AFTER THE DUST SETTLES - oliverwyman.com€¦ · AFTER THE DUST SETTLES OPPORTUNITIES FOR INDIAN BANKS IN THE POST-DEMONETISATION WORLD. EXECUTIVE SUMMARY ... bank branches and ATMs

AFTER THE DUST SETTLES OPPORTUNITIES FOR INDIAN BANKS IN THE POST-DEMONETISATION WORLD

EXECUTIVE SUMMARY

In November 2016, the Indian Prime Minister unleashed what has been heralded as one of

the biggest reforms of the Indian economic history – the act of demonetizing currency worth

INR15 TN (US$~200 BN). Since the policy action, the nation has showcased a wide range of

responses – ranging from frustration and chaos to strong sentiment of hope that the action

would lead to a better life for the common man, from applauding the government to taking

such a bold step to writing off the impact of the action as temporary.

In the days after the announcement, bank branches and ATMs became symbolic of the

‘pulse’ of the public reaction. The banking industry also came into focus as the primary

platform for execution of the policy. It seems that Indian banks have successfully

implemented the mammoth task of replacement of old notes. However, the operational

complexities may have taken away attention from the opportunities that banks can realise in

a post-demonetised world.

In this special joint report by Oliver Wyman and Ambit Capital, we take stock of the impact of

demonetisation on the banking sector. Our study shows that there have been clear winners

in the banking sector over the last few months. While the jury is still out on sustainability

of impact that demonetisation has created, we believe it is important to recognise some

critical trends that will influence the strategies of financial services players in the coming

quarters – i) Excess liquidity in banks, ii) Slowdown in consumption resulting in slower

credit demand, iii) Asset value deterioration esp. in real estate and, iv) Faster take up of

digital payments.

We believe that the agenda outlined for Indian banks in Oliver Wyman’s report “Indian

banks: tacking into the wind” has only been accelerated, with demonetisation acting as a

catalyst. It has also necessitated that banks undertake significant further steps to retain and

improve their competitive positioning under the evolving business environment, namely:

1. Shift strategic focus onto liabilities

2. Build advisory platform for masses to capture the shift in asset allocation

3. Adopt ‘digital finance’ as the mechanism to achieve financial inclusion

4. Leverage the wealth of data being created for business decisions and risk management

5. Scout for opportunities for cost reduction due to decrease in cash usage

Demonetisation may cause near-term pain to banks, as they face unexpected balance sheet

challenges in the near term. However, winners in this environment will be differentiated by

the pace of implementing strategic, transformative initiatives in order to position themselves

favourably for the winds of change sweeping through the industry.

Copyright © 2017 Oliver Wyman 1

1. TAKING STOCK OF THE IMMEDIATE, FLEETING IMPACTS OF DEMONETISATION

On 8th November 2016, Prime Minister Narendra Modi unleashed one of the biggest

reforms of Indian economic history – high value currency notes to the tune of INR15 TN

(~US$200 BN) were being withdrawn from circulation. It has been more than three months

now since the measure was implemented. Since the policy action, the nation has showcased

a wide range of responses – ranging from frustration and chaos to strong sentiment of

hope that the action would lead to a better life for the common man, from applauding the

government to taking such a bold step to writing off the impact of the action as temporary.

In the days after the announcement, bank branches and ATMs became symbolic of the

‘pulse’ of the public reaction. The banking industry also came into focus as the primary

platform for execution of the policy. As the final numbers on demonetisation emerge, it is

clear that bank branches managed to successfully implement the large scale operational

challenge posed by the policy action.

Exhibit 1: 97% of demonetised money was deposited in banks and ~60% of it has already been remonetised

8th November 2016

WHAT’S AT STAKE86% of moneyin circulation

₹15.4 TN $227.5 BN=

18th January 2017

~₹14.64 TNDemonetizedcurrencydeposited

₹0.33 TNAmountexchanged

OUT OFCIRCULATION

₹0.33 TNexchanged

BACK INCIRCULATION

₹8.87 TNInfused by RBI

~97% of valueimpacted already

deposited/exchanged

60% of value impacted alreadyback in cash form

TOTAL

US$221.1 BN

TOTAL

INR9.2 TN

TOTAL

US$135.9 BN

TOTAL

₹500 notes₹1000 notes

$$$

28th October 2016

INR14.97 TN

$$$

Note US$ = 67.7 INR

Source RBI Press Release


The demonetisation drive led to sharp changes in a number of indicators related to financial

services across various types of products and players. Our report focuses on the dominant

drivers of banking business i.e. deposits and loan book.

1.1. DEPOSITS

Banks have witnessed an unprecedented surge in deposits post demonetisation. Net

increase in deposits for banks between 28th October and 23rd December was INR5.23 TN

which was almost 2X of deposits received during previous six months of the financial year.

As a result, YoY deposit growth had spiked to 14.5%, in mid-Dec’16, vs. average ~10% YoY

growth before demonetisation – almost 50% increase in the growth rate.

Deposits in no-frills accounts ( Jan-Dhan accounts) have increased by 56% post

demonetisation from INR456 TN to INR710 TN with average balance per account increasing

from INR2,330 to INR3,570. However, the demonetisation move did not significantly attract

previously unbanked customers to open new accounts (only seven million new no-frills

accounts opened on a base of ~300 million no-frills accounts). The implication of the action

has been that it may lead to a more ‘active’ customer base for banks in the future.

There has been a stark difference in the performance of banks in garnering deposits during

the demonetisation drive. Banks that had a larger physical footprint (branch network, ATMs),

e.g. State Bank of India, HDFC Bank, Punjab National Bank, gained a disproportionate share

of deposits compared to others and they now have an advantage in their funding profile.

There have been notable performances from the likes of IndusInd Bank, IDBI Bank and

Kotak Bank.

Exhibit 2: The YoY growth in deposits in the banking sectors Dec’16 has increased by 50%

10%

0%

20%

Jan-15

BANKING Y-O-Y CREDIT GROWTH

15%

5%

POST-DEMONETIZATION IMPACT ON SELECT METRICS

• 36x increase in QoQ growth rate– 27% average CASA in 2Q17 vs. 30% in 3Q17

CASA

• 24x increase in monthly growth rate in deposits– INR89.5 TN in 2Q17 vs. INR3.8 TN in 3Q17

• 5.1% increase in total assets – INR112.3 TN in 2Q17 vs. INR118.1 TN in 3Q17

Deposits

• 7 million new JanDhan accounts between 9 Nov’16 and 28 Dec’16– ~3% increase in the account number

• 53% increase in average balance during thesame period– INR 2331 as on 9 Nov’16 vs. INR 3573 as on

28 Dec’16

JanDhanAccount

Jul-15 Jan-16 Jul-16 Jan-17

Source RBI database


Exhibit 3: Branch share (as opposed to share of deposits pre demonetisation), may be a lead indicator of which banks may gain a disproportionate share of the excess liquidity (selective banks)

GROWTH IN DEPOSIT MARKET SHARE*1

-5%

5%

0%

# BRANCHES (FY17–2Q)

10%

18,0006,0003,0000Public Sector Banks

Private Sector Banks

-10%

Oriental Bankof Commerce

Canara

UBI

BoI

PNB

SBI

Yes

IndusIndKotak HDFC

ICICI

Axis

Corporation Bank

Indian Overseas BankUCOSyndicate

BoB

Indian Bank

IDBI

CBI

(FY17 – 3Q VS. FY17 – 2Q)

*1 Deposit Market share = Bank deposit/Total deposit across 31 banks

Note Growth in deposit market share = [(Deposit market share in FY17-3Q/Deposit market share in FY17-2Q)-1]. Banks consists of HDFC, ICICI, Axis, Kotak, IndusInd, Yes, DCB, SBI, BoB, PNB, BoI, UBI, Canara, Oriental Bank of Commerce, CBI, IDBI Bank, Indian Bank, Syndicate Bank, UCO Bank, Indian Overseas Bank, Corporation Bank, Andhra Bank, Bank of Maharashtra, Vijaya Bank, Dena Bank, United Bank of India, Federal Bank, Karur Vysya Bank, City Union Bank, South Indian Bank, J&K Bank

Source RBI database, Bank quarterly filings


1.2. LENDING

The outstanding loan book of Indian banks has contracted by ~INR640 BN (~1% of the loan

book) to INR73.4 TN between Oct’16 and Dec’16. H2 generally sees a growth in credit and

while post-demonetisation YoY loan growth for banks have fallen to 4.7% vs. ~10% in the

previous years. Research indicates that number of credit bureau inquiries has dropped by

more than 20% since demonetisation.

Exhibit 4: The YoY credit growth has fallen to 4.7% and credit bureau enquiries has dropped by ~25%

5%

0%

15%

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

BANKING YoY CREDIT GROWTH

Oct-15 Apr-16 Oct-16Apr-15

10%

Source RBI database

The slower pace of new credit issuance is also evident based on credit bureau enquiries.

Preliminary data from credit bureau suggests that enquiries for new loans have seen a

~20% decline post demonetisation. It is plausible that the decline in bureau enquiries may

be temporary as i) sudden disruption in business for the demand based economy and ii)

temporary deployment of banking resources to address demonetisation process leading to

shift of focus away from lending.

Despite overall slowdown in credit uptake, some banks have stood out in their ability to

grow the book and with additional deposits in the system and anticipated rate cuts, lending

should increase although at a slower pace in the short term.


Exhibit 5: Some banks have been able to maintain book growth despite general slowdown

-6%

6%

8%

4%

2%

-4%

-2%

Stat

e B

ank

of In

dia

1.0

Ban

k of

Bar

oda

-1.2

Pu

nja

b N

atio

nal

Ban

k

-2.0

Can

ara

Ban

k

1.4

Ban

k of

Ind

ia

-0.9

Un

ion

Ban

k of

Ind

ia

-1.0

Cen

tral

Ban

k of

Ind

ia4.0

Ind

ian

Ove

rsea

s B

ank

-4.0

UC

O B

ank

4.6

Ind

ian

Ban

k

2.7

Cor

por

atio

n B

ank

-2.4

Ori

enta

l Ban

k of

Com

mer

ce

-1.1

IDB

I Ban

k

-0.3

HD

FC B

ank

0.1

ICIC

I Ban

k

0.7K

otak

Ban

k

2.6

Yes

Ban

k

6.2

0%

Ind

usI

nd

Ban

k

3.9

Axi

s B

ank

-1.7

Syn

dic

ate

Ban

k

-3.4

Source RBI database; Bank quarterly filings

CONCLUSION

While the period of implementing the currency exchange was a high intensity period

with the Indian banking sector experiencing historical peaks on a number of indicators,

we believe that there have been clear winners amongst banks. The winners have

managed to garner larger share of deposits and also manage to show relatively better

growth in assets.


2. KEY TRENDS THAT WILL DRIVE MEDIUM TERM IMPACT ON FS PLAYERS

A number of broader economic trends will be key determinants of the impact on FS players

in the medium- to long-term. While the jury is still out on the sustainability of these trends,

we highlight four key trends that will influence strategies of Indian banks:

I. EXCESS LIQUIDITY IN BANKS

Demonetisation has led to a surge in deposits for banks simultaneously reducing their

loan books. Between 28th October to 23rd December 2016, banks saw net deposit inflows

of INR5.3 TN whilst outstanding loans decreased by INR640 BN. This led to various banks

cutting their deposits rates in the range of 25-100bps (with SBI slashing bulk deposit rates by

up to 1.9%) followed by aggressive lending rate cuts (90bps cut in MCLR by SBI)

Despite the lower funding costs due to the excess liquidity and extent of remonetisation,

the credit demand remains the dominant driver of the NIMs of the banking sector and will

continue to drive profitability.

Exhibit 6: We estimate that depending on the extent of remonetisation*1 and the growth in loan book, the NIM impact on banks could vary between 15bps-35bps

LOAN GROWTH/RATE OF REMONETISATION*2 30% 50% 70%

5% -0.329% -0.328% -0.327%

10% -0.248% -0.246% -0.244%

15% -0.167% -0.164% -0.161%

*1 Remonetisation = How much of the excess liquidity flows out of the banking system

*2 Note: The loan growth and remonetisation scenarios are taken for one year (Dec-16 to Dec-17)

II. SLOWDOWN IN CONSUMPTION RESULTING IN SLOWER CREDIT DEMAND

Historically, there has been a strong correlation between GDP growth and credit growth in

India with credit growth to nominal GDP growth ratio (multiplier) being at ~1x. The multiplier

generally expands during the high GDP periods but contracts during low GDP growth

period. Hence, the multiplier which had increased to 2.2x during high GDP phase of FY05-

07 has come down to ~1x during the low GDP growth period of FY14-16 due to weak private

capex. With GDP growth expected to remain weak we expect loan book of Indian banks to

grow at ~7% CAGR between FY16-18.


III. ASSET VALUE DETERIORATION ESP. IN REAL ESTATE

Indian banks and NBFCs have a large exposure to physical assets (such as real estate) as

collateral. For example, Indian banks’ exposure to real estate based sectors is ~15% of the

loan book. Our analysis suggests that in an adverse scenario of ~30% reduction in real estate

prices, ~20% of the loan book with exposure to real estate will see LTV crossing 100% thereby

putting the book at risk of default.

Exhibit 7: We estimate that an additional ~3-5% of the loan book may be at a risk of default due to fall in real estate prices in the near-medium term

15%

0% 10% 20% 30%

DECLINE IN ASSET PRICES

20%

10%

5%

INCREMENTAL PORTFOLIO AT RISK IN DIFFERENT POST DEMONETIZATION SCENARIOSINCREASE IN % PORTFOLIO WITH LTV > 100%

0%

Source Oliver Wyman analysis

IV. TAKE UP OF DIGITAL TRANSACTIONS

Demonetisation has had a positive impact on uptake of digital transactions – data from the

Reserve Bank’s electronic payment system indicators shows an increase across payment

types. However, as the cash comes back into the system, there is going to be a pressure on

digital modes – something that was already witnessed in January 2017. With Government

actively promoting the adoption of digital payments through apps like BHIM, next few

quarters will be important to see adoption and sustainability of digital transactions.

CONCLUSION

While the jury is still out on sustainability of impact that demonetisation has created, we

believe it is important for banks to recognise the critical trends to define their mid- to

long-term strategies.


3. NEW OPPORTUNITIES TO IMPROVE COMPETITIVE POSITIONING

Based on the Oliver Wyman and Ambit Capital teams’ reflection on the trends, we believe

that the demonetisation action has not altered the fundamental challenges to be addressed

by Indian banks. We reiterate the key strategic agenda items from Oliver Wyman’s report

“Indian Banks: Tacking into the wind”. These agenda items are across the themes of – fixing

the fundamentals, reinventing business models and not ignoring the softer aspects.

Exhibit 8: Call for action for banks – “Indian banks – tacking into the wind”

THEME AGENDA

Fix the fundamentals

Agenda 1: Enhance transparency

Agenda 2: Risk and capital management: Drive a broad-based transformation in risk and capital management capabilities

Agenda 3: Credit management: Plug the gaps and clear the muck in credit management

Reinvent business models

Agenda 4: SME 2.0: Push the Final Frontier

Agenda 5: Retail banking: Embrace digital technology and develop propositions for affordable banking

Agenda 6: Corporate banking: Corporate baning: Push new frontiers to drive excellence in execution

Dont ignore softer aspects

Agenda 7: Address key human resource challenges

Agenda 8: Strengthen governance, compliance and culture

Source Oliver Wyman’s publication “Indian banks: tacking into the wind”, December 2016

From the media reports and our private conversations with banks, we realise that

leaving aside some industry leaders, majority of the banks have already started treating

demonetisation as an event of the past with no major implications on their future strategies.

This response is largely led by a belief that most of the impact of the action was ‘temporary’.

We challenge this view and believe it is important to identify the undercurrents that the

action has unleashed as well as recognise that there is a definite push by the government to

ensure sustained impact (e.g. lowering of transaction charges, introduction of payment apps

like BHIM, big data initiatives of the IT department). We believe that there is a significant

opportunity for banks to retain and improve their competitive positioning under the evolving

business environment. We highlight five specific strategic initiatives that banks can take in

the near term:

1. Shift strategic focus onto liabilities

2. Build advisory platform for masses to capture the shift in asset allocation

3. Adopt ‘digital finance’ as the mechanism to achieve financial inclusion

4. Leverage the wealth of data being created for business decisions and risk management

5. Scout for opportunities for cost reduction due to decrease in cash usage


3.1. SHIFT STRATEGIC FOCUS TO LIABILITIES

Indian banks have traditionally viewed assets as the key driver of business and deposits

as an enabler of building asset book, which come with SLR requirements. Only a few

banks consider deposits as a source of value by themselves. Notable exception has been

the payments space which is seen as a source of ‘float’. While demonetisation hasn’t

changed the outlook of banks in the long term, the tools needed to make the most of the

short term disruption should, in principle, be useful in changing the approach of banks to

managing liabilities.

In the near term, banks need to ask a few important questions, as they think about their

liabilities strategy:

1. How transient will these new deposits be?

2. What is the value of retaining these deposits?

3. How can the deposits be retained?

4. What is the relative benefit of steering these into CASA vs. FDs and investment products?

5. How can we deploy our excess liquidity e.g. into short-term non relationship assets, term lending?

In the long term, these questions are largely relevant – the first one becomes more about

stability of any deposits which can be volatile (beyond the classic core vs. volatile), and five is

about managing any short term burst in deposits.

Now is the time for Indian banks to implement best practice liability management framework

that aligns the organisation to generating the target liability profile and includes:

1. Economic value of deposits – what is the total economic value of deposits including liquidity costs, customer value analysis?

2. Improved FTP framework – how to measure the value of deposit business? What should be the pricing governance framework?

3. Deposit analytics – what is a good deposit to retain?

4. Structured processes around pricing and performance measurements – how to design products to build the strategic liabilities profile?


3.2. BUILD ADVISORY PLATFORM FOR MASSES TO CAPTURE THE SHIFT IN ASSET ALLOCATION

We believe that lower interest rate on deposits coupled with behavioral shift away from

physical assets like real estate and gold will give an impetus to other forms of investments

e.g. equity, mutual funds, life insurance which traditionally have seen low retail participation

in India.

There is significant opportunity for banks to move beyond “deposit-led” liabilities products

to advisory business. In a market such as India, we believe that data tools such as robo-

advisory will be the way forward to deliver advisory services to the large masses. Robo-

advisors have potential to commoditise all steps of the advisory value chain i.e. investment

planning, execution and feedback.

US and European markets have already seen the emergence of new attackers and

established players adopt various forms of robo models, although the proportion of AUM

managed under these models is still very small. Emerging next-generation models are likely

to combine robo base with advisor overlay e.g. simple product range for low cost solution for

mass affluent.

Exhibit 9: Robo advice propositions continue to evolve and are rapidly offering holistic services

• One click information on customer holdings for better portfolio allocations

• Portfolio replication – active to passive and vice versa

• Bionic/human interactions at key points in customer journey – either as guidance or advice

Robo 1.0

Robo 2.0(already being rolled

out by some providers)

Ongoingchanges

• Open data environment and unique digital ID

• Aggregated customer information to be made available to create a more optimised and bespoke customer solution

• Commoditisation of portfolio management

• Investment education; Planning tools & calculators

• Objectives based investments (time based, risk based, motive/themes based, social investing etc.)

• Enhanced product set (e.g. Separate accounts, options)

For banks, a Robo 2.0 proposition brings with it some core benefits e.g. better control

over advice and guidance process, increased transparency over a consumer’s existing

investments and financial situation allowing for more tailored solutions, better product

comparison and more targeted offering and finally, reduced reliance on less favorable forms

of investment (i.e. term deposits accounts, overly complicated/risky products). These tools

will be highly beneficial in widely distributed markets like India.


3.3. ADOPT ‘DIGITAL FINANCE’ AS THE MECHANISM TO ACHIEVE FINANCIAL INCLUSION

Digital enablement has the potential to revolutionise offerings for the unbanked and

underbanked. The decline of cash transactions and the pooling of assets in banks open up

possibilities for a range of new technologies, including mobile platforms to extend access in

rural areas and digital wallets to streamline savings and payments.

In Oliver Wyman’s recent report “Accelerating financial inclusion in Southeast Asia”, we

highlight five areas where digital provides opportunities for increasing financial inclusion:

1. Digitally enabled customer identification and verification: Beyond the Aadhaar, a 12-digit unique national ID which supports the country’s real-time verification infrastructure, enhanced digital information can be developed for lower-cost and even faster customer identification. For example, biometrics data can be collected at account opening to facilitate future banking services, such as easy KYC and payments authorisations.

2. Scalable delivery by tackling last-mile distribution: Digital enablement could lower distribution and servicing costs to enable widespread, lost-cost points of access, for example, through mobile money or point-of-sale devices.

3. End-to-end digitisation in the flow, access, and infrastructure of retail payments: End-to-end digitisation of the payments value chain and ecosystem – beginning with digital G2P payments and extending to P2All payments, use of open APIs and interoperable networks – can greatly reduce money transfer fees.

4. Credit and fraud risk reduction via digitally-enabled data capture and analytics: Alternative data sources enabled by digital, such as payments and telecoms data, combined with analytics provides rich foundation for enhanced customer profiling, risk assessment, and fraud prevention that enable extension of credit to customers underbanked.

5. Cost-effective mobilisation of low-cost deposits through a digital access: Digital technology has the potential to disrupt the savings value chain by offering savings products to extended segments via mobile platforms, enabling innovative and customised products such as goal-based savings plans, and providing additional outlets to agents for cash-in and cash-out.

3.4. LEVERAGE THE WEALTH OF DATA BEING CREATED FOR BUSINESS DECISIONS AND RISK MANAGEMENT

So far, the average Indian bank has paid limited attention to data for making business and

risk decisions – especially in the SME and the underbanked segments. Demonetisation is

prompting these segments to migrate to digital payments. As the digital payments grow, it

will create a larger trail of customer information which in turn will be a “data dividend” for

the institutions.

Banks must act now, more than ever, to upgrade their data analytics capabilities to leverage

this data for better underwriting decisions, effective upselling and cross-selling, improved

risk management capabilities e.g. through automated early warning signals.


3.5. SCOUT FOR OPPORTUNITIES FOR COST REDUCTION DUE TO DECREASE IN CASH USAGE

According to an HBR study (The Cost of Cash in India), The Reserve Bank of India and

commercial banks spend a total of INR210 BN (US$3.5 BN) on currency operations annually.

The HBR study highlights that the ratio of money held in bills and coins (M0) to the amount

held in demand deposit and savings accounts (M2) in India is 51%, which is higher than

Egypt (29.3%), South Africa (8.9%), and Mexico (8.7%). Moreover, considering just currency,

the ratio of currency to GDP in India (12.2%) is higher than countries such as Russia (11.9%),

Brazil (4.1%), and Mexico (5.7%).

Oliver Wyman and Ambit Capital estimates suggest that out of the total operating expenses

of banks of INR~2,243 BN, ~70% of the expenses are linked to the physical channels of

branches and ATMs. This offers a tremendous room for optimisation of operating expenses,

should the decline in cash usage be sustained. As an example, cash management costs

(related to ATM and branch cash pick-up/refilling) are directly linked to cash usage and

can be optimised with immediate effect. On a medium term basis, it may be worthwhile to

revisit the design of the network of branches and ATMs (for example # of outlets, location

strategies) to align to the reduction in cash usage.

CONCLUSION

Demonetisation has accelerated the agenda outlined for Indian banks in Oliver Wyman’s

report “Indian banks: tacking into the wind.” It has also necessitated that banks’

undertake significant further steps in the areas of liabilities management, advisory

services and analytics to retain and improve their competitive positioning under the

evolving business environment. While demonetisation may cause near-term pain to

banks, winners in this environment will be differentiated by the pace of implementing

strategic, transformative initiatives in order to position themselves favourably for the

winds of change sweeping through the industry.


ADDITIONAL READING

OLIVER WYMAN

Modular Financial Services: The

New Shape Of The Industry

January 2016

The Digital Disruption Battlefield

Winning In A Time Of Change

June 2015

The FinTech 2.0 Paper: Rebooting

financial services

June 2015

Indian banks: tacking into the wind

December 2016

The State of the Financial Services

Industry 2017: Transforming for

Future Value

January 2017

Managing Complexity: The State Of

The Financial Services Industry

February 2015

Winning In The Era Of Liquidity:

Turning Deposit Management Into

Competitive Advantage

October 2015

Reimagining Financial Inclusion

November 2015

Accelerating Financial Inclusion in

South-East Asia with Digital Finance

2017


AMBIT CAPITAL

M+R+T resets to the fore

Into uncharted territory

An economic hammering is a given

…And we all fall down


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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 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 Québec 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.

12. All or substantially all of AMBIT Capital’s assets may be situated outside of Canada.

13. It may be difficult for enforcing legal rights against AMBIT Capital because of the above.

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 Québec is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec 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 analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this 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 Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or (ii) are professional customers or eligible counterparties of ACUK (all such persons together being referred to as “relevant persons”). This report must not be acted on or relied upon by 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 this report in any such other jurisdictions may constitute a violation of UK or US securities laws, or the law of any such other jurisdictions.

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.

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 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.

Disclaimer for US Persons

29. The Ambit Capital report is solely a product of AMBIT Capital Pvt. Ltd. and may be used for general information only. The legal entity preparing this report is not registered as a broker-dealer in the United States and, therefore, is not subject to US rules regarding the preparation of reports and/or the independence of research analysts.

30. Ambit Capital is the employer of the Ambit research analyst(s) who has co-authored the report.

31. There is no security transaction being solicited in this report. However, any subsequent transactions in securities discussed in the reports should be effected through Ambit America Inc. (“Ambit America”).

32. Ambit America Inc. does not accept or receive any compensation of any kind directly from US Institutional Investors for the dissemination of the AMBIT Capital reports. However, Ambit Capital Pvt. Ltd. has entered into an agreement with Ambit America Inc. which includes payment for sourcing new MUSSI and service existing clients based out of USA.

33. Analyst(s) preparing this report are resident outside the United States and are not associated persons or employees of any US regulated broker-dealer. Therefore the analyst(s) may not be subject to Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by the research analyst.

34. In the United States, this research report is available solely for distribution to major U.S. institutional investors, as defined in Rule 15a – 6 under the Securities Exchange Act of 1934. This report is distributed in the United States by Ambit America Inc., a U.S. registered broker and dealer and a member of FINRA. Ambit America Inc., a US registered broker-dealer, accepts responsibility for this report and its dissemination in the United States.

35. This report is not intended for any other persons in the USA. All major U.S. institutional investors or persons outside the United States, having received this Ambit Capital report shall neither distribute the original nor a copy to any other person in the United States. 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 Ambit America Inc., by phone at 646 361 3107 or by mail at 370 Lexington Avenue, Suite 803, New York, New York, 10017. This material should not be construed as a solicitation or recommendation to use Ambit Capital to effect transactions in any security mentioned herein.

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 whatsoev¬¬¬er 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

37. The analyst (s) has/have not served as an officer, director or employee of the subject company.

38. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities.

39. 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 Pvt. Ltd. Ambit House, 3rd Floor. 449, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100


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Copyright © 2017 Oliver Wyman

All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect.

The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.

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THE AUTHORS

Oliver Wyman: David Bergeron, Aarti Nihalani and Amit Deshpande

Ambit Capital: Pankaj Agarwal, Ravi Singh and Rahil Shah

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