16December2013 India Daily

8/13/2019 16December2013 India Daily

1/16

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES.REFER TO THE END OF THIS MATERIAL.

INDIA DAILYDecember 16, 2013

Kotak Institutional Equities Research

[email protected] . Mumbai: +91-22-4336-0000

India 13-Dec 1-day1-mo 3-mo

Sensex 20,716 (1.0) 1.5 4.9

Nifty 6,168 (1.1) 1.9 5.6

Global/Regional indices

Dow Jones 15,755 0.1 (1.3) 1.7

Nasdaq Composite 4,001 0.1 0.4 7.6

FTSE 6,440 (0.1) (3.8) (2.8)

Nikkei 15,314 (0.6) 1.0 6.3

HangSeng 23,138 (0.5) 0.5 (0.5)

KOSPI 1,964 0.0 (2.1) (2.5)

Value traded India

Cash(NSE+BSE) 121 132 134

Derivatives (NSE) 1,308 1,458 1,252

Deri. open interest 1,485 1,375 1,495

Forex/money market

Change, basis points

13-Dec 1-day 1-mo 3-mo

Rs/US$ 62.0 (11) (16) (130)

10yr govt bond, % 9.3 (1) 8 35

Net investment (US$mn)

12-Dec MTD CYTD

FIIs 39 1,270 18,729

MFs (45) (148) (4,008)

Top movers

Change, %

Best performers 13-Dec 1-day 1-mo 3-mo

ADE IN Equity 248.2 (1.5) 1.6 83.5TCOM IN Equity 271.0 (1.4) (3.0) 51.4

TPW IN Equity 109.3 (5.2) 3.8 51.2

SUEL IN Equity 9.4 (3.1) 3.3 43.5

TATA IN Equity 415.2 0.6 10.6 42.4

Worst performers

FTECH IN Equity 153.2 (1.9) 1.5 (17.0)

IOCL IN Equity 199.3 (1.7) 0.6 (14.1)

ESOIL IN Equity 51.5 (1.8) 1.7 (13.2)

CIPLA IN Equity 376.7 (1.1) (6.5) (12.5)

UT IN Equity 15.4 (1.3) (7.2) (11.5)

Contents

Daily Alerts

CompanyShriram Transport:Management meeting takeaways - cautious outlook

Collections efficiency picks up, remains the key monitorable Key drivers for NIMs in the short, medium and long term

Sector

Telecom:Spectrum chronicles - volume XIII: NIA for January 2014 auctionsissued

Key highlights of the NIA for January 2014 spectrum auctions


2/16

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities [email protected]

Mumbai: +91-22-4336-0000

Collections efficiency picks up, remains the key monitorable

STFC said monthly collection efficiency improved considerably over August-September 2013,

reducing the risk of a significant rise in NPLs. According to industry sources, a strong monsoon in

August paralyzed CV transport in select pockets of the country. Coupled with weak overall

demand, CV operators could not make their EMI payments during August-September 2013.However, monthly collections have improved since and hence the risk of NPLs is now lower.

Several borrowers are servicing monthly EMIs but are unable to cover the previous deficit; such

borrowers remain in the 1-2 month delinquency segment.

STFCs management will await business trends over the next two quarters to get more assertive on

the business. We believe the trend in collections, though improved, is the key monitorable. Any

further weakness will push borrowers towards the 4-6 month delinquency segment, or closer to

the NPL bucket. STFCs management highlighted that destruction of crops in select pockets (AP,

Bihar, Orissa) due to heavy rains would affect the December harvest and hence overall demand for

transport of its borrowers in that belt would be weak. Rising diesel prices and interest rates will

likely sustain pressure on the sector.

Key drivers for NIMs in the short, medium and long term

We expect STFC to deliver 7% NIM in the medium term. While cash on the balance sheet and

interest reversals on slippages are likely to put pressure on margins in the near term, a hike in

lending yields and focus on rural loans are expected to boost yields over time.

Higher cash provides downside risk to our near-term NIM estimates.STFCs NIM (calculated)

declined to 6.8% in 2QFY14 from 7.0% in 1QFY14. Higher cash on the balance sheet was a key

reason for lower NIM in 1QFY14. STFC raised `30 bn in bank loans (at ~100 bps higher rates) and

fully used the cash-credit limit; thus, cash on the balance sheet increased to `80 bn from `50-55

bn in 1QFY14. The management highlighted that cash on the balance sheet would stay high for

the next 1-2 quarters. As such, NIM expansion may be delayed. We model 7.1% NIM over the

next six quarters, which may have some downside in the next two quarters.

Shriram Transport(SHTF)Banks/Financial Institutions

Management meeting takeawayscautious outlook. At our recent meeting,Shriram Transport Finance (STFC) management retained a cautious business outlook.

While incremental trends seem to be better, the management will await more signals toget assertive on the business. We continue to build elevated credit costs and moderate

growth in our assumptions. We analyze various drivers of STFCs NIM over the short,

medium and long term. We find some downside to our near-term NIM assumptions ascash on the balance sheet is high. We retain our ADD rating with a target price of `670.

Shriram Transport

Stock data Forecasts/Valuations 2013 2014E 2015E

52-week range (Rs) (high,low) EPS (Rs) 61.0 61.8 74.2

Market Cap. (Rs bn) 137.8 EPS growth (%) 8.2 1.4 20.1

Shareholding pattern (%)P/E (X) 10.0 9.8 8.2

Promoters 25.9 NII (Rs bn) 35.3 37.7 44.7

FIIs 49.7 Net profits (Rs bn) 13.6 13.8 16.6

MFs 0.5 BVPS 311.6 358.1 412.1

Price performance (%) 1M 3M 12M P/B (X) 1.9 1.7 1.5

Absolute 9.7 8.5 (15.2) ROE (%) 20.6 17.8 18.3

Rel. to BSE-30 6.3 2.6 (21.6) Div. Yield (%) 1.2 1.4 1.7

Company data and valuation summary

843-464

ADD

DECEMBER 16, 2013

UPDATE

Coverage view:Cautious

Price (`):596

Target price (`):670

BSE-30: 20,716

Nischint [email protected]

Mumbai: +91-22-4336-0887

M.B. Mahesh, [email protected]

Mumbai: +91-22-4336-0886

Geetika [email protected]

Mumbai: +91-22-4336-0888


3/16

Shriram Transport Banks/Financial Institutions

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Benefit of rate hike may not be reflected soon.To offset the impact of higher

borrowings cost (up 50 bps qoq in 2QFY14), STFC raised lending rates by 50 bps in August.

The existing loan book carries a fixed rate and the higher rates are effective only on

incremental loans. Hence, the impact of higher rates will be visible after 2-3 quarters.

Well placed to deliver 7% NIM in the medium term.STFC earns gross asset yield of

about 17% (new CV loans yield 15% IRR, newer used CVs 16-17%, older used CVs 19%

and rural loans over 20%). Cost of borrowings on the balance sheet is about 11% while

securitized loans are 8.5-9% (30% of the loans under management are securitized). Thus,

the company is well placed to deliver about 7% gross spread. The negative impact from

cash on the balance sheet and income recognition on slippages will temper near-term NIMs.

Exhibit 1: STFC is likely to deliver 7% NIM in the medium termYield, cost of borrowings and NIM, March fiscal year-ends, 2008-2016E (%)

-

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Yields on loans on balance sheet Cost of borrowings NIM

Source: Company, Kotak Institutional Equities estimates

Rural loans will boost yields over time.STFC has focused on 3-5 year-old used CV (newer

used CVs) which has pulled down asset yields but boosted loan growth, the yield on such

loans (16-17%) being higher than new CV loans (15%), but lower than older used CVs

(19%) and rural loans (20%-plus). The share of newer used CV loans is about 12% of total

loans. To offset the impact of lower rates on newer used CVs, the company has focused on

small-vehicle finance in rural India at higher rates (IRR of 20-21%). However, this segment is

only 3.5% of the total loan book. The rural business is challenging to grow in light of its

lower ticket size and difficulty in reaching out. STFC expects that over time the share of ruralloans will catch up with that of newer used CVs.

However, older used CVs finance under pressure.The newer used CVs emerged as a

new segment for STFC in FY2013. Initially, the company focused on this segment due to

liability-side challenges (as per new regulations, loans purchased from NBFCs with IRR over

8% on banks base rates cannot be considered for PSL; hence NBFCs need to focus on low-

yield assets to tap securitization funds). However, STFCs traditional used-CV segment is

disadvantaged in the current market. With rising fuel prices, the demand for older used CVs

will remain weak unless freight rates increase sharply.


4/16

Banks/Financial Institutions Shriram Transport

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Loan growth to moderate, less dependence on CVs positive in the long run

STFC delivered AUM growth of 22% yoy in 2QFY14 (24% in March 2013) led by growth in

used-CV disbursements; new-CV loans declined by 6% qoq in 2QFY14 due to a 9% qoq

decline in 1QFY14. We model 15% loan growth in FY2014E and 18% growth in FY2015E.

We believe STFC is well placed to deliver 15-18% loan growth over time due to 10-12%

growth in CVs, increase in product lines and higher share in the business.

STFC has reduced dependence on CVs.Over the years, STFC has tried to reduce focus on

CVs. Currently CVs comprise only 72% of consolidated loans under management (75% of

standalone balance sheet loans). The other asset classes include (1) construction equipment

(10% of consolidated loans, 5% of standalone loans under management), (2) passenger

vehicles (about 8%) and (3) MUVs (about 5%).

Capital infusion in equipment-finance business on the cards

Capital infusion in equipment-finance business.According to unauthenticated media

reports, Shriram Equipment Finance (SEF) proposes to raise equity and divest partial stake to

financial investors. The company had a loan book of `33 bn and net worth of `4.5 bn as of

2QFY14; it proposes to raise `1.5-2 bn. Exhibit 2 shows that the business will be valued at

`8-14 bn (post money) assuming valuation at 1-2X PBR FY2015E. STFCs stake in the

business will reduce to 80-90%. We are not assigning any value to the equipment-finance

business in our valuation of STFC. The business will likely add `28-56/share of STFC, or 4-

8% to the target price if we assume the aforesaid valuation.

Exhibit 2: SEF is likely to add 4-8% to STFCs target priceSEFs post-dilution valuation and contribution to STFCs target price, March fiscal year-end, 2015E

Scenario I Scenario II Scenario III

(1X PBR) (1.5X PBR) (2X PBR)

SEF 2015E book value pre-dilution (Rs mn) 6,239 6,239 6,239

Pre-money valuation (Rs mn) 6,239 9,359 12,479

Capital infusion assumed (Rs mn) 1,500 1,500 1,500

Value of SEF post-dilution (Rs bn) 7,739 10,859 13,979

STFC's stake in SEF after infusion (%) 81 86 89

SEF vlaue for STFC (Rs mn) 6,239 9,359 12,479

Value per share of STFC (Rs) 28 42 56

% of STFC's target price 4.2 6.3 8.3


High growth in recent years on a low base.The company has delivered 58% CAGR in

loan book over the past two years, largely due to used-CE finance. Disbursements grew

19% yoy in 2QFY14 to `4.9 bn, led by growth in disbursements in used CV (grew 149% yoy)

while disbursements in new CEs declined 25% yoy.

High credit losses pose a challenge.SEFs gross NPLs peaked at 1.4% in 4QFY13 and

stabilized at 0.8-1% of loans in 1HFY14; however credit cost (to average loans) ratio was

1.9% in 2QHFY14 and 0.9% in FY2013. The company reported 25% RoE in FY2013, which

declined to 21% in 2QFY14 (annualized) due to higher credit costs. In the light of high

credit costs and a challenging environment for construction equipment, SEF may find it

challenging to conclude the placement in the current environment.

Long history of equipment finance.STFC was engaged in the construction equipment

finance business for several years; until 4QFY11 the business was booked in the parent

company. As of 4QFY13, construction equipment represented 10% of the consolidatedloans assets, out of which 4% were on the balance sheet of SEF and balance of the parent.


5/16



Exhibit 3: Shriram Equipment Finance quarterly dataMarch fiscal year-ends, 1QFY12-2QFY14

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Income statement (Rs mn)

Revenue from operations 331 464 580 725 835 957 1,069 1,186 1,289 1,346

Interest costs 144 204 277 338 423 499 532 604 682 706Net interest income 187 260 304 388 413 458 537 582 606 639

Operating expenses 65 65 73 92 103 110 115 130 145 136

Employee expenses 36 39 39 58 62 65 65 77 94 80

Other expenses 27 25 32 33 40 44 48 52 49 55

PPOP 123 195 231 296 309 349 422 455 461 503

Provisions 9 10 13 42 48 22 33 110 75 152

PBT 114 185 218 254 261 327 389 345 386 352

Provision for tax 39 61 71 82 85 106 126 112 130 119

PAT 74 124 147 172 176 221 263 233 256 232

NPLs

Gross NPL (Rs mn) 2 15 54 51 115 126 161 420 252 318

Gross NPL (%) 0.0 0.1 0.4 0.3 0.5 0.5 0.6 1.4 0.8 1.0

Net NPL (Rs mn) 2 14 46 15 38 34 48 234 95 129Net NPL (%) 0.0 0.1 0.3 0.1 0.2 0.1 0.2 0.8 0.3 0.4

Per share (Rs)

BPS (Rs) 19 31 46 63 80 102 129 152 178 201

EPS (Rs) 7 12 15 17 18 22 26 23 26 23

Key ratios (%)ROA (%) 3.2 4.1 4.2 4.0 3.4 3.9 4.1 3.2 3.2 2.8ROE (%) 13.8 18.0 20.4 22.6 21.9 25.9 28.8 23.9 24.7 21.1

NIM-KS (%) 9.3 8.7 9.0 8.1 8.1 8.4 8.1 7.8 8.0

Key loan book/ balance sheet highlights

Total disbursement (Rs mn) 3,758 3,857 3,325 5,467 3,782 4,090 5,812 6,233 4,170 4,871

Used CE 731 788 763 863 776 1,035 1,655 1,558 1,421 2,580

New CE 3,027 3,069 2,562 4,604 3,006 3,055 4,158 4,675 2,750 2,291

AUMs (Rs mn) 9,575 12,891 15,059 19,234 21,418 23,809 27,253 30,412 31,527 32,113

Total assets (Rs mn) 11,038 12,958 15,191 19,385 21,532 24,065 27,520 30,715 32,890 33,133

Shareholders equity (Rs mn) 2,685 2,809 2,956 3,127 3,304 3,525 3,788 4,020 4,276 4,508

ROE decomposition (% of assets)

NII 6.8 8.7 8.6 9.0 8.1 8.0 8.3 8.0 7.6 7.7Other income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total income 6.8 8.7 8.6 9.0 8.1 8.0 8.3 8.0 7.6 7.7

Operating costs 2.3 2.2 2.1 2.1 2.0 1.9 1.8 1.8 1.8 1.6

Credit costs 0.3 0.3 0.4 1.0 0.9 0.4 0.5 1.5 0.9 1.8

ROA pre-tax 4.1 6.2 6.2 5.9 5.1 5.7 6.0 4.7 4.9 4.3

ROA 2.7 4.1 4.2 4.0 3.4 3.9 4.1 3.2 3.2 2.8

Average assets/ average equity (X) 4.1 4.4 4.9 5.7 6.4 6.7 7.1 7.5 7.7 7.5

RoE 11.0 18.0 20.4 22.6 21.9 25.9 28.8 23.9 24.7 21.1

Source: Company, Kotak Institutional Equities


6/16

Banks/Financial Institutions Shriram Transport


Exhibit 4: STFC trades at 1.5X PBROne-year forward rolling PER and PBR, December 2007-December 2013

0

4

8

12

16

20

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

0

1

2

3

4

5

Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Exhibit 5: Shriram Transport Finance - key ratiosMarch fiscal year-ends, 2011-2016E (%)

2011 2012 2013

Growth in key parameters (%)Loans under management 23.8 11.2 23.8

Total assets 17.2 13.2 25.3

Borrowings 7.7 16.3 34.1

Net interest income 37.9 14.1 0.7

Operating expenses 65.5 4.4 (13.3)

Key ratios(%)NII/ AUMs(%) 9.4 9.2 7.9

Operating expenses/total income 27.8 26.4 22.4

Tax rate 33.5 33.1 32.5

Dividend payout ratio 13.9 13.6 13.6

Debt/ equity (X) 4.05 3.86 4.31

Du Pont Analysis

(% of average AUMs)Net interest income 9.4 9.2 7.9

Loan loss provisions 1.6 2.0 1.9

Net other income 0.7 0.3 0.4

Operating expenses 2.8 2.5 1.8

(1- tax rate) 66.5 66.9 67.5ROA 3.8 3.3 3.0Average AUMs/average equity (X) 7.5 7.0 6.8

ROE 28.1 23.1 20.6



7/16



Exhibit 6: Shriram Transport Finance - income statement and balance sheetMarch fiscal year-ends, 2011-2016E (`mn)

2011 2012 2013 2014E 2015E 2016E

Income statementTotal interest income 51,848 57,923 63,955 71,878 84,097 100,244

Total interest expense 21,164 22,919 28,703 34,165 39,427 46,778

Net interest income 30,684 35,004 35,251 37,713 44,670 53,466Provisions and write/off 5,235 7,683 8,508 10,265 11,287 13,844

Net interest income (after prov.) 25,449 27,321 26,743 27,448 33,383 39,622

Other income 2,162 1,015 1,680 2,350 2,500 2,750

Operating expenses 9,121 9,524 8,262 9,800 11,871 14,103

Employee expenses 3,582 3,701 3,848 4,566 5,686 6,746

Depreciation 108 135 183 186 159 161

Advt and commission/brokerage 109 241 236 259 285 314

Sourcing and collection commission - 25 30 30 30 30

Other expenses 5,322 5,423 3,965 4,758 5,710 6,852

Pretax income 18,490 18,812 20,161 19,997 24,012 28,269Tax provisions 6,190 6,234 6,556 6,199 7,444 8,763

Net Profit 12,300 12,578 13,606 13,798 16,568 19,506

% growth 41 2 8 1 20 18EPS (Rs) 55 56 61 62 74 87

% growth 41 2 8 1 20 18

BPS (Rs) 220 269 322 374 436 509

ABVPS (Rs) 216 264 312 358 412 480

Balance sheet

Total Loans 197,690 220,821 311,227 373,107 462,970 562,488Investments 80 80 80 80 80 80

Cash & deposits 36,251 53,812 63,193 62,623 63,500 64,529

Loans and advances 1,590 8,753 32,311 35,542 39,097 43,006

Net fixed assets 384 377 600 49 (129) (253)

Other current assets 42,125 32,247 2,473 2,473 2,473 2,473

Total assets 316,084 357,721 448,332 512,322 606,438 710,770

Total Borrowings 198,817 231,274 310,024 334,604 409,308 473,298Current liabilities 55,720 51,052 48,405 70,890 69,445 84,373

Provisions 12,503 15,527 17,955 23,342 30,344 39,448

Total liabilities 267,040 297,852 376,384 428,836 509,098 597,119

Share capital 2,231 2,231 2,231 2,231 2,231 2,231

Reserves 46,782 57,659 69,679 81,217 95,071 111,382

Shareholders fund 49,044 59,922 71,947 83,486 97,340 113,651

Truck AUM 360,860 401,280 496,760 568,108 668,628 780,652



8/16

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities [email protected]

Mumbai: +91-22-4336-0000

Key highlights of the NIA for January 2014 spectrum auctions

1,800 MHz spectrum will be auctioned in all 22 circles. The quantum of spectrum varies from aslow as 2.4 MHz (paired) in UP (West) to as high as 30.2 MHz in the Tamil Nadu (including

Chennai) circle. 1,800 spectrum being put up for auction includes the current 1,800 spectrum

holdings of Bharti/Vodafone in Delhi and Kolkata and Vodafone/Loop in Mumbai (no spectrumreservation for current operatorsthey will have to buy spectrum in the auctions to continue

operations).

900 MHz spectrum will be auctioned in Delhi, Mumbai and Kolkata16 MHz (paired) each inDelhi and Mumbai and 14 MHz in Kolkata. None of this is fresh spectrum, but essentially

spectrum currently being used by the 1995 licensees, Bharti/Vodafone in Delhi and Kolkata and

Vodafone/Loop in Mumbai.

Simultaneous ascending e-auctions for 1,800 MHz and 900 MHz auctions. This is similar to theprocess followed in the past auctions (3G and BWA auctions in 2010, November 2012 and

March 2013 auctions).

Bidding block defined as 200 KHz in the 1,800 band and 1 MHz in the 900 band. To illustrate,this means 151 200-KHz blocks will be auctioned in the 1,800 band in the Tamil Nadu circle

and 16 1-MHz blocks will be auctioned in the 900 band in the Delhi circle. Reserve prices have

been set at the bidding block level.

Minimum bid quantum. Three blocks (or 0.6 MHz) for an existing player and 25 blocks (or5 MHz) for a new entrant in the 1,800 band. A minimum of five blocks for all players in the 900

band; there are no existing players for the purpose of 900 band auctions as the players whose

licenses are expiring would be considered new players for the purpose of spectrum auctions in

those circles. However, a player whose license is not expiring but currently holds either 900 or

1,800 band spectrum in a circle would be considered an existing operator for both 900 and1,800 auctions (for that circle).

Maximum bid quantum. This is governed by spectrum caps; no player can have more than 25%of the total spectrum (across bands) in any circle and more than 50% of spectrum in a

particular band in any circle. Spectrum bids would be added to the current spectrum holdings

to test this cap.

Key dates. Pre-bid conference on December 20, 2013; last date for applicationsJanuary 4,2014; publication of list of applicantsJanuary 7, 2014; publication of final list of approved

biddersJanuary 16, 2014; commencement of auctionsJanuary 23, 2014; payment of

successful bid amountswithin 10 calendar days of the close of the auction.

TelecomIndia

Spectrum chroniclesvolume XIII: NIA for January 2014 auctions issued. TheDepartment of Telecommunications (DOT) has released a notice inviting applications

(NIA) for the upcoming January 2014 spectrum auctions. These auctions would see1,800 MHz spectrum being auctioned in all 22 circles and 900 MHz spectrum being

auctioned in three circles (Delhi, Mumbai and Kolkata). The auctions are slated to

commence on January 23, 2014.

ATTRACTIVE

DECEMBER 16, 2013

UPDATE

BSE-30: 20,716

Rohit [email protected]

Mumbai: +91-22-4336-0885

Shyam [email protected]

Mumbai: +91-22-4336-0862


9/16

Telecom India


Payment terms. There are two options(1) full upfront payment and (2) deferredpayment option. Upfront payment of 25% of bid amount in case of 900 and 33% in case

of 1,800, followed by 10 equal annual installments after a two-year moratorium. Interest

rate applied to compute the equal annual installment is set at 10%. Choice of payment

option by successful bidders will have a bearing on auction collection for the exchequer

from a fiscal target perspective. Total proceeds, if all spectrum is sold at reserve prices,

would be around `487 bn; cash proceeds, if all successful bidders opt for the deferred

payment option would be `151 bn.

Discovered spectrum prices (for circles where these auctions succeed) shall remaincurrent/applicable for a year from the date of these auctions. Any scenario (an M&A or

an operator wanting to liberalize its spectrum holdings) beyond a year would use these

discovered prices adjusted upwards by using SBI PLR as the reference rate.

Exhibits 1-3 depict the NIA details of 900 and 1,800 auctions and their respective timelines.

We shall publish thoughts on how we see these auctions panning out and the

import of the outcome in the run-up to the auctions over the next month. In anycase, the base case assumption built into our fair value computation for wireless

stocks (1,800 clears at reserve prices and 900 at about a 50% premium to reserve

prices) builds in ample conservatism. We stay positive on Bharti and Idea.

Exhibit 1: Details of the 1,800 MHz auctions

EMD per block Eligibility points

Circle Blocks (#) MHz per block per MHz (Rs mn) per block

Andhra Pradesh 113 22.6 326 1,630 73 55

Assam 57 11.4 14 70 5 3

Bihar 21 4.2 74 370 15 10

Delhi 114 22.8 438 2,190 73 55Gujarat 60 12.0 286 1,430 73 55

Haryana 82 16.4 54 270 15 10

Himachal Pradesh 102 20.4 12 60 5 3

Jammu & Kashmir 31 6.2 10 50 5 3

Karnataka 123 24.6 310 1,550 73 55

Kerala 140 28.0 104 520 30 22

Kolkata 134 26.8 146 730 30 22

Madhya Pradesh 96 19.2 86 430 15 10

Maharashtra 70 14.0 346 1,730 73 55

Mumbai 126 25.2 414 2,070 73 55

North East 134 26.8 14 70 5 3

Orissa 140 28.0 32 160 15 10

Punjab 92 18.4 108 540 30 22

Rajasthan 104 20.8 52 260 15 10Tamilnadu 151 30.2 416 2,080 73 55

UP (East) 49 9.8 122 610 30 22

UP (West) 12 2.4 124 620 30 22

West Bengal 65 13.0 42 210 15 10

Total 2,016 403.2 3,530 17,650 768 567

Notes:

(1) Each block is of 200 KHz.

Reserve price (Rs mn)Spectrum quantity

Source: DoT, Kotak Institutional Equities


10/16

India Telecom


Exhibit 2: Details of the 900 MHz auction

Quantum Reserve price EMD per block Eligibility points

Circle (MHz) (Rs mn/ MHz) (Rs mn) per blockDelhi 16.0 3,600 345 300

Kolkata 16.0 1,250 188 150Mumbai 14.0 3,280 345 300

Total 46.0 8,130 878 750


Exhibit 3: Timeline of auction-related events

Date Event

December 12, 2013 Issue of Notice Inviting Applications (NIA)December 20, 2013 Pre-bid conference

December 24, 2013 Last date for seeking clarifications on NIA

December 28, 2013 Clarifications to NIA

January 4, 2014 Last date for submission of applications

January 7, 2014 Publication of ownership details of applicants

January 10, 2014 Bidder Ownership Compliance Certificate

January 14, 2014 Pre-qualification of bidders

January 16, 2014 Final list of bidders

January 21-22, 2014 Mock auction

January 23, 2014 Start of the auction

Within 10 calendar days of close of auction Payment of the successful bid amounts



11/16


12/16


13/16


14/16


15/16


Disclosures

"Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is

responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companiesand securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or

views expressed in this report: Rohit Chordia, Nischint Chawathe."

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of September 30, 2013

Percentage of companies covered by Kotak Institutional

Equities, within the specified category.

Percentage of companies within each category for which

Kotak Institutional Equities and or its affiliates has provided

investment banking services within the previous 12 months.

* The above cat egories are defined as f ollows: Buy = We

expect this stock to deliver more than 15% ret urns over the

next 12 months; Add = We expect this stock to deliver

5-15% returns over the next 12 months; Reduce = We

expect this stock to deliver -5-+5% re turns over the next

12 months; Sell = We expect this stock to deliver less than -

5% returns over the next 12 months. Our target prices are

also on a 12-month horizon basis. These ratings are used

illustratively to comply with applicable regulations. As of

30/09/2013 Kotak Institutional Equities Investment Researchhad investment ratings on 165 equity securities.

13.9%

32.7%34.5%

18.8%

6.1% 5.5%

0.6% 1.8%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD.We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver


16/16

Corporate Office Overseas Offices

Kotak Securities Ltd.

27 BKC, Plot No. C-27, G Block

Bandra Kurla Complex, Bandra (E)

Mumbai 400 051, India

Tel: +91-22-43360000

Kotak Mahindra (UK) Ltd

8th Floor, Portsoken House

155-157 Minories

London EC3N 1LS

Tel: +44-20-7977-6900

Kotak Mahindra Inc

50 Main Street, Ste. 890

Westchester Financial Centre

White Plains, New York 10606

Tel:+1-914-997-6120

Copyright 2013 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on

communications with a subject company, public appearances and trading securities held by a research analyst account.

3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Incand (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at

[email protected].

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with

our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking

and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals

provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its

affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research

professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on

the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its

analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that

the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or

advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary

or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may

make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of

the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with

the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would

be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a

personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice

or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The

price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any

investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities

Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are

not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should

not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis

the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and

employees, including persons involved in the preparation or issuance of this material, may from time to time have long or short positions in, act as principal in,

and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates

holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings

does not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible under

applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency

denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the

investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition

options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before

entering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historicalinformation, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be

deemed to mean and include Kotak Mahindra Inc.

16December2013 India Daily

Documents

Transcript of 16December2013 India Daily