2qfy2014resultreview_november2013

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November 2013November 2013November 2013November 2013November 2013

Please refer to important disclosures at the end of this report. 1

INR aids earnings performance

For 2QFY2014, Sensex as well as our coverage companies* reported a

lower-than-expected earnings growth, weighed, in particular, by earnings in cyclical

sectors such as cement, capital goods and infrastructure. The earnings de-growth

for these sectors emerged as a drag on overall profitability despite overall healthy

revenue growth for Sensex and our coverage companies and in-line margin

performance. Sensex companies posted a 5.9% yoy growth in earnings as compared

to our estimate of 8.2% yoy and our coverage companies reported a marginal

growth of 0.7% yoy in earnings in contrast to our estimate of 4.1% yoy growth. The

overall earnings performance continued to be largely supported by companies in

the export-oriented space namely IT and pharmaceuticals. The metals sector also

supported earnings performance led by the impact of INR depreciation on import

substitution and increase in steel exports.

Both Sensex and our coverage companies reported higher-than-expecteddouble-digit revenue growth at 13.9% yoy and 13.1% yoy during the quarter despite

sluggish pace of economic growth. The performance can be mainly attributed to

robust top-line growth in the IT, pharmaceuticals, automobile and oil and gas sectors.

On the margins front, the performance came broadly in line with our expectations.

Our coverage companies reported margin contraction of 25bp yoy and 89bp qoq

mainly due to the stress in cyclical sectors reflecting weak pricing power.

External sector in better shape, macros poised for a recovery

Coupled with persistence of easy money, the signs of strengthening GDP growth in

advanced economies have driven risk-on mode back in the global markets.

Domestically, the improvement in export performance has come as a much-needed

silver lining for the economy. We believe that the strong rebound in exports is likely

to have a cascading positive impact on narrowing the CAD substantially and boosting

investment and GDP growth. Addressing our external vulnerability by tackling the

elevated CAD and attracting foreign inflows for its financing has boosted confidence

in our markets. This is amply reflected by the return of strong FII inflows in equities

as well as appreciation and consequent stability in the INR. Going ahead we believe

that the expected easing of food prices, as the new harvest enters markets, is likely

to lead to a moderation in inflationary pressures in the economy. The expectations

on the outcome of elections are also likely to drive market sentiments.

Outlook and Valuation

We expect Sensex EPS to post a growth of 9.4% for FY2014. Attributing a 15x

multiple to our Sensex EPS, we arrive at a target of 23,000 for the Sensex over the

next one year implying an upside of about 14.0% from the present levels.

We continue to have a positive outlook on export-oriented sectors like IT and

pharmaceuticals owing to signs of recovery in advanced economies and the rupee

depreciation on a yoy basis. We are positive on select metal stocks as well,

considering recent capacity additions and under-utilized capacity getting employed

for exports aided by improvement in global fundamentals as well as competitiveness

due to rupee depreciation. We also selectively prefer large private banks as they

remain structurally strong and are also likely to benefit from an imminent

cyclical revival.

2QFY2014 Result Review2QFY2014 Result Review2QFY2014 Result Review2QFY2014 Result Review2QFY2014 Result Review


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2QFY2014 Result Review

November 2013 Please refer to important disclosures at the end of this report. 2

SectorSectorSectorSectorSector

2QFY14A2QFY14A2QFY14A2QFY14A2QFY14A 2QFY14E2QFY14E2QFY14E2QFY14E2QFY14E 2QFY14A2QFY14A2QFY14A2QFY14A2QFY14A 2QFY14E2QFY14E2QFY14E2QFY14E2QFY14E 2QFY14A 2QFY14A 2QFY14A 2QFY14A 2QFY14A 2QFY14E 2QFY14E 2QFY14E 2QFY14E 2QFY14E

(%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy) (bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq) (bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy) (bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)

Agriculture (2) 25.5 16.8 38.9 35.0 73 26 12 (39)

Auto (7) 20.0 19.8 23.4 18.3 266 163 124 21

Auto Anc. (10) 9.8 9.7 23.6 16.0 219 13 120 (52)

Banks - New private (4) 18.5 19.3 22.7 23.5 347 65 93 (152)

Banks - PSUs and Old private (23) 10.7 6.5 (40.6) (22.3) (606) (586) (399) (380)

Banks - Housing finance (2) 13.9 9.4 13.1 6.4 (4) (34) (58) (89)

Capital Goods (7) (5.6) (3.9) (48.2) (28.1) (626) 39 (238) 427

Cement (7) (3.8) (0.4) (54.1) (24.2) (883) (653) (459) (218)

FMCG (12) 9.5 11.2 13.9 13.8 108 45 55 (6)

Infrastructure (12) 6.5 5.2 (14.6) (9.5) (104) 14 (90) 10

IT (12) 29.5 29.8 30.8 24.5 141 202 54 112

Media (5) 19.1 16.5 14.2 12.2 (113) (60) 154 211

Metals (14) 8.4 5.6 19.8 24.3 163 (97) 116 (170)

Mining (2) 4.2 3.5 (4.6) 3.6 (376) (928) 181 (419)

Oil & Gas (8) 15.4 5.4 (0.7) (2.8) (122) 88 (144) 62

Pharmaceuticals (12) 20.9 11.6 22.3 18.7 68 143 34 64

Power (2) 0.7 1.5 (18.9) (0.6) (108) (211) (42) (146)

Telecom (3) 7.3 5.1 12.3 25.1 178 33 65 (80)

Coverage Universe (144)Coverage Universe (144)Coverage Universe (144)Coverage Universe (144)Coverage Universe (144) 13.1 13.1 13.1 13.1 13.1 9.9 9.9 9.9 9.9 9.9 0.7 0.7 0.7 0.7 0.7 4.1 4.1 4.1 4.1 4.1 (25) (25) (25) (25) (25) (89) (89) (89) (89) (89) (32) (32) (32) (32) (32) (107) (107) (107) (107) (107)

Exhibit 1: 2QFY2014 Angel coverage performance vis-a-vis estimates

Source: Company, Angel Research

Operating MarginsOperating MarginsOperating MarginsOperating MarginsOperating MarginsNet SalesNet SalesNet SalesNet SalesNet Sales Net PNet PNet PNet PNet Profitrofitrofitrofitrofit

Exhibit 2: 2QFY2014 Sensex performance vis-a-vis estimates

Source: Company, Angel Research; Note: *Sesa Goa and Cipla estimates have been excluded as comparable 2QFY2013 numbers are not available

SectorSectorSectorSectorSector

WWWWWeighteighteighteighteight 2QFY14A2QFY14A2QFY14A2QFY14A2QFY14A 2QFY14E2QFY14E2QFY14E2QFY14E2QFY14E 2QFY14A2QFY14A2QFY14A2QFY14A2QFY14A 2QFY14E2QFY14E2QFY14E2QFY14E2QFY14E 2QFY14A 2QFY14A 2QFY14A 2QFY14A 2QFY14A 2QFY14E 2QFY14E 2QFY14E 2QFY14E 2QFY14E

(%)(%)(%)(%)(%) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy) (bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq) (bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy) (bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)

Auto (5) 10.4 22.0 21.7 28.9 23.0 300 167 144 10

Capital Goods (1) 0.7 (14.8) (11.6) (54.1) (31.8) (1,186) 70 (367) 889

Finance (4) 24.5 11.7 11.9 (4.2) 0.4 (406) (246) (264) (83)

FMCG (2) 12.9 9.2 10.7 10.5 12.2 196 148 48 0

Infrastructure (1) 4.5 10.0 6.1 12.2 0.7 (100) 113 (116) 97

IT (3) 17.8 29.3 29.6 25.8 21.4 108 184 52 128

Metals (3) 2.7 6.2 4.8 83.4 107.9 190 (71) 149 (108)

Mining (1) 1.0 5.8 3.5 (0.8) 3.6 (314) (914) 181 (419)

Oil & Gas (3) 13.5 15.3 5.6 1.5 (2.0) (82) 103 (132) 53

Pharma (2) 4.5 36.3 21.4 41.6 53.0 155 29 64 (63)

Power (2) 2.5 (0.9) 2.6 (19.9) (3.8) 1 (198) 42 (157)

Telecom (1) 2.4 5.2 1.1 (29.0) 9.8 70 (23) 22 (71)

Sensex* (28)Sensex* (28)Sensex* (28)Sensex* (28)Sensex* (28) 97.3 97.3 97.3 97.3 97.3 13.913.913.913.913.9 10.410.410.410.410.4 5.95.95.95.95.9 8.28.28.28.28.2 66666 (26)(26)(26)(26)(26) (1)(1)(1)(1)(1) (34)(34)(34)(34)(34)

Operating MarginsOperating MarginsOperating MarginsOperating MarginsOperating MarginsNet SalesNet SalesNet SalesNet SalesNet Sales Net PNet PNet PNet PNet Profitrofitrofitrofitrofit


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WWWWWeighteighteighteighteight

SectorSectorSectorSectorSector (%)(%)(%)(%)(%) 2QFY20142QFY20142QFY20142QFY20142QFY2014 2QFY20132QFY20132QFY20132QFY20132QFY2013 % chg% chg% chg% chg% chg 2QFY20142QFY20142QFY20142QFY20142QFY2014 2QFY20132QFY20132QFY20132QFY20132QFY2013 % chg% chg% chg% chg% chg

Bajaj Auto 1.7 5,061 4,817 5.1 837 741 13.0

Bharti Airtel 2.4 21,343 20,283 5.2 512 721 (29.0)

BHEL 0.7 8,984 10,546 (14.8) 648 1,412 (54.1)

Coal India 1.0 15,411 14,573 5.8 3,043 3,069 (0.8)

Dr. Reddy 1.7 3,357 2,881 16.5 690 444 55.4

HDFC 7.4 1,908 1,736 9.9 1,266 1,151 10.0

HDFC Bank 7.2 6,321 5,354 18.1 1,982 1,560 27.1

Hero Moto Corp 1.2 5,696 5,151 10.6 481 441 9.3

Hindalco 0.9 6,246 6,115 2.1 196 359 (45.3)

HUL 2.6 6,747 6,155 9.6 880 805 9.3

ICICI Bank 7.2 6,210 5,414 14.7 2,352 1,956 20.2

Infosys 9.0 12,965 9,858 31.5 2,626 2,369 10.9

ITC 10.3 7,776 7,146 8.8 2,038 1,836 11.0

Jindal Steel 0.6 3,633 3,541 2.6 257 582 (55.8)

Gail India 1.0 13,945 11,361 22.7 916 985 (7.1)

L&T 4.5 14,510 13,195 10.0 978 871 12.2

M&M 2.3 8,814 9,659 (8.7) 989 902 9.7

Maruti Suzuki 1.2 10,212 8,070 26.5 670 227 194.7

NTPC 1.7 16,272 16,120 0.9 2,493 3,142 (20.7)

ONGC 3.5 22,312 19,788 12.8 6,064 5,897 2.8

RIL 9.0 103,758 90,336 14.9 5,490 5,409 1.5

SBI 2.7 15,529 14,320 8.4 2,375 3,658 (35.1)

Sun Pharma 2.8 4,192 2,657 57.8 1,362 1,005 35.5

Tata Motors 4.0 56,216 42,819 31.3 2,687 2,085 28.9

Tata Power 0.8 2,200 2,520 (12.7) 262 296 (11.5)

Tata Steel 1.3 36,645 34,133 7.4 527 (407) (229.6)

TCS 6.9 20,977 15,621 34.3 4,702 3,512 33.9

Wipro 2.0 10,992 9,271 18.6 1,942 1,486 30.7

Sensex*Sensex*Sensex*Sensex*Sensex* 97.3 97.3 97.3 97.3 97.3 448,232448,232448,232448,232448,232 393,441393,441393,441393,441393,441 13.913.913.913.913.9 49,266 49,266 49,266 49,266 49,266 46,515 46,515 46,515 46,515 46,515 5.95.95.95.95.9

Exhibit 3: Sensex companies' 2QFY2014 performance

Source: Company, Angel Research; Note: Sesa Goa and Cipla estimates have been excluded as comparable 2QFY2013 numbers are not available

Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (`````cr)cr)cr)cr)cr) Net PNet PNet PNet PNet Profit (rofit (rofit (rofit (rofit (`````cr)cr)cr)cr)cr)


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Automobi le - Strong JLR performance and

favorable forex boost earnings

During 2QFY2014, our coverage automobile companies

reported 23.4% yoy growth in earnings as compared to our

estimate of 18.3% yoy led by favorable forex movement which

aided EBITDA margins. The overall performance was largely

supported by Tata Motors (TTMT) driven by strong earnings

growth at JLR as well as Maruti Suzuki (due to the low base of

last year on account of the strike at its plants).

On a sequential basis too, our coverage automobile companies

posted an impressive 20.9% qoq growth in earnings with a

double-digit expansion in revenue. This can be attributed largely

to the 21.6% qoq revenue growth as JLR's performance was aided

by robust volume growth and translation gains on account of

INR depreciation against the GBP. Excluding TTMT, earnings

growth came in at 7.1% qoq as revenue declined by about

2.0% qoq on decline in volumes.

Banking - Earnings divergence continued as

expected

During 2QFY2014, New Private Banks continued to outshine

their peers and delivered a strong earnings growth of

22.7% yoy, aided by healthy NII growth of 21.2% yoy. Old private

banks faced higher asset quality pressures than new private ones

and reported moderate earnings performance during the quarter,

with earnings growth of 12.9% yoy.

On the other hand, PSU Banks reported a weak performance,

marred by elevated asset quality pressures (35.9% yoy higher

Gross NPAs), higher opex growth (25.6% yoy), moderate growth

in non-interest income (6.9% yoy) and MTM losses on higher

yields (though RBI relaxations provided a breather this time).

During the quarter, PSU banks posted a sharp bottom-line decline of

42.2% yoy (within which mid-PSUs reported much sharper earnings

de-growth of 77.9% yoy as against 29.0% yoy for larger ones).

Capital goods - BHEL weighs on earnings

performance

The capital goods companies in our coverage universe reported

a sharp de-growth in earnings, weighed down mainly by BHEL's

quarterly performance. BHEL, the only Sensex capital goods

company, reported a disappointing performance due to

slow-moving orders, delay in payments and project clearances

at customers' ends as well as margin pressure owing to increase

in provisioning. Excluding BHEL, revenues reported a modest

5.4% yoy growth and the operating margin expanded by

42bp yoy. But at the same time, higher interest cost due to

enhanced working capital requirements, led to earnings

contraction of 10.0% yoy for the remaining capital goods

companies.

Cement - Decline in realisation impacts earnings

Our cement coverage universe posted a poor performance during

2QFY2014 due to steep fall in yoy realization. The demand

scenario was weak across the country leading to price collapse

and the fall in realization. Most of the companies reported a

decline even on the top-line front, with the overall cement universe

posting a top-line de-growth of 3.8% yoy. Weak realization

resulted in a steep decline in OPM for the coverage companies

in the range of 650-1,870bp yoy. Profitability was also impacted

due to increase in freight costs. Poor operational performance

resulted in a 54.1% yoy fall in bottom-line for our coverage

cement companies.

FMCG - Healthy earnings continue for the sector

Most of the FMCG companies in our coverage universe have

posted strong earnings performance in 2QFY2014, despite the

slowdown, aided by higher volumes, better realization and

superior product mix. The top-line growth of our FMCG universe

stood at 9.5% yoy. However, the performance on the operating

margins front has been mixed as the increase in gross margin

was offset to an extent by higher advertisement and sales

promotion expenditure for most of the companies on account of

the slowdown in demand and intense competition. Our coverage

FMCG universe posted a 108bp yoy expansion in OPM and

13.9% yoy growth on the bottom-line front.

Infrastructure - L&T supports overall performance

but earnings pressure continues

Our coverage infrastructure companies disappointed on the

earnings front with a 14.6% yoy contraction owing to higher

interest cost and lower-than-anticipated operational

performance. L&T, the only infrastructure company in the Sensex,

surprised positively on both, the revenue and the earnings front.

This was mainly on the back of strong execution performance

and higher-than-expected other income. Excluding the

performance of L&T, mainly subdued revenue growth of

3.0% yoy resulted in a steep ~80.0% yoy contraction in earnings

for the sector. This decline in earnings can be attributed to the

persistence of high interest and commodity cost and slowdown

in order inflow for the sector.

IT - Strong earnings performance continues

Our coverage IT companies posted a robust earnings growth of

30.8% yoy and 17.4% qoq as 2Q is traditionally a strong quarter

because of the strong budget flush that happens before close of

Sectoral Analysis


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the annual capex cycle by clients. On the earnings front,

performance came in better-than-expected owing to most of the

companies delivering better USD revenue growth. Also, favorable

INR depreciation and operational efficiencies helped the

companies to post robust operating margins.

With Europe showing signs of opening up to the outsourcing

model, the Managements of most of the IT companies indicated

that deal pipeline is looking strong. While signs of revival in

discretionary spending in the US are still at a nascent level,

non-discretionary domains continued to lead growth momentum.

2QFY2014 turned out to be the second consecutive quarter of

broad-based growth, with contribution from all geographies,

verticals and service lines.

Metals and mining - Tata Steel supports strong

earnings performance

Most of the companies in the metals sector reported

better-than-expected top-line growth. Amidst low steel demand

in India, domestic steel majors have managed to report strong

sales growth during 2QFY2014 on the back of 1) import

substitution arising out of higher cost of imported steel and

2) increase in steel exports - both of which are a result of sharp

INR depreciation against the USD. Our coverage metal

companies reported a strong 19.8% yoy growth in earnings. But

excluding Tata Steel, our coverage metal universe posted a largely

flat earnings performance. Tata Steel's operating performance

was boosted due to cost efficiencies and better performance from

the European operations.

Oil and Gas - Mixed earnings performance

Our overall coverage oil and gas companies reported a marginal

0.7% yoy decline in earnings mainly owing to pressure on margins

(on expected lines). Sensex oil and gas companies reported a

better earnings performance (1.5% yoy growth). This is because

heavyweights like RIL and ONGC supported the overall earnings

of the coverage oil and gas companies excluding which our

coverage oil and gas universe reported earnings de-growth of

7.6% yoy. For ONGC, higher rupee realization boosted the

earnings performance.

Pharmaceuticals - Strong earnings performance

Our overall coverage pharmaceutical companies posted a strong

22.3% yoy growth in earnings during the quarter supported by

robust revenue performance as well as margin expansion.

Excluding the disappointing performance of Ranbaxy (on account

of forex losses and extraordinary expenditure), earnings growth

for the remaining pharmaceutical companies in our coverage

came in much higher at 38.6% yoy.

Telecom - Disappointment on earnings growth

Overall our coverage telecom companies reported a mixed set

of numbers. While Idea reported a largely in-line performance,

Bharti's bottom-line was below our expectation due to higher

finance charges as well as a one-time exceptional charge and

RCom's results came in ahead of our as well as street expectations

as margin increased by a whopping 354bp qoq. As the

competitive intensity is receding and pricing power is coming

back to operators, we expect incumbent players such as Bharti,

Vodafone and Idea to perform well going ahead. We are currently

neutral on the telecom sector as issues like one-time spectrum

charge and renewal fees still persist.

Continued benign global liquidity conditions boost

sentiments

Central banks in advanced economies have continued to supporta revival in economic growth through benign liquidity conditions.

The Federal Reserve (Fed), for instance, has surprised markets

positively and maintained a dovish stance, delaying the tapering

of QE3. The Fed has decided to continue purchasing securities

to the tune of USD85bn per month (USD45bn in treasury

securities and USD40bn in mortgage-backed securities) to

maintain downward pressure on longer-term interest rates and

support economic recovery. It has also maintained that the Fed

funds rate at 0.25% is likely to remain at this exceptionally low

level at least as long as the unemployment rate remains above

6.5% and long-term inflation expectations are well anchored.

Hence coupled with persistence of easy money, the signs of

strengthening GDP growth in advanced economies have driven

risk-on mode back in the global markets.

At the same time, domestically too positives are shaping up easing

concerns on the external front. We do believe that with concerted

policy action our external sector vulnerabilities have receded

substantially. Strong export growth along with slowing import

demand and curbs on gold imports are expected to narrow our

trade deficit and CAD substantially. In addition, as a result of the

RBI's measures to attract debt and NRI inflows, the financing ofthe CAD is unlikely to be as challenging as expected earlier. So

far, it is believed that the RBI has garnered about USD20bn under

its schemes to attract FCNR (B) deposits and foreign currency

borrowings. At the same time, the RBI governor has indicated

that majority of the oil marketing companies' dollar demand is

back in the forex markets. Buoyed by these developments, FIIs

have poured in USD5.8bn in the Indian equity markets since

September 2013 in contrast with outflows of USD3.7bn witnessed

during June - August 2013. Therefore, we believe that the

economy is now better poised to tackle risks on account of the

imminent tapering of QE3 in the coming months.


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Exhibit 5: ... lead to substantial narrowing of the trade deficit

Source: Ministry of Commerce, Angel Research

(25)

(20)

(15)

(10)

(5)

-

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Oc

t-12

Nov-1

2

Dec-1

2

Jan-1

3

Fe

b-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

Jul-13

Aug-1

3

Sep-1

3

Oc

t-13

(USD bn)

WPI Inflat ion CPI i nflation

7.0

10.1

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Apr-12

May

-12

Jun

-12

Jul-12

Aug

-12

Sep

-12

Oct-12

Nov

-12

Dec

-12

Jan

-13

Feb

-13

Mar-13

Apr-13

May

-13

Jun

-13

Jul-13

Aug

-13

Sep

-13

Oct-13

(%)

Exhibit 6: Pick-up in headline WPI as well as CPI inflation

Source: Office of Economic Adviser, Mospi, Angel Research

Export growth to have a cascading positive impact

Exports have reported robust growth since July 2013 for four

straight months on the back of pick-up in external demand,

weaker rupee and a low base. The improvement in export

performance has come as a much-needed silver lining for the

economy. In the April - October period, the trade deficit has

narrowed sharply to USD90.7bn as compared to USD112.0bn

in the corresponding period of the previous year. We maintain

that the strong export growth along with compression of gold

imports in particular is expected to narrow the CAD considerably

at about 3.0-3.5% of GDP during FY2014 as compared to 4.8%

of GDP in FY2013. The RBI governor has pegged the CAD for

FY2014 at USD56bn ie lower by a whopping USD32bn as

against the previous year's deficit.

We continue to maintain that significant export growth is likely

to be the starting point of overall sustainable improvement in

our macro fundamentals. The growth in non-oil exports is

expected to trigger a virtuous investment cycle in the economy.

We believe that given the weightage of value-added exports in

our economy of at least about 16%, a sustained exports growth

at a double-digit run rate could potentially add 100-150bp to

the overall GDP growth.

18.2% (18.4% in September 2013) mainly due to the persistence

of high vegetable and fruit prices for the fourth consecutive month.

Amongst its components, vegetable inflation continued to be

driven mainly by prices of onions (278%), sweet potato (206%),

tomato (122%) and ginger (109%) and contributed substantially

(about 150bp) to the headline print. At the same time, coreinflation also picked up to a six-month high at 2.6% as compared

to 2.1% in the previous month and 5.2% in October 2012

reflecting the pass through of higher input costs in the

manufacturing sector despite weak pricing power.

CPI inflation during October 2013 touched a seven month high

as it further inched upwards to 10.1% as compared to 9.8% in

September 2013. Inflation in food articles (accounting for almost

50% weightage in the index) edged higher to 12.3% as against

11.3% in the previous month. CPI inflation has persisted to remain

elevated and close to double-digit levels and core CPI inflationhas also remained sticky at 8%-levels. High retail inflation has to

a large extent entrenched inflationary expectations.

Going ahead, we believe that food inflation is likely to moderate

with cooling off of vegetable prices in particular. This can be

attributed to good monsoon, the 5% rise in area under kharif

sowing and modest improvement in kharif production as per

the first advance estimates. At the same time, rabi production is

likely to improve meaningfully on account of soil moisture and

water reservoir levels. Put together, these factors are expected to

result in easing food inflation pressures in the economy.

14.7

10.3

2.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

(%) Pr im ar y Art ic les Fue l a nd Po we r Ma nu fa ct ure d Pr od uc ts

Exhibit 7:Amongst WPI components, primary articles inflation is high...

Source: Office of Economic Adviser, Angel Research

13.5

(14.5)

(20.0)

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

Apr-12 Jun-12 Aug-12 Oct-12 Dec -12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

(%) Export growth Import growth

Exhibit 4: Positive trends in export and import growth...

Source: Ministry of Commerce, Angel Research

Food inflation likely to ease going forwardThe headline WPI inflation paced up towards an 8-month high

during October 2013 at 7.0% as compared to 6.5% in the

previous month. Food inflation continued to remain elevated at


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Revival in investment key to economic outlook

Growth in industrial output as measured by the IIP continues to

remain sluggish led down primarily by the performance of the

manufacturing sector. The IIP reported a modest growth of 2.0%during September 2013 as compared to 0.4% during the previous

month and 0.7% de-growth in September 2012. The weakness

in investment as well as consumption space is reflected by the

contraction of 6.8% and 10.8% in capital goods and consumer

durables segment respectively.

(6.0)

(3.0)

-

3.0

6.0

9.0

12.0

15.0

Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec -11 Apr-12 Aug-12 Dec -12 Apr-13 Aug-13

(%) IIP 3MMA IIP

Exhibit 9: Sluggish pace of growth in industrial activity

Source: Mospi, Angel Research

18.2

6.8

-

5.0

10.0

15.0

20.0

25.0

Apr-12 Jun-12 Aug-12 Oct-12 Dec -12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

(%) Food Articles Non-food Primary Articles

Exhibit 8: ...Driven by elevated food inflation at above 18.0%

Source: Office of Economic Adviser, Angel Research

We maintain that a turnaround in the investment cycle is key to

meaningfully stimulate growth in the economy. In this context,

we believe that positive outcome in the state elections over the

coming 2 months would build up expectations of a strong

government at the helm in the upcoming general elections. Taking

cues thereon we believe that market sentiments are likely to beboosted further. Going forward, if and when such a government

comes to power with a strong mandate we expect further structural

reforms in the economy aimed at clearing supply-side bottlenecks

and reviving the investment cycle that would in turn support

economic growth.

Outlook and Valuation

We expect Sensex EPS to post a growth of 9.4% for FY2014.

Attributing a 15x multiple to our Sensex EPS, we arrive at a target

of 23,000 for the Sensex over the next one year implying anupside of about 14.0% from the present levels.

We continue to have a positive outlook on export-oriented sectors

like IT and pharmaceuticals owing to signs of recovery in

advanced economies and the rupee depreciation on a yoy basis.

We are positive on select metal stocks as well, considering recent

capacity additions and under-utilized capacity getting employed

for exports aided by improvement in global fundamentals as

well as competitiveness due to rupee depreciation. We also

selectively prefer large private banks as they remain structurally

strong and are also likely to benefit from an imminent cyclical

revival.

1,192

1,304

1,538

500

700

900

1,100

1,300

1,500

1,700

FY2013 FY2014E FY2015E

(`)

9.4%grow

th17.9%

growth

Exhibit 10: Sensex EPS growth over FY2013-15

Source: Angel Research

5.0

10.0

15.0

20.0

25.0

30.0

Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Nov-13

S en se x 1 ye ar forw ard P /E 15 ye ar A vg 5 ye ar A vg

Exhibit 11: Sensex one-year forward P/E

Source: Angel Research


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Stock Watch


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September 2012 Please refer to important disclosures at the end of this report. 14

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Note: Please refer to the importantNote: Please refer to the importantNote: Please refer to the importantNote: Please refer to the importantNote: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest

update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may haveupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may haveupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may haveupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may haveupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have

investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.investment positions in the stocks recommended in this report.

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Ratings (Returns) :


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Research Team

Fundamental:

Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]

Vaibhav Agrawal VP-Research, Banking [email protected]

Bhavesh Chauhan Sr. Analyst (Metals & Mining) [email protected]

Viral Shah Sr. Analyst (Infrastructure) [email protected]

V Srinivasan Analyst (Cement, FMCG) [email protected]

Yaresh Kothari Analyst (Automobile) [email protected]

Ankita Somani Analyst (IT, Telecom) [email protected]

Sourabh Taparia Analyst (Banking) [email protected]

Bhupali Gursale Economist [email protected]

Vinay Rachh Research Associate [email protected]

Amit Patil Research Associate [email protected]

Twinkle Gosar Research Associate [email protected]

Tejashwini Kumari Research Associate [email protected]

Akshay Narang Research Associate [email protected]

Harshal Patkar Research Associate [email protected]

Nishant Sharma Research Associate [email protected]

Technicals:

Shardul Kulkarni Sr. Technical Analyst [email protected]

Sameet Chavan Technical Analyst [email protected]

Derivatives:

Siddarth Bhamre Head - Derivatives [email protected]

Institutional Sales Team:

Mayuresh Joshi VP - Institutional Sales [email protected]

Meenakshi Chavan Dealer [email protected]

Gaurang Tisani Dealer [email protected]

Production Team:

Tejas Vahalia Research Editor [email protected]

Dilip Patel Production Incharge [email protected]

2qfy2014resultreview_november2013

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