February 2014

May 2010

•A

How Accounting, Governance and Capital Allocation Drive

Alpha in India Analysts:
Saurabh Mukherjea, CFA
saurabhmukherjea@ambitcapital.com
+91 99877 85848
Gaurav Mehta, CFA
gauravmehta@ambitcapital.com
+91 22 3043 3255
Karan Khanna
karankhanna@ambitcapital.com
+91 22 3043 3251
Ambit Capital Private Limited Pg 1 Strictly confidential
Contents Page Numbers

 Delivering alpha in India 3-5

 Accounting 7-9

 Governance 11

 Capital allocation 13-17

 Case study: Crompton Greaves 18-20

 Case study: Arshiya 22-23

Ambit Capital Pvt. Ltd. Pg 2

On the face of it, Indian has been a middle-of-the road
market
Based on benchmark index performance, India has been an okay performer

Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research

Most Indian companies have failed to beat inflation The Sensex churns much more than other leading markets

80%...
…of listed companies have failed to beat
inflation (assumed at 7.9% p.a.) over the last 20
years

Source: Bloomberg, Ambit Capital research; Note: This exhibit has been reproduced
without any changes from our November 20, 2012 note: “The Nifty in 2022”

Ambit Capital Pvt. Ltd. Pg 3

However, certain types of Indian companies have delivered
Companies which deliver on our ‘greatness framework’ consistently outperform

b. Conversion of
a. Investment (gross investment to sales (asset
block) turnover, sales)

c. Pricing discipline (PBIT

margin)

d. Balance sheet discipline

e. Cash generation (D/E, cash ratio) Note: Bloomberg, Ambit Capital research; Note: The above chart plots the
(CFO) average performance for ‘great’ firms identified using our ‘greatness’ framework,
over the next one year. For more on the framework and the resulting stocks that
excel on this framework, please read our latest tenbaggers note here.
Source: Ambit Capital research

Superior RoCE generators outperform

Source: Bloomberg, Ambit Capital research; Note: The above chart plots the median performance for RoCE quintiles over the next one year.

Ambit Capital Pvt. Ltd. Pg 4

 Three factors are common to successful Indian firms

Our research over the past five years shows that over and above firm-specific competitive
advantages, three factors are essential for a company to consistently outperform:
 Clean accounting: Deciles constructed based on accounting scores show a tight
relationship with stock price performance, with D1 (i.e. the top 10% of BSE500 stocks on
accounting quality) outperforming D10 by a whopping 26% CAGR since April 2007.
 Lack of political connectivity: Firms whose central competitive advantage is political
connectivity seldom outperform in India.
 Conservative capital allocation: Indian companies are amongst the most aggressive
capital allocators in the world and that aggression costs their shareholders dear.
Our quarterly ‘Good & Clean’ (G&C) portfolios were created in response to these central
drivers of share prices in India.

Cumulative alpha of our ‘Good & Clean’ (G&C) portfolios
Source: Bloomberg, Ambit Capital research
3-step construction of our G&C portfolios:
1. Within each sector, we first identify firms that
do well on our ‘greatness’ and ‘accounting’
frameworks.
2. We then overlay our macro outlook and
valuation filters to identify sectors which are
placed favourably.
3. The sector-level champions from step 1 (for
the sectors identified in step 2) constitute
our G&C portfolio.
Please click here for the latest G&C portfolio.

Ambit Capital Pvt. Ltd. Pg 5

Contents Page Numbers

 Delivering alpha in India 3-5

 Accounting 7-9

 Governance 11

 Capital allocation 13-17

 Case study: Crompton Greaves 19-20

 Case study: Arshiya 22-23

Ambit Capital Pvt. Ltd. Pg 6

By itself, accounting quality drives alpha
Accounting quality drives investment performance

Sector neutral buckets show strong correlation

between accounting and investment performance
Accounting Accounting Share price
bucket score performance
Source: Bloomberg, Ambit Capital research; Note: This chart plots the average share Bucket A 227 8.8%
price performance with average accounting scores for deciles constructed only on the
Bucket B 198 7.7%
basis of accounting quality.
Bucket C 176 4.7%
Accounting quality vs share price performance for the utility sector Bucket D 146 -2.5%
Source: Bloomberg, Ambit Capital research; Note: Sector-agnostic
buckets constructed with homogenous sectoral make and
differentiated only on accounting quality show accounting quality
drives investment performance even after controlling for sector
effects.

Note: These exhibits have been reproduced without any

changes from our November 22, 2013 note: “Accounting
quality drives alpha”. In all of these exhibits, accounting
score is based on annual financials over FY08-13
(methodology discussed in the next slide); stock price
performance is from Apr 2007 to Nov 2013.
Source: Bloomberg, Ambit Capital research; Note: The above chart shows that withi n the
utilities sector there is a strong link between accounting scores and price performance.

Ambit Capital Pvt. Ltd. Pg 7

Our accounting screen has four groups of parameters
Key categories of accounting checks
Category Ratios
(1) CFO/EBITDA, (2) change in depreciation rate,
P&L misstatement checks and (3) non-operating expenses as a proportion
of total revenues.
(1) Cash yield, (2) change in reserves (excluding
share premium) to net income excluding
Balance sheet dividends, (3) provisions for doubtful debts as a
misstatement checks proportion of debtors more than six months, and
(4) contingent liability as a proportion of net
worth.
(1) CWIP to gross block, and (2) cumulative CFO
Cash pilferage checks
plus CFI to median revenues
(1) Audit fees as a proportion of standalone
Audit quality checks revenues, and (2) audit fees as a proportion of
total auditor’s remuneration
Source: Ambit Capital research; Note: This exhibit has been reproduced without any
changes from our November 22, 2013 note: “Accounting quality drives alpha”.
Ambit Capital Pvt. Ltd.
Methodology
 We look at six years of consolidated
financials for the BSE500 universe of
firms (excluding banks and financial
services firms)
 We first rank stocks on each of the
11 ratios individually (outlined in the
table on the left) within a sector
 These ranks are then cumulated
across parameters to give a final
pecking order on accounting quality
for stocks within each sector
 Only firms with better than
sector average accounting scores
are deemed suitable for our
model portfolios
Pg 8
 Four myths around accounting in India
 Myth 1: Accounting quality is secondary to published financial results.
 We believe accounting score is a better indicator of a firm’s underlying health than the published results -
Financial Technologies and Arshiya International are examples of firms that had otherwise shown
healthy EPS and BVPS CAGRs based on reported financials but received low forensic scores from us.
 Myth 2: The market already knows and discounts firms which have poor accounting quality.
 Whilst Satyam did trade at a P/E discount to Infosys and Wipro before the promoter owned up to aggressive
accounting in Jan ‘09, the stock still crashed by over 90% within two days of the fraud being made public.
 There is no correlation between P/Es and accounting scores i.e. the market does NOT factor in weak
accounting.
Accounting quality vs P/E at the market level Accounting quality vs P/E for the E&C sector

Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research

 Myth 3: In sectors such as E&C, Utilities and Capital Goods, weak accounting quality is a certainty.
 Several firms in these sectors (such as Elgi Equipment, Cummins India, Thermax, Engineers India, NTPC and
so on) have accounting scores that are far superior to the market average.
 Myth 4: Nifty firms have good accounting quality.
 33% of Nifty firms have accounting scores well below the market average.

Ambit Capital Pvt. Ltd. Pg 9

Contents Page Numbers

 Delivering alpha in India 3-5

 Accounting 7-9

 Governance 11

 Capital allocation 13-17

 Case study: Crompton Greaves 19-20

 Case study: Arshiya 22-23

Ambit Capital Pvt. Ltd. Pg 10

Politically connected companies underperform
Ambit’s connected companies index has underperformed the Companies who fare poorly on our forensic
BSE500 Index since the CAG report… accounting model tend to underperform
Average
Company/universe
Accounting score
Connected companies 163
BSE500 (ex connected cos.) 191

Power Utilities
NTPC +++
Torrent Power +++
Tata Power ++
Source: Bloomberg, Ambit Capital research; Note: Both Ambit’s connected companies JSW Energy +
index and BSE500 have been rebased to 100 at the beginning of 2009
Adani Power +
…whilst non-connected companies such as Idea and Thermax
have outperformed their sectors
Capital Goods
Cummins India +++
Thermax +++
BHEL ++
Suzlon Energy +
Note: +++ denotes accounting score better than the sector
average, ++ de notes accounting score near the sector average
and + denotes accounting score below the sector average

Source: Bloomberg, Ambit Capital research; Note: As there is no Telecom Index, we have
considered the average performance for the top-6 Telecom companies; share price has
been rebased to 100 at the beginning of 2009

Ambit Capital Pvt. Ltd. Pg 11

Contents Page Numbers

 Delivering alpha in India 3-5

 Accounting 7-9

 Governance 11

 Capital allocation 13-17

 Case study: Crompton Greaves 19-20

 Case study: Arshiya 22-23

Ambit Capital Pvt. Ltd. Pg 12

What explains the divergence in firm-level performance?
 Macro and policy are usually blamed when over 85% of the
 Firms within the same sectors, faced factors responsible are within the management’s control
with similar externalities, exhibited
divergent performances The root causes of revenue stalls
35%
30% STRATEGIC FA CTORS 70%
25% Premium Position Capacity 23%
Innovation management breakdown 13%
20% Premature core abandonment 10%
ROCE

Failed acquisition 7%
15%
Key customer dependency 6%
10% Strategic difusion orconglomeration 5%
Adjacency failures 4%
5% Voluntary growth slowdown 2%
0% Within
FY04

FY05
FY06

FY07
FY08

FY09
FY10

FY11
FY12

FY13
Management's
Control 87%

Infosys HCL Tech

Source: Ambit Capital research
ORGA NIZATIONAL FA CTORS 17%
350% Talent bench shortfall 9%
Board inaction 4%
300% Organizational design 2%
Incorrect performance metrics 2%
250%
200%
ROCE

150%
EXTERNAL FA CTORS 13%
100% Regulatory actions 7%
Outside Economic Downturn 4%
50% Geopolitical changes 1%
Management's
National labor market inflexibility 1%
0% Control 13%
FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Source: From the article “When Growth Stalls” by Matthew S.

Bajaj TVS Olson, Derek Van Bever and Seth Verry of Harvard Business
Source: Ambit Capital research
Review (http://hbr.org/2008/03/when-growth-stalls/ar/1)

Ambit Capital Pvt. Ltd. Pg 13

Capital allocation is the key…
 Capital allocation choices significantly impact  Returning cash is often the best option available
RoCEs
Last ten year median ROCE

Organic: Inorganic: Universe

Capex Acquisitions
Cash returned (Q1)

Capex (Q1)

Acquisition (Q1)

Cash retained (Q1)

Expand 0% 10% 20% 30% 40%

Source: Capitaline, Ambit Capital research
Do nothing
Capital Cash builds up
allocation  Whilst unbridled expansion hurts, hoarding
choices cash compresses RoCE too

Cost of retaining cash

Return
40%

Return ratios (pre-tax)

Cost of
30%
hoarding
20%

Share buybacks/ 10%

Dividends debt repayment
0%
Median FY12 ROIC Median FY12 ROCE
Source: Ambit Capital research Source: Capitaline, Ambit Capital research

Note: These exhibits have been reproduced without any changes from our July 31, 2013 note: “The cashflow conundrum for India Inc”.

Ambit Capital Pvt. Ltd. Pg 14

…and the stockmarket rewards superior RoCEs

 Capital allocation has more to it than just a focus on ‘growth’

Median outperformance- 10 yr CAGR

12.0%
12%
10% 9.0%
8% 5.9%
6% Note: These exhibits have been reproduced without any changes
4% from our July 31, 2013 note: “The cashflow conundrum for
2% India Inc”.
0%
Superior revenue growth Superior ROCE Superior on both

Source: Bloomberg, Ambit Capital research

 RoCEs are more stable for a firm over time than across firms at any
given time
Cross-section Time-series
Coefficient of variation (across firms in an average year) (over time for an average firm)

Median 0.92 0.41

Average 1.33 0.50
Source: Capitaline, Ambit Capital research

 This is true within sectors too (example of Automobile sector below)

Cross-section Time-series
Coefficient of variation (across firms in an average year) (over time for an average firm)

Median 0.65 0.37

Average 0.61 0.40
Source: Capitaline, Ambit Capital research

Ambit Capital Pvt. Ltd. Pg 15

Indian firms’ urge to splurge is high
 Even in terms of stockmarket performance,  … whilst buybacks are rewarded
acquisitions have a poor track record ….

Post acquisition -3% 3yr 3yr 5%

rel CAGRs
-5% 1yr Pre acquisition 1yr 4%
rel CAGRs Pre buyback
rel CAGRs Pos t buyback
1yr 10% -2% 1yr rel CAGRs

3yr 14% -4% 3yr

-10% -5% 0% 5% 10% 15% -5% -3% -1% 1% 3% 5%

relative returns relative returns

Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research

 … and yet Indian promoters have an exceptionally

high urge to splurge
0.5
USA

Div & Buyback (proportion of

0.4
Thailand Indonesia
India Brazil Hong Kong 0.3
South Africa
0.2

CFO)
China Russia
Mexico 0.1

0
Note: These exhibits have been reproduced without any changes -1.4 -1.2 -1 -0.8 -0.6 -0.4
from our July 31, 2013 note: “The cashflow conundrum for
India Inc”. Capex & Acqn (proportion of CFO)

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt. Ltd. Pg 16

Superior RoCE generators of the past decade
Cash spent Cumulative Cumulative cash RoCE FY02- Mar03-
Company on cash returned added back Latest Latest coefficient FY12 Net Mar13 price
Ticker
name investing to to balance RoCE RoiC of Sales CAGR (rel to
activities# shareholders# sheet# variation CAGR BSE200 index)
ITC ITC IN 35% 53% 22% 52% 77% 0.10 18% 11%
Indraprastha Gas IGL IN 93% 18% 5% 34% 32% 0.12 36% DNA
Sun TV Network SUNTV IN 77% 36% 8% 41% 48% 0.14 28% DNA
Oracle Fin.Serv. OFSS IN 111% 3% 95% 25% 47% 0.14 22% -1%
Marico MRCO IN 98% 20% 18% 24% 27% 0.15 19% 20%
ON GC ONGC IN 65% 23% 8% 30% 27% 0.16 20% -2%
Berger Paints BRGR IN 79% 33% 17% 26% 28% 0.17 19% 22%
Cadila Health. CDH IN 113% 22% 12% 24% 24% 0.17 21% 15%
Pidilite Inds. PIDI IN 74% 27% 20% 35% 42% 0.18 20% 18%
TCS TCS IN 53% 43% 18% 53% 62% 0.18 DNA DNA
Lupin LPC IN 93% 20% 10% 25% 26% 0.20 22% 28%
Divi's Lab. DIVI IN 55% 26% 26% 34% 44% 0.20 25% 26%
Ipca Labs. IPCA IN 89% 18% 1% 27% 27% 0.20 19% 22%
Wipro WPRO IN 57% 29% 33% 25% 31% 0.21 27% -6%
Asian Paints APNT IN 44% 41% 20% 50% 61% 0.23 21% 16%
Bosch BOS IN 27% 22% 44% 23% 36% 0.23 19% 18%
Nestle India NEST IN 47% 52% 6% 62% 52% 0.24 15% 4%
Source: Bloomberg, Ambit
Grasim Inds GRASIM IN 69% 7% 23% 21% 22% 0.27 19% 8%
Capital research
HCL Technologies HCLT IN 48% 39% 11% 31% 35% 0.28 29% 7%
Cummins India KKC IN 8% 59% 30% 43% 59% 0.31 15% 10% Note: This exhibit has been
Sun Pharma.Inds. SUNP IN 42% 22% 51% 28% 38% 0.32 28% 22% reproduced without any
Thermax TMX IN 34% 29% 43% 24% 31% 0.39 26% 15% changes from our July 31,
Container Corpn. CCRI IN 36% 23% 38% 22% 33% 0.23 12% 5% 2013 note: “The cashflow
conundrum for India
Infosys* INFO IN 15% 38% 54% 37% 86% 0.10 29% -1%
Inc”
Glaxosmit Pharma* GLXO IN -57% 85% 64% 47% 350% 0.13 9% 2%
Hero Motocorp* HMCL IN 16% 57% 23% 62% 251% 0.24 18% 3% * denotes large difference
GlaxoSmith CHL* SKB IN 24% 40% 47% 52% 350% 0.28 12% 15% between RoCE and ROIC,
CRISIL* CRISIL IN 34% 57% 24% 66% 131% 0.29 28% 23% suggesting ‘hoarding’ of
Castrol India* CSTRL IN 1% 75% 15% 107% 350% 0.39 10% 1% cash,
Bajaj Auto* BJAUT IN 13% 47% 53% 60% 213% 0.39 DNA DNA
# as a pr oportion of
Median (this list) 47% 31% 22% 34% 43% 0.20 20% 13%
cumulative CFO
Median (universe) 91% 17% 22% 20% 20% 0.40 23%

Ambit Capital Pvt. Ltd. Pg 17

Contents Page Numbers

 Delivering alpha in India 3-5

 Accounting 7-9

 Governance 11

 Capital allocation 13-17

 Case study: Crompton Greaves 19-20

 Case study: Arshiya 22-23

Ambit Capital Pvt. Ltd. Pg 18

 Did you know….?
1) Crompton Greaves-auditor’s remuneration vis-à-vis peers 2) Significant related party transactions
FY11 FY12 FY13  FY08: Crompton Greaves purchases co-ownership
Crompton
rights in an aircraft from a related party, M/s Asia
Net Sales (Rs mn) 100,051 112,486 120,944
Audit Fees (Rs mn)) 55.7 86.1 ND Aviation Ltd., a company in the business of providing
Audit Fees as a % of Total revenues 0.06 0.08 NA air-charter services, for an amount of Rs 562.5mn-
Siemens Gautam Thapar, MD & CEO of Crompton Greaves,
Net Sales ( Rs mn) 120,289 129,199 113,526
Audit Fees (Rs mn)) 14.8 23.0 29.0
was also a director of this company
Audit Fees as a % of Total revenues 0.01 0.02 0.03  FY11: Purchase of another aircraft for Rs 2700mn-
ABB India
Net Sales (Rs mn)
no disclosures made in the FY11 annual report as to
62,871 74,518 76,105
Audit Fees (Rs mn)) 6.0 10.4 10.4 whether or not this was a related party transaction.
Audit Fees as a % of Total revenues 0.01 0.01 0.01
Alstom T&D India*
 FY12: Issues raised by investors with management
Net Sales (Rs mn) 40,200 33,113 31,519 in 2QFY12 regarding these transactions.
Audit Fees (Rs mn)) 6.3 2.9 4.3 Subsequently the management transferred the entire
Audit Fees as a % of Total revenues 0.02 0.01 0.01
block of aircrafts at book value to its unlisted related
Thermax#
Net Sales (Rs mn) 48,524 53,041 46,909
parties, M/s Asia Aviation Ltd (Rs 411.7mn) and M/s
Audit Fees (Rs mn)) 5.2 5.6 6.2 Avantha Holdings Ltd (Rs 2,405mn).
Audit Fees as a % of Total revenues 0.01 0.01 0.01

3) Composition of audit committee

Source: Company, Ambit Capital research; * FY12 numbers have been
annualized, # standalone numbers

Note: This is an updated version of the exhibit that had appeared

in our May 08, 2013 note: “Indian annual reports: facts or
fiction?”

Ambit Capital Pvt. Ltd. Pg 19

Crompton Greaves’ share price performance

Source: Company filings, Bloomberg, Ambit Capital research; Note: Both Crompton Greaves’ share price and
BSE Capital Goods Index have been rebased to 100 at the beginning of 2009

Ambit Capital Pvt. Ltd. Pg 20

Contents Page Numbers

 Delivering alpha in India 3-5

 Accounting 7-9

 Governance 11

 Capital allocation 13-17

 Case study: Crompton Greaves 19-20

 Case study: Arshiya 22-23

Ambit Capital Pvt. Ltd. Pg 21

 Comparing Arshiya with its peers is an interesting exercise
Aggressive revenue recognition Fictitious revenue booking?
Company\Metric CFO as a % of EBITDA Debtor days Investment income as a % of cash
Company\Metric
FY08 FY09 FY10 FY08 FY09 FY10 and marketable investments
Gateway Distriparks FY08 FY09 FY10
85% 75% 132% 38 38 46
(Gateway) Gateway 7.8% 8.1% 4.0%
Allcargo Global Allcargo * 6.1% 6.1% 14.9%
88% 37% 86% 47 41 47
Logistics*(Allcargo) Arshiya 4.2% 4.8% 1.4%
Arshiya 18% 44% 24% 59 83 143 Concor 9.8% 10.3% 7.8%
Container Corporation of Average 7.0% 7.3% 7.0%
78% 86% 65% 1 2 2
India (Concor) Arshiya divergence from peer
-2.8% -2.5% -5.6%
Average (A) 67% 60% 77% 36 41 60 group
Average (ex-Concor) (B) 64% 52% 81% 48 54 79 Source: Company, Ambit Capital research; Note: This exhibit has been
Arshiya divergence from reproduced without any changes from our bespoke on the company dated
-49% -16% -53% 23 42 83 January 12, 2011. * indicates Dec year end
peer group average (A)
Arshiya divergence from
peer group (excl Concor) -45% -8% -57% 11 29 64
average (B)
Source: Company, Ambit Capital research; Note: This exhibit has been reproduced without any
changes from our bespoke on the company dated January 12, 2011. * indicates Dec year end
Sharp decline in depreciation rate Debtor provisions
YoY change in Provision for bad debts as % of
Company\Metric Depreciation rate (%) Company\Metric
depreciation rate (bps) Debtors
FY08 FY09 FY10 FY09 FY10 FY08 FY09 FY10
Gateway 5.1% 5.4% 4.7% 33 -69 Gateway 20.6% 17.4% 20.0%
Allcargo* 5.6% 7.1% 6.7% 145 -39 Allcargo* 0.4% 1.8% 1.7%
Arshiya 17.1% 8.7% 4.9% -838 -376 Arshiya 0.3% 0.7% 0.3%
Concor 5.0% 4.7% 4.8% -25 6 Concor 6.4% 9.0% 12.0%
Average 8.2% 6.5% 5.3% -171 -120 Average 6.9% 7.2% 8.5%
Arshiya divergence Arshiya divergence from
from peer group 8.9% 2.2% -0.3% -666 -257 -6.6% -6.6% -8.2%
peer group
average Source: Company, Ambit Capital research; Note: This exhibit has been
Source: Company, Ambit Capital research; Note: This exhibit has been reproduced without any reproduced without any changes from our bespoke on the company dated
changes from our bespoke on the company dated January 12, 2011. * indicates Dec year end January 12, 2011. * indicates Dec year end

Ambit Capital Pvt. Ltd. Pg 22

Arshiya’s share price performance

Source: Company, Press articles, Bloomberg, Ambit Capital research; Note: Arshiya and Gateway Distriparks’ share
price as well as Sensex have been rebased to 100 at the beginning of 2009

Ambit Capital Pvt. Ltd. Pg 23

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Co n flict of Interests
15. In the normal course of AMBIT Capital’ s business circumstances may arise that could result in the interests of AMBIT Cap ital conflicting w ith the interests of clients or one client’s interests conflict ing with the interest of another client. AMBIT
Capital makes best efforts to ensure that conflicts are identified and managed and that clients’ interests are protected. AMBIT Capital has policies and procedures in pla ce to control the flow and use of non-public, price sensitive inf ormation
and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT
Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT Capital’s services.
16. AMBIT Capital and/or its affiliates ma y from time to time have investment banking, investment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same. Research
analysts provide important inputs into AMBIT Capital’s investment banking and other business selection processes.
17. AMBIT Capital and/or its affiliates ma y seek investment banking or other businesses from the companies co vered in this Research Report and research analysts involved in preparing this Research Report may participate in the solicitation of
such business.
18. In addition to the foregoing, the companies covered in this Research Report may be clients of AMBIT Capital where AMBIT Capital may be required, inter alia, to prepare and publish research reports covering such companies and AMBIT
Capital may receive compensation from such companies in relation to such services. However, the views reflected in this Research Report are objective views, independent of AMBIT Capital’s relationship with such company.
19. In addition, AMBIT Capital may a lso act as a market maker or risk arbitrator or liquidit y provider or ma y have assumed an underwriting commitment in the securities of co mpanies covered in this Research Report (or in related investments)
and may also be represented in the supervisory board or on any other committee of those companies.

Ad d itional disclaimer for U.S.Persons

19. The research report is solely a product of AMBIT Capital
20. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report;
21. Any subsequent transactions in securities discussed in the research reports should be effected through J.P.P. Euro-Securities, Inc. (“JPP”).
22. JPP does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports
23. The research analyst(s) preparing the research report is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that therefore the analyst(s) is/are not subject to supervision by a U.S.
broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise co mply with U.S. rules or regulations regarding, among other things, communications with a sub ject company, pub lic
appearances and trading securities held by a research analyst account.

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