at all costs. Emerging IT Solutions provider 38
Top Indian auditors 37
The three zones on accounting quality
Source: Ambit Capital research
30%
25% 'Zone of Safety'
performance (Nov '10
Median share price

20% 'Zone of
15% Pain'
to Nov '16)

'Zone of THIS NOTE CANNOT BE USED BY THE MEDIA

10% Darkness' IN ANY SHAPE OR FORM WITHOUT PRIOR
5% CONSENT FROM AMBIT CAPITAL.
0%
CASE STUDIES FEATURED IN THIS NOTE ARE
-5% D1 D2 D3 D4 D5 D6 D7 D8 D9 D10 FOR ILLUSTRATIVE PURPOSES ONLY AND
-10% MAY NOT NECESSARILY IMPLY ANY ILL-
INTENT ON THE PART OF THE COMPANY IN
Accounting score based deciles QUESTION.

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on
annual financials over FY11-16; stock price performance is from November 2010 to November 2016

Accounting quality especially merits attention at this critical juncture

As ‘business as usual’ gets severely hampered by the ongoing demonetisation-
driven disruption, we believe several promoters would resort to more and more
creative ways to flatter their books. At this critical juncture, investors need to be
much more vigilant whilst investigating the quality of accounts of any company Research Analysts
and, hence, our accounting model should be helpful in this regard. Karan Khanna, CFA
How can clients access our forensic model? +91 22 3043 3251
Clients can now use our ‘HAWK’ platform (click here) to screen the entire listed karan.khanna@ambit.co
universe on the basis of accounting quality. For clients interested in their portfolio
Nitin Bhasin
heatmaps, we can also provide an accounting heatmaps of their portfolio within
five working days of receiving requests if the constituent stocks are in our +91 22 3043 3241
accounting model. Finally, for a more detailed analysis, we also conduct nitin.bhasin@ambit.co
extensive bottom-up company-specific bespoke research for clients.
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
 AMBIT INSIGHTS

Strategy Quick Insight

Ten interesting things that we read this week
Analysis
At Ambit we spend a lot of time reading articles that are not directly relevant News Note 
to Indian stocks. However, since the Indian economy is now umbilically linked
to its global counterparts, the articles that we come across have relevance for Meeting Note
Indian stocks and the Indian economy. In that context, this report contains the
ten most interesting pieces that we read this week.
1) The Thucydides Trap: Are the U.S. and China Headed for War? [Source: the
Atlantic] (https://goo.gl/hwMll7)
 In 1914, few could imagine slaughter on a scale that demanded a new category:
world war. When the war ended four years later, Europe lay in ruins: the kaiser
gone, the Austro-Hungarian Empire dissolved, the Russian tsar overthrown by the
Bolsheviks, France bled for a generation, and England shorn of its youth and
treasure. A millennium in which Europe had been the political centre of the world
came to a crashing halt. The defining question about global order for this
generation is whether China and the United States can escape Thucydides’s Trap.
The Greek historian’s metaphor reminds us of the attendant dangers when a
rising power rivals a ruling power—as Athens challenged Sparta in ancient
Greece, or as Germany rose to rival Britain a century ago. Most such contests
have ended badly, often for both nations. In 12 of 16 cases over the past 500
years, the result was war. When the parties avoided war, it required huge, painful
adjustments in attitudes and actions on the part not just of the challenger but also
the challenged.
 Based on the current trajectory, war between the United States and China in the
decades ahead is not just possible, but likely. Moreover, current underestimations
and misapprehensions of the hazards inherent in the US-China relationship
contribute greatly to those hazards. A risk associated with Thucydides’s Trap is
that business as usual—not just an unexpected, extraordinary event—can trigger
large-scale conflict. When a rising power is threatening to displace a ruling power,
standard crises that would otherwise be contained, like the assassination of an
archduke in 1914, can initiate a cascade of reactions that, in turn, produce
outcomes none of the parties would otherwise have chosen. War, however, is not
inevitable. Four of the 16 cases in our review did not end in bloodshed. Those
successes, as well as the failures, offer pertinent lessons for today’s world leaders.
 Thucydides had said, ”It was the rise of Athens, and the fear that this inspired in
Sparta, that made war inevitable.” While others identified an array of contributing
causes of the Peloponnesian War, Thucydides went to the heart of the matter,
focusing on the inexorable, structural stress caused by a rapid shift in the balance
of power between two rivals. He identified two key drivers of this dynamic: the
rising power’s growing entitlement, sense of its importance, and demand for
greater say and sway, on the one hand, and the fear, insecurity, and
determination to defend the status quo this engenders in the established power,
on the other. While Thucydides chronicled objective changes in relative power, he
also focused on perceptions of change among the leaders of Athens and Sparta—
and how this led each to strengthen alliances with other states in the hopes of
counterbalancing the other. But entanglement runs both ways. When conflict
broke out between the second-tier city-states of Corinth and Corcyra (now Corfu),
Sparta felt it necessary to come to Corinth’s defence, which left Athens little choice
but to back its ally. The Peloponnesian War that followed ruined both states and Research Analysts
left Greece vulnerable to the Persians. Prashant Mittal, CFA
prashant.mittal@ambit.co
 As the earlier wars prove, however unimaginable conflict seems, no matter how Tel: +91 22 3043 3218
catastrophic the potential consequences for all actors, however deep the cultural
Saurabh Mukherjea, CFA
empathy among leaders, and however economically interdependent states may
saurabh.mukherjea@ambit.co
be—none of these factors is sufficient to prevent war. The pre-eminent Tel: +91 22 3043 3174
geostrategic challenge of this era is not violent Islamic extremists or a resurgent
Russia. It is the impact that China’s ascendance will have on the US-led

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international order, which has provided unprecedented great-power peace and

prosperity for the past 70 years. As Singapore’s late leader, Lee Kuan
Yew, observed, “The size of China’s displacement of the world balance is such that
the world must find a new balance. It is not possible to pretend that this is just
another big player. This is the biggest player in the history of the world.” Everyone
knows about the rise of China. Few of us realise its magnitude. Never before in
history has a nation risen so far, so fast, on so many dimensions of power. To
paraphrase former Czech President Vaclav Havel, all this has happened so rapidly
that we have not yet had time to be astonished.
2) China’s liquidity flood stirs memories of the Mongols and Mao [Source:
Financial Times] (https://goo.gl/TO9qGf)
Text for google: Today, debts are piling up as quickly as the country generates
 At intervals in their history, Chinese rulers have succumbed to the temptation to
pay off spiralling debts simply by printing money. Inflationary scourges ravaged
dynasty after dynasty, with both the Mongols and Mao Zedong’s Communists
seizing power in a country eviscerated by depreciated paper. Such episodes still
echo in Beijing as the PBOC seeks to control its latest bout of monetary
exuberance. The current tussle to ward off a financial crisis pits the world’s most
powerful authoritarian system against the propensity of money to resist control.
China’s problem this time is not inflation, at least not yet. It is rather that Beijing
has again sent its printing presses into overdrive, creating what is almost certainly
the biggest pool of domestic liquidity in history to help stimulate its economy and
finance a crushing debt burden. The danger is that if the renminbi loses
value internally or gushes out of China, a wave of unpaid debts could
precipitate a crisis.
 The dimensions of China’s liquidity splurge are startling. Ousmène Jacques
Mandeng, formerly with the IMF, has calculated that between 2007 and 2015
China created 63%, or $16.1trn, of the growth in the world’s supply of money.
The nation now has more money coursing through the arteries of its economy
than the eurozone and Japan combined — and almost as much as the USA and
the eurozone combined. This effusion of liquidity presents as many problems as it
promises to resolve. The main issue is that debts are piling up almost as fast as
China generates money to service them, creating a “debt funding bubble”.
 The risk is seen mainly in the form of a “madcap proliferation” of flaky financial
institutions that lend out money which they raised by issuing debt. The potential
for something to go wrong is considerable among a “chaotic hodgepodge of
banks and non-banks” that are fuelling China’s credit boom. Officials also see
another source of vulnerability. They fear that Chinese corporations and citizens
will decide en masse that they would be better off taking their money abroad to
buy companies or invest in gold, stocks or real estate. Such capital flight could
sap the liquidity that is required to keep China’s bubble from popping. These
concerns explain Beijing’s plans to restrict outbound foreign investment.
 Chinese banks are now on an average four times larger today than they were just
eight years ago due to the splurge of easy money. But riskier is the fact that
several of its mid-sized banks rely for funding on so-called wholesale operations
— a euphemism for issuing debt to re-lend. Interestingly, the folly inherent in such
a form of alchemy has been understood for at least 800 years. Ye Shi, a Song
dynasty adviser, warned that issuing “kongqian” — or “empty money” that is not
backed by assets — would stoke inflation and reduce people’s incomes. His
emperor did not listen, triggering economic chaos that enfeebled China before
the Mongol invasion.
3) Game changers: The importance of puzzles [Source: Financial Times]
(https://goo.gl/sBbNUs)
Text for google: Euler’s analysis has been fruitful in chemistry
 English economist Tim Harford shares his views on why puzzles make for not only
great family entertainment but are also potential grounds for breakthrough
discoveries. Consider the puzzle of the bridges of Königsberg — 18th-century
Königsberg had seven bridges connecting two sides of a river and two large
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islands. The puzzle was: is there a walking route through the city that crosses each
bridge only once? The great mathematician Leonhard Euler was intrigued by the
fact that, despite its apparent simplicity, “neither geometry nor algebra nor even
the art of counting” could solve it. And so Euler invented an entirely new branch of
mathematics, graph theory. Euler’s graph theory has been enormously fruitful in
chemistry, physics, sociology and, of course, computer science. The internet relies
on Euler’s analysis. And it all started with a brain-teaser.
 Perhaps, it’s no surprise that a puzzle might lead to a mathematical breakthrough:
after all, puzzles are designed to be intellectual challenges. But other pastimes
have also spurred fresh ideas — for example, gambling. Perhaps the first gambler
to draw inspiration from this vice was the Renaissance mathematician Girolamo
Cardano, who produced the foundations of probability theory. Three-and-a-half
centuries after Cardano died, John von Neumann - one of the driving forces
behind the development of both the atomic bomb and the computer, wanted to
apply mathematics to social sciences — for example, analysing the success or
failure of negotiations, or the formation of alliances. His contention was that a
mathematical theory that could explain life should start by explaining poker. The
result of von Neumann’s musings — first alone, and then with the economist
Oskar Morgenstern — was “game theory”, one of the building blocks of modern
economics and an important tool in evolutionary biology.
 Games that are pure fun have also changed the world of computers. The first
video game that mattered, Spacewar!, was designed in the early 1960s by
enthusiastic students at the MIT who wanted to demonstrate just what the latest
computers could do. And what they could do went way beyond the technical: they
could hijack our attention, trigger Pavlovian responses, even addict us, by
providing a compelling and engaging challenge. The curious compulsion felt by
every PlayStation junkie or Instagram addict was felt first by the players of this
early game.
 Now, researchers at DeepMind, Google’s artificial intelligence outfit, are turning
to computer games to train artificial intelligences. The AI is shown the game
screen, given access to the score and a controller, and then — with no further
information — figures out how to master the game. At first, DeepMind started
with simple games, such as Atari’s Breakout but it has recently moved on to
Starcraft II, a game that requires tactics, military strategy, surprise and economic
planning.
4) Et tu, evolution? [Source: DNA news] (https://goo.gl/Moxk7V)
 Life may not have a purpose but science does, to make our lives more
comfortable. In doing so, scientific intervention has the capacity to change the
course of human evolution. Tools altering human anatomy is but one instance.
One such intervention set the evolutionary barn on fire. Philipp Mitteroecker and
colleagues, writing in the Proceedings of the National Academy of Sciences, USA,
proposed that the Caesarean section is altering the course of human evolution by
helping babies that would otherwise succumb to the process of childbirth, survive.
The scientists claim this evolutionary selection has resulted in an astonishing 10-
20% increase in fetopelvic disproportion. To be sure, Mitteroecker and his friends
aren’t the first to suggest this. Writing in the American Journal of Obstetrics and
Gynaecology in 2011, Dr Joe Walsh had proposed an evolutionary fallout of the
C-section. “Maternal pelvis can get smaller over time, and fetal birthweight can
get greater over time, because there is now nothing to limit these changes,” he
wrote.
 To understand this hypothesis, one needs to first comprehend the evolution of two
of our most prominent anatomical features – brain and pelvis. The human brain
has evolved remarkably quickly. In a matter of 2.5 million years it has tripled in
size. Scientists believe much of the new neural volume is utilised for social
cognition, empathy, and language. But with large brains comes the awkward
problem of them having to pass through the constricted birth canal and a pelvis
that appears hopelessly ill-designed for delivering a baby. The widening of the
pelvis, and, consequently, of the birth canal, would be a natural evolutionary

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response to the enlargement of the brain that has to pass through it. However, it
is not as simple. The widening would cause havoc with our gait and bipedalism,
not to mention that it will severely affect heat dissipation, another factor
responsible for pelvic evolution. We are therefore stuck in a compromise. Fifty
years ago, roughly 30 babies in 1000, found it physically impossible to emerge
from the birth canal. Today that figure stands at 36.
 Moreover, C-section has not only allowed heavier babies with large heads to
survive, it also permits the passing of genes that govern pelvic size. A mother with
a small pelvis who has just given birth to a baby with a large brain has also
passed to it her genes responsible for the small pelvis. Logical evolutionary
progression would suggest that the brain would get larger and larger and the
pelvis would either remain the same or become smaller and so there will come a
time when natural birth would become impossible and C-section the only viable
option. Interestingly, while C-section might alter the course of evolution, nature
has its own way of getting back. It turns out that a baby’s primary defence against
infections and allergies are the microbes it receives while being squeezed through
the vagina and into the world. Vaginal fluid contains an astounding diversity of
microbial flora that C-section babies miss out on. Indeed, scientists are now of the
opinion that vaginal fluid is as crucial as mother’s milk, so much so that doctors in
the West have begun bathing the newborn with it.
 In the coming million-odd years, neuroscientists believe the brain size would be
double of what it is today. The pelvis, on the other hand, would not change much,
unless we reject bipedalism for quadrupedalism. The onus of propagating the
human race, therefore, would rest squarely on surrogate mothers with
exceptionally wide pelvis or, more likely, the C-section. Unless, that is, engineers
and biologists get together and create the perfect artificial womb. Who knows,
they might yet evolve to do precisely that.
5) Supply-side guru Arthur Laffer hails Trump’s tax policy [Source: Financial
Times] (https://goo.gl/1rznQT)
Text for google: Former Ronald Reagan acolyte says cuts will lead to economic nirvana
 Arthur Laffer, the man who claims credit for Ronald Reagan’s tax cuts, says similar
policies following Donald Trump’s election will lead to economic “nirvana” in the
USA. The supply-side guru claims the president-elect’s policies will generate a
much improved economic outlook through tax cuts. He adds that Mr Trump will
moderate his tendencies towards protectionism and calls on the Federal Reserve
chair, Janet Yellen, to “keep her monkey paws off my economy”. Mr Laffer, a
member of Ronald Reagan’s economic policy advisory board throughout his
presidency, also says Mr Trump should welcome a strong dollar and not worry
about a growing trade deficit.
 The 76-year-old — who gave his name to the “Laffer curve” that links tax rates to
revenues — says he is close to many of the president-elect’s economic advisers
and picks for cabinet positions. Two of Mr Trump’s most senior economic
appointments subscribe to the “Laffer curve” effect, which predicts that lower tax
rates will boost revenues. Steven Mnuchin, who has been chosen as Treasury
secretary, said last week that “we think by cutting corporate tax rates we will
create huge economic growth”. Wilbur Ross, the pick for commerce secretary,
insists that lower tax rates will increase revenues and “this administration will
prove it”. On his part, as is expected, Mr Laffer has no doubts. “I know this will
come as a shock to you, but if you tax people to work and pay people who don’t
work, don’t be surprised if you get a lot of people not working…If you tax profits
at lower rates, the benefits of productivity will be greater after tax and there will
be more productivity” he says.
 Mr Laffer says the best part of his strategy is that there is no limit to the dynamic
gains from lowering taxes. “Make sure you understand this is the beginning and
the process never ends. Just when you think you’ve hit nirvana, something else
goes on and you start the process all over again,” he adds. Interestingly, tax rates
in most countries rose throughout the 20th century, which was by far the best
century in economic history, Mr Laffer is unbowed. “When [taxes] went up
[countries] did very poorly and when they went down, they did very well,” he says.
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Furthermore, the poor will gain, he insists, and whispers that incomes will “trickle
down” from rich to poor — a conservative argument long maligned by liberals.
 Trade is the one area in which Mr Laffer is concerned about the president-elect’s
grip on economics, saying: “I don’t know if I’ve ever seen a politician who’s ever
understood trade”. He adds “I don’t believe Donald Trump is nearly as
protectionist as his quotes,” and urges the president-elect not to worry about the
US trade deficit. “Which would you rather have? Capital lined up on our borders
trying to get into our country or trying to get out of our country?” Since foreigners
need to acquire dollars by selling goods and services to the USA, he says, there
are big benefits in a trade deficit. “You can’t have foreign investment without a
trade deficit,” he says. He also supports Trump’s criticism of Ms Yellen’s
chairmanship of the Federal Reserve, saying central bankers have got their
strategies of ultra-loose monetary policy wrong. He thinks low interest rates fail to
give people incentives to supply capital for housing and businesses, thereby
constraining growth.
6) George Lucas: The Edison of the movie industry [Source: WSJ]
(https://goo.gl/eoEopN)
 Although movie critics have never considered George Lucas an auteur, for untold
millions of “Star Wars” fans he remains an unrivaled fount of entertainment. Peter
Jackson, director of the “Lord of the Rings” trilogy, has said that Mr. Lucas is “the
Thomas Edison of the modern film industry.” The triumph of “American Graffiti,”
his second feature, in 1973, made Mr. Lucas a millionaire at the age of 28. “Star
Wars” (1977) and its prequels and sequels have collected some $6 billion at the
global box office, and the four films featuring Indiana Jones have earned almost
$2 billion. Ancillary income, from DVDs, Blu-ray, television, merchandising, has
poured like a torrent into the coffers of Lucasfilm, the private company that he
established in 1971. In 2012, he sold the company to Disney for $4 billion.
 Brian Jay Jones shows in his new biography, “George Lucas: A Life” that before
“American Graffiti,” Mr. Lucas had demonstrated his talent with a film that even
today stands comparison with the best sci-fi movies. “THX 1138” made
imaginative use of locations like San Francisco’s subway tunnels to explore a
dystopian world in which Robert Duvall was on the run from sinister robotic
pursuers. Warner Bros. had faith in the project until they saw the first cut and all
but washed their hands of a film that seemed just too cool and detached to follow
on the success of “Easy Rider,” which had shown that low-budget productions,
directed by a savvy new wave of neophytes, could score at the box office. Mr.
Lucas later lamented that this had been his “one chance to make an avant-garde
movie.”
 Although sometimes mocked by his contemporaries for his laborious approach to
screenwriting (the script for “Star Wars” would evolve painfully over two years),
Mr. Lucas developed for “Star Wars” a prodigious range of characters and
settings. He had always loved make-believe, he recalled, “but it was the kind of
make-believe that used all the technological toys I could come by, like model
airplanes and cars.” Mr. Lucas earned respect as a shrewd and unsentimental
negotiator. “I don’t borrow money,” he would say flatly, and his work ethic was
second to none. From the outset, he foresaw the potential of merchandising, and
by the late 1970s virtually every child in America and around the world would
cherish his or her “Star Wars” figurines. In 1975, he established Industrial Light &
Magic, a company that has produced the special effects not just for Mr. Lucas’s
films but also for many Oscar-winning titles of the next 20 years, including
“Jurassic Park.” He believed in the potential of computer games and perhaps
regretted having sold his brainchild Pixar to Steve Jobs in 1986, far too early. He
embraced the digital era, even predicting the advent of pay-per-view and online
streaming.
 Mr. Lucas’s single-minded personality meant that work almost always took
precedence. Fiercely independent, he was quite simply “the boss,” refusing to
compromise with studio demands. He has had “an inherent ability to hire the right
people, and a preternatural knack for asking the right questions.”

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7) Robot proofing your child’s career is a waste of time [Source: Financial

Times] (https://goo.gl/AdX8BW)
Text for google: Automation is displacing jobs in ways we can only imagine
 In preparing a child for his/her professional future, most parents start from their
own experiences — professions and trades run in families. A study by Facebook
this year found “people within a family are proportionally more likely to choose
the same occupation”. Yet the research also found that while “a son who has a
father in the military is five times more likely to enter the military, just one in four
sons of a military professional does so”. In other words, most children strike their
own path.
 Besides encouraging them into their own lines of work, how else should parents
prepare children for employment? Teachers and businesses urge young people to
future-proof themselves by studying science, technology, engineering or maths
(STEM). Toy manufacturers and entrepreneurs have picked up on the “stem” trend.
However, the author is not convinced everyone can or should be a coder. As
Martin Ford, author of The Rise of the Robots, pointed out, routine software
development is being automated everywhere.
 She opined that perhaps parents should be directed instead. Like Chris Puckett
and his parents. Mr Puckett has made a fantastic career and vast amounts of
money as an esports commentator, hosting competitive video gaming at live
events and on screen. His father is a paper salesman, his mother, a receptionist at
the local church. They worried about his decision to pack in his degree to pursue
what seemed to them a flaky career. To allay their fears, Mr Puckett invited his
parents to tournaments. Now they are his biggest cheerleaders. Some take it
further than the Pucketts. Marc Freedman, founder of a social enterprise that
advocates second careers in later working life, reports growing numbers of
parents following their children into their chosen careers.
8) Amos Tversky - An amazing man! [Source: Cover Street Capital]
(https://goo.gl/yqXx9f)
According to the new book by Michael Lewis, “The Undoing Project,” renowned
mathematical psychologist and a collaborator of Daniel Kahneman, Amos Tversky
kept these thoughts on a piece of paper by his desk:
 People predict by making up stories.
 People predict very little and explain everything.
 People live under uncertainty whether they like it or not.
 People believe they can tell the future if they work hard enough.
 People accept any explanation as long as it fits the facts.
 The handwriting was on the wall. It was just the ink that was invisible.
 People often work hard to obtain information they already have and avoid new
knowledge.
 Man is a deterministic device thrown into a probabilistic Universe. In this match,
surprises are expected.
 Everything that has already happened must have been inevitable.
 A part of good science is to see what everyone else can see but think what no one
else has ever said.
 The difference between being very smart and very foolish is often very small.
 So many problems occur when people fail to be obedient when they are supposed
to be obedient, and fail to be creative when they are supposed to be creative.
 The secret to doing good research is always to be a little underemployed. You
waste years by not being able to waste hours.
 It is sometimes easier to make the world a better place than to prove you have
made the world a better place.

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9) India lags peers in its bid towards a cashless economy [Source: Livemint]
(https://goo.gl/jHj7rQ)
 The last couple of years have seen a number of initiatives to facilitate cashless
transactions in India. However, the latest available internationally comparable
data shows why moving towards a cashless economy remains a Herculean
challenge for India. Data recently released by the Bank for International
Settlements (BIS) shows that India lags far behind both emerging market and
developed peers in the move towards a cashless economy. Non-cash payment
transactions in India amounted to only 11 per inhabitant in 2015, much lower
than other BRICS economies, with China reporting 17 such transactions per
inhabitant in 2014. The average non-cash retail transactions per inhabitant was
355 in the UK and 403 in the USA. It is not surprising then that India’s cash to
GDP ratio of 11% is among the highest in the world. The BIS report showed that
the only economies with a higher or equal ratio of cash to GDP were Eurozone,
Japan, Hong Kong and Switzerland, all of which have interest rates near zero. The
fact that countries with near-zero interest rates will deal more in cash is
reasonable given that low interest rates reduce the cost of holding cash.
 According to BIS, debit cards accounted for around 70% of the volume of non-
cash transactions in India. However, in terms of value, the leader in non-cash
payment transactions has been credit transfers between accounts, accounting for
89% of the value of all reported non-cash transactions in India. While debit cards
have been the main instrument aiding India’s move away from cash, an
international comparison shows that we still have a long way to go in terms of the
penetration of debit cards. In India, one in two people have a debit card, which
also typically functions as an automated teller machine (ATM) card. While the
number of cards per person in India is low by global standards, in terms of the
number of withdrawals per card, India stands in the middle rung among the major
economies of the globe. Withdrawals per card in India are the highest among
emerging market economies for which data are available. More importantly, the
economies which show higher withdrawals per card than India are mostly those
countries where interest rates are near zero or sometimes even sub-zero. In fact,
Saudi Arabia, which shows the highest number of withdrawals per card, also has
a relatively low policy interest rate of 2%. Thus, Indian cardholders have a high
propensity to withdraw cash despite relatively higher interest rates, which is most
likely a reflection of the high cash usage in the Indian economy.
 There are around 165 ATMs per million people in India, the lowest in the BIS
sample of major economies and much behind other BRICS economies. However,
the density of ATMs per geographical area is relatively high in India, when
compared to other emerging market (EM) economies. With 62 ATMs per thousand
square kilometres, India’s density is second only to China’s 92 ATMs per thousand
kilometres among the major EMs. However, India’s ATM network also has to cater
to a relatively high population density.
 India also lags major economies in terms of the availability of Point of Sale (PoS)
terminals which process cashless payments. With a large section of population still
lacking access to formal banking services, one way to transition towards a
cashless economy would be to increase the use of mobile-based prepaid
instruments (PPI) or e-money products, in which India has shown signs of
progress. According to the BIS, India clocked the fastest growth, both in terms of
number and the value of e-money transactions in 2015, among the twenty-three
major economies studied by BIS. However, India’s growth is from a low base and
the value of e-money transactions as yet amounts to only a minuscule 0.05% of all
non-cash retail transactions, while accounting for 5.5% of the volume.

10) Google vs. the EU explains the digital economy [Source: HBR]
(https://goo.gl/VN9TOZ)
 Google’s antitrust battle with the European Union seems to be heating up. In
recent weeks, the company has rebutted the European Commission’s
charges that: (a) it uses its internet search engine to give its shopping services an
unfair advantage over rivals; (b) it improperly uses its AdSense ad-placement

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

service to restrict third-party websites from displaying search advertisements from

Google’s competitors; and (c) it unfairly exploits the dominant position of its
Android operating system with smartphone manufacturers and mobile network
operators. Google’s claim is that EU authorities should adopt a US perspective
given that competition in the mobile space is radically different from that in
traditional markets.
 Companies like Google operate simultaneously in multiple ecosystems, as do their
competitors. As such, any analysis of competitive dynamics must be done across
ecosystems — something the European Union hasn’t done. Instead, it has just
focused on the mobile-operating-system market. Google, Apple, Amazon, and
Facebook are simultaneously competing and co-operating in multiple fronts, a
phenomenon we call interlocking ecosystems. Since mobile devices play an
important role in making it possible for these interlocking ecosystems to work
smoothly, it is critical to understand the mobile industry stack.
 The typical stack comprises layers of functionality, each of which delivers a unique
value proposition for customers. Every layer of the stack depends on the layer
below to deliver its promised function. Since the layers communicate
using application program interfaces (APIs) provided by vendors operating in the
layer below, those vendors that dominate one layer can use their power to control
how the layer above develops. In a notorious instance, Microsoft reportedly hoped
to “cut off Netscape’s air supply” by threatening to withhold crucial technical
support from Intel. When a company uses its own products for each layer (e.g.,
Apple), the industry stack is vertically integrated. When different suppliers provide
the required functionality for each layer, the leadership of the stack is divided.
Android is Google’s open-source operating system (OS), which means that it can
be adopted by any device manufacturer and modified to provide different
functionality. As a result, 90% of device manufacturers in Europe use Android as
their OS. Some modify the OS; in those cases, it is called an Android fork.
 The next layer of the stack, the application layer, is the most important for the
majority of today’s consumers. People pay for, download, and use third-party
applications via Google Play Store. Google requires mobile-device manufacturers
to sign an “anti-fragmentation agreement,” which states that manufacturers that
want to pre-install Google proprietary apps (including Google Play Store and
Google Search) on its devices cannot include Android forks on those same
devices. Consequently, device manufacturers that adopt the Google stack must
bundle both Google Search and Google Play, which essentially locks out the other
search engine providers and store fronts. In other words, from a stack perspective,
Google provides free functionality at a lower level of the stack and makes up for it
by charging for the higher-level functionality. To subsidise the free Android OS,
Google has ensured that consumers provide data and exclusively use its search
application (supported by paid advertising) in the higher layer.
 Google’s argument relies heavily on the prevailing American perspective of
competition policy. In the United States, legal precedents, as well as enforcement
efforts, approach competition policy with consumer welfare as its lodestar. This
approach argues that promoting efficiency with which firms operate leads to
enhanced consumer welfare since improved efficiency leads to lower costs which
in turn leads to lower prices. In that context, preserving competition in the
marketplace is only a means to an end. Unfortunately for Google, the EU antitrust
enforcers have a slightly different perspective. They, too, start off with consumer
welfare as the long-run goal, but they insist that moves by rivals that could be
efficiency enhancing in the short run could be detrimental in the long run,
especially if those moves could thwart technological innovation and competition.
In other words, EU authorities put more stress on what one might call dynamic
efficiency in markets. The differing US and EU antitrust perspectives can lead to
different outcomes when confronted with the same set of facts. For example, in
the case of the proposed merger between GE and Honeywell, the US antitrust
authorities gave it a go-ahead based on projected cost efficiencies whereas the
EU authorities denied it since it has the potential to lower competition in the long
run.

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 saurabh.mukherjea@ambit.co
Pramod Gubbi, CFA Head of Equities (022) 30433124 pramod.gubbi@ambit.co
Research Analysts
Name Industry Sectors Desk-Phone E-mail
Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 nitin.bhasin@ambit.co
Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 aadesh.mehta@ambit.co
Abhishek Ranganathan, CFA Retail (022) 30433085 abhishek.r@ambit.co
Anuj Bansal Mid-caps (022) 30433122 anuj.bansal@ambit.co
Aditi Singh Economy / Strategy (022) 30433284 aditi.singh@ambit.co
Ashvin Shetty, CFA Automobile (022) 30433285 ashvin.shetty@ambit.co
Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 bhargav.buddhadev@ambit.co
Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 deepesh.agarwal@ambit.co
Dhiraj Mistry, CFA Consumer (022) 30433264 dhiraj.mistry@ambit.co
Gaurav Khandelwal, CFA Automobile (022) 30433132 gaurav.khandelwal@ambit.co
Girisha Saraf Mid-caps / Small-caps (022) 30433211 girisha.saraf@ambit.co
Karan Khanna, CFA Strategy (022) 30433251 karan.khanna@ambit.co
Mayank Porwal Retail (022) 30433214 mayank.porwal@ambit.co
Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 pankaj.agarwal@ambit.co
Paresh Dave, CFA Healthcare (022) 30433212 paresh.dave@ambit.co
Parita Ashar, CFA Metals & Mining / Aviation (022) 30433223 parita.ashar@ambit.co
Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 prashant.mittal@ambit.co
Rahil Shah Banking / Financial Services (022) 30433217 rahil.shah@ambit.co
Rakshit Ranjan, CFA Consumer (022) 30433201 rakshit.ranjan@ambit.co
Ravi Singh Banking / Financial Services (022) 30433181 ravi.singh@ambit.co
Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 ritesh.gupta@ambit.co
Ritesh Vaidya, CFA Consumer (022) 30433246 ritesh.vaidya@ambit.co
Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 ritika.mankar@ambit.co
Ritu Modi Automobile (022) 30433292 ritu.modi@ambit.co
Sagar Rastogi Technology (022) 30433291 sagar.rastogi@ambit.co
Sudheer Guntupalli Technology (022) 30433203 sudheer.guntupalli@ambit.co
Sumit Shekhar Economy / Strategy (022) 30433229 sumit.shekhar@ambit.co
Utsav Mehta, CFA E&C / Industrials (022) 30433209 utsav.mehta@ambit.co
Vivekanand Subbaraman, CFA Media (022) 30433261 vivekanand.s@ambit.co
Sales
Name Regions Desk-Phone E-mail
Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 sarojini.r@ambit.co
Dharmen Shah India / Asia (022) 30433289 dharmen.shah@ambit.co
Dipti Mehta India (022) 30433053 dipti.mehta@ambit.co
Krishnan V India / Asia (022) 30433295 krishnanv@ambit.co
Nityam Shah, CFA Europe (022) 30433259 nityam.shah@ambit.co
Parees Purohit, CFA UK (022) 30433169 parees.purohit@ambit.co
Punitraj Mehra, CFA India / Asia (022) 30433198 punitraj.mehra@ambit.co
Shaleen Silori India (022) 30433256 shaleen.silori@ambit.co
Singapore
Praveena Pattabiraman Singapore +65 6536 0481 praveena.pattabiraman@ambit.co
Shashank Abhisheik Singapore +65 6536 1935 shashankabhisheik@ambitpte.com
USA / Canada
Ravilochan Pola – CEO Americas +1(646) 793 6001 ravi.pola@ambitamerica.co
Hitakshi Mehra Americas +1(646) 793 6002 hitakshi.mehra@ambitamerica.co
Production
Sajid Merchant Production (022) 30433247 sajid.merchant@ambit.co
Sharoz G Hussain Production (022) 30433183 sharoz.hussain@ambit.co
Jestin George Editor (022) 30433272 jestin.george@ambit.co
Richard Mugutmal Editor (022) 30433273 richard.mugutmal@ambit.co
Nikhil Pillai Database (022) 30433265 nikhil.pillai@ambit.co

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

Biocon Ltd (BIOS IN, NOT RATED)

600
500
400
300
200
100
0
Dec-12

Feb-13

Apr-13

Dec-13

Feb-14

Apr-14

Dec-14

Feb-15

Apr-15
Jun-13

Aug-13

Oct-13

Jun-14

Aug-14

Oct-14

Jun-15

Aug-15

Oct-15
BIOCON LTD
Source: Bloomberg, Ambit Capital research

8K Miles Software Services Ltd (KMSS IN, NOT RATED)

1,000
800
600
400
200
0
Dec-13

Feb-14

Apr-14

Dec-14

Feb-15

Apr-15

Dec-15

Feb-16

Apr-16
Jun-14

Aug-14

Oct-14

Jun-15

Aug-15

Oct-15

Jun-16

Aug-16

Oct-16
8K Miles Software Services Ltd

Source: Bloomberg, Ambit Capital research

Omkar Speciality Chemicals Ltd (OSCL IN, NOT RATED)

300
250
200
150
100
50
0
Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Omkar Speciality Chemicals Ltd

Source: Bloomberg, Ambit Capital research

Tata Chemicals Ltd (TTCH IN, NOT RATED)

700
600
500
400
300
200
100
0
Dec-13

Feb-14

Apr-14

Dec-14

Feb-15

Apr-15

Dec-15

Feb-16

Apr-16
Jun-14

Aug-14

Oct-14

Jun-15

Aug-15

Oct-15

Jun-16

Aug-16

Oct-16

Tata Chemicals Ltd

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

Linde India Ltd (LIIL IN, NOT RATED)

500
400
300
200
100
0
Dec-13

Dec-14

Dec-15
Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16
Linde India Ltd

Source: Bloomberg, Ambit Capital research

Tanla Solutions Ltd (TANS IN, NOT RATED)

70
60
50
40
30
20
10
0
Dec-13

Dec-14

Dec-15
Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Tanla Solutions Ltd

Source: Bloomberg, Ambit Capital research

UPL Ltd (UPLL IN, NOT RATED)

800
700
600
500
400
300
200
100
0
Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

UPL Ltd

Source: Bloomberg, Ambit Capital research

Sequent Scientific Ltd (SEQ IN, NOT RATED)

300
250
200
150
100
50
0
Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Sequent Scientific Ltd

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

Unitech Ltd (UT IN, NOT RATED)

40
30
20
10
0
Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16
Unitech Ltd

Source: Bloomberg, Ambit Capital research

Arshiya Ltd (ARSL IN IN, NOT RATED)

60
50
40
30
20
10
0
Dec-13

Dec-14

Dec-15
Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Arshiya Ltd

Source: Bloomberg, Ambit Capital research

Lanco Infratech Ltd (LANCI IN, NOT RATED)

16
14
12
10
8
6
4
2
0
Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Lanco Infratech Ltd

Source: Bloomberg, Ambit Capital research

Crompton Greaves Ltd (CRG IN, NOT RATED)

100
80
60
40
20
0
Nov-13

May-14

Sep-14

Nov-14

May-15

Sep-15

Nov-15

May-16

Sep-16
Jan-14

Mar-14

Jul-14

Jan-15

Mar-15

Jul-15

Jan-16

Mar-16

Jul-16

Crompton Greaves Ltd

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

Glenmark Pharmaceuticals Ltd (GNP IN, NOT RATED)

1,400
1,200
1,000
800
600
400
200
0
Dec-13

Feb-14

Apr-14

Dec-14

Feb-15

Apr-15

Dec-15

Feb-16

Apr-16
Jun-14

Aug-14

Oct-14

Jun-15

Aug-15

Oct-15

Jun-16

Aug-16

Oct-16
Glenmark Pharmaceuticals Ltd

Source: Bloomberg, Ambit Capital research

Balkrishna Industries Ltd (BIL IN, SELL)

1,400
1,200
1,000
800
600
400
200
0
Sep-14

Sep-15

Sep-16
Nov-13

Jan-14

Mar-14

May-14

Jul-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Balkrishna Industries Ltd

Source: Bloomberg, Ambit Capital research

Wockhardt Ltd (WPL IN, NOT RATED)

2,500
2,000
1,500
1,000
500
0
Dec-13

Dec-14

Dec-15
Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Wockhardt Ltd

Source: Bloomberg, Ambit Capital research

Godrej Consumer Products Ltd (GCPL IN, SELL)

2,000
1,500
1,000
500
0
Nov-13

Mar-14

May-14

Sep-14

Nov-14

Mar-15

May-15

Sep-15

Nov-15

Mar-16

May-16

Sep-16
Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Godrej Consumer Products Ltd

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

Explanation of Investment Rating

Investment Rating Expected return (over 12-month)
BUY >10%
SELL <10%
NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock
POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
Disclaimer
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Additional information on recommended securities is available on request.

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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.
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.

Ambit Capital Pvt Ltd 16 December 2016

 AMBIT INSIGHTS

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 client’s 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.

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.
32. Ambit and/or its associates have received compensation for investment banking/merchant banking/brokering services from Take Solutions Ltd and Omkar Speciality
Chemicals Ltd in the past 12 months.

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 2016 AMBIT Capital Private Limited. All rights reserved.

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Ambit Capital Pvt Ltd 16 December 2016