ANALYSIS BEYOND CONSENSUS - Edelweiss

ANALYSIS BEYOND CONSENSUS... the new ABC of researchFCCB: In the redemption zone April 7, 2010Manoj Bahety, CFA (manoj.bahety@edelcap.com) + 91-22-6623 3362Sandeep Gupta (sandeep.gupta@edelcap.com) + 91-22-4063 5474Nitin Mangal (nitin.mangal@edelcap.com) + 91-22-4063 5475FCCBs an attractive instrument to raise money, but carry liquidity and exchange rate riskFCCBs facilitate lower cost of borrowing, primarily because of the embedded call option on equity shares of the issuingcompany. Moreover, P&L and cash flow friendly nature of FCCBs makes them even more attractive, since they are structuredat low coupon rates and redemption premium is not required to be charged to the P&L, whereas exchange loss is allowed to becapitalised. However, FCCBs carry liquidity risk due to high embedded redemption premium and also bear exchange rate risk.For India Inc., net borrowing through FCCBs is likely to be cheaper compared to normal debt since in most cases conversion isnot likely and the embedded call option is likely to expire worthless. However, because of huge redemption premium andexchange losses, some companies can get caught into a serious liquidity trap.For an investor, FCCBs offer guaranteed returns with further gains from price appreciation by way of equity participation abovethe effective conversion price. Considering the above, FCCBs are attractive instruments to raise funds, provided appropriaterisk management and accounting norms are in place.INR 219 bn of FCCBs likely to be up for redemption over next two yearsAs on March 15, 2010, 90 companies in the BSE 500 had FCCBs outstanding aggregating INR 546.1 bn, which, unlessconverted earlier, will lead to an outflow of INR 652 bn (refer annexure 1 for details). We estimate that for 50 companies theprobability of FCCBs being converted into equity is extremely low even after assuming 20% CAGR to the current market price.FCCBs outstanding for these shortlisted companies stood at INR 297.2 bn, which may lead to an outflow of INR 394.6 bn, outof which INR 218.9 bn redemption is likely by FY12E.Table 1: Total companies with maturity periodFinancial YearFCCB outstanding(INR bn)TotalRedemptionamount (INR bn)Likely for redemptionFCCB outstanding(INR bn)Redemptionamount (INR bn)FY11 81.0 99.3 63.5 77.1FY12 163.7 207.2 106.6 141.8FY13 149.7 184.1 115.2 159.8FY14 12.0 16.0 12.0 15.9FY15 138.3 144.1 - -FY17 1.2 1.2 - -Total 546.1 652.0 297.2 394.6Source: Company annual report, BSE, Edelweiss researchFCCB refinancing likely to impact P&L of few companies, lead to higher equity dilution in othersOur analysis reveals that most of these shortlisted companies will either have to opt for refinancing or a downward revision inconversion price. Assuming refinancing cost at 10% p.a., on an aggregate basis, the reported PBT of shortlisted companies willbe lower by 26.5% (refer Annexure 2 for details). For companies with a net D/E ratio of ~ 1.5 or more, lowering of conversionprice will lead to equity dilution to the extent of 19.2%.Recovery in market price and INR appreciation provide huge reliefHowever, recent recovery in stock prices and INR appreciation will lower the dilution impact (during FY10, the INR hasappreciated 11.4% vis-à-vis 27.5% depreciation during FY09).Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients on various non-routine and intricate issues. This unitof research works independent of the sector/stock research team and views expressed in this report may vary with that of respective sector/stock analyst.Edelweiss Securities Limited1

Analysis beyond consensusFCCBs a cheap convenient tool to raise funds for India Inc.Foreign funds have been a convenient tool for India Inc., to raise cheap funds for the muchneeded growth. FCCBs, amongst them, have been the better option due to lower effectivecost of borrowing compared to plain vanilla debt because of the embedded options. FCCBsoffer an option of conversion at a premium to the CMP (determined at the time of issue)within a stipulated period. Hence, the company gets cheaper funds compared to normal debtand higher price of equity compared to CMP in case the option gets in the money and thebonds get converted. These instruments are structured at negligible coupon and thus entailminimum cash flows during the tenure. However, in the event of non conversion, the amountneeds to be repaid along with a hefty redemption premium attached. FCCBs also carryexchange rate risk like any other foreign currency debt. Thus, borrowing through FCCBs ischeaper compared to other debt; however, it requires appropriate liquidity and exchange raterisk management.The effective true cost to the company will be higher of redemption premium or loss on theshort position on the embedded option which will get exercised in case the price appreciatesmore than the effective conversion price.For an investor, FCCBs offer guaranteed returns with further gains from price appreciation byway of equity participation above the effective conversion price.Ambiguity in accounting norms keeps actual FCCB cost off P&LIndian accounting norms currently do not mandate a particular manner for FCCB accounting.Presuming conversion, most corporates issuing FCCBs only charge the miniscule couponassociated through the P&L, whereas redemption premium skips P&L and is either chargeddirectly through reserves in the year of issue or over the period of maturity. Few corporatesdo not even charge the redemption premium through reserves, but disclose the same as partof the contingent liability. Thus, a significant portion of YTM cost represented by redemptionpremium is not reported in the P&L (refer our note, FCCB – Real debt; optional equity, datedApril 23, 2008).Moreover, the exchange loss on FCCBs is allowed to be capitalised to the carrying cost offixed assets. Thus, from the P&L point of view, FCCBs provide low cost funds to India Inc.Recovery in market price and INR appreciation provide huge reliefThough a majority of FCCBs are still under water, appreciation in stock price and INR hasnarrowed the gap between the current market price and effective market price. During FY10,the INR has appreciated 11.4% vis-à-vis 27.5% depreciation during FY09. The appreciationwill lower the liability in INR terms and facilitate lower refinancing/dilution to that extent(refer our note, Appreciating INR: Mixed bag, dated November 30, 2009). The recent run upin stock prices has further narrowed the gap between effective conversion price and currentmarket price.Effective conversion price = Conversion price + redemption premium + exchange fluctuation.Although for many companies, the effective conversion price is still at a significant premiumto CMP, current recovery in the exchange rate and CMP will enable them to lower theeffective conversion price at a discount to the current market price to entice bond holders toseek conversion. The conversion, though at a lower price, will help companies reduce D/Eratios and interest outflows. The Government of India in a recent announcement haspermitted companies with outstanding FCCBs to reduce the conversion price, therebyfacilitating conversion for companies.Buoyed by INR appreciation and recovery in the stock price, Tata Motors has recentlyincreased redemption premium for bond holders opting for conversion, to entice them to seekEdelweiss Securities Limited2

FCCBconversion. This will result in conversion at a price lower than the CMP, even afterconsidering initial redemption premium which otherwise would have been payable only in theevent of redemption. This has helped Tata Motors reduce its D/E ratio from 4.0x to 2.8x. Thelowering of conversion has, however, resulted in higher equity dilution by 1.7%.Options available with companies likely to face redemptionIn many cases, where the gap between the CMP and effective conversion price is still hugedespite recovery, companies will find it difficult to reduce the conversion price. In the eventof redemption, these companies are likely to exercise one or a mix of a few optionsmentioned below:• Repayment through existing cash & cash equivalents.• Repayment through operating cash flows.• Refinancing of debts.• Restructuring of FCCBs.• Issue of further equity to repay debts.The choice of option will depend on the current net D/E position, net cash flows outof operations, committed capex, etc. We have tabulated net D/E and average cashflow from operations for the past three years for shortlisted companies (referannexure 2).Buy back: An opportunity, not encashed till dateIn FY09, FCCBs became a nightmare for many corporates because of steep fall in stock pricesand currency depreciation. The global liquidity crunch further led FCCBs to trade at attractivediscount to their issue price. The government, realising the opportunity, opened a window forbuyback of FCCBs issued by corporates trading at steep discounts, thereby providing alucrative exit opportunity to corporate India till Mach 31, 2010 (recently extended till June2010). Only a few corporates capitalised on the opportunity. The aggregate amount of FCCBsbought back for BSE 500 companies till date has been a meager INR 37.5 bn.FCCB refinancing to raise interest billIn many cases, FCCB redemption is likely to result in additional interest burden as the lowcoupon FCCBs get replaced with the more expensive domestic debt. We have analysed thelikely impact on profitability of the shortlisted 50 companies where the likelihood ofconversion is lower, even after considering 20% CAGR to the current market price. On anaggregate basis for the shortlisted companies the PBT will dip 26.5% from INR 146.5 bn toINR 107.7 bn in the event of refinancing of FCCBs with domestic debt carrying an interestrate of 10%.Edelweiss Securities Limited3

Analysis beyond consensusChart 1: Impact on PBT on account of refinancing0.0(60.0)(120.0)(180.0)(240.0)(300.0)First SourceSolutionsOrchidChemicalsPrimeFocusGTLInfrastructureAurobindoPharmaRadicoKhaitanBharatForgeManIndustriesKEIIndustries(%)BajajHindusthanSource: Company annual report, BSE, Edelweiss researchReduction in conversion price to result in higher dilutionWe have enumerated the revised net debt position of the shortlisted companies and highlightthat the 20 companies which are susceptible to the refinancing risk and may have to opt forreduction in conversion price and facilitate FCCB conversion. This will, however, lead to ahigher dilution by 9.0% (refer annexure 3 for details).Chart 2: Dilution impact on account of revision in conversion price75.060.0(%)45.030.015.00.065.052.039.026.013.00.0PrimeFocusOrchidChemicals3i InfotechStridesArcolabGTLInfrastructureGatiBajajHindusthanRelianceMediaworksHindustanConstruction(%)Promoter holding prePromoter holding postTotal dilution (RHS) Additional dilution (RHS)Source: Company annual report, BSE, Edelweiss researchThe changing face of FCCBsTaking cues from the previous crisis, companies / investors have altered the terms of FCCBs.FCCBs issued now are at a high coupon rate in the 1.75-7.5% range and low redemptionpremium ranging from 0-20% contrary to past years where coupon rates were in the 0-2%range and redemption premium of 25-40%. This will reduce the impact of heavy bulletpayment on companies in the event of non conversion.Edelweiss Securities Limited4

FCCBAnnexure 1: BSE 500 companies with FCCBs outstanding as on March 15, 2010FCCBoutstanding(mn)CAGR forconversion(%)Maturity Issuing Issue sizeS. No. Company nameperiod currency (mn)ECP* (INR)1.1 3i Infotech Mar-11 USD 50.0 20.2 159.8 103.61.2 3i Infotech Jul-12 USD 100.0 66.4 233.3 59.41.3 3i Infotech Apr-12 EUR 30.0 20.0 215.4 62.22 Aban Offshore Apr-11 JPY 11,610.0 5,410.0 3,397.4 168.13 Adani Enterprise@ Dec-11 USD 250.0 228.6 414.6 (6.8)4 Reliance Mediaworks Jan-11 EUR 84.0 20.7 661.2 279.55 Aftek Jun-10 USD 34.5 8.8 96.4 >5006 Alok Industries@ Jun-10 USD 55.0 23.8 68.4 >5007.1 Amtek Auto Jun-11 USD 250.0 136.1 613.7 150.97.2 Amtek Auto Jun-10 USD 150.0 8.0 271.6 280.17.3 Amtek Auto Sep-14 USD 165.0 111.5 148.4 (5.8)8 Amtek India@ Oct-10 USD 100.0 38.7 120.1 152.49 Apollo Hospitals 2016 USD 15.0 15.0 605.0 (2.8)10 Assam Company Nov-11 USD 48.0 31.8 28.8 20.311.1 Aurobindo Pharma May-11 USD 150.0 106.0 1,483.4 45.311.2 Aurobindo Pharma May-11 USD 50.0 33.0 1,292.2 29.111.3 Aurobindo Pharma Aug-10 USD 60.0 31.8 730.6 (47.7)12 Bajaj Hindusthan@ Feb-11 USD 120.0 99.6 465.4 280.113.1 Bartronics India Jun-12 USD 25.0 NA 158.9 1.013.2 Bartronics India Jan-13 USD 50.0 NA 320.0 28.914.1 Bharat Forge Apr-10 USD 60.0 43.5 426.1 >50014.2 Bharat Forge Apr-10 USD 60.0 60.0 499.1 >50014.3 Bharat Forge Apr-12 USD 40.0 40.0 861.2 79.614.4 Bharat Forge Apr-13 USD 39.9 39.9 1,080.2 59.915 Bharati Shipyard Dec-10 USD 80.0 46.9 711.0 300.116 Bilcare Dec-10 USD 50.0 44.0 702.1 28.217 Core Project & Technologies@ May-12 USD 80.0 10.0 82.9 (37.9)18 Country Club@ Dec-11 USD 25.0 20.0 103.0 161.819 Cranes Software Mar-11 EUR 42.0 42.0 129.8 >50020 Dishman Pharma Aug-10 USD 50.0 2.5 222.6 11.821 Educomp Solutions Jul-12 USD 80.0 78.5 832.4 4.722 Electrosteel Cast May-11 USD 75.0 20.5 57.0 6.523 Era Infra Engineering Jan-12 USD 75.0 44.1 236.2 3.024 Everest Kanto Cylinders Oct-12 USD 35.0 35.0 387.4 56.825 Financial Technologies Dec-11 USD 100.0 90.5 3,476.4 57.426 First Source Solutions Dec-12 USD 275.0 212.4 128.6 72.427 Gati Dec-11 USD 20.0 15.0 166.4 87.228 Geodesic Information Jan-13 USD 125.0 112.0 418.3 59.029 Glenmark Pharma Jan-11 USD 30.0 30.0 814.1 279.330 Graphite India Oct-10 USD 40.0 34.1 62.0 (45.5)31 Great Offshore Oct-12 USD 42.0 40.0 1,241.6 53.532 GTL Infrastructure Nov-12 USD 300.0 228.3 74.5 24.133 Gujarat NRE Coke Apr-11 USD 60.0 17.5 62.2 (27.1)34 HDFC Sep-10 USD 500.0 92.6 1,753.6 (57.9)35 HEG 2010 USD 28.8 1.1 192.1 (61.6)36 Himadri Chemicals Oct-16 USD 12.5 12.5 NA NAEdelweiss Securities Limited5

Analysis beyond consensusMaturity Issuing Issue sizeS. No. Company nameperiod currency (mn)ECP* (INR)37 Hindustan Construction Apr-11 USD 100.0 96.6 341.7 137.038.1 Hotel Leela ventures Sep-10 EUR 60.0 39.2 58.5 42.138.2 Hotel Leela ventures Apr-12 USD 100.0 41.6 105.6 44.439.1 ICSA India Mar-12 USD 22.0 NA NA NA39.2 ICSA India Apr-12 USD 24.0 NA NA NA40 India Cements May-11 USD 75.0 75.0 451.3 187.141.1 ISMT@ Nov-11 USD 10.0 10.0 92.0 38.541.2 ISMT@ Nov-11 USD 10.0 10.0 122.3 64.242 IVRCL Infrastructure Nov-10 USD 65.0 7.6 166.0 0.643 Jain Irrigation Mar-11 USD 60.0 2.0 481.6 (49.7)44.1 Jaiprakash Associates Mar-13 EUR 165.0 4.3 147.6 (0.5)44.2 Jaiprakash Associates Sep-12 USD 400.0 354.5 365.9 42.945 Jindal Saw Jun-11 JPY 9,090.0 6,790.0 796.0 187.446 JSW Steel Jun-12 USD 325.0 274.4 1,361.5 4.447.1 Jubilant Organosys May-10 USD 75.0 49.7 377.9 94.747.2 Jubilant Organosys May-11 USD 200.0 142.1 588.9 60.948 Karuturi Global Oct-12 USD 50.0 45.0 29.9 22.249 KEI Industries Nov-11 USD 36.0 6.1 103.3 98.250 KLG Systel Mar-12 USD 22.0 NA 575.1 121.351 Larsen and Toubro Oct-14 USD 200.0 200.0 1,908.2 3.552 Mahindra & Mahindra Apr-11 USD 200.0 189.5 590.2 7.653 Man Industries May-12 USD 50.0 44.1 159.8 39.954 Mercator Lines@ Apr-10 USD 60.0 7.0 59.8 133.855 Monnet Ispat Feb-11 USD 60.0 19.1 457.5 7.756.1 Moser Baer Jun-12 USD 75.0 NA 491.6 133.056.2 Moser Baer Jun-12 USD 75.0 NA 568.2 148.457 Motherson Sumi Jul-10 EUR 50.3 32.6 94.2 (56.1)58 Nava Bharat Ventures Sep-11 JPY 6,000.0 3,520.0 167.5 (42.3)59.1 Orchid Chemicals Feb-12 USD 175.0 117.4 497.3 83.859.2 Orchid Chemicals Nov-10 USD 42.5 17.5 358.8 251.760 Panacea Biotec Feb-11 USD 50.0 36.8 510.6 148.161 Patel Engineering Oct-14 USD 100.0 100.0 NA NA62 Pidilite Industries Dec-12 USD 40.0 37.2 356.8 51.163 Prakash Industries Oct-14 USD 50.0 30.5 170.0 (5.7)64 Prime Focus Dec-12 USD 55.0 55.0 1,992.3 110.965 PSL Sep-10 USD 40.0 2.5 270.0 282.966 Punj Lloyd Apr-11 USD 125.0 49.7 343.1 83.767 Radico Khaitan Jul-11 USD 50.0 33.9 224.9 52.068 Rajesh Exports Feb-12 USD 150.0 NA 99.4 (8.9)69 Ranbaxy Laboratories Mar-11 USD 440.0 440.0 684.5 44.170 REI Agro Nov-14 USD 105.0 105.0 NA NA71.1 Reliance Communications Feb-12 USD 1,000.0 925.3 859.6 131.871.2 Reliance Communications May-11 USD 500.0 296.9 624.9 204.072 Reliance Natural Resources@ Oct-11 USD 300.0 300.0 40.2 (24.1)73 Rolta India Jun-12 USD 150.0 96.7 513.9 59.574 S Kumars Nationwide@ Apr-11 USD 50.0 9.0 57.0 (4.5)75 Sesa Goa Oct-14 USD 500.0 485.3 346.9 (6.5)76 Sintex Industries 2013 USD 225.0 225.0 637.4 24.077 Spicejet Dec-10 USD 80.0 79.8 35.1 (49.0)78.1 Sterling Biotech@ 2010 USD 175.0 93.7 152.8 80.878.2 Sterling Biotech@ 2012 USD 250.0 134.5 204.6 28.079 Sterlite Industries Oct-14 USD 500.0 500.0 NA NAEdelweiss Securities Limited6FCCBoutstanding(mn)CAGR forconversion(%)

FCCBFCCBoutstanding(mn)CAGR forconversion(%)Maturity Issuing Issue sizeS. No. Company nameperiod currency (mn)ECP* (INR)80.1 Strides Arcolab Jun-12 USD 100.0 80.0 669.5 35.480.2 Strides Arcolab Apr-10 USD 40.0 34.0 490.6 >50081 Subex@ Mar-12 USD 180.0 68.8 80.3 15.482.1 Suzlon Energy Oct-12 USD 200.0 211.3 538.3 117.682.2 Suzlon Energy Jun-12 USD 300.0 121.4 522.4 141.082.3 Suzlon Energy 2014 USD 90.0 90.4 121.3 12.183.1 Tata Motors# Apr-11 USD 300.0 300.0 897.9 17.283.2 Tata Motors# Mar-11 JPY 11,760.0 11,460.0 939.0 24.383.3 Tata Motors Jun-12 USD 490.0 473.0 1,196.8 22.683.4 Tata Motors Oct-14 USD 375.0 375.0 629.8 (3.9)84 Tata Power Nov-14 USD 300.0 300.0 1,594.0 3.385.1 Tata Steel Sep-12 USD 875.0 382.0 935.0 16.985.1 Tata Steel Nov-14 USD 546.9 546.9 605.5 (0.9)86 Tulip IT Services Aug-12 USD 150.0 97.0 1,643.4 32.087 United Phosphorus@ Jan-11 USD 150.0 67.4 136.0 (10.6)88.1 Videocon Industries Mar-11 USD 90.0 41.8 557.0 141.488.2 Videocon Industries Jul-11 USD 105.0 66.7 572.6 93.489 Welspun Gujarat Stahl Oct-14 USD 150.0 150.0 308.4 2.790 Wockhardt Oct-09 USD 110.0 NA 629.8 NMSource: Company annual report, BSE, RBI, Capitaline, Edelweiss researchNotes:*Conversion price is adjusted for split, bonus and right issue@ Conversion price is used instead of effective conversion price, as redemption premium was not availableECP (effective conversion price) = conversion price + redemption premium#Tata Motors has recently announced the restructuring of FCCBsNM: Not meaningfulFCCB outstanding as on March 15, 2010CMP as on March 31, 2010Edelweiss Securities Limited7

Analysis beyond consensusAnnexure 2: Companies likely to face FCCB redemptionFCCB likelyredeemable Average CFOS No Company nameamount^ post interest #Net Debt/equity^^Revised netdebt/ equityimpact onPBT (%)(INR mn)MarketCapitalisation(INR bn)1 Tata Motors* 33,654.9 5,139.7 5.9 3.6 18.8 392.72 Reliance Communications 71,724.0 69,122.4 0.9 0.9 11.6 350.83 Jaiprakash Associates 23,633.6 3,503.2 2.3 2.4 25.0 317.74 Ranbaxy Laboratories 1 25,177.6 3,157.6 0.4 0.5 16.8 199.95 Suzlon Energy 21,775.4 (3,178.2) 1.5 1.3 13.5 111.96 Glenmark Pharma 1,892.2 1,236.6 1.3 1.2 4.9 72.57 Financial Technologies 6,010.9 (203.5) (0.1) 0.0 20.3 72.38 Videocon Industries 2 6,045.0 927.7 1.5 1.5 9.9 64.69 Punj Lloyd 2,823.6 (5,920.3) 1.1 1.1 NM 58.910 Pidilite Industries 2,340.3 1,414.3 0.6 0.7 18.4 58.311 Jindal Saw 1 3,878.7 2,424.5 0.4 0.5 8.3 58.112 Bharat Forge 11,401.4 2,461.1 1.0 1.2 100.9 56.613 Aurobindo Pharma 9,189.1 282.3 1.8 1.5 126.5 53.514 Aban Offshore 3,192.2 5,341.9 9.2 9.2 4.7 50.515 Jubilant Organosys 12,237.8 2,849.9 2.8 3.0 41.3 50.116 Hindustan Construction 6,005.0 (3,531.9) 4.4 4.5 40.3 40.717 India cements 5,000.4 5,971.7 0.5 0.6 6.9 40.518 Sintex Industries 13,130.3 363.4 0.7 0.8 32.0 40.319 GTL Infrastructure 14,469.5 801.5 1.6 1.7 204.4 40.120 Amtek Auto 3 8,688.1 3,605.9 1.0 0.8 15.3 37.521 Rolta India 3 6,083.8 3,132.0 0.6 0.6 18.3 28.822 Sterling Biotech 1 10,299.6 626.7 1.5 1.0 29.2 27.023 Bajaj Hindusthan 2 4,494.7 (2,201.9) 1.9 1.8 42.7 26.024 Tulip IT Services 6,327.3 1,650.0 1.1 1.2 22.3 24.425 Hotel Leela ventures 5,732.4 1,608.9 1.2 1.2 28.4 18.526 Radico Khaitan 1,996.0 (314.6) 2.9 2.9 118.1 16.927 Great Offshore 2,562.1 2,393.9 2.4 2.4 8.0 15.228 Panacea Biotec 2,372.1 547.2 1.0 1.1 27.4 14.629 Strides Arcolab 1 7,337.6 511.2 3.0 3.0 24.0 13.630 Alok Industries 1,072.1 (1,064.4) 3.6 3.6 3.4 13.431 3i Infotech 7,169.6 2,542.2 1.8 1.9 24.9 13.232 Mercator Lines 316.0 8,304.7 0.9 0.9 0.6 13.133 First Source Solutions 13,362.4 1,451.0 0.9 1.0 263.6 12.334 Everest Kanto Cylinders 2,256.1 255.6 0.9 1.0 14.1 12.335 Bilcare 2,885.3 (37.8) 1.8 1.9 24.6 11.636 Orchid Chemicals 8,727.3 (314.7) 4.7 4.8 258.1 10.837 Geodesic Information 6,996.2 1,024.2 0.1 0.2 26.1 10.338 Reliance Mediaworks 1,521.7 (703.6) 2.3 2.4 30.7 10.039 Amtek India 3 1,745.1 494.1 0.4 0.4 10.8 8.440 Karuturi Global 2,848.9 434.8 0.8 0.9 27.5 8.341 ISMT 902.8 586.4 2.4 2.4 19.0 7.842 PSL 162.1 1,807.3 1.3 1.4 1.2 7.343 Bharati Shipyard 3,023.2 1,442.1 1.1 1.1 15.4 6.944 Gati 2 1,001.3 (79.0) 1.7 1.8 NM 4.745 Man Industries 2,917.8 584.8 0.8 1.1 63.6 4.146 Prime Focus 3,566.6 (3.6) 2.4 3.2 244.1 3.1Edelweiss Securities Limited8

S NoCompany nameFCCB likelyredeemableamount^Average CFOpost interest #Net Debt/equity^^Revised netdebt/ equityimpact onPBT (%)FCCBMarketCapitalisation(INR bn)47 KEI Industries 397.5 (307.6) 1.8 1.4 60.6 2.048 Cranes Software 2,869.9 931.6 0.9 1.0 16.8 1.949 Aftek 509.5 961.3 (0.3) (0.3) 4.1 1.650 Country Club 902.8 388.9 0.1 0.1 12.5 1.5Source: Company annual report, BSE, RBI, Capitaline, Edelweiss researchNote:1December, 20082 September, 20093 June, 2009^Includes issues where ECP is higher than CMP even after considering 20% CAGR# Calculated on the basis of 3 year average cash from operating activities^^As per last annual reportCompanies in annexure 4 have not been considered for above analysisMarket capitalisation as on March 31, 2010Revised net debt/ equity is calculated after considering the following:*Tata Motors has recently announced the restructuring of FCCBs, which have not been considered for the above calculation1. FCCB converted till March 15, 20102. FCCB likely to convert assuming a 20% CAGR growth in CMP is treated as equity and the balance including redemption premium istreated as debt3. Foreign currency movement till March 31, 2010Annexure 3: Likely dilution impact of FCCB restructuringEquity dilution on conversionof FCCB @ CMP Promoter holding (%)FCCB likelyPostredeemableconversion ofS. No. Company nameamount^ Total (%) Additional (%) As at Q3FY10 FCCB @ CMP(INR mn)Marketcapitalisation(INR bn)1 Tata Motors* 33,654.9 16.1 2.8 38.1 31.9 392.72 Jaiprakash Associates 23,633.6 7.0 4.3 46.1 42.8 317.73 Videocon Industries 6,045.0 10.3 5.9 68.5 61.4 64.64 Aurobindo Pharma 9,189.1 16.6 3.5 58.7 49.0 53.55 Aban Offshore 3,192.2 5.9 4.3 52.9 49.8 50.56 Jubilant Organosys 12,237.8 19.7 6.0 50.8 40.8 50.17 Hindustan Construction 6,005.0 12.9 7.5 39.9 34.7 40.78 GTL Infrastructure 14,469.5 26.5 11.2 52.4 38.5 40.19 Bajaj Hindusthan 4,494.7 15.8 10.7 37.1 31.2 26.011 Radico Khaitan 1,996.0 13.1 4.9 48.5 42.2 16.912 Great Offshore 2,562.1 14.4 9.7 NA NA 15.213 Strides Arcolab 7,337.6 35.0 13.3 25.7 16.7 13.610 Alok Industries 1,072.1 7.4 4.9 36.8 34.1 13.414 3i Infotech 7,169.6 35.1 19.4 23.6 15.3 13.215 Bilcare 2,885.3 22.6 3.1 46.7 36.1 11.616 Orchid Chemicals 8,727.3 44.5 24.2 21.2 11.7 10.817 Reliance Mediaworks 1,521.7 13.2 9.0 62.2 54.0 10.018 ISMT 902.8 10.3 4.9 51.2 45.9 7.819 Gati 1,001.3 17.5 11.0 49.0 40.5 4.720 Prime Focus 3,566.6 53.7 42.8 53.8 24.9 3.1Source: Company annual report, BSE, RBI, Capitaline, Edelweiss researchNotes: For calculation of equity dilution we have assumed that conversion will happen at CMP after loading redemption premium to the parvalue of FCCBs converted at current exchange rate^Includes issues where ECP is higher than CMP even after considering 20% CAGRCompanies in annexure 4 have not been considered for above analysis*Tata Motors has recently announced the restructuring of FCCBs, which have not been considered for the above calculationEdelweiss Securities Limited9

Analysis beyond consensusAnnexure 4: List of exclusionBartronics IndiaHimadri ChemicalsICSA IndiaKLG SystelMoser BaerPatel EngineeringRajesh ExportsREI AgroSterlite IndustriesWockhardtEdelweiss Securities Limited10

Edelweiss Securities Limited, 14 th Floor, Express Towers, Nariman Point, Mumbai – 400 021,Board: (91-22) 2286 4400, Email: research@edelcap.comFCCBNaresh Kothari Co-Head Institutional Equities naresh.kothari@edelcap.com +91 22 2286 4246Vikas Khemani Co-Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411Recent researchDateTitle04-Feb-1020-Jan-1018-Jan-1007-Jan-1029-Dec-0910-Dec-0902-Dec-0930-Nov-0925-Nov-0924-Nov-0913-Nov-0910-Nov-0909-Nov-0903-Nov-0903-Nov-0922-Oct-0915-Oct-0912-Oct-09Annual Report Analysis Compendium FY09United Spirits – Annual Report AnalysisBharat Forge - Annual Report AnalysisUnitech - Annual Report AnalysisReliance Industries - Annual Report AnalysisGE Shipping - Annual Report AnalysisWelspun Gujarat – Annual Report AnalysisAppreciating INR: Mixed bagTata Chemicals – Annual Report AnalysisSun Pharmaceuticals – Annual Report AnalysisTata Communications – Annual Report AnalysisGST – Marching towards GSTDLF – Annual Report AnalysisJaiprakash Associates – Annual Report AnalysisSterlite Industries – Annual Report AnalysisPunj Lloyd – Annual Report AnalysisInfotech Enterprises – Annual Report AnalysisMahindra and Mahindra – Annual Report AnalysisAccess the entire repository of Edelweiss Research on www.edelresearch.comThis document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integratedinvestment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment bankingactivities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of anytransaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate orcomplete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage thatmay arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended tobe and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of thisdocument should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to inthis document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investmentdiscussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time totime, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involvingsuch securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest withrespect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for yourinformation. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, inwhole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located inany locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subjectEdelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certainjurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions.The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with thisinformation. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement asmay be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed toproviding independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. NeitherEdelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, specialor consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily aguide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not betreated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and theirfamily members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifiesthat all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and nopart of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reservedEdelweiss Research is also available on Bloomberg EDEL , Thomson Edelweiss First Call, Securities Reuters and Limited Factset.11