26th February 2011 - Motilal Oswal...Siyaram Silk Mills (*) Rs.320 1 TRADING PICK FROM 3 CMP NIL...

Large Cap CMP

Nestle India(*) Rs.3,521

Reliance Ind.(*) Rs.966

SBI Rs.2,584

1 TRADING PICK FROM 3

CMP: Current Market Price MBP: Maximum Buying Price

26th February 2011

“ Since Largre & Mid Cap shares are available at reasonable valuation , we have not recommended any stockfrom Small Cap segment.

Reliance Ind. 966

CMP

(*): New -entry

Mid Cap CMP

Ajanta Pharma(*) Rs.193

Bajaj Electricals (*) Rs.222

Siyaram Silk Mills (*) Rs.320

1 TRADING PICK FROM 3 CMP

NIL ---

MOSt Options Strategy

Strategy: Nifty Long Strangle(*) (Volatile)(Large Cap)

MOSt Mutual

ICICI Pru Focused Bluechip Equity Fund

UTI Master Value Fund

Reliance Equity Opportunities Fund (Multi Cap)

(Mid Cap)

26th February 2011FMCG

CMP (Rs.) 3,521

MBP (Rs.) 3,600

Face Value 10

Equity Shares (Mn) 96.4

52-Week Range (H/L) 4,199 /2,565

M.Cap. (Rs b) 339.5

Nestle IndiaNestlé India is a subsidiary of Nestlé S.A. of Switzerland. With seven factories and a large

number of co-packers, Nestlé India is a vibrant Company that provides consumers in Indiawith products of global standards and is committed to long-term sustainable growth and

shareholder satisfaction.

Recent Developments

Nestle India's 4QCY10 results are in-line with estimates. Adj PAT grew 66.3% to Rs2.2b (estRs.2.1b) led by Net Sales growth of 23.6% to Rs16.7b (est Rs16.8b). Domestic net sales

grew a robust 26.6% to Rs16b led by strong volume growth and realization growth.Exports de-grew 17.3% to Rs748m due to diversion of capacity for domestic demand andrupee appreciation.

Key investment arguments

Nestle India has started extending its product range, with new launches in Beverages (Sjora

Flavored Milk), Chocolates (Yorkie, Nestle Selections, Toffee Crisp, Aero and Black Magic),Milk Products (Nestle Double Toned Milk, Vanilla Milk, Cerelac and Nan Pro 1).

The R&D center at Manesar will be set up by the parent company (cost: Rs2.5b) and willcommission by 2012. This will be the parent's 30th R&D center and demonstrates its

confidence in India's growth potential.

Valuation and view:

We believe Nestle's strong volume growth momentum indicates the huge growth potential

in the processed foods sector and its ability to capitalize on the same. Nestle is in the midstof mega expansion plan which will see doubling of capacity at all the existing units.

We expect valuation premium to sustain due to strong growth outlook, established brandsand support from its parent Nestle SA. We maintain Buy with a target price of Rs4,016 (32x

CY12E EPS of Rs125.5).

FY10 FY11E FY12E

EPS (Rs) 85.8 103.3 125.5

PE(x) 41.0 34.1 28.1

26th February 2011Febr

CMP (Rs.) 966

MBP (Rs.) 700

Face Value 10

Equity Shares (Mn) 3,273

52-Week Range (H/L) 1,187 / 840

M.Cap. (Rs b) 3,178.4

Reliance IndustriesReliance Industries (RIL), a Fortune-500 company, is India's largest private sector entity, with

a turnover of US$40b and net profit of US$3.5b. It has reported historically high CAGRs ofover 22% in topline and bottomline through backward integration in energy chain (textiles,

petchem, refining and E&P) and is now moving into high growth areas like retail and SEZ.

Recent Developments

RIL announced sale of 30% stake in 23 NELP blocks to British Petroleum Plc at a considerationof (1) US$7.2b to be paid by FY12 and (2) future performance payment of US$1.8b to

accrue to RIL based on exploration success resulting in development of commercial discoveries.Also, RIL-BP partnership aims an investment of US$11b towards exploration and development

at these E&P blocks. Further, RIL & BP are forming a 50:50 JV for sourcing, transporting andmarketing natural gas in India.

Both RIL and BP to gain from the deal:

We believe RIL's reason for the deal was driven by the need to partner with a global energymajor with proven expertise in deepwater exploration. This deal may help RIL to overcome

the recent technical challenges in its producing KG-D6 block. Production at KG-D6, afterreaching 60mmscmd, has declined to 52mmscmd now.

With this deal, BP gets a strong foothold in the Indian oil & gas space.

Together, this partnership is targeting the entire gas value chain - from sourcing to distribution

and marketing in the high growth Indian market.

Valuation and view:

We believe this deal, apart from giving RIL access to BP's deepwater expertise, will also help

in diversifying its E&P risks. Based on our current capex assumptions, RIL will have a cashbalance of US$15b by end-FY12, which opens up significant investment opportunities,

returns on which are currently not captured in our valuation. Our SOTP currently will see arevision to Rs1,022 (earlier Rs975).

OIL & GAS

FY10 FY11E FY12E

EPS (Rs) 69.1 70.7 86.4

PE(x) 14.0 13.7 11.2

26th February 2011

CMP (Rs.) 2,584

MBP (Rs.) 2,650

Face Value 10

Equity Shares (Mn) 635

52-Week Range (H/L) 3,515 /1,903

M.Cap. (Rs b) 1,640.4

SBIState Bank of India (SBI) is the largest commercial bank in India, with a balance sheet size ofover Rs7t. The bank, along with associate banks, has a network of over 14,000 branches

across India and controls over 18% of the banking business. SBI's 3QFY11 PAT was up 14%YoY at Rs28.3b. Performance on operating parameters stood significantly better than

estimates. Some of the positive surprises are 18bp QoQ improvement in margins, lowerthan estimated opex (13% lower than est.) and Stable asset quality.

Recent Key Highlights:

SBI's 3QFY11 PAT was up 14% YoY at Rs28.3b (10% higher than our estimate). Performanceon operating parameters was significantly better than we had anticipated. Some of the

positive surprises are: margin improvement of 18bp QoQ (v/ s our estimate of 10bpdecline), lower than expected opex (13% lower than estimated), and stable asset quality.

Margins have improved sharply by 18bp QoQ and 79bp YoY to 3.61% led by sequentialdrop in cost of deposits and stable yield on loans. Improvement in CASA ratio and CD ratio

at elevated level of 77% also aided NIMs expansion. Mgmt guided of maintaining marginsat current levels. For FY12 mgmt guided for margin of 3.3%.

Fee income grew 13% YoY, however adjusted fee income growth was higher at 21%.Operating expenses increased 11% YoY (down 3% QoQ), 13% lower than our estimates.

With increase in benchmark yields, gratuity liability is lowered by Rs3b to Rs19b.

GNPA in absolute terms remained flat sequentially at Rs234b. PCR including technical writeoff increased to 64% (vs 62.8% in 2QFY11). The bank made provisions of Rs20.5b during

the quarter (in line with our est) including MTM provision of Rs2.1b. NPA provisions stoodat Rs16.3b.

Valuation and view:

The stock has corrected in the very near term. We see this as a buying opportunity and are

bullish on core operating profitability. We expect RoA to improve from 0.9% in FY10 to~1% in FY11 and ~1.1% in FY12-13. RoE is likely to improve from 15% in FY10 to 18-19%

by FY13 (without assuming capital raising). Maintain Buy.

FY10 FY11E FY12E

EPS 209.9 272.6 333.3

P/E 12.3 9.5 7.8

ABV 1297 1527 1794

P/BV 2.0 1.7 1.4

BANKING

26th February 2011PHARMACEUTICALS

Ajanta Pharma

CMP (Rs.) 193

MBP (Rs.) 200

Face Value 10


52-Week Range (H/L) 273 / 142

M.Cap. (Rs b) 2.2

Ajanta Pharma is a specialty pharmaceutical company engaged in the development,

manufacture and commercialization of pharmaceutical products.

Key Investment Arguments

Strong revenue growth: The domestic business is concentrated in Cardiovascular,Opthalmology and Dermatalogy, that are growing at higher than the industry growth of

14%. With a view to expand into Nephrology (liver related ailments), ENT and Orthopaedics,the company added 440 people to expand the sales force in 2010 to 1400. We expect

domestic revenues to grow from Rs.190 cr in FY10 to Rs.260 cr in FY12, with Rs.18 cr ofsales from these new segments.

Investment in R&D to create pipeline for growth beyond FY12: We estimate R&D

spend to rise from Rs.16 cr and Rs.20 cr in FY09 and FY10 respectively to Rs.25-30 cr inFY11 and FY12. This will support a product launch per quarter in the domestic market and

4-6 USFDA filings per annum. The company had 2 filings in FY10 and is likely to seerevenues from this product in FY13. The additional investments will help create a pipeline

for future revenues and higher earnings.

Institutional business could present added upsides: The company had ~15% of FY10

revenues from Insitutional sales to Indian governments and WHO. Ajanta was the 2ndcompany globally to receive approval from WHO for Artefan - a combination drug treatment

for falcipial Malaria. These sales and product approvals speak volumes of the company.Additional business will be an added driver of earnings.

Valuation and view:

Revenues are likely to rise over FY10-FY12E at 15% CAGR with earnings growth of 21%CAGR. Cash flows will be used to repay debt over the next two years. This will result in a EV

shift towards equity investors. We recommend an BUY on Ajanta Pharma for a target ofRs.255 based on 6.1x FY12 estimated EPS.

FY10 FY11E FY12E

EPS (Rs) 28.8 35.1 41.9

PE(x) 6.7 5.5 4.6

26th February 2011

Bajaj Electricals

CMP (Rs.) 222

MBP (Rs.) 235

Face Value 2


52-Week Range (H/L) 347 / 185

M.Cap. (Rs b) 22.0

Bajaj Electricals Limited is part of Shekhar Bajaj's Bajaj group of companies. BEL is has fivedifferent businesses organized as SBUs namely, Appliances, Fans, Lighting, Luminaires and

Engineering & Projects (E&P).

Investment Arguments:

Leadership position in consumer facing businesses: BEL is among the top 2 players in all

consumer facing businesses and has delivered CAGR growth of more than 25% in each ofthem for the last 5 years. It has distribution presence across 300000+ outlets, 6000+

distributors and 5000+dealers spread all over India.Entry into newer products like pressurecooker, gas stoves etc is likely to almost double the potential market size and aid growth.

Margins to stabilize in Engineering and Projects business: The margins in the E&P businessfell from ~ 13% in FY06-FY09 to ~10% in FY10 and to 3% during Q2FY11. During Q3FY11,

the margin increased to ~ 9%. Margin drop in this business has been a drag on theperformance of the stock since results of Q2FY11 were announced as the segment consumes

almost all the capital of the company. We expect that the worst is over for this segment andnegatives are factored in the price.

Strong Sales and Earnings Growth: We expect a CAGR growth of 24%/23% in Sales/PAT

during FY10-12E aided by similar growth in all reported segments.Our estimates are lowerthan the mean consensus EPS estimates for FY11E/FY12E by 15%/10% Margin improvement

at the operating level is the key upside risk to our estimates.

Valuations and View:

Strong growth coupled with high return ratios is likely to keep company richly valued.Negative surprise in E&P business during Q2FY11 resulted in fall of almost 33% in stock

prices from valuation of 18x to 12x. Moreover, consumer facing businesses contributealmost 2/3rd of EBIT for the company, where peer valuations of competitors are at around

13x-25x. We believe that stabilization in E&P business and receding cost pressure will leadto rerating of the stock to the pre Q2FY11 valuation levels. So we recommend BUY with a

target price of Rs.330(18xFY12E) in 15 months period.

CONSUMER

FY10 FY11E FY12E

EPS (Rs) 12.0 13.0 18.0

PE(x) 18.5 17.1 12.3

TEXTILE 26th February 2011

Siyaram Silk MillsCMP (Rs.) 320

MBP (Rs.) 335

Face Value 10


52-Week Range (H/L) 450 / 143

M.Cap. (Rs b) 2.9

Siyaram Silk Mills is one of renowned vertically integrates textile companies country. Itproduces 4 million meters of fabrics per annum. The company is in the process of expanding

its own production capacity, which will is likely to result in PAT CAGR of 29%, betweenFY10-12.

Key Investment Arguments:

Capacity Expansion : SSM is doing the capacity addition in own production capacity by41% from 35 mn meters to ~49mn meters of fabrics and from 2 lacs pieces to 2.5 lacspieces of readymade garments per month. The expansion is on track and company hasannounced further expansion in fabrics and readymade garments division at its manufacturingfacility at Tarapur and Daman.

Strong brand recall and demographic changes to drive growth: Fabric market is highlyfragmented with unorganized sector commanding ~94% of market share. Siyaram haspositioned itself in the branded segment with brands like OXEMBERG, MISTAIR, MSD,J HAMPSTEAD and SIYARAM. Other players in the branded polyviscose segment are Donearand Sangam Textiles. Players like Raymond, Digjam, OCM cater mainly to polywool andcotton fabric, where product prices are significantly higher than that of polyviscose. Marketis witnessing a shift towards branded players mainly in tier 2 and 3 towns, where polyviscosefabric is a cheaper substitute to cotton. SSM caters to this market through more than60000 multi brand outlets and account for 70% of its sales from such towns, where it hashigh brand recall and good distribution set up with ~ 1500 dealers and 500 agents.

Valuation and view:

The stock price performance has remained subdued since our recommendation and it is stillquoting at very attractive valuations. We believe that Siyaram Silk Mills is well placesamongs various textile companies to gain from higher demand for polyviscose fabrics,where company has niche presence. We have upgraded the our earnings estimates forSiyaram Silk Mills Ltd for FY 11E & FY12E. We maintain BUY on Siyaram Silk Mills Ltd. withtarget price of Rs.536.

FY10 FY11E FY12E

EPS (Rs) 36.0 52.0 62.0

PE(x) 8.9 6.2 5.2

26th February 20111 TRADING PICK FROM 3

02 January 2010Large Cap

Reliance Ind. 966

Mid Cap

Nil ----

26th February 2011

Reliance Ind.

CMP : 966

Stop Loss : 900

Target : 1,090

OIL & GAS

The stock has formidable multi-month support around the 900 mark and has recoveredstrongly with a gap up move on the daily charts. Now the stock has shown strength by

filling the gap and is expected to continue the uptrend with a move to the January high of1090 levels. The stop loss is at the 900 levels.

Daily Chart

MOSt Mutual 26th February 2011

(Large Cap)

MOSt Mutual

ICICI Pru Focused Bluechip Equity Fund

UTI Master Value Fund

Reliance Equity Opportunities Fund (Multi Cap)

(Mid Cap)

Latest NAV (Gr): Rs. 15.19 (Feb 24, 11)

Latest NAV (Div): Rs. 14.49 (Feb 24, 11)

Fund Category: Equity Diversified

Type: Open Ended

Exit Load (%): 1% (< 365 days)

Inception Date: 23-May-08

AAUM (Rs. Cr.): 1658.17 (Dec-10)

At a Glance

Top 5 Holdings 31.52%

No. of Stocks 24

Exposure to Sense 57.49%

Exposure to Nifty 72.38%

Portfolio PE Trailing 19.46

Expense Ratio (%) 1.91 (Jan 2011)

Fund Manager

Dividends Declared

NAV Movement

Style Box Analysis

Comparative Performance

Scheme Objective

It seeks to generate long-term capital

appreciation from a portfolio that is

substantially consituted of equity and equity

related securities of about 20 companies

belonging to the large cap domain.

Scheme Analysis

The scheme being launched in recession period

showed an outstanding performance and the

investors' confidence let its corpus grow to Rs.

1,658 cr (Dec 10) from Rs. 529 cr (Jun 08). The

fund sticked to large cap stocks only and also

capped the no. of stocks to 24. Bought at low

level of 2008, the fund showed the stellar

performance. It beat its benchmark in all

categories by a huge margin. The fund has high

allocations in Financial (25.5%), Energy (15.48%),

Technology (12.39%), and Automobile (12.30%).

It increased its exposure in Auto, Banks and

Software significantly.

Portfolio Attributes

26th February 2011ICICI Pru Focused Bluechip Equity Fund (Large-Cap)

Prashant Kothari (Since Apr 2008)

25-Jan-11 7.5%

- -

- -

0

5

10

15

20

25

30 ICICI Pru Focu sed Bluechip Equ ity Fund ‐Ret ‐GS&PNifty

‐11

‐1

9

19

29

39

49

59

6Months 1Year 2Years 3Years

ICICIPruFocusedBluechipEquityFund‐Ret‐Growth

S&PNifty




Entry Load (%): Nil


Inception Date: 1-Jun-98

AAUM (Rs. Cr.): 689.47 (Dec-10)

At a Glance


No. of Stocks 75

Exposure to Sense 13.48%



Expense Ratio 1.75 (Dec 2010)

Fund Manager

Dividends Declared

NAV Movement

Style Box Analysis


Scheme Objective

An open-ended equity fund which aims to

invest in stocks which are currently under-

valued to their future earning potential and

carry medium risk profile to provide 'Capital

Appreciation'

Scheme Analysis Anoop Bhaskar (Since April 2007)


26th February 2011UTI Master Value Fund (Mid-Cap)

It carries medium risk profile to provide 'capital

appreciation'. Since inception, the fund has seen

the best and worst period of its performance.

While in 2005, it performed reasonably well, in

2006 & 2008, it underperformed its category

return. However, in 2009 bull rally, it scored well

and returned 117.35% against category average

of 84.4% due to its large inclination towards

small- and mid-cap stocks. The fund has major

exposure in Financial (14.82%), Energy (10.91%)

and FMCG (10.81%). It also upped its exposure

in Softwares & Fertilizers forecasting the

improved scenario in India.

16-Jun-10 22.5%

15-Jun-09 20%

1-Dec-08 14%

0

5

10

15

20

25

30

35

40 U T I M as te r Va lu e Fu n d ‐G ro w th B S E 200

‐11

‐1

9

19

29

39

49

59

69

3Months 6Months 1Year 2Years

UTIMasterValueFund‐Growth BSE200




Entry Load (%): Nil


Inception Date: 31-Mar-05

AAUM (Rs. Cr.): 2861.48 (Dec-10)

At a Glance


No. of Stocks 34

Exposure to Sensex 25.09%



Expense Ratio 1.87 (Jan 2011)

Fund Manager

24-Jul-09 20%

19-Mar-08 15%

1-Feb-07 15%

Dividends Declared

NAV Movement

Style Box Analysis


Scheme Objective

It aims to invest in stocks across those sectors

and industries where India's strong inherent

potential is increasingly becoming visible to the

world, which are driving our economy and whose

fundamental future growth is influenced by

ongoing economic reforms, FDI inflows and

infrastructural changes.

Scheme Analysis

Sailesh Raj Bhan (Since March 2005)


26th February 2011Reliance Equity Opportunities Fund (Multi-Cap)

The Fund Manager is bullish on India's growth story

and have included stocks which have strong

fundamental and future growth. The portfolio

consists of major stocks such as Aventis Pharma

(5.22%), Maruti Suzuki (4.20%), SBI (4.19%), Divis

Lab (4.01%) and Trent Ltd (3.87%). The Fund

Manager is bullish on Services, Financial and

Technology. In its inception year, it caught investors

eye with its superb performance of 51.28% against

category (34.93%).However, in 2007 & 2008, it

performed badly. In 2009, the fund bounced back

with hefty returns. It returned 108.75% vs

category return of 84.40%.‐11

‐1

9

19

29

39

49

59

69

6Months 1Year 2Years 3Years

RelianceEquityOpportunitiesFund‐Growth

BSE100

0

5

10

15

20

2530

35

40 Relian ce Eq u ity Op po rtu n ities Fu n d ‐GrowthBSE100

26th February 2011OPTIONS STRATEGY

MOSt Options Strategy

Strategy: Nifty Long Strangle(*) (Volatile)

26th February 2011OPTIONS STRATEGY

BUY/SELL SCRIP SERIES OPTION STRIKE PRICE RECO PRICE

BUY NIFTY MAR CE 5400 ` 127

BUY NIFTY MAR PE 5100 ` 88

Pay Off on Expiry

Strategy: Nifty Long Strangle

View : Volatile

Rationale : 1.Expiry ahead of upcoming budget may continue to attract volatility.

2.Implied Volatility has spiked in last session of the week anticipating choppiness.

Premium Outflow : ̀ 10750.00 (per spread)

Margin : N.A.

BREAK EVEN POINT MAXIMUM PROFIT MAXIMUM LOSS

`215/- ` 160 i.e. Loss of ̀ 2750 ̀ 325 i.e. Profit of ̀ 5500

Strategy

Motilal Oswal Securities Ltd.Regd. Office:- Palm Spring Centre, 2nd floor, Palm Court ComplexNew Link Road, Malad (W), Mumbai-64.

Disclaimer : This report is for the personal information of the authorized recipient and does not construe to be any investment, legal ortaxation advice to you. Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. Thisreport is not for public distribution and has been furnished to you solely for your information and should not be reproduced orredistributed to any other person in any form.

The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it shouldnot be relied upon such. MOSt or any of its affiliates or employees shall not be in any way responsible for any loss or damage that mayarise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees donot provide, at any time, any express or implied warranty of any kind, regardingany matter pertaining to this report, including withoutlimitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. Therecipients of thisreport should rely on their own investigations.

MOSt and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise inthe securities/commodities and other investment products mentioned in this report. Further, MOSt and / or its Investment Banking Arm(Motilal Oswal Investment Advisors Private Limited) may have broking and / or investment banking relationship with the Compniescovered in this report.

Disclosure of Interest Statement:

The MOSt group and its Directors own shares in the following companies : Bharti Airtel, Birla Corporation, GSK Pharma, Hero Honda,IOC, Marico, Nestle India, Oriental Bank, Siemens, South Indian Bank, State Bank, Tata Steel.

MOSt has broking relationships with a few of the companies covered in this report.

MOSt is engaged in providing investment-banking services in the following companies covered in this report: Alok Industries andSintex Industris.

This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to thisstatement as may be required from time to time. Nevertheless, MOSt is committed to providing independent and transparentrecommendations to its clients, and would be happy to provide information in response to specific.

DISCLAIMER 26th February 2011

26th February 2011 - Motilal Oswal...Siyaram Silk Mills (*) Rs.320 1 TRADING PICK FROM 3 CMP NIL...

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