ERC Newsletter - July 12

NEWSLETTER T h e E d g e i n E q u i t y

F

1 ERC-IIFT-Equity

INDEX

Aug 03, 2012

SECTOR UPDATE

CONTENTS PAGE NO.

Auto and Auto Ancillaries 2

BFSI 5

Capital Goods 8

Energy 11

Infrastructure 14

IT/ITES 17

Metal & Mining 20

Pharmaceuticals & HealthCare 23

F

2 ERC-IIFT-Equity

AUTO & AUTO ANCILLARIES

Aug 03, 2012

SECTOR UPDATE

Slowdown in demand is visible across segments excluding UV’s & LCV

Slowdown is seen in the passenger car segment and 2W Volumes. But

UV’s & LCV’s maintain strong volume growth. But bullish on high

volume growth due to strong economic growth, new product launches

& export potential.

Margins to improvement from 1QFY13 onwards

Operating margins are estimated to improve in FY13, benefitting from

price increases and stable commodity cost. However, volatile Forex in

some segments would restrict pricing power.

Petrol Price hiked by 70 paise wef 24th July 2012, Could be raised

again

State Oil firms raised price since international crude prices crossed

$100 mark once again after a gap of 45 days. Indian Oil Corporation

said prices could be raised again.

New Two Wheelers Launched

1) Honda launches Dream Yuga 110 cc motorcycle, priced at INR

44,642

2) Bajaj Auto unveiled Discover ST 125 sports commuter motorcycle

3) Suzuki India launches mass segment motorcycle Hayate. With this

launch, Suzuki Motorcycle India forayed into the mass motorcycle

segment.

4) Honda Motorcycles launches new CBR 150R at INR116,400

Valuation and View

Since our Index has been in line and later in the month out performed

the Nifty and with a positive view on interest rate and stable

commodity prices, we believe the performance of slow segments such

as 4W could improve.

We prefer Tata Motors Ltd (strong volume growth in JLR) and Bajaj Auto

(growth driven by new product launches and exports)

3m 9m 12m

BAJAJ AUTO 2% -5% 9%

TATA MOTORS -2.7% 16% 16.4%

MARUTI -16% 0% -7%

M&M -3% -17% -4%

EICHER -13% 17% 48%

TVS -8% -43% -27%

ASHOK LeyLand -24% -14% -12%

27 months Relative Performance of ERC

Auto Index v/s Nifty

June 2012 Relative Performance of ERC

Auto Index v/s Nifty

Major Gainers Bajaj Auto(7%), Eicher

Motors (2%)

Major Losers Maruti Suzuki (8%), TVS (5%),

Ashok Leyland (5%)

3 ERC-IIFT-Equity

August 03, 2012

ERC-IIFT | Equity | Auto & Auto Ancillaries

Passenger Cars: - Volume Trends (Units Sold)

Sales EBITDA Adjusted PAT

Q1FY13 Q1FY12 % change Q1FY13 Q1FY12 % change Q1FY13 Q1FY12 % change

BAJAJ 4,865.66 4,777.29 2% 1,053.67 983.93 7% 718.39 711.06 1%

ASHOK LL 3,007.35 2,495.51 21% 253.57 248.74 2% 66.94 86.25 -22%

TVS 1,819.75 1,746.03 4% 112.55 117.13 -4% 51.1 58.8 -13%

SWARAJ 118.16 110.22 7% 21.11 18.54 14% 13.7 13.54 1%

EXIDE 1,553.58 1,244.41 25% 247.51 253.03 -2% 152.03 163.2 -7%

MARUTI 10,778.15 8,529.30 26% 898.6 994.47 -10% 423.77 549.23 -23%

March 12 Volumes have

picked up due to pull forward

demand before year end.

Post March there has been a

slow down in the sales of

passengers cars which is

evident from the monthly

sales number.

4 ERC-IIFT-Equity

August 03, 2012

ERC-IIFT | Equity | Auto & Auto Ancillaries

Commercial Vehicles: - Volume Trends (Units Sold)

2 Wheelers: - Volume Trends (Units Sold)

Total Volumes remained

muted due to slow M&HCV

sales

Sales were mostly driven by

LCVs.

Tata Motors dominated in

domestic LCV market.

LCVs had continued growth

Some signs of slowdown for

2W market towards the

year end.

Hero Motocorp & Bajaj

dominated in <125cc &

>125cc respectively.

Disclaimer: This document has been prepared by the Equity Research Cell at Indian Institute of Foreign Trade, New Delhi and is meant for

use by the recipient only as information and is not for circulation. Equity Research Cell at IIFT is a student run organization and the

reports are for academic purposes. This document is not to be reported or copied or made available to others without prior permission of

ERC-IIFT. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in

this report has been obtained from sources that are considered to be reliable. However, ERC-IIFT has not independently verified the

accuracy or completeness of the same. Neither ERC nor any of its members, accept any responsibility of whatsoever nature for the

information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report

should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well.

The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice

should be sought from an independent expert/advisor.

F

5 ERC-IIFT-Equity

BFSI

Aug 03, 2012

SECTOR UPDATE

Source – NSE Historical Data, Holding Period Returns Only

RBI's revised restructuring norms to affect banks' earnings

The Reserve Bank of India's proposed move to hike the standard asset

provisioning requirement will impact the earnings of public sector banks by 5 to

10%. In its working group report to review restructuring guidelines, the central

bank advocates tighter regime of restructuring compared to the current norms,

which it believes are fret with moral hazard issues. To recognize the inherent

risk on restructured standard asset, it has proposed to raise provision from 2%

to 5% over two years for restructured stock, but with immediate effect for fresh

restructuring.

Asset quality under strain

The Indian banking sector has been going through tough times as asset quality

remains under strain. Corporate India's credit quality is under strain because of

lower profitability, weak demand, and tight liquidity because of the prevailing

macroeconomic situation in the country.

Moreover, Indian banks face significant risks from their disproportionate

exposure to a few large companies, particularly in sensitive sectors like

infrastructure.

Poor rains may add to bank’s woes

There could be stress on repayments due to poor rains and MFIs may deal with

this by rescheduling or extending the tenure of repayments to ease the burden

on borrowers. The government’s demand for a waiver on loans to farmers by

public sector banks may also have an adverse effect on their books.

STOCK CALLS

Price Performance of Major players

3m 6m 12m

HDFC 7.92% 16.99% 19.45%

ICICI 4.93% 3.24% 10.74%

Axis 8.03% 6.40% 24.20%

SBI 9.54% 7.42% 13.98

PNB 16.76% 26.04% 35.94%

Major

Gainers

Yes Bank (5.09%), ICICI Bank (4.18%), HDFC Bank (1.74%)

Major

Losers

UBI (19.29%), Bank of India (18.38%), Canara Bank (14.95%)

HDFC Bank : HOLD

For 1Q FY2013, HDFC Bank reported healthy 30.6% yoy growth in its net

profit to Rs.1,417cr. Strong balance sheet growth, sequentially higher

margins and stable asset quality were the key highlights of the result

ICICI Bank : BUY

ICICI Bank reported PAT of Rs.1815 crore in Q1FY13.

Net Interest Income was Rs.3193 crore in Q1FY13

AXIS Bank : BUY

For 1Q FY2013, Axis Bank reported 22.4% yoy growth in its net profit

to Rs. 1,154cr. Key highlights of the results were sequential compression

in NIMs by 18bp, sequential increase in Gross and Net NPA levels and

subdued fee income growth on a high base of last year

6 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | BFSI

Net profit Sales EBITDA

Q1FY13 Q1FY12 (%)

QOQ Q1FY13 Q1FY12

(%)

QOQ Q1FY13 Q1FY12

(%)

QOQ

HDFC Bank 1417.39 1084.98 30.64% 8007.42 5997.97 33.50% 6617.00 4719.71 40.20%

ICICI Bank 1815.05 1332.21 36.24% 9545.65 7618.52 25.30% 8836.17 6987.77 26.45%

PNB 1245.67 1105.07 12.72% 10544.9 8315.24 26.81% 8658.23 6780.37 27.70%

Axis Bank 1153.52 942.35 22.41% 6482.86 4881.40 32.81% 6007.82 4539.94 32.33%

Central Bank of India 335.95 280.78 19.65% 5302.62 4558.27 16.33% 4364.84 3626.83 20.35%

Source:Company Press Releases; All figures in Rs. Crores except percentages

43,000.0

44,000.0

45,000.0

46,000.0

47,000.0

48,000.0

49,000.0

Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12

Bank Credit (Rs. Bn)

Aggregate Deposits ratio’s of

scheduled banks have shown a steady

increase over a period of last six

months. With volatile stock markets

and gold prices peaking during period

of March the deposit ratio have risen

over the period.

Bank credit to the industry decelerated

in June on the back of poor demand

from the infrastructure and textile

sector. The credit to the industry was

at Rs. 20,068.90 billion in the month of

June, up 20.3 % from a year ago.

However, the growth rate of credit to

industry was lower than 22% in June

2011.

57,000.0

58,000.0

59,000.0

60,000.0

61,000.0

62,000.0

63,000.0

Jan-12 Feb-12 Mar-12 Apr-12 May-12

Aggregate Deposits- All Scheduled Banks of India (Rs. bn)

7 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | BFSI

High Credit ratio as compared to

Reserve Bank of India’s norm of 60% is

a worrying factor since it may affect

growth of robust credit portfolio. The

surge in Credit Deposit ratio is mainly

due to fall in denominator. RBI could

find it difficult to cut rates as it would

further increase demand for money

and reduce growth in deposits.

Cash Deposit ratio’s have shown a

steady decline due to RBI cutting

down key measure rates and

infusing liquidity in the market

during the period. Declining C-D

ratio is an encouraging sign of

economic development, especially in

this age of plastic money and

electronic payments.

Disclaimer:This document has been prepared by the Equity Research Cell at Indian Institute of Foreign Trade, New Delhi and is meant for










74.0

75.0

76.0

77.0

78.0

79.0


Credit- Deposit Ratio

5.0

5.5

6.0

6.5

7.0

7.5


Cash-Deposit Ratio

F

8 ERC-IIFT-Equity

Capital Goods

Aug 03, 2012

Source – NSE Historical Data, Holding Period Returns Only

Macro Indicators still not very encouraging

Macro indicators ranging from inflation, IIP, commodity prices are still

not encouraging. Despite good results by L&T & BHEL the order inflow

& the order book remain weak. With investment reports pointing to

shelving of projects the outlook remains uncertain. We continue with

our NEUTRAL rating on the sector.

Weak order inflow to put pressure on revenues in FY13

Order inflows are still very sluggish with BHEL reporting a drop of Rs

2000crores in the total order book. Thermax reported a drop of

Rs1762crores in the order balance on a Y-o-Y basis. L&T reported a 21%

increase in the order book but mainly on the back of a weak base effect.

Overall value of orders continues to decline sharply by 51% to

Rs54,100crores in July’12 on a M-o-M basis.

High Capital Cost holding back investment

Most corporate have shelved various investment plans looking at the

high cost of debt. With the general outlook on the entire debt market as

risky and reports by rating agencies capital costs have risen making

projects unviable. With the RBI still hawkish on interest rates citing

persistent inflation as a reason the investment scenario still remains

weak.

STOCK CALLS

3m 6m 12m

L&T

8.06% -4.46% 24.86%

BHEL -8.66% -23.90% -42.94%

SIEMENS -17.52% -13.67% -29.16%

CG -12.50% -20.69% -35.08%

ABB

-4.09% -2.76% -10.46%

Suzlon -19.67% -39.93% -66.54%

BEL -15.86% -14.38% -29.03%

Thermax 7.36% -4.28% -18.08%

ERC Capital Goods Index vis-à-vis S&P CNX NIFTY

Price Performance - Economic Woes Continue

BUY Larsen & Toubro.

With a strong order book growth of 21% despite a weak base effect.

The company has reported a strong order growth from the Middle

East.

ACCUMULATE Thermax .

With the power sector set for a probable upswing in the coming

quarters the company may tide over the slowdown with orders in the

range of Rs7bn – Rs8bn.

HOLD Havells.

With the only company in the ERC-Capital Goods universe to have

given sustained positive returns over the past one year and strong

product portfolio with good performance Havells is a good

investment.

Source – NSE, Figures represent Holding Period Returns only.

MCX Metals Index – Slight uptick in prices, might exert pressure

SECTOR UPDATE

9 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Capital Goods

Sales EBITDA Adjusted PAT

Q1FY13 Q1FY12 Per cent

change Q1FY13 Q1FY12

Per cent

change Q1FY13 Q1FY12

Per cent

change

L&T 11,955.35 9,482.11 26.08 1,654.49 1,418.08 16.67 863.65 746.15 15.75

BHEL 8,326.24 7,123.38 16.89 1,568.46 1361.88 15.17 920.90 815.51 12.92

CROMPTON 1659.17 1468.83 12.96 176.43 202.32 -12.80 120.27 129.02 -6.78

THERMAX 983.47 1044.42 -5.79 115.09 128.43 -10.39 67.21 79.88 -15.86

HAVELLS 1035.51 802.65 25.59 112.44 88.06 25.66 80.08 64.79 23.60

BHARAT 796.92 939.89 -15.86 56.94 196.22 -71.01 19.33 122.81 -84.26

The overall order book growth

has remained sluggish. Larsen &

Toubro reported a healthy order

book growth of 21% but the

growth was mainly due to a lower

base effect. BHEL’s order book

declined to 1.33 lakh crores from

1.35 lakh crores over the previous

quarter.

-15

-10

-5

0

5

10

15

Q1:2

009

-10

Q2:2

009

-10

Q3:2

009

-10

Q4:2

009

-10

Q1:2

010

-11

Q2:2

010

-11

Q3:2

010

-11

Q4:2

010-1

1

Q1:2

011

-12

Q2:2

011

-12

Q3:2

011

-12

Q4:2

011

-12

Exhibit -2 New Order Book Q-o-Q Growth (in per cent)

Source –Company Press Releases, Capitaline Databases, All Figures in Rs crores except per cent

Exhibit 1 - Q1FY13 Results Summary – Weak order book might exert pressure in coming quarters

10 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Capital Goods

Exhibit -3 Capacity Utilization

130

140

150

160

170

180

190

200

Q4

FY0

9

Q1

FY1

0

Q2

FY1

0

Q3

FY1

0

Q4

FY1

0

Q1

FY1

1

Q2

FY1

1

Q3

FY1

1

Q4

FY1

1

Q1

FY1

2

Q2

FY1

2

Q3

FY1

2

Q4

FY1

2

Exhibit -4 Index of Industrial Prodution (Manufacturing)

Capacity utilization has shown

an improved over the previous

quarter but with the outlook still

uncertain on order inflow

sluggish in certain segments

especially power utilization may

not be able to sustain the growth

over the long term. Overall

capacity utilization remains

below the FY07 peaks.

The IIP data of April & May have

shown slight growth over the

previous corresponding periods.

But high interest rates and

uncertain policy environment

impede confidence in industrial

production. Capital Goods IIP has

shown a considerable

improvement over the previous

periods.











68

70

72

74

76

78

80

82

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

F

11 ERC-IIFT-Equity

ENERGY

Aug 03, 2012

SECTOR UPDATE

States broadly agree on price pooling of coal

The states have broadly agreed on pooling of prices of locally produced and

imported coal, a development which would fast-track efforts to import the dry

fuel through Coal India to meet the growing domestic demand. CIL has set a

production target of 464 million tonnes (MT) for 2012-13. Coal's demand-

supply gap likely to reach 185 MT by 2017 against 137 MT at present.

Crude prices increased, GRMs improve:

Brent crude oil prices appreciated by around 15% from its lows (USD terms),

with limited appreciation of the rupee; this translates into a 11% increase in

rupee terms. Strength in the cracks of Gasoline, Naphtha, Gas oil and other

middle distillates resulted in expansion of the benchmark Singapore margins to

US$6.9/bbls (July) over June average.

OMC hikes petrol prices by Rs. 0.70/litre

Oil Marketing Companies have decided to increased prices of petrol by Rs.

0.70/litre (ex-state levies) w.e.f midnight of 23-24 July, 2012. The prices are

increased due to increasing international oil prices and movement in INR-USD

exchange rate. The average price of Indian basket of crude for the relevant

pricing period considered is $101.28/bbl while International price is

$111.59/bbl. The Rs./USD exchange rate is around Rs. 55.36/USD. At these

levels, OMC are incurring losses of about Rs. 1.41/litre in the domestic market.

Gas output from RIL's KG-D6 fields drops

According to a status report filed by the RIL with the Oil Ministry, KG-D6 field of

Reliance Industries has seen further drop in natural gas output to 30.82 million

standard cubic meters per day from 31.57 mmcmd in the beginning of the

month as high water and sand ingress led to shutting of 8 wells.

India misses 11th Plan's oil & natural gas target by wide margin

According to the Planning Commission, India's oil and gas production targets

slipped significantly in the 11th Plan due to delays in project implementation by

ONGC, Cairn and RIL and non-availability of rigs. The country missed crude oil

output target of 206.73 million tonne in the plan period by 14%, while gas

output was 16% less than the 255.76 billion cubic meter (bcm) target set for

2007-12, the Planning Commission said in a note circulated at the meeting of

states' power ministers to discuss energy security issues in the 12th Plan.

Outlook

Outlook for the energy sector is expected to be week primarily due to huge

losses expected by the oil marketing companies (OMCs) and pending

reimbursement by the central government. The gas distribution companies also

see a weak outlook due to rising gas costs in the country and lower domestic

gas supply.

3m 9m 12m

ONGC 6.93 2.99 4.63

GAIL 7.44 -16.37 -23.85

NTPC -1.78 -11.47 -11.22

RELIANCE 0.00 -13.60 -10.50

CAIRN INDIA -3.25 11.27 7.26

POWER GRID 8.53 14.76 10.70

TATA POWER -4.66 -2.77 -24.17

RELATIVE PERFORMANCE OF NIFTY & ERC ENERGY

Major Gainers

Cairn India (6.22%), Power Grid (5.64%), IOC (5.49%)

Major Losers

Adani Power (14.57%), Reliance Power (14.00%) Torrent Power (13.50%)

Source – NSE, Figures represent Holding Period Returns only.

12 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | ENERGY

Sales EBITDA PAT

Q1FY13 Q1FY12 %

Change Q1FY13 Q1FY12

% Change

Q1FY13 Q1FY12 %

Change

RIL 94926 83689 13.4% 8651 11005 -21.4% 4473 5661 21.0%

GAIL 11112 8889 25.0% 1705 1399 21.9% 1133 985 15.0%

NTPC 16166 14491 11.6% 3076 2545 20.9% 2499 2076 20.4%

POWER GRID 2888 2202 31.2% 1708 1241 38.0% 870 705 23.4%

PETRONET LNG 7030 4623 52.1% 411 377 9.0% 270 257 5.1%

CAIRN INDIA 0.80 0.55 45.5% -30 -15 -100% -34 -16 -112.5%

Exhibit -2 Crude Oil Prices

Brent Crude Prices decreased

slightly in initial period but then

increased and remain above

$100/Barrel in July. WTI also

increased over the month of July

Source –Company Press Releases, Capitaline Databases, All Figures in Rs crores except

per cent

Exhibit 1 - Q1FY13 Results Summary

80

85

90

95

100

105

110

WTI CrudeOil Price (In USD) Brent Crude Oil Price (In USD)

13 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | ENERGY

The MCX Energy Index increased

over the period July due to

increase in crude prices and high

power demand.

Exhibit -3 MCX Energy Index

Power deficiency Increased during

the month of July due to increase

in requirement but production

remains nearly same.











3150

3200

3250

3300

3350

3400

3450

Exhibit -4 Power Production & Deficiency 9.40% 10.60%

10.10%

8.20%

7.60%

8.60%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

65000

70000

75000

80000

85000

90000

Required (MU) Available (MU) Deficiency %

Exhibit -4 Power Generation & Deficiency

Exhibit -3 MCX Energy Index

F

14 ERC-IIFT-Equity

INFRASTRUCTURE

Aug 03, 2012

SECTOR UPDATE

Infrastructure stocks tumble despite iron ore prices coming down in the last

fortnight and government reviving the high-level committee on financing

Infrastructure. This drop in prices was a reaction to the below expectation

Q1FY13 results announced by most of the companies.

Top companies underperform, gloom continues

Most companies that announced their Q1 results saw their stock prices take a

dip in the last two weeks. This prompted the others to delay the announcement

of results. Worst hit were IRB Infra which reported PAT 15.5% down yoy and

Unitech, who suffered as a result of a poor quarter. GMR Infra Ltd and IDFC will

announce their results in 2nd week of August.

Iron Ore prices fall, Cement rises

The prices of key raw materials moved in different directions as iron ore prices

plummeted to 2-year low of Rs 74 per Metric Ton. Cement prices though, rose

due to higher cost of inputs such as power and fuel. CCI’s penalty on eleven

cement companies for price rigging also contributed to the recent price hike,

which is expected to continue in near future.

IIP grows, Committee on financing revived

Industrial production grew 2.4% in May, breaking into positive zone after two

consecutive months in red. This growth though, can be a one-off which along

with the continuing downtrend of FDI in the sector has prompted the

government to revive the high-level committee on financing infrastructure to

achieve the target of $1 trillion investment in 12th five year plan.

Topline growth expected, margins shrinking

Revenue growth for most companies in the sector is expected to outperform the forecast. But rising land costs and an increase in prices of other raw materials means that the optimism in topline might get a bit subdued as far as net profit is concerned.

Future Outlook: Investment could end the woes

Investment in the sector in line with the government’s target for 12th five year

plan could see the revival of the sector after underperforming Nifty for seven

straight quarters. Rising raw material cost can play a dampener but the overall

outlook of the sector can said to be mildly optimistic.

Stock Calls

Buy: Jaypee Infra

Hold: Sadbhav Eng

Sell: IRB Infra, Lanco Infra

3m 9m 12m

Jaiprakash Asso 6.2% -1.5% 11.4%

Reliance Infra -7.8% 2.1% -12.7%

Unitech Ltd -22.4% -29.1% -36.7%

GMR Infra Ltd -19.1% -19.4% -25.4%

IRB Infra -32.7% -32.9% -34.7%

Sadbhav Eng -5.6% 2.5% -2.8%

Jaypee Infra 14.5% -16.3% 11.2%

Major

Gainers

Sadbhav Eng (-1.31%), GMR

Infra (-5.68%)

Major

Losers

Lanco Infratech (-20.26%), IRB

Infra (-15.05%), Unitech Ltd

(-12.71%)

15 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Infrastructure

Sales EBITDA PAT

Q1FY13 Q1FY12 %


% Change

Q1FY13 Q1FY12 %

Change

JAIPRAKASH

ASSOCIATES 3,008.1 3,177.9 -5.34% 815.8 772.8 6% 138.8 107.0 29.71%

IRB INFRA 622.2 178.6 248.30% 71.7 22.7 216.24% 37.3 17.8 109.48%

SADBHAV ENG 421.5 612.9 -31.23% 39.1 67.8 -42.34% 52.4 33.8 55.03%

JAYPEE INFRA 678.3 617.0 9.94% 272.1 297.4 -8.50% 209.9 237.8 -11.71%

Rs per Bag North Central East West South All India

Q1FY12 280 253 249 268 283 266

Jul-11 255 234 233 240 278 248

Aug-11 241 223 244 244 278 246

Sep-11 246 229 249 240 279 249

Q2FY12 247 229 242 241 278 247

Oct-11 265 253 264 241 288 262

Nov-11 278 256 282 248 289 271

Dec-11 279 248 280 254 287 270

Q3FY12 274 252 276 248 288 268

Jan-12 274 246 283 256 287 269

Feb-12 269 244 294 271 287 273

Mar-12 276 257 310 281 296 284

Q4FY12 273 249 296 269 290 275

Apr-12 287 276 331 285 311 298

May-12 277 274 325 276 298 290

Rising Cement Prices

Cement prices have been

rising because of increase in

cost of raw materials, freight

cost and excise duty.

Cartelization by the cement

companies has further inflated

the price and impacted the

sector. Monsoons generally

reduce demand and hence

prices. Prices in South have

dropped 6% mom as the

mining ban implemented in

April has disrupted the supply

of sand needed for

construction.

Q1FY13 Results Summary

16 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Infrastructure

High Interest Rates

RBI has left the interest rates unchanged

resulting in increase in costs pressure on the

companies. The industry players are looking for

some relief in terms of interest rates to help

boost the sector. With Government laying

special focus on the sector and easing of

inflation the rates will come down in the

medium term and will help boost the sector.

Migration of Rural Population - Opportunity

The urban population growth rate is higher

than the total population growth and by 2025

it is expected to be 37% as against 26% now.

The different sectors like Urban Roads,

Buildings, Mass transit, etc will need capital to

help sustain it. Total capital expenditure is

expected to grow from 58,000 Cr in 2012 to

102, 178 Cr in 2017.











F

17 ERC-IIFT-Equity

IT/ITES

Aug 03, 2012

SECTOR UPDATE

Movement in different IT stocks in past few weeks has been mixed. While few

stocks have beaten the expectations others have shown a more or less

constant or downward trend. HCL and TCS have shown good growth but Wipro

and Infosys have not been up to street expectations.

Pricing woes continues

The Indian IT sector continues to face pricing woes as some long-standing clients

demand discounts in large deals. While Infosys said that its pricing fell by 3.7

percent in the June quarter, TCS said prices fell about 1 percent. HCL witnessed

a growth of 0.4 percent in pricing but with a contraction in volume growth of 1.8

percent.

IT spending in the country is expected to grow by 16.3%: IDC

According to IDC's report "India IT Market Overview Report - 2012", the total IT

market in India is expected to grow to USD 43.57 billion in 2012 from USD 37.46

billion (Rs 2.09 lakh crore) in 2011. Despite lesser-than-expected GDP growth

figures, India still have a high growth rate, next only to China among BRIC

countries, IDC said. Though Rupee depreciation and high inflation have slowed

down consumer spending, but this is expected to be a temporary phase.

Mixed Bag of Results

While TCS and HCL beat street expectations on both profit and revenue, Wipro

and Infosys disappointed the streets with muted growth. The country's largest

software services exporter, TCS reported a 37.4 per cent rise in its fiscal first-

quarter profit, helped by a weaker rupee and increase in demand for

outsourcing. TCS posted net profit of Rs 3280 crore ($589 million) for the

quarter ended in June. Country's fourth largest software services exporter HCL

Technologies' net profit rose by 67% year-on-year to Rs 854 crore in the quarter

ended June 2012, beating analysts’ expectations. The IT bellwether, Infosys,

reported a 32.92 percent jump in consolidated net profit to Rs 2,289 crore for

the first quarter ended June 30, 2012. It disappointed the streets after failing to

meet its dollar revenue guidance and also cutting its dollar forecast for FY 2013.

Wipro posted a consolidated net profit of Rs 1,580.2 crore in April-June, up 18%

year-on-year. However, the company has guided for a flattish growth in the

second quarter. The quarterly guidance indicates 0.3-2.3% sequential growth.

Outlook

The fundamentals of industry are still strong and weaker numbers by some

companies should not be taken as industry trend. In coming times IT spending

by companies is going to grow which will provide significant boost to the sector.

HCL, TCS and OFSS are good picks from the sector whereas Infosys, Wipro may

be avoided.

3m 9m 12m

Infosys -9.4% -21.2% -14.8%

TCS -2.9% +11.9% +16.8%

Wipro -16.1% -6.2% -5.4%

HCL +4.1% +19.3% +17.8%

Satyam +16.6% +20.9% +19.6%

OFSS +7.2% +35.1% +37.9%

Major

Gainers HCL (7.5%), TCS (1.4%)

Major

Losers Wipro (6%), Infosys (1%)

32.96

27.42

21.9620.12 21.70

39.22

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

Infosys TCS HCL Tech Wipro MahindraSatyam

OFSS

Operating Margin

18 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | IT/ITES

Sales EBITDA PAT

Q1FY13 Q1FY12 %


% Change

Q1FY13 Q1FY12 %

Change

Infosys Ltd. 9616 7485 28.5% 3169 2395 32.3% 2289 1722 32.9%

TCS 14869 10797 37.7% 4077 2820 44.3% 3318 2415 37.4%

HCL 5919 4299 37.7% 1300 794 63.8% 854 510 67.3%

Wipro 10653 8564 24.4% 2143 1729 23.9% 1580 1335 18.3%

Mahindra Satyam 1880 1434 31.1% 408 213 91.7% 352 225 56.4%

OFSS 946 712 32.8% 371 219 69.4% 368 204 80.4%


Infosys and Wipro faced the highest

attrition levels as the companies have

frozen pay hikes. For TCS and HCL, it is

similar to the industry average.

Margin remained highest for Infosys

however, it is slowly coming down. In the

1QFY13, the margins are appreciated

primarily because of the currency

depreciation. In the near term, it may

come down as the companies offer wage

hikes.

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Aug 03, 2012

ERC-IIFT | Equity | IT/ITES











Infosys added most number of clients in the

first quarter followed by HCL. TCS and

Wipro saw qualitative addition to the client

base with fewer but higher value client

additions.

TCS added most number of employees

this quarter. Street was shocked to notice

that over 8000 employees have left

Infosys this quarter. The graph also shows

the total number of employees on payroll

of the top 4 Indian IT companies.

F

20 ERC-IIFT-Equity

METAL & MINING

Aug 03, 2012

SECTOR UPDATE

Weak Overseas Demand, Infra Slowdown to Hurt Steel Cos Growth

Falling demand from Europe and China due to the slowdown in infrastructure,

construction, capital goods and automobile sectors has resulted in muted

volume growth for the steel industry across the globe. Further the high

interest rates, ban on iron-ore mining in Karnataka and new projects failing to

get environmental clearances have been a dampener for the industry. The YoY

volume growth for the first quarter of FY13 was 5% and is reportedly the

lowest in the past 8 years. Not much of an upside is expected in the stock

prices of steel companies in the short-to-medium term unless the scenario

improves.

Although the raw material prices, viz coking coal and iron ore over the past

year have decreased the accrued benefits were wiped out due to rupee

depreciation, which fell by about 14% in the past six months.

JSPL Exits $2-b Project in Bolivia

JSPL has terminated its contract with the Bolivian government to invest

$2.1billion in an iron ore and steel project after the latter failed to meet

assured gas supply for the project

HZL Sees 10% Rise in Demand

Hindustan Zinc Limited (HZL), the world’s largest integrated producer of zinc,

expects domestic demand for the metal to grow at 8-10 % per annum, nearly

twice the global demand growth of 3-4%. However the cost of production

went up in India from $844 to $874 per tonne given higher prices of

consumables due to rupee depreciation and lower metal production.

OPM (%) Y-o-Y Volume Growth (%)

Tata Steel 13.12 12.9

SAIL 16.2 6.9

JSW Steel 15.69 43

JSPL 39.01 38.9

3m 9m 12m

TATASTEEL -12.17 -13.22 -28.03

COALINDIA 0.32 6.25 -12.63

JINDALSTEL -19.86 -27.9 -28.8

HINDALCO -0.71 -12.52 -27.72

STERLITE -0.24 -14.94 -31.97

SESAGOA -1.78 -10.77 -29.39

SAIL -10.08 -23.17 -26.56

Relative price performance of Nifty vs. ERC metals and

mining index for the past 21 months

Relative price performance of Nifty vs. ERC metals

and mining index for the last 1 month:

Major Gainers

Sterlite Industries Ltd. (5.36%),

Coal India Ltd. (2.51%)

Major Losers

Monnet Ispat & Energy Ltd.

(-22.01%), Jindal Saw Ltd.

(-7.56%)

21 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Metal & Mining

Sales (in lacs) EBITDA (in lacs) PAT (in lacs)

Q1FY13 Q1FY12 %


% Change

Q1FY13 Q1FY12 %

Change

Bhushan Steel Ltd.

284130 223178 27.31% 86687 66857 29.66% 20597 20996 -1.90%

Gujarat Mineral Development Corporation Ltd.

49853 46709 6.73% 28818 26268 9.71% 17052 15311 11.37%

JSW Steel Ltd. 903760 706938 27.84% 184506 141077 30.78% 26900 57832 -53.49%

Jindal Saw Ltd. 129043 113564 13.63% 17861 17955 -0.52% 3519 8280 -57.50%

Jindal Steel & Power Ltd.

333109 252653 31.84% 104992 98007 7.13% 1242 47016 -97.36%

Sesa Goa Ltd. 137686 169835 -18.93% 42059 104726 -59.84% 22766 67298 -66.17%

Sterlite Industries (India) Ltd.

456108 417263 9.31% 25626 65780 -61.04% 4534 34286 -86.78%


per cent


36000

38000

40000

42000

44000

46000

48000

2007-08 2008-09 2009-10 2010-11 2011-12

Net Sales

The net sales of Steel Authority of

India has increased more than

15% from 2007-08. Though it took

a hit in 2009-10 due to the global

financial crisis, but it recovered

well thereafter.

22 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Metal & Mining











0

20

40

60

80

100

120

Production Imports Exports Consumption

2003-04

2004-05

2019-20

The chart represents projected domestic

compounded annual growth rates for

production, imports, exports and

consumption of steel in India for 2019-

2020.

It is evident that the production is

expected to increase phenomenally,

which would be enough to cater to the

increase in domestic consumption.

Exports are also expected to increase

slightly.

0

100

200

300

400

500

600

700

800

Demand*

Supply

Gap

The demand for domestic consumption

for coal is continuously increasing over

the last decade. It has increased from 373

Million tonnes in 2002-03 to 696 million

tonnes in 2011-12.

But the supply growth has not been able

to match the demand growth. Therefore

the demand-supply gap has increased

from 52 million tonnes in 2002-03 to 161

million tonnes in 2011-12.

Source- India Stat

Source- India Stat

F

23 ERC-IIFT-Equity

Pharmaceuticals & Healthcare

Aug 03, 2012

SECTOR UPDATE

Govt takes call on FDI in pharma:

Government has decided that investments resulting in an equity holding

higher than 49% in an Indian pharma company will have to apply for the

approval of the Foreign Investment Promotion Board. Investments lower

than 49% as well as those made in subsidiaries will not need approval and

will go through what is called the automatic route. This decision is most

likely to adversely affect FDI.

Price controls ahead for patented drugs:

The government is planning to rein in prices of expensive patented drugs

to make medicines affordable to the poor. The step is the latest by India

to make medicines more affordable after it announced earlier this month

it would implement a Rs30,000 crore plan to provide free generic

medicines to its people.

Pharma industry agrees to enforcement of marketing code:

The pharmaceutical industry has agreed in principle to enforce a code

that will restrict them from offering gifts or other sops to doctors in order

to prescribe their medicines. The action was taken as actions of a few

companies had been blemishing the image of the entire pharmaceutical

industry.

Indian drug firms lobby against EU’s new directive:

Indian drug companies are lobbying against a move by the European

Commission to check the import of counterfeit drugs through a directive

that comes into effect in about a year from now. India’s drug exports to

the EU were worth $1.93 billion in 2010-11. If India fails to get an EU

equivalence certificate by 2 July 2013, 30% of this could be affected.

Sectoral Pick:

Buy Sun Pharma, Cipla, Divis Lab

Outlook:

The Pharma sector in India is expected to show robust growth in the next

few years driven by growth in all 3 segments viz.

(i) Domestic Formulations which are expected to grow at ~15%

(ii) Exports which will see huge growth due to the patent cliff in 2012 and

emerging markets like Brazil, Mexico, South Africa driving growth

(iii) CRAMS which is expected to grow at a rate of around 13% globally.

3 m 9 m 12 m

SUN PHARMA 9.71% 41.16% 25.33%

DR. REDDY's LAB -8.29% 9.05% 0.88%

CIPLA 10.08% 19.85% 11.50%

LUPIN 8.31% 25.05% 29.05%

GLAXO SMITHKLINE -2.34% 0.53% -7.51%

RANBAXY LABS 0.34% -1.20% -11%

DIVIS LAB 27.69% 49.59% 35.63%

Major Gainers Sun Pharma (2.61%), Divis Lab

(1.75%), Lupin (2.1%)

Major Losers Ranbaxy Labs (-1.4%), Glaxo

SmithKline (-4.4%)

60.00

70.00

80.00

90.00

100.00

110.00

Relative price performance

Nifty Pharma

24 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Pharmaceuticals & HealthCare

Sales (in crore) EBITDA (in crore) PAT (in crore)

Q1FY13 Q1FY12 %


% Change

Q1FY13 Q1FY12 %

Change

Dr. Reddys Lab 2540 1978 28.4% 521 402 20.3% 365 278 31.3%

Cipla 1917 1550 23.7% 593 402 47.4% 400 253 58.2%

Lupin Ltd 2253 1567 43.8% 392 247 58.7% 285 214 30.2%

Ipca Labs 634 530 19.7% 141 95 49.0% 88 55 61.5%

Biocon 577 443 30.2% 96 87 10.3% 79 70 20.9%

Torrent Pharma 621 478 29.83% 201 149 34.4% 147 99 48.4%


per cent


Generics to propel growth in the market over

the medium term

With a market size of US$ 320 billion, the

United States remains the largest

pharmaceutical market, globally.

The price erosion post patent expiration is

also amongst the highest in the US,

reflecting the extent of competitive

pressures.

With ~$100 billion worth patent expiries

over the next 5 years, generic business

enjoys strong growth prospects for India.

25 ERC-IIFT-Equity

Aug 03, 2012

ERC-IIFT | Equity | Pharmaceuticals & HealthCare











The results of the pharma companies have so far demonstrated a mixed trend.

While revenue growth has been strong for most of the companies, the earnings growth was not that robust due

to contraction/ lesser expansion in operating margins and higher forex losses.

We believe, that the structural demand drivers would continue to support growth in the long-run despite short-

term headwinds.

Domestic Formulations Business: Growth momentum improves; therapy-mix influences growth rates among

companies

ERC COORDINATORS

Amit Gupta [email protected] +91 9718791688

Firasat Ali [email protected] +91 8860837105

Vipul Agarwal [email protected] +91 8860340536

RESEARCH TEAM

Pushpjit Singh Malik [email protected] Auto & Auto Ancillaries

Vaibhav Gupta [email protected] Auto & Auto Ancillaries

Amit Gupta [email protected] Auto & Auto Ancillaries

Madhav Purohit [email protected] BFSI

Sakshi Garg [email protected] BFSI

Akash S [email protected] BFSI

Vipul Agarwal [email protected] Capital Goods

Ankit Dokania [email protected] Capital Goods

Ankit Kumar Gupta [email protected] Capital Goods

Firasat Ali [email protected] Energy

Ayan Das [email protected] Energy

Aritra Sengupta [email protected] Energy

Sunil Sangwan [email protected] Infrastructure

Anmol Chopra [email protected] Infrastructure

Jitin Yadav [email protected] Infrastructure

Saurabh Vijay [email protected] IT/ITES

Rachit Singla [email protected] IT/ITES

Ashish Kumar [email protected] IT/ITES

Chinar Gupta [email protected] Metal & Mining

Prince Jain [email protected] Metal & Mining

Varun Deep Sajja [email protected] Metal & Mining

Pavan Kumar C [email protected] Metal & Mining

Nupur Gupta [email protected] Pharmaceuticals & HealthCare

Nidhi Gupta [email protected] Pharmaceuticals & HealthCare

Please send your feedback and queries to:

[email protected] or [email protected]

ALL RIGHTS RESERVED, EQUITY RESEARCH CELL

Indian Institute of Foreign Trade

New Delhi | Kolkata

ERC Newsletter - July 12

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