d:velsdaily morning brief 1febmorning insight 2 feb...

FEBRUARY 2, 2011

Economy News4 The automobile industry has started 2011 on a healthy note, with sales of

10 leading car manufacturers rising by around 14 per cent to 245,664units, owing to strong demand in the domestic market. A total of216,002 units were sold in the year-ago period. (BS)

4 The Reserve Bank of India has asked banks to put in place an escrowmechanism that can ring fence their loans to real estate firms and keepa closer tab on the end use of funds. (ET)

4 Exports of goods from India are likely to exceed the government’s targetof $200 billion by the end of this financial year, driven by a number ofincentives being offered since the global financial downturn. During April-December 2010, total exports reached $164.70 billion, up 29.5 per centfrom $127.18 billion in the corresponding period of the previous financialyear. (BS)

4 The government may knock off the 4% countervailing duty on imports inthe forthcoming Budget as part of a set of measures it intends to initiateto tame inflation. (ET)

Corporate News4 Housing Finance and Development Corp (HDFC), the country’s

leading mortgage financier, has increased its retail prime lending rate(RPLR) by 25 basis points (bps) to 15.25 per cent with effect from onTuesday. (BS)

4 Infosys Technologies may ask SD Shibulal, one of its founders, tobecome the CEO of the company some time in April this year as part of aregular reshuffle of the top deck. (ET)

4 DLF plans to launch eight million sq ft of new area in the coming fewquarters at locations like Chandigarh, Gurgaon, Delhi, Kochi andHyderabad to substantially improve cash-flow from operations. (ET)

4 Oberoi Realty has bagged the rights to redevelop Adarsh Nagar nearLokhandwala in Andheri, a suburb in Mumbai, and the project isestimated to provide one million sq ft to the company for free sale afterfactoring in the rehabilitation of existing 1,000 tenants. However,company has not yet confirmed this development. (ET)

4 Drug firm Elder Pharmaceuticals said it is targeting revenues of up toone billion dollars from the lucrative $ 70 billion Japanese pharmamarket. (BL)

4 Leading Indian FMCG firms, including Dabur and Emami, said theirbusinesses in Egypt might get an impact due to the ongoing politicalunrest in the African nation. Already Dabur, which has hair oil productionplant in Egypt, has shut operations from yesterday. (FE)

4 Ambuja Cement reported a 6.21 per cent growth in its production at1.84 million tonnes in January compared to the same month last year.Another major player, ACC Cement reported 9.57 per cent increase inproduction at 2.06 million tonnes compared to 1.88 million tonnes inJanuary last year.(BL)

Equity% Chg

1 Feb 11 1 Day 1 Mth 3 Mths

Indian IndicesSENSEX Index 18,022 (1.7) (12.1) (11.5)NIFTY Index 5,417 (1.6) (11.7) (11.4)BANKEX Index 11,890 (1.4) (11.1) (17.9)BSET Index 6,303 (1.1) (7.6) 4.4BSETCG INDEX 13,189 (2.5) (14.4) (18.4)BSEOIL INDEX 9,283 (2.1) (12.4) (15.5)CNXMcap Index 7,776 (1.8) (12.2) (18.1)BSESMCAP INDEX 8,356 (1.4) (13.6) (22.1)

World IndicesDow Jones 12,040 1.2 4.0 8.2Nasdaq 2,751 1.9 3.7 9.8FTSE 5,958 1.6 1.0 4.6Nikkei 10,275 0.4 2.4 14.3Hangseng 23,483 0.2 2.9 0.1

Value traded (Rs cr)1 Feb 11 % Chg - Day

Cash BSE 3,291 (2.0)Cash NSE 13,697 (3.7)Derivatives 124,139 3.4

Net inflows (Rs cr)31 Jan 11 % Chg MTD YTD

FII (901) 52.0 (6,330) (6,330)Mutual Fund 415 (201.5) 597 597

FII open interest (Rs cr)31 Jan 11 % Chg

FII Index Futures 11,447 1.1FII Index Options 46,805 3.7FII Stock Futures 27,927 (0.8)FII Stock Options 473 16.2

Advances / Declines (BSE)1 Feb 11 A B S Total % total

Advances 34 562 124 720 33Declines 171 1,178 273 1,349 62Unchanged 1 90 21 112 5

Commodity % Chg

1 Feb 11 1 Day 1 Mth 3 Mths

Crude (NYMEX) (US$/BBL) 90.9 0.1 (0.6) 8.3Gold (US$/OZ) 1,342.0 0.4 (5.5) (1.2)Silver (US$/OZ) 28.6 0.7 (7.6) 14.8

Debt / forex market1 Feb 11 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 8.15 8.14 7.91 N/ARe/US$ 45.77 45.91 44.72 44.48

Sensex

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express,BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

15,100

16,600

18,100

19,600

21,100

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2

MORNING INSIGHT February 2, 2011

EVEREST KANTO CYLINDERS LTD (EKC)PRICE: RS.81 RECOMMENDATION: BUYTARGET PRICE: RS.111 CONS. FY12E P/E:13.6X

q EKC has reported good set of Q3FY11 results which are above our esti-mates on strong revenue and excellent margins. Lower tax outgo alsoshored up the profits.

q Dubai operations report sharp jump in profitability due to revival in de-mand and sale of jumbo cylinders

q US and China operations continue to report losses

q Volumes up 28.0% YoY to 2.16 lakh cylinders

q The company has reported EPS of Rs 3.6 in 9M FY11. However, we havebuilt in higher tax outgo in Q4 FY11. As a result, we forecast FY11 EPS ofRs 5.5 per share.

q Good long term potential on account of increasing gas availability, vari-ous CGD projects and de-regulation of petrol prices

q Due to 37% upside potential from current levels we continue to recom-mend BUY on EKC with unchanged DCF based price target of Rs.111.

Quarterly performance

(Rs mn) Q3FY11 Q3FY10 YoY (%)

Net Sales 1983.1 1,704 16

Increase / decrease in stock 70.8 (270) (126)

raw materials 920 1,314 (30)

purchase of traded goods 24 5 388

staff cost 229.3 211 9

other exp. 361 222 62

total exp. 1,606 1,482 8

EBIDTA 378 222 70

Depreciation 161.3 200 (19)

EBIT 216 22 874

Interest 18.4 27 (33)

Other income 15.2 2 913

PBT 213 (4) (5,859)

Extraordinary loss/ (gain) -21.1 (38) (44)

Tax & deferred tax 4.4 19 (76)

PAT 230 15 1,402

Equity Rs. mn 214.3 202.3

sh. Mn FV Rs. 2 107.186 101.2

Ratios

Operating profit margin (%) 19.0 13.0

Raw Materials / Sales (%) 50 61

Staff Exp / Sales (%) 11.6 12.4

Other Exp / sales (%) 18.2 13.0

Tax / PBT (%) 2.1 (505.4)

EPS (Rs.) 2.1 0.2

CEPS (Rs) 4.2 0.4

Cylinders Sold (Lakh) 2.1 1.7

Source: Company

Summary table - Consolidated

(Rs mn) FY10 FY11E FY12E

Sales 6,497 7,509 9,161Growth (%) -24.2 15.6 22.0EBITDA 556 1,255 1,649EBITDA margin (%) 8.6 16.7 18.0PBT 477 592 837Net profit 120 556 670EPS (Rs) 1.2 5.5 6.6Growth (%) -91.3 363.0 20.5CEPS 9.7 11.9 13.9Book value (Rs/share) 59.4 63.7 77.0DPS (Rs) 1.2 1.2 1.0ROE (%) 1.9 8.7 9.2ROCE (%) 2.0 5.6 7.2Net cash (debt) (4,417) (3,584) (3,405)NW Capital (Days) 204 204 197EV/Sales (x) 2.1 1.7 1.4EV/EBITDA (x) 24.3 10.1 7.6P/E (x) 22.0 16.4 13.6P/Cash Earnings 9.3 7.5 6.5P/BV (x) 1.5 1.4 1.2

Source: Company, Kotak Securities - PrivateClient Research

RESULT UPDATE

Sanjeev [email protected]+91 22 6621 6305



Segmental table

Revenues (Rs mn) Q3FY11 Q3 FY10

India 805.8 1,008

Dubai 780 341

China 153.6 35

USA 283.2 359

PBIT (Rs. mn)

India 46.3 32

Dubai 304.5 23

China -51.9 (35)

USA -81.9 2

PBIT (%)

India 5.7 3.2

Dubai 39.0 6.7

China (33.8) (99.7)

USA (28.9) 0.5

Source: Company

Cylinders sold (nos)

Q3FY10 Q1FY11 Q2FY11 Q3FY11

Total india

India Industrial 65936 61177 78837 70259

Total CNG India 50145 60189 56527 70259

India CNG 49865 60133 56258 70213

India Jumbo 280 56 269 46

CNG Dubai 45240 60371 51404 50901

CNG China 6650 1318 17499 24202

USA Jumbo 326 155 195 396

Total 168297 183210 204462 216017

Source: Company

Revenues

(Rs mn) Q3FY10 Q1FY11 Q2FY11 Q3FY11

India Industrial 233.3 266 401 323.9

Total CNG India 766.3 518 754 470.1

India CNG 545.8 512 522 438.95

India Jumbo 220.5 6 232 31.16

CNG Dubai 294.1 585 667 718.7

CNG China 35 7 111 153.5

USA Jumbo 359.2 86 167 283.2

Total 2454 1980 2852 2420

Source: Company



Avg Realization

(Rs mn) Q3FY10 Q1FY11 Q2FY11 Q3FY11

India Industrial 3,538 4,355 5,080 4,610

Total CNG India 15,282 8,603 13,337 6,691

India CNG 10,946 8,506 9,277 6,252

India Jumbo 787,500 113,571 862,825 677,391

CNG Dubai 6,501 9,685 12,968 14,120

CNG China 5,263 5,539 6,315 6,342

USA Jumbo 1,101,840 554,194 854,359 715,152

Total 14,583 10,807 13,949 11,201

Source: Company

n On a consolidated basis EKC sold 2.16 lakh cylinders in Q3FY11, which is up28.4% YoY and up 5.6% on sequential basis. The volume growth was primarilyon account of pick up in demand for CNG cylinders from the Indian and Chineseoperations.

n The average realization per cylinder is down sharply by 10% YoY and 12% onQoQ basis to Rs.11201 per cylinder primarily due to lower output of jumbo cylin-ders in India.

Cylinders sold (units)

Source: Company

n On a consolidated basis, EKC reported revenues of Rs.1.98 bn in Q3FY11, up16% YoY and flat on sequential basis. This was primarily due to higher outputfrom UAE and China operations.

n On YoY basis the revenues of China operations are up 339% and US operationis down 21.2%. Dubai operations have done well and revenues are up sharply129% on YoY basis. Dubai unit has picked up due to reemergence of demandfrom Iran, Pakistan and Bangladesh and is now operating at peak capacities.

n Revenue from Indian operations remained weak and registered degrowth of20% yoy on account of slack demand for CNG cyclinders. The managementhighlighted that there has been slack demand from the OEMs.

n EKC reported EBIDTA of Rs.378 mn in Q3FY11 up sharply 70% YoY primarilydue to execution of higher margin order of jumbo cylinders.

n PBIT of the Dubai business is up sharply from 6.7% in Q3FY10 to 39.0% inQ3FY11 primarily due to resumption of supplies to Iran market. PBIT of the Indianbusiness is up from 3.2% in Q3FY10 to 5.7% in Q3FY11. However, segmentmargins in the Indian operations have fallen on a sequential basis.

n The depreciation cost is lower on account of change in method of depreciationfrom WDV to SLM to make more appropriate allocation of depreciation over theexpected useful and economic life of the asset.

100000

125000

150000

175000

200000

225000

Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11



n The interest cost is down sharply on YoY basis to Rs.18.4 mn as the company hasrepaid the high cost loans. The total consolidated debt of the company has beenbrought down from Rs.4.7 bn in June 2010 to Rs.3.8 bn in December 2010.

n For Q3FY11 EKC reported PBT of Rs.213 mn v/s PBT loss of Rs.-4.0 mn in Q3FY10.

n For Q3FY11 the company reported PAT of Rs.230 mn v/s Rs 15 mn in Q3 FY10.In 9M FY11, the company reported EPS of Rs 3.6 per share. In the Q4 FY11, wehave taken higher tax liability, which has pulled down profits.

Expansions updateThe two lakh per annum industrial cylinder plant of EKC in Gujarat with billet pierc-ing technology and one lakh per annum CNG cylinder plant at Kandla have com-menced commercial production and they are expected to stabilize their productionby December 2010. The three lakh CNG cylinders per annum plant using steelplates in Kandla SEZ is expected to be operational by March 2011.

Earnings Outlookn The management expects to deliver revenue growth of 25-30% in FY12. In our

projections, we have built in revenue growth of 22%.

n In view of the strong EBITDA margins exhibited by the company and liquidationof high cost inventory during the year, we expect margins to improve in FY12.

Valuation & Recommendationn At the current price of Rs.81, EKC is trading at 1.2x book value, 13.6x earnings

and 6.5x cash earnings based on FY12 estimates.

n We remain positive on the medium to long term growth prospects of the com-pany primarily on account of expected huge demand of CNG cylinders for theautomobiles in India on account of increasing gas availability, various CGDprojects and de-regulation of petrol prices.

n Due to 37% upside potential from the current levels we continue to recommendBUY on EKC with unchanged DCF based price target of Rs.111.

We continue to recommend BUYon EKC with a price target of

Rs.111



NTPCPRICE: RS.185 RECOMMENDATION: BUYTARGET PRICE: RS.220 FY12E P/E: 15.9X

q Sedate power generation during the quarter as SEBs prefer to go for loadshedding than buy costly power. Deteriorating financial health of theSEBs remain a major concern for the sector itself.

q The company optimistic of synchronising/commissioning 3150 MW ca-pacity in current fiscal, which is an significant improvement over the pre-vious year.

q We upgrade stock to BUY with a DCF price target of Rs 220 (unchanged),thus valuing the stock at 2.5x FY12 BV.

q Stock has underperformed for the past few quarters but may outperformnow in view of the steady growth profile, very limited exposure to mer-chant tariffs and strong balance sheet (enough capacity to leverage fur-ther without equity infusion).

q However sedate earnings growth in FY12 may act as a dampener for ab-solute returns.

Quarterly performance

(Rs mn) Q3FY11 Q3FY10 YoY (%) 9MFY11 9MFY10 YoY (%)

Comm gen bn units 54 58 -7 160 164 -2

Net sales 134,213 111,837 20 393,551 339,692 16

Depreciation written back 752 0 18,386 0

Other op income 4,673 5,255 -11 11,866 15,206 -22

Expenditure 96,635 78,185 24 308,632 242,145 27

Fuel Cost 83,386 67,673 23 256,482 211,167 21

Staff Cost 6,885 5,723 20 20,815 16,668 25

provisions 54 0 0 12,681 0

Others 6,310 4,789 32 18,654 14,310 30

Operating profit 43,003 38,907 11 115,170 112,753 2

Depreciation 5986 6,614 -9 17,876 19,179 -7

Gross profit 37,017 32,294 15 97,294 93,574 4

Interest 4,932 3,418 44 16,191 13,271 22

Other income 2,021 2,537 -20 6,825 7,758 -12

PBT 34,106 31,412 9 87,928 88,061 0

Tax 10,392 7,763 34 24,721 20,955 18

current 8,725 8,862 -2 19,370 20,431 -5

deferred 1,667 -1,117 -249 5,351 497 976

fringe 17 -100 0 27

PAT 23,715 23,650 0 63,208 67,106 -6

Ratios

Fuel cost/Net sales (%) 62.1 60.5 65.2 62.2

Staff cost/Net sales (%) 5.1 5.1 5.3 4.9

Other expenditure to sales (%) 4.7 4.3 4.74 4.2

EBITDA/Sales (%) 32.0 34.8 29.3 33.2

Net profit margin (%) 17.7 21.2 16.1 19.8

Avg tariff rate (Rs/unit) 2.5 1.9 2.5 2.1

Fuel cost per unit (Rs/unit) 1.5 1.2 1.6 1.3

EBITDA per unit (Rs/unit) 0.71 0.58 0.65 0.60

No.of Shares ostdg (mn) 8246 8246 8246 8246

EPS (Rs) 2.9 2.9 7.7 8.1

Source: Company

Summary table

(Rs mn) FY10 FY11E FY12E

Sales 464 582 688Growth (%) 10.5 25.4 18.3EBITDA 124.2 159.2 183.6EBITDA margin (%) 26.8 27.4 31.5PBT 109 122 134Net profit 87 87 96EPS (Rs) 10.6 10.6 11.7Growth (%) 6.4 0.1 10.2CEPS (Rs) 13.8 13.5 14.9BV (Rs/share) 75.7 82.1 89.0Dividend/share (Rs) 3.8 3.7 4.1ROE (%) 14.6 13.4 13.6ROCE (%) 12.8 13.0 13.0Net cash (debt) -118.6 -302.8 -440.8NW Capital (Days) 48.7 19.4 25.0EV/EBITDA (x) 14.0 12.1 11.6P/E (x) 17.5 17.5 15.9P/Cash Earnings 13.4 13.7 12.4P/BV (x) 2.4 2.3 2.1

Source: Company, Kotak Securities - PrivateClient Research

RESULT UPDATE

Sanjeev [email protected]+91 22 6621 6305



Highlights - Grid restrictions pulls down generation volumesn Revenue growth for the quarter came ahead of expectations as the company

was able to pass on part increase in higher fuel costs to consumers.

n Power generation volume was largely flattish in the quarter at 54.7 bn units dueto grid restrictions as several of the SEBs backed away from buying power. Hadthere been no grid restrictions, the company would have been able generatearound 10% more for the quarter.

n During the quarter, the grid frequency rose to 49.9-50.04, indicating low demandscenario (UI charges have dropped to around Rs 2-2.5 per unit. Considered aproxy for merchant power tariff). Hence the SEBs backed out from certain sta-tions where the cost of power was higher.

n Also, the financial health of SEBs have been deteriorating hence they are prefer-ring to go for power outage rather than buying costly power and strain financesfurther.

n Apart from this, inter-regional grid transmission capacity is resulting pockets ofsurplus power and deficits.

n While the company lost out on power generation as SEBs backed out but thecompany was eligible for incentives as these are based on availability whichstood at 94% and 96% for coal and gas respectively. For availability factor, thecompany needs to ensure the regulator that coal is available at its disposal forgenerating power.

n The group installed capacity has increased to 33690 MW with the addition of1500 MW of fresh capacity in the fiscal. For the current fiscal, the company ex-pects to add 3150 MW as against a target of 4150 MW.

Capacity completed in FY11

Developer Location Capacity MW Status

Aravali Power (JV) Jhajjar unit I 500 Synchronised

NTPC Dadri 490 Commissioned

NTPC Korba 500 Commissioned

Source: Company

n Fuel Security. NTPC is in the process of developing its own mines. The com-pany has already started blending upto 30% of domestic coal with imported coaland has made suitable modifications in the equipment design. Over the long-term, the company plans to source 20% of coal from own mines and the restfrom Coal India Ltd and imports. NTPC has awarded the Mine Developer cumOperator (MDO) contract for its Pakri Barwadih coal mine (reserves of 1.4 bntons). This is a important achievement in terms of expediting the production pro-cess. The company has received enviro clearance from MOEF for starting forestclearance. So now the company will initiate land acquisition process and themines are expected to be commissioned by end of 2012.

n Employee costs have increased as the company paid out wage hike pertaining tothe sixth pay commission.

n During the quarter, the Office of the Comptroller & Auditor General of India hasexpressed an opinion that the rates of depreciation notified by the CERC shall befollowed by the Company instead of the rates as per the Companies Act. 1956for providing depreciation in the accounts. Accordingly, the Company has revisedits accounting policies relating to charging of depreciation wef 1st April 2009considering the rates and methodology notified by the CERC for determination oftariff through Regulations, 2009. Consequent to this change, prior period depre-ciation written back is Rs 908 mn for the quarter and half-year ended 30th Sep-tember 2010. Depreciation for the quarter was lower by Rs 548 mn. As a result,profit before tax for the quarter and half-year ended 30 September 2010 ishigher by Rs 1457 mn.

Capacity addition plan for FY11 MW

Sipat stage I 660Jhajjar unit 1 & 2 500Korba stage III 500NCTPP stage II 490Simhadri stage II 500Farakka stage III 500Total 3150

Source: Company



n Interest cost rose 44% yoy on account of higher borrowings as the company is ina midst of massive capacity addition plan.

n Other income was down 20% to Rs 2.0 bn on account of lower amount of gov-ernment bonds outstanding during the year at Rs 89.9 bn. The yield on the bondsstood at 7.1%.

n Cash and equivalent stood at Rs 198.3 bn in Q3 FY11. Interest income on thesecash deposits are included in other operating income.

n The company incurred a capex of Rs 101.4 bn in FY10 and has envisaged acapex of Rs 223.5 bn in FY11.

Valuation and Recommendationn The NTPC stock has underperformed the Sensex over the past few quarters on

lackluster generation and capacity addition performance.

n Given that capacity additions are lagging, we are projecting 10.2% earningsgrowth in FY12.

n NTPC is currently trading at 17.5x and 15.9x FY11 and FY12 earnings respec-tively. On a P/BV basis, the stock trades at 2.3x FY11 book value.

n Stock view: Upgrade to BUY on recent price correction. Stock likely tooutperform during current market selloff.

n We upgrade stock to BUY with an unchanged DCF based price target of Rs 220,thus valuing the stock at 2.5x FY12 BV.

n Stock has underperformed for the past few quarters and may outperform now inview of the steady growth profile, very limited exposure to merchant tariffs andstrong balance sheet (enough capacity to leverage further without equity infu-sion).

n However sedate earnings growth in FY12 may act as a dampener for absolutereturns.

We now recommend to BUY onNTPC with a price target of

Rs.220



OIL & GAS INDUSTRY OVERVIEW

Key observations

Brent is trading at two years high.We had opined in our last report (dated 05th Jan'11) that crude oil price willcross over USD$100/bbls in the near future. As on 1st February 2011, Brentcrude oil price is trading over USD$100/bbls. We believe the key factorssupporting the bullish trend of oil prices are geo-political tension in Egypt,US dollar depreciation, strong winter in US, improved economic sentimentin Europe and better macroeconomic data from the US markets.

Egypt is not a major oil producer however its proximity to other oil-producing coun-tries is a major concern. Post the spread of unrest from Tunisia to Egypt, market isskeptical of the same extending over to key oil producers such as Saudi Arabia.However, we don't believe it will be extended. As per the data released by EIA, ~1.8 Mn bopd of crude and products flowed through the Suez Canal in 2009. Also,the Suez-Mediterranean pipeline transported about 1.1 Mn bopd of crude in 2009can be impacted.

The World Bank in its latest forecast has upgraded its estimate of global gross do-mestic product growth by 0.1 percentage point to 3.3% in 2011.

Brent is a light crude oil but WTI is lighter. Hence, WTI typically trades at a premiumto Brent, reflecting its superior, lower-sulfur composition and also the additional costof shipping crude to the US, until recently. However, we have observed that thespread between Brent and WTI crude is continuously widening with Brent oil pricestrading at around a $10 premium to WTI due to delivery problems at Cushing, Okla-homa for WTI. Cushing has few outlets to evacuate surplus oil.

With the increase in Brent crude oil price, the Indian crude oil basket has also in-creased. We believe rising crude oil price and regulated retail fuel prices in India(except petrol) will lead to major surge in under-recoveries for OMCs like IOCL,BPCL and HPCL. Hence, we are bearish on all the OMCs.

We believe that the key beneficiary of rising crude oil price will be private sectorupstream exploration companies like Cairn India, Hindustan oil exploration andSelan exploration.

Propane prices have increased: Sonatrach (Algeria's state-owned oil company)has increased January propane prices by USD$50/MT to $975/MT. However, butanehas been decreased by $125/MT to USD$860/MT. India meets its domestic demandby importing about 3 Mn MTPA of cooking gas. In Jan’11, LPG prices has fallen by0.3% (MoM) to USD$926/ton.

Performance AnalysisIn Jan'11, the average Brent crude oil price surged by 4.5% (MoM) to USD$97/bblsas against an average of USD$92.9/bbls in Dec'10. The average Henry Hub Naturalgas price surged by 5.5% to an average of USD$4.5/mmbtu during the same period.

In Jan'11, the average spread between Brent and Dubai crude oil price surged by46.3% (MoM) and 524% (YoY) to USD$4.2/bbls.

In Jan'11, the average Singapore refining margins surged by 18.1% (MoM) and77.6% (YoY) to USD$6/bbls. We are bullish on refining margins going forwardmainly due to rising demand from developing economies. The key beneficiaries willbe RIL, MRPL and Essar oil.

Sensex v/s Oil and Gas sector performance analysisIn the last one month, Sensex and BSE Oil & Gas Index both have given a negativereturn of -11.8% and -11.7% respectively. Several stocks in the oil and gas sectorlike Shiv-vani oil and gas, OIL, RIL, Aban have fallen steeply in the last one month.Only PLNG has given a positive return and Cairn India is the second best performerin the sector. Oil marketing companies (IOCL, BPCL and HPCL) are struggling due torising under-recoveries on retail fuel oil sales.

Share Price Performance (%)

Companies 1M 3M 6M

RIL -13.0 -15.8 -8.8ONGC -7.3 -9.5 -8.8CAIRN -0.4 2.3 -0.9GAIL -9.4 -5.6 6.0IOCL -3.5 -21.9 -8.7BPCL -8.8 -20.4 -6.4HPCL -9.7 -28.7 -18.4Essar Oil -12.0 -20.8 -5.6Aban -16.7 -14.3 -21.5Shiv-vani -26.7 -31.6 -33.5IGL -8.5 -4.0 4.0PLNG 3.6 9.2 42.8OIL -23.9 -25.3 -32.2GGAS -12.5 -8.7 14.2GUJS -12.3 -9.8 -2.8Ageis -17.4 -14.7 2.4

Source: Bloomberg

INDUSTRY OVERVIEW

Sumit [email protected]+91 22 6621 6313

Details

BSE Oil and Gas INDEX (9 Stocks)

BSE Oil and Gas Index 9482Market Cap. (Rs.Tn.) 81Index PE (x) 12.40Index PB (x) 2.00

BSE Sensex (30 Stocks)

BSE Sensex 18,328Market Cap. (Rs. Tn.) 279Index PE (x) 16.6Index PB (x) 3.2As on 31st Jan’11

Source: BSE and Bloomberg



Sector Synopsis

Particulars Unit Jan Dec Jan MoM YoY2011 2010 2010 (%) (%)

Oil and Gas

Brent Crude Oil $/bbls 97.1 92.9 76.9 4.5 26.3

Henry Hub Natural Gas Price $/mmbtu 4.5 4.3 5.8 5.5 (22.8)

Spreads

Brent - Henry Hub Natural Gas $/boe 68.1 67.7 42.6 0.6 59.8

Brent-Dubai $/bbls 4.2 2.9 0.7 46.3 523.9

Arab Light-Heavy $/bbls 7.0 6.6 2.4 4.8 189.9

Dollar Index X 79.2 80.1 77.8 -1.1 1.1

Refining Margins

Singapore Refining Margins $/bbls 6.0 5.1 3.4 18.1 77.6

Product Prices

Light Distillates

Naphtha Price $/bbls 94.9 93.4 79.2 1.6 19.8

Gasoline 92 Octane Price $/bbls 32.85 100.1 32.9 (67.2) -

LPG $/ton 926 929 726 (0.3) 27.5

Middle Distillates

Gasoil 50 PPM Sulfur $/bbls 109.9 104.4 85.6 5.3 28.4

Jet/Kero $/bbls 109.6 103.5 85.6 5.9 28.0

Heavy Distillates

High Sulfur Residual Oil 380 Centistoke $/ton 528.2 502.3 480.5 5.1 9.9

Product Spreads

Naphtha-Crude $/bbls 2.4 4.3 2.58 (44.1) (6.4)

Gasoline 92-Crude $/bbls 11.6 11.0 8.28 5.5 40.5

Gasoline 92-Naphtha $/bbls 9.2 6.7 5.7 37.0 61.2

Gasoil-Crude $/bbls 15.6 13.5 7.3 15.7 112.8

Jet/Kero-Crude $/bbls 17.3 14.4 9.0 20.0 92.5

Jet/Kero-Gasoil $/bbls 1.7 0.9 1.7 78.1 0.5

Source: Bloomberg



Brent Crude Price Movement

Particulars Jan'11 Dec'10 Jan'10 MoM (%) YoY (%)

Brent Crude Oil 97.1 92.9 76.9 4.5 26.3

Source: Bloomberg

OIL AND GAS SECTOR UPDATE

Dated Brent Crude Oil Price (USD$/bbls)

Source: Bloomberg

Brent trading at two year highAs on 1st February 2011, Brent crude oil price is trading over USD$100/bbls (for thefirst time in two years) resulting in a gain over 4% in one month. We believe thekey factors supporting the bullish trend of oil prices are geo-political tension in Egypt,US$ depreciation, strong winter, improved economic sentiment in Europe and bettermacroeconomic data from the US markets.

As per the data released by EIA, ~ 1.8 Mn bopd of crude and products flowedthrough the Suez Canal in 2009. Also, the Suez-Mediterranean pipeline transportedabout 1.1 Mn bopd of crude in 2009. Egypt controls the Suez Canal and the Suez-Mediterranean Pipeline, which are the major points for oil transportation.

Post the spread of unrest from Tunisia to Egypt, market is skeptical about the samespreading over to key oil producers such as Saudi Arabia, though looks highly re-mote. We do not expect the transport of oil via the Suez Canal to be affected.

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Henry Hub Natural Gas Spot Price (USD$/mmbtu)

Source: Bloomberg

n Henry Hub Natural Gas Price has surged by 5.5% MoM basis however it is stilltrading below the last three years average price mainly on the concern of vastsupply of natural gas in the US.

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Gas Price Max Min 3-Year Average

Henry Hub Natural Gas Price Movement


Henry Hub Natural Gas Price 4.5 4.3 5.8 5.5 (22.8)

Source: Bloomberg



WTI and Brent Crude Oil Spread


WTI less Brent Crude Oil 92.9 86.3 74.9 8 24

Source: Bloomberg

WTI vs Brent

Source: Bloomberg

The spread between Brent and WTI crude oil continues to widen, with Brent oilprices trading at around a $10 premium to WTI. Both Brent and WTI have risen inthe past year as global oil demand recovers from the financial crisis, but Brent hasoutpaced its counterpart.

US West Texas Intermediate (WTI) and ICE Brent crude (Brent) are the world's twomain oil price benchmarks. Brent is a light crude oil but WTI is lighter. Hence, WTItypically trades at a premium to Brent, reflecting its superior, lower-sulfur composi-tion and also the additional cost of shipping crude to the US, until recently.

ImplicationsThe price difference will influence the long-running contest for dominance in oil trad-ing between CME group's New York Mercantile Exchange, home of the leadingWTI futures contract, and Intercontinental Exchange's London-based bourse whereBrent is the flagship. Brent crude futures have seized market share from the troubledNYMEX WTI contract as a result of problems with WTI's delivery location at Cushing.

Cushing has few outlets to evacuate surplus oil, so a glut tends to depress the priceof WTI relative to other crude oil benchmarks.

As per US Department of Energy (DOE), WTI oil prices do not always exactly followthe broader oil market. Saudi Arabia, the world's largest oil exporter, dropped thewidely used WTI oil contract as the benchmark for pricing its oil to customers in theUS after another episode in which the price of WTI became separated from the restof the oil market. The Saudi decision was later followed by other members of theOpec oil cartel, including Kuwait.

Perspective from Indian MarketsThe Indian crude oil basket consists of average of Oman & Dubai and Brent crude oilin the ratio of 67.6 (Sour) and 32.4 (Sweat) as on 1st April'10. Hence, with thesurge in Brent crude oil prices and also Dubai crude, the Indian crude oil price hasalso increased.

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Crude oil and Natural Gas Spread (USD$/boe)

Source: Bloomberg, Kotak Securities - Private Client Research

The chart reflects that spread between Brent crude oil and Henry Hub Natural gasprice has already crossed the last three years average price and is heading towardslast three years high of USD$75.5/boe. This reflects that the natural gas prices failedto keep pace with the price of crude oil mainly on account of fear of shale gas sup-ply glut in the US.

Major development-Turning natural gas into liquid fuels:As mentioned above, the widening of spread between crude oil and natural gasprices, due to vast supplies of gas from shale formations in North America havedriven prices down and made it financially appealing to turn natural gas into liquidfuels.

Sasol, a South African firm, recently announced that it will invest ~ 1 billion Cana-dian dollars to acquire stake in a Canadian shale gas field, so it can explore turningnatural gas into diesel and other liquids. The Company aims to convert gas into amix of liquids i.e. 80 percent diesel fuel, 15 percent naphtha and 5 percent liquidpropane. We believe more such developments will ensure future product supply.

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Crude-Gas Spread Max Min 3-Year Average

Brent Crude Oil and Henry Hub Natural Gas Price Spread Analysis


Brent - Henry Hub Natural Gas 68.1 67.7 42.6 0.6 6

Source: Bloomberg



Brent vs Dubai Crude Oil Spread (USD$/bbls)


BDCS is trading slightly above the last three years average price but far higher thanits lows.

Brent crude oil is lighter crude as compared to Dubai crude, so Brent crude oil tradesat a premium to Dubai crude oil. All complex refineries have the capacity to processheavy crude like Dubai crude. The spread between the heavy crude and light crudeoil gives an indication of the incremental margins that a complex refinery will makeover the simple refinery.

We believe companies having complex refining capacity like RIL, Essar Oil, MRPLand others will show good improvement in GRMs in Q4FY11.

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Spread Max Min 3-years Average

Brent and Dubai Crude Oil Spread


Brent-Dubai 4.2 2.9 0.7 46.3 523.9

Source: Bloomberg



Arab Light & Heavy Spread (USD$/bbls)

Source: Bloomberg

The chart reflects that ALHS is trading slightly above the last three years averageprice from quite some time.

It is expected that Saudi Arabian Oil Co. may maintain the March official sellingprice of Arab Light after raising it to a 32-month high against its benchmark lastmonth. Saudi Arabian Oil Co. is the world's biggest crude exporter and Arab Light isits largest export grade crude. Extra Light crude oil yields a larger amount of gasoilafter basic refining.

Brent Forward Curve (USD$/bbls)

Source: Bloomberg

Henry Hub Gas Forward Curve ($/mmbtu)

Source: Bloomberg

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Arab L&H Spread Max Min 3-year avg.

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Arab Light and Heavy Crude Oil Spread


Arab Light - Heavy 7.0 6.6 2.4 4.8 189.9

Source: Bloomberg



Relationship between Dollar Index and Crude Oil


During the period under-review, the correlation between Dollar Index and Crude oilis - 0.77 which reflects strong inverse relation.

n All global commodities are mainly traded in US dollar. Hence, price of dollar-denominated commodities tend to rise when the US currency weeks i.e. thereexists an inverse relationship between the US dollar and the other asset classes.

n The US dollar Index tracks the US currency's progress against a basket of sixleading currencies - EUR (Euro), JPY (Japanese yen), GBP (Pound sterling), CAD(Canadian dollar), CHF (Swiss franc) and SEK (The Swedish krona).

n The US Dollar Index (USDX) indicates the general intrinsic value of the USD. TheUSDX does this by averaging the exchange rates between the USD and six majorcurrencies.

n In Jan'11, the average Brent crude oil price surged by 26% and 4.5% toUSD$97.1/bbls as against an average of USD$76.9/bbls in Jan'10 and an aver-age of USD$92.9/bbls in Dec'10, respectively. However, Dollar index in the lastone month has fallen by 1.1% to 79.2 from 80.1.

Hence, one of the key factors strengthening the crude oil prices is the weakening ofthe US Dollar.

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Dollar Index Brent

Crude Oil Price and Dollar Index Relation


Dollar Index 79.2 80.1 77.8 -1.1 1.8

Source: Bloomberg



Singapore Refining Margins (USD$/bbls)

Source: Bloomberg, Kotak Securities - Private Client Research; Note: We have calculated refiningmargins based on the data available on the Bloomberg. However, we have not considered refiningcost in the same. Singapore is Asia's biggest oil-trading and storage center.

n In Jan'11, the average refining margins have surged by 18.1% (MoM) and77.6% to USD$6/bbls.

n The surge in refining margin was led by an increase in Jet/Kero cracks, Gasolinecracks and Diesel cracks.

n We are bullish on refining margins due to rising demand mainly on account ofcold winter in Europe and North America, steady economic growth in US andrising demand from Asian economies like China and India, etc.

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Refining Margins


Singapore Refining Margins 6.0 5.1 3.4 18.1 77.6

Source: Bloomberg



Petroleum Product-wise Spreads

A). Light Distillates

Naphtha Prices


Naphtha Price 94.9 93.4 79.2 1.6 19.8

Source: Bloomberg

In Jan'11, the average Naphtha price surged by 1.6% (MoM) and 19.8% (YoY) toUSD$94.9/bbls as against an average of USD$ 93.4/bbls in Dec'10 and an averageof USD$79.2/bbls in Jan'10, respectively.

Naphtha Spot Price (USD$/bbls)

Source: Bloomberg

n The Naphtha spot price is trading above the last three years average price.

Naphtha and Crude oil Spread (USD$/bbls)

Source: Bloomberg

n In Jan'10, the average spread between Naphtha and Dubai crude oil price(NDCS) has fallen by -6.4% (YoY) and -44.1% (MoM) to USD$ 2.4/bbls.

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Naphtha Spot Prices M ax M in 3-Years Avaerge

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Naphtha and Crude Spread Max Min Mean

Naphtha and Dubai Crude Spread


Naphtha-Crude 2.4 4.3 2.58 (44.1) (6.4)

Source: Bloomberg



Gasoline 92 Octane Price (USD$/bbls)

Source: Bloomberg

n Prices of the motor fuel-Gasoline reached a two-year high. In the month ofJan'11, the average Gasoline 92 Octane price fallen by 67.2% (MoM). TheNaphtha spot price is trading above the last three years average price.

Gasoline 92 Dubai Oil Spread (USD$/bbls)

Source: Bloomberg

n In Jan'11, the average spread between Gasoline 92 Octane and Dubai crude oilprice (GDCS) has surged by 5.5% (MoM) and 40.5% (YoY) to USD$ 11.6/bbls.GDCS is trading above its last three years average and is inching towards its lastthree years peak.

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Gasoline Singapore 92 Octane Max Min 3-Year Average

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Spread Max Min 3-Year Average

Gasoline 92 Octane Prices


Gasoline 92 Octane Price 32.9 100.1 32.9 (67.2) -

Source: Bloomberg

Gasoline 92 and Dubai Crude Spread


Gasoline 92-Crude 11.6 11.0 8.28 5.5 40.5

Source: Bloomberg



Gasoline to Naphtha Spread (USD$/bbls)

Source: Bloomberg

n Asian gasoline's premium to naphtha widened after prices of the motor fuelreached a two-year high.

n In Jan'11, the average spread between Gasoline 92 Octane and Naphtha price(GNS) has surged by 37.0% (MoM) and 61.2% (YoY) to an average of USD$9.2/bbls.

n Currently, GNS is trading below its last three years average spread.

n Naphtha is used primarily as feedstock for producing a high-octane gasolinecomponent via the catalytic reforming process. The reforming margin (gasoline'spremium to naphtha) measures increased demand for chemicals used plasticpipes to shopping bags.

n Bigger gap signals naphtha is less valuable to refiners relative to gasoline. A nar-rower reforming margin could prompt Asia's refiners to switch to naphtha fromgasoline.

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Gasoline to Naphtha Spread Max Min Mean

Asia Gasoline's Premium to Naphtha


Gasoline 92-Naphtha 9.2 6.7 5.7 37.0 61.2

Source: Bloomberg



LPG Price Movement (USD$/Ton)

Source: Bloomberg; Kotak Securities - Private Client Research

n Algeria's state-owned oil company Sonatrach has set its contract price for Jan'11-loading propane at $975/MT, an increase of $50/MT from Dec'10. However,Sonatrach contract price for butane loading in Jan'11 has been set at $860/MT,which is a decrease of $125/MT from the December price.

n The Algerian company is a principal LPG producer serving demand in the Medi-terranean and also makes regular exports on a spot and contract basis to North-west Europe and the Americas.

n Currently, LPG price is trading close to its peak in the last three years and isexpected to rise further due to rising demand. LPG is the generic name for pro-pane and butane gas. The mixture is predominantly propane in winter and bu-tane in summer.

n India is the largest consumer of LPG in Southeast Asia, and it meets its domesticdemand by importing about 3Mn MTPA of cooking gas. In FY11, the demand ofLPG is expected to rise to14 Mn MTPA by the Petroleum Planning Analysis Cell.The country's dependence on LPG imports is increasing due to a 5-8% annualgrowth in consumption. International price of LPG has soared due to winter de-mand.

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.LPG U Index Max Min 3-Years Average

Liquefied Petroleum Gas (LPG) Prices


LPG $/ton 926 929 726 (0.3) 27.5

Source: Bloomberg



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Diesel Max M in 3-Years Average

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B). Middle Distillate

Gasoil/Diesel 50 PPM Sulfur


Gasoil 50 PPM Sulfur 109.9 104.4 85.6 5.3 28.4

Source: Bloomberg

Diesel (50 PPM Sulfur) Price Movement

Source: Bloomberg

n In Jan'11, due to cold weather the demand for gasoil has increased. In order tomeet the rising need of BPCL has offered tender to import two cargoes of 30,000mt each of 340 ppm sulfur gasoil for delivery into Vizag and Kakinada and intoParadip and Haldia. Bharat III gasoil will have 350 ppm sulfur content while theprescribed sulfur limit for Bharat IV gasoil is 50 ppm.

Gas oil and Dubai Crude Spread


Gas oil-Crude 15.6 13.5 7.3 15.7 112.8

Source: Bloomberg

Gasoil and Dubai Crude Spread (USD$/bbls)

Source: Bloomberg

n Gasoil refining margins gained amid an improving economic outlook in the U.S.and Europe.

n Currently, G92DCS is trading close to its last three years average spread.

n In Jan'11, Aramco increased Arab Heavy's discount to the Oman and Dubaibenchmarks to $2.90 a barrel. Arab Medium was set at 95 cents lower to theaverage of the two grades.



n Currently, the Jet Kerosene fob spot price is trading above the last three yearsaverage.

n Jet fuel fundamentals have firmed, helped by strong kerosene demand for winterheating needs, mostly in Japan.

n In Jan 2011, Indian PSU oil firms hiked jet fuel prices by a massive 4.5%, thebiggest hike in almost a year, on the back of spiraling international oil prices.This is the eighth straight increase in jet fuel prices since October 2010, when in-ternational crude oil prices started soaring.

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JET/Kero Max Min Mean

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Jet Kero Dubai spread Max Min 3-Years Average

JET/KERO


Jet/Kero 109.6 103.5 85.6 5.9 28.0

Source: Bloomberg

JET / Kero Spot Prices (USD$/bbls)

Source: Bloomberg

Jet/Kero Dubai Crude Oil Spread


Jet/ Kero-Crude 17.3 14.4 9.0 20.0 92.5

Source: Bloomberg

Jet/Kero and Dubai Crude Spread (USD$/bbls)

Source: Bloomberg

n Currently, JDCS is trading close to its last three years average spread.



Jet Fuel to Gasoil Spread (USD$/bbls)

Source: Bloomberg

n Jet fuel premium to gasoil widening indicates aviation-fuel production is moreprofitable compared with diesel and vice-versa.

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Jet fuel to gasoil spread Max Min Mean

Jet fuel to Gasoil Spread


Jet / Kero-Gasoil 1.7 0.9 1.7 78.1 0.5

Source: Bloomberg



C). Heavy Distillate

Fuel Oil Prices


High Sulfur Residual Oil

380 Centistoke 528.2 502.3 480.5 5.1 9.9

Source: Bloomberg

High Sulfur Residual Oil 380 Centistoke Prices (USD$/MT)

Source: Bloomberg

n Fuel oil's discount to Dubai crude, a measure of refining losses from making thefuel in Asia, narrowed.

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Fuel Oil Max Min 3-Years Average



Key Indian Macro Factors

Hike in retail petrol prices in IndiaThe GOI has deregulated the petrol retail prices in July'10. The price there after hassurged by 16.5% to Rs.55.84/ltrs in Delhi. We expect the retail price will increasefurther as the international crude oil prices is trading at around USD$100/bbls.

Delhi retail sale price of petrol (Rs/ltrs)

Source: PPAC

n Indian OMCs are facing huge under-recoveries as they give a subsidy of Rs. 8 perlitre on diesel, Rs. 19 per litre subsidy on Kerosene and a massive Rs. 360 percylinder subsidy on LPG. The cumulative losses to OMCs are pegged at about Rs.300 crore per day.

n In Jan'11, the government approved Rs. 80 Bn in cash subsidy to state-ownedfuel retailers to make up for half of the revenues they lost on selling diesel, do-mestic LPG and kerosene below cost in the Q3FY11.

n Post the petrol price deregulation, OMCs has hiked the prices four times to coverthe losses. We expect the OMCs will again hike petrol prices by 15th Feb’11.

47.93

51.45 51.45 51.45 51.8452.55 52.90

55.84

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Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11



Sensex Vs Oil & Gas Sector Performance

Sensex and Oil and Gas Index Performance

Source: ACE Equity

n The correlation between Sensex and Bse Oil and Gas Index is ~ 91% in the pe-riod under review.

n In the last one month, Sensex has given a return of -11.8% whereas Bse Oil andGas Index has given -11.7% return.

n We are bullish on Cairn India, Selan Exploration and HOEC and believe this risingcrude oil prices will improve the margins.

n However, we are bearish on OMCs (HPCL, BPCL and IOCL) and expect thereunder-recovery to rise further.

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BSE OIL Sensex



Share Price Performance of Oil & Gas Companies

1M Performance

Source: Bloomberg

3M Performance

Source: Bloomberg

6M Performance

Source: Bloomberg

1Y Performance

Source: Bloomberg

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RIL

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CAIRN

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HPCL

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PLNG

OIL

GGAS

GUJS

Ageis3M Performance

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GGAS

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GGAS

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Ageis1Y Performance

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CAIRN

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HPCL

Essar Oil

Aban

Shivvani

IGL

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OIL

GGAS

GUJS

Ageis



AUTO INDUSTRY VOLUME UPDATE - JANUARY 2011Auto companies monthly volumes remained healthy in January 2011. Mostof the OEM's posted impressive growth YoY, while the trend was mixedMoM but remained broadly in line with expectations. Tata Motors positivelysurprised us by reporting higher than anticipated volumes. We expect thecurrent volume trend for the auto industry (in absolute terms) to broadlycontinue for the balance 2 months of FY11. Going ahead into FY12E,volumes are expected to moderate from FY11 growth rate levels on accountof increased base. Furthermore; tight liquidity/rising interest cost scenariowill play a key role towards determining the volume growth prospects forauto industry in FY12.

AUTO INDUSTRY UPDATE

Arun [email protected]

+91 22 6621 6143

Summary - January 2011 volumes (Nos)

Jan Dec Jan YoY MoM YTD YTD Growth2010 2010 2011 gth (%) gth (%) FY10 FY11 (%)

Hero Honda

2W 389,802 501,111 466,524 20 (7) 3,803,396 4,414,537 16

TVS Motor

Scooters 25,509 41,804 40,736 60 (3) 253,787 383,274 51

Motorcycles 54,698 61,404 67,721 24 10 513,446 685,717 34

Mopeds 45,371 65,151 53,268 17 (18) 467,723 577,836 24

Total sales 125,578 168,359 161,725 29 (4) 1,234,956 1,646,827 33

Exports 16,074 19,002 19,498 21 3 126,206 183,396 45

Maruti Suzuki

A1 (M800) 2,494 1,798 1,876 (25) 4 27,088 20,858 (23)

A2 (Alto, Wagon-R, Estilo,

Ritz, Swift, A-Star) 58,540 64,492 72,479 24 12 518,047 658,002 27

A3 (SX4, D'zire) 8,995 9,362 11,930 33 27 78,608 104,348 33

MUV (Grand Vitara, Gypsy) 135 270 192 42 (29) 2,970 4,890 65

C (OMNI, Eeco) 10,923 13,547 13,945 28 3 79,782 132,674 66

Total Domestic 81,087 89,469 100,422 24 12 706,495 920,772 30

Export 14,562 9,756 9,321 (36) (4) 120,097 116,636 (3)

Total Sales 95,649 99,225 109,743 15 11 826,592 1,037,408 26

M&M

Passenger UV 14,443 14,705 16,088 11 9 123,655 138,615 12

4W pick-up/Gio/Maxximo 8,673 10,161 10,193 18 0 57,675 84,165 46

3W 4,516 5,928 6,177 37 4 36,426 50,648 39

MNAL 801 856 1,023 28 20 7,989 9,298 16

Car (Logan) 555 896 1,120 102 25 4,444 7,840 76

Total Domestic 28,988 32,546 34,601 19 6 230,189 290,566 26

Export 1,161 1,516 2,117 82 40 8,499 15,597 84

Total Sales 30,149 34,062 36,718 22 8 238,688 306,163 28

Tractors 16,879 16,334 20,499 21 26 144,548 174,765 21

Tata Motors

M&HCV 15,702 17,368 16,487 5 (5) 116,849 151,097 29

LCV 20,255 24,558 23,776 17 (3) 174,276 204,742 17

Utility 3,538 2,765 4,462 26 61 25,630 32,823 28

Cars 22,707 16,941 25,750 13 52 154,554 206,089 33

Total Domestic 62,202 61,632 70,475 13 14 471,309 594,751 26

Export 3,276 5,809 4,948 51 (15) 26,798 47,608 78

Total Sales 65,478 67,441 75,423 15 12 498,107 642,359 29

Source: Companies



HHML - 2W sales volume

Source: Company

HH - 2W sales volume (Nos)


2W 389,802 501,111 466,524 19.7 (6.9) 3,803,396 4,414,537 16.1

Source: Company

n HH sold 466,524 2W's in January 2011 that was marginally lower than our ex-pectation of ~475,000 units.

n Volumes were up by 20% over January 2010 volumes of 389,802 units. How-ever, sequentially the volumes were down by ~7%.

n Volumes for 2W are currently healthy but could face some risk from the tighten-ing liquidity and increasing interest rate situation.

n Going by the current monthly run-rate of 470,000 units we expect the companyto grow its volumes by 16% in FY11 translating into a monthly average run-rateof ~445,000 units for FY11E.

n For FY12E, we expect the company volumes to grow by 13% translating into anaverage monthly run-rate of ~502,000 units.

HERO HONDA (HH)

-

150,000

300,000

450,000

600,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11-

20

40

60Volume (Units - LHS)

% YoY grow th (RHS)



TVS Motors - sales volume (Nos)


Scooters 25,509 41,804 40,736 59.7 (2.6) 253,787 383,274 51.0

Motorcycles 54,698 61,404 67,721 23.8 10.3 513,446 685,717 33.6

Mopeds 45,371 65,151 53,268 17.4 (18.2) 467,723 577,836 23.5

Total sales 125,578 168,359 161,725 28.8 (3.9) 1,234,956 1,646,827 33.4

Exports 16,074 19,002 19,498 21.3 2.6 126,206 183,396 45.3

Source: Company

TVS MOTORS (TVSM)

Mopeds sales volume trend

Source: Company

Exports sales volume trend

Source: Company

Scooters sales volume trend

Source: Company

Motorcycles sales volume trend

Source: Company

n TVS Motors reported January 2011 2W wholesale volumes of 161,725 units asagainst 125,578 units in January 2010 translating into a YoY growth rate of28.8%.

n Volumes were marginally lower than our expectation of ~170,000 units due tolower moped dispatches during the month.

n Scooter volumes remained impressive at 40,736 and were up by 60% YoY. Se-quentially though the volumes dipped by 2.6%.

(continued ....)

-

9,000

18,000

27,000

36,000

45,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

20

40

60

80

100

Volume (Units - LHS) % YoY grow th (RHS)

-

25,000

50,000

75,000

100,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

20

40

60

80Volume (Units - LHS)% YoY grow th (RHS)

-

15,000

30,000

45,000

60,000

75,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

11

22

33

44

Volume (Units - LHS)% YoY grow th (RHS)

-

6,000

12,000

18,000

24,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

25

50

75

100




n Motorcycle volumes staged a recovery during January 2011 with volumes improv-ing by 10.3% sequentially to 67,721 units. Launch of Jive in 2010 helped thecompany put across 24% YoY jump in motorcycle sales.

n Mopeds volumes were a tad disappointing if we take the recent months perfor-mance into consideration. However despite that, moped volumes were stillhigher by 17.4% YoY to 53,268 units.

n Export trend remained strong with volumes of 19,498 units that were 21.3%more than January 2010 volumes of 16,074 units.

n 3W volumes were at 3,427 units versus 1,710 units in January 2010 and 3,500units in December 2010.

n In order to continue on the growth momentum, the company will be coming outwith Scooty and Apache refreshes in the next 3-4 months.

n TVSM's volumes in FY11 are expected to grow by 32% and we anticipate 14%volume increase for the company in FY12.



M&M - sales volume (Nos)


Passenger UV 14,443 14,705 16,088 11.4 9.4 123,655 138,615 12.1

4W pick-up/Gio/Maxximo 8,673 10,161 10,193 17.5 0.3 57,675 84,165 45.9

3W 4,516 5,928 6,177 36.8 4.2 36,426 50,648 39.0

MNAL 801 856 1,023 27.7 19.5 7,989 9,298 16.4

Car (Logan) 555 896 1,120 101.8 25.0 4,444 7,840 76.4

Total Domestic 28,988 32,546 34,601 19.4 6.3 230,189 290,566 26.2

Export 1,161 1,516 2,117 82.3 39.6 8,499 15,597 83.5

Total Sales 30,149 34,062 36,718 21.8 7.8 238,688 306,163 28.3

Tractors 16,879 16,334 20,499 21.4 25.5 144,548 174,765 20.9

Source: Company

MAHINDRA AND MAHINDRA (M&M)

Domestic volume trend (Automotive)

Source: Company

Export volume trend (Automotive)

Source: Company

UV - domestic volume trend

Source: Company

Tractor - volume trend

Source: Company

n M&M reported strong set of numbers for the month of January 2011. Overall vol-umes at 36,718 units were 22% higher YoY and 7.8% up MoM.

n YoY improvement in volume has come from all the segments. However MoMgrowth has come primarily from domestic passenger UV sales.

(continued ....)

(6,000)

-

6,000

12,000

18,000

24,000

30,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

(30)

-

30

60

90

120

150

Volume (Units - LHS)

% YoY grow th (RHS)

-

9,000

18,000

27,000

36,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

40

80

120

160


-

500

1,000

1,500

2,000

2,500

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

110

220

330

440


% YoY grow th (RHS)

(6,000)

-

6,000

12,000

18,000

24,000

30,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11(30)

-

30

60

90

120


% YoY grow th (RHS)



n M&M dispatched 16,088 passenger UV's during the month as against 14,443units and 14,705 units in January 2010 and December 2010 respectively. Com-pany is expected to add more models in this segment during FY12.

n In the 4W pick-up category, the company clocked 10,193 units, growing by17.5% YoY while remaining flat MoM. YTD growth in this segment has been46% for the company primarily driven by new launches.

n Recently the company added a new pick-up “Genio” to its 4W pick-up portfolio.The company has been quite bullish in this segment and expects to further con-solidate their position in this category.

n 3W volumes remained buoyant at 6,177 units. YoY growth in this segment hasbeen 37% for the company.

n Logan sales during the month was at 1,120 units and exports stood at 2,117units

n Tractor sales continued with their strong performance helped by good monsoons.M&M dispatched 20,499 tractors during the month, an increase of 21.4% YoY.

n M&M has been aggressive on the new launches in the past one year and thesame have led towards strong volume growth for the company. M&M is ex-pected to launch 8-10 new products across categories and that in our viewshould help the company maintain buoyant volume growth rate in FY12.



MSIL - sales volume (Nos)


A1 (M800) 2,494 1,798 1,876 (24.8) 4.3 27,088 20,858 (23.0)

A2 (Alto, Wagon-R, Estilo,Ritz, Swift, A-Star) 58,540 64,492 72,479 23.8 12.4 518,047 658,002 27.0

A3 (SX4, D'zire) 8,995 9,362 11,930 32.6 27.4 78,608 104,348 32.7

MUV (Grand Vitara, Gypsy) 135 270 192 42.2 (28.9) 2,970 4,890 64.6

C (OMNI, Eeco) 10,923 13,547 13,945 27.7 2.9 79,782 132,674 66.3

Total Domestic 81,087 89,469 100,422 23.8 12.2 706,495 920,772 30.3

Export 14,562 9,756 9,321 (36.0) (4.5) 120,097 116,636 (2.9)

Total Sales 95,649 99,225 109,743 14.7 10.6 826,592 1,037,408 25.5

Source: Company

MARUTI SUZUKI INDIA LIMITED (MSIL)

Export volume trend

Source: Company

Business Mix (Domestic)

Source: Company

A2 segment domestic volume trend

Source: Company

Domestic sales volume trend

Source: Company

n MSIL dispatched 109,743 units in January 2011 in line with our expectations.Gradual increase in capacity and strong car demand paved way for 14.7% YoYincrease in volumes.

n Sequential comparison is irrelevant as there was a week long plant shutdown forroutine maintenance activity in the last week of December 2010.

(continued ....)

-

16,000

32,000

48,000

64,000

80,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

16

32

48

64


-

25,000

50,000

75,000

100,000

125,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11-

20

40

60


-

5,000

10,000

15,000

20,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

(60)

-

60

120

180


0%

20%

40%

60%

80%

100%

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

C

MUV

A3

A2

A1



n Domestic volumes were up by 23.8% YoY to 100,422 units.

n Product mix continues to remain tilted towards the A2 segment, followed by Csegment and A3 segment. Together they dominate the company sales by gener-ating more than 95% of the domestic volumes.

n In the A2 segment, Alto has been gaining prominence with the launch of newAlto. In the A3 segment Dzire continue to dominate with long waiting periods. Csegment has received boost with the launch of Eeco.

n Exports continue to witness YoY de-growth following the end of incentiveschemes in EU nations. However the company has done well to increase its ex-posure to the non EU nations from the EU nations.

n MSIL has announced a price increase in the range of Rs1000 - Rs10,000 duringJanuary 2011.

n In February 2011, the company will be launching the much awaited "Kizashi"model in the premium sedan segment. Volumes are expected to be small incomparison to the company's overall monthly volumes.

n MSIL lost couple of days of production as the annual maintenance shutdown wascarried into January2011. We therefore expect dispatch volumes to further growup in February from the current levels.

n Going further the management has indicated an annual capacity of 1.4mn unitsfrom April 2011 onwards and the new capacity in Manesar in 2HFY11 will fur-ther boost monthly volumes.



Tata Motors - sales volume (Nos)


M&HCV 15,702 17,368 16,487 5.0 (5.1) 116,849 151,097 29.3

LCV 20,255 24,558 23,776 17.4 (3.2) 174,276 204,742 17.5

Utility 3,538 2,765 4,462 26.1 61.4 25,630 32,823 28.1

Cars 22,707 16,941 25,750 13.4 52.0 154,554 206,089 33.3

Total Domestic 62,202 61,632 70,475 13.3 14.3 471,309 594,751 26.2

Export 3,276 5,809 4,948 51.0 (14.8) 26,798 47,608 77.7

Total Sales 65,478 67,441 75,423 15.2 11.8 498,107 642,359 29.0

Source: Company

TATA MOTORS (TAMO)

Cars - domestic volume trend

Source: Company

Business Mix ( Domestic)

Source: Company

M&HCV - domestic volume trend

Source: Company

LCV - domestic volume trend

Source: Company

n Boosted by strong passenger car wholesale volumes, TAMO exceeded January2011 volume expectations. TAMO posted their highest ever monthly volume of75,423 units, 15% and 12% higher YoY and MoM respectively.

n Passenger car sales witnessed a considerable 52 % MoM jump in volumes inJanuary 2010. Dispatch volumes remained strong for all the models. Nano vol-umes stood at 6,703 units. Indica volumes at 10,591 units were the highest dur-ing the current financial year.

(continued ....)

-

5,000

10,000

15,000

20,000

25,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

-

40

80

120

160


% YoY grow th (RHS)

-

6,000

12,000

18,000

24,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11-

30

60

90


(14,000)

(7,000)

-

7,000

14,000

21,000

28,000

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

(40)

(20)

-

20

40

60

80

Volume (Units - LHS) % YoY grow th (RHS)

0%

25%

50%

75%

100%

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Cars

UV

LCV

M&HCV



n Reasons for strong passenger car growth in our view are the subdued volumes inthis segment in the preceding two months. We therefore expect the passengercar volumes to normalize in February 2011.

n Domestic LCV volumes for the company remained strong for the second con-secutive month despite increasing competition which in our view is positive forthe company. LCV volumes for the month was 17.4% higher YoY at 23,776units.

n M&HCV volumes grew by 5% YoY to 16,487 units giving a decent start to thefourth quarter. 4Q is generally a strong one with sales peaking during March.

n TAMO exported 4,948 units during the period under consideration.

n Going forward we expect the volumes to again stabilize below the 70,000 markfor the balance part of the year.



Trade details of bulk deals

Date Scrip name Name of client Buy/ Quantity Avg.Sell of shares price

(Rs)

2-Feb Anand Credit Parmar Bharatkumar B B 44,697 9.7

2-Feb Arrow Sec Parmar Bharatkumar B B 58,603 11.7

2-Feb Arrow Sec PCJ Finvest Pvt Ltd S 40,000 12.0

2-Feb Asia Hr Tech Telesys Software Ltd S 60,000 5.9

2-Feb BGIL Films Balwant Singh Bisht S 32,575 5.6

2-Feb Chandni Tex Vijaykumar Ramanlal Sanghavi B 150,000 142.0

2-Feb Chandni Tex Niruben Vitthalbhai Patel S 522,834 142.2

2-Feb Devika Prot Mrunal Agency & Financials Pvt Ltd B 67,265 9.6

2-Feb Greycells Edu IGFT Pvt Ltd B 42,410 39.8

2-Feb Greycells Edu Padmakshi Financial Services Ltd S 42,410 39.8

2-Feb Hitech Gears Mukesh Chimanlal Patani B 115,000 112.9

2-Feb Hitech Gears Thor Investments Ltd S 109,652 112.7

2-Feb LKP Fin Prasu Leasing and Finance Pvt Ltd B 202,500 135.0

2-Feb LKP Fin Jaroli Vincom Pvt Ltd S 200,000 135.0

2-Feb Marvel Capital Shantilal Vershi Haria B 25,000 25.0

2-Feb Marvel Capital Atulkumar Sawailal Jain B 37,500 26.3

2-Feb Marvel Capital Adventures India B 26,170 24.9

2-Feb Marvel Capital Suman Devi Sharma S 50,000 25.6

2-Feb Marvel Capital Sanjay Praveenchand Dosi S 25,900 25.0

2-Feb Oregon Comm Indu Jeram Khubani S 5,000 36.8

2-Feb Parichay Invest Janakray Vithaldas Soni B 27,500 226.0

2-Feb Parichay Invest Dhaval Satishkumar Agrawal B 9,800 233.6

2-Feb PM Strp Gaurang Ghandhamsingh Chudasama B 22,000 52.3

2-Feb PM Strp Urvi Jimesh Shah B 8,950 52.5

2-Feb PM Strp Ganga Gurumurthi S 50,000 52.4

2-Feb Punjab Wool Pradeep Narendra Bhatt B 234,800 13.8

2-Feb Rama Vision Indira Devi Chhabra B 79,627 14.5

2-Feb Scope Ind Sravan Kumar Goud Gopagan B 43,902 68.1

2-Feb Sky Inds Meera A Raorani B 22,663 135.9

2-Feb Sky Inds Komal Tribhovandas Fofaria B 20,000 135.5

2-Feb Sky Inds Meera A Raorani S 23,400 135.4

2-Feb Tribhuvan Hous Siddhant Securities B 282,000 2.3

2-Feb Tribhuvan Hous Shilpa S Morakhia S 282,000 2.3

2-Feb Tribhuvan Hous Sahas Mercantile Pvt Ltd S 315,000 2.4

2-Feb Tutis Tech Harsha Mukeshkumar Vora B 101,299 20.5

2-Feb Tutis Tech Dash Pharmaceuticals Pvt Ltd S 97,455 19.1

2-Feb Vax Housing Hasmukhray Virjibhai Nada B 47,500 49.3

2-Feb Vax Housing Vipul Virendrakumar Patel B 43,000 49.3

2-Feb Vax Housing Subhkaran Tilokchand Agarwal B 50,000 43.9

2-Feb Vax Housing Chetna Vijay Rathod S 30,000 43.9

2-Feb Vax Housing Masitia Capital Services Ltd S 39,751 49.2

2-Feb Vax Housing Banwarilal Hanumanaram Saharan S 33,500 49.5

Source: BSE

Bulk deals



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Gainers & Losers Nifty Gainers & LosersPrice (Rs) chg (%) Index points Volume (mn)

Gainers

HDFC 633 0.8 2.1 4.7

Sterlite Ind 165 0.6 0.6 5.0

Hindalco Ind 230 0.1 0.1 8.6

Losers

Reliance Ind 896 (2.6) (13.5) 8.7

L&T 1,579 (3.8) (11.2) 2.8

ICICI Bank 995 (2.6) (10.4) 4.6

Source: Bloomberg

Research TeamDipen ShahIT, [email protected]+91 22 6621 6301

Sanjeev ZarbadeCapital Goods, [email protected]+91 22 6621 6305

Teena VirmaniConstruction, Cement, Mid [email protected]+91 22 6621 6302

Saurabh AgrawalMetals, [email protected]+91 22 6621 6309

Saday SinhaBanking, NBFC, [email protected]+91 22 6621 6312

Arun [email protected]+91 22 6621 6143

Ruchir KhareCapital Goods, [email protected]+91 22 6621 6448

Jayesh [email protected]+91 22 6652 9172

Ritwik RaiFMCG, [email protected]+91 22 6621 6310

Sumit PokharnaOil and [email protected]+91 22 6621 6313

Shrikant ChouhanTechnical [email protected]+91 22 6621 6360

K. [email protected]+91 22 6621 6311

d:velsdaily morning brief 1febmorning insight 2 feb...

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