India Strategy Oct 2012

October 2012

Research Team ([email protected])

India Strategy

Fired up?

GST

Divestment

Digitization

FDI

BankLicense

NPPP

Aadhaar

LARRMMDR

Lokpal

Coal

Roads

FDI

Spectrum

Contents

1. Automobiles 2-9Bajaj Auto 5Hero MotoCorp 6Mahindra & Mahindra 7Maruti Suzuki India 8Tata Motors 9

2. Capital Goods 10-22ABB 14BGR Energy 15BHEL 16Crompton Greaves 17Cummins India 18Havells India 19Larsen & Toubro 20Siemens 21Thermax 22

3. Cement 23-33ACC 26Ambuja Cement 27Birla Corporation 28Grasim Industries 29India Cements 30Jaiprakash Associates 31Shree Cement 32UltraTech Cement 33

4. Consumer 34-48Asian Paints 37Britannia Industries 38Colgate Palmolive 39Dabur India 40GSK Consumer 41Godrej Consumer Products 42Hindustan Unilever 43ITC 44Marico 45Nestle India 46Pidilite Industries 47United Spirits 48

5. Financials 49-79Andhra Bank 55Axis Bank 56Bank of Baroda 57Bank of India 58Canara Bank 59Dewan Housing 60Federal Bank 61HDFC 62HDFC Bank 63ICICI Bank 64IDFC 65Indian Bank 66IndusInd Bank 67

ING Vysya Bank 68Kotak Mahindra Bank 69LIC Housing Finance 70M & M Financial Services 71Oriental Bank 72Power Finance Corporation 73Punjab National Bank 74Rural Electricfication 75Shriram Transport 76State Bank 77Union Bank 78Yes Bank 79

6. Healthcare 80-101Biocon 85Cadila Healthcare 86Cipla 87Divi’s Laboratories 88Dishman Pharma 89Dr Reddy’s Labs. 90GSK Pharma 91Glenmark Pharma 92IPCA Laboratories 93Jubilant Life Sciences 94Lupin 95Opto Circuits 96Ranbaxy Labs. 97Sanofi India 98Strides Acrolab 99Sun Pharmaceuticals 100Torrent Pharma 101

7. Media 102-112Dish TV 108HT Media 109Jagran Prakashan 110Sun TV Network 111Zee Entertainment 112

8. Metals 113-127Hindalco 118Hindustan Zinc 119Jindal Steel & Power 120JSW Steel 121Nalco 122NMDC 123Sesa Goa 124SAIL 125Sterlite Industries 126Tata Steel 127

9. Oil & Gas 128-144BPCL 132Cairn India 133Chennai Petroleum 134GAIL 135

Gujarat State Petronet 136HPCL 137IOC 138Indraprastha Gas 139MRPL 140Oil India 141ONGC 142Petronet LNG 153Reliance Industries 144

10. Real Estate 145-156Anant Raj Industries 150DLF 151HDIL 152Mahindra Lifespaces 153Oberoi Realty 154Phoenix Mills 155Unitech 156

11. Retail 157-163Jubilant Food 160Pantaloon Retail 161Shoppers Stop 162Titan Industries 163

12. Technology 164-173Cognizant Technology 167HCL Technologies 168Infosys 169MphasiS 170TCS 171Tech Mahindra 172Wipro 173

13. Telecom 174-182Bharti Airtel 179Idea Cellular 180Reliance Communication 181Tulip Telecom 182

14. Utilities 183-195CESC 187Coal India 188JSW Energy 189NHPC 190NTPC 191Power Grid Corp. 192PTC India 193Reliance Infrastructure 194Tata Power 195

15. Others 196-199Castrol India 196Multi Commodity Exchange 197Sintex Industries 198United Phosphorus 199

Note: All stock prices and indices for Section C as on 28 September 2012, unless otherwise stated

Section A: India Strategy - Fired up? ......................................................................................... A1-59

Section B: 2QFY13 Highlights & Ready Reckoner ..................................................................... B1-12

Section C: Sectors & Companies .............................................................................................. C1-199

A–1October 2012

India Strategy | Fired up?

India StrategyBSE Sensex: 18,763 S&P CNX: 5,703

Fired up?Policy engine revives| Next challenge: Investment cycle | New earnings cycle?

2QFY13 highlights: Non-cyclicals have a field day in muted quarter2QFY13 is likely to be a muted quarter in terms of India's corporate sector performance.

PAT growth of 9% YoY: We expect MOSL Universe (ex RMs, oil refining and

marketing companies) to report PAT growth of 9% YoY. This is the lowest 2Q PAT

growth in the last 7 years, barring the Lehman-crisis quarter of September 2009.

Expect Technology, Financials, Healthcare and Consumer to positively dominate

the quarter's performance. On the other hand, global commodities (mainly, Oil &

Gas and Metals) will pull down aggregate profits.

Sensex PAT growth is even more muted at just 2% (ex ONGC, the growth is 9%). Six

global cyclicals are major drags, ex which Sensex PAT should be up 15%.

Top five Sensex companies by PAT growth: TCS (+42% YoY), SBI (+31%), HDFC Bank

(+30%), Sun Pharma (+29%), and Infosys (+26%).

Bottom five Sensex companies by PAT growth: Tata Steel (-63% YoY), Maruti Suzuki

(-51%), Bharti (-36%), Tata Power (-30%) and Hero Motocorp (-27%).

Quarterly performance - MOSL universe (INR b)

Sector Sales EBITDA PAT EBITDA Margin

(No of companies) Sep-11 Sep-12 Var % Sep-11 Sep-12 Var Sep-11 Sep-12 Var Sep-11 Sep-12 Var

YoY % YoY % YoY (bp)

High YoY PAT Growth 680 830 22 153 198 30 101 139 38 22.5 23.9 139

Cement (8) 145 162 11 26 36 38 10 19 89 17.8 22.1 425

Technology (6) 361 460 27 89 116 31 65 88 34 24.5 25.2 73

Health Care (17) 174 208 20 39 46 20 25 32 28 22.3 22.3 8

Medium/Low YoY PAT Growth 749 854 14 588 674 15 285 339 19 78.4 78.9 45

Financials (25) 402 460 14 320 369 15 160 191 19 79.7 80.2 55

Private Banks (8) 96 118 22 79 98 24 46 57 23 81.9 83.4 142

PSU Banks (9) 251 276 10 189 206 10 78 91 17 75.1 74.8 -36

NBFC (8) 54 66 21 53 64 22 36 43 19 96.6 97.4 83

Consumer (12) 245 283 16 51 60 18 35 41 18 20.7 21.2 51

Media (5) 25 27 10 8 9 2 4 4 17 34.5 32.1 -243

Others (4) 38 40 7 8 7 -2 4 4 15 20.4 18.7 -172

Utilities (10) 485 534 10 119 127 6 65 70 7 24.6 23.7 -87

Oil & Gas ex RMs (10) 1,441 1,703 18 301 288 -4 179 181 1 20.9 16.9 -398

Oil & Gas incl RMs (13) 3,126 3,886 24 191 385 102 38 245 539 6.1 9.9 381

Negative YoY PAT Growth 1,017 1,148 13 121 135 11 76 75 -1 11.9 11.8 -17

Auto (5) 623 721 16 75 86 15 46 46 0 12.1 12.0 -6

Capital Goods (9) 336 364 8 41 42 4 28 27 -1 12.1 11.7 -47

Retail (4) 57 64 12 5 6 14 2 2 -6 9.3 9.5 23

Metals (10) 937 932 0 161 159 -2 91 80 -12 17.2 17.0 -23

Real Estate (7) 41 35 -13 19 15 -21 8 6 -28 47.0 42.5 -452

Telecom (4) 276 310 12 88 91 3 15 10 -32 31.9 29.4 -246

MOSL (139) 7,271 8,487 17 1,240 1,555 25 597 865 45 17.1 18.3 127

MOSL Excl. RMs (136) 5,587 6,304 13 1,350 1,458 8 738 802 9 24.2 23.1 -104

Sensex (30) 3,769 4,229 12 838 866 3 466 477 2 22.2 20.5 -175

A–2October 2012


FDI

MACRO ECONOMY

From Cradle of Pessimism … came a Ray of Hope. Have things FIRED UP?For almost 18 months, the Indian economy and markets have been groping through

intensifying darkness and concerns, culminating in the Cradle of Pessimism (our 4QFY12

strategy theme). At the beginning of 2QFY13, there were some Rays of Hope (our

1QFY13 strategy theme) with the Presidential elections giving way to new political

alignments. While things remained stuck during July-August, the month of September

2012 saw a complete U-turn from policy paralysis to raging reforms. The last few

weeks have seen a significant number of policies / announcements / discussions, and

the debate has shifted to "whether UPA-2 led by Congress is finally FIRED UP?"

Re-starting the policy engine – FDI in limelight; further growth catalysts –lower deficits, improved flows, monetary easingWith a precipitous fall in the Indian rupee coupled with a rating downgrade staring

India, the government finally bit the proverbial bullet with a change in Finance Minister

and a series of policy measures, even at the cost of severing ties with the largest ally,

TMC. This, in turn, has catalyzed a slew of measures in the last few weeks that have

led to an improvement in sentiment: (1) fuel price hike / reforms, (2) opening/relaxing

FDI in multi-brand retail, aviation, broadcasting, (3) Cabinet approval to raise FDI in

insurance and pension, (4) easing of fund-raising abroad, (4) proposed GAAR deferral,

etc. It also appeared to wade through the political fallout of these measures.

While reality will take a lot longer to reflect the first round of reforms, and require

several more follow-up initiatives, the perception has undoubtedly started changing

for the better. To some extent, this is visible in INR appreciation (a 7% appreciation),

revival of flows (FIIs inflows at USD 16b in CY12) and market sentiment (Sensex up 8%

in 3QCY12, making India among the best peforming markets in the world). We believe

that 3 important drivers for the markets, going forward, are:

(1) Fiscal situation – our FY13 deficit estimate revised down from 5.9% to 5.4%,

(2) Domestic flows into equity markets – base-case USD30b inflows over FY14-17,

(3) Shift towards a more accommodative monetary stance – RBI should cut interest

rates / CRR in 4QCY12.

Addressing logjam the next big challengeThe next big challenge is to address the investment logjam. However, unlike the

initial set of reforms that have been largely addressed through policy decisions, the

investment phase requires a more involved decision-making process, as land, water,

resources, etc, are the prerogatives of the state governments. Execution is the key

challenge, as several structural issues impacting growth remain unaddressed. We

believe that the government will kick-start its efforts towards reviving the investment

climate by accelerating public spending. Our action wish list includes:

Successful resolution of the contentious issues in the Power sector (through SEB

debt recast, standard bidding document, and coal price pooling)

Close monitoring of CPSU capex (FY13 investment target at INR1.8t is double the

highest ever - INR931b in FY11)

Take-off of large public expenditure projects (like Dedicated Freight Corridor,

railways, urban transport, etc). Addressing structural issues impacting

infrastructure investments has become important.

Acceleration of financial sector reforms, including corporate bond market and

INVESTMENT CYCLE

A–3October 2012


access to Insurance / Pension money for investment projects. Also, an expenditure

switching strategy is required that reduces government revenue spending by

cutting subsidies and steps up capital expenditure to crowd-in private investments.

Successful implementation of the National Investment Board that will provide

"single window" clearance. The government has identified 89 projects worth

USD20b for fast track clearance.

We identify the key structural issues in core segments:

#1 UTILITIES: Initial steps encouraging, but new investments sometime away

#2 METALS & MINING: Huge investments stuck; will require close monitoring

#3 FINANCIALS: Loan growth moderating; revival will ease asset quality concerns

#4 TELECOM: Spectrum pricing and allocation, conducive M&A policy critical

#5 OIL & GAS: Rational product pricing, gas reforms imperative

#6 INFRASTRUCTURE: Creating conducive environment for large scale development

#7 MEGA PROJECTS: DFC, railways, urban transport can accelerate investment spend

Early signs of a rebound in earnings growth; FY14 Sensex EPS to grow 14%to INR1,395Our bottom-up estimates for the MOSL universe of companies (ex RMs) suggests FY14

EBITDA growth of 15% and PAT growth of 14%. This growth is driven mainly by (1)

Bounce back in sectors which were affected in FY13 (Auto, Telecom); and (2) Steady

growth in seculars (Consumer, Healthcare, Financials) offsetting low growth in specific

sectors like Oil & Gas, Technology and Capital Goods.

For the 5 years ending FY13, Sensex EPS CAGR has been muted at 8%. However, India's

long period average (LPA) earnings growth is 15%. Now, our bottom-up earnings

estimates for Sensex companies suggest FY14 Sensex EPS growth of 14%, close to the

LPA. The key question: Is FY14 the beginning of a new earnings cycle? We believe

there are a few early signs that this is a distinct possibility:

1. Earnings downgrade cycle has bottomed out

2. Our FY14 assumptions are not aggressive

3. FY14 earnings mix is less vulnerable than that of FY13 initial estimates

4. More stocks have a bias for earnings upgrade than downgrade.

Valuations below long-term averages; scope to re-rate as growth returnsCombined action of government and RBI could lead to upgrades in FY13 GDP growth

estimate (currently at 6.5%). Our earnings estimates for FY13 and FY14 have been

stable for the last 2 quarters. We believe the downgrade cycle is now behind us.

Recent government measures along with more to come, monetary easing, and stable

to declining commodities can drive earnings upgrades, going forward. Valuations

remain below historical averages (FY14 P/E of 13.5x v/s 10-year average of 14.8x). We

see more upsides in markets from here.

Our top Overweights are Financials (ICICI / SBI / LIC Housing), Infrastructure & related

(L&T, Jaiprakash) and Autos (Tata Motors, Maruti). Our key Underweights are Consumer,

Technology, Oil & Gas and Utilities. We have a significant allocation to mid-caps too.

Our preferred picks are Yes Bank, MCX, CESC, Hexaware, Petronet, Sun TV, JSW Energy

and Oberoi.

Strategy

Navin Agarwal

[email protected]

Rajat Rajgarhia

[email protected]

Economist

Dipankar Mitra

[email protected]

Sources of exhibits in this section

include RBI, CMIE, Bloomberg, IMF,UN, Rogers International, Industry,Companies, and MOSL database

FY14 EARNINGS

INVESTMENT STRATEGY

A–4October 2012


-1

3

4

4

9

5

9

9

15

21

China (HSCEI)

UK

Brazi l

Rus s ia MICEX

Japan

Ta iwan

South Korea

MSCI EM

S&P 500

India - Sensex

2

3

6

6

7

8

-2

3

8

9

Japan

Russ ia MICEX

China

UK

Taiwan

S&P 500

MSCI EM

India - Sensex

South Korea

Brazi l

Indian equities – Top performer in CY12 YTD

In 3QCY12, Indian markets yielded 8% return QoQ, after an almost flat 2QCY12. With

this, the BSE Sensex is up by 21% YTD CY12, and among the best performing markets

globally. As the recent series of reforms led to significant appreciation in currency,

USD return of Sensex at 22% is also among the best.

With this performance, India now trades at a marginal premium to the rest of the

global markets, well supported by an expected rebound in FY14 corporate performance

14% earnings growth coupled with a strong 17% RoE. The confidence of FIIs has

remained intact throughout CY12, despite a significant slowdown in macroeconomic

parameters. They have bought another USD16b of Indian equities, while DIIs have

been big sellers to the extent of over USD7b.

Indian markets grew 8% in 3QCY12 after a flat 2QCY12

MARKETS

16

6

-8

13

-10

1823

31

-4

-14

16 18

-2

11

20

9

20

-6

1711

-5

1218 17

-23

-14

-4

-25

1

49

18

2 0 1

13

2

-5 -3

-13-6

13

0

-19

-6

8

Sep-

01

Ma

r-0

2

Sep-

02

Ma

r-0

3

Sep-

03

Ma

r-0

4

Sep-

04

Ma

r-0

5

Sep-

05

Ma

r-0

6

Sep-

06

Ma

r-0

7

Sep-

07

Ma

r-0

8

Sep-

08

Ma

r-0

9

Sep-

09

Ma

r-1

0

Sep-

10

Ma

r-1

1

Sep-

11

Ma

r-1

2

Sep-

12

India is amongst the top

performing markets

globally in 2012

World Equity Indices CY12YTD (local currency, %) World Equity Indices 3QCY12 (local currency, %)

No negative quarters in 2012 to date,

despite several challenges facing the

economy and corporate sector

A–5October 2012


2.62.32.01.61.51.31.21.21.11.10.6

191716

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P/B (x) CY13 / FY14 RoE (%) CY13 / FY14

1413131312101010985

28

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PE (x) CY13 / FY14 EPS Growth CY13/FY14 (%)

-4

-1

4

7

9

13

14

7

15

22

Brazi l

China (HSCEI)

Japan

UK

Russ ia MICEX

MSCI EM

Taiwan

South Korea

S&P 500

India - Sensex

3

6

6

7

7

8

11

13

1

8

Japan

China (HSCEI)

S&P 500

UK

Russ ia MICEX

MSCI EM

Taiwan

Brazi l

South Korea

India - Sensex

World Equity Indices CY12 YTD Perf (%) in USD World Equity Indices 3QCY12 Perf (%) in USD

Even in USD terms, India's

performance has been

amongst the better ones

India v/s World: Richer valuations supported by superior growth and profitability

Global Indices EPS growth and PE Global Indices P/B and RoE

Average P/E :10.9x

Average EPS Growth: 14.7%Average P/B :1.5x

Average RoE: 13.6%

-8

-2

3

3

7

9

10

10

11

15

8

4

7

9

Telecom

Metal

Technology

Uti l i ties

PSU-Banks

Oi l

BSEMid-Cap

Sensex

Capi ta lGoods

Hea lthcare

Auto

Cons umer

Rea lEstate

Pvt-Banks

-17

3

13

14

29

34

35

36

36

43

21

15

28

28

Telecom

Technology

Meta l

Uti l i ties

Oi l

Sensex

Auto

Hea l thcare

BSEMid-Cap

Rea lEstate

PSU-Banks

Capita lGoods

Consumer

Pvt-Banks

Sectoral Performance for 3QCY12 (%) Sectoral Performance for CY12 YTD (%)

Banks and Consumer have

been the top performers

in 2012

A–6October 2012


Sensex Stock Performance CY12 YTD (%)

Sensex Stock Performance 3QCY12 (%)

60 54 50 47 4740 38 35 34

27 23 21 21 20 19 19 19 15 11 11 9 5 4 4 3 0

-1 -4 -6 -8-23

L&T

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Mot

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Trend in net FII Investment (USD b)Annual Trend Quarterly Trend

Trend in net DII Investment (USD b)Annual Trend Quarterly Trend

1.5 2.7 0.7

-0.5

16.1

6.7 8.6 10.88.1

17.8

-12.2

17.6

29.3

CY0

0

CY0

1

CY0

2

CY0

3

CY0

4

CY0

5

CY0

6

CY0

7

CY0

8

CY0

9

CY1

0

CY1

1

CY1

2 YT

D

-2.4-1.3

6.47.4

5.2 4.42.3

12.610.1

0.1 0.8

-1.0-0.4

9.1

0.1

6.9

-3.3

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

3.75.35.4

16.9

-4.7

5.9

-7.4

CY0

6

CY0

7

CY0

8

CY0

9

CY1

0

CY1

1

CY1

2

YTD

3.0 3.22.1

0.4

2.4

0.5

1.80.8

-5.2

-2.2

2.4

0.8

2.1

0.6

-4.4

0.5

-3.4

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

L&T, ICICI Bank

the top performers

in CY12

Indian institutional investors have been

net sellers of equities Jan-09 to date

A–7October 2012


Re-starting the policy engine; FDI in limelightFurther growth catalysts: Lower deficits, improved flows, monetary easing

The UPA-2 government had significantly disappointed the Indian markets by

abstaining from any critical policy decisions to improve the looming macroeconomic

crisis - industrial production slump, high inflation, high interest rates, depressed

investment climate and damaged global perception of India.

India has a track record of initiating far-reaching reforms only when faced with

extreme crisis. With a precipitous fall in the Indian rupee coupled with a rating

downgrade staring India, the government finally bit the proverbial bullet with a

change in Finance Minister and a series of policy measures, even at the cost of

severing ties with the largest ally, TMC (Trinamool Congress led by Mamta Banerjee).

This, in turn, has catalyzed a slew of measures in the last few weeks that has led to

an improvement in sentiment. These measure include (1) fuel price hike,

(2) opening/relaxing FDI in multi-brand retail, aviation, broadcasting, (3) Cabinet

approval to raise FDI in insurance and pension fund, (5) easing of fundraising abroad,

(6) proposed GAAR implementation, etc. It also appeared to wade through the

political fallout of these measures.

Simultaneously, the government also sought to give a thrust to development by

finalizing the 12th Plan, putting in place a mechanism to monitor large infrastructure

projects at the PMO level, developing an airport hub, international airports, etc.

While reality will take a lot longer to reflect the first round of reforms, and require

several more follow-up initiatives, the perception has undoubtedly started changing

for the better. To some extent, this is visible in INR appreciation, revival of flows

and market sentiment.

In this backdrop, we attempt to reassess three factors that can act as significant

catalysts for further economic revival

(1) fiscal situation

(2) domestic flows into equity markets, and

(3) possible shift towards a more accommodative monetary stance.

A. Fiscal deficit slippage to be of lower order than envisaged earlier

YTD FY13 fiscal situation has remained stressful So far, the current financial year has displayed weaknesses on the fiscal front,

with receipts falling short of expenditure, widening the fiscal gap (23% YoY).

On the receipts side, while tax revenue was buoyant (21% YoY), non-tax revenue

(9% YoY) and capital receipts (-50% YoY) fell with spectrum sale and disinvestment

yet to take off.

On the expenditure front, subsidy ballooned resulting in highest ever non-plan

spend as a share of full-year budget in 15 years at 43%. Curtailment of plan

expenditure (12% YoY) was not enough to bring the overall spending as a

percentage of full-year budget at 38% higher than the long period average (LPA)

of 35%.

MACRO ECONOMY

FDI

A–8October 2012


5%

15%

25%

35%

45%5M

FY98

5MFY

99

5MFY

00

5MFY

01

5MFY

02

5MFY

03

5MFY

04

5MFY

05

5MFY

06

5MFY

07

5MFY

08

5MFY

09

5MFY

10

5MFY

11

5MFY

12

5MFY

13

As

% o

f B

udge

ted

Am

ount

Tax Reven ue (Ne t) Tota l Receip ts

This resulted in the deficit indicators surpassing their 15-year averages by a fairly

wide margin. F iscal deficit reached 66% of full year target (v/s LPA of 52%) while

the same for revenue deficit was as high as 79% (v/s LPA of 68%).

All these resulted in our prediction of a large fiscal slippage placed at 5.9% of GDP

(as against the budgeted 5.1%), taking it closer to the FY12 level, indicating no

fiscal correction YoY. If the current trend would have continued, the worst case

fiscal deficit could stand as high as 6.3%.

While tax trends have kept up with LPA, total receipts have lagged behind

Highest ever non-plan expenditure along with lower than LPA plan expenditure

20%

24%

28%

32%

36%

40%

44%

48%

5MFY

98

5MFY

99

5MFY

00

5MFY

01

5MFY

02

5MFY

03

5MFY

04

5MFY

05

5MFY

06

5MFY

07

5MFY

08

5MFY

09

5MFY

10

5MFY

11

5MFY

12

5MFY

13As

% o

f B

udge

ted

Am

oun

t

Non-Plan Expend iture Plan Expe nditure To tal Expe nditure

Deficit indicators stay well above the long period average

0%

50%

100%

150%

200%

5M

FY9

8

5M

FY9

9

5M

FY0

0

5M

FY0

1

5M

FY0

2

5M

FY0

3

5M

FY0

4

5M

FY0

5

5M

FY0

6

5M

FY0

7

5M

FY0

8

5M

FY0

9

5M

FY1

0

5M

FY1

1

5M

FY1

2

5M

FY1

3

As

% o

f B

udg

ete

d A

mo

unt

F i scal Defici t Reven ue De fici t

A–9October 2012


5.95.1

-0.30.10.20.30.6

1.5

2.5

3.5

4.5

5.5

6.5

FY13

BE

add

fue

l

subs

idy

add

food

, fe

rt.,

dro

ught

add

sho

rtfa

ll

in s

pec

trum

add

sho

rtfa

ll

in

dis

inve

stm

ent

min

us

cash

carr

y fo

rwa

rd

FY13

E

Our initial fiscal deficit estimate for FY13 pegged it at 5.9%

Slew of measures taken may take fiscal deficit to GDP ratio to 5.5% in FY13 The recent policy measures taken by the government, however, have changed

the deficit outlook significantly for the remaining part of FY13.

As a first measure, the government increased the price of diesel and capped the

subsidized quantum of LPG, along with rationalization of taxes, resulting in a net

gain of INR100b to the exchequer.

To kick-start the disinvestment program, the government has shortlisted four PSUs.

Besides, it is considering alternative and fast track mode of disinvestment through

strategic sale of Hindustan Zinc, Balco and SUUTI. All these may take the

disinvestment proceeds higher than the budgeted amount of INR300b.

The government has also alerted PSUs to transfer their huge cash reserves as

special dividend or undertake fresh investment. Either way, it would help bridge

the fiscal gap.

As evidenced by recent experiences, the provision of planned expenditure has

exceeded actual expenditure by a fair margin. Continuation of this trend would

provide a cushion of INR200b buffer to spillover of non-plan spend, especially on

subsidies.

The recent Supreme Court opinion on Presidential reference has possibly given

additional levers to the government for meeting its resource sale targets

(eg. Spectrum, land, coal mines etc).

The above measures undertaken and contemplated have led us to reduce our

fiscal deficit estimate to 5.5% of GDP from 5.9% earlier. Further, we expect no

additional borrowing, as the extent of fiscal slippage is small and can be met by

recourse to short-term borrowing.

Recent policy measures have rekindled hope of containing slippage at manageable levels

5.95.5

0.10.1 0.2

4.0

4.5

5.0

5.5

6.0

6.5

FY13 - Ea rl ierestimate

lessdisin ve stment

le ss lower o i lb i l l

le ss lowerp lan

expend i ture

FY13E - Revis ed

As

% o

f G

DP

Spectrum

Divestment

Spectrum

Roads

Coal

A–10October 2012


A few factors that can alter the fiscal scenario dramaticallyDisinvestment i ) Government approved disinvestment of four PSUs including

three mining and one OMC. This would mobilize INR150b.

i i ) Vedanta Group increases the offer for s trategic sale of

Hindustan Zinc and Balco to INR220b.

i i i ) SUUTI stake sale to garner INR200b.

Planned expenditure A curtailment in plan expenditure would free up sizable resources.

For example, in FY12, planned expenditure grew 12.6% against 16.5%

growth provided in the budget. A 4% scaling back on 22% growth in

plan expenditure in FY13 would free resourses to the tune of

INR200b, or 0.2% of GDP.

Special dividend from PSUs The nine cash rich PSUs have significant cash balance with them.

Even if a part of this is ploughed back to the government, it would

reduce fiscal deficit.

Spectrum sale The government has budgeted ~INR400b out of telecom spectrum

sale. The recent Supreme Court opinion on Presidential reference

has possibly given additional levers to the government for meeting

its resource sale targets (eg. Spectrum, land, coal mines etc).

Expect fiscal consolidation in FY14 despite higher welfare bill The fiscal consolidation attempt is likely to be carried forward to FY14, aided by a

few additional factors.

We expect GDP growth to revive to 6.5% in FY14 from 5.8% in FY13. In the past, we

have seen that revenue buoyancy improves on the back of higher GDP growth.

Imputing this trend, the tax-GDP ratio in FY14 should touch FY09 levels (close to

8%), but be lower than the levels seen during the FY07-08 peak (8.2-8.8%).

Reform in petroleum product prices together with the oil and INR outlook would

result in lower petroleum subsidy bill in FY14 to INR660b than INR1.1t in FY13. This

would create the necessary headroom for implementing the Food Security Bill (if

only on a limited scale to begin with) even if the principle of limiting subsidies to

2% of GDP is broadly adhered to.

Additionally, as witnessed during the previous episode of fiscal correction, the

planned expenditure growth may be pruned to only 14-15% if need be.

These three factors, viz., higher revenue buoyancy on account of faster growth,

reduction in petroleum subsidy and cutback on planned expenditure would see

FY14 fiscal deficit ratio improving to 4.5% to GDP as envisaged in the revised fiscal

consolidation framework (FRBM).

With better growth in FY14, tax-GDP ratio is expected to inch up

0

2

4

6

8

10

FY90

FY91

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

RE

FY13

BE

FY1

4E

Tax-GDP GDP growth

A–11October 2012


B. Likely revival of flows to equity market Even during strong years for equity markets, a low share of savings actually gets

channelized to the same.

While the average share of household equity investments stands at 5% of financial

savings, it goes down to half of that level and less than 2% when taken as a share

of household savings and overall savings of the country as a whole.

Even within that, there is a wide variation, with household savings as a percentage

of financial savings varying between a negative 0.9% to a high of 12.8% in the last

decade.

In recent years, flows to equity market (comprising of investments from mutual

funds, insurance, etc.) have been negligible due to GDP slowdown and non-

performance of the domestic equity market.

With the revival in growth and recent market performance, interest in equity

market should revive.

The government in recent weeks has been in active engagement with the domestic

mutual fund and insurance sectors to initiate reforms and revive inflows. This,

along with the likely drop in interest rates and improved GDP growth, should

create a positive backdrop for domestic flows into Indian equities. These flows

typically come in phases, and the next 3-4 years could be one such significantly

positive phase.

Containment of oil subsidy would create headroom for Food Security Bill and still keep subsidybill within 2.2% of GDP

5.76.2 5.9

4.53.9 4.0

3.32.5

6.0 6.4

4.75.7 5.3

4.53.9

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4 -

FRB

M

FY1

5 -

FRB

M

0

1,000

2,000

3,000

FY12RE FY13BE FY13E FY14E

0

1

2

3

Fe rti l i ze r Foo d Petroleu m Oth ers Sub sidy a s % o f GDP (RHS)

India plans to come back to revised FRBM track

A–12October 2012


However, a mean reversion can lead to USD30b of domestic flows into equity market

C. Monetary policy: Case for change in policy stance So far, RBI has maintained a strict anti-inflationary stance, as inflation has stayed

above its comfort level for too long.

However, a few factors have changed, raising hopes that inflation could moderate,

going forward.

At the outset, rapid appreciation of the INR changes the inflationary outlook for

the petroleum and manufacturing group inflation with expected easing of 22-

40bp for these groups.

Moreover, after the initial bout, the impact of QE3 on commodities has been

rather limited. This, together with INR appreciation, has aligned the commodity

trends in India and abroad.

This would yield positive benefits for core inflation in India, which is expected to

move back towards 5% by March 2012 after hardening to 6% in the near term.

Thus, while a firm up of the inflationary trend appears inevitable for 3QFY13 (~8%),

it is expected to ease considerably in 4QFY13 (7.6%).

RBI is also likely to take due note of the improving fiscal outlook and slew of

reform measures initiated - the two reasons put forward by it for not easing policy

rates further more.

Thus, a cut in the policy rates in October 2012 is highly probable.

Meanwhile, RBI's liquidity injections in the form of OMO have been a big relief on

the liquidity front, which has come to the striking distance of being in surplus

mode on latest count. This has eased market rates considerably, well ahead of

RBI's rate cut.

Irrespective of the possibility of further rate cut, RBI must keep liquidity

intervention ongoing, as policy rate easing could only be made effective in a

situation of lower liquidity deficit. As money supply growth at 13.4% as at

September 2012 remains well within RBI's indicative projection of 15%, there is

space for further monetary easing without creating inflationary impulses.

-9

0

9

18

27

36

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY13

E

FY14

E

FY15

E

FY16

E

FY17

E

(US

D b

)

-6

-3

0

3

6

9

12

DIIs in ve stment (LHS) - Bas e cas e DII (as % of fin. savings) - Bul l cas eDII (as % of fin . s avin gs ) - Ba se cas e DII (as % of fin.s avings) - Bear cas e

USD13

USD31

USD48b

A–13October 2012


‐20

‐10

0

10

20

Jan‐1

2

Feb

‐12

Ma

r‐12

Ap

r‐12

Ma

y‐12

Jun‐1

2

Jul‐

12

Aug

‐12

Sep

‐12

Oct‐1

2

Ro gers USD (Yo Y %) Ro gers INR (YoY %)

2

4

6

8

10

Ma

r‐10

Ma

y‐10

Jul‐

10

Sep

‐10

No

v‐10

Jan‐1

1M

ar‐

11

Ma

y‐11

Jul‐

11S

ep‐1

1N

ov‐

11Ja

n‐1

2M

ar‐

12M

ay‐

12Ju

l‐12

Sep

‐12

No

v‐12

Jan‐1

3M

ar‐

13

‐20

‐5

10

25

40

India 's core inflatio n R oge rs INR (RHS)

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Ap

r‐12

Ma

y‐12

Jun‐1

2

Jul‐

12

Aug

‐12

Sep

‐12

Oct‐1

2

No

v‐12

Dec‐1

2

Jan‐1

3

Feb

‐13

Ma

r‐13

FY13E ‐ Earl ier FY13E ‐ Revise d

INR appreciation would reduce the gap between Core inflation would go below 5% again by March 2013, if INRcommodity price trends in India and abroad appreciates to 52 in 2HFY13

Inflationary pressures may ease somewhat on INRappreciation and easing commodity prices Liquidity is coming close to neutral zone now

‐1600

‐1100

‐600

‐100

400

900A

pr‐

10

Jun‐1

0

Au

g‐10

Oct‐1

0

De

c‐10

Fe

b‐1

1

Ap

r‐11

Jun‐1

1

Au

g‐11

Oct‐1

1

De

c‐11

Fe

b‐1

2

Ap

r‐12

Jun‐1

2

Au

g‐12

Late

st

‐8

‐3

2

7

12

LAF bala nce (ne t reverse repo) (LHS)

3mth CP rates (RHS)

5.1

5.9

5.3

FY13

BE

FY13

(E

arli

er

exp

ecta

tion

s)

FY1

3 (

Curr

ent

exp

ecta

tion

s)

RBI would consider improved fiscaloutlook for monetary easing

Oct‐12

7.50%

Apr‐12

8.00%8.50%

6.25%

Oct‐12

4.00%

Sep‐12

4.50%Mar‐12

4.75%

Jan ‐12

5.50%6.00%

3%

4%

5%

6%

7%

8%

9%

Jan‐1

1

Feb

‐11

Ma

r‐11

Ap

r‐11

Ma

y‐11

Jun‐1

1

Jul‐

11

Aug

‐11

Sep

‐11

Oct‐1

1

No

v‐11

Dec‐1

1

Jan‐1

2

Feb

‐12

Ma

r‐12

Ap

r‐12

Ma

y‐12

Jun‐1

2

Jul‐

12

Aug

‐12

Sep

‐12

Oct‐1

2

No

v‐12

Dec‐1

2

Re po R ate Cash Res erve Ra tio

RBI surprised

the mkt

Expect RBI to cut rates going forward

A–14October 2012


Addressing logjam the next big challengeRequires more involved decision making process

After a long hiatus during which the government was widely criticized for policy inaction,

and the opposition and coalition politics too were blamed for stalling key reforms, the

government seems to have tightened its belt to streamline the decision making process.

The first round of reforms has centered around FDI approvals, subsidy rationalization and

discussions on improving capital market flows.

The next big challenge is to address the investment logjam. However, unlike the initial set

of reforms that have been largely addressed through policy decisions, the investment

phase requires a more involved decision making process, as land, water, resources, etc,

are the prerogatives of the state governments.

Crystal gazing: What can possibly revive the investment climate?The investment climate has worsened over the past 18 months due to structural

impediments, policy uncertainty, persistent inflation and rising interest rates. We

believe that the government will kick-start its efforts towards reviving the investment

climate by accelerating public spending. Our action wish list includes:

Successful resolution of the contentious issues in the Power sector (through SEB

debt recast, standard bidding document, and coal price pooling)

Close monitoring of CPSU capex (FY13 investment target at INR1.8t is double the

highest ever - INR931b in FY11)

Take-off of large public expenditure projects (like Dedicated Freight Corridor,

railways, urban transport, etc). Addressing structural issues impacting

infrastructure investments has become important.

Acceleration of financial sector reforms, including corporate bond market and

access to Insurance / Pension money for investment projects. Also, an expenditure

switching strategy is required that reduces government revenue spending by

cutting subsidies and steps up capital expenditure to crowd-in private investments.

Successful implementation of the National Investment Board that will provide

"single window" clearance. The government has identified 89 projects worth

USD20b for fast track clearance.

Rays of hope include… Decline in global commodity prices

Currency appreciation

Moderation in interest rates

Fiscal consolidation, leading to possible crowd-in of private investments

Slowdown more pronounced for industry, particularly in core sectorsThe investment climate has worsened over the past 18 months due to structural

impediments, policy uncertainty, persistent inflation and rising interest rates. The

slowdown has had a pronounced impact on GDP growth rate. Addressing the current

logjam is the next big challenge.

Industrial sector has acted as a continued drag on the overall GDP growth with its

contribution to GDP dropping to 10-20% currently from 30-50% earlier. Moreover,

industry has been particularly stuck by the empty middle structure with investment

facing sectors dragging industrial growth to near zero level.

INVESTMENT

A–15October 2012


Collapse in the Industrial growth had triggereda downgrade in GDP Empty middle structure continues to haunt

Structural issues impacting growth remain unaddressedThe next big challenge is to address the investment logjam, but this is easier said than

done. Unlike the initial set of reforms that have been largely addressed through

policy decisions, the investment phase requires a more involved decision making

process, as land, water, resources, etc, are the prerogatives of the state governments.

Execution is the key challenge, as several structural issues impacting growth remain

unaddressed.

We identify the key structural issues in core segments like Utilities, Metals, Financials,

Telecom, Oil & Gas and Infrastructure:

#1 UTILITIES: Initial steps encouraging, but new investments sometime away

#2 METALS & MINING: Huge investments stuck; will require close monitoring

#3 FINANCIALS: Loan growth moderating; revival will ease asset quality concerns

#4 TELECOM: Spectrum pricing and allocation, conducive M&A policy critical

#5 OIL & GAS: Rational product pricing, gas reforms imperative

#6 INFRASTRUCTURE: Creating conducive environment for large scale development

#7 MEGA PROJECTS: DFC, railways, urban transport can accelerate investment spend

Initial steps encouraging, but new investments sometime away

The Indian Utilities sector has seen step-up in capacity addition under the 11th Plan to

52GW v/s ~20GW in the earlier plan period. However, the fuel supply ramp-up, both

for coal and gas projects has been below par, impacting project economics.

Additionally, higher commercial losses of DISCOMs have also impacted affordability,

investments in T&D and growth in demand for power.

Over the last 12 months, the Prime Minister's Office (PMO), Ministry of Petroleum

(MoP) and Ministry of Coal (MoC) have taken several measures to put the sector back

on track. These include (1) financial restructuring plan (FRP) for DISCOMs, (2) steps to

enhance rake availability / easing of environment norms to help ramp up domestic

coal production, and (3) steps being taken to formulate new bid document, which

would have fuel cost as pass-through under tariff. While these measures are

0

4

8

12

16

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

0

15

30

45

60

Share of Industry in overal l growth (%, RHS)Industry growthGDP growth

-20

-10

0

10

20

Bas

ic g

ood

s

Cap

ital

good

s

Inte

rme

diat

e

goo

ds

Cons

umer

goo

ds

Du

rabl

es

No

n-

dura

bles

FY11 FY12 YTDFY13

#1 Utilities

A–16October 2012


(a) DISCOMs: Weakest link in value chain but recent initiatives to driveimprovement

Key measures that will drive improvement

Particulars Remarks

Tariff increase Loss making states like Tamil Nadu, Rajasthan and Haryana have raised

tariffs. UP too has filed tariff petition. Fuel adjustment on quarterly basis.

State regulator empowered to carry out suo moto tariff hike.

Financial State government (50%) and lenders (50%) to recast debt of INR1.9t.

restructuring plan Conditions include (1) abolition of any gaps between revenue and cost, (2)

(FRP) annual tariff revision, (3) audit of books, (4) reduction in T&D losses, etc.

Central government support of INR240b for debt to be assumed by state.

Incentive-based scheme for T&D loss reduction.

LT power Higher availability at lower rates given sizable capacity addition.

availability /

ST power cap ST power procurement monitored and now through bids only.

Cap on ST procurement as also regulatory approval.

Commercial losses atINR600b+

OUR VIEW: PositiveImpact of above measures

DISCOMs would have higher cash inflows through tariff, while moratorium would

provide cushion in cash outflows, which would drive growth in power demand.

Lenders relatively secured now, as state government is made party to

restructuring - should start incremental disbursement/growth.

Kick-start investment in T&D sector, as reduction in AT&C losses is a precondition

to avail benefits.

(b) Fuel, PPA issues at the forefront; domestic production ramp-up is key;new bid document to allow fuel cost pass-through

Shortfall in meeting capacity addition beyond FY10

FSA Qty Cumulative Requirement CIL's total OLD FSA Supply to Shortfall

Quantity @ 80% supply Comm.# new FSA

FY10 24 24 19 298 274 24 0

FY11 25 49 39 304 274 30 -9

FY12 72 121 97 312 274 38 -59

FY13E 40 161 128 347 274 73 -55

FY14E 44 205 164 377 274 103 -61

FY15E 47 252 201 407 274 133 -68

#Assumed old FSA will be given coal only up to 90% ACQ levels till FY09. * Calculated

assuming 65% domestic supply and 15% import for 80% trigger level are sacrosanct numbers

-209 -2

71 -319

-537 -6

35

-596-6

69

FY06

FY07

FY08

FY09

FY10

FY1

1E

FY1

2E

encouraging, their successful implementation would first boost current/upcoming

capacity additions under the 12th Plan. We believe new investments in the Power

sector, particularly by the private sector, are still sometime away. Private developers

might face issues, given higher DER, existing PPA/FSA issues, ventures like overseas

mine acquisition, etc.

A–17October 2012


Key measures taken to address issues

Particulars Remarks

Coal production CEPI and No-Go hurdle removed

Rake availability enhanced

Greater focus on captive coal development

Mandate to sign FSA to bring accountability

PPAs Review taken up for discussion at various levels

Auditor General's view sought - PPA can be reviewed

New bid document under preparation - bid on capacity charge ONLY, fuel cost

pass-through

Huge investments stuck; will require close monitoring

Metals & Mining is another sector that will require close monitoring to restart the

investment cycle. The huge investments made by various companies are stuck at

different levels. Various projects of Vedanta, Hindalco, JSPL, JSW Steel, Tata Steel, etc

still face delays because of issues relating to land acquisition, mining clearances,

availability of water, etc. These issues are yet to be addressed in the current wave of

reforms. Vedanta has served notice for its closure, as it is unable to source bauxite

despite proximity to mines in Odisha and has already run losses of INR25b. Operating

assets are closing down and projects are getting delayed.

OUR VIEW: Steps in right direction; would watch for milestone/improvementImpact of above measures

Coal India's production has begun to look up - production/dispatches up 7.6%/

6.2% YTD FY13 v/s near-zero growth in FY12. Domestic coal supply improvement

to enable low cost power availability to DISCOMs.

Coal price pooling would be inevitable to tide over domestic shortfall through

imports - states' consent crucial.

New projects would have significantly lower risk, as developers bid on capacity

charge and fuel cost pass-through - an important enabler to kick-start investment

process.

Captive coal block development now being monitored and developers made

accountable; several instances of de-allocation, forfeiture of bank guarantees.

#2 Metals & Mining

PPA review sought

Developer Cap (MW) Remarks

Adani Power 1,000 GUVNL PPA signed at INR2.39/unit is proposed to be reviewed

JSW Energy 300 PPA with MSEDCL under contest, given change in Indonesian laws

Tata Power 4,000 Mundra UMPP tariff review sought; INR0.67/unit increase on levelized

tariff bid of INR2.26/unit

Reliance Power 4,000 Krishnapatnam UMPP progress halted due to Indonesia price

regulation

Lanco Infratech 600 Amarkantak project PPA in dispute with state over cost, tariff cap, etc

Jaiprakash Power 1,000 Karcham Wangtoo project PPA under review due to cost escalation

A–18October 2012


1,10

9

1,21

1 2,1

54

437 1,

454

1,0

66

1,12

4

256 7

91 1,49

9

2,2

02

1,6

34

171

3,40

1

1,76

7

1,46

1

605

2,1

70 3,27

9

-87 56

1

56

1Q 2Q 3Q 4Q

FY08 FY09 FY10 FY11 FY12 FY13

Economic activity/Projects

Mahan 359ktpa smelter

and 900MW CPP

Mining ban in Goa

JSPL, Angul

(Greenfield project)

Issues

Coal block was allocated in JV with Essar Energy

in 2006. Production was expected to start in

2009. The Mahan Coal Block was declared in

no-go area in 2010. EGOM gave the coal block

stage-I forest clearance in May 2012.

Iron ore mining in Goa is largely meant for

exports. The low grade ore can be used after

blending it with high grade ore. High cost of

logistics makes it unviable for Indian steel

producers. Ineffective administration was

unable to check illegal mining. The Shah

Commission report made numerous

allegations. Clueless state and central

governments put a blanket ban on mining,

impacting even the disciplined players.

JSPL's 1.6mtpa steel expansion in Angul

involves a coal gasification based DRI plant.

The Utkal B1 coal mine is essential for the

profitability of the project.

Current status

INR86b has already been spent from the total

INR107b. Without stage-I approval, production

is not expected in the next two years. The

project NPV is negative without captive coal

block. There is no further communication by

the government on coal block clearance since

May 2012.

The Goa government temporarily suspended

all mining operations in the state in

September. In a tug of war between the state

and the center, the MoEF later suspended

environmental clearances for iron ore mines.

This has complicated the matter further for

restart of mining in the state.

JSPL is yet to sign mining lease despite most

approvals in place for the last one year. The

issue keeps moving between the state and

central governments, as officials are reluctant

to take any action in light of the controversy

over various mine allotments. The mantra

seems to be "no decision is a good decision".

The following examples highlight the deteriorating state of investments

Loan growth moderating; economic revival will ease asset quality concerns

Dearth of deployment opportunities leading to moderation in loan growth: Given the

backdrop of slowing economic growth, policy logjam and issues related to documental

clearances, corporate capital spending has slowed down significantly. CMIE data

indicates that new project investments in FY12 have declined 35% and are lower than

in FY07. The deceleration continued in 1HFY13 as well, with new investments declining

by as much as 50% YoY. This has also translated into moderate loan growth, with

deceleration in key sectors like Infrastructure (especially Power), Metals and Services.

New project additions slowing down Incremental loan growth decelerating (INR b)

Quarterly project additions in the quarter ended September

2012 lowest since June 2004

On a quarterly basis, incremental loans decelerated in FY12

except in 4Q and the trend of deceleration continues in FY13

0

2,000

4,000

6,000

8,000

Mar

-10

May

-10

Jul-

10

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-

12

Sep-

12

Added Revived Shelved Deleted

#3 Financials

A–19October 2012


Loan growth has moderated across key segments (%)

Cost of funds in the system needs to be lowered: With inflation being relatively sticky

and above comfort zone, RBI has refrained from aggressive cuts in repo rate. Headline

interest rates have remained at an elevated level. This is also reflected in higher term

deposit cost (+160bp YoY) for banks under our coverage. Coupled with sharp fall in

incremental CASA ratio (especially due to decline in CA deposits), cost of funds for

the banking system has gone up significantly. With the current growth-inflation

dynamics and government actions being pro-growth, it is important for interest rates

in the system to go down to boost the improving sentiment.

YoY Growth Incremental Contribution

Mar-09 Mar-10 Mar-11 Mar-12 YTD* Mar-09 Mar-10 Mar-11 Mar-12 YTD*

Loans 17.8 16.6 20.8 17.2 4.4 100.0 100.0 100.0 100.0 100.0

Industry 20.9 24.4 23.6 21.3 2.4 45.6 58.4 48.1 53.9 24.3

within which

Infrastrcuture 31.5 40.7 38.6 17.6 9.8 16.1 24.9 22.8 14.4 31.4

Of which Power 30.9 50.9 43.3 22.2 19.3 7.3 14.4 12.7 9.3 32.8

Of which Telecom 31.5 18.0 69.2 -6.8 -13.6 3.0 2.1 6.4 -1.1 -6.5

Of which Roads and Ports 36.5 56.3 25.8 23.6 13.9 3.1 6.0 3.0 3.4 8.2

Metals 19.7 26.5 28.8 21.8 12.7 5.3 7.8 7.3 7.1 16.8

Texti les 6.5 18.2 19.2 10.4 -5.6 1.6 4.2 3.6 2.4 -4.6

Services 18.3 12.5 23.9 14.7 -0.3 24.9 18.3 27.1 20.6 -1.9

Real Estate 48.4 -0.3 21.4 7.8 -9.6 7.5 -0.1 3.1 1.4 -6.0

NBFCs 31.3 14.8 54.8 26.3 20.3 5.9 3.3 9.7 7.2 23.2

Personal Loans 10.1 4.1 17.0 12.1 13.6 12.9 5.3 15.5 13.0 53.9

Housing Loans 9.3 7.7 15.0 12.1 18.7 5.9 4.9 7.0 6.5 37.3

Agriculture 23.8 22.9 10.6 13.5 2.1 16.2 17.6 6.9 9.7 5.8

* till August 2012: annualized

Incremental CASA ratio lowest Reduction in CRR to bring down negativein a decade (%) Cost of deposits has increased (%) carry by 3-4bps

48.3

37.644.8

29.934.2

23.2

50.3

36.1

19.5

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

4.0

5.5

7.0

8.5

10.0

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

Cos t of Depos i tsCos t of Term Depos i tsRepo Rate

Negative Carry on CRR

0 3 6 9 13161922262933364043475054

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Repo rate/CRR cut would help the cause: Under the current base rate regime, for

lending rate to decline, it becomes imperative for cost of funds to go down first.

However, with repo rate at the current level of 8%, it is unlikely that term deposit

rates (blended rate at ~8% v/s 6.5% in FY11; implies that cost of incremental term

deposits is even higher) would decline. Hence, RBI action in the form of reduction in

repo rate and CRR is warranted, which could ease pressure on systemic interest rates

and in-turn, a gradual decline in lending rates as well. Government action along with

supportive actions by the RBI is a must to combat the slowdown in the economy.

A–20October 2012


Stress loans ex-AI and SEBs have increased 110bp v/s reported increase of 280bp:

Stress loans for state-owned banks (MOSL coverage) have increased to 7.7% in 1QFY13

as compared to 4.9% in FY11. However, it is important to note that restructuring of SEB

and Air India (state-owned entities) loans constituted bulk of the stress loans (1.7%),

excluding which the increase would have been 110bp. The stated stress loans appear

higher even on account of loans restructured prior to FY10 (2.1% of loan book), which

would be eligible for removal from the restructured loan category if the Mahapatra

Committee recommendations on restructuring are approved in the current form.

Stress loans would decline significantly to 3.8% (ex-AI and SEBs) as against headline

numbers of 7.7% (6% ex-AI and SEBs).

Incremental cost of fund have increased in the system

5.4

8.7

2.0

0.80.50.1

Reta i l TD Cost -ve Carry on

SLR

-ve Carry on

CRR

CASA Cos t Bulk Dep. Cost Incr. Cost of

Dep.

SEB and AI forms bulk of new restructer loans

( %) 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13

NNPA 1.1 1.1 1.1 1.1 1.2 1.5 1.6 1.5 1.8

OSRL 4.2 4.1 4.0 3.8 3.8 3.8 4.1 5.3 6.0

Of which AI and SEB - - - - - - 0.1 1.2 1.7

Of Prior to FY10 - - - - - - - 2.1 2.1

OSRL ex AI and SEB 4.2 4.1 4.0 3.8 3.8 3.8 4.0 4.2 4.2

Stress loans 5.3 5.2 5.1 4.9 4.9 5.3 5.7 6.8 7.7

Stress Loans ex AI and SEB 5.3 5.2 5.1 4.9 4.9 5.3 5.6 5.6 6.0

Stress Loans ex AI and SEB and - - - - - - - 3.5 3.8

loans restructured prior to FY10

Growth revival will assuage asset quality concerns: The key feature of the current

economic slowdown is that it is particularly severe for the industrial sector. IIP growth

decelerated to 3.1% in FY12 and is expected to decelerate to sub-2% in FY13. This is

important from the Banking sector's perspective because the industrial sector accounts

for ~45% of bank loans and improvement in economic growth could help assuage a lot

of asset quality issues. Within Industry, we note that the proportion Power sector

loans has increased to 7.5% in FY12 as against 4.2% in FY08. There could be increased

stress in Power sector loans. However, the silver lining of the government's serious

intent to improve the health of SEBs and resolve issues relating to the Power sector

could be a big boost to the health of banks.

How did we derive incremental

cost of deposits (including

negative carry) of 8.7%?

Incremental SA ratio of

20% and CA ratio of 0%

(due to sharp moderation

in corporate profitability

and better treasury

management). Thus

weighted average CASA

cost stood at 0.4%

Share of retail term

deposits in overall

deposits at 60% and cost

of deposits at 9%, thus

weighted average cost of

deposits at 5.4%

Share of bulk deposits at

20% with the cost of

deposits at 9.8%, thus

weighted average cost of

deposits at 1.96%

Negative carry on account

of CRR (50bp) and SLR (at

8% Yield on Investments

at 10bp)

A–21October 2012


Spectrum pricing and allocation, conducive M&A policy critical

Over FY07-12, private telecom operators invested ~USD60b, including the outlay for 3G

and BWA spectrum. Hypercompetition and lack of regulatory clarity has significantly

impacted the return ratios of all operators, with the challengers currently incurring

significant losses. Listed operators require an RPM increase of 12-64% to reach even the

base RoCE level of 12%. Further investments in the sector have been curtailed due to

low returns and lower availability of funding due to stressed balance sheets of most

operators. Investment activity is unlikely to resume, unless balance sheets get repaired.

RPM increase required to reach 12% RoCE (FY13 basis)

Bharti (India & SA) Idea RCom

Avg Capital Employed (INRb) 783 272 692

EBIT for 12% ROCE (INRb) 140 49 124

Wirelss traffic (b min) 997 556 426

Wireless revenue (INRb) 444 231 185

EBIT (INRb) 75 26 29

Wireless RPM (INR) 0.43 0.41 0.43

Incremental EBIT required (INRb) 66 22 95

Incremental revenue required (INRb) 82 28 119

Incremental RPM required (INR) 0.08 0.05 0.28

Wireless RPM required (INR) 0.51 0.46 0.71

% increase required 19 12 64

Some of the initiatives that the government can take to restore financial health of the

sector are:

1) Clear policy on spectrum pricing and allocation, with visibility on roadmap for all

spectrum blocks to be made available in the future

2) Putting all available spectrum to auction upfront rather than creating artificial

scarcity by putting limited amounts for auction

3) Conducive M&A policy which can support transfer of spectrum from inefficient

operators to efficient ones

4) Negotiation-based settlement on 3G intra-circle roaming and Vodafone tax case

5) Removal of policy overhangs like spectrum re-farming that might result in

significant operational disruption as well as financial burden for the industry

Rational product pricing, gas reforms imperative

Petroleum product under-recoveries have been continuously rising in the last few

years, led by increasing oil prices and a depreciating rupee. Gross under-recoveries

for FY13 are likely to be at a new high of INR1.6t v/s INR1.4t in FY12. However, with oil

price at ~USD110/bbl and the rupee appreciating, the outlook for the sector appears

better. More importantly, over the years, the Indian economy has acquired increased

resilience to high oil prices and high under-recoveries. If the average oil price were to

remain at USD105-110/bbl in FY13/FY14, the import bill as well as subsidy estimate as

a percentage of GDP would be well below FY09 levels, when oil prices had averaged

at USD85-90/bbl. Recent steps by the Indian government to hike diesel prices and

limit subsidized LPG cylinders are bold (though inevitable!), in our view. Further policy

follow-up by fast-tracking the implementation of subsidy through cash transfer is

positive.

#4 Telecom

#5 Oil & Gas

A–22October 2012


India's high oil dependence (~80%)

overshadows the increased resilience

of the Indian economy to high oil

prices and high under-recoveries.

Brent price of USD110/bbl now…

India's net oil import bill and

government subsidy burden as a

percentage of GDP

… is similar to Brent at USD85-90/bbl

in FY09

Oil @ USD110 now is oil @ USD85-90 in FY09

Model diesel price hike of INR2/liter in FY14, exchange rate of INR54/52/USD for FY13/14

Rational petroleum product prices imperative for healthy economic growth:

Controlling (under-pricing) petroleum products not only results in inefficiencies such

as (i) substitution of low value products (e.g. fixed price diesel replacing market-

priced fuel oil), and (ii) adulteration, but also impacts (a) India's energy security, (b)

financial health of oil companies (increased debt, reduced profitability), and (c)

government finances (high fiscal deficit). If India's GDP were to grow by 9%, energy

consumption would grow by 6-7%. Rational energy prices are necessary for healthy

economic growth. They would also incentivize domestic producers to increase their

production.

0

30

60

90

120

FY9

9

FY0

0

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY13

E

FY14

E

Bre

nd O

il pr

ice

(USD

/BL)

-1.0

1.5

4.0

6.5

9.0

Oil

impo

rts

& s

ubsi

dy

(% t

o G

DP)

Brent Crude Price (USD/bbl ) - LHSNet petroleum imports (% to GDP) Petroleum Subs idy (% to GDP)

Under-recoveries and their sharing (INR b) Sensitivity of under-recoveries to oil price/exchange rate (INR b)

Recent policy actions are positive The recent Kelkar Committee report had recommended immediate price hikes

and had also provided a roadmap of policy goals to reduce under-recoveries.

Diesel: Aim to eliminate half the diesel subsidy per unit in FY13 and the

remaining half over FY14.

LPG: To eliminate LPG subsidy by FY15 by reducing it by 25% by FY13, with the

remaining 75% over the next two years.

Kerosene: To reduce the subsidy by one-third by FY15.

347 458 316 405 573 610 508

426

812968

695575375

144

7731,033

461780

1,203

1,5771,385

FY08 FY09 FY10 FY11 FY12 FY13EFY14E

Auto FuelsDomestic FuelsTotal

-600

0

600

1,200

1,800

FY08

FY09

FY10

FY11

FY12

FY1

3E

FY1

4E

0

500

1,000

1,500

2,000

OMC's s haringOi l Bonds/CashUpstreamTota l

Gross Under recoveries (INRb)

80* 90* 100* 105* 110* 120*

50 191 296 709 921 1,134 1,558

52 216 447 888 1,109 1,330 1,771

54 242 609 1,068 1,297 1,526 1,985

56 296 772 1,247 1,485 1,722 2,198

58 441 934 1,426 1,673 1,919 2,411

Brent (USD/bbl)*

Fx R

ate

(IN

R /

USD

A–23October 2012


Though government has been largely aware of the path required to reduce under-

recoveries and in turn the subsidy burden, it has not been able to follow a clear

roadmap. Nevertheless, despite all the political constraints, the government has

in part put itself on a path to reduce under-recoveries. Few of its steps include:

Decontrol of petrol prices (with small hiccups, petrol is now largely

deregulated).

Limiting of subsidized LPG cylinders (real impact would be seen over the

medium term).

Subsidy by cash transfer to beneficiaries' accounts (reduce leakages and subsidy

through direct targeting). For instance, a study by NCAER indicates that ~40%

of the PDS kerosene is diverted for non-PDS use.

Gas price reforms to boost domestic production: Domestic gas price has been

historically controlled by the government. Against the price of imported gas at USD11/

mmbtu, domestic gas price is limited at USD4.2-5.7/mmbtu. The last hike in

administered gas price was in June 2011, post KG-D6 gas pricing. With domestic gas

prices at a significant discount to imported gas prices, there is little incentive for

upstream companies to invest at the fixed gas price of USD4.2/mmbtu. Also, the

breakeven price for new deepwater discoveries in the country is pegged at USD5-6/

mmbtu.

While there is no clear policy roadmap to increase or rationalize domestic gas price,

we expect the next price revision to take place in sync with the scheduled price

revision for KG-D6 gas in March 2014 or earlier in view of declining KG-D6 production

and dire need for gas in India. Though it would be difficult to estimate the likely price

revision, it is easy to identify the beneficiaries. Higher gas price is likely to facilitate

the development of RIL's discoveries in KG-D6 and NEC-25, but from the earnings

perspective, we believe ONGC will be the largest beneficiary.

ONGC's EPS is more sensitive to increase in gas price than RIL's

Gas Price (USD/mmbtu) 4.2 6.0 7.0 8.0 9.0

Exchange rate (INR/USD) 55.0 55.0 55.0 55.0 55.0

Gas Price (INR/mscm) 8,085 11,550 13,475 15,400 17,325

ONGC - FY14 basis

Standalone gas sales (mmscmd) 53 53 53 53 53

Standalone gas sales (bcm) 19 19 19 19 19

Incremental PBT (INRb) - cumulative 67 104 141 178

Incremental PAT (INRb) - cumulative* 45 70 95 119

Incremental EPS (INR/sh) - cumulative 33.4 5.2 8.1 11.1 14.0

% increase over base FY14 EPS 16 24 33 42

RIL - FY14 basis; 60% stake in KG-D6

Gas production (mmscmd) 25.0 25.0 25.0 25.0 25.0

Gas production (bcm) 9.1 9.1 9.1 9.1 9.1

Incremental PBT (INRb) - cumulative 19 30 40 51

Incremental PAT (INRb) - cumulative** - 15 24 32 40

Incremental EPS (INR/sh) - cumulative 69.7 5.2 8.1 10.9 13.8

% increase over base FY14 EPS 7 12 16 20

* Full tax rate assumed; **tax rate of 20% assumed; Sensitivity would be in favor of RIL if its

production increases beyond 40mmscmd

A–24October 2012


Creating conducive environment for large scale development

Infrastructure spending in India was targeted at USD500b (7.5% of GDP) under the

11th Plan, up from USD227b in the 10th Plan (5% of GDP). The initial estimate for the

12th Plan suggested infrastructure spending at USD1t, representing 9% of GDP. The

share of the private sector was expected to increase from 24% in the 10th Plan to

36.2% in the 11th Plan and to 51% in the 12th Plan. This, in our view, is difficult, with

several policy/regulatory hindrances, lack of established models for PPP framework,

lack of initiatives to establish long-term funding for the sector, etc. Except for the

Roads sector, other major areas of infrastructure are languishing. In Roads too,

developers, particularly those that bid aggressively, are witnessing financial crunch.

DFC, railways, urban transport can accelerate investment spend

Take-off of large public expenditure projects (like DFC, railways, urban transport, etc)

has become important at the current juncture. In this context, the ruling coalition

regaining control over the Railway Ministry (contributing ~12% of the infrastructure

spending in 12th Plan) raises hopes of an accelerated spending program.

Urban infrastructure development is now becoming an important priority, given

the haphazard urbanization in various cities. There are 30 cities in India with a

population of over 2m each, and according to the Planning Commission, these

cities might implement Metro Rail at some stage or the other. There are 14 cities

with a population of over 3m each and 7 cities with a population of over 5m each.

Several of these cities are actively planning Metro Rail. Delhi has completed its

Metro Rail project, while Bangalore has opened a section. Metro Rail projects are

under construction in Chennai, Kolkata, Mumbai, Jaipur and Hyderabad. During

the 12th Plan (FY13-17), the Working Group of Urban Transportation estimates

investments in Metro Rail projects at INR1.3t.

Capacity addition in transport infrastructure (particularly railways) since

independence has been woefully inadequate. The railway route kilometers have

increased at a CAGR of 0.3% and running track kilometers at a CAGR of 0.7%. In

comparison, net ton kilometers have increased at a CAGR of 4.5%. This has led to

massive pressure on the existing infrastructure, and the accumulated deficiencies

are acting as key growth bottlenecks for several segments. Coal availability to

power projects has been impacted, given the evacuation constraints, though Coal

India continues to carry a large inventory of 60m tons. There is an urgent need to

address the logistics issue, given that a large part of India's mineral resources is

located in the eastern states of Jharkhand, Chhattisgarh and Orissa, while western

and southern India are the major consumption and industrial centers. Indian

Railways has planned a steep increase in spending in the 12th Plan to INR5t+ v/s

~INR2.2t in the 11th Plan, but funding remains a key challenge.

The Dedicated Freight Corridor (DFC) is an important project that attempts to

partly correct the under-investment in railway infrastructure, and we expect

project awards to commence in FY13. The project is being funded by multilateral

agencies from Japan and World Bank. Hence, funding is not expected to be a

major challenge. We believe that the DFC combined with the Delhi Mumbai

Industrial Corridor will have a meaningful multiple effects on the economy.

#6 Infrastructure

#7 Mega projects

A–25October 2012


Early signs of a rebound in earnings growthSensex EPS growth reverts to LPA of 15%; Earnings downgrades bottoming out

Expect FY14 earnings growth of 14%

Sensex EPS growth has reverted to LPA of 15%

Is FY14 the beginning of a new earnings cycle? There are some early signs:

#1 Earnings downgrade cycle has bottomed out

#2 Our FY14 assumptions far from aggressive

#3 FY14 earnings mix is less vulnerable than that of FY13 initial estimates

#4 More stocks have a bias for earnings upgrade than downgrade

Expect FY14 earnings growth of 14%Our bottom-up estimates for the MOSL universe of companies (ex RMs) suggests FY14

sales growth of 8%, EBITDA growth of 15% and PAT growth of 14%. This growth is

driven mainly by –

1. Bounceback in sectors which were affected in FY13 (Auto, Telecom); and

2. Steady growth in secular sectors (Consumer, Healthcare, Financials) offsetting

low growth in specific sectors like Oil & Gas, Technology and Capital Goods.

Annual Performance - MOSL Universe

Sector Sales (INR B) EBIDTA (INR B) PAT (INR B)

FY13E FY14E CH. CH. FY13E FY14E CH. CH. FY13E FY14E CH. CH.

(%) # (%) @ (%) # (%) @ (%) # (%) @

High PAT Growth YoY 5,309 5,989 14 13 952 1,114 9 17 324 420 -6 30

Telecom (4) 1,264 1,386 11 10 376 423 4 12 48 73 -23 50

Retail (4) 281 328 17 17 27 32 18 21 10 14 18 32

Real Estate (11) 232 294 3 26 95 123 2 30 46 60 -1 30

Auto (5) 3,532 3,981 16 13 454 537 14 18 219 274 -4 25

Medium PAT Growth YoY 8,408 9,308 8 11 2,923 3,436 12 18 1,583 1,865 14 18

Media (5) 112 128 11 14 36 41 10 17 17 20 15 20

Health Care (17) 880 966 19 10 205 223 17 8 127 152 22 20

Others (4) 173 192 10 11 34 39 6 16 19 22 4 19

Consumer (12) 1,175 1,360 17 16 247 292 21 18 166 198 20 19

Metals (10) 3,962 4,179 1 5 717 844 3 18 381 451 4 18

Financials (27) 2,106 2,482 14 18 1,685 1,997 14 19 874 1,022 16 17

NBFC (8) 272 323 23 19 265 315 21 19 176 209 19 19

Private Banks (8) 484 583 21 20 410 499 22 22 248 294 20 18

PSU Banks (11) 1,350 1,576 10 17 1,010 1,184 10 17 449 519 14 16

Low PAT Growth YoY 14,216 14,807 15 4 2,695 2,984 8 11 1,675 1,800 9 7

Cement (8) 963 1,104 13 15 228 260 20 14 118 134 19 13

Utilities (10) 2,185 2,413 15 10 621 726 19 17 384 428 10 11

Technology (6) 1,864 2,083 23 12 468 503 22 7 352 382 23 8

Excl. RMs (10) 7,546 7,422 14 -2 1,166 1,275 -2 9 677 712 4 5

Oil & Gas (13) 16,160 16,193 11 0 1,421 1,577 -2 11 761 810 -4 7

Capital Goods (9) 1,659 1,785 9 8 212 222 2 5 144 146 1 1

MOSL (145) 36,547 38,875 11 6 6,824 7,837 9 15 3,666 4,184 8 14

MOSL Excl. RMs (142) 27,933 30,104 13 8 6,570 7,534 10 15 3,583 4,085 10 14

Sensex (30) 9,740 10,314 13 6 1,902 2,160 9 14 1,039 1187 10 14

Nifty (50) 10,978 11,605 11 6 2,183 2,474 10 13 1,199 1363 11 14

*Growth FY12 over FY11; # Growth FY13 over FY12; @ Growth FY14 over FY13. For Banks : Sales = Net Interest Income, EBIDTA =

Operating Profits; Note: Sensex & Nifty Numbers are Free Float

FY14 Earnings

A–26October 2012


Sensex EPS growth has reverted to LPA of 15%For the 5 years ending FY13, Sensex EPS CAGR has been muted at 8%. However, it

becomes more interesting when seen from a longer term perspective. India’s long-

period average (LPA) earnings growth is 15%. However, the last 20 years’ earnings can

be bracketed into 4 distinct cycles of 5 years each as shown below.

Sensex EPS trend: Distinct boom-bust cycles

Is FY14 the beginning of a new earnings cycle?Post Cycle 3 i.e. the FY03-08 boom, the 15-year Sensex EPS CAGR scaled up to 17%.

However, the slowdown since then has caused the same to revert to the LPA of 15%.

Now, our bottom-up earnings estimates for Sensex companies suggest FY14 Sensex

EPS growth of 14%, close to the LPA. The key question: Is FY14 the beginning of a new

earnings cycle?

A definitive yes or no is tough, given the high level of global and domestic uncertainty

on several macroeconomic and business variables – resolution of Eurozone crisis,

GDP growth (both global and for India), commodity prices especially oil, exchange

rate, etc. Still, we believe that there are a few early signs that this is a distinct

possibility:

1. Earnings downgrade cycle has bottomed out

2. Our FY14 assumptions are far from aggressive

3. FY14 earnings mix is less vulnerable than that of FY13 initial estimates

4. More stocks have a bias for earnings upgrade than downgrade.

Earnings downgrade cycle has bottomed out

We introduced our FY13 estimates in December 2010 when bottom-up aggregation of

Sensex companies’ PAT suggested FY13 EPS of 1,492. Since then, a combination of

global headwinds (mainly sovereign debt crisis in Eurozone) and domestic politico-

economic logjam has led to an 18% downgrade in Sensex EPS to 1,218 currently.

81 129 181250 266 291

348450

523

718833

1,395

278 280216 236 272

820 834

1,0241,125

1,221

FY9

3

FY9

4

FY9

5

FY9

6

FY9

7

FY9

8

FY9

9

FY0

0

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY93-98: 29% CAGR FY98-03: -1% CAGR

FY03-08: 25% CAGR

FY08-12: 8% CAGRFY93-13: 15% CAGR

1 2 3 4

Early sign #1

A–27October 2012


Our FY14 assumptions far from aggressive

We believe most of our underlying assumptions for FY14 estimates are far from

aggressive, impacted by the current macroeconomic slowdown and weak business

sentiment. Thus, in most sectors, key operating metrics are assumed at the same

depressed levels of FY13 or lower e.g. Capital Goods order intake, Consumer revenue

growth, prices of most metals and oil, credit offtake, credit cost, wireless traffic,

power tariff, etc. The only metrics where some recovery is modeled in are Auto/

Cement volumes and USD revenue growth for Technology sector.

However, the pace of downgrade has slowed down considerably. In the last 9 months,

Sensex EPS downgrade is less than 4%, and in the last 3 months, there is actually a

miniscule upgrade. Equally important, if not more, FY14 earnings estimates have not

seen any meaningful downgrade in the last 6 months. Clearly, the last two quarters

are some evidence of a possible end to the earnings downgrade cycle.

Earnings downgrade cycle seems to have bottomed out for FY13 … … and also FY14

1,2211,2181,2591,2671,3371,3971,4711,492

18 18 18 1714 14

8 9

Dec 10 Mar 11 Jun 11

New

Series

Sep 11 Dec 11

New

Series

Mar 12 June 12 Sep 12

FY13 EPS (INR) FY13 EPS Growth YoY (%)

15% downgrade in the first 12 months Less than 4% downgrade

in last 9 months

1,3951,3871,431

14 14 14

Mar 12 June 12 Sep 12

FY14 EPS (INR) FY14 EPS YoY (%)

1,221

1,492

-21-64-54

-43-21-20-19-18-18-17-16-13

1835

Sen

sex

EPS

(Dec

-10)

Coal

Indi

a

TCS

Ma

ruti

L&T

ON

GC

Ste

rlit

e

SB

I

BH

EL

NTP

C

JSPL

Tata

Stee

l

RIL

Bha

rti

Oth

ers

(ne

t)

Sen

sex

EPS

(Cur

rent

)

Bharti, Reliance and Tata Steel led the downgrade of FY13 Sensex EPS

Early sign #2

A–28October 2012


Key Operating Metrics / Assumptions

FY12A FY13E FY14E Remarks

Auto

2 Wheeler Volume Growth 12% 3% 12% FY13 volume growth downgraded to 3%

4 Wheeler Volume Growth 10% 5% 15% Recovery in FY14 on low base (strike in Maruti’s Manesar plant)

CV Volume Growth 19% 8% 14% M&HCV to grow -2.5%/+12% in FY13/FY14, LCVs 15%/15%.

Capital Goods

Avg order intake growth (%) -26% 21% 8% Industrial capex, orders to remain sluggish on high cost of capital.

Cement

Volume Growth (%) 7.0 8.0 10.0 FY14 volumes to be driven by pre-election developmental activities,

Price Change (INR/bag) 23.0 20.0 10.0 as well as demand from individual housing.

Consumer

Value Growth (%) 19.0 17.0 16.0 Marginally revised the gross margin assumptions upward

EBITDA Margins (%) 20.0 21.0 21.0

Financials

Credit Growth (%) 17.0 16.0 16.0 Unchanged as investment climate is yet to improve

Credit cost (% of average loans) 0.9 1.0 1.0 We continue to build higher credit cost in FY14

Media

Ad Revenue Growth (%) 2 10 12 Ad growth to recover in FY13 on a low base and improve in FY14

Metals

Steel (USD/ton) 863 720 672 Domestic steel price assumptions lowered by 10%-15% given sluggish

Aluminium (USD/ton) 2,346 1,996 2,100 demand, significant decline in RM prices and increased threat of

Copper (USD/ton) 8,501 7,898 7,500 cheaper imports, especially from China.

Zinc (USD/ton) 2,121 1,910 2,000 No major change in Base metals assumptions.

Oil & Gas

Brent Oil Price (USD/bbl) 114.5 110 105 High uncertainty in oil market fundamentals: demand growth (pegged

at 0.8mmbbl/d in 2012, 2013), geopolitics (Iran situation, US election).

OPEC (ex Iran) producing at historically high levels.

Singapore GRM (USD/bbl) 8.3 8.0 8.0 Unless meaningful closures happen. GRMs unlikely to rise above USD7-

9/bbl. Global operating rates (ex of US) are likely to remain low led by

lower demand and commissioning of new refineries.

Technology

USD Rev. Growth (top-tier) 21% 12% 16% Sluggish beginning to CY12 marred growth rates for FY13. Continued

USD / INR 48.2 54.5 53 budget spends albeit at a slower pace imply some pick up in growth in

FY14, though still not enough to match that in FY12

Telecom

Wireless traffic growth (%) 16 11 8 Wireless traffic growth to impacted by withdrawal of promotions and

lower subscriber additions

RPM change (%) -0.9 -1.9 2.4 Pricing pressures to recede on corrective actions by the industry

Utilities

Merchant Power Rate 3.5 4.0 4.0 Our assumptions for Utilities sector remain unchanged

PLF 66 67 67

FY14 earnings mix is less vulnerable than that of FY13 initial estimates

We compared the FY14 earnings mix with that of our initial FY13 initial estimates

(which saw sharp downgrades subsequently). We believe that the current earnings

mix has lower likelihood of major downgrades. Our key observations:

Earnings mix has marginally improved in favor of domestic plays over global plays.

More importantly, with both domestic and global plays, share of non-cyclicals has

increased. Thus, share of overall non-cyclical earnings has increased from 55% in

FY13IE (initial estimates in Dec-2010) to 60% for FY14E.

Early sign #3

A–29October 2012


Within Domestic Non-cyclicals, the share of Telecom is lower in FY14E vis-à-vis

FY13IE, whereas share of Financials, Utilities and Consumer is higher.

Likewise, within Global cyclicals, share of volatile Oil & Gas and Metals is lower,

whereas share of Tata Motors (which has majorly turned around) is higher.

Finally, there is no chunky contributor to the build-up of Sensex EPS from 1,221

for FY13 to 1,395 for FY14. This, we believe, further reduces the risk of downgrade

due to adverse developments in 1-2 companies.

FY14 earnings mix suggests FY13 kind of downgrades unlikely to recur

MOSL Universe PAT mix (%) Sensex EPS mix (%)

FY13IE FY13CE FY14E FY13IE FY13CE FY14E

Domestic Plays 57 54 55 48 48 49

Domestic Non-cylical 47 45 47 41 43 44

Financials 24 24 25 16 18 19

Uti l it ies 9 11 10 11 13 13

Auto Ex Tata Motors 4 3 3 6 5 6

Telecom 4 1 2 4 1 2

Consumer 4 5 5 4 5 5

Others 3 1 1 - - -

Domestic Cyclical 10 9 9 6 5 4

Capital Goods 5 4 4 6 5 4

Cement 3 3 3 - - -

Real Estate 2 1 2 - - -

Global Plays 43 46 45 52 52 51

Global Non-Cyclical 12 13 13 14 16 16

Technology 9 10 9 12 14 13

Health Care 3 4 4 2 3 3

Global Cyclical 32 33 32 39 36 35

Oil & Gas ex RMs 18 19 17 24 23 22

Metals 11 11 11 11 7 8

Tata Motors 3 3 3 4 5 6

Total Non-cyclical 58 59 60 55 59 60

Total Cylical 42 41 40 45 41 40

Total PAT (INR b)/Sensex EPS (INR) 3,934 3,583 4,085 1,492 1,221 1,395

Growth YoY (%) 17 10 14 18 9 14

IE - Initial Estimates; CE - Current Estimates; Note: Others Include Media, Retail

1,221

22 20 16 14 14 12 11 9 8 8 5 5 5 4 4 4 4 3 3 3 2 2 2 2 1 1 1-1 -3 -5

1,395

FY13

E EP

S

Tata

Mot

ors

Tat

a St

eel

HD

FC B

ank

SBI

ICIC

I B

ank

HD

FC ITC

ON

GC

Info

sys

M&

M

TCS

Mar

uti

Bha

rti

Baj

aj A

uto

L&T

NTP

C

Re

lian

ce HU

L

Hin

dal

co

Ster

lite

Inds

.

Dr

Re

ddy’

s

Her

o M

oto

Wip

ro

Coal

Ind

ia

Sun

Ph

arm

a

Cip

la

GA

IL

JSP

L

Tata

Pow

er

BH

EL

FY14

E EP

S

FY14 Sensex EPS build-up is well diversified

Re

lia

nce

In

d.

A–30October 2012


More stocks have a bias for earnings upgrade than downgrade

As things stand, we believe more stocks in the Sensex are likely to see an upgrade in

their FY14 estimates, based on the impact of recently announced policy measures

and expected macroeconomic developments (e.g. rate cut). More importantly, the

stocks account for 48% of aggregate Sensex PAT v/s 24% of PAT for those with potential

downgrades. Also, stocks like Bharti, Tata Steel and BHEL could see a swing in either

direction depending on 1-2 key triggers playing out. Such stocks account for 6% of

Sensex PAT.

FY14 Sensex EPS: Favorable Upgrade-Downgrade equation

Potential Upgrades Potential Downgrades Potential swings either side

(48% of Sensex PAT) (24% of Sensex PAT (6% of Sensex PAT)

Dr Reddy’ s Labs Coal India Bharti Airtel

ICICI Bank Hero Motocorp BHEL

Larsen & Toubro Infosys Tata Steel

Maruti Suzuki JSPL

NTPC TCS

ONGC

Reliance Inds.

State Bank

Tata Motors

Early sign #4

A–31October 2012

India Strategy | Fired Up?

Valuations and Model Portfolio

Indian markets have staged a strong comeback in September 2012 to end the quarter

with a gain of 8%. Our June quarter strategy report had focused on RAY OF HOPE as we

expected the changing political realignments to lead to some positive reforms. And

indeed, the Indian government, post the monsoon session of Parliament, has pursued

a hectic agenda of reforms to kickstart growth and infuse confidence among investors

and corporates.

Most of the measures announced till date have been largely confidence boosters.

However, the government needs to act now on 2 key issues: (1) Strong steps to curb

fiscal deficit, and (2) Re-starting the investment/capex cycle. Concrete actions on

both these fronts hold the key to further re-rating of the markets. Recent currency

appreciation will help ease inflation, and also enable RBI do its bit to stimulate growth.

Combined action of government and RBI could lead to upgrades in FY13 GDP growth

estimate (currently at 6.5%).

Our earnings estimates for FY13 and FY14 have been stable for the last 2 quarters. We

believe the downgrade cycle is now behind us. Recent government measures along

with more to come, monetary easing, and stable to declining commodities can drive

upgrades going forward. Valuations remain below historical averages (FY14 PE of 13.5x

v/s 10-year average of 14.8x). We see more upsides in markets from here.

Sensex PE (x): 12-month forward Sensex PB (x): 12-month forward

14.3

10.7

24.6

7

12

17

22

27

Se

p-0

2

Se

p-0

3

Se

p-0

4

Se

p-0

5

Se

p-0

6

Se

p-0

7

Se

p-0

8

Se

p-0

9

Se

p-1

0

Se

p-1

1

Se

p-1

2

10 Year Avg:

14.8x2.4

1.6

4.2

1.2

2.1

3.0

3.9

4.8

Se

p-0

2

Se

p-0

3

Se

p-0

4

Se

p-0

5

Se

p-0

6

Se

p-0

7

Se

p-0

8

Se

p-0

9

Se

p-1

0

Se

p-1

1

Se

p-1

2

10 Year Avg:

2.7x

17.2

15.8

24.2

15.0

17.5

20.0

22.5

25.0

Se

p-0

2

Se

p-0

3

Se

p-0

4

Se

p-0

5

Se

p-0

6

Se

p-0

7

Se

p-0

8

Se

p-0

9

Se

p-1

0

Se

p-1

1

Se

p-1

2

10 Year Avg: 20.2%

26 26 23

4252

82 83

103

55

9589

7065

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

E

Average of 62%

for the period

Indian market Cap to GDP Sensex RoE (%)

A–32October 2012


We make the following changes in our Model Portfolio for 2QFY13:

We marginally raise our weight in Financials through PSU Banks, and increase our

weight in Autos, and Infrastructure/related sectors

We cut weights in Technology, Consumer and Healthcare.

Our biggest Overweight is Infrastructure & related sectors, and our biggest

Underweight is Consumer.

We have further increased our exposure to mid-caps.

Sensex v/s Autos index Sensex v/s Consumer index

Sensex v/s Bankex Sensex v/s BSE Mid-caps

Financials: Biggest weight; ICICI Bank, SBI top picksFinancials remain the biggest weight in the Model Portfolio (in-line with the

benchmark) as recent policy measures by government and expected monetary easing

will lower asset quality pressures. We have raised our stance to Overweight as we

believe that credit costs have peaked and valuations will gain further.

ICICI Bank is our top bet in the sector. Re-rating of ICICI will be led by expansion in

RoEs over the next 2 years coupled with strong capital adequacy of above 10%.

Any release of capital in Insurance JV will be an added catalyst.

Among other private banks, we have kept our weights unchanged on HDFC Bank

and Yes Bank, despite strong gains in CY12. Fall in deposit rates and growing loan

book will drive earnings for the sector.

SBI remains our second biggest Overweight in Financials. Despite high slippages,

the bank has been able to show strong profits and improve RoE. As credit costs

peak in FY13, earnings upgrade cycle can be strong for SBI in FY14. Valuations are

attractive (FY14E P/B of 1.2x), and the stock could get re-rated in a falling interest

rate scenario.

85

100

115

130

Sep

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ma

r-12

Ap

r-12

Ma

y-12

Jun

-12

Jun

-12

Jul-

12

Aug

-12

Sep

-12

Sep

-12

Se nse x B se Auto

85

100

115

130

145

Sep

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-1

2

Ma

r-1

2

Ap

r-12

Ma

y-1

2

Jun

-12

Jun

-12

Jul-

12

Aug

-12

Sep

-12

Sep

-12

Sen sex Bs e Cons ume r

75

90

105

120

135

Sep

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ma

r-12

Ap

r-12

Ma

y-12

Jun

-12

Jun

-12

Jul-

12

Aug

-12

Sep

-12

Sep

-12

Sen sex Bs e Ba nke x

70

84

98

112

126

Sep

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ma

r-12

Ap

r-12

Ma

y-12

Jun

-12

Jun

-12

Jul-

12

Aug

-12

Sep

-12

Sep

-12

Sens ex Bs e Midcap

Financials +

A–33October 2012


1.21.4

2.3

0.8

0.6

1.1

1.6

2.1

2.6

Sep

‐07

Ma

r‐0

8

Sep

‐08

Ma

r‐0

9

Sep

‐09

Ma

r‐1

0

Sep

‐10

Ma

r‐1

1

Sep

‐11

Ma

r‐1

2

Sep

‐12

P/B (x) Avg(x) Peak(x) Min(x)

We retain Union Bank as we expect 22% EPS CAGR over FY12-14 (led by lower

credit costs) and improvement in RoE to 16.9%. Stock trades at 0.7x FY14 book and

offers dividend yield of 4%.

We have removed M&M Financial Services post a strong stock performance.

We have added LIC Housing (valuations now attractive at 1.8xP/B FY14, beneficiary

of fall in rates, and steady business growth).

Power Finance is another addition as SEB loan restructuring eases bad loan worries

and loan disbursements resume. The stock trades at 0.9x P/B FY14.

ICICI Bank P/B Yes Bank P/B

SBI P/B LIC HSF P/B

Infrastructure & related: Biggest Overweight; add L&T, Jaiprakash, DLFLast quarter, we had changed our stance on Infrastructure and related sectors from

Underweight to Overweight after several quarters. Now, we have added further

weight to the sector.

L&T remains the top stock (upgraded to Buy a quarter back) on the back of continued

strong order intake (led by Infrastructure and Overseas orders), excellent risk

management, expected stable margins, and management commitment to correct

capital structure.

We have added our exposure to Jaiprakash as the stock benefits from strong

cement realizations, de-leveraging of balance sheet, and fall in interest rate.

DLF is a new addition as it benefits from positive macro, improving operating

leverage and financial de-leveraging. Its favorable near-term market-mix and

product-mix offer high conviction on meaningful uptick in FY13 sales (we estimate

~INR60b v/s INR53b in FY12). Operating cash deficit to improve in FY13 to INR8.1b

(v/s INR20.4b in FY12) before breakeven in FY14. Our target price is INR286.

1.81.7

2.9

0.7

0.5

1.2

1.9

2.6

3.3

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12


2.12.2

4.8

0.5

0.0

1.5

3.0

4.5

6.0

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12

P/B (x) Avg(x) Pe ak(x) Min(x)

Infrastructure +

2.0

1.6

2.9

0.50.0

0.8

1.6

2.4

3.2

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12


A–34October 2012


Technology: Remain Underweight; concerns on volumes, marginsOur stance on Technology remains Underweight with restricted exposure to Infosys

and HCL Tech.

Our FY14 USD revenue growth estimate across the top-tier is 15%, up from 10% in

FY13. However, signs of meaningful demand pick-up remain elusive, implying

downgrade risk to current volume estimates for FY14.

INR has appreciated to 51.75/USD, which could trigger a 4-8% downgrade in our

FY14 EPS estimates (currently based on INR53/USD).

Despite ~22% INR depreciation from 1QFY12 to 1QFY13, margins across the top-

tier hardly benefited, as the currency gains got reinvested in lower-margin

contracts and high-cost workforce onsite. As most of these investments are

irrevocable in nature, offsets to margin headwinds appear limited in an appreciating

currency environment. Margin sustainability is a key concern.

L&T P/E DLF P/B

18.122.2

45.9

10.10

18

36

54

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12

P/E (x) Avg(x) Pe ak(x) Min(x)

Tech P/E relative to Sensex P/E Infosys P/E

1.4

2.5

8.8

0.90.5

3.0

5.5

8.0

10.5

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12


-32.4

23.2

5.1

-40

-20

0

20

40

Sep

-07

Ap

r-08

No

v-08

Ma

y-09

Dec

-09

Jul-

10

Jan

-11

Aug

-11

Ma

r-12

Sep

-12

Techno logy PE Relative to Se nse x PE (%)

LPA o f -2%

14.617.5

24.7

10.46

12

18

24

30

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12

P/E (x) Avg Peak(x) Min

Oil & Gas: Remain Underweight; cut Reliance, add ONGCWe remain Underweight on the Oil & Gas sector.

Expect RIL to deliver strong 2QFY13 earnings led by high GRMs; however, recent

refining margins have again turned weak. Core businesses remain volatile with

very limited upside potential. Upgrade in Reliance could come from hike in gas

prices, which remains an event risk. As the stock has delivered a strong return of

20% from the recent lows, we have cut our exposure.

Oil & Gas –

Technology –

A–35October 2012


We have added exposure to ONGC at current levels. Recent policy actions of

diesel price hike/limiting subsidized cylinders, coupled with appreciating INR/

USD, augur well for ONGC as its subsidy burden reduces. Despite subsidy burden,

ONGC's RoE is at a respectable 18% level. The stock trades at P/E of 8.4x FY14 EPS

of INR33.4, attractive EV/BOE of 5.3x (1P basis; >40% discount to global peers),

and offers a dividend yield of 3.5%.

Consumer: Biggest Underweight; valuations rich; ITC only exposureAfter a massive outperformance, Consumer sector now trades at historical high

valuations relative to the markets. We are Underweight on the sector due to slowing

demand growth led by weakening rural buoyancy. Our only exposure in the sector is

ITC (which is also an Underweight).

Consumer P/E relative to Sensex P/E HUVR P/E

10.09.0

20.4

5

11

17

23

Sep

-07

Ap

r-08

No

v-08

Ma

y-09

Dec

-09

Jul-

10

Jan

-11

Aug

-11

Ma

r-12

Sep

-12

Oil & Gas Se ctor - PE

LPA of 12.3x

105

10

73

-40

0

40

80

120

160

Sep

-07

Ap

r-08

No

v-08

Ma

y-09

Dec

-09

Jul-

10

Jan

-11

Aug

-11

Ma

r-12

Sep

-12

Cons ume r PE Re lative to Sen sex PE

LPA of 50%

1.52.0

3.1

1.41.0

1.9

2.8

3.7

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12


32.4

24.8

32.4

18.7

12

20

28

36

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12

P/E (x) Avg(x) Pea k(x) Min(x)

Healthcare: Cutting weight; hit by recent headwindsWe have reduced our weight on Healthcare, given recent headwinds of new drug

pricing policy, currency appreciation, and strong outperformance of the sector YTDCY12.

Our top bet in the sector is Dr Reddy's as we expect strong performance in FY13

leading to earnings upgrade; valuations remain attractive.

We continue to like Divi's as it benefits from its core abi lities of good chemistry

skills coupled with strong customer relationships, leading to ramp-up in order

inflows. Strong order-backed capex and healthy guidance (25% topline growth for

FY13) are the key positives from a near-to-medium term perspective.

Healthcare

Consumer –

–

Oil & Gas Sector P/E ONGC P/B

A–36October 2012


Autos: Overweight; bet on Tata Motors, Maruti, Bajaj AutoWe raise our weight in Autos to Overweight in this quarter.

Tata Motors is our top bet in Autos and we have further raised our exposure to the

stock. JLR volumes will retain volume momentum (15%) and profitability. Domestic

volumes should see recovery in FY14. Strong FCF will further help the balance

sheet. Our target price of INR370 has over 40% upside.

Maruti is another top pick as it benefits from currency appreciation and stable

commodity prices including oil. Resolution of labor issues has led to stronger than

expected volumes recently, driving upgrades. We expect earnings to rebound in

FY14 with growth of14%. Our target price has 19% upside.

Within 2-wheelers, we prefer Bajaj Auto as FY14 volumes should grow 13% and

margins remain strong due to hedges at higher levels. Strong cash flow will drive

INR300/share cash on books and high dividends. The stock trades at P/E of 14x

FY14 EPS.

Healthcare Sector P/E Dr Reddy's P/E

Autos Sector P/E Maruti Cash P/E

20.6

15.9

30.0

12

19

26

33

Se

p‐0

7

Ap

r‐0

8

No

v‐0

8

Ma

y‐0

9

De

c‐0

9

Jul‐

10

Jan‐1

1

Au

g‐1

1

Ma

r‐1

2

Se

p‐1

2

He al thca re Sector ‐ PE (x)

LPA of 22.5x

17.8

24.2

77.2

17.84

24

44

64

84

Se

p‐0

7

Ma

r‐0

8

Se

p‐0

8

Ma

r‐0

9

Se

p‐0

9

Ma

r‐1

0

Se

p‐1

0

Ma

r‐1

1

Se

p‐1

1

Ma

r‐1

2

Se

p‐1

2

P/E (x) Avg(x) Pea k(x) Min(x)

Negative

Earnings Cycle

10.9

6.1

29.2

3

11

19

27

35

Se

p‐0

7

Ap

r‐0

8

No

v‐0

8

Ma

y‐0

9

De

c‐0

9

Jul‐

10

Jan‐1

1

Au

g‐1

1

Ma

r‐1

2

Se

p‐1

2

Auto Se ctor ‐ PE (x)

LPA of 12x

Utilities: Cutting weight; remove Coal India on multiple concernsWe have cut our weight on Utilities as we remove Coal India from the portfolio.

For Coal India, lower international coal prices coupled with appreciating rupee

will impact PAT from market-linked e-auction sales (15%+ of volume, 40-45% at

PBT level). We see risk to our FY13/14E earnings, as current realizations are

marginally higher than FY12 average, and have a downside risk. Importantly, current

earnings already factor superior production/dispatch growth. Negative surprise

Utilities –

Autos +

9.2

10.3

14.9

4.4

2

6

10

14

18

Jul-

03

Fe

b-0

4

Se

p-0

4

Ap

r-0

5

No

v-0

5

Jun

-06

Jan

-07

Au

g-0

7

Fe

b-0

8

Se

p-0

8

Ap

r-0

9

No

v-0

9

Jun

-10

Jan

-11

Au

g-1

1

Fe

b-1

2

Se

p-1

2

Ca sh P/E (x) Avg(x) Pe ak(x) Min(x)

A–37October 2012


could also come from implementation of MMDR Act. Valuations at 12x FY14E P/E

(downside risk to EPS of INR31) and 3.6x P/BV (RoE of 25%) limit potential upside.

NTPC remains our preferred bet as capacity addition delays are now getting

addressed and FY13-15 could see capacity addition of 4GW per annum v/s historic

average of 2GW. Over FY12-15, NTPC would add 15GW of commercial capacity,

which could drive FY14E EPS to ~INR14 FY14E (18 months from now). The stock is

trading attractive at 1.7x FY14E BV of INR103/share.

Utilities Sector P/B NTPC P/B

Telecom: Wait & watch; concerns, stock prices bottomed out;We had cut our weight in Telecom last quarter and retain the lower weight. Pricing

seems to have bottomed-out given renewed industry attempts to raise tariffs and

lower promotions/discounting. Significant balance sheet stress, continued high level

of losses for challengers, and potential large payments towards spectrum should

prevent irrational competition. We await outcome of upcoming 2G spectrum auction

in November which could provide visibility on future competitive structure as well as

liability for spectrum payments. While stocks may have bottomed out, we would wait

for the earnings cycle to improve for any change in view.

Bharti EV/EBITDA Idea EV/EBITDA

Telecom –

1.7

2.3

3.7

1.5

1.3

2.1

2.8

3.6

4.3

Se

p-0

7

Ma

r-0

8

Se

p-0

8

Ma

r-0

9

Se

p-0

9

Ma

r-1

0

Se

p-1

0

Ma

r-1

1

Se

p-1

1

Ma

r-1

2

Se

p-1

2


1.61.7

3.7

1.0

1.8

2.5

3.3

4.0

Se

p-0

7

Ap

r-0

8

No

v-0

8

Ma

y-0

9

De

c-09

Jul-

10

Jan

-11

Au

g-1

1

Ma

r-1

2

Se

p-1

2

Uti l i tie s Se ctor - PB

LPA of 2.1x

6.0

16.9

8.6

5.5

2.0

6.0

10.0

14.0

18.0

Se

p-0

7

Ma

r-0

8

Se

p-0

8

Ma

r-0

9

Se

p-0

9

Ma

r-1

0

Se

p-1

0

Ma

r-1

1

Se

p-1

1

Ma

r-1

2

Se

p-1

2

EV/EBDITA(x) Pea k(x) Avg(x) Min(x)

6.3

14.5

9.1

6.1

4.0

7.0

10.0

13.0

16.0

Se

p-0

7

Ma

r-0

8

Se

p-0

8

Ma

r-0

9

Se

p-0

9

Ma

r-1

0

Se

p-1

0

Ma

r-1

1

Se

p-1

1

Ma

r-1

2

Se

p-1

2

EV/EBDITA(x) Pea k(x) Avg(x) Min(x)

A–38October 2012


Metals: Underweight; but still like Hindalco, SterliteWe are Underweight on Metals as we have negative outlook for steel stocks, whi le

base metal stocks still have to bear near-to-medium term pain of low returns on large

investment in greenfield aluminum projects in India. We believe that steel intensity

of the world is on decline once again after a decade of high growth. China, which was

the sole driver of demand, has already achieved high level of per capita steel

consumption vis-a-vis peak levels achieved by developed countries. Historically,

decline in world steel intensity has resulted in stock underperformance. We believe

that base metal stocks are better placed over steel stocks because (1) monetary

expansion (e.g. QE3) boosts LME prices, earnings and stock valuations, and (2) the

fundamentals of steel pricing are more dependent on return of high fixed assets.

We continue to like Hindalco because its conversion business provides 70% of

operating cash flows and is insulated from LME volatility. Investments in low RoI

aluminum greenfield projects in India have led to the stock's underperformance.

We believe current valuations already factor in most negatives. Strong spot

premium and LME have improved earnings outlook. Valuation at 1x P/B FY14E

adjusted for goodwill (RoE 18.5%) is attractive.

We have introduced Sterlite in the portfolio. Sterlite is likely to get re-rated as its

investment cycle is now behind and Hindustan Zinc's cash flows after minority

buy-out will de-stress the balance sheet of merged Sesa-Sterlite. Any visibility on

availability of bauxite in Odisha could be catalyst as well.

Hindalco P/B Sterlite P/B

1.1

2.0

4.5

0.60.1

1.3

2.5

3.7

4.9

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Sep

-12


0.7

1.4

2.5

0.6

0.0

0.8

1.6

2.4

3.2

Sep

-07

Ma

r-0

8

Sep

-08

Ma

r-0

9

Sep

-09

Ma

r-1

0

Sep

-10

Ma

r-1

1

Sep

-11

Ma

r-1

2

Sep

-12


Metals –

A–39October 2012


Our preferred mid-caps

Yes Bank [YES IN, Mkt Cap USD2.6b, CMP INR382]Investment Argument

YES is effectively using the current phase of moderation in economic growth to

de-risk and de-bulk its balance sheet, expand its retail franchise, and improve risk

management systems. In the process, growth is expected to be lower than historical

levels, but liability mix is likely to improve.

Rapid branch expansion, acquisition of new customers and deepening of existing

customer relationships would ensure healthy growth across parameters. With

50% of the existing branches less than 18 months old, we expect strong productivity

gains to occur going forward.

Post deregulation of savings deposit rates, share of SA in overall deposits increased

to 6% v/s ~2% as on 1HFY12 and CASA ratio improved from 11% to 16.3%. We

expect CASA ratio to further improve to 18.6%/20.9% in FY13/14.

Asset quality of the bank remains one of the best in the industry with stress assets

merely 0.6% of the loan book.

12-month Outlook

As rates decline and liquidity improves, YES (being a wholesale borrower) would

be a key beneficiary on margins.

Healthy core income growth, control over opex, and healthy asset quality will

drive PAT growth of 28%.

CRAR stood at 16.5%, with tier-I ratio at 9.2%. We expect the bank to raise capital

over next 12 months, which will further be book accretive.

Key Risks

Deterioration in SME business outlook could increase YES's risk quotient.

Delay in capital raising could hurt growth prospects and expansion plans.

Valuations

We expect earnings CAGR of 25% over FY12-14. RoA/RoE are expected to be strong

at ~1.5%/23%+.

In an easy liquidity environment, the stock can see further re-rating from the

current P/B of 1.9x FY14E. Buy.

Union Bank [UNBK IN, Mkt Cap USD2.2b, CMP INR208]Investment Argument

UNBK has been able to deliver impressive margins of 3%+ despite higher slippages

(which led to higher interest income reversal) and tight liquidity conditions (FY12

NIM was 3.2%, down just 10bp YoY). Management expects to maintain 3% margin

going forward led by fall in cost of funds and improvement in asset quality. Loan

CAGR is expected to be ~16% during FY12-14 which would lead to similar NII CAGR.

A–40October 2012


UNBK's fee income to average assets (ex income on forex transactions) at 40bp

remains low vis-a-vis peers. However, management's increased focus on the same

has started yielding results – fee income growth has improved to 17% in 1QFY13

v/s 14% for FY12 and 4% in FY11. Continued traction in fee income can provide

cushion to earnings in case pressure on asset quality increases.

UNBK is highly leveraged to macroeconomic environment given the asset quality

pressure seen over past two years. As the situation improves and liquidity condition

eases, concerns over asset quality should abate, leading to re-rating of the stock.

12-month Outlook

Near-term challenges remain in terms of asset quality risks and higher asset

restructuring. However, we believe current valuations largely discount the same.

Of UNBK's total SEB exposure of INR110b, INR58b is towards healthy SEBs and

INR34b has already been restructured. As per the recent SEB debt restructuring

plan, there could be some relief for UNBK on this front.

Key Risks

Despite equity infusion of INR7.6b over FY11/12, UNBK's core Tier I ratio stood at

7.7% which implies higher capital requirement in coming years, especially under

the Basel III regime.

Valuations

We expect 16% earnings CAGR over FY12-14, and RoA/RoE at 0.8%/17%.

The stock has run up substantially (30%+ in past one month), in line with other

mid-sized PSBs. Sti ll, valuations remain attractive at 0.7x FY14E P/B and dividend

yield of 4%+. Maintain Buy .

Hexaware [HEXW IN, Mkt Cap USD678m, CMP INR123]Investment Argument

HEXW's decision to develop core competence and differentiation in key areas –

Capital Markets, Travel & Transportation, EAS, and Testing – is the right approach

for a relatively small player. The 'foot-in-the-door' obtained from flagship services

like PeopleSoft helped it forge relationships, strengthened further by cross-selling

services like IMS and BPO.

Large deals won by the company act as strong references in facilitating similar

such wins in the future. It now has four services contributing more than 10% of its

revenue v/s two a couple of quarters ago.Oracle may release a new version of

PeopleSoft in CY13, and HEXW is well placed to tap that opportunity.

HEXW has restricted itself to pure services deals, reducing the risk around revenue

quality and profitability.

12-month Outlook

We expect healthy growth to continue with CY11-13 USD revenue CAGR of 19.8%.

Our EBITDA margin estimate is 22.5% for CY12 (INR/USD @ 53.6) and 22.1% for

CY13 (INR/USD @ 53.5).

Our EPS CAGR over CY11-13 stands at 24.8%.

A–41October 2012


Key Risks

Sharp appreciation in the currency will impact profitability.

Slowdown in deal signings momentum will hurt revenue growth.

Within BFSI, it has high exposure to capital markets, the segment under maximum

stress.

Valuations

The stock trades at 9.9x CY12E and 8.6x CY13E EPS.

Our target price of INR167 is based on 12x CY13E EPS. Buy.

MCX [MCX IN IN, Mkt Cap USD1.2bm, CMP INR1,244]Investment Argument

Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic

commodity futures exchange, and has over 86% share (as at 31 March 2012) of the

Indian commodity futures market.

Growth potential in volumes remains huge given that number of clients trading

on the commodities platform is currently less than 2m v/s an estimated 18-20m in

equities. Also, globally, Gold futures volumes are 70-80x that of physical trade

v/s 17-18x in India, 20x in Crude v/s 7x in India, 100x in Aluminum v/s 8-9x in India.

Bill to amend the outdated Forward Contracts (Regulation) Act (FCRA) could be

passed by the Parliament in the forthcoming session. This will give a fillip to

MCX's volumes with entry of new products and participants. We believe value

from MCX-SX (stock exchange promoted by MCX and FTECH in 2008) is more definite

than merely option value.

12-month Outlook

Given the drop in volatility index over the last couple of quarters, we assume flat

volumes YoY in FY13.

If the FCRA Bill gets passed in the forthcoming parliamentary session, it will lead

to volume surge from:

1) introduction of options trading,

2) introduction of new related products such as freight-, rainfall-, and commodity

indices, and

3) increased investor participation, as banks, mutual funds and foreign

institutional investors could be allowed to transact on India's commodity

futures markets.

Key Risks

Significant proportion of costs incurred towards parent and group companies.

Concentration of turnover in four commodities.

Regulatory paralysis could impact growth.

Valuations

We expect revenue CAGR of 11% over FY12-15 and EPS CAGR of 12.5%.

The stock trades at 22.2x FY13E and 18.7x FY14E EPS.

A–42October 2012


We value the standalone commodity exchange business at 20x FY14E earnings,

which translates to a value of INR1,330/share. We value MCX-SX at INR14b, 11x the

potential revenues of INR1.3b in FY14. MCX's share in MCX-SX (including warrants)

contributes additional INR110/share to its valuation.

Our target price is INR1,440. Buy.

JAYPEE INFRATECH [JPIN IN, Mkt Cap USD1.4b, CMP INR53]Investment Argument

JPIN offers a unique synergistic business model of infrastructure development

(Yamuna Expressway, YE) and real estate value unlocking.

The company is expected to generate free cash flow (FCF) beginning FY13 itself,

given (1) expressway going ex-capex, and (2) strong operating performance in

real estate. FCF will be utilized for debt repayment and potential growth in payout.

Value unlocking story is sustainable, though a bit clouded by some concerns:

(a) traffic growth at YE, (b) relative weakness real estate market mix, and (c) risk

of policy actions. Some of the concerns are easing off.

12-month Outlook

Expect steady sales momentum, and strong collections to continue in Noida and

GB Nagar land parcels on the back of improvement in market outlook.

We expect meaningful clarity over YE toll income to emerge in the first 6-9 months

of operations. Our recent interaction with the management suggests initial PCUs

of ~10,000 in the month of August 2012.

We estimate net surplus (FCF - interest) of ~INR2.1b/5.2b in FY13/14, which would

most likely be utilized towards repayment of YE debt over the next 12-13 years,

along with potential growth in payout.

Key Risks

Downside risks to expressway traffic growth assumptions.

Delay in revival of Noida market.

Policy risks from new government at Uttar Pradesh.

Valuations

We expect 22% revenue CAGR over FY12-14, translating into ~15% EBITDA CAGR.

PAT is likely to decline @ 12% over FY12-14 on account of depreciation and interest

charge related to the Yamuna Expressway.

JPIN trades at (a) P/E of 7.9x FY13E and 7.4x FY14E, (b) P/BV of 1.1x FY13E and 1x

FY14E vis-à-vis RoE of ~15%.

Buy with target price of INR60, given sustainable value unlocking story, steady

operations and inexpensive valuations.

A–43October 2012


United Phosphorus [UNTP IN, Mkt Cap USD1.1b, CMP INR131]Investment Argument

Worst is behind us with trough operating performance in FY12. Expect FY13 to be

a recovery year: (a) strong volume bounceback in key markets, (b) integration of

LatAm acquisitions, c) benefit of lower crude, and (d) benefit of weaker INR.

UNTP is getting stronger in the global generic agrochem industry, as it has

outperformed large peers like Makhteshim and Nufarm. While UPL's performance

was muted in FY09-12, its global peers performance was even worse with severe

margin erosion and net losses.

With acquisitions of SIB and DVA Agro Brazil, UNTP has established a strong foothold

in key LatAm market. These acquisitions will be a key growth driver over next 2-3

years, reduce seasonality in its business and boost margins.

UNTP is targeting 5-year revenue CAGR of 15% and part recovery in profitability,

driven by strong growth in emerging markets, ~USD5.5b products going off-patent

over next 3-4 years, and focus on cost.

12-month Outlook

FY13 revenues is expected to grow ~15%, EBITDA margin stable (not factoring in

favorable forex), and PAT growth of 17% (adj for MTM forex loss).

Key Risk

Adverse climatic conditions in any of the key regions.

Valuations

Long-term outlook is positive given integration benefits from SIB and DVA Agro.

However, there are no short-term re-rating catalysts. Ongoing buyback of up to

19.2m shares up to INR150/share should support stock prices. The stock trades at

8.8x FY13E and 6.7x FY14E EPS. Buy with target price of INR195 (~10x FY14E EPS).

Petronet LNG [PLNG IN, Mkt Cap USD2.2b, CMP INR158]Investment Argument

Strong earnings visibility: Petronet LNG's earnings offer high visibility in near /

long term given (a) huge gas demand-supply gap in India, and (b) annual re-gas

charge escalation to protect IRR. Besides, 2.8x capacity expansion over next few

years will further boost earnings.

Unlikely to come under PNGRB purview: PNGRB has no mandate to regulate LNG

business, and if desired, the same will have to be through an amendment to the

PNGRB Act passed by the Parliament. Further, marketing margins are unlikely to

be curtailed as LNG prices are market determined and unlike domestic gas, LNG

sourcing requires serious efforts.

Capacity expansion projects on track: PLNG expects to commission its Kochi

terminal by Dec-12 and also, expect simultaneous completion of 44km Phase-I of

Kochi-Bangalore pipeline through which it will supply gas. Further, it expects to

complete (a) Dahej 2nd jetty project by 4QFY14 (additional capacity of 3mmt),

(b) Dahej expansion by 2015-end (taking overall capacity to 18mmt), and

(c) Gangavaram terminal by 2016-end and interim FSRU facility by 2014-end.

A–44October 2012


12-month Outlook

As Phase 2 of Kochi-Mangalore-Bengaluru pipeline will commission in 2HCY13,

earnings growth will be back ended in FY14. FY13 earnings will be muted (can see

growth if marketing margins remain flat v/s our assumption of decline) as Kochi

terminal's depreciation would hit P&L but its revenue contribution would start

accruing only in FY14.

Key Risks

LNG business is currently unregulated. Recently, concerns have emerged on the

likely control of marketing margins. If this happens, it could pose a risk to PLNG's

earnings.

Valuations

With no risk to near-term earnings, we believe the next cycle of earnings growth

would come post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty at

Dahej, and (3) new capacity at Dahej and Gangavaram. We build conservative

marketing margin of INR22/15 per mmbtu in FY13/14 and nil thereafter.

The stock trades at 10.5x FY14E EPS of INR15. We value PLNG at INR205, the average

of two methodologies (1) P/E (13x FY14E EPS), and (2) DCF (INR214). Buy.

Crompton Greaves [CRG IN, Mkt Cap USD1.5b, CMP INR126]Investment Argument

For CG, the attempt now is to ensure that 'the value of whole is substantially

more than the sum of the parts' and make a full transformation to a global

corporation. We believe that this journey provides several levers to boost

revenues. Internationalization / integration could potentially double industrial

business revenues — new factories in new geographies, new products like

switchgear plant in Brazil, transformer plant in Brazil / Saudi, etc will contribute

incrementally in a meaningful manner. The recent acquisition of ZIV has targets to

nearly treble revenues in 3 years' time given synergy benefits.

Overseas business is likely to see significant turnaround and could possibly become

profitable by mid-FY13 driven by ongoing revenue optimization and cost reduction.

12-month Outlook

Aggressive restructuring of its manufacturing footprint in overseas business will

help it turn profitable by mid-FY13, in our view. We expect international

subsidiaries to report EPS of INR0.5 in FY13, from loss of INR2.1 in FY12.

Organizational restructuring across geographies / product segments has been

completed to break away from 'silo' structures towards integrated product

offerings; initial success in railways / oil & gas has been encouraging.

The switchgear plant in Brazil is expected to add USD100m to revenues,

contributing to ~10% of the overseas business. In India, commissioning of the

drives plant in 3QFY13 will also contribute meaningfully to standalone operations.

A–45October 2012


Key Risks

Volatile macro environment, deterioration in European market, etc, could delay

recovery in earnings in overseas business.

Valuations

The risk-reward appears favorable – we model 47% consolidated earnings CAGR

over FY12-14 driven by 14% revenue CAGR and 230bp margin expansion.

We arrive at price target of INR163/sh, based on P/E of 12x FY14E for standalone

business and EV/EBIDTA of 8x FY14E for overseas business.

CESC Ltd [CESC IN, Mkt Cap USD0.8b, CMP INR340]Investment Argument

Regulated business provides earnings/cash flow comfort: CESC gets an assured

return and steady cash flows from its regulated business in Kolkata (INR5b+ pa).

FY14 corporate EBITDA break-even for Spencer: Spencer's store-level EBITDA has

improved from INR25/sq ft in FY11 to INR32 in FY12 and has already crossed INR50

in YTDFY13. Robust revenue growth and expansion would help achieve corporate

EBITDA break-even by FY14.

New projects on strong footing: CESC is constructing 1.2GW of power projects

with 0.6GW expected in next 12 months and additional 0.6GW by FY15. While PPA

is not yet signed for 1GW, the new bid document allows fuel cost pass-through,

and we believe that project return closer to regulated return (18-20% RoE) should

not be an issue. Equity already invested is INR8b+.

12-month outlook

Key variables for CESC are: (1) Continued positive momentum in Spencer

performance, and (2) Progress on 600MW Chandrapur project. While FDI in

multibrand retail has recently been allowed, we believe this is only a long-term

positive for Spencer as it can currently fund its expansion through CESC.

Key Risks

Slowdown in overall retail and Spencer, impacting pace of loss reduction (reduction

of INR400-450m pa compared to loss of INR1.1b in FY12).

Valuation

We expect CESC to report standalone PAT of INR6b in FY13 (up 8% YoY) and INR6.7b

in FY14 (up 12% YoY).

Stock quotes at PER and P/B of 6x and 0.6x FY14E standalone. Maintain Buy.

JSW Energy [JSW IN, Mkt Cap USD1.9b, CMP INR61]Investment Argument

Beneficiary of lower thermal coal prices: 2GW of JSWEL's capacity is combination

of merchant power sales and spot coal purchases. Also, these capacities are located

in Southern/Western India, which are high deficit regions and command higher ST

tariffs. Lower international coal price thus would drive earnings.

A–46October 2012


1.1GW of regulated project provides further comfort: JSWEL's 1.1GW Raj West

project in Rajasthan has captive lignite mine, and is based on CERC terms (cost

plus RoE). This could provide sizable earnings growth in FY14 (project to be fully

operational by 2QFY13).

12-month outlook

Continue weakness in imported coal and rupee appreciation could be twin

benefits. JSWEL's gross margin improved to INR2.1/unit in 1QFY13 v/s INR0.21/

unit in 2QFY12.

Sustained gross margin, higher PLF and contribution from Raj West are key earnings

drivers.

Key Risks

Earnings volatility could be higher owing to converter business model.

INR depreciation in the past has been steep and volatility has been high –

unfavorable to JSWEL.

Delay in the approval of Raj West tariff order could impact interim profitability.

Valuations

We expect consolidated PAT of INR6.2b for FY13 (up 88%) and INR10.5b for FY14

(up 69%).

Stock trades at 10x FY14E reported EPS. Buy.

Sun TV Network [SUNTV IN, Mkt Cap USD2.6b, CMP INR349]Investment Argument

Deal with Arasu cable has removed a significant overhang for Sun TV and indicates

a more stable regulatory environment for Sun going forward.

Sun TV to benefit from mandatory digitization resulting in higher subscription

revenue from cable system without any incremental investment.

Advertising cycle is close to its lowest ebb and likely to improve as economic

environment improves.

Most profitable media company with high dividend yield of 3% and a healthy pay-

out ratio of 50%.

12 Month Outlook

With de-growth in analog revenue from Tamil Nadu largely behind, we expect

revenue growth to improve from 5% in FY13 to 12% in FY14.

Success of digitization for phase I (4 metros) and phase II (38 cities) over the next

12 months should be a significant sentiment booster for the entire TV value chain.

Key Risk

Further delay in mandatory digitization

Continued sluggishness in ad environment

Any adverse news flow from ongoing investigations in 2G scam.

Valuations

After a decline in FY13, we expect earnings growth of 10% in FY14

Sun TV is trading at a P/E of 19x FY13 and 17.4x FY14. Buy

A–47October 2012


Sector weight / BSE-100 MOSL Weight relative Effective Sector

Portfolio Picks Weight to BSE-100 Stance

Financials 27.6 28.0 0.4 Overweight

Private 14.7 13 -1.7 NeutralICICI Bank 5.5 7 1.5 Buy

HDFC Bank 5.3 4 -1.3 NeutralYes Bank 0.5 2 1.5 Buy

PSU 5.9 10 4.1 OverweightSBI 2.7 6 3.3 Buy

PNB 0.5 2 1.5 BuyUnion Bank 0.2 2 1.8 Buy

NBFCs 7.0 5 -2.0 NeutralLIC Housing 0.4 3 2.6 Buy

Power Finance 0.3 2 1.7 BuyInfrastructure & Related sectors 10.4 14.0 3.6 Overweight

Larsen & Toubro 4.0 5 1.0 BuyJaiprakash Associates 0.4 3 2.6 Buy

BHEL 1.0 2 1.0 NeutralACC 0.6 2 1.4 Neutral

DLF 0.4 2 1.6 BuyOil & Gas 12.0 10.0 -2.0 Underweight

Reliance Inds. 6.7 4 -2.7 NeutralONGC 2.7 4 1.3 Buy

BPCL 0.5 2 1.5 BuyAuto 7.6 9.0 1.4 Overweight

Tata Motors 2.3 4 1.7 BuyMaruti Suzuki 0.9 3 2.1 Buy

Bajaj Auto 1.2 2 0.8 BuyTechnology 10.7 8.0 -2.7 Underweight

Infosys 5.6 6 0.4 BuyHCL Tech 0.7 2 1.3 Buy

Healthcare 4.8 5.0 0.2 OverweightDr Reddy's 0.9 3 2.1 Buy

Divi's Lab 0.3 2 1.7 BuyConsumer / Retail 13.3 4.0 -9.3 Underweight

ITC 6.7 4.0 -2.7 BuyMetals 3.8 4.0 0.2 Neutral

Hindalco 0.7 2 1.3 BuySterlite 0.7 2 1.3 Buy

Telecom 2.1 3.0 0.9 NeutralBharti Airtel 1.6 2 0.4 Neutral

Idea Cellular 0.3 1 0.7 BuyUtilities 5.7 3.0 -2.7 Underweight

NTPC 1.2 3 1.8 BuyOthers 1.9 12.0 10.1 Overweight

CESC 0.0 1 1.0 BuyCrompton 0.2 1 0.8 Neutral

Eicher Motors 0.0 1 1.0 Not RatedHexaware 0.0 1 1.0 Buy

Jaypee Infra 0.0 1 1.0 BuyJSW Energy 0.0 1 1.0 Buy

MCX 0.0 1 1.0 BuyOberoi 0.0 1 1.0 Buy

Petronet 0.0 1 1.0 BuySun TV 0.0 1 1.0 Buy

United Phosphorous 0.2 1 0.8 BuyZee Entertainment 0.5 1 0.5 Neutral

Cash 0.0 0 0.0

Total 100.0 100.0

MOSL model portfolio

A–48October 2012


2QFY13 PREVIEW Non-cyclicals have a field day in muted quarterTechnology, Healthcare, Financials & Consumer continue to deliver strong results

2QFY13 PAT growth 9% YoY; lowest for any 2Q in last 7 years (ex global crisis)

Sectoral analysis: Non-cyclicals have a field day; Technology, Healthcare, Financials &

Consumer continue to deliver strong results

2QFY13 Sensex PAT growth just 2% YoY, lowest in last 12 quarters ex SBI-shocker 4QFY11

2HFY13 residual PAT growth 9% for aggregate and 7% for Sensex; allays downgrade

concerns for FY13.

2125

20

‐11

22

11 9

37

Sep

‐05

Sep

‐06

Sep

‐07

Sep

‐08

Sep

‐09

Sep

‐10

Sep

‐11

Sep‐

12E

2QFY13 PAT growth 9% YoY; lowest for any 2Q in last 7 years (ex global crisis) 2QFY13 is likely to be yet another muted quarter in terms of India’s corporate

sector performance. We expect MOSL Universe (ex RMs, oil refining and marketing

companies) to report PAT growth of 9% YoY.

This is the lowest 2Q PAT growth in the last 7 years, barring the global-financial-

crisis quarter of 2QFY10 when PAT de-grew 11%. In fact, excluding the financial-

crisis quarters, 2QFY13 PAT growth is also the second lowest in the last 7 years.

Ex crisis, 2QFY13 is lowest 2Q PAT growth in last 7 years … … and the second lowest PAT growth in last 28 quarter

Global

crisis

3437

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Sensex performance weak, both absolute and relative to aggregate: 2QFY13 aggregate

PAT for Sensex 30 companies is expected to grow only 2% YoY. This is very weak in

more than one way –

1. It is the lowest Sensex PAT growth in the last 12 quarters, excluding the “SBI-shock

quarter” of 4QFY11 which saw SBI PAT collapsing to near zero; and

2. Relative to the aggregate too, 2QFY13 Sensex PAT growth is weak – 6pp lower than

aggregate PAT growth, the highest in the last 12 quarters, again excluding the SBI-

shock quarter.

Lowest Sensex PAT growth ex the "SBI-shock quarter" … … and worst growth relative to aggregate (ex SBI shock)

-3

20

4

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13E

Global

Crisis

A–49October 2012


Sectoral analysis: Non-cyclicals to have a field dayA sectoral breakdown of 2QFY13 corporate performance clearly suggests the

dominance of non-cyclical sectors:

Of the large sectors, the highest YoY PAT growth is expected to be in Technology

(+34%), Healthcare (+28%), Financials (+19%) and Consumer (+18%).

Telecom is the only major non-cyclical to report major PAT de-growth (-32% YoY).

Another non-cyclical, Utilities, continues to maintain steady performance (PAT up

7% YoY).

Expect most cyclicals to report negative or flat PAT growth: Oil & Gas ex RMs (+1.3%),

Metals (-12%), Autos (flat), Capital Goods (flat) and Real Estate (-28%).

Cement is the only major cyclical expected to report robust PAT growth (+89%

YoY).

Non-cyclicals contribute 103% of the incremental PAT over 2QFY12, whereas

cyclicals have a negative contribution of 3%.

Other aggregate highlights Sales growth at 13% YoY is the lowest in the last 12 quarters, and is expected to

moderate further in 2HFY13 to 10%. This is led by a combination of both lower

commodity prices and slowing volume growth.

EBITDA margin is expected to contract 120bp YoY led by Oil & Gas ex RMs(-400bp)

and Telecom (-250bp). As a result, EBIDTA growth at 8% is lower than Sales growth.

Quarterly performance - MOSL universe (INR b)

Sector Sales EBITDA PAT EBITDA Margin

(No of companies) Sep-11 Sep-12 Var % Sep-11 Sep-12 Var Sep-11 Sep-12 Var Sep-11 Sep-12 Var

YoY % YoY % YoY (bp)

High YoY PAT Growth 680 830 22 153 198 30 101 139 38 22.5 23.9 139

Cement (8) 145 162 11 26 36 38 10 19 89 17.8 22.1 425

Technology (6) 361 460 27 89 116 31 65 88 34 24.5 25.2 73

Health Care (17) 174 208 20 39 46 20 25 32 28 22.3 22.3 8

Medium/Low YoY PAT Growth 749 854 14 588 674 15 285 339 19 78.4 78.9 45

Financials (25) 402 460 14 320 369 15 160 191 19 79.7 80.2 55

Private Banks (8) 96 118 22 79 98 24 46 57 23 81.9 83.4 142

PSU Banks (9) 251 276 10 189 206 10 78 91 17 75.1 74.8 -36

NBFC (8) 54 66 21 53 64 22 36 43 19 96.6 97.4 83

Consumer (12) 245 283 16 51 60 18 35 41 18 20.7 21.2 51

Media (5) 25 27 10 8 9 2 4 4 17 34.5 32.1 -243

Others (4) 38 40 7 8 7 -2 4 4 15 20.4 18.7 -172

Utilities (10) 485 534 10 119 127 6 65 70 7 24.6 23.7 -87

Oil & Gas ex RMs (10) 1,441 1,703 18 301 288 -4 179 181 1 20.9 16.9 -398

Oil & Gas incl RMs (13) 3,126 3,886 24 191 385 102 38 245 539 6.1 9.9 381

Negative YoY PAT Growth 1,017 1,148 13 121 135 11 76 75 -1 11.9 11.8 -17

Auto (5) 623 721 16 75 86 15 46 46 0 12.1 12.0 -6

Capital Goods (9) 336 364 8 41 42 4 28 27 -1 12.1 11.7 -47

Retail (4) 57 64 12 5 6 14 2 2 -6 9.3 9.5 23

Metals (10) 937 932 0 161 159 -2 91 80 -12 17.2 17.0 -23

Real Estate (7) 41 35 -13 19 15 -21 8 6 -28 47.0 42.5 -452

Telecom (4) 276 310 12 88 91 3 15 10 -32 31.9 29.4 -246

MOSL (139) 7,271 8,487 17 1,240 1,555 25 597 865 45 17.1 18.3 127

MOSL Excl. RMs (136) 5,587 6,304 13 1,350 1,458 8 738 802 9 24.2 23.1 -104

Sensex (30) 3,769 4,229 12 838 866 3 466 477 2 22.2 20.5 -175

A–50October 2012


EBITDA growth is expected to pick up somewhat in 2HFY13, as lower commodity

prices have a lag impact on raw material costs.

There are 3 sectors/sub-sectors where all companies are expected to report

positive PAT growth – Technology, Private Banks and NBFCs. In 2 other sectors,

only one company is expected to report PAT de-growth – Cement (Jaiprakash) and

Consumer (United Spirits).

There are 3 sectors where only one company is expected to clock positive PAT

growth even as all its peers de-grow – Metals (Nalco), Telecom (Idea), and Real

Estate (Phoenix Mills).

Non-cyclicals (Technology, Healthcare, Consumer, Financials) dominate 2QFY13 corporate performance

2QFY13 PAT growth by sector (%) Contribution to YoY PAT delta by sector (%)

2QFY13 sales growth (%) healthy across sectors … … but EBITDA margin damage widespread (chg in margin, bp)

34 28 23 19 18 17 17 9 7 2 1

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60 54 52 48 44 45 35 30 27 32 41 43 5138 32 39 35

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>30% 15-30% 0-15% <0% PAT growth ex RMs (%)

55.2 36.4 34.0 25.1 15.4 24.3 25.6 19.7 -8.4 -15.5 -14.9 -11.3 22.7 41.7 25.5 22.3 23.7 8.9 13.1 10.6 4.4 18.4 11.1 8.7

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A–51October 2012


Sector highlights AUTOS: Volume slowdown visible across segments, except UVs/LCVs. While

commodity prices are benign, adverse product mix and Fx movement would lead

to an increase in RM cost by 30bp QoQ and 10bp YoY. We estimate 2QFY13 EBITDA

margins to decline 70bp QoQ (70bp YoY), impacted by adverse product mix, adverse

Fx movement and negative operating leverage. Maruti Suzuki (-200bp YoY/-290bp

QoQ) and Hero MotoCorp (-190bp YoY/-120 QoQ) would be worst impacted. We

are downgrading our earnings estimates for Bajaj Auto and Hero MotoCorp to

factor in weaker than expected demand and adverse currency movement (except

Bajaj). We prefer Tata Motors, Maruti Suzuki and Bajaj Auto.

CAPITAL GOODS: We expect 2QFY13 revenue growth to moderate to 8% YoY

(v/s 17% YoY in 1QFY13), given the depleting order book and constrained

environment. Ordering activity continues to be sluggish, particularly in the

industrial / power generation segment. Current BTB stands at 2.4x, the lowest in

18 quarters and continues to impact reported performance. In 2QFY13, we expect

EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost absorption.

While commodity prices have corrected meaningfully, a large part of the decline

is negated by currency movements. Companies with high local manufacturing

content (like BHEL, Cummins and Thermax) will be the key beneficiaries.

CEMENT: Cement volume growth is expected to be muted at 2% YoY (down

~12%QoQ). As a result, capacity utilization is also expected to decline 120bp YoY

(-10pp QoQ). However, cement prices remain strong with only moderate seasonal

corrections in 2QFY13 of INR5/bag (national average). QoQ drop in realizations,

coupled with negative operating leverage (950bp QoQ lower utilizations) and

cost push (partial impact of diesel price hike) would drive down EBITDA/ton to

INR979/ton (down INR224/t QoQ, +INR383/ton YoY). We expect recovery in volumes

and strong pricing in 2HFY13 to restore strong operating performance.

CONSUMER: Sustenance of volume growth amidst weaker macro environment

will be the key highlight of 2QFY13, in our view. For 2QFY13, we estimate our

coverage universe to post ~16% revenue growth (16% in 1QFY13) and ~18% PAT

growth (~22 % in 1QFY13). EBITDA is likely to grow 18.5% on the back of sustained

revenue growth and some softening in input costs. We expect ITC to post 16%

sales growth (1% cigarette volume growth) and ~17% PAT growth; HUL’s sales are

likely to grow 15% (8% volume growth) and 19% PAT growth.

FINANCIALS are likely to report healthy 2QFY13 PAT growth of 19%, led by Private

Banks and select PSU banks, viz, SBI, BOI, OBC and UNBK. In terms of segments, we

expect PAT growth of 23% YoY for Private Banks, 8.6% YoY for Public Sector Banks

(ex SBI), and ~19% YoY for NBFCs. Performance of Public Sector Banks is expected

to be mixed with SBI (+32%), OBC (+98%), BOI (+44%) and UNBK (+66%) reporting

strong numbers on a lower base and many others muted or lower. Asset quality

will remain the most important driver of PAT performance. Private Banks are likely

to report better earnings and asset quality performance vis-à-vis Public Sector

Banks. Ex Kotak Mahindra and Federal, private banks are expected to report PAT

A–52October 2012


growth in the range of 20-30%. Among NBFCs, MMFSL is expected to report the

strongest earnings growth of 35%+, followed by DEWH. Other NBFCs are likely to

report 20% earnings growth, except LICHF whose PAT growth is likely to be muted.

HEALTHCARE: For 2QFY13, we expect topline growth of 21% YoY for our universe

(ex one-offs) with EBITDA growth at 22% YoY. Adjusted PAT is expected to grow

28% YoY. Adjusted PAT growth at 28% is higher than EBITDA growth mainly due to

reversal of forex losses due to the appreciation of the INR v/s the USD in last few

weeks. Among CRAMS companies, we expect Divi's and Dishman to report strong

operational performance on a low base, new order inflow, and favorable currency.

MEDIA: Aggregate PAT for our media universe is expected to improve 10% YoY. Ad

revenue trends remain sluggish but are likely bottoming-out. Headwinds for print

companies seem to be receding on gradual decline in newsprint costs as well as

sharp appreciation in the INR. Digitization remains a strong theme for broadcasting

and distribution stocks as most participants do not foresee a postponement in the

digitization deadline of October 31 for metros.

METALS: Ferrous: Domestic operations of steel majors are expected to report 3%

lower revenue QoQ, with 4% higher volumes more than offset by 7% decline in

realization. EBITDA is expected to be down 10% QoQ and EBITDA/ton lower by

USD20-30/t. SAIL and Tata Steel (India) are expected to deliver volume growth of

8% and 4% QoQ and JSW Steel flat. In 1QFY13 most steel companies had increased

inventories which are expected to be partially liquidated in the current quarter.

Non-ferrous – Average 1QFY13 base metal LME prices corrected 0-3% QoQ but

spot premiums moved up significantly supporting margins. Operating margins for

both Sterlite and Hindalco (standalone) are expected to improve QoQ. HZL volumes

and margins are expected to remain flat QoQ.

OIL & GAS: Ex RMs, expect EBITDA decline of 4% and flat PAT (up 1% YoY). We

expect Reliance Industries to report 17% YoY EBITDA decline, led by lower GRMs,

petchem margins and KG-D6 gas volumes. Cairn is likely to report 79% YoY EBITDA

growth led by Rajasthan production growth. ONGC and Oil India are estimated to

report 16% and 22% YoY decline in EBITDA led by lower net realization (~USD54/

bbl in 2QFY13 v/s ~USD85/bbl in 2QFY12) and higher cess rate of INR4,500/MT v/s

INR2,500 in FY12. The quantum of government support to OMCs and subsidy sharing

by upstream companies remains uncertain. Still, refiners’ earnings are expected

to benefit by crude inventory gains and rupee appreciation.

REAL ESTATE: Given spillover launches (which were deferred by delay in approvals)

and a weak 2QFY12, we expect our real estate universe to post a YoY uptick in sales

momentum. We expect aggregate sector revenue de-growth of 13.1% YoY (+7.7%

QoQ), EBITDA decline of 21.4% YoY (-9.2% QoQ) and PAT decline of 27.6% YoY

(-7.8% QoQ). Despite improved operating cash flow, meaningful success in debt

reduction plan is likely to be visible in 2HFY13 only.

A–53October 2012


TECHNOLOGY: Aggregate INR revenue is expected to grow 27.5% YoY and PAT

33.6%, led by 21% YoY depreciation in the Rupee v/s the US Dollar. USD revenue

growth across the top-tier is 8% YoY (10% including Cognizant). TCS, Cognizant and

HCL are likely to continue leading revenue growth (+3.6%-4.6% QoQ), followed by

Infosys (+2.9% QoQ) and Wipro (+1% QoQ). Pricing is expected to be stable across

the board. Margins are expected to decline at Wipro on two-month residual impact

of wage hikes and hedge losses in the topline, as also at HCL due to wage hikes

becoming effective from July 1.

TELECOM: Aggregate 2QFY13 PAT for listed wireless majors is expected to decline

32% YoY and 17% QoQ. For 2QFY13, we expect average wireless traffic for top 4

operators to decline ~1% QoQ led by seasonal weakness and lower promotions.

Wireless RPM decline is likely to abate, down 0.3% QoQ v/s ~2% QoQ decline in

the preceding two quarters. Among operators, we expect Bharti to exhibit

relatively lower traffic decline given its price aggression.

UTILITIES: We expect our Utility universe (ex Coal India) to report aggregate 2QFY13

revenue growth of 9% YoY and PAT de-growth of 2% YoY. PAT growth is likely to be

muted for IPPs. NTPC (higher capacity addition) and PGCIL (better capitalization)

would show PAT growth of 26% and 22% YoY, respectively. ST prices at IEX touched

a high of INR6/unit in mid-July but fell sharply post that. ST forward curve has

been strong and the last 3-month contracts are executed at price of INR4+/unit.

Globally, imported coal prices have weakened and INR has shown weakness too.

Players fueling their plants on imported coal will report improved gross margins.

Company highlights DLF: We expect flat revenue QoQ at INR21.4b in 2QFY13, 25% YoY de-growth in

EBITDA and 18% PAT de-growth to INR2.9b owing to higher interest expense. During

2QFY13, DLF divested NTC Mills and received initial tranche of INR5b. However,

we expect leverage level to remain largely unaltered due to operating deficit.

Progress in major divestments (Aman Resort, windmills) and balance payment in

NTC Mills deals followed by debt reduction are key factors to watch out for.

HDFC BANK: It will most likely report its 52nd consecutive quarter of 30%+ PAT

growth on back of superior margins, strong loan growth and commendable

performance on asset quality. Our estimates suggest this trend will sustain all

through FY13.

HUL: Turnaround which began in FY11 has gathered steam and is evident in

sustained volume momentum notwithstanding higher base. HUVR’s distribution

and trade initiatives coupled with improved go-to-market capabilities and

aggressive innovation pipeline has laid a foundation for strong performance in

FY13 and FY14, in our view. This should translate into a robust 8% volume growth

and 19% PAT growth for 2Q13.

A–54October 2012


MARUTI SUZUKI: 2QFY13 performance is expected to be impacted by recent labor

issue at its Manesar plant. Moreover, weak demand for petrol cars and consequent

high discounts, adverse mix, unfavorable forex and recent wage hike negotiated

with workers are expected to hurt margins. We estimate 260bp QoQ (-160bp YoY)

decline in EBITDA margin to 4.7% and PAT decline of 51% YoY (-72% QoQ) to INR1.18b.

BHARTI: Consolidated PAT is expected to decline 36% YoY and 14% QoQ to INR6.6b.

PAT for India & SA is expected to decline 22-23% YoY/QoQ. We have not assumed

any forex gain/loss for Bharti in our 2QFY13 estimates. However Bharti could report

forex gain for the quarter due to INR appreciation.

WIPRO: Wipro accounts for its hedge losses in the topline; segmental breakdown

of IT Services revenues also include translation losses. In 2QFY13, closing currency

appreciated QoQ (implying loss on assets translations) while average INR

depreciated QoQ (implying losses on hedges taken too). Therefore, while for

most IT companies, this could imply other income losses, at Wipro, the same is

likely to have operating margin implications. We are currently modeling 100bp

QoQ decline in IT Services EBIT margin at 20%. Large forex impact would imply a

significant miss on the same.

NTPC: We expect NTPC to report PAT growth of 26% YoY largely on the back of base

effect, as operations in September 2011 were impacted due to coal shortage/wet

coal and strike at Coal India. Generation for Jul-Aug 2012 stood at 36.5BUs (up 2%

YoY) and coal plant PLF for the same period stood at 77% v/s 82% YoY.

SBIN is expected to report PAT growth of 30%+, led by strong margin and lower

provisions (on a higher base of 2QFY12). Higher slippages have been a concern in

the past and the trend needs to be watched.

SESA GOA: Sesa Goa is expected to report 57% YoY decline in revenues due to

lower iron ore volumes, affected by temporary closure of mining in Goa. There is

further downside risk to our iron ore volume estimates of 7.9dmt in FY13 and

15.7dmt in FY14 as restarting of mining could take much longer time than expected.

A–55October 2012


20

27

34

23 21

6

-5-11

-6

19 18 19

1217

25222623

2228

323031

4438

3637

22

3230

33

2220

16

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E

LPA 22%

2QFY13 Sensex PAT growth just 2% YoY For 2QFY13, we expect Sensex companies’ aggregate Sales growth of 12% YoY. A

175bp damage to margin leads to EBITDA growth being sharply lower than Sales

growth at only 3% YoY. PAT growth at 2% YoY is in line with EBITDA growth. All

growth figures are well below long-period averages.

This performance is very weak in more than one way –

1. It is the lowest Sensex PAT growth in the last 12 quarters, excluding the “SBI-

shock quarter” of 4QFY11 which saw SBI PAT collapsing to near zero. Nearly

half (i.e. 14 out of 30) Sensex companies are expected to post YoY PAT decline

for 2QFY13.

2. Relative to the aggregate too, 2QFY13 Sensex PAT growth is weak – 6pp lower

than aggregate PAT growth, the highest in the last 12 quarters, again excluding

the SBI-shock quarter. This is primarily led by PAT decline in several cyclicals –

Oil &Gas (ONGC, GAIL, Reliance Inds), Metals (Hindalco, Sterlite, Tata Steel)

and Autos (Hero MotoCorp, Bajaj Auto, Maruti) – many of these companies

had reported PAT growth in 1QFY13.

As in the MOSL Universe aggregates, non-cyclicals and cyclicals have a major and

distinct impact on Sensex PAT:

Of the 9 Sensex companies with highest PAT growth, 8 are non-cyclicals.

Non-cyclicals more than offset the 390% drag on PAT contribution by the

cyclicals.

Given ONGC’s high 13% weight in Sensex PAT and its sharp de-growth of 26% YoY,

it alone accounts for a 7pp drop in Sensex PAT growth. Thus, ex ONGC, aggregate

Sensex PAT growth is a much more respectable 9%.

Top five Sensex companies by PAT growth: TCS (+42% YoY), SBI (+31%), HDFC Bank

(+30%), Sun Pharma (+29%), and Infosys (+26%).

Sensex Sales growth (YoY, %)

A–56October 2012


Sensex 2QFY13 performance - It's cyclicals v/s non-cyclicals (INR b)

Sales EBDITA EBITDA margin PAT PAT Contbn

Sep-12 Var % Sep-12 Var % Sep-12 Var Sep-12 Var % % Growth

YoY YoY (bp) YoY %

High PAT Growth 898 17 313 18 34.9 47 203 29 42 404

TCS 158 36 46 36 29.2 17 35 42 7 91

State Bank 115 10 85 13 73.8 245 37 31 8 79

HDFC Bank 36 22 28 30 76.5 432 16 30 3 32

Sun Pharma 23 26 9 20 38.1 -201 7 29 1 14

Infosys 100 24 31 23 30.9 -13 24 26 5 44

NTPC 156 1 31 -3 20.1 -98 19 26 4 34

Coal India 147 12 27 10 18.6 -27 28 25 6 50

Wipro 111 22 21 22 19.2 9 16 22 3 26

ICICI Bank 33 30 30 29 93.4 -51 18 21 4 29

Cipla 20 15 5 18 25.2 58 4 21 1 6

Med/Low PAT Growth 820 21 134 23 16.4 21 79 14 17 85

HDFC 15 18 16 21 111.9 299 12 19 2 17

Hind. Unilever 65 15 10 19 15.3 57 8 19 2 11

M&M 95 31 11 28 11.7 -23 9 17 2 11

ITC 70 15 26 16 36.8 33 18 17 4 23

Tata Motors 443 22 58 29 13.1 66 25 11 5 21

Larsen & Toubro 133 18 13 13 10.0 -44 8 3 2 2

Negative PAT Growth 2,511 8 418 -10 16.6 -330 196 -18 41 -389

Reliance Inds. 937 19 82 -17 8.8 -378 55 -3 12 -14

BHEL 105 2 18 -1 16.8 -60 12 -4 3 -5

Bajaj Auto 48 -7 9 -12 17.8 -105 7 -11 1 -8

Sterlite Inds. 104 2 25 0 23.8 -51 13 -15 3 -20

Hindalco 197 2 22 2 11.2 -2 9 -15 2 -15

Dr Reddy’s Labs 25 15 5 9 18.3 -110 2 -17 0 -4

JSPL 51 15 16 -14 30.6 -1019 8 -20 2 -19

GAIL 112 15 14 -15 12.4 -454 8 -24 2 -23

ONGC 218 -4 119 -16 54.9 -773 64 -26 13 -200

Hero Motocorp 52 -11 5 -28 9.3 -220 4 -27 1 -15

Tata Power 71 14 13 -3 18.4 -322 3 -30 1 -12

Bharti Airtel 196 13 60 2 30.4 -324 7 -36 1 -33

Maruti Suzuki 83 5 4 -21 4.7 -157 1 -51 0 -11

Tata Steel 313 -5 28 2 9.0 58 1 -63 0 -12

Sensex (30) 4,229 12 866 3 20.5 -175 477 2

42 43

20

44

-2

16

615

2

30

12

222726

-21-25

-15-7

23251917

2630333031

612

24

333928

25

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E

LPA 19%

Sensex PAT growth (YoY, %)

A–57October 2012


2HFY13E YoY (PAT growth YoY, %)

5748

30 25 25 20 20 18 17 17 16 13 11 9 9 8 6 3 3 3 2

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Most sectors comfortably placed for 2HFY13 PAT; no major earnings downgrade risk for FY13

20 19293238

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2HFY13E YoY (PAT growth YoY, %) 2HFY12A (PAT growth YoY, %)

Bottom five Sensex companies by PAT growth: Tata Steel (-63% YoY), Maruti Suzuki

(-51%), Bharti Airtel (-36%), Tata Power (-30%) and Hero MotoCorp (-27%).

Tata Steel and Maruti Suzuki are the bottom performers for the second quarter in

a row.

2HFY13 residual PAT growth modest; allays downgrade concerns for FY13In 1HFY13, PAT growth for MOSL Universe (ex RMs) was 6% YoY. In order to meet our

full year FY13 PAT growth estimate of 9%, implied residual 2HFY13 PAT works out to

12% YoY.

Even the disaggregated, sector-wise picture for residual 2HFY13 is comforting. Only 4

sectors need to deliver PAT growth of 25%+, viz, Media, Real Estate, Healthcare and

Cement. Of these, Media and Real Estate enjoy the benefit of low base as their 2HFY12

PAT was down 23% and 29%, respectively.

Sensex 2HFY13E PAT growth at 7%: As in the case of aggregates, even for Sensex,

2HFY13 PAT growth is a modest 7% with earnings headwinds adequately modeled in,

in our view.

2HFY13E PAT for Sensex companies: As in the aggregates, no major downgrade concerns here too

A–58October 2012


Intra-sector 2QFY13 earnings divergence (%)

Sectors Sector +30% Growth 15-30% growth 0-15% growth -ve earnings Earnings

Growth (%) growth (%) momentum

Autos 0 M & M: 17 Tata Motors: 11 Bajaj Auto: -11,

HMCL: -27, MSIL: -51

Capital Goods -1 Havells: 6, BHEL: -4,

ABB: 145 Cummins: 23 L&T: 3 Siemens: -11,

CRG: -14, TMX: -18

Cement 89 Shree Cement: LP, India Grasim Jaiprakash

ACC: 103, Ultratech: 94, Cements: 22 Industries: 4 Associates: -27

ACEM: 92, Birla Corp: 54

Consumer 18 Marico: 37, Pidilite Inds: 28, Britannia: 12, United

Godrej Consumer: 36 Dabur: 22, HUVR: 19, GSK Consumer: 12, Spirits: -2

ITC: 17, CLGT/APNT: 16 Nestle: 10

Bank - Private 23 Yes Bank: 30, IndusInd Bank: 28, ING Vysya Bk: 15,

HDFC Bank: 30 Axis Bank: 22, KMB: 6,

ICICI Bank: 21 Federal Bank: 5

Bank - PSU 17 OBC: 98, Andhra Bank: 2, BOB: -7,

Union Bank: 66, PNB: 1, Canara Bank: -14

BOI: 44, SBIN: 31 Indian Bank: 0

Bank - NBFC 19 M&M Financial: 37, PFC: 21, IDFC: 20, Shriram Trans: 10,

Dewan Housing: 33 HDFC: 19, LIC Hsg. Fin.: 1

REC: 19

Healthcare 28 Dishman: LP, Sun Pharma: 29, Torrent Pharma: 12,

Cadila: 110, Glenmark: 92, Divis Lab: 27, Opto Circuits: 10 Sanofi India: -9

Jubilant Life: 67, Lupin: 22, Cipla: 21, Ranbaxy Labs: 4, Dr Reddy's Lab: -17

IPCA Labs: 41 GSK Pharma: 18 Biocon: 3

Media 17 Dish TV: Loss,

Jagran Prakashan: 59 Zee Ent: 2 Sun TV: -1

HT Media: -8

Metals -12 HZ: -1, NMDC: -7,

Sesa Goa: 139 Nalco: 23 STLT: -15, HNDL: 15,

JSPL: -20, SAIL: -36,

JSW: -35, TATA -63

Oil & Gas 3 MRPL: 3,365, Indraprastha RIL: -3, GSPL: -16,

(Ex RMS) Chennai Petroleum: 305, Gas: 12, Oil India: -17,

Cairn India: 271 Petronet LNG: 0 GAIL: -24, ONGC: -26

Real Estate -28 Oberoi Realty: 2,

Phoenix Mills: 26 MLIFE: -3, HDIL: -27,

DLF: -37, Unitech: -47

Retai l -6 Jubilant Foodworks: 45 Titan Inds: 15 Shopper's Stop: -82,

Pantaloon: -94

Technology 34 HCL Tech: 65, Infosys: 26, Tech MphasiS: 14

TCS: 42 Mah: 24, Wipro: 22

Telecom -32 Bharti Airtel: -36,

Idea Cellular: 92 Tulip Telecom: -37,

RCom: -60,

Uti l i t ies 7 NTPC: 26, Adani Power: PL,

JSW Energy: LP Coal India: 25, CESC: 14, Tata Power: -30,

Powergrid: 24, NHPC: 10 Reliance Infra: -48

PTC India: 19

Earnings momentum: Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to Profit

0 1 31

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A–59October 2012


N O T E S

MOSL Universe:2QFY13 Highlights

&Ready Reckoner

BSE Sensex: 18,763 S&P CNX: 5,703

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year

numbers. This is because of differences in classification of account heads in the company’s quarterly and

annual results or because of differences in the way we classify account heads as opposed to the company.

All stock prices and indices as on 28 September 2012, unless otherwise stated.

September 2012 Results Preview

October 2012

B–1October 2012

MOSL Universe

MOSL Universe: 2QFY13 aggregate performance highlights

Quarterly performance - MOSL universe (INR Billion)

Sales EBITDA Net Profit

(No of companies) Sep-12 Var. Var. Sep-12 Var. Var. Sep-12 Var. Var.

YoY (%) QoQ (%) YoY (%) QoQ (%) YoY (%) QoQ (%)

Auto (5) 721 15.7 -3.2 86 15.1 -5.9 46 -0.2 -8.8

Capital Goods (9) 364 8.2 14.7 42 4.0 26.3 27 -1.4 10.2

Cement (8) 162 11.1 -9.9 36 37.7 -22.7 19 89.0 -24.9

Consumer (12) 283 15.6 3.4 60 18.5 6.1 41 17.7 4.1

Financials (25) 460 14.4 4.1 369 15.2 3.9 191 19.0 -0.4

Private Banks (8) 118 22.1 3.6 98 24.2 4.8 57 22.9 2.9

PSU Banks (9) 276 10.0 4.1 206 9.5 3.1 91 16.8 -4.0

NBFC (8) 66 21.2 5.1 64 22.2 5.0 43 18.7 3.6

Health Care (17) 208 19.7 6.8 46 20.2 4.9 32 28.2 16.7

Media (5) 27 9.5 3.4 9 1.8 0.3 4 17.1 14.3

Metals (10) 932 -0.5 -4.8 159 -1.8 -9.4 80 -12.1 -23.2

Oil & Gas (13) 3,886 24.3 8.9 385 101.9 LP 245 539.3 LP

Excl. RMs (10) 1,703 18.1 5.3 288 -4.4 24.8 181 1.3 25.7

Real Estate (7) 35 -13.1 7.7 15 -21.4 -9.2 6 -27.6 -7.8

Retail (4) 64 11.6 8.1 6 14.4 9.2 2 -5.5 11.8

Technology (6) 460 27.5 4.8 116 31.3 2.9 88 33.6 2.5

Telecom (4) 310 12.2 0.3 91 3.5 -0.1 10 -32.4 -16.1

Utilities (10) 534 10.1 -2.0 127 6.2 -13.8 70 7.0 -22.6

Others (4) 40 6.6 -6.1 7 -2.3 -7.4 4 15.3 -12.0

MOSL (139) 8,487 16.7 4.1 1,555 25.4 48.0 865 44.9 112.3

MOSL Excl. RMs (136) 6,304 12.8 1.6 1,458 8.0 2.4 802 8.7 -1.3

Sensex (30) 4,229 12.2 0.8 866 3.3 0.4 477 2.4 -3.6

For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; LP = Loss to Profit

Quarterly performance - MOSL universe

Sector EBITDA Margin (%) Net Profit Margin (%)

(No. of Companies) Sep.11 Sep.12 Chg. (%) Sep.11 Sep.12 Chg. (%)

Auto (5) 12.1 12.0 -0.1 7.4 6.4 -1.0

Capital Goods (9) 12.1 11.7 -0.5 8.2 7.5 -0.7

Cement (8) 17.8 22.1 4.3 7.1 12.0 4.9

Consumer (12) 20.7 21.2 0.5 14.1 14.4 0.3

Financials (25) 79.7 80.2 0.6 39.9 41.5 1.6

Private Banks (8) 81.9 83.4 1.4 47.9 48.2 0.3

PSU Banks (9) 75.1 74.8 -0.4 31.2 33.1 1.9

NBFC (8) 96.6 97.4 0.8 65.8 64.5 -1.3

Health Care (17) 22.3 22.3 0.1 14.2 15.3 1.0

Media (5) 34.5 32.1 -2.4 15.4 16.5 1.1

Metals (10) 17.2 17.0 -0.2 9.8 8.6 -1.1

Oil & Gas (13) 6.1 9.9 3.8 1.2 6.3 5.1

Excl. RMs (10) 20.9 16.9 -4.0 12.4 10.7 -1.8

Real Estate (7) 47.0 42.5 -4.5 20.1 16.7 -3.4

Retail (4) 9.3 9.5 0.2 4.0 3.4 -0.6

Technology (6) 24.5 25.2 0.7 18.1 19.0 0.9

Telecom (4) 31.9 29.4 -2.5 5.6 3.4 -2.2

Utilities (10) 24.6 23.7 -0.9 13.5 13.1 -0.4

Others (4) 20.4 18.7 -1.7 9.4 10.2 0.8

MOSL (139) 17.1 18.3 1.3 8.2 10.2 2.0

MOSL Excl. RMs (136) 24.2 23.1 -1.0 13.2 12.7 -0.5

Sensex (30) 22.2 20.5 -1.8 12.4 11.3 -1.1

B–2October 2012

MOSL Universe

MOSL Universe: 2QFY13 aggregate performance highlights (Ex RMs)

Quarter-wise sales growth (% YoY) Quarter-wise net profit growth (% YoY)

Sectoral sales growth - quarter ended September 2012 (%)

Sectoral EBITDA growth - quarter ended September 2012 (%)

Sectoral net profit growth - quarter ended September 2012 (%)

17.6%15.3%

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22.2%

Dec-11 Mar-12 June-12 Sep-12E

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B–3October 2012

MOSL Universe

Top 10 by sales growth (%) Worst 10 by sales growth (%)

Top 10 by EBITDA growth (%) Worst 10 by EBITDA growth (%)

Top 10 by net profit growth (%) Worst 10 by net profit growth (%)

Corporate Scoreboard (quarter ended September 2012)

Source: MOSL

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B–4October 2012

MOSL Universe

Valuations - MOSL universe

Sector P/E EV/EBITDA P/BV RoE Div. PAT

(x) (x) (x) (%) yld (%) CAGR

(No. of companies) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY12-14

Auto (5) 11.9 12.4 9.9 6.7 5.6 4.6 3.9 3.0 2.5 32.4 24.4 25.1 1.7 9.6

Capital Goods (9) 16.5 16.4 16.3 10.7 10.6 10.0 3.6 3.1 2.8 21.6 19.1 17.1 1.5 0.8

Cement (8) 18.1 15.2 13.4 9.8 8.3 7.1 2.8 2.6 2.2 15.8 16.8 16.7 1.0 16.0

Consumer (12) 38.1 31.6 26.6 25.5 21.0 17.6 13.3 10.8 9.1 34.9 34.2 34.0 1.2 19.6

Financials (27) 12.3 10.6 9.0 NM NM NM 2.1 1.8 1.6 17.3 17.2 17.5 1.8 16.7

Private Banks (8) 19.7 16.4 13.9 NM NM NM 3.1 2.7 2.4 15.9 16.7 17.4 1.1 19.1

PSU Banks (11) 7.4 6.5 5.6 NM NM NM 1.3 1.1 0.9 17.4 16.7 16.8 2.5 14.6

NBFC (8) 15.1 12.7 10.7 NM NM NM 2.9 2.5 2.1 19.5 19.4 19.9 2.1 18.9

Health Care (17) 26.4 21.6 18.1 15.9 13.6 12.3 5.2 4.3 3.7 19.7 20.1 20.6 1.0 20.9

Media (5) 32.0 27.9 23.2 14.4 12.8 10.7 5.7 5.0 4.5 17.7 18.0 19.4 1.2 17.4

Metals (10) 9.6 9.2 7.8 6.4 6.5 5.6 1.3 1.2 1.1 13.3 12.8 13.6 1.9 11.2

Oil & Gas (13) 9.9 10.3 9.6 6.2 6.2 5.5 1.6 1.4 1.3 15.8 13.9 13.4 2.0 1.3

Excl. RMs (10) 10.5 10.1 9.6 5.6 5.6 5.0 1.7 1.5 1.4 16.0 14.9 14.1 2.0 4.4

Real Estate (11) 18.0 18.3 14.0 14.0 13.4 10.0 1.1 1.1 1.0 6.1 5.8 7.0 0.9 13.2

Retail (4) 45.2 38.3 28.9 19.0 16.1 13.2 7.3 6.4 5.5 16.0 16.7 19.1 0.6 25.0

Technology (6) 19.3 15.7 14.5 13.5 10.8 9.7 4.9 4.1 3.4 25.2 26.4 23.5 1.8 15.3

Telecom (4) 22.7 29.5 19.6 7.2 6.9 5.8 1.5 1.4 1.3 6.5 4.9 6.9 0.4 7.7

Utilities (10) 14.6 13.3 12.0 11.0 9.6 8.4 2.4 2.2 1.9 16.3 16.1 16.2 2.4 10.6

Others (4) 16.7 16.0 13.4 10.3 9.5 7.9 3.6 3.3 2.9 21.8 20.5 21.5 2.1 11.7

MOSL (145) 14.6 13.5 11.8 N.M N.M N.M 2.5 2.2 1.9 16.8 16.1 16.3 1.7 10.9

MOSL Excl. RMs (142) 14.9 13.6 11.9 N.M N.M N.M 2.5 2.2 2.0 16.9 16.4 16.5 1.7 11.8

Sensex (30) 16.7 15.4 13.5 N.M N.M N.M 2.9 2.6 2.3 17.1 16.9 17.0 1.6 12.1

Nifty (50) 16.3 15.0 13.2 N.M N.M N.M 2.7 2.6 2.3 16.7 17.0 17.0 1.6 12.5

N.M. - Not Meaningful. Source: MOSL

Annual performance - MOSL universe (INR Billion)

Sales EBITDA Net Profit

FY12 FY13E FY14E Chg.# Chg.@ FY12 FY13E FY14E Chg.# Chg.@ FY12 FY13E FY14E Chg.# Chg.@

(%) (%) (%) (%) (%) (%)

Auto (5) 3,041 3,532 3,981 16.1 12.7 399 454 537 13.8 18.1 228 219 274 -3.8 24.8

Capital Goods (9) 1,525 1,659 1,785 8.8 7.6 207 212 222 2.3 4.7 143 144 146 0.8 0.8

Cement (8) 853 963 1,104 12.9 14.7 190 228 260 20.1 13.8 99 118 134 18.9 13.2

Consumer (12) 1,005 1,175 1,360 17.0 15.7 204 247 292 20.7 18.4 138 166 198 20.4 18.8

Financials (27) 1,843 2,106 2,482 14.3 17.9 1,473 1,685 1,997 14.4 18.5 751 874 1,022 16.4 17.0

Private Banks (8) 400 484 583 20.9 20.5 336 410 499 22.0 21.6 207 248 294 19.8 18.3

PSU Banks (11) 1,222 1,350 1,576 10.5 16.7 917 1,010 1,184 10.1 17.2 395 449 519 13.6 15.5

NBFC (8) 221 272 323 23.1 18.8 219 265 315 20.8 19.0 148 176 209 18.8 18.9

Health Care (17) 739 880 966 19.0 9.9 176 205 223 16.8 8.5 104 127 152 22.1 19.7

Media (5) 101 112 128 10.9 14.2 32 36 41 9.7 16.6 15 17 20 14.5 20.3

Metals (10) 3,914 3,962 4,179 1.2 5.5 694 717 844 3.3 17.7 365 381 451 4.5 18.3

Oil & Gas (13) 14,578 16,160 16,193 10.8 0.2 1,447 1,421 1,577 -1.8 11.0 789 761 810 -3.6 6.5

Excl. RMs (10) 6,603 7,546 7,422 14.3 -1.6 1,185 1,166 1,275 -1.6 9.3 653 677 712 3.8 5.1

Real Estate (11) 226 232 294 2.6 26.4 93 95 123 1.8 29.6 47 46 60 -1.4 30.0

Retail (4) 240 281 328 16.9 17.0 23 27 32 17.6 21.4 9 10 14 18.2 32.3

Technology (6) 1,521 1,864 2,083 22.6 11.7 385 468 503 21.8 7.3 287 352 382 22.6 8.5

Telecom (4) 1,140 1,264 1,386 10.9 9.6 360 376 423 4.5 12.3 63 48 73 -22.8 50.2

Utilities (10) 1,893 2,185 2,413 15.4 10.4 521 621 726 19.1 16.8 350 384 428 9.7 11.4

Others (4) 157 173 192 9.8 11.4 32 34 39 6.3 16.2 18 19 22 4.4 19.5

MOSL (145) 32,778 36,547 38,875 11.5 6.4 6,236 6,824 7,837 9.4 14.8 3,405 3,666 4,184 7.7 14.1

Excl. RMs (142) 24,803 27,933 30,104 12.6 7.8 5,973 6,570 7,534 10.0 14.7 3,269 3,583 4,085 9.6 14.0

Sensex (30) 8,597 9,740 10,314 13.3 5.9 1,739 1,902 2,160 9.4 13.5 945 1,039 1,187 9.9 14.3

Nifty (50) 9,902 10,978 11,605 10.9 5.7 1,981 2,183 2,474 10.2 13.3 1,077 1,199 1,363 11.3 13.7

# Growth FY13 over FY12; @ Growth FY14 over FY13. For Banks : Sales = Net Interest Income, EBITDA = Operating Profits;

Note: Sensex & Nifty Numbers are Free Float.

B–5October 2012

MOSL Universe

Ready reckoner: quarterly performance

(INR Million) CMP Rating Sales EBITDA Net Profit

(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.

28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ

Automobiles

Bajaj Auto 1,833 Buy 48,254 -6.9 -0.8 8,573 -12.1 -1.7 7,005 -11.3 -2.5

Hero Motocorp 1,879 Buy 51,770 -10.5 -16.6 4,801 -27.7 -28.3 4,401 -27.1 -28.5

Mahindra & Mahindra 865 Buy 95,445 30.6 3.2 11,193 28.1 0.9 8,656 17.4 19.3

Maruti Suzuki 1,350 Buy 82,507 5.4 -23.4 3,909 -20.9 -50.3 1,175 -51.1 -72.3

Tata Motors 267 Buy 442,658 22.3 2.2 57,988 28.7 0.8 24,824 10.5 -3.2

Sector Aggregate 720,634 15.7 -3.2 86,465 15.1 -5.9 46,061 -0.2 -8.8

Capital Goods

ABB 798 Neutral 19,190 10.1 1.9 1,109 66.3 4.6 543 145.1 5.2

BGR Energy 275 Neutral 7,038 -8.8 15.2 883 -19.9 0.4 296 -42.3 -11.5

BHEL 247 Neutral 105,257 2.2 26.4 17,694 -1.3 47.2 12,329 -4.1 33.9

Crompton Greaves 126 Neutral 29,629 9.5 5.4 1,981 -12.4 18.8 1,003 -14.0 16.8

Cummins India 508 Neutral 12,056 10.6 -4.2 2,230 26.8 -4.1 1,584 23.2 -12.3

Havells India 625 Buy 9,796 15.0 -5.4 1,162 12.9 -4.9 784 5.9 -10.9

Larsen & Toubro 1,597 Buy 132,967 18.2 11.2 13,297 13.3 6.6 8,223 3.0 -18.0

Siemens 709 Neutral 35,693 -1.1 25.5 2,914 0.7 201.6 1,579 -11.3 333.8

Thermax 561 Neutral 12,020 -7.8 22.2 1,142 -18.7 18.5 837 -17.7 24.6

Sector Aggregate 363,645 8.2 14.7 42,411 4.0 26.3 27,179 -1.4 10.2

Cement

ACC 1,469 Neutral 24,042 11.8 -13.4 4,167 89.0 -36.0 2,497 103.2 -40.3

Ambuja Cements 202 Buy 21,709 20.3 -15.4 5,512 77.0 -23.7 3,561 92.1 -24.1

Birla Corporation 282 Buy 5,456 5.8 -17.1 766 142.7 -39.1 404 54.5 -52.3

Grasim Industries 3,315 Buy 11,736 -2.5 -5.3 2,856 -1.7 -3.3 3,597 4.3 31.8

India Cements 95 Buy 11,466 5.3 -4.6 2,519 0.0 -9.3 854 22.5 14.1

Jaiprakash Associates 82 Buy 32,233 2.9 8.8 7,266 -2.9 -5.8 943 -26.7 -31.6

Shree Cement 3,954 Buy 10,927 47.4 -24.9 3,216 111.1 -33.2 2,166 LP -38.4

Ultratech Cement 1,968 Buy 44,095 12.8 -13.1 9,358 60.3 -27.6 5,402 93.6 -30.6

Sector Aggregate 161,664 11.1 -9.9 35,661 37.7 -22.7 19,423 89.0 -24.9

Consumer

Asian Paints 3,937 Neutral 25,500 13.3 0.4 3,825 18.5 -12.6 2,428 16.3 -15.8

Britannia 476 Se l l 14,500 12.0 18.7 827 7.1 27.1 548 12.3 26.2

Colgate 1,206 Se l l 7,700 17.2 4.6 1,670 18.2 2.8 1,253 16.5 6.7

Dabur 128 Neutral 14,700 16.5 0.5 2,852 20.5 38.4 2,122 22.1 37.5

Godrej Consumer 668 Neutral 16,250 37.0 17.0 2,860 36.9 43.8 1,736 35.9 33.0

GSK Consumer 2,994 Neutral 8,100 12.5 11.0 1,377 16.7 24.4 1,153 11.9 8.2

Hind. Unilever 545 Neutral 64,500 15.0 1.1 9,869 19.4 2.1 7,784 19.3 -8.9

ITC 272 Buy 69,700 14.5 3.8 25,650 15.6 8.3 17,680 16.8 10.4

Marico 199 Buy 11,500 18.0 -9.2 1,564 34.1 -15.4 1,074 37.2 -13.3

Nestle 4,374 Neutral 22,750 15.9 14.5 4,960 20.9 15.5 2,954 10.0 21.6

Pidilite Inds. 206 Buy 8,450 19.0 -7.4 1,622 24.6 -14.9 1,108 28.2 -16.9

United Spirits 1,218 Neutral 19,700 10.0 -4.2 2,916 13.9 -13.0 828 -2.3 -25.1

Sector Aggregate 283,350 15.6 3.4 59,990 18.5 6.1 40,669 17.7 4.1

PULL OUT

B–6October 2012

MOSL Universe


Healthcare

Biocon 275 Neutral 6,067 19.3 5.2 1,453 8.9 18.4 886 3.4 12.4

Cadila Health 872 Buy 15,810 27.0 2.1 3,439 24.7 0.6 2,158 110.1 10.8

Cipla 381 Neutral 20,468 15.1 17.2 5,156 17.8 24.8 3,735 20.9 22.2

Dishman Pharma 96 Neutral 3,436 27.6 9.0 830 76.5 -0.7 304 LP -21.6

Divis Labs 1,080 Buy 4,932 39.3 5.3 1,833 45.2 -3.8 1,350 27.3 -19.4

Dr Reddy’ s Labs 1,647 Buy 24,822 15.1 8.9 4,542 8.6 26.4 2,229 -17.0 -4.3

Glenmark Pharma 422 Buy 11,589 25.0 17.5 2,076 19.9 12.8 1,426 91.5 181.5

GSK Pharma 1,977 Buy 6,674 9.8 2.4 2,082 18.3 2.7 1,720 17.8 1.4

IPCA Labs. 482 Buy 7,133 14.4 12.4 1,639 3.7 23.3 1,098 40.9 155.5

Jubilant Life 212 Neutral 12,803 22.2 3.6 2,691 14.0 -0.1 1,326 67.0 43.8

Lupin 596 Buy 20,925 27.2 2.1 3,674 32.9 12.4 2,442 21.5 16.4

Opto Circuits 130 Neutral 7,012 24.8 -1.9 1,885 21.9 -0.7 1,337 10.5 -3.1

Ranbaxy Labs 530 Neutral 25,341 20.9 10.0 2,706 55.4 9.1 1,688 4.2 -2.0

Sanofi India 2,374 Neutral 3,901 24.8 4.3 636 26.4 21.8 499 -8.9 23.3

Strides Arcolab 883 Buy 6,185 -19.6 21.7 1,555 -9.6 37.6 1,347 189.9 1050.3

Sun Pharma 693 Neutral 22,526 26.4 -2.2 8,583 20.1 -17.5 7,063 29.5 5.2

Torrent Pharma 695 Buy 8,290 21.3 8.1 1,659 18.0 6.4 1,119 11.9 9.8


Media

Dish TV 83 Neutral 5,406 12.1 4.0 1,548 27.1 -0.5 -100 Loss Loss

HT Media 93 Neutral 4,982 1.0 1.7 674 -5.3 0.8 403 -8.0 -0.9

Jagran Prakashan 91 Neutral 3,317 8.6 4.5 864 9.3 9.6 729 59.2 30.7

Sun TV 349 Buy 4,491 -0.5 5.5 3,518 -3.7 8.9 1,787 -0.8 8.8

Zee Entertainment 196 Neutral 8,640 20.3 2.5 1,997 -3.8 -14.4 1,598 2.4 1.0


Metals

Hindalco 121 Buy 197,200 2.0 -1.0 22,023 1.8 10.0 9,117 -15.5 1.2

Hindustan Zinc 135 Buy 26,853 1.8 -2.3 14,162 -3.3 -0.9 13,555 -0.6 -14.3

JSPL 428 Neutral 50,958 15.2 8.4 15,591 -13.6 -2.1 8,401 -20.0 -12.4

JSW Steel 757 Se l l 83,636 9.6 -7.5 14,335 9.4 -19.1 3,882 -35.2 -41.5

Nalco 51 Neutral 16,991 5.3 -2.8 2,418 58.5 -20.5 1,714 23.0 -23.2

NMDC 194 Buy 28,466 -7.0 0.2 22,246 -8.7 -3.4 18,226 -7.2 -4.4

SAIL 85 Se l l 107,892 -3.6 0.1 13,918 4.9 -8.2 6,377 -36.4 -27.8

Sesa Goa 171 Neutral 3,363 -57.4 -80.6 1,001 -61.5 -85.2 5,621 138.8 -50.5

Sterlite Inds. 99 Buy 104,064 2.1 -2.3 24,805 -0.1 7.5 12,653 -15.3 -10.8

Tata Steel 401 Se l l 312,934 -4.6 -7.5 28,051 2.0 -22.1 791 -62.8 -90.0

Sector Aggregate 932,355 -0.5 -4.8 158,550 -1.8 -9.4 80,338 -12.1 -23.2

Others

Castrol India 311 Buy 7,745 15.3 -9.0 1,490 14.4 -12.0 1,057 11.2 -12.6

MCX 1,284 Buy 1,283 -17.7 4.3 811 -24.2 7.3 712 -20.6 10.0

Sintex Inds. 67 Buy 10,710 -7.4 -0.9 1,669 -18.3 -6.0 751 -23.8 -0.8

United Phosphorous 131 Buy 20,360 14.7 -8.1 3,521 8.2 -8.9 1,568 119.9 -22.7

Sector Aggregate 40,097 6.6 -6.1 7,492 -2.3 -7.4 4,087 15.3 -12.0




PULL OUT

B–7October 2012

MOSL Universe


Oil & Gas

BPCL 346 Buy 571,811 35.2 4.9 17,903 LP LP 10,183 LP LP

Cairn India 331 Neutral 48,725 83.7 9.7 37,609 78.8 7.7 28,308 271.0 -26.0

Chennai Petroleum 129 Buy 100,501 6.7 -8.9 4,499 LP LP 2,962 304.7 LP

GAIL 383 Neutral 111,932 15.4 0.9 13,935 -15.5 -26.6 8,364 -23.6 -26.2

Gujarat State Petronet 81 Neutral 2,426 -13.6 -9.3 2,218 -14.2 -10.0 1,085 -16.1 -13.1

HPCL 307 Buy 496,111 34.0 12.6 16,697 LP LP 11,403 LP LP

IOC 251 Buy 1,115,444 25.1 15.5 62,858 LP LP 41,570 LP LP

Indraprastha Gas 265 UR 8,530 42.9 12.2 1,861 18.3 3.8 866 12.2 1.9

MRPL 61 Neutral 168,502 44.4 31.5 9,306 1134.8 LP 8,361 3365.2 LP

Oil India 490 Buy 25,886 -20.8 10.9 12,679 -21.7 15.7 9,399 -17.4 1.1

ONGC 280 Buy 217,664 -3.8 8.4 119,438 -15.6 8.2 64,009 -25.9 5.3

Petronet LNG 158 Buy 81,708 52.2 16.2 4,380 -2.3 -4.2 2,616 0.5 -3.4

Reliance Inds. 837 Neutral 937,028 19.3 2.0 82,024 -16.7 21.6 55,482 -2.7 24.0

Sector Aggregate 3,886,267 24.3 8.9 385,406 101.9 LP 244,609 539.3 LP

Oil & Gas Excl. RMs 1,702,901 18.1 5.3 287,949 -4.4 24.8 181,453 1.3 25.7

Real Estate

Anant Raj Inds 71 Buy 868 -4.9 -12.2 425 -16.5 -15.1 299 -13.8 -15.6

DLF 234 Buy 21,370 -15.6 -2.8 8,762 -25.3 -17.9 2,331 -37.4 -20.4

HDIL 98 Neutral 4,192 -5.1 108.4 3,144 -14.6 8.2 1,084 -27.3 2.9

Mahindra Lifespace 378 Buy 1,173 25.0 12.6 293 13.5 -8.0 303 -3.4 3.5

Oberoi Realty 265 Buy 2,134 -4.1 6.7 1,238 7.1 8.7 1,090 -2.2 8.1

Phoenix Mills 196 Buy 628 32.5 0.3 396 18.7 0.4 301 26.2 -1.5

Unitech 24 Buy 4,888 -21.9 19.9 709 -48.7 29.5 492 -46.8 7.2

Sector Aggregate 35,252 -13.1 7.7 14,966 -21.4 -9.2 5,901 -27.6 -7.8

Retail

Jubilant Foodworks 1,373 Neutral 3,450 43.5 9.7 628 46.9 9.6 344 45.5 6.4

Pantaloon Retail 214 Neutral 30,562 5.0 3.2 2,812 11.4 1.8 21 -93.6 -45.3

Shopper's Stop 401 Neutral 5,660 13.8 26.7 198 -48.8 43.7 36 -81.8 186.0

Titan Industries 262 Neutral 24,450 16.6 10.9 2,469 23.3 16.5 1,764 15.4 13.0


Technology

HCL Technologies 577 Buy 62,080 33.5 4.9 11,987 54.4 -6.2 7,932 65.3 -5.7

Infosys 2,534 Buy 100,052 23.5 4.0 30,956 23.0 5.1 24,015 26.0 4.9

MphasiS 402 Se l l 13,551 3.1 0.0 2,768 17.9 3.5 2,092 14.3 0.2

TCS 1,294 Neutral 157,685 35.5 6.1 46,122 36.3 6.4 34,563 41.7 5.4

Tech Mahindra 972 Neutral 16,291 22.2 5.6 3,085 51.1 -6.6 2,978 23.7 -12.0

Wipro 381 Buy 110,824 21.9 4.0 21,299 22.4 -0.6 15,927 22.4 0.8


Telecom

Bharti Airtel 265 Neutral 195,659 13.3 1.1 59,536 2.4 1.8 6,563 -36.1 -13.9

Idea Cellular 85 Buy 54,458 17.9 -1.1 13,775 16.1 -4.0 2,036 92.5 -13.1

Reliance Comm 65 Neutral 52,462 4.1 -1.4 15,916 -0.8 -3.5 1,281 -60.3 -33.1

Tulip Telecom 46 Se l l 7,328 4.2 2.3 1,949 -4.1 1.6 545 -37.4 -0.4

Sector Aggregate 309,908 12.2 0.3 91,177 3.5 -0.1 10,424 -32.4 -16.1

PL: Profit to Loss; LP: Loss to Profit




PULL OUT

UR = Under Review

B–8October 2012

MOSL Universe


CMP Rating Net Interest Income Operating Profit Net Profit



Financials

Private BanksAxis Bank 1,137 Buy 22,743 13.3 4.3 20,314 14.4 3.5 11,242 22.2 -2.5Federal Bank 446 Buy 5,190 9.4 5.6 3,835 6.1 10.7 2,006 4.9 5.4HDFC Bank 629 Neutral 36,067 22.5 3.5 27,598 29.8 6.9 15,616 30.2 10.2ICICI Bank 1,057 Buy 32,582 30.0 2.0 30,430 29.3 3.2 18,236 21.3 0.5IndusInd Bank 354 Buy 5,232 24.8 8.1 4,300 29.1 6.4 2,481 28.5 5.0ING Vysya Bank 407 Buy 3,527 16.1 2.7 2,254 19.0 3.6 1,321 14.5 1.5Kotak Mahindra Bank 648 Neutral 7,463 23.3 3.5 4,564 20.1 1.8 2,764 6.3 -2.1Yes Bank 382 Buy 4,975 29.0 5.4 4,893 26.8 6.5 3,066 30.5 5.7Pvt Banking Sector Aggregate 117,778 22.1 3.6 98,187 24.2 4.8 56,733 22.9 2.9PSU BanksAndhra Bank 113 Buy 9,737 2.4 3.8 6,990 1.8 -0.6 3,209 1.5 -11.3Bank of Baroda 799 Neutral 28,121 9.6 0.5 22,446 5.5 0.2 10,833 -7.1 -4.9Bank of India 310 Neutral 23,844 25.2 16.7 18,708 20.6 11.8 7,095 44.5 -20.0Canara Bank 431 Buy 19,006 -3.1 3.1 13,970 -13.0 0.2 7,336 -13.9 -5.4Indian Bank 192 Buy 11,991 5.6 4.0 8,908 -3.3 6.0 4,709 0.5 2.0Oriental Bank 302 Buy 11,799 19.2 4.8 8,840 16.6 -1.4 3,320 98.0 -15.2Punjab National Bank 840 Buy 37,455 8.5 1.4 28,275 11.9 -0.5 12,183 1.1 -2.2State Bank 2,238 Buy 114,777 9.5 3.2 84,660 13.3 3.5 36,952 31.5 -1.5Union Bank 208 Buy 19,468 17.2 6.9 13,685 13.6 8.0 5,834 65.5 14.0PSU Banking Sector Aggregate 276,198 10.0 4.1 206,482 9.5 3.1 91,472 16.8 -4.0PSU Banking Sector Aggregate Ex SBI 161,421 10.4 4.7 121,822 7.0 2.7 54,520 8.6 -5.6NBFCDewan Housing 200 Buy 1,596 43.3 11.1 1,417 44.1 18.5 954 32.8 22.7HDFC 773 Buy 14,663 17.9 12.4 16,413 21.2 15.6 11,592 19.4 15.7IDFC 154 Buy 6,548 31.5 4.1 6,793 31.0 3.6 4,002 20.5 5.4LIC Housing Fin 282 Buy 3,817 14.2 8.9 3,730 11.2 7.2 2,559 1.3 12.4M & M Financial 898 Buy 5,214 33.6 6.9 3,430 35.1 5.6 1,863 37.4 15.7Power Finance Corp 189 Buy 14,031 29.9 0.7 13,806 30.9 0.4 9,713 21.1 -5.6Rural Electric. Corp. 218 Buy 11,711 23.3 0.5 11,801 23.0 -1.5 8,548 19.3 -5.5Shriram Transport Fin. 619 Buy 8,384 0.4 4.5 6,882 0.9 1.4 3,295 10.1 2.4NBFC Banking Sector Aggregate 65,964 21.2 5.1 64,272 22.2 5.0 42,527 18.7 3.6Financials Sector Aggregate 459,940 14.4 4.1 368,940 15.2 3.9 190,732 19.0 -0.4




Utilities

Adani Power 53 Neutral 11,649 8.6 -20.4 2,320 -55.3 88.3 -2,872 PL Loss

CESC 331 Buy 12,980 4.6 -8.6 2,882 10.8 -0.6 1,297 13.8 3.8

Coal India 359 Buy 147,128 11.9 -10.8 27,321 10.3 -43.3 27,919 25.0 -37.7

JSW Energy 61 Buy 20,198 102.7 -7.8 5,438 360.2 -6.8 1,100 LP -43.6

NHPC 19 Neutral 16,515 -11.1 16.2 11,540 -13.1 27.7 8,533 9.8 32.3

NTPC 168 Buy 155,840 1.3 -2.4 31,290 -3.4 -13.8 18,604 25.7 -22.1

Power Grid Corp. 120 Buy 31,672 39.9 9.7 27,572 45.3 11.9 9,392 23.6 3.6

PTC India 71 Buy 29,853 25.0 50.2 536 20.8 71.4 423 19.0 84.9

Reliance Infrastructure 539 Buy 37,700 -4.6 9.4 4,901 -30.9 6.6 2,551 -48.0 -22.0

Tata Power 107 Neutral 70,935 13.5 -2.2 13,048 -3.4 -7.7 3,097 -30.0 1.2


PL: Profit to Loss; LP: Loss to Profit

PULL OUT

B–9October 2012

MOSL Universe

Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)

28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Automobiles

Bajaj Auto 1,833 Buy 107.4 99.3 124.3 17.1 18.4 14.7 12.5 12.9 9.9 56.7 43.3 44.5

Hero Motocorp 1,879 Buy 119.1 108.0 124.1 15.8 17.4 15.1 13.4 14.5 11.2 55.4 41.8 39.7

Mahindra & Mah. 865 Buy 51.2 63.7 78.4 16.9 13.6 11.0 5.9 4.7 3.8 23.0 21.7 19.3

Maruti Suzuki 1,350 Buy 58.2 67.2 94.8 23.2 20.1 14.2 13.2 9.0 6.3 10.8 10.5 13.2

Tata Motors 267 Buy 37.8 33.2 41.3 7.1 8.0 6.5 4.6 3.8 3.1 38.4 25.2 24.7

Sector Aggregate 11.9 12.4 9.9 6.7 5.6 4.6 32.4 24.4 25.1

Capital Goods

ABB 798 Neutral 8.7 11.3 17.4 91.6 70.9 45.7 58.6 41.7 27.6 7.4 9.1 13.0

BGR Energy 275 Neutral 31.0 21.1 25.3 8.9 13.0 10.9 6.1 8.0 8.2 22.2 13.4 14.5

BHEL 247 Neutral 28.2 24.9 20.3 8.8 9.9 12.2 5.4 6.1 7.3 30.3 22.2 16.0

Crompton Greaves 126 Neutral 5.7 9.3 12.6 22.0 13.6 10.0 10.7 8.4 6.5 10.7 15.6 18.7

Cummins India 508 Neutral 19.8 24.1 25.6 25.6 21.0 19.8 19.0 15.2 13.7 28.8 30.7 28.9

Havells India 625 Buy 29.6 31.1 41.4 21.1 20.1 15.1 13.0 12.1 9.6 38.7 31.7 32.1

Larsen & Toubro 1,597 Buy 78.0 85.2 91.4 20.5 18.7 17.5 14.3 12.7 10.9 17.8 17.1 16.4

Siemens 709 Neutral 16.9 23.1 31.3 42.0 30.7 22.7 23.3 17.0 12.8 14.6 18.8 23.0

Thermax 561 Neutral 33.9 27.1 31.5 16.6 20.7 17.8 9.9 11.4 9.0 27.4 18.7 19.2


Cement

ACC 1,469 Neutral 59.0 73.3 86.4 24.9 20.0 17.0 14.6 11.0 9.6 16.2 18.5 20.0

Ambuja Cements 202 Buy 8.2 11.9 13.2 24.7 17.0 15.3 14.5 10.0 8.8 16.3 21.5 21.1

Birla Corporation 282 Buy 31.1 33.0 32.9 9.1 8.5 8.6 5.8 5.5 5.1 10.7 10.5 9.7

Grasim Industries 3,315 Buy 288.6 348.3 375.8 11.5 9.5 8.8 5.2 4.5 3.6 15.5 16.0 15.0

India Cements 95 Buy 9.6 11.1 14.8 9.9 8.5 6.4 5.9 5.2 4.2 7.3 7.3 8.9

J P Associates 82 Buy 4.8 3.6 4.6 17.1 23.1 17.9 9.4 9.6 8.5 10.4 7.6 9.8

Shree Cement 3,954 Buy 274.4 310.2 361.4 14.4 12.7 10.9 9.0 6.9 5.8 40.5 34.4 31.7

Ultratech Cement 1,968 Buy 87.5 109.5 122.6 22.5 18.0 16.1 13.4 11.3 9.7 20.4 21.2 19.9


Consumer

Asian Paints 3,937 Neutral 103.1 117.8 137.3 38.2 33.4 28.7 24.4 21.0 17.4 36.0 34.0 33.2

Britannia 476 Se l l 15.6 18.4 23.7 30.4 25.9 20.1 21.9 16.8 12.1 34.9 35.1 37.9

Colgate 1,206 Se l l 33.4 38.6 43.8 36.1 31.2 27.6 26.7 22.6 19.3 107.7 111.3 103.5

Dabur 128 Neutral 3.7 4.4 5.4 34.6 29.0 23.6 26.4 21.4 17.5 37.1 36.0 36.2

Godrej Consumer 668 Neutral 16.3 21.6 26.3 41.0 30.9 25.4 29.0 21.9 17.9 25.2 23.1 24.3

GSK Consumer 2,994 Neutral 84.5 101.7 113.5 35.4 29.4 26.4 22.2 19.0 16.6 31.0 31.4 29.8

Hind. Unilever 545 Neutral 11.9 15.5 18.0 45.7 35.1 30.2 34.6 27.2 23.3 74.6 72.1 63.4

ITC 272 Buy 8.0 9.4 11.0 34.1 29.0 24.7 22.9 19.1 16.0 32.7 32.5 32.4

Marico 199 Buy 5.2 6.8 8.5 38.4 29.4 23.6 27.7 20.5 16.3 28.0 21.6 21.8

Nestle 4,374 Neutral 105.7 117.1 138.5 41.4 37.4 31.6 27.6 22.7 18.7 95.7 73.6 63.5

Pidilite Inds. 206 Buy 7.0 8.4 10.1 29.5 24.5 20.4 20.4 15.4 12.5 26.3 24.6 24.8

United Spirits 1,218 Neutral 19.5 19.3 35.1 62.4 63.2 34.7 18.6 16.5 14.8 4.9 4.7 7.9


PULL OUT

B–10October 2012

MOSL Universe



Healthcare

Biocon 275 Neutral 16.9 17.9 18.4 16.2 15.3 14.9 9.0 8.3 8.0 14.9 14.3 13.4

Cadila Health 872 Buy 27.6 41.2 52.4 31.5 21.2 16.7 17.3 13.9 11.3 23.8 29.0 29.3

Cipla 381 Neutral 14.0 16.2 18.4 27.2 23.5 20.7 17.6 15.0 14.0 15.0 15.0 15.1

Dishman Pharma 96 Neutral 7.0 15.6 17.5 13.8 6.2 5.5 7.6 4.8 4.3 6.3 12.9 12.9

Divis Labs 1,080 Buy 40.2 53.0 64.1 26.9 20.4 16.9 20.3 15.6 12.3 25.0 27.5 27.7

Dr Reddy’ s Labs 1,647 Buy 71.4 85.1 100.1 23.1 19.4 16.5 12.3 14.0 12.4 21.1 21.9 22.7

Glenmark Pharma 422 Buy 11.4 18.2 26.3 37.0 23.2 16.0 13.3 14.2 11.3 13.5 17.7 20.5

GSK Pharma 1,977 Buy 74.5 81.0 92.6 26.5 24.4 21.4 19.6 18.3 15.7 32.9 33.5 34.2

IPCA Labs. 482 Buy 21.9 29.3 38.2 22.0 16.4 12.6 12.8 10.3 8.7 24.0 26.4 27.6

Jubilant Life 212 Neutral 13.6 21.0 33.4 15.5 10.1 6.3 8.4 6.0 5.0 9.7 13.5 18.8

Lupin 596 Buy 19.4 24.1 31.2 30.7 24.8 19.1 21.0 16.3 13.4 23.8 24.3 26.2

Opto Circuits 130 Neutral 23.6 22.5 25.3 5.5 5.8 5.1 6.7 5.6 4.9 37.2 28.7 26.6

Ranbaxy Labs 530 Neutral 14.1 18.0 21.8 37.5 29.5 24.3 14.6 12.4 16.5 -72.0 28.3 15.7

Sanofi India 2,374 Neutral 83.0 73.5 92.4 28.6 32.3 25.7 29.7 24.1 19.4 17.3 13.9 15.6

Strides Arcolab 883 Buy 38.5 52.8 61.5 23.0 16.7 14.4 15.9 11.4 10.7 16.9 18.5 14.5

Sun Pharma 693 Neutral 22.4 26.5 29.4 30.9 26.2 23.6 20.5 16.5 15.7 21.5 20.7 19.7

Torrent Pharma 695 Buy 38.4 49.5 59.0 18.1 14.0 11.8 11.3 9.0 7.3 29.3 30.9 29.2


Media

Dish TV 83 Neutral -1.5 -0.5 0.3 -55.2 -181.0 264.6 19.3 15.2 11.7 NA NA NA

HT Media 93 Neutral 7.0 6.0 6.8 13.2 15.5 13.8 6.4 6.3 5.2 11.0 8.6 8.8

Jagran Prakashan 91 Neutral 5.6 5.6 6.5 16.2 16.3 14.1 10.3 8.9 8.1 24.5 20.6 20.2

Sun TV 349 Buy 17.6 18.2 20.1 19.8 19.2 17.4 9.6 9.1 7.8 26.3 24.7 25.1

Zee Entertainment 196 Neutral 5.9 7.0 8.5 33.2 27.9 23.1 24.9 20.7 17.0 17.5 18.3 19.3


Metals

Hindalco 121 Buy 17.1 18.9 20.6 7.1 6.4 5.9 6.9 7.2 6.3 20.3 20.2 18.5

Hindustan Zinc 135 Buy 13.2 14.4 16.7 10.3 9.4 8.1 6.5 5.6 4.1 22.5 20.8 20.4

JSPL 428 Neutral 42.4 39.8 38.5 10.1 10.7 11.1 8.4 9.5 8.9 24.6 19.7 17.0

JSW Steel 757 Se l l 66.5 49.9 73.7 11.4 15.2 10.3 6.7 6.6 6.0 8.9 6.6 9.3

Nalco 51 Neutral 3.4 3.5 3.3 15.2 14.7 15.6 7.2 7.3 6.5 7.6 7.5 6.8

NMDC 194 Buy 18.5 20.4 24.9 10.5 9.5 7.8 6.3 5.4 4.1 31.7 28.3 26.9

SAIL 85 Se l l 9.0 6.7 8.6 9.5 12.8 10.0 7.4 8.9 7.9 9.6 6.7 8.2

Sesa Goa 171 Neutral 31.8 36.1 33.5 5.4 4.8 5.1 5.2 13.6 10.9 19.8 20.6 18.7

Sterlite Inds. 99 Buy 16.7 16.3 17.7 6.0 6.1 5.6 3.0 2.8 2.4 14.1 12.4 12.3

Tata Steel 401 Se l l 18.6 31.2 56.6 21.6 12.9 7.1 7.3 6.8 6.1 7.8 11.5 18.9


OthersCastrol India 311 Buy 9.8 9.5 11.7 31.7 32.7 26.7 22.6 22.6 18.0 93.7 83.8 75.6MCX 1,284 Buy 56.1 56.1 66.5 22.9 22.9 19.3 14.8 15.3 14.8 31.0 26.9 27.8Sintex Inds. 67 Buy 13.0 13.0 15.3 5.1 5.1 4.4 5.4 5.0 4.0 14.0 12.7 13.3United Phosphorous 131 Buy 12.8 14.9 19.5 10.3 8.8 6.7 5.7 4.7 3.7 14.9 15.5 17.8Sector Aggregate 16.7 16.0 13.4 10.3 9.5 7.9 21.8 20.5 21.5

PULL OUT

B–11October 2012

MOSL Universe



Oil & Gas

BPCL 346 Buy 10.8 21.6 21.5 32.1 16.1 16.1 11.5 8.5 8.8 5.0 9.5 8.9

Cairn India 331 Neutral 48.7 64.2 54.0 6.8 5.2 6.1 5.3 3.5 3.4 21.0 23.1 16.7

Chennai Petroleum 129 Buy 4.2 13.8 34.5 31.1 9.4 3.7 50.9 9.8 5.3 1.6 5.3 12.5

GAIL 383 Neutral 28.8 31.0 32.1 13.3 12.3 11.9 9.6 9.0 8.7 17.9 17.2 16.0

Guj. State Petronet 81 Neutral 9.3 7.7 7.6 8.7 10.4 10.5 5.4 5.9 5.8 23.4 16.4 14.3

HPCL 307 Buy 26.9 24.5 27.4 11.4 12.5 11.2 12.6 11.3 9.0 7.1 6.2 6.6

Indraprastha Gas 265 UR 21.9 25.3 28.0 12.1 10.5 9.5 6.4 5.5 4.8 27.5 26.4 24.7

IOC 251 Buy 49.2 24.4 30.3 5.1 10.2 8.3 8.1 8.9 7.0 20.2 9.5 11.0

MRPL 61 Neutral 5.2 2.9 8.5 11.7 21.2 7.2 6.5 7.3 4.6 13.2 6.8 18.2

Oil India 490 Buy 57.3 58.7 64.7 8.5 8.3 7.6 3.9 3.7 3.3 20.7 18.7 18.4

ONGC 280 Buy 30.4 29.8 33.4 9.2 9.4 8.4 3.7 3.7 3.1 20.7 17.7 17.8

Petronet LNG 158 Buy 14.1 13.1 15.0 11.2 12.1 10.5 7.6 7.9 5.9 34.1 25.1 23.8

Reliance Inds. 837 Neutral 67.7 67.8 69.7 12.4 12.3 12.0 8.0 9.3 8.9 13.0 11.7 11.0


Oil & Gas Ex RMS 10.5 10.1 9.6 5.6 5.6 5.0 16.0 14.9 14.1

UR = Under Review

Real Estate

Anant Raj Inds 71 Buy 3.8 5.0 6.6 18.6 14.3 10.8 17.9 13.6 9.7 3.1 3.8 4.8

DLF 234 Buy 7.1 9.0 10.7 33.0 26.1 21.8 16.3 17.1 13.4 4.5 5.5 6.3

Godrej Properties 599 Neutral 12.6 16.0 19.6 47.7 37.4 30.6 39.5 32.3 24.4 8.3 8.4 9.5

HDIL 98 Neutral 19.3 12.9 17.8 5.1 7.6 5.5 5.3 5.3 3.8 7.9 5.1 6.6

IBREL 58 Buy 3.5 4.2 6.1 16.5 13.7 9.5 11.5 9.8 7.8 2.2 2.6 3.6

Jaypee Infratech 52 Buy 9.3 6.7 7.2 5.6 7.7 7.2 8.3 7.8 6.2 24.5 15.2 14.3

Mahindra Lifespace 378 Buy 29.2 32.5 34.0 12.9 11.6 11.1 10.8 9.7 9.1 10.3 10.5 10.0

Oberoi Realty 265 Buy 14.1 15.8 24.7 18.8 16.8 10.7 15.3 11.9 6.9 13.1 13.1 17.9

Phoenix Mills 196 Buy 7.3 7.8 16.0 26.9 25.2 12.3 20.9 17.3 10.2 6.2 6.3 11.7

Prestige Estates 136 Buy 2.5 5.5 8.2 53.9 24.5 16.5 20.7 12.8 9.8 4.1 8.4 11.0

Unitech 24 Buy 0.9 0.8 1.3 26.8 30.2 18.8 34.3 37.8 23.0 2.0 1.7 2.7


Retail

Jubilant Foodworks1,373 Neutral 16.4 23.9 35.4 83.9 57.3 38.8 46.0 30.7 21.4 37.7 38.2 39.0

Pantaloon Retail 214 Neutral 4.8 6.7 9.3 44.6 31.9 22.9 8.0 7.2 6.6 3.4 4.6 6.2

Shopper's Stop 401 Neutral 7.8 2.7 6.8 51.2 149.1 59.3 23.3 33.9 21.8 9.9 3.3 7.8

Titan Industries 262 Neutral 6.8 8.1 10.0 38.5 32.4 26.2 26.8 21.7 17.4 48.7 42.4 34.8


Technology

HCL Technologies 577 Buy 35.1 46.3 47.6 16.5 12.5 12.1 10.2 8.0 7.4 26.0 27.8 25.8

Infosys 2,534 Buy 145.5 166.5 180.7 17.4 15.2 14.0 11.6 9.8 8.8 28.0 27.3 25.8

MphasiS 402 Se l l 37.5 40.8 37.2 10.7 9.9 10.8 8.3 7.6 8.2 18.7 17.5 13.9

TCS 1,294 Neutral 54.4 71.6 78.8 23.8 18.1 16.4 17.4 13.0 11.5 36.7 38.3 33.7

Tech Mahindra 972 Neutral 70.4 87.2 101.0 13.8 11.1 9.6 10.5 6.6 5.6 30.2 24.4 23.0

Wipro 381 Buy 22.7 26.0 28.2 16.8 14.7 13.5 11.8 10.0 9.0 21.2 20.7 19.4


Telecommunication

Bharti Airtel 265 Neutral 11.2 7.6 10.5 23.6 34.9 25.2 7.0 6.9 5.8 8.1 5.3 7.0

Idea Cellular 85 Buy 2.2 3.1 5.8 39.0 27.2 14.7 8.1 6.8 5.2 5.7 7.7 12.8

Reliance Comm 65 Neutral 4.8 3.6 5.9 13.5 17.8 11.0 7.6 7.2 6.4 2.9 2.3 3.6

Tulip Telecom 46 Se l l 19.1 12.2 11.2 2.4 3.8 4.2 4.0 4.7 4.7 22.9 11.3 9.5


PULL OUT

B–12October 2012

MOSL Universe

PULL OUT

CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)


Private Banks

Axis Bank 1,137 Buy 102.7 109.5 125.6 11.1 10.4 9.0 2.1 1.8 1.6 20.3 18.8 18.4

Federal Bank 446 Buy 45.4 47.0 55.7 9.8 9.5 8.0 1.3 1.2 1.1 14.4 13.4 14.3HDFC Bank 629 Neutral 22.0 28.7 35.8 28.6 21.9 17.6 4.9 4.2 3.6 18.7 20.7 21.9ICICI Bank 1,057 Buy 56.1 68.3 78.7 18.9 15.5 13.4 2.6 2.3 2.1 12.8 14.2 14.7

IndusInd Bank 354 Buy 17.2 22.0 27.5 20.6 16.1 12.9 3.7 3.1 2.5 19.2 20.7 21.6ING Vysya Bank 407 Buy 30.4 35.4 40.3 13.4 11.5 10.1 1.6 1.4 1.3 14.3 13.0 13.2Kotak Mah. Bank 648 Neutral 24.7 26.2 29.8 26.2 24.7 21.8 3.7 3.2 2.8 15.4 14.0 13.9Yes Bank 382 Buy 27.7 35.4 43.0 13.8 10.8 8.9 2.9 2.4 1.9 23.1 24.1 23.9

Private Bank Aggregate 19.7 16.4 13.9 3.1 2.7 2.4 15.9 16.7 17.4PSU BanksAndhra Bank 113 Buy 24.0 25.0 28.0 4.7 4.5 4.0 0.8 0.7 0.7 19.2 17.5 17.2

Bank of Baroda 799 Neutral 121.4 110.6 129.0 6.6 7.2 6.2 1.3 1.1 1.0 22.1 16.6 16.8Bank of India 310 Neutral 46.6 53.9 63.7 6.7 5.8 4.9 1.0 0.8 0.7 15.6 15.5 16.0Canara Bank 431 Buy 74.1 73.7 85.5 5.8 5.9 5.0 0.9 0.8 0.7 17.1 14.9 15.2

Corporation Bank 418 Neutral 101.7 110.5 119.2 4.1 3.8 3.5 0.7 0.6 0.6 19.5 18.4 17.3Dena Bank 106 Buy 22.9 27.0 31.1 4.6 3.9 3.4 0.9 0.7 0.6 20.7 20.2 19.6Indian Bank 192 Buy 40.6 42.8 45.7 4.7 4.5 4.2 0.9 0.8 0.7 19.8 18.0 16.8

Oriental Bank 302 Buy 39.1 50.8 56.6 7.7 5.9 5.3 0.8 0.7 0.7 10.7 12.7 12.8Punj. National Bank 840 Buy 144.0 155.5 185.1 5.8 5.4 4.5 1.1 0.9 0.8 21.1 18.5 18.8State Bank 2,238 Buy 228.6 284.5 330.3 9.8 7.9 6.8 1.5 1.3 1.1 17.2 17.8 18.0

Union Bank 208 Buy 32.3 42.0 48.1 6.4 4.9 4.3 0.9 0.8 0.7 14.9 16.8 16.9PSU Bank Aggregate 7.4 6.5 5.6 1.3 1.1 0.9 17.4 16.7 16.8NBFC

Dewan Housing 200 Buy 25.6 37.7 51.3 7.8 5.3 3.9 1.2 1.0 0.8 18.5 21.7 22.7HDFC 773 Buy 27.9 32.1 38.6 27.7 24.0 20.0 6.0 4.9 4.3 27.3 29.4 30.9IDFC 154 Buy 10.3 10.9 13.3 15.0 14.2 11.7 1.9 1.7 1.6 13.7 12.8 14.1

LIC Housing Fin 282 Buy 18.1 21.8 31.7 15.6 12.9 8.9 2.5 2.2 1.8 20.3 18.0 20.8M & M Financial 898 Buy 60.4 79.4 93.7 14.9 11.3 9.6 3.1 2.6 2.2 22.8 25.1 24.6Power Finance Corp 189 Buy 23.9 29.5 32.7 7.9 6.4 5.8 1.2 1.1 0.9 17.5 17.6 17.4

Rural Electric. Corp. 218 Buy 28.6 34.9 41.7 7.6 6.3 5.2 1.5 1.3 1.1 20.5 21.6 22.2Shriram Transport 619 Buy 55.6 59.8 70.4 11.1 10.3 8.8 2.3 2.0 1.6 23.1 20.6 20.3NBFC Aggregate 15.1 12.7 10.7 2.9 2.5 2.1 19.5 19.4 19.9




Utilities

Adani Power 53 Neutral -0.4 1.5 2.6 -124.7 36.2 20.3 28.6 13.8 10.0 -1.5 5.3 9.2CESC 331 Buy 44.1 47.5 53.0 7.5 7.0 6.2 5.5 5.2 4.9 12.1 11.7 11.7Coal India 359 Buy 25.4 28.8 30.9 14.1 12.5 11.6 10.3 8.1 7.1 31.9 28.5 25.0JSW Energy 61 Buy 2.0 3.7 6.3 30.1 16.5 9.7 12.4 8.0 6.1 5.8 10.3 15.9NHPC 19 Neutral 2.0 2.0 2.1 9.4 9.6 9.3 7.0 7.9 7.7 8.6 7.9 7.9NTPC 168 Buy 10.1 11.5 13.5 16.6 14.6 12.4 11.6 11.3 9.3 11.8 12.5 13.7Power Grid Corp. 120 Buy 7.2 8.6 10.3 16.8 14.0 11.6 12.4 10.1 9.4 14.8 16.1 17.4PTC India 71 Buy 6.9 7.7 9.5 10.2 9.2 7.4 14.0 7.3 6.5 5.4 6.4 7.6Reliance Infra. 539 Buy 74.8 43.5 48.0 7.2 12.4 11.2 2.0 3.0 2.4 11.4 6.3 6.6Tata Power 107 Neutral 7.4 5.7 4.0 14.4 18.7 27.0 17.9 17.2 17.6 9.8 8.6 6.5Sector Aggregate 14.6 13.3 12.0 11.0 9.6 8.4 16.3 16.1 16.2

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year

numbers. This is because of dif fer ences in classification of account heads in the company’s quarterly and

annual results or because of dif ferences in the way we classify account heads as opposed to the company.

All stock prices and indices as on 28 September 2012, unless otherwise stated.

BSE Sensex: 18,763 S&P CNX: 5,703

Sectors & Companies


October 2012 C–1

C–2October 2012


Sector: Automobiles

AutomobilesCompany Name

Bajaj Auto

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki India

Tata Motors

Expected quarterly performance summary (INR Million)

CMP Rating Sales EBITDA Net Profit



Bajaj Auto 1,833 Buy 48,254 -6.9 -0.8 8,573 -12.1 -1.7 7,005 -11.3 -2.5

Hero Motocorp 1,879 Buy 51,770 -10.5 -16.6 4,801 -27.7 -28.3 4,401 -27.1 -28.5

Mahindra & Mahindra 865 Buy 95,445 30.6 3.2 11,193 28.1 0.9 8,656 17.4 19.3

Maruti Suzuki 1,350 Buy 82,507 5.4 -23.4 3,909 -20.9 -50.3 1,175 -51.1 -72.3

Tata Motors 267 Buy 442,658 22.3 2.2 57,988 28.7 0.8 24,824 10.5 -3.2

Sector Aggregate 720,634 15.7 -3.2 86,465 15.1 -5.9 46,061 -0.2 -8.8

Slowdown visible across segments except UVs and LCVsSlowdown, hitherto visible in M&HCVs, cars and 3Ws, is now evident in 2Ws as well

with volumes down 4% YoY in 2QFY13. The only segments with healthy growth are

UVs (+29% YoY) and LCVs (+13% YoY). Our channel checks indicate that start to the

festive season has not been encouraging. Dealer inventory is high particularly in

2Ws and cars. Recent hike in diesel prices does not augur well for CVs. Expected

softening in interest rates and reform-led improvement in macro environment and

consumer sentiment hold the key for volume growth to resume.

2QFY13 margins to remain under pressure due to adverse mix, forex andnegative operating leverageDespite benign commodity prices, expect RM cost to rise 30bp QoQ and 10bp YoY on

the back of adverse product mix, weak currency and negative operating leverage.

We expect 2QFY13 EBITDA margins to decline 70bp QoQ (70bp YoY). Maruti Suzuki (-

200bp YoY/-290bp QoQ) and Hero MotoCorp (-190bp YoY/-120 QoQ) are likely to be

worst impacted.

Easing of macro headwinds a key catalyst for demand recoveryLending rates are expected to fall from near peak levels, auguring well for PV and

CV demand. Strengthening INR is positive for Maruti Suzuki and Hero MotoCorp, but

negative for Bajaj Auto. Softening in commodity prices would support profitability.

Easing of macro headwinds remains the key driver for volume growth and

profitability, and in turn, for re-rating of auto stocks.

Widespread earnings downgrade; prefer Maruti, Tata Motors, BajajWe are downgrading our earnings estimates for Bajaj Auto, Hero MotoCorp and

Maruti Suzuki to factor in weaker than expected demand in 2QFY13 and adverse

currency movement (except for Bajaj). Changing competitive landscape in the auto

sector will likely be a key determinant of stock performance. While we believe that

the worst of competitive pressure is behind for passenger cars, the same is increasing

for incumbents in 2W, UVs and CVs, implying at least a near-term overhang on

valuations. We prefer Maruti Suzuki, Tata Motors and Bajaj Auto.

Jinesh Gandhi ([email protected]) / Chirag Jain ([email protected])

C–3October 2012


Sector: Automobiles

Commodity prices have moderated (INR, indexed) INR continues to depreciate (indexed)

Source: Bloomberg/MOSL

Trend in EBITDA margins (%) Trend in segment-wise EBITDA margins (%)

Source: Company/MOSL

Interest costs have started to moderate (%) Trend in fuel costs (INR/liter)

Source: HDFC Bank PLR Source: Bloomberg/MOSL

100

100

100

1001

13

83

93 9697

90 95

83

103

87 9

5

9510

0

86

93 95

95 10

3

95

81

Steel (HRC) Lead Aluminium Rubber

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E

80

105

130

155

180

Jun-

09

Sep

-09

Dec

-09

Ma

r-10

Jun-

10

Sep

-10

Dec

-10

Ma

r-11

Jun-

11

Sep

-11

Dec

-11

Ma

r-12

Jun-

12

Sep

-12

USD Euro GBP JPY

6

9

12

15

18

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13E

Aggregate Aggregate (incl JLR)

13.

9

11.2

8.8

14.9

9.0

7.2

15.

1

8.9

6.7

14.7

8.7 9.

5

13.

9

9.4

7.3

13.5

8.5

7.3

2W Cars CVs

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E

7

8

9

10

11

Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12

HDFC Bank Base Rate

20

35

50

65

80

Apr

-05

Dec

-05

Aug

-06

Apr

-07

Dec

-07

Aug

-08

Apr

-09

Dec

-09

Aug

-10

Apr

-11

Dec

-11

Aug

-12

Petrol Dies el (INR/l tr)

INR21.5/Ltr

C–4October 2012


Sector: Automobiles

Trend in industry volumes


Key operating indicators Volumes ('000 units) EBITDA Margins (%) Adjusted PAT (INR m)

2Q 2Q YoY 1Q QoQ 2Q 2Q YoY 1Q QoQ 2Q 2Q YoY 1Q QoQ

FY13E FY12 (%) FY13 (%) FY13E FY12 (bp) FY13 (bp) FY13E FY12 (%) FY12 (%)

Bajaj Auto 1,046 1,164 -10.2 1,079 -3.1 17.8 18.8 -100 17.9 -10 7,005 7,898 -11.3 7,184 -2.5

Hero MotoCorp* 1,398 1,544 -9.5 1,642 -14.9 9.6 11.5 -190 10.8 -120 4,602 6,036 -23.8 6,155 -25.2

Maruti Suzuki 208 252 -17.4 296 -29.6 4.4 6.3 -190 7.3 -290 684 2,404 -71.5 4,238 -83.9

M&M 189 171 10.8 182 3.9 11.6 11.9 -30 11.8 -20 8,656 7,374 17.4 7,256 19.3

Tata Motors (S/A) 222 211 5.2 191 16.5 7.3 7.2 10 7.3 -10 11,453 2,807 308.0 3,446 232.4

Tata Motors (Cons) 13.1 12.4 70 13.3 -20 24,824 22,461 10.5 25,651 -3.2

Aggregate** 3,063 3,343 -8.4 3,390 -9.6 9.4 10.1 -70 10.1 -70 32,401 26,519 22.2 28,278 14.6

*Normalized; ** Aggregate includes Tata Motor’s standalone performance only Source: SIAM/ MOSL

Relative Performance-3m (%)

Relative Performance-1Yr (%)

Comparative valuation

CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)


Automobiles

Bajaj Auto 1,833 Buy 107.4 99.3 124.3 17.1 18.4 14.7 12.5 12.9 9.9 56.7 43.3 44.5

Hero Motocorp 1,879 Buy 119.1 108.0 124.1 15.8 17.4 15.1 13.4 14.5 11.2 55.4 41.8 39.7

Mahindra & Mah. 865 Buy 51.2 63.7 78.4 16.9 13.6 11.0 5.9 4.7 3.8 23.0 21.7 19.3

Maruti Suzuki 1,350 Buy 58.2 67.2 94.8 23.2 20.1 14.2 13.2 9.0 6.3 10.8 10.5 13.2

Tata Motors 267 Buy 37.8 33.2 41.3 7.1 8.0 6.5 4.6 3.8 3.1 38.4 25.2 24.7


* Consolidated # Normalized EPS (for R&D capitalization)

Revised EPS estimates (INR)FY13E FY14E

Rev Old Chg (%) Rev Old Chg (%)

Bajaj Auto 99.3 103.2 -3.7 124.3 130.1 -4.4

Hero MotoCorp 108.0 113.0 -4.4 124.1 127.3 -2.5

Maruti * 65.1 68.2 -4.5 93.6 95.6 -2.1

M&M * 55.4 55.3 0.2 61.0 61.2 -0.3

Tata Motors *# 33.2 33.5 -0.9 41.3 38.3 8.1

* Consolidated; # Normalized EPS adj. for R&D capitalization Source: MOSL

Trend in Key Financials

Volumes (‘000 units) EBITDA Margins (%) Adj PAT (INR M)

2Q YoY QoQ 2Q YoY QoQ 2Q YoY QoQ

FY13E (%) (%) FY13E (bp) (bp) FY13E (%) (%)

Bajaj Auto 1,046 -10.2 -3.1 17.8 -100 -10 7,005 -11.3 -2.5

Hero MotoCorp* 1,398 -9.5 -14.9 9.6 -190 -120 4,602 -23.8 -25.2

Maruti Suzuki 208 -17.4 -29.6 4.4 -190 -290 684 -71.5 -83.9

M&M 189 10.8 3.9 11.6 -30 -20 8,656 17.4 19.3

Tata Motors (S/A) 222 5.2 16.5 7.3 10 -10 11,453 308.0 232.4

Tata Motors (Cons) 13.1 70 -20 24,824 10.5 -3.2

Aggregate ** 3,063 -8.4 -9.6 9.4 -70 -70 32,401 22.2 14.6

*Normalized; **Aggregate includes Tata Motor’s standalone performance only

3,55

9

3,94

8

4,09

0

4,38

8

4,55

1

4,74

3

4,9

49

5,2

14

5,3

07

5,07

9

5,11

1

4,8

22

3,48

4

3,10

8 -3%8%12%12%16%

18%20%28%26%32%

40%37%

16%10%

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13E

Indus try ('000 uni ts ) Growth YoY (%)

85

95

105

115

Jun-

12

Jul-

12

Aug

-12

Sep-

12

Sensex Index

MOSL Automobiles Index

80

95

110

125

140

Sep

-11

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

Sensex Index

MOSL Automobiles Index

C–5October 2012


Sector: Automobiles

Bloomberg BJAUT IN

Equity Shares (m) 289.4

52 Wk Range (INR) 1,850/1,410

1,6,12 Rel Perf (%) 2/2/7

Mcap (INR b) 530.3

Mcap (USD b) 10.1

Bajaj AutoCMP: INR1,833 BuyBSE Sensex S&P CNX

18,763 5,703

Quarterly Performance (INR Million)

Y/E March FY12 FY13 FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Volumes ('000nos) 1,092.8 1,164.1 1,075.4 1,017.2 1,079.0 1,045.6 1,106.3 1,027.1 4,349.6 4,257.8

Change (%) 17.7 16.3 13.6 7.3 -1.3 -10.2 2.9 1.0 13.7 (2.1)

Realization 43,066 44,543 46,361 45,729 45,095 46,151 46,382 45,786 44,899 45,856

Change (%) 2.8 2.6 5.1 4.6 4.7 3.6 0.0 0.1 4.7 2.1

Net Sales 47,063 51,854 49,859 46,514 48,657 48,254 51,310 47,025 195,290 195,245

Change (%) 21.0 19.4 19.4 12.2 3.4 -6.9 2.9 1.1 19.1 0.0

RM/Sales % 73.6 72.5 71.5 71.2 72.1 72.1 71.8 71.7 72.2 71.9

Staff cost/Sales % 3.0 2.8 2.6 2.6 3.3 3.3 3.1 3.0 2.8 3.2

Oth. Exp./Sales % 5.5 6.1 6.5 6.9 6.9 6.9 7.1 7.3 6.2 7.1

EBITDA 8,398 9,755 9,841 9,206 8,717 8,573 9,280 8,503 37,200 35,073

EBITDA Margins (%) 17.8 18.8 19.7 19.8 17.9 17.8 18.1 18.1 19.0 18.0

Other Income 1,441 1,564 1,681 1,395 1,820 1,750 1,800 1,902 6,080 7,271

Extraordinary Expenses/Inc 0 -954 -589 203 0 0 0 0 -1,340 0

Interest 2 202 0 18 0 26 25 51 222 102

Depreciation 306 394 321 434 352 360 370 383 1,456 1,466

PBT 9,531 9,768 10,612 10,351 10,184 9,937 10,685 9,971 40,262 40,777

Tax 2,420 2,510 2,660 2,631 3,000 2,931 3,152 2,946 10,221 12,029

Effective Tax Rate (%) 25.4 25.7 25.1 25.4 29.5 29.5 29.5 29.5 25.4 29.5

Rep. PAT 7,111 7,258 7,952 7,720 7,184 7,005 7,533 7,025 30,041 28,748

Adj. PAT 7,111 7,898 8,340 7,590 7,184 7,005 7,533 7,025 31,069 28,748

Change (%) 20.5 15.8 25.0 12.3 1.0 (11.3) (9.7) (7.4) -9.7 -7.5

E: MOSL Estimates; 4QF12, 3QFY12, & 4QFY11 numbers are not comparable with other quarterly numbers due to restatement

Year Net Sales PAT EPS EPS P/E P/CE P/BV EV/ RoE RoCE

End (INR m) (INR m) (INR) Gr. (%) (X) (X) (X) EBITDA (%) (%)

3/11A 163,981 26,150 90.4 43.9 - - - - 66.7 76.0

3/12A 195,290 31,069 107.4 18.8 16.9 16.2 8.7 12.4 56.7 73.0

3/13E 195,245 28,748 99.3 -7.5 18.3 17.4 7.3 12.8 43.3 60.0

3/14E 226,449 35,980 124.3 25.2 14.6 14.0 5.9 9.8 44.5 61.2

We expect BJAUT’s 2QFY13 volumes to decline 10.2% YoY (-3.1% QoQ) to 1.05m, impacted by weak demand and

late start to the festive season. However, product mix is expected to improve QoQ with higher 3W sales (key

export markets are stabilizing) and greater contribution of executive/premium segment motorcycles (driven

by recent launches in domestic market).

Price increases in July in both 2Ws and 3Ws together with product mix improvement should drive up realizations

(+3.6% YoY, +2.3% QoQ). So, expect fall in net sales to be checked at 7% YoY (-0.8% QoQ) to INR48.3b.

Expect EBITDA margin to remain largely stable QoQ at 17.8% (-100bp YoY, -10bp QoQ) as RM cost pressures offset

the benefits of price hikes and favorable product mix.

We expect EBITDA of INR8.57b (-12.1% YoY, -1.7% QoQ). Higher other income will likely offset impact of increase

in taxation (Pantnagar tax exemption lower at 30% from 100% to 30%). We expect adjusted PAT to decline 11.3%

YoY to INR7b (-2.5% QoQ).

We are downgrading our EPS estimates for FY13/14 by 3.7%/4.4% to factor in weaker than expected demand

environment. We model in USD/INR at 52.5 for FY14; a weaker INR holds potential for upgrade. The stock trades

at 18.3x FY13E and 14.6x FY14E EPS. Maintain Buy.

C–6October 2012


Sector: Automobiles

Hero MotoCorp

Bloomberg HMCL IN


52 Wk Range (INR) 2,279/1,703

1,6,12 Rel Perf (%) -8/-15/-18

Mcap (INR b) 375.3

Mcap (USD b) 7.1

CMP: INR1,879 Buy




Total Volumes ('000 nos) 1,529.6 1,544.3 1,589.3 1,572.0 1,642.3 1,373.0 1,520.0 1,538.5 6,235.2 6,073.8

Change (%) 23.9 20.1 11.3 8.1 7.4 -11.1 -4.4 -2.1 15.4 -2.6

Net Realization 36,858 37,456 37,649 37,929 37,799 37,705 37,988 38,155 37,478 37,915

Change (%) 6.7 6.8 5.0 3.1 2.6 0.7 0.9 0.6 5.2 1.2

Net Sales 56,376 57,843 59,836 59,625 62,078 51,770 57,741 58,703 233,681 230,292

Change (%) 32.2 28.2 16.9 11.4 10.1 -10.5 -3.5 -1.5 21.4 -1.5

Total Cost 48,536 49,106 50,887 51,097 53,104 44,968 50,023 50,478 199,603 198,574

RM Cost (% sales) 75.3 73.0 73.4 74.1 74.1 74.5 74.3 74.1 74.0 74.3

Staff Cost (% sales) 2.9 3.1 3.3 3.2 3.3 3.7 3.6 3.6 3.1 3.5

Other Exp (% sales) 7.9 8.8 8.3 8.4 8.1 8.7 8.8 8.3 8.3 8.5

EBITDA 7,840 8,737 8,949 8,529 8,974 6,801 7,718 8,225 34,078 31,718

EBITDA Margins (%) 13.9 15.1 15.0 14.3 14.5 13.1 13.4 14.0 14.6 13.8

Adj. EBITDA Margins (%) 10.7 11.5 11.1 10.8 10.8 9.3 9.7 10.4 11.0 10.1

Other Income 1,379 1,248 1,305 1,774 1,439 1,300 1,400 1,583 5,756 5,722

Depreciation 2,398 2,785 2,987 2,804 3,035 2,800 2,840 2,818 10,973 11,493

PBT 6,696 7,245 7,238 7,469 7,349 5,271 6,248 6,959 28,647 25,827


Adj. PAT 5,579 6,036 6,130 6,036 6,155 4,401 5,217 5,792 23,781 21,566

Change (%) 13.5 19.4 24.3 20.3 10.3 -27.1 -14.9 -4.0 19.4 -9.3

E: MOSL Estimates

Year Net Sales PAT EPS EPS P/E P/CE P/BV EV/ RoE RoCE

End (INR m) (INR m) (INR) GR. (%) (X) (X) (X) EBITDA (%) (%)

3/11A 192,450 20,077 100.5 -10.0 - - - - 62.5 59.2

3/12A 233,681 23,781 119.1 18.4 15.8 14.2 8.7 10.1 55.4 52.4

3/13E 230,292 21,566 108.0 -9.3 17.4 15.3 7.3 10.6 41.8 45.7

3/14E 265,789 24,779 124.1 14.9 15.1 13.3 6.0 8.7 39.7 50.4

BSE Sensex S&P CNX

18,763 5,703

We expect HMCL’s 2QFY13 volume to decline 9.5% YoY to 1.39m (-14.9% QoQ) on the back of weak retail demand

and high channel inventory. Realizations are expected to decline 25bp QoQ (+70bp YoY) given adverse product

mix as buyers downtrade to cheaper and more fuel-efficient motorcycles.

We estimate net sales at INR52.7b, down 9% YoY, 15% QoQ. EBITDA margin (adjusted for change in royalty

accounting) is expected to decline 120bp QoQ at 9.6% (-190bp YoY) on account of adverse product mix and lag

impact of weaker INR (on both RM cost and royalty). Adj EBITDA is expected to decline 24% YoY (-25% QoQ),

translating into 24% YoY decline in PAT to INR4.6b (-25.2% QoQ).

The management expects 2W industry volumes to grow 4-5% in FY13, with Hero MotoCorp growing in-line with

the industry. Demand pick-up in festive season would be critical for the company to achieve this guidance.

HMCL has announced capacity addition of 2m by 2QFY14. It is investing INR25.75b on two plants (capacity of

0.75m at Rajasthan by 1QFY14 and 1.25m at Gujarat by 2QFY14) and an R&D center. The company will be funding

these investments through internal accruals and cash of ~INR40b as at March 2012.

We are downgrading our EPS estimates for FY13/14 by 4.4%/2.5%, to factor in weaker than expected demand

environment and high channel inventory restricting wholesale dispatches. The stock trades at 17.4x FY13E and

15.1x FY14E EPS. Maintain Buy.

C–7October 2012


Sector: Automobiles

Mahindra & Mahindra

Bloomberg MM IN


52 Week Range (INR) 875/622

1,6,12 Rel Perf (%) 6/17/-5

Mcap (INR b) 517.5

Mcap (USD b) 9.8

CMP: INR865 Buy




Total Volumes (nos) 159,197 170,701 183,228 195,478 182,149 189,175 204,250 196,678 704,935 772,252

Change (%) 25.1 29.2 23.3 21.8 14.4 10.8 11.5 0.6 24.2 9.5

Net Realization 416,344 428,047 451,808 472,753 507,713 504,531 499,425 501,084 445,318 503,053

Change (%) 3.4 6.5 10.5 14.4 21.9 17.9 10.5 6.0 9.7 13.0

Net Sales 66,281 73,068 82,784 92,413 92,479 95,445 102,008 98,552 313,920 388,484

Change (%) 29.3 37.6 36.3 39.3 39.5 30.6 23.2 6.6 36.2 23.8

Operating Other Income 990 538 1,045 1,459 1,195 1,050 1,300 1,556 4,615 5,100

EBITDA 8,954 8,740 10,230 9,694 11,094 11,193 12,294 11,524 37,707 46,105

EBITDA Margins (%) 13.3 11.9 12.2 10.3 11.8 11.6 11.9 11.5 11.8 11.7

EBITDA Margins (incl MVML) 14.2 13.3 13.3 12.1 13.9 13.6 13.3 13.0 13.3 13.6

Other income 550 2,315 667 956 599 2,600 850 1,231 4,658 5,280

Interest 262 49 348 709 460 500 550 553 1,628 2,063

Depreciation 1,099 1,257 1,408 1,997 1,548 1,675 1,925 2,028 5,761 7,176

EO Expense 0 0 0 -1,083 1,083 0


Reported PAT 6,049 7,374 6,622 8,745 7,256 8,656 7,948 7,538 28,789 31,398

Adj PAT 6,049 7,374 6,622 7,696 7,256 8,656 7,948 7,538 27,924 31,398

Change (%) 7.6 1.4 7.3 26.9 20.0 17.4 20.0 -2.1 8.1 12.4

PAT (incl MVML) 6,770 8,030 7,785 9,154 8,441 7,768 28,888 33,149

E: MOSL Estimates

Year N. Sales PAT * S/A EPS * Cons. Con EPS Cons, RoE RoCE EV/ EV/

End (INR m) (INR m) (INR) EPS (INR) Gr (%) P/E (X) (%) (%) Sales EBITDA

3/11A 234,603 25,732 43.0 48.0 18.1 - 25.0 26.8 - -

3/12A 318,535 28,888 48.3 51.2 6.6 16.9 23.0 23.1 1.6 13.5

3/13E 393,584 33,149 55.4 63.7 24.4 13.6 21.7 24.3 1.3 11.1

3/14E 443,341 36,511 61.0 78.4 22.9 11.0 19.3 22.7 1.2 10.4

* S/A including MVML

BSE Sensex S&P CNX

18,763 5,703

2QFY13 performance is not strictly comparable YoY due to merger of MADPL in 4QFY12. We expect MM to report

overall 2QFY13 volume growth of 10.8% YoY (+3.9% QoQ), driven by 23.9% YoY (+10.2% QoQ) growth in UV &

pick-ups, but 13.3% YoY de-growth (-16.5% QoQ) in tractors. Realizations to decline 0.6% QoQ to INR505k.

We estimate net sales at INR96.5b, up 31% YoY and 3% QoQ. We expect EBITDA margin to decline 20bp QoQ to

11.6% (down 30bp YoY). However, EBITDA margin (incl MVML) is expected to improve 30bp YoY (down 30bp

QoQ) to 13.6% driven by ramp-up in recent launches in auto segment (manufactured at Chakan plant). We

estimate EBITDA at INR11.2b, up 28% YoY and 0.9% QoQ. Other income is likely to be higher sequentially at

INR2.6b due to receipt of dividend from subsidiaries; this would translate into adjusted PAT of INR8.7b (+17.4%

YoY, 19.3% QoQ). Including MVML, EBITDA and adjusted PAT are estimated at INR12.5b and INR9.2b.

Outlook for the auto division remains healthy with both key segments UVs and pick-ups performing well.

Recent launch of refreshed Verito and Quanto (mini-SUV based on Xylo platform) should help sustain healthy

growth momentum. Management has guided for FY13 tractor industry growth of 0-2% considering weak monsoon

(albeit the late recovery), pressure on crop prices, and lower infrastructure/construction activity.

We have marginally upgraded our FY13 consolidated EPS by 1.6% to factor in strong performance from the auto

division. However, we downgrade our FY14 consolidated EPS 4.7% for higher than expected losses at Ssangyong

Motors. The stock trades at 13.6x FY13E and 11x FY14E consolidated EPS. Maintain Buy.

C–8October 2012


Sector: Automobiles

Maruti Suzuki India

Bloomberg MSIL IN


52 Week Range (INR) 1,428/906

1,6,12 Rel Perf (%) 10/-5/12

Mcap (INR b) 407.8

Mcap (USD b) 7.7

CMP: INR1,350 Buy


Y/E March FY12 FY13* FY12 FY13E*


Total Volumes ('000 nos) 281.5 252.3 239.5 360.3 295.9 230.4 305.1 345.5 1,133.7 1,176.8

Change (%) -0.6 -19.6 -27.6 4.9 5.1 -8.7 27.4 -4.1 -10.8 3.8

Realizations (INR/car) 293,279 298,741 314,247 318,770 355,839 347,724 351,202 360,311 306,131 354,361

Change (%) 3.2 4.8 12.0 11.7 21.3 16.4 11.8 13.0 7.7 15.8

Net Op. Revenues 84,541 78,316 77,316 117,270 107,782 82,507 109,786 127,206 355,871 427,281

Change (%) 1.7 -14.4 -18.6 17.2 27.5 5.4 42.0 8.5 -2.8 20.1

RM Cost (% of Sales) 78.0 78.6 79.1 79.6 77.8 78.8 78.3 78.6 78.9 78.4

Staff Cost (% of Sales) 2.1 2.5 2.7 2.2 2.2 3.2 2.4 2.3 2.4 2.5

Other exp. (% of Sales) 10.3 12.5 13.0 10.9 12.6 13.3 12.0 11.2 11.7 12.2

Total Cost 76,437 73,374 73,282 108,685 99,919 78,598 101,737 117,134 330,742 397,387

EBITDA 8,104 4,942 4,034 8,585 7,863 3,909 8,049 10,072 25,129 29,893

EBITDA Margins (%) 9.6 6.3 5.2 7.3 7.3 4.7 7.3 7.9 7.1 7.0

Change (%) -5.5 -48.5 -55.3 -15.3 -3.0 -20.9 99.6 17.3 -30.9 19.0

Non-Operating Income 1,841 1,177 1,746 2,969 1,123 1,250 2,000 2,950 8,269 7,323

Interest 58 109 178 208 332 300 300 269 552 1,200

Depreciation 2,425 2,664 2,989 3,306 3,399 3,400 3,450 3,516 11,384 13,765

PBT 7,462 3,346 2,613 8,040 5,255 1,459 6,299 9,237 21,462 22,251

Tax 1,970 942 557 1,642 1,018 285 1,228 1,808 5,111 4,339


PAT 5,492 2,404 2,056 6,398 4,238 1,175 5,071 7,429 16,351 17,912

Change (%) 7.2 -59.8 -63.6 1.4 -22.8 -51.1 146.6 16.1 -29.2 9.5

E:MOSL Estimates; * Excluding SPIL Merger

Year Net Sales PAT Cons.EPS EPS Cons.P/E P/CE P/BV EV/ RoE RoCE

End (INR m) (INR m) (INR) Gr. (%) (X) (X) (X) EBITDA (%) (%)

3/11A 369,199 23,101 82.4 -9.2 - - - - 16.5 22.1

3/12A 355,871 16,351 58.2 -29.4 23.2 14.1 2.6 12.6 10.8 13.2

3/13E 427,281 19,993 67.2 15.5 20.1 10.6 2.1 9.1 10.5 12.4

3/14E 500,583 28,234 94.8 41.1 14.2 8.1 1.9 6.3 13.2 15.9

BSE Sensex S&P CNX

18,763 5,703

Our quarterly estimates exclude SPIL merger, as the company would be reporting performance without SPIL.

However, our full year estimates include SPIL.

MSIL’s 2QFY13 performance is expected to be impacted due to supply constraint in diesel cars given recent

labor unrest at its Manesar plant. Moreover, margins will be hit by (1) weak petrol car demand and consequent

high discounts, (2) lag impact of unfavorable currency movement in 1QFY13, and (3) recent wage hike negotiated

with workers (assuming 1HFY13 provisioning happens in 2QFY13).

We expect MSIL’s 2QFY13 volumes to de-grow 8.7% YoY (-22% QoQ) to 230,376. Realizations are likely to decline

2.3% QoQ (+16.4% YoY) on lower proportion of diesel car given supply constraints. EBITDA margin is likely to

decline 260bp QoQ (-160bp YoY) to 4.7% with lower volumes, adverse mix and forex, and higher wages. EBITDA

expected at INR3.9b, down 21% YoY (-50% QoQ), translating into recurring PAT of INR1.2b (-51% YoY, -72% QoQ).

We are revising our estimates to factor in for faster than estimated ramp-up. Our estimates now factors in for

volume growth of 3.8%/15% in FY13/FY14 to 1.18m/1.35m units, JPY/INR of 0.685/0.663 and ~10bp/10bp increase

in staff cost in FY13 and FY14, resulting in -10bp/+140bp change in EBITDA margins in FY13/FY14 (excl SPIL). As a

result, our consol. EPS has seen upgrade of ~3%/1% for FY13/FY14 to INR67.2/94.8 and cash EPS upgrade of ~2/1%

to INR127/INR166. The stock trades at 14.2x FY14E consolidated EPS and 8.1x FY14E cash EPS. Maintain Buy.

C–9October 2012


Sector: Automobiles

Tata Motors

Bloomberg TTMT IN

Equity Shares (m) 3,323.8


1,6,12 Rel Perf (%) 6/-11/57

Mcap (INR b) 889.0

Mcap (USD b) 16.9

CMP: INR267 Buy

Quarterly Performance (Consolidated) (INR Million)



Total Op Income 332,888 361,975 452,603 509,079 433,236 442,658 503,274 591,873 1,656,545 1,971,042

Growth (%) 23.0 26.9 44.0 44.3 30.1 22.3 11.2 16.3 35.6 19.0

EBITDA 42,358 45,039 68,270 67,445 57,548 57,988 61,399 78,446 223,112 255,382

EBITDA Margins (%) 12.7 12.4 15.1 13.2 13.3 13.1 12.2 13.3 13.5 13.0

Depreciation 11,432 13,308 16,159 15,354 15,659 16,000 16,500 23,317 56,254 71,476

Other Income 1,658 608 1,675 1,586 2,386 1,250 1,500 1,700 6,618 6,836

Interest Expenses 8,556 5,251 7,204 7,721 8,044 7,000 7,000 9,648 29,822 31,692

PBT before EO Exp 24,028 27,089 46,581 45,956 36,232 36,238 39,399 47,180 143,654 159,050

Adj PAT 20,481 22,461 35,307 44,403 25,651 24,824 27,102 33,061 125,568 110,482

Growth (%) (3.5) 6.4 43.9 79.2 25.2 10.5 -23.2 -25.5 38.5 -12.0

JLR Volumes 62,037 68,000 86,322 98,074 83,452 78,981 94,250 105,877 314,433 362,560

Growth (%) QoQ -6.2 9.6 26.9 13.6 -14.9 -5.4 19.3 12.3 29.1 15.3

JLR EBITDA Margins (%) 13.4 14.4 17.0 14.6 14.5 14.1 14.2 14.8 15.0 14.4

S/A Volumes (nos) 197,606 211,400 231,328 286,019 190,900 222,317 243,000 282,589 922,867 936,680

Change (%) 3.8 1.8 19.2 16.7 -3.4 5.2 5.0 -1.2 10.4 1.5

S/A EBITDA Margins (%) 8.8 7.2 6.7 9.5 7.3 7.3 7.9 8.9 8.1 8.0

E: MOSL Estimates

Year Sales Adj. PAT Adj. EPS Normal Cons. Normal RoE RoCE EV/ EV/

End* (INR M) (INR M) (INR) EPS (INR) ^ P/E (X) P/E (X) (%) (%) Sales EBITDA

3/11A 1,221,279 90,695 27.3 15.4 - - 47.3 26.5 - -

3/12A 1,656,545 125,568 37.8 22.2 7.1 12.0 38.4 24.1 0.6 4.4

3/13E 1,971,042 110,482 33.2 14.0 8.0 19.1 25.2 23.9 0.5 3.7

3/14E 2,185,850 137,408 41.3 19.5 6.5 13.7 24.7 24.2 0.4 3.1

* Consolidated; ^ Normalized for capitalized expenses

BSE Sensex S&P CNX

18,763 5,703

On a consolidated basis, we expect 2QFY13 net operating revenues to grow 22% YoY (+2.2% QoQ) to INR442b.

Expect standalone revenues to de-grow 4.2% YoY (+17.3% QoQ), while JLR should grow 17.2% YoY (-6.1% QoQ).

We expect EBITDA at INR58b, up 28.7% YoY (+0.4% QoQ), as EBITDA margin improves 70bp YoY (-20bp QoQ) to

13.1%. However, Adjusted PAT is expected to grow only 10.5% YoY (down 3.2% QoQ) due to increase in JLR tax

provision (post tax credit accounted in 4QFY12 on accumulated JLR losses).

We expect 2QFY13 standalone volumes to grow 5.2% YoY (+16.5% QoQ), driven by growth in LCVs and PVs. Post

inventory correction in 1Q, M&HCV volumes are expected to improve 27% QoQ but would still be lower YoY on

weak demand. We estimate 2QFY13 standalone net sales at INR124, stable EBITDA margin at 7.3% (+10bp YoY, -

10bp QoQ), and EBITDA at INR9b, down 3.4% YoY (+16.4% QoQ). Other income is expected to be higher QoQ/YoY

with dividend income from JLR (GBP150m); this would translate into PAT growth of 2.7x YoY (2.3x QoQ) to

INR11.5b.

For JLR, we expect strong volume growth of 16.1% YoY (-5.4% QoQ) to 78,981 driven by Evoque. Realizations

would likely decline 75bp QoQ (+90bp YoY), resulting in 17.2% YoY (-6% QoQ) revenue growth to GBP3.4b (IFRS).

We expect EBITDA margin at 14.1% (-40bp QoQ, -30bp YoY), impacted by negative operating leverage and

weaker product mix in favor of Evoque & Freelander and lower RR volumes ahead of new model launch. As a

result, expect recurring PAT to be GBP240m (+39% YoY, +1.6% QoQ).

We marginally lower our FY13 consolidated EPS by 0.9% to factor in higher than expected weakness in the

M&HCV business. However, we upgrade our FY14 consolidated EPS by 8% to factor better product/market mix

in JLR. The stock trades at 6.5x FY14E consolidated EPS, and 13.7x FY14E normalized EPS. Maintain Buy.

C–10October 2012


Sector: Capital Goods

Capital GoodsCompany Name

ABB

BGR Energy

BHEL

Crompton Greaves

Cummins India

Havells India

Larsen & Toubro

Siemens

Thermax

Satyam Agarwal ([email protected]) / Deepak Narnolia ([email protected])

Revenue, margins impacted by declining order book: We expect revenue growth in

2QFY13 to moderate to 8% YoY (v/s 17% YoY in 1QFY13), given the depleting order

books and constrained environment. Ordering activity continues to be sluggish,

particularly in the industrial / power generation segment. Current BTB stands at 2.4x,

the lowest in 18 quarters and continues to impact reported performance. In 2QFY13,

we expect EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost

absorption. While commodity prices have corrected meaningfully, a large part of the

decline is negated by currency movements. Companies with high local manufacturing

content (like BHEL, Cummins and Thermax) will be the key beneficiaries.

Investment climate at crossroads; environment challenging: Net banking credit to

the Infrastructure sector is declining since June 2011 and has reached FY09 levels.

Project sanctions in 4QFY12 were the lowest since FY06, indicating accentuating

slowdown in Industrial and Infrastructure spending. Net projects added per quarter

have shown a continuous decline - INR1.5t in 1QFY13 v/s the run rate of INR5t during

the period September 2006 to June 2010. Our interactions with several companies

suggest that banks are insisting on 70-100% upfront equity for Infrastructure projects,

resulting in larger players taking a "bidding holiday". Structural issues like SEB finances

(for Power sector), resource availability, land / water / environment, and tight liquidity

for project financing are challenges for capex upturn. The government is attempting

to address several of these.

Gauging the environment through non-covered companies: Our analysis of 29 non-

covered companies also points towards growing challenges, particularly for industrial

products, which have relatively shorter business cycles than projects. In 1QFY13,

aggregate revenue declined 12% YoY for nine non-covered industrial product

companies and 4% YoY for five covered companies (based on segmental analysis).

Project revenues are relatively insulated (up 17% YoY in 1QFY13 for non-covered

companies), led by healthy execution of existing orders. Also, the impact of slowdown

has been building up over the last 3-4 quarters, with TTM sales growth declining from

20% in 2QFY12 to 2% in 1QFY13, aggregated for the 14 companies. Management

commentary across companies indicates challenging and uncertain outlook in the

medium term.Expected quarterly performance summary (INR Million)




ABB 798 Neutral 19,190 10.1 1.9 1,109 66.3 4.6 543 145.1 5.2

BGR Energy 275 Neutral 7,038 -8.8 15.2 883 -19.9 0.4 296 -42.3 -11.5

BHEL 247 Neutral 105,257 2.2 26.4 17,694 -1.3 47.2 12,329 -4.1 33.9

Crompton Greaves 126 Neutral 29,629 9.5 5.4 1,981 -12.4 18.8 1,003 -14.0 16.8

Cummins India 508 Neutral 12,056 10.6 -4.2 2,230 26.8 -4.1 1,584 23.2 -12.3

Havells India 625 Buy 9,796 15.0 -5.4 1,162 12.9 -4.9 784 5.9 -10.9

Larsen & Toubro 1,597 Buy 132,967 18.2 11.2 13,297 13.3 6.6 8,223 3.0 -18.0

Siemens 709 Neutral 35,693 -1.1 25.5 2,914 0.7 201.6 1,579 -11.3 333.8

Thermax 561 Neutral 12,020 -7.8 22.2 1,142 -18.7 18.5 837 -17.7 24.6


C–11October 2012



Initial ray of hope, but near-term concerns impact valuations: Our Capital Goods

coverage trades at 15x FY13E earnings (20% discount to long-term average of 18x). The

premium relative to the Sensex enjoyed by the sector (MOSL coverage universe) has

significantly eroded over the past two years. Our Capital Goods universe now trades

at a 4% discount to the Sensex v/s long-term average premium of 29%. We expect flat

earnings over FY12-14 for our coverage. The government's resolve to address the

contentious issues in the Power sector, close monitoring of PSU capex, take-off of

large public expenditure projects (like DFCC, railways, urban transport, etc) can possibly

kick-start the investment cycle. Decline in commodity prices provides another ray of

hope. We are Neutral on the sector; our top picks are L&T and Crompton Greaves.

Revenue growth supported by project business Expect margin compression across companies

En g Sector (reven ue growth %)

38.

035

.132

.21

9.1 3

1.3

28.

819

.7 26.

88

.97.

2

4.7

25.0

15.

6 24.

1 30.

414

.5

15.3

17.5

15.3

18.

41

6.6

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

8.5

8.7 9.6 11.

5

8.2 9.1 10

.6

11.

9

9.0 9.7

10.

2

10.6

8.4

8.5 9.2 1

2.3

8.2

11.

7

12.1 13

.5 15.4

11.

6

13.

5 16.1

16.

5

13.

3

14.

3

15.2

15.

9

12.0

12.

4

13.

1

17.5

11.

0

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

Net Profi t Margin (%) EB ITDA Margin (%)

Source: Company, MOSL

Moderating sales growth is likely to impact margins, while softening commodity prices could have a positive impact

going forward; estimate 2QFY13 industry margins a t 10.5% (down 39bp YoY).

1QFY13 order growth boosted by NTPC bulk tender awards BTB (x) declining on slowing order inflows


Order intake remains sluggish, impacted by slowdown in the power sector and slowing industrial capex; the T&D

segment showed pick-up in ordering, driven by improved ordering by Power Grid. Ordering activity in

the building & construction has also been showing healthy traction.

5340

1325

46 4122

-2

-19-7

23

64

920

-16

20

-22-12

36

-47-34

1Q

FY

08

3Q

FY

08

1Q

FY

09

3Q

FY

09

1Q

FY

10

3Q

FY

10

1Q

FY

11

3Q

FY

11

1Q

FY

12

3Q

FY

12

1Q

FY

13

Order intake YoY %

1,4

27

1,5

291,

632

1,8

49

2,0

51

2,1

96

2,2

322,

340

2,4

94

2,7

05

2,8

88

3,0

073,

170

3,1

99

3,3

97

3,4

05

3,4

72

3,3

74

3,2

28

3,3

20

2.4

2.4 2.4 2.6 2.

7

2.8

2.6 2.7 2.8 3

.0

3.0

3.0 3.1

2.9

2.9

2.9

2.8

2.6

2.4

2.4

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

Orde r boo k (INR bn) BTB (x)

C–12October 2012



Incremental credit disbursements now lower than industry Infrastructure credit disbursement declining since June 2011

0

800

1,600

2,400

3,200

Apr-07 Ap r-08 Ap r-09 Apr-10 Apr-11 Apr-12

Infra structure (Bank Cre di t, ttm, INR b)Ind ustries excl infra (Bank Credi t, ttm INR b )

908

1,3

27

1,1

94

827

1,2

50

1,0

67

787

821

787

575

506

255

169

151

194

154

167

160

202

181

231

175

189

146

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

Sanctions (INR B) Projects (No s)

-

2,000

4,000

6,000

8,000

10,000

Ma

r-9

6

Ap

r-9

7

Ma

y-9

8

Jun

-99

Jul-

00

Aug

-01

Sep

-02

Oct

-03

No

v-0

4

Dec

-05

Jan

-07

Feb

-08

Ma

r-0

9

Ap

r-1

0

Ma

y-1

1

Jun

-12

Net Projects adde d (INR b)

400

700

1,000

1,300

1,600

Apr-08 Feb-09 De c-09 Oct-10 Au g-11 Jun-12

-80

-40

0

40

80

In frastru ctu re (Ba nk Cred i t, ttm, INR b)In frastru ctu re ba nk cre di t (ttm, % YoY)

4QFY12 project sanctions at shocking levels Net project additions decline to INR1.5t in 1QFY13

Industrial products revenue have strong co-relation Coverage companies have fared better in maintainingwith GDP growth (revenue growth % YoY, ttm) margins (Industrial product EBIT Margins, %, ttm)

Power products Revenues show contrasting trends (ttm, % YoY), Power products margins have eroded, but showing signs ofwith coverage companies witnessing demand improvement stabilization (% EBIT margins, ttm)


-25%

0%

25%

50%

1QF

Y08

3QF

Y08

1QF

Y09

3QF

Y09

1QF

Y10

3QF

Y10

1QF

Y11

3QF

Y11

1QF

Y12

3QF

Y12

1QF

Y13

0%

3%

6%

9%

GDP Growth Non covered compan iesCovered comp anies

-20%

0%

20%

40%

60%

1QF

Y08

3QF

Y08

1QF

Y09

3QF

Y09

1QF

Y10

3QF

Y10

1QF

Y11

3QF

Y11

1QF

Y12

3QF

Y12

1QF

Y13

Covered comp anies Non covere d comp anies

5%

8%

11%

14%

17%

1QF

Y08

3QF

Y08

1QF

Y09

3QF

Y09

1QF

Y10

3QF

Y10

1QF

Y11

3QF

Y11

1QF

Y12

3QF

Y12

1QF

Y13

Non covered co mpa nies Co ve red compan ies

0%

5%

10%

15%

20%

1QF

Y08

3QF

Y08

1QF

Y09

3QF

Y09

1QF

Y10

3QF

Y10

1QF

Y11

3QF

Y11

1QF

Y12

3QF

Y12

1QF

Y13

Covered comp anies Non covered co mpa nies )

C–13October 2012



60

75

90

105

120

Sep-

11

Dec

-11

Ma

r-12

Jun-

12

Sep-

12

Sens ex Ind exMOSL Capi ta l Goods Inde x

90

95

100

105

110

Jun-

12

Jul-

12

Au

g-1

2

Sep-

12

Sen sex In dexMOSL Cap ita l Good s Ind ex

Relative Performance - 3m (%) Relative Performance-1Yr (%)

Comparative valuationCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)


Capital Goods

ABB 798 Neutral 8.7 11.3 17.4 91.6 70.9 45.7 58.6 41.7 27.6 7.4 9.1 13.0

BGR Energy 275 Neutral 31.0 21.1 25.3 8.9 13.0 10.9 6.1 8.0 8.2 22.2 13.4 14.5

BHEL 247 Neutral 28.2 24.9 20.3 8.8 9.9 12.2 5.4 6.1 7.3 30.3 22.2 16.0

Crompton Greaves 126 Neutral 5.7 9.3 12.6 22.0 13.6 10.0 10.7 8.4 6.5 10.7 15.6 18.7

Cummins India 508 Neutral 19.8 24.1 25.6 25.6 21.0 19.8 19.0 15.2 13.7 28.8 30.7 28.9

Havells India 625 Buy 29.6 31.1 41.4 21.1 20.1 15.1 13.0 12.1 9.6 38.7 31.7 32.1

Larsen & Toubro 1,597 Buy 78.0 85.2 91.4 20.5 18.7 17.5 14.3 12.7 10.9 17.8 17.1 16.4

Siemens 709 Neutral 16.9 23.1 31.3 42.0 30.7 22.7 23.3 17.0 12.8 14.6 18.8 23.0

Thermax 561 Neutral 33.9 27.1 31.5 16.6 20.7 17.8 9.9 11.4 9.0 27.4 18.7 19.2


C–14October 2012



ABB

Bloomberg ABB IN



1,6,12 Rel Perf (%) 2/-13/-6

Mcap (INR b) 169.1

Mcap (USD b) 3.2

CMP: INR798 Neutral

Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/

End (INR m) (INR m) (INR) Gr (%) (x) (x) (%) (%) Sales EBITDA

12/10A 62,871 632 3.0 -82.2 - - 2.6 3.1 - -

12/11A 73,703 1,845 8.7 191.9 91.6 6.7 7.4 8.1 2.3 58.6

12/12E 80,876 2,386 11.3 29.3 70.9 6.3 9.1 9.5 2.0 41.7

12/13E 93,730 3,696 17.4 54.9 45.7 5.7 13.0 13.1 1.7 27.6

Quarterly Performance (INR Million)Y/E December CY11 CY12 CY11 CY12E

1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE

Sales 17,960 17,125 17,435 21,999 17,903 18,838 19,190 25,727 74,742 81,658

Change (%) 21.7 18.4 24.8 6.2 (0.3) 10.0 10.1 16.9 17.5 9.3

EBITDA 1,016 855 666 1,080 975 1,060 1,109 1,579 3,618 4,723

Change (%) 356.2 70.8 93.3 230.5 -4.0 24.0 66.3 46.2 131.9 30.5

As % of Sales 5.7 5.0 3.8 4.9 5.4 5.6 5.8 6.1 4.8 5.8

Depreciation 144 264 263 124 223 231 260 280 795 995

Interest 40 67 71 129 54 77 75 75 307 280

Other Income 45 65 38 14 19 14 25 29 162 87

PBT 877 589 371 840 716 766 799 1,254 2,677 3,535

Tax 282 202 149 199 240 250 256 403 832 1,149


Repoted PAT 595 387 222 641 476 516 543 850 1,845 2,386

Adj. PAT 595 387 222 641 476 516 543 850 1,845 2,386

Change (%) 796.8 1.1 92.6 845.3 -20.0 33.2 145.1 32.6 191.8 29.3

Order Intake 16,951 17,918 24,926 22,093 16,320 20,606 28,665 25,407 81,888 90,998

Order Book 83,291 84,150 91,513 91,288 90,280 91,750 101,200 99,989 91,288 99,989

BTB (x) 1.2 1.2 1.2 1.2 1.2 1.2 1.3 1.2 1.2 1.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect ABB to report revenue growth of 10% YoY and EBITDA margin of 5.8% (up 200bp YoY) for 3QCY12,

aided by a low base. Profitability would remain under pressure, given higher competitive intensity and execution

of low margin fixed price contracts. Also, the benefit of softening commodity prices has largely been negated

by INR depreciation as 40% of the raw material consumption is imported (largely from parent company).

For CY12, we expect PAT to grow 30% on a low base to INR2.4b. We assume EBITDA margin of 5.8%, up 100bp;

EBITDA margin expansion would be driven by ABB's exit from rural electrification projects. However, profitability

continues to face headwinds and is lagging expectations due to intensifying competition and low margin legacy

orders.

During 2QCY12, ABB reported a turnaround in Power Systems after reporting losses in the segment for 8

consecutive quarters. However, its Process Automation business is facing cost overruns. Also, margins in its

Low Voltage Product business have been impacted by MCB capacity expansion by 3x, led by poor fixed cost

absorption.

Order book currently stands at INR91.7b, up 9% YoY. BTB stands at 1.2x TTM sales.

ABB has announced plans to again double its MCB capacity and is also expanding its High Voltage Products

capacity at a cost of INR2.5b. In Process Automation, ABB is making efforts to build a service portfolio that will

provide stability to margins. We believe that correcting the manufacturing footprint will be the key driver of

structural improvement in margins.

Key things to watch for: a) EBITDA margin devlopment, b) order in flow from industry sector.

The stock trades at 70.9x CY12E and 45.7x CY13E earnings. Maintain Neutral.

C–15October 2012



BGR Energy

Bloomberg BGRL IN



1,6,12 Rel Perf (%) 0/-24/-30

Mcap (INR b) 19.8

Mcap (USD b) 0.4

CMP: INR275 Neutral


End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA

03/11A 47,632 3,124 43.3 54.6 - - 37.7 16.3 - -

03/12A 34,471 2,237 31.0 -28.4 8.9 2.4 22.2 10.7 1.0 7.3

03/13E 35,162 1,522 21.1 -31.9 13.0 1.6 13.4 7.7 0.9 8.0

03/14E 41,489 1,823 25.3 19.8 10.9 1.5 14.5 8.1 1.0 8.2

Quarterly Performance (Standalone) (INR Million)



Sales 7,329 7,715 8,037 11,377 6,109 7,038 8,447 13,595 34,471 35,190

Change (%) -19.2 -32.1 -36.1 -22.2 -16.6 -8.8 5.1 19.5 -27.6 2.1

EBITDA 948 1,102 1,313 1,356 880 883 977 1,430 4,731 4,169

Change (%) -8.7 -16.7 -10.8 -19.0 -7.2 -19.9 -25.6 5.4 -14.1 -11.9

As of % Sales 12.9 14.3 16.3 11.9 14.4 12.5 11.6 10.5 13.7 11.8

Depreciation 37 40 41 43 41 43 48 53 161 185

Interest 180 302 461 411 342 400 460 490 1,354 1,692

Other Income 13 0 0 51 0 2 2 2 53 8

PBT 743 761 811 954 496 442 471 889 3,268 2,300

Tax 241 247 263 282 162 146 153 289 1,033 750


Reported PAT 503 514 548 672 335 296 318 600 2,235 1,550

Adj PAT 503 514 548 672 335 296 318 600 2,235 1,550

Change (%) -17.0 -34.0 -37.4 -31.7 -33.4 -42.3 -42.0 -10.7 -31.1 -30.7

Order Intake 2,602 5,260 15,469 6,537 31,073 56,907 8,000 14,020 29,868 29,868

Order book 75,000 72,554 80,000 75,160 100,125 150,000 149,561 149,945 75,160 149,945

BTB (x) 1.6 1.7 2.1 2.2 2.2 1.6 2.5 2.5 1.7 2.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

For 2QFY13, we expect revenue of INR7.03b (down 9% YoY), EBITDA of INR883m (down 20% YoY), with EBITDA

margin at 12.5% (down 180bp YoY), and net profit of INR296m (down 42% YoY). For FY13, we expect revenue to

grow 2% YoY, EBITDA margin of 11.8% (down 190bp), and PAT of INR1.55b (down 31%). The management expects

revenue of INR37b-38b, up 10% on the back of existing order book and 11-12% EBITDA margin in FY13/14.

Order book as at the end of June 2012 stood at INR150b, of which INR7b were product orders and INR143b were

projects. Projects include NTPC bulk tenders of INR86b (57% of total order book), INR22b of EPC and INR30b of

BOP. The management has indicated that bidding pipeline stands at ~11GW for FY13.

Land for the turbine factory has already been acquired and construction work is expected to have started by the

end of July 2012, while 70% of the land for the Boiler factory has been acquired. However, we believe that order

execution would be crucial, especially in light of the company’s constrained cash flows.

Key things to watch for: (a) Realization of the retention money, as increasing debtors’ balance has significantly

deteriorated working capital cycle, (b) Profitability in the NTPC bulk tenders, in which BGR has reportedly bid

aggressively.

The stock trades at 13x FY13E and 10.9x FY14E earnings. Maintain Neutral .

C–16October 2012



BHEL

Bloomberg BHEL IN



1,6,12 Rel Perf (%) 4/-12/-39

Mcap (INR b) 604.2

Mcap (USD b) 11.5

CMP: INR247 Neutral



03/11A 404,443 56,650 23.1 20.9 - - 31.4 35.0 - -

03/12A 479,788 68,918 28.2 21.7 11.5 3.1 30.3 33.0 1.5 7.3

03/13E 476,593 60,836 24.9 -11.7 9.9 2.1 22.2 23.6 1.1 6.1

03/14E 454,887 49,569 20.3 -18.5 12.2 1.8 16.0 16.9 1.2 7.3

Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Sales (Net) 71,234 102,986 105,426 192,595 83,262 105,257 112,275 167,016 472,279 467,811

Change (%) 9.9 23.7 19.1 7.5 16.9 2.2 6.5 -13.3 13.6 -0.9

EBITDA 10,184 19,592 20,350 49,372 12,022 17,694 20,017 37,118 98,880 86,850

As a % Sales 14.3 19.0 19.3 25.6 14.4 16.8 17.8 22.2 20.2 18.2

Adjusted EBITDA 8,524 17,932 20,350 49,372 12,022 17,694 20,017 37,118 97,076 86,850

Change (%) -17.1 5.2 -5.3 68.5 41.0 -1.3 -1.6 -24.8 20.6 -10.5

As a % Sales 14.1 16.9 19.1 25.2 14.2 16.5 17.5 21.8 20.3 18.2

Interest 88 96 145 183 55 125 130 408 513 718

Depreciation 1,709 1,888 1,861 2,541 2,284 2,200 2,300 2,120 8,000 8,904

Other Income 3,435 2,199 2,415 3,989 3,663 2,500 2,350 2,427 12,656 10,939

PBT 11,822 19,806 20,758 50,637 13,346 17,869 19,937 37,017 103,023 88,167

Tax 3,667 5,686 6,432 16,838 4,137 5,539 6,180 11,476 32,623 27,332


Reported PAT 8,155 14,120 14,326 33,798 9,209 12,329 13,756 25,541 70,400 60,836

Change (%) 21.8 23.6 2.1 20.8 12.9 -12.7 -4.0 -24.4 17.1 -13.6

Adj. PAT 8,155 12,858 14,326 33,580 9,209 12,329 13,756 25,541 68,919 60,836

Change (%) 14.8 11.1 -0.2 73.6 12.9 -4.1 -4.0 -23.9 21.8 -11.7

Order intake 24,710 143,060 (15,040) 68,230 55,900 30,000 60,000 60,621 220,960 295,021

Order book (INRb) 1,596 1,610 1,465 1,347 1,330 1,255 1,202 1,141 1,353 1,141

BTB (x) 3.8 3.6 3.2 2.9 2.7 2.6 2.4 2.4 2.9 2.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Declining commodity prices in USD terms and INR depreciation have meaningfully improved BHEL's competitive

positioning, given that the competitors' cost base is largely composed of imported equipment, while BHEL has

a larger in-house domestic cost base.

Order book stood at INR1,329b (down 17%) as at June 2012; BTB declined from a peak of 4-4.5x in FY09 to 2.7x.

Given the execution period of 3.5-4 years for power sector projects, the ratio is now in an uncomfortable zone

and would constrain revenue growth, going forward. We expect revenue to decline by 1%/5% in FY13/FY14.

In FY13, BHEL targets 14-15GW of orders, which appears challenging, given the prevailing business environment

in the Power sector. BHEL's utility power order intake in FY12 was 2.8GW and industry size was 4GW.

While the investment climate remains constrained, we believe that the situation could improve, driven by

structural drivers like the following: (1) Imposition of 21% effective import duty has improved the competitive

positioning of domestic players by 14%, (2) SEB debt restructuring, (3) Coal price pooling and increased domestic

coal availability, (4) New standard bidding document making fuel cost pass-through, (5) continued strong

growth in power consumption, etc.

Key things to watch for: (a) Order inflow, (b) Performance on profitability - increasing pricing pressure and

negative operating leverage are likely to squeeze EBITDA margin.

The stock trades at 9.9x FY13E and 12.2x FY14E earnings. Maintain Neutral.

C–17October 2012



Crompton Greaves

Bloomberg CRG IN



1,6,12 Rel Perf (%) 4/-18/-31

Mcap (INR b) 81.0

Mcap (USD b) 1.5

CMP: INR126 Neutral



3/11A 100,051 9,268 14.3 12.4 - - 30.5 28.1 - -

3/12A 112,486 3,733 5.7 -59.7 22.0 2.2 10.7 9.6 0.9 13.3

3/13E 131,290 6,029 9.3 61.5 13.6 2.0 15.6 13.0 0.7 7.8

3/14E 145,945 8,104 12.6 34.4 10.0 1.8 18.7 15.0 0.6 5.9

Quarterly performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Standalone Performance

Sales 14,688 14,515 16,245 19,406 16,592 16,102 18,333 22,164 64,854 73,190

Change (%) 9.4 0.5 16.1 9.9 13.0 10.9 12.9 14.2 9.0 12.9

EBITDA 1,867 1,614 1,753 1,973 1,684 1,642 2,035 2,901 7,207 8,162

Change (%) -10.8 -30.1 -23.1 -25.3 -9.8 1.8 16.1 47.0 -22.7 13.3

As of % Sales (Adj) 12.7 11.1 10.8 10.2 10.1 10.2 11.1 13.1 11.1 11.2

Subsidiaries Performance

Revenues 9,689 12,541 14,035 11,367 11,520 13,527 14,624 13,693 47,632 53,364

Revenue growth (%) 1.0 31.6 40.6 -0.5 18.9 7.9 4.2 20.5 17.5 12.0

EBITDA -48 646 73 158 84 338 658 788 830 1,868

As of % Sales (Adj) -0.5 5.2 0.5 1.4 0.7 2.5 4.5 5.8 1.7 3.5

Consolidated performance

Sales (Net) 24,377 27,056 30,280 30,774 28,111 29,629 32,956 40,593 112,486 131,290

Change (%) 5.9 12.8 26.3 5.8 15.3 9.5 8.8 31.9 12.4 16.7

EBITDA 1,819 2,260 1,826 2,132 1,668 1,981 2,693 4,588 8,037 10,930

Change (%) -38.8 -32.2 -46.3 -42.9 -8.3 -12.4 47.5 115.2 -40.2 36.0

As of % Sales (Adj) 7.5 8.4 6.0 6.9 5.9 6.7 8.2 11.3 7.1 8.3

Depreciation 608 726 627 639 466 545 590 940 2,600 2,540

Interest 110 102 112 139 99 172 218 341 463 830

Other Income 151 215 155 3 192 142 127 20 524 480

PBT 1,253 1,647 1,242 1,357 1,294 1,406 2,012 3,328 5,498 8,040

Tax 475 463 487 396 445 420 520 696 1,821 2,080


Minority interest -17.1 16.5 -16.4 -42.9 -9.6 -17.2 -17.3 -24.9 -59.9 -69.0

PAT 795 1,167 771 1,003 859 1,003 1,510 2,657 3,736 6,029

Change (%) (58.4) (45.4) (66.9) (65.4) 8.1 (14.0) 95.7 164.8 (59.7) 61.4

Order book 70,880 71,200 81,830 83,664 91,720 97,537 102,675 104,087 83,664 104,087

Order Intake 17,040 22,600 34,010 28,961 27,170 29,810 31,678 29,265 102,611 117,923

BTB (x) 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.7 0.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

The management has guided 12-14% growth in consolidated revenue, EBITDA margin of 8-9%, and 15% growth

in order intake for FY13.

Over the next three years, the management expects to improve EBITDA margin by 450bp (from 7.1% in FY12),

driven by improved product offerings/new geographies (+150bp), raw material sourcing rationalization (+150bp),

rationalization of manufacturing footprint (+100bp) and improvement in manufacturing processes (+100bp).

Key things to watch for: (a) Profitability in overseas and domestic power business, (b) Further announcements

on efficiency improvement measures.

The stock trades at 13.6x FY13E and 10x FY14E earnings. Maintain Neutral.

C–18October 2012



Cummins India

Bloomberg KKC IN



1,6,12 Rel Perf (%) 3/0/9

Mcap (INR b) 140.7

Mcap (USD b) 2.7

CMP: INR508 Neutral


End (INR m) (INR m) (INR) Gr. (%) (x) (x) (%) (%) Sales EBITDA

3/11A 40,425 5,911 21.3 33.1 - - 35.5 35.4 - -

3/12A 41,172 5,502 19.8 -6.9 25.6 6.9 28.8 28.8 2.8 16.3

3/13E 47,278 6,691 24.1 21.6 21.0 6.1 30.7 30.9 2.9 15.3

3/14E 52,885 7,107 25.6 6.2 19.8 5.4 28.9 29.1 2.6 13.8




Sales 10,335 10,903 9,624 10,404 12,588 12,056 10,874 11,761 41,172 47,278

Change (%) 11.4 -0.1 -3.0 -0.1 21.8 10.6 13.0 13.0 1.8 14.8

EBITDA 1,739 1,759 1,612 1,948 2,325 2,230 1,979 2,358 6,972 8,892

Change (%) -11.9 -19.0 -10.3 9.2 33.7 26.8 22.8 21.0 -8.7 27.5

As of % Sales 16.8 16.1 16.7 18.7 19.5 18.5 18.2 20.0 16.9 19.1

Depreciation 94 98 109 119 114 128 142 166 420 550

Interest 11 5 11 21 14 15 15 17 54 60

Other Income 283 163 454 242 385 175 350 232 1,233 1,141

PBT 2,432 1,819 1,945 2,049 2,582 2,262 2,172 2,407 7,732 9,423

Tax 661 534 536 604 777 679 608 669 2,334 2,733


Reported PAT 1,772 1,286 1,410 1,446 1,806 1,584 1,564 1,738 5,913 6,691

Change (%) 26.3 -23.4 1.5 0.4 1.9 23.2 10.9 20.2 0.0 13.2

Adjusted PAT 1,360 1,286 1,410 1,446 1,806 1,584 1,564 1,738 5,501 6,691

Change (%) (3.0) (23.4) 1.5 0.4 32.7 23.2 10.9 20.2 (6.9) 21.6

Domestic Sales 7,456 7,689 6,653 6,846 8,104 8,376 7,444 7,874 28,614 31,798

Change (%) 10.3 17% (4.04) (11.22) 8.7 8.9 11.9 15.0 (0.3) 10.5

Exports 2,763 3,009 2,768 3,367 4,310 3,500 3,250 3,705 11,908 14,765

Change (%) 27.9 9.0 4.5 24.7 56.0 16.3 17.4 10.0 12.3 24.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

For FY13, we expect revenue growth of 15%, aided by new products from Phaltan Megasite, and pre-buying,

given stringent emission norms for Powergen. However, the scenario continues to be challenging, given the

slowdown, and the impact is more pronounced in the high horsepower (HHP) segment. Domestic demand for

DG sets declined 5-10% in FY12.

We believe that the twin trend of softening commodity prices and INR depreciation have meaningfully improved

near-term margin outlook for Cummins (KKC). Currency depreciation makes KKC more competitive in the global

network of Cummins Inc, leading to possibilities for increased outsourcing. Weak INR has also improved KKC’s

competitive positioning vis-à-vis competitors, who largely rely on imports.

The DG sets business faces multiple headwinds: (1) Limited demand drivers, given economic slowdown and

tight liquidity, (2) Increased competitive intensity, particularly in HHP segment, and (iii) Structural lowering of

power deficit in India (KKC has been a key beneficiary of the demand spurt in Southern region over the last one

year – current TTM base deficit at 11.3% v/s 4.1% TTM in August 2011; we believe that commissioning of

Kudankulam nuclear plant / synchronous grid connection will lower deficits).

Key things to watch for: (a) Demand growth in the domestic market – tight liquidity conditions are likely to

impact growth, (b) Any slowdown in the export market, as Caterpillar dealer sales show 13% decline in YTD

FY13.

The stock trades at 21x FY13E and 19.8x FY14E earnings. Maintain Neutral.

C–19October 2012



Havells India

Bloomberg HAVL IN



1,6,12 Rel Perf (%) 11/2/59

Mcap (INR b) 78.0

Mcap (USD b) 1.5

CMP: INR625 Buy

Year Net Sales PAT* EPS* EPS* P/E P/BV RoE RoCE EV/ EV/


3/11A 56,126 3,067 24.6 341.1 - - 46.9 20.6 - -

3/12A 65,182 3,699 29.6 20.6 21.1 8.2 38.7 23.6 0.9 8.9

3/13E 70,469 3,879 31.1 4.9 20.1 6.3 31.7 22.7 1.2 12.1

3/14E 76,782 5,160 41.4 33.0 15.1 4.9 32.1 24.1 1.0 9.6

* Consolidated nos, pre exceptionals




Sales 8,235 8,518 8,982 10,485 10,353 9,796 10,239 11,668 36,220 42,056

Change (%) 19.4 28.5 29.8 24.2 25.7 15.0 14.0 11.3 25.4 16.1

EBITDA 973 1,029 1,144 1,468 1,222 1,162 1,218 1,402 4,621 5,004

Change (%) 8.7 38.0 39.6 46.8 46.9 6.1 0.3 -4.5 29.1 8.3

EBITDA margin (%) 10.8 12.9 13.5 13.8 12.6 11.9 11.9 12.0 12.8 11.9

Depreciation 86 91 104 166 118 120 125 125 447 488

Interest 94 71 75 197 102 90 85 88 444 365

Other Income 2 2 1 3 2 4 5 9 8 20

PBT 795 868 967 1,108 1,004 956 1,013 1,198 3,738 4,171

Tax 147 166 178 192 204 172 182 214 683 772


Reported PAT 648 703 789 916 800 784 830 984 3,060 3,404

Change (%) 21.5 21.0 29.1 34.4 23.5 11.6 5.3 7.5 26.4 11.2

Adj PAT 566 741 830 1,022 880 784 830 984 3,056 3,399

Change (%) 3.6 39.9 44.1 50.0 55.5 5.9 0.0 -3.7 26.5 11.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

For 2QFY13, we expect standalone revenue of INR9.7b (up 15% YoY), EBITDA of INR1162m with EBITDA margin at

11.9% (down 100bp YoY), impacted by doubling of Switchgear capacity. Net profit is likely to be INR784m (up 6%

YoY).

For FY13, we expect revenue growth of 16%, EBITDA margin of 11.9% (down 30bp), and PAT of INR3.4b (up 11%).

The management expects 15-20% growth in standalone sales on the back of 10-15% growth in Switchgear, 15-

20% in Cables and Wires, and 20%+ growth in Consumer Durables along with Lighting and Fixtures. The company

is confident of maintaining its margin levels.

Sylvania, which had been reporting sustained improvement in profitability after its turnaround beginning

2QFY11, has again reported losses in 1QFY13, impacted by adverse currency movement and decline in sales.

The business continues to face currency headwinds in the near term while European sales are likely to be

muted. The management expects 2-3% growth in EUR terms and stable EBITDA margin in FY13. We have factored

in a sales growth of 1% in EUR terms and EBITDA margin of 6.5% (down 70bp).

Key things to watch for: (a) Growth in new product launches in Consumer Appliances, (b) Slowdown in overseas

demand, (c) Cross-selling opportunities.

The stock trades at 20.1x FY13E and 15.1x FY14E earnings. Maintain Buy.

C–20October 2012



Larsen & Toubro

Bloomberg LT IN



1,6,12 Rel Perf (%) 11/12/0

Mcap (INR b) 972.2

Mcap (USD b) 18.4

CMP: INR1,597 Buy

Year Net Sales PAT* EPS* EPS P/E* P/BV RoE RoCE EV/ EV/

End (INR m) (INR m) (INR) Gr. (%)* (X) (X) (%) (%) Sales EBITDA

3/11A 439,059 42,416 69.7 13.0 - - 16.6 13.9 - -

3/12A 531,705 47,730 78.0 11.9 18.5 3.5 17.8 14.1 1.7 14.3

3/13E 618,981 52,140 85.2 9.2 18.7 3.4 17.1 13.8 1.6 14.3

3/14E 701,694 55,953 91.4 7.3 17.5 3.0 16.4 13.5 1.5 12.6

Consolidated; EPS is fully diluted

Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E


Net Sales 94,826 112,452 139,836 184,609 119,554 132,967 162,789 203,672 531,705 618,981

Change (%) 21.1 20.5 22.5 21.0 26.1 18.2 16.4 10.3 21.1 16.4

EBITDA 11,265 11,741 13,641 25,608 10,869 13,297 17,500 29,753 62,826 71,418

Change (%) 12.1 16.7 10.2 9.3 -3.5 13.3 28.3 16.2 11.4 13.7

Margin (%) 11.9 10.4 9.8 13.9 9.1 10.0 10.8 14.6 11.8 11.5

Adjusted EBITDA 11,265 11,741 15,641 25,608 12,469 13,297 17,500 29,753 64,826 71,418

Adjusted Margin (%) 11.9 10.4 11.2 13.9 10.4 10.0 10.8 14.6 12.2 11.5

Depreciation 1,679 1,709 1,803 1,804 1,919 1,900 2,100 2,160 6,995 8,079

Interest 1,613 1,970 1,907 1,211 2,284 2,300 2,300 2,316 6,661 9,200

Other Income 2,962 3,632 4,271 3,142 6,058 2,650 2,650 2,498 13,383 13,856

Extraordinary Inc/(Exp) 0 0 0 550 -383 0 0 0 550 -383

Reported PBT 10,935 11,693 14,202 26,285 12,340 11,747 15,750 27,775 63,103 67,612

Tax 3,474 3,709 4,286 7,081 3,705 3,524 5,040 7,793 18,538 20,061


Reported PAT 7,461 7,984 9,915 19,204 8,635 8,223 10,710 19,982 44,565 47,550

Adjusted PAT 7,461 7,984 11,275 18,654 10,023 8,223 10,710 19,982 44,825 48,948

Change (%) 12.0 15.0 40.0 22.1 34.3 3.0 -5.0 7.1 23.7 9.2

Adj PAT (excl Subs Dividend) 6,901 7,094 9,085 18,144 7,103 7,973 10,460 19,886 40,745 45,432

Change (%) 12.0 10.6 19.5 25.5 2.9 12.4 15.1 9.6 20.0 11.5

Order Intake 162 161 171 212 196 177 188 179 706 741

Order book (INR b) 1,362 1,422 1,458 1,457 1,531 1,575 1,601 1,578 1,457 1,578

BTB (x) 3.0 3.0 2.9 2.7 2.8 2.7 2.7 2.6 3.3 3.0

E: MOSL Estimates; All quarterly numbers are for standalone entity

BSE Sensex S&P CNX

18,763 5,703

We expect standalone revenue to grow 18% YoY in 2QFY13, driven by healthy execution of existing order book.

In FY13, we expect revenue to grow 16%. The management has guided 15-20% revenue growth in FY13.

We estimate standalone EBITDA margin at 10% (down 40bp YoY) for 2QFY13 and at 11.5% (down 30bp) for FY13.

In the E&C business, we expect EBITDA margin to remain flat at 12.7% in FY13 v/s the management's guidance

of +/-50bp change. Margins will be supported by commodity price declines, especially in overseas orders.

In 1HFY12, L&T announced orders amounting to INR282b (INR151b in 1QFY13 and INR130b in 2QFY13). Reported

order intake over 1QFY13 was INR196b, up 21% YoY. In 2QFY13, the company has been awarded an EPC order

worth INR7,490m by ONGC for four wellheads in the hydrocarbon sector after a long gap of over one year. This

is significant, given the loss of key orders to competition in the last 1-2 years. L&T also won a significant order

worth INR13,020m from Petroleum Development Oman LLC.

Key things to watch for: (a) Any deterioration in working capital cycle, (b) E&C margins, as one-third of the order

book is on fixed price contracts and decline in commodity prices should start supporting margins, going forward.

The stock trades at 18.7x FY13E and 17.5x FY14E earnings. Maintain Buy.

C–21October 2012



Siemens

Bloomberg SIEM IN



1,6,12 Rel Perf (%) -1/-17/-29

Mcap (INR b) 238.9

Mcap (USD b) 4.5

CMP: INR709 Neutral

Year Net Sales PAT* EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/


9/11A 121,064 8,434 25.0 2.0 - - 23.1 24.4 - -

9/12E 125,775 5,690 16.9 -32.5 42.0 6.0 14.6 15.3 1.9 23.1

9/13E 140,580 7,769 23.1 36.5 30.7 5.6 18.8 19.6 1.6 16.9

9/14E 160,190 10,540 31.3 35.7 22.7 4.9 23.0 24.0 1.4 12.7

* Standalone, Year end - September

Quarterly Performance (Standalone) (INR Million)Y/E September FY11 FY12 FY11 FY12E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Total Revenues 25,804 31,208 27,825 36,085 23,676 37,973 28,433 35,693 120,290 125,775

Change (%) 35.7 40.2 23.9 19.3 -8.2 21.7 2.2 -1.1 28.0 3.9

EBITDA 3,688 4,288 2,508 2,895 1,254 4,944 966 2,914 13,371 10,079

Change (%) 0.3 49.9 3.6 -27.1 -66.0 15.3 -61.5 0.7 3.4 -25.3

As % of Revenues 14.3 13.7 9.0 8.0 5.3 13.0 3.4 8.2 11.1 8.0

Depreciation 345 367 401 410 431 469 506 630 1,522 2,036

Interest Income 258 229 182 223 227 41 76 106 900 450

PBT 3,600 4,151 2,288 2,708 1,050 4,516 536 2,391 12,750 8,492

Tax 1,220 1,407 741 927 343 1,476 172 811 4,295 2,802


Reported PAT 2,381 2,744 1,548 1,781 707 3,040 364 1,579 8,454 5,690

Adjusted PAT 2,381 2,744 1,548 1,781 707 3,040 364 1,579 8,454 5,690

Change (%) 25.9 51.5 -0.9 -29.1 -70.3 10.8 -76.5 -11.3 2.2 -32.5

Order Intake (INR b) 40 33 23 27 28 18 27 31 123 104

Order book (INR b) 151 154 150 139 140 126 125 119 139 119

BTB (x) 1.5 1.4 1.3 1.2 1.2 1.0 1.0 1.0 1.2 1.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

For 4QFY12, we expect Siemens (SIEM) to report revenue of INR35b, down 1% YoY. In 9MFY12, it reported

revenue of INR90b (up 6% YoY), impacted by delays in offtake by customers and sluggish industrial capex,

though strong execution of Qatar/Torrent projects supported revenue. A large part of SIEM’s business portfolio

comprises of early and mid-cycle products; hence, the impact of slowdown has started becoming more

pronounced. The revenue break-up is as follows: Products 56%, Projects 31% and Services 12%.

We expect order intake to remain muted, with a growth of 5% in FY12. During 9MFY12, order intake declined

23% YoY to INR73b; excluding large orders received last year, base orders posted a growth of ~8% YoY. Post the

Qatar project, SIEM is aggressively tapping other MENA (Middle East and North Africa) markets, which should

help support order intake.

We expect margins to remain flattish in 4QFY12 at 8.2% due to pricing pressure in the Power business though

softening commodity prices should support margins. Depreciation of the INR against the EUR is likely to impact

margins, given that around half the raw material and components cost is based on imports from the parent

company.

We expect SIEM to report a PAT of INR1.6b in 4QFY12, down 11% YoY. For FY12, we expect a PAT of INR5.7b (down

32%).

Key things to watch for: (a) Margins, particularly in Industrial Solutions and Power Transmission businesses, (b)

Any large size order inflow from MENA.

The stock trades at 30.7x FY13E and 22.7x FY13E earnings. Maintain Neutral, with a target price of INR743 (25x

FY12E earnings).

C–22October 2012



Thermax

Bloomberg TMX IN



1,6,12 Rel Perf (%) 7/9/1

Mcap (INR b) 66.9

Mcap (USD b) 1.3

CMP: INR561 Neutral



3/11A 52,472 3,818 32.0 48.7 - - 31.9 29.0 - -

3/12A 60,313 4,034 33.9 5.7 15.1 3.7 27.4 22.9 0.9 8.9

3/13E 57,936 3,231 27.1 -19.9 20.7 3.6 18.7 15.4 1.0 11.4

3/14E 57,229 3,748 31.5 16.0 17.8 3.2 19.2 16.1 0.9 9.0

Consolidated




Sales 10,443 13,035 12,693 16,868 9,835 12,020 11,530 15,678 53,041 49,063

Change (%) 32.2 19.4 2.3 -4.5 -5.8 -7.8 -9.2 -7.1 9.3 -7.5

EBITDA 1,135 1,405 1,364 1,853 964 1,142 1,153 1,647 5,839 4,906

As of % Sales 10.9 10.8 10.7 11.0 9.8 9.5 10.0 10.5 11.0 10.0

Depreciation 111 117 120 121 132 129 132 122 470 515

Interest 4 11 17 34 37 12 18 2 66 69

Other Income 149 208 157 272 187 230 180 221 705 818

PBT 1,170 1,485 1,384 1,971 981 1,231 1,184 1,744 6,009 5,140

Tax 371 468 429 673 309 394 367 575 1,940 1,645


Reported PAT 799 1,017 955 1,298 672 837 817 1,169 4,069 3,495

Change (%) 20.7 13.6 -4.7 2.6 -15.9 -17.7 -14.5 -9.9 6.4 -14.1

Adj PAT 799 1,017 955 1,298 672 837 817 1,169 4,069 3,495

Change (%) 20.7 13.6 (4.7) 2.6 (15.9) (17.7) (14.5) (9.9) 6.4 (14.1)

Order Book 58,890 57,700 51,000 42,300 44,740 42,846 40,897 40,897 42,300 40,897

Order Intake 14,440 11,890 5,900 8,090 12,580 8,323 8,260 11,137 40,320 40,300

BTB (x) 1.1 1.1 0.9 0.8 0.9 0.8 0.8 0.8 0.8 0.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Revenue visibi lity for FY13 remains low, given loss of key expected projects to competition in recent months

and lack of concrete pipeline for large power projects / slowing industrial capex.

We expect order intake to remain muted in FY13 – up 20% on a low base to INR53b. Consolidated order book as

at the end of 1QFY13 was down 26% YoY at INR50.4b. Power EPC accounts for ~1/3rd of the current backlog.

Thermax last reported large orders in 1QFY12, when it received two key orders – an order worth INR4b to

construct a 3x32MW cogeneration plant on EPC basis and an order worth INR3.66b to supply of boilers for a

120MW captive power plant. Project side orders from segments like Power, Oil & Gas, Metallurgy, Cement, etc

continue to get deferred, given the macro volatility; the scenario continues to be challenging.

Thus far, Thermax has shown impressive performance on the profitability front, even in a challenging business

environment. ~20% of its staff costs and 40-50% of other costs are variable, providing a cushion to manage

margins. However, we believe that if the macro environment continues to be volatile, Thermax might have to

start compromising on margins to bag orders (as market share / fixed costs are important priorities). Decline in

commodity prices should provide support to margins.

Key things to watch for: (a) Order inflow, particularly from the Power segment for the boiler-turbine-generator

(BTG) manufacturing plant being bui lt, (b) Pick-up in ordering activity in the Renewable Energy segment.

The stock trades at 20.7x FY13E and 17.8x FY14E earnings. Maintain Neutral.

C–23October 2012


Sector: Cement

CementCompany Name

ACC

Ambuja Cements

Birla Corporation

Grasim Industries

India Cements

Jaiprakash Associates

Shree Cement

UltraTech Cement





ACC 1,469 Neutral 24,042 11.8 -13.4 4,167 89.0 -36.0 2,497 103.2 -40.3

Ambuja Cements 202 Buy 21,709 20.3 -15.4 5,512 77.0 -23.7 3,561 92.1 -24.1

Birla Corporation 282 Buy 5,456 5.8 -17.1 766 142.7 -39.1 404 54.5 -52.3

Grasim Industries 3,315 Buy 11,736 -2.5 -5.3 2,856 -1.7 -3.3 3,597 4.3 31.8

India Cements 95 Buy 11,466 5.3 -4.6 2,519 0.0 -9.3 854 22.5 14.1

Jaiprakash Associates 82 Buy 32,233 2.9 8.8 7,266 -2.9 -5.8 943 -26.7 -31.6

Shree Cement 3,954 Buy 10,927 47.4 -24.9 3,216 111.1 -33.2 2,166 LP -38.4

Ultratech Cement 1,968 Buy 44,095 12.8 -13.1 9,358 60.3 -27.6 5,402 93.6 -30.6


Jinesh K Gandhi ([email protected]) / Sandipan Pal ([email protected])

2QFY13 dispatches growth to moderate at ~2% led by delayed monsoon: Recovery in

cement demand was thwarted in 2QFY13 given (1) heavy rains in August (delayed

monsoon), and (2) weak demand from organized housing and infrastructure. We

estimate cement dispatches growth of 2% YoY (down ~12% QoQ). As a result, capacity

utilization is also expected to decline 120bp YoY (-10pp QoQ). We expect demand to

recover post monsoon, with FY13 volume growth of 7.9% for the industry, translating

into capacity utilization of 75% in FY13 as against 74% in FY12. 1HFY13 volume growth

of ~6.7% implies residual growth of 8.9% for 2HFY13.

Prices resilient; decline during monsoon lower than our initial estimates: Despite

demand weakness, cement prices remained strong with only modest seasonal

correction in 2QFY13. National average retail price for 2Q was down only INR5/bag

QoQ (+INR30/bag YoY). Prices are (1) broadly stable QoQ in West, North and South

(except AP where prices are down INR30-35/bag QoQ), and (2) down INR10/bag in

East and Central. We are factoring in INR20/bag improvement in FY13 realizations

over FY12 average, which is INR10/bag higher than 2QFY13 average pricing.

Profitability to deteriorate QoQ on lower realization, higher cost: Expect EBITDA/ton

to be down INR224 QoQ at INR979/ton (+INR383/ton YoY) on the back of (1) lower

realizations, (2) negative operating leverage (utilization down 950bp QoQ), and (3)

cost push (partial impact of diesel price hike). We expect the potential benefit of

softening rupee on lower imported coal prices to reflect partially from 2QFY13, which

will dilute impact of higher freight rates due to diesel price hike. For FY13, we expect

EBITDA to improve only ~INR210/ton (to INR1,110/ton) as INR400/ton higher realization

is diluted by cost push.

Valuation and view: Cement prices have been resilient even during seasonally weak

period. This, we believe, reflects high cost (both opex and capex), implying little

downside risk to any major price correction in medium-to-long term. Cement stocks

have outperformed the market led by strength in pricing; this has resulted in large

caps trading at slight premium to replacement cost. We expect strong earnings growth

to drive stock performance hereon. Recovery in cement volume growth would be the

key catalyst for stock performance to sustain. We prefer Ambuja Cement and

UltraTech/Grasim in large-caps, and Shree Cement in mid-caps.

C–24October 2012


Sector: Cement

Expect demand growth to moderate at 2.9% …utilization to decline YoY

Source: CMA/MOSL

2QFY13 average cement prices seasonally down QoQ, although lower than estimated (INR/bag)

2QFY13 retail prices inclusive of excise duty hike of INR4-6/bag Source: CMA/MOSL

Cost inflation, negative operating leverage to offset benefit of higher realizations


50 46 49 55 53 48 51 58 51 56 64 59

5254

10.8

9.310.3

6.9

12.2

9.4

4.03.2

6.0

6.2

10.29.0

2.10.9

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

Des patches (MT) Growth (%)

60%

75%

90%

105%

120%

4QFY

06

2QFY

07

4QFY

07

2QFY

08

4QFY

08

2QFY

09

4QFY

09

2QFY

10

4QFY

10

2QFY

11

4QFY

11

2QFY

12

4QFY

12

2QFY

13

238

238

238

250

252

229

232

243

223

237

258

261

248

263

283

298

293

3.2

3.0

2.7

6.2

5.9

-3.5 -2.4

-2.7

-11

.2

3.2

11.

0

7.6

11.

0

11.1

9.8

14.0 18

.3

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

Avg National Retai l Prices (INR/bag) Change (%)24

5

229 247

294

203 2

48262

260

259

295

223

263274 2

99

283 30

4

245 28

3

273

340

290 31

0

275 2

98

272

328

295

303

262 29

3

North East West South Central Nationa l

Average

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E

3,42

3

3,4

75

3,44

1

3,52

0

3,7

40

3,7

44

3,41

0

3,4

97

3,70

7

3,34

6

3,52

4 3,91

0

4,10

2

3,91

5

4,2

11

4,2

99

4,40

4

4,26

8

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13E

Rea l i zation (INR/ton)

1,1

02

908

601

921 1

,06

8

61

4 832 1

,03

6

1,0

34

78

6

44

4

965

84

3

1,2

18

1,2

98

894

910

1,0

39

1Q

FY0

9

2Q

FY0

9

3Q

FY0

9

4Q

FY0

9

1Q

FY1

0

2Q

FY1

0

3Q

FY1

0

4Q

FY1

0

1Q

FY1

1

2Q

FY1

1

3Q

FY1

1

4Q

FY1

1

1Q

FY1

2

2Q

FY1

2

3Q

FY1

2

4Q

FY1

2

1Q

FY1

3

2Q

FY1

3E

EBITDA (INR/ton)

C–25October 2012


Sector: Cement

Trend in key operating parametersVolume (m tons) Realization (INR/ton) EBITDA (INR/ton)

2QFY13E YoY (%) QoQ (%) 2QFY13E YoY (INR) QoQ (INR) 2QFY13E YoY (INR) QoQ (INR)

ACC 6.3 10.0 2.6 4,196 418 -200 606 219 -299

Ambuja Cement 5.3 10.0 -9.1 4,220 466 -160 876 229 -261

UltraTech 10.1 9.2 -3.5 4,598 419 -151 840 218 -258

Birla Corp 1.4 -0.9 -3.4 3,854 206 -107 473 176 -275

India Cement 2.6 5.1 4.1 4,386 163 60 1,033 -5 105

Shree Cement 2.7 9.6 -16.8 3,411 0 -200 757 -46 -336

Sector Aggregate 28.3 8.6 -4.2 4,268 353 -135 786 172 -248

Recent correction makes valuations attractive (FY12)

Relative Performance - 3m (%)





Cement

ACC 1,469 Neutral 59.0 73.3 86.4 24.9 20.0 17.0 14.6 11.0 9.6 16.2 18.5 20.0

Ambuja Cements 202 Buy 8.2 11.9 13.2 24.7 17.0 15.3 14.5 10.0 8.8 16.3 21.5 21.1

Birla Corporation 282 Buy 31.1 33.0 32.9 9.1 8.5 8.6 5.8 5.5 5.1 10.7 10.5 9.7

Grasim Industries 3,315 Buy 288.6 348.3 375.8 11.5 9.5 8.8 5.2 4.5 3.6 15.5 16.0 15.0

India Cements 95 Buy 9.6 11.1 14.8 9.9 8.5 6.4 5.9 5.2 4.2 7.3 7.3 8.9

J P Associates 82 Buy 4.8 3.6 4.6 17.1 23.1 17.9 9.4 9.6 8.5 10.4 7.6 9.8

Shree Cement 3,954 Buy 274.4 310.2 361.4 14.4 12.7 10.9 9.0 6.9 5.8 40.5 34.4 31.7

Ultratech Cement 1,968 Buy 87.5 109.5 122.6 22.5 18.0 16.1 13.4 11.3 9.7 20.4 21.2 19.9


Revised EPS estimates (INR)FY13E FY14E

Rev Old Chg (%) Rev Old Chg (%)

ACC 66.8 70.3 -4.9 83.0 86.1 -3.6

Ambuja Cement 10.8 10.8 -0.2 12.6 12.7 -0.7

Grasim 330.2 324.6 1.7 365.2 352.6 3.6

UltraTech 103.4 103.4 -0.1 116.9 113.2 3.2

Birla Corp 24.1 34.8 -30.7 26.9 36.7 -26.7

India Cement 11.9 12.0 -0.4 15.6 15.6 0.2

Shree Cement 310.2 300.7 3.2 361.4 345.2 4.7

Trend in key financial parametersNet Sales (INR m) EBITDA Margins (%) Net Profit (INR m)

2QFY13 YoY (%) QoQ (%) 2QFY13 YoY (BP) QoQ (BP) 2QFY13 YoY (%) QoQ (%)

ACC 26,265 22.2 -2.1 14.4 420 -610 2,333 89.9 -33.7

Ambuja Cement 22,320 23.7 -12.4 20.8 350 -520 2,979 60.7 -31.2

UltraTech 46,322 18.5 -6.6 18.5 360 -490 4,770 71.0 -28.6

Birla Corp 5,396 4.7 -6.1 7.6 150 -660 180 -31.3 -66.0

India Cement 11,729 7.7 0.8 22.5 -70 290 1,083 25.6 26.6

Shree Cement 9,657 13.0 -35.1 21.7 -170 -430 99 -43.8 -94.9

Sector Aggregate 121,689 17.9 -9.3 18.2 270 -470 11,444 59.6 -35.9


Ambuja

Gras im

UltraTech

Birla Corp

India CementShree

ACC

0

50

100

150

200

0% 6% 12% 18% 24% 30% 36% 42% 48% 54%

RoCE (%)

EV (

USD

/To

n)

Replacement Cost at

USD140/ton

85

100

115

130

145

Jun

-12

Jul-

12

Au

g-12

Sep

-12

Sensex IndexMOSL Cement Index

80

100

120

140

160

Sep-

11

De

c-11

Mar

-12

Jun-

12

Sep-

12

Sensex IndexMOSL Cement Index

C–26October 2012


Sector: Cement

ACC

Bloomberg ACC IN


52 Wk Range (INR) 1,475/1,077

1,6,12 Rel Perf (%) 4/1/21

Mcap (INR b) 276.1

Mcap (USD b) 5.2

CMP: INR1,469 Neutral

Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton

End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)

12/10A 77,173 10,137 53.9 -38.2 - - 16.2 16.3 - 157

12/11A 94,387 11,083 59.0 9.3 25.5 3.8 16.2 15.7 14.6 154

12/12E 109,564 13,781 73.3 24.3 20.6 3.6 18.5 19.9 11.0 150

12/13E 125,950 16,231 86.4 17.8 17.0 3.2 20.0 21.5 9.6 148


Y/E December CY11 CY12 CY11 CY12E


Cement Sales (m ton) 6.16 5.93 5.69 5.95 6.72 6.05 5.45 6.46 23.7 24.7

YoY Change (%) 10.4 12.5 17.8 6.1 9.1 2.0 -4.2 8.6 11.5 4.0

Cement Realization 3,893 4,052 3,779 4,206 4,256 4,591 4,411 4,512 3,978 4,440

YoY Change (%) 3.4 5.7 11.5 20.5 9.3 13.3 16.8 7.3 9.7 11.6

QoQ Change (%) 11.6 4.1 -6.8 11.3 1.2 7.9 -3.9 2.3

Net Sales 23,982 24,030 21,500 25,027 28,602 27,778 24,042 29,141 94,387 109,564

YoY Change (%) 14.1 18.9 31.3 27.8 19.3 15.6 11.8 16.4 22.3 16.1

Total Expenditure 18,439 18,527 19,296 21,134 22,442 21,270 19,876 23,882 77,395 87,469

EBITDA 5,542 5,503 2,204 3,893 6,161 6,508 4,167 5,259 16,992 22,095

Margins (%) 23.1 22.9 10.3 15.6 21.5 23.4 17.3 18.0 18.0 20.2

Depreciation 1,125 1,158 1,199 1,270 1,305 1,356 1,375 1,411 4,753 5,448

Interest 253 271 253 192 316 301 300 299 969 1,216

Other Income 669 771 944 982 948 1,157 1,050 1,045 3,518 4,200

PBT before EO Item 4,834 4,845 1,695 3,414 5,487 6,009 3,542 4,594 14,788 19,631

EO Income/(Expense) 0 0 617 2,280 -3,354 0 0 0 2,897 -3,354

PBT after EO Item 4,834 4,845 2,312 5,693 2,134 6,009 3,542 4,594 17,685 16,278

Tax 1,327 1,479 637 2,466 580 1,829 1,045 1,348 4,431 4,802

Rate (%) 27.5 30.5 27.5 43.3 27.2 30.4 29.5 29.3 25.1 29.5

Reported PAT 3,507 3,366 1,676 3,227 1,554 4,179 2,497 3,246 13,254 11,476

Adjusted PAT 3,507 3,366 1,229 1,935 3,859 4,179 2,497 3,246 11,083 13,781

Margins (%) 14.6 14.0 5.7 7.7 13.5 15.0 10.4 11.1 11.7 12.6

YoY Change (%) -13.4 -6.2 22.8 39.2 10.1 24.2 103.2 67.7 9.3 24.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect 2QCY12 dispatches to de-grow 4.2% YoY (~10% down QoQ) to 5.45mt, and Average realization to decline

3.9% QoQ to INR4,411/ton (+13% YoY).

Net sales should grow 11.8% YoY (down 13% QoQ) to INR24b. EBITDA margins are expected to compress 6.1pp

QoQ (up 7pp YoY) to 17.3%, on the back of lower realizations and negative operating leverage. EBITDA/ton is

estimated to improve by ~INR377/ton YoY (-INR311/ton QoQ) to INR765.

Expect EBITDA to de-grow 36% QoQ (up ~89% YoY) to INR4.2b, translating into PAT de-growth of ~40% QoQ (up

~103% YoY).

We are downgrading our EPS estimates for CY12/CY13 by 1%/2% to INR73.3/86.4 to factor in lower volumes and

marginally lower realization.

We believe ACC stock valuations at 17x CY13E EPS and 9.6x CY13E EV/EBITDA fairly reflect underlying business

fundamentals. Maintain Neutral with target price of INR1,396 (9x CY13 EV/EBITDA).

C–27October 2012


Sector: Cement

Ambuja Cements

Bloomberg ACEM IN



1,6,12 Rel Perf (%) 2/11/23

Mcap (INR b) 309.9

Mcap (USD b) 5.9

CMP: INR202 Buy



12/10A 73,902 12,434 8.1 4.3 - - 18.1 24.1 - -

12/11A 85,306 12,547 8.2 0.6 24.7 3.9 16.3 23.2 14.5 194

12/12E 101,997 18,262 11.9 45.5 17.0 3.5 21.5 31.2 10.0 189

12/13E 117,222 20,213 13.2 10.7 15.3 3.0 21.1 30.6 8.8 184




Sales Volume (m ton) 5.64 5.29 4.81 5.71 6.18 5.63 4.85 6.18 21.45 22.84

YoY Change (%) 6.7 -3.5 6.7 12.6 9.6 6.5 0.9 8.2 5.4 6.5

Realization (INR/ton) 3,923 4,114 3,754 4,092 4,260 4,556 4,476 4,579 3,977 4,465

YoY Change (%) 4.2 10.1 8.1 16.0 8.6 10.7 19.2 11.9 9.5 12.3

QoQ Change (%) 11.2 4.9 -8.7 9.0 4.1 6.9 -1.8 2.3

Net Sales 22,125 21,764 18,051 23,366 26,333 25,660 21,709 28,296 85,306 101,997

YoY Change (%) 11.2 6.3 15.4 30.6 19.0 17.9 20.3 21.1 15.4 19.6

EBITDA 6,170 5,853 3,115 4,285 7,445 7,223 5,512 7,301 19,315 27,481

Margins (%) 27.9 26.9 17.3 18.3 28.3 28.2 25.4 25.8 22.6 26.9

Depreciation 1,061 1,074 1,079 1,238 1,209 1,215 1,265 1,306 4,452 4,995

Interest 138 152 138 99 168 180 160 137 526 646

Other Income 621 693 857 937 1,147 908 1,000 1,195 3,050 4,250

PBT before EO Item 5,592 5,320 2,755 3,886 7,215 6,736 5,087 7,052 17,387 26,090

Extraordinary Inc/(Exp) 0 0 -206 -243 -2,791 0 0 0 -358 -2,791

PBT after EO Exp/(Inc) 5,592 5,320 2,548 3,643 4,424 6,736 5,087 7,052 17,029 23,299

Tax 1,517 1,845 834 544 1,301 2,047 1,526 2,115 4,740 6,990

Rate (%) 27.1 34.7 32.7 14.9 29.4 30.4 30.0 30.0 27.8 30.0

Reported Profit 4,075 3,475 1,715 3,099 3,122 4,689 3,561 4,937 12,289 16,309

Adj PAT 4,075 3,475 1,854 3,305 5,075 4,689 3,561 4,937 12,547 18,262

YoY Change (%) -7.8 -11.2 21.9 31.2 24.5 34.9 92.1 49.4 0.9 45.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect dispatches to grow ~0.9% YoY (down 14% QoQ) to 4.85mt, and average realization to decline 1.8% QoQ

(up ~19.2% YoY) to INR4,476/ton.

Net sales should grow 20.3% YoY (down 15% QoQ) to INR21.7b. EBITDA margin is expected to contract 280bp

QoQ (up 8.1pp YoY) to 25.4%, impacted by QoQ lower utilization and negative operating leverage. EBITDA/ton

should be down INR146/ton QoQ to INR1,136 (+INR489/ton YoY).

Expect EBITDA to de-grow 24% QoQ (up +77% YoY) to INR5.5b, translating into PAT de-growth of 24% QoQ (up

92% YoY) to INR3.6b.

We broadly maintain our EPS estimates for CY12/13 at INR11.9/13.2. We believe valuations at 15.3x CY13E and

8.8x CY13E EV/EBITDA are attractive given Ambuja's superior profitability. Maintain Buy with target price of

INR207 (9x CY13E EV/EBITDA).

C–28October 2012


Sector: Cement

Birla Corporation

Bloomberg BCORP IN



1,6,12 Rel Perf (%) 26/-10/-29

Mcap (INR b) 21.8

Mcap (USD b) 0.4

CMP: INR282 Buy



03/11A 21,238 3,199 41.5 -42.6 - - 15.5 15.4 - -

03/12A 22,469 2,392 31.1 -25.2 9.1 1.0 10.7 11.3 5.8 44

03/13E 24,243 2,545 33.0 6.4 8.5 0.9 10.5 12.0 5.5 45

03/14E 27,537 2,532 32.9 -0.5 8.6 0.8 9.7 11.6 5.1 44




Cement Sales (m ton) 1.52 1.41 1.39 1.63 1.63 1.45 1.47 1.71 5.96 6.26

YoY Change (%) 2.0 2.0 -6.7 7.2 7.1 2.6 6.0 4.7 0.4 5.0

Cement Realization 3,413 3,213 3,500 3,612 4,021 3,821 3,921 4,120 3,415 3,978

YoY Change (%) -2.8 3.0 18.5 5.7 17.8 18.9 12.0 14.1 6.3 16.5

QoQ Change (%) -0.1 -5.9 8.9 3.2 11.3 -5.0 2.6 5.1

Net Sales 5,570 5,155 5,341 6,514 6,580 5,456 5,649 6,558 22,469 24,243

YoY Change (%) -3.1 6.4 11.4 9.7 18.1 5.8 5.8 0.7 5.8 7.9


EBITDA 1,487 316 664 782 1,258 766 784 1,218 3,124 4,026

Margins (%) 26.7 6.1 12.4 12.0 19.1 14.0 13.9 18.6 13.9 16.6

Depreciation 175 178 188 259 235 280 300 300 800 1,115

Interest 120 117 161 128 237 240 265 270 525 1,012

Other Income 346 275 341 575 346 300 350 544 1,662 1,540

Profit before Tax 1,538 295 656 970 1,132 546 569 1,192 3,461 3,439

Tax 420 34 219 396 284 142 148 320 1,068 894

Rate (%) 27.3 11.5 33.4 40.8 25.1 26.0 26.0 26.8 30.9 26.0

PAT 1,119 261 437 575 847 404 421 872 2,392 2,545

Margins (%) 20.1 5.1 8.2 8.8 12.9 7.4 7.5 13.3 10.6 10.5

YoY Change (%) -5.4 -62.1 -37.2 -8.9 -24.3 54.5 -3.7 51.8 -25.2 6.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect Birla Corp's revenues to grow 18% YoY (down 17% QoQ) to INR5.5b. Cement volume growth should be

muted at 2.6% YoY (down ~11% QoQ) to 1.45mt, impacted by limestone mining ban at its Rajasthan plant.

However, realization is likely to improve 19% YoY (down 5% QoQ) to INR3,821/ton.

Expect EBITDA margin to slip 5.1pp to 14% (+7.9% YoY) on the back of (1) lower realizations, (2) negative

operating leverage, and (3) cost push due to higher RM cost (as purchased limestone/clinker replaces captive

source) and higher energy cost. We estimate cement EBITDA/ton at INR528 (down INR245/ton QoQ, but up

INR305/ton YoY). As a result, EBITDA is estimated to de-grow 39% QoQ (up 143% YoY) to INR766m, translating

into PAT de-growth of 52% QoQ (up 54.5% YoY) to INR404m.

Birla Corp's Rajasthan plant (~2mt capacity) operations are impacted since August 2011 due to ban on mining

within 10km of the Chittorgarh Fort. The company lost its appeal in the High Court. The company has appealed

against the verdict in the Supreme Court, and since then the levy has been stayed. Non-resolution of this issue

would severely curtail operations at Rajasthan plant, especially as the company is expanding capacity there.

Our estimates partly factor in non-resolution of the ban in foreseeable future, resulting in higher RM Cost.

We are maintaining our EPS estimates for FY13/14 at INR33/INR32.9. The stock trades at 8.6x FY14E EPS and 5.1x

FY14 EV/EBITDA. Maintain Buy with target price of INR277 (5x FY14E EV/EBITDA).

C–29October 2012


Sector: Cement

Grasim Industries

Bloomberg GRASIM IN


52 Wk Range (INR) 3,347/2,208

1,6,12 Rel Perf (%) 4/19/32

Mcap (INR b) 304.1

Mcap (USD b) 5.8

CMP: INR3,315 Buy



03/11A* 213,183 22,790 248.5 -16.7 - - 16.8 16.5 - 143

03/12A* 249,878 26,475 288.6 16.2 11.5 1.8 16.7 17.7 7.4 146

03/13E* 267,983 31,944 348.3 20.7 9.5 1.5 17.3 18.8 6.5 147

03/14E* 306,836 34,468 375.8 7.9 8.8 1.3 16.0 18.5 5.3 109

* Consolidated

BSE Sensex S&P CNX

18,763 5,703




VSF Volume (ton) 54,839 78,959 78,215 94,904 77,013 77,838 82,915 100,662 306,917 338,428

YoY Change (%) -18.5 17.0 -7.6 10.8 40.4 -1.4 6.0 6.1 0.6 10.3

VSF Realization (INR/ton) 152,409 124,689 128,499 121,293 128,024 127,024 127,024 127,164 129,563 127,293

YoY Change (%) 29.3 7.1 4.4 -16.3 -16.0 1.9 -1.1 4.8 2.3 -1.8

QoQ Change (%) 5.1 -18.2 3.1 -5.6 5.5 -0.8 0.0 0.1

Net Sales 10,237 12,035 12,429 13,885 12,390 11,736 12,557 14,384 48,724 51,067

YoY Change (%) 8.3 29.0 2.4 -2.6 21.0 -2.5 1.0 3.6 7.3 4.8


EBITDA 3,529 2,905 2,854 2,168 2,953 2,856 3,061 3,488 11,611 12,358

Margins (%) 34.5 24.1 23.0 15.6 23.8 24.3 24.4 24.3 23.8 24.2

Depreciation 351 356 366 369 360 400 475 557 1,442 1,792

Interest 106 107 72 74 61 60 80 83 358 284

Other Income 1,010 2,157 1,093 1,503 844 2,100 1,000 1,556 5,607 5,500

PBT after EO Items 4,082 4,599 3,509 3,228 3,376 4,496 3,506 4,404 15,418 15,782

Tax 941 1,150 765 792 647 899 701 909 3,648 3,156

Rate (%) 23.0 25.0 21.8 24.5 19.2 20.0 20.0 20.6 23.7 20.0

Reported PAT 3,141 3,448 2,745 2,436 2,729 3,597 2,805 3,495 11,770 12,626

Adj. PAT 3,141 3,448 2,745 2,436 2,729 3,597 2,805 3,495 11,770 12,626

Margins (%) 30.7 28.7 22.1 17.5 22.0 30.7 22.3 24.3 24.2 24.7

YoY Change (%) 40.3 23.3 -2.9 -38.4 -13.1 4.3 2.2 43.5 -0.4 7.3

E: MOSL Estimates; '* Not comparable YoY due to demerger of cement business

Expect Grasim's 2QFY13 VSF volumes to be stable at 73,375 tons (+1.4% YoY, +1% QoQ) given steady demand and

no production impact due to water shortage. VSF realization should also be stable at INR127/kg (+INR2.5/kg YoY,

-INR1/kg QoQ) on back of bottomed-out utilization level. We assume FY13/14 realization of INR127/129 per kg.

Grasim's 2QFY13 standalone revenues are estimated to de-grow 2.5% YoY (-5% QoQ) to INR11.7b, impacted by

lower volume. EBITDA margin is likely to remain stable YoY at 24.3% (up 50bp QoQ).

EBITDA is estimated to de-grow 2% YoY (-3% QoQ) to INR2.9b, translating into PAT of INR3.6b, up 4% YoY and 32%

QoQ.

We are maintaining our consolidated EPS for FY13/14 at INR348.3/375.8. The stock trades at attractive valuations

of 8.8x FY14E consolidated EPS, 5.3x FY14E EV/EBITDA and 1.3x P/BV. Implied valuation of the cement business

is USD109/ton. Maintain Buy with target price of INR3,357 (SOTP based).

C–30October 2012


Sector: Cement

India Cements

Bloomberg ICEM IN



1,6,12 Rel Perf (%) 5/-29/23

Mcap (INR b) 29.2

Mcap (USD b) 0.6

CMP: INR95 Buy


End * (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)

03/11A 35,007 664 2.3 -79.6 - - 1.6 3.6 - -

03/12A 42,034 2,958 9.6 314.9 9.9 0.7 7.3 10.3 5.8 67

03/13E 46,069 3,035 11.1 16.2 8.5 0.6 7.3 11.2 4.8 64

03/14E 52,563 3,918 14.8 32.6 6.4 0.6 8.9 12.5 3.9 58

* Consolidated




Sales Dispatches (m ton) 2.31 2.43 2.19 2.60 2.38 2.50 2.25 2.70 9.52 9.83

YoY Change (%) -13.0 -10.6 7.1 2.0 2.9 3.0 3.0 3.9 -4.4 3.2

Realization (INR/ton) 4,148 4,223 4,242 4,245 4,464 4,374 4,362 4,581 4,216 4,450

YoY Change (%) 29.2 45.2 15.7 11.4 7.6 3.6 2.8 7.9 24.9 5.6

QoQ Change (%) 8.8 1.8 0.5 0.1 5.1 -2.0 -0.3 5.0

Net Sales 10,568 10,891 9,415 11,160 12,014 11,466 10,046 12,543 42,034 46,069

YoY Change (%) 20.0 29.5 20.6 11.8 13.7 5.3 6.7 12.4 20.1 9.6


EBITDA 2,417 2,520 1,946 2,152 2,777 2,519 1,852 2,845 9,034 9,994

Margins (%) 22.9 23.1 20.7 19.3 23.1 22.0 18.4 22.7 21.5 21.7

Depreciation 619 626 622 646 692 700 725 753 2,513 2,870

Interest 619 895 750 640 949 700 700 725 2,867 3,075

Other Income 49 29 46 70 37 50 60 78 193 225

PBT before EO expense 1,229 1,027 620 935 1,173 1,169 487 1,445 3,846 4,275

Extra-Ord expense 0 0 0 0 200 0 0 0 0 200

PBT 1,229 1,027 620 935 973 1,169 487 1,445 3,846 4,075

Tax 208 330 57 286 353 316 131 382 880 1,182

Rate (%) 16.9 32.1 9.2 30.6 36.2 27.0 27.0 26.4 22.9 29.0

Reported PAT 1,021 697 563 649 621 854 356 1,063 2,966 2,893

Adj PAT 1,021 697 563 649 748 854 356 1,063 2,966 3,035

YoY Change (%) 749.5 -257.4 137.0 -9.5 -26.7 22.5 -36.9 63.8 347.1 2.3

Margins (%) 9.7 6.4 6.0 5.8 6.2 7.4 3.5 8.5 7.1 6.6

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect India Cement's 2QFY13 volumes to grow 3% YoY (+5% QoQ) to 2.5mt, and realization at INR4,374/ton (up

3.6% YoY, down 2% QoQ) on stable pricing environment due to production discipline.

2QFY13 revenues are estimated to grow 5.3% YoY (-5% QoQ) to INR11.5b, including INR400m revenues from IPL

(v/s INR515m in 2QFY12).

Expect EBITDA of INR2.5b (-9% QoQ, flat YoY) with EBITDA margin down 1.1pp QoQ/YoY to 22%, translating into

PAT growth of 22.5% YoY (+14% QoQ) to INR854m. Our estimate does not factor in any MTM forex loss.

Pure Cement's EBITDA/ton is estimated to decline INR158/ton QoQ (-INR30/ton YoY) to INR1,008. Our estimates

factor in EBITDA of INR100m from IPL in 2QFY13 and INR310m in FY13.

While our estimates do not yet factor in any benefit of softening in imported coal prices, India Cement would

be one of the biggest beneficiaries with ~15% higher EPS for 10% lower imported coal prices.

We are downgrading our EPS estimates for FY13/14 by 2%/4.5% to INR11.1/14.8, led by higher freight cost post

increase in diesel prices. Valuations at 6.4x FY14E EPS, 3.9x FY14E EBITDA and USD58/ton are attractive. Maintain

Buy with target price of INR142 (5x FY14E EV/EBITDA).

C–31October 2012


Sector: Cement

Jaiprakash Associates

Bloomberg JPA IN



1,6,12 Rel Perf (%) 10/-3/3

Mcap (INR b) 174.8

Mcap (USD b) 3.3

CMP: INR82 Buy

Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected])

Year Net Sales PAT EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/


3/11A 129,665 7,421 3.5 -17.0 - - 8.3 10.6 - -

3/12A 128,531 10,203 4.8 37.5 15.3 1.5 10.4 10.0 2.3 8.7

3/13E 142,843 8,997 4.2 -11.8 16.6 1.4 8.5 10.9 2.1 8.6

3/14E 160,665 11,577 5.4 28.7 12.9 1.3 10.4 12.5 1.8 7.6

* Not Fully Diluted; FCCB O/S of INR14b at conversion price of INR166/sh (dilution of ~5%)




Sales 31,833 31,324 33,054 40,621 29,636 32,233 37,860 41,871 128,531 141,997

Change (%)* 0.3 4.6 14.2 4.0 -0.9

EBITDA 7,728 7,482 8,160 10,194 7,713 7,266 8,992 10,423 34,397 34,505

Change (%)* 20.4 9.9 3.1 31.7 19.1

As of % Sales 24.3 23.9 24.7 25.1 26.0 22.5 23.8 24.9 26.8 24.3

Depreciation 1,721 1,761 2,022 1,638 1,763 1,750 1,800 1,863 6,142 7,176

Interest 4,284 4,049 4,485 5,800 4,653 4,700 4,750 4,771 17,817 18,874

Other Income 74 560 1,205 317 731 550 600 618 2,645 2,499

Extra-ordinary income -2 -3 16 49 9 0 0 0 61 0

PBT 1,796 2,228 2,873 3,123 2,037 1,366 3,042 4,407 13,143 10,953

Tax 726 942 824 285 649 424 943 1,380 2,880 3,395


Reported PAT 1,070 1,287 2,050 2,838 1,388 943 2,099 3,027 10,264 7,558

Adj PAT 1,072 1,287 2,034 2,789 1,379 943 2,099 3,027 10,203 7,558

Change (%)* 1.3 11.4 -12.9 -3.3 37.8

E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger

BSE Sensex S&P CNX

18,763 5,703

We expect Jaiprakash Associates (JPA) to post 2QFY13 revenue of INR32.2b, EBITDA of INR7.3b and PAt of

INR943m. The numbers are not comparable YoY due to de-merger of cement capacity.

Contribution from the EPC division is expected to be moderate with revenue down 12% YoY to INR12.5b. We

expect EBIT of INR3b in 2QFY13 (v/s INR5.5b YoY) and EBIT margin of 21.5% v/s 35% YoY. 2QFY13 performance

would be healthy due to cement division where EBIT would be higher YoY, given the rise in cement capacity,

coupled with improved realizations.

In FY12, cement capacity stood at 33m tons (up from 26m tons as at end-FY11). The management expects

installed capacity to reach 36m tons by March 2013, which would drive contribution from the division in FY13. Of

this, Gujarat and AP capacity (~10m tons) has been hived off to wholly-owned subsidiary, Jaypee Cements Ltd.

JPA is looking to divest stake in Jaypee Cement to raise funds for de-leveraging.

We expect JPA to post standalone PAT of INR7.6b in FY13E (down 26% YoY) and INR9.8b in FY14E (up 30% YoY).

The stock trades at a reported P/E of 12.9x FY14E. Maintain Buy.

C–32October 2012


Sector: Cement

Shree Cement

Bloomberg SRCM IN


52 Wk Range (INR) 3,989/1,725

1,6,12 Rel Perf (%) 7/20/107

Mcap (INR b) 137.7

Mcap (USD b) 2.6

CMP: INR3,954 Buy


End (INR m) (INR M) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)

03/11A 34,535 6,972 200.1 -31.4 - - 36.5 8.4 - -

06/12A 48,792 9,558 274.4 37.1 14.4 5.0 40.5 19.6 9.0 157

06/13E 60,273 10,847 310.2 13.0 12.7 3.9 34.4 27.4 6.9 131

06/14E 68,347 12,760 361.4 16.5 10.9 3.1 31.7 25.1 5.8 113


Y/E June FY12 FY13E FY12 FY13E

1Q 2Q 3Q 4Q 5Q * 1Q 2Q 3Q 4Q (15 Mon)

Sales Dispat. (m ton) 2.69 2.49 2.85 3.47 3.37 2.85 3.09 3.76 3.67 14.87 13.37

YoY Change (%) 8.3 9.0 8.8 20.6 25.1 14.7 8.6 8.1 8.8 15.9 -10.1

Realization (INR/Ton) 3,405 2,955 3,798 3,560 3,805 3,685 3,785 3,985 3,988 3,576 3,876

YoY Change (%) 4.0 -1.8 33.2 7.9 11.8 24.7 -0.3 11.9 4.8 14.8 8.4

QoQ Change (%) 3.2 -13.2 28.5 -6.2 6.9 -3.2 2.7 5.3 0.1

Net Sales 10,187 7,413 12,586 14,241 14,553 10,927 14,261 17,729 17,356 58,980 60,273

YoY Change (%) 7.9 3.3 61.4 33.1 42.9 47.4 13.3 24.5 19.3 36.6 2.2

EBITDA 2,591 1,524 3,320 4,210 4,812 3,216 3,829 5,328 4,981 16,456 17,353

Margins (%) 25.4 20.6 26.4 29.6 33.1 29.4 26.9 30.1 28.7 27.9 28.8

Depreciation 1,598 1,619 2,351 2,346 818 850 950 1,700 1,781 8,731 5,281

Interest 476 468 519 411 480 450 455 470 476 2,354 1,851

Other Income 158 204 172 774 322 250 175 700 325 1,630 1,450

PBT before EO Exp 676 -360 622 2,227 3,836 2,166 2,599 3,858 3,048 7,001 11,671

Extra-Ord Expense 83 -468 0 508 1 0 0 0 0 123 0

PBT 593 108 622 1,719 3,835 2,166 2,599 3,858 3,048 6,878 11,671

Tax 43 -277 30 576 320 0 552 820 1,079 693 2,451

Rate (%) 7.3 -256.9 4.9 33.5 8.3 0.0 21.3 21.3 35.4 10.1 21.0

Reported PAT 550 385 592 1,143 3,515 2,166 2,047 3,038 1,969 6,185 9,220

Adj PAT 627 -1,286 592 1,481 3,516 2,166 2,047 3,038 1,969 6,296 9,220

YoY Change (%) -73.7 -360.7 304.8 NA 460.9 -268.4 245.7 105.2 -44.0 66.9 46.4

E:MOSL Estimates; ^ Y/E March for FY11; * volumes are estimated

BSE Sensex S&P CNX

18,763 5,703

Expect Shree's 2QFY13 cement volumes to grow 14.7% YoY (-15% QoQ) to 2.85mt (including clinker) and realization

to improve 2.7% QoQ (flat YoY) to INR3,785/ton.

Merchant power sale is estimated at 100m units (v/s 14m units YoY and 390m QoQ) @ INR4.25/unit (v/s INR4.44

in 5QFY12 and INR4.98 in 2QFY12).

Expect 2QFY13 sales to grow 47.4% YoY (down 25% QoQ) to INR10.9b, driven by strong recovery in both cement

and merchant power business. Merchant power revenues are estimated at INR425m (v/s INR1.7b in 5QFY12 and

INR69m in 2QFY12).

Cost push in form of fuel and freight will dilute benefit of better cement realizations and higher merchant

power volumes, resulting in EBITDA margin compression of 3.7pp QoQ (up 8.8pp YoY) to 29.4%. Cement EBITDA/

ton is expected to decline by ~INR210/ton QoQ (up ~INR504/ton YoY) to INR1,114/ton. Expect lower depreciation

to boost adjusted PAT to INR2.2b (v/s loss of INR1.3b in 2QFY12).

We are upgrading our adjusted EPS estimates for FY13/14 by 3%/5% to INR310/361.4 to account for (1) lower pet

coke/imported coal prices, and (2) upgrade in volume on the back of new capacity.

The stock trades at 10.9x FY14E EPS, 5.8x FY14E EBITDA and USD113/ton. Maintain Buy with target price of

INR4,230 (SOTP based).

C–33October 2012


Sector: Cement

UltraTech Cement

Bloomberg UTCEM IN


52 Wk Range (INR) 2,005/1,057

1,6,12 Rel Perf (%) 7/23/57

Mcap (INR b) 539.2

Mcap (USD b) 10.2

CMP: INR1,968 Buy



03/11A* 132,062 14,042 51.2 -41.7 - - 18.4 21.1 - -

03/12A 181,664 23,982 87.5 70.8 22.5 4.2 20.4 23.7 13.4 207

03/13E 210,570 30,013 109.5 25.2 18.0 3.5 21.2 24.7 11.3 209

03/14E 244,669 33,594 122.6 11.9 16.1 2.9 19.9 24.2 9.7 172

* Merger of Grasim's cement business assumed w.e.f. 1 July 2010




Sales (m ton) 9.86 9.22 10.11 11.54 10.33 9.10 10.80 12.49 40.7 42.7

YoY Change (%) -3.9 0.3 3.2 6.9 4.8 -1.3 6.8 8.2 1.7 4.9

Grey Cement Realn.(INR/ton) * 3,749 3,507 3,759 3,894 4,124 3,984 4,084 4,284 3,738 4,131

YoY Change (%) 11.8 19.3 19.0 10.3 10.0 13.6 8.7 10.0 14.7 10.5

QoQ Change (%) 6.2 -6.5 7.2 3.6 5.9 -3.4 2.5 4.9

Net Sales 43,515 39,101 45,681 53,366 50,748 44,095 52,867 62,860 181,664 210,570

YoY Change (%) 9.1 21.6 23.0 18.9 16.6 12.8 15.7 17.8 37.6 15.9

EBITDA 11,882 5,837 9,647 12,641 12,918 9,358 11,513 15,467 40,007 49,256

Margins (%) 27.3 14.9 21.1 23.7 25.5 21.2 21.8 24.6 22.0 23.4

Depreciation 2,230 2,228 2,236 2,332 2,281 2,350 2,400 2,492 9,026 9,523

Interest 712 660 281 586 498 500 565 571 2,239 2,135

Other Income 641 1,002 876 2,000 849 1,100 900 2,051 4,520 4,900

PBT before EO expense 9,583 3,952 8,005 11,723 10,987 7,608 9,448 14,455 33,262 42,498

PBT after EO Expense 9,583 3,952 8,672 11,723 10,987 7,608 9,448 14,455 33,929 42,498

Tax 2,752 1,162 2,503 3,050 3,203 2,206 2,740 4,175 9,467 12,324

Rate (%) 28.7 29.4 28.9 26.0 29.2 29.0 29.0 28.9 27.9 29.0

Reported PAT 6,831 2,790 6,169 8,673 7,784 5,402 6,708 10,280 24,462 30,174

Adj PAT 6,831 2,790 5,695 8,673 7,784 5,402 6,708 10,280 23,982 30,174

YoY Change (%) 22.5 141.0 78.5 19.3 14.0 93.6 17.8 18.5 70.8 25.8

E: MOSL Estimates; * Grey cement realization is our estimate

BSE Sensex S&P CNX

18,763 5,703

Expect UltraTech's 2QFY13 cement volumes to de-grow 1.3% YoY (down 12% QoQ) to 9.1mt, and realization to

improve 13.6% YoY (down 3.4% YoY) to INR3,984/ton. Consequently net revenue is expected to grow 12.8% YoY

(down 13% QoQ) to INR44.1b.

White cement revenue should grow 5% YoY and RMC business volumes 9% YoY.

Despite cost push in energy and freight, higher realization should drive up EBITDA margin 6.3pp YoY at 21.2%

(down 4.3pp QoQ). EBITDA/ton works out to INR1,051, up ~INR389 YoY (down +INR222 QoQ).

Expect EBITDA to grow 60% YoY (down ~28% QoQ) to INR9.4b, translating into PAT growth to ~94% YoY (-31%

QoQ) to INR5.4b.

We maintaining our EPS estimate for FY13/14 at INR109.5/122.6. The UltraTech stock trades at 16.1x FY14E EPS,

9.7x FY14E EBITDA and USD172/ton. Maintain Buy with target price of INR1,832 (9x FY14E EV/EBITDA).

C–34October 2012


Sector: Consumer

ConsumerCompany Name

Asian Paints

Britannia Industries

Colgate Palmolive

Dabur India

GSK Consumer

Godrej Consumer Products

Hindustan Unilever

ITC

Marico

Nestle India

Pidilite Industries

United Spirits





Asian Paints 3,937 Neutral 25,500 13.3 0.4 3,825 18.5 -12.6 2,428 16.3 -15.8

Britannia 476 Se l l 14,500 12.0 18.7 827 7.1 27.1 548 12.3 26.2

Colgate 1,206 Se l l 7,700 17.2 4.6 1,670 18.2 2.8 1,253 16.5 6.7

Dabur 128 Neutral 14,700 16.5 0.5 2,852 20.5 38.4 2,122 22.1 37.5

Godrej Consumer 668 Neutral 16,250 37.0 17.0 2,860 36.9 43.8 1,736 35.9 33.0

GSK Consumer 2,994 Neutral 8,100 12.5 11.0 1,377 16.7 24.4 1,153 11.9 8.2

Hind. Unilever 545 Neutral 64,500 15.0 1.1 9,869 19.4 2.1 7,784 19.3 -8.9

ITC 272 Buy 69,700 14.5 3.8 25,650 15.6 8.3 17,680 16.8 10.4

Marico 199 Buy 11,500 18.0 -9.2 1,564 34.1 -15.4 1,074 37.2 -13.3

Nestle 4,374 Neutral 22,750 15.9 14.5 4,960 20.9 15.5 2,954 10.0 21.6

Pidilite Inds. 206 Buy 8,450 19.0 -7.4 1,622 24.6 -14.9 1,108 28.2 -16.9

United Spirits 1,218 Neutral 19,700 10.0 -4.2 2,916 13.9 -13.0 828 -2.3 -25.1


Expect another steady quarter - 16% sales growth, 18% PAT growth: For 2QFY13, we

expect our coverage universe to post ~16% revenue growth (16% in 1QFY13) and

~18% PAT growth (~22% in 1QFY13). EBITDA is likely to grow 18.5% on sustained

revenue growth and softening input costs. We expect ITC to post 16% sales growth

(1% cigarette volume growth) and ~17% PAT growth; Hindustan Unilever's sales are

likely to grow 15% (volume growth of 8%) and PAT is likely to grow 19%, led by

healthy growth in Soaps & Detergents and Personal Care products.

No concerns on broadbased demand outlook; no down-trading witnessed: Except

for a few discretionary categories, consumer demand in Processed Foods has been

healthy. Late revival of the monsoon provides respite to future rural consumer

demand. Despite the past few quarters of price hikes, volume growth across product

categories is likely to remain healthy. We expect moderation in demand in few

discretionary categories. All companies under our universe, barring Nestle, are likely

to report healthy volume growth in HPC categories.

Agri-based input costs and crude soften; INR depreciation negates impact: Prices of

edible oils like groundnut oil, safflower oil and sunflower oil, and other agri

commodities like copra, wheat, barley, sugar and palm oil are down on a YoY basis.

Prices of crude and crude-linked commodities are also on a downward trend.

However, steep INR depreciation has negated the impact in many commodities,

prices of which are linked globally. Britannia, GlaxoSmithKline, Hindustan Unilever,

Nestle and Marico are likely to report EBITDA margin expansion while Asian Paints

and Colgate are likely to report flat margins.

New launches continue, albeit at a slower pace; we sense better pricing

environment: Despite the relatively sober macroeconomic environment, new launch

activity remained healthy during the quarter. However, the pace of new launches

has moderated. Our discussions with industry players as well as our channel checks

do not indicate any let down in competitive intensity. Consequently, sales promotion

Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected])

C–35October 2012


Sector: Consumer

Slight moderation in volume growth visible

Quarter Ending Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12E

Asian Paints 0.0 27.0 16.0 15.0 15.0 12.0 18.0 -2.0 5.0

Colgate (Toothpaste) 12.0 13.0 13.0 14.0 15.0 15.0 14.0 13.0 14.0

Dabur 13.5 10.0 9.3 8.6 10.0 10.8 12.4 12.0 9.0

Godrej Consumer

Soaps -10.0 3.0 9.0 9.0 19.0 19.0 17.0 22.0 12.0

Hair Color 12.0 2.0 5.0 10.0 8.0 9.0 9.0 5.0 5.0

GSK Consumer 18.0 13.0 5.5 14.0 8.0 12.0 7.0 7.4 7.0

Hindustan Unilever 14.0 13.0 14.0 8.3 9.8 9.1 10.0 9.0 9.0

ITC (cigarette) -0.5 2.0 -2.0 8.0 7.5 5.0 5.5 1.5 1.0

Marico

Parachute 10.0 5.0 5.0 10.0 10.0 13.0 11.1 18.0 9.0

Hair Oil 18.0 31.0 21.0 32.0 26.0 20.0 17.5 12.0 14.0

Saffola 14.0 13.0 14.0 15.0 11.0 15.0 3.3 25.0 15.0

United Spirits 16.0 14.0 12.0 15.4 8.0 0.7 5.1 1.9 6.0


Softening in input costs augurs well for sector gross margins

Input Price Trend Unit Current 12m Change from Impact Companies

(YoY) Price (INR) chg. % peak/bottom

LAB Sideways INR/Kg 117 7 Peak Negative HUL

Soda Ash Up INR/50Kg 1,140 18 Peak Neutral HUL

Palm Fatty Acid Down US$/MT 670 -17 -62 Positive HUL, Godrej Consumer

Palm Oil Down MYR/MT 2,169 -26 -64 Positive Britannia, Nestle, HUL, ITC

HDPE Sideways INR/Kg 93 19 Peak Negative All Companies

Sugar Sideways INR/Qtl 3,795 28 28 Positive Britannia, Nestle, GSK Consumer

Wheat Up INR/Qtl 1,460 26 Peak Negative Nestle, ITC and Britannia

Milk Up Index 206 48 Peak Negative Nestle, GSK Consumer

TiO2 Sideways INR/Kg 250 0 -16 Positive Asian Paints

Copra Down INR/Qtl 4,025 -29 7 Positive Marico

Source:Companies, MOSL



schemes continue unabated, especially in modern trade outlets. Pricing environment

in the HPC bucket has improved, given P&G's focus on improving profitability. Price-

based competition from P&G, especially in Hair Care, has softened.

Peak sector valuations drive our preference for niche plays: Consumer demand in the

staples and HPC categories continues to be healthy, higher base and tough macro

environment notwithstanding. Volume growth should remain healthy, barring few

exceptions. Given the absolute as well as relative peak sector valuations, we see

limited absolute upside in most of our coverage universe. We continue to prefer

niche plays with strong pricing power and greater visibility on volume growth and

profitability. ITC, Marico, GlaxoSmithKline Consumer and Pidilite are our top picks in

the sector.

96

100

104

108

112

Jun-

12

Jul-

12

Aug

-12

Sep-

12

Sensex Index

MOSL Consumer Index

85

100

115

130

145

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Sensex Index

MOSL Consumer Index

New launches during 2QFY13

Company Brand Category

Britannia Daily Fresh Flavoured yoghurt-mango, vanilla, strawberry

Parag Milk Foods Go Milk 100% natural & zero preservative UHT milk

CavinKare Cavin's Pure+ Beverages (UHT treated milk)

D S Group Yomil Milk-based powdered beverage

Perfetti Van Melle Alpenliebe Juzt Jelly Candy

HUL TRESemme/Comfort One Rinse Hair Care/Laundry Care

Marico Saffola Muesli Breakfast cereal market

Nestle India Munch Rollz, Kit Kat Chocolate/Chocolate

C–36October 2012


Sector: Consumer

PFAD prices (INR/ton)

45,781

46,446

30,216

10,000

25,000

40,000

55,000

70,000

Oct

-09

Dec

-09

Apr

-10

Jul-

10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Jun

-12

Sep

-12

LAB Prices

117

114

109

112

91

82

898590

71

76

116

50

65

80

95

110

125

140

Sep-

08

Dec

-08

Ma

r-0

9

Jun-

09

Sep-

09

Dec

-09

Ma

r-1

0

Jun-

10

Sep-

10

Dec

-10

Ma

r-1

1

Jun-

11

Sep-

11

Dec

-11

Ma

r-1

2

Jun-

12

Sep-

12

INR

/Kg

Copra Prices

6,125

6,700

6,250

5,400

5,525

4,3503,900

4,175

2,700

3,850

5,000

6,150

7,300

Jan

-10

Apr

-10

Jul-

10

Oct

-10

Jan

-11

Apr

-11

Jul-

11

Oct

-11

Jan

-12

Apr

-12

Jul-

12

INR

/Qtl

TiO2 Dupont price Delhi278

220152

250

100

140

180

220

260

300

Sep

-09

Dec

-09

Ma

r-10

Jun

-10

Sep

-10

Dec

-10

Ma

r-11

Jun

-11

Sep

-11

Dec

-11

Ma

r-12

Jun

-12

Sep

-12

Input costs: Mixed trends

Palm Fatty Acid: Range bound (INR/ton) LAB Prices: continue to stay firm (INR/kg)

Titanium Dioxide: at an all time high Copra prices; trending down after steep rise (INR/Qtl)

Source: Companies, MOSL




Consumer

Asian Paints 3,937 Neutral 103.1 117.8 137.3 38.2 33.4 28.7 24.4 21.0 17.4 36.0 34.0 33.2

Britannia 476 Se l l 15.6 18.4 23.7 30.4 25.9 20.1 21.9 16.8 12.1 34.9 35.1 37.9

Colgate 1,206 Se l l 33.4 38.6 43.8 36.1 31.2 27.6 26.7 22.6 19.3 107.7 111.3 103.5

Dabur 128 Neutral 3.7 4.4 5.4 34.6 29.0 23.6 26.4 21.4 17.5 37.1 36.0 36.2

Godrej Consumer 668 Neutral 16.3 21.6 26.3 41.0 30.9 25.4 29.0 21.9 17.9 25.2 23.1 24.3

GSK Consumer 2,994 Neutral 84.5 101.7 113.5 35.4 29.4 26.4 22.2 19.0 16.6 31.0 31.4 29.8

Hind. Unilever 545 Neutral 11.9 15.5 18.0 45.7 35.1 30.2 34.6 27.2 23.3 74.6 72.1 63.4

ITC 272 Buy 8.0 9.4 11.0 34.1 29.0 24.7 22.9 19.1 16.0 32.7 32.5 32.4

Marico 199 Buy 5.2 6.8 8.5 38.4 29.4 23.6 27.7 20.5 16.3 28.0 21.6 21.8

Nestle 4,374 Neutral 105.7 117.1 138.5 41.4 37.4 31.6 27.6 22.7 18.7 95.7 73.6 63.5

Pidilite Inds. 206 Buy 7.0 8.4 10.1 29.5 24.5 20.4 20.4 15.4 12.5 26.3 24.6 24.8

United Spirits 1,218 Neutral 19.5 19.3 35.1 62.4 63.2 34.7 18.6 16.5 14.8 4.9 4.7 7.9


C–37October 2012


Sector: Consumer

Asian Paints

Bloomberg APNT IN


52-Week Range (INR) 4,170/2,551

1,6,12 Rel. Perf. (%) -1/17/12

M.Cap. (INR b) 377.6

M.Cap. (USD b) 7.2


Year Net Sales Adj.PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/


3/11A 77,223 8,432 87.9 1.0 - - 38.5 50.7 - -

3/12A 96,322 9,887 103.1 17.3 38.2 13.7 36.0 47.8 3.8 24.4

3/13E 110,400 11,637 121.3 17.7 32.4 11.2 34.7 46.6 3.4 20.4

3/14E 129,785 13,718 143.0 17.9 27.5 9.3 33.8 45.6 2.8 16.8




Volume Growth %* 15.0 15.0 12.0 18.0 -2.0 5.0 13.0 11.0 15.0 8.0

Net Sales 22,571 22,508 25,605 25,387 25,393 25,500 30,100 29,407 96,322 110,400

Change (%) 23.3 24.3 22.0 29.5 12.5 13.3 17.6 15.8 24.7 14.6

Raw Material/PM 13,537 13,507 15,514 15,213 14,838 15,045 17,910 17,431 57,770 65,224

Gross Profit 9,035 9,001 10,092 10,174 10,554 10,455 12,191 11,977 38,552 45,176

Gross Margin (%) 40.0 40.0 39.4 40.1 41.6 41.0 40.5 40.7 40.0 40.9

Operating Expenses 5,149 5,772 6,118 6,420 6,176 6,630 7,104 7,139 23,465 27,049

% of Sales 22.8 25.6 23.9 25.3 24.3 26.0 23.6 24.3 24.4 24.5

EBITDA 3,886 3,229 3,974 3,754 4,379 3,825 5,087 4,837 15,088 18,128

Margin (%) 17.2 14.3 15.5 14.8 17.2 15.0 16.9 16.4 15.7 16.4

Change (%) 11.9 -2.6 15.2 31.8 12.7 18.5 28.0 28.9 211.9 20.1

Interest 65 88 90 166 109 130 130 135 410 504

Depreciation 291 300 307 314 334 365 375 464 1,211 1,538

Other Income 338 292 225 470 326 300 300 282 1,074 1,209

PBT 3,868 3,133 3,802 3,744 4,262 3,630 4,882 4,521 14,541 17,295

Tax 1,155 955 1,138 1,097 1,273 1,107 1,489 1,406 4,335 5,275


PAT before Minority 2,713 2,179 2,664 2,647 2,989 2,523 3,393 3,115 10,206 12,020

Minority Interest 79 91 96 52 106 95 95 87 319 382

Adjusted PAT 2,634 2,087 2,569 2,595 2,884 2,428 3,298 3,028 9,887 11,637

Change (%) 18.5 -2.8 16.6 39.5 9.5 16.3 28.4 16.7 17.3 17.7

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Asian Paints (APNT) to report net sales of INR25.5b, a growth of 13.3%. Domestic decorative paints

demand is likely to remain subdued but better than 1QFY13. We expect 4-5% volume growth.

In the international business, South Asia is likely to do well, but the Middle East business still remains under

pressure.

We expect gross margin to expand 100bp to 41% on stable INR and lower titanium dioxide prices. We estimate

EBITDA margin at 15% and adjusted PAT at INR2.4b, up 16.3%.

Average titanium dioxide (20% of RM) prices softened 3-4% in 2QFY13. APNT's RM index increased by 6% during

the quarter.

APNT's current valuations adequately capture the positives, viz. strong long-term growth visibility, dominant

market positioning, and thought leadership in the Paints industry. However, the current macroeconomic

environment presents near-term challenges for decorative paints demand. The stock trades at 32.4x FY13E EPS

and 27.5x FY14E EPS. Neutral.

What to look for

Volume growth in domestic market and the trend in gross and EBITDA margins.

C–38October 2012


Sector: Consumer

Bloomberg BRIT IN


52-Week Range (INR) 600/434

1,6,12 Rel. Perf. (%) -9/-25/-9

M.Cap. (INR b) 56.9

M.Cap. (USD b) 1.1

CMP: INR476 Sell

Britannia Industries


End (INR m) (INR m) (INR) Gr. (%) (X) (x) (%) (%) Sales EBITDA

03/11A 41,983 1,453 12.2 -13.2 - - 32.2 31.2 - -

03/12A 49,470 1,867 15.6 28.5 30.4 10.6 34.9 36.1 1.1 21.9

03/13E 56,500 2,198 18.4 17.7 25.9 9.1 35.1 59.3 1.0 16.8

03/14E 66,094 2,828 23.7 28.7 20.1 7.6 37.9 53.8 0.8 12.1




Net Sales 11,030 12,941 12,474 13,096 12,216 14,500 14,150 15,634 49,541 56,500

YoY Change (%) 21.0 18.2 15.4 16.8 10.8 12.0 13.4 19.4 18.0 14.0

COGS 7,257 8,408 7,910 8,223 7,575 9,396 8,971 10,144 31,798 36,085

Gross Profit 3,773 4,533 4,565 4,873 4,642 5,104 5,179 5,491 17,743 20,415

Margins (%) 34.2 35.0 36.6 37.2 38.0 35.2 36.6 35.1 35.8 36.1

Other Exp 3,300 3,761 3,749 4,192 3,991 4,278 4,316 4,603 15,003 17,188

% of Sales 29.9 29.1 30.1 32.0 32.7 29.5 30.5 29.4 30.3 30.4

Total Exp 7,073 12,170 11,658 12,415 11,566 13,674 13,287 14,747 46,801 53,273

EBITDA 473 772 816 680 651 827 863 887 2,740 3,227

Margins (%) 4.3 6.0 6.5 5.2 5.3 5.7 6.1 5.7 5.5 5.7

YoY Growth (%) 15.6 45.9 46.3 8.0 37.6 7.1 5.8 30.4 32.8 17.8

Depreciation 111 116 122 125 130 135 140 142 473 547

Interest 93 97 95 95 95 90 75 63 381 323

Other Income 304 110 148 226 179 160 160 197 788 696

PBT 573 670 747 685 605 762 808 879 2,675 3,053

Tax 155 182 206 155 170 213 226 245 698 855

Rate (%) 27.0 27.1 27.6 22.6 28.1 28.0 28.0 27.9 26.1 28.0

Adjusted PAT 418 488 541 530 435 548 582 634 1,977 2,198

YoY Change (%) 27.2 48.8 42.8 22.6 4.0 12.3 7.6 19.5 36.1 11.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Britannia Industries (BRIT) to report sales of INR14.5b, a growth of 12%. Volume growth is likely to

remain in single digits, as the discretionary processed foods category is undergoing a slowdown.

We estimate 100bp expansion in gross margin to 35.2% and 30bp contraction in EBITDA margin due to firm input

costs.

We estimate 12.3% PAT growth, with tax rate at ~28%, up 90bp.

Among input costs, wheat prices are up ~16%, sugar prices are 18% higher. INR depreciation has negated the

effect of declining palm oil prices to a large extent.

We expect competitive intensity to remain elevated, as players like Parle, ITC and Cadbury try to increase share

in the high margin premium creams and cookies segment. The increased competition will keep growth and

margin expansion under check.

Premiumization across product portfolios and launches in non Bakery segments (Milk, Snacks and Breakfast

Cereals) is likely to continue, as it offers attractive potential for growth.

The stock trades at 25.9x FY13E EPS and 20.1x FY14E EPS. Sell.

What to look for

Gross and EBITDA margins, and new launches in premium categories.

C–39October 2012


Sector: Consumer

Colgate Palmolive

Bloomberg CLGT IN


52-Week Range (INR) 1,264/932

1,6,12 Rel. Perf. (%) -3/-2/11


M.Cap. (USD b) 3.1

CMP: INR1,206 Sell



03/11A 22,206 4,026 29.6 -0.3 - - 114.1 114.3 - -

03/12A 26,239 4,544 33.4 12.9 36.1 38.7 107.7 108.4 6.1 26.7

03/13E 30,921 5,251 38.6 15.6 31.2 31.5 111.3 111.7 5.1 22.6

03/14E 35,798 5,950 43.8 13.3 27.6 26.1 103.5 103.9 4.4 19.3




Toothpaste Volume Gr % 14.0 15.0 15.0 14.0 13.0 14.0 14.0 13.0 14.0 13.0

Net Sales 6,111 6,572 6,696 6,859 7,361 7,700 7,850 8,010 26,239 30,921

YoY Change (%) 15.6 19.1 20.0 17.9 20.5 17.2 17.2 16.8 18.2 17.8

COGS 2,467 2,637 2,651 2,748 2,997 3,080 3,062 2,968 10,502 12,107

Gross Profit 3,644 3,936 4,045 4,112 4,364 4,620 4,789 5,042 15,736 18,814

Gross Margin (%) 59.6 59.9 60.4 59.9 59.3 60.0 61.0 62.9 60.0 60.8

Other operating Expenses 2,476 2,706 2,754 2,583 2,939 3,160 3,269 3,266 10,514 12,634

% to sales 40.5 41.2 41.1 37.7 39.9 41.0 41.6 40.8 40.1 40.9

Other operating Income 166 183 202 170 200 210 230 214 738 855

EBITDA 1,335 1,413 1,493 1,699 1,625 1,670 1,750 1,990 5,960 7,035

Margins (%) 21.3 20.9 21.6 24.2 21.5 21.1 21.7 24.2 22.1 22.1

Depreciation 88 106 99 100 105 100 100 95 393 400

Interest 4 8 6 2 0 8 7 5 21 20

Financial other Income 138 95 97 131 112 120 100 102 443 434

PBT 1,381 1,395 1,485 1,728 1,632 1,682 1,743 1,991 5,989 7,048

Tax 377 319 330 420 457 429 436 475 1,446 1,797

Rate (%) 27.3 22.9 22.2 24.3 28.0 25.5 25.0 23.9 24.1 25.5

Adj PAT 1,004 1,076 1,156 1,308 1,174 1,253 1,307 1,516 4,544 5,251

YoY Change (%) -17.6 7.2 74.3 14.6 16.9 16.5 13.1 15.9 12.9 15.6

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Colgate Palmolive (CLGT) to post sales growth of 17% to INR7.7b. Toothpaste volume growth is likely

to be 14% v/s ~13% in 1QFY13.

Gross margin would be flat at 60%. Price hikes and mix improvement would aid marginal gross margin expansion

of 10bp.

We expect 20bp expansion in EBITDA margin to 21.1% due to continuous investments in ad spends and sales

promotion on account of heightened competitive activity by HUL (has launched range of products under the

Pepsodent Expert Protection range).

PBT would grow 18%. Higher tax rate at 25.5% (up 260bp) would result in 16.3% increase in PAT to INR1.2b.

Though volume growth remains steady, input cost and increasing ad spends will keep earnings growth in check.

While we like CLGT's sustained double-digit volume growth in its core Toothpaste category, we believe current

valuations leave little room for error, given the context of rising competitive intensity, especially in the high

margin Sensitive category.

We estimate PAT CAGR of 14.4% over FY12-14. The stock trades at 31.2x FY13E EPS and 27.6x FY14E EPS. Sell.

What to look for

Ad spends and market share in both Toothpaste and Toothbrush categories.

C–40October 2012


Sector: Consumer

Dabur India

Bloomberg DABUR IN



1,6,12 Rel. Perf. (%) -1/14/11


M.Cap. (USD b) 4.2

CMP: INR128 Neutral



3/11A 40,774 5,686 3.3 13.2 - - 40.9 36.9 - -

3/12A 52,832 6,449 3.7 13.4 34.6 12.9 37.1 37.3 4.3 26.4

3/13E 61,276 7,698 4.4 19.4 29.0 10.4 36.0 39.4 3.6 21.4

3/14E 70,614 9,463 5.4 22.9 23.6 8.5 36.2 41.2 3.1 17.5




Volume Growth (%) 8.6 10.0 10.8 12.4 12.0 9.0 9.0 8.0 10.5 9.5

Net Sales 12,046 12,623 14,527 13,636 14,620 14,700 16,500 15,457 52,832 61,276

YoY Change (%) 31.4 29.8 34.5 23.0 21.4 16.5 13.6 13.4 29.6 16.0

Total Exp 10,267 10,258 12,312 11,483 12,559 11,848 13,728 12,782 44,319 50,916

EBITDA 1,779 2,366 2,215 2,153 2,061 2,852 2,772 2,675 8,513 10,360

Margins (%) 14.8 18.7 15.2 15.8 14.1 19.4 16.8 17.3 16.1 16.9

YoY Growth (%) 29.9 16.5 5.7 4.7 15.9 20.5 25.2 24.2 10.0 21.7

Depreciation 248 217 208 293 267 280 300 300 967 1,147

Interest 145 172 183 57 213 180 160 161 557 714

Other Income 216 189 231 280 342 250 250 243 917 1,085

PBT 1,602 2,166 2,055 2,083 1,923 2,642 2,562 2,457 7,905 9,584

Tax 323 427 337 377 378 518 502 482 1,464 1,879

Rate (%) 20.1 19.7 16.4 18.1 19.6 19.6 19.6 19.6 18.5 19.6

Minority Interest 2 0 -10 0 2 2 2 2 -8 8

Adjusted PAT 1,277 1,739 1,728 1,705 1,543 2,122 2,058 1,974 6,449 7,698

YoY Change (%) 19.6 8.4 11.9 16.0 20.8 22.1 19.1 15.7 13.4 19.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Dabur to report net sales of INR14.7b, up 16.5%, with 9% volume growth. We expect the stable

growth trajectory to continue in 2QFY13. Growth would be led by a combination of volume growth (8-9%), mix

improvement and modest price hikes.

Competitive intensity remains strong in Shampoos, with companies running various sales promotion schemes

to gain market share. However, recent price hike by P&G in Pantene Bottles (up 5% w.e.f. October 2012) offers

some respite.

On the international business front, no positive surprises are expected and growth in the Middle East would

remain muted.

We expect 70bp EBITDA margin expansion, driven by a favorable input cost environment and price hikes taken

over the past 12 months. EBITDA is likely to grow 20.5% to INR2.8b.

PAT would grow 22% to INR2.1b.

The stock trades at 29x FY13E EPS and 23.6x FY14E EPS. Neutral.

What to look for

Organic volume growth, ad spends and margins in the domestic business.

C–41October 2012


Sector: Consumer

GlaxoSmithKline Consumer

Bloomberg SKB IN


52-Week Range (INR)3,111/2,179

1,6,12 Rel. Perf. (%) -3/2/18


M.Cap. (USD b) 2.4




12/10A 23,800 2,998 71.3 28.8 - - 31.2 47.3 - -

12/11A 27,759 3,552 84.5 18.5 35.4 11.0 31.0 47.5 4.1 22.2

12/12E 30,253 4,278 101.7 20.4 29.4 9.2 31.4 47.2 3.6 19.0

13/13E 36,701 4,775 113.5 11.6 26.4 7.8 29.8 44.7 3.1 16.6




MFD Volume Growth (%) 5.5 14.0 8.0 12.0 7.0 7.4 10.0 10.0 10.0 9.0

Net Sales 7,100 6,534 7,201 6,021 8,130 7,297 8,100 6,725 26,855 30,253

YoY Change (%) 9.5 21.6 17.5 18.6 14.5 11.7 12.5 11.7 16.5 12.7

Total Exp 5,647 5,548 6,021 5,404 6,514 6,191 6,723 5,943 22,566 25,370

EBITDA 1,453 985 1,180 616 1,617 1,107 1,377 782 4,289 4,883

Margins (%) 20.5 15.1 16.4 10.2 20.3 15.2 17.0 11.6 16.0 16.1

YoY Change (%) 9.2 10.2 24.1 5.5 11.3 12.3 16.7 26.9 13.8 13.8

Depreciation 109 113 117 121 119 86 137 228 460 570

Interest 7 9 10 9 12 8 11 9 35 40

Other Income 340 360 476 487 479 572 500 560 1,608 2,114

PBT 1,677 1,223 1,530 973 1,964 1,585 1,729 1,108 5,403 6,387

Tax 571 398 499 327 645 519 576 369 1,851 2,109

Rate (%) 34.0 32.6 32.6 33.6 33.0 32.8 33.3 33.3 34.3 33.0

Adj PAT 1,106 825 1,030 646 1,320 1,066 1,153 739 3,552 4,278

YoY Change (%) 15.0 14.9 31.1 21.0 19.3 29.3 11.9 14.5 18.5 20.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

In 3QCY12, we expect GlaxoSmithKline Consumer (SKB) to report net sales of INR8.1b, up 12.5%. MFD volume

would grow ~7%, in line with 2QCY12 performance. We do not see any pick-up in CSD offtake in the remaining

quarters of CY12.

We estimate 60bp increase in EBITDA margin despite high wheat prices on account of price hikes, mix

improvement due to underperformance of the CSD segment and lower ad spends in non-MFD categories.

EBITDA is likely to grow 16.7%; we expect ~13% growth in PBT due to lower other income.

We estimate ~12% increase in PAT, impacted by higher tax rate at 33.3%.

We are positive on SKB's strong leadership position in the MFD space. However, we believe that the stock price

and current valuations factor in the positives. We maintain Neutral at 29.4x CY12E and 26.4x CY13E EPS.

What to look for

MFD volume growth, performance of Horlicks Oats, update on CSD situation, and Foodles' current market

status.

C–42October 2012


Sector: Consumer

Godrej Consumer Products

Bloomberg GCPL IN



1,6,12 Rel. Perf. (%) -6/30/52


M.Cap. (USD b) 4.3

CMP: INR668 Neutral



3/11A 36,763 4,736 14.6 32.8 - - 27.5 18.4 - -

3/12A 48,509 5,266 16.3 11.2 41.0 10.3 25.2 20.4 4.9 27.7

3/13E 63,147 7,363 21.6 33.0 30.9 7.1 23.1 22.7 3.9 21.9

3/14E 78,327 8,962 26.3 21.7 25.4 6.2 24.3 24.6 3.2 17.9




Net Sales 9,978 11,860 13,441 13,230 13,886 16,250 17,000 16,010 48,509 63,147

YoY Change (%) 39.6 23.3 35.9 32.4 39.2 37.0 26.5 21.0 32.0 30.2

EBITDA 1,427 2,088 2,653 2,481 1,988 2,860 3,366 3,083 8,607 11,298

Margins (%) 14.3 17.6 19.7 18.8 14.3 17.6 19.8 19.3 17.7 17.9

YoY Growth (%) 11.5 25.1 60.1 39.6 39.3 36.9 26.9 24.3 35.4 31.3

Depreciation 159 159 171 155 199 220 230 238 644 887

Interest 111 241 287 194 164 300 300 282 658 1,046

Other Income 132 220 248 203 181 200 250 351 672 982

Forex gain / (loss) 24 -166 -55 -8 -176 0 0 176 -205 0

PBT 1,314 1,742 2,388 2,327 1,630 2,540 3,086 3,090 7,771 10,346

Tax 312 432 555 547 112 660 802 829 2,261 2,404

Rate (%) 23.8 24.8 23.2 23.5 6.9 26.0 26.0 26.8 29.1 23.2

Minority Int 0 33 162 50 213 144 144 78 245 579

Adj PAT 1,002 1,277 1,671 1,730 1,305 1,736 2,140 2,183 5,266 7,363

YoY Change (%) 10.3 -2.0 40.7 22.1 30.2 35.9 28.0 26.2 11.2 39.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Godrej Consumer Products (GCPL) to post 37% increase in net sales to INR16.2b, driven by continued

momentum in domestic business (both toilet soaps and household insecticides) and beneficial impact of

inorganic growth (Darling and Chile acquisition). We expect ~20% organic sales growth for the quarter.

Gross margin would expand in domestic business; we estimate EBITDA margin at 17.6% for 2QFY13.

Despite higher depreciation and interest costs, other income would lead PAT growth, which is likely to grow

36% YoY to INR1.7b.

The volume growth momentum achieved in Soaps in the last few quarters is likely to continue in 2QFY13.

However, margins in the category would be under pressure due to high competitive intensity and

disproportionate ad spends behind Cinthol re-launch.

GCPL has USD305m of unhedged forex loans; it plans to repay loans of USD60m in FY13 and retire its debt by

FY18.

We expect GCPL's domestic business growth to remain healthy, driven by continued synergistic benefits from

GHPL and GCPL trade integration. However, recent outperformance leaves limited upside potential in the near

term.

The stock trades at 30.9x FY13E EPS and 25.4x FY14E EPS. Neutral.

What to look for

Soaps volume growth, revenue growth in Home Insecticides and performance of Megasari.

C–43October 2012


Sector: Consumer

Hindustan Unilever

Bloomberg HUVR IN



1,6,12 Rel. Perf. (%) -2/22/49

M.Cap. (INR b) 1176.0

M.Cap. (USD b) 22.3

CMP: INR545 Neutral



3/11A 197,352 21,533 10.0 3.5 - - 81.8 103.7 - -

3/12A 229,214 26,567 12.3 23.4 44.3 34.1 74.6 97.2 5.2 34.6

3/13E 262,323 33,530 15.5 26.2 35.1 25.3 72.1 94.3 4.4 27.2

3/14E 293,494 38,973 18.0 16.2 30.2 19.1 63.4 83.4 3.8 23.3




Volume Growth (%) 8.3 9.8 9.1 10.0 9.0 9.0 9.0 9.0 9.3 9.0

S&D EBIT Margin (%) 9.2 12.4 10.8 11.3 12.2 12.6 11.3 11.7 11.6 12.5

PP EBIT Margin (%) 25.3 24.4 25.9 26.3 25.8 25.0 26.4 26.5 25.5 25.3

Net Sales (incl service inc) 55,889 56,105 59,561 57,659 63,788 64,500 67,000 67,035 229,214 262,323

YoY Change (%) 14.6 17.8 16.2 16.1 14.1 15.0 12.5 16.3 16.1 14.4

COGS 30,798 30,010 30,751 31,223 33,677 33,540 34,237 34,808 122,781 136,262

Gross Profit 25,091 26,095 28,810 26,437 30,110 30,960 32,763 32,227 106,432 126,061

Margin % 44.9 46.5 48.4 45.8 47.2 48.0 48.9 48.1 46.4 48.1

Operating Exp 17,548 17,828 18,921 18,103 20,446 21,092 21,239 21,921 72,399 84,697

% to sales 31.4 31.8 31.8 31.4 32.1 32.7 31.7 32.7 31.6 32.3

EBITDA 7,543 8,267 9,890 8,334 9,665 9,869 11,524 10,306 34,033 41,363

YoY Change (%) 10.8 27.8 36.4 29.8 28.1 19.4 16.5 23.7 27.1 21.5

Margins (%) 13.5 14.7 16.6 14.5 15.2 15.3 17.2 15.4 14.8 15.8

Depreciation 562 571 568 571 576 590 595 596 2,272 2,357

Interest 0 5 5 2 53 3 2 2 12 70

Other Income 506 777 801 700 2,186 900 910 898 2,783 4,894

PBT 7,487 8,467 10,118 8,461 11,222 10,176 11,837 10,606 34,532 43,830

Tax 1,702 1,942 2,496 1,825 2,676 2,391 2,782 2,492 7,966 10,300

Rate (%) 22.7 22.9 24.7 21.6 23.8 23.5 23.5 23.5 23.1 23.5

Adjusted PAT 5,784 6,525 7,622 6,636 8,546 7,784 9,055 8,114 26,567 33,530

YoY Change (%) 11.0 22.3 29.9 29.0 47.7 19.3 18.8 22.3 26.6 26.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Hindustan Unilever (HUVR) to report 15% increase in sales to INR64.5b and estimate volume growth

of ~8%. Demand momentum in core categories remains healthy, barring some moderation in the discretionary

part of the Foods portfolio.

Gross margin would expand 240bp to 48%, led by change in product mix, better pricing environment for Soaps

& Detergents and softening in palm oil and PFAD prices.

We believe that HUVR's limited pricing actions and comparatively higher base should restrict operating margin

expansion during the quarter to 60bp. Other income should revert to the normative trend in the absence of

one-offs. We expect PAT growth of 19% YoY to INR7.8b. In 2QFY13, the company launched Tresseme Shampoo.

The stock trades at 35.1x FY13E and 30.2x FY14E earnings. We like the sustained volume momentum in HUVR's

categories as also the increased aggression in trade coupled with strong innovation pipeline. However, rich

valuations and tough comparables in 2HFY13 underscore our Neutral rating.

What to look for

Volume growth: sustenance of volume growth in mid to high single digits.

2Q margins for Soaps & Detergents and Personal Products.

Commentary around Foods business.

C–44October 2012


Sector: Consumer

ITC

Bloomberg ITC IN



1,6,12 Rel. Perf. (%) -5/10/24

M.Cap. (INR b) 2,104.0

M.Cap. (USD b) 39.9

CMP: INR272 Buy



3/11A 214,590 49,867 6.5 28.9 - - 31.3 43.5 - -

3/12A 251,738 61,624 8.0 23.6 34.1 11.2 32.7 45.7 8.2 22.9

3/13E 291,436 72,431 9.4 17.5 29.0 9.5 32.5 45.8 6.9 19.1

3/14E 334,890 85,198 11.0 17.6 24.7 8.0 32.4 46.0 5.9 16.0

Quarterly Performance INR Million



Cigarette Vol Gr (%) 8.0 7.5 5.0 5.0 1.5 1.0 2.2 2.5 6.4 2.0

Cigarette-net EBIT Margin (%) 54.9 58.2 57.0 54.1 57.5 58.2 57.8 55.0 56.1 57.1

Non Cigarette FMCG Loss (763) (559) (468) (167) (388) (297) (250) (50) (1,957) (985)

Net Sales 58,524 60,852 62,478 69,545 67,131 69,700 73,500 81,105 251,738 291,436

YoY Change (%) 20.4 17.6 14.2 16.9 14.7 14.5 17.6 16.6 17.3 15.8

Total Exp 38,945 38,662 38,667 46,913 43,447 44,050 45,350 53,939 163,252 186,786

EBITDA 19,579 22,190 23,811 22,633 23,683 25,650 28,151 27,166 88,486 104,650

Growth (%) 19.1 18.0 18.0 18.8 21.0 15.6 18.2 20.0 19.4 18.3

Margins (%) 33.5 36.5 38.1 32.5 35.3 36.8 38.3 33.5 35.2 35.9

Depreciation 1,665 1,701 1,739 1,880 1,948 1,800 2,030 2,263 6,985 8,041

Interest 200 142 157 148 138 200 200 212 779 750

Other Income 1,656 1,808 2,851 2,079 1,768 1,900 2,950 2,117 8,253 8,734

PBT 19,370 22,155 24,767 22,683 23,366 25,550 28,871 26,808 88,975 104,594

Tax 6,043 7,012 7,757 6,540 7,344 7,869 8,892 8,057 27,352 32,163

Rate (%) 31.2 31.6 31.3 28.8 31.4 30.8 30.8 30.1 30.7 30.8

Adj PAT 13,327 15,143 17,010 16,143 16,021 17,680 19,978 18,751 61,624 72,431

YoY Change (%) 24.5 21.5 22.5 26.0 20.2 16.8 17.5 16.2 23.6 17.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect ITC to post 14.5% revenue growth to INR69.7b. Margin expansion of 30bp would drive (a) ~15.6%

growth in EBITDA to INR25.6b, and (b) 16.8% YoY growth in PAT to INR17.6b.

Cigarette volumes would grow ~1%, impacted by price hikes post the changes in duty structure and increase in

VAT rates in many states. We expect flattish EBIT margin for the Cigarettes business.

Sustained momentum in Staples and Personal Care should drive non-Cigarette FMCG sales. We expect

sequential improvement in profitability and estimate INR300m loss at EBIT level.

Paper margins are likely to remain flat; revenue growth would be moderate at ~11% owing to capacity constraints.

The Hotels business is likely to remain under pressure, owing to continued weak macroeconomic environment

and higher supply. ITC commissioned its Chennai property during the quarter.

The company is test marketing cigarettes in the 64mm category and has launched 5-6 brands at the INR2 and

INR2.5 price points (Gold flake).

The stock trades at 29x FY13E EPS of INR9.4 and 24.7x FY14E EPS of INR11. Buy.

What to look for

Cigarette volume growth and margins, reduction in losses in FMCG business.

C–45October 2012


Sector: Consumer

Marico

Bloomberg MRCO IN



1,6,12 Rel. Perf. (%) -3/9/24


M.Cap. (USD b) 2.4

CMP: INR199 Buy



3/11A 31,283 2,375 3.9 1.4 - - 25.9 29.7 - -

3/12A 39,968 3,189 5.2 34.2 38.4 10.7 28.0 30.5 3.1 26.5

3/13E 47,179 4,361 6.8 30.5 29.4 6.4 21.6 30.5 2.8 20.5

3/14E 54,963 5,442 8.5 24.8 23.6 5.1 21.8 30.6 2.3 16.3




Volume Growth (%) 14.0 14.0 13.0 17.0 14.0 13.0 14.0 14.0 14.0 13.5

Net Sales 10,414 9,745 10,578 9,177 12,672 11,500 12,250 10,757 39,968 47,179

YoY Change (%) 31.8 25.6 29.4 22.9 21.7 18.0 15.8 17.2 27.9 18.0

COGS 5,952 5,329 5,451 4,264 6,411 5,923 6,125 6,012 20,987 24,470

Gross Profit 4,462 4,415 5,127 4,913 6,261 5,578 6,125 4,745 18,981 22,709

Gross margin (%) 42.8 45.3 48.5 53.5 49.4 48.5 50.0 44.1 47.5 48.1

Other Expenditure 3,211 3,249 3,909 3,814 4,414 4,014 4,557 3,339 14,240 16,323

% to Sales 30.8 33.3 37.0 41.6 34.8 34.9 37.2 31.0 35.6 34.6

EBITDA 1,251 1,167 1,217 1,100 1,848 1,564 1,568 1,407 4,741 6,386

Margins (%) 12.0 12.0 11.5 12.0 14.6 13.6 12.8 13.1 11.9 13.5

YoY Change (%) 18.6 17.7 22.1 38.8 47.7 34.1 28.8 27.9 15.9 34.7

Depreciation 169 177 188 191 193 205 220 240 725 858

Interest 98 91 82 113 170 180 160 155 424 665

Other Income 92 106 92 105 176 180 180 205 429 741

PBT 1,075 1,005 1,039 901 1,660 1,359 1,368 1,216 4,021 5,604

Tax 210 205 178 189 403 272 274 229 782 1,177

Rate (%) 19.6 20.4 17.1 20.9 24.2 20.0 20.0 18.8 19.5 21.0

Minority Interest 15 17 20 -2 19 13 13 21 50 66

Adjusted PAT 850 783 841 714 1,238 1,074 1,081 967 3,189 4,361

YoY Change (%) 15.3 9.4 21.0 -0.6 45.7 37.2 28.6 35.3 34.2 36.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Marico (MRCO) is likely to report net sales of INR11.5b, up 18%, with domestic volume growth at 13%.

We expect double-digit volume growth in value-added hair oil and Saffola. Parachute should report 8-10%

volume growth.

Copra prices witnessed a sharp fall, with the 2QFY13 average 33% lower than in 2QFY12. Rice bran and kardi oil

prices continue to be firm.

Gross margin should expand 300bp to 48.5% due to benefits of sharp fall in copra prices and lack of any meaningful

price cuts.

We expect 160bp expansion in EBITDA margin to 13.6%. PAT would grow 37% YoY to INR1.07b.

The stock trades at 29.4x FY13E EPS and 23.6x FY14E EPS. Buy.

What to look for

Volume growth in Parachute and Saffola, performance / gross margin of international business.

C–46October 2012


Sector: Consumer

Nestle India

Bloomberg NEST IN


52-Wk. Range (INR) 5,024/3,930

1,6,12 Rel. Perf. (%) -13/-12/-11


M.Cap. (USD b) 8.0


Year Net Sales Adj. PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/

End (INR m) (INR m) (INR) YoY (%) (X) (X) (%) (%) Sales EBITDA

12/10A 62,547 8,370 86.8 20.0 50.4 33.1 116.5 151.8 6.7 33.4

12/11A 74,908 10,188 105.7 21.7 41.4 33.1 95.7 89.6 5.7 27.6

12/12E 85,777 11,287 117.1 10.8 37.4 23.5 73.6 61.7 5.0 22.7

12/13E 101,953 13,349 138.5 18.3 31.6 17.5 63.5 59.6 4.2 18.7




Net Sales 18,100 17,631 19,631 19,547 20,475 19,866 22,750 22,686 74,908 85,777

YoY Change (%) 22.3 20.2 19.9 17.0 13.1 12.7 15.9 16.1 19.8 14.5

COGS 8,841 8,718 9,454 8,880 9,384 9,024 10,693 10,007 35,894 39,107

Gross Profit 9,259 8,912 10,177 10,667 11,091 10,842 12,058 12,680 39,015 46,670

Margin (%) 51.2 50.5 51.8 54.6 54.2 54.6 53.0 55.9 52.1 54.4

Operating Exp 5,406 5,467 6,074 6,540 6,519 6,547 7,098 7,682 23,487 27,846

EBITDA 3,853 3,445 4,103 4,127 4,572 4,295 4,960 4,997 15,528 18,824

Margins (%) 21.3 19.5 20.9 21.1 22.3 21.6 21.8 22.0 20.7 21.9

YoY Growth (%) 26.7 17.2 27.2 25.1 18.7 24.7 20.9 21.1 24.3 21.2

Depreciation 327 367 394 446 528 673 680 683 1,533 2,564

Interest 1 6 12 33 23 220 230 178 51 651

Other income 128 80 121 181 136 113 165 172 509 586

PBT 3,653 3,152 3,819 3,828 4,158 3,514 4,215 4,307 14,452 16,194

Tax 1,027 956 1,134 1,148 1,272 1,085 1,260 1,290 4,264 4,907

Rate (%) 28.1 30.3 29.7 30.0 30.6 30.9 29.9 29.9 29.5 30.3

Adjusted PAT 2,626 2,196 2,685 2,681 2,886 2,429 2,954 3,018 10,188 11,287

YoY Change (%) 33.3 9.0 23.5 20.9 9.9 10.6 10.0 12.6 21.7 10.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Nestle India (NEST) to report net sales of INR22.7b, up 16%. Growth would be price-led; volume

recovery would be gradual, in our view.

Gross margin is likely to expand 110bp YoY to 53% due to the benefit of price increases in the last few quarters.

We expect EBITDA margin to expand 90bp to 21.8% on account of mix improvement and savings in overheads.

EBITDA is likely to increase 21% to INR4.9b. We estimate higher interest at INR230m and depreciation at INR680m

due to capacity expansion.

We expect 10% growth in PBT and 10% growth in PAT, as tax rates remain flat at ~30%.

We remain positive on NEST's long-term prospects on healthy demand and growth potential of its portfolio.

However, at current valuations, the stock appears expensive, given the context of sub-par volume growth. The

stock trades at 37.4x CY12E and 31.6x CY13E EPS. Neutral.

C–47October 2012


Sector: Consumer

Pidilite Industries

Bloomberg PIDI IN



1,6,12 Rel. Perf. (%) 5/16/11


M.Cap. (USD b) 2.0

CMP: INR206 Buy



3/11A 23,806 3,330 6.6 13.4 - - 29.2 30.9 - -

3/12A 28,164 3,557 7.0 6.5 29.5 7.8 26.3 29.1 3.6 20.5

3/13E 33,820 4,415 8.4 20.2 24.5 6.0 24.6 31.4 3.0 16.0

3/14E 40,398 5,305 10.1 20.2 20.4 5.1 24.8 32.5 2.5 13.0




Sales 7,680 7,103 6,918 6,519 9,125 8,450 8,300 7,946 28,164 33,820

Change (%) 21.5 20.5 16.5 15.6 18.8 19.0 20.0 21.9 18.3 20.1

Gross Profit 3,439 3,093 2,989 3,045 4,087 3,769 3,735 3,773 12,490 15,363

Gross Margin % 44.8 43.5 43.2 46.7 44.8 44.6 45.0 47.5 44.3 45.4


% of sales 25.0 25.2 25.8 32.0 23.9 25.4 26.2 31.6 26.8 26.6

EBITDA 1,521 1,302 1,207 958 1,907 1,622 1,560 1,263 4,950 6,353

EBITDA Margin % 19.8 18.3 17.4 14.7 20.9 19.2 18.8 15.9 17.6 18.8

Change (%) -2.2 4.8 1.9 17.8 25.4 24.6 29.3 31.8 2.5 28.3

Depreciation 116 118 121 124 124 135 140 150 479 548

Interest 48 59 73 47 91 40 35 39 245 205

Other Income 70 29 45 152 139 70 50 148 428 407

PBT 1,428 1,153 1,058 939 1,831 1,517 1,435 1,222 4,653 6,007

Tax 350 289 268 190 498 410 388 296 1,096 1,592


Adj PAT 1,078 864 790 749 1,333 1,108 1,048 926 3,557 4,415

Change (%) 0.1 2.2 -6.5 41.6 23.6 28.2 32.7 23.7 6.8 24.1

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Pidilite Industries (PIDI) to post 19% revenue growth, led by double-digit volume growth in the

Consumer and Bazaar segments, though Industrial Chemicals would remain under pressure. We expect margin

pressure to sustain in Industrial Chemicals but margins would expand in the Consumer and Bazaar segments.

Gross margin would expand 100bp on account of decline in VAM prices. EBITDA margin is also likely to increase

90bp to 19.2%, driven by higher gross margin and operating leverage.

We expect tax rate to increase by 200bp to 27%. However, healthy revenue growth would ensure PAT growth of

~28% to INR1.1b.

Uncertainty regarding the synthetic elastomer project continues and the company is yet to take a call on the

project implementation.

The stock trades at 24.5x FY13E EPS of INR8.4 and 20.4x FY14E EPS of INR10.1. Maintain Buy.

C–48October 2012


Sector: Consumer

United Spirits

Bloomberg UNSP IN


52-Week Range (INR) 1,295/450

1,6,12 Rel. Perf. (%) 25/98/37


M.Cap. (USD b) 3.0




3/11A 73,762 3,458 28.2 9.4 43.1 3.6 8.2 9.7 3.0 20.7

3/12A 87,794 2,390 19.5 -30.9 62.4 3.1 4.9 8.3 2.7 20.3

3/13E 101,377 2,359 19.3 -1.3 63.2 3.0 4.7 8.8 2.4 18.1

3/14E 116,676 4,299 35.1 82.2 34.7 2.8 7.9 10.4 2.1 14.8




Volume Growth % 15.4 8.0 0.7 5.1 1.9 6.0 10.0 10.0 10.0 7.0

ENA Price/Case 147 153 164 162 151 153 154 154 154 154

Net Sales 19,354 17,906 19,539 18,627 20,573 19,700 24,500 22,414 75,427 87,186

YoY Change (%) 32.3 32.2 -0.3 17.0 6.3 10.0 25.4 20.3 18.4 15.6

Total Exp 16,051 15,346 17,671 16,867 17,223 16,784 21,193 20,299 65,934 75,499

EBITDA 3,303 2,560 1,869 1,760 3,350 2,916 3,308 2,115 9,492 11,687

Margins (%) 17.1 14.3 9.6 9.5 16.3 14.8 13.5 9.4 12.6 13.4

Depreciation 127 152 155 175 162 180 200 206 609 748

Interest 1,302 1,241 1,392 1,663 1,656 1,700 1,700 1,452 5,944 6,507

PBT From operations 1,874 1,167 322 -77 1,532 1,036 1,408 457 2,940 4,432

Other income 165 100 170 132 262 200 200 638 1,119 1,300

PBT 2,039 1,267 492 55 1,794 1,236 1,608 1,095 4,059 5,732

Tax 671 419 165 -24 689 408 530 322 1,288 1,949

Rate (%) 32.9 33.1 33.5 -43.8 38.4 33.0 33.0 29.4 31.7 34.0

PAT 1,369 848 327 79 1,105 828 1,077 774 2,771 3,783

YoY Change (%) 12.6 5.7 -71.3 -86.7 -19.3 -2.3 228.9 874.2 -20.5 36.5

Extraordinary Inc/(Exp) 8 632 143 21 345 657

Reported PAT 1,377 1,479 471 100 1,450 828 1,077 774 3,428 3,783

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect United Spirits (UNSP) to post 10% revenue growth to INR19.7b in 2QFY13, led by 6% volume growth.

The premium segment would grow at a faster pace, aided by up-trading and increased investments in this

segment by the company.

Modest ~3% QoQ growth in ENA prices would aid 50bp expansion in margins to 14.8%.

PAT would decline 2% to INR828m, impacted by 37% increase in interest cost and higher tax rate.

We note that Kerala has announced a price increase, which will provide support to margins. The industry

expects price increase in Andhra Pradesh in October, which could boost 3Q margins.

The stock trades at 63.2x FY13E EPS of INR19.3 and 34.7x FY14E EPS of INR35.1. Neutral. Positive news flow

around Diageo deal will favorably impact stock price.

What to look for

Volume growth recovery, given the slower volume growth in 1QFY13 (1.9%).

ENA price trend and outlook; increase in ENA prices post 2Q can limit expected margin recovery in FY13.

Interest cost trends.

C–49October 2012


Sector: Financials

FinancialsCompany Name

Andhra Bank

Axis Bank

Bank of Baroda

Bank of India

Canara Bank

Dewan Housing

HDFC

HDFC Bank

Federal Bank

ICICI Bank

IDFC

Indian Bank

IndusInd Bank

ING Vysya

Kotak Mahindra Bank

LIC Housing

M&M Financial Services

Oriental Bank

Power Finance Corporation

Punjab National Bank

Rural Electrification

Shriram Transport

State Bank

Union Bank

Yes Bank

Challenges for the Financials sector continued in 2QFY13 as well, led by moderation

in growth and sustained pressure on asset quality. However, the government's

concrete steps towards reforms have brought in a ray of hope.

Banks - aggregate PAT growth to remain healthyFor 2QFY13, we expect our Banking coverage universe to report healthy PAT growth of

19% YoY (~15% YoY ex-SBIN), largely driven by 23% YoY profit growth from private

sector banks. PAT of state-owned banks is likely to grow 17% YoY (9% YoY ex-SBIN), but

decline 4% QoQ (led by higher provisions, muted fees and higher tax rate in some

cases).

A lean business quarter; CD ratio falls; higher monies parked in government securities:

For the fortnight ended 21 September 2012, loans grew 16.4% YoY and deposits grew

13.7% YoY. On a sequential basis, while loans were flat, deposits increased marginally.

Higher funds are flowing into G-Secs, as a result of which the incremental ID ratio is

100%+ whereas the overall CD ratio has declined from 76.4% to 75.8%. As in FY12, in

FY13 too, working capital would be a key driver for corporate loan growth. 2-3 years of

continued moderation in the capex cycle will have a lag impact on other loan segments

(Services and Retail). We expect loan growth for the system to be 15-16% for FY13.

While SA deposit growth is likely to improve, it is unlikely to keep pace with overall

deposit growth. Further, CA deposits in the system continue to decline. This would

pressurize CASA ratio.

Benefits of fall in deposit rates to be compensated by fall in yields on assets - NIM to

remain stable: QTD 3M, 6M and 12M bulk deposit rates have declined by 60bp each,

whereas on YTD basis the decline is much sharper at 225bp, 180bp and 130bp

respectively the benefits of which will percolate in the form of lower cost of funds.

However, this would be compensated by (a) fall in yields on loans, as banks have

reduced spreads on loans in certain cases and have reduced base rate/PLR in May

2012, (b) continued pressure on CASA ratio, and (c) higher flow of money into low

yielding investments due to muted loan growth. We expect margins to be flattish/

improve marginally QoQ. Specific banks (viz. Bank of India), wherein margins declined

significantly in 1QFY13 due to higher reversal of interest income (on the back of

restructuring / slippages) may see some relief.

Addition of stress on balance sheet to continue: Considering the challenging macro

environment, we expect slippages to remain elevated (especially for state-owned

banks), led by stress in mid-size corporate and SME segments. Retail focused banks

are likely to be better placed (most private sector banks). However, unlike the past,

retail delinquency has started increasing. Hence, NPAs are expected to rise in this

segment, as well. Increased focus on balance sheet management by banks may lead

to improvement in recoveries and upgradations, which would provide cushion to

asset quality.

Alpesh Mehta ([email protected])/

Sohail Halai ([email protected])/Umang Shah ([email protected])

C–50October 2012


Sector: Financials

Pace of restructuring has slowed down: With most SEB loans restructured and SEB

restructuring package approved by the Cabinet, we do not expect significant SEB

restructuring in 2QFY13. As witnessed in 1QFY13, restructuring would be significantly

lower than in 4QFY12. However, stress in the large corporate segment and higher

referrals to CDR would lead to some increase in overall restructured portfolio.

Muted trading gains in debt market; equity gains can surprise positively: In 2QFY13,

the 1-year and 10-year benchmark G-Sec yields have remained largely stable. As a

result, higher MTM reversals in case of bond portfolio are unlikely, though there may

be some write-back on the equity portfolio. Trading gains would be flat/ decline

QoQ, as yields remained in a narrow range.

Estimate aggregate profit growth of ~19% YoY, led by private banks (23% YoY); Ex-

SBIN, state-owned banks' profit to grow 8.6% YoY: The performance of private sector

banks is likely to remain better than their state-owned counterparts. For the private

sector banks under our coverage, NII growth is likely to be ~22% YoY (led by healthy

loan growth and largely stable margins), operating profit growth is likely to be ~24%

YoY (due to contained cost) and PAT growth is likely to be ~23% (due to stable credit

cost). State-owned banks are likely to report NII and operating profit growth of ~10%

each YoY. PAT would grow 17% YoY, led by lower growth in provisions on a high base.

Continued reforms key to improvement in growth and asset quality outlook: Recent

reforms by the government have led to improvement in sentiment and growth outlook,

in turn leading to improvement in valuations. Further re-rating will be contingent

upon expected resolution of the problems faced in the Infrastructure space and fall in

interest rates (boost to G-Sec portfolio). On a reported basis, near-term profitability

is likely to be under pressure due to continued stress on asset quality, led by economic

moderation and sluggish growth. Benefits of reforms would be reflected in business

and asset quality with a lag.

Top picks in our Banking universe: Our top picks are SBIN (most exposed to

improvement in macroeconomic environment and strategy to recognize stress

upfront), ICICIBC (healthy capitalization and asset quality, improving core operations),

OBC (focused strategies and attractive valuations), and YES (strong play on

improvement in liquidity and healthy asset quality).

Loan growth remains moderate Deposit growth improves


28

.0

28

.7

30

.2

34

.1

34

.3

37

.7

39

.4

40

.9

47

.6

47

.7

32

.4

41

.5

43

.7

46

.9

19.2

20

.0

15

.9 18.7

16

.5

16

.4

16

.2

12

.7

13

.8 17

.1 21

.9 24

.5

21

.5

19

.5

1Q

FY

10

2Q

FY

10

3Q

FY

10

4Q

FY

10

1Q

FY

11

2Q

FY

11

3Q

FY

11

4Q

FY

11

1Q

FY

12

2Q

FY

12

3Q

FY

12

4Q

FY

12

1Q

FY

13

21

-

Se

p-1

2

Loa ns (INR t) Chg YoY (%)

40

.3

41

.2

42

.7

44

.9

46

.4

47

.1

49

.9

52

.1

54

.9

56

.2

58

.3

61

.0

62

.3

62

.91

3.7

13

.4

14

.316

.9

17.4

18

.5

15

.9

16.

8

14

.4

15.

0

17

.2

17

.719

.822

.01

QF

Y1

0

2Q

FY

10

3Q

FY

10

4Q

FY

10

1Q

FY

11

2Q

FY

11

3Q

FY

11

4Q

FY

11

1Q

FY

12

2Q

FY

12

3Q

FY

12

4Q

FY

12

1Q

FY

13

21

-

Se

p-1

2

De pos i ts (INR t) Chg YoY (%)

C–51October 2012


Sector: Financials

Incremental loans flat QoQ (INR b) Incremental deposit mobilization healthy (INR b)

CD ratio has moderated YTD Liquidity has improved since April/May-12

Bulk deposit rates have cooled off significantly Yield curve remains flat (%)

N et Repo (INR b)

‐2,400

‐1,600

‐800

0

800

1,600

Jan‐1

0

Ap

r‐10

Jun‐1

0

Sep

‐10

No

v‐10

Feb

‐11

Ap

r‐11

Jul‐

11

Sep

‐11

No

v‐11

Feb

‐12

Ap

r‐12

Jul‐

12

Sep

‐12

Slippage ratio for state-owned banks to remain high (%) Referrals to CDR remain high


CD Ratio (%)

62.0

66.0

70.0

74.0

78.0

4Q

FY05

2Q

FY06

4Q

FY06

2Q

FY07

4Q

FY07

2Q

FY08

4Q

FY08

2Q

FY09

4Q

FY09

2Q

FY10

4Q

FY10

2Q

FY11

4Q

FY11

2Q

FY12

4Q

FY12

21‐S

ep‐

12

1.9 1.9

2.8

1.7

2.42.6 2.6

2.3 2.4

3.3

2.52.2

3.4 3.3

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E

PSB s (Ex‐SBIN) PSBs

202

226

679

205

192

31

49

29

41

87

FY10 FY11 FY12 1QFY13 2Q‐QTD

Agg. De bt (INR b) No. o f Ca ses Re cd .

8.79.48.8

7.6

6.06.3

4.64.7

8.99.5

9.3

10.59.8

10.19.5

9.4

9.410.2

9.6

9.79.07.9

6.56.75.66.05.8

2.5

4.5

6.5

8.5

10.5

12.5

Ap

r‐09

Jul‐

09

Oct‐0

9

Feb

‐10

Ma

y‐10

Sep

‐10

Dec‐1

0

Ap

r‐11

Jul‐

11

No

v‐11

Feb

‐12

Jun‐1

2

Sep

‐12

6 Mon th (%) 12 Mo nth (%)

1,96

9

876

1,50

2

2,24

0

1,44

0

744

2,74

5

2,22

2

2,85

7

1,31

3

2,03

0

2,67

1

1,16

7

617

1Q

FY10

2Q

FY10

3Q

FY10

4Q

FY10

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

21‐S

ep‐

12

256

791

1,49

9 2,2

02

1,63

4

171

3,4

01

1,76

7

1,4

61

605

2,1

70

3,2

79

561

56

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

21‐

Sep

‐12

8.07.4

5.8

5.24.3

4.8

4.1

5.0

8.2

8.0

8.1

8.0

8.5

8.18.5

8.68.4

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7.27.06.9

4.0

5.0

6.0

7.0

8.0

9.0

Ap

r‐09

Jun‐0

9

Aug

‐09

No

v‐09

Jan‐1

0

Ap

r‐10

Jun‐1

0

Sep

‐10

No

v‐10

Jan‐1

1

Ap

r‐11

Jun‐1

1

Sep

‐11

No

v‐11

Feb

‐12

Ap

r‐12

Jun‐1

2

Sep

‐12

1‐Year G‐Sec Yield 10‐Yea r G‐Se c Yield

C–52October 2012


Sector: Financials

NBFCs - performance continues to be strongThe performance of retail NBFCs (HFCs as well as retail AFCs) remains strong, led by

healthy growth and benign asset quality outlook. Pick-up in monsoon, expected

resolution of some of the issues faced by the Infrastructure segment, SEB package,

and continued buoyancy in the rural economy augurs well for the growth and asset

quality of NBFCs. Even improvement in liquidity and decline in bulk borrowing rates

will lead to healthy spreads and profitability. While there are various positives at

play, increasing competition from banks (especially in home loan and auto loan

segments) and rising delinquencies in the CV segment reduce the margin of safety to

an extent, as valuations remain rich. Within the NBFC space, we continue to like

HDFC, IDFC and MMFS.

Housing Finance Companies: For housing finance companies (HFCs), 2QFY13 is likely

to remain a steady quarter, as growth in individual loans remains buoyant. Growth in

the developer loan portfolio is likely to remain muted due to unfavorable macro

environment. However, we expect overall loan growth for HDFC, LICHF (despite weak

developer loan growth) and DEWH to remain healthy. Margins are likely to remain

stable on a sequential basis. Asset quality would continue to be healthy. No major

regulatory changes were announced during the quarter.

Infrastructure Finance Companies: 2QFY13 witnessed one of the major and much

awaited reforms in the form of SEB Debt Restructuring Plan to improve the financial

health of DISCOMs. We believe this is a major step forward by the government towards

reforms and also for the Infrastructure / Power sector as a whole. For the major

infrastructure finance companies (IFCs) - IDFC, POWF and RECL, we expect growth to

remain healthy. Margins are likely to get some cushion due to fall in wholesale rates

YTD. Overall, we expect margins to be stable QoQ. While no large accounts are likely

to fall into NPA category, asset quality will remain a key monitorable in the current

environment.

Asset Finance Companies: Retail asset finance companies (AFCs) have delivered strong

performance both in terms of growth as well as asset quality in the current cycle.

Among the AFCs under our coverage, we expect MMFS to report healthy growth in

AUM on the back of its multi-product strategy; for SHTF, growth is likely to remain

sluggish. Margins would remain stable sequentially. Asset quality will be a key

monitorable against the backdrop of slowdown in the macroeconomic environment

and delayed monsoon. During the quarter, the RBI released the final securitization as

well as the final priority sector guidelines. The final guidelines on both the issues are

less disruptive and are unlikely to impact the AFCs in a negative way.

C–53October 2012


Sector: Financials

Expected quarterly performance summary (INR Million)CMP Rating Net Interest income Operating Profit Net Profit



Financials

Private Banks

Axis Bank 1,137 Buy 22,743 13.3 4.3 20,314 14.4 3.5 11,242 22.2 -2.5

Federal Bank 446 Buy 5,190 9.4 5.6 3,835 6.1 10.7 2,006 4.9 5.4

HDFC Bank 629 Neutral 36,067 22.5 3.5 27,598 29.8 6.9 15,616 30.2 10.2

ICICI Bank 1,057 Buy 32,582 30.0 2.0 30,430 29.3 3.2 18,236 21.3 0.5

IndusInd Bank 354 Buy 5,232 24.8 8.1 4,300 29.1 6.4 2,481 28.5 5.0

ING Vysya Bank 407 Buy 3,527 16.1 2.7 2,254 19.0 3.6 1,321 14.5 1.5

Kotak Mah. Bank (SA) 648 Neutral 7,463 23.3 3.5 4,564 20.1 1.8 2,764 6.3 -2.1

Yes Bank 382 Buy 4,975 29.0 5.4 4,893 26.8 6.5 3,066 30.5 5.7

Pvt Banking Sector Aggregate 117,778 22.1 3.6 98,187 24.2 4.8 56,733 22.9 2.9

PSU Banks

Andhra Bank 113 Buy 9,737 2.4 3.8 6,990 1.8 -0.6 3,209 1.5 -11.3

Bank of Baroda 799 Neutral 28,121 9.6 0.5 22,446 5.5 0.2 10,833 -7.1 -4.9

Bank of India 310 Neutral 23,844 25.2 16.7 18,708 20.6 11.8 7,095 44.5 -20.0

Canara Bank 431 Buy 19,006 -3.1 3.1 13,970 -13.0 0.2 7,336 -13.9 -5.4

Indian Bank 192 Buy 11,991 5.6 4.0 8,908 -3.3 6.0 4,709 0.5 2.0

Oriental Bank of Comm. 302 Buy 11,799 19.2 4.8 8,840 16.6 -1.4 3,320 98.0 -15.2

Punjab National Bank 840 Buy 37,455 8.5 1.4 28,275 11.9 -0.5 12,183 1.1 -2.2

State Bank 2,238 Buy 114,777 9.5 3.2 84,660 13.3 3.5 36,952 31.5 -1.5

Union Bank 208 Buy 19,468 17.2 6.9 13,685 13.6 8.0 5,834 65.5 14.0

PSU Banking Sector Aggregate 276,198 10.0 4.1 206,482 9.5 3.1 91,472 16.8 -4.0

PSU Banking Sector Aggregate Ex SBI 161,421 10.4 4.7 121,822 7.0 2.7 54,520 8.6 -5.6

NBFC

Dewan Housing 200 Buy 1,596 43.3 11.1 1,417 44.1 18.5 954 32.8 22.7

HDFC 773 Buy 14,663 17.9 12.4 16,413 21.2 15.6 11,592 19.4 15.7

IDFC# 154 Buy 6,548 31.5 4.1 6,793 31.0 3.6 4,002 20.5 5.4

LIC Housing Fin 282 Buy 3,817 14.2 8.9 3,730 11.2 7.2 2,559 1.3 12.4

M & M Financial 898 Buy 5,214 33.6 6.9 3,430 35.1 5.6 1,863 37.4 15.7

Power Finance Corp.* 189 Buy 14,031 29.9 0.7 13,806 30.9 0.4 9,713 21.1 -5.6

Rural Electric. Corp.* 218 Buy 11,711 23.3 0.5 11,801 23.0 -1.5 8,548 19.3 -5.5

Shriram Transport F in. 619 Buy 8,384 0.4 4.5 6,882 0.9 1.4 3,295 10.1 2.4

NBFC Banking Sector Aggregate 65,964 21.2 5.1 64,272 22.2 5.0 42,527 18.7 3.6

Sector Aggregate 459,940 14.4 4.1 368,940 15.2 3.9 190,732 19.0 -0.4

* For POWF/RECL operating profit and profit after tax are adjusted for forex gains/losses

# For IDFC operating profit and profit after tax growth is adjusted for extraordinary gains in 2QFY12

C–54October 2012


Sector: Financials


CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)


Private Banks

Axis Bank 1,137 Buy 102.7 109.5 125.6 11.1 10.4 9.0 2.1 1.8 1.6 20.3 18.8 18.4

Federal Bank 446 Buy 45.4 47.0 55.7 9.8 9.5 8.0 1.3 1.2 1.1 14.4 13.4 14.3

HDFC Bank 629 Neutral 22.0 28.7 35.8 28.6 21.9 17.6 4.9 4.2 3.6 18.7 20.7 21.9

ICICI Bank 1,057 Buy 56.1 68.3 78.7 18.9 15.5 13.4 2.1 1.9 1.7 12.8 14.2 14.7

IndusInd Bank 354 Buy 17.2 22.0 27.5 20.6 16.1 12.9 3.7 3.1 2.5 19.2 20.7 21.6

ING Vysya Bank 407 Buy 30.4 35.4 40.3 13.4 11.5 10.1 1.6 1.4 1.3 14.3 13.0 13.2

Kotak Mah. Bank 648 Neutral 24.7 26.2 29.8 26.2 24.7 21.8 3.7 3.2 2.8 15.4 13.7 13.8

Yes Bank 382 Buy 27.7 35.4 43.0 13.8 10.8 8.9 2.9 2.4 1.9 23.1 24.1 23.9

Private Bank Aggregate 19.7 16.4 13.9 3.1 2.7 2.4 15.9 16.7 17.4

PSU Banks

Andhra Bank 113 Buy 24.0 25.0 28.0 4.7 4.5 4.0 0.8 0.7 0.7 19.2 17.5 17.2

Bank of Baroda 799 Neutral 121.4 110.6 129.0 6.6 7.2 6.2 1.3 1.1 1.0 22.1 16.6 16.8

Bank of India 310 Neutral 46.6 53.9 63.7 6.7 5.8 4.9 1.0 0.8 0.7 15.6 15.5 16.0

Canara Bank 431 Buy 74.1 73.7 85.5 5.8 5.9 5.0 0.9 0.8 0.7 17.1 14.9 15.2

Indian Bank 192 Buy 40.6 42.8 45.7 4.7 4.5 4.2 0.9 0.8 0.7 19.8 18.0 16.8

Oriental Bank 302 Buy 39.1 50.8 56.6 7.7 5.9 5.3 0.8 0.7 0.7 10.7 12.7 12.8

Punjab Nat. Bank 840 Buy 144.0 155.5 185.1 5.8 5.4 4.5 1.1 0.9 0.8 21.1 18.5 18.8

State Bank 2,238 Buy 228.6 284.5 330.3 9.4 7.5 6.5 1.4 1.2 1.0 17.2 17.8 18.0

Union Bank 208 Buy 32.3 42.0 48.1 6.4 4.9 4.3 0.9 0.8 0.7 14.9 16.8 16.9

PSU Bank Aggregate 7.4 6.5 5.6 1.3 1.1 0.9 17.4 16.7 16.8

NBFC

Dewan Housing 200 Buy 25.6 37.7 51.3 7.8 5.3 3.9 1.2 1.0 0.8 18.5 21.7 22.7

HDFC 773 Buy 27.9 32.1 38.6 22.7 19.1 15.0 5.9 5.4 4.3 27.3 29.4 30.9

IDFC 154 Buy 10.3 10.9 13.3 15.0 14.2 11.7 1.8 1.6 1.5 16.2 14.8 16.0

LIC Housing Fin 282 Buy 18.1 21.8 31.7 15.6 12.9 8.9 2.5 2.2 1.8 20.3 18.0 20.8

M & M Financial 898 Buy 60.4 79.4 93.7 14.9 11.3 9.6 3.1 2.6 2.2 22.8 25.1 24.6

Power Finance Corp 189 Buy 23.9 29.5 32.7 7.9 6.4 5.8 1.2 1.1 0.9 17.5 17.6 17.4

Rural Electric. Corp. 218 Buy 28.6 34.9 41.7 7.6 6.3 5.2 1.5 1.3 1.1 20.5 21.6 22.2

Shriram Transport 619 Buy 55.6 59.8 70.4 11.1 10.3 8.8 2.3 2.0 1.6 23.1 20.6 20.3

NBFC Aggregate 15.1 12.7 10.7 2.9 2.5 2.1 19.5 19.4 19.9


80

90

100

110

120

Jun

-12

Jul-

12

Au

g-1

2

Se

p-1

2

Se nse x Inde xMOSL Financials Index

80

90

100

110

120

130

Se

p-1

1

De

c-1

1

Ma

r-1

2

Jun

-12

Se

p-1

2

Se nsex IndexMOSL Fina ncia ls Index

Relative Performance-3m (%) Relative Performance-1Yr (%)

C–55October 2012


Sector: Financials

Andhra Bank

Bloomberg ANDB IN



1,6,12 Rel Perf (%) 17/-12/-23

Mcap (INR b) 63.0

Mcap (USD b) 1.2

CMP: INR113 Buy

Year NET INC. PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE

End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)

3/11A 41,179 12,671 22.6 5.0 5.0 116 1.0 1.0 1.3 23.2

3/12A 46,193 13,447 24.0 6.1 4.7 134 0.8 0.9 1.1 19.2

3/13E 49,767 13,998 25.0 4.1 4.5 152 0.7 0.9 1.0 17.5

3/14E 56,158 15,658 28.0 11.9 4.0 173 0.7 0.8 1.0 17.2

BSE Sensex S&P CNX

18,763 5,703

NIM is likely to be stable QoQ, as the benefit of fall in cost of funds would be negated by corresponding

pressure on yield on loans. The 25bp reduction in base rate in August 2012 and continuous reversal on account

of FITL would keep yields under pressure.

On a higher base of INR8.3b, slippages are likely to decline QoQ. However, due to challenges in the macro

environment, we model in slippages at an elevated level of INR5b+. ANDB has performed well on recoveries

and upgradations in 2HFY12, and strong performance on these could provide cushion to asset quality.

With the exception of SEBs, the pace of restructuring is likely to slow down in 2QFY13. However, ANDB's

exposure to some SEBs may get restructured in FY13.

The stock trades at 0.7x FY14E BV, and at 4x FY14E EPS. Maintain Buy.

Key things to watch for: (1) Asset quality: Net slippages and outlook on restructuring and (3) NIM performance.



Interest Income 26,342 27,825 29,230 29,990 31,215 32,004 32,887 34,083 113,387 130,188

Interest Expense 17,239 18,313 19,392 20,851 21,830 22,267 22,712 23,428 75,794 90,237

Net Interest Income 9,104 9,512 9,839 9,139 9,385 9,737 10,175 10,654 37,593 39,952

% Change (Y-o-Y) 23.7 21.4 17.1 6.1 3.1 2.4 3.4 16.6 16.7 6.3

Other Income 2,170 1,778 2,353 2,299 2,357 2,256 2,503 2,699 8,599 9,816

Net Income 11,273 11,290 12,191 11,438 11,742 11,993 12,679 13,354 46,193 49,767


Operating Profit 6,997 6,868 7,676 6,610 7,034 6,990 7,507 7,697 28,150 29,228

% Change (Y-o-Y) 37.1 21.7 22.5 -7.1 0.5 1.8 -2.2 16.5 16.7 3.8

Other Provisions 1,770 2,607 3,094 2,437 2,066 2,502 2,516 2,702 9,907 9,785

Profit before Tax 5,227 4,261 4,582 4,173 4,968 4,488 4,991 4,995 18,243 19,442

Tax Provisions 1,370 1,100 1,550 776 1,350 1,279 1,422 1,392 4,796 5,444

Net Profit 3,857 3,161 3,032 3,397 3,618 3,209 3,568 3,603 13,447 13,998

% Change (Y-o-Y) 20.4 4.3 -8.4 8.6 -6.2 1.5 17.7 6.1 6.1 4.1

Operating Metrics

NIM (Reported, %) 3.8 3.8 3.8 3.3 3.3 - - - 3.7 -

NIM (Cal, %) 3.7 3.8 3.8 3.3 3.2 3.3 3.3 3.3 3.5 3.2

Deposit Growth (%) 21.7 20.2 20.2 14.9 18.5 16.3 16.3 16.0 14.9 16.0

Loan Growth (%) 32.0 21.5 20.3 17.1 14.3 18.0 16.0 15.0 17.1 15.0

CASA Ratio (%) 27.8 26.1 26.6 26.4 26.7 - - - 26.4 -

Tax Rate (%) 26.2 25.8 33.8 18.6 27.2 28.5 28.5 27.9 26.3 28.0

Asset Quality

OSRL (INR b) 21.7 22.5 32.3 55.9 67.7 - - - 55.9 -

OSRL (%) 2.9 3.0 4.1 6.6 7.8 - - - 6.6 -

Gross NPA (INR b) 11.8 19.9 18.8 18.0 23.6 26.1 29.5 32.8 18.0 32.8

Gross NPA (%) 1.6 2.7 2.4 2.1 2.7 3.0 3.2 3.4 2.1 3.4

E: MOSL Estimates

C–56October 2012


Sector: Financials

Axis Bank

Bloomberg AXSB IN



1,6,12 Rel Perf (%) 5/-8/-8

Mcap (INR b) 469.7

Mcap (USD b) 8.9

CMP: INR1,137 Buy

Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE


3/11A 111,951 33,885 82.5 33.0 - 463 - - 1.6 19.3

3/12A 134,380 42,422 102.7 24.4 11.1 547 2.1 2.1 1.6 20.3

3/13E 154,433 46,566 109.5 6.6 10.4 625 1.8 1.9 1.5 18.8

3/14E 182,976 53,422 125.6 14.7 9.0 731 1.6 1.6 1.5 18.4



Interest Income 48,814 52,760 57,770 60,603 64,829 66,526 68,292 69,665 219,946 269,311



% Change (Y-o-Y) 13.9 24.3 23.5 26.2 26.4 13.3 10.9 11.2 22.2 14.9

Other Income 11,679 12,349 14,298 15,876 13,355 14,649 15,912 18,359 54,202 62,275

Net Income 28,920 32,422 35,701 37,337 35,154 37,392 39,654 42,233 134,380 154,433



% Change (Y-o-Y) 7.5 19.5 24.2 11.9 26.0 14.4 4.7 14.0 15.8 14.0



Tax Provisions 4,403 4,497 5,346 6,210 5,513 5,413 5,512 5,983 20,456 22,421

Net Profit 9,424 9,203 11,023 12,773 11,535 11,242 11,448 12,341 42,422 46,566

% Change (Y-o-Y) 27.0 25.2 23.7 25.2 22.4 22.2 3.9 -3.4 25.2 9.8

Operating Metrics

NIM (Reported,%) 3.3 3.8 3.8 3.6 3.4 - - - 3.6 -

NIM (Cal, %) 3.2 3.7 3.7 3.4 3.3 3.4 3.4 3.3 3.3 3.2

Deposit Growth (%) 24.5 23.9 33.9 16.3 21.3 17.9 14.3 15.0 16.3 15.0

Loan Growth (%) 21.4 26.7 20.4 19.2 29.8 25.8 24.4 18.0 19.2 18.0

CASA Ratio (%) 40.5 42.2 41.6 41.5 39.1 - - - 41.5 -

Tax Rate (%) 31.8 32.8 32.7 32.7 32.3 32.5 32.5 32.7 32.5 32.5

Asset Quality

OSRL (INR b) 21.5 24.1 27.0 30.6 38.3 - - - 30.6 -

OSRL (%) 1.6 1.7 1.8 1.8 2.2 - - - 1.8 -

Gross NPA (INR b) 15.7 17.4 19.1 18.1 20.9 24.7 28.3 32.5 18.1 32.5

Gross NPA (on customer assets, %) 1.1 1.1 1.1 0.9 1.1 1.4 1.5 1.6 0.9 1.6

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan growth is expected to remain strong at over 25% YoY, partially aided by a lower base of 2QFY12.

NIM are likely to expand by 10bp, as low yielding priority sector loans runs off and bulk deposit rates have

cooled down. In 1QFY13, AXSB had reported NIM of 3.4%.

Fee income growth is expected to be ~15% YoY. Pressure on fees from Corporate Banking and Capital Market-

related services is expected to continue, but Retail fees would remain strong.

Gross stress addition (i.e. gross slippage and addition to restructured loans) is expected to remain high, so does

the credit cost. Improvement in upgradations and recoveries remains the key.

The stock trades at 1.8x FY13E and 1.6x FY14E BV, and at 10.4x FY13E and 9.0x FY14E EPS. Buy.

Key things to watch for: (1) Pressure on asset quality has increased and performance on gross slippages and

restructured loans remains a key thing to monitor, (2) margins are expected to improve, but scope for positive

surprise remains, (3) fee income growth.

C–57October 2012


Sector: Financials

Bank of Baroda

Bloomberg BOB IN



1,6,12 Rel Perf (%) 21/-8/-13

Mcap (INR b) 329.3

Mcap (USD b) 6.2

CMP: INR799 Neutral



3/11A 116,114 42,417 108 29.1 - 502 - - 1.3 25.2

3/12A 137,393 50,070 121 12.4 6.6 621 1.3 1.3 1.2 22.1

3/13E 154,075 45,605 111 -8.9 7.2 715 1.1 1.2 0.9 16.6

3/14E 180,172 53,193 129 16.6 6.2 825 1.0 1.0 0.9 16.8



Interest Income 66,318 72,514 76,720 81,185 85,576 86,580 89,114 93,379 296,737 354,649



% Change (YoY) 23.6 25.9 15.8 7.0 21.8 9.6 9.9 10.9 17.2 12.7

Other Income 6,409 7,343 11,493 8,978 7,708 9,082 9,775 11,193 34,223 37,758

Net Income 29,380 33,013 38,048 36,952 35,689 37,203 38,968 42,216 137,393 154,075



% Change (YoY) 19.0 28.4 40.2 4.9 23.2 5.5 -8.4 23.6 22.9 9.4



Tax Provisions 3,944 4,775 4,686 -3,217 2,081 3,806 4,075 4,440 10,188 14,402

Net Profit 10,328 11,661 12,899 15,182 11,389 10,833 11,597 11,787 50,070 45,605

% Change (YoY) 20.2 14.4 20.7 17.3 10.3 -7.1 -10.1 -22.4 18.0 -8.9

Operating Metrics

NIM (Reported, %) 2.9 3.1 3.0 3.0 2.7 - - - 3.0 -

NIM (Calculated, %) 2.7 2.9 2.9 2.8 2.6 2.6 2.6 2.7 2.8 2.6

Deposit Growth (%) 22.9 22.1 24.0 26.0 22.3 19.8 18.5 16.0 26.0 16.0

Loan Growth (%) 25.2 23.9 25.8 25.7 23.0 22.5 17.4 16.0 25.7 16.0

CASA Ratio (%) 33.9 34.0 34.1 33.2 32.2 - - - 33.2 -

Tax Rate (%) 27.6 29.1 26.6 -26.9 15.4 26.0 26.0 27.4 16.9 24.0

Asset Quality

OSRL (INR b) 92.4 98.4 116.6 171.4 179.8 - - - 171.4 -

OSRL (%) 4.0 4.1 4.5 6.0 6.3 - - - 6.0 -

Gross NPA (INR b) 34.3 34.0 39.0 44.6 53.2 58.7 64.3 68.7 44.6 68.7

Gross NPA (%) 1.5 1.4 1.5 1.5 1.8 2.0 2.1 2.0 1.5 2.0

E: MOSL Estimates; # This includes loans restructured in international book

BSE Sensex S&P CNX

18,763 5,703

Margins should remain stable QoQ or decline marginally, as the pressure on yields on loans would offset any

benefits from fall in bulk deposit rates. NII is likely to grow 10% YoY.

We expect fee income growth to moderate to sub-5% YoY. However, higher trading gains would lead to strong

non-interest income growth of over 23% YoY.

Stress on the balance sheet has increased, with gross slippage ratio in the last two quarters at 2%+. While

slippages are expected to remain high, recoveries and upgradations could provide some respite to asset quality.

The pace of restructuring had slowed down in 1QFY13, with the bank restructuring loans worth INR7.7b as

against INR50.3b in 4QFY12. However, pressure in corporate segment restructuring is likely to continue.

The stock trades at 1.1x FY13E and 1x FY14E BV, and 7.2x FY13E and 6.2x FY14E EPS. Maintain Neutral.

Key things to watch for: (1) Performance on asset quality, especially on gross slippages, (2) Restructured portfolio,

(3) Fee income growth, (4) Guidance on tax rate.

C–58October 2012


Sector: Financials

Bank of India

Bloomberg BOI IN



1,6,12 Rel Perf (%) 11/-20/-16

Mcap (INR b) 178.3

Mcap (USD b) 3.4

CMP: INR310 Neutral


End (INR m) (INR m) (INR) Gr.(%) (X) (INR) (X) (X) (%) (%)

3/11A 104,525 24,887 45.5 37.4 - 283 - - 0.8 17.8

3/12A 116,346 26,775 46.6 2.5 6.7 327 1.0 1.1 0.7 15.6

3/13E 132,579 30,974 53.9 15.7 5.8 371 0.8 1.0 0.7 15.5

3/14E 156,010 36,582 63.7 18.1 4.9 423 0.7 0.9 0.7 16.0




Interest Income 66,336 68,864 71,501 78,106 77,092 81,777 83,948 86,111 284,807 328,928



% Change (Y-o-Y) 5.8 7.2 4.1 8.4 11.0 25.2 20.5 4.3 6.4 14.6

Other Income 6,601 8,418 8,522 9,671 8,409 8,553 9,363 10,977 33,212 37,302

Net Income 25,011 27,457 29,197 34,681 28,844 32,397 34,283 37,055 116,346 132,579



% Change (Y-o-Y) -1.0 12.5 24.7 67.1 19.9 20.6 16.8 0.9 24.3 13.5



Tax Provisions 3,112 -940 3,227 3,601 3,139 3,263 3,457 3,416 9,000 13,275

Net Profit 5,175 4,911 7,162 9,527 8,875 7,095 7,518 7,487 26,775 30,974

% Change (Y-o-Y) -28.6 -20.4 9.7 93.0 71.5 44.5 5.0 -21.4 7.6 15.7

Operating Metrics

NIM (Reported, %) 2.2 2.4 2.6 2.9 2.3 - - - 2.5 -

NIM (Cal, %) 2.3 2.4 2.5 2.9 2.2 2.5 2.6 2.6 2.5 2.5

Deposit Growth (%) 25.4 24.1 21.7 6.5 15.7 16.7 17.6 18.0 6.5 18.0

Loan Growth (%) 21.6 17.7 20.9 16.3 22.9 24.9 19.9 17.2 16.3 17.2

CASA Ratio (Reported, %) 30.5 31.6 32.4 34.3 32.0 - - - 34.3 -

Tax Rate (%) 37.6 -23.7 31.1 27.4 26.1 31.5 31.5 31.3 25.2 30.0

Asset Quality

OSRL (INR b) 87.6 84.5 104.5 134.8 175.7 - - - 134.8 -

OSRL (%) 4.1 3.9 4.5 5.4 6.6 - - - 5.4 -

Gross NPA (INR b) 57.9 65.5 63.9 58.9 67.5 75.3 83.7 92.7 58.9 92.7

Gross NPA (%) 2.7 3.0 2.7 2.3 2.6 2.8 3.0 3.1 2.3 3.1

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan growth is likely to be above industry average at ~25% YoY, while deposit growth is likely to be lower at

~17%. Lower deposit growth is in line with the bank’s strategy to reduce bulk deposits in its balance sheet.

Margins are expected to improve by ~25bp in the absence of one-offs. In 1QFY13, margins had declined sharply

by 60bp led by reversal of interest income on Air India restructuring and NPAs.

Fee income should grow ~15% YoY. However, overall growth in non-interest income is likely to be flat, led by

muted treasury gains and recoveries from written-off accounts.

High slippages and restructuring are likely to continue translating into higher credit cost.

The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 5.8x FY13E and 4.9x FY14E EPS. Maintain Neutral.

Key things to watch for: (1) Gross and net slippages, (2) Restructured portfolio and outlook on the same,

(3) Margin movement.

C–59October 2012


Sector: Financials

Canara Bank

Bloomberg CBK IN



1,6,12 Rel Perf (%) 28/-15/-19

Mcap (INR b) 191.0

Mcap (USD b) 3.6

CMP: INR431 Buy



3/11A 105,108 40,259 90.9 23.3 - 405 - - 1.3 26.4

3/12A 106,169 32,827 74.1 -18.5 5.8 464 0.9 1.0 0.9 17.1

3/13E 111,631 32,634 73.7 -0.6 5.9 525 0.8 0.9 0.8 14.9

3/14E 133,833 37,860 85.5 16.0 5.0 597 0.7 0.8 0.8 15.2




Interest Income 71,565 76,145 78,121 82,675 84,729 85,962 87,872 90,080 308,506 348,642



% Change (Y-o-Y) 2.4 -2.1 -8.2 5.0 4.2 -3.1 5.5 6.5 -0.1 3.3

Other Income 5,510 8,283 7,791 7,693 6,926 7,542 8,344 9,395 29,276 32,208

Net Income 23,198 27,900 26,976 28,094 25,362 26,548 28,590 31,132 106,169 111,631



% Change (Y-o-Y) -14.4 13.4 4.2 -12.0 9.7 -13.0 -3.3 7.8 -2.4 -0.4



Tax Provisions 2,000 2,000 2,000 2,000 2,000 1,834 2,107 2,218 8,000 8,158

Net Profit 7,258 8,522 8,756 8,291 7,752 7,336 8,426 9,119 32,827 32,634

% Change (Y-o-Y) -28.4 -15.4 -20.8 -7.8 6.8 -13.9 -3.8 10.0 -18.5 -0.6

Operating Metrics

NIM (Rep, %) 2.4 2.6 2.6 2.6 2.4 - - - 2.5 -

NIM (Cal, %) 2.4 2.5 2.4 2.5 2.2 2.2 2.3 2.4 2.5 2.3

Deposit Growth (%) 25.7 25.4 19.7 11.5 11.5 10.3 12.5 12.0 11.5 12.0

Loan Growth (%) 23.7 23.8 15.5 10.0 4.9 6.6 10.2 11.0 10.0 11.0

CASA Ratio (%) 25.4 25.8 23.9 24.3 23.3 - - - 24.3 -

Tax Rate (%) 21.6 19.0 18.6 19.4 20.5 20.0 20.0 19.6 19.6 20.0

Asset Quality

OSRL (INR b) 78.1 77.2 85.1 75.1 129.6 - - - 75.1 -

OSRL (%) 3.6 3.5 3.9 3.2 5.7 - - - 3.2 -

Gross NPA (INR b) 36.1 37.9 40.0 40.3 45.0 48.1 50.0 51.3 40.3 51.3

Gross NPA (%) 1.7 1.7 1.8 1.7 2.0 2.1 2.1 2.0 1.7 2.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan and deposit growth is expected to be below industry average at ~7% and ~10%, respectively, in line with

CBK's strategy of de-bulking the balance sheet.

Margins are expected to remain largely flat QoQ.

Fee income growth is likely to be muted on a YoY basis. Lower decline in recoveries from written-off accounts

may pressurize overall non-interest income growth.

Slippages expected to remain at elevated levels. However, strong performance on recoveries and upgradations

may ease some pressure. As at the end of 1QFY13, CBK has restructured INR55b of SEB loans, out of its overall

exposure of INR120b.

The stock trades at 0.8x FY13E and 0.7x FY14E BV, and 5.9x FY13E and 5x FY14E EPS. Buy.

Key things to watch for: (1) Margins could surprise positively, (2) Trading profits and MTM write-back, given high

proportion of AFS investments, (3) Performance on net slippages.

C–60October 2012


Sector: Financials

Dewan Housing Finance

Bloomberg DEWH IN



1,6,12 Rel Perf (%) 13/-25/-19

Mcap (INR b) 23.4

Mcap (USD b) 0.4

CMP: INR200 Buy

Year Net Income PAT EPS EPS P/E BV P/BV RoAA RoAE

End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (%) (%)

3/11A 7,126 2,937 28.1 48.8 - 149 - 2.0 26.7

3/12E 8,418 2,987 25.6 -9.1 7.8 173 1.2 1.3 18.5

3/13E 12,158 4,408 37.7 47.6 5.3 206 1.0 1.5 21.7

3/14E 15,225 5,507 51.3 36.1 3.9 246 0.8 1.4 22.7

BSE Sensex S&P CNX

18,763 5,703

Consolidated financials

DEWH’s strong loan growth momentum is likely to continue in 2QFY13. We expect loan growth (on balance

sheet) of 35%+ YoY and AUM growth of 45%+ YoY. We expect NII to grow 43% YoY to INR1.6b.

Margins are likely to remain stable QoQ, as the liquidity situation has eased considerably and wholesale

borrowing costs have come off substantially.

We expect asset quality to remain stable sequentially.

We expect PAT to grow 33% YoY and 23% QoQ to INR954m.

The stock trades at 1x FY13E and 0.8x FY14E BV. Maintain Buy.

Key things to watch for: (1) Business growth trends, (2) Movement in spreads, (3) Cost to income ratio,

(4) FBHFL performance.



Interest Income 4,652 5,404 6,029 6,498 6,957 7,531 8,039 8,603 22,583 31,130



YoY Growth (%) 48.2 37.4 43.6 34.7 36.4 43.3 43.3 50.8 40.5 43.8

Fees and other income 325 486 590 714 432 600 650 713 2,114 2,395

Net Income 1,378 1,599 1,831 1,999 1,868 2,196 2,428 2,651 6,807 9,142

YoY Growth (%) 36.0 3.9 47.2 40.3 35.5 37.3 32.6 32.6 30.4 34.3

Operating Expenses 471 616 692 806 672 779 860 924 2,585 3,235

YoY Growth (%) 36.0 50.0 60.0 46.0 43.0 26.0 24.0 15.0 48.0 25.0

Operating Profits 907 983 1,138 1,193 1,196 1,417 1,568 1,727 4,221 5,907

YoY Growth (%) 36.0 -13.0 40.0 36.0 32.0 44.0 38.0 45.0 21.0 40.0

Provisions 33.0 116.0 150.0 -62.0 150.0 127.0 134.0 171.2 237.0 582.2

Profit before Tax 874 867 988 1,255 1,046 1,290 1,434 1,556 3,984 5,325

Tax Provisions 216 148 238 317 268 335 373 408 920 1,385

PAT including extraordinary item 658.1 718.9 749.7 937.6 778.0 954.5 1,061.0 1,147.2 3,064.3 3,940.7

YoY Growth (%) 28.4 -23.1 21.4 59.9 18.2 32.8 41.5 22.4 15.6 28.6

Extraordinary Items 0 0 0 250 0 0 0 0 250 0

PAT excluding extraordinary item 658 719 750 688 778 954 1,061 1,147 2,814 3,941

YoY Growth (%) 28.4 23.9 21.4 17.2 18.2 32.8 41.5 66.8 22.5 40.0

Operating Metrics

Loan growth (%) 56.7 50.7 49.8 37.2 39.5 37.2 37.1 44.6 37.2 44.6

Borrowings growth (%) 55.9 61.7 50.8 28.9 38.6 28.9 41.1 47.6 28.9 47.6

Cost to Income Ratio (%) 34.2 38.5 37.8 40.3 36.0 35.5 35.4 34.9 38.0 35.4

Tax Rate (%) 24.7 17.1 24.1 25.3 25.6 26.0 26.0 26.3 23.1 26.0

E: MOSL Estimates

C–61October 2012


Sector: Financials

Federal Bank

Bloomberg FB IN



1,6,12 Rel Perf (%) 4/-3/7

Mcap (INR b) 76.2

Mcap (USD b) 1.4

CMP: INR446 Buy



Interest Income 12,447 13,678 14,668 14,790 15,367 15,849 16,128 16,424 55,584 63,769



% Change (YoY) 11.2 8.2 18.1 9.7 6.9 9.4 1.0 11.9 11.8 7.2

Other Income 1,169 1,170 1,379 1,606 1,243 1,451 1,596 1,821 5,323 6,111

Net Income 5,767 5,914 6,660 6,518 6,160 6,640 6,931 7,317 24,857 27,048



% Change (YoY) 5.6 -6.2 17.4 6.3 -2.1 6.1 -4.8 11.6 5.6 2.5

Other Provisions 1,340 722 1,153 155 628 818 962 1,122 3,370 3,530


Tax Provisions 739 979 1,016 1,193 934 1,011 998 929 3,927 3,872

Net Profit 1,462 1,912 2,019 2,376 1,904 2,006 2,027 2,104 7,768 8,041

% Change (YoY) 10.8 36.2 41.1 38.4 30.2 4.9 0.4 -11.4 32.3 3.5

Operating Metrics

NIM (Reported,%) 3.9 3.8 3.9 3.6 3.4 - - - 3.8 -

NIM (Cal, %) 3.9 3.8 4.0 3.6 3.4 3.5 3.5 3.5 3.8 3.5

Deposit Growth (%) 22.7 30.9 26.6 13.8 17.8 10.7 16.4 16.0 13.8 16.0

Loan Growth (%) 17.8 21.6 17.6 18.2 19.0 16.6 22.7 15.0 18.2 15.0

CASA Ratio (%) 27.2 26.4 28.7 27.5 28.7 - - - 27.5 -

Tax Rate (%) 33.6 33.9 33.5 33.4 32.9 33.5 33.0 30.6 33.6 32.5

Asset Quality

OSRL (INR b) 14.2 14.5 14.4 24.7 26.7 - - - 24.7 -

OSRL (%) 4.4 4.3 4.3 6.5 7.0 - - - 6.5 -

Gross NPA (INR b) 13.0 12.5 13.6 13.0 14.1 15.3 16.5 18.1 13.0 18.1

Gross NPA (%) 3.9 3.6 4.0 3.4 3.6 3.8 3.9 4.1 3.4 3.4

E: MOSL Estimates



3/11A 22,634 5,871 34.3 26.4 - 298 - - 1.2 12.0

3/12A 24,857 7,768 45.4 32.3 9.8 333 1.3 1.4 1.4 14.4

3/13E 27,048 8,041 47.0 3.5 9.5 369 1.2 1.3 1.2 13.4

3/14E 32,209 9,530 55.7 18.5 8.0 412 1.1 1.2 1.3 14.3

BSE Sensex S&P CNX

18,763 5,703

We expect loan growth to remain in line with industry average at ~17%. However, on a high base deposit growth

expected to be below industry average at ~11%.

Easing pressure on cost of deposits, improving yield on advances and absence of one-offs is likely to provide

cushion to margins, which are expected to improve ~10bp.

Fee income is expected to grow by ~5% YoY. However, expected strong trading gains would drive overall non-

interest income, which is likely to grow ~24% YoY.

On slippages, we expect a run-rate similar to 1QFY13. However, stress in the large corporate segment remains

a risk.

The stock trades at 1.2x FY13E and 1.1x FY14E BV, with RoA of over 1.2%. However, RoE is likely to be in lower-

teens, as leverage remains low on strong capital base. Maintain Buy.

Key things to watch for: (1) Trend in slippages and recoveries, (2) Business growth, (3) Fee income performance.

C–62October 2012


Sector: Financials

HDFC

Bloomberg HDFC IN



1,6,12 Rel Perf (%) 0/7/7

Mcap (INR b) 1,141.5

Mcap (USD b) 21.7

CMP: INR773 Buy

Year Net Income PAT EPS EPS P/BV ABV* AP/ABV* AP/AE# RoAA Adj RoE


3/11A 53,181 35,350 24.1 22.4 - 91.2 - - 2.9 26.6

3/12A 61,975 41,226 27.9 15.8 6.0 100.5 5.9 22.7 2.8 27.3

3/13E 75,126 49,225 32.1 15.1 4.9 105.9 5.4 19.1 2.9 29.4

3/14E 90,173 59,173 38.6 20.2 4.3 125.8 4.3 15.0 2.9 30.9




Interest Income 36,098 39,340 42,488 46,823 46,924 49,222 50,596 56,535 163,689 203,277



YoY Change (%) 17.1 14.7 15.1 27.2 19.1 17.9 25.5 18.3 16.3 22.5

Profit on Sale of Inv. 163 869 880 791 202 500 750 1,048 2,702 2,500

Other operating income 1,909 1,430 1,306 1,233 2,223 2,550 1,600 2,151 6,939 8,524

Net Operating Income 13,020 14,734 14,549 19,458 15,467 17,713 17,868 23,828 61,762 74,876

YoY Change (%) 20.8 18.1 9.9 18.3 18.8 20.2 22.8 22.5 16.7 21.2

Other Income 47 52 52 63 74 50 50 40 213 250

Total Income 13,067 14,786 14,601 19,520 15,541 17,763 17,918 23,868 61,975 75,126


Pre Provisioning Profit 11,935 13,547 13,483 18,491 14,199 16,413 16,443 22,531 57,456 69,622

YoY Change (%) 21.6 17.9 9.8 17.1 19.0 21.2 22.0 21.8 16.4 21.2

Provisions 180 170 200 250 400 424 456 678 800 1,958

PBT Ex Invest. profits 11,593 12,508 12,403 17,450 13,597 15,489 15,237 20,805 53,954 65,164

YoY Change (%) 19.9 16.4 18.6 22.9 17.3 23.8 22.9 19.2 19.7 20.8

PBT 11,755 13,377 13,283 18,241 13,799 15,989 15,987 21,852 56,656 67,664

YoY Change (%) 21.6 18.0 9.5 17.4 17.4 19.5 20.4 19.8 16.4 19.4

Provision for Tax 3,310 3,670 3,470 4,980 3,780 4,397 4,356 5,905 15,430 18,438

PAT 8,445 9,707 9,813 13,261 10,019 11,592 11,630 15,947 41,226 49,225

YoY Change (%) 21.6 20.2 10.1 16.1 18.6 19.4 18.5 20.3 16.6 19.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

* Price adj. for value of key ventures. BV is adj. by deducting invt in key ventures from NW

# Price adj. for value of key ventures. EPS is adj. for dividend from key ventures

HDFC’s loan growth (net of sell downs) is likely to remain healthy at ~20%+ YoY. Spreads should be largely stable

at ~2.2%.

Non-interest income is likely to grow ~33% YoY. We have modeled investment gains of INR500m as against

INR869m in 2QFY12. We expect dividend income to increase to INR1.8b from INR1.6b in 1QFY13.

Asset quality has remained healthy over the past several quarters and the trend is likely to continue. In 1QFY13,

GNPAs were 0.79% on 90 days overdue basis and 0.49% on 180 days overdue basis.

However, we conservatively model higher provisions (similar to 1QFY13 levels) of INR424m against INR400m in

1QFY13 and INR170m in 2QFY12.

The stock trades at 4.3x FY14E AP/ABV and 15x FY14E AP/AEPS (price adjusted for value of other businesses and

book value adjusted for investments made in those businesses). Maintain Buy.

Key things to watch for: (1) Movement of spreads, (2) Loan growth and guidance, (3) Asset quality trend.

C–63October 2012


Sector: Financials

HDFC Bank

Bloomberg HDFCB IN



1,6,12 Rel Perf (%) 0/13/23


Mcap (USD b) 28.0

CMP: INR629 Neutral



3/11A 148,783 39,264 16.9 31.0 - 109.1 - - 1.6 16.7

3/12A 175,405 51,671 22.0 30.4 28.6 127.4 4.9 5.0 1.7 18.7

3/13E 217,274 67,291 28.7 30.2 21.9 149.4 4.2 4.3 1.8 20.7

3/14E 263,511 83,920 35.8 24.7 17.6 176.8 3.6 3.6 1.8 21.9



Interest Income 59,780 67,177 72,026 73,880 80,074 82,658 85,171 87,352 272,864 335,254



% Change (Y-o-Y) 18.6 16.6 12.2 19.3 22.3 22.5 21.6 16.6 16.6 20.6

Other Income 11,200 12,117 14,200 14,920 15,295 16,424 17,770 19,502 52,437 68,990

Net Income 39,680 41,562 45,360 48,803 50,135 52,491 55,651 58,996 175,405 217,274



% Change (Y-o-Y) 16.3 17.6 14.7 15.1 26.9 29.8 27.6 27.1 15.9 27.8



Tax Provisions 5,047 5,604 6,191 6,618 6,762 7,181 8,551 8,809 23,461 31,304

Net Profit 10,850 11,994 14,297 14,531 14,174 15,616 18,595 18,905 51,671 67,291

% Change (Y-o-Y) 33.7 31.5 31.4 30.4 30.6 30.2 30.1 30.1 31.6 30.2

Operating Metrics

NIM (Reported,%)* 4.2 4.1 4.1 4.2 4.3 - - - 4.2 -

NIM (Cal, %)# 4.7 4.5 4.6 4.7 4.6 4.5 4.5 4.5 4.6 4.5

Deposit Growth (%) 15.4 18.1 21.0 18.3 22.0 18.9 24.4 21.0 18.3 21.0

Loan Growth (%) 20.0 20.0 22.1 22.2 21.5 20.5 21.6 22.0 22.2 22.0

CASA Ratio (%) 49.1 47.3 48.6 48.4 46.0 - - - 48.4 -

Tax Rate (%) 31.7 31.8 30.2 31.3 32.3 31.5 31.5 31.8 31.2 31.8

Asset Quality

OSRL (INR b) 3.5 1.9 1.9 2.0 2.1 - - - 2.0 -

OSRL (%) 0.2 0.1 0.1 0.1 0.1 - - - 0.1 -

Gross NPA (INR b) 18.3 18.9 20.2 20.0 20.9 24.0 26.4 28.3 20.0 28.3

Gross NPA (%) 1.0 1.0 1.0 1.0 1.0 1.0 1.1 1.2 1.0 1.2

E: MOSL Estimates; * Reported on total assets; # Cal. on interest earning assets

BSE Sensex S&P CNX

18,763 5,703

HDFCB is expected to deliver above industry loan and deposit growth, both on a YoY and QoQ basis. On a YoY

basis, loans and deposits are likely to grow ~20% and ~19%, respectively.

NIMs are expected to decline marginally QoQ. Strong loan growth coupled with healthy margins would translate

into NII growth of 3% QoQ and ~23% YoY .

Fee income growth is expected to be 20%+, aided by lower base. Further, trading gains and strong growth in

forex income would boost growth in non-interest income to 30%+.

Asset quality is likely to remain healthy. However, stress in few segments of retail loans has increased, which

needs to be watched.

The stock trades at 4.2x FY13E and 3.6x FY14E BV, and at 21.9x FY13E and 17.6x FY14E EPS. Maintain Neutral.

Key things to watch for: (1) Traction in fee income, (2) Being largely in retail lending, HDFCB has reported

commendable asset quality performance; trend and outlook on retail portfolio remains a key factor to watch.

C–64October 2012


Sector: Financials

ICICI Bank

Bloomberg ICICIBC IN



1,6,12 Rel Perf (%) 8/13/8


Mcap (USD b) 23.1

CMP: INR1,057 Buy

Year Net Income PAT EPS EPS P/E AP/E* ABV* AP/ABV* Core RoAA

End (INR m) (INR m) (INR) Gr. (%) (X) (X) (INR) (X) RoAE (%) (%)

3/11A 156,648 51,514 44.7 23.9 - 19.7 371 - 11.5 1.3

3/12A 182,369 64,653 56.1 25.4 18.9 15.6 409 2.1 12.8 1.5

3/13E 220,063 78,775 68.3 21.8 15.5 12.6 453 1.9 14.2 1.5

3/14E 256,506 90,734 78.7 15.2 13.4 10.7 504 1.7 14.7 1.5

* Price adjusted for value of key ventures and BV adjusted for investments in these ventures



Interest Income 76,185 81,576 85,919 91,746 95,457 98,015 100,263 102,354 335,427 396,088



% Change (YoY) 21.1 13.7 17.3 23.7 32.4 30.0 26.6 18.9 19.0 26.5

Other Income 16,429 17,396 18,919 22,285 18,799 19,902 22,060 23,530 75,028 84,292

Net Income 40,538 42,460 46,039 53,332 50,729 52,484 56,399 60,451 182,369 220,063



% Change (YoY) 2.1 6.4 14.7 35.0 32.0 29.3 24.3 15.2 14.8 24.4



Tax Provisions 4,480 5,318 6,179 7,405 6,684 6,745 7,409 8,298 23,382 29,136

Net Profit 13,320 15,032 17,281 19,018 18,151 18,236 20,031 22,356 64,653 78,775

% Change (YoY) 29.8 21.6 20.3 31.0 36.3 21.3 15.9 17.6 25.5 21.8

Operating Metrics

NIM (Reported,%) 2.6 2.6 2.7 3.0 3.0 - - - 2.7 -

NIM (Cal, %) 2.5 2.5 2.5 2.8 2.8 2.8 2.8 2.9 2.6 2.8

Deposit Growth (%) 14.8 9.9 19.7 13.3 16.1 13.6 12.2 20.6 13.3 20.6

Loan Growth (%) 19.7 20.5 19.1 17.3 21.6 18.2 15.7 15.4 17.3 15.4

CASA Ratio (%) 40.0 38.3 39.0 39.0 39.1 - - - 39.0 -

Tax Rate (%) 25.2 26.1 26.3 28.0 26.9 27.0 27.0 27.1 26.6 27.0

Asset Quality

OSRL (INR b) 19.7 25.0 30.7 42.6 41.7 - - - 42.6 -

OSRL (%) 0.9 1.1 1.2 1.7 1.6 - - - 1.7 -

Gross NPA (INR b) 99.8 100.2 97.2 94.8 98.2 99.2 102.2 104.1 94.8 104.1

Gross NPA (%) 4.4 4.1 3.8 3.6 3.5 3.5 3.5 3.5 3.6 3.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan growth is expected to remain healthy at 18% YoY, led by growth in the domestic segment. While on a YoY

basis, deposit growth is likely to be a moderate 14%, on a QoQ basis, it is likely to be in line with loan growth.

Fee income is expected to be muted. However, trading profits as against trading loss of INR800m in 2QFY12

would provide cushion to non-interest income.

Asset quality has been holding fairly well over the past few quarters. We expect this to continue, given the

benign asset quality in the retail segment, changing loan portfolio mix (unsecured retail loans now constitute

just 1.3% of overall loans as against 9%+ in FY08), and better risk management practices.

Excluding subsidiaries, the stock trades at 1.7x FY14E ABV (BV adjusted for NPAs and investments in subsidiaries)

and 10.7x FY14E EPS. Maintain Buy.

Key things to watch for: (1) Margin performance, (2) Guidance on loan growth, (3) While performance on asset

quality has been strong, increasing stress in large and mid-corporate segments might lead to higher restructuring.

C–65October 2012


Sector: Financials

IDFC

Bloomberg IDFC IN



1,6,12 Rel Perf (%) 6/11/25

Mcap (INR b) 233.6

Mcap (USD b) 4.4

CMP: INR154 Buy

Year Net Inc. PAT EPS EPS P/E ABV AP/ABV RoAA Core

End (INR m) (INR m) (INR) Gr. (%) (x) (INR)* (x) (%) RoE (%)

3/11A 25,455 12,817 8.8 7.4 - 60.6 - 3.2 17.8

3/12A 29,788 15,540 10.3 17.1 15.0 72.7 1.8 2.9 16.2

3/13E 33,582 16,466 10.9 6.0 14.2 80.7 1.6 2.5 14.8

3/14E 39,479 20,047 13.3 21.7 11.7 90.5 1.5 2.6 16.0

*Adjusted for Investment in subsidaries , Prices adjusted for other ventures



NII 4,830 4,980 5,460 5,860 6,290 6,548 6,882 7,301 21,130 27,022

% Change (YoY) 43.3 33.2 18.7 22.6 30.2 31.5 26.1 24.6 28.1 27.9

- Infra Loans 4,280 4,390 4,730 5,400 5,550 5,763 6,022 6,352 18,800 23,687

- Treasury 550 590 730 460 740 786 860 949 2,330 3,335

Fees 1,165 1,480 1,220 1,037 1,392 1,145 1,270 1,530 4,902 5,336

- Asset management 620 800 680 600 640 750 800 940 2,700 3,130

- IB and Broking 150 180 240 140 90 95 145 208 710 538

- Loan related/others 395 500 300 297 662 300 325 382 1,492 1,669

Principal investments (20) 2,430 910 290 20 300 325 379 3,610 1,024

Other Income 76 11 7 63 14 40 65 81 157 200

Net Income 6,051 8,901 7,597 7,251 7,716 8,033 8,542 9,291 29,799 33,582

% Change (YoY) (1.1) 36.9 15.1 3.4 27.5 (9.7) 12.5 28.1 13.6 12.7


Operating profit 4,909 7,587 6,331 5,746 6,556 6,793 7,142 7,449 24,572 27,941

% Change (YoY) - 44.0 27.0 13.0 34.0 (10.0) 13.0 30.0 22.0 14.0

Provisions 399 631 978 838 1,026 1,000 1,000 1,051 2,846 4,077

PBT 4,509 6,956 5,353 4,908 5,530 5,793 6,142 6,398 21,726 23,864

Tax 1,378 1,715 1,537 1,590 1,713 1,796 1,904 1,984 6,219 7,398

PAT 3,132 5,241 3,816 3,319 3,817 3,997 4,238 4,413 15,508 16,466

Less: Consol Adjustments (4.8) (1.7) 4.1 (29.7) 19.2 (5.0) (5.0) (9.2) (32.1) 0.0

Consol PAT 3,136 5,243 3,812 3,348 3,798 4,002 4,243 4,423 15,540 16,466

% Change (YoY) (6.2) 54.9 18.6 16.5 21.1 (23.7) 11.3 32.1 21.2 6.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan growth is likely to remain strong. We model in 4% QoQ and 33% YoY loan growth.

We expect spreads to remain largely stable on a QoQ basis, translating into ~4% QoQ and 32% YoY growth in NII.

We factor modest gains of INR300m from principal investments as against INR2.4b in 2QFY12 (one-off; IDFC had

booked gains on partial stake sale in NSE).

Revenues from Investment Banking and Broking likely to remain muted sequentially, given the subdued activity

levels in capital markets. However, we expect revenues from Asset Management to improve marginally QoQ.

Asset quality is expected to remain stable. However, we conservatively model in provisions of INR1b as against

INR631m in 2QFY12.

The stock trades at 11.7x FY14E EPS and 1.5x FY14E ABV. Maintain Buy.

Key things to watch for: (1) Business growth guidance, (2) Movement in spreads, (3) Emerging asset quality

trends.

C–66October 2012


Sector: Financials

Indian Bank

Bloomberg INBK IN



1,6,12 Rel Perf (%) 12/-23/-25

Mcap (INR b) 82.6

Mcap (USD b) 1.6

CMP: INR192 Buy



3/11A 52,180 17,141 39.9 10.2 - 184 - - 1.5 22.9

3/12A 56,502 17,470 40.6 1.9 4.7 215 0.9 0.9 1.3 19.8

3/13E 60,014 18,386 42.8 5.2 4.5 248 0.8 0.8 1.2 18.0

3/14E 68,846 19,621 45.7 6.7 4.2 283 0.7 0.7 1.1 16.8



Interest Income 27,814 30,348 32,240 31,911 33,738 34,530 35,220 35,799 122,313 139,287



% Change (Y-o-Y) 11.2 15.5 12.8 -2.6 12.0 5.6 5.5 19.8 9.5 10.5

Other Income 2,493 3,423 2,812 3,070 2,227 2,958 2,973 3,024 12,322 11,181

Net Income 12,793 14,777 14,513 13,896 13,759 14,949 15,315 15,991 56,502 60,014



% Change (Y-o-Y) -6.8 24.6 12.3 -11.7 7.6 -3.3 3.1 18.8 8.3 6.2



Tax Provisions 1,972 2,318 1,495 -1,100 2,328 2,216 2,256 2,052 5,209 8,852

Net Profit 4,069 4,687 5,259 3,454 4,617 4,709 4,795 4,264 17,470 18,386

% Change (Y-o-Y) 10.5 12.7 7.0 -21.3 13.5 0.5 -8.8 23.4 1.9 5.2

Operating Metrics

NIM (%) 3.4 3.8 3.6 3.2 3.3 - - - 3.4 -

NIM (Cal, %) 3.6 3.8 3.7 3.3 3.5 3.5 3.5 3.5 3.6 3.5

Deposit Growth (%) 21.3 18.6 17.8 14.2 15.0 12.6 13.3 15.0 14.2 15.0

Loan Growth (%) 21.3 23.4 19.1 20.4 13.8 11.5 13.2 14.7 20.4 14.7

CASA Ratio (%) 31.3 30.0 31.3 31.5 29.3 - - - 31.5 -

Tax Rate (%) 32.6 33.1 22.1 (46.7) 33.5 32.0 32.0 32.5 23.0 32.5

Asset Quality

OSRL (INR b) 52.5 51.3 55.7 89.0 99.2 - - - 89.0 -

OSRL (%) 6.4 5.9 6.3 9.8 10.6 - - - 9.8 -

Gross NPA (INR b) 8.1 10.5 11.9 18.5 15.5 18.1 20.8 22.7 18.5 22.7

Gross NPA (%) 1.0 1.2 1.4 2.0 1.7 1.9 2.1 2.2 2.0 2.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect business growth to moderate further, with a loan and deposit growth of 12-13%.

NIM is likely to remain stable on a QoQ basis, however, decline ~30bp on a YoY basis. Consequently, NII growth

would be restricted to just 5% YoY.

Asset quality is expected to be under pressure, led by increased stress in the large corporate segment.

Performance on recoveries and upgradations would be a key thing to watch for.

INBK’s exposure to SEBs as at the end of 1QFY13 stood at INR50b, of which INR22b has been restructured.

Restructuring of SEBs and other corporate accounts would lead to an increase in the restructured portfolio.

The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 4.5x FY13E and 4.2x FY14E EPS. Maintain Buy.

Key things to watch for: (1) Asset quality outlook: Gross slippages and restructured portfolio, (2) Margin

performance.

C–67October 2012


Sector: Financials

IndusInd Bank

Bloomberg IIB IN



1,6,12 Rel Perf (%) 5/9/20

Mcap (INR b) 165.5

Mcap (USD b) 3.1

CMP: INR354 Buy



3/11A 20,902 5,773 12.4 45.3 - 82 - - 1.4 19.3

3/12A 27,160 8,026 17.2 38.5 20.6 97 3.7 3.7 1.6 19.2

3/13E 35,438 10,287 22.0 28.2 16.1 115 3.1 3.1 1.6 20.7

3/14E 44,971 12,844 27.5 24.9 12.9 139 2.5 2.6 1.7 21.6



Interest Income 11,646 13,239 13,897 14,810 16,320 16,941 17,492 18,012 53,592 68,765



% Change (YoY) 31.9 27.1 18.6 19.7 24.1 24.8 30.2 29.2 23.8 27.2

Other Income 2,154 2,392 2,651 2,921 3,188 3,264 3,494 3,812 10,118 13,758

Net Income 6,054 6,584 6,958 7,565 8,029 8,495 9,102 9,812 27,160 35,438



% Change (YoY) 35.2 27.2 19.9 27.2 29.6 29.1 32.5 31.6 26.9 30.8

Other Provisions 446 470 428 460 535 625 725 832 1,804 2,717


Tax Provisions 870 929 1,005 1,097 1,143 1,194 1,268 1,347 3,900 4,953

Net Profit 1,802 1,931 2,060 2,234 2,363 2,481 2,635 2,809 8,026 10,287

% Change (YoY) 52.0 45.0 33.9 30.1 31.1 28.5 27.9 25.8 39.0 28.2

Operating Metrics

NIM (Reported,%) 3.4 3.4 3.3 3.3 3.2 - - - 3.3 -

NIM (Cal, %) 3.3 3.4 3.3 3.3 3.3 3.4 3.4 3.5 3.6 3.7

Deposit Growth (%) 28.8 22.6 32.3 23.3 27.8 23.4 23.7 25.0 23.3 25.0

Loan Growth (%) 31.4 28.5 29.7 34.0 31.2 29.8 27.8 25.0 34.0 25.0

CASA Ratio (%) 28.2 27.7 26.5 27.3 27.9 - - - 27.3 -

Tax Rate (%) 32.5 32.5 32.8 32.9 32.6 32.5 32.5 32.4 32.7 32.5

Asset Quality

OSRL (INR b) 1.1 0.9 0.7 0.9 0.9 - - - 0.9 -

OSRL (%) 0.4 0.3 0.2 0.3 0.2 - - - 0.3 -

Gross NPA (INR b) 3.1 3.3 3.3 3.5 3.7 4.1 4.6 5.1 3.5 5.1

Gross NPA (%) 1.1 1.1 1.0 1.0 1.0 1.0 1.1 1.2 1.0 1.2

E: MOSL Estimates; Quarterly calculated margins based on total assets, yearly on interest earning assets

BSE Sensex S&P CNX

18,763 5,703

We expect IIB to report above industry business growth, with loan growth of 30% and deposit growth of 23%.

Margins are likely to expand ~10bp, led by decline in cost of funds and higher proportion of fixed loans. As a

result, NII is expected to grow 25%. Traction in savings account (SA) deposits is likely to continue, providing

further cushion to margins.

Fee income growth expected to be strong at 30%.

Asset quality is likely to remain healthy. In 1QFY13, IIB had reported a slippage ratio of 1.5%, led by higher

slippages in the corporate segment.

The stock trades at 3,1x FY13E and 2.5x FY14E BV, and at 16.1x FY13E and 12.9x FY14E EPS. Maintain Buy.

Key things to watch for: (1) IIB has shown commendable performance on the asset quality front over the last

few quarters; however, given its high exposure to the CV segment, performance on asset quality needs to be

watched, (2) Growth in SA deposits, (3) Branch additions.

C–68October 2012


Sector: Financials

ING Vysya Bank

Bloomberg VYSB IN



1,6,12 Rel Perf (%) 4/8/20

Mcap (INR b) 61.1

Mcap (USD b) 1.2

CMP: INR407 Buy



3/11A 16,614 3,186 26.3 42.3 - 208 - - 0.9 13.4

3/12A 18,781 4,563 30.4 15.4 13.4 258 1.6 1.6 1.1 14.3

3/13E 22,409 5,313 35.4 16.4 11.5 288 1.4 1.4 1.0 13.0

3/14E 26,809 6,055 40.3 14.0 10.1 322 1.3 1.3 1.0 13.2




Interest Income 8,708 9,331 9,915 10,615 11,714 11,973 12,248 12,516 38,568 48,451



% Change (Y-o-Y) 10.1 19.4 31.6 18.9 31.0 16.1 12.2 18.9 20.1 19.1

Other Income 1,405 1,625 1,699 1,968 1,710 1,860 2,065 2,387 6,698 8,022

Net Income 4,025 4,661 4,935 5,160 5,142 5,387 5,697 6,183 18,781 22,409



% Change (Y-o-Y) -1.2 2.8 32.5 53.9 48.1 19.0 13.9 23.8 20.9 24.6

Other Provisions 62 175 334 566 267 325 450 711 1,138 1,752


Tax Provisions 466 566 584 363 607 608 627 659 1,978 2,500

Net Profit 940 1,154 1,195 1,274 1,301 1,321 1,331 1,359 4,563 5,313

% Change (Y-o-Y) 36.1 53.3 44.0 39.5 38.4 14.5 11.4 6.7 43.2 16.4

Operating Metrics

NIM (Reported,%) 3.0 3.4 3.5 3.3 3.3 - - - 3.3 -

NIM (Calculated,%) 3.0 3.3 3.5 3.2 3.2 3.2 3.2 3.2 3.2 3.2

Deposit Growth (%) 29.4 17.8 16.1 16.6 14.6 21.5 25.0 22.0 16.6 22.0

Loan Growth (%) 25.5 22.8 22.6 21.8 22.9 20.7 19.8 20.0 21.8 20.0

CASA Ratio (%) 33.8 32.6 32.6 34.2 33.3 - - - 34.2 -

Tax Rate (%) 33.1 32.9 32.8 22.2 31.8 31.5 32.0 32.7 30.2 32.0

Asset Quality

Gross NPA (INR b) 5.2 5.1 5.4 5.6 5.9 6.4 6.9 7.5 5.6 7.5

Gross NPA (%) 2.2 2.0 2.0 1.9 2.0 2.1 2.1 2.1 1.9 2.1

PCR ( %) 83.9 84.8 85.0 90.7 90.4 86.0 82.0 79.3 90.7 79.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Business growth is expected to be above industry average, with loans and deposits growing at 21-22% YoY.

Though margins would be lower by 10bp on a YoY basis, they would be stable QoQ at 3.3%. NII is likely to grow

16% YoY and 3% QoQ.

Macro-economic challenges coupled with high exposure to the SME segment could lead to some pressure on

asset quality. In 1QFY13, slippages increased QoQ to INR1b, led by higher slippages in the mid-corporate and

SME segments. We expect similar run-rate of slippages to continue; upgradations and recoveries need to be

watched.


Key things to watch for: (1) Margin movement, (2) Fee income and opex growth, which would be key factors for

RoA improvement, (3) Performance on asset quality.

C–69October 2012


Sector: Financials

Kotak Mahindra Bank

Bloomberg KMB IN



1,6,12 Rel Perf (%) 6/15/27

Mcap (INR b) 479.9

Mcap (USD b) 9.1

CMP: INR648 Neutral

Year Cons. PAT Cons. EPS EPS P/E Cons. BV P/BV P/ABV Cons. RoAA* Core

End (INR m) (INR) Gr. (%) (X) (INR) (X) (X) RoE (%) (%) RoE*(%)

3/11A 15,667 21.3 13.3 - 148.8 - - 16.6 1.9 15.4

3/12A 18,322 24.7 16.3 26.2 174.2 3.7 3.8 15.4 1.9 15.4

3/13E 19,420 26.2 6.0 24.7 199.6 3.2 3.3 14.0 1.5 13.7

3/14E 22,046 29.8 13.5 21.8 228.5 2.8 2.9 13.9 1.5 13.8

KMB Group: Earnings Trends (INR Million)



Kotak Bank (Standalone) 2,520 2,600 2,760 2,970 2,820 2,764 2,718 2,892 10,850 11,195

Kotak Prime 940 900 1,040 970 940 991 1,034 1,092 3,849 4,057

Kotak Mah. Investments 30 30 30 60 40 44 48 53 153 185

Lending Business 3,490 3,530 3,830 4,000 3,800 3,799 3,800 4,038 14,852 15,437

YoY Growth (%) 29.3 33.7 34.7 17.5 8.9 7.6 -0.8 0.9 28.0 3.9

Kotak Securities 230 290 240 500 230 256 269 288 1,260 1,044

Kotak Mah. Capital Co. 10 -40 40 50 60 49 54 59 60 222

Capital Market Business 240 250 280 550 290 305 323 347 1,320 1,265

YoY Growth (%) -55.8 -57.7 -48.4 -16.9 20.8 22.0 15.3 -36.9 -43.5 -4.2

Intl. Subsidiaries -30 -70 -40 30 -50 10 20 20 -110 0

Kotak Mah. AMC & Trustee Co. 90 70 30 30 40 55 70 95 220 260

Kotak Investment Advisors 110 80 70 100 80 90 95 110 360 375

Asset Management Business 170 80 60 160 70 155 185 225 470 635

YoY Growth (%) -52.0 -60.7 -71.3 -34.7 -58.8 93.8 208.3 40.6 -53.4 35.1

Consol. PAT excluding Kotak Life 3,900 3,860 4,170 4,710 4,160 4,259 4,308 4,610 16,642 17,337

YoY Growth (%) 8.4 12.4 16.0 9.2 6.7 10.3 3.3 -2.1 11.3 4.2

Kotak OM Life Insurance 460 530 470 570 320 583 541 790 2,030 2,233

Consolidation Adjust. -200 -60 -10 -70 -50 -30 -30 -40 -349 -150

Consol. PAT Including Kotak Life 4,160 4,330 4,630 5,210 4,430 4,812 4,818 5,359 18,322 19,420

YoY Growth (%) 26.9 18.9 20.7 6.2 6.5 11.1 4.1 2.9 16.9 6.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

* For standalone Bank

Lending business

Growth in profit of the lending business is likely to remain muted. We expect ~8% YoY growth in lending

business profit.

Growth in loans and deposits for the standalone bank is expected to be ~19% YoY and ~21% YoY, respectively.

Margins are likely to remain under pressure on a QoQ basis.

For Kotak Prime, we expect loan growth of ~18% YoY and PAT growth of ~10% YoY.

Capital Market and Asset Management business

We expect PAT of capital market related businesses to grow by ~22% YoY on a lower base. Profit from the

Securities business would grow sequentially but decline on a YoY basis.

In the Asset Management business, we expect strong growth in profit to INR155m v/s INR80m in 2QFY12 and

INR70m in 1QFY13, as international subsidiaries are expected to report profit in 2QFY13 v/s net loss of INR70m

in 2QFY12.

The stock trades at 3.2x FY13E and 2.8x FY14E BV. Maintain Neutral.

Key things to watch for: (1) Business growth and outlook, (2) Improvement in CASA ratio, (3) Asset quality

trends and (4) Margin movement.

C–70October 2012


Sector: Financials

LIC Housing Finance

Bloomberg LICHF IN



1,6,12 Rel Perf (%) 7/-1/21

Mcap (INR b) 142.3

Mcap (USD b) 2.7

CMP: INR282 Buy

Year Net Inc. PAT Adj. PAT EPS EPS P/E BV P/BV Adj. Adj. RoAE

End (INR m) (INR m) (INR m)* (INR)* Gr. (%) (X) (INR) (X) RoAA (%) (%)

3/11A 17,710 9,743 10,285 21.7 55.5 - 87.8 - 2.4 27.2

3/12A 16,240 9,142 10,011 19.8 -8.4 14.2 112.5 2.5 1.8 20.3

3/13E 19,094 11,015 11,015 21.8 10.0 12.9 129.2 2.2 1.6 18.0

3/14E 25,128 15,987 14,827 29.4 34.6 9.6 153.5 1.8 1.7 20.8

*Adjusted for extraordinary items



Interest Income 13,581 14,580 15,387 16,280 17,179 18,038 18,869 20,152 59,827 74,237



YoY Growth (%) 22.6 9.5 -7.5 -11.8 -2.9 14.2 27.4 36.7 1.4 18.9

Fees and other income 601 574 538 610 494 603 676 781 2,324 2,554

Net Income 4,211 3,916 3,795 4,318 3,999 4,420 4,826 5,849 16,240 19,094

YoY Growth (%) 24.7 5.9 -30.4 -16.7 -5.0 12.9 27.2 35.5 -8.3 17.6



YoY Growth (%) 27.0 5.1 -33.3 -22.7 -8.2 11.2 26.0 43.7 -10.8 17.5

Provisions and Cont. 334 2,047 -797 -24 436 200 225 242 1,561 1,103


Tax Provisions 889 323 1,003 952 766 971 1,069 1,373 3,167 4,178

Net Profit 2,565 984 3,056 2,536 2,277 2,559 2,817 3,361 9,142 11,015

YoY Growth (%) 21.0 -58.0 43.1 -19.4 -11.2 160.1 -7.8 32.5 -6.2 20.5

Adj PAT (Post Tax) 2,565 2,527 2,258 2,536 2,277 2,559 2,817 3,361 10,011 11,015

YoY Growth (%) 21.0 7.9 -23.5 -12.9 -11.2 1.3 24.8 32.5 -2.7 10.0

Operating Metrics

Loan Growth (%) 32.1 29.3 26.6 23.5 24.1 23.4 24.3 23.9 23.5 23.9

Borrowings Growth (%) 31.3 28.0 25.9 24.2 23.7 22.7 24.0 26.1 24.2 26.1


Tax Rate (%) 25.7 24.7 24.7 27.3 25.2 27.5 27.5 29.0 25.7 27.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

LICHF’s loan growth is likely to remain healthy on the back of buoyant demand in the individual loans segment.

We expect loan growth to remain healthy at ~23% YoY. However, the YoY decline in the builder loan portfolio is

likely to continue.

We expect margins to expand ~10bp QoQ, led by (1) moderating cost of funds, and (2) re-pricing of teaser rate

loans (expected re-pricing of loans worth ~INR25b in 2QFY13), which would provide cushion to margins.

Asset quality is likely to remain healthy. We model provisioning expense of ~INR200m (v/s INR2b of provisions

in 2QFY12 on account of change in the standard asset provisioning requirement by NHB) for the quarter.

The stock trades at 2.2x FY13E and 1.8x FY14E BV. Maintain Buy.

Key things to watch for: (1) Outlook on disbursement growth, especially builder loans, (2) Movement in spreads,

(3) Emerging asset quality trends.

C–71October 2012


Sector: Financials

M & M Financial Services

Bloomberg MMFS IN



1,6,12 Rel Perf (%) 12/27/26

Mcap (INR b) 92.3

Mcap (USD b) 1.8

CMP: INR898 Buy

Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoA on RoAE

End (INR m) (INR M) (INR) Gr. (%) (X) (INR) (X) (X) AUM (%) (%)

3/11A 13,173 4,631 45.2 26.0 - 243 - - 3.7 22.0

3/12A 16,743 6,201 60.4 33.6 14.9 287 3.1 3.2 3.5 22.8

3/13E 22,688 8,151 79.4 31.4 11.3 346 2.6 2.7 3.6 25.1

3/14E 27,460 9,625 93.7 18.1 9.6 415 2.2 2.2 3.5 24.6




Operating Income 5,538 6,491 7,378 8,393 8,351 8,810 9,295 10,382 27,425 36,838

Other Income 64 159 36 77 39 100 100 133 521 372

Total income 5,603 6,650 7,414 8,470 8,390 8,910 9,395 10,515 27,946 37,210

YoY Growth (%) 39.6 38.9 39.9 44.6 49.8 34.0 26.7 24.1 41.3 33.2


Net Income 3,443 4,061 4,264 5,166 4,916 5,314 5,673 6,786 16,743 22,688



YoY Growth (%) 25.5 22.3 22.8 45.0 56.6 35.1 36.4 30.6 29.0 40.0

Provisions 561 523 494 142 854 650 750 728 1,570 2,982


Tax Provisions 491 661 756 1,144 784 917 1,011 1,302 3,051 4,015

Net Profit 1,022 1,355 1,547 2,277 1,610 1,863 2,054 2,624 6,202 8,152

YoY Growth (%) 37.7 16.3 33.5 45.4 57.6 37.4 32.7 15.3 33.9 31.4

Operating Metrics

AUM growth (%) 38.9 40.7 40.1 36.2 37.9 31.6 27.9 25.6 36.2 25.6

Borrowings growth (%) 49.2 51.1 49.5 44.3 44.8 34.0 24.1 24.9 44.3 24.9


Provisions/Operating Profits (%) 27.1 20.6 17.7 4.0 26.3 18.9 19.7 15.6 14.5 19.7

Tax Rate (%) 32.4 32.8 32.8 33.4 32.8 33.0 33.0 33.2 33.0 33.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

MMFS will continue to benefit from its multi-product strategy and sustain the strong growth momentum in the

CV, used vehicle and car segments. We expect AUM growth to be healthy at ~32% YoY.

Margins are likely to remain stable on a sequential basis. In 1QFY13, gross spreads were 9.3%.

MMFS delivered strong asset quality performance in FY12, which continued in 1QFY13. As at June 2012, GNPAs

were 3.8% and NNPAs were 1.2%. We expect asset quality to remain healthy.

During the quarter, the company sold partial stakes in its insurance broking subsidiary. Gains on the same are

likely to be booked in 3QFY13.


Key things to watch for: (1) Business growth trends, (2) Movement in spreads, (3) Asset quality trends.

C–72October 2012


Sector: Financials

Oriental Bank of Commerce

Bloomberg OBC IN



1,6,12 Rel Perf (%) 36/15/-11

Mcap (INR b) 88.0

Mcap (USD b) 1.7

CMP: INR302 Buy



3/11A 51,376 15,029 51.5 13.7 - 350 - - 1.0 17.1

3/12A 54,560 11,416 39.1 -24.0 7.7 380 0.8 0.9 0.7 10.7

3/13E 64,461 14,821 50.8 29.8 5.9 419 0.7 0.8 0.8 12.7

3/14E 74,684 16,502 56.6 11.3 5.3 462 0.7 0.8 0.7 12.8




Interest Income 35,965 38,011 41,965 42,208 42,872 43,996 45,167 46,636 158,149 178,671



% Change (YoY) -3.7 -8.1 10.7 5.4 10.6 19.2 9.0 25.2 0.9 15.9

Other Income 3,238 2,774 2,953 3,438 4,084 3,591 3,557 4,367 12,402 15,600

Net Income 13,421 12,669 14,352 14,119 15,343 15,390 15,986 17,743 54,560 64,461



% Change (YoY) -2.5 -5.9 6.9 -10.6 11.9 16.6 11.3 37.0 -3.2 18.9



Tax Provisions 1,324 1,051 920 -453 1,730 1,423 1,457 1,742 2,842 6,352

Net Profit 3,547 1,677 3,542 2,649 3,914 3,320 3,567 4,019 11,416 14,821

% Change (YoY) -2.4 -57.8 -13.2 -20.6 10.4 98.0 0.7 51.7 -24.0 29.8

Operating Metrics

NIM (Rep, %) 2.9 2.6 2.9 2.7 2.8 - - - 2.8 -

NIM (Cal,%) 2.7 2.6 2.9 2.6 2.7 2.8 2.8 2.9 2.7 2.7

Deposit Growth (%) 17.5 18.9 20.8 12.2 9.4 8.4 7.9 16.0 12.2 16.0

Loan Growth (%) 14.1 20.8 21.9 16.7 16.0 10.5 9.7 15.0 16.7 15.0

CASA Ratio (%) 23.4 22.9 22.3 24.1 24.0 - - - 24.1 -

Tax Rate (%) 27.2 38.5 20.6 -20.6 30.7 30.0 29.0 30.2 19.9 30.0

Asset Quality

OSRL (INR b) 36.6 41.2 60.9 95.1 109.5 - - - 95.1 -

OSRL (%) 3.7 3.9 5.5 8.4 9.6 - - - 8.4 -

Gross NPA (INR b) 20.3 31.1 32.3 35.8 33.8 34.8 36.0 37.0 35.8 37.0

Gross NPA (%) 2.1 3.0 2.9 3.2 3.0 3.0 3.0 2.8 3.2 2.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Focus on de-bulking of balance sheet coupled with higher base of 2QFY12 (sequential growth was 7.5%+) would

lead to moderation in business growth. We expect sub-10% YoY growth in loans and deposits.

Margins are likely to expand ~5bp, led by re-pricing of liabilities. However, pressure on loan yields would

contain the expansion. We expect NII to grow ~5% QoQ and 19% YoY.

Slippages are likely to remain elevated; continued traction in recoveries and upgradations would be the key.

With the cabinet approving the SEB debt restructuring package, the pending restructuring of SEB loans would

be important. Further stress in the large corporate segment could lead to increase in the restructuring pool.


Key things to watch for: (1) Performance on asset quality, especially on net slippages and restructured loans, (2)

Margin movement, (3) Fee income growth has been volatile in the last few quarters; improvement in fee

income growth would be a key positive, (4) Decrease in bulk deposits on the balance sheet.

C–73October 2012


Sector: Financials

Power Finance Corporation

Bloomberg POWF IN



1,6,12 Rel Perf (%) 11/0/10

Mcap (INR b) 249.0

Mcap (USD b) 4.7

CMP: INR189 Buy

Year Net Inc. Adj PAT EPS EPS P/E BV P/BV Adj. RoAA Adj. RoAE


3/11A 36,736 26,391 23.0 16.0 - 133 - 2.9 18.5

3/12A 43,756 31,539 23.9 3.9 7.9 158 1.2 2.7 17.5

3/13E 54,505 38,924 29.5 23.4 6.4 177 1.1 2.8 17.6

3/14E 61,599 43,180 32.7 10.9 5.8 200 0.9 2.7 17.4



Interest Income 28,480 30,740 32,130 35,890 39,000 39,780 40,377 41,725 97,605 126,025



YoY Gr % 15.4 20.5 18.5 45.8 40.8 29.9 27.5 16.8 24.5 37.0

Other Income 350 80 240 530 90 150 200 260 1,200 700

Net Operational Income 10,250 10,880 11,210 12,820 14,030 14,181 14,184 14,611 45,160 57,005

Exchange gain/(loss) -750 -5,040 4,210 200 -770 -600 -600 -530 -1,380 -2,500

Total Net Income 9,500 5,840 15,420 13,020 13,260 13,581 13,584 14,081 43,780 54,505

YoY Gr % 10.3 -41.6 64.7 48.6 39.6 132.5 -11.9 8.1 19.2 24.5


YoY Gr % N.M. -10.8 0.0 32.0 5.8 13.6 41.4 16.5 32.5 19.6

% to Income 2.8 5.7 1.9 3.1 2.2 2.8 3.0 3.4 3.0 2.8


YoY Gr % 7.3 -42.8 66.8 49.2 40.6 139.7 -12.9 7.9 18.8 24.6

Adjusted PPP (For Forex) 9,980 10,550 10,920 12,411 13,744 13,806 13,774 14,134 43,861 55,458

YoY Gr % 8.2 17.6 17.7 51.4 37.7 30.9 26.1 13.9 23.0 26.4

Provisions 70 0 390 960 20 500 1,000 980 1,420 2,500

PBT 9,160 5,510 14,740 11,651 12,954 12,706 12,174 12,624 41,066 50,458

Tax 2,298 1,320 3,660 3,455 3,240 3,431 3,287 3,414 10,733 13,371

Tax Rate % 25.1 24.0 24.8 29.7 25.0 27.0 27.0 27.0 26.1 26.5

PAT 6,862 4,190 11,080 8,196 9,714 9,275 8,887 9,210 30,333 37,087

YoY Gr % 5.1 -40.2 68.1 35.2 41.6 121.4 -19.8 12.4 15.8 22.3

Adjusted PAT (For Forex) 7,424 8,023 7,915 8,055 10,292 9,713 9,325 9,597 31,417 38,927

E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

BSE Sensex S&P CNX

18,763 5,703

We expect loan growth to remain healthy at ~25% YoY. On a sequential basis, loans and borrowings are expected

to grow at ~2%.

After increasing sharply in 1QFY13 (+31bp QoQ), we expect margins to decline by ~10bp QoQ. As a result, NII

would grow ~30% YoY, but remain largely flattish sequentially.

We expect MTM loss of INR600m in 2QFY13 (due to higher proportion of unhedged foreign currency borrowings),

lower than the INR770m recorded in 1QFY13 (due to currency appreciation during the quarter).

Asset quality would be a key monitorable given the uncertain macro environment. We are conservatively

factoring in INR500m of provisions for the quarter.


Key things to watch for: (1) Management’s outlook on business growth, (2) Asset quality trend, and (3) Impact

of SEB debt restructuring plan.

C–74October 2012


Sector: Financials

Punjab National Bank

Bloomberg PNB IN



1,6,12 Rel Perf (%) 18/-18/-27

Mcap (INR b) 284.8

Mcap (USD b) 5.4

CMP: INR840 Buy



3/11A 154,199 44,335 139.9 13.0 - 632 - - 1.3 24.5

3/12A 176,175 48,847 144.0 2.9 5.8 777 1.1 1.2 1.2 21.1

3/13E 203,863 52,753 155.5 8.0 5.4 906 0.9 1.1 1.1 18.5

3/14E 235,001 62,776 185.1 19.0 4.5 1,059 0.8 0.9 1.1 18.8



Interest Income 83,152 89,520 94,810 96,798 105,450 107,251 110,304 113,782 364,280 436,787



% Change (YoY) 19.9 16.0 10.4 9.3 18.6 8.5 10.8 24.9 13.6 15.5

Other Income 10,837 8,889 9,541 12,760 11,660 11,410 11,957 13,908 42,026 48,934

Net Income 41,990 43,414 44,907 45,859 48,611 48,865 51,130 55,257 176,175 203,863



% Change (YoY) 17.9 20.4 13.9 17.1 14.8 11.9 13.0 13.9 17.2 13.4



Tax Provisions 4,753 6,124 5,803 4,848 5,627 5,602 6,007 7,022 21,528 24,259

Net Profit 11,051 12,050 11,501 14,241 12,457 12,183 13,063 15,051 48,847 52,753

% Change (YoY) 3.4 12.1 5.5 18.6 12.7 1.1 13.6 5.7 10.2 8.0

Operating Metrics

NIM (Rep, %) 3.8 4.0 3.9 3.5 3.6 - - - 3.8 -

NIM (Cal, %) 3.6 3.9 3.8 3.3 3.5 3.5 3.5 3.5 3.5 3.4

Deposit Growth (%) 26.9 25.0 23.4 21.3 18.9 16.1 15.8 15.0 21.3 15.0

Loan Growth (%) 23.4 19.3 18.7 21.3 21.2 21.2 21.3 16.0 21.3 16.0

CASA Ratio (%) 38.1 37.1 36.2 36.2 35.6 - - - 36.2 -

Tax Rate (%) 30.1 33.7 33.5 25.4 31.1 31.5 31.50 31.81 30.6 31.50

Asset Quality

OSRL (INR b) 114.2 137.4 155.5 230.6 240.5 - - - 230.6 -

OSRL (%) 4.7 5.5 5.9 7.9 8.2 - - - 7.9 -

Gross NPA (INR b) 48.9 51.5 64.4 87.2 99.9 112.7 126.9 142.2 87.2 142.2

E: MOSL Estimates, Yearly numbers vary with full year number on account of reclassification

BSE Sensex S&P CNX

18,763 5,703

We expect loan growth to remain above industry average at 21% YoY. Deposit growth would be moderate at 16%

YoY on a higher base.

Margins are likely to be stable at ~3.6% QoQ, but would be lower by 35bp on a YoY basis. Consequently, NII is

likely to grow ~10% YoY and be flat QoQ.

Stress on the balance sheet has increased, with gross slippage ratio in the last two quarters at 4.5%+. We expect

slippages to remain high, but recoveries and upgradations could provide some respite to asset quality.

The pace of restructuring had slowed down in 1QFY13, with the bank restructuring loans worth INR12b as

against INR86b in 4QFY12. However, with referrals to CDR remaining at an elevated level, restructuring during

the quarter would be a key thing to watch for.


Key things to watch for: (1) Balance sheet growth and guidance, (2) Net slippages, (3) Outlook on restructuring,

(4) Margin movement, (4) CASA ratio.

C–75October 2012


Sector: Financials

Rural Electrification Corp

Bloomberg RECL IN



1,6,12 Rel Perf (%) 6/2/13

Mcap (INR b) 215.4

Mcap (USD b) 4.1

CMP: INR218 Buy

Year Net Inc. PAT EPS EPS P/E BV P/BV RoAA RoAE


3/11A 36,443 25,664 25.9 28.2 - 129 - 3.4 21.5

3/12A 40,777 28,170 28.6 10.1 7.6 149 1.5 3.0 20.5

3/13E 49,817 34,455 34.9 22.2 6.3 174 1.3 3.1 21.6

3/14E 59,561 41,199 41.7 19.6 5.2 202 1.1 3.1 22.2




YoY Gr (%) 17.3 21.8 18.5 19.5 28.1 23.3 18.6 20.7 19.3 22.5

Other Operational Income 393 171 136 595 717 250 250 169 736 1,386

Net Operational Income 9,490 9,673 10,188 10,803 12,372 11,961 12,175 12,491 39,588 48,999

YoY Gr (%) 18.9 18.1 12.6 22.2 30.4 23.7 19.5 15.6 16.2 23.8

Other Income 136 -880 1,221 145 -133 200 300 451 1,189 819

Total Net Income 9,625 8,793 11,408 10,948 12,239 12,161 12,475 12,943 40,777 49,817

YoY Gr (%) 16.3 0.5 21.4 9.2 27.2 38.3 9.4 18.2 11.9 22.2


YoY Gr (%) 22.2 18.5 101.6 19.7 8.7 22.9 -15.2 23.9 38.7 7.8

% to Income 4.4 5.2 6.8 6.1 3.7 4.6 5.3 6.4 5.7 5.0


YoY Gr % 16.1 -0.3 17.9 8.6 28.0 39.1 11.2 17.9 10.6 23.0

Op. Profit adj. forex gain /loss 9,278 9,597 9,763 10,341 11,984 11,801 11,941 13,012 38,980 78,438

YoY Gr (%) 16.9 18.7 8.6 16.2 29.2 23.0 22.3 25.8 14.9 101.2

Provisions 250 0 241 32 0 250 250 250 523 750

PBT 8,956 8,337 10,389 10,245 11,784 11,351 11,565 11,862 37,929 46,561

YoY Gr (%) 12.9 -0.3 15.2 8.3 31.6 36.2 11.3 15.8 9.1 22.8

Tax 2,338 2,112 2,693 2,618 3,016 2,951 3,007 3,139 9,758 12,106

Tax Rate (%) 26.1 25.3 25.9 25.6 25.6 26.0 26.0 26.5 25.7 26.0

PAT 6,619 6,225 7,695 7,627 8,767 8,400 8,558 8,723 28,170 34,455

YoY Gr (%) 12.7 0.7 15.9 8.9 32.5 34.9 11.2 14.4 9.6 22.3

Adjusted PAT 6,672 7,166 7,054 7,675 9,046 8,548 8,706 8,816 28,566 35,115

YoY Gr (%) 13.5 19.8 6.5 16.5 35.6 19.3 23.4 14.9 14.0 22.9

E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

BSE Sensex S&P CNX

18,763 5,703

We expect loan growth momentum to remain healthy at ~23% YoY and ~4% QoQ.

After the sharp improvement in 1QFY13, we expect NIM to moderate by ~20bp QoQ in 2QFY13, as RECL utilized

the excess liquidity on the balance sheet in 1QFY13. The higher increase in borrowings during the quarter could

impact margins.

We are factoring in MTM loss of INR200m for 2QFY13 v/s INR374m in 1QFY13.

Asset quality is likely to remain a key monitorable given the uncertain macro environment. We conservatively

model in higher provisions (INR250m) during the quarter.


Key things to watch for: (1) Management’s outlook on business growth and asset quality, (2) Movement in

spreads, and (3) Impact of SEB debt restructuring plan.

C–76October 2012


Sector: Financials

Shriram Transport Finance

Bloomberg SHTF IN



1,6,12 Rel Perf (%) -6/-4/-14

Mcap (INR b) 140.1

Mcap (USD b) 2.7

CMP: INR619 Buy

Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoA on AUM RoAE

End (INR m) (INR m) (INR) GR. (%) (X) (INR) (X) (X) (%) (%)

3/11A 30,680 12,028 53.2 37.4 - 217 - - 3.2 27.5

3/12A 34,130 12,574 55.6 4.5 11.1 265 2.3 2.4 2.8 23.1

3/13E 36,273 13,542 59.8 7.7 10.3 316 2.0 2.0 2.6 20.6

3/14E 41,445 15,930 70.4 17.6 8.8 377 1.6 1.7 2.6 20.3

BSE Sensex S&P CNX

18,763 5,703

We expect AUM to grow ~15% YoY. On a sequential basis, disbursements are likely to remain largely stable. We

are modeling growth of 1.5% QoQ.

Margins are expected to remain stable sequentially. As a result, NII (including securitization income) growth

should be flat on a YoY basis.

Given the uncertain macro environment, asset quality continues to be a key monitorable. We have factored in

higher provisions (INR2b) similar to 1QFY13 levels.

We expect PAT to grow ~10% YoY and 2% QoQ.

The stock trades at 2x FY13E and 1.6x FY14E BV. Maintain Buy.

Key things to watch for: (1) Outlook on growth, (2) Movement in spreads, (3) Asset quality trend.

Quaterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Interest Income 8,368 9,675 9,458 9,158 8,876 10,384 11,215 11,850 35,581 42,325

Interest expenses 5,714 6,153 6,347 6,259 6,173 6,729 7,032 7,445 23,950 27,379


YoY Growth (%) -15.1 -4.4 -23.2 -10.6 1.8 3.8 34.5 51.9 -17.0 28.5

Securitisation income 5,167 4,825 4,927 5,157 5,323 4,729 4,530 4,565 20,075 19,147

Net Income (Incl. Securitization) 7,821 8,347 8,038 8,056 8,025 8,384 8,714 8,970 31,707 34,093

YoY Growth (%) 16.0 19.3 4.5 5.4 2.6 0.4 8.4 11.3 9.5 7.5

Fees and Other Income 477 258 294 255 702 450 475 553 2,423 2,181

Net Operating Income 8,297 8,605 8,331 8,311 8,727 8,834 9,189 9,523 34,130 36,273

YoY Growth (%) 16.8 19.0 5.7 6.3 5.2 2.7 10.3 14.6 11.2 6.3



YoY Growth (%) 18.3 20.4 5.5 4.1 2.5 0.9 8.7 12.2 13.0 5.8

Provisions 1,420 2,363 1,920 1,918 2,026 2,000 1,975 1,963 7,683 7,963


Tax Provisions 1,727 1,460 1,518 1,530 1,543 1,587 1,643 1,748 6,235 6,520

Net Profit 3,473 2,994 3,027 3,081 3,219 3,295 3,412 3,617 12,574 13,542

YoY Growth (%) 20.2 0.2 0.4 -9.6 -7.3 10.1 12.7 17.4 4.5 7.7

Operating Metrics

AUM Growth (%) 22.3 19.9 16.2 11.1 13.3 14.5 15.1 15.5 11.1 15.5

Disbursement Growth (%) 20.4 5.0 -4.2 -19.7 12.2 13.7 12.3 11.9 -2.0 12.5

Securitization Inc. / Net Inc. (%) 62.3 56.1 59.1 62.0 61.0 53.5 49.3 47.9 58.8 52.8


Tax Rate (%) 33.2 32.8 33.4 33.2 32.4 32.5 32.5 32.6 33.1 32.5

E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting financial nos

C–77October 2012


Sector: Financials

State Bank of India

Bloomberg SBIN IN


52 Wk Range (INR) 2,475/1,576

1,6,12 Rel Perf (%) 15/-2/0


Mcap (USD b) 28.5

CMP: INR2,238 Buy

Year Net Income PAT EPS *Cons. Cons. Cons. BV *Cons. *Cons. RoAA RoAE

End (INR m) (INR m) (INR) EPS (INR) P/E (X) (INR) P/BV (X) P/ABV (X) (%) (%)

3/11A 483,510 82,645 130.2 168.3 - 1,303 - - 0.7 12.7

3/12A 576,425 117,073 174.5 228.6 9.4 1,541 1.4 1.6 0.9 16.0

3/13E 636,297 151,763 226.2 284.5 7.5 1,773 1.2 1.5 1.0 17.4

3/14E 725,138 174,922 260.7 330.3 6.5 2,043 1.0 1.4 1.0 17.5




Interest Income 241,974 260,269 277,144 285,828 289,167 295,095 301,432 309,663 1,065,215 1,195,358



% Change (YoY) 32.8 29.2 27.3 43.8 14.6 9.5 2.9 5.1 33.1 7.7

Other Income 35,342 33,674 20,730 53,768 34,988 36,421 39,885 58,752 143,514 170,046

Net Income 132,338 138,492 135,918 169,678 146,177 151,198 158,384 180,538 576,425 636,297



% Change (YoY) 18.1 17.6 7.3 57.8 12.9 13.3 17.7 -0.6 24.6 10.0



Tax Provisions 15,020 12,784 15,895 24,061 19,688 19,463 19,157 21,628 67,760 79,936

Net Profit 15,835 28,104 32,630 40,503 37,516 36,952 36,371 40,925 117,073 151,763

% Change (YoY) -45.7 12.4 15.4 N.A. 136.9 31.5 11.5 1.0 41.7 29.6

Operating Metrics

NIM (Reported, %) 3.6 3.8 4.1 3.9 3.6 - - - 3.9 -

NIM (Cal, %) 3.7 3.9 4.1 4.0 3.7 3.6 3.6 3.6 3.9 3.6

Deposit Growth (%) 16.5 13.8 13.9 11.7 16.1 17.3 18.0 18.0 11.7 18.0

Loan Growth (%) 18.0 16.1 16.5 14.7 18.9 18.9 15.5 18.0 14.7 18.0

CASA Ratio (%) 47.8 47.6 47.5 46.6 46.1 - - - 46.6 -

Tax Rate (%) 48.7 31.3 32.8 37.3 34.4 34.5 34.5 34.6 36.7 34.5

Asset Quality

OSRL (INR b) 289 277 261 312 295 - - - 312 -

OSRL (%) 3.8 3.5 3.1 3.6 3.2 - - - 3.6 -

Gross NPA (INR b) 278 340 401 397 472 528 581 631 397 631

Gross NPA (%) 3.5 4.2 4.6 4.4 5.0 5.4 5.8 6.0 4.4 6.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

* Valuation multiples are adjusted for SBI Life's value

Strong traction in CASA and fall in bulk deposits rates would keep a check on cost of funds. However, this would

be offset by the impact on yields, as the bank has reduced lending rates in specific segments. We expect

margins to remain largely stable QoQ; NII is likely to grow 3% QoQ and ~10% YoY.

We expect slippages to decline QoQ but still remain at an elevated level, given the challenging macro

environment. Improvement in upgrades and recoveries would be critical. In 1QFY13, gross slippages had increased

significantly to INR108.4b (annualized slippage ratio of 5.6%).

Restructuring is likely to increase sequentially, led by systemic restructuring.

Adjusted for the value of Insurance (INR107/share), the stock trades at 1x FY14E consolidated BV and 6.5x FY14E

consolidated EPS. Maintain Buy.

Key things to watch for: (1) Trend in slippages and recoveries, (2) Restructured loans and outlook on the same,

(2) Growth and margin outlook.

C–78October 2012


Sector: Financials

Union Bank of India

Bloomberg UNBK IN



1,6,12 Rel Perf (%) 29/-16/-31

Mcap (INR b) 114.3

Mcap (USD b) 2.2

CMP: INR208 Buy


End (INR m) (INR m) (INR) GR. (%) (X) (INR) (X) (X) (%) (%)

3/11A 82,550 20,819 39.6 -3.6 - 211 - - 1.0 20.9

3/12A 92,413 17,871 32.3 -18.5 6.4 236 0.9 1.0 0.7 14.8

3/13E 102,017 23,221 42.0 30.1 4.9 267 0.8 1.0 0.8 16.7

3/14E 119,311 26,585 48.1 14.6 4.3 303 0.7 0.9 0.8 16.9




Interest Income 49,157 51,104 53,747 57,434 60,699 63,377 65,056 67,972 211,443 257,104



% Change (YoY) 18.0 8.2 10.2 9.3 14.6 17.2 13.4 12.6 11.1 14.4

Other Income 4,840 5,009 5,921 7,554 4,912 5,247 5,886 6,960 23,324 23,004

Net Income 20,742 21,621 23,730 26,320 23,129 24,715 26,078 28,094 92,413 102,017



% Change (YoY) 11.7 6.6 1.8 83.9 8.7 13.6 14.2 -2.2 22.0 7.8



Tax Provisions 2,730 2,297 1,144 3,085 2,370 2,809 2,946 3,055 9,256 11,180

Net Profit 4,644 3,524 1,970 7,732 5,116 5,834 6,119 6,151 17,871 23,221

% Change (YoY) -22.8 16.2 -66.0 29.4 10.2 65.5 210.6 -20.4 -14.2 29.9

Operating Metrics

NIM (Reported,%) 3.1 3.2 3.3 3.3 3.0 - - - 3.3 -

NIM (Cal, %) 3.0 3.2 3.3 3.2 3.0 3.1 3.1 3.1 3.0 3.0

Deposit Growth (%) 16.4 10.0 10.0 10.1 11.5 17.0 15.9 16.0 10.1 16.0

Loan Growth (%) 16.7 16.5 16.8 18.3 19.5 21.7 19.5 15.0 18.3 15.0

CASA Ratio (%) 31.5 32.1 32.5 31.3 31.0 - - - 31.3 -

Tax Rate (%) 37.0 39.5 36.7 28.5 31.7 32.5 32.5 33.2 34.1 32.5

Asset Quality

OSRL - Facilitywise (INR b) 24.1 23.2 39.3 74.7 84.2 - - - 74.7 -

OSRL (%) 1.7 1.6 2.5 4.1 4.8 - - - 4.1 -

Gross NPA (INR b) 37.5 51.4 52.1 54.5 65.4 69.0 74.3 79.4 54.5 79.4

Gross NPA (%) 2.6 3.5 3.3 3.0 3.8 3.9 4.0 3.8 3.0 3.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan growth is expected to remain healthy at 22% YoY and deposit growth to improve to 17% YoY on lower base.

Margins are likely to expand by 10bp+ QoQ. In 1QFY13, UNBK reported a 25bp decline in NIM to 3%, led by

(1) higher reversal of interest income and (2) due to seasonal factors.

Fee income growth is expected to be healthy at ~15%, however, lower trading and forex gain would lead to

non-interest income growth of ~5%.

Slippages are expected to remain high. However, the high base of 1QFY13 would lead to a sequential decline.

In 1QFY13, UNBK had reported slippages of INR16.3b, led by slippages in few large corporate accounts. Recoveries

and upgradations are likely to remain healthy and provide cushion to asset quality.


Key things to watch for: (1) Margin movement, (2) Gross slippages and traction in recoveries and upgradations.

C–79October 2012


Sector: Financials

Yes Bank

Bloomberg YES IN



1,6,12 Rel Perf (%) 7/0/26

Mcap (INR b) 134.9

Mcap (USD b) 2.6

CMP: INR382 Buy



3/11A 18,702 7,271 20.9 48.9 - 109 - - 1.5 21.1

3/12A 24,728 9,770 27.7 32.1 13.8 132 2.9 2.9 1.5 23.1

3/13E 32,650 12,506 35.4 28.0 10.8 162 2.4 2.4 1.5 24.1

3/14E 40,727 15,167 43.0 21.3 8.9 197 1.9 2.0 1.5 23.9




Interest Income 13,995 14,387 16,841 17,851 18,863 19,294 19,710 20,256 63,074 78,123



% Change (Y-o-Y) 35.1 23.1 32.3 28.6 33.3 29.0 22.8 23.0 29.6 26.6

Other Income 1,653 2,141 2,114 2,664 2,881 2,925 3,075 3,308 8,571 12,189

Net Income 5,195 5,997 6,390 7,146 7,603 7,900 8,324 8,823 24,728 32,650



% Change (Y-o-Y) 30.6 37.1 28.1 23.4 41.4 26.8 29.8 28.3 29.4 31.0

Other Provisions 15 379 224 285 300 350 450 557 902 1,657


Tax Provisions 1,075 1,130 1,224 1,301 1,395 1,476 1,536 1,615 4,730 6,021

Net Profit 2,161 2,350 2,541 2,718 2,901 3,066 3,190 3,348 9,770 12,506

% Change (Y-o-Y) 38.2 33.3 32.9 33.6 34.3 30.5 25.5 23.2 34.4 28.0

Operating Metrics

NIM (Reported,%) 2.8 2.9 2.8 2.8 2.8 - - - 2.8 -

NIM (Cal, %) 2.7 2.9 2.9 2.8 2.8 2.8 2.9 2.9 2.6 2.7

Deposit Growth (%) 44.1 10.2 18.9 7.0 15.2 17.3 15.7 17.0 7.0 17.0

Loan Growth (%) 26.1 12.7 15.3 10.5 16.4 15.5 14.5 15.0 10.5 15.0

CASA Ratio (%) 10.9 11.0 12.6 15.0 16.3 - - - 15.0 -

Tax Rate (%) 33.2 32.5 32.5 32.4 32.5 32.5 32.5 32.5 32.6 32.5

Asset Quality

OSRL (INR m) 870 1,755 1,757 2,013 1,965 - - - 2,013 -

OSRL in bp 26 51 49 53 51 - - - 53 -

Gross NPA (INR b) 0.6 0.7 0.7 0.8 1.1 1.4 1.9 2.3 0.8 2.3

Gross NPA (%) 0.2 0.2 0.2 0.2 0.3 0.4 0.4 0.5 0.2 0.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Loan growth is expected to be ~16% YoY as bank continues to focus on building granularity and invest in high

rated corporate papers. Deposit growth would be ~17%.

YES is focusing on increasing its CASA base to build its liability franchise. Its CASA ratio stood at 16.3% as at the

end of 1QFY13. Movement in CASA ratio remains a key parameter to monitor.

Margins are expected to remain largely stable QoQ, despite a decline in bulk deposit rates. As higher investment

in credit substitutes would put pressure on yields on assets.

YES has been able to manage asset quality fairly well as of 2QFY13. However, increasing stress in the large

corporate segment could throw a negative surprise.


Key things to watch for: (1) Business growth and outlook for FY14, (2) Margin movement in a falling interest rate

scenario, led by higher SA deposit rate, (3) CASA ratio, (4) Branch expansion.

C–80October 2012


Sector: Healthcare

HealthcareCompany Name

Biocon

Cadila Healthcare

Cipla

Dishman Pharma

Divi’s Laboratories

Dr Reddy’s Labs.

GSK Pharma

Glenmark Pharma

IPCA Laboratories

Jubilant Life Sciences

Lupin

Opto Circuits

Ranbaxy Labs.

Sanofi India

Strides Arcolab

Sun Pharmaceuticals

Torrent Pharma

Expected quarterly performance summary (INR million)




Biocon 275 Neutral 6,067 19.3 5.2 1,453 8.9 18.4 886 3.4 12.4

Cadila Health 872 Buy 15,810 27.0 2.1 3,439 24.7 0.6 2,158 110.1 10.8

Cipla 381 Neutral 20,468 15.1 17.2 5,156 17.8 24.8 3,735 20.9 22.2

Dishman Pharma 96 Neutral 3,436 27.6 9.0 830 76.5 -0.7 304 LP -21.6

Divis Labs 1,080 Buy 4,932 39.3 5.3 1,833 45.2 -3.8 1,350 27.3 -19.4

Dr Reddy’ s Labs 1,647 Buy 24,822 15.1 8.9 4,542 8.6 26.4 2,229 -17.0 -4.3

Glenmark Pharma 422 Buy 11,589 25.0 17.5 2,076 19.9 12.8 1,426 91.5 181.5

GSK Pharma 1,977 Buy 6,674 9.8 2.4 2,082 18.3 2.7 1,720 17.8 1.4

IPCA Labs. 482 Buy 7,133 14.4 12.4 1,639 3.7 23.3 1,098 40.9 155.5

Jubilant Life 212 Neutral 12,803 22.2 3.6 2,691 14.0 -0.1 1,326 67.0 43.8

Lupin 596 Buy 20,925 27.2 2.1 3,674 32.9 12.4 2,442 21.5 16.4

Opto Circuits 130 Neutral 7,012 24.8 -1.9 1,885 21.9 -0.7 1,337 10.5 -3.1

Ranbaxy Labs 530 Neutral 25,341 20.9 10.0 2,706 55.4 9.1 1,688 4.2 -2.0

Sanofi India 2,374 Neutral 3,901 24.8 4.3 636 26.4 21.8 499 -8.9 23.3

Strides Arcolab 883 Buy 6,185 -19.6 21.7 1,555 -9.6 37.6 1,347 189.9 1050.3

Sun Pharma 693 Neutral 22,526 26.4 -2.2 8,583 20.1 -17.5 7,063 29.5 5.2

Torrent Pharma 695 Buy 8,290 21.3 8.1 1,659 18.0 6.4 1,119 11.9 9.8


Note: Historic numbers include one-offs and hence YoY comparison may not give the correct picture

Nimish Desai ([email protected])

Topline to grow by 21%, EBITDA by 22% on the back of strong operationalperformance by Sun Pharmaceuticals, Ranbaxy, Divi's Laboratories, Cadilaand LupinFor 2QFY13, we expect topline growth of 21% YoY for our universe (excluding one-

offs), with EBITDA growth at 22% YoY. Adjusted PAT is likely to grow 28% YoY. EBITDA

growth would be mainly led by strong performance by Sun Pharmaceuticals,

Ranbaxy, Cadila, Lupin and Divi's Laboratories, and would be partly aided by favorable

currency. Adjusted PAT growth at 28% would be higher than EBITDA growth, mainly

because of reversal of forex losses due to the appreciation of the INR v/s the USD in

the last few weeks.

2QFY13 aggregates excluding one-offs

Healthcare Universe YoY Growth (%) EBITDA Margin Net Profit Margin

Aggregates Sales EBITDA Adj. PAT Sep-12 Sep-11 Chg.(bp) Sep-12 Sep-11 Chg.(bp)

MNC Pharma 14.9 20.1 10.5 25.7 24.6 111 21.0 21.8 -83

Big 4 Generics 21.8 25.7 14.5 23.1 22.4 71 15.5 16.4 -98

CRAMS 26.7 30.8 66.4 25.3 24.5 79 14.1 10.7 336

Second Tier generics 18.7 16.6 52.2 20.4 20.8 -37 13.8 10.8 303

Sector Aggregate 20.9 22.6 28.2 22.6 22.3 32 15.1 14.2 87

Note: Above numbers exclude one-offs to facilitate comparison of core operations. Big-4

Generics include Ranbaxy, Cipla, Dr Reddy's and Sun.

C–81October 2012


Sector: Healthcare

Core 2QFY13 performance: Key highlights Sun, Ranbaxy, Divi's, Cadila and Lupin to record strong operational improvement:

From our coverage universe, we expect Sun Pharmaceuticals, Ranbaxy, Divi's

Laboratories, Cadila and Lupin to record strong EBITDA growth for 2QFY13. We

attribute the following company-specific reasons for this performance:

1. Sun Pharmaceuticals: Expect strong operating performance, primarily led by

improvement in profitability of Taro and favorable currency.

2. Ranbaxy: Likely to report healthy growth in EBITDA, led by a very low base.

3. Divi's Laboratories: Strong operational performance, led by healthy topline

growth, favorable currency and low base effect.

4. Cadila: Expect strong growth in EBITDA, led by healthy topline growth, mainly

due to strong growth in the international business.

5. Lupin: Healthy growth in EBITDA, led by topline growth (mainly regulated and

semi-regulated markets) and partly due to favorable currency.

CRAMS companies to report strong operational performance: We expect Divi's

Laboratories and Dishman to report strong operational performance on a low base,

new order inflows and favorable currency.

Sector viewGenerics

Emerging markets to help improve profitability gradually from 2012.

New launches imperative for driving growth in core US business.

Differentiation becoming imperative - low competition/patent challenge products,

brands, NCE research will be key differentiators.

Increasing MNC interest in Generics space - may lead to large acquisitions/supply

arrangements with Indian companies.

Top picks: Dr Reddy's, Cadila, IPCA and Torrent.

CRAMS (Contract Research & Manufacturing Services)

Favorable macro trends: India on the threshold of significant opportunity, given

the optimum combination of strong chemistry & regulatory skills and low-costs.

Inventory de-stocking impacted performance over the last couple of years. Expect

healthy performance FY13 onwards.

Top picks: Divi's Laboratories.

MNC Pharma

Portfolio realignment in favor of lifestyle products to drive growth in medium-to-

long term.

Branded generics, patented products and in-licensing to drive long-term growth.

Parent's commitment to listed entity is imperative.

Short-term adverse impact likely from the proposed new pharma policy.

Top picks: GlaxoSmithKline Pharmaceuticals.

C–82October 2012


Sector: Healthcare

Proposed New Pharma Policy: HighlightsThe GoM (Group of Ministers) has recently proposed the New Pharma Policy (although

the Supreme Court has raised some objections to it). We give below the key highlights

based on broad details released to the media:

All 348 drugs under the National List of Essential Medicines (NLEM) will come

under price control.

Price cap for these drugs will be calculated as the weighted average price (WAP)

of all the brands having market share of more than 1%. Players selling any of these

drugs at prices higher than WAP will have to lower their prices.

Combinations will be kept out of price controls.

These proposals will now be sent by the GoM to the Cabinet for a final approval.

Our view

Based on the overall details available (we are still awaiting the fine print and the

actual policy document), we expect MNC players to take the maximum hit due to

their premium pricing policy.

Among Indian players, companies with high exposure to anti-infectives may get

adversely impacted since such medicines account for 17% of NLEM. In our coverage

universe of Indian companies, Cipla, Cadila and Ranbaxy have high exposure to

anti-infectives. For the remaining companies, the impact is likely to be relatively

moderate-to-low. Actual impact on these companies may vary depending on their

positioning/pricing policy for each drug.

We await details from various companies on the exact impact.

Combinations to be kept outside price controls: The proposed policy is relatively

better than general expectations, since combination drugs have been kept outside

the purview of price control. It was generally perceived that combinations will be

subjected to price controls, thus increasing the overall span of price control to

~60%. If combinations are kept outside the purview of price controls, then the

span of price control will be 30-40% rather than 60%, which should please the

industry.

Market-based pricing: The GoM has resisted pressure of finalizing a cost-based

pricing policy, which is also incrementally positive, as for the first time, the policy

will make drug prices market-determined.

Trade channels to share part of the impact: The hit on the industry due to lower

prices will be partly compensated by lower margins for the trade/retail channels

for drugs that get impacted.

Preliminary estimates indicate that the hit to the overall industry will be higher

than the impact under the proposed NPPP (in October 2011), wherein the impact

was estimated at INR25b-30b. Once cleared by the Cabinet, prices of 60% of

essential medicines (NLEM) will be reduced by over 20%, while in certain cases

the prices may come down by even 70%.

This implies that under the new proposals, the overall impact on the industry will

be 2-3x that proposed under the NPPP.

C–83October 2012


Sector: Healthcare

The table below gives the impact on key companies if the same ratio is applied:

Proposed Pharma Policy: Impact on FY14 EPS (INR m)

Company DF % of Total Impact on EPS (%)

Sales Sales NPPP w/o combinations 2x NPPP 3x NPPP

GSK Pharma 27,905 97 13 20-25 30-40

Ranbaxy 25,701 24 4 5-10 10-15

Cadila 27,151 36 3 5-7 7-10

Cipla 43,220 48 3 5-7 7-10

Dr Reddy's Lab 17,101 15 2 3-5 5-10

Glenmark 13,950 26 2 3-5 5-10

IPCA 10,050 32 2 3-5 5-10

Sun Pharma 38,734 34 1 2 3-5

Lupin 28,284 28 1 2 3-5


However, it should be noted that application of the above multiples may not give

the exact picture, as the NPPP had proposed bringing all combination drugs under

price control whereas the latest proposals exclude combination drugs from price

control. The table above gives our approximate estimates.

We note that MNCs like GlaxoSmithKline Pharmaceuticals will be adversely

impacted along with Indian players like Ranbaxy, Cipla and Cadila. While the actual

impact on these companies will be known only when further details on the policy

are available, we believe that these three companies will be relatively more

impacted, given their significant exposure to the anti-infective segment.

None of the companies have confirmed the impact depicted in the table above

and we await more clarity from the management of these companies.

The above view is based on the preliminary details that have been made public.

We will analyze the actual impact post the receipt of the final policy document.

Spate of US FDA clearances during the quarter2QFY13 witnessed some positive news flows related to US FDA clearances for Indian

players. Some of the companies that had favorable outcome include:

1. Cadila: Resolved the US FDA warning letter for its Moraiya facility. This could

potentially have positive implications during the coming quarters, as the US FDA

starts clearing pending products from this facility.

2. Claris Lifesciences: Resolved the US FDA warning letter for its Gujarat facility. This

will help the company ramp up the US business gradually from CY13.

3. Sun Pharmaceuticals: US subsidiary, Caraco received US FDA clearance for resuming

manufacturing at its US facility. The manufacturing was stopped by the US FDA in

FY10.

Recent appreciation of the INR will reverse forex losses for many companiesThe INR has depreciated by ~17% YoY against the USD but has appreciated ~5% from 30

June 2012. This appreciation is likely to partially reverse the forex losses recorded by

many pharmaceuticals companies in 1QFY13. Some of the key companies where such

reversals will result in significant positive impact on profits are: 1. Ranbaxy, 2. Cadila,

3. Dishman, 4. Glenmark, 5. IPCA Labs and 6. Jubilant Lifesciences.

C–84October 2012


Sector: Healthcare




Healthcare

Biocon 275 Neutral 16.9 17.9 18.4 16.2 15.3 14.9 9.0 8.3 8.0 14.9 14.3 13.4

Cadila Health 872 Buy 27.6 41.2 52.4 31.5 21.2 16.7 17.3 13.9 11.3 23.8 29.0 29.3

Cipla 381 Neutral 14.0 16.2 18.4 27.2 23.5 20.7 17.6 15.0 14.0 15.0 15.0 15.1

Dishman Pharma 96 Neutral 7.0 15.6 17.5 13.8 6.2 5.5 7.6 4.8 4.3 6.3 12.9 12.9

Divis Labs 1,080 Buy 40.2 53.0 64.1 26.9 20.4 16.9 20.3 15.6 12.3 25.0 27.5 27.7

Dr Reddy’ s Labs 1,647 Buy 71.4 85.1 100.1 23.1 19.4 16.5 12.3 14.0 12.4 21.1 21.9 22.7

Glenmark Pharma 422 Buy 11.4 18.2 26.3 37.0 23.2 16.0 13.3 14.2 11.3 13.5 17.7 20.5

GSK Pharma 1,977 Buy 74.5 81.0 92.6 26.5 24.4 21.4 19.6 18.3 15.7 32.9 33.5 34.2

IPCA Labs. 482 Buy 21.9 29.3 38.2 22.0 16.4 12.6 12.8 10.3 8.7 24.0 26.4 27.6

Jubiliant Life 212 Neutral 13.6 21.0 33.4 15.5 10.1 6.3 8.4 6.0 5.0 9.7 13.5 18.8

Lupin 596 Buy 19.4 24.1 31.2 30.7 24.8 19.1 21.0 16.3 13.4 23.8 24.3 26.2

Opto Circuits 130 Neutral 23.6 22.5 25.3 5.5 5.8 5.1 6.7 5.6 4.9 37.2 28.7 26.6

Ranbaxy Labs 530 Neutral 14.1 18.0 21.8 37.5 29.5 24.3 14.6 12.4 16.5 -72.0 28.3 15.7

Sanofi India 2,374 Neutral 83.0 73.5 92.4 28.6 32.3 25.7 29.7 24.1 19.4 17.3 13.9 15.6

Strides Arcolab 883 Buy 38.5 52.8 61.5 23.0 16.7 14.4 15.9 11.4 10.7 16.9 18.5 14.5

Sun Pharma 693 Neutral 22.4 26.5 29.4 30.9 26.2 23.6 20.5 16.5 15.7 21.5 20.7 19.7

Torrent Pharma 695 Buy 38.4 49.5 59.0 18.1 14.0 11.8 11.3 9.0 7.3 29.3 30.9 29.2

Sector Aggregate 17 26.4 21.6 18.1 15.9 13.6 12.3 19.7 20.1 20.6

Ranbaxy core valuations adjusted for DCF value of Para-IV upsides of INR61/sh


80

95

110

125

140

Sep

-11

De

c-11

Mar

-12

Jun

-12

Sep

-12

Sensex Index

MOSL Hea l thcare Index

95

100

105

110

115

Jun-

12

Jul-

12

Aug

-12

Sep-

12

Sens ex Index

MOSL Heal thcare Index

Currency movement (INR/USD)

Source: Bloomberg

40

43

46

49

52

55

58

Jun-

11

Jul-

11

Aug

-11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-

12

Aug

-12

Sep-

12

C–85October 2012


Sector: Healthcare

Biocon

Bloomberg BIOS IN



1,6,12 Rel Perf (%) 5/8/-35

Mcap (INR b) 54.9

Mcap (USD b) 1.0

CMP: INR275 Neutral

Consolidated Quarterly Performance (INR Million)



Net Sales 4,417 5,084 5,172 6,102 5,767 6,067 6,354 6,707 20,865 24,895

YoY Change (%) -33.3 -25.1 -29.0 -13.0 30.6 19.3 22.9 9.9 -24.7 19.3


EBITDA 1,204 1,334 1,274 1,546 1,227 1,453 1,500 1,590 5,174 5,769

Margins (%) 27.2 26.2 24.6 25.3 21.3 23.9 23.6 23.7 24.8 23.2

Depreciation 451 429 434 431 427 473 482 548 1,744 1,930

Interest 57 20 29 30 32 20 33 48 122 133

Other Income 123 160 150 13 159 161 215 233 618 769

PBT 820 1,045 961 1,099 927 1,121 1,199 1,228 3,926 4,475

Tax 119 188 113 121 137 235 258 265 541 895

Rate (%) 14.6 18.0 11.8 11.0 14.8 21.0 21.5 21.6 13.8 20.0

Minority Interest 0 0 0 0 2 0 0 -2 0 0

PAT 701 857 848 978 788 886 941 965 3,384 3,580

YoY Change (%) -8.7 -3.9 -15.8 -3.0 12.5 3.4 11.0 -1.3 518.6 5.8

Margins (%) 15.9 16.9 16.4 16.0 13.7 14.6 14.8 14.4 16.2 14.4

Licensing income 140 365 292 463 139 262 294 395 1,253 1,090

YoY Change (%) -33.3 58.7 -62.0 35.4 -0.7 -28.3 0.8 -14.7 -19.2 -13.0

Contract research 880 928 1,120 1,180 1,224 1,280 1,386 1,442 4,101 5,331

YoY Change (%) 22.2 19.0 42.1 32.3 39.1 37.9 23.8 22.2 29.0 30.0

E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements; FY12 topline shows degrowth due

to divestment of Axicorp business which had contributed INR9.7b to topline in FY11



03/11A 27,707 547 2.7 -81.3 - - 2.7 6.5 - -

03/12A 20,865 3,384 16.9 518.6 16.3 2.4 14.9 13.0 2.2 9.0

03/13E 24,895 3,580 17.9 5.8 15.4 2.2 14.3 13.6 1.9 8.3

03/14E 27,549 3,675 18.4 2.7 15.0 2.0 13.4 13.2 1.8 8.0

BSE Sensex S&P CNX

18,763 5,703

We expect Biocon’s 2QFY13 topline to grow 19% YoY to INR6b, mainly on the back of (1) contract research

revenue, led by new customer additions, and (2) 19% growth in Biopharma revenue. Licensing income is likely

to decline 28% YoY to INR262m.

EBITDA would grow 9% YoY to INR1.45b and EBITDA margin would shrink 230bp to 24% due to increased R&D

spending on the biogeneric pipeline.

We expect adjusted PAT to grow just 3% YoY to INR886m on account of higher depreciation and higher tax rate.

The key growth drivers for FY13/14 would be: (1) traction in the company’s Insulin initiative in emerging markets,

(2) ramp-up in Contract Research business, and (3) incremental contribution from immunosuppressant API supplies.

However, given the high cost of developing biogeneric products, we believe cost pressures are likely to continue

in FY13/14, impacting earnings and return ratios. Option values for the future include separate listing of Contract

Research business and potential out-licensing of the Oral Insulin NCE. The stock trades at 15.4x FY13E and 15x FY14E

earnings. Return ratios are likely to remain subdued, with both RoE and RoCE in the 13-14% range for FY13 and FY14.

Maintain Neutral.

C–86October 2012


Sector: Healthcare

Cadila Healthcare

Bloomberg CDH IN



1,6,12 Rel Perf (%) -7/9/-2

Mcap (INR b) 178.6

Mcap (USD b) 3.4

CMP: INR872 Buy




Net Revenues 12,457 12,450 13,832 13,980 15,486 15,810 16,799 17,176 52,633 65,272

YoY Change (%) 9.9 11.5 18.6 15.3 24.3 27.0 21.4 22.9 13.7 24.0


EBITDA 3,024 2,757 2,640 2,828 3,419 3,439 3,495 3,774 11,248 14,127

Margins (%) 24.3 22.1 19.1 20.2 22.1 21.8 20.8 22.0 21.4 21.6

Depreciation 347 375 465 391 434 476 495 499 1,579 1,904

Interest 189 255 276 350 301 318 324 329 1,069 1,272

Other Income 140 -790 -160 151 -21 255 20 135 -658 389

PBT after EO Income 2,628 1,337 1,739 2,238 2,663 2,900 2,695 3,081 7,942 11,340

Tax 285 235 174 436 654 667 620 668 1,130 2,608

Rate (%) 10.9 17.6 10.0 19.5 24.5 23.0 23.0 21.7 14.2 23.0

Min. Int/Adj on Consol 45 75 74 93 61 75 74 90 286 300

Reported PAT 2,298 1,027 1,492 1,709 1,948 2,158 2,002 2,323 6,526 8,431

Adj PAT 1,433 1,027 1,492 1,709 1,948 2,158 2,002 2,323 5,660 8,431

YoY Change (%) -11.9 -39.9 -7.9 23.9 36.0 110.1 34.2 36.0 -10.6 49.0

Margins (%) 11.5 8.2 10.8 12.2 12.6 13.6 11.9 13.5 10.8 12.9

Adj PAT incl one-offs 2,298 1,027 1,492 1,709 1,948 2,158 2,002 2,323 6,526 8,431

E: MOSL Estimates; # Forex loss is lower



03/11A 46,302 6,334 30.9 26.4 - - 37.5 30.5 - -

03/12A 52,633 5,660 27.6 -10.6 31.5 6.9 27.5 22.8 3.7 17.3

03/13E 65,272 8,431 41.2 49.0 21.2 5.5 29.0 25.2 3.0 13.8

03/14E 75,697 10,718 52.4 27.1 16.7 4.4 29.3 26.9 2.5 11.2

BSE Sensex S&P CNX

18,763 5,703

Cadila’s 2QFY13 topline is likely to grow 27% YoY to INR15.8b, led by 30% YoY growth in the domestic formulations

business and 29% YoY growth in the formulations export business. While the acquisition of Biochem would

drive growth in the domestic formulations, growth in the formulations export business would be partially led

by favorable currency.

We expect EBITDA to grow 25% YoY to INR3.4b. EBITDA margin is likely to contract by 30bp YoY to 21.8% due to

lower profitability of the acquired companies.

Adjusted PAT would grow 110% YoY to INR2.1b, primarily led by the low base of 2QFY12, when PAT was impacted

by forex losses of INR900m v/s estimated forex gains of INR160m.

We expect strong 37% EPS CAGR over FY12-14 for the core operations, excluding one-offs. Over the next two years,

RoCE would be 25% and RoE would be ~29%. Our estimates exclude the impact of the proposed new pharma policy.

Sustaining double-digit growth without diluting return ratios has been Cadila’s key USP over the past few years.

The company has chalked out a detailed plan to achieve revenue of USD3b in FY16. We believe it will be a difficult

target to achieve this organically. Yet, we expect strong earnings growth trajectory, given (1) recovery in growth for

the US business post the recent resolution of US FDA’s warning letter, (2) presence in key geographies, and (3)

strong growth expected in revenue from various JVs. The stock trades at 21.2x FY13E and 16.7x FY14E consolidated

EPS. Maintain Buy.

C–87October 2012


Sector: Healthcare

Cipla

Bloomberg CIPLA IN



1,6,12 Rel Perf (%) -3/17/18

Mcap (INR b) 305.6

Mcap (USD b) 5.8

CMP: INR381 Neutral




Net Revenues 15,914 17,780 17,580 18,530 19,582 20,468 19,832 19,709 70,207 79,591

YoY Change (%) 7.5 10.1 13.2 11.2 23.0 15.1 12.8 6.4 11.2 13.4


EBITDA 3,695 4,376 3,915 4,200 5,399 5,156 4,592 4,222 16,589 19,369

Margins (%) 23.2 24.6 22.3 22.7 27.6 25.2 23.2 21.4 23.6 24.3

Depreciation 703 656 757 1,006 728 766 781 850 3,122 3,125

Interest 43 24 32 22 11 12 13 13 383 49

Other Income 249 243 302 390 531 291 306 328 1,395 1,456


Tax 666 850 727 794 1,182 934 821 770 3,036 3,707

Rate (%) 20.8 21.6 21.2 22.3 22.8 20.0 20.0 20.9 21.0 21.0

Reported PAT 2,533 3,090 2,699 2,767 4,008 4,369 3,283 2,918 11,442 13,944

Adj PAT 2,533 3,090 2,699 2,577 3,057 3,735 3,283 2,918 11,252 12,993

YoY Change (%) -1.6 17.5 16.0 20.3 20.7 20.9 21.7 13.2 16.3 15.5

Margins (%) 15.9 17.4 15.4 13.9 15.6 18.3 16.6 14.8 16.0 16.3

Domestic formulation sales 7,202 8,208 8,457 7,182 9,388 9,771 9,581 8,068 31,048 36,808

YoY Change (%) 8.9 9.8 17.5 12.3 30.4 19.0 13.3 12.3 12.2 18.6

Other operating income 411 462 465 498 408 492 496 406 1,730 1,802

YoY Change (%) -21.6 30.2 -11.0 13.2 -0.7 6.5 6.5 -18.6 -6.1 4.1

E: MOSL Estimates



03/11A 63,145 9,671 12.0 -3.7 - - 14.5 15.8 - -

03/12A 70,207 11,442 14.0 16.2 27.1 4.0 14.7 18.8 4.3 18.3

03/13E 79,591 12,993 16.2 15.3 23.5 3.5 15.0 19.9 3.8 15.7

03/14E 88,698 14,779 18.4 13.6 20.6 3.1 15.1 19.0 3.4 14.8

BSE Sensex S&P CNX

18,763 5,703

Cipla’s core topline for 2QFY13 is likely to grow 15% YoY to INR20.46b while reported topline (including one-

offs) is likely to grow 23% YoY, driven by generic Lexapro supplies to Teva. The domestic formulations business

would grow 19% YoY to INR9.8b while exports (excluding one-offs) would grow 12% YoY to INR10.2b, impacted

by muted 10% YoY growth in formulation exports to INR8.2b.

Core EBITDA would grow 18% YoY. EBITDA margin is likely to expand 60bp YoY to 25.2%, led by favorable revenue

mix, improving capacity utilization at Indore SEZ, and favorable currency. Reported EBITDA (including one-offs)

is likely to grow 37% YoY.

We expect adjusted PAT to grow 21% YoY to INR3.7b, led by healthy operational performance and higher other

income. Reported PAT (including one-offs) is likely to grow 41% YoY to INR4.4b.

Cipla continues to face short-term headwinds in ramping up its core formulation exports business despite a favorable

currency. Its muted export performance raises uncertainty on the timelines of ramp-up at Indore SEZ. While large

capex (for past few years) is a long-term positive, we believe it is imperative for the company to improve asset

utilization at Indore to drive future growth and derive benefits of operating leverage (overhead expenses continue

to adversely impact performance). Strong 1HFY13 bottomline growth will be mainly driven by generic Lexapro

supplies to Teva which will not recur from 2HFY13. The stock trades at 23.5x FY13E and 20.6x FY14E earnings. Our

estimates exclude the impact of the proposed new pharma policy. Maintain Neutral.

C–88October 2012


Sector: Healthcare

Dishman Pharma

Bloomberg DISH IN



1,6,12 Rel Perf (%) -8/104/48

Mcap (INR b) 7.8

Mcap (USD b) 0.1

CMP: INR96 Neutral




Net Sales 2,372 2,692 2,655 3,502 3,153 3,436 3,565 3,745 11,221 13,898

YoY Change (%) 17.5 26.5 14.5 1.7 32.9 27.6 34.3 6.9 13.2 23.9


EBITDA 437 471 526 825 836 830 809 875 2,225 3,350

Margins (%) 18.4 17.5 19.8 23.5 26.5 24.2 22.7 23.3 19.8 24.1

Depreciation 187 207 191 180 193 203 216 234 765 847

Interest 137 150 164 218 231 238 243 239 729 951

Other Income 56 -183 89 95 26 39 35 35 150 135

PBT after EO Income 169 -70 260 522 438 428 385 436 880 1,686

Tax 17 -7 93 208 50 124 112 135 312 422

Rate (%) 10.4 9.3 35.7 39.9 11.5 29.0 29.0 31.1 35.4 25.0

Reported PAT 151 -64 167 313 387 304 274 300 568 1,265

Adj PAT 151 -64 167 313 387 304 274 300 568 1,265

YoY Change (%) -44.3 -121.6 859.7 36.4 156.1 63.6 -4.2 -30.1 122.5

Margins (%) 6.4 -2.4 6.3 8.9 12.3 8.8 7.7 8.0 5.1 9.1

CRAMS - India Sales 840 626 668 1,044 640 1,169 1,275 1,366 3,178 4,450

YoY Change (%) 56.9 -10.0 -15.1 19.6 -23.7 86.6 90.7 30.9 9.9 40.0

Carbogen AMCIS Sales 748 1,062 1,023 1,154 1,330 957 1,037 664 3,987 3,987

YoY Change (%) -16.1 16.4 28.7 9.1 77.8 -9.9 1.3 -42.5 9.0 0.0

E: MOSL Estimates



03/11A 9,908 814 10.0 -29.6 - - 9.7 8.1 - -

03/12A 11,221 568 7.0 -30.2 13.7 0.8 6.3 8.9 1.5 7.5

03/13E 13,898 1,265 15.6 122.5 6.2 0.7 12.9 13.6 1.2 4.8

03/14E 15,856 1,426 17.5 12.7 5.5 0.7 12.9 13.8 1.0 4.3

BSE Sensex S&P CNX

18,763 5,703

We expect Dishman’s revenue to increase 27.6% YoY to INR3.4b in 2QFY13, partially led by favorable currency.

The CRAMS business is likely to grow 26% YoY to INR2.1b, boosted mainly by strong performance in CRAMS

supplies from Indian facilities. Revenue from CarbogenAMCIS is would decline 10% YoY to INR957m. Revenue

from MM business would grow 30% YoY to INR1.3b.

EBITDA is likely to grow 76% YoY to INR830m. EBITDA margin would expand 670bp YoY to 24.2% due to low base

effect, better product mix with lower share of QUATs business, and favorable currency.

The company is likely to report net profit of INR304m due to better operational performance and absence of

forex losses (forex losses for 2QFY12 were INR187m).

The macro environment for CRAMS business remains favorable given India’s inherent cost advantages and chemistry

skills. We believe Dishman’s India operations will benefit from increased outsourcing from India, given its

strengthening MNC relations and expansion of some of the existing customer relationships. However, the company

needs to ramp-up its contracts with innovators to take advantage of the macro opportunity. We expect revenue

CAGR of 18.8%, EBITDA CAGR of 27.8% and earnings CAGR of 58% over FY12-14. Earnings growth is led by recovery

in operational performance, better product-mix and lower tax expense. Low asset utilization, high debt and delayed

ramp-up of CRAMS contracts remain our main concern. The stock currently trades at 6.2x FY13E and 5.5x FY14E

earnings. RoCE will continue to be subdued till new facilities and CRAMS contracts ramp up. Maintain Neutral.

C–89October 2012


Sector: Healthcare

Divi's Laboratories

Bloomberg DIVI IN



1,6,12 Rel Perf (%) -11/36/33

Mcap (INR b) 143.4

Mcap (USD b) 2.7

CMP: INR1,080 Buy




Net Op Revenue 3,586 3,541 4,147 7,080 4,684 4,932 5,520 8,352 18,586 23,488

YoY Change (%) 36.1 38.7 33.9 47.9 30.6 39.3 33.1 18.0 42.2 26.4


EBITDA 1,277 1,262 1,484 2,829 1,904 1,833 2,064 3,132 6,850 8,932

Margins (%) 35.6 35.6 35.8 40.0 40.7 37.2 37.4 37.5 36.9 38.0

Depreciation 140 152 162 166 175 198 211 243 621 827

Interest 2 6 2 27 4 8 8 13 37 34

Other Income 164 227 284 78 418 83 124 203 615 827

PBT 1,299 1,332 1,604 2,714 2,143 1,708 1,969 3,079 6,806 8,899

Tax 273 257 341 566 469 359 413 627 1,474 1,869

Deferred Tax 1 14 38 0 0 0 0 0 0 0

Rate (%) 21.0 20.4 23.6 20.9 21.9 21.0 21.0 20.4 21.7 21.0

Reported PAT 1,026 1,061 1,226 2,148 1,674 1,350 1,555 2,452 5,333 7,030

Adj PAT 1,026 1,061 1,226 2,148 1,674 1,350 1,555 2,452 5,333 7,030

YoY Change (%) 22.5 47.4 24.5 22.9 63.2 27.3 26.9 14.1 24.2 31.8

Margins (%) 28.6 30.0 29.6 30.3 35.7 27.4 28.2 29.4 28.7 29.9

CCS Revenues 1,757 1,650 1,831 3,682 2,148 2,382 2,723 3,988 8,921 11,241

YoY Change (%) 42.6 49.3 26.8 58.9 22.2 44.3 48.7 8.3 46.3 26.0

Carotenoid Revenues 140 240 200 230 210 262 283 335 810 1,090

YoY Change (%) -17.6 100.0 33.3 27.1 50.0 9.0 41.7 45.7 30.4 34.6

E: MOSL Estimates; Quarterly financials from 1QFY12 are on stand-alone basis while annual financials are on consolidated basis



03/11A 13,071 4,293 32.4 25.7 - - 25.9 28.2 - -

03/12A 18,586 5,333 40.2 24.1 26.9 6.7 27.1 34.1 7.7 21.0

03/13E 23,488 7,030 53.0 31.8 20.4 5.6 30.0 37.2 6.1 16.0

03/14E 29,363 8,507 64.1 21.0 16.9 4.7 30.2 37.6 4.9 12.9

BSE Sensex S&P CNX

18,763 5,703

Divi’s Laboratories (DIVI) is likely to post 39% YoY increase in 2QFY13 revenue to INR4.9b on new order inflows.

The CCS business would grow 44% YoY while the API business is likely to grow 39% YoY. Carotenoids revenue

would grow 10% YoY.

EBITDA is likely to grow 45% YoY to INR1.83b, led by strong revenue growth and low base effect. EBITDA margin

would expand 150bp.

We expect adjusted PAT to grow 27% YoY to INR1.35b. PAT growth would be lower than EBITDA growth YoY due

to higher depreciation and absence of forex gains (for 2QFY12, the company had recorded forex gains of

INR90m).

We expect DIVI to be a key beneficiary of the increased pharmaceutical outsourcing from India, given its strong

relationships with global innovator companies. It is targeting a fresh capex of INR1.5b-2b for FY13, despite the

~INR4.5b capex undertaken in the past two years. We believe that this reflects the management’s confidence in

driving future growth since DIVI does not usually undertake capex without adequate visibility of customer orders.

We estimate 37% RoCE and 30% RoE for the next two years, led by traction in the high-margin CRAMS business,

sustained profitability in the Generics business and increased contribution from the new SEZ. The stock trades at

20.4x FY13E and 16.9x FY14E earnings. Maintain Buy.

C–90October 2012


Sector: Healthcare

Dr Reddy's Laboratories

Bloomberg DRRD IN


52 Wk Range (INR) 1,818/1,444

1,6,12 Rel Perf (%) -9/-13/-3

Mcap (INR b) 278.7

Mcap (USD b) 5.3

CMP: INR1,647 Buy

Quarterly Performance - IFRS (INR Million)



Gross Sales 19,783 22,679 27,692 26,583 25,406 24,822 26,734 28,028 96,737 104,990

YoY Change (%) 17.5 21.3 45.9 31.8 28.4 9.5 -3.5 5.4 29.5 8.5


EBITDA 3,835 4,799 8,689 6,416 4,996 4,542 5,481 6,189 23,740 21,208

Margins (%) 19.4 21.2 31.4 24.1 19.7 18.3 20.5 22.1 24.5 20.2

Amortization 1,233 1,268 1,307 2,444 1,296 1,394 1,451 1,548 6,254 5,689

Other Income 144 178 365 292 25 -363 74 79 979 -185


Tax 120 631 2,616 837 365 557 821 1,017 4,204 2,760

Rate (%) 4.4 17.0 33.8 19.6 9.8 20.0 20.0 21.6 22.8 18.0

Net Profit 2,626 3,078 5,131 3,427 3,360 2,737 3,854 4,986 14,261 14,938

One-off/low-competition PAT in US 363 393 2,726 1,372 1,031 508 571 1,284 4,854 3,394

Adjusted PAT 2,263 2,685 2,405 2,055 2,329 2,229 3,283 3,702 9,408 11,543

YoY Change (%) 47.6 9.3 0.8 -3.5 2.9 -17.0 36.5 80.1 10.6 22.7

Margins (%) 11.4 11.8 8.7 7.7 9.2 9.0 12.3 13.2 9.7 11.0

E: MOSL Estimates; Note-Estimates do not include one-off upsides.



03/11A 74,693 11,099 65.6 - - - 24.1 16.7 - -

03/12A 96,737 12,109 71.4 12.6 23.1 4.9 21.1 20.3 3.0 12.3

03/13E 104,990 14,426 85.1 19.1 19.4 4.2 21.9 17.0 2.8 14.0

03/14E 116,165 16,977 100.1 17.7 16.5 3.7 22.7 18.0 2.6 12.3

BSE Sensex S&P CNX

18,763 5,703

We expect Dr Reddy’s Laboratories (DRRD) to post 15% YoY growth in core revenue (excluding one-off sales) for

2QFY13 to INR24.8b. This would be led by 18% YoY growth in core US revenue and 16% YoY growth in the

international branded formulations segment. PSAI business revenue is likely to grow 15.5% YoY.

Core EBITDA is likely to grow just 7% YoY to INR4.5b, impacted mainly by higher SG&A and R&D expenses and

partly due to absence of export incentives. We expect core EBITDA margin to decline 140bp YoY to 18.3%.

Adjusted PAT would decline 17% YoY to INR2.2b, impacted mainly by muted EBITDA growth and estimated forex

loss of INR450m v/s forex gain of INR151m for 2QFY12. Higher tax rate will also adversely impact PAT growth.

Including contribution from one-off opportunities, we expect PAT to decline 11% YoY to INR2.7b.

Traction in the US, branded formulations and PSAI businesses will be the key growth drivers for DRRD over the next

two years. We believe that FY13 will be a year of strong growth for DRRD, with the management guiding a topline

of USD2.5b. Earnings upgrade is likely as and when the street gets convinced that DRRD can achieve this target. We

estimate core EPS at INR85.1 for FY13 and INR100 for FY14. Our estimates exclude upsides from patent challenges/

low-competition opportunities in the US (we estimate one-time PAT contribution of INR3.3b from such

opportunities in FY13). The stock currently trades at 19.4x FY13E and 16.5x FY14E core earnings. Our estimates

exclude the impact of the proposed new pharma policy. Maintain Buy.

C–91October 2012


Sector: Healthcare

GlaxoSmithKline Pharmaceuticals

Bloomberg GLXO IN


52 Wk Range (INR) 2,338/1,830

1,6,12 Rel Perf (%) -11/-21/-19

Mcap (INR b) 167.5

Mcap (USD b) 3.2

CMP: INR1,977 Buy


Y/E December CY11 CY12 CY11 CY12


Net Sales 6,029 5,615 6,076 5,660 6,228 6,520 6,674 6,229 23,380 25,650

YoY Change (%) 11.4 12.8 4.4 15.4 3.3 16.1 9.8 10.0 10.7 9.7


EBITDA 2,109 1,870 1,760 1,706 1,957 2,028 2,082 1,876 7,445 7,944

Margins (%) 35.0 33.3 29.0 30.1 31.4 31.1 31.2 30.1 31.8 31.0

Depreciation 44 49 49 61 41 43 43 44 204 171

Interest 0 0 0 3 0 0 0 0 3 0

Other Income 580 421 441 535 804 479 472 492 1,978 2,248

PBT before EO Expense 2,645 2,242 2,152 2,177 2,720 2,464 2,511 2,324 9,216 10,020

Tax 782 725 692 703 863 768 791 734 2,902 3,156

Rate (%) 29.6 32.3 32.2 32.3 31.7 31.2 31.5 31.6 31.5 31.5

Adjusted PAT 1,863 1,517 1,460 1,474 1,857 1,696 1,720 1,590 6,314 6,864

YoY Change (%) 15.6 8.6 -7.7 20.5 -0.3 11.8 17.8 7.9 8.6 8.7

Margins (%) 30.9 27.0 24.0 26.0 29.8 26.0 25.8 25.5 27.0 26.8

Extra-Ord Expense 1,859 41 1 106 628 61 0 0 2,008 689

Reported PAT 5 1,475 1,459 1,367 1,229 1,635 1,720 1,590 4,306 6,175

E: MOSL Estimates



12/10A 21,116 5,814 68.6 15.2 - - 30.1 44.8 - -

12/11A 23,380 6,314 74.5 8.6 26.5 8.7 32.9 47.9 6.2 19.6

12/12E 25,650 6,864 81.0 8.7 24.4 8.2 33.5 48.9 5.7 18.3

12/13E 28,899 7,840 92.6 14.2 21.4 7.3 34.2 49.9 5.0 15.7

BSE Sensex S&P CNX

18,763 5,703

We expect GlaxoSmithKline Pharmaceuticals (GLXO) to post 10% YoY growth in 3QCY12 topline to INR6.6b. The

muted growth in topline would be because of lower offtake of acute therapy products during the quarter due

to erratic rainfall.

EBITDA is likely to grow 18% YoY to INR2.1b, on a low base. EBITDA margin would expand 220bp to 31.2% due to

low base of 3QCY11, when EBITDA margin was 29%.

We expect PAT to grow 18% YoY to INR1.7b in 3QCY12, in line with operational performance.

We believe GLXO is one of the best plays on the IPR regime in India, with aggressive plans to launch new products

in the high-growth lifestyle segments. It is likely to record double-digit topline growth in the long-term, though

the proposed new pharma policy may adversely impact growth in the short term. Given the high profitability of

operations, we expect this growth to lead to sustainable RoE of ~30%. This growth is likely to be funded through

miniscule capex and negative net working capital. GLXO deserves premium valuations due to strong parentage,

brand-building ability and likely positioning in post patent era. It is one of the few companies with the ability to

drive reasonable growth without any major capital requirement, leading to high RoCE of 45-50%. Our estimates

exclude potential adverse impact of the proposed new pharma policy. The stock is currently valued at 24.4x CY12E

and 21.4x CY13E earnings. Maintain Buy.

C–92October 2012


Sector: Healthcare

Glenmark Pharmaceuticals

Bloomberg GNP IN



1,6,12 Rel Perf (%) -4/29/17

Mcap (INR b) 113.8

Mcap (USD b) 2.2

CMP: INR422 Buy

Quarterly performance (INR Million)



Net Revenues (Core) 8,683 10,554 10,311 10,659 10,404 11,589 12,464 12,931 40,206 47,388

YoY Change (%) 27.4 45.7 37.3 34.5 19.8 9.8 20.9 21.3 40.6 17.9

EBITDA 2,966 2,983 2,046 1,864 2,198 2,076 2,371 2,646 9,860 9,291

Margins (%) 34.2 28.3 19.8 17.5 21.1 17.9 19.0 20.5 24.5 19.6

Depreciation 264 247 231 236 275 261 272 259 979 1,067

Interest 408 291 357 410 380 385 371 346 1,466 1,482

Other Income 125 -808 -912 377 -521 250 -25 40 -1,218 -256

PBT before EO Expense 2,420 1,637 545 1,595 1,022 1,679 1,703 2,082 6,198 6,486

Extra-Ord Expense 0 1,317 0 0 0 0 0 0 1,317 0

PBT after EO Expense 2,420 321 545 1,595 1,022 1,679 1,703 2,082 4,881 6,486

Tax 319 -238 84 73 218 233 237 272 238 961

Rate (%) 13.2 -74.2 15.4 4.6 21.3 13.9 13.9 13.1 4.9 14.8

Reported PAT (incl one-offs) 2,101 559 461 1,522 804 1,589 1,577 1,920 4,643 5,891


Adj PAT (excl one-offs) 1,092 745 76 1,331 506 1,426 1,446 1,791 3,244 5,169

YoY Change (%) 17.8 -24.6 -92.2 101.4 -53.6 91.5 1,803.5 34.5 -8.6 59.3

Margins (%) 12.6 7.1 0.7 12.5 4.9 12.3 11.6 13.8 8.1 10.9

US Sales 2,512 3,001 3,190 3,435 3,924 3,803 3,883 4,238 12,137 15,848

YoY Change (%) 37.2 34.1 56.3 53.1 56.2 26.8 21.7 23.4 45.3 30.6

R&D licensing income 1,112 1,185 238 0 0 0 0 0 2,535 245

YoY Change (%) 24.3 -100.0 183.2 -90.3

E: MOSL Estimates; 1Q and 2Q numbers will not be comparable yoy due to absence of R&D licensing income



03/11A 29,491 3,548 12.5 7.2 - - 17.4 13.4 - -

03/12A 40,206 3,244 11.4 -8.6 37.0 4.8 13.5 12.1 3.3 13.3

03/13E 47,388 5,169 18.2 59.3 23.2 3.9 17.7 16.8 2.8 14.2

03/14E 54,005 7,472 26.3 44.5 16.1 3.1 20.5 20.6 2.4 11.3

BSE Sensex S&P CNX

18,763 5,703

Note: Company has adopted IFRS accounting wef FY11. Estimates exclude one-off upsides

We expect Glenmark Pharmaceuticals (GNP) to post 25% YoY growth in core revenue (excluding one-offs and

R&D income) for 2QFY13 to INR11.59b, led mainly by like-to-like growth of 33% in the generics business. The

branded business is likely to grow 19% YoY. We do not expect any R&D licensing income in 2QFY13 (INR1.18b

recorded in 2QFY12).

Core EBITDA is likely to grow 20% YoY to INR2.07b, while EBITDA margin would decline 80bp to 18% due to

higher R&D expenses.

GNP is likely to report 91% YoY growth in adjusted PAT to INR1.4b, primarily due to low base of 2QFY12, when

the company had recorded MTM forex losses of INR810m.

We believe that improved working capital and moderate capex will impart flexibility to the management to target

debt reduction. Return ratios should improve gradually over the next two years, with RoCE increasing from 12.1%

to 20-21% and RoE increasing from 13.5% to 20-21%. GNP has differentiated itself among Indian pharmaceutical

companies through its significant success in NCE research. Improved working capital cycle coupled with potential

debt reduction is likely to address investor concerns related to adverse balance sheet in the coming quarters. The

stock trades at 23.2x FY13E and 16.1x FY14E EPS. Our estimates exclude the impact of the proposed new pharma

policy. Maintain Buy.

C–93October 2012


Sector: Healthcare

IPCA Laboratories

Bloomberg IPCA IN



1,6,12 Rel Perf (%) 12/35/66

Mcap (INR b) 60.6

Mcap (USD b) 1.1

CMP: INR482 Buy





YoY Change (%) 26.8 20.3 31.8 13.5 19.7 14.4 15.7 31.5 24.3 18.6

EBITDA 952 1,580 1,513 1,117 1,329 1,639 1,720 1,670 5,135 6,359

Margins (%) 18.0 25.3 24.6 19.9 21.0 23.0 24.2 22.6 21.8 22.7

Depreciation 154 176 181 142 199 202 219 222 671 843

Interest 83 118 108 111 95 102 117 112 413 426

Other Income 118 -245 -359 88 -470 130 60 125 -408 -155

PBT 832 1,042 864 952 565 1,464 1,444 1,461 3,643 4,935

Tax 215 262 225 186 135 366 361 372 881 1,234

Rate (%) 25.9 25.2 26.0 19.5 23.9 25.0 25.0 25.4 24.2 25.0

Reported PAT 617 780 639 766 430 1,098 1,083 1,090 2,762 3,701

Adj PAT 617 780 639 766 430 1,098 1,083 1,090 2,762 3,701

YoY Change (%) 58.8 -17.1 0.0 16.9 -30.3 40.9 69.4 42.2 5.3 34.0

Margins (%) 11.6 12.5 10.4 13.7 6.8 15.4 15.2 14.8 11.7 13.2

Domestic formulation 1,890 2,292 1,876 1,477 2,242 2,599 2,166 1,657 7,534 8,664

YoY Change (%) 12.3 3.3 5.7 14.7 18.6 13.4 15.5 12.2 8.2 15.0

Export formualtions 2,066 2,605 2,898 2,393 2,245 2,892 3,269 4,167 9,961 12,573

YoY Change (%) 69.3 48.8 73.4 5.2 8.7 11.0 12.8 74.2 44.0 26.2

E: MOSL Estimates



03/11A 18,969 2,628 20.9 25.7 - - 27.4 25.6 - -

03/12A 23,587 2,762 21.9 4.7 22.0 4.8 24.0 24.1 2.8 12.8

03/13E 27,968 3,701 29.3 34.0 16.4 3.9 26.4 27.7 2.3 10.3

03/14E 32,555 4,816 38.2 30.1 12.6 3.1 27.6 29.4 2.0 8.7

BSE Sensex S&P CNX

18,763 5,703

We expect IPCA’s 2QFY13 topline to grow 14.4% YoY to INR7.1b, led mainly by 23% growth in API exports.

Domestic formulations would grow 13.4% YoY to INR2.6b. The malaria season in the domestic market did not

pick up strongly due to erratic rainfall though there was some recovery in September. This would impact growth

in domestic formulations.

EBITDA is likely to grow just 4% YoY to INR1.6b due to a 230bp decline in EBITDA margin to 23%, led mainly by

lower growth in the domestic formulations business.

We expect adjusted PAT to grow 41% YoY to INR1b despite the muted growth in EBITDA due to low base of

2QFY12, when the company had reported forex loss of INR271m against which we expect it to report a forex

gain of INR100m.

Strong traction in exports coupled with growth recovery in the domestic formulations business will be the key

triggers for IPCA over the next two years. We expect IPCA to clock EPS CAGR of 32% over FY12-14 on the back of 17%

revenue CAGR, coupled with 120bp EBITDA margin expansion and reversal of MTM forex losses. Return ratios

continue to be strong, with RoCE of ~28% and RoE of 27%, which is reflective of the conservative management

strategy and efficient capital allocation. The stock currently trades at 16.4x FY13E and 12.6x FY14E EPS. Our estimates

exclude the impact of the proposed new pharma policy. Maintain Buy.

C–94October 2012


Sector: Healthcare

Jubilant Life Sciences

Bloomberg JOL IN



1,6,12 Rel Perf (%) 21/8/-7

Mcap (INR b) 33.7

Mcap (USD b) 0.6

CMP: INR212 Neutral




Net Sales 9,443 10,481 10,872 11,711 12,359 12,803 13,325 13,657 42,540 52,145

YoY Change (%) -3.8 6.1 25.5 31.5 30.9 22.2 22.6 16.6 23.9 22.6


EBITDA 1,820 2,361 2,071 1,812 2,693 2,691 2,731 2,447 7,992 10,561

Margins (%) 19.3 22.5 19.0 15.5 21.8 21.0 20.5 17.9 18.8 20.3

Depreciation 498 508 539 662 591 649 703 762 2,207 2,705

Interest 434 497 566 586 593 595 619 620 2,096 2,427

Other Income 37 -372 -1,507 29 -968 383 80 75 -929 -429

PBT before EO Expense 925 984 -541 593 541 1,830 1,489 1,140 2,761 5,000

Extra-Ord Expense 0 0 0 820 0 0 0 0 1,620 0

PBT after EO Expense 925 984 -541 -227 541 1,830 1,489 1,140 1,141 5,000

Tax 152 93 89 351 389 403 298 161 684 1,250

Rate (%) 16.4 9.5 -16.4 -154.5 71.8 22.0 20.0 14.1 60.0 25.0

PAT 774 891 -630 -578 152 1,427 1,191 979 457 3,750


Reported PAT 771 794 -784 -635 50 1,326 1,090 879 146 3,345

Adjusted PAT 771 794 -784 476 50 1,326 1,090 879 2,173 3,345

YoY Change (%) 22.9 -3.3 -277.7 -22.8 -93.5 67.0 84.5 -5.4 53.9

Margins (%) 8.2 7.6 -7.2 4.1 0.4 10.4 8.2 6.4 5.1 6.4

E: MOSL Estimates



03/11A 34,334 2,297 14.4 -45.7 - - 10.5 6.0 - -

03/12A 42,540 2,173 13.6 -5.4 15.5 1.4 0.6 8.1 1.6 8.4

03/13E 52,145 3,345 21.0 53.9 10.0 1.3 13.5 12.2 1.2 6.0

03/14E 59,572 5,328 33.4 59.3 6.3 1.1 18.8 15.5 1.0 5.0

BSE Sensex S&P CNX

18,763 5,703

For 2QFY13, we expect healthy topline growth for Jubilant Organosys (JOL) at 22.2% YoY to INR12.8b, driven by

the Generics and Life Science Ingredients businesses. While the Generics business would grow 30% YoY, the

Life Science Ingredients business would grow 24% YoY. The Life Science Services business is likely to grow 8%

YoY.

We expect EBITDA to grow 14% YoY to INR2.69b despite 22% YoY topline growth due to a 150bp decline in EBITDA

margin to 21%.

Adjusted PAT would grow 67% YoY to INR1.3b, mainly led by a low base of 2QFY12, when JOL had reported forex

loss of INR426m against our expectation of a forex gain of INR313m.

We expect JOL to record 18% topline CAGR, 22% EBITDA CAGR, and 56% EPS CAGR (on a low base) over FY12-14.

Strong earnings growth would be partly led by the reversal of forex loss to forex gains based on our assumption of

currency appreciation over FY12. JOL needs to restructure its balance sheet significantly (currently, it has debt of

INR36b to support an overall topline of INR42.5b). High debt continues to be concerning. Some of its past acquisitions

(like Draxis) have been at expensive valuations, resulting in extended payback periods and lower return ratios.

High debt and low RoCE (12-15%) remain overhangs. The stock trades at 10x FY13E and 6.3x FY14E EPS. Maintain

Neutral.

C–95October 2012


Sector: Healthcare

Lupin

Bloomberg LPC IN



1,6,12 Rel Perf (%) -2/6/11

Mcap (INR b) 266.1

Mcap (USD b) 5.0

CMP: INR596 Buy




Net Sales 15,432 16,448 17,917 18,832 22,192 20,925 22,280 23,359 69,597 88,755

YoY Change (%) 17.6 17.1 22.1 23.7 43.8 27.2 24.3 24.0 22.0 27.5


EBITDA 2,698 2,764 3,783 3,321 4,230 3,674 4,449 4,678 13,215 17,032

Margins (%) 17.5 16.8 21.1 17.6 19.1 17.6 20.0 20.0 19.0 19.2

Depreciation 471 522 576 706 654 698 712 728 2,275 2,791

Interest 58 66 86 145 101 117 113 120 355 451

Other Income 257 324 -15 489 582 420 340 407 1,376 1,749

PBT 2,426 2,499 3,106 2,960 4,058 3,279 3,965 4,237 11,961 15,539

Tax 286 441 701 1,677 1,208 787 912 978 3,086 3,885

Rate (%) 11.8 17.6 22.6 56.7 29.8 24.0 23.0 23.1 25.8 25.0

Reported PAT 2,140 2,718 2,406 1,283 2,850 2,618 3,053 3,259 10,295 11,780

Extra-Ordinary Exp/(Inc) 0 -659 0 0 0 0 0 0 659 0


Recurring PAT 2,101 2,010 2,498 499 2,098 2,442 3,003 3,205 8,677 10,748

YoY Change (%) 7.0 -6.5 11.5 -77.6 -0.1 21.5 20.2 542.3 1.1 23.9

Margins (%) 13.6 12.2 13.9 2.6 9.5 11.7 13.5 13.7 12.5 12.1

Advanced mkt formulations 7,013 7,761 9,300 11,811 11,826 10,729 12,030 13,021 35,885 47,606

YoY Change (%) 11.9 15.3 26.0 50.4 68.6 38.2 29.4 10.2 27.1 32.7

Emerging mkt formulations 6,317 6,711 6,637 6,065 8,049 8,095 8,113 8,376 25,730 32,633

YoY Change (%) 24.4 28.7 32.3 22.6 27.4 20.6 22.2 38.1 27.0 26.8

E: MOSL Estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters



03/11A 57,068 8,582 19.3 25.9 - - 29.3 25.1 - -

03/12A 69,597 8,676 19.4 0.7 30.7 6.6 23.8 24.6 4.0 21.0

03/13E 88,755 10,748 24.1 23.9 24.8 5.5 24.3 26.8 3.1 16.3

03/14E 101,852 13,950 31.2 29.8 19.1 4.6 26.2 27.8 2.7 13.4

BSE Sensex S&P CNX

18,763 5,703

We expect Lupin’s 2QFY13 topline to grow 27% YoY, driven mainly by 73% YoY growth in Japan on the back of Irom

acquisition and favorable currency, 28% YoY growth in revenue from advanced markets (Ex-Japan) and 31% YoY

growth in formulations revenue from exports to semi-regulated markets. The domestic formulations business

is likely to report 17% YoY growth to INR6b.

EBITDA would grow 33% YoY, with EBITDA margin expanding 80bp YoY on the back of a low base, favorable

currency and better product mix.

We expect adjusted PAT to grow 21.5% YoY to INR2.4b. PAT growth would be lower than EBITDA growth due to

higher tax rate.

Key growth drivers for Lupin will be: (1) increased traction in India formulations and emerging markets, (2) strong

launch pipeline for the US, and (3) contribution from oral contraceptives in the US. We expect EPS of INR24.1 for

FY13 (up 24%) and INR31.2 for FY14 (up 30%), translating into 27% EPS CAGR over FY12-14. Significant

internationalization of operations without dilution of return ratios has been Lupin’s key achievement over the last

five years. We expect this to sustain. The stock trades at 24.8x FY13E and 19.1x FY14 EPS. Our estimates exclude the

impact of the proposed new pharma policy. Maintain Buy.

C–96October 2012


Sector: Healthcare

Opto Circuits

Bloomberg OPTC IN



1,6,12 Rel Perf (%) -2/-41/-41

Mcap (INR b) 31.4

Mcap (USD b) 0.6

CMP: INR130 Neutral




Net Revenues 5,208 5,620 6,113 6,627 7,151 7,012 7,476 7,569 23,569 29,207

YoY Change (%) 78.4 69.6 46.4 21.7 37.3 24.8 22.3 14.2 48.6 23.9


EBITDA 1,432 1,547 1,710 1,464 1,899 1,885 1,966 1,887 6,165 7,638

Margins (%) 27.5 27.5 28.0 22.1 26.6 26.9 26.3 24.9 26.2 26.2

Depreciation 150 109 141 146 196 202 234 175 546 806

Interest 109 138 168 177 187 197 213 192 592 789

Other Income 49 -51 -42 186 27 16 18 9 136 70

PBT before EO Income 1,222 1,248 1,359 1,328 1,544 1,502 1,537 1,528 5,162 6,112

EO Exp/(Inc) 0 0 -5 0 0 0 0 0 0 0

PBT after EO Income 1,222 1,248 1,364 1,328 1,544 1,502 1,537 1,528 5,162 6,112

Tax 57 33 109 -772 150 150 154 158 -572 611

Rate (%) 4.7 2.7 8.0 -58.1 9.7 10.0 10.0 10.3 -11.1 10.0

Min. Int/Adj on Consol 1 5 3 6 15 15 -15 15 15 60

Reported PAT 1,164 1,210 1,251 2,093 1,380 1,337 1,398 1,355 5,719 5,441

Adj PAT 1,164 1,210 1,253 2,093 1,380 1,337 1,368 1,355 5,719 5,441

YoY Change (%) 40.6 56.3 30.4 90.9 18.6 10.5 9.2 -35.3 56.2 -4.9

Margins (%) 22.4 21.5 20.5 31.6 19.3 19.1 18.3 17.9 24.3 18.6

Non Invasive sales 4,220 4,640 4,770 5,090 5,828 5,566 5,913 5,883 18,720 23,190

YoY Change (%) 99.4 100.9 56.2 23.8 38.1 19.9 24.0 15.6 61.5 23.9

Invasive sales 940 940 1,300 1,490 1,251 1,401 1,518 1,667 4,670 5,838

YoY Change (%) 25.3 4.3 24.5 19.8 33.1 49.0 16.8 11.9 18.6 25.0

E: MOSL Estimates



03/11A 15,856 3,661 15.1 49.3 - - 30.4 24.1 - -

03/12A 23,569 5,719 23.6 56.2 5.5 1.8 37.2 22.4 1.7 6.7

03/13E 29,207 5,441 22.5 -4.9 5.7 1.5 28.7 22.5 1.5 5.6

03/14E 33,413 6,128 25.3 12.6 5.1 1.2 26.6 22.1 1.2 4.9

BSE Sensex S&P CNX

18,763 5,703

We expect Opto Circuits (OPTC) to post 25% YoY growth in 2QFY13 revenue to INR7b, led by a growth of 49% YoY

in the invasive business. The non-invasive segment is likely to post 20% YoY growth to INR5.6b.

EBITDA would grow 22% YoY to INR1.9b and EBITDA margin would contract by 60bp, mainly due to higher

overheads.

We expect OPTC to post PAT growth of 10.5% YoY despite healthy operational performance due to higher

depreciation & amortization, increased interest cost and higher tax rate.

OPTC has delivered strong revenue and earnings growth over the last few years, coupled with high return ratios.

Despite rapid growth, it remains a marginal player in the global medical devices industry, which gives OPTC the

opportunity to sustain its high revenue growth rate for the next couple of years. However, large accumulated

goodwill in the books , high working capital requirements leading to high debt, inadequate free cash flow generation

remain our major concerns. We note that the management is targeting reduction in working capital. We believe it

is imperative for the company to deliver this without diluting the overall growth for the business. Potential fund

raising in Eurocor could dilute earnings, with commensurate benefits from the equity dilution accruing only over

the long-term (since the funds are likely to be utilized for financing clinical trials for key products, which could be

time-consuming). The stock trades at 5.7x FY13E and 5.1x FY14E EPS. Maintain Neutral.

C–97October 2012


Sector: Healthcare

Ranbaxy Laboratories

Bloomberg RBXY IN



1,6,12 Rel Perf (%) -10/17/-6

Mcap (INR b) 222.6

Mcap (USD b) 4.2

CMP: INR530 Neutral




Net Income 21,809 20,931 20,955 37,923 37,868 32,285 25,341 29,282 101,614 124,776

YoY Change (%) -19.2 -2.7 8.3 74.3 73.6 54.2 20.9 -22.8 13.4 22.8

EBITDA 4,032 1,817 1,741 8,601 9,552 5,113 2,706 3,221 16,189 20,592

Margins (%) 18.5 8.7 8.3 22.7 25.2 15.8 10.7 11.0 15.9 16.5

Depreciation 736 735 788 1,681 799 783 892 958 3,940 3,432

Interest 145 166 153 304 377 483 486 489 768 1,836

Other Income 671 607 -1,490 -790 1,556 -2,972 2,302 439 -1,001 1,325

PBT before EO Expense 3,823 1,522 -690 5,825 9,933 875 3,629 2,212 10,480 16,649

Extra-Ord Expense -20 -1,118 3,624 34,859 -4,047 5,994 -2,420 550 37,345 76

PBT after EO Expense 3,842 2,640 -4,313 -29,034 13,980 -5,119 6,049 1,662 -26,865 16,573

Tax 782 185 256 747 1,374 683 726 200 1,969 2,983

Rate (%) 20.4 7.0 -5.9 -2.6 9.8 -13.3 12.0 12.0 -7.3 18.0

Reported PAT 3,060 2,455 -4,569 -29,780 12,606 -5,801 5,323 1,461 -28,834 13,590

Minority Interest 16 23 77 47 139 56 100 106 -163 400

Reported PAT (incl one-offs) 3,044 2,432 -4,646 -29,828 12,468 -5,857 5,223 3,921 -28,997 16,610

Adj PAT 1,724 1,055 1,620 1,556 2,017 1,722 1,688 2,159 5,955 7,586

YoY Change (%) 223.2 -30.4 58.9 -2,675.7 17.0 63.2 4.2 38.7 98.0 27.4

Margins (%) 7.9 5.0 7.7 4.1 5.3 5.3 6.7 7.4 5.9 6.1

E: MOSL Estimates


End (INR m) (INR m) (INR) GR. (%) (X) (X) (%) (%) Sales EBITDA

12/10A 73,623 3,008 25.8 467.1 - - 19.4 15.9 - -

12/11A 80,509 5,955 14.1 -45.3 33.2 4.9 -72.0 19.4 2.3 14.6

12/12E 98,819 7,586 18.0 27.4 26.0 3.9 28.3 21.9 2.0 12.3

12/13E 110,022 9,203 21.8 21.3 21.5 3.4 15.7 14.7 2.2 16.5

Note: All valuation ratios adjusted for INR61/sh DCF value of FTFs

BSE Sensex S&P CNX

18,763 5,703

We expect Ranbaxy Laboratories (RBXY) to post 21% YoY growth in core topline for 3QCY12, partially led by

favorable currency. 3QCY12 performance will reflect the core operating performance after several quarters, as

we do not expect any one-offs from Para-IV upsides.

We expect core EBITDA to grow 55% YoY to INR2.7b. EBITDA margin would expand by 240bp YoY to 10.7% on a

very low base.

Adjusted PAT would grow 4% YoY to INR1.68b despite healthy operational performance due to higher interest

cost and significantly higher tax outgo.

The US FDA/DoJ settlement and signing of the consent decree is likely to delay the full recovery of supplies to US

from India into CY13 compared to our previous assumption of the benefits coming through in CY12. The current

valuations factor in the likely improvement in core EBITDA margin (we expect margins to improve to 13.6% by CY13

from the current 10-11%). We believe that for the stock to get higher valuations, it is imperative for RBXY to

improve core business margins, as one-offs wane in the coming quarters. The stock is valued at 26x CY12E and 21.5x

CY13E core EPS, adjusting for INR61/share of DCF value of Para-IV pipeline. Our estimates exclude the impact of the

proposed new pharma policy. We rate the stock Neutral.

C–98October 2012


Sector: Healthcare

Sanofi India

Bloomberg SANL IN


52 Wk Range (INR) 2,430/2,002

1,6,12 Rel Perf (%) 4/1/-10

Mcap (INR b) 54.7

Mcap (USD b) 1.0




12/10A 10,850 1,550 67.3 -1.5 - - 15.5 23.6 - -

12/11A 12,297 1,912 83.0 23.3 28.6 4.9 17.3 25.3 4.3 29.7

12/12E 14,864 1,693 73.5 -11.4 32.3 4.5 13.9 20.6 3.4 24.1

12/13E 17,144 2,128 92.4 25.7 25.7 4.0 15.6 23.1 2.9 19.4




Net Sales 2,763 3,028 3,127 3,379 3,225 3,741 3,901 4,008 12,297 14,864

YoY Change (%) 9.9 11.5 13.5 17.9 16.7 23.5 24.8 18.6 13.3 20.9


EBITDA 435 428 503 394 492 522 636 483 1,760 2,122

Margins (%) 15.7 14.1 16.1 11.7 15.3 14.0 16.3 12.1 14.3 14.3

Depreciation 54 54 61 142 183 186 195 200 311 764

Interest 2 0 0 2 4 4 0 2 4 10

Other Income 379 361 369 286 289 267 309 323 1,395 1,188

PBT 758 735 811 535 594 599 750 604 2,839 2,535

Tax 252 238 263 -10 193 194 250 205 743 842

Effective tax Rate (%) 33.2 32.4 32.4 -1.8 32.5 32.4 33.4 33.8 26.2 33.2

PAT 506 497 548 545 401 405 499 400 2,096 1,693

YoY Change (%) 40.2 17.2 15.9 -20.8 -18.5 -8.9 -26.7 31.2 -19.2

Margins (%) 18.3 16.4 17.5 16.1 12.4 10.8 12.8 10.0 17.0 11.4

Domestic sales 2,221 2,440 2,575 2,788 2,765 3,029 3,276 3,293 10,024 12,364

YoY Change (%) 12.6 12.1 11.0 24.5 24.5 24.1 27.2 18.1 15.1 23.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Sanofi India’s 3QCY12 topline to grow 25% YoY to INR3.9b, led by the domestic formulations business.

The domestic formulations business is likely to grow 27% YoY to INR3.2b on the back of the acquisition of

Universal Medicare. The export business would grow 13% YoY to INR625m.

EBITDA is likely to grow 26% YoY to INR636m, led mainly by topline growth. We expect EBITDA margin to expand

by 20bp YoY to 16.3%.

We expect PAT to decline 9% YoY to INR499m, despite better operational performance. This is because other

income would decline 16% YoY due to payment made towards the acquisition of Universal Medicare and

depreciation & amortization charges would jump 219% YoY due to amortization of acquisition goodwill.

We believe Sanofi India (SANL) will be one of the key beneficiaries of the patent regime in the long term. The

parent has a strong R&D pipeline, with a total of 61 products undergoing clinical trials, of which 18 are in Phase-III

or pending approvals. Some of these are likely to be launched in India. However, SANL’s profitability has declined

significantly in the last five years, with EBITDA margin declining from 25% in CY06 to 14.3% in CY11, mainly impacted

by discontinuation of Rabipur sales in the domestic market, lower export growth and higher staff & promotional

expenses. RoE has declined from 28.6% to 17.3% during the period. The stock trades at 32.3x CY12E and 25.7x CY13E

EPS. Our estimates do not factor in the impact of the proposed new pharma policy. We believe that the stock

performance will remain muted in the short term until clarity emerges on future growth drivers. Maintain Neutral.

C–99October 2012


Sector: Healthcare

Strides Arcolab

Bloomberg STR IN



1,6,12 Rel Perf (%) 0/42/144

Mcap (INR b) 51.0

Mcap (USD b) 1.0

CMP: INR883 Buy

Quarterly performance (consolidated) (INR Million)

Y/E December CY11 CY12 CY11 CY12


Net Revenues 4,875 5,813 7,693 6,865 5,275 5,083 6,185 7,338 25,245 23,880

YoY Change (%) 30.5 27.9 86.6 50.7 8.2 -12.6 -19.6 6.9 48.9 -5.4


EBITDA 917 1,081 1,720 972 1,267 1,130 1,555 1,879 4,652 5,833

Margins (%) 18.8 18.6 22.4 14.2 24.0 22.2 25.1 25.6 18.4 24.4

Depreciation 183 340 222 298 237 257 275 290 1,043 1,059

Interest 438 467 491 507 390 510 410 400 1,903 1,710

Other Income 245 515 -477 700 -143 -223 595 375 1,021 603

PBT before EO Income 540 790 530 867 497 141 1,464 1,565 2,727 3,666

EO Exp/(Inc) 0 0 0 0 -6,316 -946 0 0 0 -7,263

PBT after EO Income 540 790 530 867 6,813 1,087 1,464 1,565 2,727 10,929

Tax 89 94 62 141 392 182 117 116 387 807

Rate (%) 16.5 12.0 11.7 16.3 5.7 16.7 8.0 7.4 14.2 7.4

Minority Int/Adj on Consol 44 6 4 42 1 0 0 -1 95 0

Reported PAT 407 689 465 684 6,421 905 1,347 1,450 2,245 10,122

Adj PAT 407 689 465 684 467 117 1,347 1,450 2,245 2,860

YoY Change (%) 18.2 8.7 76.0 14.8 -83.0 189.9 111.9 84.0 27.4

Margins (%) 8.4 11.9 6.0 10.0 8.9 2.3 21.8 19.8 8.9 12.0

E: MOSL Estimates; Note: Quarterly numbers don't add up to full year numbers due to restatement


End (INR m) (INR m) (INR) YOY (%) (X) (X) (%) (%) Sales EBITDA

12/10A 16,958 1,220 20.9 99.8 - - 11.6 11.9 - -

12/11A 25,245 2,245 38.5 84.0 23.4 3.8 16.9 12.8 2.3 12.7

12/12E 23,880 3,080 52.8 37.2 17.1 2.3 18.5 13.7 2.2 8.9

12/13E 25,790 3,588 61.5 16.5 14.6 2.0 14.5 14.8 2.0 8.3

BSE Sensex S&P CNX

18,763 5,703

We expect Strides Arcolabs (STR) to post 19.6% QoQ decline in 3QCY12 revenue to INR6.18b, impacted by the

divestment of the Australasia generics business. On a like-to-like basis, we expect topline growth of 7%, led by

33% growth in specialty business. The residual pharma business (post divestment) is likely to grow 20% YoY to

INR2.1b, while licensing income is likely to decline by a significant 51% YoY to INR839m.

EBITDA would decline 10% YoY to INR1.56b on account of lower licensing income and divestment of the Australasia

generics business. However, EBITDA margin would expand 280bp due to higher contribution of the high-margin

specialty business.

We expect adjusted net profit to grow 190% YoY to INR1.34b due to a significantly low base of 3QCY11, when the

company had reported forex loss of INR583m. Lower interest cost and lower tax rate is also likely to aid PAT

growth.

STR is set to emerge as a specialty products company, with revenue contribution from this segment increasing from

28% in CY09 to an estimated 67% in CY13. The company has an impressive specialty product pipeline. It has large

manufacturing capacities in place to support revenue scale-up, coupled with strong marketing partners like Pfizer

and GSK. We expect STR to post 26% earnings CAGR over CY11-13, led by revenue ramp-up in the SI (sterile injectables)

segment and substantial reduction in interest cost owing to debt repayment. Return ratios are set to improve over

CY11-13 and debt-equity should decline from 1.9x in CY10 to 0.6x in CY13. The stock trades at 17.1x CY12E and 14.6x

CY13E EPS. Maintain Buy.

C–100October 2012


Sector: Healthcare

Sun Pharmaceuticals Industries

Bloomberg SUNP IN



1,6,12 Rel Perf (%) -5/12/33

Mcap (INR b) 718.0

Mcap (USD b) 13.6

CMP: INR693 Neutral




Net Revenues 16,357 18,946 21,451 23,299 26,581 24,501 24,153 25,060 80,057 100,296

YoY Change (%) 16.9 38.3 34.0 59.2 62.5 29.3 12.6 7.6 39.9 25.3


EBITDA 5,474 7,840 9,638 9,552 12,169 9,591 8,856 8,288 32,507 38,904

Margins (%) 33.5 41.4 44.9 41.0 45.8 39.1 36.7 33.1 40.6 38.8

Depreciation 647 668 774 823 801 805 872 876 2,912 3,354

Net Other Income 969 1,183 -272 2,082 -231 1,165 1,940 2,203 3,958 5,078

PBT 5,796 8,355 8,591 10,811 11,136 9,951 9,925 9,615 33,554 40,627

Tax 143 1,281 634 1,768 1,925 1,791 1,786 1,810 3,826 7,313

Rate (%) 2.5 15.3 7.4 16.4 17.3 18.0 18.0 18.8 11.4 18.0

Profit after Tax 5,653 7,074 7,957 9,043 9,211 8,160 8,138 7,805 29,727 33,314

Share of Minority Partner 643 1,097 1,274 841 1,256 1,097 1,274 999 3,855 4,626

Reported PAT 5,010 5,977 6,683 8,202 7,956 7,775 7,999 7,229 25,873 30,958

One-off upsides 624 523 573 923 1,240 712 1,135 423 2,644 3,510

Adj Net Profit 4,386 5,454 6,110 7,279 6,716 7,063 6,864 6,806 23,228 27,449

YoY Change (%) 30.4 32.8 99.2 39.5 53.1 29.5 12.3 -6.5 65.4 18.2

Margins (%) 26.8 28.8 28.5 31.2 25.3 28.8 28.4 27.2 29.0 27.4

E: MOSL Estimates; Quarterly no. don’t match with annual no. because of reinstatement of financials



03/11A 52,066 14,041 13.6 47.8 51.1 0.0 16.2 23.4 0.0 0.0

03/12A* 80,057 25,873 25.0 42.5 27.7 5.9 21.5 30.3 8.3 20.4

03/12A 74,406 23,228 22.4 65.4

03/13E 90,922 27,449 26.5 18.2 26.1 5.0 20.7 30.2 6.4 16.5

03/14E 111,894 30,425 29.4 10.8 23.6 4.3 19.7 27.0 5.5 15.7

*Including Para-IV/one-off upsides

BSE Sensex S&P CNX

18,763 5,703

We expect Sun Pharmaceuticals (SUNP) to post 37% YoY growth in core topline (excluding one-offs) for 2QFY13

to INR24.5b, mainly led by 37% YoY growth in revenue from Taro and 40% YoY growth in core revenue from the

US. While better product pricing would aid growth in revenue from Taro, low base would aid growth in core

revenue from the US. The domestic formulations business is likely to grow 21% YoY to INR8.5b. The export

formulations business (other than the US) is likely to grow 35% YoY. Including revenue from one-off product

opportunities, the topline would grow 40% YoY to INR26.5b.

Core EBITDA (ex-Para IV/low competition products) is likely to grow 34% YoY to INR9.6b. Core EBITDA margin

would decline 100bp to 39.1% on a high base. Including the upsides from one-off product opportunities, EBITDA

is likely to grow 35% YoY to INR10.6b.

We expect adjusted PAT to grow 30% YoY to INR7b, in line with strong operational performance, but pulled

down by increased tax rate. Including one-offs, reported PAT is likely to grow 30% YoY to INR7.8b.

An expanding generics portfolio coupled with sustained double-digit growth in high-margin lifestyle segments in

India is likely to bring in long-term benefits for SUNP. Its ability to sustain superior margins even on a high base is

a clear positive. Key drivers for the future include: (1) Ramp-up in US business and recovery of sales at Caraco post

the resolution of cGMP issues, (2) Monetization of the Para-IV pipeline in the US, (3) Launch of controlled substances

in the US, and (4) Sustaining Taro’s high profitability. The stock is currently valued at 26.1x FY13E and 23.6x FY14E

core earnings. Our estimates exclude the impact of the proposed new pharma policy. While we are positive on

SUNP’s business outlook, rich valuations have tempered our bullishness. We maintain Neutral. Large inorganic

initiatives (SUNP has cash of USD0.9b-1b) would be the key upside risk to our Neutral view.

C–101October 2012


Sector: Healthcare

Torrent Pharma

Bloomberg TRP IN



1,6,12 Rel Perf (%) -8/4/13

Mcap (INR b) 58.8

Mcap (USD b) 1.1

CMP: INR695 Buy





YoY Change (%) 19.7 17.5 20.6 33.6 18.4 21.3 21.7 21.2 22.3 21.5

EBITDA 1,531 1,406 1,215 850 1,560 1,659 1,607 1,201 5,006 6,186

Margins (%) 23.6 20.6 17.4 12.6 20.3 20.0 19.0 14.7 18.6 18.9

Depreciation 202 201 197 218 201 224 238 269 817 932

Interest 41 28 2 89 94 89 82 106 395 371

Other Income 24 43 23 124 140 145 150 125 445 560

PBT before EO Expense 1,313 1,219 1,040 668 1,404 1,491 1,438 950 4,240 5,443

Extra-Ord Expense 0 0 0 654 0 0 0 0 654 0

PBT after EO Expense 1,313 1,219 1,040 14 1,404 1,491 1,438 950 3,586 5,443

Tax 287 212 201 24 374 373 324 182 723 1,252

Rate (%) 21.9 17.3 19.3 3.6 26.6 25.0 22.5 19.1 17.1 23.0

Reported PAT 1,026 1,008 839 -10 1,030 1,119 1,114 769 2,863 4,191


Adj PAT 893 1,000 832 527 1,019 1,119 1,114 769 3,251 4,191

YoY Change (%) 20.3 31.2 8.1 23.1 14.1 11.9 34.0 45.8 20.3 28.9

Margins (%) 13.8 14.6 11.9 7.8 13.3 13.5 13.1 9.4 12.1 12.8

Dom. formulations sales 2,460 2,385 2,294 2,016 2,802 2,665 2,633 2,350 9,167 10,450

YoY Change (%) 10.1 8.4 8.4 9.6 13.9 11.7 14.8 16.6 9.3 14.0

Intl. formulations sales 3,061 3,762 3,787 3,854 4,071 4,745 4,910 4,928 14,332 18,795

YoY Change (%) 19.3 36.7 33.6 51.1 33.0 26.1 29.7 27.9 33.9 31.1

E: MOSL Estimates



03/11A 22,049 2,702 31.9 0.8 - - 29.2 25.9 - -

03/12A 26,959 3,251 38.4 20.3 18.1 4.9 29.3 28.5 2.1 11.3

03/13E 32,764 4,191 49.5 28.9 14.0 3.9 30.9 32.0 1.7 9.0

03/14E 38,020 4,989 59.0 19.0 11.8 3.1 29.2 31.5 1.4 7.3

BSE Sensex S&P CNX

18,763 5,703

We expect Torrent Pharmaceuticals (TRP) to post 21% YoY growth in core topline for 2QFY13 to INR8.29b, led by

the international formulations segment, which is likely to grow 26% YoY on the back of strong growth in the US,

Europe (ex-Germany) and Brazil. Topline growth would be partially led by favorable currency. We expect

domestic formulations to grow 11.7% YoY to INR2.6b.

EBITDA is likely to grow 18% YoY while EBITDA margin is likely to decline by 60bp mainly due to higher staff costs

and overheads as well as uptick in R&D spending.

We expect adjusted PAT to grow 12% YoY to INR1.1b despite 18% EBITDA growth due to higher tax outgo.

Over the last seven years, TRP has delivered 33% EPS CAGR, though capital employed has grown at a CAGR of just

17%. It has consistently improved its profitability, with RoCE increasing from 14.5% in FY05 to 28.5% in FY12. We

expect 24% EPS CAGR over FY12-14, in line with strong operating performance. Its high return ratios are likely to

sustain, despite large capex and growing cash on the books. We believe that current valuations do not reflect the

improvement in business profitability, the turnaround of international operations, and TRP’s strong positioning in

the domestic formulations business, particularly in chronic therapeutic segments. TRP should trade at a premium

to most mid-cap pharma companies, and its valuation gap vis-à-vis frontline pharma companies should reduce. The

stock trades at 14x FY13E and 11.8x FY14E earnings. Our estimates exclude the impact of the proposed new pharma

policy. Maintain Buy.

C–102October 2012


Sector: Media

MediaCompany Name

Dish TV

H T Media

Jagran Prakashan

Sun TV Network

Zee Entertainment

Shobhit Khare ([email protected])

Expected quarterly performance summary (INR million)




Dish TV 83 Neutral 5,406 12.1 4.0 1,548 27.1 -0.5 -100 Loss Loss

HT Media 93 Neutral 4,982 1.0 1.7 674 -5.3 0.8 403 -8.0 -0.9

Jagran Prakashan 91 Neutral 3,317 8.6 4.5 864 9.3 9.6 729 59.2 30.7

Sun TV 349 Buy 4,491 -0.5 5.5 3,518 -3.7 8.9 1,787 -0.8 8.8

Zee Entertainment 196 Neutral 8,640 20.3 2.5 1,997 -3.8 -14.4 1,598 2.4 1.0


Abbreviations and acronyms

GEC: General entertainment

channel

DTH: direct to home

Ad environment remains tough but worst likely behind; festive season holds the key:

Advertising spends remained subdued in 2QFY13. Zee is likely to clock another strong

quarter of ad growth (17% YoY), led by low base, contribution from the sports segment

and strong ratings performance. However, ad growth for other companies is likely to

remain subdued - 6-8% YoY growth for Sun TV / Jagran and ~1% YoY decline for HT

Media.

PAT to remain flat YoY for broadcasting companies; expect significant reduction in

Dish TV's Net loss: Zee's adjusted PAT is likely to remain largely flat YoY and QoQ, as

higher ad revenue would be offset by higher programming costs, launch expenses

and sports loss. Sun TV's PAT would be flat, led by muted ad growth and decline in

overall subscription revenue due to lower analog revenue from Tamil Nadu. Dish TV's

net loss is likely to decline 70-80% YoY/QoQ on better margin performance and no

forex loss. Among print companies, we expect Jagran to report 11% PAT growth while

HT Media is likely to report 19% PAT decline, largely due to ad revenue decline in the

English print segment v/s growth in Hindi.

DTH: Subscriber additions likely to remain flat QoQ; festive season and mandatory

digitization to favorably impact 3QFY13 numbers: We expect DTH subscriber additions

to remain largely flat QoQ, given the relatively tough macroeconomic situation and

limited benefit of digitization in the metros. DTH additions are likely to increase

meaningfully in 3QFY13, led by festive season as well as the implementation of

mandatory digitization in the metros.

All eyes on metro digitization; further postponement unlikely: Our interactions across

the industry value chain indicate that 31 October 2012 is likely to remain the deadline

for digitization of metros and further postponement is unlikely. Data released by the

Ministry of I&B indicate that 68% set-top box seeding has already been achieved as of

September 2012, with Mumbai at ~95% and other metros at 50-70%.

Hindi GEC ratings: Strong competition among top-4: During 2QFY13, Zee TV improved

its average weekly GRP by ~11% QoQ to 239 - third consecutive quarter of

improvement. All top-4 GECs, except Star Plus, improved average ratings performance

in 2QFY13, significantly bringing down the lead enjoyed by Star Plus. Sustenance of

ratings in 3QFY13 would be critical for Zee to monetize the festive season.

C–103October 2012


Sector: Media

Media coverage - Quarterly1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%)

Advertisement Revenue (INR b)

ZEEL 3.8 4.1 4.4 4.8 3.8 3.9 4.0 4.2 4.5 4.6 17 3

Sun TV 2.6 2.7 3.0 3.0 2.7 2.7 2.9 2.8 2.8 2.9 6 4

Dish TV NM NM NM NM NM NM NM NM NM NM NM NM

HT Media 3.3 3.3 3.7 3.6 3.8 3.7 4.1 3.7 3.7 3.7 -1 -2

Jagran Prakashan 1.9 1.9 1.9 1.9 2.0 2.1 2.2 2.1 2.2 2.3 8 4

Subscription Revenue (INR b)

ZEEL 2.6 2.7 2.8 3.1 3.1 2.9 3.3 4.0 3.6 3.7 27 1

Sun TV 1.7 1.4 2.7 1.5 1.6 1.6 1.2 1.3 1.2 1.3 -17 10

Dish TV 2.5 2.7 3.1 3.7 3.9 4.1 4.3 4.3 4.6 4.7 14 3

HT Media 0.5 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 6 2


Total Revenue (INR b)

ZEEL 6.8 7.1 7.5 8.0 7.0 7.2 7.5 8.7 8.4 8.6 20 2

Sun TV 4.4 4.2 6.0 4.6 4.5 4.5 4.3 4.3 4.3 4.5 0 5

Dish TV 3.0 3.3 3.7 4.3 4.6 4.8 4.9 5.2 5.2 5.4 12 4

HT Media 4.0 4.5 4.7 4.7 5.0 4.9 5.3 4.9 4.9 5.0 1 2


EBITDA (INR b)

ZEEL 1.9 1.9 1.5 2.3 1.6 2.1 2.2 1.6 2.3 2.0 -4 -14

Sun TV 3.6 3.3 5.0 3.6 3.7 3.7 3.4 3.3 3.2 3.5 -4 9

Dish TV 0.3 0.5 0.7 0.9 1.1 1.2 1.2 1.4 1.6 1.5 27 -1

HT Media 0.80 0.79 0.88 0.88 0.90 0.71 0.78 0.48 0.67 0.67 -5 1


EBITDA Margin (%)

ZEEL 27.6 26.5 20.4 28.4 22.3 28.9 28.6 18.4 27.7 23.1 -578bp -455bp

Sun TV 81.7 78.2 83.9 79.0 80.6 81.0 80.2 76.9 75.9 78.3 -263bp 249bp

Dish TV 10.6 15.3 17.9 20.8 24.4 25.2 24.5 27.5 29.9 28.6 338bp -129bp

HT Media 19.8 17.8 19.0 18.6 18.2 14.4 14.8 9.7 13.7 13.5 -91bp -12bp

Jagran Prakashan 33.4 32.8 31.4 25.3 26.9 25.9 26.3 21.2 24.8 26.1 17bp 123bp

Adjusted PAT (INR b)

ZEEL 1.21 1.26 1.14 2.09 1.34 1.56 1.39 1.42 1.58 1.60 2 1

Sun TV 1.71 1.67 2.25 2.08 1.88 1.80 1.68 1.59 1.64 1.79 -1 9

Dish TV -0.63 -0.45 -0.44 -0.37 -0.18 -0.49 -0.43 -0.49 -0.32 -0.10 NM NM

HT Media 0.41 0.39 0.48 0.53 0.52 0.44 0.48 0.22 0.38 0.35 -19 -7



Phase-I digitization status (September 2012)House TV penetration TV HHs DTH subs Cable TV 20% provision Cable TV STB STB seeding

Holds (m) (%) (m) (m) HHs (m) for 2nd TV subs (m) installed (m) achieved (%)

Mumbai 2.7 85 2.3 0.7 1.6 0.3 1.9 1.8 95

Kolkata 3.3 61 2.0 0.3 1.6 0.3 2.0 1.3 67

D e l h i 3.3 88 2.9 0.9 2.1 0.4 2.5 1.3 53

Chennai 1.1 95 1.1 0.6 0.4 0.1 0.5 0.3 49

Total 10.4 80 8.2 2.6 5.7 1.1 6.8 4.7 68


Digitization remains a strong theme for broadcasting stocks; headwinds for print

receding: Ad revenue trends remain sluggish but likely bottoming out, with most

companies expecting stable/improving ad spends QoQ. Headwinds for print

companies seem to be receding, with gradual decline in newsprint costs and sharp

INR appreciation. Digitization remains a strong theme for broadcasting and distribution

as most participants do not foresee postponement in digitization deadline for metros.

C–104October 2012


Sector: Media

Recent GRP trends of major Hindi GEC’s Hindi GEC: QoQ increase (decrease) in GRP (%)

GRPs of

leading

Hindi GECs,

except

Star Plus,

improved

during the

quarter.60

150

240

330

420D

ec-1

0Ja

n-1

1Ja

n-1

1M

ar-

11M

ar-

11A

pr-

11M

ay-

11Ju

n-1

1Ju

l-11

Aug

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ap

r-12

Ma

y-12

Jun

-12

Jul-

12A

ug-1

2S

ep-1

2

Zee TV Star Plus Co lorsSon y Sab Li fe Ok

-2%

10% 11%

6%

Star Plus Colors Zee TV Son y


Hindi GEC (~31% of viewership)

Hindi movies (~12% of viewership)

Bengali GEC (~3% of viewership)

With a decline in ratings

for Star Plus, the top-4

GECs are evenly placed.

The success of launches

during the festive season

is likely to determine the

leadership position

Top-3 channels continue

to compete strongly in

the Hindi Movie genre.

Movies OK has emerged

as the undisputed

number-4 in a cluttered

genre

The Bengali GEC

market has become an

effective duopoly given

continued market share

decline for ETV

Market share trends

0

10

20

30

40

Jan

-09

Ma

r-09

Jun

-09

Aug

-09

Oct

-09

Jan

-10

Ma

r-10

Jun

-10

Aug

-10

No

v-10

Jan

-11

Ap

r-11

Jun

-11

Sep

-11

No

v-11

Feb

-12

Ap

r-12

Jul-

12

Sep

-12

S tar Plus Colo rs Zee TV Sony SAB

0

15

30

45

60

Jan

-09

Ma

r-09

Ma

y-09

Aug

-09

Oct

-09

Dec

-09

Ma

r-10

Ma

y-10

Jul-

10

Oct

-10

Dec

-10

Feb

-11

Ma

y-11

Jul-

11

Sep

-11

Dec

-11

Feb

-12

Ap

r-12

Jul-

12

Sep

-12

Zee Cin ema MAX Star Gold Movies OK

5

20

35

50

65

Jan

-09

Ma

r-09

Ma

y-09

Aug

-09

Oct

-09

Dec

-09

Ma

r-10

Ma

y-10

Jul-

10

Oct

-10

Dec

-10

Feb

-11

Ma

y-11

Jul-

11

Sep

-11

Dec

-11

Feb

-12

Ap

r-12

Jul-

12

Sep

-12

S tar Jals ha Ze e Ban gla ETV B angla

C–105October 2012


Sector: Media

Marathi GEC (4% of viewership)

Star Pravah continues to

improve upon its

leadership position in the

Marathi GEC market

0

15

30

45

60

Jan

-09

Ma

r-09

Ma

y-09

Aug

-09

Oct

-09

Dec

-09

Ma

r-10

Ma

y-10

Jul-

10

Oct

-10

Dec

-10

Feb

-11

Ma

y-11

Jul-

11

Sep

-11

Dec

-11

Feb

-12

Ap

r-12

Jul-

12

Sep

-12

Ze e Marathi ETV Mara thi Sta r Pra va h

Tamil GEC (~5% of viewership)

Sun TV remains the

market leader in the

Tamil GEC market

Telugu GEC (~4% of viewership)

Gemini TV remains the

market leader in

Telugu GEC; Maa Telugu

has emerged as the clear

number-2 and has

been closing the gap

v/s Gemini

0

15

30

45

60

75

Jan

-09

Apr

-09

Jul-

09

Oct

-09

Jan

-10

Apr

-10

Jul-

10

Oct

-10

Jan

-11

Apr

-11

Jul-

11

Sep

-11

Dec

-11

Ma

r-1

2

Jun

-12

Sep

-12

Sun TV Star Vi jay TV Kalaignar TV Jaya TV

0

10

20

30

40

50

Jan

-09

Ap

r-09

Jul-

09

Sep

-09

Dec

-09

Ma

r-10

Jun

-10

Sep

-10

Dec

-10

Ma

r-11

Jun

-11

Sep

-11

Dec

-11

Ma

r-12

Jun

-12

Sep

-12

Gemini TV ETV Telugu Zee Te lugu Maa Telu gu

Kannada GEC (~3% of viewership)

Udaya TV continues to

maintain a wide lead over

competitors in the

Kannada GEC market

0

10

20

30

40

50

Jul-

09

Sep

-09

Dec

-09

Feb

-10

Ma

y-10

Jul-

10

Oct

-10

Jan

-11

Ma

r-11

Jun

-11

Aug

-11

No

v-11

Jan

-12

Ap

r-12

Jun

-12

Sep

-12

Uda ya TV Suvarna ETV Kanna da Zee Kan nada

C–106October 2012


Sector: Media

Malyalam GEC (~1% of viewership)

Asianet remains a

strong number-1

0

15

30

45

60

75

Jan

-09

Ma

r-09

Jun

-09

Aug

-09

Oct

-09

Jan

-10

Ma

r-10

Jun

-10

Aug

-10

No

v-10

Jan

-11

Ap

r-11

Jun

-11

Sep

-11

No

v-11

Feb

-12

Ap

r-12

Jul-

12

Sep

-12

Asia net Su rya TV Mazhavi l Manora ma


Balaji Telefilms: Trends in OPH and programming rates

Rate per hour for Balaji

Telefilms improved in

1QFY13 after two

consecutive quarters

of decline0

90

180

270

360

3QF

Y06

4QF

Y06

1QF

Y07

2QF

Y07

3QF

Y07

4QF

Y07

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

0.0

1.0

2.0

3.0

4.0Co mmissio ned programming hours Ra te pe r hour (INR m)

Industry DTH subscriber base and additions trend

Industry DTH additions

remain sluggish; expect

improvement in 3QFY13

7 8 13 15 17 26 32 36 39 41 44 4624211911

1.0 1.2

3.12.0 2.1 2.2 1.8 2.2 2.5 2.7

3.52.9

2.33.4

2.0

5.6

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

DTH s ubscribe rs (m) Quarte rly sub scriber a dds (m)

Newsprint prices have been largely stable (USD/MT)

Newsprint prices

(USD/ton) have

remained largely flat

400

500

600

700

800

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Sep

-09

Dec

-09

Ma

r-10

Jun

-10

Sep

-10

Dec

-10

Ma

r-11

Jun

-11

Sep

-11

Dec

-11

Ma

r-12

Jun

-12

Sep

-12

C–107October 2012


Sector: Media

80

95

110

125

140

Jun-

12

Jul-

12

Au

g-1

2

Sep-

12

Sens ex Inde xMOSL Media Inde x

80

95

110

125

140

Sep-

11

Dec

-11

Ma

r-12

Jun-

12

Sep-

12

Sens ex Inde xMOSL Media Index




Media

Dish TV 83 Neutral -1.5 -0.5 0.3 -55.2 -181.0 264.6 19.3 15.2 11.7 NA NA NA

HT Media 93 Neutral 7.0 6.0 6.8 13.2 15.5 13.8 6.4 6.3 5.2 11.0 8.6 8.8

Jagran Prakashan 91 Neutral 5.6 5.6 6.5 16.2 16.3 14.1 10.3 8.9 8.1 24.5 20.6 20.2

Sun TV 349 Buy 17.6 18.2 20.1 19.8 19.2 17.4 9.6 9.1 7.8 26.3 24.7 25.1

Zee Entertainment 196 Neutral 5.9 7.0 8.5 33.2 27.9 23.1 24.9 20.7 17.0 17.5 18.3 19.3



C–108October 2012


Sector: Media

Dish TV

Bloomberg DITV IN



1,6,12 Rel Perf (%) 14/29/-9

Mcap (INR b) 87.7

Mcap (USD b) 1.7

CMP: INR83 Neutral



03/11A 14,366 -1,897 -1.8 NA NA 139.8 NA NA - -

03/12A 19,578 -1,588 -1.5 NA NA NA NA NA 4.8 18.9

03/13E 22,622 -485 -0.5 NA NA NA NA 3 4.2 15.0

03/14E 28,197 332 0.3 NA 264.6 NA NA 10 3.3 11.5




Sales 4,604 4,822 4,905 5,247 5,200 5,406 5,773 6,243 19,578 22,622

YoY Change (%) 51.3 47.8 31.4 21.2 12.9 12.1 17.7 19.0 36.3 15.5

Operating expenses 3,482 3,605 3,703 3,805 3,644 3,858 4,366 4,458 14,594 16,326

EBITDA 1,122 1,217 1,202 1,442 1,556 1,548 1,408 1,785 4,984 6,296

YoY Change (%) 248.5 144.5 80.2 59.9 38.7 27.1 17.2 23.8 108.7 26.3

EBITDA margin (%) 24.4 25.2 24.5 27.5 29.9 28.6 24.4 28.6 25.5 27.8

Depreciation 1,107 1,162 1,232 1,678 1,512 1,452 1,474 1,502 5,180 5,939

Interest 334 634 477 348 473 303 234 263 1,778 1,273

Other Income 137 92 78 94 106 107 108 111 386 432

PBT -183 -487 -430 -490 -324 -100 -192 131 -1,588 -485

Adjusted net profit -183 -487 -430 -490 -324 -100 -192 131 -1,588 -485

YoY Change (%) -71.0 7.7 -3.0 32.4 76.8 -79.5 -55.4 -126.6 -16.3 -69.5

Net Subs (m) 8.9 9.2 9.5 9.6 9.8 10.0 10.8 11.3 9.6 11.3

ARPU (INR/month) 150 152 152 151 156 158 161 165 153 157

Revenue break-up (INR m)

Subscription revenue 3,923 4,133 4,258 4,338 4,556 4,707 5,039 5,474 16,650 19,776

Lease rentals 550 550 449 660 460 500 520 540 2,209 2,020

Others 131 140 198 249 184 199 215 229 719 827

Total revenue 4,604 4,822 4,905 5,247 5,200 5,406 5,773 6,243 19,578 22,622

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect revenue to increase 12% YoY and 4% QoQ to INR5.4b.

Subscription revenue is likely to grow 3% QoQ to INR4.7b.

We expect gross additions of 0.5m and net additions of 0.15m in 2QFY13.

EBITDA margin is likely to decline 130bp QoQ to 28.6% largely due to higher opex.

Net loss would decline 70-80% YoY/QoQ to INR0.1b. We have not modeled any forex gain/loss in 2QFY13.

The stock trades at an EV of 15x FY13E and 11.5x FY14E EBITDA. Maintain Neutral.

C–109October 2012


Sector: Media

H T Media

Bloomberg HTML IN



1,6,12 Rel Perf (%) -6/-38/-47

Mcap (INR b) 21.9

Mcap (USD b) 0.4

CMP: INR93 Neutral

Year Net Sales Adj. PAT Adj EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 17,861 1,809 7.7 26 - - 14.9 13.0 - -

03/12A 20,030 1,655 7.0 -9 13.2 1.4 11.0 10.5 0.9 6.4

03/13E 20,226 1,594 6.0 -14 15.5 1.3 8.6 9.9 0.9 6.3

03/14E 22,417 1,792 6.8 12 13.8 1.2 8.8 10.4 0.7 5.2

Quarterly performance (Consolidated) (INR Million)



Revenue 4,969 4,931 5,266 4,941 4,899 4,982 5,243 5,102 20,107 20,226

YoY (%) 22.9 10.7 13.2 5.0 -1.4 1.0 -0.4 3.3 12.6 0.6


EBITDA 903 713 777 481 669 674 784 627 2,873 2,754

YoY (%) 13.0 -9.9 -12.0 -45.1 -25.9 -5.3 0.9 30.4 -14.2 -4.1

EBITDA margin (%) 18.2 14.4 14.8 9.7 13.7 13.5 15.0 12.3 14.3 13.6

Depreciation 214 233 220 249 220 225 230 248 916 923

Interest 53 74 83 104 103 100 101 101 315 405

Other Income 146 204 168 179 209 185 190 190 697 774

Extra-ordinary exps 0 0 0 0 0 0 0 0 0 0

PBT 782 610 642 307 555 534 643 469 2,340 2,201

Tax 242 141 161 81 129 101 122 88 625 440


PAT 540 469 481 226 426 433 521 380 1,715 1,761

Minority Interest 25 31 -1 6 19 30 48 70 61 167

Reported PAT 515 438 482 220 407 403 473 310 1,655 1,594

Adj PAT 515 438 482 220 407 403 473 310 1,655 1,594

YoY (%) 24.4 13.0 0.8 -58.5 -21.0 -8.0 -1.8 41.2 -9 -4

Ad revenue growth (%) 17 12 10 3 -3 -1 -3 1 10 -1

-English 18 8 11 -4 -6 -3 -10 0 8 -5

-Hindi 15 24 8 21 5 3 18 5 17 8

Circulation revenue growth (%) 3 21 7 3 8 6 7 13 8 9

-English 4 34 0 -15 -3 -5 -8 10 4 -2

-Hindi 3 16 10 13 13 11 15 15 10 14

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect revenue to grow 1% YoY to INR5b.

Ad revenue would decline 1% YoY to INR3.7b, led by 3% decline in the English business.

We expect circulation revenue to increase 6% YoY to INR0.53b.

EBITDA margin is likely to decline 90bp YoY to 13.5%.

Adjusted earnings would decline 19% YoY to INR0.35b.

The stock trades at 15.5x FY13E and 13.8x FY14E EPS. Neutral.

C–110October 2012


Sector: Media

Jagran Prakashan

Bloomberg JAGP IN



1,6,12 Rel Perf (%) -7/-19/-29

Mcap (INR b) 28.9

Mcap (USD b) 0.5

CMP: INR91 Neutral

Year Net Sales Adj PAT Adj EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 12,211 2,183 6.9 18 - - 33.2 24.4 - -

03/12A 13,557 1,783 5.6 -18 16.2 3.8 24.5 15.6 2.4 10.3

03/13E 15,833 1,777 5.6 0 16.3 3.8 20.6 18.1 1.9 8.9

03/14E 17,172 2,050 6.5 15 14.1 2.7 20.2 14.1 1.7 8.1




Sales 3,046 3,054 3,240 3,104 3,175 3,317 3,591 3,391 12,445 13,474

YoY (%) 12.9 10.3 13.3 9.8 4.2 8.6 10.8 9.2 11.6 8.3


EBITDA 820 791 851 659 788 864 990 777 3,121 3,419

YoY (%) -9.0 -13.0 -5.2 -7.7 -3.9 9.3 16.3 17.9 -8.8 9.6

EBITDA margin (%) 26.9 25.9 26.3 21.2 24.8 26.1 27.6 22.9 25.1 25.4

Depreciation 150 160 165 181 148 150 150 150 657 598

Interest 28 29 44 45 76 73 70 68 146 287

Other Income 78 40 -42 183 -7 88 88 88 259 255

PBT 720 642 600 615 557 729 858 646 2,577 2,790

Tax 223 184 187 187 0 0 0 0 781 0

Effective Tax Rate (%) 31.0 28.6 31.2 30.4 0 0 0 0 30.3 0

Reported net profit 497 458 413 428 557 729 858 646 1,796 2,790

YoY (%) -10.6 -17.5 -21.5 1.8 12.1 59.2 107.7 50.9 -12.7 55.3

Extra-ordinary item 0 0 0 0 167 219 257 194 0 837

Adjusted net profit 497 458 413 428 390 510 600 452 1,796 1,953

Revenue break-up

Ad revenue 2,043 2,119 2,235 2,103 2,207 2,288 2,459 2,271 8,500 9,225

Circulation revenue 582 612 623 628 641 676 704 701 2,445 2,722

Others (Outdoor,event mgmt, etc) 422 323 382 373 328 352 428 418 1,500 1,527

Total revenue 3,046 3,054 3,240 3,104 3,175 3,317 3,591 3,391 12,445 13,474

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect advertising revenue to grow 8% YoY to INR2.3b on a standalone basis.

Circulation revenue is likely to grow 11% YoY and 6% QoQ to INR0.7b.

Aggregate revenue would increase 9% YoY to INR3.3b.

We estimate EBITDA at INR0.86b, up 9% YoY. We expect EBITDA margin to expand 20bp YoY to 26.1%.

Adjusted earnings would grow 11% YoY to INR0.51b.

The stock trades at 16.3x FY13E and 14.1x FY14E EPS. Neutral.

C–111October 2012


Sector: Media

Sun TV Network

Bloomberg SUNTV IN



1,6,12 Rel Perf (%) 15/6/19

Mcap (INR b) 137.7

Mcap (USD b) 2.6

CMP: INR349 Buy



3/11A 19,237 7,722 19.6 36.1 - - 32.4 63.1 - -

3/12A 17,574 6,946 17.6 -10.0 19.8 5.2 26.3 51.2 7.7 9.6

3/13E 18,390 7,178 18.2 3.3 19.2 4.7 24.7 47.0 7.1 9.1

3/14E 20,616 7,914 20.1 10.3 17.4 4.4 25.1 49.5 6.1 7.8



1Q 2Q 3Q* 4Q 1Q 2QE 3QE 4QE

Revenue 4,540 4,513 4,251 4,270 4,258 4,491 4,839 4,804 17,574 18,390

YoY (%) 3.1 6.2 -4.9 -7.3 -6.2 -0.5 13.8 12.5 -8.6 4.6

EBITDA 3,659 3,654 3,411 3,282 3,230 3,518 3,814 3,752 14,007 14,314

YoY (%) 1.7 10.0 -2.8 -9.8 -11.7 -3.7 11.8 14.3 -10.1 2.2

As of % Sales 80.6 81.0 80.2 76.9 75.9 78.3 78.8 78.1 79.7 77.8

Depreciation and Amortization 1,061 1,176 1,125 1,068 933 1,026 1,180 1,180 4,430 4,318

Interest 2 8 36 9 2 5 5 5 56 17

Other Income 173 186 232 151 132 152 172 167 742 623

PBT 2,769 2,657 2,483 2,355 2,427 2,640 2,801 2,734 10,263 10,602

Tax 892 856 804 765 784 853 905 883 3,317 3,425


Reported PAT 1,876 1,801 1,679 1,590 1,643 1,787 1,896 1,851 6,946 7,178

Adj PAT 1,876 1,801 1,679 1,590 1,643 1,787 1,896 1,851 6,946 7,178

YoY (%) 9.8 7.6 -14.4 -23.7 -12.4 -0.8 13.0 16.4 -10.0 3.3

Revenue Breakup (INR m)

Advertising and Broadcast 2,700 2,740 2,850 2,800 2,800 2,904 3,192 3,113 11,090 12,009

International 200 180 240 220 260 270 276 286 840 1,092

DTH 840 790 840 860 890 916 941 959 3,330 3,706

Domestic Cable 560 470 290 310 300 370 400 420 1,630 1,490

Films and Others 240 333 31 80 8 30 30 25 684 93

Total 4,540 4,513 4,251 4,270 4,258 4,491 4,839 4,804 17,574 18,390

E: MOSL Estimates * YoY growth for 3QFY12 adjusted for one-time revenue/cost rela ted to 'Enthiran' in 3QFY11

BSE Sensex S&P CNX

18,763 5,703

We expect revenue to remain flat YoY but increase 5% QoQ to INR4.5b.

Advertising and broadcasting revenue would grow 6% YoY and 4% QoQ to INR2.9b.

We expect total subscription revenue (domestic + international) to decline 17% YoY to INR1.3b.

EBITDA is likely to decline 4% YoY to INR3.5b.

We expect PAT to decline 1% YoY to INR1.79b.

The stock trades at 19.2x FY13E and 17.4x FY14E EPS. Maintain Buy.

C–112October 2012


Sector: Media

Zee Entertainment Enterprises

Bloomberg Z IN



1,6,12 Rel Perf (%) 12/50/54

Mcap (INR b) 187.6

Mcap (USD b) 3.6

CMP: INR196 Neutral



3/11A 29,414 5,852 6.0 14.4 - - 16.9 23.8 - -

3/12A 30,406 5,712 5.9 -1.4 33.2 5.6 17.5 25.5 5.8 23.8

3/13E 35,139 6,730 7.0 19.0 27.9 4.9 18.3 26.4 4.9 19.7

3/14E 39,786 8,107 8.5 20.5 23.1 4.3 19.3 27.8 4.3 16.2



Advertsing Revenue 3,787 3,949 3,955 4,150 4,472 4,621 4,701 4,774 15,841 18,567

Subscription Revenue 3,051 2,910 3,262 4,022 3,641 3,693 3,836 4,079 13,245 15,248

Other Sales and Services 145 324 332 519 317 327 337 345 1,320 1,325

Net Sales 6,983 7,184 7,548 8,691 8,430 8,640 8,873 9,197 30,406 35,139

Change (%) 3.2 1.0 0.0 8.9 20.7 20.3 17.5 5.8 3.4 15.6

Prog, Transmission & Direct Exp 3,423 3,224 3,422 4,242 3,757 4,283 4,283 4,283 14,311 16,605

Staff Cost 747 688 731 759 888 828 836 850 2,925 3,402

Selling and Other Exp 1,253 1,197 1,236 2,090 1,453 1,532 1,624 1,716 5,775 6,325

EBITDA 1,560 2,076 2,160 1,600 2,332 1,997 2,129 2,348 7,395 8,807

As of % Sales 22.3 28.9 28.6 18.4 27.7 23.1 24.0 25.5 24.3 25.1

Depreciation 89 78 74 81 99 100 101 102 323 401

Finance cost 30 56 182 -219 18 18 18 19 50 73

Other Income 255 279 340 330 301 302 304 302 1,204 1,210

Extraordinary items 0 0 0 180 0 0 0 0 180 0

PBT 1,696 2,221 2,243 2,248 2,517 2,181 2,314 2,530 8,407 9,543

Tax 394 621 867 618 947 595 632 689 2,500 2,863


PAT 1,302 1,600 1,376 1,630 1,570 1,586 1,682 1,841 5,907 6,680

Minority Interest -35 40 -17 28 -12 -12 -12 -14 15 -50

Adj PAT after Minority Interest 1,337 1,560 1,393 1,422 1,582 1,598 1,694 1,855 5,712 6,730

Change (%) 10.4 23.6 22.1 -31.8 18.3 2.4 21.6 30.5 -2.4 17.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect advertising revenue to grow 17% YoY and 3% QoQ to INR4.6b.

We estimate subscription revenue at INR3.7b, up 1% QoQ. Broadcasters continue to focus on signing new deals

for upcoming digitization, limiting near-term growth in domestic subscription revenue.

EBITDA margin is likely to decline 580bp YoY and 450bp QoQ to 23.1%. Margins would be impacted by higher

programming costs, launch expenses for new channels like Zee Aflam and higher Sports loss due to India-Sri

Lanka series telecast (monetization was further impacted, as the series was not telecast on DD).

Adjusted PAT is likely to increase 2% YoY and 1% QoQ to INR1.6b.

The stock trades at 28x FY13E and 23x FY14E EPS. Neutral.

C–113October 2012


Sector: Metals

540

630

720

810

900

Sep

‐10

No

v‐10

Jan‐1

1

Ma

r‐11

Ma

y‐11

Jul‐

11

Sep

‐11

No

v‐11

Jan‐1

2

Ma

r‐12

Ma

y‐12

Jul‐

12

Sep

‐12

450

500

550

600

650Ru ss ia North America Europe RHS(Euro /to n)

MetalsCOMPANY NAME

Hinda lco

Hindustan Zinc

Jindal Steel & Power

JSW Steel

Nalco

NMDC

Sesa Goa

SAIL

Sterlite Industries

Tata Steel





Hindalco 121 Buy 197,200 2.0 -1.0 22,023 1.8 10.0 9,117 -15.5 1.2

Hindustan Zinc 135 Buy 26,853 1.8 -2.3 14,162 -3.3 -0.9 13,555 -0.6 -14.3

JSPL 428 Neutral 50,958 15.2 8.4 15,591 -13.6 -2.1 8,401 -20.0 -12.4

JSW Steel 757 S e l l 83,636 9.6 -7.5 14,335 9.4 -19.1 3,882 -35.2 -41.5

Nalco 51 Neutral 16,991 5.3 -2.8 2,418 58.5 -20.5 1,714 23.0 -23.2

NMDC 194 Buy 28,466 -7.0 0.2 22,246 -8.7 -3.4 18,226 -7.2 -4.4

SAIL 85 S e l l 107,892 -3.6 0.1 13,918 4.9 -8.2 6,377 -36.4 -27.8

Sesa Goa 171 Neutral 3,363 -57.4 -80.6 1,001 -61.5 -85.2 5,621 138.8 -50.5

Sterlite Inds. 99 Buy 104,064 2.1 -2.3 24,805 -0.1 7.5 12,653 -15.3 -10.8

Tata Steel 401 S e l l 312,934 -4.6 -7.5 28,051 2.0 -22.1 791 -62.8 -90.0

Sector Aggregate 932,355 -0.5 -4.8 158,550 -1.8 -9.4 80,338 -12.1 -23.2

Sanjay Jain ([email protected]) / Pavas Pethia ([email protected])

Global steel prices decline, led by China; domestic prices also correct9-10% QoQGlobal steel prices continued their downtrend, with major correction in China. Average

steel prices declined 8%, 4%, 14% and 4% QoQ, respectively in Russia, Europe, China

and North America. Domestic steel prices also mirrored global steel prices, with long

and flat steel prices declining 9% and 10% QoQ, respectively. The price correction in

China is also impacting prices in other regions, as Chinese mills are flooding steel

products elsewhere to compensate for domestic slowdown. In India, imports have

already jumped by 39% YoY in 1HFY13 to 3.3mt.

Global HRC prices trending downwards (USD/ton)


C–114October 2012


Sector: Metals

500

600

700

800

Sep-

10

Nov

-10

De

c-1

0

Feb-

11

Apr

-11

May

-11

Jul-

11

Au

g-1

1

Oct

-11

Nov

-11

Jan-

12

Mar

-12

Apr

-12

Jun-

12

Jul-

12

Sep-

12

HRC Reb ar

China’s domestic steel prices also declining (USD/ton)


In India, both flat and long steel prices witnessed 9-10% correction (INR/ton)


31,000

33,000

35,000

37,000

39,000

Sep

-11

Oct

-11

No

v-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ap

r-12

Ma

y-12

Ma

y-12

Jun

-12

Jul-

12

Aug

-12

Sep

-12

HRC Mumbai

32,000

34,000

36,000

38,000

40,000

42,000

Sep

-11

No

v-1

1

Dec

-11

Feb

-12

Ma

r-1

2

Ma

y-1

2

Jun

-12

Aug

-12

Sep

-12

TMT (Mu mba i)

Global steel production growth stagnates, as Chinese demand plateausThe global monthly crude steel production decreased 0.5% YoY to 123.7mt in August,

as most regions registered degrowth/flat production. Though demand had been weak

in Europe and other developed regions, China alone was able to fuel global steel

consumption growth so far. However, demand in China too appears to have plateaued.

Major economic indicators in China point to a slowdown - China PMI dropped to 49.2

in August 2012. We expect China's per capita steel consumption growth to moderate

to ~2% from the double-digit growth witnessed in the last decade (refer to our report,

"Downhill Run" dated August 2012 for more information)

Global steel production flat in August, as capacity utilization declined 3pp to 75%


105

112

119

126

133

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Ap

r-10

Jun

-10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

Jun

-11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

(m t

ons

)

-9

2

13

24

35

Glob al YoY (%)

70

74

77

81

84

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

Jun

-11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

Aug

-12

Perc

ent

age

Capaci ty Uti l i zation

C–115October 2012


Sector: Metals

China production growth averaged just 3% in last 12 months China PMI dipped below 50 to 49.2 in August 2012


45

50

55

60

65

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Ap

r-10

Jun

-10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

Jun

-11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

Aug

-12

(m t

ons

)

-9

4

17

30

43

YoY

(%)

China YoY (%)

46

50

54

58

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Ap

r-10

Jun

-10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

Jun

-11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

Aug

-12

PM

I

Spreads of Chinese steel mills unaffected due to falling raw material prices;expect steel prices to decline furtherDespite severe correction in steel prices, Chinese mills are still able to maintain healthy

spreads, as raw material prices have also declined. Low-vol premium hard coking coal

average prices (fob Australia) have declined 18% QoQ in 2QFY13. Similarly, average

iron ore prices have corrected 18% QoQ in 2QFY13. With China's burgeoning demand

for raw materials moderating, the downtrend in both iron ore and coking coal prices

is likely to continue. We expect Chinese steel prices to correct further, in line with

raw material prices.

Correction in raw material prices much more severe than in steel prices (USD/ton)

250

330

410

490

570

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

Ma

y-1

1

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

Ma

y-1

2

Jul-

12

Sep

-12

75

110

145

180

215

China 2n d grade coke 63.5% Iron ore F ines CIF

120

170

220

270

320

Oct

-10

De

c-1

0

Feb-

11

Apr

-11

Jun-

11

Au

g-1

1

Oct

-11

De

c-1

1

Feb-

12

Apr

-12

Jun-

12

Jul-

12

Au

g-1

2

Au

g-1

2

Sep-

12

Sep-

12

Sp ot coking co al (fob Aus tral ia)

... while Chinese mills spread remained healthy


Richa rds B ay Ste am Coal

75

90

105

120

135

Sep

-10

No

v-10

Jan

-11

Ma

r-11

Ma

y-11

Jul-

11

Sep

-11

No

v-11

Jan

-12

Ma

r-12

Ma

y-12

Jul-

12

Sep

-12

US

D/t

0

50

100

150

200

250

Sep

-12

Aug

-12

Jul-

12Ju

n-1

2M

ay-

12A

pr-

12M

ar-

12F

eb-1

2Ja

n-1

2D

ec-1

1N

ov-

11S

ep-1

1S

ep-1

1A

ug-1

1Ju

l-11

Jun

-11

Ma

y-11

Ap

r-11

Ma

r-11

Jan

-11

Dec

-10

Dec

-10

No

v-10

US

D P

ER T

SS

C–116October 2012


Sector: Metals

Non-ferrous

Base metal prices recover in September; aluminum spot premiums at all-time highAverage 2QFY13 non-ferrous metal prices have corrected 0-3% QoQ, with sharp

recovery in September, after the announcement of QE III. With LME prices remaining

weak during the quarter, aluminum spot premium has shot up to all-time high levels.

Weaker demand for the metal has resulted in capacity cuts by aluminum majors such

as Rusal, Alcoa Inc and Norsk Hydro. However, subsidies and other benefits offered

by the governments in Australia, China and Europe are still keeping some of the high

cost smelters afloat. We are factoring aluminum prices of USD1,996/ton in FY13 and

USD2,100/ton in FY14.

Margin pressure has eased a little

0

1,000

2,000

3,000

4,000

Oct

-07

Feb

-08

Ma

y-08

Sep

-08

Jan

-09

Ma

y-09

Au

g-0

9

De

c-0

9

Apr

-10

Jul-

10

No

v-10

Mar

-11

Jun

-11

Oct

-11

Feb

-12

Ma

y-12

Sep

-12

US

D/t

on

CPC Al um in a Po w er LME


US aluminum spot premiums at all-time high


40

105

170

235

300

Apr

-06

Oct

-06

Mar

-07

Sep-

07

Feb-

08

Au

g-0

8

Jan-

09

Jul-

09

De

c-0

9

Jun-

10

Nov

-10

May

-11

Oct

-11

Apr

-12

Sep-

12

A lumin ium Zinc Coppe r

C–117October 2012


Sector: Metals




Metals

Hindalco 121 Buy 17.1 18.9 20.6 7.1 6.4 5.9 6.9 7.2 6.3 20.3 20.2 18.5

Hindustan Zinc 135 Buy 13.2 14.4 16.7 10.3 9.4 8.1 6.5 5.6 4.1 22.5 20.8 20.4

JSPL 428 Neutral 42.4 39.8 38.5 10.1 10.7 11.1 8.4 9.5 8.9 24.6 19.7 17.0

JSW Steel 757 S e l l 66.5 49.9 73.7 11.4 15.2 10.3 6.7 6.6 6.0 8.9 6.6 9.3

Nalco 51 Neutral 3.4 3.5 3.3 15.2 14.7 15.6 7.2 7.3 6.5 7.6 7.5 6.8

NMDC 194 Buy 18.5 20.4 24.9 10.5 9.5 7.8 6.3 5.4 4.1 31.7 28.3 26.9

SAIL 85 S e l l 9.0 6.7 8.6 9.5 12.8 10.0 7.4 8.9 7.9 9.6 6.7 8.2

Sesa Goa 171 Neutral 31.8 36.1 33.5 5.4 4.8 5.1 5.2 13.6 10.9 19.8 20.6 18.7

Sterlite Inds. 99 Buy 16.7 16.3 17.7 6.0 6.1 5.6 3.0 2.8 2.4 14.1 12.4 12.3

Tata Steel 401 S e l l 18.6 31.2 56.6 21.6 12.9 7.1 7.3 6.8 6.1 7.8 11.5 18.9


Relative performance-3m (%) Relative performance-1Yr (%)

Quarterly average of base metal prices on LME (USD/tonne)Quarter Zinc Aluminium Copper Lead Alumina Silver (INR/kg)

Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY

2QFY13 1,879 -2 -15 1,912 -3 -20 7,689 -2 -14 1,964 0 -20 315 -1 -15 55,532 2 -6

1QFY13 1,927 -5 -14 1,978 -9 -24 7,869 -5 -14 1,973 -6 -23 317 0 -22 54,406 -2 -5

4QFY12 2,024 7 -15 2,175 4 -13 8,308 11 -14 2,093 6 -20 317 -4 -19 55,256 3 15

3QFY12 1,897 -15 -18 2,090 -13 -11 7,488 -17 -13 1,982 -19 -17 329 -12 -10 53,770 -9 35

2QFY12 2,223 -1 10 2,398 -8 15 8,982 -2 24 2,458 -4 21 372 -8 17 58,791 2 96

1QFY12 2,249 -6 12 2,598 4 24 9,137 -5 30 2,550 -2 31 404 4 21 57,430 20 101

4QFY11 2,393 3 5 2,502 7 16 9,644 12 33 2,603 9 17 391 7 20 48,008 20 82

3QFY11 2,315 15 5 2,343 12 17 8,633 19 30 2,389 18 4 366 15 20 39,929 33 46

2QFY11 2,012 0 15 2,089 0 16 7,242 3 24 2,031 5 6 317 -5 18 29,948 5 28

1QFY11 2,017 -12 37 2,092 -3 41 7,013 -3 50 1,943 -12 29 335 3 61 28,557 8 30%

90

95

100

105

110

Jun

-12

Jul-

12

Aug

-12

Sep

-12

Sens ex Ind exMOSL Metals In dex

80

90

100

110

120

Sep-

11

Dec

-11

Ma

r-12

Jun-

12

Sep-

12

Sen sex In dex

MOSL Meta ls Inde x

C–118October 2012


Sector: Metals

Hindalco

Bloomberg HNDL IN



1,6,12 Rel Perf (%) 7/-14/-23

Mcap (INR b) 239.8

Mcap (USD b) 4.5

CMP: INR121 Buy



3/11A 720,779 34,998 17.6 278.5 - - 23.1 10.1 - -

3/12A 808,214 33,970 17.1 -3.0 7.1 1.4 20.3 7.5 0.7 6.9

3/13E 816,863 37,671 18.9 10.9 6.4 1.2 20.2 7.6 0.8 7.2

3/14E 854,498 41,002 20.6 8.8 5.9 1.0 18.5 8.2 0.7 6.3

Consolidated



Production ('000 tons)

Aluminium (sales, kt) 131 129 147 149 124 125 145 155 556 549

Copper (sales, kt) 73 75 84 94 71 80 86 95 325 332

Exchange USD/INR 44.7 45.4 51.0 50.2 54.5 55.5 54.0 54.0 47.9 54.5

Avg LME Aluminium (USD/T) 2,618 2,450 2,115 2,225 1,985 1,900 2,000 2,100 2,352 1,996

Net Sales 60,309 62,719 66,470 76,471 60,279 63,491 70,878 79,121 265,968 273,770

Change (YoY %) 16.5 7.0 11.3 11.7 0.0 1.2 6.6 3.5 11.5 2.9

EBITDA 8,671 6,692 7,149 8,648 4,631 5,804 6,775 8,536 31,160 25,746

As % of Net Sales 14.4 10.7 10.8 11.3 7.7 9.1 9.6 10.8 11.7 9.4

EBITDA - Aluminium 6761 4,758 4,532 5,258 3,415 3,815 4,627 6,127 21,309 15,403

EBITDA-Copper 1,909 1,935 2,618 3,390 1,216 2,147 2,306 2,567 9,851 10,343

Interest 667 675 793 801 815 847 881 916 2,936 3,460

Depreciation 1,754 1,741 1,747 1,658 1,705 1,776 1,782 1,824 6,900 7,087

Other Income 1,779 1,761 901 1,605 3,014 1,796 919 1,637 6,046 7,366

PBT (after EO item) 8,029 6,037 5,509 7,794 5,126 4,977 5,030 7,433 27,370 22,566

Total Tax 1,589 1,012 1,002 1,395 878 1,045 1,056 1,561 4,998 4,541

% Tax 19.8 16.8 18.2 17.9 17.1 21.0 21.0 21.0 18.3 20.1

Reported PAT 6,440 5,025 4,507 6,400 4,248 3,932 3,974 5,872 22,372 18,025

Adjusted PAT 6,440 5,025 4,507 6,400 4,248 3,932 3,974 5,872 22,372 18,025

Novelis adj. EBITDA (USD m) 306 301 213 233 259 266 252 270 1,053 1,047

Consolidated adj. PAT 11,772 10,784 7,519 10,141 9,008 8,993 8,340 10,945 33,970 37,296

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Net sales to grow 5% QoQ: We expect net sales to grow 5% QoQ (1% YoY) to INR63.5b on a lower base of 1QFY13,

where production of both copper and aluminium was affected due to operational hiccups. Copper operations

are back to normal and sales volume is likely to grow 13% QoQ to 80k tons. Aluminum volume is likely to remain

flat at 125k tons, as Hirakud smelter's captive power plant operations were partially shut due to breach of ash

pond. Average LME aluminum and copper prices have decreased 3% and 2% QoQ, respectively to USD1,912/ton

and USD7,689/ton. HNDL's blended realization for aluminum is likely to decrease 3% QoQ to INR162,311/ton

while copper realization would decrease 4% QoQ to INR540,340/ton.

EBITDA to grow 29% QoQ: We expect EBITDA to grow 29% QoQ to INR6b on a lower base of 1QFY13. We expect

aluminum EBITDA to increase 12% QoQ to INR3.8b and copper EBITDA to increase 77% QoQ to INR2.1b.

Maintain Buy: We expect consolidated EBITDA to increase 14% to INR100.8b in FY14, driven by 28% growth in

primary aluminum production to 700k tons and 36% growth in alumina production to 1.9m tons in India and 6%

volume growth at Novelis. EPS growth, however, would be lower at 9% to INR20.6 due to higher interest and

depreciation charge. The stock trades at 5.9x FY14E EPS and at an EV of 6.3x FY14E EBITDA. Maintain Buy .

C–119October 2012


Sector: Metals

Hindustan Zinc

Bloomberg HZ IN



1,6,12 Rel Perf (%) 3/-2/-2

Mcap (INR b) 572.3

Mcap (USD b) 10.9

CMP: INR135 Buy



3/11A 99,121 49,179 11.6 21.7 - - 24.2 28.3 - -

3/12A 114,053 55,604 13.2 13.1 10.3 2.1 22.5 27.2 3.4 6.5

3/13E 119,276 60,947 14.4 9.6 9.4 1.8 20.8 24.8 3.0 5.6

3/14E 136,299 70,707 16.7 16.0 8.1 1.5 20.4 24.3 2.3 4.1

Consolidated




Zn & Pb ('000 tons) 207 200 218 227 186 184 230 235 852 835

Silver (tons) 41 41 49 74 73 76 92 89 205 331

Net Sales 28,471 26,368 27,868 31,350 27,477 26,853 32,248 32,698 114,053 119,276

Change (YoY %) 44.3 19.8 6.0 -3.2 -3.5 1.8 15.7 4.3 15.1 4.6

EBITDA 15,923 14,648 14,023 16,590 14,286 14,162 17,180 17,390 60,695 63,018

As % of Net Sales 55.9 55.6 50.3 52.9 52.0 52.7 53.3 53.2 53.2 52.8

Interest 65 120 87 24 129 129 129 129 140 515

Depreciation 1,345 1,455 1,591 1,671 1,734 1,665 1,665 1,684 6,107 6,747

Other Income 3,554 3,868 3,819 3,811 5,743 4,366 4,496 4,783 15,428 19,388

PBT (before EO item) 18,066 16,940 16,164 18,706 18,166 16,734 19,882 20,360 69,877 75,143

Extra-ordinary Income -44 -239 -64 -84 0 0 0 0 -431 0

PBT (after EO item) 18,022 16,702 16,099 18,622 18,166 16,734 19,882 20,360 69,445 75,143

Total Tax 3,073 3,255 3,363 4,494 2,353 3,180 3,778 4,886 14,185 14,196

% Tax 17.1 19.5 20.9 24.1 13.0 19.0 19.0 24.0 20.4 18.9

Reported PAT 14,949 13,447 12,736 14,128 15,813 13,555 16,104 15,474 55,260 60,947

Adjusted PAT 14,986 13,639 12,787 14,192 15,813 13,555 16,104 15,474 55,604 60,947

Change (YoY %) 68.2 41.2 -0.8 -19.9 5.5 -9.5 18.1 21.0 13.1 9.6

Avg LME Zinc (USD/T) 2,271 2,247 1,917 2,050 1,938 1,900 1,900 1,900 2,121 1,910

Avg LME Lead (USD/T) 2,531 2,449 2,009 2,120 1,989 1,980 1,900 1,900 2,277 1,942

Silver (USD/oz) 35 36 29 31 28 28 28 28 33 28

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Net sales to decline 2% QoQ on lower LME prices and flat volumes: We expect net sales to decline 2% QoQ

(grow 2% YoY) to INR26.9b on lower LME prices and flat sales volume. LME zinc prices have declined 2% QoQ to

USD1,879/ton while lead prices have remained flat at USD1,964/ton. We expect zinc realization to decrease 1%

QoQ to INR112,515/ton and lead realization to increase 6% QoQ to INR121,070/ton. Refined zinc and lead

production volume is likely to decrease 1% QoQ to 184k tons.

EBITDA to decrease 1% QoQ: We expect EBITDA to decrease 1% QoQ to INR14.2b (-3% YoY) on lower LME prices.

Silver volumes are expected to increase 4% QoQ to 76 tons. Current metal production has been lower as per

mining plan which is expected to improve in 2HFY13.

Zinc production to remain flat in FY13; maintain Buy: Zinc production has been impacted as the Rampur Agucha

mines are currently mining narrow ore body. Though production ramp-up in 2HFY13 is likely to make up for lost

production in 1HFY13, we expect FY13 production to remain flat. Silver volume would increase to 331 tons. The

stock trades at 8.1x FY14E EPS and at an EV of 4.1x FY14E EBITDA. Maintain Buy.

C–120October 2012


Sector: Metals

Jindal Steel & Power

Bloomberg JSP IN



1,6,12 Rel Perf (%) 13/-28/-31

Mcap (INR b) 399.6

Mcap (USD b) 7.6

CMP: INR428 Neutral



3/11A 131,122 37,539 40.1 6.0 - - 30.5 21.3 - -

3/12A 182,086 39,649 42.4 5.6 10.1 2.2 24.6 16.9 3.1 8.4

3/13E 208,816 37,215 39.8 -6.1 10.7 2.0 19.7 13.6 3.0 9.5

3/14E 212,763 36,045 38.5 -3.1 11.1 1.8 17.0 12.2 3.1 8.9

Consolidated



Sales volume

Steel ('000 tons) 457 598 591 737 561 615 735 741 2,385 2,652

Pellets (000 tons) 347 526 464 691 395 533 489 516 2,028 1,934

CPP (M kwh) 259 222 350 557 584 549 709 709 1,446 2,550

Net Sales 25,265 33,338 32,983 41,740 33,311 36,906 39,453 39,787 133,326 149,457

Change (YoY %) 19.1 45.0 36.8 52.2 31.8 10.7 19.6 -4.7 39.3 12.1


EBITDA 9,634 11,867 10,454 13,093 10,377 10,141 10,824 11,064 45,048 42,406

Change (YoY %) 21.7 38.6 11.7 22.5 7.7 -14.5 3.5 -15.5 23.3 -5.9

As % of Net Sales 38.1 35.6 31.7 31.4 31.2 27.5 27.4 27.8 33.8 28.4

Interest 1,325 1,459 1,553 2,490 2,186 1,870 1,870 1,870 6,827 7,796

Depreciation 2,066 2,139 2,103 2,364 2,372 2,390 2,366 2,342 8,672 9,469

Other Income 167 77 202 1,412 122 81 212 1,515 1,857 1,930

PBT (before EO item) 6,410 8,346 7,001 9,650 5,942 5,962 6,800 8,367 31,407 27,072

Extra-ordinary Income 0 -2,478 -500 0 -5,741 0 0 0 -2,978 -5,741

PBT (after EO item) 6,410 5,869 6,501 9,650 201 5,962 6,800 8,367 28,430 21,330

Total Tax 1,709 1,911 1,890 1,814 76 1,669 1,904 2,343 7,324 5,993

% Tax 26.7 32.6 29.1 18.8 38.1 28.0 28.0 28.0 25.8 28.1

Reported PAT 4,702 3,958 4,610 7,836 124 4,293 4,896 6,024 21,106 15,338

Adjusted PAT 4,702 6,435 5,110 7,836 4,602 4,293 4,896 6,024 24,083 19,816

Consolidated PAT 9,188 10,495 10,210 11,670 9,594 8,401 9,645 9,574 41,563 37,215

Change (YoY %) -2.4 19.1 15.4 2.0 4.4 -20.0 -5.5 -18.0 10.7 -10.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Steel volumes to increase 3% YoY: We expect standalone net sales to grow 11% YoY (11% QoQ) to INR36.9b on

liquidation of inventory accumulated in the previous quarter and higher power sales. Steel sales volume would

increase 3% YoY (10% QoQ) to 615k tons. We expect pellet sales volume to grow 1% YoY (35% QoQ). Power sales

are likely to grow 147% YoY (decline 6% QoQ) to 549m units. We expect standalone EBITDA to decline 2% QoQ

to INR10.1b on lower steel prices.

Jindal Power PAT to increase 21% QoQ: Power sales volumes at Jindal Power are likely to be up 2% YoY to 1.9b

units while the average rate is likely to decline 8% YoY (flat QoQ) to INR3.7/unit. PAT would grow 21% QoQ, as

performance in the previous quarter was impacted by INR1b of accumulated electricity duty imposed by

Chhattisgarh government.

Earnings have peaked; maintain Neutral: JSP's existing operating assets continue to deliver superior results,

but future projects are likely to have lower return ratios. We believe that earnings have already peaked and

expect them to decline at 5% per annum over FY12-14. The stock trades at 11.1x FY14E EPS, 1.8x FY14E BV, and an

EV of 8.9x FY14E EBITDA. Maintain Neutral.

C–121October 2012


Sector: Metals

JSW Steel

Bloomberg JSTL IN



1,6,12 Rel Perf (%) 0/-3/19

Mcap (INR b) 168.8

Mcap (USD b) 3.2

CMP: INR757 Sell



3/11A 241,059 16,783 75.2 17.7 - - 12.3 9.9 - -

3/12A 343,681 14,844 66.5 -11.6 11.4 1.0 8.9 9.2 1.2 6.7

3/13E 363,204 11,143 49.9 -24.9 15.2 1.0 6.6 8.5 1.2 6.6

3/14E 363,314 16,442 73.7 47.6 10.3 0.9 9.3 9.5 1.2 6.0

Consolidated




Sales ('000 tons) 1,714 1,882 1,908 2,310 2,109 2,100 2,036 2,170 7,814 8,415

Change (YoY %) 44.0 19.0 19.8 33.3 23.0 11.6 6.7 -6.0 28.1 7.7

Realization (INR per ton) 41,245 40,553 41,281 41,319 42,853 39,827 37,066 36,324 41,109 39,014

Net Sales 70,694 76,321 78,765 95,447 90,376 83,636 75,464 78,836 321,227 328,312

Change (YoY %) 51.0 32.1 35.6 34.3 27.8 9.6 -4.2 -17.4 37.5 2.2

EBITDA 14,082 13,104 12,534 16,518 17,728 14,335 11,957 15,706 56,238 59,726

Change (YoY %) 36.1 32.1 25.3 -0.1 25.9 9.4 -4.6 -4.9 17.7 6.2

As % of Net Sales 19.9 17.2 15.9 17.3 19.6 17.1 15.8 19.9 17.5 18.2

EBITDA (USD per ton) 184 152 129 143 154 123 109 134 150 130

Interest 2,268 2,645 3,274 3,677 4,067 4,116 4,198 4,083 11,864 16,464

Depreciation 3,879 4,039 4,444 4,720 4,678 4,859 4,956 4,943 17,082 19,435

Other Income 327 527 456 483 723 537 465 493 1,793 2,218

PBT (before EO Item) 8,263 6,947 5,271 8,604 9,706 5,898 3,267 7,174 29,085 26,045

EO Items 0 -5,130 -3,188 1,992 -5,921 0 0 0 -6,326 -5,921

PBT (after EO Item) 8,263 1,817 2,083 10,596 3,786 5,898 3,267 7,174 22,759 20,124

Total Tax 2,480 546 -4,600 3,074 1,096 1,946 1,078 2,367 1,499 6,487

% Tax 30.0 30.0 -220.8 29.0 28.9 33.0 33.0 33.0 6.6 32.2

Reported PAT 5,783 1,271 6,684 7,522 2,690 3,951 2,189 4,806 21,260 13,637

Preference Dividend 70 70 70 70 70 70 70 70 279 279

Adjusted PAT 5,713 5,993 9,592 5,592 6,632 3,882 2,119 4,737 26,890 17,370

Change (YoY %) 66.6 82.6 155.7 -32.3 16.1 -35.2 -77.9 -15.3 36.5 -35.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Revenue to increase 10% YoY on higher steel sales: We expect standalone net sales to increase 10% YoY (fall 7%

QoQ) to INR83.6b due to lower steel realization and flat QoQ volumes. Average steel realization would fall 7%

QoQ to INR39,827/ton. Domestic steel pricing environment remained weak in 2QFY13; long and flat prices

decreased 9% and 10% QoQ, respectively.

EBITDA to decrease 19% QoQ: We expect JSTL's EBITDA to decline 19% QoQ to INR14.3b on lower realization and

higher iron ore cost. With rapidly depleting inventory at Karnataka, JSTL is forced to procure iron ore from

Odisha, which would result in higher raw material cost on account of transportation cost. We expect EBITDA/

ton to decrease 20% QoQ to USD123.

Low cost iron ore benefit faded permanently in Karnataka; maintain Sell: Availability of iron ore is likely to ease

post the starting of category A mines in Karnataka, but lower caps on volumes coupled with increased costs

such as FBT would result in higher iron ore prices. We believe that the benefit of low cost iron ore for steel mills

in Karnataka has faded permanently. We also expect steel prices to correct further and eat up any benefits on

account of lower coking coal prices. The stock trades at an expensive 10.3x FY14E EPS and an EV of 6x FY14E

EBITDA. Maintain Sell.

C–122October 2012


Sector: Metals

Nalco

Bloomberg NACL IN



1,6,12 Rel Perf (%) -6/-16/-32

Mcap (INR b) 131.8

Mcap (USD b) 2.5

CMP: INR51 Neutral



3/11A 59,590 10,703 4.2 33.2 - - 9.9 13.3 - -

3/12A 66,116 8,650 3.4 -19.2 15.2 1.1 7.6 10.0 1.2 7.2

3/13E 71,495 8,960 3.5 3.6 14.7 1.1 7.5 10.2 1.3 7.3

3/14E 77,506 8,448 3.3 -5.7 15.6 1.1 6.8 9.7 1.1 6.5

Consolidated




Aluminium Sales ('000 tons) 109 101 98 107 102 103 105 107 415 417

Alumina Sales ('000 tons) 197 180 163 285 253 287 298 309 826 1,147

Avg LME Aluminium (USD/ton) 2,618 2,450 2,115 2,225 1,985 1,900 2,000 2,100 2,352 1,996

Alumina Exports (USD/ton) 428 448 358 343 341 304 320 336 394 325

Net Sales 17,625 16,139 14,509 17,845 17,481 16,991 17,833 19,190 66,118 71,495

Change (YoY %) 34.7 9.1 0.5 -2.2 -0.8 5.3 22.9 7.5 11.0 8.1


EBITDA 5,298 1,526 684 3,067 3,042 2,418 3,080 4,303 10,575 12,843

As % of Net Sales 30.1 9.5 4.7 17.2 17.4 14.2 17.3 22.4 16.0 18.0

Interest 0 0 1 8 32 0 0 0 9 32

Depreciation 1,019 1,179 1,235 1,232 1,224 1,230 1,236 1,242 4,666 4,931

Other Income 1,266 1,321 1,262 1,594 1,403 1,333 1,266 1,203 5,442 5,205

PBT 5,545 1,667 710 3,960 3,190 2,521 3,111 4,264 11,882 13,086

Total Tax 1,776 274 198 1,139 959 807 995 1,364 3,387 4,126

% Tax 32.0 16.4 27.9 28.8 30.1 32.0 32.0 32.0 28.5 31.5

Reported PAT 3,768 1,393 512 2,821 2,231 1,714 2,115 2,899 8,495 8,960

Adjusted PAT 3,768 1,393 512 2,437 2,231 1,714 2,115 2,899 8,109 8,960

Change (YoY %) 32.7 -37.8 -80.0 -20.2 -40.8 23.0 313.0 19.0 -24.2 10.5

E: MOSL Esitmates

BSE Sensex S&P CNX

18,763 5,703

Net sales to grow 5% YoY on higher alumina sales, despite lower LME prices: We expect net sales to grow 5% YoY

to INR17b on higher alumina volumes, despite lower realizations. LME prices have fallen 3% QoQ (20% YoY) to

USD1,912/ton. We expect average metal realization to decrease 3% QoQ to INR118,104/ton and alumina

realization to decrease 9% QoQ to INR16,872/ton. Alumina sales volume would grow 14% QoQ to 287k tons

while metal volumes would increase 1% QoQ to 103k tons.

EBITDA to decrease 21% QoQ: We expect EBITDA to decline 21% QoQ to INR2.4b on lower LME prices, despite

better volumes. Adjusted PAT would decline 23% QoQ to INR1.7b.

Power cost to remain high till Utkal coal block commissioning; maintain Neutral: NACL has been suffering on

account of high power cost and lower LME prices. It is unable to get sufficient linkage coal from Mahanadi Coal

Field and has to depend on high cost e-auction and imported coal. T ill the commissioning of Utkal coal block,

NACL will not be able to reap full benefits of its increased refining capacity and power capacity. Coal field

remains a risk. The stock trades at 15.6x FY14E EPS, 1.1x FY14E BV, and an EV of 6.5x FY14E EBITDA. Maintain

Neutral .

C–123October 2012


Sector: Metals

NMDC

Bloomberg NMDC IN



1,6,12 Rel Perf (%) -6/13/-29

Mcap (INR b) 768.4

Mcap (USD b) 14.6

CMP: INR194 Neutral



3/11A 113,689 64,992 16.4 88.8 - - 29.7 29.5 - -

3/12A 112,615 73,182 18.5 12.6 10.5 3.1 31.7 31.5 5.0 6.3

3/13E 126,708 81,052 20.4 10.8 9.5 2.6 28.3 28.2 4.2 5.4

3/14E 158,171 98,826 24.9 21.9 7.8 2.1 26.9 26.8 3.3 4.1

Consolidated




Sales (m tons) 6.9 7.6 6.4 6.5 6.8 6.0 7.7 7.7 27.3 28.2

Avg Iron ore realisation (USD/t) 90 88 86 79 76 85 84 84 86 82

Net Sales 27,826 30,623 28,220 25,946 28,404 28,466 34,783 35,056 112,615 126,708

Change (YoY %) 10.5 24.5 7.7 -31.2 2.1 -7.0 23.3 35.1 -0.9 12.5

EBITDA 22,547 24,354 22,607 19,774 23,020 22,246 27,707 27,144 89,281 100,117

As % of Net Sales 81.0 79.5 80.1 76.2 81.0 78.1 79.7 77.4 79.3 79.0

EBITDA per ton (USD) 73 70 69 61 62 67 67 65 68 65

Interest 0 0 0 15 0 0 0 0 15 0

Depreciation 338 324 345 321 328 336 344 353 1,328 1,362

Other Income 4,418 5,029 5,254 5,468 5,521 5,705 5,937 6,222 20,169 23,385

PBT (before EO Item) 26,627 29,059 27,516 24,905 28,214 27,615 33,299 33,013 108,108 122,141

Extra-ordinary Income -513 -513

PBT (after EO Item) 26,627 29,059 27,516 24,392 28,214 27,615 33,299 33,013 107,595 122,141

Total Tax 8,615 9,428 8,928 7,970 9,154 9,389 11,322 11,224 34,941 41,089

% Tax 32.4 32.4 32.4 32.7 32.4 34.0 34.0 34.0 32.5 33.6

Reported PAT 18,012 19,632 18,588 16,423 19,060 18,226 21,977 21,789 72,654 81,052

Adjusted PAT 18,012 19,632 18,588 16,768 19,060 18,226 21,977 21,789 73,000 81,052

Change (YoY %) 19.8 42.4 22.4 -20.1 5.8 -7.2 18.2 29.9 12.3 11.0

E: MOSL Esitmates

BSE Sensex S&P CNX

18,763 5,703

Iron ore sales to decline 21% QoQ: We expect standalone net sales to decline 7% YoY (flat QoQ) to INR28.5b due

to lower iron ore sales. Production during the quarter was impacted due to heavy rains, leading to lower sales

volume. We expect iron ores sales volume to decrease 21% YoY to 6m tons. Iron ore realization is likely to

increase 17% YoY (15% QoQ) to INR4,744/ton.

EBITDA to decrease 3% QoQ: We expect EBITDA to decrease 3% QoQ to INR22.2b on lower iron ore volume and

higher operating cost. 1QFY13 margins were boosted by lower operating cost, especially royalty payments.

Domestic iron ore scenario favoring NMDC; maintain Buy: Declining grades and availability of iron ore, increased

regulatory vigil and increasing steel capacity has shifted the domestic iron ore demand-supply dynamics in

favor of NMDC. Despite falling iron ore prices internationally, NMDC is able to maintain its realization and

margins. It is our most preferred pick in the Metals space. We expect earnings to register a CAGR of 16% over

FY12-14 due to strong volume growth. The stock trades at 7.8x FY14E EPS, 2.1x FY14E BV, and an EV of 4.1x FY14E

EBITDA. Maintain Buy .

C–124October 2012


Sector: Metals

Sesa Goa

Bloomberg SESA IN



1,6,12 Rel Perf (%) -12/-19/-26

Mcap (INR b) 149.0

Mcap (USD b) 2.8

CMP: INR171 Neutral



3/11A 92,051 42,225 48.6 53.6 - - 40.0 47.3 - -

3/12A 83,101 27,616 31.8 -34.6 5.4 1.0 19.8 25.7 2.2 2.1

3/13E 39,514 31,359 36.1 13.6 4.8 1.0 20.6 19.5 4.6 5.5

3/14E 58,000 29,142 33.5 -7.1 5.1 0.9 18.7 18.9 3.2 4.5

Consolidated

Quarterly Performance (Consolidated) (INR Million)Y/E March FY12 FY13 FY12 FY13E


Realization (USD/dmt) 102 84 93 102 99 80 62 58 99 74

Sales Qty ('000 dmt) 4,247 1,540 5,040 5,100 2,900 437 1,176 3,450 15,927 7,963

Net Sales 21,089 7,897 26,171 27,944 17,326 3,363 5,980 12,844 83,101 39,514

Change (YoY %) -12.6 -14.0 16.3 -22.9 -17.8 -57.4 -77.2 -54.0 -9.7 -52.5

EBITDA 11,474 2,600 10,852 11,579 6,762 1,001 1,845 3,861 36,505 13,469

As % of Net Sales 54.4 32.9 41.5 41.4 39.0 29.8 30.9 30.1 43.9 34.1

Interest 493 516 730 702 1,178 934 934 934 2,441 3,979

Depreciation 269 243 263 286 303 303 303 303 1,061 1,211

Other Income 1,521 504 180 141 151 129 77 39 2,346 397

PBT (before XO item) 12,232 2,345 10,039 10,732 5,432 -106 686 2,664 35,348 8,676

EO -15 -2,341 -1,779 79 -2,522 0 0 0 -4,056 -2,522

PBT (after XO item) 12,217 4 8,260 10,811 2,910 -106 686 2,664 31,292 6,154

Total Tax 3,811 -9 2,564 3,848 922 -32 206 799 10,214 1,895

% Tax 31.2 -245.9 31.0 35.6 31.7 30.0 30.0 30.0 32.6 30.8

Reported PAT before MI 8,406 13 5,696 6,963 1,988 -74 480 1,865 21,078 4,259

Profit from associates 0 0 1,219 4,658 7,652 5,696 5,708 5,523 5,877 24,578

Adjusted PAT 8,421 2,354 8,695 11,542 11,362 5,621 6,188 7,388 31,012 30,582

Change (YoY %) -39.7 -33.0 -18.4 -20.9 34.9 138.8 -28.8 -36.0 -27.2 -1.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Revenue to decline 57% YoY: We expect SESA's revenue to decline 57% YoY to INR3.4b due to lower sales

volumes. The Goa government temporarily suspended all mining operations in the state in September. The

announcement was followed by suspension of environmental clearances for iron ore mines in Goa by MoEF.

We expect iron ore sales volumes to decrease 72% YoY in 2QFY13 to 437k tons due to suspension of mining in

Goa. Average iron ore realization is likely to decline 19% QoQ to USD80/ton due to significant decline in

international iron ore prices in 2QFY13. Average iron ore spot prices in China have declined 18% YoY to USD118/

ton CFR.

EBITDA to decline 85% QoQ: We expect EBITDA to decline 85% QoQ to INR1b and EBIT/ton to decline 28% QoQ

to USD22 due to lower iron ore realization.

FY13 volumes at risk on Goa mining suspension; maintain Neutral: We have cut our volume assumption for FY13

from 14.7m tons to 7.9m tons due to Goa mining suspension. We are still maintaining our FY14 volume estimate

of 15.7m tons, which is contingent on restarting of mining in Goa (13.5m tons) and Karnataka (2.2m tons). The

stock trades at 5.1x FY14E EPS, 0.9x FY14E BV, and an EV of 4.5x FY14E EBITDA. We upgrade the stock to Buy , based

on the valuation of the Sesa-Sterlite merged entity.

C–125October 2012


Sector: Metals

Steel Authority of India

Bloomberg SAIL IN



1,6,12 Rel Perf (%) -3/-17/-34

Mcap (INR b) 352.9

Mcap (USD b) 6.7

CMP: INR85 Sell



3/11A 428,144 49,466 12.0 -27.4 - - 13.9 13.9 - -

3/12A 463,726 37,174 9.0 -24.8 9.5 0.9 9.6 10.1 1.0 7.4

3/13E 439,733 27,527 6.7 -26.0 12.8 0.8 6.7 7.4 1.2 8.9

3/14E 483,437 35,442 8.6 37.7 10.0 0.8 8.2 8.2 1.2 7.3

Consolidated



Sales (m tons) 2.75 2.85 2.60 3.20 2.50 2.70 3.0 3.2 11.4 11.4

Realization (INR per ton) 40,689 39,289 42,476 42,787 43,110 39,960 37,800 37,044 41,336 39,264

Change (YoY %) 3.4 10.2 22.0 10.6 5.9 1.7 -11.0 -13.4 11.8 -5.0

Net Sales 111,896 111,973 110,437 136,920 107,775 107,892 113,400 118,541 471,226 447,608

Change (%) 22.5 3.6 -2.4 12.9 -3.7 -3.6 2.7 -13.4 8.6 -5.0

EBITDA 13,114 13,271 15,811 18,713 15,153 13,918 13,222 17,854 60,909 60,147

Change (YoY %) -28.8 -21.7 -12.0 -15.4 15.5 4.9 -16.4 -4.6 -19.3 -1.3

As % of Net Sales 11.7 11.9 14.3 13.7 14.1 12.9 11.7 15.1 12.9 13.4

EBITDA per ton (USD) 107 102 119 117 111 93 82 103 111 97

Interest 1,710 2,000 1,855 1,210 1,249 1,499 2,411 2,878 6,774 8,036

Depreciation 3,742 3,938 4,093 3,891 4,018 4,871 5,070 5,922 15,664 19,881

Other Income 4,630 4,903 3,837 2,156 2,785 1,599 1,469 1,352 15,526 7,205

PBT (after EO Inc.) 12,293 7,149 9,037 23,014 10,101 9,148 7,211 10,407 51,493 36,866

Total Tax 3,913 2,203 2,716 7,244 3,137 2,744 2,163 3,122 16,076 11,166

% Tax 31.8 30.8 30.1 31.5 31.1 30.0 30.0 30.0 31.2 30.3

Reported PAT 8,381 4,946 6,321 15,770 6,964 6,403 5,048 7,285 35,418 25,700

Adjusted PAT 8,381 10,034 10,984 8,524 8,833 6,377 5,027 7,255 37,140 27,491

Change (YoY %) -28.8 -7.9 -0.8 -38.1 5.4 -36.4 -54.2 -14.9 -22.5 -26.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Net sales to decline 4% YoY on lower volumes: We expect net sales to decline 4% YoY (flat QoQ) to INR108b due

to lower saleable steel volumes. Sales volumes are likely to decrease 5% YoY to 2.7m tons. Realization would be

up 2% YoY (down 7% QoQ) to INR39,960/ton. The domestic steel pricing environment remained weak in 2QFY13;

long and flat prices decreased 9% and 10% QoQ, respectively. Global steel prices have also shown downward

bias. Average steel prices have decreased 8%, 4%, 14% and 4% QoQ, respectively in Russia, Europe, China and

North America

Margins to shrink 16% QoQ to USD93/ton: We expect EBITDA/ton to decline 16% QoQ to USD93/ton due to

lower realization. We expect the benefits of lower coking coal prices to accrue slowly but downward pressure

on realization would overshadow any incremental benefit. Other income would fall by 43% QoQ to INR1.6b, as

cash is used to support capex.

Steel volumes to remain flat in FY13; maintain Sell: We expect earnings to decline at 2% per annum over FY12-

14 despite 10% CAGR in volumes due to SAIL's uncompetitive cost structure, execution delays, decline in steel

realization and poor operating efficiencies. The full benefits of the INR720b capex will be seen only in FY15. The

stock still appears expensive at 10x FY14E EPS and an EV of 7.3x FY14E EBITDA. Maintain Sell.

C–126October 2012


Sector: Metals

Sterlite Industries

Bloomberg STLT IN



1,6,12 Rel Perf (%) -11/-19/-31

Mcap (INR b) 333.9

Mcap (USD b) 6.3

CMP: INR99 Buy



3/11A 304,285 50,993 15.2 26.2 - - 13.9 15.2 - -

3/12A 411,789 56,058 16.7 9.9 6.0 0.8 14.1 15.1 0.7 4.0

3/13E 421,214 54,883 16.3 -2.1 6.1 0.7 12.4 13.7 0.7 3.8

3/14E 463,018 59,632 17.7 8.7 5.6 0.7 12.3 14.0 0.6 3.5

Consolidated




Copper cathode ('000 tons) 74 87 84 80 88 88 82 82 325 340

Aluminum (BALCO, '000 tons) 61 60 63 62 60 61 62 61 246 260

Aluminum (VAL , '000 tons) 112 89 107 115 124 124 124 124 423 500

Net Sales 98,607 101,957 103,037 108,189 106,484 104,064 103,006 107,660 411,789 421,214

Change (YoY %) 65.2 67.6 23.7 7.6 8.0 2.1 0.0 -0.5 35.3 2.3

EBITDA 27,583 24,820 23,183 27,054 23,083 24,805 28,205 29,641 102,640 105,734

As % of Net Sales 28.0 24.3 22.5 25.0 21.7 23.8 27.4 27.5 24.9 25.1

Interest 1,740 1,549 1,573 3,280 2,419 2,501 2,601 2,701 8,142 10,223

Depreciation 4,200 4,450 4,575 5,072 5,182 5,268 6,018 6,768 18,298 23,234

Other Income 7,646 8,002 8,768 7,035 9,484 8,107 8,236 8,524 31,452 34,350

PBT (before XO item) 29,289 26,823 25,803 25,737 24,966 25,143 27,822 28,696 107,652 106,626

Extra-ordinary Exp. 726 -4,339 -4,318 -1,005 -2,174 0 0 0 -8,936 -2,174

PBT (after XO item) 30,015 22,485 21,484 24,733 22,792 25,143 27,822 28,696 98,717 104,452

Total Tax 6,137 5,049 5,053 4,867 3,339 5,783 6,677 7,174 21,106 22,973

% Tax 20.4 22.5 23.5 19.7 14.7 23.0 24.0 25.0 21.4 22.0

Reported PAT 23,878 17,436 16,431 19,866 19,453 19,360 21,145 21,522 77,611 81,479

Minority interest Profit/ (Loss) 6,420 5,030 4,660 5,499 5,771 4,706 5,721 5,670 21,609 21,867

Loss/(profit) of Associates 1,061 1,812 2,636 1,598 1,666 2,001 1,746 1,490 7,107 6,903

Adjusted PAT 15,672 14,932 13,453 13,774 14,190 12,653 13,678 14,361 57,831 54,883

Change (YoY %) 81.7 48.1 21.7 -20.5 -9.5 -15.3 1.7 4.3 22.8 -5.1

Avg LME Aluminium (USD/T) 2,618 2,450 2,090 2,225 1,985 1,900 2,000 2,100 2,346 1,996

Avg LME Copper (USD/T) 9,163 8,993 7,530 8,318 7,890 7,700 8,000 8,000 8,501 7,898

Avg LME Zinc (USD/T) 2,271 2,247 1,917 2,050 1,938 1,900 1,900 1,900 2,121 1,910

E: MOSL Estimate

BSE Sensex S&P CNX

18,763 5,703

Net sales to decrease 2% QoQ: We expect consolidated net sales to decline 2% QoQ (increase 2% YoY) to

INR104b on lower base metal prices. LME prices for all base metals have declined 0-3% QoQ. Refined zinc and

lead production would be 1% lower QoQ at 184k tons. Aluminum production from Balco is likely to increase 2%

QoQ to 61k tons. Copper cathode production would increase 1% QoQ to 88k tons.

EBITDA to grow 7% QoQ: We expect EBITDA to grow 7% QoQ (flat YoY) to INR24.8b on a lower base of 1QFY13,

when copper business was impacted by lower by-product realizations. Copper EBIT is likely to increase 29%

QoQ to INR2.6b. Aluminum (Balco) EBIT would decline to a negative INR358m on account of lower LME prices.

EBIT from the Power segment would grow 38% QoQ to INR2.6b.

Maintain Buy: We expect adjusted PAT to grow at a CAGR of just 3% over FY12-14 to INR59.6b due to project

commissioning delays, lower LME prices and higher raw material costs (coal and bauxite). Domestic zinc

production growth would be moderate, as mine production has witnessed some setbacks recently. However,

valuations remain attractive. The stock trades at 5.6x FY14E EPS and an EV of 3.5x FY14E EBITDA. Maintain Buy.

C–127October 2012


Sector: Metals

Tata Steel

Bloomberg TATA IN



1,6,12 Rel Perf (%) -1/-22/-20

Mcap (INR b) 389.3

Mcap (USD b) 7.4

CMP: INR401 Sell



3/11A 1,187,531 59,724 62.3 -n/a- - - 40.5 13.2 - -

3/12A 1,328,997 18,054 18.6 -70.1 21.6 1.5 7.8 9.1 0.7 7.3

3/13E 1,354,936 30,279 31.2 67.7 12.9 1.4 11.5 8.8 0.7 6.8

3/14E 1,372,147 55,029 56.6 81.7 7.1 1.2 18.9 10.5 0.7 6.1

Consolidated




Sales ('000 tons) 1,593 1,648 1,622 1,768 1,590 1,650 1,900 2,350 6,631 7,490

Avg Seg. Realization (INR/tss) 45,832 46,402 47,340 49,103 51,530 48,840 45,900 44,982 47,214 47,455

Net Sales 78,603 82,119 83,819 94,794 89,080 86,509 94,549 113,509 339,335 383,647

Change (YoY %) 20.0 15.6 13.3 13.7 13.3 5.3 12.8 19.7 15.4 13.1

EBITDA 31,148 27,698 26,441 29,916 29,768 28,703 27,151 31,074 115,368 116,696

(% of Net Sales) 39.6 33.7 31.5 31.6 33.4 33.2 28.7 27.4 34.0 30.4

EBITDA(USD/tss) 419 357 305 324 324 304 251 223 347 268

Interest 4,537 2,343 4,811 5,140 4,544 5,460 5,559 5,657 19,254 21,221

Depreciation 2,853 2,871 2,891 2,900 3,544 3,886 4,132 4,379 11,514 15,941

Other Income 2,564 236 1,976 1,829 1,519 1,848 1,857 1,866 8,864 7,090

PBT (after EO Inc.) 30,482 22,720 20,716 23,706 21,229 21,204 19,317 22,904 97,624 84,654

Total Tax 8,288 7,767 6,503 8,101 7,663 5,513 4,443 4,810 30,659 22,429

% Tax 27.2 34.2 31.4 34.2 36.1 26.0 23.0 21.0 31.4 26.5

Reported PAT 22,194 14,952 14,213 15,605 13,566 15,691 14,874 18,094 66,964 62,225

Adjusted PAT 18,034 14,952 14,213 15,605 15,536 15,691 14,874 18,094 62,804 64,195

Consolidated Financials

Net Sales 330,002 327,979 331,031 339,986 338,212 312,934 338,232 365,559 1,328,997 1,354,936

EBITDA 44,572 27,500 19,133 31,788 36,003 28,051 37,967 40,068 124,168 142,088

Reported PAT (before MI & asso.) 52,937 1,390 -6,874 2,032 5,170 238 11,017 12,212 49,485 28,637

Adj. PAT (after MI & asso) 19,846 2,124 -6,027 4,335 7,949 791 11,469 12,686 20,279 32,895

E: MOSL Estimates; tss=ton of steel sales

BSE Sensex S&P CNX

18,763 5,703

Tata Steel India (TSI): We expect net revenue to increase 5% YoY (fall 3% QoQ) to INR86.5b due to increase of 5%

YoY (decline of 5% QoQ) in steel realization and flat YoY volumes. Sales volumes are likely to remain flat YoY

(increase 4% QoQ) to 1.65m tons in 2QFY13. Average steel price realization is expected to be INR48,840/ton.

Domestic steel pricing environment remained weak in 2QFY13; long and flat prices decreased 9% and 10% QoQ,

respectively. We expect EBITDA to decline 4% QoQ to INR28.7b and EBITDA/ton to decline 6% QoQ to USD304/

ton.

TSE and others: We expect Tata Steel Europe (TSE) and other subsidiaries to report negative EBITDA due to

declining realization in Europe. Average steel prices declined 4% QoQ in 2QFY13 in Europe. We expect EBITDA/

ton to decrease from USD28 in 1QFY13 to a negative USD3 in 2QFY13. We also expect steel shipments to decline

16% YoY (8% QoQ) to 3.8m tons, as demand is very weak in Europe.

Steel environment challenging, price outlook negative; maintain Sell: We expect further correction in steel

prices due to weak demand in developed regions, correction in raw material prices and slowdown in Chinese

steel consumption, which has been the major demand driver so far. Though TSE's converter model will enable

it to get benefits of lower raw material prices, lower realization will eat away the gains. TSI margins are also

likely to decline in FY13 and FY14 due to higher proportion of purchased coking coal in the mix and lower

realization. The stock trades at 7.1x FY14E EPS, 1.2x FY14E BV, and an EV of 6.1x FY14E EBITDA. Maintain Sell.

C–128October 2012


Sector: Oil & Gas

Oil & GasCompany Name

BPCL

Cairn India

Chennai Petroleum

GAIL

Gujarat State Petronet

HPCL

IOC

Indraprastha Gas

MRPL

Oil India

ONGC

Petronet LNG

Reliance Industries

GRM up 36% QoQ, but YTD, both oil and GRM down 5% : Brent average crude price for

2QFY13 was marginally up 1% QoQ to USD110/bbl. However, volatility was high, led by

Eurozone uncertainty, geopolitical developments, and QE3. Brent, after hitting a low

of USD89/bbl in June-12, again rose to high of USD116/bbl in mid-Aug, before settling

at current levels of USD111/bbl.

Similar to oil, product cracks also were volatile with regional benchmark, Reuters

Singapore GRM averaging USD9.1/bbl v/s USD6.7/bbl in 1QFY13. Unless meaningful

refinery closures happen, we expect margins to remain subdued as global utilization

is likely to remain low led by lower demand and commissioning of new refineries.

Petchem spreads subdued: In 2QFY13, polymer spreads over naphtha are down 7-8%

QoQ, while integrated polyester spreads are down 2-4% QoQ. However, YoY, PE spreads

are up 24% and PP spreads 7%. Polymer margins seem to have bottomed out and are

expected to slowly recover, contingent on the global economic growth.

Lower LPG losses help QoQ drop in under-recoveries: We estimate 2QFY13 under-

recoveries at INR390b, down 18% QoQ, primarily helped by lower LPG losses due to

lower international prices. As the recent government decision to increase diesel price

by INR5/ltr and limit subsidized LPG cylinder was effected on 13 September 2012, the

meaningful positive impact of the same will be seen in subsequent quarters. Subsidy

sharing would be again ad hoc as in the previous years, and it will be finalized in the

last quarter. We model upstream sharing at 40% and downstream sharing at nil/8% for

FY13/FY14, with the balance being the government's share.

Valuation and view: Recent diesel price hike and limiting subsidized LPG cylinders

will reduce under-recoveries. However, FY13 estimated under-recoveries remain high

at INR1.6t (+14% YoY) v/s INR1.4t in FY12. Nevertheless, OMC stocks are at attractive

valuations and BPCL is our top pick for its E&P upside potential.

Harshad Borawake ([email protected])





BPCL 346 Buy 571,811 35.2 4.9 17,903 LP LP 10,183 LP LP

Cairn India 331 Neutral 48,725 83.7 9.7 37,609 78.8 7.7 28,308 271.0 -26.0

Chennai Petroleum 129 Buy 100,501 6.7 -8.9 4,499 LP LP 2,962 304.7 LP

GAIL 383 Neutral 111,932 15.4 0.9 13,935 -15.5 -26.6 8,364 -23.6 -26.2

Gujarat State Petronet 81 Neutral 2,426 -13.6 -9.3 2,218 -14.2 -10.0 1,085 -16.1 -13.1

HPCL 307 Buy 496,111 34.0 12.6 16,697 LP LP 11,403 LP LP

IOC 251 Buy 1,115,444 25.1 15.5 62,858 LP LP 41,570 LP LP

Indraprastha Gas 265 Under Review8,530 42.9 12.2 1,861 18.3 3.8 866 12.2 1.9

MRPL 61 Neutral 168,502 44.4 31.5 9,306 1134.8 LP 8,361 3365.2 LP

Oil India 490 Buy 25,886 -20.8 10.9 12,679 -21.7 15.7 9,399 -17.4 1.1

ONGC 280 Buy 217,664 -3.8 8.4 119,438 -15.6 8.2 64,009 -25.9 5.3

Petronet LNG 158 Buy 81,708 52.2 16.2 4,380 -2.3 -4.2 2,616 0.5 -3.4

Reliance Inds. 837 Neutral 937,028 19.3 2.0 82,024 -16.7 21.6 55,482 -2.7 24.0

Oil & Gas Sector Aggregate 3,886,267 24.3 8.9 385,406 101.9 LP 244,609 539.3 LP

Oil & Gas Excl. RMs 1,702,901 18.1 5.3 287,949 -4.4 24.8 181,453 1.3 25.7

C–129October 2012


Sector: Oil & Gas

Crude price average largely flatQoQ (USD/bbl) Brent-WTI spread average at USD17.7/bbl in 2QFY13 (USD/bbl)

GRM up QoQ; crude average remains largely flat

Singapore GRM up 36% QoQ to USD9.1/bbl in 2QFY13 (USD/bbl) Auto fuel cracks meaningfully up QoQ (USD/bbl)

Our key assumptions

Our crude price assumption for FY13/14/15 is USD110/105/

100/bbl and USD90/bbl over long term.

We expect regional benchmark Singapore Reuters GRM

to remain in the USD7-9/bbl range for the near term.

We model Singapore GRM at USD8/bbl in FY13 and FY14.

Arab L-H differential lower by USD0.7/bbl in 2QFY13 (USD/bbl)

Valuations are also attractive for upstream companies, ONGC and Oil India. Likely

further policy actions to reduce under-recoveries augurs well for them too.

We maintain Neutral on GAIL and GSPL due to headwinds on incremental gas

availability in the medium term. In contrast, domestic gas scarcity is a positive for

Petronet LNG.

RIL's new mega projects (petcoke gasification and off-gases cracker) are likely to

add to earnings from FY15/FY16. However, the medium-term outlook on core

business remains weak with RoE reaching sub-15%. Neutral.

Source: Reuters/Bloomberg/MOSL

0

40

80

120

160

Sep-04 Sep-06 Sep-08 Sep-10 Sep-12-40

-25

-10

5

20

Aug-08 Aug-09 Aug-10 Aug-11 Aug-12

9.1

4.9

8.1 9.1

6.77.58.0

8.6

7.4

5.5

4.23.7

1.9

3.2

4.1

5.5

3.6

5.87.0

7.7

6.4

9.5

6.8

3.9

4.7

8.9

4.6

6.3

8.0

7.2

6.2

8.8

6.6

2QF

Y05

4QF

Y05

2QF

Y06

4QF

Y06

2QF

Y07

4QF

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2QF

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Y10

4QF

Y10

2QF

Y11

4QF

Y11

2QF

Y12

4QF

Y12

2QF

Y13

Singapore GRM (Qtr Avg)

-6.4

-0.6

20.519.5

-31.9

12.6

-45

-30

-15

0

15

30

Gas ol ine Naphtha LPG Diesel Jet/Kero Fuel Oi l

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13

0

2

4

6

8

10

Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12

C–130October 2012


Sector: Oil & Gas

Polymer spreads decline QoQ in 2QFY13 (INR/kg) POY/PSF spreads largely flat QoQ (INR/kg)

2QFY13 under-recoveries down 18% QoQ to INR390b; we model upstream share at 40% in FY13

(INR b) FY09 FY10 FY11 FY12 1QFY13 2QFY13E FY13E FY14E

Fx Rate (INR/USD) 46.0 47.5 45.6 47.9 54.2 55.5 54.4 53.0

Brent (USD/bbl) 84.8 69.6 86.3 114.5 108.7 110.2 110.0 105.0

Gross Under recoveries (INR b)

Auto Fuels 575 144 375 812 290 243 968 695

Domestic Fuels 458 316 405 573 188 147 610 508

Total 1,033 461 780 1,385 478 390 1,577 1,203

Sharing (INR b)

Oil Bonds/Cash 713 260 410 835 0 242 946 626

Upstream 329 145 303 550 151 148 631 481

OMC's sharing -9 56 67 0 324 0 0 96

Total 1,033 461 780 1,385 475 391 1,577 1,203

Sharing (%)

Government 69 56 53 60 0 62 60 52

Upstream 32 31 39 40 32 38 40 40

OMC's sharing -1 12 9 0 68 0 0 8

Total 100 100 100 100 100 100 100 100



Petchem margins weak on QoQ basis in 2QFY13 (INR/kg)

(RIL basic prices) Simple spreads Integrated spreads

PE PP PVC POY PSF Naphtha PE PP PVC POY PSF

2QFY11 70.1 72.4 52.0 69.7 68.9 31.2 38.9 41.3 20.8 45.2 44.3

3QFY11 73.4 76.1 53.3 79.8 80.8 36.4 37.0 39.7 16.9 51.0 52.0

4QFY11 74.3 81.9 53.5 97.1 103.8 41.9 32.4 40.0 11.6 64.2 70.9

1QFY12 76.6 87.9 60.7 95.1 104.4 44.8 31.8 43.0 15.8 59.8 69.1

2QFY12 76.3 81.9 57.3 89.3 93.4 44.1 32.1 37.8 13.2 54.4 58.5

3QFY12 80.3 84.0 53.5 91.2 97.1 45.6 34.7 38.5 7.9 55.2 61.1

4QFY12 83.4 84.1 56.2 91.7 96.4 51.9 31.4 32.1 4.2 50.5 55.2

1QFY13 91.9 92.1 61.8 92.4 95.8 48.5 43.3 43.5 13.3 54.0 57.4

2QFY13 91.2 91.9 63.5 93.8 96.2 51.3 39.9 40.6 12.2 53.0 55.4

QoQ (%) -0.7 -0.2 2.7 1.5 0.4 5.7 -7.9 -6.8 -8.3 -1.9 -3.5

YoY (%) 19.6 12.2 10.8 5.0 2.9 16.2 24.2 7.4 -7.6 -2.6 -5.4




95

100

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80

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MOSL Oi l & Gas Index

0

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35

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C–131October 2012


Sector: Oil & Gas




Oil & Gas

BPCL 346 Buy 10.8 21.6 21.5 32.1 16.1 16.1 11.5 8.5 8.8 5.0 9.5 8.9

Cairn India 331 Neutral 48.7 64.2 54.0 6.8 5.2 6.1 5.3 3.5 3.4 21.0 23.1 16.7

Chennai Petroleum 129 Buy 4.2 13.8 34.5 31.1 9.4 3.7 50.9 9.8 5.3 1.6 5.3 12.5

GAIL 383 Neutral 28.8 31.0 32.1 13.3 12.3 11.9 9.6 9.0 8.7 17.9 17.2 16.0

Guj. State Petronet 81 Neutral 9.3 7.7 7.6 8.7 10.4 10.5 5.4 5.9 5.8 23.4 16.4 14.3

HPCL 307 Buy 26.9 24.5 27.4 11.4 12.5 11.2 12.6 11.3 9.0 7.1 6.2 6.6

Indraprastha Gas 265 UR 21.9 25.3 28.0 12.1 10.5 9.5 6.4 5.5 4.8 27.5 26.4 24.7

IOC 251 Buy 49.2 24.4 30.3 5.1 10.2 8.3 8.1 8.9 7.0 20.2 9.5 11.0

MRPL 61 Neutral 5.2 2.9 8.5 11.7 21.2 7.2 6.5 7.3 4.6 13.2 6.8 18.2

Oil India 490 Buy 57.3 58.7 64.7 8.5 8.3 7.6 3.9 3.7 3.3 20.7 18.7 18.4

ONGC 280 Buy 30.4 29.8 33.4 9.2 9.4 8.4 3.7 3.7 3.1 20.7 17.7 17.8

Petronet LNG 158 Buy 14.1 13.1 15.0 11.2 12.1 10.5 7.6 7.9 5.9 34.1 25.1 23.8

Reliance Inds. 837 Neutral 67.7 67.8 69.7 12.4 12.3 12.0 8.0 9.3 8.9 13.0 11.7 11.0


Oil & Gas Ex RMS 10.5 10.1 9.6 5.6 5.6 5.0 16.0 14.9 14.1

Lower Light-Heavy spreads to pressure RIL premium(USD/bbl) Cairn's Rajasthan production likely to average 173kbpd


ONGC's net realization estimated at USD53/bbl GAIL transmission volumes under pressure (mmscmd)


97107 109 115 116 115 120 120 117 119 119 116

110 109

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

FY10 FY11 FY12 FY13

58.356.457.751.448.162.764.8

38.748.183.7

45.044.346.653.3

14.119.027.732.816.524.370.1

73.233.2

66.877.363.359.4

2.3

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

FY10 FY11 FY12 FY13

Net Realizat ion (USD/bbl) Subsidy Burden (USD/bbl)

45

116125 118 125 125 125

138

167 173

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

FY11 FY12 FY13

-5

0

5

10

15

20

1234123412341234123412341234123412341234123412

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12FY13

Premium/ (discount) Singapore GRM (Qtr Avg)

RIL

C–132October 2012


Sector: Oil & Gas

BPCL

Bloomberg BPCL IN



1,6,12 Rel Perf (%) -9/-6/-6

Mcap (INR b) 250.4

Mcap (USD b) 4.8

CMP: INR346 BuyYear Net Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/

End (INR b) (INR b) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA

03/11A 1,536 16.3 22.6 0.2 - - 11.1 5.5 - -

03/12A 2,121 7.8 10.8 -52.2 32.1 1.6 5.0 5.2 0.3 11.5

03/13E 2,455 15.6 21.6 99.8 16.1 1.5 9.5 7.4 0.2 8.5

03/14E 2,339 15.6 21.5 -0.1 16.1 1.4 8.9 6.5 0.2 8.8

* Consolidated




Net Sales 461,177 422,819 588,245 646,422 545,227 571,811 662,679 571,855 2,118,662 2,351,572

Change (%) 34.7 19.7 60.4 42.9 18.2 35.2 12.7 -11.5 39.9 11.0

EBITDA -21,861 -27,148 36,874 50,571 -81,757 17,903 56,235 53,889 38,436 46,270

Change (%) nm nm 406.3 207.6 nm nm 52.5 6.6 12.6 20.4

% of Sales -4.7 -6.4 6.3 7.8 -15.0 3.1 8.5 9.4 1.8 2.0

Depreciation 4,901 4,600 4,667 4,681 4,801 4,950 5,245 5,564 18,849 20,560

Interest 3,349 4,532 5,174 4,941 5,205 5,215 5,200 5,000 17,996 20,619

Other Income 4,492 3,987 4,389 4,382 3,395 4,991 3,707 2,308 17,250 14,402

PBT -25,619 -32,293 31,422 45,331 -88,368 12,729 49,497 45,634 18,842 19,493

Tax 0 0 26 5,703 0 2,546 9,899 -6,013 5,729 6,433

Tax rate (%) 0.0 0.0 0.1 12.6 0.0 20.0 20.0 -13.2 30.4 33.0

PAT -25,619 -32,293 31,396 39,628 -88,368 10,183 39,598 51,646 13,113 13,060

Change (%) nm nm 1,575.5 323.8 nm nm 26.1 30.3 -15.2 -0.4

Adj. PAT -25,619 -32,293 31,396 39,628 -88,368 10,183 39,598 51,646 13,113 13,060

Adj. EPS -35.4 -44.7 43.4 54.8 -122.2 14.1 54.8 71.4 18.1 18.1

Key Assumption (INR b)

Gross under recovery 103 49 76 98 116 93 91 93 326 393

Upstream sharing 34 16 36 43 37 35 41 43 130 156

Govt. sharing 35 0 70 92 0 58 90 90 197 237

Net Under/(Over) recovery 34 32 -29 -36 80 0 -40 -40 0 0

As a % of Gross 32.6 66.3 nm nm 68.5 0.1 nm nm 0.0 nm

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which

is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.

OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the

quarter-end, and (b) forex gain as rupee has appreciated by ~4%.

2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily

due to lower LPG prices and diesel price hike effected on 13 September 2012.

For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing

at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.

We expect BPCL to report PAT of INR10b v/s loss of INR32.3b in 2QFY12 and INR88.4b in 1QFY13.

Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations and (c) GRM.

Adjusted for investment value of INR187/sh (E&P, Bina and other listed investments post 25% discount), the

stock trades at FY13E P/B of INR0.7x. Buy.

C–133October 2012


Sector: Oil & Gas

Cairn India

Bloomberg CAIR IN



1,6,12 Rel Perf (%) -9/-12/4

Mcap (INR b) 630.9

Mcap (USD b) 12.0

CMP: INR331 NeutralYear Net Sales PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/

End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) BOE (1P)EBITDA

03/11A 102,779 63,343 33.3 502.6 - - 17.1 17.9 18.5 -

03/12A 131,130 92,929 48.7 46.3 6.8 1.3 21.0 20.3 16.2 5.3

03/13E 188,419 122,387 64.2 31.7 5.2 1.1 23.1 23.9 12.7 3.5

03/14E 184,280 102,970 54.0 -15.9 6.1 1.0 16.7 18.5 11.5 3.4

*Consolidated




Net Sales 37,127 26,522 30,968 36,513 44,400 48,725 47,238 48,055 131,130 188,419

Change (%) 341.7 -1.3 0.0 -0.1 19.6 83.7 52.5 31.6 27.6 43.7

EBITDA 31,748 21,040 25,456 29,812 34,921 37,609 36,028 37,075 108,056 145,633

D,D & A (inc. w/off) 3,647 3,531 5,550 4,663 4,726 4,963 6,450 7,196 17,391 23,335

Interest 446 1,228 240 305 295 50 0 0 2,220 345

Other Income (Net) 528 620 1,124 923 964 1,476 1,597 1,809 3,194 5,846

Forex Fluctuations -8 5,310 3,015 -2,170 8,663 -2,752 0 0 6,148 5,910

Exceptional items 13,552 13,552 0

PBT 28,175 22,211 23,803 23,598 39,528 31,319 31,175 31,688 97,787 133,710

Tax 909 1,029 1,184 1,735 1,271 3,011 2,806 4,236 4,857 11,323

Tax rate* (%) 3.2 6.1 5.7 6.7 4.1 8.8 9.0 13.4 5.3 8.9

PAT 27,266 7,630 22,619 21,862 38,257 28,308 28,369 27,452 79,378 122,387

YoY Change (%) 868.9 -51.9 12.5 -11.0 40.3 271.0 25.4 25.6 25.3 54.2

EPS 14.3 4.0 11.9 11.5 20.1 14.8 14.9 14.4 41.6 64.2

Key Assumptions and Cain's share in production (kboepd)

Exchange rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4

Brent Price (USD/bbl) 116.8 112.9 109.3 118.8 108.7 110.2 110.0 111.1 114.5 110.0

Ravva and Cambay Prodn. 12.1 11.5 11.4 10.9 10.2 10.2 10.2 10.2 11.5 10.2

Rajasthan Production 87.6 87.7 87.6 96.3 117.0 121.1 122.5 123.8 89.8 121.1

Total 99.6 99.2 99.0 107.3 127.2 131.3 132.7 134.0 101.3 131.3

E: MOSL Estimates; * Excluding forex fluctuations, includes MAT credit.

BSE Sensex S&P CNX

18,763 5,703

We expect Cairn India to report net sales of INR48.7b (v/s INR44.4b in 1QFY13), led by higher average production

at its Rajasthan block. We estimate EBITDA at INR37.6b v/s INR21b in 2QFY12 and INR35b in 1QFY13.

We estimate gross oil sales of 173kbpd from Rajasthan field and total net sales of 131kboepd (v/s 99.2kboepd in

2QFY12 and 127kboepd in 1QFY13).

We expect Other income to increase led by higher cash balance. We estimate forex loss of INR2.7b v/s gain of

INR8.7b in 1QFY13 due to ~4% QoQ rupee appreciation v/s 10% depreciation in 1QFY13.

The company's near-term focus areas are: (1) debottlenecking of its pipeline, (2) production ramp-up, (3)

approvals on further exploration in Rajasthan, and (4) maiden dividend.

We model in Brent crude price of USD110/105/105bbl in FY13/14/15 and long-term price of USD90/bbl, and take

a quality discount for Cairn India of 10.5% in FY13 and 12% long-term. We have assumed FY13 tax rate of 9% at

the upper end of management guidance of 5-9%.

Key things to watch out for: (a) Net realization, (b) Forex fluctuations.

The stock currently trades at 5.2x FY13E EPS of INR64.2. Maintain Neutral.

C–134October 2012


Sector: Oil & Gas

Chennai Petroleum Corporation

Bloomberg MRL IN



1,6,12 Rel Perf (%) -10/-25/-51

Mcap (INR b) 19.3

Mcap (USD b) 0.4

CMP: INR129 BuyYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE Div EV/

End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Yld (%) EBITDA

03/11A 331,406 5,115 34.3 -15.2 - - 14.2 12.2 8.1 -

03/12A 407,962 619 4.2 -87.9 31.1 0.51 1.6 1.0 1.3 50.9

03/13E 520,945 2,053 13.8 231.9 9.4 0.49 5.3 7.2 3.4 9.8

03/14E 510,725 5,146 34.5 150.7 3.7 0.45 12.5 11.4 7.7 5.3




Net Sales 98,953 94,231 111,509 103,270 110,379 100,501 153,688 156,377 407,962 520,945

Change (%) 55.6 16.0 33.6 0.2 11.5 6.7 37.8 51.4 23.1 27.7

EBITDA 642 -2,102 619 2,239 -7,848 4,499 6,895 5,764 1,398 9,311

% of Sales 0.6 -2.2 0.6 2.2 -7.1 4.5 4.5 3.7 0.3 1.8

% Change 255.6 nm -82.2 -61.5 nm nm 1,014.3 157.4 -88.4 565.9

Depreciation 913 918 910 913 894 950 980 1,096 3,654 3,919

Interest 587 93 956 858 1,093 1,095 1,100 1,135 2,494 4,423

Other Income 42 110 309 2,707 60 1,350 480 480 3,168 2,370

PBT -816 -3,002 -939 3,175 -9,774 3,804 5,295 4,013 -1,582 3,338

Tax -265 -3,734 -305 2,103 -85 842 1,173 -929 -2,201 1,002

Rate (%) nm nm 32.5 66.2 0.9 22.1 22.1 -23.1 139.1 30.0

PAT -551 732 -634 1,072 -9,690 2,962 4,122 4,942 619 2,337

Change (%) nm -25.1 nm -65.9 nm 304.7 nm 361.1 -87.9 277.8

EPS -3.7 4.9 -4.3 7.2 -65.0 19.9 27.7 33.2 4.2 15.7

Key Assumptions

GRM (USD/bbl) 2.4 0.3 3.4 4.5 -2.2 7.1 7.1 6.7 2.6 4.7

Throughput (mmt) 2.5 2.6 2.7 2.7 2.5 2.0 3.2 3.2 10.6 10.9

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect CPCL to report 2QFY13 PAT of INR2.9b v/s INR732m in 2QFY12 and loss of INR9.7b in 1QFY13.

EBITDA is expected to be INR4.5b against EBITDA loss of INR7.8b in 1QFY13. The turnaround is led by positive

GRM helped by crude inventory gains. Regional benchmark Reuters Singapore GRM is up 36% QoQ to USD9.1/

bbl from USD6.7/bbl.

On the operational front, we expect refinery throughput at 2mmt (down 21% QoQ and 23% YoY) due to planned

75-day shutdown for tie-up of revamped CDU/VDU units which will increase its refining capacity by 0.6mmt.

We expect refining margins to remain subdued as the global operating rates (ex US) are likely to remain low led

by lower demand (particularly in Europe), commissioning of new refineries and delay in capacity closures

(protectionist policies by European governments).

Key things to watch out for: (a) GRM, (b) Forex fluctuations, (c) Inventory changes.

For CPCL we model in GRM of USD4.7/bbl for FY13 and USD5.5/bbl for FY14. The stock trades at FY14E P/E of 3.7x

and EV/EBITDA of 5.3x. Maintain Buy.

C–135October 2012


Sector: Oil & Gas

GAIL (India)

Bloomberg GAIL IN



1,6,12 Rel Perf (%) -2/-5/-23

Mcap (INR b) 485.9

Mcap (USD b) 9.2

CMP: INR383 NeutralYear Net Sales Adj. PAT EPS EPS *P/E *P/BV RoE RoCE *EV/ *EV/


03/11A 324,586 35,610 28.7 16.0 - - 19.8 24.8 - -

03/12A 402,807 36,538 28.8 0.4 10.6 1.8 17.9 21.0 1.1 7.2

03/13E 445,447 39,363 31.0 7.7 9.8 1.6 17.2 18.6 1.1 7.2

03/14E 489,873 40,771 32.1 3.6 9.5 1.4 16.0 16.2 1.1 7.1

*Adjustment for investments




Net Sales 88,674 96,990 112,598 104,546 110,886 111,932 113,224 109,405 402,807 445,447

Change (%) 25.0 19.7 34.6 17.6 25.0 15.4 0.6 4.6 24.1 10.6

EBITDA 15,556 16,482 17,605 7,338 18,991 13,935 17,409 15,214 56,981 65,549

% of Net Sales 17.5 17.0 15.6 7.0 17.1 12.4 15.4 13.9 14.1 14.7

Change (%) 8.4 15.0 33.9 -42.3 22.1 -15.5 -1.1 107.3 4.5 15.0

Depreciation 1,782 2,008 1,975 2,143 2,169 2,185 2,223 2,276 7,907 8,853

Interest 208 226 207 523 588 590 598 307 1,165 2,082

Other Income 863 1,434 557 2,637 612 1,008 1,350 39 5,491 3,008

PBT 14,429 15,682 15,980 7,309 16,846 12,168 15,938 12,670 53,400 57,622

Tax 4,582 4,738 5,066 2,476 5,508 3,804 4,997 3,950 16,862 18,259

Rate (%) 31.8 30.2 31.7 33.9 32.7 31.3 31.4 31.2 31.6 31.7

PAT 9,847 10,944 10,914 4,833 11,338 8,364 10,942 8,720 36,538 39,363

Change (%) 11.0 18.5 12.8 -38.3 15.1 -23.6 0.3 80.4 2.6 7.7

Key Assumptions

Gas Trans. volume (mmsmd) 117 119 119 116 110 109 114 124 118 114

Petchem sales ('000MT) 88 129 113 118 66 105 110 113 448 394

LPG realization (USD/MT) 958 898 819 977 1,015 710 900 800 912 856

Segmental EBIT Breakup (INRm)

Natural Gas transmission 6,520 5,562 6,208 3,248 5,673 5,487 5,740 5,527 21,539 22,427

LPG transmission 690 722 775 533 709 686 690 692 2,720 2,777

Natural Gas Trading 3,131 2,866 3,230 1,659 4,956 2,978 2,978 2,908 10,886 13,821

Petrochemicals 2,434 4,041 3,875 4,309 1,958 3,754 3,894 3,973 14,658 13,579

LPG & Liq.HC (pre-subsidy) 9,104 9,187 8,416 10,663 11,373 6,851 10,599 8,683 37,371 37,506

Total 21,544 21,560 22,068 20,037 24,751 19,755 23,900 21,783 85,209 90,189

Less: Subsidy -6,819 -5,666 -5,361 -13,980 -7,000 -7,887 -8,616 -9,354 -31,826 -32,858

Total 14,725 15,894 16,707 6,057 17,751 11,868 15,284 12,429 53,383 57,332

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect GAIL to report adjusted PAT of INR8.4b (down 24%YoY and 26% QoQ).

Subsidy sharing assumption: For FY13, we model upstream sharing at 40%, similar to FY12. We also model GAIL's

share at INR7.9b in 2QFY13 v/s INR5.7b in 2QFY12 and INR7b in 1QFY13.

Segmental EBIT (pre-subsidy) is sharply down 20% QoQ primarily due to lower LPG realizations (down 30%

QoQ) and lower gas trading EBIT (1Q included one-time gains). This is partly compensated by higher petchem

EBIT (volumes up 59% QoQ). We model gas transmission volumes at 109mmscmd v/s 119 in 2QFY12 and 110 in

1QFY13.

Key things to watch out for: a) Subsidy sharing, b) Transmission volumes.

Adjusted for investments, the stock trades at 9.5x FY14E EPS of INR32.1. Though we like the management's

strategy to build network to enable gas sourcing, we remain Neutral due to medium-term earnings concern led

by likely under-utilization of its new network on account of headwinds to incremental gas availability.

C–136October 2012


Sector: Oil & Gas

Gujarat State Petronet

Bloomberg GUJS IN



1,6,12 Rel Perf (%) -6/-2/-35

Mcap (INR b) 45.4

Mcap (USD b) 0.9

CMP: INR81 NeutralYear Net Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 10,391 5,064 9.0 22.3 - - 28.4 25.6 - -

03/12A 11,153 5,221 9.3 3.1 8.7 1.8 23.4 22.8 4.9 5.4

03/13E 9,676 4,350 7.7 -16.7 10.4 1.6 16.4 17.9 5.4 5.9

03/14E 9,278 4,303 7.6 -1.1 10.5 1.4 14.3 15.9 5.3 5.8

*Our EPS numbers does not factor in any provision towards "Social Contribution Fund"

Quarterly Performance (INR Milllion)



Net Sales 2,843 2,808 2,739 2,763 2,676 2,426 2,387 2,188 11,153 9,676

Change (%) 12.9 11.0 -1.9 8.3 -5.9 -13.6 -12.8 -20.8 7.3 -13.2

EBITDA 2,619 2,584 2,518 2,520 2,465 2,218 2,181 1,988 10,241 8,852

% of Net Sales 92.1 92.0 91.9 91.2 92.1 91.4 91.4 90.9 91.8 91.5

% Change 10.0 11.3 -3.9 9.7 -5.9 -14.2 -13.4 -21.1 6.5 -13.6

Depreciation 453 440 460 466 439 475 478 509 1,819 1,902

Interest 324 337 325 316 317 320 324 336 1,302 1,297

Other Income 112 143 175 165 176 175 175 353 593 878

PBT 1,954 1,949 1,907 1,902 1,884 1,598 1,554 1,495 7,714 6,532

Tax 581 656 646 610 636 513 499 534 2,493 2,182

Rate (%) 29.7 33.7 33.9 32.0 33.7 32.1 32.1 35.7 32.3 33.4

PAT 1,374 1,293 1,261 1,293 1,248 1,085 1,055 962 5,221 4,350

Change (%) 31 41 -21 -14 -9 -16 -16 -26 3 -17

EPS (INR) 2.4 2.3 2.2 2.3 2.2 1.9 1.9 1.7 9.3 7.7

Transmission Vol. (mmscmd) 36.8 35.2 32.8 31.1 31.1 30.0 29.5 29.4 34.0 30.0

Implied tariff (INR/mscm) 813 835 899 956 903 850 850 797 872 850

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect GSPL to report net sales of INR2.4b and PAT of INR1.1b (down 16% YoY and 13% QoQ).

We build lower gas transmission volumes at 30mmscmd in 2QFY13 (v/s 35.2mmscmd in 2QFY12 and 31.1mmscmd

in 1QFY13) led by decline in KG-D6 production.

The recent tariff approval by PNGRB for GSPL's high pressure pipeline indicates 12.5% tariff cut for GSPL,

however was above our and consensus estimate. Further, as against our earlier understanding of retrospective

likely impact of (a) tariff change and (b) return the cost of system use gas (SUG), including unaccounted gas;

management indicated that they are unlikely to have to refund. Given the non-clarity on this issue we do not

build any impact in our estimates and would await for more clarity.

GSPL has won all 3 bids for cross country pipelines and in JV with OMC's is currently building the same. However,

concerns remain on the gas availability for these pipelines and are likely to remain underutilized in the initial

years of operation.

Key things to watch out for: a) Transmission volumes, b) Clarity on the recent tariff order by PNGRB.

We build gas transmission volumes of 30mmscmd in FY13 and 33mmscmd in FY14. We model average tariff at

INR850/mscm in FY13 and INR800/mscm in FY14. The stock trades at 10.5x FY14E EPS of INR7.6. Neutral.

C–137October 2012


Sector: Oil & Gas

HPCL

Bloomberg HPCL IN



1,6,12 Rel Perf (%) -8/0/-29

Mcap (INR b) 104.2

Mcap (USD b) 2.0

CMP: INR307 BuyYear Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 1,309,342 15,390 45.4 18.3 - - 12.8 8.6 - -

03/12A 1,781,392 9,115 26.9 -40.8 11.4 0.8 7.1 6.7 0.2 9.6

03/13E 1,898,362 8,292 24.5 -8.7 12.5 0.8 6.2 6.2 0.1 7.9

03/14E 2,007,946 9,295 27.4 11.7 11.2 0.7 6.6 6.6 0.1 6.4




Net Sales 407,980 370,302 479,174 523,936 440,765 496,111 513,057 448,428 1,781,392 1,898,362

Change (%) 39.6 31.6 41.3 32.1 8.0 34.0 7.1 -14.4 36.1 6.6

EBITDA -26,873 -29,437 35,725 54,667 -88,759 16,697 52,817 50,319 34,082 31,073

% of Net Sales -6.6 -7.9 7.5 10.4 -20.1 3.4 10.3 11.2 1.9 2

Change (%) 66.3 nm 470.1 176.8 nm nm 47.8 -8.0 3.0 -215.6

Depreciation 3,886 4,150 4,368 4,726 4,544 4,650 4,755 4,995 17,129 18,944

Interest 2,641 3,028 6,982 4,326 5,492 4,160 3,520 3,040 16,977 16,212

Other income 2,585 2,971 2,876 3,790 6,337 4,925 1,925 1,291 12,222 14,478

Exceptional Item 12 0 -17 -29 0 0 0 -5 -29

PBT -30,803 -33,644 27,252 49,387 -92,488 12,812 46,467 43,574 12,193 10,366

Tax 0 0 0 3,077 0 1,409 5,111 -4,448 3,077 2,073

Rate (%) 0.0 0.0 0.0 6.2 0.0 11.0 11.0 nm 25.2 20.0

PAT -30,803 -33,644 27,252 46,310 -92,488 11,403 41,356 48,022 9,115 8,292

Change (%) 63.5 nm 1,191.6 312.5 nm nm 51.8 3.7 -40.8 -9.0

Adj. EPS -90.9 -99.2 80.4 136.6 -272.8 33.6 122.0 141.7 26.9 24.5

Key Assumptions (INR b)



Oil Bonds/Cash subsidy 33 0 66 85 0 53 83 82 183 218

Net Under recovery 31 31 -28 -34 73 0 -36 -36 0 0

Net Sharing (%) 32 67 nm nm 69 nm nm nm nm nm

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Standalone









We expect HPCL to report PAT of INR11.4b v/s loss of INR33.6b in 2QFY12 and INR92.5b in 1QFY13.

Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations and (c) GRM.

HPCL trades at 12.5x FY13E EPS and 0.8x FY13E BV. We have a Buy rating due to attractive valuations.

C–138October 2012


Sector: Oil & Gas

Indian Oil Corporation

Bloomberg IOCL IN



1,6,12 Rel Perf (%) -5/-13/-34

Mcap (INR b) 608.3

Mcap (USD b) 11.5

CMP: INR251 BuyYear Net Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 3,081 78.3 32.3 -26.9 - - 14.2 11.2 - -

03/12A 4,072 119.3 49.2 52.4 5.1 1.0 20.2 12.9 0.3 7.2

03/13E 4,261 59.4 24.4 -50.3 10.2 0.9 9.5 9.4 0.3 8.0

03/14E 4,425 73.6 30.3 24.0 8.3 0.9 11.0 11.1 0.3 6.3

*Consolidated




Net Sales 1,007,239 891,456 1,152,084 1,277,355 966,028 1,115,444 1,199,679 1,257,876 4,328,133 4,539,026

Change (%) 40.5 16.1 43.4 30.0 -4.1 25.1 4.1 -1.5 32.3 4.9

EBITDA -24,225 -53,618 107,247 140,402 -202,360 62,858 149,549 143,184 169,807 153,230

% of Net Sales -2.4 -6.0 9.3 11.0 -20.9 5.6 12.5 11.4 3.9 3.4

% Change nm nm 293.2 163.7 nm nm 39.4 2.0 45.7 -9.8

Depreciation 12,235 12,638 12,839 10,966 12,775 13,500 13,700 14,099 48,678 54,074

Interest 10,376 14,840 15,652 15,038 18,491 15,930 14,813 14,672 55,905 63,906

Other Income 9,649 6,241 7,810 25,699 9,117 10,795 10,433 7,209 49,398 37,554

PBT -37,187 -74,855 86,566 140,098 -224,510 44,223 131,469 121,622 114,621 72,805

Tax 0 0 0 -2,003 0 2,653 10,518 1,390 -2,003 14,561

Rate (%) nm nm nm -1.4 nm 6.0 8.0 1.1 -1.7 20.0

Adj. PAT -37,187 -74,856 86,566 142,101 -224,510 41,570 120,952 120,232 116,624 58,245

Change (%) nm nm 429.5 263.9 nm nm 39.7 -15.4 56.6 -50.1

Extraordinary Items -61,682 -15,396 0 0 0 0 -77,078 0

PAT -37,187 -74,856 24,884 126,704 -224,510 41,570 120,952 120,232 39,546 58,245

Adj. EPS -15.3 -30.8 35.7 58.5 -92.5 17.1 49.8 49.5 48.0 24.0

Key Assumptions (INR b)



Govt. sharing 82 0 164 209 0 131 201 198 455 530

Net Under recovery 77 78 -70 -85 175 0 -87 -88 0 0

As a % of Gross 32.2 66.7 nm nm 68.5 0.1 nm nm 0.0 0.0

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703









We expect IOCL to report PAT of INR41.6b v/s loss of INR75b in 2QFY12 and INR224b in 1QFY13. Reported PAT in

FY12 was impacted due to one-time provision of INR77.1b towards entry tax for its Mathura refinery in UP.

Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations, and (c) GRM.

IOC trades attractively at 0.9x FY13E book value and 10.2x FY13E EPS. Buy.

C–139October 2012


Sector: Oil & Gas

Indraprastha Gas

Bloomberg IGL IN



1,6,12 Rel Perf (%) -1/-38/-51

Mcap (INR b) 37.1

Mcap (USD b) 0.7

CMP: INR265 Under ReviewYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 17,437 2,594 18.5 20.4 - - 28.4 35.7 - -

03/12A 25,151 3,072 21.9 18.4 12.1 3.0 27.5 33.2 1.6 6.4

03/13E 35,309 3,540 25.3 15.2 10.5 2.6 26.4 32.2 1.2 5.5

03/14E 43,200 3,916 28.0 10.6 9.5 2.2 24.7 29.5 0.9 4.8




Net Sales 5,364 5,969 6,615 7,203 7,602 8,530 9,178 9,999 25,151 35,309

Change (%) 60.1 34.1 45.5 41.4 41.7 42.9 38.7 38.8 44.2 40.4

EBITDA 1,573 1,574 1,488 1,685 1,793 1,861 1,899 1,977 6,320 7,529

EBITDA (INR/scm) 5.6 5.1 4.7 5.3 5.6 5.4 5.2 5.2 5.2 5.3

% of Net Sales 29.3 26.4 22.5 23.4 23.6 21.8 20.7 19.8 25.1 21.3

% Change 47.4 27.9 17.3 24.2 13.9 18.3 27.6 17.3 28.4 19.1

Depreciation 322 344 368 397 427 445 457 464 1,432 1,793

Interest 90 118 135 136 155 158 159 177 479 650

Other Income 24 21 31 27 36 39 45 51 103 171

PBT 1,185 1,132 1,016 1,179 1,247 1,297 1,327 1,386 4,512 5,257

Tax 384 360 324 372 396 431 441 449 1,440 1,717

Rate (%) 32.4 31.8 31.9 31.5 31.8 33.2 33.2 32.4 31.9 32.7

PAT 801 772 692 808 850 866 886 937 3,072 3,540

PAT (Rs/scm) 2.8 2.5 2.2 2.5 2.6 2.5 2.4 2.5 2.5 2.5

Change (%) 40.1 16.5 2.9 16.8 6.2 12.2 28.2 16.0 18.3 15.2

EPS (INR) 5.7 5.5 4.9 5.8 6.1 6.2 6.3 6.7 21.9 25.3

Gas Volumes (mmscmd)

CNG 2.38 2.60 2.64 2.66 2.67 2.80 2.97 3.19 2.57 2.91

PNG 0.71 0.74 0.77 0.86 0.88 0.92 0.98 1.06 0.77 0.96

Total 3.10 3.34 3.41 3.52 3.55 3.72 3.94 4.25 3.34 3.87

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect IGL to report 2QFY13 volume of 3.72mmscmd and PAT of INR866m (up 12% YoY and 2% QoQ).

We expect 2QFY13 CNG volumes to grow 8% YoY to 2.8mmscmd and PNG volumes to grow 24% YoY to 0.9mmscmd.

Historically, owing to favorable economics vis-à-vis alternative fuels, IGL has been able to pass on any hike in its

gas cost thereby insulating any impact on its EBITDA margin. But with absence of KG-D6 gas supply, there is

pressure on company's margin as it is sourcing more expensive RLNG to meet demand.

Key things to watch out for: (a) EBITDA margin, (b) Sales volume.

We model in total volumes of 3.9/4.5mmscmd in FY13/FY14. The stock trades at 10.5x FY13E EPS of INR25.3.

Post the High Court quashing PNGRB's tariff cut order on IGL, PNGRB has now approached Supreme Court and

the hearing is still on. Given the uncertainty in the likely judgment and impact on the profitability of the

company, we keep our rating Under Review.

C–140October 2012


Sector: Oil & Gas

MRPL

Bloomberg MRPL IN



1,6,12 Rel Perf (%) -12/-7/-17

Mcap (INR b) 106.6

Mcap (USD b) 2.0

CMP: INR61 NeutralYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 389,567 11,766 6.7 11.2 - - 19.4 23.7 - -

03/12A 537,703 9,086 5.2 -22.8 11.7 1.5 13.2 19.2 0.3 6.2

03/13E 659,992 5,026 2.9 -44.7 21.2 1.4 6.8 10.3 0.2 7.7

03/14E 648,920 14,841 8.5 195.3 7.2 1.2 18.2 16.8 0.2 4.4




Net Sales 133,691 116,657 129,308 158,384 128,099 168,502 175,883 187,438 538,040 659,922

Change (%) 69.9 39.6 25.3 27.6 -4.2 44.4 36.0 18.3 38.1 22.7

EBITDA 2,225 754 3,011 7,821 -12,966 9,306 8,015 8,538 13,811 12,893

% of Net Sales 1.7 0.6 2.3 4.9 nm 5.5 4.6 4.6 2.6 2.0

% Change 67 -80 -45 -8 nm 1,135 166 9 -27.2 -6.7

Depreciation -952 -965 -1,174 -1,248 -1,375 -1,380 -1,382 -1,382 -4,339 -5,519

Interest -270 -999 -423 -375 -1,102 -1,110 -1,113 -633 -2,067 -3,958

Other Income 1,352 1,522 248 2,697 495 1,694 800 881 5,819 3,869

Exceptional items -11 8 47 -22 0 0 0 0 22 0

PBT 2,366 304 1,615 8,918 -14,948 8,509 6,320 7,404 13,203 7,285

Tax -639 -63 -518 -2,897 -257 -148 -126 -1,727 -4,116 -2,258

Rate (%) nm -20.6 -32.0 -32.5 nm -1.7 -2.0 -23.3 -31.2 -31.0

PAT 1,727 241 1,098 6,021 -15,206 8,361 6,194 5,677 9,086 5,026

Change (%) 506.8 -91.5 -65.0 8.9 nm 3,365.2 464.3 -5.7 -22.9 -44.7

EPS (INR) 1.0 0.1 0.6 3.4 -8.7 4.8 3.5 3.2 5.2 2.9

GRM (USD/bbl) 3.0 1.7 3.8 7.1 -4.2 7.5 6.3 6.4 3.9 4.0

Throughput (mmt) 3.3 3.1 3.0 3.4 2.9 3.5 3.8 4.0 12.8 14.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect MRPL to report 2QFY13 PAT of INR8.4b (v/s INR241m in 2QFY12 and net loss of INR15b in 1QFY13).

EBITDA is expected at INR9.3b (v/s INR754m in 2QFY12 and EBITDA loss of INR13b in 1QFY12). The QoQ turnaround

to profit is led by positive GRM helped by crude inventory gains. Regional benchmark Reuters Singapore GRM

is up 36% QoQ to USD9.1/bbl from USD6.7/bbl.

On the operational front, we expect refinery throughput at 3.5mmt (up 21% QoQ and 14%YoY), helped by no

shutdowns and start of Phase 2 CDU by end-September 2012.

Key things to watch out for: a) GRM, b) Forex fluctuations, c) Inventory changes.

We expect refining margins to remain subdued as the global operating rates (ex US) are likely to remain low led

by lower demand (particularly in Europe), commissioning of new refineries and delay in capacity closures

(protectionist policies by European governments).

For MRPL, we model inn GRM of USD4/bbl for FY13 and USD7.3/bbl for FY14. The stock trades at FY14E P/E of 7.2x

and EV/EBITDA of 4.4x. Maintain Neutral.

C–141October 2012


Sector: Oil & Gas

Oil India

Bloomberg OINL IN



1,6,12 Rel Perf (%) -6/-10/-22

Mcap (INR b) 294.3

Mcap (USD b) 5.6

CMP: INR490 BuyYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV (USD)/ EV/

End (INR b) (INR b) (INR) Gr (%) (X) (X) (%) (%) BoE EBITDA

03/11A 83,034 28,872 48.0 10.6 - - 19.7 27.3 - -

03/12A 97,741 34,469 57.3 19.4 8.5 1.7 20.7 27.7 7.6 3.9

03/13E 102,845 35,259 58.7 2.3 8.3 1.5 18.7 25.8 6.7 3.7

03/14E 113,194 38,867 64.7 10.2 7.6 1.3 18.4 25.7 6.9 3.3

Quarterly Performance (Standalone) (INR Billion)



Net Sales 22.9 32.7 25.0 17.2 23.3 25.9 27.1 26.5 97.7 102.8

Change (%) 50.2 37.8 4.5 -14.8 2.0 -20.8 8.5 54.4 0.0 5.2

EBITDA 12.5 16.2 13.3 4.8 11.0 12.7 13.5 12.4 46.9 49.6

% of Net Sales 54.5 49.5 53.5 28.0 47.0 49.0 49.9 46.9 47.9 48.2

Change (%) 67.8 19.9 -3.4 -50.0 -12.2 -21.7 1.2 158.0 5.5 352.4

D,D&A 3.6 5.9 2.9 2.8 2.0 3.9 4.1 4.2 15.3 14.2

Interest 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0

OI (incl. Oper. other inc) 3.8 6.8 4.7 4.2 4.8 5.1 4.9 5.5 19.5 20.3

PBT 12.6 17.1 15.1 6.2 13.8 13.8 14.3 13.8 51.0 55.7

Tax 4.1 5.7 5.0 1.7 4.5 4.4 4.7 4.5 16.5 18.2

Rate (%) 32.4 33.5 33.0 28.2 32.5 32.1 33.0 33.0 32.4 32.6

PAT 8.5 11.4 10.1 4.4 9.3 9.4 9.6 9.2 34.5 37.5

Change (%) 69.5 24.3 1.2 -20.9 9.5 -17.4 -5.6 107.3 15.6 303.2

% of Net Sales 37.1 34.8 40.6 25.9 39.9 36.3 35.3 34.7 35.3 36.5

Adj. PAT 8.5 11.4 10.1 4.4 9.3 9.4 9.6 9.2 34.5 37.5

Key Assumptions (USD/bbl)

Exchange rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4

Gross Oil Realization 116.3 112.5 110.1 119.7 109.8 110.4 110.2 111.3 114.7 110.4

Subsidy 56.8 26.2 53.1 80.8 55.9 54.9 51.3 50.1 54.2 53.1

Net Oil Realization 59.6 86.3 57.0 38.9 53.9 55.5 58.9 61.2 60.4 57.4

Subsidy (INR b) 17.8 8.4 18.5 28.7 20.2 21.2 19.7 19.1 73.5 80.1

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Oil India to report 2QFY13 PAT of INR9.4b (v/s INR11.4b in 2QFY12 and INR9.3b in 1QFY13). We

estimate EBITDA at INR12.7b (down 22% YoY and up 16% QoQ).

We estimate gross realization at USD110.4/bbl v/s USD112.5 in 2QFY12 and USD109.8 in 1QFY13 and net realization

at USD55.5/bbl v/s USD86.3 in 2QFY12 and USD53.9 in 1QFY13.

Subsidy sharing assumption: For FY13, we model upstream sharing at 40% (similar to FY12), and Oil India's share

at 13.2% of upstream. We model Oil India to share INR21.2b (USD55/bbl) in 2QFY13.

Key things to watch out for: (a) Subsidy sharing, (b) DD&A charges, (c) Oil & Gas production volumes.

Our Brent price assumption is USD110/105/100/90bbl for FY13/14/15/long-term and we model upstream sharing

at 40% in FY13/14 and 33% beyond that.

The stock trades at 7.6x FY14E EPS of INR64.7. We remain positive on Oil India due to its strong operational

foothold: (1) steady production growth, (2) high share of oil in its reserves (55% in 1P and 62% in 2P), and (3)

attractive valuations (>50% discount to its global peers on EV/BOE, 1P basis). Buy.

C–142October 2012


Sector: Oil & Gas

ONGC

Bloomberg ONGC IN



1,6,12 Rel Perf (%) -7/-1/-7


Mcap (USD b) 45.5

CMP: INR280 BuyYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/

End (INR b) (INR b) (INR) Gr. (%) (X) (X) (%) (%) BoE EBITDA

03/11A 1,176 210 24.5 8.1 - - 19.5 18.8 6.9 -

03/12A 1,464 260 30.4 24.1 9.2 1.8 20.7 19.4 6.6 3.7

03/13E 1,599 255 29.8 -1.9 9.4 1.6 17.7 16.6 5.5 3.7

03/14E 1,696 286 33.4 11.8 8.4 1.4 17.8 16.8 5.3 3.1

*Consolidated, EV/BOE in USD on 1P basis

Quaterly performance (Standalone) (INR Billion)



Net Sales 162.0 226.2 181.2 188.2 200.8 217.7 202.9 190.4 757.6 811.8

Change (%) 18.5 24.3 -2.5 22.2 24.0 -3.8 11.9 1.2 15.1 7.2

EBITDA 92.7 141.6 106.6 110.6 110.4 119.4 107.1 97.6 451.4 434.5

% of Net Sales 57.2 62.6 58.8 58.8 55.0 54.9 52.8 51.3 59.6 53.5

D,D & A 41.2 32.8 45.3 49.1 32.0 40.6 49.2 50.2 168.4 172.0

Interest 0.0 0.1 0.0 0.2 0.3 0.3 0.2 0.2 0.3 1.0

Other Income 9.3 14.4 44.9 15.1 11.3 14.4 13.3 15.9 83.8 54.9

PBT 60.7 123.2 106.2 76.4 89.4 92.9 70.9 63.0 366.5 316.3

Tax 19.8 36.7 38.7 20.0 28.6 28.9 21.7 15.8 115.2 95.1

Rate (%) 32.5 29.8 36.5 26.1 32.0 31.1 30.6 25.1 31.4 30.1

PAT 40.9 86.4 67.4 56.5 60.8 64.0 49.2 47.2 251.3 221.2

Adjusted PAT 40.9 86.4 46.4 56.4 60.8 64.0 49.2 47.2 230.2 221.2

Change (%) 11.8 60.4 -20.2 119.4 48.4 -25.9 6.1 -16.3 32.0 -3.9

Adj. EPS (INR) 4.8 10.1 5.4 6.6 7.1 7.5 5.7 5.5 26.9 25.9


Fx rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4

Gross Oil Realization 121.3 116.8 111.7 121.6 109.9 112.7 112.5 113.6 117.9 112.2

Subsidy 73.2 33.2 66.8 77.3 63.3 59.4 65.2 73.8 62.6 65.4

Net Oil Realization 48.1 83.6 45.0 44.3 46.6 53.3 47.3 39.8 55.2 46.8

Subsidy (INR b) 120.5 57.1 125.4 141.7 123.5 119.2 127.4 144.1 444.7 514.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect ONGC to report 2QFY13 PAT of INR64b (v/s INR86.4b in 2QFY12 and INR60.8b in 1QFY13). We estimate

EBITDA at INR119b (down 16% YoY and up 8% QoQ). YoY EBITDA decline is primarily due to lower net realization

and higher cess rate of INR4,500/MT v/s INR2,500MT in FY12.

We estimate gross realization at USD112.7/bbl v/s USD116.8 in 2QFY12 and USD109.9 in 1QFY13, and net realization

at USD53.3/bbl v/s USD83.6 in 2QFY12 and USD46.6 in 1QFY13.

Subsidy sharing assumption: For FY13, we model upstream sharing at 40% (similar to FY12), and ONGC's share at

~82% of upstream. We expect ONGC to share INR119.2b (USD59.4/bbl) in 2QFY13.

Key things to watch out for: (a) Subsidy sharing, (b) DD&A charges, (c) Oil & Gas production volumes.

Key medium term earnings triggers include (a) likely production increase in FY14 led by monetization of marginal

fields v/s flat production in last several years and (b) likely gas price hike in March-14. Further, likely reserve

upsides from its large NELP/nomination acreage would add value over longer term.

Our Brent price assumption is USD110/105/100/90bbl for FY13/14/15/long-term and we model upstream sharing

at 40% in FY13/14 and 33% beyond that.

Despite subsidy burden, RoE is at respectable level of ~18%. Stock trades at P/E of 8.4x FY14 EPs of INR33.4/sh;

attractive EV/BOE of 5.3x (1P basis; >40% discount to global peers) and has an implied dividend yield of 3.5%.

We value ONGC on SOTP basis at INR320/sh. Buy.

C–143October 2012


Sector: Oil & Gas

Petronet LNG

Bloomberg PLNG IN



1,6,12 Rel Perf (%) -3/-13/-13

Mcap (INR b) 118.3

Mcap (USD b) 2.2

CMP: INR158 BuyYear Net Sales PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 131,973 6,197 8.3 53.2 - - 25.2 19.9 - -

03/12A 226,959 10,575 14.1 70.7 11.2 3.4 34.1 26.6 0.6 7.8

03/13E 310,807 9,795 13.1 -7.4 12.1 2.8 25.1 22.4 0.5 8.1

03/14E 362,088 11,253 15.0 14.9 10.5 2.3 23.8 34.1 0.4 6.1




Net Sales 46,233 53,669 63,303 63,754 70,304 81,708 77,291 81,503 226,959 310,807

Change (%) 83.0 75.5 74.5 0.6 0.5 0.5 0.2 0.2 72.0 36.9

EBITDA 4,381 4,483 5,080 3,655 4,571 4,380 4,022 4,524 17,600 17,497

% of Net Sales 9.5 8.4 8.0 5.7 6.5 5.4 5.2 5.6 7.8 5.6

Change (%) 76.9 65.1 47.0 4.0 4.3 -2.3 -20.8 23.8 44.7 -0.6

Depreciation 458 463 463 458 459 462 464 1,000 1,842 2,386

Interest 464 458 393 342 329 365 382 839 1,657 1,915

Other Income 263 201 164 796 266 295 275 268 1,424 1,104

PBT 3,722 3,763 4,389 3,651 4,048 3,848 3,451 2,953 15,525 14,299

Tax 1,155 1,160 1,435 1,200 1,340 1,231 1,104 829 4,950 4,504

Rate (%) 31.0 30.8 32.7 32.9 33.1 32.0 32.0 28.1 31.9 31.5

PAT 2,567 2,603 2,954 2,451 2,708 2,616 2,347 2,124 10,575 9,795

Change (%) 130.5 98.5 72.8 18.8 5.5 0.5 -20.5 -13.4 70.7 -7.4

EPS (INR) 3.4 3.5 3.9 3.3 3.6 3.5 3.1 2.8 14.1 13.1

Dahej Gas Volume (TBTU) 133.4 135.1 144.9 135.0 127.2 138.4 135.9 137.0 548.4 538.6

Dahej Gas Volumes (mmt) 2.7 2.7 2.9 2.7 2.5 2.8 2.7 2.7 10.9 10.7

Kochi Gas Volumes (mmt) 0.2 0.0 0.2

Avg. Dahej Regas (INR/mmbtu) 42.2 41.7 45.2 41.7 45.3 40.7 38.2 40.1 42.7 41.1

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Petronet to report 2QFY13 PAT of INR2.6b (largely flat YoY and QoQ). We estimate EBITDA at INR4.4b

(down 2% YoY and 4% QoQ). Our lower QoQ profit estimate is primarily due to our lower marketing margin

assumption.

We have built in LNG volumes at 2.8mmt in 2QFY13, higher than 2.5mmt in 1QFY13 given (1) completion of

seasonal fertilizer plant shutdown, and (2) likely uptick in spot volumes due to lower spot LNG prices. We

model in 10.7mmtpa volume in FY13 at Dahej, of which 7.5mmtpa would be on long-term contract, 2mmtpa on

2-year contract and the rest on spot/third party basis. We model in Kochi volumes at 0.2mmtpa in 4QFY13.

We model in 5% escalation in re-gasification tariff till FY14 and flat thereafter at Dahej, and Kochi volumes at

0.3/1.1mmt for FY13/14.

Key things to watch out for: (a) Spot volumes, (b) Regasification margin on spot volumes.

With no risk to near term earnings, we believe the next cycle of earnings growth would come post FY13 led by

(1) volume ramp-up at Kochi, (2) second jetty at Dahej, and (3) new capacity at Dahej and Gangavaram. We build

conservative marketing margin of INR22/15/mmbtu in FY13/14 and nil thereafter.

The stock trades at 10.5x FY14E consolidated EPS of INR15. Lower spot LNG prices and the likely gas price pooling

policy for power sector are key near-term positives for the stock. Buy.

C–144October 2012


Sector: Oil & Gas

Reliance Industries

Bloomberg RIL IN



1,6,12 Rel Perf (%) -1/6/-9


Mcap (USD b) 51.5

CMP: INR837 NeutralYear Net Sales PAT EPS P/E ADJ. EPS* Adj. P/E Adj. P/B RoE RoCE EV/

End (INR b) (INR b) (INR) (X) (INR) (X) (X) (%) (%) EBITDA

03/11A 2,482 203 62.0 - 68.4 - - 14.8 12.9 -

03/12A 3,299 200 61.3 13.7 67.7 12.4 1.5 13.0 12.1 8.1

03/13E 3,682 198 61.3 13.6 67.8 12.3 1.4 11.7 11.1 9.2

03/14E 3,364 204 63.0 13.3 69.7 12.0 1.2 11.0 10.7 8.9

*Adjusted for treasury shares

BSE Sensex S&P CNX

18,763 5,703

We estimate RIL to report strong 2QFY13 GRM at USD9.5/bbl v/s USD6.7/bbl in 1QFY13 helped by higher cracks in

auto fuels. However, petchem profits are unlikely to increase due to subdued product spreads.

We expect average 2QFY13 KG-D6 volume of 29mmscmd v/s 33mmscmd in 1QFY13.

We expect RIL to report PAT of INR55.5b (v/s INR57b in 2QFY12 and INR44.7b in 1QFY13).

Key things to watch out for: (a) GRM, (b) Petchem margin, (c) KG-D6 production.

RIL trades at 12x FY14E adjusted EPS of INR69.7. We maintain Neutral due to concerns on cash utilization, RoE

reaching sub-15% and increased share (80%) of cyclical refining and petchem businesses in its earnings.

Quarterly Performance (Standalone) (INR Billion)



Net Sales 810.2 785.7 851.4 851.8 918.8 937.0 915.8 927.4 3,299.0 3,698.9

Change (%) 39.1 36.7 42.4 17.2 13.4 19.3 7.6 8.9 32.9 12.1

EBITDA 99.3 98.4 72.9 65.6 67.5 82.0 74.2 73.3 336.2 297.1

% of Net Sales 12.3 12.5 8.6 7.7 7.3 8.8 8.1 7.9 10.2 8.0

Change (%) 6.3 4.8 -23.7 -33.3 -32.0 -16.7 1.9 11.7 -11.8 -11.6

Depreciation 32.0 29.7 25.7 26.6 24.3 24.2 24.2 24.3 113.9 97.0

Interest 5.5 6.6 6.9 7.7 7.8 7.7 7.6 7.6 26.7 30.7

Other Income 10.8 11.0 17.2 23.0 19.0 19.2 20.3 20.6 61.9 79.1

PBT 72.6 73.2 57.4 54.3 54.3 69.3 62.8 62.0 257.5 248.4

Tax 16.0 16.1 13.0 12.0 9.6 13.8 13.1 13.5 57.1 50.1

Rate (%) 22.1 22.1 22.6 22.0 17.7 19.9 20.9 21.8 22.2 20.2

PAT 56.6 57.0 44.4 42.4 44.7 55.5 49.7 48.5 200.4 198.4

Change (%) 16.7 15.8 -13.6 -21.2 -21.0 -2.7 11.9 14.4 -1.2 250.4


Fx Rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4

Brent Price (USD/bbl) 117 113 109 119 108.7 110.2 110.0 111.1 114 110

RIL GRM 10.3 10.1 6.8 7.6 7.6 9.5 8.4 8.3 8.7 8.5

Singapore GRM 8.6 9.1 7.9 7.5 6.7 9.1 8.1 8.1 8.3 8.0

Premium/(disc) to Singapore 1.7 1.0 -1.1 0.1 0.9 0.4 0.3 0.3 0.4 0.5

KG-D6 Gas Prodn (mmscmd) 48.6 45.3 41.0 35.5 33.0 29.0 26.5 23.5 42.6 28.0

Segmental EBIT Breakup (INR b)

Refining 32.0 30.8 16.9 17.0 21.5 35.0 26.7 26.3 96.6 109.4

Petrochemicals 22.2 24.2 21.6 21.7 17.6 17.5 17.6 20.1 89.7 72.8

E&P, others 14.8 15.4 12.9 9.5 9.7 8.7 8.7 7.2 52.7 34.3

Total 69.0 70.4 51.4 48.2 48.8 61.2 53.0 53.6 238.9 216.5

E: MOSL Estimates; EPS adjusted for treasury shares

C–145October 2012


Sector: Real Estate

Real Estate





Anant Raj Inds 71 Buy 868 -4.9 -12.2 425 -16.5 -15.1 299 -13.8 -15.6

DLF 234 Buy 21,370 -15.6 -2.8 8,762 -25.3 -17.9 2,331 -37.4 -20.4

HDIL 98 Neutral 4,192 -5.1 108.4 3,144 -14.6 8.2 1,084 -27.3 2.9

Mahindra Lifespace 378 Buy 1,173 25.0 12.6 293 13.5 -8.0 303 -3.4 3.5

Oberoi Realty 265 Buy 2,134 -4.1 6.7 1,238 7.1 8.7 1,090 -2.2 8.1

Phoenix Mills 196 Buy 628 32.5 0.3 396 18.7 0.4 301 26.2 -1.5

Unitech 24 Buy 4,888 -21.9 19.9 709 -48.7 29.5 492 -46.8 7.2

Sector Aggregate 35,252 -13.1 7.7 14,966 -21.4 -9.2 5,901 -27.6 -7.8

Company Name

Anant Raj Industries

DLF

HDIL

Mahindra Lifespaces

Oberoi Realty

Phoenix Mills

Unitech

Macro impetus and reform thrust positive for the sector Recent favorable macro trends and reform thrust, viz, much-awaited FDI in multi-

brand retail, policy relaxation in single brand retail, expected interest rate

downcycle, etc, are positive for the real estate (RE) sector.

Approval hurdles in worst performing Mumbai market are seemingly easing off

with fast-track clearances on the back of new DCR (development control

regulations), resulting in visible increase in new launches.

Rational approaches from developers in choosing right product and market mix

in their near-term monetization plan have led to better offtake in their recent

launches.

While leverage situation is broadly unaltered, improving liquidity outlook and

success in divestment transactions have enhanced the expectation of substantial

de-leveraging over 2HFY13.

Despite seasonal weakness, 2QFY13 to see YoY improvement in salesmomentum We expect our real estate universe to post a YoY uptick in 2QFY13 sales momentum

on the back of (1) spillover launches (which were deferred by delay in approvals)

and (2) low base of weak 2QFY12.

Some much awaited launches in Sep-12 (e.g. Phoenix's One Bangalore West and

Godrej Summit, Gurgaon) have seen encouraging success even during a weak

home buying season.

Phoenix sold ~0.7msf (275+ units @ INR7,000/sf, INR5.3b) in a week's time after

launch and Godrej Properties sold ~1msf (695 units @ INR5,800/sf) on the day of

launch, despite doing unconventional non-broker marketing. This reaffirms the

underlying demand for products offered by branded developers at right prices.

We expect the outperformance to continue in NCR and Southern Markets, but

meaningful sign of sales revival in Mumbai market is anticipated in take place

only over 2HFY13.

Sandipan Pal ([email protected])

C–146October 2012


Sector: Real Estate

Key expectations For 2QFY13, our RE universe is expected to post revenue de-growth of 13.1% YoY

(up +7.7% QoQ), EBITDA decline of 21.4% YoY (down 9.2% QoQ) and PAT decline of

27.6% YoY (down 7.8% QoQ).

We expect operating cash flow to (a) improve for DLF (higher focus on execution),

HDIL (FSI and TDR sales), Phoenix (on the back of new launches in residential),

and (b) remain stable for Oberoi, Prestige, and Unitech. Despite improving support

from operating cash flow, meaningful success in debt reduction is likely to be

visible only in 2HFY13.

Key factors to watch for Status of planned launches for Mahindra Lifespaces, Oberoi, and DLF's Magnolia

launch.

Sign of uptick in revenue booking for Prestige (booked higher sales in past quarters),

DLF (execution outsourcing), Unitech (refinancing trouble) and customer

collection run-rate;

Leasing velocity and outlook of management in the commercial vertical.

Progress in divestment plan de-leveraging target.

New project acquisition by developers with better liquidity (Oberoi, Mahindra

Lifespaces).

Expect a restrained business focus to pay off during recovery; return metricsto improve We believe RE developers are now highly controlled and rational in their business

approach. Funding constraint has forced them to focus only on select verticals and

performing assets, which we believe would be beneficial for medium-term supply-

demand economics.

Higher focus on execution by moving to outsourcing model (DLF, IBREL) would

bring more certainty to construction and cash flow timelines.

We expect RoE to improve with (a) better asset turn, (b) stable costs, and (c)

easing financial leverage.

Sticking to bottom-up stock picking; prefer DLF, Prestige, Phoenix and Oberoi We continue to prefer companies with (a) strong operating performance, and (b)

delta from ebbing concerns - DLF (a play on improving operating and financial

leverage), Prestige, Phoenix (steady operations), and Oberoi (still the best

defensive bet in inefficient Mumbai market). Coincidentally DLF, Phoenix and

Prestige are also the biggest beneficiaries of the likely revival in the retail vertical.

Despite weaker operating performances, high beta stocks like UT, HDIL, IBREL and

Anantraj may surprise positively due to bigger scope of macro-driven operational

improvement.

C–147October 2012


Sector: Real Estate

Prestige, Sobha, JPIN and DLF have been key outperformers in salesSales (INR b) 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13

DLF 12.9 12.6 15.0 18.9 11.1 6.3 9.6 25.8 6.0

Unitech 13.0 10.1 10.4 9.8 10.2 10.7 9.4 7.8 7.0

Anantraj 2.1 0.9 2.3 0.1 1.0 1.6 0.9 0.9 1.6

IBREL 3.1 31.0 8.7 5.6 3.8 4.9 4.5 6.3 NA

HDIL 6.4 5.2 7.7 1.5 1.9 7.7 0.6 0.5 0.5

ORL 1.8 1.4 3.3 3.5 2.6 2.3 1.8 2.8 2.1

PEPL 0.8 7.4 3.2 2.5 2.1 7.8 4.7 6.0 10.0

MAHLIFE 0.9 2.6 2.3 1.2 1.7 0.8 3.0 0.6 0.5

GPL 1.4 0.6 3.3 4.6 2.3 2.1 3.5 3.5 5.0

Sobha 2.7 2.7 2.8 2.7 3.0 4.9 4.5 5.0 4.8

JPIN 13.9 10.8 6.3 10.0 5.7 5.8 16.4 11.0 6.8


Bank loan to developers rose to INR1157b as on July-12 Cost of debt stabilized (%)

Launch volume improved QoQ, sales volume steady Sales value (INR b) jumped 11%QoQ (Top 6 cities)

Trend of QoQ price growth (%) shows (a) moderation for Mumbai, b) stagnation for NCR

Source: Liases Foras/Company/MOSL

-10-5

05

10

1520

Mu

mb

ai

NCR

Ba

ng

alo

re

Pu

ne

Hyd

era

ba

d

Ch

en

na

i

4QCY09 1QCY10 2QCY10 3QCY10 4QCY101QCY11 2QCY11 3QCY11 4QCY11 2QCY12

38

55

7470

9589

84

63

88

53

61 67 69 62 6658 63 58 56

68 69 70

3Q

CY

09

4Q

CY

09

1Q

CY

10

2Q

CY

10

3Q

CY

10

4Q

CY

10

1Q

CY

11

2Q

CY

11

3Q

CY

11

4Q

CY

11

1Q

CY

12

2Q

CY

12

Launch (msf) Sale s (msf)

20

0

23

2

22

7

24

8

22

1

25

0

22

7

24

2

217 23

4 28

5

31

7

30

5

2Q

CY

09

3Q

CY

09

4Q

CY

09

1Q

CY

10

2Q

CY

10

3Q

CY

10

4Q

CY

10

1Q

CY

11

2Q

CY

11

3Q

CY

11

4Q

CY

11

1Q

CY

12

2Q

CY

12

-

400

800

1,200

1,600

Se

p-0

5

Fe

b-0

6Ju

l-0

6

De

c-0

6

Ma

y-0

7

Oct

-07

Ma

r-0

8

Au

g-0

8

Jan

-09

Jun

-09

No

v-0

9

Ap

r-1

0S

ep

-10

Fe

b-1

1

Jul-

11

De

c-1

1M

ay-

12

-8

0

8

16

24Loan (INR b) Growth (%)

10.5

9.5

12

.5

13

.0

12

.0

12

.5

9.9

13.

8

13

.0

13

.0

12.9

12.

8

11

.1

13.

7

14

.0

14

.0

14

.0

12

.8

11

.2

13

.5

14

.0

14

.0

14

.0

11

.8

DLF GPL PEPL HDIL UT Sobha

1QFY11 4QFY11 2QFY12 4QFY12

C–148October 2012


Sector: Real Estate

Launch volume down, absence of any Pricings firm, inventory level decliningbig project (msf) Sales performance down QoQ (still very high at Noida)

81

21

6

12

21

16 16

11 12

9

171

1

27

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

New launches yet to pick up Sales volume up, value down - implyingto desired level (msf) higher sales in mid-segments Quoted prices refuse to fall

20 18 13 12 13 12 11 9 8 9 8 9 10

99 93

64 6271

80 79

57 50

6753

8572

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

Sales volume (ms f)Sales value (INR b)

2

4

6

8

10

12

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

Thou

sand

s

10

20

30

40

50

Avg. Quo ted p rice s (INR /s f)Avg. s ales prices (INR/sf)Inven tory mo nth

2

3

3

4

4

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

Tho

usan

ds

10

20

30

40

50

Avg Quoted prices (INR/sf)Avg. sa les price s (INR /s f)Invento ry month (RHS)

11 11

195

9

2649

305

0

48

19

34 32

17

2Q

CY0

9

3Q

CY0

9

4Q

CY0

91

QCY

10

2Q

CY1

03

QCY

10

4Q

CY1

0

1Q

CY1

12

QCY

11

3Q

CY1

14

QCY

11

1Q

CY1

22

QCY

12

0

9

18

27

36

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

0

35

70

105

140

Sales vo lume (ms f)Sales va lue (INR b)

Mumbai

NCR

Launch volume down QoQ (msf) Sales momentum showing spiraling trend Pricing strengthened, inventory down

Source: Liases Foras/Company/MOSL

51

4

11

61

0

7

11

8

31

4

111

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

3 8 4 8 8 11 10 7 9 7 9 14 11 16

8

27

12

2330

35

2336 33

23 3539

67

54

1QC

Y09

2QC

Y09

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

Sales volume (msf)Sales value (INR b)

Th

ou

san

ds

68

34 3030231816202222

30181712

1

2

3

4

5

1Q

CY09

2Q

CY09

3Q

CY09

4Q

CY09

1Q

CY10

2Q

CY10

3Q

CY10

4Q

CY10

1Q

CY11

2Q

CY11

3Q

CY11

4Q

CY11

1Q

CY12

2Q

CY12

Inven tory as k prices (INR/s f)Sold p rice s (INR/s f)Inven tory mon th

Bangalore

C–149October 2012


Sector: Real Estate

Overall commercial absorption deteriorates; Bangalore remain best placed in vacancy2Q2011 3Q2011 4Q2011 1Q2012 2Q2012

NCR 2.0 1.6 2.0 1.0 0.7

Mumbai 3.4 2.4 1.0 2.7 0.5

Bangalore 1.7 1.6 0.8 1.7 0.7

Chennai 2.2 0.8 - 0.3 0.6

Pune 2.6 0.6 0.6 0.3 0.2

Hyderabad 1.8 - - - 0.3

Kolkata 0.4 - 0.3 - 0.2

India 14.1 7.0 4.7 6.0 3.1

NCR 2.0 1.0 1.6 0.9 1.7

Mumbai 2.1 1.0 1.2 1.1 0.4

Bangalore 3.3 2.4 3.0 3.6 1.8

Chennai 1.1 0.6 1.2 0.7 0.7

Pune 1.0 0.4 0.5 0.5 0.3

Hyderabad 1.3 0.6 0.4 0.5 0.5

Kolkata 0.3 1.4 0.5 0.2 0.5

India 11.0 7.4 8.4 7.5 5.9

NCR 32 32 31 31 30

Mumbai 23 24 23 23 23

Bangalore 18 18 16 15 14

Chennai 26 27 25 24 24

Pune 28 28 26 26 25

Hyderabad 10 10 11 10 10

Kolkata 28 21 19 18 15

India 24 24 22 22 22

Source: DTZ/MOSL




Real Estate

Anant Raj Inds 71 Buy 3.8 5.0 6.6 18.6 14.3 10.8 17.9 13.6 9.7 3.1 3.8 4.8

DLF 234 Buy 7.1 9.0 10.7 33.0 26.1 21.8 16.3 17.1 13.4 4.5 5.5 6.3

Godrej Properties 599 Neutral 12.6 16.0 19.6 47.7 37.4 30.6 39.5 32.3 24.4 8.3 8.4 9.5

HDIL 98 Neutral 19.3 12.9 17.8 5.1 7.6 5.5 5.3 5.3 3.8 7.9 5.1 6.6

Indiabulls Real Estate58 Buy 3.5 4.2 6.1 16.5 13.7 9.5 11.5 9.8 7.8 2.2 2.6 3.6

Jaypee Infratech 52 Buy 9.3 6.7 7.2 5.6 7.7 7.2 8.3 7.8 6.2 24.5 15.2 14.3

Mahindra Lifespace 378 Buy 29.2 32.5 34.0 12.9 11.6 11.1 10.8 9.7 9.1 10.3 10.5 10.0

Oberoi Realty 265 Buy 14.1 15.8 24.7 18.8 16.8 10.7 15.3 11.9 6.9 13.1 13.1 17.9

Phoenix Mills 196 Buy 7.3 7.8 16.0 26.9 25.2 12.3 20.9 17.3 10.2 6.2 6.3 11.7

Prestige Estates 136 Buy 2.5 5.5 8.2 53.9 24.5 16.5 20.7 12.8 9.8 4.1 8.4 11.0

Unitech 24 Buy 0.9 0.8 1.3 26.8 30.2 18.8 34.3 37.8 23.0 2.0 1.7 2.7


Supply (msf)

Absorption (msf)

Vacancy (%)


60

75

90

105

120

Se

p-1

1

De

c-1

1

Ma

r-1

2

Jun

-12

Se

p-1

2

Se ns ex Inde xMOSL Re al Es tate Index

85

95

105

115

125

Jun

-12

Jul-

12

Au

g-1

2

Se

p-1

2

Sense x IndexMOSL Rea l Es tate Inde x

C–150October 2012


Sector: Real Estate

Anant Raj Industries

Bloomberg ARCP IN



1,6,12 Rel Perf (%) 47/17/9

Mcap (INR b) 21.0

Mcap (USD b) 0.4

CMP: INR71 Buy



3/11A 4,241 1,681 5.7 -29.5 - - 4.6 5.9 - -

3/12A 3,115 1,135 3.8 -32.5 18.6 0.5 3.1 3.7 9.8 18.0

3/13E 4,326 1,473 5.0 29.7 14.3 0.5 3.8 4.4 6.7 13.6

3/14E 5,667 1,948 6.6 32.3 10.8 0.5 4.8 5.9 4.9 9.7




Total Sales 838 913 922 449 989 868 1,180 1,244 3,115 4,326

Change (%) -19.0 -31.3 -25.9 -29.1 18.0 -4.9 28.1 176.7 -26.5 38.8

EBITDA 493 509 490 199 501 425 578 630 1,699 2,134

Change (%) -13.3 -18.8 -36.5 -56.2 1.5 -16.5 18.0 216.3 -27.9 25.6

As of % Sales 59 56 53 44 51 49 49 51 55 49

Depreciation 27 30 36 17 32 35 37 43 110 147

Interest 45 57 69 36 37 51 58 76 206 223

Other Income 45 76 51 25 44 55 51 62 195 213

PBT 466 498 437 174 475 394 535 573 1,578 1,977

Tax 115 135 97 48 110 95 134 156 396 494


Reported PAT 351 347 315 122 355 299 401 418 1,135 1,473

Change (%) -23.5 -27.7 -37.4 -60.1 1.2 -13.8 27.3 242.1 -32.4 29.7

E MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Delay in Gold Course Road project revenue recognition: We expect revenue to de-grow 5% YoY to INR868m,

EBITDA to de-grow 17% YoY to INR425m and PAT to de-grow 14% YoY to INR299m. We estimate EBITDA margin of

49%. The de-growth is attributable to delay in revenue recognition from plotted project at Golf Course Road,

which is yet to reach 25% development expenditure hurdle (development expenditure comprises infrastructure

development like road network, water supply etc - almost INR7.5m/acre)

Sales run-rate lowered QoQ, collections up in Golf Course Road project: During 2QFY13, the company sold

additional 100 at Neemrana (v/s 462units in 1QFY13) and 20 units in Sector-91 (v/s 27 units in 1QFY13). Selling

prices at Sector-91 is up to INR4,800/sf (from INR,4200/sf in 1Q), while at Golf Course Road project, the company

is selling at INR90,000/sq yard as against initial launch price of INR75,000/sq yard. Of the total sales of INR4.5b

in the Golf Course Road project, the company has collected ~INR1.25b to date.

Rental income to improve with higher contribution from mall: Expect rental run-rate (ex Tricolor Hotel) to

improve to INR273m (v/s INR255m in 1QFY13) on account of higher contribution from Kirti Nagar mall. While the

mall is already 80% occupied, it is operating at effective rental of INR70/sf/m, almost 30% below minimum

guarantee rental of INR100/sf/m.

Anant Raj trades at 34% discount to our one-year forward NAV of INR108/share, 10.8x FY14E EPS of INR6.6 and

0.5x FY14E BV. Maintain Buy.

C–151October 2012


Sector: Real Estate

DLF

Bloomberg DLFU IN



1,6,12 Rel Perf (%) 10/9/-10

Mcap (INR b) 400.8

Mcap (USD b) 7.6

CMP: INR234 Buy



3/11A 95,606 16,396 9.7 -5.2 - - 5.8 7.1 - -

3/12A 96,294 12,008 7.1 -26.8 33.0 1.5 4.5 7.4 6.5 16.0

3/13E 85,482 15,191 9.0 26.5 26.1 1.5 5.5 8.4 7.0 16.8

3/14E 103,723 18,243 10.7 20.1 21.8 1.4 6.3 8.6 5.6 13.2



Sales 24,458 25,324 20,344 26,168 21,977 21,370 20,516 21,619 96,294 85,482

Change (%) 20.6 6.9 (18.0) -2.5 -10.1 (15.6) 0.8 -17.4 0.7 -11.2


EBITDA 11,110 11,730 8,227 7,976 10,670 8,762 8,206 8,251 39,043 35,889

Change (%) 13.4 26.3 -30.2 19.7 -4.0 -25.3 -0.3 3.4 4.0 -8.1

As % of Sales 45.4 46.3 40.4 30.5 48.6 41.0 40.0 38.2 40.5 42.0

Depreciation 1,702 1,753 1,797 1,636 1,786 1,751 1,860 1,898 6,888 7,295

Interest 4,964 5,263 6,199 6,039 6,226 6,321 5,896 5,142 22,465 23,585

Other Income 574 448 3,617 1,307 1,311 2,249 9,747 1,688 5,945 14,996

PBT 5,018 5,161 3,848 1,448 3,970 2,940 10,197 2,898 15,635 20,005

Tax 1,278 1,475 1,353 -413 1,137 705 2,651 707 3,694 5,201

Effective Tax Rate (%) 25 29 35 -28.5 29 24 26 24 23.6 26.0

Reported PAT 3,584 3,724 2,584 2,117 2,928 2,331 7,642 2,289 12,008 15,191

Change (%) (12.8) (11.0) (44.5) (38.6) (18.3) (37.4) 195.8 26.4 (26.8) 26.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

EBITDA, PAT to de-grow YoY: We expect DLF's 2QFY13 revenue at INR21.4b (near-flat QoQ), EBITDA to de-grow

25% YoY to INR8.8b, and PAT to de-grow 37% to INR2.3b owing to higher interest expense.

Leverage level to remain broadly unaltered: During 2QFY13, DLF concluded divestment of NTC Mills and received

initial tranche of INR5b. However, we expect leverage level to remain largely unaltered due to prevailing

operating deficit. Receipt of balance INR22b by 3QFY13 would be a key debt reduction trigger to watch out for.

Focus on luxury launches: In 2QFY13, DLF launched Bella Greens, a luxury-end villa project at Bannerghatta

Road, Bengaluru (ticket size INR28.4-45.6m), re-affirming its strong focus on premium projects in FY13. We

expect successful launch of super luxury Magnolia II in 3QFY13 to hold the key to improve its operating deficit.

Key things to watch out for:

1. Progress in major divestments (Aman Resort, windmills), and receipt of balance amount in NTC Mills sale

followed by debt-reduction.

2. Successful launch of Magnolia II.

3. Pick-up in cash conversion post shift to third-party contractors and

4. Leasing momentum in the backdrop of FY13 guidance of 2msf.

DLF trades at 21.8x FY14E EPS of INR10.7, 1.4x FY14E BV and 18% discount to our NAV estimate of INR286.

Maintain Buy.

C–152October 2012


Sector: Real Estate

HDIL

Bloomberg HDIL IN



1,6,12 Rel Perf (%) 28/9/-16

Mcap (INR b) 40.9

Mcap (USD b) 0.8

CMP: INR98 Neutral



3/11A 18,655 8,218 19.8 25.5 - - 9.0 10.7 - -

3/12A 20,064 8,098 19.3 -2.5 5.1 0.4 7.9 10.0 3.9 5.3

3/13E 19,054 5,394 12.9 -33.4 7.6 0.4 5.1 8.9 3.9 5.3

3/14E 24,259 7,461 17.8 38.3 5.5 0.4 6.6 10.9 2.8 3.8

Consolidated Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Sales 5,144 4,416 4,254 6,251 2,012 4,192 5,145 7,706 20,064 19,054

Change (%) 13.0 15.7 -8.2 13.1 -60.9 -5.1 21.0 23.3 7.6 -5.0

Total Expenditure 920 733 1,229 2,122 -893 1,048 1,286 3,662 5,005 5,104

EBITDA 4,223 3,683 3,024 4,129 2,904 3,144 3,858 4,044 15,059 13,951

Change (%) 45.6 41.6 9.0 -6.5 -21.1 -14.6 27.6 -2.1 -9.4 -7.4

As % of Sales 82.1 83.4 71.1 66.0 144.4 75.0 75.0 52.5 75.1 73.2

Depreciation 213 214 216 215 210 225 225 234 858 901

Interest 1,437 1,527 1,603 1,682 1,541 1,806 1,878 1,998 6,249 7,222

Other Income 60 73 133 247 94 133 133 172 513 533

PBT 2,633 2,014 1,338 2,401 1,248 1,246 1,889 1,977 8,464 6,360

Tax 739 524 -220 -752 195 162 246 288 290 890

Effective Tax Rate (%) 28.1 26.0 -16.4 -31.3 15.6 13.0 13.0 14.6 3.4 14.0

Reported PAT 1,894 1,491 1,558 3,156 1,054 1,084 1,643 1,613 8,098 5,394

Change (%) -12.5 -24.2 -31.6 70.4 -29.3 -27.3 5.5 -48.9 -1.5 -33.4

E: MOSL Estimates; Numbers as per Schedule 6

BSE Sensex S&P CNX

18,763 5,703

We expect HDIL's 2QFY13 consolidated revenue at INR4.2b (down 5%YoY), EBITDA at INR3.1b, and PAT at INR1.1b

(down 27%).

The key revenue contributors are likely to be (1) 1.5-2msf/quarter of FSI sales in Virar/Vasai, (2) TDR sales from

newly generated 2msf at Kurla Premiere (owing to change in usage), and (3) other potential FSI sales like one

advance staged deal for 1.2msf of Metropolis commercial.

With deferment completion target of its three residential projects (Premiere, Galaxy and Metropolis) to 3/

4QFY13, no revenue is going to get recognized under project completion method (PCM) in 1HFY12.

We expect cash flow from FSI sales (has been weak till date) to improve on the back of early sign of easing off

of approval hurdles. This should also boost construction pace and customer collection run-rate.


1. Response to its recently launched plotted project Imperial County, Noida, and Premiere Kurla

2. Progress on new launches in Virar, Ghatkopar and Shahad

3. Clarity over other FSI sales under negotiation

4. Progress in de-leveraging

5. Progress in MIAL relocation and status of subsequent phases

The stock trades at 5.5x FY14E and 0.4x FY14E BV and 29% discount to NAV of INR138. Maintain Neutral.

C–153October 2012


Sector: Real Estate

Mahindra Lifespaces

Bloomberg MLIFE IN



1,6,12 Rel Perf (%) 3/10/15

Mcap (INR b) 15.4

Mcap (USD b) 0.3

CMP: INR378 Buy



3/11A 6,119 1,082 26.5 37.7 - - 10.2 10.8 - -

3/12A 7,013 1,191 29.2 10.1 12.9 1.3 10.3 10.9 2.9 10.8

3/13E 7,760 1,325 32.5 11.3 11.6 1.2 10.5 11.1 2.7 9.7

3/14E 8,086 1,389 34.0 4.8 11.1 1.1 10.0 11.3 2.4 9.1

Quarterly Performance: Standalone (INR Million)



Sales 815 938 1,538 1,400 1,041 1,173 1,407 1,069 4,690 4,690

Change (%) 19.9 5.4 -1.3 -14.6 27.8 25.0 -8.5 -23.6 -1.6 0.0

Total Expenditure 642 679 1,076 1,082 723 879 1,055 814 3,479 3,471

EBITDA 172 258 462 318 319 293 352 255 1,210 1,219

As % of Sales 21.2 27.5 30.0 22.7 30.6 25.0 25.0 23.9 25.8 26.0

Change (%) -11.5 5.0 9.3 -7.7 44.6 -9.2 -16.7 5.0 -1.4 0.7

Depreciation 7 7 7 7 4 7 7 10 27 29

Interest 2 5 2 20 14 24 24 34 30 95

Other Income 91 182 87 162 134 154 154 173 522 614

PBT 255 428 539 453 434 416 474 385 1,676 1,709

Tax 84 114 144 132 141 112 123 102 474 479


Reported PAT 171 314 395 321 293 303 351 283 1,202 1,231

Change (%) 18.0 27.4 18.1 5.3 71.5 -3.4 -11.1 -11.9 16.6 2.4

E: MOSL Estimates; *Revenue outside Standalone is largely contributed by Mahindra World City (MWC) Chennai and Jaipur

BSE Sensex S&P CNX

18,763 5,703

We expect Mahindra Lifespaces' 2QFY13 standalone revenue to grow 25% YoY to INR1,173m, EBITDA to de-grow

9.2% YoY to INR293m and PAT to de-grow 3.4% YoY to INR303m.

We expect EBITDA margin at 25%, lower than 31% in 1QFY13 given higher proportion revenue contribution from

non-Mumbai projects.

Key things to watch out for

1. Progress in stated launches at Hyderabad and Pune (yet to take off)

2. Leasing progress in Jaipur DTA

3. Progress of land acquisition in North Chennai SEZ.

The stock trades at a ~19% discount to our one-year forward SOTP value of INR469/share, 11.1x FY14E EPS of

INR4.8 and 1.1x FY14E BV. Buy.

C–154October 2012


Sector: Real Estate

Oberoi Realty

Bloomberg OBER IN



1,6,12 Rel Perf (%) 9/-6/5

Mcap (INR b) 87.0

Mcap (USD b) 1.7

CMP: INR265 Buy



3/11A 9,960 5,172 15.8 12.9 - - 19.9 23.6 - -

3/12A 8,247 4,629 14.1 -10.5 18.8 2.3 13.1 17.1 9.0 15.3

3/13E 10,669 5,178 15.8 11.9 16.8 2.1 13.1 17.9 6.8 11.9

3/14E 17,178 8,109 24.7 56.6 10.7 1.8 17.9 24.8 4.1 6.9

Consolidated Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Total Revenue 1,609 2,226 1,873 2,548 1,999 2,134 2,347 4,189 8,247 10,669

Change (%) 0.5 30.9 -53.0 -4.5 24.2 -4.1 25.3 64.4 -17.2 29.4

Total Expenditure 706 1,071 739 906 860 896 962 1,877 3,412 4,596

EBITDA 903 1,156 1,134 1,642 1,139 1,238 1,385 2,312 4,835 6,073

Change (%) 6.6 14.8 -54.1 13.3 26.1 7.1 22.1 40.8 -16.2 25.6

As of % Sales 56 51.9 60.5 64.5 57 58.0 59 55 58.6 56.9

Depreciation 65 66 68 70 70 77 77 85 269 310

Interest 1 0 1 1 1 0 0 0 3 0

Other Income 542 343 310 307 309 333 333 356 1,501 1,330

PBT 1,374 1,432 1,375 1,879 1,376 1,493 1,640 2,585 6,059 7,090

Tax 316 317 354 443 368 403 443 701 1,430 1,915


Reported PAT 1,058 1,114 1,021 1,436 1,008 1,090 1,197 1,883 4,629 5,174

Change (%) 32.5 16.7 -50.3 5.1 -4.7 -2.2 17.3 31.2 -10.5 11.9

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Oberoi Realty's 2QFY13 revenue to de-grow 4.1% YoY to INR2.1b, EBITDA to grow 7% YoY to INR1.2b

and PAT to de-grow ~2% to INR1.1b. We estimate EBITDA margin of 58%. Esquire is likely to cross revenue

recognition threshold by 4QFY13.

We expect 2QFY13 sales to remain largely flat QoQ. Post increase in the prices across its ongoing projects, the

offtake run-rate has declined to 2 apartments every 3 days from 1 per day.

Mulund project is yet to receive MoEF approvals and will be delayed further. On the other hand, we believe

Worli project is witnessing decent response during soft launch.


1. Sales momentum in Esquire (Goregaon) and Grande (Andheri)

2. Visibility on new project acquisition

3. Leasing visibility in commercial projects.

The stock trades at 10.7x FY14E EPS of INR24.7, 1.8x FY14E BV and ~21% discount to one-year forward NAV of

INR337. Maintain Buy.

C–155October 2012


Sector: Real Estate

Phoenix Mills

Bloomberg PHNX IN



1,6,12 Rel Perf (%) 19/-15/-21

Mcap (INR b) 28.4

Mcap (USD b) 0.5

CMP: INR196 Buy



3/11A 2,102 842 5.8 36.5 - - 5.0 5.2 - -

3/12A 3,666 1,056 7.3 25.5 26.9 1.7 6.2 6.1 12.1 20.9

3/13E 4,315 1,128 7.8 6.7 25.2 1.6 6.3 6.1 10.0 17.3

3/14E 8,690 2,316 16.0 105.4 12.3 1.4 11.7 10.4 4.8 10.2

BSE Sensex S&P CNX

18,763 5,703


1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Cons. Cons.

Sales 535 474 505 600 626 628 638 630 3,666 4,315

Change (%) 32.4 6.9 12.0 28.3 17.0 32.5 26.4 5.0 74.4 17.7

Total Expenditure 205 141 132 237 232 232 223 221 1,552 1,804

EBITDA 331 333 373 363 394 396 415 410 2,114 2,511

Change (%) 12.6 5.1 14.0 13.2 19.3 18.7 11.1 12.7 50.4 18.8

As % of Sales 62 70 74 61 63 63 65 65 57.7 58.2

Depreciation 67 69 74 73 67 67 67 67 563 884

Interest 10 31 57 68 58 64 78 90 944 1,097

Other Income 110 89 113 146 143 137 143 147 446 646

PBT 363 323 355 368 413 402 412 401 1,053 1,175

Tax 91 84 86 95 107 100 103 97 189 282

Effective Tax Rate (%) 25 26 24 26 26 25 25 24 18.0 24.0

Adj. PAT 272 239 269 273 306 301 309 304 1,056 1,128

Change (%) 49.1 8.0 13.1 0.6 12.4 26.2 15.0 11.3 25.5 6.7

E: MOSL Estimates

In 1QFY13, PHNX changed its accounting practice by including electricity charges recovered from licensees in

revenue (on gross basis), which were earlier netted off against expense. With this, results for FY13 will not be

comparable YoY.

We expect High Street Phoenix's (HSP) 2QFY13 rental at INR628m (v/s INR626m in 1QFY13), EBITDA at INR396m

(v/s INR394m in 1QFY13), and PAT of INR301m, up 26%. The growth in rental is attributable to revenue sharing.

Among Market City retails, we expect further increase in pre-leasing in Bengaluru and Chennai, while in Pune,

we expect incremental pre-leasing to remain muted due to new product proposition under evaluation.

Recent residential launch at Bangalore One has been encouraging with sales of 0.7msf+ (INR5.3b). Steady sales

at Chennai project led to prices rising to INR10,000/sf.


1. Momentum in commercial and residential sales in Market City projects

2. Progress on ramp-up in recently commenced malls

3. Visibility over stake increase in Market City projects or new acquisitions.

The stock trades at a PER of 12.3x FY14E EPS of INR16, 1.4x FY14E BV and a 25% discount to its one-year forward

NAV of INR262. Maintain Buy.

C–156October 2012


Sector: Real Estate

Unitech

Bloomberg UT IN



1,6,12 Rel Perf (%) 20/-22/-24

Mcap (INR b) 59.3

Mcap (USD b) 1.1

CMP: INR24 Buy



3/11A 33,960 5,677 2.2 -21.6 - - 4.9 5.6 - -

3/12A 24,219 2,373 0.9 -58.2 26.8 0.6 2.0 2.8 4.8 35.6

3/13E 22,217 2,106 0.8 -11.3 30.2 0.6 1.7 2.1 5.2 39.3

3/14E 28,746 3,470 1.3 60.6 18.8 0.6 2.7 3.2 4.0 23.9




Sales 6,155 6,261 5,086 6,717 4,077 4,888 5,999 7,253 24,219 22,217

Change (%) -25.7 -2.9 -22.9 -46.8 -33.8 -21.9 17.9 8.0 -28.7 -8.3


EBITDA 1,198 1,381 1,029 -54 547 709 870 822 3,281 2,948

Change (%) -59.2 -45.4 -50.7 -102.8 -54.3 -48.7 -15.4 -1,612 -65.3 -10.2

As of % Sales 19.5 22.1 20.2 -0.8 13.4 14.5 14.5 11.3 13.5 13.3

Depreciation 84 85 93 172 99 111 116 120 434 446

Interest 337 338 279 252 117 141 141 166 563 564

Other Income 714 403 387 576 345 322 322 299 2,080 1,289

PBT 1,490 1,362 1,044 97 677 779 935 834 4,365 3,227

Tax 468 424 469 475 261 265 318 189 1,896 1,033


Reported PAT 984 924 552 23 459 492 595 622 2,373 2,106

Change (%) -45.4 -46.8 -50.4 -97.9 -53.4 -46.8 7.8 2,652 -58.2 -11.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect margins to improve: We expect 2QFY13 revenue to de-grow 22% YoY to INR4.9b, EBITDA to de-grow 49%

to INR709m and PAT to de-grow 47% YoY to INR492m. EBITDA margin is estimated at 14.5%, which should see

steady improvement with MTM loss provisioning taken out of P&L.

New launches subdued: Focus on new launches has been low (as guided by the management earlier) to prioritize

execution of ongoing projects. We expect sales to deteriorate YoY, except in Noida where run-rate should

remain steady. The company launched Exquisite in Noida during 2QFY13.

Execution run-rate contingent on liquidity improvement: Successful re-financing is the key to boost Unitech's

execution. We remain concerned about Unitech's FY13 repayment obligation of INR15b+.


1. Sales momentum on the back of lower new launches (estimate INR37b in FY13)

2. Progress in construction and delivery (the company aims at INR4-4.5b/qtr run-rate v/s INR3b currently),

along with improvement in debtor days.

3. Strategy to address impending repayment of INR15b+ loan in FY13.

Unitech trades at 40% discount to its one-year forward NAV estimate of INR40 and 18.8x FY14E EPS of INR1.3 and

0.6x FY14E BV. Maintain Buy.

C–157October 2012


Sector: Retail

RetailCompany Name

Jubilant Foodworks

Pantaloon Retail

Shoppers Stop

Titan Industries





JJubilant Foodworks 1,373 Neutral 3,450 43.5 9.7 628 46.9 9.6 344 45.5 6.4

Pantaloon Retail 214 Neutral 30,562 5.0 3.2 2,812 11.4 1.8 21 -93.6 -45.3

Shopper's Stop 401 Neutral 5,660 13.8 26.7 198 -48.8 43.7 36 -81.8 186.0

Titan Industries 262 Neutral 24,450 16.6 10.9 2,469 23.3 16.5 1,764 15.4 13.0


We expect our Retail universe to post 11.6% and 14.4% YoY growth in sales and EBITDA

respectively. PAT would decline 5%, due to weak performance by Shoppers Stop and

Pantaloon Retail. However, we estimate Jubilant Foodworks' to continue to outpeform

and post 45% YoY PAT growth. Titan should post sequentially better Jewellery volumes.

No recovery yet; expect specialty retailers to outperform: Consumer sentiment

remains subdued, impacting footfalls and same store sales (SSS) growth of traditional

retailers, in our view. Discretionary consumption has not shown any uptick

notwithstanding the improving macro environment post the recent government

announcements. Jewelry volumes, though sequentially better, are likely to remain

under pressure, as higher gold prices and macro uncertainty continue to deter buying.

The Quick Service Restaurant (QSR) segment remains an outlier, with continued

momentum on the back of more store openings and new launches.

Footfalls back to normal after discount season: Discount season sale attracted footfalls

in August. However, post the discount season, the footfalls did not sustain. This

coupled with weaker than expected ramp up in new stores will continue to impact

operating margins of traditional retailers. Committed capex plans will further put

strain on financials and increase debt. Shoppers Stop has added 1 department store

and Jubilant Foodworks is likely to add ~25 stores during the quarter. We understand

that Titan Industries is expanding Fastrack and Jewelry at a rapid pace, but is going

slow on Eyewear.

FDI in multi-brand retail cleared; do not expect deals in near term: During the quarter,

the Government of India (GoI) allowed 51% FDI in multi-brand retail and also amended

the sourcing norms for single-brand retail. The most important change vis-à-vis the

earlier announced policy is that state governments will have the final say in allowing

multi-brand retail in their respective states. It will be the privilege of state

governments to decide whether and where a multi-brand retailer with foreign partner

should be allowed to open outlets in the state. It will be restricted to cities with

population above one million. We believe letting in FDI is a long term positive for

Indian Retail, as apart from the natural benefits like technology, back-end expertise,

etc, which a global player may bring to the table, it allows capital starved players an

Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected])

C–158October 2012


Sector: Retail

25.022.3

26.230.1

26.7

36.733.2

35.7

43.8

37.0

1Q

FY1

1

2Q

FY1

1

3Q

FY1

1

4Q

FY1

1

1Q

FY1

2

2Q

FY1

2

3Q

FY1

2

4Q

FY1

2

1Q

FY1

3

2QFY

13E

26,60729,297

12,000

15,000

18,000

21,000

24,000

27,000

30,000

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

INR

/10

gm

10

7

2

1-111

14

22

132116

2

2

-6

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep

-12E

LTL Sa les Gr (%)

-30

0

30

60

903

QF

Y07

4Q

FY0

71

QF

Y08

2Q

FY0

83

QF

Y08

4Q

FY0

81

QF

Y09

2Q

FY0

93

QF

Y09

4Q

FY0

91

QF

Y10

2Q

FY1

03

QF

Y10

4Q

FY1

01

QF

Y11

2Q

FY1

13

QF

Y11

4Q

FY1

11

QF

Y12

2Q

FY1

23

QF

Y12

4Q

FY1

21

QF

Y13

2Q

FY1

3

Jewelry growth % Gold price change % (YoY)

Shoppers' Stop - SSS growth remains flat Titan's jewelry SBU; watch out for Gold prices, volume mix

Gold prices up 31% YoY and 5% QoQ (INR/10g) Jubilant Foodworks' LTL sales growth


access to long-term capital. However, given the tough preconditions and complexity

in stitching a deal (separate entity, which complies with extant state FDI rules, will

have to be floated), we do not see any deal announcement in the near term.

No dawn yet; prefer specialty retailers: We remain cautious in the near term, as the

sector continues with flat to low single digit same store sales (SSS) growth. We believe

segments like Apparel, Home Retailing and Jewelry will take some time to recover

from the slowdown due to weak macroeconomic environment and low consumer

confidence. Shoppers Stop will face pressure on profitability due to low SSS growth

and resultant lack of operating leverage, given weaker ramp up in stores opened in

the past 18 months. Jubilant Foodworks has strong cash flows; we would watch for

SSS growth trends and revenue from the newly opened Dunkin Donuts. We maintain

our Neutral rating on Jubilant and Shoppers Stop. Festive season demand in 3Q holds

the key for Titan.

C–159October 2012


Sector: Retail

60

80

100

120

140

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Sens ex IndexMOSL Reta i l Index

85

95

105

115

125

Jun-

12

Jul-

12

Aug

-12

Sep-

12Sens ex Index

MOSL Reta i l Index




Retail

Jubilant Foodworks1,373 Neutral 16.4 23.9 35.4 83.9 57.3 38.8 46.0 30.7 21.4 37.7 38.2 39.0

Pantaloon Retail 214 Neutral 4.8 6.7 9.3 44.6 31.9 22.9 8.0 7.2 6.6 3.4 4.6 6.2

Shopper's Stop 401 Neutral 7.8 2.7 6.8 51.2 149.1 59.3 23.3 33.9 21.8 9.9 3.3 7.8

Titan Industries 262 Neutral 6.8 8.1 10.0 38.5 32.4 26.2 26.8 21.7 17.4 48.7 42.4 34.8


Relative to performance-3m (%) Relative to performance-1Yr (%)

UR: Under Review

Area addition plans on trackShoppers Stop Jubilant Foodworks

55525149

4341

3010

87

1212

10

20

30

40

50

60

Jun-

10

Sep-

10

Dec

-10

Ma

r-1

1

Jun-

11

Sep-

11

Dec

-11

Ma

r-1

2

Jun-

12

Sep-

12

6

8

10

12

14

Shoppers Stop (LHS) Hyperci ty (RHS)

320 338378 392

439 465

74 77 87 90 93 96 100 105 110 115

514489

411364

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13E

Stores Ci ties


C–160October 2012


Sector: Retail

Jubilant Foodworks

Bloomberg JUBI IN



1,6,12 Rel Perf (%) 12/18/44

Mcap (INR b) 87.2

Mcap (USD b) 1.7


Year Net Sales Adj PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/


03/11A 6,783 720 11.2 112.4 - - 37.6 45.1 - -

03/12A 10,175 1,056 16.4 46.7 83.9 31.6 37.7 51.4 8.6 46.8

03/13E 14,807 1,545 23.9 46.3 57.3 21.9 38.2 53.7 5.8 31.2

03/14E 20,697 2,284 35.4 47.8 38.8 15.1 39.0 53.5 4.1 21.8




No of Stores 392 411 439 465 489 514 535 563 463 563

LTL Growth (%) 36.7 26.7 30.1 26.2 22.3 25.0 23.0 23.0 30.0 23.0

Net Sales 2,169 2,404 2,770 2,832 3,145 3,450 4,000 4,212 10,175 14,807

YoY Change (%) 60.0 47.1 49.2 46.2 45.0 43.5 44.4 48.7 50.0 45.5

Gross Profit 1,617 1,769 2,066 2,113 2,309 2,559 2,967 3,148 7,564 10,982

Gross Margin (%) 74.5 73.6 74.6 74.6 73.4 74.2 74.2 74.7 74.3 74.2

Other Expenses 1,196 1,341 1,551 1,604 1,736 1,931 2,207 2,348 5,698 8,221

% of Sales 55.2 55.8 56.0 56.6 55.2 56.0 55.2 55.7 56.0 55.5

EBITDA 420 427 516 509 573 628 760 800 1,866 2,761

EBITDA Growth % 67.2 43.8 59.9 54.0 36.3 46.9 47.4 57.2 55.3 48.0

Margins (%) 19.4 17.8 18.6 18.0 18.2 18.2 19.0 19.0 18.3 18.6

Depreciation 87 93 96 100 117 135 140 141 377 533

Interest 0 0 0 0 0 3 3 5 0 11

Other Income 12 14 14 17 19 24 24 23 57 90

PBT 346 348 434 425 475 514 641 676 1,546 2,306

YoY Change (%) 84.9 51.6 72.9 65.7 11.7 47.7 47.8 58.9 67.3 49.1

Tax 108 111 139 132 152 170 212 223 490 761

Rate (%) 31.1 32.0 32.1 31.1 31.9 33.0 33.0 33.0 31.7 33.0

Adjusted PAT 232 237 295 293 323 344 429 453 1,056 1,545

YoY Change (%) 52.0 28.4 55.4 51.8 39.3 45.5 45.8 54.5 46.7 46.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Jubilant Foodworks (JUBI) to report 43.5% increase in sales to INR3.4b. Like to like (LTL) sales growth

would be ~25%, marginally higher than in 1QFY13.

Gross margin would improve marginally to 74.2%; operating leverage would enable 40bp expansion in EBITDA

margin to 18.2%.

EBITDA is likely to grow 47% to INR628m. PAT would grow 45.5% to INR344m, driven by 100bp increase in tax

rate.

We expect the company to add 25 new stores, taking the total to 514 stores. In August, JUBI inaugurated its

500th store in Delhi.

Three Dunkin Donuts stores are under operation in New Delhi. The company plans to add 80-100 stores in India

in the next five years.

We estimate 47% PAT CAGR over FY12-14. However, valuations of 57.3x FY13E and 38.8x FY14E EPS capture the

positives and do not factor in an increase in competitive activity in the existing business. Neutral.

What to look for

Operating leverage; trend in EBITDA margin, given price increases and rising overheads on new stores.

C–161October 2012


Sector: Retail

Pantaloon Retail

Bloomberg PF IN



1,6,12 Rel Perf (%) 42/40/-15

Mcap (INR b) 46.4

Mcap (USD b) 0.9

CMP: INR214 Neutral



06/11A 110,122 1,897 8.7 7.1 - - 6.2 12.1 - -

06/12A 122,526 1,071 4.8 -45.2 44.6 1.5 3.4 12.0 0.7 8.2

06/13E 139,931 1,498 6.7 39.9 31.9 1.5 4.6 13.2 0.7 7.2

06/14E 158,024 2,086 9.3 39.0 22.9 1.4 6.2 9.5 0.6 6.6

Quarterly Performance; Core Retailing (INR Million)

Y/E June FY11 FY12 FY12E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 5QE 6QE

Net Sales 25,814 27,586 28,119 28,604 29,106 28,933 30,264 29,627 30,562 31,827 180,319

YoY Change (%) 32.1 31.2 17.6 15.4 12.8 4.9 7.6 3.6 5.0 10.0 66.8

Total Exp 23,687 25,202 25,641 26,019 26,583 26,321 27,488 26,864 27,750 28,867 163,873

EBITDA 2,127 2,383 2,479 2,585 2,523 2,612 2,776 2,763 2,812 2,960 16,446

Growth (%) 15.3 12.1 14.0 26.2 18.6 9.6 12.0 6.9 11.4 13.3 117.3

Margins (%) 8.2 8.6 8.8 9.0 8.7 9.0 9.2 9.3 9.2 9.3 9.1

Depreciation 630 650 660 737 828 877 887 929 940 960 5,422

Interest 933 1,078 1,096 1,177 1,305 1,582 1,725 1,804 1,890 1,947 10,253

Other Income 81 52 34 63 79 40 16 28 50 53 266

PBT 645 708 757 735 468 193 180 58 32 106 1,037

Tax 218 235 252 242 138 58 60 19 10 35 321

Rate (%) 33.7 33.2 33.2 33.0 29.5 30.1 33.3 33.0 33.0 33.0 30.9

Adjusted PAT 428 472 505 492 330 135 120 39 21 71 716

YoY Change (%) 62.4 5.5 34.8 -17.1 -22.8 -71.4 -76.2 -92.1 -93.6 -47.5 -62.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect core retail sales to grow 5% to INR30.6b in 5QFY13 (year extended to December for FY12) for Pantaloon

Retail (PF).

Same store sales (SSS) growth dynamics has not seen improvement in the September quarter due to prevailing

weak consumer sentiment.

EBITDA would grow 11% to INR2.8b, with operating margins expanding 50bp YoY.

Adjusted PAT would decline 94% to INR21m, as interest cost continues to consume 2/3rd of EBITDA.

Recent deals (AB Nuvo-Pantaloon transaction, Future Capital) will help alleviate the debt strain for PF. Core

retail debt stands at INR60b.

News flow around potential deals after the allowance of 51% FDI in multi-brand retail will keep fundamentals

in the background, we believe.

The stock trades at 31.9x FY13E EPS and 22.9x FY14E EPS. Maintain Neutral.

What to look for

Same store sales growth for Value and Lifestyle business.

Space addition.

Interest cost.

C–162October 2012


Sector: Retail

Shoppers Stop

Bloomberg SHOP IN



1,6,12 Rel Perf (%) 7/-6/-1

Mcap (INR b) 32.9

Mcap (USD b) 0.6

CMP: INR401 Neutral



03/11A 16,589 752 9.1 120.1 - - 12.6 16.3 - -

03/12A 19,300 643 7.8 -14.5 51.2 5.1 9.9 11.0 1.7 23.3

03/13E 22,308 221 2.7 -65.7 149.1 4.9 3.3 5.0 1.5 35.1

03/14E 26,579 555 6.8 151.3 59.3 4.6 7.8 9.6 1.2 21.8




LTL Sales Gr % 7 11 -1 10 1 2 7 5 7 4

Deptt Stores 41 43 49 51 52 55 58 60 51 60

Net Sales 3,930 4,973 5,017 5,406 4,467 5,660 5,850 6,331 19,300 22,308

YoY Change (%) 14.4 14.9 9.9 18.5 13.6 13.8 16.6 17.1 16.3 15.6

Total Exp 3,667 4,586 4,603 5,042 4,329 5,462 5,558 6,006 17,873 21,354

EBITDA 263 387 414 363 138 198 293 325 1,427 954

Growth % 5.2 1.4 -19.7 -2.8 -47.7 -48.8 -29.3 -10.5 -6.2 -33.2

Margins (%) 6.7 7.8 8.2 6.7 3.1 3.5 5.0 5.1 7.4 4.3

Depreciation 81 88 94 115 120 110 115 108 377 453

Interest 44 57 76 74 77 75 75 102 250 329

Other Income 37 52 46 44 74 40 40 4 178 159

PBT 176 294 290 218 15 53 143 119 978 329

Tax 59 98 97 81 3 18 47 41 335 109

Rate (%) 33.5 33.5 33.5 37.1 17.9 33.0 33.0 34.9 34.3 33.0

Adjusted PAT 117 195 193 137 12 36 95 77 643 221

YoY Change (%) 17.2 12.5 -30.8 -31.0 -89.4 -81.8 -50.5 -43.8 -14.5 -65.7

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Shoppers Stop (SHOP) to report 13.8% increase in sales to INR5.7b. However, same store sales (SSS)

growth would be 1-2%, in our view.

We estimate EBITDA margin at 3.5%, still below the normal trend of 5-6%, as new stores continue to see weak

traction. We expect PAT to decline 81% due to weak SSS performance and consequent lack of operating leverage.

Like to like (LTL) sales are likely to grow 1-2% on account of modest demand, despite discount sale season in

August.

Higher overheads on new store openings and extended discount period would impact profit margins for the

quarter.

Hypercity would remain a drag on consolidated profitability.

The company has added one Shoppers Stop departmental store in 2QFY13.

The stock trades at 149.1x FY13E and 59.3x FY14E standalone EPS. Maintain Neutral.

C–163October 2012


Sector: Retail

Titan Industries

Bloomberg TTAN IN



1,6,12 Rel Perf (%) 12/7/12

Mcap (INR b) 232.2

Mcap (USD b) 4.4

CMP: INR262 Neutral



03/11A 65,209 4,336 4.9 65.8 - - 49.6 61.8 - -

03/12A 88,384 6,048 6.8 38.4 38.7 16.0 48.7 66.8 2.5 26.8

03/13E 103,823 7,158 8.1 19.3 32.4 12.0 42.4 58.7 2.1 21.7

03/14E 123,199 8,858 10.0 23.8 26.2 9.1 34.8 54.1 1.7 13.9




Net Sales 20,205 20,963 24,401 22,814 22,057 24,450 29,000 28,316 88,384 103,823

YoY Change (%) 61.3 36.5 24.8 28.3 9.2 16.6 18.8 24.1 35.5 17.5

Total Exp 18,284 18,961 22,272 20,744 19,937 21,981 26,100 25,709 80,054 93,727

EBITDA 1,921 2,002 2,129 2,071 2,120 2,469 2,900 2,607 8,329 10,096

EBITDA Growth % 73 15 9.2 95.7 10.3 23.3 36.2 25.9 42 21

Margins (%) 9.5 9.6 8.7 9.1 9.6 10.1 10.0 9.2 9.4 9.7

Depreciation 99 106 119 125 123 110 117 131 449 482

Interest 88 2 10 131 126 160 160 204 437 650

Other Income 233 201 247 255 252 250 240 235 941 977

PBT 1,968 2,096 2,247 2,070 2,122 2,449 2,863 2,507 8,384 9,941

Tax 532 567 608 627 561 686 802 735 2,336 2,784

Rate (%) 27.0 27.1 28.5 30.3 28.0 28.0 28.0 29.3 27.9 28.0

Adjusted PAT 1,436 1,529 1,639 1,443 1,561 1,764 2,061 1,772 6,048 7,158

YoY Change (%) 76.9 19.7 16.4 72.0 8.7 15.4 25.8 22.8 39.5 18.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Titan Industries (TTAN) to post sales of INR24.5b, up 16.6%. EBITDA is likely to grow 23%, with margin

expansion of 50bp, driven by savings on excise and direct import of gold. PAT is likely to increase 15.4% to

INR1.7b.

Sequentially, footfalls have increased in the Jewelry segment, driven by improved consumer sentiment and

better wedding demand.

We estimate 10% decline in Jewelry volumes, as higher gold prices and weak consumer sentiment continue to

impact footfalls and demand; however, value growth will remain healthy due to ~23% higher gold prices.

We expect sales to grow 15% in the Jewelry segment and 14% in the Watches segment.

We believe store expansion and festive season demand in 3QFY13 are the key factors to watch for in FY13.

We estimate 21% PAT CAGR over FY12-14, but deterioration in consumer sentiment and decline in gold prices

are risks to our estimates. The stock trades at 32.4x FY13E EPS of INR8.1 and 26.2x FY14E EPS of INR10. Neutral.

C–164October 2012


Sector: Technology

TechnologyCompany Name

Cognizant Technology

HCL Technologies

Infosys

MphasiS

TCS

Tech Mahindra

Wipro





HCL Technologies 577 Buy 62,080 33.5 4.9 11,987 54.4 -6.2 7,932 65.3 -5.7

Infosys 2,534 Buy 100,052 23.5 4.0 30,956 23.0 5.1 24,015 26.0 4.9

MphasiS 402 Se l l 13,551 3.1 0.0 2,768 17.9 3.5 2,092 14.3 0.2

TCS 1,294 Neutral 157,685 35.5 6.1 46,122 36.3 6.4 34,563 41.7 5.4

Tech Mahindra 972 Buy 16,291 22.2 5.6 3,085 51.1 -6.6 2,978 23.7 -12.0

Wipro 381 Buy 110,824 21.9 4.0 21,299 22.4 -0.6 15,927 22.4 0.8


Ashish Chopra ([email protected])

Expect TCS, Cognizant to lead growth amid moderate traction in seasonally strong

quarter: We expect tier-I IT to grow USD revenue by 1-4.7% QoQ, led by TCS (4.1%

QoQ) and Cognizant (4.7% QoQ). Infosys' revenue growth estimate stands at 2.9%

QoQ, after two successive quarters of sequential revenue decline, bridging the growth

gap with leaders. HCL is likely to continue steady growth (3.6% QoQ), while Wipro

may lag, growing 1% QoQ (v/s guidance of 0.3-2.3%), as large deals remain elusive.

Margins to decline at HCL Tech and Wipro, remain flat at TCS and Infosys: INR has

depreciated by 1.9% QoQ in 2QFY13, which will be slight tailwind for margins. Also,

the commentary around pricing remained stable across the board, with no spike in

instances of abnormal pricing. Given the wage hikes effective from 1 June 2012 at

Wipro and 1 July 2012 at HCL Tech, we expect operating profit margins to decline at

these two companies (by 90bp QoQ and 220bp QoQ, respectively). Despite pressures

from continued hiring, onsite shift and geographic mix, we expect margins to remain

stable at TCS QoQ. Even at Infosys, we expect margins to remain within a tight band.

Expect guidance to remain unchanged on the back of unchanged macro outlook:

Worries on the macro front have not abated, and there is not enough to suggest

incremental change in the commentary across the board. We expect caution to

dominate the outlook for FY13, and guidance to remain unchanged. Deal signings

lend confidence to Infosys' outlook of at least 5% growth, and Cognizant too should

maintain guidance of at least 20% growth. Change in currency assumed in the guidance

is likely to moderate EPS estimate at Infosys by ~2pp to INR162. We expect hiring

guidance to remain unchanged at TCS and Wipro to guide 1-3% QoQ growth in USD

revenue for 3QFY13.

Watch for commentary on deal pipeline and velocity, BFSI and Europe: Given the

continued sluggishness in the environment, deal signing cycles are likely to remain

stretched, potentially thwarting the growth outlook. Also, continued trouble in Europe

and BFSI imply that outlook on the two would be keenly anticipated. From the

individual company's perspective, watch for volume growth and hiring at TCS, USD

revenue growth and pricing at Infosys, volume growth at Wipro and HCL Tech, and

BFSI performance at Cognizant.

C–165October 2012


Sector: Technology

Prefer HCL Tech, Infosys: Large deals signed lend visibility to HCL Tech's revenue

growth in FY13, while Infosys' commentary improved slightly through the quarter on

the back of deals won. TCS' incrementally cautious outlook on Telecom and rich

valuations keep us Neutral on the stock. We agree with Wipro's strategy of investing

in the downturn; but improvement in environment remains imperative for quick

fruition of its efforts.

Expect TCS to lead growth, Infosys to bridge the gap

EBITDA margin to decline at HCL and Wipro on wage hikes

4.12.9

1.0

3.6

-3

1

5

9

13

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13E

TCS Infos ys Wipro HCL Tecg


EBITDA Margins across top‐tier

14%

20%

26%

32%

38%

1Q

FY1

0

2Q

FY1

0

3Q

FY1

0

4Q

FY1

0

1Q

FY1

1

2Q

FY1

1

3Q

FY1

1

4Q

FY1

1

1Q

FY1

2

2Q

FY1

2

3Q

FY1

2

4Q

FY1

2

1Q

FY1

3

2QF

Y13

E

Infosys TCS Wipro (overal l ) HCLT

Aggregate PAT to increase 35% YoY, aided by currency swing

Revenues (USD) Revenues (INR b)

Company 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%) 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%)

TCS 2,841 2,525 12.5 2,728 4.1 158 116 35.5 149 6.1

Infosys 1,803 1,746 3.2 1,752 2.9 100 81 23.5 96 4.0

Wipro 1,530 1,473 3.9 1,515 1.0 111 91 21.9 107 4.0

HCLT 1,119 1,002 11.6 1,080 3.6 62 47 33.5 59 4.9

Aggregate 7,292 6,746 8.1 7,074 3.1 431 335 28.6 411 4.9

EBIT Margin(%) PAT (INR b)

Company 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%) 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%)

TCS 27.6 27.1 51 27.5 12 35 24 41.7 33 5.4

Infosys 28.3 28.2 16 28.0 32 24 19 26.0 23 4.9

Wipro 16.7 16.4 32 17.6 -89 16 13 22.4 16 0.8

HCLT 16.8 13.9 291 19.0 -224 8 5 65.2 8 -5.7

Aggregate 23.4 22.6 80 23.8 (42) 82 61 34.6 80 3.2


Relative Performance - 3m (%)

Relative Performance - 1Yr (%)

8590

95100105110

Jun

-12

Jul-

12

Au

g-12

Sep

-12

Sensex IndexMOSL Technology Index

90

100

110

120

130

Sep-

11

De

c-11

Mar

-12

Jun-

12

Sep-

12

Sensex IndexMOSL Technology Index

C–166October 2012


Sector: Technology

EBITDA margin to decline at HCL and Wipro on wage hikes


Incremental revenues - USD m

-75

0

75

150

225

TCS Infos ys Wipro HCL Cognizant

EPS Estimates (INR) - MOSL v/s Consensus

2QFY13 FY13 FY14 Upside/Downside to Consensus (%)

MOSL Consensus MOSL Consensus MOSL Consensus 3QFY12 FY12 FY13

Infosys 42.0 42.0 166.4 164.3 180.7 177.0 0.1 1.3 2.1

TCS 17.7 17.4 71.6 69.3 78.8 76.6 1.4 3.5 3.0

Wipro 6.5 6.4 26.0 26.2 28.2 28.6 2.1 -0.9 -1.5

HCL Tech 11.3 11.0 46.3 43.5 47.6 48.3 2.6 6.4 -1.6

Mphasis 9.9 9.7 37.5 37.3 40.8 39.2 2.9 0.6 3.9

Tech Mahindra 22.4 22.5 87.2 81.9 101.0 89.1 -0.4 6.4 13.3

Cognizant 0.9 0.9 3.4 3.5 3.9 4.1 0.6 -2.2 -4.1


2QFY13 Currency highlights (INR)

Rates (INR) Change (QoQ, %)

USD EUR GBP AUD USD EUR GBP AUD

Average 55.2 69.0 87.1 57.3 0.9 -0.1 1.9 5.0

Closing 52.9 68.3 85.6 55.1 -5.0 -2.5 -1.5 -2.8

Source: Company,MOSL

2QFY13 Currency highlights (in USD)

Rates (USD) Change (QoQ, %)

EUR GBP AUD EUR GBP AUD

Average 1.25 1.58 1.04 -2.5 -0.2 2.9

Closing 1.29 1.62 1.04 1.5 2.9 1.4


2QFY13 guidance exchange rate assumptions

Guided at EUR GBP AUD INR/USD

Infosys 1.26 1.56 1.02 55.00

Wipro 1.26 1.58 1.01 54.76

Actual (Average) 1.25 1.58 1.04 55.30





Technology

HCL Technologies 577 Buy 35.1 46.3 47.6 16.5 12.5 12.1 10.2 8.0 7.4 26.0 27.8 25.8

Infosys 2,534 Buy 145.5 166.5 180.7 17.4 15.2 14.0 11.6 9.8 8.8 28.0 27.3 25.8

MphasiS 402 Se l l 37.5 40.8 37.2 10.7 9.9 10.8 8.3 7.6 8.2 18.7 17.5 13.9

TCS 1,294 Neutral 54.4 71.6 78.8 23.8 18.1 16.4 17.4 13.0 11.5 36.7 38.3 33.7

Tech Mahindra 972 Buy 70.4 87.2 101.0 13.8 11.1 9.6 10.5 6.6 5.6 30.2 24.4 23.0

Wipro 381 Buy 22.7 26.0 28.2 16.8 14.7 13.5 11.8 10.0 9.0 21.2 20.7 19.4


C–167October 2012


Sector: Technology

Cognizant Technology Solutions

Bloomberg CTSH US


52-Week Range (USD) 84/53

1,6,12 Rel. Perf. (%) 4/-5/21

M.Cap. (INRb) 1,118.6

M.Cap. (USD b) 21.2

CMP: USD69 Not RatedYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/

End (USD m) (USD m) (USD) Gr. (%) (X) (X) (%) (%) Sales EBITDA

12/10A 4,592 734 2.38 34.2 - - 23.5 27.2 - -

12/11A 6,121 884 2.86 20.0 24.4 5.5 23.4 28.6 3.2 15.5

12/12E 7,347 1,060 3.45 20.5 20.3 4.6 24.6 29.5 2.6 12.5

12/13E 8,711 1,211 3.94 14.2 17.7 3.7 23.0 27.3 2.1 10.4

Quarterly Performance (US GAAP) (USD Million)



Revenues 1,371 1,485 1,601 1,664 1,711 1,795 1,880 1,961 6,121 7,347

Q-o-Q Change (%) 4.6 8.3 7.8 3.9 2.9 4.9 4.7 4.3 33.3 20.0

Direct Expenses 782 861 925 971 985 1,031 1,067 1,118 3,539 4,201

SG&A 296 327 353 352 374 397 413 431 1,329 1,616

SG&A as % of Sales 21.6 22.0 22.1 21.2 21.9 22.1 22.0 22.0 21.7 22.0

EBITDA 293 298 323 341 353 368 399 411 1,254 1,530

Margins (%) 21.3 20.0 20.2 20.5 20.6 20.5 21.2 21.0 20.5 20.8

Other Income 15 8 -5 15 4 3 9 10 33 26

Depreciation 27 28 30 32 35 36 38 39 117 147

PBT bef. Extra-ordinary 280 278 288 323 322 335 371 382 1,169 1,410

Provision for Tax 72 70 61 83 79 83 93 95 286 350

Rate (%) 25.7 25.1 21.1 25.7 24.4 24.8 25.0 25.0 24.4 24.8

PAT before EO 208 208 227 240 244 252 278 286 884 1,060

Q-o-Q Change (%) 1.0 -0.1 9.2 5.7 7.3 3.4 10.4 2.9 20.5 19.9

Operating Metrics

Headcount addition 7,200 7,100 11,700 7,700 2,800 4,500 6,399 5,335 33,700 19,150

Closing Headcount 111,200 118,300 130,000 137,700 140,500 145,000 151,450 156,850 137,700 156,850

Utilization (%) 70 70 70 68 67 68 69 69 69 68

BSE Sensex S&P CNX

18,763 5,703

We expect Cognizant's revenue to grow 4.7% QoQ to USD1.88b in 3QCY12. The company had guided revenue of

USD1.875b, implying a growth of 4.4% QoQ.

We expect Cognizant to retain its full-year revenue growth guidance of at least 20%, which implies 4QCY12

growth rate of 4.3% QoQ on our 3Q revenue estimate.

1QCY12 was only the second time in the past six years when the company lowered its full-year guidance. The

last time when it did so in CY08 (in the middle of the financial meltdown), it was just a one-quarter phenomenon

and guidance was again increased in the next quarter.

Our EBITDA margin estimate stands at 21.2% (+70bp QoQ) v/s 20.5% in 2QCY12, on some favorable impact from

currency.

Our GAAP EPS estimate is USD0.9 v/s the company's guidance of USD0.86.

Key things to watch: Commentary on likely client budgets in CY13; traction in discretionary spending; commentary

on Europe.

The stock trades at 20.3x CY12E and 17.7x CY13E EPS. Not Rated.

C–168October 2012


Sector: Technology

HCL Technologies

Bloomberg HCLT IN



1,6,12 Rel Perf (%) -3/13/28

Mcap (INR b) 405.8

Mcap (USD b) 7.7

CMP: INR577 Buy

Year Sales PAT* EPS* EPS P/E* P/BV RoE RoCE EV/ EV/


6/11A 159,118 16,098 23.1 35.0 - - 20.8 15.9 - -

6/12A 210,312 24,556 35.1 52.0 16.5 3.8 26.0 21.4 1.9 9.9

6/13E 257,162 32,655 46.3 31.9 12.5 3.1 27.8 25.2 1.5 7.9

6/14E 288,099 33,784 47.6 2.9 12.1 2.6 25.8 22.3 1.3 7.4

Quarterly Performance (US GAAP) (INR Million)

Y/E June FY12 FY13E FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Revenues 46,513 52,452 52,156 59,191 62,080 62,794 65,061 67,227 210,312 257,162

Q-o-Q Change (%) 8.2 12.8 -0.6 13.5 4.9 1.2 3.6 3.3 32.2 22.3

EBITDA 7,764 9,487 9,363 12,782 11,987 11,768 12,471 12,867 39,396 49,094

Margins (%) 16.7 18.1 18.0 21.6 19.3 18.7 19.2 19.1 18.7 19.1

Other Income 59 -670 -136 -423 287 342 370 400 -1,170 -942

PAT 4,800 5,526 5,818 8,409 7,932 7,774 8,334 8,615 24,553 27,685

Q-o-Q Change (%) -2.3 15.1 5.3 44.5 -5.7 -2.0 7.2 3.4

Y-o-Y Change (%) 59.8 48.5 30.6 71.2 65.3 62.0 50.8 48.1 43.6 12.8

Diluted EPS (INR) 6.9 7.9 8.3 12.0 11.3 11.0 11.8 12.2 35.1 46.3

USD Revenues 1,002 1,022 1,048 1,080 1,119 1,163 1,205 1,253 4,152 4,268

Q-o-Q Change (%) 4.1 2.0 2.5 3.0 3.6 4.0 3.6 4.0 17.1 2.8

Operating Metrics

Gross Margin (%) 31.1 32.6 32.1 34.8 33.2 32.8 33.0 33.0 31.3 31.3

SGA (%) 14.4 14.5 14.2 13.2 13.9 14.1 13.9 13.8 14.7 14.7

Tax rate (%) 26.3 25.5 25.5 22.4 24.0 24.0 24.0 24.0 24.5 24.5

Net Employee additions 3,474 2,556 -612 1,855 2,600 2,800 3,200 3,650 7,273 12,250

Util. - incl. trainees (%) 69.7 69.6 72.2 72.4 73.0 72.5 72.5 72.5 70.8 72.6

Q-o-Q Volume Growth (%) 4.0 4.9 2.9 1.8 3.6 3.8 3.7 3.7 16.7 13.9

Q-o-Q Realization change (%) 1.1 -1.2 -1.0 0.0 -0.1 -0.1 -0.1 0.0 0.4 -0.8

Offshore revenues (%) 42.3 42.1 43.8 42.8 42.9 43.0 43.1 43.1 42.8 43.0

E: MOSL Estimates; After adjusting for ESOP charges; Axon is consolidated since December 2008

BSE Sensex S&P CNX

18,763 5,703

* After ESOP charges

We estimate HCL Tech's 1QFY13 revenue at USD1.12b, up 3.6% QoQ. In INR terms, our revenue estimate is

INR62.08b, up 4.9% QoQ.

We expect volume growth of 3.6% QoQ in Software Services, and USD revenue growth of 3.5% QoQ in Software

Services, 2.1% QoQ in BPO and 4.2% QoQ in IMS.

Despite our assumption of 1.2% QoQ depreciation in the INR v/s the USD, we expect EBITDA margin to decline

230bp QoQ (after adjusting for ESOP charges) on account of wage hikes effective from 1 July 2012.

We estimate SGA spends at 13.9% of revenue, +70bp QoQ.

We expect PAT to decline 5.7% QoQ to INR7.9b (after adjusting for ESOP charges), translating into an EPS of

INR11.3.

Key things to watch: Commentary on deal pipeline; impact of wage hikes on margins.


C–169October 2012


Sector: Technology

Infosys

Bloomberg INFO IN


52 Wk Range (INR) 2,990/2,102

1,6,12 Rel Perf (%) -2/-20/-12


Mcap (USD b) 27.5

CMP: INR2,534 Buy



3/11A 275,010 68,230 119.4 11.2 - - 27.8 33.1 - -

3/12A 337,340 83,160 145.5 21.9 17.4 4.3 28.0 32.9 3.7 11.6

3/13E 405,699 95,045 166.5 14.4 15.2 4.0 27.3 32.5 3.0 9.9

3/14E 446,507 103,248 180.7 8.5 14.0 3.3 25.8 30.3 2.6 8.8

Quarterly Performance (IFRS) (INR Million)



Revenues 74,850 80,990 92,980 88,520 96,160 100,052 103,412 106,075 337,340 405,699

Q-o-Q Change (%) 3.2 8.2 14.8 -4.8 8.6 4.0 3.4 2.6 22.7 20.3

EBITDA 21,750 25,160 31,350 28,900 29,460 30,956 31,164 32,201 107,160 123,689

Margins (%) 29.1 31.1 33.7 32.6 30.6 30.9 30.1 30.4 31.8 30.5

Other Income 4,430 3,870 4,220 6,520 4,760 5,249 5,140 4,257 19,040 19,405

PAT 17,220 19,060 23,720 23,160 22,890 24,015 24,069 24,164 83,160 95,045

Q-o-Q Change (%) -5.3 10.7 24.4 -2.4 -1.2 4.9 0.2 0.4 21.9 14.3

Diluted EPS (INR) 30.1 33.4 41.5 40.5 40.1 42.0 42.1 42.3 145.5 166.5

USD Revenues 1,671 1,746 1,806 1,771 1,752 1,803 1,915 1,964 6,994 7,434

Q-o-Q Change (%) 4.3 4.5 3.4 -1.9 -1.1 2.9 6.2 2.6 15.8 6.3

Operating Metrics

Gross Margin (%) 41.8 44.3 45.7 44.0 42.2 42.7 42.6 42.6 44.1 42.5

SGA (%) 12.8 13.3 11.9 11.4 11.6 11.8 12.4 12.3 12.3 12.0

Tax rate (%) 28.1 28.6 28.6 29.8 27.8 28.5 28.5 28.5 28.8 28.3

Net Employee additions 2,740 8,262 3,266 4,906 1,157 5,210 4,159 3,184 19,174 13,710

Utilization - incl. trainees (%) 74.9 77.3 77.4 73 79.1 76.0

Q-o-Q Volume Growth (%) 3.2 4.4 3.0 -0.6 2.8 3.0 3.3 2.6 10.8 9.8

Q-o-Q Realization change (%) 1.2 0.5 (0.1) (1.1) (3.7) (0.1) 2.9 - 4.7 -3.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Our 2QFY13 revenue estimate stands at USD1.8b, up 2.9% QoQ. In INR terms, our revenue growth estimate is

INR100b, up 4% QoQ.

We expect Infosys to grow its volumes by 3% QoQ in 2QFY13. To meet its minimum volume growth of 9.5% in

FY13, the company requires a volume CQGR of 2.8% over 2Q-4Q.

Infosys had guided USD revenue growth of "at least" 5% for FY13, and had stopped giving guidance for the

immediate quarter.

We expect reported pricing to be flattish, after declining 3.2% on a blended basis in constant currency in 1Q.

This would still imply some like-to-like decline, given that there is a tailwind of ~80bp on the realization metric

from one-time revenue reversal in 1QFY13.

We expect EBITDA margin to expand 30bp QoQ to 30.9%, given our assumption of ~1% depreciation in the

realized INR QoQ.

We expect 4.9% increase in PAT to INR24b. Our EPS estimate is INR42.

Key things to watch: Volume growth in 2QFY13; commentary on discretionary spends and pricing; deal signings

performance QoQ.

The stock trades at 15.2x FY13E and 14x FY14E EPS. Maintain Buy.

C–170October 2012


Sector: Technology

Mphasis

Bloomberg MPHL IN



1,6,12 Rel Perf (%) 3/-12/4

Mcap (INR b) 84.5

Mcap (USD b) 1.6

CMP: INR402 Sell


End (INR m) (INR m) (INR) Gr. (%) Ratio (x) (%) (%) Sales EBITDA

10/10A 50,366 10,269 48.6 12.5 - - 36.4 36.4 - -

10/11A 50,980 8,308 39.3 -19.1 10.2 2.2 23.1 22.2 1.3 6.7

10/12E 54,063 7,921 37.5 -4.7 10.7 1.9 18.7 19.4 1.2 5.9

10/13E 56,775 8,611 40.8 8.7 9.9 1.6 17.5 18.6 1.0 4.9

Mphasis - Quarterly Performance (INR Million)

Y/E October FY11 FY12 FY11 FY12E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Revenues 12,335 12,571 12,936 13,138 13,672 13,289 13,551 13,551 50,980 54,063

Q-o-Q Change (%) -8.3 1.9 2.9 1.6 5.7 -2.8 2.0 0.0 1.2 6.0

Direct Expenses 8,769 8,950 9,396 9,626 9,995 9,454 9,596 9,513 36,741 38,558

Sales, Gen. & Admin. Exp. 1,167 949 1,024 1,165 1,155 1,221 1,280 1,271 4,305 4,927


Margins (%) 19.5 21.3 19.4 17.9 18.4 19.7 19.7 20.4 19.5 19.6

Other Income 346 497 429 479 338 340 441 386 1,751 1,505

Depreciation 359 337 440 414 468 455 415 419 1,550 1,757

PBT bef. Extra-ordinary 2,386 2,832 2,505 2,412 2,392 2,499 2,701 2,735 10,135 10,327

Provision for Tax 295 393 557 582 544 605 614 643 1,827 2,406

Rate (%) 12.4 13.9 22.2 24.1 22.7 24.2 22.7 23.5 18.0 23.3

PAT bef. Extra-ordinary 2,091 2,439 1,948 1,830 1,848 1,894 2,087 2,092 8,308 7,921

Q-o-Q Change (%) -19.9 16.6 -20.1 -6.1 -5.1 2.5 10.2 0.2 -19.1 -4.7

Diluted EPS (INR) 9.9 11.6 9.3 8.7 8.8 9.0 9.9 9.9 39.3 37.5

USD Revs 271 282 290 276 271 266 252 254 1,119 1,042

Q-o-Q Change (%) -8.5 3.9 2.9 -4.7 -2.0 -1.8 -5.2 0.7 1.7 -6.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Mphasis to report sequentially flattish revenue at INR13.5b in 4QFY12, as growth in the direct

channel is offset by continued decline in the HP channel.

In USD terms, we expect revenue of USD254m v/s USD252m in 3QFY12 (+0.7% QoQ). We estimate 1.1% QoQ

growth in ITS and 1% QoQ decline in revenue from Applications.

We model INR400m hedge losses for the company in the topline.

Our EBITDA margin estimate is 20.4%, +70bp QoQ, given the company's continued cost focus amid limited

revenue visibility.

We expect 10.2% QoQ growth in PAT to INR2.09b, translating into an EPS of INR9.9.

Key things to watch: Outlook on HP channel in FY13; plans around cash; traction and deal pipeline in the direct

channel.

The stock trades at 10.7x FY12E and 9.9x FY13E EPS. Maintain Sell.

C–171October 2012


Sector: Technology

Tata Consultancy Services

Bloomberg TCS IN


52 Wk Range (INR) 1,438/1,015

1,6,12 Rel Perf (%) -10/2/9


Mcap (USD b) 48.1




3/11A 373,245 86,826 44.4 26.3 - - 37.4 42.2 - -

3/12A 488,938 106,384 54.4 22.5 23.8 7.8 36.7 44.1 5.1 17.4

3/13E 632,683 140,221 71.6 31.8 18.1 6.2 38.3 45.4 3.8 13.0

3/14E 725,936 154,286 78.8 10.0 16.4 5.0 33.7 39.8 3.2 11.5

Quarterly Performance (IFRS) (INR Million)



Revenues 107,970 116,335 132,040 132,593 148,687 157,685 159,882 166,429 488,938 632,683

Q-o-Q Change (%) 6.3 7.7 13.5 0.4 12.1 6.1 1.4 4.1 31.0 29.4

EBITDA 30,310 33,829 40,921 39,117 43,328 46,122 46,263 49,718 144,177 185,430

Margins (%) 28.1 29.1 31.0 29.5 29.1 29.2 28.9 29.9 29.5 29.3

Other Income 2,887 997 -920 1,077 1,754 2,430 3,011 3,156 4,041 10,351

PAT 23,804 24,390 28,866 29,324 32,806 34,563 35,057 37,796 106,384 140,221

Q-o-Q Change (%) -0.9 2.5 18.3 1.6 11.9 5.4 1.4 7.8 22.5 31.8

Diluted EPS (INR) 12.2 12.5 14.7 15.0 16.8 17.7 17.9 19.3 54.4 71.6

USD Revenues 2,412 2,525 2,586 2,648 2,728 2,841 2,961 3,082 10,171 11,612

Q-o-Q Change (%) 7.5 4.7 2.4 2.4 3.0 4.1 4.2 4.1 24.2 14.2

Operating Metrics

Gross Margin (%) 45.5 46.6 48.0 47.8 47.2 47.1 47.3 47.6 47.1 47.3

SGA (%) 17.5 17.5 17.1 18.3 18.1 17.9 18.3 17.8 17.6 18.0

Tax rate (%) 22.7 24.3 22.6 21.6 22.2 24.0 24.0 24.0 22.8 23.6

Net Employee additions 3,576 12,580 11,981 11,832 4,962 9,181 7,924 7,702 39,969 29,768

Utilization - excluding trainees (%) 83.2 83.1 82.0 80.6 81.3 83.7 84.0 83.9 82.2 83.3

Q-o-Q Volume Growth (%) 7.5 6.3 3.2 3.3 5.3 3.9 4.2 3.5 23.0 15.7

Q-o-Q Realization change (%) -0.5 -1.0 2.0 -1.0 -1.0 -0.1 0.0 0.6 1.1 -0.9


E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect TCS to grow its revenue by 4.1% QoQ to USD2.84b in 2QFY13, on the back of 3.9% sequential growth

in volumes.

In INR terms, we expect revenue growth of 6% QoQ to INR158b. Pricing would remain flat QoQ.

EBITDA margin would be sequentially flattish at 29.2%, as gains from currency would be offset by [1] continued

traction in hiring, [2] slight onsite shift on account of new project start-ups, and [3] higher growth from lower

margin geographies like APAC and South America.

We expect PAT to grow 5.4% QoQ to INR34.6b, translating into an EPS of INR17.7.

We expect net hiring of 9,181 employees. Utilization including trainees would increase by 200bp QoQ to 74.3%.

Key things to watch: Volume growth; gross hiring; impact from forex.

The stock trades at 18.1x FY13E and 16.4x FY14E EPS. Maintain Neutral.

C–172October 2012


Sector: Technology

Tech Mahindra

Bloomberg TECHM IN



1,6,12 Rel Perf (%) 9/29/53

Mcap (INR b) 123.9

Mcap (USD b) 2.4

CMP: INR972 Buy

Year Net Sales PAT# EPS* EPS P/E P/BV R0E RoCE EV/ EV/


3/11A 48,413 7,093 54.3 7.4 - - 30.2 22.1 - -

3/12A 54,897 9,299 70.4 29.7 13.8 2.9 30.2 24.5 2.9 13.8

3/13E 70,869 11,512 87.2 23.8 11.1 2.3 24.4 24.0 2.3 8.9

3/14E 82,293 13,337 101.0 15.9 9.6 1.7 23.0 22.1 1.7 7.6

# Reported PAT incl Satyam; * EPS incl profits from Satyam, adjusted for restructuring charge

Quarterly Performance (Indian GAAP) - SA (INR Million)



Revenues 12,925 13,333 14,449 14,190 15,434 16,291 19,300 19,844 54,897 70,869

Q-o-Q Change (%) 2.5 3.2 8.4 -1.8 8.8 5.6 18.5 2.8 13.4 29.1

Direct Cost 8,540 9,069 9,861 9,312 9,684 10,551 12,790 13,003 36,782 46,027

Other Operating Exps 1,967 2,222 2,245 2,487 2,448 2,655 3,127 3,215 8,921 11,445


Margins (%) 18.7 15.3 16.2 16.8 21.4 18.9 17.5 18.3 16.7 18.9

Other Income 460 972 147 -211 -174 -123 -39 -6 1,368 -342

Interest 223 721 338 131 240 286 258 231 1,413 1,014

Depreciation 334 507 390 383 421 436 507 512 1,614 1,876

PBT bef. Extra-ordinary 2,321 1,786 1,762 1,666 2,467 2,240 2,580 2,878 7,535 10,165

Provision for Tax 509 393 294 242 585 515 593 662 1,438 2,355

Rate (%) 21.9 22.0 16.7 14.5 23.7 23.0 23.0 23.0 19.1 23.2

Net Inc. aft. sh. of profits fr. asso. 2,768 2,407 2,763 3,023 3,384 2,978 3,190 3,479 4,104 5,863

Q-o-Q Change (%) 200.5 -13.0 14.8 9.4 11.9 -12.0 7.1 9.1 -17.6 42.9

Diluted EPS (INR) 18.2 15.3 17.8 19.7 22.6 19.5 21.1 23.3 70.9 86.7

USD Revenues 290 296 289 282 281 294 357 367 1,156 1,300

Q-o-Q Change (%) 4.1 2.2 -2.5 -2.5 -0.1 4.3 21.8 2.8 8.8 12.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Tech Mahindra's revenue to grow 4.3% QoQ to USD294m, on account of ~USD12m contribution from

the acquisition of HGS. In INR terms, we expect revenue of INR16.3b, +55.6% QoQ.

At Mahindra Satyam, we expect revenue to grow 3% QoQ to USD352m. In Rupee terms, revenue would be

INR19.55b.

Tech Mahindra's EBITDA margin is expected to decline 250bp QoQ to 18.9% in 2QFY13, on account of wage hikes

effective from the onset of the quarter. Even at Satyam, we expect EBITDA margin to decline 210bp QoQ to

19.6%.

Our PAT estimate for Tech Mahindra is INR1.73b and INR1.34b after adjusting the impact of restructuring fees.

Our PAT estimate for Satyam is INR2.9b.

Key things to watch: Pipeline in Managed Services; outlook on BT; margin profile post acquisitions.


C–173October 2012


Sector: Technology

Wipro

Bloomberg WPRO IN



1,6,12 Rel Perf (%) -2/-21/-4

Mcap (INR b) 936.3

Mcap (USD b) 17.8

CMP: INR381 Buy



3/11A 310,986 52,794 21.6 15.1 - - 24.2 20.1 - -

3/12A 375,248 55,731 22.7 5.1 16.8 3.3 21.2 19.4 2.3 11.8

3/13E 440,757 63,749 26.0 14.4 14.7 2.8 20.7 19.5 1.9 10.0

3/14E 480,255 69,192 28.2 8.5 13.5 2.4 19.4 18.6 1.7 8.9

Wipro Quarterly Performance (IFRS) (INR Million)



Revenues 85,640 90,945 99,972 98,691 106,530 110,824 111,205 112,198 375,248 440,757

Q-o-Q Change (%) 3.2 6.2 9.9 -1.3 7.9 4.0 0.3 0.9 20.7 17.5

EBITDA 17,290 17,397 19,843 19,611 21,426 21,299 21,195 21,380 74,141 85,300

Margins (%) 20.2 19.1 19.8 19.9 20.1 19.2 19.1 19.1 19.8 19.4

Margins after taking hedges

on top-line (%) 17.5 16.4 17.2 17.2 17.6 16.7 16.5 16.5

Other Income 1,542 962 1,249 1,984 1,223 1,444 1,482 1,681 5,737 5,829

PAT 13,349 13,009 14,564 14,809 15,802 15,927 15,866 16,154 55,731 63,749

Q-o-Q Change (%) -2.9 -2.5 12.0 1.7 6.7 0.8 -0.4 1.8

Y-o-Y Change (%) 1.2 1.2 10.4 7.7 18.4 22.4 8.9 9.1 5.2 14.4

Diluted EPS (INR) 5.4 5.3 5.9 6.0 6.4 6.5 6.5 6.6 22.7 26.0

USD Revenues 1,408 1,473 1,506 1,536 1,515 1,530 1,568 1,601 5,921 6,213

Q-o-Q Change (%) 0.5 4.6 2.2 2.0 -1.4 1.0 2.5 2.1 13.4 4.9

Operating Metrics

Gross Margin (%) 29.9 28.6 30.3 30.6 30.4 30.3 30.2 29.8 29.9 30.6

SGA (%) 12.5 12.2 13.0 13.5 14.0 13.8 13.8 13.7 12.8 13.8

IT Services EBIT (%) 22.0 20.0 20.8 20.7 21.0 20.0 19.8 19.5 20.8 20.1

Tax rate (%) 18.9 18.0 20.7 21.2 20.2 19.5 19.5 19.5 19.8 19.7

Net Employee additions 4,105 5,240 5,004 -814 2,632 2,415 2,915 3,565 13,535 11,527

Utilization-incl.trainees (%) 71.2 70.1 67.0 67.8 69.5 69.3 70.0 70.0 69.0 69.7

Q-o-Q Volume Growth(%) 1.8 6.0 1.8 0.8 0.8 1.3 2.7 2.4 11.5 6.9

Q-o-Q Realization Chg. (%) -2.1 -0.5 2.7 0.5 -2.2 -0.3 -0.2 -0.3 3.2 -0.6


Rev Guidance (USDm) 1,394- 1,436- 1,500- 1,520- 1,520- 1,520-

1,422 1,464 1,530 1,540 1,550 1,550

Q-o-Q Change (%) -0.4-+1.6 2.0-4.0 1.9-3.9 1-3 -1 to 1 0.3-2.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We estimate Wipro's IT revenue at USD1.53b, +1% QoQ, in line with the company's guidance of USD1.52b-1.55b.

In INR terms, we estimate Services revenue at INR84.9b, +2.1% QoQ.

We expect volume growth of 1.3% QoQ and flat pricing for IT Services. Wipro's overall revenue is likely to grow

4% QoQ to INR111b.

IT Services EBIT margin would decline 100bp QoQ to 20% on two months of residual impact from wage hikes.

Overall EBIT margin would decline 90bp QoQ to 16.7%.

We estimate PAT at INR15.9b, up 0.8% QoQ, and EPS at INR6.48.

Key things to watch: Guidance for 3QFY13; commentary around deals; outlook on BFSI and Telecom.


C–174October 2012


Sector: Telecom

TelecomCompany Name

Bharti Airtel

Idea Cellular

Reliance Communication

Tulip Telecom

Wireless traffic to decline ~1% QoQ; RPM pressure to abate: We expect average

wireless traffic for top-4 operators to decline ~1% QoQ, led by seasonal weakness

and lower promotions. Wireless RPM decline is likely to abate, with average RPM

declining by 0.3% QoQ v/s ~2% QoQ declines in the preceding two quarters. Within

operators, we expect Bharti Airtel (BHARTI) to exhibit relatively lower traffic decline,

given its price aggression.

Wireless EBITDA margin to be under pressure: We expect consolidated EBITDA margin

for BHARTI to remain largely flat QoQ at 30.4%; margin for India and South Asia business

is also likely to be stable at 32%, despite flat revenue, driven by lower SGA expenses.

Idea Cellular (IDEA) is likely to report consolidated EBITDA margin of ~25%, down

80bp QoQ. For Reliance Communications (RCOM), we model 2QFY13 consolidated

EBITDA margin of 30%.

Forex gain could boost PAT: Consolidated PAT is likely to decline by 13-14% QoQ for

BHARTI/IDEA and 33% for RCOM, largely due to decline in wireless traffic. While we

have not modeled any forex gains, sharp appreciation of the INR v/s the USD could

drive mark-to-market gains for all the wireless companies, given their significant USD

liabilities.

Expect improved performance at Bharti Africa: We expect improved performance in

Africa business with QoQ revenue/EBITDA likely to grow at 3/5% QoQ. 2QFY13

performance in Africa should be supported by ~1% average appreciation in Bharti's

African currency basket vs USD. We have not modeled any forex gain/loss in Africa

business.

Industry subscriber numbers decline in July/August: Industry subscribers declined by

~21m in July 2012 and by a further ~6m in August 2012. While the decline in July was

largely due to disconnection by one operator (RCOM), all major operators except

RCOM/Aircel reported MoM decline in subscribers during August 2012. The decline

was led by lower promotions/ channel commissions as well as likely non-availability

of number series.

Abbreviations and acronymsRPM: revenue per minute

MNP: mobile number portability

VLR: visitor location register

TRAI: Telecom Regulatory

Authority of India

ARPU: average revenue per user

MOU: minutes of use

Expected quarterly performance summary (INR Million)CMP Rating Sales EBITDA Net Profit



Bharti Airtel 265 Neutral 195,659 13.3 1.1 59,536 2.4 1.8 6,563 -36.1 -13.9

Idea Cellular 85 Buy 54,458 17.9 -1.1 13,775 16.1 -4.0 2,036 92.5 -13.1

Reliance Comm 65 Neutral 52,462 4.1 -1.4 15,916 -0.8 -3.5 1,281 -60.3 -33.1

Tulip Telecom 46 S e l l 7,328 4.2 2.3 1,949 -4.1 1.6 545 -37.4 -0.4

Sector Aggregate 309,908 12.2 0.3 91,177 3.5 -0.1 10,424 -32.4 -16.1

Shobhit Khare ([email protected])

C–175October 2012


Sector: Telecom

2G auction the key event to watch for: The regulatory environment continues to be

uncertain. 2G spectrum auction scheduled in November 2012 would be crucial in

determining spectrum pricing, going forward. While industry consolidation/exit of

new entrants could lead to an improvement in the operating environment, potential

participation of Reliance Industries in the 2G auction could disrupt the market

recovery.

Valuation and view: During FY12-14, we expect 7/19/5% EBITDA CAGR for BHARTI/

IDEA/RCOM, led by 9/15/6% traffic CAGR in the India wireless business. Reiterate Buy

on IDEA (trades at an EV of 5.3x FY14E EBITDA), and Neutral on BHARTI (trades at an EV

of 5.8x FY14E EBITDA) and RCOM (trades at an EV of 6.4x FY14E EBITDA).

Wireless subscriber net additions (m)

Industry subscriber

base declined in

July/August 2012

Operator wise monthly subscriber additions (m)

Negative additions

for operators during

August 2012

Source: TRAI/MOSL

We expect wireless traffic

for majors to decline by

~1% QoQ in 2QFY13

QoQ wireless traffic growth (%)

14

12

12

12 14 15

15 17 18 19

19

17

16 18

17 18

17 19 2

323

19 20

20

15

13

11

7 7 8 83

9 10

7 82

85

-21

-6

21

20

16

Feb

-09

Ma

r-09

Apr-

09

May

-09

Jun

-09

Jul-

09

Au

g-0

9S

ep

-09

Oct-

09

Nov

-09

Dec

-09

Jan

-10

Feb

-10

Ma

r-10

Apr-

10

May

-10

Jun

-10

Jul-

10

Au

g-1

0S

ep

-10

Oct-

10

Nov

-10

Dec

-10

Jan

-11

Feb

-11

Ma

r-11

Apr-

11

May

-11

Jun

-11

Jul-

11

Au

g-1

1S

ep

-11

Oct-

11

Nov

-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Apr-

12

May

-12

Jun

-12

Jul-

12

Au

g-1

2

C–176October 2012


Sector: Telecom

6.0

3.5

2.7 2.6

RCom Vodafone

India

Bharti Idea

We expect RPM to remain largely flat QoQ (INR)

We expect RPM to remain

largely flat QoQ

Leverage remains

reasonable for

Bharti/Idea but alarming

for RCom

Net Debt/EBITDA (FY12, x) Net Debt/Equity (FY12, x)


Aggregate traffic growth and RPM trend for wireless majors

Source: TRAI

Traffic to decline on

seasonality; RPM to

stabilize

0.90.9

1.2

RCom Ide a Bharti

0.41

0.43

0.38

0.40

0.42

0.44

0.46

1Q

FY1

1

2Q

FY1

1

3Q

FY1

1

4Q

FY1

1

1Q

FY1

2

2Q

FY1

2

3Q

FY1

2

4Q

FY1

2

1Q

FY1

3

2QFY

13E

B harti Id ea Vodafone -In dia RCOM

10

1

4

75

-1

3

6

-1

4

-4-1

0-2 0

-2-2

22

-1

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2QF

Y13E

Qo Q traffi c growth (%) QoQ RPM Growth (%)

C–177October 2012


Sector: Telecom

2QFY13: Summary Expectations

Wireless KPIs

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%)

EOP Wireless Subs (m)

Bharti (India) 137 143 152 162 169 173 176 181 187 186 8 -0.8

Idea* 69 74 82 90 95 100 106 113 117 116 16 -1.1

RCOM 111 117 126 136 143 147 150 153 155 135 -8 -12.6

Vodafone - India 109 116 124 135 142 145 148 150 154 154 6 -0.1

AV. Wireless Subs (m)

Bharti (India) 132 140 148 157 166 171 174 178 184 187 9 1.2

Idea* 66 72 78 86 92 98 103 110 115 116 19 1.4

RCOM 107 114 121 131 139 145 149 152 154 145 0 -5.8

Vodafone - India 105 112 120 129 138 143 146 149 152 154 7 1.0

ARPU (INR/month)

Bharti (India) 215 202 198 194 190 183 187 189 185 181 -1 -2.2

Idea* 182 167 168 161 160 155 159 160 156 152 -2 -2.4

RCOM 130 122 111 107 103 101 100 99 98 104 2 5.9

Vodafone - India 191 177 176 171 169 168 173 179 180 175 4 -3.0

MOU/Sub

Bharti (India) 480 454 449 449 445 423 419 431 433 424 0 -2.0

Idea* 415 394 401 397 391 364 369 379 379 371 2 -2.1

RCOM 295 276 251 241 233 227 224 227 228 242 7 6.4

Vodafone India (reported) 328 311 308 307 308 297 303 318 324 316 6 -2.5

Vodafone India (adj) 437 415 410 410 411 396 405 424 433 422 6 -2.5

Revenue per min (INR)

Bharti (India) 0.45 0.44 0.44 0.43 0.43 0.43 0.45 0.44 0.43 0.43 -1 -0.2

Idea* 0.44 0.42 0.42 0.41 0.41 0.43 0.43 0.42 0.41 0.41 -4 -0.2

RCOM 0.44 0.44 0.44 0.44 0.44 0.45 0.45 0.44 0.43 0.43 -4 -0.5

Vodafone India (reported) 0.58 0.57 0.57 0.56 0.55 0.57 0.57 0.56 0.55 0.55 -2 -0.5

Vodafone India (adj) 0.44 0.43 0.43 0.42 0.41 0.42 0.43 0.42 0.42 0.41 -2 -0.5

Wireless traffic (B min)

Bharti (India) 190 191 199 212 221 217 219 231 239 237 9 -0.8

Idea* 82 85 94 102 109 106 114 124 132 130 22 -1.0

RCOM 94 94 91 94 98 99 100 103 105 105 6 0.2

Vodafone India (reported) 103 105 111 119 128 128 133 142 148 146 14 -1.5

Vodafone India (adj) 138 140 147 159 170 170 178 190 197 194 14 -1.5



75

85

95

105

115

Jun-

12

Jul-

12

Au

g-1

2

Sep-

12

Sens ex Ind ex

MOSL Telecom In dex

60

75

90

105

120

Sep-

11

Dec

-11

Ma

r-12

Jun-

12

Sep-

12

Sens ex Ind ex

MOSL Telecom Ind ex

C–178October 2012


Sector: Telecom

Quarterly Financials

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%)

Revenue (INR b)

Bharti (ex Africa)* 112.7 113.3 117.2 121.2 126.3 126.8 131.6 134.2 137.2 136.4 8 -0.5

Bharti (consolidated)* 122.3 152.2 157.6 162.7 169.7 172.7 184.8 187.3 193.5 195.7 13 1.1

Idea** 36.5 36.6 39.6 42.0 45.2 46.2 50.3 53.7 55.0 54.5 18 -1.1

RCOM# 51.1 51.2 50.0 53.3 53.1 50.4 50.5 53.1 53.2 52.5 4 -1.4

EBITDA (INR B)

Bharti (ex Africa)* 42.4 42.2 43.7* 44.3 46.0 45.7 45.2 47.4 43.6 43.7 -4 0.2

Bharti (consolidated)* 44.1 51.2 53.2* 54.5 57.1 58.2 59.6 62.3 58.5 59.5 2 1.8

Idea** 8.9 8.8 9.5 10.0 12.0 11.9 13.4 15.1 14.4 13.8 16 -4.0

RCOM# 16.3 16.6 16.7 15.9 16.0 16.1 16.1 16.3 16.5 15.9 -1 -3.5

EBITDA Margin (%)

Bharti (ex Africa) 37.6 37.3 37.3* 36.6 36.4 36.1 34.4 35.3 31.8 32.0 -405bp 24bp

Bharti (consolidated) 36.1 33.7 33.8* 33.5 33.6 33.7 32.2 33.3 30.2 30.4 -324bp 20bp

Idea** 24.3 24.0 24.0 23.9 26.6 25.7 26.7 28.1 26.1 25.3 -39bp -79bp

RCOM# 31.9 32.4 33.3 29.9 30.2 31.8 31.9 30.7 31.0 30.3 -151bp -68bp

PAT (INR B)

Bharti (ex Africa) 19.0 20.4 18.3 18.2 15.2 14.5 12.7 13.5 14.3 11.1 -23 -22.4

Bharti (consolidated) 16.8 16.6 13.0 14.0 12.2 10.3 10.1 10.1 7.6 6.6 -36 -13.9

Idea** 2.0 1.8 2.4 2.0 1.8 1.1 2.0 3.4 2.3 2.0 92 -13.1

RCOM 3.0 4.9 5.3 1.8 2.2 3.2 2.4 2.0 1.9 1.3 -60 -33.1

EPS (INR)

Bharti 4.4 4.4 3.4 3.7 3.2 2.7 2.7 2.7 2.0 1.7 -36 -13.9

I d e a 0.6 0.5 0.7 0.8 0.5 0.3 0.6 0.7 0.7 0.6 92 -13.1

RCOM 1.5 2.4 2.5 0.9 1.1 1.6 1.2 1.0 0.9 0.6 -60 -33.1

Capex (INR b)

Bharti (ex Africa) 17.4 29.3 29.3 31.1 24.7 20.6 7.8 11.0 29.3 25.0 21 -14.7

I d e a 3.6 3.0 9.5 14.6 10.4 11.0 9.0 8.4 4.1 8.8 -20 114.0

RCOM 7.9 9.3 19.1 6.6 3.6 3.5 3.6 4.3 3.7 3.7 7 1.2

* Before re-branding expenses in 3QFY11; # Adj for change in accounting for IRU sales in 4QFY11; ** Idea 4QFY10 includes 1 month

consolidation with Spice; full merger from 1QFY11; Adj for one-off revenue of ~Rs340m and costs reversal of ~Rs380m in 4QFY11




Telecommunication

Bharti Airtel 265 Neutral 11.2 7.6 10.5 23.6 34.9 25.2 7.0 6.9 5.8 8.1 5.3 7.0

Idea Cellular 85 Buy 2.2 3.1 5.8 39.0 27.2 14.7 8.1 6.8 5.2 5.7 7.7 12.8

Reliance Comm 65 Neutral 4.8 3.6 5.9 13.5 17.8 11.0 7.6 7.2 6.4 2.9 2.3 3.6

Tulip Telecom 46 S e l l 19.1 12.2 11.2 2.4 3.8 4.2 4.0 4.7 4.7 22.9 11.3 9.5


C–179October 2012


Sector: Telecom

Bharti Airtel

Bloomberg BHARTI IN



1,6,12 Rel Perf (%) 0/-31/-44


Mcap (USD b) 19.1

CMP: INR265 Buy



3/11A 595 60 15.9 -32.6 - - 12.6 8.7 - -

3/12A 715 43 11.2 -29.6 23.6 1.9 8.1 6.2 2.3 7.0

3/13E 796 29 7.6 -32.4 34.9 1.8 5.3 4.5 2.1 6.9

3/14E 870 40 10.5 38.4 25.2 1.7 7.0 5.1 1.8 5.8




Revenue 169,749 172,698 184,767 187,294 193,501 195,659 200,269 206,559 714,507 795,989

QoQ Growth (%) 4.4 1.7 7.0 1.4 3.3 1.1 2.4 3.1

EBITDA 57,058 58,151 59,584 62,329 58,487 59,536 61,512 64,092 237,122 243,626

QoQ Growth (%) 4.7 1.9 2.5 4.6 -6.2 1.8 3.3 4.2

Margin (%) 33.6 33.7 32.2 33.3 30.2 30.4 30.7 31.0 33.2 30.6

Net Finance Costs 8,551 11,186 7,877 10,572 8,211 9,561 9,929 10,458 38,185 38,159

Depreciation & Amortization 31,314 31,839 35,845 34,683 37,571 38,335 39,168 40,260 133,680 155,334


Income Tax Expense / (Income) 5,141 4,900 5,585 6,976 4,878 4,985 5,273 5,629 22,602 20,765

Profit after Tax 12,054 10,226 10,222 10,080 7,751 6,607 7,093 7,696 42,582 29,146

Reported Net Profit / (Loss) 12,152 10,270 10,113 10,059 7,622 6,563 7,016 7,589 42,595 28,791

YoY Growth (%) -27.7 -38.2 -22.4 -28.2 -37.3 -36.1 -30.6 -24.6 -29.6 -32.4

India - Mobile ARPU (INR/month) 190 183 187 189 185 181 188 195 188 189

QoQ Growth (%) -1.6 -4.0 2.2 1.1 -2.2 -2.2 4.3 3.5

India - Mobile MOU/sub/month 445 423 419 431 433 424 437 447 431 438

QoQ Growth (%) -0.7 -5.0 -1.0 2.8 0.4 -2.0 3.0 2.2

India - Mobi le Traffic (B Min) 221 217 219 231 239 237 245 252 889 973

QoQ Growth (%) 4.6 -1.9 0.9 5.4 3.7 -0.8 3.0 3.0

India - Mobile RPM (INR/min) 0.43 0.43 0.45 0.44 0.43 0.43 0.43 0.44 0.44 0.43

QoQ Growth (%) -0.9 1.0 3.2 -1.7 -2.6 -0.2 1.3 1.3

Africa - Subscribers (m) 46 48 51 53 56 59 61 64 53 64

Africa - ARPU (USD/month) 7.2 7.3 7.1 6.8 6.5 6.4 6.3 6.2 7.1 6.3

Africa - EBITDA margin (%) 25.2 26.2 26.7 27.8 25.8 26.2 26.5 26.8 26.5 26.3

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect consolidated revenue to grow 13.3% YoY and 1.1% QoQ to INR195.7b, largely driven by Africa. India

and South Asia revenue would grow 8% YoY but decline 0.5% QoQ to INR136.5b. Africa business revenue is

likely to grow 3% QoQ to USD1.1b.

Consolidated EBITDA margin is likely to expand 20bp QoQ to 30.4%. EBITDA margin in the Africa business as well

as India and South Asia would remain flat QoQ at 26% and 32%, respectively.

We expect India and SA mobile revenue to grow 8% YoY but decline 1% QoQ to INR106b, led by 0.8% traffic

decline and 0.2% RPM decline. Mobile EBITDA margin is likely to be 30.6%, up 30bp QoQ, led by lower SGA costs.

Africa business performance is likely to improve, boosted by favorable currency movement resulting in 3%/5%

revenue/EBITDA growth on a QoQ basis. We estimate an ARPU of USD6.4 and subscriber base of 59m.

Consolidated net profit is likely to decline 36% YoY and 14% QoQ to INR6.6b. PAT for India and South Asia would

decline 22-23% YoY/QoQ. We have not assumed any forex gain/loss for BHARTI in our 2QFY13 estimates.

The stock trades at an EV of 6.9x FY13E and 5.8x FY14E EBITDA. Maintain Neutral.

Key things to watch: QoQ mobile traffic in India (we expect 0.8% decline), forex loss (we have not modeled any

forex loss/gain), Africa business financials (we expect 3%/5% revenue/EBITDA growth in USD terms).

C–180October 2012


Sector: Telecom

Idea Cellular

Bloomberg IDEA IN



1,6,12 Rel Perf (%) 8/-22/-27

Mcap (INR b) 282.4

Mcap (USD b) 5.4

CMP: INR85 Buy

Year Net sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/


3/11A 155,032 8,986 2.7 -11.6 - - 7.6 5.2 - -

3/12A 195,412 7,231 2.2 -19.6 39.0 2.2 5.7 5.4 2.1 8.1

3/13E 224,887 10,390 3.1 43.5 27.2 2.0 7.7 6.1 1.8 6.8

3/14E 255,652 19,228 5.8 85.0 14.7 1.8 12.8 9.2 1.5 5.2


1Q 2Q 3Q 4Q# 1Q 2QE 3QE 4QE

Gross Revenue 45,207 46,199 50,308 53,697 55,037 54,458 56,567 58,823 195,411 224,886

YoY Growth (%) 23.7 26.3 27.2 27.8 21.7 17.9 12.4 9.5 26.0 15.1

QoQ Growth (%) 7.6 2.2 8.9 6.7 2.5 -1.1 3.9 4.0

EBITDA 12,040 11,866 13,446 15,071 14,355 13,775 14,913 15,942 50,924 58,986

YoY Growth (%) 35.5 35.0 41.8 50.2 19.2 16.1 10.9 5.8 34.3 15.8

QoQ Growth (%) 20.0 -1.4 13.3 12.1 -4.8 -4.0 8.3 6.9

Margin (%) 26.6 25.7 26.7 28.1 26.1 25.3 26.4 27.1 26.1 26.2




Income Tax Exp. / (Income) 778 501 981 1,523 1,019 873 1,164 1,412 3,322 4,468

Adj Net Profit / (Loss) 1,773 1,058 2,010 3,429 2,342 2,036 2,717 3,294 7,231 10,390

YoY Growth (%) -12.0 -41.1 -17.3 69.4 32.1 92.5 35.2 -3.9 -19.5 43.7

Margin (%) 3.9 2.3 4.0 6.4 4.3 3.7 4.8 5.6 3.7 4.6

Mobile ARPU (INR/month) 160 155 159 160 156 152 158 162 158 158

QoQ Growth (%) -0.6 -3.1 2.6 0.6 -2.5 -2.4 3.9 2.7

Mobile MOU/sub/month 391 364 369 379 379 371 382 388 372 383

QoQ Growth (%) -1.5 -6.9 1.4 2.7 0.0 -2.0 2.9 1.6

Mobi le Traffic (B Min) 109 106 114 124 131 130 134 138 453 533

QoQ Growth (%) 6.5 -2.2 7.3 9.1 5.3 -0.9 3.0 3.0

Mobile RPM (INR) 0.41 0.43 0.43 0.42 0.41 0.41 0.41 0.42 0.42 0.41

QoQ Growth (%) 0.9 4.1 1.2 -2.0 -2.5 -0.4 0.9 1.0

E: MOSL Estimates; # Adjusted for INR1.5b one-off provision for licence and WPC charges

BSE Sensex S&P CNX

18,763 5,703

Consolidated revenue is likely to grow 18% YoY but decline 1% QoQ to INR54.5b.

We expect IDEA to report 0.9% QoQ decline in mobile traffic. RPM would decline 0.2% QoQ.

ARPU is likely to decline 2.4% QoQ to INR152 (v/s 2.5% decline in 1QFY13).

EBITDA margin would decline 80bp QoQ to 25.3%. We estimate EBITDA loss in new circles at INR1.7b, flat QoQ.

Net profit would grow 92% YoY but decline 13% QoQ to INR2b. The QoQ decline is largely due to negative

operating leverage.

The stock trades at an EV of 6.8x FY13E and 5.3x FY14E EBITDA. Maintain Buy .

Key things to watch for: QoQ RPM trend (we expect 0.2% decline), mobile traffic (we expect 0.9% QoQ decline),

EBITDA loss in new circles (we expect INR1.7b).

C–181October 2012


Sector: Telecom

Reliance Communication

Bloomberg RCOM IN



1,6,12 Rel Perf (%) 21/-33/-31

Mcap (INR b) 133.6

Mcap (USD b) 2.5

CMP: INR65 Neutral



3/11A 205,627 14,936 7.2 -69.4 - - 3.9 2.9 - -

3/12A 203,424 9,884 4.8 -33.8 13.5 0.4 2.9 2.7 2.4 7.6

3/13E 213,915 7,518 3.6 -23.9 17.8 0.4 2.3 2.9 2.2 7.2

3/14E 226,430 12,101 5.9 61.0 11.0 0.4 3.6 3.4 2.0 6.4




Gross Revenue 49,401 50,402 50,521 53,100 53,192 52,462 53,237 53,136 203,424 213,915

YoY Growth (%) -3.3 -1.5 1.0 -0.4 7.7 4.1 5.4 0.1 -1.1 5.2

QoQ Growth (%) -7.3 2.0 0.2 5.1 0.2 -1.4 1.5 -0.2

EBITDA 16,021 16,051 16,111 16,322 16,502 15,916 16,550 16,912 64,506 65,880

YoY Growth (%) -1.8 -3.3 -3.4 2.5 3.0 -0.8 2.7 3.6 -1.5 2.1

QoQ Growth (%) 0.6 0.2 0.4 1.3 1.1 -3.5 4.0 2.2

Margin (%) 32.4 31.8 31.9 30.7 31.0 30.3 31.1 31.8 31.7 30.8



Profit before Tax 2,211 3,237 2,549 824 1,875 1,307 1,876 2,373 8,822 7,590

Income Tax Expense / (Income) -24 14 141 -1,193 -39 26 38 47 -1,062 72

Adjusted Net Profit / (Loss) 2,235 3,223 2,408 2,017 1,914 1,281 1,839 2,325 9,884 7,518

YoY Growth (%) -25.4 -34.3 -54.2 13.6 -14.4 -60.3 -23.6 15.3 -33.8 -23.9

Margin (%) 4.5 6.4 4.8 3.8 3.6 2.4 3.5 4.4 4.9 3.5

Extraordinary Exp/Minority Interest 661 702 546 -1,299 290 229 229 229 610 976

Reported Net Profit / (Loss) 1,574 2,521 1,862 3,316 1,624 1,052 1,610 2,096 9,274 6,542

Wireless ARPU (INR/month) 103 101 100 99 98 104 114 116 102 106

QoQ Growth (%) -3.4 -1.9 -1.6 -0.6 -1.0 5.9 9.7 1.9

Wireless MOU/sub/month 233 227 224 227 228 242 262 263 231 244

QoQ Growth (%) -3.3 -2.6 -1.3 1.3 0.4 6.4 8.1 0.5

Wireless Traffic (B Min) 98 99 100 103 105 105 107 109 399 426

QoQ Growth (%) 3.2 1.4 1.0 3.4 1.8 0.2 1.4 1.6

Wireless RPM (INR) 0.44 0.45 0.45 0.44 0.43 0.43 0.43 0.44 0.44 0.43

QoQ Growth (%) -0.1 0.7 -0.3 -2.0 -1.3 -0.5 1.4 1.4

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect revenue to decline 1.4% QoQ to INR52.5b.

Wireless ARPU is likely to grow 6% QoQ to INR104, led by ~20m subscriber disconnections in July 2012.

We expect RPM to decline 0.5% QoQ to INR0.43. RCOM's RPM has remained largely flat over the last several

quarters.

Wireless traffic is likely to grow 7% YoY and remain flat QoQ.

Consolidated EBITDA would grow 3% YoY to INR16.5b and margins would expand 30bp QoQ to 31%.

We expect RCOM to report proforma PAT of INR1.9b.

The stock trades at an EV of 7.2x FY13E and 6.4x FY14E EBITDA. Neutral.

Key things to watch for: Margin trajectory in wireless business (we expect 150bp QoQ decline), RPM trend (we

expect 0.5% decline).

C–182October 2012


Sector: Telecom

Tulip Telecom

Bloomberg TTSL IN



1,6,12 Rel Perf (%) -56/-58/-85

Mcap (INR b) 6.7

Mcap (USD b) 0.1

CMP: INR46 Neutral



3/11A 23,511 3,064 18.9 32.7 - - 28.6 14.0 - -

3/12A 27,050 3,096 19.1 1.0 2.4 0.5 22.9 12.0 1.1 4.0

3/13E 29,586 1,771 12.2 -35.9 3.8 0.4 11.3 8.1 1.2 4.7

3/14E 34,330 1,620 11.2 -8.6 4.1 0.4 9.5 7.4 1.2 4.7




Gross Revenue 6,539 7,029 6,866 6,617 7,165 7,328 7,515 7,577 27,051 29,586

YoY Growth (%) 24.5 20.1 14.0 3.7 9.6 4.2 9.5 14.5 15.1 9.4

QoQ Growth (%) 2.5 7.5 -2.3 -3.6 8.3 2.3 2.5 0.8

Total Operating Expenses 4,691 4,998 4,875 4,925 5,246 5,379 5,592 5,674 19,490 21,892

EBITDA 1,848 2,032 1,991 1,691 1,919 1,949 1,923 1,903 7,561 7,694

YoY Growth (%) 30.3 24.4 16.0 -9.4 3.9 -4.1 -3.4 12.5 14.0 1.8

QoQ Growth (%) -1.0 10.0 -2.0 -15.0 13.5 1.6 -1.4 -1.0

Margin (%) 28.3 28.9 29.0 25.6 26.8 26.6 25.6 25.1 28.0 26.0

Net Finance Costs 319 345 427 537 556 571 748 734 1,629 2,600

Non-Operating Income -11 -26 10 68 0 8 8 10 41 26

Depreciation & Amortization 495 502 526 604 628 665 703 762 2,127 2,758

Profit before Tax 1,023 1,159 1,048 617 736 721 480 417 3,847 2,362

Income Tax Expense / (Income) 251 288 276 -42 189 177 120 103 772 590

Tax rate (%) 25 25 25 25 26 25 25 25 20 25

Adjusted Net Profit / (Loss) 772 871 773 660 547 545 360 314 3,075 1,771

YoY Growth (%) 20.3 11.6 -5.5 -20.2 -29.1 -37.4 -53.4 -52.4 0.3 -42.4

QoQ Growth (%) -6.7 12.8 -11.3 -14.6 -17.1 -0.4 -33.8 -12.8

Margin (%) 11.8 12.4 11.3 10.0 7.6 7.4 4.8 4.1 11.4 6.0

Exceptional items 0 0 0 0 616 0 0 0 0 616

Reported PAT 772 871 773 660 1,163 545 360 314 3,075 2,382

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect consolidated revenue to grow 4% YoY to INR7.3b

EBITDA margin is likely to remain flat QoQ at ~27%. EBITDA would grow 2% QoQ to INR1.95b.

We expect reported PAT to decline 37% YoY to INR545m.

The stock trades at an EV of 4.7x FY13/FY14E EBITDA. Neutral.

Key things to watch for: Net finance cost (we expect 3% QoQ increase to INR571m), EBITDA margin trend (we

expect margins to remain stable QoQ).

C–183October 2012


Sector: Utilities

UtilitiesCOMPANY NAME

CESC

Coal India

JSW Energy

NHPC

NTPC

Power Grid

PTC India

Reliance Infrastructure

Tata Po wer





Adani Power 53 Neutral 11,649 8.6 -20.4 2,320 -55.3 88.3 -2,872 PL Loss

CESC 331 Buy 12,980 4.6 -8.6 2,882 10.8 -0.6 1,297 13.8 3.8

Coal India 359 Buy 147,128 11.9 -10.8 27,321 10.3 -43.3 27,919 25.0 -37.7

JSW Energy 61 Buy 20,198 102.7 -7.8 5,438 360.2 -6.8 1,100 LP -43.6

NHPC 19 Neutral 16,515 -11.1 16.2 11,540 -13.1 27.7 8,533 9.8 32.3

NTPC 168 Buy 155,840 1.3 -2.4 31,290 -3.4 -13.8 18,604 25.7 -22.1

Power Grid Corp. 120 Buy 31,672 39.9 9.7 27,572 45.3 11.9 9,392 23.6 3.6

PTC India 71 Buy 29,853 25.0 50.2 536 20.8 71.4 423 19.0 84.9

Reliance Infrastructure 539 Buy 37,700 -4.6 9.4 4,901 -30.9 6.6 2,551 -48.0 -22.0

Tata Po wer 107 Neutral 70,935 13.5 -2.2 13,048 -3.4 -7.7 3,097 -30.0 1.2


Sector Aggregate Ex Coal India 387,341 9.4 1.8 99,527 5.1 0.5 42,125 -2.3 -7.9

We expect utilities companies under our coverage (excluding Coal India) to report

aggregate revenue growth of 9% YoY and PAT de-growth of 2% YoY for 2QFY13. PAT

growth would be muted for IPPs. However, CPSUs would witness robust PAT growth,

led by 26% YoY PAT growth for NTPC (higher capacity addition) and 24% YoY PAT growth

for Power Grid (better capitalization).

July-August 2012 generation growth muted; PLFs of private coal-based plants most

impacted: In July-August 2012, All India generation grew 2% YoY v/s 1QFY13/FY12

generation growth of 6%/8%. Lower generation growth despite capacity addition

(6.9GW in YTD FY13) is led by de-growth in generation for gas-based (24% YoY) and

hydro plants (14% YoY). Coal-based plants reported generation growth of 12%;

however, PLF was muted. PLFs of private sector plants were most impacted in YTD

FY13, down 10ppt YoY to 60%. Over the last 12 months, India has commissioned 22.6GW

of projects (ex renewable energy). Capacity addition should remain strong, as CEA

has targeted to add 18GW of projects in FY13, while 6.9GW of projects are already

commissioned till August 2012.

Power demand strong at 10% YoY; deficit up: Power demand has been strong in YTD

FY13. Demand for the months of July-August 2012 grew 10% YoY. Uptick in demand has

led to uptick in the deficit for India. YTD FY13 base deficit stood at 8.5% v/s 5.9% a year

ago. Also, a relatively volatile monsoon season led to 239bp increase in peak deficit in

August 2012 to 11% - in double digits for the first time since March 2012.

Imported coal prices remain weak, ST prices also firm: Globally, imported coal prices

have weakened. However, INR depreciation has partially taken away the benefit. In

INR terms, during 2QFY13 the RB Index declined 5-6% QoQ (Coal Index down 8% QoQ

to USD88/ton; INR depreciated 2% QoQ to INR55.2/USD). However, the recent INR

appreciation could significantly improve fuel cost savings in 3QFY13. Average spot

rate at IEX for 2QFY13 stood at INR3.5/unit (down 1% QoQ and up 22% YoY). ST prices at

Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected])

Vishal Periwal ([email protected])

C–184October 2012


Sector: Utilities

Generation and PLFs of various plants

Capacity Aug-12 Aug-11 Generation Chg

(MW)* Generation PLF (%) Generation PLF (%) Jul-Aug-12 Jul-Aug-11 (%)

Adani Power

- Mundra Phase 1 4,620.0 1,414.1 41.1 1,251.7 85.0 3,117.8 2,181.9 42.9

GVK

- JP 1 & 2 455.0 143.1 43.0 266.1 80.0 290.8 466.5 -37.7

- Gautami 464.0 92.8 27.4 268.5 79.3 200.6 512.1 -60.8

GMR

- Barge Mounted 220.0 38.1 23.7 125.5 78.1 90.2 361.5 NA

- Chennai 200.0 46.7 32.0 45.8 31.4 84.1 112.6 -25.3

- Vemagiri 370.0 70.4 26.1 198.8 73.6 292.8 465.3 -37.1

JPL

- Chattisgarh 1,000.0 707.3 95.1 662.5 89.0 1,343.8 1,412.4 -4.9

Rel Infra

- Dahanu 500.0 385.1 103.5 351.3 94.4 773.5 728.3 6.2

- Samalkot (AP) 220.0 58.8 36.6 136.0 84.7 133.0 231.6 -42.5

- Goa 48.0 23.3 66.4 19.6 55.9 38.3 19.6 95.2

- Kochi 174.0 0.0 0.0 0.0 0.0 0.0 0.0 NA

Rel Power

- Rosa 1,200.0 649.2 72.7 303.4 68.0 1,102.8 727.4 51.6

Tata Power

- Trombay 1,580.0 817.3 65.0 692.0 56.3 1,668.6 1,377.0 21.2

- TISCO (Jamshedpur) 441.3 265.0 94.3 226.5 84.6 549.9 429.9 27.9

- Mundra UMPP 800.0 394.5 33.1 0.0 0.0 561.5 0.0 NA

Torrent Power

- Existing 500.0 254.2 85.4 293.0 82.9 551.0 596.7 -7.7

- Sugen 1,147.5 428.8 51.2 732.7 87.5 825.9 1,410.7 -41.5

JSW Energy

- Rajwest Unit-I 540.0 295.1 73.5 0.0 0.0 474.6 0.0 NA

-Karnataka 2,060.0 1,401.6 91.5 873.8 133.5 2,710.8 762.4 255.6

CESC 1,285.0 814.6 85.2 790.6 83.0 1,640.9 1,613.9 1.7

Lanco Infratech

- Kondapali 716.0 202.9 38.8 230.7 44.1 443.7 634.4 -30.1

- Amarkantak (LANCO) 600.0 293.5 65.7 332.5 74.5 692.9 581.5 19.2

- UPCL 1,200.0 331.9 31.2 282.5 64.5 707.5 531.5 33.1

KSK

- Wardha 540.0 227.0 56.5 208.7 70.6 552.2 442.0 24.9

Sterlite

- Jharsuguda 2,400.0 749.6 42.0 494.5 37.6 1,517.2 1,099.8 37.9

*Monitored capacity by CEA Source: CEA

IEX touched a high of INR6/unit in the middle of July 2012, but have fallen sharply

since then. The ST forward curve has been strong; in the last three months, contacts

have been executed at over INR4/unit.

Valuation and view: The Power sector has begun to witness several initiatives by the

authorities to address concerns on SEBs, fuel supply pacts and PPAs. However, it

would take a while for clarity to emerge on several issues. In this environment, we

continue to prefer CPSUs, which are relatively better positioned on these fronts. Our

top picks are NTPC and JSW Energy .

C–185October 2012


Sector: Utilities

July-August 2012: All-India generation grew 2% YoY PLFs of coal-based plants: Private sector most impacted (%)

Power demand: Strong; up 10% YoY in YTD FY13 Base deficit moving up (%)

ST prices flattish (INR/unit) Forward ST prices at over INR4/unit

RB Index* softening (USD/ton) INR depreciation negated some of the impact (INR/USD)

62 67 72 66 75 71 75 70 73 72 70 74 71 73 73 71 77 75 79 76 75 73

46

11

7 87

10

8

14

9 9

5

14

8

2

8

2

45

8

2 2

55

60

65

70

75

No

v-1

0

Feb

-11

Ma

y-1

1

Au

g-1

1

No

v-1

1

Feb

-12

Ma

y-1

2

Au

g-1

2

0

4

8

12

16Al l India Genera tion (BUs ) Gr (YoY, %)

50

60

70

80

90

100

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

Jun

-11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

Aug

-12

Centre Sector Sta te Sector Private Sector

75 78 74 77 75 75 77 77 81 81 78 83

7984 85 86

83

60

65

70

75

80

85

90

Ap

ril

Ma

y

Jun

e

July

Aug

Sep

t

Oct

No

v

Dec Jan

Feb

Ma

r

0%

4%

8%

12%

16%FY 12 FY13 Gr (%)

4.22

4.22

4.264.20

9-S

ep-

12

24-S

ep-

12

9-O

ct-1

2

24-O

ct-1

2

8-N

ov-1

2

23-N

ov-1

2

8-D

ec-1

2

91 88 104 121 121 117 107 105 96 8840

80

120

160

1QF

Y1

1

2QF

Y1

1

3QF

Y1

1

4QF

Y1

1

1QF

Y1

2

2QF

Y1

2

3QF

Y1

2

4QF

Y1

2

1QF

Y1

3

2QF

Y1

3

-30%

0%

30%

60%Avg RB Index (USD/ton) YoY QoQ

* 6000Kcal, FoB South Africa, 2QFY12 price till 17 August Source: CEA, IEX, CERC, Bloomberg, MOSL

46 46 45 45 45 46

50 5054

55

36.0

40.5

45.0

49.5

54.0

58.5

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

-20

-5

10

25

40

55

QoQ (%) YoY (%) INR/USD

8.28.6

9.29.1

7.5

4.0

6.5

9.0

11.5

14.0

16.5

Apr

Ma

y

Jun

Jul

Au

g

Sep Oct

No

v

De

c

Jan

Feb

Mar

FY13 FY11 FY12

7.8

5.3

3.5 4.

1

5.3

3.1

2.3

3.6

2.9

4.6

3.4

3.6

3.6

3.1

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

2QF

Y13

C–186October 2012


Sector: Utilities




Utilities

Adani Power 53 Neutral -0.4 1.5 2.6 -124.7 36.2 20.3 28.6 13.8 10.0 -1.5 5.3 9.2

CESC 331 Buy 44.1 47.5 53.0 7.5 7.0 6.2 5.5 5.2 4.9 12.1 11.7 11.7

Coal India 359 Buy 25.4 28.8 30.9 14.1 12.5 11.6 10.3 8.1 7.1 31.9 28.5 25.0

JSW Energy 61 Buy 2.0 3.7 6.3 30.1 16.5 9.7 12.4 8.0 6.1 5.8 10.3 15.9

NHPC 19 Neutral 2.0 2.0 2.1 9.4 9.6 9.3 7.0 7.9 7.7 8.6 7.9 7.9

NTPC 168 Buy 10.1 11.5 13.5 16.6 14.6 12.4 11.6 11.3 9.3 11.8 12.5 13.7

Power Grid Corp. 120 Buy 7.2 8.6 10.3 16.8 14.0 11.6 12.4 10.1 9.4 14.8 16.1 17.4

PTC India 71 Buy 6.9 7.7 9.5 10.2 9.2 7.4 14.0 7.3 6.5 5.4 6.4 7.6

Reliance Infra. 539 Buy 74.8 43.5 48.0 7.2 12.4 11.2 2.0 3.0 2.4 11.4 6.3 6.6

Tata Power 107 Neutral 7.4 5.7 4.0 14.4 18.7 27.0 17.9 17.2 17.6 9.8 8.6 6.5


* Coal India RoE adjusted for OB reserves


98

101

104

107

110

Jun-

12

Jul-

12

Au

g-1

2

Sep-

12

Sen sex Ind exMOSL Util i tie s Index

80

90

100

110

120

Sep-

11

Dec

-11

Ma

r-12

Jun-

12

Sep-

12

Se nse x IndexMOSL Uti l i ties Inde x

C–187October 2012


Sector: Utilities

CESC

Bloomberg CESC IN



1,6,12 Rel Perf (%) 1/12/6

Mcap (INR b) 41.6

Mcap (USD b) 0.8

CMP: INR331 Buy

Year Net Sales PAT EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/


03/11A 40,942 4,670 38.9 - - 11.3 10.2 - -

03/12A 46,050 5,543 44.1 13.5 7.5 0.9 12.1 10.6 1.3 5.4

03/13E 52,527 5,970 47.5 7.7 7.0 0.8 11.7 10.4 1.1 5.1

03/14E 58,139 6,662 53.0 11.6 6.2 0.7 11.7 10.2 1.0 4.8

* Excl Spencers; fully diluted

Quarterly Performance (Standalone Numbers - excl Spencers Retail) (INR Million)Y/E March FY12 FY13 FY12 FY13E


Sales 11,830 12,410 10,320 13,790 14,200 12,980 13,125 12,782 45,930 52,527

Change (%) 7.9 12.3 9.9 57.6 20.0 4.6 27.2 -7.3 12.2 14.4

EBITDA 2,671 2,600 2,130 4,320 2,900 2,882 3,473 3,011 11,570 12,426

Change (%) 4.3 -18.2 -15.8 75.6 8.6 10.8 63.1 -30.3 7.8 7.4

As of % Sales 22.6 21.0 20.6 31.3 20.4 22.2 26.5 23.6 25.2 23.7

Depreciation 710 720 750 720 770 785 800 816 2,900 3,171

Interest 700 750 660 650 780 740 730 732 2,760 2,982

Other Income 130 290 200 380 210 275 310 399 1,000 1,194

PBT 1,391 1,420 920 3,330 1,560 1,632 2,253 1,862 6,910 7,467

Tax 280 280 180 670 310 335 462 391 1,410 1,497


Reported PAT 1,111 1,140 740 2,660 1,250 1,297 1,791 1,471 5,500 5,970

Adjusted PAT 1,111 1,140 740 2,510 1,250 1,297 1,791 1,471 5,500 5,970

Change (%) 1.0 -15.6 -32.7 124.1 12.5 13.8 142.1 -41.4 17.8 8.5

E: MOSL Estimates

Operational Details1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E

Generation 2,395 2,356 2,197 1,997 2,430 2,425 2,220 2,041 8,945 9,116

S a l e s 2,256 2,324 2,005 1,811 2,467 2,392 2,026 1,678 8,396 8,556

Realization (INR/unit) 5.2 5.3 5.1 7.6 5.8 5.4 6.5 7.6 5.5 6.1

Overall PLF (Derived) (%) 89.3 87.8 81.9 74.4 90.6 90.4 82.8 76.1 83.3 92.5

BSE Sensex S&P CNX

18,763 5,703

We expect CESC to report revenue of INR13b (up 5% YoY) and PAT of INR1.3b (up 14% YoY) for 2QFY13. For the

period April-May 2012, CESC's 1,225MW generation projects operated at 92% PLF v/s 90% in April-May 2011,

while generation was 1.6BU, up 2% YoY.

After several rounds of discussions, the Cabinet has approved 51% FDI in multi-brand retail with a rider that the

states will have the final say in accepting the proposals. FDI in retail has opened up a window of opportunity for

Spencer's to raise long-term funds for its growth. However, state nod is the key to success; 53% of Spencer's

area is in states that are opposing the FDI policy.

Restructuring led to improvement in Spencer's gross margin and overall performance in 1QFY13. Average sales

at Spencer's grew 14% YoY in 1QFY13 to INR1,151/sf/month and store-level EBITDA improved to INR42/sf/

month v/s INR26/sf/month in 1QFY12. We understand that store EBITDA has improved further to INR50/sf/

month on the back of same store sales (SSS) growth of 15%. CESC targets EBITDA breakeven in 3QFY14.

CESC has spent INR8.3b (equity) towards 1.2GW of projects as at June 2012. The management expects the

Chandrapur project to commission in the next 12 months. The Haldia project is likely to be operational by FY15.

We expect CESC to post standalone PAT (ex Spencer's) of INR6b in FY13 (up 8%) and INR6.7b in FY14 (up 12%).

The stock trades at 7x FY13E and 6.2x FY14E reported EPS. Maintain Buy .

C–188October 2012


Sector: Utilities

Coal India

Bloomberg COAL IN



1,6,12 Rel Perf (%) -6/-1/-13


Mcap (USD b) 43.1

CMP: INR359 Buy

Year Net Sales* PAT* # EPS# EPS P/E P/BV RoE$ RoCE EV/ EV/


FY11A 502,336 109,309 17.3 11.2 - - 26.4 54.8 - -

FY12A 624,154 160,725 25.4 47.0 14.1 5.6 31.9 57.3 2.7 10.3

FY13E 693,038 181,666 28.8 13.0 12.5 4.4 28.5 56.0 2.4 8.1

FY14E 746,196 194,891 30.9 7.3 11.6 3.6 25.0 48.2 2.1 7.1

*Consolidated; # Adjusted; $ RoE is adj. for OB reserves accounts, as appplicable under IFRS




Sales 144,991 131,481 153,493 194,190 165,006 147,128 172,505 208,400 624,154 693,038

Change (%) 26.8 18.2 20.9 29.7 13.8 11.9 12.4 7.3 24.3 11.0

EBITDA 48,197 24,773 45,421 37,856 48,146 27,321 49,319 75,073 156,388 203,049

Change (%) 55.5 39.8 34.5 -27.2 -0.1 10.3 8.6 98.3 16.6 29.8

As of % Sales 33.2 18.8 29.6 19.5 29.2 18.6 28.6 36.0 25.1 29.3

Depreciation 4,308 5,734 5,257 4,103 5,356 5,500 5,600 5,744 19,402 22,200

Interest 55 83 76 326 126 150 160 181 540 617

Other Income 15,589 17,942 18,559 23,280 20,714 18,500 19,500 20,576 75,369 79,290

EO Income/(Expense) 132 165 52 458 -103 0 0 0 734 0

PBT 59,555 37,064 58,699 57,164 63,275 40,171 63,059 89,725 212,549 259,522

Tax 18,115 11,132 18,322 17,221 18,582 12,252 19,391 27,632 64,790 77,857


Reported PAT 41,439 25,931 40,378 39,943 44,693 27,919 43,668 62,093 147,759 181,666

Adjusted PAT* 41,308 22,341 36,901 60,493 44,796 27,919 43,668 62,093 160,725 181,666

Change (%) 62.8 46.8 39.7 43.6 8.4 25.0 18.3 2.6 47.1 13.0

E: MOSL Estimates


Volume Assumptions (m tons)

Production 96.3 80.3 114.6 144.6 102.5 90.0 121.0 154.5 435.8 468.0

Sales/Offtake 106.3 93.2 110.3 122.9 113.0 104.0 119.0 132.0 433.1 468.0

Blended Realization (INR/ton)

- Regulated 1,188 1,225 1,174 1,339 1,261 1,260 1,260 1,349 1,235 1,285

- E-auction 2,246 2,435 2,852 2,852 2,562 2,300 2,750 2,802 2,599 2,617

BSE Sensex S&P CNX

18,763 5,703

We expect Coal India (COAL) to report revenue of INR147b (up 12% YoY) and PAT of INR28b (up 25% YoY).

We estimate production at 90m tons (up 12% YoY) and dispatches at 104m tons (up 12% YoY). During 2QFY13 (ti ll

9 September) COAL's production was 69m tons (up 9% YoY) and dispatches were 79m tons (up 6% YoY).

E-auction price has been one of the key drivers of earnings growth for COAL. However, we saw a marginal dip in

e-auction realization in 1QFY13. We gather that premium over notified prices has further weakened in 2QFY13.

We build in e-auction realization of INR2,300/ton in 2QFY13 v/s an average of INR2599/ton in FY12 and INR2,562/

ton in 1QFY13. Softening in global coal prices and appreciating INR could put pressure on realizations of market-

linked volumes (e-auction/washed) for COAL.

The board has approved new FSA (fuel supply agreement) norms, with supply of 65% coal from its own

production and 15% from imports. It has approved a revised penalty structure, with base penalty of 1.5%

(trigger level of 65-80%) and peak penalty of 40% (supply below 50%).

We expect COAL to report consolidated PAT of INR182b for FY13 (up 13%) and INR195b for FY14 (up 7%). The

stock trades at 12.5x FY13E and 11.6x FY14E reported EPS. Maintain Buy.

C–189October 2012


Sector: Utilities

JSW Energy

Bloomberg JSW IN



1,6,12 Rel Perf (%) 30/-4/-2

Mcap (INR b) 99.7

Mcap (USD b) 1.9

CMP: INR61 Buy

Year Net Sales * PAT* EPS EPS P/E P/BV RoE RoCE EV/ EV/


3/11A 42,944 8,418 5.1 12.5 11.8 1.8 14.8 9.7 - -

3/12A 61,189 3,314 2.0 -60.6 30.1 1.7 5.8 6.4 3.0 12.7

3/13E 90,980 6,056 3.7 82.7 16.5 1.7 10.3 10.7 2.3 8.2

3/14E 102,038 10,269 6.3 69.6 9.7 1.5 15.9 14.0 1.9 6.2

* Consolidated



Total Operating Income 12,724 9,965 17,687 20,812 21,915 20,198 23,142 25,724 61,187 90,980

Change (%) 36.5 17.8 64.3 44.6 72.2 102.7 30.8 23.6 42.5 48.7

EBITDA 3,932 1,182 3,495 5,869 5,834 5,438 6,556 7,342 14,477 25,169

Change (%) -13.1 -63.6 -1.2 35.5 48.4 360.2 87.6 25.1 -7.4 73.9

Depreciation 1,048 1,098 1,379 1,509 1,697 1,721 1,977 2,349 5,033 7,744

Interest 1,338 1,510 1,995 2,329 2,426 2,450 2,650 3,227 7,172 10,753

Other Income 220 708 288 259 764 425 440 428 1,466 2,057

Extraordinary items 0 868 1,375 -621 2,325 0 0 0 1,613 2,325

PBT 1,766 -1,586 -965 2,910 150 1,692 2,369 2,193 2,125 6,404

Tax 441 -481 -148 607 160 592 829 769 419 2,350


Reported PAT 1,326 -1,105 -817 2,303 -10 1,100 1,540 1,425 1,706 4,055

Exceptional Income/ (Expense) 0 868 1,375 -621 1,915 0 0 0 1,613 1,915

Reported PAT (Post MI) 1,363 -1,089 -827 2,303 34 1,100 1,540 1,467 1,700 4,141

Adjusted PAT 1,363 -221 549 1,683 1,949 1,100 1,540 1,467 3,313 6,056

Change (%) -54.4 -114.3 -60.2 -18.3 43.0 n.a. 180.6 -12.8 -60.6 82.8

E: MOSL Estimates

Operational Details

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E

Sales (MUs) 2,422 2,593 3,965 4,617 4,731 4,481 5,149 5,806 13,594 20,167

- Long Term 672 646 1,441 2,157 2,233 2,062 2,714 3,273 4,902 10,282

- Merchant 1,750 1,947 2,524 2,460 2,498 2,419 2,435 2,533 8,692 9,885

ST as a % of total 72.3 75.1 63.7 53.3 52.8 54.0 47.3 43.6 63.9 49.0

Realization (INR/unit) 4.51 3.15 3.99 4.18 4.56 4.51 4.49 4.43 4.37 4.51

BSE Sensex S&P CNX

18,763 5,703

We expect JSWEL to report consolidated revenue of INR20.2b (up 103% YoY) and PAT of INR1.1b (v/s loss of

INR221m in 2QFY12) for 2QFY13.

JSWEL generated 3.2BU (up 74% YoY) during July-August 2012. Average PLF for the 2,060MW Karnataka/Ratnagiri

project stood at 90% (v/s 71% a year ago) and at 59% (v/s 74% in 1QFY13) for the 540MW Rajwest project. In

2QFY13, we expect JSWEL to sell 4.5BU (up 75% YoY). 55% of its sales would be on merchant tariffs.

JSWEL's gross margin had improved to INR2.1/unit in 1QFY13. Consumption of high cost inventory had restricted

margin expansion in 1Q. The management expects gross margin expansion from 2QFY13.

540MW of capacity at Rajwest is in operations and JSWEL has synchronized an additional 3 units (405MW). The

entire project would be ready for commissioning by 2QFY13.

We expect JSWEL to report consolidated PAT of INR6.2b for FY13 (up 88%) and INR10.5b for FY14 (up 69%). The

stock trades at 16.5x FY13E and 9.7x FY14E reported EPS. Maintain Buy .

C–190October 2012


Sector: Utilities

NHPC

Bloomberg NHPC IN



1,6,12 Rel Perf (%) 2/-10/-32

Mcap (INR b) 238.0

Mcap (USD b) 4.5

CMP: INR19 Neutral



03/11A 51,436 18,169 1.6 17.4 - - 7.0 8.6 - -

03/12A 69,203 23,652 2.0 28.4 9.4 0.8 8.6 10.3 4.9 7.0

03/13E 60,489 23,187 2.0 -1.7 9.6 0.8 7.9 7.6 4.9 7.9

03/14E 67,177 24,071 2.1 3.8 9.3 0.8 7.9 7.9 4.8 7.7

* Pre Exceptional Earnings, Consolidated




Sales 14,708 18,585 8,820 14,437 14,218 16,515 10,170 9,426 56,550 50,329

Change (%) 44.2 45.1 17.5 23.0 -3.3 -11.1 15.3 -34.7 33.8 -11.0

EBITDA 9,565 13,283 3,788 9,942 9,040 11,540 5,095 3,816 36,579 29,491

Change (%) 17.4 25.4 -17.7 94.6 -5.5 -13.1 34.5 -61.6 28.6 -19.4

As of % Sales 65.0 71.5 43.0 68.9 63.6 69.9 50.1 40.5 64.7 58.6

Depreciation 2,258 2,234 2,237 2,199 2,218 2,350 2,550 2,702 8,927 9,819

Interest 865 883 876 799 798 830 875 1,096 3,422 3,599

Other Income 3,275 3,042 2,032 2,255 2,451 2,650 2,400 2,931 10,604 10,432

EO Income/(Expense) 0 -352 0 689 0 0 0 0 337 0

PBT 9,717 12,856 2,707 9,889 8,475 11,010 4,070 2,949 35,169 26,504

Tax 1,807 3,191 586 1,868 1,777 2,477 916 671 7,452 5,841


Reported PAT 7,910 9,665 2,122 8,021 6,698 8,533 3,154 2,278 27,717 20,664

Adjusted PAT 6,050 7,769 2,976 2,109 6,450 8,533 3,154 2,279 18,884 20,664

Change (%) 18.4 13.3 63.9 -18.3 6.6 9.8 6.0 8.1 15.1 9.4

E: MOSL Estimates


Generation (MUs) 6,284 6,939 860 1,423 6,148 7,618 1,313 3,673 18,683 18,752

Increase/ (Decrease) (%) 11.0 -2.6 -72.0 -46.1 -2.2 9.8 52.7 158.1 1.0 0.4

Installed Capacity (MW) 5,287 5,287 5,287 5,287 5,287 5,518 5,518 5,979 5,287 5,979

- Owned 3,767 3,767 3,767 3,767 3,767 3,998 3,998 4,459 3,767 4,459

- JV's 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520

BSE Sensex S&P CNX

18,763 5,703

We expect NHPC to report revenue of INR16.5b (down 11% YoY) and PAT of INR8.5b (up 10% YoY) for 2QFY13. In

July-August 2012, NHPC's generation was 5.2BU (up 10% YoY).

In FY13, NHPC is targeting to add 1.1GW of projects. It has commissioned Chamera-III 231MW in YTD FY13.

Chutak (44MW) and Nimo Bazgo (45MW) projects are ready for commissioning but CoD is partly impacted due

to transmission line delays. Local agitation has impacted the commissioning of Uri-II (240MW). The Kishanganga

project (330MW) is caught in the controversy between India and Pakistan.

The Supreme Court has asked the Ministry of Power (MoP), the Ministry of Environment and Forests (MoEF),

and NHPC to file an affidavit on the ongoing Lower Subansiri Hydel Electric Project (LSHEP), which is caught in

controversy after an NGO, Assam Public Works (APW), prayed before the apex court to take note of the impact

of the LSHEP on low lying areas.

As at the end of 1QFY13, NHPC's outstanding debtors stood at INR21b and debtors above 60 days stood lower at

INR9.1b (v/s INR12b+ as at the end of FY12).

We expect NHPC to report consolidated PAT of INR23.2b for FY13 (down 2%) and INR24.1b for FY14 (up 4%). The

stock trades at 9.6x FY13E and 9.3x FY14E reported EPS. Maintain Neutral.

C–191October 2012


Sector: Utilities

NTPC

Bloomberg NTPC IN



1,6,12 Rel Perf (%) -9/-6/-14


Mcap (USD b) 26.3

CMP: INR168 Buy

Year Net Sales PAT * EPS* EPS P/E P/BV RoE RoCE EV/ EV/

End* (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA

03/11A 548,740 79,580 9.7 -5.9 - - 12.2 12.2 - -

03/12A 611,449 79,720 9.7 0.2 17.4 1.9 11.8 11.8 2.8 11.7

03/13E 711,487 93,776 11.4 17.6 14.8 1.8 12.5 12.5 2.5 11.3

03/14E 790,502 111,540 13.5 18.9 12.4 1.6 13.7 13.7 2.4 9.3

* Pre Exceptional consolidated Earnings; We have factored in RoE gross-up based on MAT

wef FY11 onwards



Sales 141,715 153,775 153,333 162,639 159,600 155,840 181,322 214,725 611,462 711,487

Change (%) 9.5 4.2 13.6 4.8 12.6 1.3 18.3 32.0 7.8 16.4

EBITDA 28,662 32,387 28,564 41,127 36,306 31,290 38,372 45,978 131,437 151,947

Change (%) 2.2 -2.2 -22.1 12.9 26.7 -3.4 34.3 11.8 -2.1 15.6

As of % Sales 20.2 21.1 18.6 25.3 22.7 20.1 21.2 21.4 21.5 21.4

Depreciation 6,411 6,583 7,560 7,363 7,602 8,500 9,200 10,620 27,917 35,922

Interest 3,744 3,312 4,496 4,870 4,994 5,150 5,400 6,066 17,116 21,610

Other Income 9,964 10,093 9,121 7,679 8,849 7,500 7,550 7,713 36,858 31,612

PBT 28,472 32,586 25,629 36,574 32,559 25,140 31,322 37,005 123,262 126,026

Tax 7,714 8,346 4,324 10,640 7,573 6,536 8,144 9,648 31,024 31,151


Reported PAT 20,758 24,240 21,304 25,934 24,987 18,604 23,179 27,357 92,238 94,875

Adjusted PAT 19,015 14,797 20,692 22,958 23,888 18,604 23,179 27,357 79,720 93,776

Change (%) 13.0 -8.4 -1.1 -10.6 25.6 25.7 12.0 19.2 0.2 17.6

E: MOSL Estimates; Adj profit based on the calculations provided by the management

Operational Details


Installed Capacity (MW) 34,854 34,854 36,014 37,014 39,174 39,174 40,674 41,174 37,014 41,174

Addition (MW) 660 - 1,160 1,000 2,160 - 1,500 500 2,820 4,160

PLF (%)

- Coal based projects 86.9 78.4 83.5 91.1 86.5 80.0 89.0 95.3 85.0 85.0

- Gas based projects 62.6 60.8 71.1 66.8 64.5 65.0 65.0 64.5 65.2 65.0

BSE Sensex S&P CNX

18,763 5,703

We expect NTPC to report revenue of INR156b (up 2% YoY) and PAT of INR18.6b (up 26% YoY) for 2QFY13. PAT

growth would largely be on the back of base effect, as September 2011 operations were impacted due to coal

shortage/wet coal and due to strike at Coal India.

Generation for the period July-August 2012 was 36.5BU (up 2% YoY) while 1QFY13 generation was up 8% YoY.

This is largely due to maintenance shutdown taken for a large part of its coal capacity. Coal-based generation

was up 3% YoY in July-August 2012 while gas-based generation was down 1% YoY. NTPC's coal plant PLF for July-

August 2012 was 77% v/s 82% in July-August 2011.

YTD FY13, NTPC has added capacity of 2.1GW (FY13 target of 4.1GW) and has commercialized 2.3GW. In July-

August 2012, it commercialized 660MW Sipat U-III. We expect accelerated capacity addition and

commercialization in 2HFY13.

Under the 12th Plan, NTPC's capacity addition target is 14GW and it has 16.6GW capacity under construction.

Additional 2.6GW (Meja/Solapur) is targeted for addition during the 12th Plan period on best effort basis.

We expect NTPC to report PAT of INR94b for FY13 (up 13%) and INR112b for FY14 (up 18%). The stock trades at

14.8x FY13E and 12.4x FY14E reported EPS. Maintain Buy.

C–192October 2012


Sector: Utilities

Power Grid Corporation

Bloomberg PWGR IN



1,6,12 Rel Perf (%) -7/4/10

Mcap (INR b) 557.2

Mcap (USD b) 10.6

CMP: INR120 Buy


End (INR m) (INR M) (INR) Gr (%) (X) (X) (%) (%) Sales EBITDA

3/11A 83,887 25,411 5.5 0.3 - - 13.6 9.3 - -

3/12A 100,353 33,199 7.2 30.6 16.8 2.4 14.8 9.2 10.4 12.4

3/13E 133,383 39,908 8.6 20.2 14.0 2.1 16.1 9.7 8.7 10.1

3/14E 158,493 47,902 10.3 20.0 11.6 1.9 17.4 9.5 8.1 9.4




Sales 22,025 22,644 24,666 31,019 28,883 31,672 34,010 38,820 100,353 133,383

Change (%) 10.2 6.5 20.2 40.3 31.1 39.9 37.9 25.1 19.6 32.9

EBITDA 18,455 18,978 21,027 26,038 24,646 27,572 29,560 32,597 83,824 114,375

Change (%) 9.8 6.3 21.7 40.2 33.6 45.3 40.6 25.2 18.9 36.4

As of % Sales 83.8 83.8 85.2 83.9 85.3 87.1 86.9 84.0 83.5 85.7

Depreciation 5,790 5,966 6,792 7,177 7,565 8,100 9,000 9,505 25,725 34,170

Interest 4,446 5,556 4,735 5,413 6,461 6,800 7,300 7,822 19,432 28,023

Other Income 1,432 1,942 1,096 3,069 920 650 700 718 7,497 2,989

Extraordinary Inc / (Exp) 13 -21 31 164 0 0 0 0 187 0

PBT 9,638 9,419 10,565 16,354 11,540 13,322 13,960 15,989 45,976 55,170

Tax 2,586 2,331 2,472 6,037 2,836 3,930 4,118 4,738 13,427 15,622


Reported PAT 7,053 7,087 8,092 10,317 8,705 9,392 9,842 11,251 32,550 39,548

Adjusted PAT (Pre Exceptional) 7,022 7,601 7,743 10,832 9,065 9,392 9,842 11,251 33,199 39,908

Change (%) 18.9 27.1 28.1 44.7 29.1 23.6 27.1 3.9 30.7 20.2

E: MOSL Estimates


Capitalization (INR m) 8,020 32,550 22,280 78,150 41,000 35,000 45,000 49,000 141,000 170,000

Regulated Equity (INR m) 137,918 147,683 154,367 177,812 190,112 200,612 214,112 228,812 177,812 228,812

BSE Sensex S&P CNX

18,763 5,703

We expect Power Grid Corporation of India (PWGR) to report revenue of INR32b (up 40% YoY) and PAT of

INR9.3b (up 24% YoY) for 2QFY13. PWGR capitalized ~INR9b in July 2012 and is likely to capitalize INR35b in

2QFY13. The board has accorded investment approval for projects worth INR72b (v/s INR97b YoY) in YTD FY13.

Over the last few months, PWGR's order awards have picked up. It has awarded orders worth INR74b

(v/s INR21.2b YoY) in YTDFY13, against project awards of INR232b in FY12 and INR161b in FY11.

For FY13, we expect PWGR to capitalize INR170b, up 21%. In FY12, fixed asset capitalization stood at INR141b

v/s INR68b in FY11. For FY13, PWGR has approved capex plans of INR200b v/s INR177b in FY12.

Despite the issues relating to fuel and SEB financials raising doubts on capacity addition in the country, PWGR

is upbeat on its capitalization target. Under the 12th Plan, it is focusing on capitalization of corridors rather than

transmission lines dedicated to generation projects.

We expect PWGR to report PAT of INR40b in FY13 (up 20%) and INR47.9b in FY14 (up 20%). The stock trades at 14x

FY13E and 12x FY14E reported EPS. Maintain Buy .

C–193October 2012


Sector: Utilities

PTC India

Bloomberg PTCIN IN



1,6,12 Rel Perf (%) 19/11/-11

Mcap (INR b) 20.8

Mcap (USD b) 0.4

CMP: INR71 Buy



03/11A 90,632 1,660 5.6 50.0 - - 6.5 9.2 - -

03/12A 76,502 2,041 6.9 22.9 10.2 0.9 5.4 8.6 0.2 11.8

03/13E 99,995 2,266 7.7 11.0 9.2 0.9 6.4 6.0 0.2 14.8

03/14E 128,054 2,816 9.5 24.3 7.4 0.9 7.6 5.9 0.1 12.6

* Consolidated



Sales 24,874 23,890 13,300 14,436 19,869 29,853 20,881 29,392 76,502 99,995

Change (%) -9.8 -3.3 -24.3 -30.6 -20.1 25.0 57.0 103.6 -15.6

EBITDA 476 444 210 323 313 536 400 590 1,453 1,838

Change (%) 77.1 16.5 -48.5 -5.9 -34.4 20.8 90.6 82.8 3.7 26.5

As of % Sales 1.9 1.9 1.6 2.2 1.6 1.8 1.9 2.0 1.9 1.8

Depreciation 11 11 11 11 10 11 11 14 45 45

Interest 14 79 103 64 1 0 0 1 260 2

Other Income 174 140 43 150 26 80 85 90 505 281

PBT 626 493 138 394 304 605 474 666 1,656 2,095

Tax 173 138 43 98 98 181 142 200 452 622


Reported PAT 453 356 95 302 206 423 332 466 1,204 1,474

Adjusted PAT 453 356 95 299 229 423 332 466 1,201 1,450

Change (%) 59.4 -0.5 -74.9 -10.5 -49.4 19.0 248.5 56.0 -11.1

E: MOSL Estimates; % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards

Operational Details


Power Traded (MUs) 6,726 8,655 4,564 4,380 6,566 9,400 5,500 6,531 24,325 27,997

Adj Margins (Ps/Unit) 4.91 4.16 3.78 4.68 3.98 3.97 3.48 4.30 4.39 3.81

BSE Sensex S&P CNX

18,763 5,703

We expect PTC India (PTCIN) to report revenue of INR30b (up 25% YoY) and PAT of INR423m (up 19% YoY) for

2QFY13.

Over July-August 2012, PTCIN's volumes stood at ~6.3BU (up 4% YoY). In 2QFY13, we expect PTCIN's traded

volumes to be 9.4BU (up 8.6% YoY). Volume growth should pick up in 2HFY13, with the commissioning of sizable

projects (including tolling projects) on LT basis. In FY13, we expect PTCIN to trade 28BU (up 15%).

We expect average trading margin (adjusted for surcharge and rebates) of INR0.039/unit in 2QFY03 (v/s INR0.058/

unit in 2QFY12). The muted margin growth would be primarily led by increasing competitive intensity in India's

power trading market. PTCIN's market share (excluding cross border and intra-state) in ST volumes for July 2012

increased 2% YoY to 35%.

In 1QFY13, PTCIN received INR1b from Tamil Nadu (TN) and another tranche of INR750m from TN in July/August

2012. Thus, the outstandings from TN are lower at INR4.5b v/s INR7b earlier. The managment expects to receive

the balance dues from TN by 3QFY13. We understand that PTCIN has also begun to realize small sums from UP

and expect increased payments once the tariff hike is approved for UP.

We expect PTCIN to report consolidated PAT of INR2.2b for FY13 (11%) and INR2.8b for FY14 (up 24%). The stock

trades at 9.2x FY13E and 7.4x FY14E reported EPS. Maintain Buy.

C–194October 2012


Sector: Utilities

Reliance Infrastructure

Bloomberg RELI IN



1,6,12 Rel Perf (%) 9/-15/17

Mcap (INR b) 144.1

Mcap (USD b) 2.7

CMP: INR539 Buy

Year Net Sales PAT EPS* EPS P/E* P/BV RoE RoCE EV/ EV/

End (INR m) (INR m) (INR) Gr. (%) RATIO (X) (%) (%) Sales EBITDA

3/11A 95,289 10,809 40.4 1.0 - - 6.8 7.4 - -

3/12A 178,503 20,002 74.8 85.0 7.2 0.8 11.4 13.3 0.3 2.0

3/13E 163,041 11,638 43.5 -41.8 12.4 0.7 6.3 8.6 0.4 2.9

3/14E 151,643 12,845 48.0 10.4 11.2 0.7 6.6 8.0 0.3 2.2

* Consolidated, Fully Diluted




Sales 36,607 39,505 44,777 57,316 34,473 37,700 40,655 50,213 178,205 163,041

Change (%) 64.3 62.0 69.8 148.1 -12.7 -15.8 -29.1 -49.1 85.3 -8.5

EBITDA 6,961 7,096 6,518 6,173 4,598 4,901 5,285 5,447 26,748 20,231

Change (%) 174.7 70.5 144.1 156.1 -35.2 -24.8 -14.4 -47.2 127.1 -24.4

As of % Sales 19.0 18.0 14.6 10.8 13.3 13.0 13.0 10.8 15.0 12.4

Depreciation 689 638 615 736 1,130 1,100 1,100 1,121 2,678 4,452

Interest 570 833 1,231 1,832 1,902 1,925 1,900 1,852 4,466 7,579

Other Income 1,093 1,126 1,468 1,685 2,586 1,350 1,375 1,202 5,372 6,514

PBT 6,795 6,752 6,140 5,290 4,152 3,226 3,660 3,676 24,977 14,714

Tax (incl con tingencies) 2,490 1,794 1,982 -1,292 882 675 765 755 4,975 3,077

Effective Tax Rate (%) 36.6 26.6 32.3 -24.4 21.2 20.9 20.9 20.5 19.9 20.9

Reported PAT 4,305 4,957 4,158 6,581 3,270 2,551 2,895 2,921 20,002 11,638

PAT (Pre Exceptionals) 2,874 4,903 4,057 6,478 3,270 2,551 2,895 2,921 19,621 11,638

Change (%) 16.7 122.4 118.6 56.6 -33.3 -37.1 -55.3 -71.9 84.1 -40.7

E: MOSL Estimates; Quarterly nos. are on standalone basis


EPC Revenues (INR m) 18,849 24,309 29,801 43,823 17,749 18,500 21,000 29,251 116,781 86,500

EPC EBITDA (INR m) 3,824 5,579 5,020 4,982 3,031 1,480 1,890 2,702 19,405 9,103

Margin (%) 20.3 23.0 16.8 11.4 17.1 8.0 9.0 9.2 16.6 10.5

BSE Sensex S&P CNX

18,763 5,703

We expect Reliance Infrastructure (RELI) to report revenue of INR37.7b (down 16% YoY) and PAT of INR2.5b

(down 37% YoY) for 2QFY13.

Towards its EPC segment, RELI is likely to post revenue of INR18.5b (v/s INR24b in 2QFY12) and EBITDA margin of

8% (v/s 23% in 2QFY12) for 2QFY13. The company's EPC order book stands at INR156b (book-to-bill ratio of 1.3x).

For FY13, RELI is targeting EPC revenue of INR90b-100b and margins of 8-10%.

The company has exited the INR51b Worli-Haji Ali Sealink project, citing changes in terms of contract by MSRDC.

It has received BG of INR1b from MSRDC however it had spent INR1.5b in preliminary activites towards the

project.

Post tariff hike in Mumbai business, RELI has not seen RAB (regulatory asset base) addition in the last three

quarters in its Mumbai distribution business. Similarly, for its Delhi distribution business, the accretion to RAB

is NIL on an ongoing basis post tariff hike and 8% surcharge. Fuel cost is also allowed to be passed through on a

quarterly basis. The Delhi business has RAB of INR130b, of which DERC has approved RAB of INR90b. RAB

addition of INR40b over 2011-12 is likely to be approved once the petition for 2013-14 is filed.

We expect RELI to report standalone PAT of INR11.6b for FY13 (down 42%) and INR12.8b for FY14 (up 10%). The

stock trades at 12.4x FY13E and 11.2x FY14E reported EPS. Maintain Buy.

C–195October 2012


Sector: Utilities

Tata Power

Bloomberg TPWR IN



1,6,12 Rel Perf (%) 2/3/-8

Mcap (INR b) 253.8

Mcap (USD b) 4.8

CMP: INR107 Neutral



03/11A 69,180 17,516 7.4 18.4 - - 7.5 6.2 - -

03/12A 84,958 17,628 7.4 0.6 14.4 2.2 9.8 6.2 3.8 17.9

03/13E 93,003 13,490 5.7 -23.5 18.8 2.1 8.5 5.3 3.4 17.2

03/14E 97,488 9,357 3.9 -30.6 27.1 2.0 6.4 5.2 3.3 17.6

* Consolidated incl share of profit from KPC and Arutmin mines, Pre Exceptionals, Fully

Di luted




Units Generated 3,889 3,772 3,970 3,599 4,259 3,850 4,100 3,783 15,230 15,992

Total Operating Income 19,212 19,481 22,519 23,747 22,841 21,170 23,925 25,067 84,958 93,003

Change (%) 2.9 19.1 36.3 34.7 18.9 8.7 6.2 5.6 22.8 9.5

EBITDA 4,279 4,189 4,751 4,443 3,759 4,745 4,725 5,059 17,662 18,288

Change (%) -5.1 19.3 43.2 7.8 -12.1 13.3 -0.6 13.9 14.3 3.5

As of % Sales 22.3 21.5 21.1 18.7 16.5 22.4 19.7 20.2 20.8 19.7

Depreciation 1,331 1,353 1,512 1,508 1,548 1,550 1,575 1,554 5,704 6,227

Interest 1,124 1,165 1,280 1,388 1,386 1,400 1,475 1,528 4,957 5,789

Other Income 2,476 3,323 4,105 -69 3,456 1,250 1,325 1,333 9,835 7,364

PBT 4,299 4,995 6,065 1,478 4,281 3,045 3,000 3,310 16,837 13,636

Tax 1,484 1,865 1,483 308 1,158 822 810 891 5,140 3,682


Reported PAT 2,816 3,130 4,582 1,170 3,123 2,223 2,190 2,419 11,696 9,954

Adjusted PAT 2,940 3,658 1,844 2,295 3,721 2,223 2,190 2,419 10,736 10,553

Change (%) 33.9 68.3 23.9 43.1 26.6 -39.2 18.8 5.4 38.7 -1.7

Consolidated Adjusted PAT 4,158 4,425 5,523 3,522 3,059 3,097 3,521 3,839 17,628 13,490

Change (%) -1.0 12.8 34.9 -36.3 -26.4 -30.0 -36.3 9.0 -0.7 -23.5

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Tata Power (TPWR) to report standalone revenue of INR22b (up 9% YoY) and PAT of INR2.2b (down

39% YoY) for 2QFY13. Consolidated PAT for the quarter is likely to be INR3.1b (down 31% YoY).

Generation from TPWR's 2,021MW (Mumbai region) capacity in July-August 2012 was 2.2BU, up 23% YoY. Mundra

UMPP generation for the period was 561MU and PLF was muted at 30% v/s 87% in 1QFY13.

TPWR has synchronized the 2nd unit of Mundra UMPP and we expect FY14 to be the first full year of operations.

Losses from Mundra UMPP will limit consolidated earnings growth.

TPWR has filed a petition with India's CERC, asking for a tariff hike of ~INR0.67/unit for its Mundra project. CERC

has heard TPWR petition and has asked buyers of electricity from the 4,000MW Mundra project to submit their

response by the first week of October.

Owing to falling imported coal prices, PT Berau Coal Energy, a subsidiary of Bumi Plc has lowered its production

forecast to 20m-22m tons from 23m tons. However, KPC/Arutmin has kept production target intact.

We expect TPWR to report consolidated PAT of INR13.5b for FY13 (down 24%) and INR9.4b for FY14 (down 31%).

The stock trades at 18.8x FY13E and 27.1x FY14E reported EPS. Maintain Neutral.

C–196October 2012

Castrol India

Bloomberg CSTRL IN



1,6,12 Rel Perf (%) -2/11/14

Mcap (INR b) 154.0

Mcap (USD b) 2.9

Siddharth Bothra ([email protected])

CMP: INR311 Buy


Sector: Consumer



12/10A 28,020 4,914 9.9 27.6 - - 79.4 112.6 - -

12/11A 30,821 4,853 9.8 -1.2 31.7 25.5 93.7 133.6 4.8 22.5

12/12E 33,290 4,715 9.5 -2.8 32.6 23.9 83.8 109.4 4.4 22.5

12/13E 35,811 5,768 11.7 22.3 26.7 21.5 75.6 101.0 4.1 18.0




Volumes (MT) 56 54 46 52 53 57 49 55 208 213

% YoY 2.4 -10.1 -8.7 -3.7 -5.9 4.8 5.8 -2.9 -7.3 6.6

Net Sales 7,507 7,900 6,716 7,694 7,817 8,513 7,746 9,214 29,817 33,290

YoY Change (%) 14.8 6.2 4.8 10.6 4.1 7.8 15.3 19.8 9.0 11.6

Net Raw Material 3,965 4,378 3,948 4,654 4,590 4,974 4,521 4,993 16,945 19,078

Employee Expenses 259 297 318 285 265 339 325 320 1,159 1,248

Other Operating Expenses 1,489 1,269 1,147 1,225 1,394 1,506 1,409 2,096 5,130 6,405


EBITDA 1,794 1,956 1,303 1,530 1,568 1,694 1,491 1,806 6,583 6,558

Margins (%) 23.9 24.8 19.4 19.9 20.1 19.9 19.2 19.6 22.1 19.7

Depreciation 63 63 62 63 60 60 67 70 251 257

Interest 4 2 9 4 7 3 5 5 19 19

Other Income 303 226 170 147 335 162 166 167 846 830

PBT 2,030 2,117 1,402 1,610 1,836 1,793 1,585 1,898 7,159 7,112

Tax 664 692 451 542 607 584 527 678 2,349 2,397

Rate (%) 32.7 32.7 32.2 33.7 33.1 32.6 33.3 35.7 32.8 33.7

PAT 1,366 1,425 951 1,068 1,229 1,209 1,058 1,219 4,810 4,715

YoY Change (%) 16.6 -5.2 -18.6 0.8 -10.0 -15.2 11.2 14.2 -1.9 -2.0

Margins (%) 18.2 18.0 14.2 13.9 15.7 14.2 13.7 13.2 16.1 14.2

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect Castrol (CSTRL) to report volume growth of ~5.8% YoY and value growth of ~15.3% YoY for 3QCY12,

primarily driven by a low base (3QCY11 volumes had declined 8.7% YoY) and recent price hikes. CSTRL had taken

price increases of 4-5% across key categories in June 2012 and 2-3% in 3QCY12, the impact of which would be

visible in 3QCY12.

Nonetheless, one-time marketing initiatives like discount of INR20/Kl for two-wheeler lubes during part of

3QCY12 are likely to partially negate the benefits of the price hikes.

Almost 80% of CSTRL's demand in volume terms is from the replacement market. The OEM market accounts for

only ~20%. Since profitability in the OEM segment is very low, the share of OEM market in operating profit is

even lower. Hence, we believe CSTRL is unlikely to be much impacted by the current growth slowdown in

automotive segments such as HCVs and two-wheelers.

EBITDA is likely to grow 14% YoY to INR1.5b while EBITDA margin is likely to shrink 20bp YoY to 19.2% on the back

of higher raw material cost. We expect net profit to grow 11.2% YoY to INR1.1b.

The stock trades at 32.6x CY12E and 26.7x CY13E EPS. We remain bullish on CSTRL's long-term prospects, given its

pricing power, unique positioning in the lubricants industry and strong fundamentals. Buy.

C–197October 2012

Multi Commodity Exchange of India

Bloomberg MCX IN



1,6,12 Rel Perf (%) 11/-6/-

Mcap (INR b) 65.5

Mcap (USD b) 1.2

Ashish Chopra ([email protected])

CMP: INR1,284 Buy


Year Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/


3/11A 3,689 1,728 33.9 (21.6) - - 22.4 16.7 - -

3/12A 5,262 3,618 56.1 65.6 22.9 6.6 31.0 24.8 10.1 15.9

3/13E 5,172 3,542 56.1 - 22.9 5.8 26.9 25.8 10.1 16.2

3/14E 6,152 3,392 66.5 18.5 19.3 5.0 27.8 26.9 8.3 12.9




Sales 1,169 1,558 1,296 1,239 1,230 1,283 1,326 1,352 5,262 5,172

Q-o-Q Gr. (%) 10.4 33.3 -16.8 -4.4 -0.7 4.3 3.4 2.0 42.6 -1.7

Staff Costs 69 67 65 79 78 79 80 82 280 340

Admin and other expenses 382 421 411 420 396 393 405 413 1,635 1,607

Depreciation 64 71 70 67 67 71 71 71 272 286

EBIT 654 999 750 672 689 740 769 787 3,075 2,940

Margins (%) 55.9 64.1 57.9 54.3 56.0 57.7 58.0 58.2 58.4 56.8

Other Income 215 224 280 308 233 256 272 280 1,027 1,044

PBT 869 1,223 1,030 981 921 996 1,040 1,067 4,102 3,984

Tax 248 327 342 181 274 284 297 304 1,098 1,121

Rate (%) 28.6 26.7 33.2 18.4 29.7 28.5 28.5 28.5 26.8 28.1

Net Income after exceptional item 620 896 688 800 647 712 744 763 2,862 2,863

Q-o-Q Gr. (%) 12.9 44.5 -23.2 16.3 -19.1 10.0 4.5 2.6 62.8 -

EPS (INR) 12.2 17.5 13.5 12.9 12.7 14.0 14.6 15.0 56.1 56.1

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

We expect revenue to grow 4.3% QoQ (but decline 17.7% YoY) to INR1.28b.

Total value of trades at the exchange increased 6.2% QoQ, but declined 19% YoY, on a huge base of 2QFY12,

when trading in gold and silver had surged.

Our EBIT estimate stands at INR740m, implying an EBIT margin of 57.7%, +170bp QoQ, on leverage effect of

quarterly volume increase. Our EBIT estimate implies a decline of 26% YoY.

Our PAT estimate is INR712m, up 10% QoQ but down 21% YoY.

Key things to watch: Terminal additions; market share; transaction yield.


C–198October 2012

Sintex Industries

Bloomberg SINT IN



1,6,12 Rel Perf (%) 14/-29/-66

Mcap (INR b) 18.1

Mcap (USD b) 0.3

Sandipan Pal ([email protected])

CMP: INR67 Buy


Sector: Diversified



03/11A 44,837 4,553 16.8 57.2 - - 20.9 14.8 - -

03/12A 44,535 3,535 13.0 -22.4 5.1 0.7 14.0 11.3 0.9 5.4

03/13E 46,347 3,537 13.0 0.1 5.1 0.6 12.7 10.9 0.8 5.0

03/14E 51,778 4,151 15.3 17.4 4.4 0.5 13.3 12.7 0.7 4.0




Operating Income 11,120 11,571 11,608 10,236 10,806 10,710 11,980 12,891 44,535 46,347

YoY Growth (%) 22.1 25.4 -2.1 -30.1 -2.8 -7.4 3.2 25.9 -0.7 4.1

EBITDA 1,892 2,044 1,631 1,600 1,776 1,669 1,921 2,104 7,177 7,474

EBITDA Margin (%) 17.0 17.7 14.1 15.6 16.4 15.6 16.0 16.3 16.1 16.1

YoY Growth (%) 22.1 19.1 -17.1 -45.2 -3.4 -11.8 14.1 4.4 -12.0 4.1

Depreciation 439 437 467 335 483 435 452 404 1,678 1,774

Interest 350 416 354 238 354 365 365 377 1,358 1,461

Other Income 168 67 154 115 42 81 67 79 505 270

Extraordinary items -9 -596 135 4 -289 -8 -180 -189 -466 -666

Profit before Tax 1,271 662 1,099 1,147 692 942 991 1,214 4,179 3,842

Tax Provisions 338 275 283 263 241 207 227 266 1,160 941

Tax / PBT 26 22 29 23 35 22 23 19 25.0 20.9

PAT before MI & Income from Assoc 933 387 816 884 451 735 764 948 3,019 2,901

Min. Int. and Profit from Associate 0 0 -6 28 17 8 8 8 0 30

Consolidated PAT 946 389 824 913 468 742 772 956 3,068 2,871

Adj. Consolidated PAT 946 985 689 909 757 751 952 1,145 3,535 3,537

YoY Growth (%) 20.0 -61.1 -27.8 -45.3 -20.0 -23.8 38.2 26.0 -22.4 0.1

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect YoY de-growth: We expect Sintex Industries' 2QFY13 revenue to de-grow 7% YoY to INR10.7b, EBITDA to

de-grow 11% to INR1.7b and Adjusted PAT to de-grow 24% to INR751m.

Expect marginal uptick in monolithic; overseas composite to post another weak quarter: We expect the de-

growth to be driven by slowdown in Monolithic segment (18% YoY revenue de-growth, +7%QoQ) and overseas

composites (20% YoY revenue de-growth). In monolithic, Sintex is witnessing slow improvement in approval

process and expects full clarity on the stalled sites by 3QFY13. Overseas, automobile and electrical verticals are

yet to show any sign of improvement, but the management expects uptick in electrical segment by 3QFY13.

Prefab, Textiles to remain stable: Most other verticals are likely to remain stable: (1) Prefab 18% revenue

growth with margin of 20%, and (2) Stable margin in Textiles (21%) and Tanks (10%). Domestic composites is

expected to de-grow 14% YoY as Bright was impacted by strikes at Maruti during 2QFY13.

Clarity on funding of FCCB redemption key: Sintex has to redeem FCCBs worth USD285m in Mar-13. Of this,

USD110m is unutilized; Sintex plans to fund the balance with a mix of ECBs and internal accruals. Clarity on this

is a key factor to watch out for.

The stock trades at FY13E P/E of 4.4x and EV/EBITDA of 5x. Sintex's current valuation reflects both (1) growth

moderation, and (2) other concerns (FCCB repayment, potential conflict of interest in power venture, etc). We

value Sintex at INR91 per share based on FY13E P/E of 7x, which is a 33% discount to its LPA P/E.

C–199October 2012

United Phosphorus

Bloomberg UNTP IN



1,6,12 Rel Perf (%) 7/-8/-19

Mcap (INR b) 60.6

Mcap (USD b) 1.2

Jinesh K Gandhi ([email protected])


Sector: Agrochemicals

CMP: INR131 Buy



03/11A 58,045 5,701 12.3 3.8 - - 17.0 17.0 - -

03/12A 76,547 5,890 12.8 3.3 10.3 1.5 14.9 17.3 1.0 6.3

03/13E 87,801 6,885 14.9 16.9 8.8 1.3 15.5 17.0 0.8 5.2

03/14E 98,629 9,003 19.5 30.8 6.7 1.1 17.8 18.2 0.7 4.1




Net Revenues 18,542 17,757 19,080 21,269 22,142 20,360 21,613 23,686 76,547 87,801

YoY Change (%) 26.3 41.3 56.1 15.9 19.4 14.7 13.3 11.4 32.9 14.7


EBITDA 3,370 3,255 3,282 3,867 3,864 3,521 3,800 4,390 13,674 15,576

Margins (%) 18.2 18.3 17.2 18.2 17.5 17.3 17.6 18.5 17.9 17.7

Depreciation 628 719 785 792 734 850 900 1,040 2,924 3,524

Interest 714 1,918 826 688 1,109 890 1,000 1,131 4,146 4,131

Other Income 305 196 305 173 354 190 300 202 979 1,046

PBT before EO Expense 2,332 814 1,977 2,560 2,375 1,971 2,200 2,421 7,582 8,968

Extra-Ord Expense 0 144 11 242 0 0 0 0 396 0

PBT after EO Expense 2,332 670 1,966 2,319 2,375 1,971 2,200 2,421 7,187 8,968

Tax 466 151 626 37 703 453 660 156 1,280 1,973

Rate (%) 20.0 22.5 31.8 1.6 29.6 23.0 30.0 6.5 17.8 22.0

Reported PAT 1,866 519 1,340 2,282 1,672 1,518 1,540 2,265 5,907 6,995

Income from Associate Co -23 51 -216 -263 357 50 -190 -327 -398 -135

Adjusted PAT 1,843 713 1,135 2,256 2,029 1,568 1,350 1,938 5,834 6,860

YoY Change (%) 29.5 -37.8 35.2 -3.4 10.1 119.9 19.0 -14.1 0.0 17.6

Margins (%) 9.9 4.0 5.9 10.6 9.2 7.7 6.2 8.2 7.6 7.8

E: MOSL Estimates

BSE Sensex S&P CNX

18,763 5,703

Expect United Phosphorus (UNTP) to report 15% YoY growth in consolidated revenue to INR20.4b, with domestic

revenue growing 6% and international revenue 30%. (Performance is strictly not comparable YoY due to

consolidation of Sipcam and DVA Agro.)

EBITDA margin is expected to decline by 100bp YoY to 17.3% due to higher RM costs and fixed cost, translating

into EBITDA growth of 8% to INR3.5b.

We are factoring in MTM forex gain of INR110m (v/s forex loss of INR1.1b in 2QFY12), boosting 120% YoY growth

in PAT to INR1.57b.

UNTP has guided for FY13 revenue growth of 15%, EBITDA margin of 18-20% and tax rate of 15-20%.

The company has announced buyback of up to 19.2m shares at a price up to INR150 i.e. cash outgo of up to

~INR2.9b.

We believe current valuations of 8.8x FY13E EPS of INR14.9 and 6.7x FY14E EPS of INR19.5 factor in short-term

headwinds. Maintain Buy with target price of INR195 (10x FY14E EPS).

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India Strategy Oct 2012

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