india strategy oct 2012
TRANSCRIPT
October 2012
Research Team ([email protected])
India Strategy
Fired up?
GST
Divestment
Digitization
FDI
BankLicense
NPPP
Aadhaar
LARRMMDR
Lokpal
Coal
Roads
FDI
Spectrum
Contents
1. Automobiles 2-9Bajaj Auto 5Hero MotoCorp 6Mahindra & Mahindra 7Maruti Suzuki India 8Tata Motors 9
2. Capital Goods 10-22ABB 14BGR Energy 15BHEL 16Crompton Greaves 17Cummins India 18Havells India 19Larsen & Toubro 20Siemens 21Thermax 22
3. Cement 23-33ACC 26Ambuja Cement 27Birla Corporation 28Grasim Industries 29India Cements 30Jaiprakash Associates 31Shree Cement 32UltraTech Cement 33
4. Consumer 34-48Asian Paints 37Britannia Industries 38Colgate Palmolive 39Dabur India 40GSK Consumer 41Godrej Consumer Products 42Hindustan Unilever 43ITC 44Marico 45Nestle India 46Pidilite Industries 47United Spirits 48
5. Financials 49-79Andhra Bank 55Axis Bank 56Bank of Baroda 57Bank of India 58Canara Bank 59Dewan Housing 60Federal Bank 61HDFC 62HDFC Bank 63ICICI Bank 64IDFC 65Indian Bank 66IndusInd Bank 67
ING Vysya Bank 68Kotak Mahindra Bank 69LIC Housing Finance 70M & M Financial Services 71Oriental Bank 72Power Finance Corporation 73Punjab National Bank 74Rural Electricfication 75Shriram Transport 76State Bank 77Union Bank 78Yes Bank 79
6. Healthcare 80-101Biocon 85Cadila Healthcare 86Cipla 87Divi’s Laboratories 88Dishman Pharma 89Dr Reddy’s Labs. 90GSK Pharma 91Glenmark Pharma 92IPCA Laboratories 93Jubilant Life Sciences 94Lupin 95Opto Circuits 96Ranbaxy Labs. 97Sanofi India 98Strides Acrolab 99Sun Pharmaceuticals 100Torrent Pharma 101
7. Media 102-112Dish TV 108HT Media 109Jagran Prakashan 110Sun TV Network 111Zee Entertainment 112
8. Metals 113-127Hindalco 118Hindustan Zinc 119Jindal Steel & Power 120JSW Steel 121Nalco 122NMDC 123Sesa Goa 124SAIL 125Sterlite Industries 126Tata Steel 127
9. Oil & Gas 128-144BPCL 132Cairn India 133Chennai Petroleum 134GAIL 135
Gujarat State Petronet 136HPCL 137IOC 138Indraprastha Gas 139MRPL 140Oil India 141ONGC 142Petronet LNG 153Reliance Industries 144
10. Real Estate 145-156Anant Raj Industries 150DLF 151HDIL 152Mahindra Lifespaces 153Oberoi Realty 154Phoenix Mills 155Unitech 156
11. Retail 157-163Jubilant Food 160Pantaloon Retail 161Shoppers Stop 162Titan Industries 163
12. Technology 164-173Cognizant Technology 167HCL Technologies 168Infosys 169MphasiS 170TCS 171Tech Mahindra 172Wipro 173
13. Telecom 174-182Bharti Airtel 179Idea Cellular 180Reliance Communication 181Tulip Telecom 182
14. Utilities 183-195CESC 187Coal India 188JSW Energy 189NHPC 190NTPC 191Power Grid Corp. 192PTC India 193Reliance Infrastructure 194Tata Power 195
15. Others 196-199Castrol India 196Multi Commodity Exchange 197Sintex Industries 198United Phosphorus 199
Note: All stock prices and indices for Section C as on 28 September 2012, unless otherwise stated
Section A: India Strategy - Fired up? ......................................................................................... A1-59
Section B: 2QFY13 Highlights & Ready Reckoner ..................................................................... B1-12
Section C: Sectors & Companies .............................................................................................. C1-199
A–1October 2012
India Strategy | Fired up?
India StrategyBSE Sensex: 18,763 S&P CNX: 5,703
Fired up?Policy engine revives| Next challenge: Investment cycle | New earnings cycle?
2QFY13 highlights: Non-cyclicals have a field day in muted quarter2QFY13 is likely to be a muted quarter in terms of India's corporate sector performance.
PAT growth of 9% YoY: We expect MOSL Universe (ex RMs, oil refining and
marketing companies) to report PAT growth of 9% YoY. This is the lowest 2Q PAT
growth in the last 7 years, barring the Lehman-crisis quarter of September 2009.
Expect Technology, Financials, Healthcare and Consumer to positively dominate
the quarter's performance. On the other hand, global commodities (mainly, Oil &
Gas and Metals) will pull down aggregate profits.
Sensex PAT growth is even more muted at just 2% (ex ONGC, the growth is 9%). Six
global cyclicals are major drags, ex which Sensex PAT should be up 15%.
Top five Sensex companies by PAT growth: TCS (+42% YoY), SBI (+31%), HDFC Bank
(+30%), Sun Pharma (+29%), and Infosys (+26%).
Bottom five Sensex companies by PAT growth: Tata Steel (-63% YoY), Maruti Suzuki
(-51%), Bharti (-36%), Tata Power (-30%) and Hero Motocorp (-27%).
Quarterly performance - MOSL universe (INR b)
Sector Sales EBITDA PAT EBITDA Margin
(No of companies) Sep-11 Sep-12 Var % Sep-11 Sep-12 Var Sep-11 Sep-12 Var Sep-11 Sep-12 Var
YoY % YoY % YoY (bp)
High YoY PAT Growth 680 830 22 153 198 30 101 139 38 22.5 23.9 139
Cement (8) 145 162 11 26 36 38 10 19 89 17.8 22.1 425
Technology (6) 361 460 27 89 116 31 65 88 34 24.5 25.2 73
Health Care (17) 174 208 20 39 46 20 25 32 28 22.3 22.3 8
Medium/Low YoY PAT Growth 749 854 14 588 674 15 285 339 19 78.4 78.9 45
Financials (25) 402 460 14 320 369 15 160 191 19 79.7 80.2 55
Private Banks (8) 96 118 22 79 98 24 46 57 23 81.9 83.4 142
PSU Banks (9) 251 276 10 189 206 10 78 91 17 75.1 74.8 -36
NBFC (8) 54 66 21 53 64 22 36 43 19 96.6 97.4 83
Consumer (12) 245 283 16 51 60 18 35 41 18 20.7 21.2 51
Media (5) 25 27 10 8 9 2 4 4 17 34.5 32.1 -243
Others (4) 38 40 7 8 7 -2 4 4 15 20.4 18.7 -172
Utilities (10) 485 534 10 119 127 6 65 70 7 24.6 23.7 -87
Oil & Gas ex RMs (10) 1,441 1,703 18 301 288 -4 179 181 1 20.9 16.9 -398
Oil & Gas incl RMs (13) 3,126 3,886 24 191 385 102 38 245 539 6.1 9.9 381
Negative YoY PAT Growth 1,017 1,148 13 121 135 11 76 75 -1 11.9 11.8 -17
Auto (5) 623 721 16 75 86 15 46 46 0 12.1 12.0 -6
Capital Goods (9) 336 364 8 41 42 4 28 27 -1 12.1 11.7 -47
Retail (4) 57 64 12 5 6 14 2 2 -6 9.3 9.5 23
Metals (10) 937 932 0 161 159 -2 91 80 -12 17.2 17.0 -23
Real Estate (7) 41 35 -13 19 15 -21 8 6 -28 47.0 42.5 -452
Telecom (4) 276 310 12 88 91 3 15 10 -32 31.9 29.4 -246
MOSL (139) 7,271 8,487 17 1,240 1,555 25 597 865 45 17.1 18.3 127
MOSL Excl. RMs (136) 5,587 6,304 13 1,350 1,458 8 738 802 9 24.2 23.1 -104
Sensex (30) 3,769 4,229 12 838 866 3 466 477 2 22.2 20.5 -175
A–2October 2012
India Strategy | Fired up?
FDI
MACRO ECONOMY
From Cradle of Pessimism … came a Ray of Hope. Have things FIRED UP?For almost 18 months, the Indian economy and markets have been groping through
intensifying darkness and concerns, culminating in the Cradle of Pessimism (our 4QFY12
strategy theme). At the beginning of 2QFY13, there were some Rays of Hope (our
1QFY13 strategy theme) with the Presidential elections giving way to new political
alignments. While things remained stuck during July-August, the month of September
2012 saw a complete U-turn from policy paralysis to raging reforms. The last few
weeks have seen a significant number of policies / announcements / discussions, and
the debate has shifted to "whether UPA-2 led by Congress is finally FIRED UP?"
Re-starting the policy engine – FDI in limelight; further growth catalysts –lower deficits, improved flows, monetary easingWith a precipitous fall in the Indian rupee coupled with a rating downgrade staring
India, the government finally bit the proverbial bullet with a change in Finance Minister
and a series of policy measures, even at the cost of severing ties with the largest ally,
TMC. This, in turn, has catalyzed a slew of measures in the last few weeks that have
led to an improvement in sentiment: (1) fuel price hike / reforms, (2) opening/relaxing
FDI in multi-brand retail, aviation, broadcasting, (3) Cabinet approval to raise FDI in
insurance and pension, (4) easing of fund-raising abroad, (4) proposed GAAR deferral,
etc. It also appeared to wade through the political fallout of these measures.
While reality will take a lot longer to reflect the first round of reforms, and require
several more follow-up initiatives, the perception has undoubtedly started changing
for the better. To some extent, this is visible in INR appreciation (a 7% appreciation),
revival of flows (FIIs inflows at USD 16b in CY12) and market sentiment (Sensex up 8%
in 3QCY12, making India among the best peforming markets in the world). We believe
that 3 important drivers for the markets, going forward, are:
(1) Fiscal situation – our FY13 deficit estimate revised down from 5.9% to 5.4%,
(2) Domestic flows into equity markets – base-case USD30b inflows over FY14-17,
(3) Shift towards a more accommodative monetary stance – RBI should cut interest
rates / CRR in 4QCY12.
Addressing logjam the next big challengeThe next big challenge is to address the investment logjam. However, unlike the
initial set of reforms that have been largely addressed through policy decisions, the
investment phase requires a more involved decision-making process, as land, water,
resources, etc, are the prerogatives of the state governments. Execution is the key
challenge, as several structural issues impacting growth remain unaddressed. We
believe that the government will kick-start its efforts towards reviving the investment
climate by accelerating public spending. Our action wish list includes:
Successful resolution of the contentious issues in the Power sector (through SEB
debt recast, standard bidding document, and coal price pooling)
Close monitoring of CPSU capex (FY13 investment target at INR1.8t is double the
highest ever - INR931b in FY11)
Take-off of large public expenditure projects (like Dedicated Freight Corridor,
railways, urban transport, etc). Addressing structural issues impacting
infrastructure investments has become important.
Acceleration of financial sector reforms, including corporate bond market and
INVESTMENT CYCLE
A–3October 2012
India Strategy | Fired up?
access to Insurance / Pension money for investment projects. Also, an expenditure
switching strategy is required that reduces government revenue spending by
cutting subsidies and steps up capital expenditure to crowd-in private investments.
Successful implementation of the National Investment Board that will provide
"single window" clearance. The government has identified 89 projects worth
USD20b for fast track clearance.
We identify the key structural issues in core segments:
#1 UTILITIES: Initial steps encouraging, but new investments sometime away
#2 METALS & MINING: Huge investments stuck; will require close monitoring
#3 FINANCIALS: Loan growth moderating; revival will ease asset quality concerns
#4 TELECOM: Spectrum pricing and allocation, conducive M&A policy critical
#5 OIL & GAS: Rational product pricing, gas reforms imperative
#6 INFRASTRUCTURE: Creating conducive environment for large scale development
#7 MEGA PROJECTS: DFC, railways, urban transport can accelerate investment spend
Early signs of a rebound in earnings growth; FY14 Sensex EPS to grow 14%to INR1,395Our bottom-up estimates for the MOSL universe of companies (ex RMs) suggests FY14
EBITDA growth of 15% and PAT growth of 14%. This growth is driven mainly by (1)
Bounce back in sectors which were affected in FY13 (Auto, Telecom); and (2) Steady
growth in seculars (Consumer, Healthcare, Financials) offsetting low growth in specific
sectors like Oil & Gas, Technology and Capital Goods.
For the 5 years ending FY13, Sensex EPS CAGR has been muted at 8%. However, India's
long period average (LPA) earnings growth is 15%. Now, our bottom-up earnings
estimates for Sensex companies suggest FY14 Sensex EPS growth of 14%, close to the
LPA. The key question: Is FY14 the beginning of a new earnings cycle? We believe
there are a few early signs that this is a distinct possibility:
1. Earnings downgrade cycle has bottomed out
2. Our FY14 assumptions are not aggressive
3. FY14 earnings mix is less vulnerable than that of FY13 initial estimates
4. More stocks have a bias for earnings upgrade than downgrade.
Valuations below long-term averages; scope to re-rate as growth returnsCombined action of government and RBI could lead to upgrades in FY13 GDP growth
estimate (currently at 6.5%). Our earnings estimates for FY13 and FY14 have been
stable for the last 2 quarters. We believe the downgrade cycle is now behind us.
Recent government measures along with more to come, monetary easing, and stable
to declining commodities can drive earnings upgrades, going forward. Valuations
remain below historical averages (FY14 P/E of 13.5x v/s 10-year average of 14.8x). We
see more upsides in markets from here.
Our top Overweights are Financials (ICICI / SBI / LIC Housing), Infrastructure & related
(L&T, Jaiprakash) and Autos (Tata Motors, Maruti). Our key Underweights are Consumer,
Technology, Oil & Gas and Utilities. We have a significant allocation to mid-caps too.
Our preferred picks are Yes Bank, MCX, CESC, Hexaware, Petronet, Sun TV, JSW Energy
and Oberoi.
Strategy
Navin Agarwal
Rajat Rajgarhia
Economist
Dipankar Mitra
Sources of exhibits in this section
include RBI, CMIE, Bloomberg, IMF,UN, Rogers International, Industry,Companies, and MOSL database
FY14 EARNINGS
INVESTMENT STRATEGY
A–4October 2012
India Strategy | Fired up?
-1
3
4
4
9
5
9
9
15
21
China (HSCEI)
UK
Brazi l
Rus s ia MICEX
Japan
Ta iwan
South Korea
MSCI EM
S&P 500
India - Sensex
2
3
6
6
7
8
-2
3
8
9
Japan
Russ ia MICEX
China
UK
Taiwan
S&P 500
MSCI EM
India - Sensex
South Korea
Brazi l
Indian equities – Top performer in CY12 YTD
In 3QCY12, Indian markets yielded 8% return QoQ, after an almost flat 2QCY12. With
this, the BSE Sensex is up by 21% YTD CY12, and among the best performing markets
globally. As the recent series of reforms led to significant appreciation in currency,
USD return of Sensex at 22% is also among the best.
With this performance, India now trades at a marginal premium to the rest of the
global markets, well supported by an expected rebound in FY14 corporate performance
14% earnings growth coupled with a strong 17% RoE. The confidence of FIIs has
remained intact throughout CY12, despite a significant slowdown in macroeconomic
parameters. They have bought another USD16b of Indian equities, while DIIs have
been big sellers to the extent of over USD7b.
Indian markets grew 8% in 3QCY12 after a flat 2QCY12
MARKETS
16
6
-8
13
-10
1823
31
-4
-14
16 18
-2
11
20
9
20
-6
1711
-5
1218 17
-23
-14
-4
-25
1
49
18
2 0 1
13
2
-5 -3
-13-6
13
0
-19
-6
8
Sep-
01
Ma
r-0
2
Sep-
02
Ma
r-0
3
Sep-
03
Ma
r-0
4
Sep-
04
Ma
r-0
5
Sep-
05
Ma
r-0
6
Sep-
06
Ma
r-0
7
Sep-
07
Ma
r-0
8
Sep-
08
Ma
r-0
9
Sep-
09
Ma
r-1
0
Sep-
10
Ma
r-1
1
Sep-
11
Ma
r-1
2
Sep-
12
India is amongst the top
performing markets
globally in 2012
World Equity Indices CY12YTD (local currency, %) World Equity Indices 3QCY12 (local currency, %)
No negative quarters in 2012 to date,
despite several challenges facing the
economy and corporate sector
A–5October 2012
India Strategy | Fired up?
2.62.32.01.61.51.31.21.21.11.10.6
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P/B (x) CY13 / FY14 RoE (%) CY13 / FY14
1413131312101010985
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811
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PE (x) CY13 / FY14 EPS Growth CY13/FY14 (%)
-4
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4
7
9
13
14
7
15
22
Brazi l
China (HSCEI)
Japan
UK
Russ ia MICEX
MSCI EM
Taiwan
South Korea
S&P 500
India - Sensex
3
6
6
7
7
8
11
13
1
8
Japan
China (HSCEI)
S&P 500
UK
Russ ia MICEX
MSCI EM
Taiwan
Brazi l
South Korea
India - Sensex
World Equity Indices CY12 YTD Perf (%) in USD World Equity Indices 3QCY12 Perf (%) in USD
Even in USD terms, India's
performance has been
amongst the better ones
India v/s World: Richer valuations supported by superior growth and profitability
Global Indices EPS growth and PE Global Indices P/B and RoE
Average P/E :10.9x
Average EPS Growth: 14.7%Average P/B :1.5x
Average RoE: 13.6%
-8
-2
3
3
7
9
10
10
11
15
8
4
7
9
Telecom
Metal
Technology
Uti l i ties
PSU-Banks
Oi l
BSEMid-Cap
Sensex
Capi ta lGoods
Hea lthcare
Auto
Cons umer
Rea lEstate
Pvt-Banks
-17
3
13
14
29
34
35
36
36
43
21
15
28
28
Telecom
Technology
Meta l
Uti l i ties
Oi l
Sensex
Auto
Hea l thcare
BSEMid-Cap
Rea lEstate
PSU-Banks
Capita lGoods
Consumer
Pvt-Banks
Sectoral Performance for 3QCY12 (%) Sectoral Performance for CY12 YTD (%)
Banks and Consumer have
been the top performers
in 2012
A–6October 2012
India Strategy | Fired up?
Sensex Stock Performance CY12 YTD (%)
Sensex Stock Performance 3QCY12 (%)
60 54 50 47 4740 38 35 34
27 23 21 21 20 19 19 19 15 11 11 9 5 4 4 3 0
-1 -4 -6 -8-23
L&T
ICIC
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2220 20 18 18 17
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Mo
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arm
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Trend in net FII Investment (USD b)Annual Trend Quarterly Trend
Trend in net DII Investment (USD b)Annual Trend Quarterly Trend
1.5 2.7 0.7
-0.5
16.1
6.7 8.6 10.88.1
17.8
-12.2
17.6
29.3
CY0
0
CY0
1
CY0
2
CY0
3
CY0
4
CY0
5
CY0
6
CY0
7
CY0
8
CY0
9
CY1
0
CY1
1
CY1
2 YT
D
-2.4-1.3
6.47.4
5.2 4.42.3
12.610.1
0.1 0.8
-1.0-0.4
9.1
0.1
6.9
-3.3
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
3.75.35.4
16.9
-4.7
5.9
-7.4
CY0
6
CY0
7
CY0
8
CY0
9
CY1
0
CY1
1
CY1
2
YTD
3.0 3.22.1
0.4
2.4
0.5
1.80.8
-5.2
-2.2
2.4
0.8
2.1
0.6
-4.4
0.5
-3.4
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
L&T, ICICI Bank
the top performers
in CY12
Indian institutional investors have been
net sellers of equities Jan-09 to date
A–7October 2012
India Strategy | Fired up?
Re-starting the policy engine; FDI in limelightFurther growth catalysts: Lower deficits, improved flows, monetary easing
The UPA-2 government had significantly disappointed the Indian markets by
abstaining from any critical policy decisions to improve the looming macroeconomic
crisis - industrial production slump, high inflation, high interest rates, depressed
investment climate and damaged global perception of India.
India has a track record of initiating far-reaching reforms only when faced with
extreme crisis. With a precipitous fall in the Indian rupee coupled with a rating
downgrade staring India, the government finally bit the proverbial bullet with a
change in Finance Minister and a series of policy measures, even at the cost of
severing ties with the largest ally, TMC (Trinamool Congress led by Mamta Banerjee).
This, in turn, has catalyzed a slew of measures in the last few weeks that has led to
an improvement in sentiment. These measure include (1) fuel price hike,
(2) opening/relaxing FDI in multi-brand retail, aviation, broadcasting, (3) Cabinet
approval to raise FDI in insurance and pension fund, (5) easing of fundraising abroad,
(6) proposed GAAR implementation, etc. It also appeared to wade through the
political fallout of these measures.
Simultaneously, the government also sought to give a thrust to development by
finalizing the 12th Plan, putting in place a mechanism to monitor large infrastructure
projects at the PMO level, developing an airport hub, international airports, etc.
While reality will take a lot longer to reflect the first round of reforms, and require
several more follow-up initiatives, the perception has undoubtedly started changing
for the better. To some extent, this is visible in INR appreciation, revival of flows
and market sentiment.
In this backdrop, we attempt to reassess three factors that can act as significant
catalysts for further economic revival
(1) fiscal situation
(2) domestic flows into equity markets, and
(3) possible shift towards a more accommodative monetary stance.
A. Fiscal deficit slippage to be of lower order than envisaged earlier
YTD FY13 fiscal situation has remained stressful So far, the current financial year has displayed weaknesses on the fiscal front,
with receipts falling short of expenditure, widening the fiscal gap (23% YoY).
On the receipts side, while tax revenue was buoyant (21% YoY), non-tax revenue
(9% YoY) and capital receipts (-50% YoY) fell with spectrum sale and disinvestment
yet to take off.
On the expenditure front, subsidy ballooned resulting in highest ever non-plan
spend as a share of full-year budget in 15 years at 43%. Curtailment of plan
expenditure (12% YoY) was not enough to bring the overall spending as a
percentage of full-year budget at 38% higher than the long period average (LPA)
of 35%.
MACRO ECONOMY
FDI
A–8October 2012
India Strategy | Fired up?
5%
15%
25%
35%
45%5M
FY98
5MFY
99
5MFY
00
5MFY
01
5MFY
02
5MFY
03
5MFY
04
5MFY
05
5MFY
06
5MFY
07
5MFY
08
5MFY
09
5MFY
10
5MFY
11
5MFY
12
5MFY
13
As
% o
f B
udge
ted
Am
ount
Tax Reven ue (Ne t) Tota l Receip ts
This resulted in the deficit indicators surpassing their 15-year averages by a fairly
wide margin. F iscal deficit reached 66% of full year target (v/s LPA of 52%) while
the same for revenue deficit was as high as 79% (v/s LPA of 68%).
All these resulted in our prediction of a large fiscal slippage placed at 5.9% of GDP
(as against the budgeted 5.1%), taking it closer to the FY12 level, indicating no
fiscal correction YoY. If the current trend would have continued, the worst case
fiscal deficit could stand as high as 6.3%.
While tax trends have kept up with LPA, total receipts have lagged behind
Highest ever non-plan expenditure along with lower than LPA plan expenditure
20%
24%
28%
32%
36%
40%
44%
48%
5MFY
98
5MFY
99
5MFY
00
5MFY
01
5MFY
02
5MFY
03
5MFY
04
5MFY
05
5MFY
06
5MFY
07
5MFY
08
5MFY
09
5MFY
10
5MFY
11
5MFY
12
5MFY
13As
% o
f B
udge
ted
Am
oun
t
Non-Plan Expend iture Plan Expe nditure To tal Expe nditure
Deficit indicators stay well above the long period average
0%
50%
100%
150%
200%
5M
FY9
8
5M
FY9
9
5M
FY0
0
5M
FY0
1
5M
FY0
2
5M
FY0
3
5M
FY0
4
5M
FY0
5
5M
FY0
6
5M
FY0
7
5M
FY0
8
5M
FY0
9
5M
FY1
0
5M
FY1
1
5M
FY1
2
5M
FY1
3
As
% o
f B
udg
ete
d A
mo
unt
F i scal Defici t Reven ue De fici t
A–9October 2012
India Strategy | Fired up?
5.95.1
-0.30.10.20.30.6
1.5
2.5
3.5
4.5
5.5
6.5
FY13
BE
add
fue
l
subs
idy
add
food
, fe
rt.,
dro
ught
add
sho
rtfa
ll
in s
pec
trum
add
sho
rtfa
ll
in
dis
inve
stm
ent
min
us
cash
carr
y fo
rwa
rd
FY13
E
Our initial fiscal deficit estimate for FY13 pegged it at 5.9%
Slew of measures taken may take fiscal deficit to GDP ratio to 5.5% in FY13 The recent policy measures taken by the government, however, have changed
the deficit outlook significantly for the remaining part of FY13.
As a first measure, the government increased the price of diesel and capped the
subsidized quantum of LPG, along with rationalization of taxes, resulting in a net
gain of INR100b to the exchequer.
To kick-start the disinvestment program, the government has shortlisted four PSUs.
Besides, it is considering alternative and fast track mode of disinvestment through
strategic sale of Hindustan Zinc, Balco and SUUTI. All these may take the
disinvestment proceeds higher than the budgeted amount of INR300b.
The government has also alerted PSUs to transfer their huge cash reserves as
special dividend or undertake fresh investment. Either way, it would help bridge
the fiscal gap.
As evidenced by recent experiences, the provision of planned expenditure has
exceeded actual expenditure by a fair margin. Continuation of this trend would
provide a cushion of INR200b buffer to spillover of non-plan spend, especially on
subsidies.
The recent Supreme Court opinion on Presidential reference has possibly given
additional levers to the government for meeting its resource sale targets
(eg. Spectrum, land, coal mines etc).
The above measures undertaken and contemplated have led us to reduce our
fiscal deficit estimate to 5.5% of GDP from 5.9% earlier. Further, we expect no
additional borrowing, as the extent of fiscal slippage is small and can be met by
recourse to short-term borrowing.
Recent policy measures have rekindled hope of containing slippage at manageable levels
5.95.5
0.10.1 0.2
4.0
4.5
5.0
5.5
6.0
6.5
FY13 - Ea rl ierestimate
lessdisin ve stment
le ss lower o i lb i l l
le ss lowerp lan
expend i ture
FY13E - Revis ed
As
% o
f G
DP
Spectrum
Divestment
Spectrum
Roads
Coal
A–10October 2012
India Strategy | Fired up?
A few factors that can alter the fiscal scenario dramaticallyDisinvestment i ) Government approved disinvestment of four PSUs including
three mining and one OMC. This would mobilize INR150b.
i i ) Vedanta Group increases the offer for s trategic sale of
Hindustan Zinc and Balco to INR220b.
i i i ) SUUTI stake sale to garner INR200b.
Planned expenditure A curtailment in plan expenditure would free up sizable resources.
For example, in FY12, planned expenditure grew 12.6% against 16.5%
growth provided in the budget. A 4% scaling back on 22% growth in
plan expenditure in FY13 would free resourses to the tune of
INR200b, or 0.2% of GDP.
Special dividend from PSUs The nine cash rich PSUs have significant cash balance with them.
Even if a part of this is ploughed back to the government, it would
reduce fiscal deficit.
Spectrum sale The government has budgeted ~INR400b out of telecom spectrum
sale. The recent Supreme Court opinion on Presidential reference
has possibly given additional levers to the government for meeting
its resource sale targets (eg. Spectrum, land, coal mines etc).
Expect fiscal consolidation in FY14 despite higher welfare bill The fiscal consolidation attempt is likely to be carried forward to FY14, aided by a
few additional factors.
We expect GDP growth to revive to 6.5% in FY14 from 5.8% in FY13. In the past, we
have seen that revenue buoyancy improves on the back of higher GDP growth.
Imputing this trend, the tax-GDP ratio in FY14 should touch FY09 levels (close to
8%), but be lower than the levels seen during the FY07-08 peak (8.2-8.8%).
Reform in petroleum product prices together with the oil and INR outlook would
result in lower petroleum subsidy bill in FY14 to INR660b than INR1.1t in FY13. This
would create the necessary headroom for implementing the Food Security Bill (if
only on a limited scale to begin with) even if the principle of limiting subsidies to
2% of GDP is broadly adhered to.
Additionally, as witnessed during the previous episode of fiscal correction, the
planned expenditure growth may be pruned to only 14-15% if need be.
These three factors, viz., higher revenue buoyancy on account of faster growth,
reduction in petroleum subsidy and cutback on planned expenditure would see
FY14 fiscal deficit ratio improving to 4.5% to GDP as envisaged in the revised fiscal
consolidation framework (FRBM).
With better growth in FY14, tax-GDP ratio is expected to inch up
0
2
4
6
8
10
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
RE
FY13
BE
FY1
4E
Tax-GDP GDP growth
A–11October 2012
India Strategy | Fired up?
B. Likely revival of flows to equity market Even during strong years for equity markets, a low share of savings actually gets
channelized to the same.
While the average share of household equity investments stands at 5% of financial
savings, it goes down to half of that level and less than 2% when taken as a share
of household savings and overall savings of the country as a whole.
Even within that, there is a wide variation, with household savings as a percentage
of financial savings varying between a negative 0.9% to a high of 12.8% in the last
decade.
In recent years, flows to equity market (comprising of investments from mutual
funds, insurance, etc.) have been negligible due to GDP slowdown and non-
performance of the domestic equity market.
With the revival in growth and recent market performance, interest in equity
market should revive.
The government in recent weeks has been in active engagement with the domestic
mutual fund and insurance sectors to initiate reforms and revive inflows. This,
along with the likely drop in interest rates and improved GDP growth, should
create a positive backdrop for domestic flows into Indian equities. These flows
typically come in phases, and the next 3-4 years could be one such significantly
positive phase.
Containment of oil subsidy would create headroom for Food Security Bill and still keep subsidybill within 2.2% of GDP
5.76.2 5.9
4.53.9 4.0
3.32.5
6.0 6.4
4.75.7 5.3
4.53.9
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3E
FY1
4 -
FRB
M
FY1
5 -
FRB
M
0
1,000
2,000
3,000
FY12RE FY13BE FY13E FY14E
0
1
2
3
Fe rti l i ze r Foo d Petroleu m Oth ers Sub sidy a s % o f GDP (RHS)
India plans to come back to revised FRBM track
A–12October 2012
India Strategy | Fired up?
However, a mean reversion can lead to USD30b of domestic flows into equity market
C. Monetary policy: Case for change in policy stance So far, RBI has maintained a strict anti-inflationary stance, as inflation has stayed
above its comfort level for too long.
However, a few factors have changed, raising hopes that inflation could moderate,
going forward.
At the outset, rapid appreciation of the INR changes the inflationary outlook for
the petroleum and manufacturing group inflation with expected easing of 22-
40bp for these groups.
Moreover, after the initial bout, the impact of QE3 on commodities has been
rather limited. This, together with INR appreciation, has aligned the commodity
trends in India and abroad.
This would yield positive benefits for core inflation in India, which is expected to
move back towards 5% by March 2012 after hardening to 6% in the near term.
Thus, while a firm up of the inflationary trend appears inevitable for 3QFY13 (~8%),
it is expected to ease considerably in 4QFY13 (7.6%).
RBI is also likely to take due note of the improving fiscal outlook and slew of
reform measures initiated - the two reasons put forward by it for not easing policy
rates further more.
Thus, a cut in the policy rates in October 2012 is highly probable.
Meanwhile, RBI's liquidity injections in the form of OMO have been a big relief on
the liquidity front, which has come to the striking distance of being in surplus
mode on latest count. This has eased market rates considerably, well ahead of
RBI's rate cut.
Irrespective of the possibility of further rate cut, RBI must keep liquidity
intervention ongoing, as policy rate easing could only be made effective in a
situation of lower liquidity deficit. As money supply growth at 13.4% as at
September 2012 remains well within RBI's indicative projection of 15%, there is
space for further monetary easing without creating inflationary impulses.
-9
0
9
18
27
36
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY13
E
FY14
E
FY15
E
FY16
E
FY17
E
(US
D b
)
-6
-3
0
3
6
9
12
DIIs in ve stment (LHS) - Bas e cas e DII (as % of fin. savings) - Bul l cas eDII (as % of fin . s avin gs ) - Ba se cas e DII (as % of fin.s avings) - Bear cas e
USD13
USD31
USD48b
A–13October 2012
India Strategy | Fired up?
‐20
‐10
0
10
20
Jan‐1
2
Feb
‐12
Ma
r‐12
Ap
r‐12
Ma
y‐12
Jun‐1
2
Jul‐
12
Aug
‐12
Sep
‐12
Oct‐1
2
Ro gers USD (Yo Y %) Ro gers INR (YoY %)
2
4
6
8
10
Ma
r‐10
Ma
y‐10
Jul‐
10
Sep
‐10
No
v‐10
Jan‐1
1M
ar‐
11
Ma
y‐11
Jul‐
11S
ep‐1
1N
ov‐
11Ja
n‐1
2M
ar‐
12M
ay‐
12Ju
l‐12
Sep
‐12
No
v‐12
Jan‐1
3M
ar‐
13
‐20
‐5
10
25
40
India 's core inflatio n R oge rs INR (RHS)
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
Ap
r‐12
Ma
y‐12
Jun‐1
2
Jul‐
12
Aug
‐12
Sep
‐12
Oct‐1
2
No
v‐12
Dec‐1
2
Jan‐1
3
Feb
‐13
Ma
r‐13
FY13E ‐ Earl ier FY13E ‐ Revise d
INR appreciation would reduce the gap between Core inflation would go below 5% again by March 2013, if INRcommodity price trends in India and abroad appreciates to 52 in 2HFY13
Inflationary pressures may ease somewhat on INRappreciation and easing commodity prices Liquidity is coming close to neutral zone now
‐1600
‐1100
‐600
‐100
400
900A
pr‐
10
Jun‐1
0
Au
g‐10
Oct‐1
0
De
c‐10
Fe
b‐1
1
Ap
r‐11
Jun‐1
1
Au
g‐11
Oct‐1
1
De
c‐11
Fe
b‐1
2
Ap
r‐12
Jun‐1
2
Au
g‐12
Late
st
‐8
‐3
2
7
12
LAF bala nce (ne t reverse repo) (LHS)
3mth CP rates (RHS)
5.1
5.9
5.3
FY13
BE
FY13
(E
arli
er
exp
ecta
tion
s)
FY1
3 (
Curr
ent
exp
ecta
tion
s)
RBI would consider improved fiscaloutlook for monetary easing
Oct‐12
7.50%
Apr‐12
8.00%8.50%
6.25%
Oct‐12
4.00%
Sep‐12
4.50%Mar‐12
4.75%
Jan ‐12
5.50%6.00%
3%
4%
5%
6%
7%
8%
9%
Jan‐1
1
Feb
‐11
Ma
r‐11
Ap
r‐11
Ma
y‐11
Jun‐1
1
Jul‐
11
Aug
‐11
Sep
‐11
Oct‐1
1
No
v‐11
Dec‐1
1
Jan‐1
2
Feb
‐12
Ma
r‐12
Ap
r‐12
Ma
y‐12
Jun‐1
2
Jul‐
12
Aug
‐12
Sep
‐12
Oct‐1
2
No
v‐12
Dec‐1
2
Re po R ate Cash Res erve Ra tio
RBI surprised
the mkt
Expect RBI to cut rates going forward
A–14October 2012
India Strategy | Fired up?
Addressing logjam the next big challengeRequires more involved decision making process
After a long hiatus during which the government was widely criticized for policy inaction,
and the opposition and coalition politics too were blamed for stalling key reforms, the
government seems to have tightened its belt to streamline the decision making process.
The first round of reforms has centered around FDI approvals, subsidy rationalization and
discussions on improving capital market flows.
The next big challenge is to address the investment logjam. However, unlike the initial set
of reforms that have been largely addressed through policy decisions, the investment
phase requires a more involved decision making process, as land, water, resources, etc,
are the prerogatives of the state governments.
Crystal gazing: What can possibly revive the investment climate?The investment climate has worsened over the past 18 months due to structural
impediments, policy uncertainty, persistent inflation and rising interest rates. We
believe that the government will kick-start its efforts towards reviving the investment
climate by accelerating public spending. Our action wish list includes:
Successful resolution of the contentious issues in the Power sector (through SEB
debt recast, standard bidding document, and coal price pooling)
Close monitoring of CPSU capex (FY13 investment target at INR1.8t is double the
highest ever - INR931b in FY11)
Take-off of large public expenditure projects (like Dedicated Freight Corridor,
railways, urban transport, etc). Addressing structural issues impacting
infrastructure investments has become important.
Acceleration of financial sector reforms, including corporate bond market and
access to Insurance / Pension money for investment projects. Also, an expenditure
switching strategy is required that reduces government revenue spending by
cutting subsidies and steps up capital expenditure to crowd-in private investments.
Successful implementation of the National Investment Board that will provide
"single window" clearance. The government has identified 89 projects worth
USD20b for fast track clearance.
Rays of hope include… Decline in global commodity prices
Currency appreciation
Moderation in interest rates
Fiscal consolidation, leading to possible crowd-in of private investments
Slowdown more pronounced for industry, particularly in core sectorsThe investment climate has worsened over the past 18 months due to structural
impediments, policy uncertainty, persistent inflation and rising interest rates. The
slowdown has had a pronounced impact on GDP growth rate. Addressing the current
logjam is the next big challenge.
Industrial sector has acted as a continued drag on the overall GDP growth with its
contribution to GDP dropping to 10-20% currently from 30-50% earlier. Moreover,
industry has been particularly stuck by the empty middle structure with investment
facing sectors dragging industrial growth to near zero level.
INVESTMENT
A–15October 2012
India Strategy | Fired up?
Collapse in the Industrial growth had triggereda downgrade in GDP Empty middle structure continues to haunt
Structural issues impacting growth remain unaddressedThe next big challenge is to address the investment logjam, but this is easier said than
done. Unlike the initial set of reforms that have been largely addressed through
policy decisions, the investment phase requires a more involved decision making
process, as land, water, resources, etc, are the prerogatives of the state governments.
Execution is the key challenge, as several structural issues impacting growth remain
unaddressed.
We identify the key structural issues in core segments like Utilities, Metals, Financials,
Telecom, Oil & Gas and Infrastructure:
#1 UTILITIES: Initial steps encouraging, but new investments sometime away
#2 METALS & MINING: Huge investments stuck; will require close monitoring
#3 FINANCIALS: Loan growth moderating; revival will ease asset quality concerns
#4 TELECOM: Spectrum pricing and allocation, conducive M&A policy critical
#5 OIL & GAS: Rational product pricing, gas reforms imperative
#6 INFRASTRUCTURE: Creating conducive environment for large scale development
#7 MEGA PROJECTS: DFC, railways, urban transport can accelerate investment spend
Initial steps encouraging, but new investments sometime away
The Indian Utilities sector has seen step-up in capacity addition under the 11th Plan to
52GW v/s ~20GW in the earlier plan period. However, the fuel supply ramp-up, both
for coal and gas projects has been below par, impacting project economics.
Additionally, higher commercial losses of DISCOMs have also impacted affordability,
investments in T&D and growth in demand for power.
Over the last 12 months, the Prime Minister's Office (PMO), Ministry of Petroleum
(MoP) and Ministry of Coal (MoC) have taken several measures to put the sector back
on track. These include (1) financial restructuring plan (FRP) for DISCOMs, (2) steps to
enhance rake availability / easing of environment norms to help ramp up domestic
coal production, and (3) steps being taken to formulate new bid document, which
would have fuel cost as pass-through under tariff. While these measures are
0
4
8
12
16
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
0
15
30
45
60
Share of Industry in overal l growth (%, RHS)Industry growthGDP growth
-20
-10
0
10
20
Bas
ic g
ood
s
Cap
ital
good
s
Inte
rme
diat
e
goo
ds
Cons
umer
goo
ds
Du
rabl
es
No
n-
dura
bles
FY11 FY12 YTDFY13
#1 Utilities
A–16October 2012
India Strategy | Fired up?
(a) DISCOMs: Weakest link in value chain but recent initiatives to driveimprovement
Key measures that will drive improvement
Particulars Remarks
Tariff increase Loss making states like Tamil Nadu, Rajasthan and Haryana have raised
tariffs. UP too has filed tariff petition. Fuel adjustment on quarterly basis.
State regulator empowered to carry out suo moto tariff hike.
Financial State government (50%) and lenders (50%) to recast debt of INR1.9t.
restructuring plan Conditions include (1) abolition of any gaps between revenue and cost, (2)
(FRP) annual tariff revision, (3) audit of books, (4) reduction in T&D losses, etc.
Central government support of INR240b for debt to be assumed by state.
Incentive-based scheme for T&D loss reduction.
LT power Higher availability at lower rates given sizable capacity addition.
availability /
ST power cap ST power procurement monitored and now through bids only.
Cap on ST procurement as also regulatory approval.
Commercial losses atINR600b+
OUR VIEW: PositiveImpact of above measures
DISCOMs would have higher cash inflows through tariff, while moratorium would
provide cushion in cash outflows, which would drive growth in power demand.
Lenders relatively secured now, as state government is made party to
restructuring - should start incremental disbursement/growth.
Kick-start investment in T&D sector, as reduction in AT&C losses is a precondition
to avail benefits.
(b) Fuel, PPA issues at the forefront; domestic production ramp-up is key;new bid document to allow fuel cost pass-through
Shortfall in meeting capacity addition beyond FY10
FSA Qty Cumulative Requirement CIL's total OLD FSA Supply to Shortfall
Quantity @ 80% supply Comm.# new FSA
FY10 24 24 19 298 274 24 0
FY11 25 49 39 304 274 30 -9
FY12 72 121 97 312 274 38 -59
FY13E 40 161 128 347 274 73 -55
FY14E 44 205 164 377 274 103 -61
FY15E 47 252 201 407 274 133 -68
#Assumed old FSA will be given coal only up to 90% ACQ levels till FY09. * Calculated
assuming 65% domestic supply and 15% import for 80% trigger level are sacrosanct numbers
-209 -2
71 -319
-537 -6
35
-596-6
69
FY06
FY07
FY08
FY09
FY10
FY1
1E
FY1
2E
encouraging, their successful implementation would first boost current/upcoming
capacity additions under the 12th Plan. We believe new investments in the Power
sector, particularly by the private sector, are still sometime away. Private developers
might face issues, given higher DER, existing PPA/FSA issues, ventures like overseas
mine acquisition, etc.
A–17October 2012
India Strategy | Fired up?
Key measures taken to address issues
Particulars Remarks
Coal production CEPI and No-Go hurdle removed
Rake availability enhanced
Greater focus on captive coal development
Mandate to sign FSA to bring accountability
PPAs Review taken up for discussion at various levels
Auditor General's view sought - PPA can be reviewed
New bid document under preparation - bid on capacity charge ONLY, fuel cost
pass-through
Huge investments stuck; will require close monitoring
Metals & Mining is another sector that will require close monitoring to restart the
investment cycle. The huge investments made by various companies are stuck at
different levels. Various projects of Vedanta, Hindalco, JSPL, JSW Steel, Tata Steel, etc
still face delays because of issues relating to land acquisition, mining clearances,
availability of water, etc. These issues are yet to be addressed in the current wave of
reforms. Vedanta has served notice for its closure, as it is unable to source bauxite
despite proximity to mines in Odisha and has already run losses of INR25b. Operating
assets are closing down and projects are getting delayed.
OUR VIEW: Steps in right direction; would watch for milestone/improvementImpact of above measures
Coal India's production has begun to look up - production/dispatches up 7.6%/
6.2% YTD FY13 v/s near-zero growth in FY12. Domestic coal supply improvement
to enable low cost power availability to DISCOMs.
Coal price pooling would be inevitable to tide over domestic shortfall through
imports - states' consent crucial.
New projects would have significantly lower risk, as developers bid on capacity
charge and fuel cost pass-through - an important enabler to kick-start investment
process.
Captive coal block development now being monitored and developers made
accountable; several instances of de-allocation, forfeiture of bank guarantees.
#2 Metals & Mining
PPA review sought
Developer Cap (MW) Remarks
Adani Power 1,000 GUVNL PPA signed at INR2.39/unit is proposed to be reviewed
JSW Energy 300 PPA with MSEDCL under contest, given change in Indonesian laws
Tata Power 4,000 Mundra UMPP tariff review sought; INR0.67/unit increase on levelized
tariff bid of INR2.26/unit
Reliance Power 4,000 Krishnapatnam UMPP progress halted due to Indonesia price
regulation
Lanco Infratech 600 Amarkantak project PPA in dispute with state over cost, tariff cap, etc
Jaiprakash Power 1,000 Karcham Wangtoo project PPA under review due to cost escalation
A–18October 2012
India Strategy | Fired up?
1,10
9
1,21
1 2,1
54
437 1,
454
1,0
66
1,12
4
256 7
91 1,49
9
2,2
02
1,6
34
171
3,40
1
1,76
7
1,46
1
605
2,1
70 3,27
9
-87 56
1
56
1Q 2Q 3Q 4Q
FY08 FY09 FY10 FY11 FY12 FY13
Economic activity/Projects
Mahan 359ktpa smelter
and 900MW CPP
Mining ban in Goa
JSPL, Angul
(Greenfield project)
Issues
Coal block was allocated in JV with Essar Energy
in 2006. Production was expected to start in
2009. The Mahan Coal Block was declared in
no-go area in 2010. EGOM gave the coal block
stage-I forest clearance in May 2012.
Iron ore mining in Goa is largely meant for
exports. The low grade ore can be used after
blending it with high grade ore. High cost of
logistics makes it unviable for Indian steel
producers. Ineffective administration was
unable to check illegal mining. The Shah
Commission report made numerous
allegations. Clueless state and central
governments put a blanket ban on mining,
impacting even the disciplined players.
JSPL's 1.6mtpa steel expansion in Angul
involves a coal gasification based DRI plant.
The Utkal B1 coal mine is essential for the
profitability of the project.
Current status
INR86b has already been spent from the total
INR107b. Without stage-I approval, production
is not expected in the next two years. The
project NPV is negative without captive coal
block. There is no further communication by
the government on coal block clearance since
May 2012.
The Goa government temporarily suspended
all mining operations in the state in
September. In a tug of war between the state
and the center, the MoEF later suspended
environmental clearances for iron ore mines.
This has complicated the matter further for
restart of mining in the state.
JSPL is yet to sign mining lease despite most
approvals in place for the last one year. The
issue keeps moving between the state and
central governments, as officials are reluctant
to take any action in light of the controversy
over various mine allotments. The mantra
seems to be "no decision is a good decision".
The following examples highlight the deteriorating state of investments
Loan growth moderating; economic revival will ease asset quality concerns
Dearth of deployment opportunities leading to moderation in loan growth: Given the
backdrop of slowing economic growth, policy logjam and issues related to documental
clearances, corporate capital spending has slowed down significantly. CMIE data
indicates that new project investments in FY12 have declined 35% and are lower than
in FY07. The deceleration continued in 1HFY13 as well, with new investments declining
by as much as 50% YoY. This has also translated into moderate loan growth, with
deceleration in key sectors like Infrastructure (especially Power), Metals and Services.
New project additions slowing down Incremental loan growth decelerating (INR b)
Quarterly project additions in the quarter ended September
2012 lowest since June 2004
On a quarterly basis, incremental loans decelerated in FY12
except in 4Q and the trend of deceleration continues in FY13
0
2,000
4,000
6,000
8,000
Mar
-10
May
-10
Jul-
10
Sep-
10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-
11
Sep-
11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-
12
Sep-
12
Added Revived Shelved Deleted
#3 Financials
A–19October 2012
India Strategy | Fired up?
Loan growth has moderated across key segments (%)
Cost of funds in the system needs to be lowered: With inflation being relatively sticky
and above comfort zone, RBI has refrained from aggressive cuts in repo rate. Headline
interest rates have remained at an elevated level. This is also reflected in higher term
deposit cost (+160bp YoY) for banks under our coverage. Coupled with sharp fall in
incremental CASA ratio (especially due to decline in CA deposits), cost of funds for
the banking system has gone up significantly. With the current growth-inflation
dynamics and government actions being pro-growth, it is important for interest rates
in the system to go down to boost the improving sentiment.
YoY Growth Incremental Contribution
Mar-09 Mar-10 Mar-11 Mar-12 YTD* Mar-09 Mar-10 Mar-11 Mar-12 YTD*
Loans 17.8 16.6 20.8 17.2 4.4 100.0 100.0 100.0 100.0 100.0
Industry 20.9 24.4 23.6 21.3 2.4 45.6 58.4 48.1 53.9 24.3
within which
Infrastrcuture 31.5 40.7 38.6 17.6 9.8 16.1 24.9 22.8 14.4 31.4
Of which Power 30.9 50.9 43.3 22.2 19.3 7.3 14.4 12.7 9.3 32.8
Of which Telecom 31.5 18.0 69.2 -6.8 -13.6 3.0 2.1 6.4 -1.1 -6.5
Of which Roads and Ports 36.5 56.3 25.8 23.6 13.9 3.1 6.0 3.0 3.4 8.2
Metals 19.7 26.5 28.8 21.8 12.7 5.3 7.8 7.3 7.1 16.8
Texti les 6.5 18.2 19.2 10.4 -5.6 1.6 4.2 3.6 2.4 -4.6
Services 18.3 12.5 23.9 14.7 -0.3 24.9 18.3 27.1 20.6 -1.9
Real Estate 48.4 -0.3 21.4 7.8 -9.6 7.5 -0.1 3.1 1.4 -6.0
NBFCs 31.3 14.8 54.8 26.3 20.3 5.9 3.3 9.7 7.2 23.2
Personal Loans 10.1 4.1 17.0 12.1 13.6 12.9 5.3 15.5 13.0 53.9
Housing Loans 9.3 7.7 15.0 12.1 18.7 5.9 4.9 7.0 6.5 37.3
Agriculture 23.8 22.9 10.6 13.5 2.1 16.2 17.6 6.9 9.7 5.8
* till August 2012: annualized
Incremental CASA ratio lowest Reduction in CRR to bring down negativein a decade (%) Cost of deposits has increased (%) carry by 3-4bps
48.3
37.644.8
29.934.2
23.2
50.3
36.1
19.5
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
4.0
5.5
7.0
8.5
10.0
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
Cos t of Depos i tsCos t of Term Depos i tsRepo Rate
Negative Carry on CRR
0 3 6 9 13161922262933364043475054
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Repo rate/CRR cut would help the cause: Under the current base rate regime, for
lending rate to decline, it becomes imperative for cost of funds to go down first.
However, with repo rate at the current level of 8%, it is unlikely that term deposit
rates (blended rate at ~8% v/s 6.5% in FY11; implies that cost of incremental term
deposits is even higher) would decline. Hence, RBI action in the form of reduction in
repo rate and CRR is warranted, which could ease pressure on systemic interest rates
and in-turn, a gradual decline in lending rates as well. Government action along with
supportive actions by the RBI is a must to combat the slowdown in the economy.
A–20October 2012
India Strategy | Fired up?
Stress loans ex-AI and SEBs have increased 110bp v/s reported increase of 280bp:
Stress loans for state-owned banks (MOSL coverage) have increased to 7.7% in 1QFY13
as compared to 4.9% in FY11. However, it is important to note that restructuring of SEB
and Air India (state-owned entities) loans constituted bulk of the stress loans (1.7%),
excluding which the increase would have been 110bp. The stated stress loans appear
higher even on account of loans restructured prior to FY10 (2.1% of loan book), which
would be eligible for removal from the restructured loan category if the Mahapatra
Committee recommendations on restructuring are approved in the current form.
Stress loans would decline significantly to 3.8% (ex-AI and SEBs) as against headline
numbers of 7.7% (6% ex-AI and SEBs).
Incremental cost of fund have increased in the system
5.4
8.7
2.0
0.80.50.1
Reta i l TD Cost -ve Carry on
SLR
-ve Carry on
CRR
CASA Cos t Bulk Dep. Cost Incr. Cost of
Dep.
SEB and AI forms bulk of new restructer loans
( %) 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13
NNPA 1.1 1.1 1.1 1.1 1.2 1.5 1.6 1.5 1.8
OSRL 4.2 4.1 4.0 3.8 3.8 3.8 4.1 5.3 6.0
Of which AI and SEB - - - - - - 0.1 1.2 1.7
Of Prior to FY10 - - - - - - - 2.1 2.1
OSRL ex AI and SEB 4.2 4.1 4.0 3.8 3.8 3.8 4.0 4.2 4.2
Stress loans 5.3 5.2 5.1 4.9 4.9 5.3 5.7 6.8 7.7
Stress Loans ex AI and SEB 5.3 5.2 5.1 4.9 4.9 5.3 5.6 5.6 6.0
Stress Loans ex AI and SEB and - - - - - - - 3.5 3.8
loans restructured prior to FY10
Growth revival will assuage asset quality concerns: The key feature of the current
economic slowdown is that it is particularly severe for the industrial sector. IIP growth
decelerated to 3.1% in FY12 and is expected to decelerate to sub-2% in FY13. This is
important from the Banking sector's perspective because the industrial sector accounts
for ~45% of bank loans and improvement in economic growth could help assuage a lot
of asset quality issues. Within Industry, we note that the proportion Power sector
loans has increased to 7.5% in FY12 as against 4.2% in FY08. There could be increased
stress in Power sector loans. However, the silver lining of the government's serious
intent to improve the health of SEBs and resolve issues relating to the Power sector
could be a big boost to the health of banks.
How did we derive incremental
cost of deposits (including
negative carry) of 8.7%?
Incremental SA ratio of
20% and CA ratio of 0%
(due to sharp moderation
in corporate profitability
and better treasury
management). Thus
weighted average CASA
cost stood at 0.4%
Share of retail term
deposits in overall
deposits at 60% and cost
of deposits at 9%, thus
weighted average cost of
deposits at 5.4%
Share of bulk deposits at
20% with the cost of
deposits at 9.8%, thus
weighted average cost of
deposits at 1.96%
Negative carry on account
of CRR (50bp) and SLR (at
8% Yield on Investments
at 10bp)
A–21October 2012
India Strategy | Fired up?
Spectrum pricing and allocation, conducive M&A policy critical
Over FY07-12, private telecom operators invested ~USD60b, including the outlay for 3G
and BWA spectrum. Hypercompetition and lack of regulatory clarity has significantly
impacted the return ratios of all operators, with the challengers currently incurring
significant losses. Listed operators require an RPM increase of 12-64% to reach even the
base RoCE level of 12%. Further investments in the sector have been curtailed due to
low returns and lower availability of funding due to stressed balance sheets of most
operators. Investment activity is unlikely to resume, unless balance sheets get repaired.
RPM increase required to reach 12% RoCE (FY13 basis)
Bharti (India & SA) Idea RCom
Avg Capital Employed (INRb) 783 272 692
EBIT for 12% ROCE (INRb) 140 49 124
Wirelss traffic (b min) 997 556 426
Wireless revenue (INRb) 444 231 185
EBIT (INRb) 75 26 29
Wireless RPM (INR) 0.43 0.41 0.43
Incremental EBIT required (INRb) 66 22 95
Incremental revenue required (INRb) 82 28 119
Incremental RPM required (INR) 0.08 0.05 0.28
Wireless RPM required (INR) 0.51 0.46 0.71
% increase required 19 12 64
Some of the initiatives that the government can take to restore financial health of the
sector are:
1) Clear policy on spectrum pricing and allocation, with visibility on roadmap for all
spectrum blocks to be made available in the future
2) Putting all available spectrum to auction upfront rather than creating artificial
scarcity by putting limited amounts for auction
3) Conducive M&A policy which can support transfer of spectrum from inefficient
operators to efficient ones
4) Negotiation-based settlement on 3G intra-circle roaming and Vodafone tax case
5) Removal of policy overhangs like spectrum re-farming that might result in
significant operational disruption as well as financial burden for the industry
Rational product pricing, gas reforms imperative
Petroleum product under-recoveries have been continuously rising in the last few
years, led by increasing oil prices and a depreciating rupee. Gross under-recoveries
for FY13 are likely to be at a new high of INR1.6t v/s INR1.4t in FY12. However, with oil
price at ~USD110/bbl and the rupee appreciating, the outlook for the sector appears
better. More importantly, over the years, the Indian economy has acquired increased
resilience to high oil prices and high under-recoveries. If the average oil price were to
remain at USD105-110/bbl in FY13/FY14, the import bill as well as subsidy estimate as
a percentage of GDP would be well below FY09 levels, when oil prices had averaged
at USD85-90/bbl. Recent steps by the Indian government to hike diesel prices and
limit subsidized LPG cylinders are bold (though inevitable!), in our view. Further policy
follow-up by fast-tracking the implementation of subsidy through cash transfer is
positive.
#4 Telecom
#5 Oil & Gas
A–22October 2012
India Strategy | Fired up?
India's high oil dependence (~80%)
overshadows the increased resilience
of the Indian economy to high oil
prices and high under-recoveries.
Brent price of USD110/bbl now…
India's net oil import bill and
government subsidy burden as a
percentage of GDP
… is similar to Brent at USD85-90/bbl
in FY09
Oil @ USD110 now is oil @ USD85-90 in FY09
Model diesel price hike of INR2/liter in FY14, exchange rate of INR54/52/USD for FY13/14
Rational petroleum product prices imperative for healthy economic growth:
Controlling (under-pricing) petroleum products not only results in inefficiencies such
as (i) substitution of low value products (e.g. fixed price diesel replacing market-
priced fuel oil), and (ii) adulteration, but also impacts (a) India's energy security, (b)
financial health of oil companies (increased debt, reduced profitability), and (c)
government finances (high fiscal deficit). If India's GDP were to grow by 9%, energy
consumption would grow by 6-7%. Rational energy prices are necessary for healthy
economic growth. They would also incentivize domestic producers to increase their
production.
0
30
60
90
120
FY9
9
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY13
E
FY14
E
Bre
nd O
il pr
ice
(USD
/BL)
-1.0
1.5
4.0
6.5
9.0
Oil
impo
rts
& s
ubsi
dy
(% t
o G
DP)
Brent Crude Price (USD/bbl ) - LHSNet petroleum imports (% to GDP) Petroleum Subs idy (% to GDP)
Under-recoveries and their sharing (INR b) Sensitivity of under-recoveries to oil price/exchange rate (INR b)
Recent policy actions are positive The recent Kelkar Committee report had recommended immediate price hikes
and had also provided a roadmap of policy goals to reduce under-recoveries.
Diesel: Aim to eliminate half the diesel subsidy per unit in FY13 and the
remaining half over FY14.
LPG: To eliminate LPG subsidy by FY15 by reducing it by 25% by FY13, with the
remaining 75% over the next two years.
Kerosene: To reduce the subsidy by one-third by FY15.
347 458 316 405 573 610 508
426
812968
695575375
144
7731,033
461780
1,203
1,5771,385
FY08 FY09 FY10 FY11 FY12 FY13EFY14E
Auto FuelsDomestic FuelsTotal
-600
0
600
1,200
1,800
FY08
FY09
FY10
FY11
FY12
FY1
3E
FY1
4E
0
500
1,000
1,500
2,000
OMC's s haringOi l Bonds/CashUpstreamTota l
Gross Under recoveries (INRb)
80* 90* 100* 105* 110* 120*
50 191 296 709 921 1,134 1,558
52 216 447 888 1,109 1,330 1,771
54 242 609 1,068 1,297 1,526 1,985
56 296 772 1,247 1,485 1,722 2,198
58 441 934 1,426 1,673 1,919 2,411
Brent (USD/bbl)*
Fx R
ate
(IN
R /
USD
A–23October 2012
India Strategy | Fired up?
Though government has been largely aware of the path required to reduce under-
recoveries and in turn the subsidy burden, it has not been able to follow a clear
roadmap. Nevertheless, despite all the political constraints, the government has
in part put itself on a path to reduce under-recoveries. Few of its steps include:
Decontrol of petrol prices (with small hiccups, petrol is now largely
deregulated).
Limiting of subsidized LPG cylinders (real impact would be seen over the
medium term).
Subsidy by cash transfer to beneficiaries' accounts (reduce leakages and subsidy
through direct targeting). For instance, a study by NCAER indicates that ~40%
of the PDS kerosene is diverted for non-PDS use.
Gas price reforms to boost domestic production: Domestic gas price has been
historically controlled by the government. Against the price of imported gas at USD11/
mmbtu, domestic gas price is limited at USD4.2-5.7/mmbtu. The last hike in
administered gas price was in June 2011, post KG-D6 gas pricing. With domestic gas
prices at a significant discount to imported gas prices, there is little incentive for
upstream companies to invest at the fixed gas price of USD4.2/mmbtu. Also, the
breakeven price for new deepwater discoveries in the country is pegged at USD5-6/
mmbtu.
While there is no clear policy roadmap to increase or rationalize domestic gas price,
we expect the next price revision to take place in sync with the scheduled price
revision for KG-D6 gas in March 2014 or earlier in view of declining KG-D6 production
and dire need for gas in India. Though it would be difficult to estimate the likely price
revision, it is easy to identify the beneficiaries. Higher gas price is likely to facilitate
the development of RIL's discoveries in KG-D6 and NEC-25, but from the earnings
perspective, we believe ONGC will be the largest beneficiary.
ONGC's EPS is more sensitive to increase in gas price than RIL's
Gas Price (USD/mmbtu) 4.2 6.0 7.0 8.0 9.0
Exchange rate (INR/USD) 55.0 55.0 55.0 55.0 55.0
Gas Price (INR/mscm) 8,085 11,550 13,475 15,400 17,325
ONGC - FY14 basis
Standalone gas sales (mmscmd) 53 53 53 53 53
Standalone gas sales (bcm) 19 19 19 19 19
Incremental PBT (INRb) - cumulative 67 104 141 178
Incremental PAT (INRb) - cumulative* 45 70 95 119
Incremental EPS (INR/sh) - cumulative 33.4 5.2 8.1 11.1 14.0
% increase over base FY14 EPS 16 24 33 42
RIL - FY14 basis; 60% stake in KG-D6
Gas production (mmscmd) 25.0 25.0 25.0 25.0 25.0
Gas production (bcm) 9.1 9.1 9.1 9.1 9.1
Incremental PBT (INRb) - cumulative 19 30 40 51
Incremental PAT (INRb) - cumulative** - 15 24 32 40
Incremental EPS (INR/sh) - cumulative 69.7 5.2 8.1 10.9 13.8
% increase over base FY14 EPS 7 12 16 20
* Full tax rate assumed; **tax rate of 20% assumed; Sensitivity would be in favor of RIL if its
production increases beyond 40mmscmd
A–24October 2012
India Strategy | Fired up?
Creating conducive environment for large scale development
Infrastructure spending in India was targeted at USD500b (7.5% of GDP) under the
11th Plan, up from USD227b in the 10th Plan (5% of GDP). The initial estimate for the
12th Plan suggested infrastructure spending at USD1t, representing 9% of GDP. The
share of the private sector was expected to increase from 24% in the 10th Plan to
36.2% in the 11th Plan and to 51% in the 12th Plan. This, in our view, is difficult, with
several policy/regulatory hindrances, lack of established models for PPP framework,
lack of initiatives to establish long-term funding for the sector, etc. Except for the
Roads sector, other major areas of infrastructure are languishing. In Roads too,
developers, particularly those that bid aggressively, are witnessing financial crunch.
DFC, railways, urban transport can accelerate investment spend
Take-off of large public expenditure projects (like DFC, railways, urban transport, etc)
has become important at the current juncture. In this context, the ruling coalition
regaining control over the Railway Ministry (contributing ~12% of the infrastructure
spending in 12th Plan) raises hopes of an accelerated spending program.
Urban infrastructure development is now becoming an important priority, given
the haphazard urbanization in various cities. There are 30 cities in India with a
population of over 2m each, and according to the Planning Commission, these
cities might implement Metro Rail at some stage or the other. There are 14 cities
with a population of over 3m each and 7 cities with a population of over 5m each.
Several of these cities are actively planning Metro Rail. Delhi has completed its
Metro Rail project, while Bangalore has opened a section. Metro Rail projects are
under construction in Chennai, Kolkata, Mumbai, Jaipur and Hyderabad. During
the 12th Plan (FY13-17), the Working Group of Urban Transportation estimates
investments in Metro Rail projects at INR1.3t.
Capacity addition in transport infrastructure (particularly railways) since
independence has been woefully inadequate. The railway route kilometers have
increased at a CAGR of 0.3% and running track kilometers at a CAGR of 0.7%. In
comparison, net ton kilometers have increased at a CAGR of 4.5%. This has led to
massive pressure on the existing infrastructure, and the accumulated deficiencies
are acting as key growth bottlenecks for several segments. Coal availability to
power projects has been impacted, given the evacuation constraints, though Coal
India continues to carry a large inventory of 60m tons. There is an urgent need to
address the logistics issue, given that a large part of India's mineral resources is
located in the eastern states of Jharkhand, Chhattisgarh and Orissa, while western
and southern India are the major consumption and industrial centers. Indian
Railways has planned a steep increase in spending in the 12th Plan to INR5t+ v/s
~INR2.2t in the 11th Plan, but funding remains a key challenge.
The Dedicated Freight Corridor (DFC) is an important project that attempts to
partly correct the under-investment in railway infrastructure, and we expect
project awards to commence in FY13. The project is being funded by multilateral
agencies from Japan and World Bank. Hence, funding is not expected to be a
major challenge. We believe that the DFC combined with the Delhi Mumbai
Industrial Corridor will have a meaningful multiple effects on the economy.
#6 Infrastructure
#7 Mega projects
A–25October 2012
India Strategy | Fired up?
Early signs of a rebound in earnings growthSensex EPS growth reverts to LPA of 15%; Earnings downgrades bottoming out
Expect FY14 earnings growth of 14%
Sensex EPS growth has reverted to LPA of 15%
Is FY14 the beginning of a new earnings cycle? There are some early signs:
#1 Earnings downgrade cycle has bottomed out
#2 Our FY14 assumptions far from aggressive
#3 FY14 earnings mix is less vulnerable than that of FY13 initial estimates
#4 More stocks have a bias for earnings upgrade than downgrade
Expect FY14 earnings growth of 14%Our bottom-up estimates for the MOSL universe of companies (ex RMs) suggests FY14
sales growth of 8%, EBITDA growth of 15% and PAT growth of 14%. This growth is
driven mainly by –
1. Bounceback in sectors which were affected in FY13 (Auto, Telecom); and
2. Steady growth in secular sectors (Consumer, Healthcare, Financials) offsetting
low growth in specific sectors like Oil & Gas, Technology and Capital Goods.
Annual Performance - MOSL Universe
Sector Sales (INR B) EBIDTA (INR B) PAT (INR B)
FY13E FY14E CH. CH. FY13E FY14E CH. CH. FY13E FY14E CH. CH.
(%) # (%) @ (%) # (%) @ (%) # (%) @
High PAT Growth YoY 5,309 5,989 14 13 952 1,114 9 17 324 420 -6 30
Telecom (4) 1,264 1,386 11 10 376 423 4 12 48 73 -23 50
Retail (4) 281 328 17 17 27 32 18 21 10 14 18 32
Real Estate (11) 232 294 3 26 95 123 2 30 46 60 -1 30
Auto (5) 3,532 3,981 16 13 454 537 14 18 219 274 -4 25
Medium PAT Growth YoY 8,408 9,308 8 11 2,923 3,436 12 18 1,583 1,865 14 18
Media (5) 112 128 11 14 36 41 10 17 17 20 15 20
Health Care (17) 880 966 19 10 205 223 17 8 127 152 22 20
Others (4) 173 192 10 11 34 39 6 16 19 22 4 19
Consumer (12) 1,175 1,360 17 16 247 292 21 18 166 198 20 19
Metals (10) 3,962 4,179 1 5 717 844 3 18 381 451 4 18
Financials (27) 2,106 2,482 14 18 1,685 1,997 14 19 874 1,022 16 17
NBFC (8) 272 323 23 19 265 315 21 19 176 209 19 19
Private Banks (8) 484 583 21 20 410 499 22 22 248 294 20 18
PSU Banks (11) 1,350 1,576 10 17 1,010 1,184 10 17 449 519 14 16
Low PAT Growth YoY 14,216 14,807 15 4 2,695 2,984 8 11 1,675 1,800 9 7
Cement (8) 963 1,104 13 15 228 260 20 14 118 134 19 13
Utilities (10) 2,185 2,413 15 10 621 726 19 17 384 428 10 11
Technology (6) 1,864 2,083 23 12 468 503 22 7 352 382 23 8
Excl. RMs (10) 7,546 7,422 14 -2 1,166 1,275 -2 9 677 712 4 5
Oil & Gas (13) 16,160 16,193 11 0 1,421 1,577 -2 11 761 810 -4 7
Capital Goods (9) 1,659 1,785 9 8 212 222 2 5 144 146 1 1
MOSL (145) 36,547 38,875 11 6 6,824 7,837 9 15 3,666 4,184 8 14
MOSL Excl. RMs (142) 27,933 30,104 13 8 6,570 7,534 10 15 3,583 4,085 10 14
Sensex (30) 9,740 10,314 13 6 1,902 2,160 9 14 1,039 1187 10 14
Nifty (50) 10,978 11,605 11 6 2,183 2,474 10 13 1,199 1363 11 14
*Growth FY12 over FY11; # Growth FY13 over FY12; @ Growth FY14 over FY13. For Banks : Sales = Net Interest Income, EBIDTA =
Operating Profits; Note: Sensex & Nifty Numbers are Free Float
FY14 Earnings
A–26October 2012
India Strategy | Fired up?
Sensex EPS growth has reverted to LPA of 15%For the 5 years ending FY13, Sensex EPS CAGR has been muted at 8%. However, it
becomes more interesting when seen from a longer term perspective. India’s long-
period average (LPA) earnings growth is 15%. However, the last 20 years’ earnings can
be bracketed into 4 distinct cycles of 5 years each as shown below.
Sensex EPS trend: Distinct boom-bust cycles
Is FY14 the beginning of a new earnings cycle?Post Cycle 3 i.e. the FY03-08 boom, the 15-year Sensex EPS CAGR scaled up to 17%.
However, the slowdown since then has caused the same to revert to the LPA of 15%.
Now, our bottom-up earnings estimates for Sensex companies suggest FY14 Sensex
EPS growth of 14%, close to the LPA. The key question: Is FY14 the beginning of a new
earnings cycle?
A definitive yes or no is tough, given the high level of global and domestic uncertainty
on several macroeconomic and business variables – resolution of Eurozone crisis,
GDP growth (both global and for India), commodity prices especially oil, exchange
rate, etc. Still, we believe that there are a few early signs that this is a distinct
possibility:
1. Earnings downgrade cycle has bottomed out
2. Our FY14 assumptions are far from aggressive
3. FY14 earnings mix is less vulnerable than that of FY13 initial estimates
4. More stocks have a bias for earnings upgrade than downgrade.
Earnings downgrade cycle has bottomed out
We introduced our FY13 estimates in December 2010 when bottom-up aggregation of
Sensex companies’ PAT suggested FY13 EPS of 1,492. Since then, a combination of
global headwinds (mainly sovereign debt crisis in Eurozone) and domestic politico-
economic logjam has led to an 18% downgrade in Sensex EPS to 1,218 currently.
81 129 181250 266 291
348450
523
718833
1,395
278 280216 236 272
820 834
1,0241,125
1,221
FY9
3
FY9
4
FY9
5
FY9
6
FY9
7
FY9
8
FY9
9
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3E
FY1
4E
FY93-98: 29% CAGR FY98-03: -1% CAGR
FY03-08: 25% CAGR
FY08-12: 8% CAGRFY93-13: 15% CAGR
1 2 3 4
Early sign #1
A–27October 2012
India Strategy | Fired up?
Our FY14 assumptions far from aggressive
We believe most of our underlying assumptions for FY14 estimates are far from
aggressive, impacted by the current macroeconomic slowdown and weak business
sentiment. Thus, in most sectors, key operating metrics are assumed at the same
depressed levels of FY13 or lower e.g. Capital Goods order intake, Consumer revenue
growth, prices of most metals and oil, credit offtake, credit cost, wireless traffic,
power tariff, etc. The only metrics where some recovery is modeled in are Auto/
Cement volumes and USD revenue growth for Technology sector.
However, the pace of downgrade has slowed down considerably. In the last 9 months,
Sensex EPS downgrade is less than 4%, and in the last 3 months, there is actually a
miniscule upgrade. Equally important, if not more, FY14 earnings estimates have not
seen any meaningful downgrade in the last 6 months. Clearly, the last two quarters
are some evidence of a possible end to the earnings downgrade cycle.
Earnings downgrade cycle seems to have bottomed out for FY13 … … and also FY14
1,2211,2181,2591,2671,3371,3971,4711,492
18 18 18 1714 14
8 9
Dec 10 Mar 11 Jun 11
New
Series
Sep 11 Dec 11
New
Series
Mar 12 June 12 Sep 12
FY13 EPS (INR) FY13 EPS Growth YoY (%)
15% downgrade in the first 12 months Less than 4% downgrade
in last 9 months
1,3951,3871,431
14 14 14
Mar 12 June 12 Sep 12
FY14 EPS (INR) FY14 EPS YoY (%)
1,221
1,492
-21-64-54
-43-21-20-19-18-18-17-16-13
1835
Sen
sex
EPS
(Dec
-10)
Coal
Indi
a
TCS
Ma
ruti
L&T
ON
GC
Ste
rlit
e
SB
I
BH
EL
NTP
C
JSPL
Tata
Stee
l
RIL
Bha
rti
Oth
ers
(ne
t)
Sen
sex
EPS
(Cur
rent
)
Bharti, Reliance and Tata Steel led the downgrade of FY13 Sensex EPS
Early sign #2
A–28October 2012
India Strategy | Fired up?
Key Operating Metrics / Assumptions
FY12A FY13E FY14E Remarks
Auto
2 Wheeler Volume Growth 12% 3% 12% FY13 volume growth downgraded to 3%
4 Wheeler Volume Growth 10% 5% 15% Recovery in FY14 on low base (strike in Maruti’s Manesar plant)
CV Volume Growth 19% 8% 14% M&HCV to grow -2.5%/+12% in FY13/FY14, LCVs 15%/15%.
Capital Goods
Avg order intake growth (%) -26% 21% 8% Industrial capex, orders to remain sluggish on high cost of capital.
Cement
Volume Growth (%) 7.0 8.0 10.0 FY14 volumes to be driven by pre-election developmental activities,
Price Change (INR/bag) 23.0 20.0 10.0 as well as demand from individual housing.
Consumer
Value Growth (%) 19.0 17.0 16.0 Marginally revised the gross margin assumptions upward
EBITDA Margins (%) 20.0 21.0 21.0
Financials
Credit Growth (%) 17.0 16.0 16.0 Unchanged as investment climate is yet to improve
Credit cost (% of average loans) 0.9 1.0 1.0 We continue to build higher credit cost in FY14
Media
Ad Revenue Growth (%) 2 10 12 Ad growth to recover in FY13 on a low base and improve in FY14
Metals
Steel (USD/ton) 863 720 672 Domestic steel price assumptions lowered by 10%-15% given sluggish
Aluminium (USD/ton) 2,346 1,996 2,100 demand, significant decline in RM prices and increased threat of
Copper (USD/ton) 8,501 7,898 7,500 cheaper imports, especially from China.
Zinc (USD/ton) 2,121 1,910 2,000 No major change in Base metals assumptions.
Oil & Gas
Brent Oil Price (USD/bbl) 114.5 110 105 High uncertainty in oil market fundamentals: demand growth (pegged
at 0.8mmbbl/d in 2012, 2013), geopolitics (Iran situation, US election).
OPEC (ex Iran) producing at historically high levels.
Singapore GRM (USD/bbl) 8.3 8.0 8.0 Unless meaningful closures happen. GRMs unlikely to rise above USD7-
9/bbl. Global operating rates (ex of US) are likely to remain low led by
lower demand and commissioning of new refineries.
Technology
USD Rev. Growth (top-tier) 21% 12% 16% Sluggish beginning to CY12 marred growth rates for FY13. Continued
USD / INR 48.2 54.5 53 budget spends albeit at a slower pace imply some pick up in growth in
FY14, though still not enough to match that in FY12
Telecom
Wireless traffic growth (%) 16 11 8 Wireless traffic growth to impacted by withdrawal of promotions and
lower subscriber additions
RPM change (%) -0.9 -1.9 2.4 Pricing pressures to recede on corrective actions by the industry
Utilities
Merchant Power Rate 3.5 4.0 4.0 Our assumptions for Utilities sector remain unchanged
PLF 66 67 67
FY14 earnings mix is less vulnerable than that of FY13 initial estimates
We compared the FY14 earnings mix with that of our initial FY13 initial estimates
(which saw sharp downgrades subsequently). We believe that the current earnings
mix has lower likelihood of major downgrades. Our key observations:
Earnings mix has marginally improved in favor of domestic plays over global plays.
More importantly, with both domestic and global plays, share of non-cyclicals has
increased. Thus, share of overall non-cyclical earnings has increased from 55% in
FY13IE (initial estimates in Dec-2010) to 60% for FY14E.
Early sign #3
A–29October 2012
India Strategy | Fired up?
Within Domestic Non-cyclicals, the share of Telecom is lower in FY14E vis-à-vis
FY13IE, whereas share of Financials, Utilities and Consumer is higher.
Likewise, within Global cyclicals, share of volatile Oil & Gas and Metals is lower,
whereas share of Tata Motors (which has majorly turned around) is higher.
Finally, there is no chunky contributor to the build-up of Sensex EPS from 1,221
for FY13 to 1,395 for FY14. This, we believe, further reduces the risk of downgrade
due to adverse developments in 1-2 companies.
FY14 earnings mix suggests FY13 kind of downgrades unlikely to recur
MOSL Universe PAT mix (%) Sensex EPS mix (%)
FY13IE FY13CE FY14E FY13IE FY13CE FY14E
Domestic Plays 57 54 55 48 48 49
Domestic Non-cylical 47 45 47 41 43 44
Financials 24 24 25 16 18 19
Uti l it ies 9 11 10 11 13 13
Auto Ex Tata Motors 4 3 3 6 5 6
Telecom 4 1 2 4 1 2
Consumer 4 5 5 4 5 5
Others 3 1 1 - - -
Domestic Cyclical 10 9 9 6 5 4
Capital Goods 5 4 4 6 5 4
Cement 3 3 3 - - -
Real Estate 2 1 2 - - -
Global Plays 43 46 45 52 52 51
Global Non-Cyclical 12 13 13 14 16 16
Technology 9 10 9 12 14 13
Health Care 3 4 4 2 3 3
Global Cyclical 32 33 32 39 36 35
Oil & Gas ex RMs 18 19 17 24 23 22
Metals 11 11 11 11 7 8
Tata Motors 3 3 3 4 5 6
Total Non-cyclical 58 59 60 55 59 60
Total Cylical 42 41 40 45 41 40
Total PAT (INR b)/Sensex EPS (INR) 3,934 3,583 4,085 1,492 1,221 1,395
Growth YoY (%) 17 10 14 18 9 14
IE - Initial Estimates; CE - Current Estimates; Note: Others Include Media, Retail
1,221
22 20 16 14 14 12 11 9 8 8 5 5 5 4 4 4 4 3 3 3 2 2 2 2 1 1 1-1 -3 -5
1,395
FY13
E EP
S
Tata
Mot
ors
Tat
a St
eel
HD
FC B
ank
SBI
ICIC
I B
ank
HD
FC ITC
ON
GC
Info
sys
M&
M
TCS
Mar
uti
Bha
rti
Baj
aj A
uto
L&T
NTP
C
Re
lian
ce HU
L
Hin
dal
co
Ster
lite
Inds
.
Dr
Re
ddy’
s
Her
o M
oto
Wip
ro
Coal
Ind
ia
Sun
Ph
arm
a
Cip
la
GA
IL
JSP
L
Tata
Pow
er
BH
EL
FY14
E EP
S
FY14 Sensex EPS build-up is well diversified
Re
lia
nce
In
d.
A–30October 2012
India Strategy | Fired up?
More stocks have a bias for earnings upgrade than downgrade
As things stand, we believe more stocks in the Sensex are likely to see an upgrade in
their FY14 estimates, based on the impact of recently announced policy measures
and expected macroeconomic developments (e.g. rate cut). More importantly, the
stocks account for 48% of aggregate Sensex PAT v/s 24% of PAT for those with potential
downgrades. Also, stocks like Bharti, Tata Steel and BHEL could see a swing in either
direction depending on 1-2 key triggers playing out. Such stocks account for 6% of
Sensex PAT.
FY14 Sensex EPS: Favorable Upgrade-Downgrade equation
Potential Upgrades Potential Downgrades Potential swings either side
(48% of Sensex PAT) (24% of Sensex PAT (6% of Sensex PAT)
Dr Reddy’ s Labs Coal India Bharti Airtel
ICICI Bank Hero Motocorp BHEL
Larsen & Toubro Infosys Tata Steel
Maruti Suzuki JSPL
NTPC TCS
ONGC
Reliance Inds.
State Bank
Tata Motors
Early sign #4
A–31October 2012
India Strategy | Fired Up?
Valuations and Model Portfolio
Indian markets have staged a strong comeback in September 2012 to end the quarter
with a gain of 8%. Our June quarter strategy report had focused on RAY OF HOPE as we
expected the changing political realignments to lead to some positive reforms. And
indeed, the Indian government, post the monsoon session of Parliament, has pursued
a hectic agenda of reforms to kickstart growth and infuse confidence among investors
and corporates.
Most of the measures announced till date have been largely confidence boosters.
However, the government needs to act now on 2 key issues: (1) Strong steps to curb
fiscal deficit, and (2) Re-starting the investment/capex cycle. Concrete actions on
both these fronts hold the key to further re-rating of the markets. Recent currency
appreciation will help ease inflation, and also enable RBI do its bit to stimulate growth.
Combined action of government and RBI could lead to upgrades in FY13 GDP growth
estimate (currently at 6.5%).
Our earnings estimates for FY13 and FY14 have been stable for the last 2 quarters. We
believe the downgrade cycle is now behind us. Recent government measures along
with more to come, monetary easing, and stable to declining commodities can drive
upgrades going forward. Valuations remain below historical averages (FY14 PE of 13.5x
v/s 10-year average of 14.8x). We see more upsides in markets from here.
Sensex PE (x): 12-month forward Sensex PB (x): 12-month forward
14.3
10.7
24.6
7
12
17
22
27
Se
p-0
2
Se
p-0
3
Se
p-0
4
Se
p-0
5
Se
p-0
6
Se
p-0
7
Se
p-0
8
Se
p-0
9
Se
p-1
0
Se
p-1
1
Se
p-1
2
10 Year Avg:
14.8x2.4
1.6
4.2
1.2
2.1
3.0
3.9
4.8
Se
p-0
2
Se
p-0
3
Se
p-0
4
Se
p-0
5
Se
p-0
6
Se
p-0
7
Se
p-0
8
Se
p-0
9
Se
p-1
0
Se
p-1
1
Se
p-1
2
10 Year Avg:
2.7x
17.2
15.8
24.2
15.0
17.5
20.0
22.5
25.0
Se
p-0
2
Se
p-0
3
Se
p-0
4
Se
p-0
5
Se
p-0
6
Se
p-0
7
Se
p-0
8
Se
p-0
9
Se
p-1
0
Se
p-1
1
Se
p-1
2
10 Year Avg: 20.2%
26 26 23
4252
82 83
103
55
9589
7065
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
E
Average of 62%
for the period
Indian market Cap to GDP Sensex RoE (%)
A–32October 2012
India Strategy | Fired Up?
We make the following changes in our Model Portfolio for 2QFY13:
We marginally raise our weight in Financials through PSU Banks, and increase our
weight in Autos, and Infrastructure/related sectors
We cut weights in Technology, Consumer and Healthcare.
Our biggest Overweight is Infrastructure & related sectors, and our biggest
Underweight is Consumer.
We have further increased our exposure to mid-caps.
Sensex v/s Autos index Sensex v/s Consumer index
Sensex v/s Bankex Sensex v/s BSE Mid-caps
Financials: Biggest weight; ICICI Bank, SBI top picksFinancials remain the biggest weight in the Model Portfolio (in-line with the
benchmark) as recent policy measures by government and expected monetary easing
will lower asset quality pressures. We have raised our stance to Overweight as we
believe that credit costs have peaked and valuations will gain further.
ICICI Bank is our top bet in the sector. Re-rating of ICICI will be led by expansion in
RoEs over the next 2 years coupled with strong capital adequacy of above 10%.
Any release of capital in Insurance JV will be an added catalyst.
Among other private banks, we have kept our weights unchanged on HDFC Bank
and Yes Bank, despite strong gains in CY12. Fall in deposit rates and growing loan
book will drive earnings for the sector.
SBI remains our second biggest Overweight in Financials. Despite high slippages,
the bank has been able to show strong profits and improve RoE. As credit costs
peak in FY13, earnings upgrade cycle can be strong for SBI in FY14. Valuations are
attractive (FY14E P/B of 1.2x), and the stock could get re-rated in a falling interest
rate scenario.
85
100
115
130
Sep
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ma
r-12
Ap
r-12
Ma
y-12
Jun
-12
Jun
-12
Jul-
12
Aug
-12
Sep
-12
Sep
-12
Se nse x B se Auto
85
100
115
130
145
Sep
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-1
2
Ma
r-1
2
Ap
r-12
Ma
y-1
2
Jun
-12
Jun
-12
Jul-
12
Aug
-12
Sep
-12
Sep
-12
Sen sex Bs e Cons ume r
75
90
105
120
135
Sep
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ma
r-12
Ap
r-12
Ma
y-12
Jun
-12
Jun
-12
Jul-
12
Aug
-12
Sep
-12
Sep
-12
Sen sex Bs e Ba nke x
70
84
98
112
126
Sep
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ma
r-12
Ap
r-12
Ma
y-12
Jun
-12
Jun
-12
Jul-
12
Aug
-12
Sep
-12
Sep
-12
Sens ex Bs e Midcap
Financials +
A–33October 2012
India Strategy | Fired Up?
1.21.4
2.3
0.8
0.6
1.1
1.6
2.1
2.6
Sep
‐07
Ma
r‐0
8
Sep
‐08
Ma
r‐0
9
Sep
‐09
Ma
r‐1
0
Sep
‐10
Ma
r‐1
1
Sep
‐11
Ma
r‐1
2
Sep
‐12
P/B (x) Avg(x) Peak(x) Min(x)
We retain Union Bank as we expect 22% EPS CAGR over FY12-14 (led by lower
credit costs) and improvement in RoE to 16.9%. Stock trades at 0.7x FY14 book and
offers dividend yield of 4%.
We have removed M&M Financial Services post a strong stock performance.
We have added LIC Housing (valuations now attractive at 1.8xP/B FY14, beneficiary
of fall in rates, and steady business growth).
Power Finance is another addition as SEB loan restructuring eases bad loan worries
and loan disbursements resume. The stock trades at 0.9x P/B FY14.
ICICI Bank P/B Yes Bank P/B
SBI P/B LIC HSF P/B
Infrastructure & related: Biggest Overweight; add L&T, Jaiprakash, DLFLast quarter, we had changed our stance on Infrastructure and related sectors from
Underweight to Overweight after several quarters. Now, we have added further
weight to the sector.
L&T remains the top stock (upgraded to Buy a quarter back) on the back of continued
strong order intake (led by Infrastructure and Overseas orders), excellent risk
management, expected stable margins, and management commitment to correct
capital structure.
We have added our exposure to Jaiprakash as the stock benefits from strong
cement realizations, de-leveraging of balance sheet, and fall in interest rate.
DLF is a new addition as it benefits from positive macro, improving operating
leverage and financial de-leveraging. Its favorable near-term market-mix and
product-mix offer high conviction on meaningful uptick in FY13 sales (we estimate
~INR60b v/s INR53b in FY12). Operating cash deficit to improve in FY13 to INR8.1b
(v/s INR20.4b in FY12) before breakeven in FY14. Our target price is INR286.
1.81.7
2.9
0.7
0.5
1.2
1.9
2.6
3.3
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/B (x) Avg(x) Peak(x) Min(x)
2.12.2
4.8
0.5
0.0
1.5
3.0
4.5
6.0
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/B (x) Avg(x) Pe ak(x) Min(x)
Infrastructure +
2.0
1.6
2.9
0.50.0
0.8
1.6
2.4
3.2
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/B (x) Avg(x) Pe ak(x) Min(x)
A–34October 2012
India Strategy | Fired Up?
Technology: Remain Underweight; concerns on volumes, marginsOur stance on Technology remains Underweight with restricted exposure to Infosys
and HCL Tech.
Our FY14 USD revenue growth estimate across the top-tier is 15%, up from 10% in
FY13. However, signs of meaningful demand pick-up remain elusive, implying
downgrade risk to current volume estimates for FY14.
INR has appreciated to 51.75/USD, which could trigger a 4-8% downgrade in our
FY14 EPS estimates (currently based on INR53/USD).
Despite ~22% INR depreciation from 1QFY12 to 1QFY13, margins across the top-
tier hardly benefited, as the currency gains got reinvested in lower-margin
contracts and high-cost workforce onsite. As most of these investments are
irrevocable in nature, offsets to margin headwinds appear limited in an appreciating
currency environment. Margin sustainability is a key concern.
L&T P/E DLF P/B
18.122.2
45.9
10.10
18
36
54
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/E (x) Avg(x) Pe ak(x) Min(x)
Tech P/E relative to Sensex P/E Infosys P/E
1.4
2.5
8.8
0.90.5
3.0
5.5
8.0
10.5
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/B (x) Avg(x) Peak(x) Min(x)
-32.4
23.2
5.1
-40
-20
0
20
40
Sep
-07
Ap
r-08
No
v-08
Ma
y-09
Dec
-09
Jul-
10
Jan
-11
Aug
-11
Ma
r-12
Sep
-12
Techno logy PE Relative to Se nse x PE (%)
LPA o f -2%
14.617.5
24.7
10.46
12
18
24
30
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/E (x) Avg Peak(x) Min
Oil & Gas: Remain Underweight; cut Reliance, add ONGCWe remain Underweight on the Oil & Gas sector.
Expect RIL to deliver strong 2QFY13 earnings led by high GRMs; however, recent
refining margins have again turned weak. Core businesses remain volatile with
very limited upside potential. Upgrade in Reliance could come from hike in gas
prices, which remains an event risk. As the stock has delivered a strong return of
20% from the recent lows, we have cut our exposure.
Oil & Gas –
Technology –
A–35October 2012
India Strategy | Fired Up?
We have added exposure to ONGC at current levels. Recent policy actions of
diesel price hike/limiting subsidized cylinders, coupled with appreciating INR/
USD, augur well for ONGC as its subsidy burden reduces. Despite subsidy burden,
ONGC's RoE is at a respectable 18% level. The stock trades at P/E of 8.4x FY14 EPS
of INR33.4, attractive EV/BOE of 5.3x (1P basis; >40% discount to global peers),
and offers a dividend yield of 3.5%.
Consumer: Biggest Underweight; valuations rich; ITC only exposureAfter a massive outperformance, Consumer sector now trades at historical high
valuations relative to the markets. We are Underweight on the sector due to slowing
demand growth led by weakening rural buoyancy. Our only exposure in the sector is
ITC (which is also an Underweight).
Consumer P/E relative to Sensex P/E HUVR P/E
10.09.0
20.4
5
11
17
23
Sep
-07
Ap
r-08
No
v-08
Ma
y-09
Dec
-09
Jul-
10
Jan
-11
Aug
-11
Ma
r-12
Sep
-12
Oil & Gas Se ctor - PE
LPA of 12.3x
105
10
73
-40
0
40
80
120
160
Sep
-07
Ap
r-08
No
v-08
Ma
y-09
Dec
-09
Jul-
10
Jan
-11
Aug
-11
Ma
r-12
Sep
-12
Cons ume r PE Re lative to Sen sex PE
LPA of 50%
1.52.0
3.1
1.41.0
1.9
2.8
3.7
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/B (x) Avg(x) Pe ak(x) Min(x)
32.4
24.8
32.4
18.7
12
20
28
36
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/E (x) Avg(x) Pea k(x) Min(x)
Healthcare: Cutting weight; hit by recent headwindsWe have reduced our weight on Healthcare, given recent headwinds of new drug
pricing policy, currency appreciation, and strong outperformance of the sector YTDCY12.
Our top bet in the sector is Dr Reddy's as we expect strong performance in FY13
leading to earnings upgrade; valuations remain attractive.
We continue to like Divi's as it benefits from its core abi lities of good chemistry
skills coupled with strong customer relationships, leading to ramp-up in order
inflows. Strong order-backed capex and healthy guidance (25% topline growth for
FY13) are the key positives from a near-to-medium term perspective.
Healthcare
Consumer –
–
Oil & Gas Sector P/E ONGC P/B
A–36October 2012
India Strategy | Fired Up?
Autos: Overweight; bet on Tata Motors, Maruti, Bajaj AutoWe raise our weight in Autos to Overweight in this quarter.
Tata Motors is our top bet in Autos and we have further raised our exposure to the
stock. JLR volumes will retain volume momentum (15%) and profitability. Domestic
volumes should see recovery in FY14. Strong FCF will further help the balance
sheet. Our target price of INR370 has over 40% upside.
Maruti is another top pick as it benefits from currency appreciation and stable
commodity prices including oil. Resolution of labor issues has led to stronger than
expected volumes recently, driving upgrades. We expect earnings to rebound in
FY14 with growth of14%. Our target price has 19% upside.
Within 2-wheelers, we prefer Bajaj Auto as FY14 volumes should grow 13% and
margins remain strong due to hedges at higher levels. Strong cash flow will drive
INR300/share cash on books and high dividends. The stock trades at P/E of 14x
FY14 EPS.
Healthcare Sector P/E Dr Reddy's P/E
Autos Sector P/E Maruti Cash P/E
20.6
15.9
30.0
12
19
26
33
Se
p‐0
7
Ap
r‐0
8
No
v‐0
8
Ma
y‐0
9
De
c‐0
9
Jul‐
10
Jan‐1
1
Au
g‐1
1
Ma
r‐1
2
Se
p‐1
2
He al thca re Sector ‐ PE (x)
LPA of 22.5x
17.8
24.2
77.2
17.84
24
44
64
84
Se
p‐0
7
Ma
r‐0
8
Se
p‐0
8
Ma
r‐0
9
Se
p‐0
9
Ma
r‐1
0
Se
p‐1
0
Ma
r‐1
1
Se
p‐1
1
Ma
r‐1
2
Se
p‐1
2
P/E (x) Avg(x) Pea k(x) Min(x)
Negative
Earnings Cycle
10.9
6.1
29.2
3
11
19
27
35
Se
p‐0
7
Ap
r‐0
8
No
v‐0
8
Ma
y‐0
9
De
c‐0
9
Jul‐
10
Jan‐1
1
Au
g‐1
1
Ma
r‐1
2
Se
p‐1
2
Auto Se ctor ‐ PE (x)
LPA of 12x
Utilities: Cutting weight; remove Coal India on multiple concernsWe have cut our weight on Utilities as we remove Coal India from the portfolio.
For Coal India, lower international coal prices coupled with appreciating rupee
will impact PAT from market-linked e-auction sales (15%+ of volume, 40-45% at
PBT level). We see risk to our FY13/14E earnings, as current realizations are
marginally higher than FY12 average, and have a downside risk. Importantly, current
earnings already factor superior production/dispatch growth. Negative surprise
Utilities –
Autos +
9.2
10.3
14.9
4.4
2
6
10
14
18
Jul-
03
Fe
b-0
4
Se
p-0
4
Ap
r-0
5
No
v-0
5
Jun
-06
Jan
-07
Au
g-0
7
Fe
b-0
8
Se
p-0
8
Ap
r-0
9
No
v-0
9
Jun
-10
Jan
-11
Au
g-1
1
Fe
b-1
2
Se
p-1
2
Ca sh P/E (x) Avg(x) Pe ak(x) Min(x)
A–37October 2012
India Strategy | Fired Up?
could also come from implementation of MMDR Act. Valuations at 12x FY14E P/E
(downside risk to EPS of INR31) and 3.6x P/BV (RoE of 25%) limit potential upside.
NTPC remains our preferred bet as capacity addition delays are now getting
addressed and FY13-15 could see capacity addition of 4GW per annum v/s historic
average of 2GW. Over FY12-15, NTPC would add 15GW of commercial capacity,
which could drive FY14E EPS to ~INR14 FY14E (18 months from now). The stock is
trading attractive at 1.7x FY14E BV of INR103/share.
Utilities Sector P/B NTPC P/B
Telecom: Wait & watch; concerns, stock prices bottomed out;We had cut our weight in Telecom last quarter and retain the lower weight. Pricing
seems to have bottomed-out given renewed industry attempts to raise tariffs and
lower promotions/discounting. Significant balance sheet stress, continued high level
of losses for challengers, and potential large payments towards spectrum should
prevent irrational competition. We await outcome of upcoming 2G spectrum auction
in November which could provide visibility on future competitive structure as well as
liability for spectrum payments. While stocks may have bottomed out, we would wait
for the earnings cycle to improve for any change in view.
Bharti EV/EBITDA Idea EV/EBITDA
Telecom –
1.7
2.3
3.7
1.5
1.3
2.1
2.8
3.6
4.3
Se
p-0
7
Ma
r-0
8
Se
p-0
8
Ma
r-0
9
Se
p-0
9
Ma
r-1
0
Se
p-1
0
Ma
r-1
1
Se
p-1
1
Ma
r-1
2
Se
p-1
2
P/B (x) Avg(x) Pe ak(x) Min(x)
1.61.7
3.7
1.0
1.8
2.5
3.3
4.0
Se
p-0
7
Ap
r-0
8
No
v-0
8
Ma
y-0
9
De
c-09
Jul-
10
Jan
-11
Au
g-1
1
Ma
r-1
2
Se
p-1
2
Uti l i tie s Se ctor - PB
LPA of 2.1x
6.0
16.9
8.6
5.5
2.0
6.0
10.0
14.0
18.0
Se
p-0
7
Ma
r-0
8
Se
p-0
8
Ma
r-0
9
Se
p-0
9
Ma
r-1
0
Se
p-1
0
Ma
r-1
1
Se
p-1
1
Ma
r-1
2
Se
p-1
2
EV/EBDITA(x) Pea k(x) Avg(x) Min(x)
6.3
14.5
9.1
6.1
4.0
7.0
10.0
13.0
16.0
Se
p-0
7
Ma
r-0
8
Se
p-0
8
Ma
r-0
9
Se
p-0
9
Ma
r-1
0
Se
p-1
0
Ma
r-1
1
Se
p-1
1
Ma
r-1
2
Se
p-1
2
EV/EBDITA(x) Pea k(x) Avg(x) Min(x)
A–38October 2012
India Strategy | Fired Up?
Metals: Underweight; but still like Hindalco, SterliteWe are Underweight on Metals as we have negative outlook for steel stocks, whi le
base metal stocks still have to bear near-to-medium term pain of low returns on large
investment in greenfield aluminum projects in India. We believe that steel intensity
of the world is on decline once again after a decade of high growth. China, which was
the sole driver of demand, has already achieved high level of per capita steel
consumption vis-a-vis peak levels achieved by developed countries. Historically,
decline in world steel intensity has resulted in stock underperformance. We believe
that base metal stocks are better placed over steel stocks because (1) monetary
expansion (e.g. QE3) boosts LME prices, earnings and stock valuations, and (2) the
fundamentals of steel pricing are more dependent on return of high fixed assets.
We continue to like Hindalco because its conversion business provides 70% of
operating cash flows and is insulated from LME volatility. Investments in low RoI
aluminum greenfield projects in India have led to the stock's underperformance.
We believe current valuations already factor in most negatives. Strong spot
premium and LME have improved earnings outlook. Valuation at 1x P/B FY14E
adjusted for goodwill (RoE 18.5%) is attractive.
We have introduced Sterlite in the portfolio. Sterlite is likely to get re-rated as its
investment cycle is now behind and Hindustan Zinc's cash flows after minority
buy-out will de-stress the balance sheet of merged Sesa-Sterlite. Any visibility on
availability of bauxite in Odisha could be catalyst as well.
Hindalco P/B Sterlite P/B
1.1
2.0
4.5
0.60.1
1.3
2.5
3.7
4.9
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Sep
-10
Ma
r-11
Sep
-11
Ma
r-12
Sep
-12
P/B (x) Avg(x) Peak(x) Min(x)
0.7
1.4
2.5
0.6
0.0
0.8
1.6
2.4
3.2
Sep
-07
Ma
r-0
8
Sep
-08
Ma
r-0
9
Sep
-09
Ma
r-1
0
Sep
-10
Ma
r-1
1
Sep
-11
Ma
r-1
2
Sep
-12
P/B (x) Avg(x) Pe ak(x) Min(x)
Metals –
A–39October 2012
India Strategy | Fired Up?
Our preferred mid-caps
Yes Bank [YES IN, Mkt Cap USD2.6b, CMP INR382]Investment Argument
YES is effectively using the current phase of moderation in economic growth to
de-risk and de-bulk its balance sheet, expand its retail franchise, and improve risk
management systems. In the process, growth is expected to be lower than historical
levels, but liability mix is likely to improve.
Rapid branch expansion, acquisition of new customers and deepening of existing
customer relationships would ensure healthy growth across parameters. With
50% of the existing branches less than 18 months old, we expect strong productivity
gains to occur going forward.
Post deregulation of savings deposit rates, share of SA in overall deposits increased
to 6% v/s ~2% as on 1HFY12 and CASA ratio improved from 11% to 16.3%. We
expect CASA ratio to further improve to 18.6%/20.9% in FY13/14.
Asset quality of the bank remains one of the best in the industry with stress assets
merely 0.6% of the loan book.
12-month Outlook
As rates decline and liquidity improves, YES (being a wholesale borrower) would
be a key beneficiary on margins.
Healthy core income growth, control over opex, and healthy asset quality will
drive PAT growth of 28%.
CRAR stood at 16.5%, with tier-I ratio at 9.2%. We expect the bank to raise capital
over next 12 months, which will further be book accretive.
Key Risks
Deterioration in SME business outlook could increase YES's risk quotient.
Delay in capital raising could hurt growth prospects and expansion plans.
Valuations
We expect earnings CAGR of 25% over FY12-14. RoA/RoE are expected to be strong
at ~1.5%/23%+.
In an easy liquidity environment, the stock can see further re-rating from the
current P/B of 1.9x FY14E. Buy.
Union Bank [UNBK IN, Mkt Cap USD2.2b, CMP INR208]Investment Argument
UNBK has been able to deliver impressive margins of 3%+ despite higher slippages
(which led to higher interest income reversal) and tight liquidity conditions (FY12
NIM was 3.2%, down just 10bp YoY). Management expects to maintain 3% margin
going forward led by fall in cost of funds and improvement in asset quality. Loan
CAGR is expected to be ~16% during FY12-14 which would lead to similar NII CAGR.
A–40October 2012
India Strategy | Fired Up?
UNBK's fee income to average assets (ex income on forex transactions) at 40bp
remains low vis-a-vis peers. However, management's increased focus on the same
has started yielding results – fee income growth has improved to 17% in 1QFY13
v/s 14% for FY12 and 4% in FY11. Continued traction in fee income can provide
cushion to earnings in case pressure on asset quality increases.
UNBK is highly leveraged to macroeconomic environment given the asset quality
pressure seen over past two years. As the situation improves and liquidity condition
eases, concerns over asset quality should abate, leading to re-rating of the stock.
12-month Outlook
Near-term challenges remain in terms of asset quality risks and higher asset
restructuring. However, we believe current valuations largely discount the same.
Of UNBK's total SEB exposure of INR110b, INR58b is towards healthy SEBs and
INR34b has already been restructured. As per the recent SEB debt restructuring
plan, there could be some relief for UNBK on this front.
Key Risks
Despite equity infusion of INR7.6b over FY11/12, UNBK's core Tier I ratio stood at
7.7% which implies higher capital requirement in coming years, especially under
the Basel III regime.
Valuations
We expect 16% earnings CAGR over FY12-14, and RoA/RoE at 0.8%/17%.
The stock has run up substantially (30%+ in past one month), in line with other
mid-sized PSBs. Sti ll, valuations remain attractive at 0.7x FY14E P/B and dividend
yield of 4%+. Maintain Buy .
Hexaware [HEXW IN, Mkt Cap USD678m, CMP INR123]Investment Argument
HEXW's decision to develop core competence and differentiation in key areas –
Capital Markets, Travel & Transportation, EAS, and Testing – is the right approach
for a relatively small player. The 'foot-in-the-door' obtained from flagship services
like PeopleSoft helped it forge relationships, strengthened further by cross-selling
services like IMS and BPO.
Large deals won by the company act as strong references in facilitating similar
such wins in the future. It now has four services contributing more than 10% of its
revenue v/s two a couple of quarters ago.Oracle may release a new version of
PeopleSoft in CY13, and HEXW is well placed to tap that opportunity.
HEXW has restricted itself to pure services deals, reducing the risk around revenue
quality and profitability.
12-month Outlook
We expect healthy growth to continue with CY11-13 USD revenue CAGR of 19.8%.
Our EBITDA margin estimate is 22.5% for CY12 (INR/USD @ 53.6) and 22.1% for
CY13 (INR/USD @ 53.5).
Our EPS CAGR over CY11-13 stands at 24.8%.
A–41October 2012
India Strategy | Fired Up?
Key Risks
Sharp appreciation in the currency will impact profitability.
Slowdown in deal signings momentum will hurt revenue growth.
Within BFSI, it has high exposure to capital markets, the segment under maximum
stress.
Valuations
The stock trades at 9.9x CY12E and 8.6x CY13E EPS.
Our target price of INR167 is based on 12x CY13E EPS. Buy.
MCX [MCX IN IN, Mkt Cap USD1.2bm, CMP INR1,244]Investment Argument
Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic
commodity futures exchange, and has over 86% share (as at 31 March 2012) of the
Indian commodity futures market.
Growth potential in volumes remains huge given that number of clients trading
on the commodities platform is currently less than 2m v/s an estimated 18-20m in
equities. Also, globally, Gold futures volumes are 70-80x that of physical trade
v/s 17-18x in India, 20x in Crude v/s 7x in India, 100x in Aluminum v/s 8-9x in India.
Bill to amend the outdated Forward Contracts (Regulation) Act (FCRA) could be
passed by the Parliament in the forthcoming session. This will give a fillip to
MCX's volumes with entry of new products and participants. We believe value
from MCX-SX (stock exchange promoted by MCX and FTECH in 2008) is more definite
than merely option value.
12-month Outlook
Given the drop in volatility index over the last couple of quarters, we assume flat
volumes YoY in FY13.
If the FCRA Bill gets passed in the forthcoming parliamentary session, it will lead
to volume surge from:
1) introduction of options trading,
2) introduction of new related products such as freight-, rainfall-, and commodity
indices, and
3) increased investor participation, as banks, mutual funds and foreign
institutional investors could be allowed to transact on India's commodity
futures markets.
Key Risks
Significant proportion of costs incurred towards parent and group companies.
Concentration of turnover in four commodities.
Regulatory paralysis could impact growth.
Valuations
We expect revenue CAGR of 11% over FY12-15 and EPS CAGR of 12.5%.
The stock trades at 22.2x FY13E and 18.7x FY14E EPS.
A–42October 2012
India Strategy | Fired Up?
We value the standalone commodity exchange business at 20x FY14E earnings,
which translates to a value of INR1,330/share. We value MCX-SX at INR14b, 11x the
potential revenues of INR1.3b in FY14. MCX's share in MCX-SX (including warrants)
contributes additional INR110/share to its valuation.
Our target price is INR1,440. Buy.
JAYPEE INFRATECH [JPIN IN, Mkt Cap USD1.4b, CMP INR53]Investment Argument
JPIN offers a unique synergistic business model of infrastructure development
(Yamuna Expressway, YE) and real estate value unlocking.
The company is expected to generate free cash flow (FCF) beginning FY13 itself,
given (1) expressway going ex-capex, and (2) strong operating performance in
real estate. FCF will be utilized for debt repayment and potential growth in payout.
Value unlocking story is sustainable, though a bit clouded by some concerns:
(a) traffic growth at YE, (b) relative weakness real estate market mix, and (c) risk
of policy actions. Some of the concerns are easing off.
12-month Outlook
Expect steady sales momentum, and strong collections to continue in Noida and
GB Nagar land parcels on the back of improvement in market outlook.
We expect meaningful clarity over YE toll income to emerge in the first 6-9 months
of operations. Our recent interaction with the management suggests initial PCUs
of ~10,000 in the month of August 2012.
We estimate net surplus (FCF - interest) of ~INR2.1b/5.2b in FY13/14, which would
most likely be utilized towards repayment of YE debt over the next 12-13 years,
along with potential growth in payout.
Key Risks
Downside risks to expressway traffic growth assumptions.
Delay in revival of Noida market.
Policy risks from new government at Uttar Pradesh.
Valuations
We expect 22% revenue CAGR over FY12-14, translating into ~15% EBITDA CAGR.
PAT is likely to decline @ 12% over FY12-14 on account of depreciation and interest
charge related to the Yamuna Expressway.
JPIN trades at (a) P/E of 7.9x FY13E and 7.4x FY14E, (b) P/BV of 1.1x FY13E and 1x
FY14E vis-à-vis RoE of ~15%.
Buy with target price of INR60, given sustainable value unlocking story, steady
operations and inexpensive valuations.
A–43October 2012
India Strategy | Fired Up?
United Phosphorus [UNTP IN, Mkt Cap USD1.1b, CMP INR131]Investment Argument
Worst is behind us with trough operating performance in FY12. Expect FY13 to be
a recovery year: (a) strong volume bounceback in key markets, (b) integration of
LatAm acquisitions, c) benefit of lower crude, and (d) benefit of weaker INR.
UNTP is getting stronger in the global generic agrochem industry, as it has
outperformed large peers like Makhteshim and Nufarm. While UPL's performance
was muted in FY09-12, its global peers performance was even worse with severe
margin erosion and net losses.
With acquisitions of SIB and DVA Agro Brazil, UNTP has established a strong foothold
in key LatAm market. These acquisitions will be a key growth driver over next 2-3
years, reduce seasonality in its business and boost margins.
UNTP is targeting 5-year revenue CAGR of 15% and part recovery in profitability,
driven by strong growth in emerging markets, ~USD5.5b products going off-patent
over next 3-4 years, and focus on cost.
12-month Outlook
FY13 revenues is expected to grow ~15%, EBITDA margin stable (not factoring in
favorable forex), and PAT growth of 17% (adj for MTM forex loss).
Key Risk
Adverse climatic conditions in any of the key regions.
Valuations
Long-term outlook is positive given integration benefits from SIB and DVA Agro.
However, there are no short-term re-rating catalysts. Ongoing buyback of up to
19.2m shares up to INR150/share should support stock prices. The stock trades at
8.8x FY13E and 6.7x FY14E EPS. Buy with target price of INR195 (~10x FY14E EPS).
Petronet LNG [PLNG IN, Mkt Cap USD2.2b, CMP INR158]Investment Argument
Strong earnings visibility: Petronet LNG's earnings offer high visibility in near /
long term given (a) huge gas demand-supply gap in India, and (b) annual re-gas
charge escalation to protect IRR. Besides, 2.8x capacity expansion over next few
years will further boost earnings.
Unlikely to come under PNGRB purview: PNGRB has no mandate to regulate LNG
business, and if desired, the same will have to be through an amendment to the
PNGRB Act passed by the Parliament. Further, marketing margins are unlikely to
be curtailed as LNG prices are market determined and unlike domestic gas, LNG
sourcing requires serious efforts.
Capacity expansion projects on track: PLNG expects to commission its Kochi
terminal by Dec-12 and also, expect simultaneous completion of 44km Phase-I of
Kochi-Bangalore pipeline through which it will supply gas. Further, it expects to
complete (a) Dahej 2nd jetty project by 4QFY14 (additional capacity of 3mmt),
(b) Dahej expansion by 2015-end (taking overall capacity to 18mmt), and
(c) Gangavaram terminal by 2016-end and interim FSRU facility by 2014-end.
A–44October 2012
India Strategy | Fired Up?
12-month Outlook
As Phase 2 of Kochi-Mangalore-Bengaluru pipeline will commission in 2HCY13,
earnings growth will be back ended in FY14. FY13 earnings will be muted (can see
growth if marketing margins remain flat v/s our assumption of decline) as Kochi
terminal's depreciation would hit P&L but its revenue contribution would start
accruing only in FY14.
Key Risks
LNG business is currently unregulated. Recently, concerns have emerged on the
likely control of marketing margins. If this happens, it could pose a risk to PLNG's
earnings.
Valuations
With no risk to near-term earnings, we believe the next cycle of earnings growth
would come post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty at
Dahej, and (3) new capacity at Dahej and Gangavaram. We build conservative
marketing margin of INR22/15 per mmbtu in FY13/14 and nil thereafter.
The stock trades at 10.5x FY14E EPS of INR15. We value PLNG at INR205, the average
of two methodologies (1) P/E (13x FY14E EPS), and (2) DCF (INR214). Buy.
Crompton Greaves [CRG IN, Mkt Cap USD1.5b, CMP INR126]Investment Argument
For CG, the attempt now is to ensure that 'the value of whole is substantially
more than the sum of the parts' and make a full transformation to a global
corporation. We believe that this journey provides several levers to boost
revenues. Internationalization / integration could potentially double industrial
business revenues — new factories in new geographies, new products like
switchgear plant in Brazil, transformer plant in Brazil / Saudi, etc will contribute
incrementally in a meaningful manner. The recent acquisition of ZIV has targets to
nearly treble revenues in 3 years' time given synergy benefits.
Overseas business is likely to see significant turnaround and could possibly become
profitable by mid-FY13 driven by ongoing revenue optimization and cost reduction.
12-month Outlook
Aggressive restructuring of its manufacturing footprint in overseas business will
help it turn profitable by mid-FY13, in our view. We expect international
subsidiaries to report EPS of INR0.5 in FY13, from loss of INR2.1 in FY12.
Organizational restructuring across geographies / product segments has been
completed to break away from 'silo' structures towards integrated product
offerings; initial success in railways / oil & gas has been encouraging.
The switchgear plant in Brazil is expected to add USD100m to revenues,
contributing to ~10% of the overseas business. In India, commissioning of the
drives plant in 3QFY13 will also contribute meaningfully to standalone operations.
A–45October 2012
India Strategy | Fired Up?
Key Risks
Volatile macro environment, deterioration in European market, etc, could delay
recovery in earnings in overseas business.
Valuations
The risk-reward appears favorable – we model 47% consolidated earnings CAGR
over FY12-14 driven by 14% revenue CAGR and 230bp margin expansion.
We arrive at price target of INR163/sh, based on P/E of 12x FY14E for standalone
business and EV/EBIDTA of 8x FY14E for overseas business.
CESC Ltd [CESC IN, Mkt Cap USD0.8b, CMP INR340]Investment Argument
Regulated business provides earnings/cash flow comfort: CESC gets an assured
return and steady cash flows from its regulated business in Kolkata (INR5b+ pa).
FY14 corporate EBITDA break-even for Spencer: Spencer's store-level EBITDA has
improved from INR25/sq ft in FY11 to INR32 in FY12 and has already crossed INR50
in YTDFY13. Robust revenue growth and expansion would help achieve corporate
EBITDA break-even by FY14.
New projects on strong footing: CESC is constructing 1.2GW of power projects
with 0.6GW expected in next 12 months and additional 0.6GW by FY15. While PPA
is not yet signed for 1GW, the new bid document allows fuel cost pass-through,
and we believe that project return closer to regulated return (18-20% RoE) should
not be an issue. Equity already invested is INR8b+.
12-month outlook
Key variables for CESC are: (1) Continued positive momentum in Spencer
performance, and (2) Progress on 600MW Chandrapur project. While FDI in
multibrand retail has recently been allowed, we believe this is only a long-term
positive for Spencer as it can currently fund its expansion through CESC.
Key Risks
Slowdown in overall retail and Spencer, impacting pace of loss reduction (reduction
of INR400-450m pa compared to loss of INR1.1b in FY12).
Valuation
We expect CESC to report standalone PAT of INR6b in FY13 (up 8% YoY) and INR6.7b
in FY14 (up 12% YoY).
Stock quotes at PER and P/B of 6x and 0.6x FY14E standalone. Maintain Buy.
JSW Energy [JSW IN, Mkt Cap USD1.9b, CMP INR61]Investment Argument
Beneficiary of lower thermal coal prices: 2GW of JSWEL's capacity is combination
of merchant power sales and spot coal purchases. Also, these capacities are located
in Southern/Western India, which are high deficit regions and command higher ST
tariffs. Lower international coal price thus would drive earnings.
A–46October 2012
India Strategy | Fired Up?
1.1GW of regulated project provides further comfort: JSWEL's 1.1GW Raj West
project in Rajasthan has captive lignite mine, and is based on CERC terms (cost
plus RoE). This could provide sizable earnings growth in FY14 (project to be fully
operational by 2QFY13).
12-month outlook
Continue weakness in imported coal and rupee appreciation could be twin
benefits. JSWEL's gross margin improved to INR2.1/unit in 1QFY13 v/s INR0.21/
unit in 2QFY12.
Sustained gross margin, higher PLF and contribution from Raj West are key earnings
drivers.
Key Risks
Earnings volatility could be higher owing to converter business model.
INR depreciation in the past has been steep and volatility has been high –
unfavorable to JSWEL.
Delay in the approval of Raj West tariff order could impact interim profitability.
Valuations
We expect consolidated PAT of INR6.2b for FY13 (up 88%) and INR10.5b for FY14
(up 69%).
Stock trades at 10x FY14E reported EPS. Buy.
Sun TV Network [SUNTV IN, Mkt Cap USD2.6b, CMP INR349]Investment Argument
Deal with Arasu cable has removed a significant overhang for Sun TV and indicates
a more stable regulatory environment for Sun going forward.
Sun TV to benefit from mandatory digitization resulting in higher subscription
revenue from cable system without any incremental investment.
Advertising cycle is close to its lowest ebb and likely to improve as economic
environment improves.
Most profitable media company with high dividend yield of 3% and a healthy pay-
out ratio of 50%.
12 Month Outlook
With de-growth in analog revenue from Tamil Nadu largely behind, we expect
revenue growth to improve from 5% in FY13 to 12% in FY14.
Success of digitization for phase I (4 metros) and phase II (38 cities) over the next
12 months should be a significant sentiment booster for the entire TV value chain.
Key Risk
Further delay in mandatory digitization
Continued sluggishness in ad environment
Any adverse news flow from ongoing investigations in 2G scam.
Valuations
After a decline in FY13, we expect earnings growth of 10% in FY14
Sun TV is trading at a P/E of 19x FY13 and 17.4x FY14. Buy
A–47October 2012
India Strategy | Fired Up?
Sector weight / BSE-100 MOSL Weight relative Effective Sector
Portfolio Picks Weight to BSE-100 Stance
Financials 27.6 28.0 0.4 Overweight
Private 14.7 13 -1.7 NeutralICICI Bank 5.5 7 1.5 Buy
HDFC Bank 5.3 4 -1.3 NeutralYes Bank 0.5 2 1.5 Buy
PSU 5.9 10 4.1 OverweightSBI 2.7 6 3.3 Buy
PNB 0.5 2 1.5 BuyUnion Bank 0.2 2 1.8 Buy
NBFCs 7.0 5 -2.0 NeutralLIC Housing 0.4 3 2.6 Buy
Power Finance 0.3 2 1.7 BuyInfrastructure & Related sectors 10.4 14.0 3.6 Overweight
Larsen & Toubro 4.0 5 1.0 BuyJaiprakash Associates 0.4 3 2.6 Buy
BHEL 1.0 2 1.0 NeutralACC 0.6 2 1.4 Neutral
DLF 0.4 2 1.6 BuyOil & Gas 12.0 10.0 -2.0 Underweight
Reliance Inds. 6.7 4 -2.7 NeutralONGC 2.7 4 1.3 Buy
BPCL 0.5 2 1.5 BuyAuto 7.6 9.0 1.4 Overweight
Tata Motors 2.3 4 1.7 BuyMaruti Suzuki 0.9 3 2.1 Buy
Bajaj Auto 1.2 2 0.8 BuyTechnology 10.7 8.0 -2.7 Underweight
Infosys 5.6 6 0.4 BuyHCL Tech 0.7 2 1.3 Buy
Healthcare 4.8 5.0 0.2 OverweightDr Reddy's 0.9 3 2.1 Buy
Divi's Lab 0.3 2 1.7 BuyConsumer / Retail 13.3 4.0 -9.3 Underweight
ITC 6.7 4.0 -2.7 BuyMetals 3.8 4.0 0.2 Neutral
Hindalco 0.7 2 1.3 BuySterlite 0.7 2 1.3 Buy
Telecom 2.1 3.0 0.9 NeutralBharti Airtel 1.6 2 0.4 Neutral
Idea Cellular 0.3 1 0.7 BuyUtilities 5.7 3.0 -2.7 Underweight
NTPC 1.2 3 1.8 BuyOthers 1.9 12.0 10.1 Overweight
CESC 0.0 1 1.0 BuyCrompton 0.2 1 0.8 Neutral
Eicher Motors 0.0 1 1.0 Not RatedHexaware 0.0 1 1.0 Buy
Jaypee Infra 0.0 1 1.0 BuyJSW Energy 0.0 1 1.0 Buy
MCX 0.0 1 1.0 BuyOberoi 0.0 1 1.0 Buy
Petronet 0.0 1 1.0 BuySun TV 0.0 1 1.0 Buy
United Phosphorous 0.2 1 0.8 BuyZee Entertainment 0.5 1 0.5 Neutral
Cash 0.0 0 0.0
Total 100.0 100.0
MOSL model portfolio
A–48October 2012
India Strategy | Fired up?
2QFY13 PREVIEW Non-cyclicals have a field day in muted quarterTechnology, Healthcare, Financials & Consumer continue to deliver strong results
2QFY13 PAT growth 9% YoY; lowest for any 2Q in last 7 years (ex global crisis)
Sectoral analysis: Non-cyclicals have a field day; Technology, Healthcare, Financials &
Consumer continue to deliver strong results
2QFY13 Sensex PAT growth just 2% YoY, lowest in last 12 quarters ex SBI-shocker 4QFY11
2HFY13 residual PAT growth 9% for aggregate and 7% for Sensex; allays downgrade
concerns for FY13.
2125
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2QFY13 PAT growth 9% YoY; lowest for any 2Q in last 7 years (ex global crisis) 2QFY13 is likely to be yet another muted quarter in terms of India’s corporate
sector performance. We expect MOSL Universe (ex RMs, oil refining and marketing
companies) to report PAT growth of 9% YoY.
This is the lowest 2Q PAT growth in the last 7 years, barring the global-financial-
crisis quarter of 2QFY10 when PAT de-grew 11%. In fact, excluding the financial-
crisis quarters, 2QFY13 PAT growth is also the second lowest in the last 7 years.
Ex crisis, 2QFY13 is lowest 2Q PAT growth in last 7 years … … and the second lowest PAT growth in last 28 quarter
Global
crisis
3437
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Sensex performance weak, both absolute and relative to aggregate: 2QFY13 aggregate
PAT for Sensex 30 companies is expected to grow only 2% YoY. This is very weak in
more than one way –
1. It is the lowest Sensex PAT growth in the last 12 quarters, excluding the “SBI-shock
quarter” of 4QFY11 which saw SBI PAT collapsing to near zero; and
2. Relative to the aggregate too, 2QFY13 Sensex PAT growth is weak – 6pp lower than
aggregate PAT growth, the highest in the last 12 quarters, again excluding the SBI-
shock quarter.
Lowest Sensex PAT growth ex the "SBI-shock quarter" … … and worst growth relative to aggregate (ex SBI shock)
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Global
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A–49October 2012
India Strategy | Fired up?
Sectoral analysis: Non-cyclicals to have a field dayA sectoral breakdown of 2QFY13 corporate performance clearly suggests the
dominance of non-cyclical sectors:
Of the large sectors, the highest YoY PAT growth is expected to be in Technology
(+34%), Healthcare (+28%), Financials (+19%) and Consumer (+18%).
Telecom is the only major non-cyclical to report major PAT de-growth (-32% YoY).
Another non-cyclical, Utilities, continues to maintain steady performance (PAT up
7% YoY).
Expect most cyclicals to report negative or flat PAT growth: Oil & Gas ex RMs (+1.3%),
Metals (-12%), Autos (flat), Capital Goods (flat) and Real Estate (-28%).
Cement is the only major cyclical expected to report robust PAT growth (+89%
YoY).
Non-cyclicals contribute 103% of the incremental PAT over 2QFY12, whereas
cyclicals have a negative contribution of 3%.
Other aggregate highlights Sales growth at 13% YoY is the lowest in the last 12 quarters, and is expected to
moderate further in 2HFY13 to 10%. This is led by a combination of both lower
commodity prices and slowing volume growth.
EBITDA margin is expected to contract 120bp YoY led by Oil & Gas ex RMs(-400bp)
and Telecom (-250bp). As a result, EBIDTA growth at 8% is lower than Sales growth.
Quarterly performance - MOSL universe (INR b)
Sector Sales EBITDA PAT EBITDA Margin
(No of companies) Sep-11 Sep-12 Var % Sep-11 Sep-12 Var Sep-11 Sep-12 Var Sep-11 Sep-12 Var
YoY % YoY % YoY (bp)
High YoY PAT Growth 680 830 22 153 198 30 101 139 38 22.5 23.9 139
Cement (8) 145 162 11 26 36 38 10 19 89 17.8 22.1 425
Technology (6) 361 460 27 89 116 31 65 88 34 24.5 25.2 73
Health Care (17) 174 208 20 39 46 20 25 32 28 22.3 22.3 8
Medium/Low YoY PAT Growth 749 854 14 588 674 15 285 339 19 78.4 78.9 45
Financials (25) 402 460 14 320 369 15 160 191 19 79.7 80.2 55
Private Banks (8) 96 118 22 79 98 24 46 57 23 81.9 83.4 142
PSU Banks (9) 251 276 10 189 206 10 78 91 17 75.1 74.8 -36
NBFC (8) 54 66 21 53 64 22 36 43 19 96.6 97.4 83
Consumer (12) 245 283 16 51 60 18 35 41 18 20.7 21.2 51
Media (5) 25 27 10 8 9 2 4 4 17 34.5 32.1 -243
Others (4) 38 40 7 8 7 -2 4 4 15 20.4 18.7 -172
Utilities (10) 485 534 10 119 127 6 65 70 7 24.6 23.7 -87
Oil & Gas ex RMs (10) 1,441 1,703 18 301 288 -4 179 181 1 20.9 16.9 -398
Oil & Gas incl RMs (13) 3,126 3,886 24 191 385 102 38 245 539 6.1 9.9 381
Negative YoY PAT Growth 1,017 1,148 13 121 135 11 76 75 -1 11.9 11.8 -17
Auto (5) 623 721 16 75 86 15 46 46 0 12.1 12.0 -6
Capital Goods (9) 336 364 8 41 42 4 28 27 -1 12.1 11.7 -47
Retail (4) 57 64 12 5 6 14 2 2 -6 9.3 9.5 23
Metals (10) 937 932 0 161 159 -2 91 80 -12 17.2 17.0 -23
Real Estate (7) 41 35 -13 19 15 -21 8 6 -28 47.0 42.5 -452
Telecom (4) 276 310 12 88 91 3 15 10 -32 31.9 29.4 -246
MOSL (139) 7,271 8,487 17 1,240 1,555 25 597 865 45 17.1 18.3 127
MOSL Excl. RMs (136) 5,587 6,304 13 1,350 1,458 8 738 802 9 24.2 23.1 -104
Sensex (30) 3,769 4,229 12 838 866 3 466 477 2 22.2 20.5 -175
A–50October 2012
India Strategy | Fired up?
EBITDA growth is expected to pick up somewhat in 2HFY13, as lower commodity
prices have a lag impact on raw material costs.
There are 3 sectors/sub-sectors where all companies are expected to report
positive PAT growth – Technology, Private Banks and NBFCs. In 2 other sectors,
only one company is expected to report PAT de-growth – Cement (Jaiprakash) and
Consumer (United Spirits).
There are 3 sectors where only one company is expected to clock positive PAT
growth even as all its peers de-grow – Metals (Nalco), Telecom (Idea), and Real
Estate (Phoenix Mills).
Non-cyclicals (Technology, Healthcare, Consumer, Financials) dominate 2QFY13 corporate performance
2QFY13 PAT growth by sector (%) Contribution to YoY PAT delta by sector (%)
2QFY13 sales growth (%) healthy across sectors … … but EBITDA margin damage widespread (chg in margin, bp)
34 28 23 19 18 17 17 9 7 2 1
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>30% 15-30% 0-15% <0% PAT growth ex RMs (%)
55.2 36.4 34.0 25.1 15.4 24.3 25.6 19.7 -8.4 -15.5 -14.9 -11.3 22.7 41.7 25.5 22.3 23.7 8.9 13.1 10.6 4.4 18.4 11.1 8.7
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A–51October 2012
India Strategy | Fired up?
Sector highlights AUTOS: Volume slowdown visible across segments, except UVs/LCVs. While
commodity prices are benign, adverse product mix and Fx movement would lead
to an increase in RM cost by 30bp QoQ and 10bp YoY. We estimate 2QFY13 EBITDA
margins to decline 70bp QoQ (70bp YoY), impacted by adverse product mix, adverse
Fx movement and negative operating leverage. Maruti Suzuki (-200bp YoY/-290bp
QoQ) and Hero MotoCorp (-190bp YoY/-120 QoQ) would be worst impacted. We
are downgrading our earnings estimates for Bajaj Auto and Hero MotoCorp to
factor in weaker than expected demand and adverse currency movement (except
Bajaj). We prefer Tata Motors, Maruti Suzuki and Bajaj Auto.
CAPITAL GOODS: We expect 2QFY13 revenue growth to moderate to 8% YoY
(v/s 17% YoY in 1QFY13), given the depleting order book and constrained
environment. Ordering activity continues to be sluggish, particularly in the
industrial / power generation segment. Current BTB stands at 2.4x, the lowest in
18 quarters and continues to impact reported performance. In 2QFY13, we expect
EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost absorption.
While commodity prices have corrected meaningfully, a large part of the decline
is negated by currency movements. Companies with high local manufacturing
content (like BHEL, Cummins and Thermax) will be the key beneficiaries.
CEMENT: Cement volume growth is expected to be muted at 2% YoY (down
~12%QoQ). As a result, capacity utilization is also expected to decline 120bp YoY
(-10pp QoQ). However, cement prices remain strong with only moderate seasonal
corrections in 2QFY13 of INR5/bag (national average). QoQ drop in realizations,
coupled with negative operating leverage (950bp QoQ lower utilizations) and
cost push (partial impact of diesel price hike) would drive down EBITDA/ton to
INR979/ton (down INR224/t QoQ, +INR383/ton YoY). We expect recovery in volumes
and strong pricing in 2HFY13 to restore strong operating performance.
CONSUMER: Sustenance of volume growth amidst weaker macro environment
will be the key highlight of 2QFY13, in our view. For 2QFY13, we estimate our
coverage universe to post ~16% revenue growth (16% in 1QFY13) and ~18% PAT
growth (~22 % in 1QFY13). EBITDA is likely to grow 18.5% on the back of sustained
revenue growth and some softening in input costs. We expect ITC to post 16%
sales growth (1% cigarette volume growth) and ~17% PAT growth; HUL’s sales are
likely to grow 15% (8% volume growth) and 19% PAT growth.
FINANCIALS are likely to report healthy 2QFY13 PAT growth of 19%, led by Private
Banks and select PSU banks, viz, SBI, BOI, OBC and UNBK. In terms of segments, we
expect PAT growth of 23% YoY for Private Banks, 8.6% YoY for Public Sector Banks
(ex SBI), and ~19% YoY for NBFCs. Performance of Public Sector Banks is expected
to be mixed with SBI (+32%), OBC (+98%), BOI (+44%) and UNBK (+66%) reporting
strong numbers on a lower base and many others muted or lower. Asset quality
will remain the most important driver of PAT performance. Private Banks are likely
to report better earnings and asset quality performance vis-à-vis Public Sector
Banks. Ex Kotak Mahindra and Federal, private banks are expected to report PAT
A–52October 2012
India Strategy | Fired up?
growth in the range of 20-30%. Among NBFCs, MMFSL is expected to report the
strongest earnings growth of 35%+, followed by DEWH. Other NBFCs are likely to
report 20% earnings growth, except LICHF whose PAT growth is likely to be muted.
HEALTHCARE: For 2QFY13, we expect topline growth of 21% YoY for our universe
(ex one-offs) with EBITDA growth at 22% YoY. Adjusted PAT is expected to grow
28% YoY. Adjusted PAT growth at 28% is higher than EBITDA growth mainly due to
reversal of forex losses due to the appreciation of the INR v/s the USD in last few
weeks. Among CRAMS companies, we expect Divi's and Dishman to report strong
operational performance on a low base, new order inflow, and favorable currency.
MEDIA: Aggregate PAT for our media universe is expected to improve 10% YoY. Ad
revenue trends remain sluggish but are likely bottoming-out. Headwinds for print
companies seem to be receding on gradual decline in newsprint costs as well as
sharp appreciation in the INR. Digitization remains a strong theme for broadcasting
and distribution stocks as most participants do not foresee a postponement in the
digitization deadline of October 31 for metros.
METALS: Ferrous: Domestic operations of steel majors are expected to report 3%
lower revenue QoQ, with 4% higher volumes more than offset by 7% decline in
realization. EBITDA is expected to be down 10% QoQ and EBITDA/ton lower by
USD20-30/t. SAIL and Tata Steel (India) are expected to deliver volume growth of
8% and 4% QoQ and JSW Steel flat. In 1QFY13 most steel companies had increased
inventories which are expected to be partially liquidated in the current quarter.
Non-ferrous – Average 1QFY13 base metal LME prices corrected 0-3% QoQ but
spot premiums moved up significantly supporting margins. Operating margins for
both Sterlite and Hindalco (standalone) are expected to improve QoQ. HZL volumes
and margins are expected to remain flat QoQ.
OIL & GAS: Ex RMs, expect EBITDA decline of 4% and flat PAT (up 1% YoY). We
expect Reliance Industries to report 17% YoY EBITDA decline, led by lower GRMs,
petchem margins and KG-D6 gas volumes. Cairn is likely to report 79% YoY EBITDA
growth led by Rajasthan production growth. ONGC and Oil India are estimated to
report 16% and 22% YoY decline in EBITDA led by lower net realization (~USD54/
bbl in 2QFY13 v/s ~USD85/bbl in 2QFY12) and higher cess rate of INR4,500/MT v/s
INR2,500 in FY12. The quantum of government support to OMCs and subsidy sharing
by upstream companies remains uncertain. Still, refiners’ earnings are expected
to benefit by crude inventory gains and rupee appreciation.
REAL ESTATE: Given spillover launches (which were deferred by delay in approvals)
and a weak 2QFY12, we expect our real estate universe to post a YoY uptick in sales
momentum. We expect aggregate sector revenue de-growth of 13.1% YoY (+7.7%
QoQ), EBITDA decline of 21.4% YoY (-9.2% QoQ) and PAT decline of 27.6% YoY
(-7.8% QoQ). Despite improved operating cash flow, meaningful success in debt
reduction plan is likely to be visible in 2HFY13 only.
A–53October 2012
India Strategy | Fired up?
TECHNOLOGY: Aggregate INR revenue is expected to grow 27.5% YoY and PAT
33.6%, led by 21% YoY depreciation in the Rupee v/s the US Dollar. USD revenue
growth across the top-tier is 8% YoY (10% including Cognizant). TCS, Cognizant and
HCL are likely to continue leading revenue growth (+3.6%-4.6% QoQ), followed by
Infosys (+2.9% QoQ) and Wipro (+1% QoQ). Pricing is expected to be stable across
the board. Margins are expected to decline at Wipro on two-month residual impact
of wage hikes and hedge losses in the topline, as also at HCL due to wage hikes
becoming effective from July 1.
TELECOM: Aggregate 2QFY13 PAT for listed wireless majors is expected to decline
32% YoY and 17% QoQ. For 2QFY13, we expect average wireless traffic for top 4
operators to decline ~1% QoQ led by seasonal weakness and lower promotions.
Wireless RPM decline is likely to abate, down 0.3% QoQ v/s ~2% QoQ decline in
the preceding two quarters. Among operators, we expect Bharti to exhibit
relatively lower traffic decline given its price aggression.
UTILITIES: We expect our Utility universe (ex Coal India) to report aggregate 2QFY13
revenue growth of 9% YoY and PAT de-growth of 2% YoY. PAT growth is likely to be
muted for IPPs. NTPC (higher capacity addition) and PGCIL (better capitalization)
would show PAT growth of 26% and 22% YoY, respectively. ST prices at IEX touched
a high of INR6/unit in mid-July but fell sharply post that. ST forward curve has
been strong and the last 3-month contracts are executed at price of INR4+/unit.
Globally, imported coal prices have weakened and INR has shown weakness too.
Players fueling their plants on imported coal will report improved gross margins.
Company highlights DLF: We expect flat revenue QoQ at INR21.4b in 2QFY13, 25% YoY de-growth in
EBITDA and 18% PAT de-growth to INR2.9b owing to higher interest expense. During
2QFY13, DLF divested NTC Mills and received initial tranche of INR5b. However,
we expect leverage level to remain largely unaltered due to operating deficit.
Progress in major divestments (Aman Resort, windmills) and balance payment in
NTC Mills deals followed by debt reduction are key factors to watch out for.
HDFC BANK: It will most likely report its 52nd consecutive quarter of 30%+ PAT
growth on back of superior margins, strong loan growth and commendable
performance on asset quality. Our estimates suggest this trend will sustain all
through FY13.
HUL: Turnaround which began in FY11 has gathered steam and is evident in
sustained volume momentum notwithstanding higher base. HUVR’s distribution
and trade initiatives coupled with improved go-to-market capabilities and
aggressive innovation pipeline has laid a foundation for strong performance in
FY13 and FY14, in our view. This should translate into a robust 8% volume growth
and 19% PAT growth for 2Q13.
A–54October 2012
India Strategy | Fired up?
MARUTI SUZUKI: 2QFY13 performance is expected to be impacted by recent labor
issue at its Manesar plant. Moreover, weak demand for petrol cars and consequent
high discounts, adverse mix, unfavorable forex and recent wage hike negotiated
with workers are expected to hurt margins. We estimate 260bp QoQ (-160bp YoY)
decline in EBITDA margin to 4.7% and PAT decline of 51% YoY (-72% QoQ) to INR1.18b.
BHARTI: Consolidated PAT is expected to decline 36% YoY and 14% QoQ to INR6.6b.
PAT for India & SA is expected to decline 22-23% YoY/QoQ. We have not assumed
any forex gain/loss for Bharti in our 2QFY13 estimates. However Bharti could report
forex gain for the quarter due to INR appreciation.
WIPRO: Wipro accounts for its hedge losses in the topline; segmental breakdown
of IT Services revenues also include translation losses. In 2QFY13, closing currency
appreciated QoQ (implying loss on assets translations) while average INR
depreciated QoQ (implying losses on hedges taken too). Therefore, while for
most IT companies, this could imply other income losses, at Wipro, the same is
likely to have operating margin implications. We are currently modeling 100bp
QoQ decline in IT Services EBIT margin at 20%. Large forex impact would imply a
significant miss on the same.
NTPC: We expect NTPC to report PAT growth of 26% YoY largely on the back of base
effect, as operations in September 2011 were impacted due to coal shortage/wet
coal and strike at Coal India. Generation for Jul-Aug 2012 stood at 36.5BUs (up 2%
YoY) and coal plant PLF for the same period stood at 77% v/s 82% YoY.
SBIN is expected to report PAT growth of 30%+, led by strong margin and lower
provisions (on a higher base of 2QFY12). Higher slippages have been a concern in
the past and the trend needs to be watched.
SESA GOA: Sesa Goa is expected to report 57% YoY decline in revenues due to
lower iron ore volumes, affected by temporary closure of mining in Goa. There is
further downside risk to our iron ore volume estimates of 7.9dmt in FY13 and
15.7dmt in FY14 as restarting of mining could take much longer time than expected.
A–55October 2012
India Strategy | Fired up?
20
27
34
23 21
6
-5-11
-6
19 18 19
1217
25222623
2228
323031
4438
3637
22
3230
33
2220
16
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E
LPA 22%
2QFY13 Sensex PAT growth just 2% YoY For 2QFY13, we expect Sensex companies’ aggregate Sales growth of 12% YoY. A
175bp damage to margin leads to EBITDA growth being sharply lower than Sales
growth at only 3% YoY. PAT growth at 2% YoY is in line with EBITDA growth. All
growth figures are well below long-period averages.
This performance is very weak in more than one way –
1. It is the lowest Sensex PAT growth in the last 12 quarters, excluding the “SBI-
shock quarter” of 4QFY11 which saw SBI PAT collapsing to near zero. Nearly
half (i.e. 14 out of 30) Sensex companies are expected to post YoY PAT decline
for 2QFY13.
2. Relative to the aggregate too, 2QFY13 Sensex PAT growth is weak – 6pp lower
than aggregate PAT growth, the highest in the last 12 quarters, again excluding
the SBI-shock quarter. This is primarily led by PAT decline in several cyclicals –
Oil &Gas (ONGC, GAIL, Reliance Inds), Metals (Hindalco, Sterlite, Tata Steel)
and Autos (Hero MotoCorp, Bajaj Auto, Maruti) – many of these companies
had reported PAT growth in 1QFY13.
As in the MOSL Universe aggregates, non-cyclicals and cyclicals have a major and
distinct impact on Sensex PAT:
Of the 9 Sensex companies with highest PAT growth, 8 are non-cyclicals.
Non-cyclicals more than offset the 390% drag on PAT contribution by the
cyclicals.
Given ONGC’s high 13% weight in Sensex PAT and its sharp de-growth of 26% YoY,
it alone accounts for a 7pp drop in Sensex PAT growth. Thus, ex ONGC, aggregate
Sensex PAT growth is a much more respectable 9%.
Top five Sensex companies by PAT growth: TCS (+42% YoY), SBI (+31%), HDFC Bank
(+30%), Sun Pharma (+29%), and Infosys (+26%).
Sensex Sales growth (YoY, %)
A–56October 2012
India Strategy | Fired up?
Sensex 2QFY13 performance - It's cyclicals v/s non-cyclicals (INR b)
Sales EBDITA EBITDA margin PAT PAT Contbn
Sep-12 Var % Sep-12 Var % Sep-12 Var Sep-12 Var % % Growth
YoY YoY (bp) YoY %
High PAT Growth 898 17 313 18 34.9 47 203 29 42 404
TCS 158 36 46 36 29.2 17 35 42 7 91
State Bank 115 10 85 13 73.8 245 37 31 8 79
HDFC Bank 36 22 28 30 76.5 432 16 30 3 32
Sun Pharma 23 26 9 20 38.1 -201 7 29 1 14
Infosys 100 24 31 23 30.9 -13 24 26 5 44
NTPC 156 1 31 -3 20.1 -98 19 26 4 34
Coal India 147 12 27 10 18.6 -27 28 25 6 50
Wipro 111 22 21 22 19.2 9 16 22 3 26
ICICI Bank 33 30 30 29 93.4 -51 18 21 4 29
Cipla 20 15 5 18 25.2 58 4 21 1 6
Med/Low PAT Growth 820 21 134 23 16.4 21 79 14 17 85
HDFC 15 18 16 21 111.9 299 12 19 2 17
Hind. Unilever 65 15 10 19 15.3 57 8 19 2 11
M&M 95 31 11 28 11.7 -23 9 17 2 11
ITC 70 15 26 16 36.8 33 18 17 4 23
Tata Motors 443 22 58 29 13.1 66 25 11 5 21
Larsen & Toubro 133 18 13 13 10.0 -44 8 3 2 2
Negative PAT Growth 2,511 8 418 -10 16.6 -330 196 -18 41 -389
Reliance Inds. 937 19 82 -17 8.8 -378 55 -3 12 -14
BHEL 105 2 18 -1 16.8 -60 12 -4 3 -5
Bajaj Auto 48 -7 9 -12 17.8 -105 7 -11 1 -8
Sterlite Inds. 104 2 25 0 23.8 -51 13 -15 3 -20
Hindalco 197 2 22 2 11.2 -2 9 -15 2 -15
Dr Reddy’s Labs 25 15 5 9 18.3 -110 2 -17 0 -4
JSPL 51 15 16 -14 30.6 -1019 8 -20 2 -19
GAIL 112 15 14 -15 12.4 -454 8 -24 2 -23
ONGC 218 -4 119 -16 54.9 -773 64 -26 13 -200
Hero Motocorp 52 -11 5 -28 9.3 -220 4 -27 1 -15
Tata Power 71 14 13 -3 18.4 -322 3 -30 1 -12
Bharti Airtel 196 13 60 2 30.4 -324 7 -36 1 -33
Maruti Suzuki 83 5 4 -21 4.7 -157 1 -51 0 -11
Tata Steel 313 -5 28 2 9.0 58 1 -63 0 -12
Sensex (30) 4,229 12 866 3 20.5 -175 477 2
42 43
20
44
-2
16
615
2
30
12
222726
-21-25
-15-7
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2630333031
612
24
333928
25
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E
LPA 19%
Sensex PAT growth (YoY, %)
A–57October 2012
India Strategy | Fired up?
2HFY13E YoY (PAT growth YoY, %)
5748
30 25 25 20 20 18 17 17 16 13 11 9 9 8 6 3 3 3 2
‐6 ‐9 ‐10 ‐12 ‐18 ‐18‐25 ‐28
7
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Most sectors comfortably placed for 2HFY13 PAT; no major earnings downgrade risk for FY13
20 19293238
42
‐19‐13‐6
1010151618
‐16
‐22
45
212817
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2HFY13E YoY (PAT growth YoY, %) 2HFY12A (PAT growth YoY, %)
Bottom five Sensex companies by PAT growth: Tata Steel (-63% YoY), Maruti Suzuki
(-51%), Bharti Airtel (-36%), Tata Power (-30%) and Hero MotoCorp (-27%).
Tata Steel and Maruti Suzuki are the bottom performers for the second quarter in
a row.
2HFY13 residual PAT growth modest; allays downgrade concerns for FY13In 1HFY13, PAT growth for MOSL Universe (ex RMs) was 6% YoY. In order to meet our
full year FY13 PAT growth estimate of 9%, implied residual 2HFY13 PAT works out to
12% YoY.
Even the disaggregated, sector-wise picture for residual 2HFY13 is comforting. Only 4
sectors need to deliver PAT growth of 25%+, viz, Media, Real Estate, Healthcare and
Cement. Of these, Media and Real Estate enjoy the benefit of low base as their 2HFY12
PAT was down 23% and 29%, respectively.
Sensex 2HFY13E PAT growth at 7%: As in the case of aggregates, even for Sensex,
2HFY13 PAT growth is a modest 7% with earnings headwinds adequately modeled in,
in our view.
2HFY13E PAT for Sensex companies: As in the aggregates, no major downgrade concerns here too
A–58October 2012
India Strategy | Fired up?
Intra-sector 2QFY13 earnings divergence (%)
Sectors Sector +30% Growth 15-30% growth 0-15% growth -ve earnings Earnings
Growth (%) growth (%) momentum
Autos 0 M & M: 17 Tata Motors: 11 Bajaj Auto: -11,
HMCL: -27, MSIL: -51
Capital Goods -1 Havells: 6, BHEL: -4,
ABB: 145 Cummins: 23 L&T: 3 Siemens: -11,
CRG: -14, TMX: -18
Cement 89 Shree Cement: LP, India Grasim Jaiprakash
ACC: 103, Ultratech: 94, Cements: 22 Industries: 4 Associates: -27
ACEM: 92, Birla Corp: 54
Consumer 18 Marico: 37, Pidilite Inds: 28, Britannia: 12, United
Godrej Consumer: 36 Dabur: 22, HUVR: 19, GSK Consumer: 12, Spirits: -2
ITC: 17, CLGT/APNT: 16 Nestle: 10
Bank - Private 23 Yes Bank: 30, IndusInd Bank: 28, ING Vysya Bk: 15,
HDFC Bank: 30 Axis Bank: 22, KMB: 6,
ICICI Bank: 21 Federal Bank: 5
Bank - PSU 17 OBC: 98, Andhra Bank: 2, BOB: -7,
Union Bank: 66, PNB: 1, Canara Bank: -14
BOI: 44, SBIN: 31 Indian Bank: 0
Bank - NBFC 19 M&M Financial: 37, PFC: 21, IDFC: 20, Shriram Trans: 10,
Dewan Housing: 33 HDFC: 19, LIC Hsg. Fin.: 1
REC: 19
Healthcare 28 Dishman: LP, Sun Pharma: 29, Torrent Pharma: 12,
Cadila: 110, Glenmark: 92, Divis Lab: 27, Opto Circuits: 10 Sanofi India: -9
Jubilant Life: 67, Lupin: 22, Cipla: 21, Ranbaxy Labs: 4, Dr Reddy's Lab: -17
IPCA Labs: 41 GSK Pharma: 18 Biocon: 3
Media 17 Dish TV: Loss,
Jagran Prakashan: 59 Zee Ent: 2 Sun TV: -1
HT Media: -8
Metals -12 HZ: -1, NMDC: -7,
Sesa Goa: 139 Nalco: 23 STLT: -15, HNDL: 15,
JSPL: -20, SAIL: -36,
JSW: -35, TATA -63
Oil & Gas 3 MRPL: 3,365, Indraprastha RIL: -3, GSPL: -16,
(Ex RMS) Chennai Petroleum: 305, Gas: 12, Oil India: -17,
Cairn India: 271 Petronet LNG: 0 GAIL: -24, ONGC: -26
Real Estate -28 Oberoi Realty: 2,
Phoenix Mills: 26 MLIFE: -3, HDIL: -27,
DLF: -37, Unitech: -47
Retai l -6 Jubilant Foodworks: 45 Titan Inds: 15 Shopper's Stop: -82,
Pantaloon: -94
Technology 34 HCL Tech: 65, Infosys: 26, Tech MphasiS: 14
TCS: 42 Mah: 24, Wipro: 22
Telecom -32 Bharti Airtel: -36,
Idea Cellular: 92 Tulip Telecom: -37,
RCom: -60,
Uti l i t ies 7 NTPC: 26, Adani Power: PL,
JSW Energy: LP Coal India: 25, CESC: 14, Tata Power: -30,
Powergrid: 24, NHPC: 10 Reliance Infra: -48
PTC India: 19
Earnings momentum: Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to Profit
0 1 31
1 15
2
5 11
1
2 6 13
2 3 03
423
2 4 02
6 5 24
1 180
3 0 52
0 16
0
2 3 01
1 4 32
1 0 21
0
1 0 30
031
1
A–59October 2012
India Strategy | Fired up?
N O T E S
MOSL Universe:2QFY13 Highlights
&Ready Reckoner
BSE Sensex: 18,763 S&P CNX: 5,703
Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year
numbers. This is because of differences in classification of account heads in the company’s quarterly and
annual results or because of differences in the way we classify account heads as opposed to the company.
All stock prices and indices as on 28 September 2012, unless otherwise stated.
September 2012 Results Preview
October 2012
B–1October 2012
MOSL Universe
MOSL Universe: 2QFY13 aggregate performance highlights
Quarterly performance - MOSL universe (INR Billion)
Sales EBITDA Net Profit
(No of companies) Sep-12 Var. Var. Sep-12 Var. Var. Sep-12 Var. Var.
YoY (%) QoQ (%) YoY (%) QoQ (%) YoY (%) QoQ (%)
Auto (5) 721 15.7 -3.2 86 15.1 -5.9 46 -0.2 -8.8
Capital Goods (9) 364 8.2 14.7 42 4.0 26.3 27 -1.4 10.2
Cement (8) 162 11.1 -9.9 36 37.7 -22.7 19 89.0 -24.9
Consumer (12) 283 15.6 3.4 60 18.5 6.1 41 17.7 4.1
Financials (25) 460 14.4 4.1 369 15.2 3.9 191 19.0 -0.4
Private Banks (8) 118 22.1 3.6 98 24.2 4.8 57 22.9 2.9
PSU Banks (9) 276 10.0 4.1 206 9.5 3.1 91 16.8 -4.0
NBFC (8) 66 21.2 5.1 64 22.2 5.0 43 18.7 3.6
Health Care (17) 208 19.7 6.8 46 20.2 4.9 32 28.2 16.7
Media (5) 27 9.5 3.4 9 1.8 0.3 4 17.1 14.3
Metals (10) 932 -0.5 -4.8 159 -1.8 -9.4 80 -12.1 -23.2
Oil & Gas (13) 3,886 24.3 8.9 385 101.9 LP 245 539.3 LP
Excl. RMs (10) 1,703 18.1 5.3 288 -4.4 24.8 181 1.3 25.7
Real Estate (7) 35 -13.1 7.7 15 -21.4 -9.2 6 -27.6 -7.8
Retail (4) 64 11.6 8.1 6 14.4 9.2 2 -5.5 11.8
Technology (6) 460 27.5 4.8 116 31.3 2.9 88 33.6 2.5
Telecom (4) 310 12.2 0.3 91 3.5 -0.1 10 -32.4 -16.1
Utilities (10) 534 10.1 -2.0 127 6.2 -13.8 70 7.0 -22.6
Others (4) 40 6.6 -6.1 7 -2.3 -7.4 4 15.3 -12.0
MOSL (139) 8,487 16.7 4.1 1,555 25.4 48.0 865 44.9 112.3
MOSL Excl. RMs (136) 6,304 12.8 1.6 1,458 8.0 2.4 802 8.7 -1.3
Sensex (30) 4,229 12.2 0.8 866 3.3 0.4 477 2.4 -3.6
For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; LP = Loss to Profit
Quarterly performance - MOSL universe
Sector EBITDA Margin (%) Net Profit Margin (%)
(No. of Companies) Sep.11 Sep.12 Chg. (%) Sep.11 Sep.12 Chg. (%)
Auto (5) 12.1 12.0 -0.1 7.4 6.4 -1.0
Capital Goods (9) 12.1 11.7 -0.5 8.2 7.5 -0.7
Cement (8) 17.8 22.1 4.3 7.1 12.0 4.9
Consumer (12) 20.7 21.2 0.5 14.1 14.4 0.3
Financials (25) 79.7 80.2 0.6 39.9 41.5 1.6
Private Banks (8) 81.9 83.4 1.4 47.9 48.2 0.3
PSU Banks (9) 75.1 74.8 -0.4 31.2 33.1 1.9
NBFC (8) 96.6 97.4 0.8 65.8 64.5 -1.3
Health Care (17) 22.3 22.3 0.1 14.2 15.3 1.0
Media (5) 34.5 32.1 -2.4 15.4 16.5 1.1
Metals (10) 17.2 17.0 -0.2 9.8 8.6 -1.1
Oil & Gas (13) 6.1 9.9 3.8 1.2 6.3 5.1
Excl. RMs (10) 20.9 16.9 -4.0 12.4 10.7 -1.8
Real Estate (7) 47.0 42.5 -4.5 20.1 16.7 -3.4
Retail (4) 9.3 9.5 0.2 4.0 3.4 -0.6
Technology (6) 24.5 25.2 0.7 18.1 19.0 0.9
Telecom (4) 31.9 29.4 -2.5 5.6 3.4 -2.2
Utilities (10) 24.6 23.7 -0.9 13.5 13.1 -0.4
Others (4) 20.4 18.7 -1.7 9.4 10.2 0.8
MOSL (139) 17.1 18.3 1.3 8.2 10.2 2.0
MOSL Excl. RMs (136) 24.2 23.1 -1.0 13.2 12.7 -0.5
Sensex (30) 22.2 20.5 -1.8 12.4 11.3 -1.1
B–2October 2012
MOSL Universe
MOSL Universe: 2QFY13 aggregate performance highlights (Ex RMs)
Quarter-wise sales growth (% YoY) Quarter-wise net profit growth (% YoY)
Sectoral sales growth - quarter ended September 2012 (%)
Sectoral EBITDA growth - quarter ended September 2012 (%)
Sectoral net profit growth - quarter ended September 2012 (%)
17.6%15.3%
12.8%
22.2%
Dec-11 Mar-12 June-12 Sep-12E
5.1%
17.1%
10.8%
8.7%
Dec-11 Mar-12 June-12 Sep-12E
27 20 18 16 16 14 12 12 11 10 10 8
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B–3October 2012
MOSL Universe
Top 10 by sales growth (%) Worst 10 by sales growth (%)
Top 10 by EBITDA growth (%) Worst 10 by EBITDA growth (%)
Top 10 by net profit growth (%) Worst 10 by net profit growth (%)
Corporate Scoreboard (quarter ended September 2012)
Source: MOSL
84
5247 44 44 43 43 40 39 37
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B–4October 2012
MOSL Universe
Valuations - MOSL universe
Sector P/E EV/EBITDA P/BV RoE Div. PAT
(x) (x) (x) (%) yld (%) CAGR
(No. of companies) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY12-14
Auto (5) 11.9 12.4 9.9 6.7 5.6 4.6 3.9 3.0 2.5 32.4 24.4 25.1 1.7 9.6
Capital Goods (9) 16.5 16.4 16.3 10.7 10.6 10.0 3.6 3.1 2.8 21.6 19.1 17.1 1.5 0.8
Cement (8) 18.1 15.2 13.4 9.8 8.3 7.1 2.8 2.6 2.2 15.8 16.8 16.7 1.0 16.0
Consumer (12) 38.1 31.6 26.6 25.5 21.0 17.6 13.3 10.8 9.1 34.9 34.2 34.0 1.2 19.6
Financials (27) 12.3 10.6 9.0 NM NM NM 2.1 1.8 1.6 17.3 17.2 17.5 1.8 16.7
Private Banks (8) 19.7 16.4 13.9 NM NM NM 3.1 2.7 2.4 15.9 16.7 17.4 1.1 19.1
PSU Banks (11) 7.4 6.5 5.6 NM NM NM 1.3 1.1 0.9 17.4 16.7 16.8 2.5 14.6
NBFC (8) 15.1 12.7 10.7 NM NM NM 2.9 2.5 2.1 19.5 19.4 19.9 2.1 18.9
Health Care (17) 26.4 21.6 18.1 15.9 13.6 12.3 5.2 4.3 3.7 19.7 20.1 20.6 1.0 20.9
Media (5) 32.0 27.9 23.2 14.4 12.8 10.7 5.7 5.0 4.5 17.7 18.0 19.4 1.2 17.4
Metals (10) 9.6 9.2 7.8 6.4 6.5 5.6 1.3 1.2 1.1 13.3 12.8 13.6 1.9 11.2
Oil & Gas (13) 9.9 10.3 9.6 6.2 6.2 5.5 1.6 1.4 1.3 15.8 13.9 13.4 2.0 1.3
Excl. RMs (10) 10.5 10.1 9.6 5.6 5.6 5.0 1.7 1.5 1.4 16.0 14.9 14.1 2.0 4.4
Real Estate (11) 18.0 18.3 14.0 14.0 13.4 10.0 1.1 1.1 1.0 6.1 5.8 7.0 0.9 13.2
Retail (4) 45.2 38.3 28.9 19.0 16.1 13.2 7.3 6.4 5.5 16.0 16.7 19.1 0.6 25.0
Technology (6) 19.3 15.7 14.5 13.5 10.8 9.7 4.9 4.1 3.4 25.2 26.4 23.5 1.8 15.3
Telecom (4) 22.7 29.5 19.6 7.2 6.9 5.8 1.5 1.4 1.3 6.5 4.9 6.9 0.4 7.7
Utilities (10) 14.6 13.3 12.0 11.0 9.6 8.4 2.4 2.2 1.9 16.3 16.1 16.2 2.4 10.6
Others (4) 16.7 16.0 13.4 10.3 9.5 7.9 3.6 3.3 2.9 21.8 20.5 21.5 2.1 11.7
MOSL (145) 14.6 13.5 11.8 N.M N.M N.M 2.5 2.2 1.9 16.8 16.1 16.3 1.7 10.9
MOSL Excl. RMs (142) 14.9 13.6 11.9 N.M N.M N.M 2.5 2.2 2.0 16.9 16.4 16.5 1.7 11.8
Sensex (30) 16.7 15.4 13.5 N.M N.M N.M 2.9 2.6 2.3 17.1 16.9 17.0 1.6 12.1
Nifty (50) 16.3 15.0 13.2 N.M N.M N.M 2.7 2.6 2.3 16.7 17.0 17.0 1.6 12.5
N.M. - Not Meaningful. Source: MOSL
Annual performance - MOSL universe (INR Billion)
Sales EBITDA Net Profit
FY12 FY13E FY14E Chg.# Chg.@ FY12 FY13E FY14E Chg.# Chg.@ FY12 FY13E FY14E Chg.# Chg.@
(%) (%) (%) (%) (%) (%)
Auto (5) 3,041 3,532 3,981 16.1 12.7 399 454 537 13.8 18.1 228 219 274 -3.8 24.8
Capital Goods (9) 1,525 1,659 1,785 8.8 7.6 207 212 222 2.3 4.7 143 144 146 0.8 0.8
Cement (8) 853 963 1,104 12.9 14.7 190 228 260 20.1 13.8 99 118 134 18.9 13.2
Consumer (12) 1,005 1,175 1,360 17.0 15.7 204 247 292 20.7 18.4 138 166 198 20.4 18.8
Financials (27) 1,843 2,106 2,482 14.3 17.9 1,473 1,685 1,997 14.4 18.5 751 874 1,022 16.4 17.0
Private Banks (8) 400 484 583 20.9 20.5 336 410 499 22.0 21.6 207 248 294 19.8 18.3
PSU Banks (11) 1,222 1,350 1,576 10.5 16.7 917 1,010 1,184 10.1 17.2 395 449 519 13.6 15.5
NBFC (8) 221 272 323 23.1 18.8 219 265 315 20.8 19.0 148 176 209 18.8 18.9
Health Care (17) 739 880 966 19.0 9.9 176 205 223 16.8 8.5 104 127 152 22.1 19.7
Media (5) 101 112 128 10.9 14.2 32 36 41 9.7 16.6 15 17 20 14.5 20.3
Metals (10) 3,914 3,962 4,179 1.2 5.5 694 717 844 3.3 17.7 365 381 451 4.5 18.3
Oil & Gas (13) 14,578 16,160 16,193 10.8 0.2 1,447 1,421 1,577 -1.8 11.0 789 761 810 -3.6 6.5
Excl. RMs (10) 6,603 7,546 7,422 14.3 -1.6 1,185 1,166 1,275 -1.6 9.3 653 677 712 3.8 5.1
Real Estate (11) 226 232 294 2.6 26.4 93 95 123 1.8 29.6 47 46 60 -1.4 30.0
Retail (4) 240 281 328 16.9 17.0 23 27 32 17.6 21.4 9 10 14 18.2 32.3
Technology (6) 1,521 1,864 2,083 22.6 11.7 385 468 503 21.8 7.3 287 352 382 22.6 8.5
Telecom (4) 1,140 1,264 1,386 10.9 9.6 360 376 423 4.5 12.3 63 48 73 -22.8 50.2
Utilities (10) 1,893 2,185 2,413 15.4 10.4 521 621 726 19.1 16.8 350 384 428 9.7 11.4
Others (4) 157 173 192 9.8 11.4 32 34 39 6.3 16.2 18 19 22 4.4 19.5
MOSL (145) 32,778 36,547 38,875 11.5 6.4 6,236 6,824 7,837 9.4 14.8 3,405 3,666 4,184 7.7 14.1
Excl. RMs (142) 24,803 27,933 30,104 12.6 7.8 5,973 6,570 7,534 10.0 14.7 3,269 3,583 4,085 9.6 14.0
Sensex (30) 8,597 9,740 10,314 13.3 5.9 1,739 1,902 2,160 9.4 13.5 945 1,039 1,187 9.9 14.3
Nifty (50) 9,902 10,978 11,605 10.9 5.7 1,981 2,183 2,474 10.2 13.3 1,077 1,199 1,363 11.3 13.7
# Growth FY13 over FY12; @ Growth FY14 over FY13. For Banks : Sales = Net Interest Income, EBITDA = Operating Profits;
Note: Sensex & Nifty Numbers are Free Float.
B–5October 2012
MOSL Universe
Ready reckoner: quarterly performance
(INR Million) CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Automobiles
Bajaj Auto 1,833 Buy 48,254 -6.9 -0.8 8,573 -12.1 -1.7 7,005 -11.3 -2.5
Hero Motocorp 1,879 Buy 51,770 -10.5 -16.6 4,801 -27.7 -28.3 4,401 -27.1 -28.5
Mahindra & Mahindra 865 Buy 95,445 30.6 3.2 11,193 28.1 0.9 8,656 17.4 19.3
Maruti Suzuki 1,350 Buy 82,507 5.4 -23.4 3,909 -20.9 -50.3 1,175 -51.1 -72.3
Tata Motors 267 Buy 442,658 22.3 2.2 57,988 28.7 0.8 24,824 10.5 -3.2
Sector Aggregate 720,634 15.7 -3.2 86,465 15.1 -5.9 46,061 -0.2 -8.8
Capital Goods
ABB 798 Neutral 19,190 10.1 1.9 1,109 66.3 4.6 543 145.1 5.2
BGR Energy 275 Neutral 7,038 -8.8 15.2 883 -19.9 0.4 296 -42.3 -11.5
BHEL 247 Neutral 105,257 2.2 26.4 17,694 -1.3 47.2 12,329 -4.1 33.9
Crompton Greaves 126 Neutral 29,629 9.5 5.4 1,981 -12.4 18.8 1,003 -14.0 16.8
Cummins India 508 Neutral 12,056 10.6 -4.2 2,230 26.8 -4.1 1,584 23.2 -12.3
Havells India 625 Buy 9,796 15.0 -5.4 1,162 12.9 -4.9 784 5.9 -10.9
Larsen & Toubro 1,597 Buy 132,967 18.2 11.2 13,297 13.3 6.6 8,223 3.0 -18.0
Siemens 709 Neutral 35,693 -1.1 25.5 2,914 0.7 201.6 1,579 -11.3 333.8
Thermax 561 Neutral 12,020 -7.8 22.2 1,142 -18.7 18.5 837 -17.7 24.6
Sector Aggregate 363,645 8.2 14.7 42,411 4.0 26.3 27,179 -1.4 10.2
Cement
ACC 1,469 Neutral 24,042 11.8 -13.4 4,167 89.0 -36.0 2,497 103.2 -40.3
Ambuja Cements 202 Buy 21,709 20.3 -15.4 5,512 77.0 -23.7 3,561 92.1 -24.1
Birla Corporation 282 Buy 5,456 5.8 -17.1 766 142.7 -39.1 404 54.5 -52.3
Grasim Industries 3,315 Buy 11,736 -2.5 -5.3 2,856 -1.7 -3.3 3,597 4.3 31.8
India Cements 95 Buy 11,466 5.3 -4.6 2,519 0.0 -9.3 854 22.5 14.1
Jaiprakash Associates 82 Buy 32,233 2.9 8.8 7,266 -2.9 -5.8 943 -26.7 -31.6
Shree Cement 3,954 Buy 10,927 47.4 -24.9 3,216 111.1 -33.2 2,166 LP -38.4
Ultratech Cement 1,968 Buy 44,095 12.8 -13.1 9,358 60.3 -27.6 5,402 93.6 -30.6
Sector Aggregate 161,664 11.1 -9.9 35,661 37.7 -22.7 19,423 89.0 -24.9
Consumer
Asian Paints 3,937 Neutral 25,500 13.3 0.4 3,825 18.5 -12.6 2,428 16.3 -15.8
Britannia 476 Se l l 14,500 12.0 18.7 827 7.1 27.1 548 12.3 26.2
Colgate 1,206 Se l l 7,700 17.2 4.6 1,670 18.2 2.8 1,253 16.5 6.7
Dabur 128 Neutral 14,700 16.5 0.5 2,852 20.5 38.4 2,122 22.1 37.5
Godrej Consumer 668 Neutral 16,250 37.0 17.0 2,860 36.9 43.8 1,736 35.9 33.0
GSK Consumer 2,994 Neutral 8,100 12.5 11.0 1,377 16.7 24.4 1,153 11.9 8.2
Hind. Unilever 545 Neutral 64,500 15.0 1.1 9,869 19.4 2.1 7,784 19.3 -8.9
ITC 272 Buy 69,700 14.5 3.8 25,650 15.6 8.3 17,680 16.8 10.4
Marico 199 Buy 11,500 18.0 -9.2 1,564 34.1 -15.4 1,074 37.2 -13.3
Nestle 4,374 Neutral 22,750 15.9 14.5 4,960 20.9 15.5 2,954 10.0 21.6
Pidilite Inds. 206 Buy 8,450 19.0 -7.4 1,622 24.6 -14.9 1,108 28.2 -16.9
United Spirits 1,218 Neutral 19,700 10.0 -4.2 2,916 13.9 -13.0 828 -2.3 -25.1
Sector Aggregate 283,350 15.6 3.4 59,990 18.5 6.1 40,669 17.7 4.1
PULL OUT
B–6October 2012
MOSL Universe
Ready reckoner: quarterly performance
Healthcare
Biocon 275 Neutral 6,067 19.3 5.2 1,453 8.9 18.4 886 3.4 12.4
Cadila Health 872 Buy 15,810 27.0 2.1 3,439 24.7 0.6 2,158 110.1 10.8
Cipla 381 Neutral 20,468 15.1 17.2 5,156 17.8 24.8 3,735 20.9 22.2
Dishman Pharma 96 Neutral 3,436 27.6 9.0 830 76.5 -0.7 304 LP -21.6
Divis Labs 1,080 Buy 4,932 39.3 5.3 1,833 45.2 -3.8 1,350 27.3 -19.4
Dr Reddy’ s Labs 1,647 Buy 24,822 15.1 8.9 4,542 8.6 26.4 2,229 -17.0 -4.3
Glenmark Pharma 422 Buy 11,589 25.0 17.5 2,076 19.9 12.8 1,426 91.5 181.5
GSK Pharma 1,977 Buy 6,674 9.8 2.4 2,082 18.3 2.7 1,720 17.8 1.4
IPCA Labs. 482 Buy 7,133 14.4 12.4 1,639 3.7 23.3 1,098 40.9 155.5
Jubilant Life 212 Neutral 12,803 22.2 3.6 2,691 14.0 -0.1 1,326 67.0 43.8
Lupin 596 Buy 20,925 27.2 2.1 3,674 32.9 12.4 2,442 21.5 16.4
Opto Circuits 130 Neutral 7,012 24.8 -1.9 1,885 21.9 -0.7 1,337 10.5 -3.1
Ranbaxy Labs 530 Neutral 25,341 20.9 10.0 2,706 55.4 9.1 1,688 4.2 -2.0
Sanofi India 2,374 Neutral 3,901 24.8 4.3 636 26.4 21.8 499 -8.9 23.3
Strides Arcolab 883 Buy 6,185 -19.6 21.7 1,555 -9.6 37.6 1,347 189.9 1050.3
Sun Pharma 693 Neutral 22,526 26.4 -2.2 8,583 20.1 -17.5 7,063 29.5 5.2
Torrent Pharma 695 Buy 8,290 21.3 8.1 1,659 18.0 6.4 1,119 11.9 9.8
Sector Aggregate 207,915 19.7 6.8 46,439 20.2 4.9 31,728 28.2 16.7
Media
Dish TV 83 Neutral 5,406 12.1 4.0 1,548 27.1 -0.5 -100 Loss Loss
HT Media 93 Neutral 4,982 1.0 1.7 674 -5.3 0.8 403 -8.0 -0.9
Jagran Prakashan 91 Neutral 3,317 8.6 4.5 864 9.3 9.6 729 59.2 30.7
Sun TV 349 Buy 4,491 -0.5 5.5 3,518 -3.7 8.9 1,787 -0.8 8.8
Zee Entertainment 196 Neutral 8,640 20.3 2.5 1,997 -3.8 -14.4 1,598 2.4 1.0
Sector Aggregate 26,836 9.5 3.4 8,602 1.8 0.3 4,417 17.1 14.3
Metals
Hindalco 121 Buy 197,200 2.0 -1.0 22,023 1.8 10.0 9,117 -15.5 1.2
Hindustan Zinc 135 Buy 26,853 1.8 -2.3 14,162 -3.3 -0.9 13,555 -0.6 -14.3
JSPL 428 Neutral 50,958 15.2 8.4 15,591 -13.6 -2.1 8,401 -20.0 -12.4
JSW Steel 757 Se l l 83,636 9.6 -7.5 14,335 9.4 -19.1 3,882 -35.2 -41.5
Nalco 51 Neutral 16,991 5.3 -2.8 2,418 58.5 -20.5 1,714 23.0 -23.2
NMDC 194 Buy 28,466 -7.0 0.2 22,246 -8.7 -3.4 18,226 -7.2 -4.4
SAIL 85 Se l l 107,892 -3.6 0.1 13,918 4.9 -8.2 6,377 -36.4 -27.8
Sesa Goa 171 Neutral 3,363 -57.4 -80.6 1,001 -61.5 -85.2 5,621 138.8 -50.5
Sterlite Inds. 99 Buy 104,064 2.1 -2.3 24,805 -0.1 7.5 12,653 -15.3 -10.8
Tata Steel 401 Se l l 312,934 -4.6 -7.5 28,051 2.0 -22.1 791 -62.8 -90.0
Sector Aggregate 932,355 -0.5 -4.8 158,550 -1.8 -9.4 80,338 -12.1 -23.2
Others
Castrol India 311 Buy 7,745 15.3 -9.0 1,490 14.4 -12.0 1,057 11.2 -12.6
MCX 1,284 Buy 1,283 -17.7 4.3 811 -24.2 7.3 712 -20.6 10.0
Sintex Inds. 67 Buy 10,710 -7.4 -0.9 1,669 -18.3 -6.0 751 -23.8 -0.8
United Phosphorous 131 Buy 20,360 14.7 -8.1 3,521 8.2 -8.9 1,568 119.9 -22.7
Sector Aggregate 40,097 6.6 -6.1 7,492 -2.3 -7.4 4,087 15.3 -12.0
(INR Million) CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
PULL OUT
B–7October 2012
MOSL Universe
Ready reckoner: quarterly performance
Oil & Gas
BPCL 346 Buy 571,811 35.2 4.9 17,903 LP LP 10,183 LP LP
Cairn India 331 Neutral 48,725 83.7 9.7 37,609 78.8 7.7 28,308 271.0 -26.0
Chennai Petroleum 129 Buy 100,501 6.7 -8.9 4,499 LP LP 2,962 304.7 LP
GAIL 383 Neutral 111,932 15.4 0.9 13,935 -15.5 -26.6 8,364 -23.6 -26.2
Gujarat State Petronet 81 Neutral 2,426 -13.6 -9.3 2,218 -14.2 -10.0 1,085 -16.1 -13.1
HPCL 307 Buy 496,111 34.0 12.6 16,697 LP LP 11,403 LP LP
IOC 251 Buy 1,115,444 25.1 15.5 62,858 LP LP 41,570 LP LP
Indraprastha Gas 265 UR 8,530 42.9 12.2 1,861 18.3 3.8 866 12.2 1.9
MRPL 61 Neutral 168,502 44.4 31.5 9,306 1134.8 LP 8,361 3365.2 LP
Oil India 490 Buy 25,886 -20.8 10.9 12,679 -21.7 15.7 9,399 -17.4 1.1
ONGC 280 Buy 217,664 -3.8 8.4 119,438 -15.6 8.2 64,009 -25.9 5.3
Petronet LNG 158 Buy 81,708 52.2 16.2 4,380 -2.3 -4.2 2,616 0.5 -3.4
Reliance Inds. 837 Neutral 937,028 19.3 2.0 82,024 -16.7 21.6 55,482 -2.7 24.0
Sector Aggregate 3,886,267 24.3 8.9 385,406 101.9 LP 244,609 539.3 LP
Oil & Gas Excl. RMs 1,702,901 18.1 5.3 287,949 -4.4 24.8 181,453 1.3 25.7
Real Estate
Anant Raj Inds 71 Buy 868 -4.9 -12.2 425 -16.5 -15.1 299 -13.8 -15.6
DLF 234 Buy 21,370 -15.6 -2.8 8,762 -25.3 -17.9 2,331 -37.4 -20.4
HDIL 98 Neutral 4,192 -5.1 108.4 3,144 -14.6 8.2 1,084 -27.3 2.9
Mahindra Lifespace 378 Buy 1,173 25.0 12.6 293 13.5 -8.0 303 -3.4 3.5
Oberoi Realty 265 Buy 2,134 -4.1 6.7 1,238 7.1 8.7 1,090 -2.2 8.1
Phoenix Mills 196 Buy 628 32.5 0.3 396 18.7 0.4 301 26.2 -1.5
Unitech 24 Buy 4,888 -21.9 19.9 709 -48.7 29.5 492 -46.8 7.2
Sector Aggregate 35,252 -13.1 7.7 14,966 -21.4 -9.2 5,901 -27.6 -7.8
Retail
Jubilant Foodworks 1,373 Neutral 3,450 43.5 9.7 628 46.9 9.6 344 45.5 6.4
Pantaloon Retail 214 Neutral 30,562 5.0 3.2 2,812 11.4 1.8 21 -93.6 -45.3
Shopper's Stop 401 Neutral 5,660 13.8 26.7 198 -48.8 43.7 36 -81.8 186.0
Titan Industries 262 Neutral 24,450 16.6 10.9 2,469 23.3 16.5 1,764 15.4 13.0
Sector Aggregate 64,122 11.6 8.1 6,107 14.4 9.2 2,165 -5.5 11.8
Technology
HCL Technologies 577 Buy 62,080 33.5 4.9 11,987 54.4 -6.2 7,932 65.3 -5.7
Infosys 2,534 Buy 100,052 23.5 4.0 30,956 23.0 5.1 24,015 26.0 4.9
MphasiS 402 Se l l 13,551 3.1 0.0 2,768 17.9 3.5 2,092 14.3 0.2
TCS 1,294 Neutral 157,685 35.5 6.1 46,122 36.3 6.4 34,563 41.7 5.4
Tech Mahindra 972 Neutral 16,291 22.2 5.6 3,085 51.1 -6.6 2,978 23.7 -12.0
Wipro 381 Buy 110,824 21.9 4.0 21,299 22.4 -0.6 15,927 22.4 0.8
Sector Aggregate 460,483 27.5 4.8 116,217 31.3 2.9 87,506 33.6 2.5
Telecom
Bharti Airtel 265 Neutral 195,659 13.3 1.1 59,536 2.4 1.8 6,563 -36.1 -13.9
Idea Cellular 85 Buy 54,458 17.9 -1.1 13,775 16.1 -4.0 2,036 92.5 -13.1
Reliance Comm 65 Neutral 52,462 4.1 -1.4 15,916 -0.8 -3.5 1,281 -60.3 -33.1
Tulip Telecom 46 Se l l 7,328 4.2 2.3 1,949 -4.1 1.6 545 -37.4 -0.4
Sector Aggregate 309,908 12.2 0.3 91,177 3.5 -0.1 10,424 -32.4 -16.1
PL: Profit to Loss; LP: Loss to Profit
(INR Million) CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
PULL OUT
UR = Under Review
B–8October 2012
MOSL Universe
Ready reckoner: quarterly performance
CMP Rating Net Interest Income Operating Profit Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Financials
Private BanksAxis Bank 1,137 Buy 22,743 13.3 4.3 20,314 14.4 3.5 11,242 22.2 -2.5Federal Bank 446 Buy 5,190 9.4 5.6 3,835 6.1 10.7 2,006 4.9 5.4HDFC Bank 629 Neutral 36,067 22.5 3.5 27,598 29.8 6.9 15,616 30.2 10.2ICICI Bank 1,057 Buy 32,582 30.0 2.0 30,430 29.3 3.2 18,236 21.3 0.5IndusInd Bank 354 Buy 5,232 24.8 8.1 4,300 29.1 6.4 2,481 28.5 5.0ING Vysya Bank 407 Buy 3,527 16.1 2.7 2,254 19.0 3.6 1,321 14.5 1.5Kotak Mahindra Bank 648 Neutral 7,463 23.3 3.5 4,564 20.1 1.8 2,764 6.3 -2.1Yes Bank 382 Buy 4,975 29.0 5.4 4,893 26.8 6.5 3,066 30.5 5.7Pvt Banking Sector Aggregate 117,778 22.1 3.6 98,187 24.2 4.8 56,733 22.9 2.9PSU BanksAndhra Bank 113 Buy 9,737 2.4 3.8 6,990 1.8 -0.6 3,209 1.5 -11.3Bank of Baroda 799 Neutral 28,121 9.6 0.5 22,446 5.5 0.2 10,833 -7.1 -4.9Bank of India 310 Neutral 23,844 25.2 16.7 18,708 20.6 11.8 7,095 44.5 -20.0Canara Bank 431 Buy 19,006 -3.1 3.1 13,970 -13.0 0.2 7,336 -13.9 -5.4Indian Bank 192 Buy 11,991 5.6 4.0 8,908 -3.3 6.0 4,709 0.5 2.0Oriental Bank 302 Buy 11,799 19.2 4.8 8,840 16.6 -1.4 3,320 98.0 -15.2Punjab National Bank 840 Buy 37,455 8.5 1.4 28,275 11.9 -0.5 12,183 1.1 -2.2State Bank 2,238 Buy 114,777 9.5 3.2 84,660 13.3 3.5 36,952 31.5 -1.5Union Bank 208 Buy 19,468 17.2 6.9 13,685 13.6 8.0 5,834 65.5 14.0PSU Banking Sector Aggregate 276,198 10.0 4.1 206,482 9.5 3.1 91,472 16.8 -4.0PSU Banking Sector Aggregate Ex SBI 161,421 10.4 4.7 121,822 7.0 2.7 54,520 8.6 -5.6NBFCDewan Housing 200 Buy 1,596 43.3 11.1 1,417 44.1 18.5 954 32.8 22.7HDFC 773 Buy 14,663 17.9 12.4 16,413 21.2 15.6 11,592 19.4 15.7IDFC 154 Buy 6,548 31.5 4.1 6,793 31.0 3.6 4,002 20.5 5.4LIC Housing Fin 282 Buy 3,817 14.2 8.9 3,730 11.2 7.2 2,559 1.3 12.4M & M Financial 898 Buy 5,214 33.6 6.9 3,430 35.1 5.6 1,863 37.4 15.7Power Finance Corp 189 Buy 14,031 29.9 0.7 13,806 30.9 0.4 9,713 21.1 -5.6Rural Electric. Corp. 218 Buy 11,711 23.3 0.5 11,801 23.0 -1.5 8,548 19.3 -5.5Shriram Transport Fin. 619 Buy 8,384 0.4 4.5 6,882 0.9 1.4 3,295 10.1 2.4NBFC Banking Sector Aggregate 65,964 21.2 5.1 64,272 22.2 5.0 42,527 18.7 3.6Financials Sector Aggregate 459,940 14.4 4.1 368,940 15.2 3.9 190,732 19.0 -0.4
(INR Million) CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Utilities
Adani Power 53 Neutral 11,649 8.6 -20.4 2,320 -55.3 88.3 -2,872 PL Loss
CESC 331 Buy 12,980 4.6 -8.6 2,882 10.8 -0.6 1,297 13.8 3.8
Coal India 359 Buy 147,128 11.9 -10.8 27,321 10.3 -43.3 27,919 25.0 -37.7
JSW Energy 61 Buy 20,198 102.7 -7.8 5,438 360.2 -6.8 1,100 LP -43.6
NHPC 19 Neutral 16,515 -11.1 16.2 11,540 -13.1 27.7 8,533 9.8 32.3
NTPC 168 Buy 155,840 1.3 -2.4 31,290 -3.4 -13.8 18,604 25.7 -22.1
Power Grid Corp. 120 Buy 31,672 39.9 9.7 27,572 45.3 11.9 9,392 23.6 3.6
PTC India 71 Buy 29,853 25.0 50.2 536 20.8 71.4 423 19.0 84.9
Reliance Infrastructure 539 Buy 37,700 -4.6 9.4 4,901 -30.9 6.6 2,551 -48.0 -22.0
Tata Power 107 Neutral 70,935 13.5 -2.2 13,048 -3.4 -7.7 3,097 -30.0 1.2
Sector Aggregate 534,468 10.1 -2.0 126,847 6.2 -13.8 70,044 7.0 -22.6
PL: Profit to Loss; LP: Loss to Profit
PULL OUT
B–9October 2012
MOSL Universe
Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Automobiles
Bajaj Auto 1,833 Buy 107.4 99.3 124.3 17.1 18.4 14.7 12.5 12.9 9.9 56.7 43.3 44.5
Hero Motocorp 1,879 Buy 119.1 108.0 124.1 15.8 17.4 15.1 13.4 14.5 11.2 55.4 41.8 39.7
Mahindra & Mah. 865 Buy 51.2 63.7 78.4 16.9 13.6 11.0 5.9 4.7 3.8 23.0 21.7 19.3
Maruti Suzuki 1,350 Buy 58.2 67.2 94.8 23.2 20.1 14.2 13.2 9.0 6.3 10.8 10.5 13.2
Tata Motors 267 Buy 37.8 33.2 41.3 7.1 8.0 6.5 4.6 3.8 3.1 38.4 25.2 24.7
Sector Aggregate 11.9 12.4 9.9 6.7 5.6 4.6 32.4 24.4 25.1
Capital Goods
ABB 798 Neutral 8.7 11.3 17.4 91.6 70.9 45.7 58.6 41.7 27.6 7.4 9.1 13.0
BGR Energy 275 Neutral 31.0 21.1 25.3 8.9 13.0 10.9 6.1 8.0 8.2 22.2 13.4 14.5
BHEL 247 Neutral 28.2 24.9 20.3 8.8 9.9 12.2 5.4 6.1 7.3 30.3 22.2 16.0
Crompton Greaves 126 Neutral 5.7 9.3 12.6 22.0 13.6 10.0 10.7 8.4 6.5 10.7 15.6 18.7
Cummins India 508 Neutral 19.8 24.1 25.6 25.6 21.0 19.8 19.0 15.2 13.7 28.8 30.7 28.9
Havells India 625 Buy 29.6 31.1 41.4 21.1 20.1 15.1 13.0 12.1 9.6 38.7 31.7 32.1
Larsen & Toubro 1,597 Buy 78.0 85.2 91.4 20.5 18.7 17.5 14.3 12.7 10.9 17.8 17.1 16.4
Siemens 709 Neutral 16.9 23.1 31.3 42.0 30.7 22.7 23.3 17.0 12.8 14.6 18.8 23.0
Thermax 561 Neutral 33.9 27.1 31.5 16.6 20.7 17.8 9.9 11.4 9.0 27.4 18.7 19.2
Sector Aggregate 16.5 16.4 16.3 10.7 10.6 10.0 21.6 19.1 17.1
Cement
ACC 1,469 Neutral 59.0 73.3 86.4 24.9 20.0 17.0 14.6 11.0 9.6 16.2 18.5 20.0
Ambuja Cements 202 Buy 8.2 11.9 13.2 24.7 17.0 15.3 14.5 10.0 8.8 16.3 21.5 21.1
Birla Corporation 282 Buy 31.1 33.0 32.9 9.1 8.5 8.6 5.8 5.5 5.1 10.7 10.5 9.7
Grasim Industries 3,315 Buy 288.6 348.3 375.8 11.5 9.5 8.8 5.2 4.5 3.6 15.5 16.0 15.0
India Cements 95 Buy 9.6 11.1 14.8 9.9 8.5 6.4 5.9 5.2 4.2 7.3 7.3 8.9
J P Associates 82 Buy 4.8 3.6 4.6 17.1 23.1 17.9 9.4 9.6 8.5 10.4 7.6 9.8
Shree Cement 3,954 Buy 274.4 310.2 361.4 14.4 12.7 10.9 9.0 6.9 5.8 40.5 34.4 31.7
Ultratech Cement 1,968 Buy 87.5 109.5 122.6 22.5 18.0 16.1 13.4 11.3 9.7 20.4 21.2 19.9
Sector Aggregate 18.1 15.2 13.4 9.8 8.3 7.1 15.8 16.8 16.7
Consumer
Asian Paints 3,937 Neutral 103.1 117.8 137.3 38.2 33.4 28.7 24.4 21.0 17.4 36.0 34.0 33.2
Britannia 476 Se l l 15.6 18.4 23.7 30.4 25.9 20.1 21.9 16.8 12.1 34.9 35.1 37.9
Colgate 1,206 Se l l 33.4 38.6 43.8 36.1 31.2 27.6 26.7 22.6 19.3 107.7 111.3 103.5
Dabur 128 Neutral 3.7 4.4 5.4 34.6 29.0 23.6 26.4 21.4 17.5 37.1 36.0 36.2
Godrej Consumer 668 Neutral 16.3 21.6 26.3 41.0 30.9 25.4 29.0 21.9 17.9 25.2 23.1 24.3
GSK Consumer 2,994 Neutral 84.5 101.7 113.5 35.4 29.4 26.4 22.2 19.0 16.6 31.0 31.4 29.8
Hind. Unilever 545 Neutral 11.9 15.5 18.0 45.7 35.1 30.2 34.6 27.2 23.3 74.6 72.1 63.4
ITC 272 Buy 8.0 9.4 11.0 34.1 29.0 24.7 22.9 19.1 16.0 32.7 32.5 32.4
Marico 199 Buy 5.2 6.8 8.5 38.4 29.4 23.6 27.7 20.5 16.3 28.0 21.6 21.8
Nestle 4,374 Neutral 105.7 117.1 138.5 41.4 37.4 31.6 27.6 22.7 18.7 95.7 73.6 63.5
Pidilite Inds. 206 Buy 7.0 8.4 10.1 29.5 24.5 20.4 20.4 15.4 12.5 26.3 24.6 24.8
United Spirits 1,218 Neutral 19.5 19.3 35.1 62.4 63.2 34.7 18.6 16.5 14.8 4.9 4.7 7.9
Sector Aggregate 38.1 31.6 26.6 25.5 21.0 17.6 34.9 34.2 34.0
PULL OUT
B–10October 2012
MOSL Universe
Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Healthcare
Biocon 275 Neutral 16.9 17.9 18.4 16.2 15.3 14.9 9.0 8.3 8.0 14.9 14.3 13.4
Cadila Health 872 Buy 27.6 41.2 52.4 31.5 21.2 16.7 17.3 13.9 11.3 23.8 29.0 29.3
Cipla 381 Neutral 14.0 16.2 18.4 27.2 23.5 20.7 17.6 15.0 14.0 15.0 15.0 15.1
Dishman Pharma 96 Neutral 7.0 15.6 17.5 13.8 6.2 5.5 7.6 4.8 4.3 6.3 12.9 12.9
Divis Labs 1,080 Buy 40.2 53.0 64.1 26.9 20.4 16.9 20.3 15.6 12.3 25.0 27.5 27.7
Dr Reddy’ s Labs 1,647 Buy 71.4 85.1 100.1 23.1 19.4 16.5 12.3 14.0 12.4 21.1 21.9 22.7
Glenmark Pharma 422 Buy 11.4 18.2 26.3 37.0 23.2 16.0 13.3 14.2 11.3 13.5 17.7 20.5
GSK Pharma 1,977 Buy 74.5 81.0 92.6 26.5 24.4 21.4 19.6 18.3 15.7 32.9 33.5 34.2
IPCA Labs. 482 Buy 21.9 29.3 38.2 22.0 16.4 12.6 12.8 10.3 8.7 24.0 26.4 27.6
Jubilant Life 212 Neutral 13.6 21.0 33.4 15.5 10.1 6.3 8.4 6.0 5.0 9.7 13.5 18.8
Lupin 596 Buy 19.4 24.1 31.2 30.7 24.8 19.1 21.0 16.3 13.4 23.8 24.3 26.2
Opto Circuits 130 Neutral 23.6 22.5 25.3 5.5 5.8 5.1 6.7 5.6 4.9 37.2 28.7 26.6
Ranbaxy Labs 530 Neutral 14.1 18.0 21.8 37.5 29.5 24.3 14.6 12.4 16.5 -72.0 28.3 15.7
Sanofi India 2,374 Neutral 83.0 73.5 92.4 28.6 32.3 25.7 29.7 24.1 19.4 17.3 13.9 15.6
Strides Arcolab 883 Buy 38.5 52.8 61.5 23.0 16.7 14.4 15.9 11.4 10.7 16.9 18.5 14.5
Sun Pharma 693 Neutral 22.4 26.5 29.4 30.9 26.2 23.6 20.5 16.5 15.7 21.5 20.7 19.7
Torrent Pharma 695 Buy 38.4 49.5 59.0 18.1 14.0 11.8 11.3 9.0 7.3 29.3 30.9 29.2
Sector Aggregate 26.4 21.6 18.1 15.9 13.6 12.3 19.7 20.1 20.6
Media
Dish TV 83 Neutral -1.5 -0.5 0.3 -55.2 -181.0 264.6 19.3 15.2 11.7 NA NA NA
HT Media 93 Neutral 7.0 6.0 6.8 13.2 15.5 13.8 6.4 6.3 5.2 11.0 8.6 8.8
Jagran Prakashan 91 Neutral 5.6 5.6 6.5 16.2 16.3 14.1 10.3 8.9 8.1 24.5 20.6 20.2
Sun TV 349 Buy 17.6 18.2 20.1 19.8 19.2 17.4 9.6 9.1 7.8 26.3 24.7 25.1
Zee Entertainment 196 Neutral 5.9 7.0 8.5 33.2 27.9 23.1 24.9 20.7 17.0 17.5 18.3 19.3
Sector Aggregate 32.0 27.9 23.2 14.4 12.8 10.7 17.7 18.0 19.4
Metals
Hindalco 121 Buy 17.1 18.9 20.6 7.1 6.4 5.9 6.9 7.2 6.3 20.3 20.2 18.5
Hindustan Zinc 135 Buy 13.2 14.4 16.7 10.3 9.4 8.1 6.5 5.6 4.1 22.5 20.8 20.4
JSPL 428 Neutral 42.4 39.8 38.5 10.1 10.7 11.1 8.4 9.5 8.9 24.6 19.7 17.0
JSW Steel 757 Se l l 66.5 49.9 73.7 11.4 15.2 10.3 6.7 6.6 6.0 8.9 6.6 9.3
Nalco 51 Neutral 3.4 3.5 3.3 15.2 14.7 15.6 7.2 7.3 6.5 7.6 7.5 6.8
NMDC 194 Buy 18.5 20.4 24.9 10.5 9.5 7.8 6.3 5.4 4.1 31.7 28.3 26.9
SAIL 85 Se l l 9.0 6.7 8.6 9.5 12.8 10.0 7.4 8.9 7.9 9.6 6.7 8.2
Sesa Goa 171 Neutral 31.8 36.1 33.5 5.4 4.8 5.1 5.2 13.6 10.9 19.8 20.6 18.7
Sterlite Inds. 99 Buy 16.7 16.3 17.7 6.0 6.1 5.6 3.0 2.8 2.4 14.1 12.4 12.3
Tata Steel 401 Se l l 18.6 31.2 56.6 21.6 12.9 7.1 7.3 6.8 6.1 7.8 11.5 18.9
Sector Aggregate 9.6 9.2 7.8 6.4 6.5 5.6 13.3 12.8 13.6
OthersCastrol India 311 Buy 9.8 9.5 11.7 31.7 32.7 26.7 22.6 22.6 18.0 93.7 83.8 75.6MCX 1,284 Buy 56.1 56.1 66.5 22.9 22.9 19.3 14.8 15.3 14.8 31.0 26.9 27.8Sintex Inds. 67 Buy 13.0 13.0 15.3 5.1 5.1 4.4 5.4 5.0 4.0 14.0 12.7 13.3United Phosphorous 131 Buy 12.8 14.9 19.5 10.3 8.8 6.7 5.7 4.7 3.7 14.9 15.5 17.8Sector Aggregate 16.7 16.0 13.4 10.3 9.5 7.9 21.8 20.5 21.5
PULL OUT
B–11October 2012
MOSL Universe
Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Oil & Gas
BPCL 346 Buy 10.8 21.6 21.5 32.1 16.1 16.1 11.5 8.5 8.8 5.0 9.5 8.9
Cairn India 331 Neutral 48.7 64.2 54.0 6.8 5.2 6.1 5.3 3.5 3.4 21.0 23.1 16.7
Chennai Petroleum 129 Buy 4.2 13.8 34.5 31.1 9.4 3.7 50.9 9.8 5.3 1.6 5.3 12.5
GAIL 383 Neutral 28.8 31.0 32.1 13.3 12.3 11.9 9.6 9.0 8.7 17.9 17.2 16.0
Guj. State Petronet 81 Neutral 9.3 7.7 7.6 8.7 10.4 10.5 5.4 5.9 5.8 23.4 16.4 14.3
HPCL 307 Buy 26.9 24.5 27.4 11.4 12.5 11.2 12.6 11.3 9.0 7.1 6.2 6.6
Indraprastha Gas 265 UR 21.9 25.3 28.0 12.1 10.5 9.5 6.4 5.5 4.8 27.5 26.4 24.7
IOC 251 Buy 49.2 24.4 30.3 5.1 10.2 8.3 8.1 8.9 7.0 20.2 9.5 11.0
MRPL 61 Neutral 5.2 2.9 8.5 11.7 21.2 7.2 6.5 7.3 4.6 13.2 6.8 18.2
Oil India 490 Buy 57.3 58.7 64.7 8.5 8.3 7.6 3.9 3.7 3.3 20.7 18.7 18.4
ONGC 280 Buy 30.4 29.8 33.4 9.2 9.4 8.4 3.7 3.7 3.1 20.7 17.7 17.8
Petronet LNG 158 Buy 14.1 13.1 15.0 11.2 12.1 10.5 7.6 7.9 5.9 34.1 25.1 23.8
Reliance Inds. 837 Neutral 67.7 67.8 69.7 12.4 12.3 12.0 8.0 9.3 8.9 13.0 11.7 11.0
Sector Aggregate 9.9 10.3 9.6 6.2 6.2 5.5 15.8 13.9 13.4
Oil & Gas Ex RMS 10.5 10.1 9.6 5.6 5.6 5.0 16.0 14.9 14.1
UR = Under Review
Real Estate
Anant Raj Inds 71 Buy 3.8 5.0 6.6 18.6 14.3 10.8 17.9 13.6 9.7 3.1 3.8 4.8
DLF 234 Buy 7.1 9.0 10.7 33.0 26.1 21.8 16.3 17.1 13.4 4.5 5.5 6.3
Godrej Properties 599 Neutral 12.6 16.0 19.6 47.7 37.4 30.6 39.5 32.3 24.4 8.3 8.4 9.5
HDIL 98 Neutral 19.3 12.9 17.8 5.1 7.6 5.5 5.3 5.3 3.8 7.9 5.1 6.6
IBREL 58 Buy 3.5 4.2 6.1 16.5 13.7 9.5 11.5 9.8 7.8 2.2 2.6 3.6
Jaypee Infratech 52 Buy 9.3 6.7 7.2 5.6 7.7 7.2 8.3 7.8 6.2 24.5 15.2 14.3
Mahindra Lifespace 378 Buy 29.2 32.5 34.0 12.9 11.6 11.1 10.8 9.7 9.1 10.3 10.5 10.0
Oberoi Realty 265 Buy 14.1 15.8 24.7 18.8 16.8 10.7 15.3 11.9 6.9 13.1 13.1 17.9
Phoenix Mills 196 Buy 7.3 7.8 16.0 26.9 25.2 12.3 20.9 17.3 10.2 6.2 6.3 11.7
Prestige Estates 136 Buy 2.5 5.5 8.2 53.9 24.5 16.5 20.7 12.8 9.8 4.1 8.4 11.0
Unitech 24 Buy 0.9 0.8 1.3 26.8 30.2 18.8 34.3 37.8 23.0 2.0 1.7 2.7
Sector Aggregate 18.0 18.3 14.0 14.0 13.4 10.0 6.1 5.8 7.0
Retail
Jubilant Foodworks1,373 Neutral 16.4 23.9 35.4 83.9 57.3 38.8 46.0 30.7 21.4 37.7 38.2 39.0
Pantaloon Retail 214 Neutral 4.8 6.7 9.3 44.6 31.9 22.9 8.0 7.2 6.6 3.4 4.6 6.2
Shopper's Stop 401 Neutral 7.8 2.7 6.8 51.2 149.1 59.3 23.3 33.9 21.8 9.9 3.3 7.8
Titan Industries 262 Neutral 6.8 8.1 10.0 38.5 32.4 26.2 26.8 21.7 17.4 48.7 42.4 34.8
Sector Aggregate 45.2 38.3 28.9 19.0 16.1 13.2 16.0 16.7 19.1
Technology
HCL Technologies 577 Buy 35.1 46.3 47.6 16.5 12.5 12.1 10.2 8.0 7.4 26.0 27.8 25.8
Infosys 2,534 Buy 145.5 166.5 180.7 17.4 15.2 14.0 11.6 9.8 8.8 28.0 27.3 25.8
MphasiS 402 Se l l 37.5 40.8 37.2 10.7 9.9 10.8 8.3 7.6 8.2 18.7 17.5 13.9
TCS 1,294 Neutral 54.4 71.6 78.8 23.8 18.1 16.4 17.4 13.0 11.5 36.7 38.3 33.7
Tech Mahindra 972 Neutral 70.4 87.2 101.0 13.8 11.1 9.6 10.5 6.6 5.6 30.2 24.4 23.0
Wipro 381 Buy 22.7 26.0 28.2 16.8 14.7 13.5 11.8 10.0 9.0 21.2 20.7 19.4
Sector Aggregate 19.3 15.7 14.5 13.5 10.8 9.7 25.2 26.4 23.5
Telecommunication
Bharti Airtel 265 Neutral 11.2 7.6 10.5 23.6 34.9 25.2 7.0 6.9 5.8 8.1 5.3 7.0
Idea Cellular 85 Buy 2.2 3.1 5.8 39.0 27.2 14.7 8.1 6.8 5.2 5.7 7.7 12.8
Reliance Comm 65 Neutral 4.8 3.6 5.9 13.5 17.8 11.0 7.6 7.2 6.4 2.9 2.3 3.6
Tulip Telecom 46 Se l l 19.1 12.2 11.2 2.4 3.8 4.2 4.0 4.7 4.7 22.9 11.3 9.5
Sector Aggregate 22.7 29.5 19.6 7.2 6.9 5.8 6.5 4.9 6.9
PULL OUT
B–12October 2012
MOSL Universe
PULL OUT
CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Private Banks
Axis Bank 1,137 Buy 102.7 109.5 125.6 11.1 10.4 9.0 2.1 1.8 1.6 20.3 18.8 18.4
Federal Bank 446 Buy 45.4 47.0 55.7 9.8 9.5 8.0 1.3 1.2 1.1 14.4 13.4 14.3HDFC Bank 629 Neutral 22.0 28.7 35.8 28.6 21.9 17.6 4.9 4.2 3.6 18.7 20.7 21.9ICICI Bank 1,057 Buy 56.1 68.3 78.7 18.9 15.5 13.4 2.6 2.3 2.1 12.8 14.2 14.7
IndusInd Bank 354 Buy 17.2 22.0 27.5 20.6 16.1 12.9 3.7 3.1 2.5 19.2 20.7 21.6ING Vysya Bank 407 Buy 30.4 35.4 40.3 13.4 11.5 10.1 1.6 1.4 1.3 14.3 13.0 13.2Kotak Mah. Bank 648 Neutral 24.7 26.2 29.8 26.2 24.7 21.8 3.7 3.2 2.8 15.4 14.0 13.9Yes Bank 382 Buy 27.7 35.4 43.0 13.8 10.8 8.9 2.9 2.4 1.9 23.1 24.1 23.9
Private Bank Aggregate 19.7 16.4 13.9 3.1 2.7 2.4 15.9 16.7 17.4PSU BanksAndhra Bank 113 Buy 24.0 25.0 28.0 4.7 4.5 4.0 0.8 0.7 0.7 19.2 17.5 17.2
Bank of Baroda 799 Neutral 121.4 110.6 129.0 6.6 7.2 6.2 1.3 1.1 1.0 22.1 16.6 16.8Bank of India 310 Neutral 46.6 53.9 63.7 6.7 5.8 4.9 1.0 0.8 0.7 15.6 15.5 16.0Canara Bank 431 Buy 74.1 73.7 85.5 5.8 5.9 5.0 0.9 0.8 0.7 17.1 14.9 15.2
Corporation Bank 418 Neutral 101.7 110.5 119.2 4.1 3.8 3.5 0.7 0.6 0.6 19.5 18.4 17.3Dena Bank 106 Buy 22.9 27.0 31.1 4.6 3.9 3.4 0.9 0.7 0.6 20.7 20.2 19.6Indian Bank 192 Buy 40.6 42.8 45.7 4.7 4.5 4.2 0.9 0.8 0.7 19.8 18.0 16.8
Oriental Bank 302 Buy 39.1 50.8 56.6 7.7 5.9 5.3 0.8 0.7 0.7 10.7 12.7 12.8Punj. National Bank 840 Buy 144.0 155.5 185.1 5.8 5.4 4.5 1.1 0.9 0.8 21.1 18.5 18.8State Bank 2,238 Buy 228.6 284.5 330.3 9.8 7.9 6.8 1.5 1.3 1.1 17.2 17.8 18.0
Union Bank 208 Buy 32.3 42.0 48.1 6.4 4.9 4.3 0.9 0.8 0.7 14.9 16.8 16.9PSU Bank Aggregate 7.4 6.5 5.6 1.3 1.1 0.9 17.4 16.7 16.8NBFC
Dewan Housing 200 Buy 25.6 37.7 51.3 7.8 5.3 3.9 1.2 1.0 0.8 18.5 21.7 22.7HDFC 773 Buy 27.9 32.1 38.6 27.7 24.0 20.0 6.0 4.9 4.3 27.3 29.4 30.9IDFC 154 Buy 10.3 10.9 13.3 15.0 14.2 11.7 1.9 1.7 1.6 13.7 12.8 14.1
LIC Housing Fin 282 Buy 18.1 21.8 31.7 15.6 12.9 8.9 2.5 2.2 1.8 20.3 18.0 20.8M & M Financial 898 Buy 60.4 79.4 93.7 14.9 11.3 9.6 3.1 2.6 2.2 22.8 25.1 24.6Power Finance Corp 189 Buy 23.9 29.5 32.7 7.9 6.4 5.8 1.2 1.1 0.9 17.5 17.6 17.4
Rural Electric. Corp. 218 Buy 28.6 34.9 41.7 7.6 6.3 5.2 1.5 1.3 1.1 20.5 21.6 22.2Shriram Transport 619 Buy 55.6 59.8 70.4 11.1 10.3 8.8 2.3 2.0 1.6 23.1 20.6 20.3NBFC Aggregate 15.1 12.7 10.7 2.9 2.5 2.1 19.5 19.4 19.9
Sector Aggregate 12.3 10.6 9.0 2.1 1.8 1.6 17.3 17.2 17.5
Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Utilities
Adani Power 53 Neutral -0.4 1.5 2.6 -124.7 36.2 20.3 28.6 13.8 10.0 -1.5 5.3 9.2CESC 331 Buy 44.1 47.5 53.0 7.5 7.0 6.2 5.5 5.2 4.9 12.1 11.7 11.7Coal India 359 Buy 25.4 28.8 30.9 14.1 12.5 11.6 10.3 8.1 7.1 31.9 28.5 25.0JSW Energy 61 Buy 2.0 3.7 6.3 30.1 16.5 9.7 12.4 8.0 6.1 5.8 10.3 15.9NHPC 19 Neutral 2.0 2.0 2.1 9.4 9.6 9.3 7.0 7.9 7.7 8.6 7.9 7.9NTPC 168 Buy 10.1 11.5 13.5 16.6 14.6 12.4 11.6 11.3 9.3 11.8 12.5 13.7Power Grid Corp. 120 Buy 7.2 8.6 10.3 16.8 14.0 11.6 12.4 10.1 9.4 14.8 16.1 17.4PTC India 71 Buy 6.9 7.7 9.5 10.2 9.2 7.4 14.0 7.3 6.5 5.4 6.4 7.6Reliance Infra. 539 Buy 74.8 43.5 48.0 7.2 12.4 11.2 2.0 3.0 2.4 11.4 6.3 6.6Tata Power 107 Neutral 7.4 5.7 4.0 14.4 18.7 27.0 17.9 17.2 17.6 9.8 8.6 6.5Sector Aggregate 14.6 13.3 12.0 11.0 9.6 8.4 16.3 16.1 16.2
Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year
numbers. This is because of dif fer ences in classification of account heads in the company’s quarterly and
annual results or because of dif ferences in the way we classify account heads as opposed to the company.
All stock prices and indices as on 28 September 2012, unless otherwise stated.
BSE Sensex: 18,763 S&P CNX: 5,703
Sectors & Companies
September 2012 Results Preview
October 2012 C–1
C–2October 2012
September 2012 Results Preview
Sector: Automobiles
AutomobilesCompany Name
Bajaj Auto
Hero MotoCorp
Mahindra & Mahindra
Maruti Suzuki India
Tata Motors
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Bajaj Auto 1,833 Buy 48,254 -6.9 -0.8 8,573 -12.1 -1.7 7,005 -11.3 -2.5
Hero Motocorp 1,879 Buy 51,770 -10.5 -16.6 4,801 -27.7 -28.3 4,401 -27.1 -28.5
Mahindra & Mahindra 865 Buy 95,445 30.6 3.2 11,193 28.1 0.9 8,656 17.4 19.3
Maruti Suzuki 1,350 Buy 82,507 5.4 -23.4 3,909 -20.9 -50.3 1,175 -51.1 -72.3
Tata Motors 267 Buy 442,658 22.3 2.2 57,988 28.7 0.8 24,824 10.5 -3.2
Sector Aggregate 720,634 15.7 -3.2 86,465 15.1 -5.9 46,061 -0.2 -8.8
Slowdown visible across segments except UVs and LCVsSlowdown, hitherto visible in M&HCVs, cars and 3Ws, is now evident in 2Ws as well
with volumes down 4% YoY in 2QFY13. The only segments with healthy growth are
UVs (+29% YoY) and LCVs (+13% YoY). Our channel checks indicate that start to the
festive season has not been encouraging. Dealer inventory is high particularly in
2Ws and cars. Recent hike in diesel prices does not augur well for CVs. Expected
softening in interest rates and reform-led improvement in macro environment and
consumer sentiment hold the key for volume growth to resume.
2QFY13 margins to remain under pressure due to adverse mix, forex andnegative operating leverageDespite benign commodity prices, expect RM cost to rise 30bp QoQ and 10bp YoY on
the back of adverse product mix, weak currency and negative operating leverage.
We expect 2QFY13 EBITDA margins to decline 70bp QoQ (70bp YoY). Maruti Suzuki (-
200bp YoY/-290bp QoQ) and Hero MotoCorp (-190bp YoY/-120 QoQ) are likely to be
worst impacted.
Easing of macro headwinds a key catalyst for demand recoveryLending rates are expected to fall from near peak levels, auguring well for PV and
CV demand. Strengthening INR is positive for Maruti Suzuki and Hero MotoCorp, but
negative for Bajaj Auto. Softening in commodity prices would support profitability.
Easing of macro headwinds remains the key driver for volume growth and
profitability, and in turn, for re-rating of auto stocks.
Widespread earnings downgrade; prefer Maruti, Tata Motors, BajajWe are downgrading our earnings estimates for Bajaj Auto, Hero MotoCorp and
Maruti Suzuki to factor in weaker than expected demand in 2QFY13 and adverse
currency movement (except for Bajaj). Changing competitive landscape in the auto
sector will likely be a key determinant of stock performance. While we believe that
the worst of competitive pressure is behind for passenger cars, the same is increasing
for incumbents in 2W, UVs and CVs, implying at least a near-term overhang on
valuations. We prefer Maruti Suzuki, Tata Motors and Bajaj Auto.
Jinesh Gandhi ([email protected]) / Chirag Jain ([email protected])
C–3October 2012
September 2012 Results Preview
Sector: Automobiles
Commodity prices have moderated (INR, indexed) INR continues to depreciate (indexed)
Source: Bloomberg/MOSL
Trend in EBITDA margins (%) Trend in segment-wise EBITDA margins (%)
Source: Company/MOSL
Interest costs have started to moderate (%) Trend in fuel costs (INR/liter)
Source: HDFC Bank PLR Source: Bloomberg/MOSL
100
100
100
1001
13
83
93 9697
90 95
83
103
87 9
5
9510
0
86
93 95
95 10
3
95
81
Steel (HRC) Lead Aluminium Rubber
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E
80
105
130
155
180
Jun-
09
Sep
-09
Dec
-09
Ma
r-10
Jun-
10
Sep
-10
Dec
-10
Ma
r-11
Jun-
11
Sep
-11
Dec
-11
Ma
r-12
Jun-
12
Sep
-12
USD Euro GBP JPY
6
9
12
15
18
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13E
Aggregate Aggregate (incl JLR)
13.
9
11.2
8.8
14.9
9.0
7.2
15.
1
8.9
6.7
14.7
8.7 9.
5
13.
9
9.4
7.3
13.5
8.5
7.3
2W Cars CVs
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E
7
8
9
10
11
Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12
HDFC Bank Base Rate
20
35
50
65
80
Apr
-05
Dec
-05
Aug
-06
Apr
-07
Dec
-07
Aug
-08
Apr
-09
Dec
-09
Aug
-10
Apr
-11
Dec
-11
Aug
-12
Petrol Dies el (INR/l tr)
INR21.5/Ltr
C–4October 2012
September 2012 Results Preview
Sector: Automobiles
Trend in industry volumes
Source: Bloomberg/MOSL
Key operating indicators Volumes ('000 units) EBITDA Margins (%) Adjusted PAT (INR m)
2Q 2Q YoY 1Q QoQ 2Q 2Q YoY 1Q QoQ 2Q 2Q YoY 1Q QoQ
FY13E FY12 (%) FY13 (%) FY13E FY12 (bp) FY13 (bp) FY13E FY12 (%) FY12 (%)
Bajaj Auto 1,046 1,164 -10.2 1,079 -3.1 17.8 18.8 -100 17.9 -10 7,005 7,898 -11.3 7,184 -2.5
Hero MotoCorp* 1,398 1,544 -9.5 1,642 -14.9 9.6 11.5 -190 10.8 -120 4,602 6,036 -23.8 6,155 -25.2
Maruti Suzuki 208 252 -17.4 296 -29.6 4.4 6.3 -190 7.3 -290 684 2,404 -71.5 4,238 -83.9
M&M 189 171 10.8 182 3.9 11.6 11.9 -30 11.8 -20 8,656 7,374 17.4 7,256 19.3
Tata Motors (S/A) 222 211 5.2 191 16.5 7.3 7.2 10 7.3 -10 11,453 2,807 308.0 3,446 232.4
Tata Motors (Cons) 13.1 12.4 70 13.3 -20 24,824 22,461 10.5 25,651 -3.2
Aggregate** 3,063 3,343 -8.4 3,390 -9.6 9.4 10.1 -70 10.1 -70 32,401 26,519 22.2 28,278 14.6
*Normalized; ** Aggregate includes Tata Motor’s standalone performance only Source: SIAM/ MOSL
Relative Performance-3m (%)
Relative Performance-1Yr (%)
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Automobiles
Bajaj Auto 1,833 Buy 107.4 99.3 124.3 17.1 18.4 14.7 12.5 12.9 9.9 56.7 43.3 44.5
Hero Motocorp 1,879 Buy 119.1 108.0 124.1 15.8 17.4 15.1 13.4 14.5 11.2 55.4 41.8 39.7
Mahindra & Mah. 865 Buy 51.2 63.7 78.4 16.9 13.6 11.0 5.9 4.7 3.8 23.0 21.7 19.3
Maruti Suzuki 1,350 Buy 58.2 67.2 94.8 23.2 20.1 14.2 13.2 9.0 6.3 10.8 10.5 13.2
Tata Motors 267 Buy 37.8 33.2 41.3 7.1 8.0 6.5 4.6 3.8 3.1 38.4 25.2 24.7
Sector Aggregate 11.9 12.4 9.9 6.7 5.6 4.6 32.4 24.4 25.1
* Consolidated # Normalized EPS (for R&D capitalization)
Revised EPS estimates (INR)FY13E FY14E
Rev Old Chg (%) Rev Old Chg (%)
Bajaj Auto 99.3 103.2 -3.7 124.3 130.1 -4.4
Hero MotoCorp 108.0 113.0 -4.4 124.1 127.3 -2.5
Maruti * 65.1 68.2 -4.5 93.6 95.6 -2.1
M&M * 55.4 55.3 0.2 61.0 61.2 -0.3
Tata Motors *# 33.2 33.5 -0.9 41.3 38.3 8.1
* Consolidated; # Normalized EPS adj. for R&D capitalization Source: MOSL
Trend in Key Financials
Volumes (‘000 units) EBITDA Margins (%) Adj PAT (INR M)
2Q YoY QoQ 2Q YoY QoQ 2Q YoY QoQ
FY13E (%) (%) FY13E (bp) (bp) FY13E (%) (%)
Bajaj Auto 1,046 -10.2 -3.1 17.8 -100 -10 7,005 -11.3 -2.5
Hero MotoCorp* 1,398 -9.5 -14.9 9.6 -190 -120 4,602 -23.8 -25.2
Maruti Suzuki 208 -17.4 -29.6 4.4 -190 -290 684 -71.5 -83.9
M&M 189 10.8 3.9 11.6 -30 -20 8,656 17.4 19.3
Tata Motors (S/A) 222 5.2 16.5 7.3 10 -10 11,453 308.0 232.4
Tata Motors (Cons) 13.1 70 -20 24,824 10.5 -3.2
Aggregate ** 3,063 -8.4 -9.6 9.4 -70 -70 32,401 22.2 14.6
*Normalized; **Aggregate includes Tata Motor’s standalone performance only
3,55
9
3,94
8
4,09
0
4,38
8
4,55
1
4,74
3
4,9
49
5,2
14
5,3
07
5,07
9
5,11
1
4,8
22
3,48
4
3,10
8 -3%8%12%12%16%
18%20%28%26%32%
40%37%
16%10%
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13E
Indus try ('000 uni ts ) Growth YoY (%)
85
95
105
115
Jun-
12
Jul-
12
Aug
-12
Sep-
12
Sensex Index
MOSL Automobiles Index
80
95
110
125
140
Sep
-11
De
c-1
1
Mar
-12
Jun
-12
Sep
-12
Sensex Index
MOSL Automobiles Index
C–5October 2012
September 2012 Results Preview
Sector: Automobiles
Bloomberg BJAUT IN
Equity Shares (m) 289.4
52 Wk Range (INR) 1,850/1,410
1,6,12 Rel Perf (%) 2/2/7
Mcap (INR b) 530.3
Mcap (USD b) 10.1
Bajaj AutoCMP: INR1,833 BuyBSE Sensex S&P CNX
18,763 5,703
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Volumes ('000nos) 1,092.8 1,164.1 1,075.4 1,017.2 1,079.0 1,045.6 1,106.3 1,027.1 4,349.6 4,257.8
Change (%) 17.7 16.3 13.6 7.3 -1.3 -10.2 2.9 1.0 13.7 (2.1)
Realization 43,066 44,543 46,361 45,729 45,095 46,151 46,382 45,786 44,899 45,856
Change (%) 2.8 2.6 5.1 4.6 4.7 3.6 0.0 0.1 4.7 2.1
Net Sales 47,063 51,854 49,859 46,514 48,657 48,254 51,310 47,025 195,290 195,245
Change (%) 21.0 19.4 19.4 12.2 3.4 -6.9 2.9 1.1 19.1 0.0
RM/Sales % 73.6 72.5 71.5 71.2 72.1 72.1 71.8 71.7 72.2 71.9
Staff cost/Sales % 3.0 2.8 2.6 2.6 3.3 3.3 3.1 3.0 2.8 3.2
Oth. Exp./Sales % 5.5 6.1 6.5 6.9 6.9 6.9 7.1 7.3 6.2 7.1
EBITDA 8,398 9,755 9,841 9,206 8,717 8,573 9,280 8,503 37,200 35,073
EBITDA Margins (%) 17.8 18.8 19.7 19.8 17.9 17.8 18.1 18.1 19.0 18.0
Other Income 1,441 1,564 1,681 1,395 1,820 1,750 1,800 1,902 6,080 7,271
Extraordinary Expenses/Inc 0 -954 -589 203 0 0 0 0 -1,340 0
Interest 2 202 0 18 0 26 25 51 222 102
Depreciation 306 394 321 434 352 360 370 383 1,456 1,466
PBT 9,531 9,768 10,612 10,351 10,184 9,937 10,685 9,971 40,262 40,777
Tax 2,420 2,510 2,660 2,631 3,000 2,931 3,152 2,946 10,221 12,029
Effective Tax Rate (%) 25.4 25.7 25.1 25.4 29.5 29.5 29.5 29.5 25.4 29.5
Rep. PAT 7,111 7,258 7,952 7,720 7,184 7,005 7,533 7,025 30,041 28,748
Adj. PAT 7,111 7,898 8,340 7,590 7,184 7,005 7,533 7,025 31,069 28,748
Change (%) 20.5 15.8 25.0 12.3 1.0 (11.3) (9.7) (7.4) -9.7 -7.5
E: MOSL Estimates; 4QF12, 3QFY12, & 4QFY11 numbers are not comparable with other quarterly numbers due to restatement
Year Net Sales PAT EPS EPS P/E P/CE P/BV EV/ RoE RoCE
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (X) EBITDA (%) (%)
3/11A 163,981 26,150 90.4 43.9 - - - - 66.7 76.0
3/12A 195,290 31,069 107.4 18.8 16.9 16.2 8.7 12.4 56.7 73.0
3/13E 195,245 28,748 99.3 -7.5 18.3 17.4 7.3 12.8 43.3 60.0
3/14E 226,449 35,980 124.3 25.2 14.6 14.0 5.9 9.8 44.5 61.2
We expect BJAUT’s 2QFY13 volumes to decline 10.2% YoY (-3.1% QoQ) to 1.05m, impacted by weak demand and
late start to the festive season. However, product mix is expected to improve QoQ with higher 3W sales (key
export markets are stabilizing) and greater contribution of executive/premium segment motorcycles (driven
by recent launches in domestic market).
Price increases in July in both 2Ws and 3Ws together with product mix improvement should drive up realizations
(+3.6% YoY, +2.3% QoQ). So, expect fall in net sales to be checked at 7% YoY (-0.8% QoQ) to INR48.3b.
Expect EBITDA margin to remain largely stable QoQ at 17.8% (-100bp YoY, -10bp QoQ) as RM cost pressures offset
the benefits of price hikes and favorable product mix.
We expect EBITDA of INR8.57b (-12.1% YoY, -1.7% QoQ). Higher other income will likely offset impact of increase
in taxation (Pantnagar tax exemption lower at 30% from 100% to 30%). We expect adjusted PAT to decline 11.3%
YoY to INR7b (-2.5% QoQ).
We are downgrading our EPS estimates for FY13/14 by 3.7%/4.4% to factor in weaker than expected demand
environment. We model in USD/INR at 52.5 for FY14; a weaker INR holds potential for upgrade. The stock trades
at 18.3x FY13E and 14.6x FY14E EPS. Maintain Buy.
C–6October 2012
September 2012 Results Preview
Sector: Automobiles
Hero MotoCorp
Bloomberg HMCL IN
Equity Shares (m) 199.7
52 Wk Range (INR) 2,279/1,703
1,6,12 Rel Perf (%) -8/-15/-18
Mcap (INR b) 375.3
Mcap (USD b) 7.1
CMP: INR1,879 Buy
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Volumes ('000 nos) 1,529.6 1,544.3 1,589.3 1,572.0 1,642.3 1,373.0 1,520.0 1,538.5 6,235.2 6,073.8
Change (%) 23.9 20.1 11.3 8.1 7.4 -11.1 -4.4 -2.1 15.4 -2.6
Net Realization 36,858 37,456 37,649 37,929 37,799 37,705 37,988 38,155 37,478 37,915
Change (%) 6.7 6.8 5.0 3.1 2.6 0.7 0.9 0.6 5.2 1.2
Net Sales 56,376 57,843 59,836 59,625 62,078 51,770 57,741 58,703 233,681 230,292
Change (%) 32.2 28.2 16.9 11.4 10.1 -10.5 -3.5 -1.5 21.4 -1.5
Total Cost 48,536 49,106 50,887 51,097 53,104 44,968 50,023 50,478 199,603 198,574
RM Cost (% sales) 75.3 73.0 73.4 74.1 74.1 74.5 74.3 74.1 74.0 74.3
Staff Cost (% sales) 2.9 3.1 3.3 3.2 3.3 3.7 3.6 3.6 3.1 3.5
Other Exp (% sales) 7.9 8.8 8.3 8.4 8.1 8.7 8.8 8.3 8.3 8.5
EBITDA 7,840 8,737 8,949 8,529 8,974 6,801 7,718 8,225 34,078 31,718
EBITDA Margins (%) 13.9 15.1 15.0 14.3 14.5 13.1 13.4 14.0 14.6 13.8
Adj. EBITDA Margins (%) 10.7 11.5 11.1 10.8 10.8 9.3 9.7 10.4 11.0 10.1
Other Income 1,379 1,248 1,305 1,774 1,439 1,300 1,400 1,583 5,756 5,722
Depreciation 2,398 2,785 2,987 2,804 3,035 2,800 2,840 2,818 10,973 11,493
PBT 6,696 7,245 7,238 7,469 7,349 5,271 6,248 6,959 28,647 25,827
Effective Tax Rate (%) 16.7 16.7 15.3 19.2 16.3 16.5 16.5 16.8 17.0 16.5
Adj. PAT 5,579 6,036 6,130 6,036 6,155 4,401 5,217 5,792 23,781 21,566
Change (%) 13.5 19.4 24.3 20.3 10.3 -27.1 -14.9 -4.0 19.4 -9.3
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/CE P/BV EV/ RoE RoCE
End (INR m) (INR m) (INR) GR. (%) (X) (X) (X) EBITDA (%) (%)
3/11A 192,450 20,077 100.5 -10.0 - - - - 62.5 59.2
3/12A 233,681 23,781 119.1 18.4 15.8 14.2 8.7 10.1 55.4 52.4
3/13E 230,292 21,566 108.0 -9.3 17.4 15.3 7.3 10.6 41.8 45.7
3/14E 265,789 24,779 124.1 14.9 15.1 13.3 6.0 8.7 39.7 50.4
BSE Sensex S&P CNX
18,763 5,703
We expect HMCL’s 2QFY13 volume to decline 9.5% YoY to 1.39m (-14.9% QoQ) on the back of weak retail demand
and high channel inventory. Realizations are expected to decline 25bp QoQ (+70bp YoY) given adverse product
mix as buyers downtrade to cheaper and more fuel-efficient motorcycles.
We estimate net sales at INR52.7b, down 9% YoY, 15% QoQ. EBITDA margin (adjusted for change in royalty
accounting) is expected to decline 120bp QoQ at 9.6% (-190bp YoY) on account of adverse product mix and lag
impact of weaker INR (on both RM cost and royalty). Adj EBITDA is expected to decline 24% YoY (-25% QoQ),
translating into 24% YoY decline in PAT to INR4.6b (-25.2% QoQ).
The management expects 2W industry volumes to grow 4-5% in FY13, with Hero MotoCorp growing in-line with
the industry. Demand pick-up in festive season would be critical for the company to achieve this guidance.
HMCL has announced capacity addition of 2m by 2QFY14. It is investing INR25.75b on two plants (capacity of
0.75m at Rajasthan by 1QFY14 and 1.25m at Gujarat by 2QFY14) and an R&D center. The company will be funding
these investments through internal accruals and cash of ~INR40b as at March 2012.
We are downgrading our EPS estimates for FY13/14 by 4.4%/2.5%, to factor in weaker than expected demand
environment and high channel inventory restricting wholesale dispatches. The stock trades at 17.4x FY13E and
15.1x FY14E EPS. Maintain Buy.
C–7October 2012
September 2012 Results Preview
Sector: Automobiles
Mahindra & Mahindra
Bloomberg MM IN
Equity Shares (m) 598.6
52 Week Range (INR) 875/622
1,6,12 Rel Perf (%) 6/17/-5
Mcap (INR b) 517.5
Mcap (USD b) 9.8
CMP: INR865 Buy
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Volumes (nos) 159,197 170,701 183,228 195,478 182,149 189,175 204,250 196,678 704,935 772,252
Change (%) 25.1 29.2 23.3 21.8 14.4 10.8 11.5 0.6 24.2 9.5
Net Realization 416,344 428,047 451,808 472,753 507,713 504,531 499,425 501,084 445,318 503,053
Change (%) 3.4 6.5 10.5 14.4 21.9 17.9 10.5 6.0 9.7 13.0
Net Sales 66,281 73,068 82,784 92,413 92,479 95,445 102,008 98,552 313,920 388,484
Change (%) 29.3 37.6 36.3 39.3 39.5 30.6 23.2 6.6 36.2 23.8
Operating Other Income 990 538 1,045 1,459 1,195 1,050 1,300 1,556 4,615 5,100
EBITDA 8,954 8,740 10,230 9,694 11,094 11,193 12,294 11,524 37,707 46,105
EBITDA Margins (%) 13.3 11.9 12.2 10.3 11.8 11.6 11.9 11.5 11.8 11.7
EBITDA Margins (incl MVML) 14.2 13.3 13.3 12.1 13.9 13.6 13.3 13.0 13.3 13.6
Other income 550 2,315 667 956 599 2,600 850 1,231 4,658 5,280
Interest 262 49 348 709 460 500 550 553 1,628 2,063
Depreciation 1,099 1,257 1,408 1,997 1,548 1,675 1,925 2,028 5,761 7,176
EO Expense 0 0 0 -1,083 1,083 0
Effective Tax Rate (%) 25.7 24.4 27.6 3.1 25.1 25.5 25.5 25.9 20.2 25.5
Reported PAT 6,049 7,374 6,622 8,745 7,256 8,656 7,948 7,538 28,789 31,398
Adj PAT 6,049 7,374 6,622 7,696 7,256 8,656 7,948 7,538 27,924 31,398
Change (%) 7.6 1.4 7.3 26.9 20.0 17.4 20.0 -2.1 8.1 12.4
PAT (incl MVML) 6,770 8,030 7,785 9,154 8,441 7,768 28,888 33,149
E: MOSL Estimates
Year N. Sales PAT * S/A EPS * Cons. Con EPS Cons, RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) EPS (INR) Gr (%) P/E (X) (%) (%) Sales EBITDA
3/11A 234,603 25,732 43.0 48.0 18.1 - 25.0 26.8 - -
3/12A 318,535 28,888 48.3 51.2 6.6 16.9 23.0 23.1 1.6 13.5
3/13E 393,584 33,149 55.4 63.7 24.4 13.6 21.7 24.3 1.3 11.1
3/14E 443,341 36,511 61.0 78.4 22.9 11.0 19.3 22.7 1.2 10.4
* S/A including MVML
BSE Sensex S&P CNX
18,763 5,703
2QFY13 performance is not strictly comparable YoY due to merger of MADPL in 4QFY12. We expect MM to report
overall 2QFY13 volume growth of 10.8% YoY (+3.9% QoQ), driven by 23.9% YoY (+10.2% QoQ) growth in UV &
pick-ups, but 13.3% YoY de-growth (-16.5% QoQ) in tractors. Realizations to decline 0.6% QoQ to INR505k.
We estimate net sales at INR96.5b, up 31% YoY and 3% QoQ. We expect EBITDA margin to decline 20bp QoQ to
11.6% (down 30bp YoY). However, EBITDA margin (incl MVML) is expected to improve 30bp YoY (down 30bp
QoQ) to 13.6% driven by ramp-up in recent launches in auto segment (manufactured at Chakan plant). We
estimate EBITDA at INR11.2b, up 28% YoY and 0.9% QoQ. Other income is likely to be higher sequentially at
INR2.6b due to receipt of dividend from subsidiaries; this would translate into adjusted PAT of INR8.7b (+17.4%
YoY, 19.3% QoQ). Including MVML, EBITDA and adjusted PAT are estimated at INR12.5b and INR9.2b.
Outlook for the auto division remains healthy with both key segments UVs and pick-ups performing well.
Recent launch of refreshed Verito and Quanto (mini-SUV based on Xylo platform) should help sustain healthy
growth momentum. Management has guided for FY13 tractor industry growth of 0-2% considering weak monsoon
(albeit the late recovery), pressure on crop prices, and lower infrastructure/construction activity.
We have marginally upgraded our FY13 consolidated EPS by 1.6% to factor in strong performance from the auto
division. However, we downgrade our FY14 consolidated EPS 4.7% for higher than expected losses at Ssangyong
Motors. The stock trades at 13.6x FY13E and 11x FY14E consolidated EPS. Maintain Buy.
C–8October 2012
September 2012 Results Preview
Sector: Automobiles
Maruti Suzuki India
Bloomberg MSIL IN
Equity Shares (m) 302.1
52 Week Range (INR) 1,428/906
1,6,12 Rel Perf (%) 10/-5/12
Mcap (INR b) 407.8
Mcap (USD b) 7.7
CMP: INR1,350 Buy
Quarterly Performance (INR Million)
Y/E March FY12 FY13* FY12 FY13E*
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Volumes ('000 nos) 281.5 252.3 239.5 360.3 295.9 230.4 305.1 345.5 1,133.7 1,176.8
Change (%) -0.6 -19.6 -27.6 4.9 5.1 -8.7 27.4 -4.1 -10.8 3.8
Realizations (INR/car) 293,279 298,741 314,247 318,770 355,839 347,724 351,202 360,311 306,131 354,361
Change (%) 3.2 4.8 12.0 11.7 21.3 16.4 11.8 13.0 7.7 15.8
Net Op. Revenues 84,541 78,316 77,316 117,270 107,782 82,507 109,786 127,206 355,871 427,281
Change (%) 1.7 -14.4 -18.6 17.2 27.5 5.4 42.0 8.5 -2.8 20.1
RM Cost (% of Sales) 78.0 78.6 79.1 79.6 77.8 78.8 78.3 78.6 78.9 78.4
Staff Cost (% of Sales) 2.1 2.5 2.7 2.2 2.2 3.2 2.4 2.3 2.4 2.5
Other exp. (% of Sales) 10.3 12.5 13.0 10.9 12.6 13.3 12.0 11.2 11.7 12.2
Total Cost 76,437 73,374 73,282 108,685 99,919 78,598 101,737 117,134 330,742 397,387
EBITDA 8,104 4,942 4,034 8,585 7,863 3,909 8,049 10,072 25,129 29,893
EBITDA Margins (%) 9.6 6.3 5.2 7.3 7.3 4.7 7.3 7.9 7.1 7.0
Change (%) -5.5 -48.5 -55.3 -15.3 -3.0 -20.9 99.6 17.3 -30.9 19.0
Non-Operating Income 1,841 1,177 1,746 2,969 1,123 1,250 2,000 2,950 8,269 7,323
Interest 58 109 178 208 332 300 300 269 552 1,200
Depreciation 2,425 2,664 2,989 3,306 3,399 3,400 3,450 3,516 11,384 13,765
PBT 7,462 3,346 2,613 8,040 5,255 1,459 6,299 9,237 21,462 22,251
Tax 1,970 942 557 1,642 1,018 285 1,228 1,808 5,111 4,339
Effective Tax Rate (%) 26.4 28.1 21.3 20.4 19.4 19.5 19.5 19.6 23.8 19.5
PAT 5,492 2,404 2,056 6,398 4,238 1,175 5,071 7,429 16,351 17,912
Change (%) 7.2 -59.8 -63.6 1.4 -22.8 -51.1 146.6 16.1 -29.2 9.5
E:MOSL Estimates; * Excluding SPIL Merger
Year Net Sales PAT Cons.EPS EPS Cons.P/E P/CE P/BV EV/ RoE RoCE
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (X) EBITDA (%) (%)
3/11A 369,199 23,101 82.4 -9.2 - - - - 16.5 22.1
3/12A 355,871 16,351 58.2 -29.4 23.2 14.1 2.6 12.6 10.8 13.2
3/13E 427,281 19,993 67.2 15.5 20.1 10.6 2.1 9.1 10.5 12.4
3/14E 500,583 28,234 94.8 41.1 14.2 8.1 1.9 6.3 13.2 15.9
BSE Sensex S&P CNX
18,763 5,703
Our quarterly estimates exclude SPIL merger, as the company would be reporting performance without SPIL.
However, our full year estimates include SPIL.
MSIL’s 2QFY13 performance is expected to be impacted due to supply constraint in diesel cars given recent
labor unrest at its Manesar plant. Moreover, margins will be hit by (1) weak petrol car demand and consequent
high discounts, (2) lag impact of unfavorable currency movement in 1QFY13, and (3) recent wage hike negotiated
with workers (assuming 1HFY13 provisioning happens in 2QFY13).
We expect MSIL’s 2QFY13 volumes to de-grow 8.7% YoY (-22% QoQ) to 230,376. Realizations are likely to decline
2.3% QoQ (+16.4% YoY) on lower proportion of diesel car given supply constraints. EBITDA margin is likely to
decline 260bp QoQ (-160bp YoY) to 4.7% with lower volumes, adverse mix and forex, and higher wages. EBITDA
expected at INR3.9b, down 21% YoY (-50% QoQ), translating into recurring PAT of INR1.2b (-51% YoY, -72% QoQ).
We are revising our estimates to factor in for faster than estimated ramp-up. Our estimates now factors in for
volume growth of 3.8%/15% in FY13/FY14 to 1.18m/1.35m units, JPY/INR of 0.685/0.663 and ~10bp/10bp increase
in staff cost in FY13 and FY14, resulting in -10bp/+140bp change in EBITDA margins in FY13/FY14 (excl SPIL). As a
result, our consol. EPS has seen upgrade of ~3%/1% for FY13/FY14 to INR67.2/94.8 and cash EPS upgrade of ~2/1%
to INR127/INR166. The stock trades at 14.2x FY14E consolidated EPS and 8.1x FY14E cash EPS. Maintain Buy.
C–9October 2012
September 2012 Results Preview
Sector: Automobiles
Tata Motors
Bloomberg TTMT IN
Equity Shares (m) 3,323.8
52 Week Range (INR) 321/145
1,6,12 Rel Perf (%) 6/-11/57
Mcap (INR b) 889.0
Mcap (USD b) 16.9
CMP: INR267 Buy
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Op Income 332,888 361,975 452,603 509,079 433,236 442,658 503,274 591,873 1,656,545 1,971,042
Growth (%) 23.0 26.9 44.0 44.3 30.1 22.3 11.2 16.3 35.6 19.0
EBITDA 42,358 45,039 68,270 67,445 57,548 57,988 61,399 78,446 223,112 255,382
EBITDA Margins (%) 12.7 12.4 15.1 13.2 13.3 13.1 12.2 13.3 13.5 13.0
Depreciation 11,432 13,308 16,159 15,354 15,659 16,000 16,500 23,317 56,254 71,476
Other Income 1,658 608 1,675 1,586 2,386 1,250 1,500 1,700 6,618 6,836
Interest Expenses 8,556 5,251 7,204 7,721 8,044 7,000 7,000 9,648 29,822 31,692
PBT before EO Exp 24,028 27,089 46,581 45,956 36,232 36,238 39,399 47,180 143,654 159,050
Adj PAT 20,481 22,461 35,307 44,403 25,651 24,824 27,102 33,061 125,568 110,482
Growth (%) (3.5) 6.4 43.9 79.2 25.2 10.5 -23.2 -25.5 38.5 -12.0
JLR Volumes 62,037 68,000 86,322 98,074 83,452 78,981 94,250 105,877 314,433 362,560
Growth (%) QoQ -6.2 9.6 26.9 13.6 -14.9 -5.4 19.3 12.3 29.1 15.3
JLR EBITDA Margins (%) 13.4 14.4 17.0 14.6 14.5 14.1 14.2 14.8 15.0 14.4
S/A Volumes (nos) 197,606 211,400 231,328 286,019 190,900 222,317 243,000 282,589 922,867 936,680
Change (%) 3.8 1.8 19.2 16.7 -3.4 5.2 5.0 -1.2 10.4 1.5
S/A EBITDA Margins (%) 8.8 7.2 6.7 9.5 7.3 7.3 7.9 8.9 8.1 8.0
E: MOSL Estimates
Year Sales Adj. PAT Adj. EPS Normal Cons. Normal RoE RoCE EV/ EV/
End* (INR M) (INR M) (INR) EPS (INR) ^ P/E (X) P/E (X) (%) (%) Sales EBITDA
3/11A 1,221,279 90,695 27.3 15.4 - - 47.3 26.5 - -
3/12A 1,656,545 125,568 37.8 22.2 7.1 12.0 38.4 24.1 0.6 4.4
3/13E 1,971,042 110,482 33.2 14.0 8.0 19.1 25.2 23.9 0.5 3.7
3/14E 2,185,850 137,408 41.3 19.5 6.5 13.7 24.7 24.2 0.4 3.1
* Consolidated; ^ Normalized for capitalized expenses
BSE Sensex S&P CNX
18,763 5,703
On a consolidated basis, we expect 2QFY13 net operating revenues to grow 22% YoY (+2.2% QoQ) to INR442b.
Expect standalone revenues to de-grow 4.2% YoY (+17.3% QoQ), while JLR should grow 17.2% YoY (-6.1% QoQ).
We expect EBITDA at INR58b, up 28.7% YoY (+0.4% QoQ), as EBITDA margin improves 70bp YoY (-20bp QoQ) to
13.1%. However, Adjusted PAT is expected to grow only 10.5% YoY (down 3.2% QoQ) due to increase in JLR tax
provision (post tax credit accounted in 4QFY12 on accumulated JLR losses).
We expect 2QFY13 standalone volumes to grow 5.2% YoY (+16.5% QoQ), driven by growth in LCVs and PVs. Post
inventory correction in 1Q, M&HCV volumes are expected to improve 27% QoQ but would still be lower YoY on
weak demand. We estimate 2QFY13 standalone net sales at INR124, stable EBITDA margin at 7.3% (+10bp YoY, -
10bp QoQ), and EBITDA at INR9b, down 3.4% YoY (+16.4% QoQ). Other income is expected to be higher QoQ/YoY
with dividend income from JLR (GBP150m); this would translate into PAT growth of 2.7x YoY (2.3x QoQ) to
INR11.5b.
For JLR, we expect strong volume growth of 16.1% YoY (-5.4% QoQ) to 78,981 driven by Evoque. Realizations
would likely decline 75bp QoQ (+90bp YoY), resulting in 17.2% YoY (-6% QoQ) revenue growth to GBP3.4b (IFRS).
We expect EBITDA margin at 14.1% (-40bp QoQ, -30bp YoY), impacted by negative operating leverage and
weaker product mix in favor of Evoque & Freelander and lower RR volumes ahead of new model launch. As a
result, expect recurring PAT to be GBP240m (+39% YoY, +1.6% QoQ).
We marginally lower our FY13 consolidated EPS by 0.9% to factor in higher than expected weakness in the
M&HCV business. However, we upgrade our FY14 consolidated EPS by 8% to factor better product/market mix
in JLR. The stock trades at 6.5x FY14E consolidated EPS, and 13.7x FY14E normalized EPS. Maintain Buy.
C–10October 2012
September 2012 Results Preview
Sector: Capital Goods
Capital GoodsCompany Name
ABB
BGR Energy
BHEL
Crompton Greaves
Cummins India
Havells India
Larsen & Toubro
Siemens
Thermax
Satyam Agarwal ([email protected]) / Deepak Narnolia ([email protected])
Revenue, margins impacted by declining order book: We expect revenue growth in
2QFY13 to moderate to 8% YoY (v/s 17% YoY in 1QFY13), given the depleting order
books and constrained environment. Ordering activity continues to be sluggish,
particularly in the industrial / power generation segment. Current BTB stands at 2.4x,
the lowest in 18 quarters and continues to impact reported performance. In 2QFY13,
we expect EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost
absorption. While commodity prices have corrected meaningfully, a large part of the
decline is negated by currency movements. Companies with high local manufacturing
content (like BHEL, Cummins and Thermax) will be the key beneficiaries.
Investment climate at crossroads; environment challenging: Net banking credit to
the Infrastructure sector is declining since June 2011 and has reached FY09 levels.
Project sanctions in 4QFY12 were the lowest since FY06, indicating accentuating
slowdown in Industrial and Infrastructure spending. Net projects added per quarter
have shown a continuous decline - INR1.5t in 1QFY13 v/s the run rate of INR5t during
the period September 2006 to June 2010. Our interactions with several companies
suggest that banks are insisting on 70-100% upfront equity for Infrastructure projects,
resulting in larger players taking a "bidding holiday". Structural issues like SEB finances
(for Power sector), resource availability, land / water / environment, and tight liquidity
for project financing are challenges for capex upturn. The government is attempting
to address several of these.
Gauging the environment through non-covered companies: Our analysis of 29 non-
covered companies also points towards growing challenges, particularly for industrial
products, which have relatively shorter business cycles than projects. In 1QFY13,
aggregate revenue declined 12% YoY for nine non-covered industrial product
companies and 4% YoY for five covered companies (based on segmental analysis).
Project revenues are relatively insulated (up 17% YoY in 1QFY13 for non-covered
companies), led by healthy execution of existing orders. Also, the impact of slowdown
has been building up over the last 3-4 quarters, with TTM sales growth declining from
20% in 2QFY12 to 2% in 1QFY13, aggregated for the 14 companies. Management
commentary across companies indicates challenging and uncertain outlook in the
medium term.Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
ABB 798 Neutral 19,190 10.1 1.9 1,109 66.3 4.6 543 145.1 5.2
BGR Energy 275 Neutral 7,038 -8.8 15.2 883 -19.9 0.4 296 -42.3 -11.5
BHEL 247 Neutral 105,257 2.2 26.4 17,694 -1.3 47.2 12,329 -4.1 33.9
Crompton Greaves 126 Neutral 29,629 9.5 5.4 1,981 -12.4 18.8 1,003 -14.0 16.8
Cummins India 508 Neutral 12,056 10.6 -4.2 2,230 26.8 -4.1 1,584 23.2 -12.3
Havells India 625 Buy 9,796 15.0 -5.4 1,162 12.9 -4.9 784 5.9 -10.9
Larsen & Toubro 1,597 Buy 132,967 18.2 11.2 13,297 13.3 6.6 8,223 3.0 -18.0
Siemens 709 Neutral 35,693 -1.1 25.5 2,914 0.7 201.6 1,579 -11.3 333.8
Thermax 561 Neutral 12,020 -7.8 22.2 1,142 -18.7 18.5 837 -17.7 24.6
Sector Aggregate 363,645 8.2 14.7 42,411 4.0 26.3 27,179 -1.4 10.2
C–11October 2012
September 2012 Results Preview
Sector: Capital Goods
Initial ray of hope, but near-term concerns impact valuations: Our Capital Goods
coverage trades at 15x FY13E earnings (20% discount to long-term average of 18x). The
premium relative to the Sensex enjoyed by the sector (MOSL coverage universe) has
significantly eroded over the past two years. Our Capital Goods universe now trades
at a 4% discount to the Sensex v/s long-term average premium of 29%. We expect flat
earnings over FY12-14 for our coverage. The government's resolve to address the
contentious issues in the Power sector, close monitoring of PSU capex, take-off of
large public expenditure projects (like DFCC, railways, urban transport, etc) can possibly
kick-start the investment cycle. Decline in commodity prices provides another ray of
hope. We are Neutral on the sector; our top picks are L&T and Crompton Greaves.
Revenue growth supported by project business Expect margin compression across companies
En g Sector (reven ue growth %)
38.
035
.132
.21
9.1 3
1.3
28.
819
.7 26.
88
.97.
2
4.7
25.0
15.
6 24.
1 30.
414
.5
15.3
17.5
15.3
18.
41
6.6
1QF
Y08
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
1QF
Y13
8.5
8.7 9.6 11.
5
8.2 9.1 10
.6
11.
9
9.0 9.7
10.
2
10.6
8.4
8.5 9.2 1
2.3
8.2
11.
7
12.1 13
.5 15.4
11.
6
13.
5 16.1
16.
5
13.
3
14.
3
15.2
15.
9
12.0
12.
4
13.
1
17.5
11.
0
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
1QF
Y13
Net Profi t Margin (%) EB ITDA Margin (%)
Source: Company, MOSL
Moderating sales growth is likely to impact margins, while softening commodity prices could have a positive impact
going forward; estimate 2QFY13 industry margins a t 10.5% (down 39bp YoY).
1QFY13 order growth boosted by NTPC bulk tender awards BTB (x) declining on slowing order inflows
Source: Company, MOSL
Order intake remains sluggish, impacted by slowdown in the power sector and slowing industrial capex; the T&D
segment showed pick-up in ordering, driven by improved ordering by Power Grid. Ordering activity in
the building & construction has also been showing healthy traction.
5340
1325
46 4122
-2
-19-7
23
64
920
-16
20
-22-12
36
-47-34
1Q
FY
08
3Q
FY
08
1Q
FY
09
3Q
FY
09
1Q
FY
10
3Q
FY
10
1Q
FY
11
3Q
FY
11
1Q
FY
12
3Q
FY
12
1Q
FY
13
Order intake YoY %
1,4
27
1,5
291,
632
1,8
49
2,0
51
2,1
96
2,2
322,
340
2,4
94
2,7
05
2,8
88
3,0
073,
170
3,1
99
3,3
97
3,4
05
3,4
72
3,3
74
3,2
28
3,3
20
2.4
2.4 2.4 2.6 2.
7
2.8
2.6 2.7 2.8 3
.0
3.0
3.0 3.1
2.9
2.9
2.9
2.8
2.6
2.4
2.4
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
1QF
Y13
Orde r boo k (INR bn) BTB (x)
C–12October 2012
September 2012 Results Preview
Sector: Capital Goods
Incremental credit disbursements now lower than industry Infrastructure credit disbursement declining since June 2011
0
800
1,600
2,400
3,200
Apr-07 Ap r-08 Ap r-09 Apr-10 Apr-11 Apr-12
Infra structure (Bank Cre di t, ttm, INR b)Ind ustries excl infra (Bank Credi t, ttm INR b )
908
1,3
27
1,1
94
827
1,2
50
1,0
67
787
821
787
575
506
255
169
151
194
154
167
160
202
181
231
175
189
146
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
Sanctions (INR B) Projects (No s)
-
2,000
4,000
6,000
8,000
10,000
Ma
r-9
6
Ap
r-9
7
Ma
y-9
8
Jun
-99
Jul-
00
Aug
-01
Sep
-02
Oct
-03
No
v-0
4
Dec
-05
Jan
-07
Feb
-08
Ma
r-0
9
Ap
r-1
0
Ma
y-1
1
Jun
-12
Net Projects adde d (INR b)
400
700
1,000
1,300
1,600
Apr-08 Feb-09 De c-09 Oct-10 Au g-11 Jun-12
-80
-40
0
40
80
In frastru ctu re (Ba nk Cred i t, ttm, INR b)In frastru ctu re ba nk cre di t (ttm, % YoY)
4QFY12 project sanctions at shocking levels Net project additions decline to INR1.5t in 1QFY13
Industrial products revenue have strong co-relation Coverage companies have fared better in maintainingwith GDP growth (revenue growth % YoY, ttm) margins (Industrial product EBIT Margins, %, ttm)
Power products Revenues show contrasting trends (ttm, % YoY), Power products margins have eroded, but showing signs ofwith coverage companies witnessing demand improvement stabilization (% EBIT margins, ttm)
Source: Company, MOSL
-25%
0%
25%
50%
1QF
Y08
3QF
Y08
1QF
Y09
3QF
Y09
1QF
Y10
3QF
Y10
1QF
Y11
3QF
Y11
1QF
Y12
3QF
Y12
1QF
Y13
0%
3%
6%
9%
GDP Growth Non covered compan iesCovered comp anies
-20%
0%
20%
40%
60%
1QF
Y08
3QF
Y08
1QF
Y09
3QF
Y09
1QF
Y10
3QF
Y10
1QF
Y11
3QF
Y11
1QF
Y12
3QF
Y12
1QF
Y13
Covered comp anies Non covere d comp anies
5%
8%
11%
14%
17%
1QF
Y08
3QF
Y08
1QF
Y09
3QF
Y09
1QF
Y10
3QF
Y10
1QF
Y11
3QF
Y11
1QF
Y12
3QF
Y12
1QF
Y13
Non covered co mpa nies Co ve red compan ies
0%
5%
10%
15%
20%
1QF
Y08
3QF
Y08
1QF
Y09
3QF
Y09
1QF
Y10
3QF
Y10
1QF
Y11
3QF
Y11
1QF
Y12
3QF
Y12
1QF
Y13
Covered comp anies Non covered co mpa nies )
C–13October 2012
September 2012 Results Preview
Sector: Capital Goods
60
75
90
105
120
Sep-
11
Dec
-11
Ma
r-12
Jun-
12
Sep-
12
Sens ex Ind exMOSL Capi ta l Goods Inde x
90
95
100
105
110
Jun-
12
Jul-
12
Au
g-1
2
Sep-
12
Sen sex In dexMOSL Cap ita l Good s Ind ex
Relative Performance - 3m (%) Relative Performance-1Yr (%)
Comparative valuationCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Capital Goods
ABB 798 Neutral 8.7 11.3 17.4 91.6 70.9 45.7 58.6 41.7 27.6 7.4 9.1 13.0
BGR Energy 275 Neutral 31.0 21.1 25.3 8.9 13.0 10.9 6.1 8.0 8.2 22.2 13.4 14.5
BHEL 247 Neutral 28.2 24.9 20.3 8.8 9.9 12.2 5.4 6.1 7.3 30.3 22.2 16.0
Crompton Greaves 126 Neutral 5.7 9.3 12.6 22.0 13.6 10.0 10.7 8.4 6.5 10.7 15.6 18.7
Cummins India 508 Neutral 19.8 24.1 25.6 25.6 21.0 19.8 19.0 15.2 13.7 28.8 30.7 28.9
Havells India 625 Buy 29.6 31.1 41.4 21.1 20.1 15.1 13.0 12.1 9.6 38.7 31.7 32.1
Larsen & Toubro 1,597 Buy 78.0 85.2 91.4 20.5 18.7 17.5 14.3 12.7 10.9 17.8 17.1 16.4
Siemens 709 Neutral 16.9 23.1 31.3 42.0 30.7 22.7 23.3 17.0 12.8 14.6 18.8 23.0
Thermax 561 Neutral 33.9 27.1 31.5 16.6 20.7 17.8 9.9 11.4 9.0 27.4 18.7 19.2
Sector Aggregate 16.5 16.4 16.3 10.7 10.6 10.0 21.6 19.1 17.1
C–14October 2012
September 2012 Results Preview
Sector: Capital Goods
ABB
Bloomberg ABB IN
Equity Shares (m) 211.9
52 Week Range (INR) 915/541
1,6,12 Rel Perf (%) 2/-13/-6
Mcap (INR b) 169.1
Mcap (USD b) 3.2
CMP: INR798 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr (%) (x) (x) (%) (%) Sales EBITDA
12/10A 62,871 632 3.0 -82.2 - - 2.6 3.1 - -
12/11A 73,703 1,845 8.7 191.9 91.6 6.7 7.4 8.1 2.3 58.6
12/12E 80,876 2,386 11.3 29.3 70.9 6.3 9.1 9.5 2.0 41.7
12/13E 93,730 3,696 17.4 54.9 45.7 5.7 13.0 13.1 1.7 27.6
Quarterly Performance (INR Million)Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Sales 17,960 17,125 17,435 21,999 17,903 18,838 19,190 25,727 74,742 81,658
Change (%) 21.7 18.4 24.8 6.2 (0.3) 10.0 10.1 16.9 17.5 9.3
EBITDA 1,016 855 666 1,080 975 1,060 1,109 1,579 3,618 4,723
Change (%) 356.2 70.8 93.3 230.5 -4.0 24.0 66.3 46.2 131.9 30.5
As % of Sales 5.7 5.0 3.8 4.9 5.4 5.6 5.8 6.1 4.8 5.8
Depreciation 144 264 263 124 223 231 260 280 795 995
Interest 40 67 71 129 54 77 75 75 307 280
Other Income 45 65 38 14 19 14 25 29 162 87
PBT 877 589 371 840 716 766 799 1,254 2,677 3,535
Tax 282 202 149 199 240 250 256 403 832 1,149
Effective Tax Rate (%) 32.1 34.3 40.2 23.7 33.5 32.6 32.0 32.2 31.1 32.5
Repoted PAT 595 387 222 641 476 516 543 850 1,845 2,386
Adj. PAT 595 387 222 641 476 516 543 850 1,845 2,386
Change (%) 796.8 1.1 92.6 845.3 -20.0 33.2 145.1 32.6 191.8 29.3
Order Intake 16,951 17,918 24,926 22,093 16,320 20,606 28,665 25,407 81,888 90,998
Order Book 83,291 84,150 91,513 91,288 90,280 91,750 101,200 99,989 91,288 99,989
BTB (x) 1.2 1.2 1.2 1.2 1.2 1.2 1.3 1.2 1.2 1.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect ABB to report revenue growth of 10% YoY and EBITDA margin of 5.8% (up 200bp YoY) for 3QCY12,
aided by a low base. Profitability would remain under pressure, given higher competitive intensity and execution
of low margin fixed price contracts. Also, the benefit of softening commodity prices has largely been negated
by INR depreciation as 40% of the raw material consumption is imported (largely from parent company).
For CY12, we expect PAT to grow 30% on a low base to INR2.4b. We assume EBITDA margin of 5.8%, up 100bp;
EBITDA margin expansion would be driven by ABB's exit from rural electrification projects. However, profitability
continues to face headwinds and is lagging expectations due to intensifying competition and low margin legacy
orders.
During 2QCY12, ABB reported a turnaround in Power Systems after reporting losses in the segment for 8
consecutive quarters. However, its Process Automation business is facing cost overruns. Also, margins in its
Low Voltage Product business have been impacted by MCB capacity expansion by 3x, led by poor fixed cost
absorption.
Order book currently stands at INR91.7b, up 9% YoY. BTB stands at 1.2x TTM sales.
ABB has announced plans to again double its MCB capacity and is also expanding its High Voltage Products
capacity at a cost of INR2.5b. In Process Automation, ABB is making efforts to build a service portfolio that will
provide stability to margins. We believe that correcting the manufacturing footprint will be the key driver of
structural improvement in margins.
Key things to watch for: a) EBITDA margin devlopment, b) order in flow from industry sector.
The stock trades at 70.9x CY12E and 45.7x CY13E earnings. Maintain Neutral.
C–15October 2012
September 2012 Results Preview
Sector: Capital Goods
BGR Energy
Bloomberg BGRL IN
Equity Shares (m) 72.0
52 Week Range (INR) 374/173
1,6,12 Rel Perf (%) 0/-24/-30
Mcap (INR b) 19.8
Mcap (USD b) 0.4
CMP: INR275 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 47,632 3,124 43.3 54.6 - - 37.7 16.3 - -
03/12A 34,471 2,237 31.0 -28.4 8.9 2.4 22.2 10.7 1.0 7.3
03/13E 35,162 1,522 21.1 -31.9 13.0 1.6 13.4 7.7 0.9 8.0
03/14E 41,489 1,823 25.3 19.8 10.9 1.5 14.5 8.1 1.0 8.2
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 7,329 7,715 8,037 11,377 6,109 7,038 8,447 13,595 34,471 35,190
Change (%) -19.2 -32.1 -36.1 -22.2 -16.6 -8.8 5.1 19.5 -27.6 2.1
EBITDA 948 1,102 1,313 1,356 880 883 977 1,430 4,731 4,169
Change (%) -8.7 -16.7 -10.8 -19.0 -7.2 -19.9 -25.6 5.4 -14.1 -11.9
As of % Sales 12.9 14.3 16.3 11.9 14.4 12.5 11.6 10.5 13.7 11.8
Depreciation 37 40 41 43 41 43 48 53 161 185
Interest 180 302 461 411 342 400 460 490 1,354 1,692
Other Income 13 0 0 51 0 2 2 2 53 8
PBT 743 761 811 954 496 442 471 889 3,268 2,300
Tax 241 247 263 282 162 146 153 289 1,033 750
Effective Tax Rate (%) 32.4 32.5 32.4 29.6 32.6 33.0 32.5 32.5 31.6 32.6
Reported PAT 503 514 548 672 335 296 318 600 2,235 1,550
Adj PAT 503 514 548 672 335 296 318 600 2,235 1,550
Change (%) -17.0 -34.0 -37.4 -31.7 -33.4 -42.3 -42.0 -10.7 -31.1 -30.7
Order Intake 2,602 5,260 15,469 6,537 31,073 56,907 8,000 14,020 29,868 29,868
Order book 75,000 72,554 80,000 75,160 100,125 150,000 149,561 149,945 75,160 149,945
BTB (x) 1.6 1.7 2.1 2.2 2.2 1.6 2.5 2.5 1.7 2.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
For 2QFY13, we expect revenue of INR7.03b (down 9% YoY), EBITDA of INR883m (down 20% YoY), with EBITDA
margin at 12.5% (down 180bp YoY), and net profit of INR296m (down 42% YoY). For FY13, we expect revenue to
grow 2% YoY, EBITDA margin of 11.8% (down 190bp), and PAT of INR1.55b (down 31%). The management expects
revenue of INR37b-38b, up 10% on the back of existing order book and 11-12% EBITDA margin in FY13/14.
Order book as at the end of June 2012 stood at INR150b, of which INR7b were product orders and INR143b were
projects. Projects include NTPC bulk tenders of INR86b (57% of total order book), INR22b of EPC and INR30b of
BOP. The management has indicated that bidding pipeline stands at ~11GW for FY13.
Land for the turbine factory has already been acquired and construction work is expected to have started by the
end of July 2012, while 70% of the land for the Boiler factory has been acquired. However, we believe that order
execution would be crucial, especially in light of the company’s constrained cash flows.
Key things to watch for: (a) Realization of the retention money, as increasing debtors’ balance has significantly
deteriorated working capital cycle, (b) Profitability in the NTPC bulk tenders, in which BGR has reportedly bid
aggressively.
The stock trades at 13x FY13E and 10.9x FY14E earnings. Maintain Neutral .
C–16October 2012
September 2012 Results Preview
Sector: Capital Goods
BHEL
Bloomberg BHEL IN
Equity Shares (m) 2,447.6
52 Week Range (INR) 344/195
1,6,12 Rel Perf (%) 4/-12/-39
Mcap (INR b) 604.2
Mcap (USD b) 11.5
CMP: INR247 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 404,443 56,650 23.1 20.9 - - 31.4 35.0 - -
03/12A 479,788 68,918 28.2 21.7 11.5 3.1 30.3 33.0 1.5 7.3
03/13E 476,593 60,836 24.9 -11.7 9.9 2.1 22.2 23.6 1.1 6.1
03/14E 454,887 49,569 20.3 -18.5 12.2 1.8 16.0 16.9 1.2 7.3
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales (Net) 71,234 102,986 105,426 192,595 83,262 105,257 112,275 167,016 472,279 467,811
Change (%) 9.9 23.7 19.1 7.5 16.9 2.2 6.5 -13.3 13.6 -0.9
EBITDA 10,184 19,592 20,350 49,372 12,022 17,694 20,017 37,118 98,880 86,850
As a % Sales 14.3 19.0 19.3 25.6 14.4 16.8 17.8 22.2 20.2 18.2
Adjusted EBITDA 8,524 17,932 20,350 49,372 12,022 17,694 20,017 37,118 97,076 86,850
Change (%) -17.1 5.2 -5.3 68.5 41.0 -1.3 -1.6 -24.8 20.6 -10.5
As a % Sales 14.1 16.9 19.1 25.2 14.2 16.5 17.5 21.8 20.3 18.2
Interest 88 96 145 183 55 125 130 408 513 718
Depreciation 1,709 1,888 1,861 2,541 2,284 2,200 2,300 2,120 8,000 8,904
Other Income 3,435 2,199 2,415 3,989 3,663 2,500 2,350 2,427 12,656 10,939
PBT 11,822 19,806 20,758 50,637 13,346 17,869 19,937 37,017 103,023 88,167
Tax 3,667 5,686 6,432 16,838 4,137 5,539 6,180 11,476 32,623 27,332
Effective Tax Rate (%) 31.0 28.7 31.0 33.3 31.0 31.0 31.0 31.0 31.7 31.0
Reported PAT 8,155 14,120 14,326 33,798 9,209 12,329 13,756 25,541 70,400 60,836
Change (%) 21.8 23.6 2.1 20.8 12.9 -12.7 -4.0 -24.4 17.1 -13.6
Adj. PAT 8,155 12,858 14,326 33,580 9,209 12,329 13,756 25,541 68,919 60,836
Change (%) 14.8 11.1 -0.2 73.6 12.9 -4.1 -4.0 -23.9 21.8 -11.7
Order intake 24,710 143,060 (15,040) 68,230 55,900 30,000 60,000 60,621 220,960 295,021
Order book (INRb) 1,596 1,610 1,465 1,347 1,330 1,255 1,202 1,141 1,353 1,141
BTB (x) 3.8 3.6 3.2 2.9 2.7 2.6 2.4 2.4 2.9 2.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Declining commodity prices in USD terms and INR depreciation have meaningfully improved BHEL's competitive
positioning, given that the competitors' cost base is largely composed of imported equipment, while BHEL has
a larger in-house domestic cost base.
Order book stood at INR1,329b (down 17%) as at June 2012; BTB declined from a peak of 4-4.5x in FY09 to 2.7x.
Given the execution period of 3.5-4 years for power sector projects, the ratio is now in an uncomfortable zone
and would constrain revenue growth, going forward. We expect revenue to decline by 1%/5% in FY13/FY14.
In FY13, BHEL targets 14-15GW of orders, which appears challenging, given the prevailing business environment
in the Power sector. BHEL's utility power order intake in FY12 was 2.8GW and industry size was 4GW.
While the investment climate remains constrained, we believe that the situation could improve, driven by
structural drivers like the following: (1) Imposition of 21% effective import duty has improved the competitive
positioning of domestic players by 14%, (2) SEB debt restructuring, (3) Coal price pooling and increased domestic
coal availability, (4) New standard bidding document making fuel cost pass-through, (5) continued strong
growth in power consumption, etc.
Key things to watch for: (a) Order inflow, (b) Performance on profitability - increasing pricing pressure and
negative operating leverage are likely to squeeze EBITDA margin.
The stock trades at 9.9x FY13E and 12.2x FY14E earnings. Maintain Neutral.
C–17October 2012
September 2012 Results Preview
Sector: Capital Goods
Crompton Greaves
Bloomberg CRG IN
Equity Shares (m) 641.5
52 Week Range (INR) 175/102
1,6,12 Rel Perf (%) 4/-18/-31
Mcap (INR b) 81.0
Mcap (USD b) 1.5
CMP: INR126 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 100,051 9,268 14.3 12.4 - - 30.5 28.1 - -
3/12A 112,486 3,733 5.7 -59.7 22.0 2.2 10.7 9.6 0.9 13.3
3/13E 131,290 6,029 9.3 61.5 13.6 2.0 15.6 13.0 0.7 7.8
3/14E 145,945 8,104 12.6 34.4 10.0 1.8 18.7 15.0 0.6 5.9
Quarterly performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Standalone Performance
Sales 14,688 14,515 16,245 19,406 16,592 16,102 18,333 22,164 64,854 73,190
Change (%) 9.4 0.5 16.1 9.9 13.0 10.9 12.9 14.2 9.0 12.9
EBITDA 1,867 1,614 1,753 1,973 1,684 1,642 2,035 2,901 7,207 8,162
Change (%) -10.8 -30.1 -23.1 -25.3 -9.8 1.8 16.1 47.0 -22.7 13.3
As of % Sales (Adj) 12.7 11.1 10.8 10.2 10.1 10.2 11.1 13.1 11.1 11.2
Subsidiaries Performance
Revenues 9,689 12,541 14,035 11,367 11,520 13,527 14,624 13,693 47,632 53,364
Revenue growth (%) 1.0 31.6 40.6 -0.5 18.9 7.9 4.2 20.5 17.5 12.0
EBITDA -48 646 73 158 84 338 658 788 830 1,868
As of % Sales (Adj) -0.5 5.2 0.5 1.4 0.7 2.5 4.5 5.8 1.7 3.5
Consolidated performance
Sales (Net) 24,377 27,056 30,280 30,774 28,111 29,629 32,956 40,593 112,486 131,290
Change (%) 5.9 12.8 26.3 5.8 15.3 9.5 8.8 31.9 12.4 16.7
EBITDA 1,819 2,260 1,826 2,132 1,668 1,981 2,693 4,588 8,037 10,930
Change (%) -38.8 -32.2 -46.3 -42.9 -8.3 -12.4 47.5 115.2 -40.2 36.0
As of % Sales (Adj) 7.5 8.4 6.0 6.9 5.9 6.7 8.2 11.3 7.1 8.3
Depreciation 608 726 627 639 466 545 590 940 2,600 2,540
Interest 110 102 112 139 99 172 218 341 463 830
Other Income 151 215 155 3 192 142 127 20 524 480
PBT 1,253 1,647 1,242 1,357 1,294 1,406 2,012 3,328 5,498 8,040
Tax 475 463 487 396 445 420 520 696 1,821 2,080
Effective Tax Rate (%) 37.9 28.1 39.2 29.2 34.4 29.9 25.8 20.9 33.1 25.9
Minority interest -17.1 16.5 -16.4 -42.9 -9.6 -17.2 -17.3 -24.9 -59.9 -69.0
PAT 795 1,167 771 1,003 859 1,003 1,510 2,657 3,736 6,029
Change (%) (58.4) (45.4) (66.9) (65.4) 8.1 (14.0) 95.7 164.8 (59.7) 61.4
Order book 70,880 71,200 81,830 83,664 91,720 97,537 102,675 104,087 83,664 104,087
Order Intake 17,040 22,600 34,010 28,961 27,170 29,810 31,678 29,265 102,611 117,923
BTB (x) 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.7 0.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
The management has guided 12-14% growth in consolidated revenue, EBITDA margin of 8-9%, and 15% growth
in order intake for FY13.
Over the next three years, the management expects to improve EBITDA margin by 450bp (from 7.1% in FY12),
driven by improved product offerings/new geographies (+150bp), raw material sourcing rationalization (+150bp),
rationalization of manufacturing footprint (+100bp) and improvement in manufacturing processes (+100bp).
Key things to watch for: (a) Profitability in overseas and domestic power business, (b) Further announcements
on efficiency improvement measures.
The stock trades at 13.6x FY13E and 10x FY14E earnings. Maintain Neutral.
C–18October 2012
September 2012 Results Preview
Sector: Capital Goods
Cummins India
Bloomberg KKC IN
Equity Shares (m) 277.2
52 Week Range (INR) 518/322
1,6,12 Rel Perf (%) 3/0/9
Mcap (INR b) 140.7
Mcap (USD b) 2.7
CMP: INR508 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (x) (x) (%) (%) Sales EBITDA
3/11A 40,425 5,911 21.3 33.1 - - 35.5 35.4 - -
3/12A 41,172 5,502 19.8 -6.9 25.6 6.9 28.8 28.8 2.8 16.3
3/13E 47,278 6,691 24.1 21.6 21.0 6.1 30.7 30.9 2.9 15.3
3/14E 52,885 7,107 25.6 6.2 19.8 5.4 28.9 29.1 2.6 13.8
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 10,335 10,903 9,624 10,404 12,588 12,056 10,874 11,761 41,172 47,278
Change (%) 11.4 -0.1 -3.0 -0.1 21.8 10.6 13.0 13.0 1.8 14.8
EBITDA 1,739 1,759 1,612 1,948 2,325 2,230 1,979 2,358 6,972 8,892
Change (%) -11.9 -19.0 -10.3 9.2 33.7 26.8 22.8 21.0 -8.7 27.5
As of % Sales 16.8 16.1 16.7 18.7 19.5 18.5 18.2 20.0 16.9 19.1
Depreciation 94 98 109 119 114 128 142 166 420 550
Interest 11 5 11 21 14 15 15 17 54 60
Other Income 283 163 454 242 385 175 350 232 1,233 1,141
PBT 2,432 1,819 1,945 2,049 2,582 2,262 2,172 2,407 7,732 9,423
Tax 661 534 536 604 777 679 608 669 2,334 2,733
Effective Tax Rate (%) 27.2 29.3 27.5 29.5 30.1 30.0 28.0 27.8 30.2 29.0
Reported PAT 1,772 1,286 1,410 1,446 1,806 1,584 1,564 1,738 5,913 6,691
Change (%) 26.3 -23.4 1.5 0.4 1.9 23.2 10.9 20.2 0.0 13.2
Adjusted PAT 1,360 1,286 1,410 1,446 1,806 1,584 1,564 1,738 5,501 6,691
Change (%) (3.0) (23.4) 1.5 0.4 32.7 23.2 10.9 20.2 (6.9) 21.6
Domestic Sales 7,456 7,689 6,653 6,846 8,104 8,376 7,444 7,874 28,614 31,798
Change (%) 10.3 17% (4.04) (11.22) 8.7 8.9 11.9 15.0 (0.3) 10.5
Exports 2,763 3,009 2,768 3,367 4,310 3,500 3,250 3,705 11,908 14,765
Change (%) 27.9 9.0 4.5 24.7 56.0 16.3 17.4 10.0 12.3 24.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
For FY13, we expect revenue growth of 15%, aided by new products from Phaltan Megasite, and pre-buying,
given stringent emission norms for Powergen. However, the scenario continues to be challenging, given the
slowdown, and the impact is more pronounced in the high horsepower (HHP) segment. Domestic demand for
DG sets declined 5-10% in FY12.
We believe that the twin trend of softening commodity prices and INR depreciation have meaningfully improved
near-term margin outlook for Cummins (KKC). Currency depreciation makes KKC more competitive in the global
network of Cummins Inc, leading to possibilities for increased outsourcing. Weak INR has also improved KKC’s
competitive positioning vis-à-vis competitors, who largely rely on imports.
The DG sets business faces multiple headwinds: (1) Limited demand drivers, given economic slowdown and
tight liquidity, (2) Increased competitive intensity, particularly in HHP segment, and (iii) Structural lowering of
power deficit in India (KKC has been a key beneficiary of the demand spurt in Southern region over the last one
year – current TTM base deficit at 11.3% v/s 4.1% TTM in August 2011; we believe that commissioning of
Kudankulam nuclear plant / synchronous grid connection will lower deficits).
Key things to watch for: (a) Demand growth in the domestic market – tight liquidity conditions are likely to
impact growth, (b) Any slowdown in the export market, as Caterpillar dealer sales show 13% decline in YTD
FY13.
The stock trades at 21x FY13E and 19.8x FY14E earnings. Maintain Neutral.
C–19October 2012
September 2012 Results Preview
Sector: Capital Goods
Havells India
Bloomberg HAVL IN
Equity Shares (m) 124.8
52 Week Range (INR) 640/335
1,6,12 Rel Perf (%) 11/2/59
Mcap (INR b) 78.0
Mcap (USD b) 1.5
CMP: INR625 Buy
Year Net Sales PAT* EPS* EPS* P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 56,126 3,067 24.6 341.1 - - 46.9 20.6 - -
3/12A 65,182 3,699 29.6 20.6 21.1 8.2 38.7 23.6 0.9 8.9
3/13E 70,469 3,879 31.1 4.9 20.1 6.3 31.7 22.7 1.2 12.1
3/14E 76,782 5,160 41.4 33.0 15.1 4.9 32.1 24.1 1.0 9.6
* Consolidated nos, pre exceptionals
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 8,235 8,518 8,982 10,485 10,353 9,796 10,239 11,668 36,220 42,056
Change (%) 19.4 28.5 29.8 24.2 25.7 15.0 14.0 11.3 25.4 16.1
EBITDA 973 1,029 1,144 1,468 1,222 1,162 1,218 1,402 4,621 5,004
Change (%) 8.7 38.0 39.6 46.8 46.9 6.1 0.3 -4.5 29.1 8.3
EBITDA margin (%) 10.8 12.9 13.5 13.8 12.6 11.9 11.9 12.0 12.8 11.9
Depreciation 86 91 104 166 118 120 125 125 447 488
Interest 94 71 75 197 102 90 85 88 444 365
Other Income 2 2 1 3 2 4 5 9 8 20
PBT 795 868 967 1,108 1,004 956 1,013 1,198 3,738 4,171
Tax 147 166 178 192 204 172 182 214 683 772
Effective Tax Rate (%) 18.5 19.1 18.4 17.3 20.3 18.0 18.0 17.8 18.3 18.5
Reported PAT 648 703 789 916 800 784 830 984 3,060 3,404
Change (%) 21.5 21.0 29.1 34.4 23.5 11.6 5.3 7.5 26.4 11.2
Adj PAT 566 741 830 1,022 880 784 830 984 3,056 3,399
Change (%) 3.6 39.9 44.1 50.0 55.5 5.9 0.0 -3.7 26.5 11.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
For 2QFY13, we expect standalone revenue of INR9.7b (up 15% YoY), EBITDA of INR1162m with EBITDA margin at
11.9% (down 100bp YoY), impacted by doubling of Switchgear capacity. Net profit is likely to be INR784m (up 6%
YoY).
For FY13, we expect revenue growth of 16%, EBITDA margin of 11.9% (down 30bp), and PAT of INR3.4b (up 11%).
The management expects 15-20% growth in standalone sales on the back of 10-15% growth in Switchgear, 15-
20% in Cables and Wires, and 20%+ growth in Consumer Durables along with Lighting and Fixtures. The company
is confident of maintaining its margin levels.
Sylvania, which had been reporting sustained improvement in profitability after its turnaround beginning
2QFY11, has again reported losses in 1QFY13, impacted by adverse currency movement and decline in sales.
The business continues to face currency headwinds in the near term while European sales are likely to be
muted. The management expects 2-3% growth in EUR terms and stable EBITDA margin in FY13. We have factored
in a sales growth of 1% in EUR terms and EBITDA margin of 6.5% (down 70bp).
Key things to watch for: (a) Growth in new product launches in Consumer Appliances, (b) Slowdown in overseas
demand, (c) Cross-selling opportunities.
The stock trades at 20.1x FY13E and 15.1x FY14E earnings. Maintain Buy.
C–20October 2012
September 2012 Results Preview
Sector: Capital Goods
Larsen & Toubro
Bloomberg LT IN
Equity Shares (m) 608.9
52 Week Range (INR) 1,619/971
1,6,12 Rel Perf (%) 11/12/0
Mcap (INR b) 972.2
Mcap (USD b) 18.4
CMP: INR1,597 Buy
Year Net Sales PAT* EPS* EPS P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%)* (X) (X) (%) (%) Sales EBITDA
3/11A 439,059 42,416 69.7 13.0 - - 16.6 13.9 - -
3/12A 531,705 47,730 78.0 11.9 18.5 3.5 17.8 14.1 1.7 14.3
3/13E 618,981 52,140 85.2 9.2 18.7 3.4 17.1 13.8 1.6 14.3
3/14E 701,694 55,953 91.4 7.3 17.5 3.0 16.4 13.5 1.5 12.6
Consolidated; EPS is fully diluted
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 94,826 112,452 139,836 184,609 119,554 132,967 162,789 203,672 531,705 618,981
Change (%) 21.1 20.5 22.5 21.0 26.1 18.2 16.4 10.3 21.1 16.4
EBITDA 11,265 11,741 13,641 25,608 10,869 13,297 17,500 29,753 62,826 71,418
Change (%) 12.1 16.7 10.2 9.3 -3.5 13.3 28.3 16.2 11.4 13.7
Margin (%) 11.9 10.4 9.8 13.9 9.1 10.0 10.8 14.6 11.8 11.5
Adjusted EBITDA 11,265 11,741 15,641 25,608 12,469 13,297 17,500 29,753 64,826 71,418
Adjusted Margin (%) 11.9 10.4 11.2 13.9 10.4 10.0 10.8 14.6 12.2 11.5
Depreciation 1,679 1,709 1,803 1,804 1,919 1,900 2,100 2,160 6,995 8,079
Interest 1,613 1,970 1,907 1,211 2,284 2,300 2,300 2,316 6,661 9,200
Other Income 2,962 3,632 4,271 3,142 6,058 2,650 2,650 2,498 13,383 13,856
Extraordinary Inc/(Exp) 0 0 0 550 -383 0 0 0 550 -383
Reported PBT 10,935 11,693 14,202 26,285 12,340 11,747 15,750 27,775 63,103 67,612
Tax 3,474 3,709 4,286 7,081 3,705 3,524 5,040 7,793 18,538 20,061
Effective Tax Rate (%) 31.8 31.7 30.2 26.9 30.0 30.0 32.0 28.1 29.4 29.7
Reported PAT 7,461 7,984 9,915 19,204 8,635 8,223 10,710 19,982 44,565 47,550
Adjusted PAT 7,461 7,984 11,275 18,654 10,023 8,223 10,710 19,982 44,825 48,948
Change (%) 12.0 15.0 40.0 22.1 34.3 3.0 -5.0 7.1 23.7 9.2
Adj PAT (excl Subs Dividend) 6,901 7,094 9,085 18,144 7,103 7,973 10,460 19,886 40,745 45,432
Change (%) 12.0 10.6 19.5 25.5 2.9 12.4 15.1 9.6 20.0 11.5
Order Intake 162 161 171 212 196 177 188 179 706 741
Order book (INR b) 1,362 1,422 1,458 1,457 1,531 1,575 1,601 1,578 1,457 1,578
BTB (x) 3.0 3.0 2.9 2.7 2.8 2.7 2.7 2.6 3.3 3.0
E: MOSL Estimates; All quarterly numbers are for standalone entity
BSE Sensex S&P CNX
18,763 5,703
We expect standalone revenue to grow 18% YoY in 2QFY13, driven by healthy execution of existing order book.
In FY13, we expect revenue to grow 16%. The management has guided 15-20% revenue growth in FY13.
We estimate standalone EBITDA margin at 10% (down 40bp YoY) for 2QFY13 and at 11.5% (down 30bp) for FY13.
In the E&C business, we expect EBITDA margin to remain flat at 12.7% in FY13 v/s the management's guidance
of +/-50bp change. Margins will be supported by commodity price declines, especially in overseas orders.
In 1HFY12, L&T announced orders amounting to INR282b (INR151b in 1QFY13 and INR130b in 2QFY13). Reported
order intake over 1QFY13 was INR196b, up 21% YoY. In 2QFY13, the company has been awarded an EPC order
worth INR7,490m by ONGC for four wellheads in the hydrocarbon sector after a long gap of over one year. This
is significant, given the loss of key orders to competition in the last 1-2 years. L&T also won a significant order
worth INR13,020m from Petroleum Development Oman LLC.
Key things to watch for: (a) Any deterioration in working capital cycle, (b) E&C margins, as one-third of the order
book is on fixed price contracts and decline in commodity prices should start supporting margins, going forward.
The stock trades at 18.7x FY13E and 17.5x FY14E earnings. Maintain Buy.
C–21October 2012
September 2012 Results Preview
Sector: Capital Goods
Siemens
Bloomberg SIEM IN
Equity Shares (m) 337.0
52 Week Range (INR) 872/627
1,6,12 Rel Perf (%) -1/-17/-29
Mcap (INR b) 238.9
Mcap (USD b) 4.5
CMP: INR709 Neutral
Year Net Sales PAT* EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
9/11A 121,064 8,434 25.0 2.0 - - 23.1 24.4 - -
9/12E 125,775 5,690 16.9 -32.5 42.0 6.0 14.6 15.3 1.9 23.1
9/13E 140,580 7,769 23.1 36.5 30.7 5.6 18.8 19.6 1.6 16.9
9/14E 160,190 10,540 31.3 35.7 22.7 4.9 23.0 24.0 1.4 12.7
* Standalone, Year end - September
Quarterly Performance (Standalone) (INR Million)Y/E September FY11 FY12 FY11 FY12E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Total Revenues 25,804 31,208 27,825 36,085 23,676 37,973 28,433 35,693 120,290 125,775
Change (%) 35.7 40.2 23.9 19.3 -8.2 21.7 2.2 -1.1 28.0 3.9
EBITDA 3,688 4,288 2,508 2,895 1,254 4,944 966 2,914 13,371 10,079
Change (%) 0.3 49.9 3.6 -27.1 -66.0 15.3 -61.5 0.7 3.4 -25.3
As % of Revenues 14.3 13.7 9.0 8.0 5.3 13.0 3.4 8.2 11.1 8.0
Depreciation 345 367 401 410 431 469 506 630 1,522 2,036
Interest Income 258 229 182 223 227 41 76 106 900 450
PBT 3,600 4,151 2,288 2,708 1,050 4,516 536 2,391 12,750 8,492
Tax 1,220 1,407 741 927 343 1,476 172 811 4,295 2,802
Effective Tax Rate (%) 33.9 33.9 32.4 34.2 32.7 32.7 32.1 33.9 33.7 33.0
Reported PAT 2,381 2,744 1,548 1,781 707 3,040 364 1,579 8,454 5,690
Adjusted PAT 2,381 2,744 1,548 1,781 707 3,040 364 1,579 8,454 5,690
Change (%) 25.9 51.5 -0.9 -29.1 -70.3 10.8 -76.5 -11.3 2.2 -32.5
Order Intake (INR b) 40 33 23 27 28 18 27 31 123 104
Order book (INR b) 151 154 150 139 140 126 125 119 139 119
BTB (x) 1.5 1.4 1.3 1.2 1.2 1.0 1.0 1.0 1.2 1.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
For 4QFY12, we expect Siemens (SIEM) to report revenue of INR35b, down 1% YoY. In 9MFY12, it reported
revenue of INR90b (up 6% YoY), impacted by delays in offtake by customers and sluggish industrial capex,
though strong execution of Qatar/Torrent projects supported revenue. A large part of SIEM’s business portfolio
comprises of early and mid-cycle products; hence, the impact of slowdown has started becoming more
pronounced. The revenue break-up is as follows: Products 56%, Projects 31% and Services 12%.
We expect order intake to remain muted, with a growth of 5% in FY12. During 9MFY12, order intake declined
23% YoY to INR73b; excluding large orders received last year, base orders posted a growth of ~8% YoY. Post the
Qatar project, SIEM is aggressively tapping other MENA (Middle East and North Africa) markets, which should
help support order intake.
We expect margins to remain flattish in 4QFY12 at 8.2% due to pricing pressure in the Power business though
softening commodity prices should support margins. Depreciation of the INR against the EUR is likely to impact
margins, given that around half the raw material and components cost is based on imports from the parent
company.
We expect SIEM to report a PAT of INR1.6b in 4QFY12, down 11% YoY. For FY12, we expect a PAT of INR5.7b (down
32%).
Key things to watch for: (a) Margins, particularly in Industrial Solutions and Power Transmission businesses, (b)
Any large size order inflow from MENA.
The stock trades at 30.7x FY13E and 22.7x FY13E earnings. Maintain Neutral, with a target price of INR743 (25x
FY12E earnings).
C–22October 2012
September 2012 Results Preview
Sector: Capital Goods
Thermax
Bloomberg TMX IN
Equity Shares (m) 119.2
52 Week Range (INR) 570/388
1,6,12 Rel Perf (%) 7/9/1
Mcap (INR b) 66.9
Mcap (USD b) 1.3
CMP: INR561 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (x) (x) (%) (%) Sales EBITDA
3/11A 52,472 3,818 32.0 48.7 - - 31.9 29.0 - -
3/12A 60,313 4,034 33.9 5.7 15.1 3.7 27.4 22.9 0.9 8.9
3/13E 57,936 3,231 27.1 -19.9 20.7 3.6 18.7 15.4 1.0 11.4
3/14E 57,229 3,748 31.5 16.0 17.8 3.2 19.2 16.1 0.9 9.0
Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 10,443 13,035 12,693 16,868 9,835 12,020 11,530 15,678 53,041 49,063
Change (%) 32.2 19.4 2.3 -4.5 -5.8 -7.8 -9.2 -7.1 9.3 -7.5
EBITDA 1,135 1,405 1,364 1,853 964 1,142 1,153 1,647 5,839 4,906
As of % Sales 10.9 10.8 10.7 11.0 9.8 9.5 10.0 10.5 11.0 10.0
Depreciation 111 117 120 121 132 129 132 122 470 515
Interest 4 11 17 34 37 12 18 2 66 69
Other Income 149 208 157 272 187 230 180 221 705 818
PBT 1,170 1,485 1,384 1,971 981 1,231 1,184 1,744 6,009 5,140
Tax 371 468 429 673 309 394 367 575 1,940 1,645
Effective Tax Rate (%) 31.7 31.5 31.0 34.1 31.5 32.0 31.0 33.0 32.3 32.0
Reported PAT 799 1,017 955 1,298 672 837 817 1,169 4,069 3,495
Change (%) 20.7 13.6 -4.7 2.6 -15.9 -17.7 -14.5 -9.9 6.4 -14.1
Adj PAT 799 1,017 955 1,298 672 837 817 1,169 4,069 3,495
Change (%) 20.7 13.6 (4.7) 2.6 (15.9) (17.7) (14.5) (9.9) 6.4 (14.1)
Order Book 58,890 57,700 51,000 42,300 44,740 42,846 40,897 40,897 42,300 40,897
Order Intake 14,440 11,890 5,900 8,090 12,580 8,323 8,260 11,137 40,320 40,300
BTB (x) 1.1 1.1 0.9 0.8 0.9 0.8 0.8 0.8 0.8 0.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Revenue visibi lity for FY13 remains low, given loss of key expected projects to competition in recent months
and lack of concrete pipeline for large power projects / slowing industrial capex.
We expect order intake to remain muted in FY13 – up 20% on a low base to INR53b. Consolidated order book as
at the end of 1QFY13 was down 26% YoY at INR50.4b. Power EPC accounts for ~1/3rd of the current backlog.
Thermax last reported large orders in 1QFY12, when it received two key orders – an order worth INR4b to
construct a 3x32MW cogeneration plant on EPC basis and an order worth INR3.66b to supply of boilers for a
120MW captive power plant. Project side orders from segments like Power, Oil & Gas, Metallurgy, Cement, etc
continue to get deferred, given the macro volatility; the scenario continues to be challenging.
Thus far, Thermax has shown impressive performance on the profitability front, even in a challenging business
environment. ~20% of its staff costs and 40-50% of other costs are variable, providing a cushion to manage
margins. However, we believe that if the macro environment continues to be volatile, Thermax might have to
start compromising on margins to bag orders (as market share / fixed costs are important priorities). Decline in
commodity prices should provide support to margins.
Key things to watch for: (a) Order inflow, particularly from the Power segment for the boiler-turbine-generator
(BTG) manufacturing plant being bui lt, (b) Pick-up in ordering activity in the Renewable Energy segment.
The stock trades at 20.7x FY13E and 17.8x FY14E earnings. Maintain Neutral.
C–23October 2012
September 2012 Results Preview
Sector: Cement
CementCompany Name
ACC
Ambuja Cements
Birla Corporation
Grasim Industries
India Cements
Jaiprakash Associates
Shree Cement
UltraTech Cement
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
ACC 1,469 Neutral 24,042 11.8 -13.4 4,167 89.0 -36.0 2,497 103.2 -40.3
Ambuja Cements 202 Buy 21,709 20.3 -15.4 5,512 77.0 -23.7 3,561 92.1 -24.1
Birla Corporation 282 Buy 5,456 5.8 -17.1 766 142.7 -39.1 404 54.5 -52.3
Grasim Industries 3,315 Buy 11,736 -2.5 -5.3 2,856 -1.7 -3.3 3,597 4.3 31.8
India Cements 95 Buy 11,466 5.3 -4.6 2,519 0.0 -9.3 854 22.5 14.1
Jaiprakash Associates 82 Buy 32,233 2.9 8.8 7,266 -2.9 -5.8 943 -26.7 -31.6
Shree Cement 3,954 Buy 10,927 47.4 -24.9 3,216 111.1 -33.2 2,166 LP -38.4
Ultratech Cement 1,968 Buy 44,095 12.8 -13.1 9,358 60.3 -27.6 5,402 93.6 -30.6
Sector Aggregate 161,664 11.1 -9.9 35,661 37.7 -22.7 19,423 89.0 -24.9
Jinesh K Gandhi ([email protected]) / Sandipan Pal ([email protected])
2QFY13 dispatches growth to moderate at ~2% led by delayed monsoon: Recovery in
cement demand was thwarted in 2QFY13 given (1) heavy rains in August (delayed
monsoon), and (2) weak demand from organized housing and infrastructure. We
estimate cement dispatches growth of 2% YoY (down ~12% QoQ). As a result, capacity
utilization is also expected to decline 120bp YoY (-10pp QoQ). We expect demand to
recover post monsoon, with FY13 volume growth of 7.9% for the industry, translating
into capacity utilization of 75% in FY13 as against 74% in FY12. 1HFY13 volume growth
of ~6.7% implies residual growth of 8.9% for 2HFY13.
Prices resilient; decline during monsoon lower than our initial estimates: Despite
demand weakness, cement prices remained strong with only modest seasonal
correction in 2QFY13. National average retail price for 2Q was down only INR5/bag
QoQ (+INR30/bag YoY). Prices are (1) broadly stable QoQ in West, North and South
(except AP where prices are down INR30-35/bag QoQ), and (2) down INR10/bag in
East and Central. We are factoring in INR20/bag improvement in FY13 realizations
over FY12 average, which is INR10/bag higher than 2QFY13 average pricing.
Profitability to deteriorate QoQ on lower realization, higher cost: Expect EBITDA/ton
to be down INR224 QoQ at INR979/ton (+INR383/ton YoY) on the back of (1) lower
realizations, (2) negative operating leverage (utilization down 950bp QoQ), and (3)
cost push (partial impact of diesel price hike). We expect the potential benefit of
softening rupee on lower imported coal prices to reflect partially from 2QFY13, which
will dilute impact of higher freight rates due to diesel price hike. For FY13, we expect
EBITDA to improve only ~INR210/ton (to INR1,110/ton) as INR400/ton higher realization
is diluted by cost push.
Valuation and view: Cement prices have been resilient even during seasonally weak
period. This, we believe, reflects high cost (both opex and capex), implying little
downside risk to any major price correction in medium-to-long term. Cement stocks
have outperformed the market led by strength in pricing; this has resulted in large
caps trading at slight premium to replacement cost. We expect strong earnings growth
to drive stock performance hereon. Recovery in cement volume growth would be the
key catalyst for stock performance to sustain. We prefer Ambuja Cement and
UltraTech/Grasim in large-caps, and Shree Cement in mid-caps.
C–24October 2012
September 2012 Results Preview
Sector: Cement
Expect demand growth to moderate at 2.9% …utilization to decline YoY
Source: CMA/MOSL
2QFY13 average cement prices seasonally down QoQ, although lower than estimated (INR/bag)
2QFY13 retail prices inclusive of excise duty hike of INR4-6/bag Source: CMA/MOSL
Cost inflation, negative operating leverage to offset benefit of higher realizations
Source: Company/MOSL
50 46 49 55 53 48 51 58 51 56 64 59
5254
10.8
9.310.3
6.9
12.2
9.4
4.03.2
6.0
6.2
10.29.0
2.10.9
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
Des patches (MT) Growth (%)
60%
75%
90%
105%
120%
4QFY
06
2QFY
07
4QFY
07
2QFY
08
4QFY
08
2QFY
09
4QFY
09
2QFY
10
4QFY
10
2QFY
11
4QFY
11
2QFY
12
4QFY
12
2QFY
13
238
238
238
250
252
229
232
243
223
237
258
261
248
263
283
298
293
3.2
3.0
2.7
6.2
5.9
-3.5 -2.4
-2.7
-11
.2
3.2
11.
0
7.6
11.
0
11.1
9.8
14.0 18
.3
2QFY
09
3QFY
09
4QFY
09
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
Avg National Retai l Prices (INR/bag) Change (%)24
5
229 247
294
203 2
48262
260
259
295
223
263274 2
99
283 30
4
245 28
3
273
340
290 31
0
275 2
98
272
328
295
303
262 29
3
North East West South Central Nationa l
Average
2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E
3,42
3
3,4
75
3,44
1
3,52
0
3,7
40
3,7
44
3,41
0
3,4
97
3,70
7
3,34
6
3,52
4 3,91
0
4,10
2
3,91
5
4,2
11
4,2
99
4,40
4
4,26
8
1QFY
09
2QFY
09
3QFY
09
4QFY
09
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13E
Rea l i zation (INR/ton)
1,1
02
908
601
921 1
,06
8
61
4 832 1
,03
6
1,0
34
78
6
44
4
965
84
3
1,2
18
1,2
98
894
910
1,0
39
1Q
FY0
9
2Q
FY0
9
3Q
FY0
9
4Q
FY0
9
1Q
FY1
0
2Q
FY1
0
3Q
FY1
0
4Q
FY1
0
1Q
FY1
1
2Q
FY1
1
3Q
FY1
1
4Q
FY1
1
1Q
FY1
2
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2Q
FY1
3E
EBITDA (INR/ton)
C–25October 2012
September 2012 Results Preview
Sector: Cement
Trend in key operating parametersVolume (m tons) Realization (INR/ton) EBITDA (INR/ton)
2QFY13E YoY (%) QoQ (%) 2QFY13E YoY (INR) QoQ (INR) 2QFY13E YoY (INR) QoQ (INR)
ACC 6.3 10.0 2.6 4,196 418 -200 606 219 -299
Ambuja Cement 5.3 10.0 -9.1 4,220 466 -160 876 229 -261
UltraTech 10.1 9.2 -3.5 4,598 419 -151 840 218 -258
Birla Corp 1.4 -0.9 -3.4 3,854 206 -107 473 176 -275
India Cement 2.6 5.1 4.1 4,386 163 60 1,033 -5 105
Shree Cement 2.7 9.6 -16.8 3,411 0 -200 757 -46 -336
Sector Aggregate 28.3 8.6 -4.2 4,268 353 -135 786 172 -248
Recent correction makes valuations attractive (FY12)
Relative Performance - 3m (%)
Relative Performance-1Yr (%)
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Cement
ACC 1,469 Neutral 59.0 73.3 86.4 24.9 20.0 17.0 14.6 11.0 9.6 16.2 18.5 20.0
Ambuja Cements 202 Buy 8.2 11.9 13.2 24.7 17.0 15.3 14.5 10.0 8.8 16.3 21.5 21.1
Birla Corporation 282 Buy 31.1 33.0 32.9 9.1 8.5 8.6 5.8 5.5 5.1 10.7 10.5 9.7
Grasim Industries 3,315 Buy 288.6 348.3 375.8 11.5 9.5 8.8 5.2 4.5 3.6 15.5 16.0 15.0
India Cements 95 Buy 9.6 11.1 14.8 9.9 8.5 6.4 5.9 5.2 4.2 7.3 7.3 8.9
J P Associates 82 Buy 4.8 3.6 4.6 17.1 23.1 17.9 9.4 9.6 8.5 10.4 7.6 9.8
Shree Cement 3,954 Buy 274.4 310.2 361.4 14.4 12.7 10.9 9.0 6.9 5.8 40.5 34.4 31.7
Ultratech Cement 1,968 Buy 87.5 109.5 122.6 22.5 18.0 16.1 13.4 11.3 9.7 20.4 21.2 19.9
Sector Aggregate 18.1 15.2 13.4 9.8 8.3 7.1 15.8 16.8 16.7
Revised EPS estimates (INR)FY13E FY14E
Rev Old Chg (%) Rev Old Chg (%)
ACC 66.8 70.3 -4.9 83.0 86.1 -3.6
Ambuja Cement 10.8 10.8 -0.2 12.6 12.7 -0.7
Grasim 330.2 324.6 1.7 365.2 352.6 3.6
UltraTech 103.4 103.4 -0.1 116.9 113.2 3.2
Birla Corp 24.1 34.8 -30.7 26.9 36.7 -26.7
India Cement 11.9 12.0 -0.4 15.6 15.6 0.2
Shree Cement 310.2 300.7 3.2 361.4 345.2 4.7
Trend in key financial parametersNet Sales (INR m) EBITDA Margins (%) Net Profit (INR m)
2QFY13 YoY (%) QoQ (%) 2QFY13 YoY (BP) QoQ (BP) 2QFY13 YoY (%) QoQ (%)
ACC 26,265 22.2 -2.1 14.4 420 -610 2,333 89.9 -33.7
Ambuja Cement 22,320 23.7 -12.4 20.8 350 -520 2,979 60.7 -31.2
UltraTech 46,322 18.5 -6.6 18.5 360 -490 4,770 71.0 -28.6
Birla Corp 5,396 4.7 -6.1 7.6 150 -660 180 -31.3 -66.0
India Cement 11,729 7.7 0.8 22.5 -70 290 1,083 25.6 26.6
Shree Cement 9,657 13.0 -35.1 21.7 -170 -430 99 -43.8 -94.9
Sector Aggregate 121,689 17.9 -9.3 18.2 270 -470 11,444 59.6 -35.9
Source: Company/MOSL
Ambuja
Gras im
UltraTech
Birla Corp
India CementShree
ACC
0
50
100
150
200
0% 6% 12% 18% 24% 30% 36% 42% 48% 54%
RoCE (%)
EV (
USD
/To
n)
Replacement Cost at
USD140/ton
85
100
115
130
145
Jun
-12
Jul-
12
Au
g-12
Sep
-12
Sensex IndexMOSL Cement Index
80
100
120
140
160
Sep-
11
De
c-11
Mar
-12
Jun-
12
Sep-
12
Sensex IndexMOSL Cement Index
C–26October 2012
September 2012 Results Preview
Sector: Cement
ACC
Bloomberg ACC IN
Equity Shares (m) 187.9
52 Wk Range (INR) 1,475/1,077
1,6,12 Rel Perf (%) 4/1/21
Mcap (INR b) 276.1
Mcap (USD b) 5.2
CMP: INR1,469 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
12/10A 77,173 10,137 53.9 -38.2 - - 16.2 16.3 - 157
12/11A 94,387 11,083 59.0 9.3 25.5 3.8 16.2 15.7 14.6 154
12/12E 109,564 13,781 73.3 24.3 20.6 3.6 18.5 19.9 11.0 150
12/13E 125,950 16,231 86.4 17.8 17.0 3.2 20.0 21.5 9.6 148
Quarterly Performance (Standalone) (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Cement Sales (m ton) 6.16 5.93 5.69 5.95 6.72 6.05 5.45 6.46 23.7 24.7
YoY Change (%) 10.4 12.5 17.8 6.1 9.1 2.0 -4.2 8.6 11.5 4.0
Cement Realization 3,893 4,052 3,779 4,206 4,256 4,591 4,411 4,512 3,978 4,440
YoY Change (%) 3.4 5.7 11.5 20.5 9.3 13.3 16.8 7.3 9.7 11.6
QoQ Change (%) 11.6 4.1 -6.8 11.3 1.2 7.9 -3.9 2.3
Net Sales 23,982 24,030 21,500 25,027 28,602 27,778 24,042 29,141 94,387 109,564
YoY Change (%) 14.1 18.9 31.3 27.8 19.3 15.6 11.8 16.4 22.3 16.1
Total Expenditure 18,439 18,527 19,296 21,134 22,442 21,270 19,876 23,882 77,395 87,469
EBITDA 5,542 5,503 2,204 3,893 6,161 6,508 4,167 5,259 16,992 22,095
Margins (%) 23.1 22.9 10.3 15.6 21.5 23.4 17.3 18.0 18.0 20.2
Depreciation 1,125 1,158 1,199 1,270 1,305 1,356 1,375 1,411 4,753 5,448
Interest 253 271 253 192 316 301 300 299 969 1,216
Other Income 669 771 944 982 948 1,157 1,050 1,045 3,518 4,200
PBT before EO Item 4,834 4,845 1,695 3,414 5,487 6,009 3,542 4,594 14,788 19,631
EO Income/(Expense) 0 0 617 2,280 -3,354 0 0 0 2,897 -3,354
PBT after EO Item 4,834 4,845 2,312 5,693 2,134 6,009 3,542 4,594 17,685 16,278
Tax 1,327 1,479 637 2,466 580 1,829 1,045 1,348 4,431 4,802
Rate (%) 27.5 30.5 27.5 43.3 27.2 30.4 29.5 29.3 25.1 29.5
Reported PAT 3,507 3,366 1,676 3,227 1,554 4,179 2,497 3,246 13,254 11,476
Adjusted PAT 3,507 3,366 1,229 1,935 3,859 4,179 2,497 3,246 11,083 13,781
Margins (%) 14.6 14.0 5.7 7.7 13.5 15.0 10.4 11.1 11.7 12.6
YoY Change (%) -13.4 -6.2 22.8 39.2 10.1 24.2 103.2 67.7 9.3 24.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect 2QCY12 dispatches to de-grow 4.2% YoY (~10% down QoQ) to 5.45mt, and Average realization to decline
3.9% QoQ to INR4,411/ton (+13% YoY).
Net sales should grow 11.8% YoY (down 13% QoQ) to INR24b. EBITDA margins are expected to compress 6.1pp
QoQ (up 7pp YoY) to 17.3%, on the back of lower realizations and negative operating leverage. EBITDA/ton is
estimated to improve by ~INR377/ton YoY (-INR311/ton QoQ) to INR765.
Expect EBITDA to de-grow 36% QoQ (up ~89% YoY) to INR4.2b, translating into PAT de-growth of ~40% QoQ (up
~103% YoY).
We are downgrading our EPS estimates for CY12/CY13 by 1%/2% to INR73.3/86.4 to factor in lower volumes and
marginally lower realization.
We believe ACC stock valuations at 17x CY13E EPS and 9.6x CY13E EV/EBITDA fairly reflect underlying business
fundamentals. Maintain Neutral with target price of INR1,396 (9x CY13 EV/EBITDA).
C–27October 2012
September 2012 Results Preview
Sector: Cement
Ambuja Cements
Bloomberg ACEM IN
Equity Shares (m) 1,534.4
52 Week Range (INR) 206/136
1,6,12 Rel Perf (%) 2/11/23
Mcap (INR b) 309.9
Mcap (USD b) 5.9
CMP: INR202 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
12/10A 73,902 12,434 8.1 4.3 - - 18.1 24.1 - -
12/11A 85,306 12,547 8.2 0.6 24.7 3.9 16.3 23.2 14.5 194
12/12E 101,997 18,262 11.9 45.5 17.0 3.5 21.5 31.2 10.0 189
12/13E 117,222 20,213 13.2 10.7 15.3 3.0 21.1 30.6 8.8 184
Quarterly Performance (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Sales Volume (m ton) 5.64 5.29 4.81 5.71 6.18 5.63 4.85 6.18 21.45 22.84
YoY Change (%) 6.7 -3.5 6.7 12.6 9.6 6.5 0.9 8.2 5.4 6.5
Realization (INR/ton) 3,923 4,114 3,754 4,092 4,260 4,556 4,476 4,579 3,977 4,465
YoY Change (%) 4.2 10.1 8.1 16.0 8.6 10.7 19.2 11.9 9.5 12.3
QoQ Change (%) 11.2 4.9 -8.7 9.0 4.1 6.9 -1.8 2.3
Net Sales 22,125 21,764 18,051 23,366 26,333 25,660 21,709 28,296 85,306 101,997
YoY Change (%) 11.2 6.3 15.4 30.6 19.0 17.9 20.3 21.1 15.4 19.6
EBITDA 6,170 5,853 3,115 4,285 7,445 7,223 5,512 7,301 19,315 27,481
Margins (%) 27.9 26.9 17.3 18.3 28.3 28.2 25.4 25.8 22.6 26.9
Depreciation 1,061 1,074 1,079 1,238 1,209 1,215 1,265 1,306 4,452 4,995
Interest 138 152 138 99 168 180 160 137 526 646
Other Income 621 693 857 937 1,147 908 1,000 1,195 3,050 4,250
PBT before EO Item 5,592 5,320 2,755 3,886 7,215 6,736 5,087 7,052 17,387 26,090
Extraordinary Inc/(Exp) 0 0 -206 -243 -2,791 0 0 0 -358 -2,791
PBT after EO Exp/(Inc) 5,592 5,320 2,548 3,643 4,424 6,736 5,087 7,052 17,029 23,299
Tax 1,517 1,845 834 544 1,301 2,047 1,526 2,115 4,740 6,990
Rate (%) 27.1 34.7 32.7 14.9 29.4 30.4 30.0 30.0 27.8 30.0
Reported Profit 4,075 3,475 1,715 3,099 3,122 4,689 3,561 4,937 12,289 16,309
Adj PAT 4,075 3,475 1,854 3,305 5,075 4,689 3,561 4,937 12,547 18,262
YoY Change (%) -7.8 -11.2 21.9 31.2 24.5 34.9 92.1 49.4 0.9 45.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect dispatches to grow ~0.9% YoY (down 14% QoQ) to 4.85mt, and average realization to decline 1.8% QoQ
(up ~19.2% YoY) to INR4,476/ton.
Net sales should grow 20.3% YoY (down 15% QoQ) to INR21.7b. EBITDA margin is expected to contract 280bp
QoQ (up 8.1pp YoY) to 25.4%, impacted by QoQ lower utilization and negative operating leverage. EBITDA/ton
should be down INR146/ton QoQ to INR1,136 (+INR489/ton YoY).
Expect EBITDA to de-grow 24% QoQ (up +77% YoY) to INR5.5b, translating into PAT de-growth of 24% QoQ (up
92% YoY) to INR3.6b.
We broadly maintain our EPS estimates for CY12/13 at INR11.9/13.2. We believe valuations at 15.3x CY13E and
8.8x CY13E EV/EBITDA are attractive given Ambuja's superior profitability. Maintain Buy with target price of
INR207 (9x CY13E EV/EBITDA).
C–28October 2012
September 2012 Results Preview
Sector: Cement
Birla Corporation
Bloomberg BCORP IN
Equity Shares (m) 77.0
52 Week Range (INR) 345/202
1,6,12 Rel Perf (%) 26/-10/-29
Mcap (INR b) 21.8
Mcap (USD b) 0.4
CMP: INR282 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
03/11A 21,238 3,199 41.5 -42.6 - - 15.5 15.4 - -
03/12A 22,469 2,392 31.1 -25.2 9.1 1.0 10.7 11.3 5.8 44
03/13E 24,243 2,545 33.0 6.4 8.5 0.9 10.5 12.0 5.5 45
03/14E 27,537 2,532 32.9 -0.5 8.6 0.8 9.7 11.6 5.1 44
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Cement Sales (m ton) 1.52 1.41 1.39 1.63 1.63 1.45 1.47 1.71 5.96 6.26
YoY Change (%) 2.0 2.0 -6.7 7.2 7.1 2.6 6.0 4.7 0.4 5.0
Cement Realization 3,413 3,213 3,500 3,612 4,021 3,821 3,921 4,120 3,415 3,978
YoY Change (%) -2.8 3.0 18.5 5.7 17.8 18.9 12.0 14.1 6.3 16.5
QoQ Change (%) -0.1 -5.9 8.9 3.2 11.3 -5.0 2.6 5.1
Net Sales 5,570 5,155 5,341 6,514 6,580 5,456 5,649 6,558 22,469 24,243
YoY Change (%) -3.1 6.4 11.4 9.7 18.1 5.8 5.8 0.7 5.8 7.9
Total Expenditure 4,082 4,840 4,678 5,731 5,322 4,690 4,865 5,340 19,345 20,217
EBITDA 1,487 316 664 782 1,258 766 784 1,218 3,124 4,026
Margins (%) 26.7 6.1 12.4 12.0 19.1 14.0 13.9 18.6 13.9 16.6
Depreciation 175 178 188 259 235 280 300 300 800 1,115
Interest 120 117 161 128 237 240 265 270 525 1,012
Other Income 346 275 341 575 346 300 350 544 1,662 1,540
Profit before Tax 1,538 295 656 970 1,132 546 569 1,192 3,461 3,439
Tax 420 34 219 396 284 142 148 320 1,068 894
Rate (%) 27.3 11.5 33.4 40.8 25.1 26.0 26.0 26.8 30.9 26.0
PAT 1,119 261 437 575 847 404 421 872 2,392 2,545
Margins (%) 20.1 5.1 8.2 8.8 12.9 7.4 7.5 13.3 10.6 10.5
YoY Change (%) -5.4 -62.1 -37.2 -8.9 -24.3 54.5 -3.7 51.8 -25.2 6.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect Birla Corp's revenues to grow 18% YoY (down 17% QoQ) to INR5.5b. Cement volume growth should be
muted at 2.6% YoY (down ~11% QoQ) to 1.45mt, impacted by limestone mining ban at its Rajasthan plant.
However, realization is likely to improve 19% YoY (down 5% QoQ) to INR3,821/ton.
Expect EBITDA margin to slip 5.1pp to 14% (+7.9% YoY) on the back of (1) lower realizations, (2) negative
operating leverage, and (3) cost push due to higher RM cost (as purchased limestone/clinker replaces captive
source) and higher energy cost. We estimate cement EBITDA/ton at INR528 (down INR245/ton QoQ, but up
INR305/ton YoY). As a result, EBITDA is estimated to de-grow 39% QoQ (up 143% YoY) to INR766m, translating
into PAT de-growth of 52% QoQ (up 54.5% YoY) to INR404m.
Birla Corp's Rajasthan plant (~2mt capacity) operations are impacted since August 2011 due to ban on mining
within 10km of the Chittorgarh Fort. The company lost its appeal in the High Court. The company has appealed
against the verdict in the Supreme Court, and since then the levy has been stayed. Non-resolution of this issue
would severely curtail operations at Rajasthan plant, especially as the company is expanding capacity there.
Our estimates partly factor in non-resolution of the ban in foreseeable future, resulting in higher RM Cost.
We are maintaining our EPS estimates for FY13/14 at INR33/INR32.9. The stock trades at 8.6x FY14E EPS and 5.1x
FY14 EV/EBITDA. Maintain Buy with target price of INR277 (5x FY14E EV/EBITDA).
C–29October 2012
September 2012 Results Preview
Sector: Cement
Grasim Industries
Bloomberg GRASIM IN
Equity Shares (m) 91.7
52 Wk Range (INR) 3,347/2,208
1,6,12 Rel Perf (%) 4/19/32
Mcap (INR b) 304.1
Mcap (USD b) 5.8
CMP: INR3,315 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
03/11A* 213,183 22,790 248.5 -16.7 - - 16.8 16.5 - 143
03/12A* 249,878 26,475 288.6 16.2 11.5 1.8 16.7 17.7 7.4 146
03/13E* 267,983 31,944 348.3 20.7 9.5 1.5 17.3 18.8 6.5 147
03/14E* 306,836 34,468 375.8 7.9 8.8 1.3 16.0 18.5 5.3 109
* Consolidated
BSE Sensex S&P CNX
18,763 5,703
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
VSF Volume (ton) 54,839 78,959 78,215 94,904 77,013 77,838 82,915 100,662 306,917 338,428
YoY Change (%) -18.5 17.0 -7.6 10.8 40.4 -1.4 6.0 6.1 0.6 10.3
VSF Realization (INR/ton) 152,409 124,689 128,499 121,293 128,024 127,024 127,024 127,164 129,563 127,293
YoY Change (%) 29.3 7.1 4.4 -16.3 -16.0 1.9 -1.1 4.8 2.3 -1.8
QoQ Change (%) 5.1 -18.2 3.1 -5.6 5.5 -0.8 0.0 0.1
Net Sales 10,237 12,035 12,429 13,885 12,390 11,736 12,557 14,384 48,724 51,067
YoY Change (%) 8.3 29.0 2.4 -2.6 21.0 -2.5 1.0 3.6 7.3 4.8
Total Expenditure 6,707 9,130 9,575 11,717 9,438 8,879 9,496 10,895 37,114 38,709
EBITDA 3,529 2,905 2,854 2,168 2,953 2,856 3,061 3,488 11,611 12,358
Margins (%) 34.5 24.1 23.0 15.6 23.8 24.3 24.4 24.3 23.8 24.2
Depreciation 351 356 366 369 360 400 475 557 1,442 1,792
Interest 106 107 72 74 61 60 80 83 358 284
Other Income 1,010 2,157 1,093 1,503 844 2,100 1,000 1,556 5,607 5,500
PBT after EO Items 4,082 4,599 3,509 3,228 3,376 4,496 3,506 4,404 15,418 15,782
Tax 941 1,150 765 792 647 899 701 909 3,648 3,156
Rate (%) 23.0 25.0 21.8 24.5 19.2 20.0 20.0 20.6 23.7 20.0
Reported PAT 3,141 3,448 2,745 2,436 2,729 3,597 2,805 3,495 11,770 12,626
Adj. PAT 3,141 3,448 2,745 2,436 2,729 3,597 2,805 3,495 11,770 12,626
Margins (%) 30.7 28.7 22.1 17.5 22.0 30.7 22.3 24.3 24.2 24.7
YoY Change (%) 40.3 23.3 -2.9 -38.4 -13.1 4.3 2.2 43.5 -0.4 7.3
E: MOSL Estimates; '* Not comparable YoY due to demerger of cement business
Expect Grasim's 2QFY13 VSF volumes to be stable at 73,375 tons (+1.4% YoY, +1% QoQ) given steady demand and
no production impact due to water shortage. VSF realization should also be stable at INR127/kg (+INR2.5/kg YoY,
-INR1/kg QoQ) on back of bottomed-out utilization level. We assume FY13/14 realization of INR127/129 per kg.
Grasim's 2QFY13 standalone revenues are estimated to de-grow 2.5% YoY (-5% QoQ) to INR11.7b, impacted by
lower volume. EBITDA margin is likely to remain stable YoY at 24.3% (up 50bp QoQ).
EBITDA is estimated to de-grow 2% YoY (-3% QoQ) to INR2.9b, translating into PAT of INR3.6b, up 4% YoY and 32%
QoQ.
We are maintaining our consolidated EPS for FY13/14 at INR348.3/375.8. The stock trades at attractive valuations
of 8.8x FY14E consolidated EPS, 5.3x FY14E EV/EBITDA and 1.3x P/BV. Implied valuation of the cement business
is USD109/ton. Maintain Buy with target price of INR3,357 (SOTP based).
C–30October 2012
September 2012 Results Preview
Sector: Cement
India Cements
Bloomberg ICEM IN
Equity Shares (m) 307.2
52 Week Range (INR) 119/65
1,6,12 Rel Perf (%) 5/-29/23
Mcap (INR b) 29.2
Mcap (USD b) 0.6
CMP: INR95 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End * (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
03/11A 35,007 664 2.3 -79.6 - - 1.6 3.6 - -
03/12A 42,034 2,958 9.6 314.9 9.9 0.7 7.3 10.3 5.8 67
03/13E 46,069 3,035 11.1 16.2 8.5 0.6 7.3 11.2 4.8 64
03/14E 52,563 3,918 14.8 32.6 6.4 0.6 8.9 12.5 3.9 58
* Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales Dispatches (m ton) 2.31 2.43 2.19 2.60 2.38 2.50 2.25 2.70 9.52 9.83
YoY Change (%) -13.0 -10.6 7.1 2.0 2.9 3.0 3.0 3.9 -4.4 3.2
Realization (INR/ton) 4,148 4,223 4,242 4,245 4,464 4,374 4,362 4,581 4,216 4,450
YoY Change (%) 29.2 45.2 15.7 11.4 7.6 3.6 2.8 7.9 24.9 5.6
QoQ Change (%) 8.8 1.8 0.5 0.1 5.1 -2.0 -0.3 5.0
Net Sales 10,568 10,891 9,415 11,160 12,014 11,466 10,046 12,543 42,034 46,069
YoY Change (%) 20.0 29.5 20.6 11.8 13.7 5.3 6.7 12.4 20.1 9.6
Total Expenditure 8,151 8,371 7,470 9,008 9,237 8,947 8,194 9,698 33,001 36,075
EBITDA 2,417 2,520 1,946 2,152 2,777 2,519 1,852 2,845 9,034 9,994
Margins (%) 22.9 23.1 20.7 19.3 23.1 22.0 18.4 22.7 21.5 21.7
Depreciation 619 626 622 646 692 700 725 753 2,513 2,870
Interest 619 895 750 640 949 700 700 725 2,867 3,075
Other Income 49 29 46 70 37 50 60 78 193 225
PBT before EO expense 1,229 1,027 620 935 1,173 1,169 487 1,445 3,846 4,275
Extra-Ord expense 0 0 0 0 200 0 0 0 0 200
PBT 1,229 1,027 620 935 973 1,169 487 1,445 3,846 4,075
Tax 208 330 57 286 353 316 131 382 880 1,182
Rate (%) 16.9 32.1 9.2 30.6 36.2 27.0 27.0 26.4 22.9 29.0
Reported PAT 1,021 697 563 649 621 854 356 1,063 2,966 2,893
Adj PAT 1,021 697 563 649 748 854 356 1,063 2,966 3,035
YoY Change (%) 749.5 -257.4 137.0 -9.5 -26.7 22.5 -36.9 63.8 347.1 2.3
Margins (%) 9.7 6.4 6.0 5.8 6.2 7.4 3.5 8.5 7.1 6.6
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect India Cement's 2QFY13 volumes to grow 3% YoY (+5% QoQ) to 2.5mt, and realization at INR4,374/ton (up
3.6% YoY, down 2% QoQ) on stable pricing environment due to production discipline.
2QFY13 revenues are estimated to grow 5.3% YoY (-5% QoQ) to INR11.5b, including INR400m revenues from IPL
(v/s INR515m in 2QFY12).
Expect EBITDA of INR2.5b (-9% QoQ, flat YoY) with EBITDA margin down 1.1pp QoQ/YoY to 22%, translating into
PAT growth of 22.5% YoY (+14% QoQ) to INR854m. Our estimate does not factor in any MTM forex loss.
Pure Cement's EBITDA/ton is estimated to decline INR158/ton QoQ (-INR30/ton YoY) to INR1,008. Our estimates
factor in EBITDA of INR100m from IPL in 2QFY13 and INR310m in FY13.
While our estimates do not yet factor in any benefit of softening in imported coal prices, India Cement would
be one of the biggest beneficiaries with ~15% higher EPS for 10% lower imported coal prices.
We are downgrading our EPS estimates for FY13/14 by 2%/4.5% to INR11.1/14.8, led by higher freight cost post
increase in diesel prices. Valuations at 6.4x FY14E EPS, 3.9x FY14E EBITDA and USD58/ton are attractive. Maintain
Buy with target price of INR142 (5x FY14E EV/EBITDA).
C–31October 2012
September 2012 Results Preview
Sector: Cement
Jaiprakash Associates
Bloomberg JPA IN
Equity Shares (m) 2,126.5
52 Week Range (INR) 89/50
1,6,12 Rel Perf (%) 10/-3/3
Mcap (INR b) 174.8
Mcap (USD b) 3.3
CMP: INR82 Buy
Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected])
Year Net Sales PAT EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 129,665 7,421 3.5 -17.0 - - 8.3 10.6 - -
3/12A 128,531 10,203 4.8 37.5 15.3 1.5 10.4 10.0 2.3 8.7
3/13E 142,843 8,997 4.2 -11.8 16.6 1.4 8.5 10.9 2.1 8.6
3/14E 160,665 11,577 5.4 28.7 12.9 1.3 10.4 12.5 1.8 7.6
* Not Fully Diluted; FCCB O/S of INR14b at conversion price of INR166/sh (dilution of ~5%)
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 31,833 31,324 33,054 40,621 29,636 32,233 37,860 41,871 128,531 141,997
Change (%)* 0.3 4.6 14.2 4.0 -0.9
EBITDA 7,728 7,482 8,160 10,194 7,713 7,266 8,992 10,423 34,397 34,505
Change (%)* 20.4 9.9 3.1 31.7 19.1
As of % Sales 24.3 23.9 24.7 25.1 26.0 22.5 23.8 24.9 26.8 24.3
Depreciation 1,721 1,761 2,022 1,638 1,763 1,750 1,800 1,863 6,142 7,176
Interest 4,284 4,049 4,485 5,800 4,653 4,700 4,750 4,771 17,817 18,874
Other Income 74 560 1,205 317 731 550 600 618 2,645 2,499
Extra-ordinary income -2 -3 16 49 9 0 0 0 61 0
PBT 1,796 2,228 2,873 3,123 2,037 1,366 3,042 4,407 13,143 10,953
Tax 726 942 824 285 649 424 943 1,380 2,880 3,395
Effective Tax Rate (%) 40.4 42.3 28.7 9.1 31.8 31.0 31.0 31.3 21.9 31.0
Reported PAT 1,070 1,287 2,050 2,838 1,388 943 2,099 3,027 10,264 7,558
Adj PAT 1,072 1,287 2,034 2,789 1,379 943 2,099 3,027 10,203 7,558
Change (%)* 1.3 11.4 -12.9 -3.3 37.8
E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger
BSE Sensex S&P CNX
18,763 5,703
We expect Jaiprakash Associates (JPA) to post 2QFY13 revenue of INR32.2b, EBITDA of INR7.3b and PAt of
INR943m. The numbers are not comparable YoY due to de-merger of cement capacity.
Contribution from the EPC division is expected to be moderate with revenue down 12% YoY to INR12.5b. We
expect EBIT of INR3b in 2QFY13 (v/s INR5.5b YoY) and EBIT margin of 21.5% v/s 35% YoY. 2QFY13 performance
would be healthy due to cement division where EBIT would be higher YoY, given the rise in cement capacity,
coupled with improved realizations.
In FY12, cement capacity stood at 33m tons (up from 26m tons as at end-FY11). The management expects
installed capacity to reach 36m tons by March 2013, which would drive contribution from the division in FY13. Of
this, Gujarat and AP capacity (~10m tons) has been hived off to wholly-owned subsidiary, Jaypee Cements Ltd.
JPA is looking to divest stake in Jaypee Cement to raise funds for de-leveraging.
We expect JPA to post standalone PAT of INR7.6b in FY13E (down 26% YoY) and INR9.8b in FY14E (up 30% YoY).
The stock trades at a reported P/E of 12.9x FY14E. Maintain Buy.
C–32October 2012
September 2012 Results Preview
Sector: Cement
Shree Cement
Bloomberg SRCM IN
Equity Shares (m) 34.8
52 Wk Range (INR) 3,989/1,725
1,6,12 Rel Perf (%) 7/20/107
Mcap (INR b) 137.7
Mcap (USD b) 2.6
CMP: INR3,954 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End (INR m) (INR M) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
03/11A 34,535 6,972 200.1 -31.4 - - 36.5 8.4 - -
06/12A 48,792 9,558 274.4 37.1 14.4 5.0 40.5 19.6 9.0 157
06/13E 60,273 10,847 310.2 13.0 12.7 3.9 34.4 27.4 6.9 131
06/14E 68,347 12,760 361.4 16.5 10.9 3.1 31.7 25.1 5.8 113
Quarterly Performance (INR Million)
Y/E June FY12 FY13E FY12 FY13E
1Q 2Q 3Q 4Q 5Q * 1Q 2Q 3Q 4Q (15 Mon)
Sales Dispat. (m ton) 2.69 2.49 2.85 3.47 3.37 2.85 3.09 3.76 3.67 14.87 13.37
YoY Change (%) 8.3 9.0 8.8 20.6 25.1 14.7 8.6 8.1 8.8 15.9 -10.1
Realization (INR/Ton) 3,405 2,955 3,798 3,560 3,805 3,685 3,785 3,985 3,988 3,576 3,876
YoY Change (%) 4.0 -1.8 33.2 7.9 11.8 24.7 -0.3 11.9 4.8 14.8 8.4
QoQ Change (%) 3.2 -13.2 28.5 -6.2 6.9 -3.2 2.7 5.3 0.1
Net Sales 10,187 7,413 12,586 14,241 14,553 10,927 14,261 17,729 17,356 58,980 60,273
YoY Change (%) 7.9 3.3 61.4 33.1 42.9 47.4 13.3 24.5 19.3 36.6 2.2
EBITDA 2,591 1,524 3,320 4,210 4,812 3,216 3,829 5,328 4,981 16,456 17,353
Margins (%) 25.4 20.6 26.4 29.6 33.1 29.4 26.9 30.1 28.7 27.9 28.8
Depreciation 1,598 1,619 2,351 2,346 818 850 950 1,700 1,781 8,731 5,281
Interest 476 468 519 411 480 450 455 470 476 2,354 1,851
Other Income 158 204 172 774 322 250 175 700 325 1,630 1,450
PBT before EO Exp 676 -360 622 2,227 3,836 2,166 2,599 3,858 3,048 7,001 11,671
Extra-Ord Expense 83 -468 0 508 1 0 0 0 0 123 0
PBT 593 108 622 1,719 3,835 2,166 2,599 3,858 3,048 6,878 11,671
Tax 43 -277 30 576 320 0 552 820 1,079 693 2,451
Rate (%) 7.3 -256.9 4.9 33.5 8.3 0.0 21.3 21.3 35.4 10.1 21.0
Reported PAT 550 385 592 1,143 3,515 2,166 2,047 3,038 1,969 6,185 9,220
Adj PAT 627 -1,286 592 1,481 3,516 2,166 2,047 3,038 1,969 6,296 9,220
YoY Change (%) -73.7 -360.7 304.8 NA 460.9 -268.4 245.7 105.2 -44.0 66.9 46.4
E:MOSL Estimates; ^ Y/E March for FY11; * volumes are estimated
BSE Sensex S&P CNX
18,763 5,703
Expect Shree's 2QFY13 cement volumes to grow 14.7% YoY (-15% QoQ) to 2.85mt (including clinker) and realization
to improve 2.7% QoQ (flat YoY) to INR3,785/ton.
Merchant power sale is estimated at 100m units (v/s 14m units YoY and 390m QoQ) @ INR4.25/unit (v/s INR4.44
in 5QFY12 and INR4.98 in 2QFY12).
Expect 2QFY13 sales to grow 47.4% YoY (down 25% QoQ) to INR10.9b, driven by strong recovery in both cement
and merchant power business. Merchant power revenues are estimated at INR425m (v/s INR1.7b in 5QFY12 and
INR69m in 2QFY12).
Cost push in form of fuel and freight will dilute benefit of better cement realizations and higher merchant
power volumes, resulting in EBITDA margin compression of 3.7pp QoQ (up 8.8pp YoY) to 29.4%. Cement EBITDA/
ton is expected to decline by ~INR210/ton QoQ (up ~INR504/ton YoY) to INR1,114/ton. Expect lower depreciation
to boost adjusted PAT to INR2.2b (v/s loss of INR1.3b in 2QFY12).
We are upgrading our adjusted EPS estimates for FY13/14 by 3%/5% to INR310/361.4 to account for (1) lower pet
coke/imported coal prices, and (2) upgrade in volume on the back of new capacity.
The stock trades at 10.9x FY14E EPS, 5.8x FY14E EBITDA and USD113/ton. Maintain Buy with target price of
INR4,230 (SOTP based).
C–33October 2012
September 2012 Results Preview
Sector: Cement
UltraTech Cement
Bloomberg UTCEM IN
Equity Shares (m) 274.0
52 Wk Range (INR) 2,005/1,057
1,6,12 Rel Perf (%) 7/23/57
Mcap (INR b) 539.2
Mcap (USD b) 10.2
CMP: INR1,968 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/Ton
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) EBITDA (USD)
03/11A* 132,062 14,042 51.2 -41.7 - - 18.4 21.1 - -
03/12A 181,664 23,982 87.5 70.8 22.5 4.2 20.4 23.7 13.4 207
03/13E 210,570 30,013 109.5 25.2 18.0 3.5 21.2 24.7 11.3 209
03/14E 244,669 33,594 122.6 11.9 16.1 2.9 19.9 24.2 9.7 172
* Merger of Grasim's cement business assumed w.e.f. 1 July 2010
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales (m ton) 9.86 9.22 10.11 11.54 10.33 9.10 10.80 12.49 40.7 42.7
YoY Change (%) -3.9 0.3 3.2 6.9 4.8 -1.3 6.8 8.2 1.7 4.9
Grey Cement Realn.(INR/ton) * 3,749 3,507 3,759 3,894 4,124 3,984 4,084 4,284 3,738 4,131
YoY Change (%) 11.8 19.3 19.0 10.3 10.0 13.6 8.7 10.0 14.7 10.5
QoQ Change (%) 6.2 -6.5 7.2 3.6 5.9 -3.4 2.5 4.9
Net Sales 43,515 39,101 45,681 53,366 50,748 44,095 52,867 62,860 181,664 210,570
YoY Change (%) 9.1 21.6 23.0 18.9 16.6 12.8 15.7 17.8 37.6 15.9
EBITDA 11,882 5,837 9,647 12,641 12,918 9,358 11,513 15,467 40,007 49,256
Margins (%) 27.3 14.9 21.1 23.7 25.5 21.2 21.8 24.6 22.0 23.4
Depreciation 2,230 2,228 2,236 2,332 2,281 2,350 2,400 2,492 9,026 9,523
Interest 712 660 281 586 498 500 565 571 2,239 2,135
Other Income 641 1,002 876 2,000 849 1,100 900 2,051 4,520 4,900
PBT before EO expense 9,583 3,952 8,005 11,723 10,987 7,608 9,448 14,455 33,262 42,498
PBT after EO Expense 9,583 3,952 8,672 11,723 10,987 7,608 9,448 14,455 33,929 42,498
Tax 2,752 1,162 2,503 3,050 3,203 2,206 2,740 4,175 9,467 12,324
Rate (%) 28.7 29.4 28.9 26.0 29.2 29.0 29.0 28.9 27.9 29.0
Reported PAT 6,831 2,790 6,169 8,673 7,784 5,402 6,708 10,280 24,462 30,174
Adj PAT 6,831 2,790 5,695 8,673 7,784 5,402 6,708 10,280 23,982 30,174
YoY Change (%) 22.5 141.0 78.5 19.3 14.0 93.6 17.8 18.5 70.8 25.8
E: MOSL Estimates; * Grey cement realization is our estimate
BSE Sensex S&P CNX
18,763 5,703
Expect UltraTech's 2QFY13 cement volumes to de-grow 1.3% YoY (down 12% QoQ) to 9.1mt, and realization to
improve 13.6% YoY (down 3.4% YoY) to INR3,984/ton. Consequently net revenue is expected to grow 12.8% YoY
(down 13% QoQ) to INR44.1b.
White cement revenue should grow 5% YoY and RMC business volumes 9% YoY.
Despite cost push in energy and freight, higher realization should drive up EBITDA margin 6.3pp YoY at 21.2%
(down 4.3pp QoQ). EBITDA/ton works out to INR1,051, up ~INR389 YoY (down +INR222 QoQ).
Expect EBITDA to grow 60% YoY (down ~28% QoQ) to INR9.4b, translating into PAT growth to ~94% YoY (-31%
QoQ) to INR5.4b.
We maintaining our EPS estimate for FY13/14 at INR109.5/122.6. The UltraTech stock trades at 16.1x FY14E EPS,
9.7x FY14E EBITDA and USD172/ton. Maintain Buy with target price of INR1,832 (9x FY14E EV/EBITDA).
C–34October 2012
September 2012 Results Preview
Sector: Consumer
ConsumerCompany Name
Asian Paints
Britannia Industries
Colgate Palmolive
Dabur India
GSK Consumer
Godrej Consumer Products
Hindustan Unilever
ITC
Marico
Nestle India
Pidilite Industries
United Spirits
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Asian Paints 3,937 Neutral 25,500 13.3 0.4 3,825 18.5 -12.6 2,428 16.3 -15.8
Britannia 476 Se l l 14,500 12.0 18.7 827 7.1 27.1 548 12.3 26.2
Colgate 1,206 Se l l 7,700 17.2 4.6 1,670 18.2 2.8 1,253 16.5 6.7
Dabur 128 Neutral 14,700 16.5 0.5 2,852 20.5 38.4 2,122 22.1 37.5
Godrej Consumer 668 Neutral 16,250 37.0 17.0 2,860 36.9 43.8 1,736 35.9 33.0
GSK Consumer 2,994 Neutral 8,100 12.5 11.0 1,377 16.7 24.4 1,153 11.9 8.2
Hind. Unilever 545 Neutral 64,500 15.0 1.1 9,869 19.4 2.1 7,784 19.3 -8.9
ITC 272 Buy 69,700 14.5 3.8 25,650 15.6 8.3 17,680 16.8 10.4
Marico 199 Buy 11,500 18.0 -9.2 1,564 34.1 -15.4 1,074 37.2 -13.3
Nestle 4,374 Neutral 22,750 15.9 14.5 4,960 20.9 15.5 2,954 10.0 21.6
Pidilite Inds. 206 Buy 8,450 19.0 -7.4 1,622 24.6 -14.9 1,108 28.2 -16.9
United Spirits 1,218 Neutral 19,700 10.0 -4.2 2,916 13.9 -13.0 828 -2.3 -25.1
Sector Aggregate 283,350 15.6 3.4 59,990 18.5 6.1 40,669 17.7 4.1
Expect another steady quarter - 16% sales growth, 18% PAT growth: For 2QFY13, we
expect our coverage universe to post ~16% revenue growth (16% in 1QFY13) and
~18% PAT growth (~22% in 1QFY13). EBITDA is likely to grow 18.5% on sustained
revenue growth and softening input costs. We expect ITC to post 16% sales growth
(1% cigarette volume growth) and ~17% PAT growth; Hindustan Unilever's sales are
likely to grow 15% (volume growth of 8%) and PAT is likely to grow 19%, led by
healthy growth in Soaps & Detergents and Personal Care products.
No concerns on broadbased demand outlook; no down-trading witnessed: Except
for a few discretionary categories, consumer demand in Processed Foods has been
healthy. Late revival of the monsoon provides respite to future rural consumer
demand. Despite the past few quarters of price hikes, volume growth across product
categories is likely to remain healthy. We expect moderation in demand in few
discretionary categories. All companies under our universe, barring Nestle, are likely
to report healthy volume growth in HPC categories.
Agri-based input costs and crude soften; INR depreciation negates impact: Prices of
edible oils like groundnut oil, safflower oil and sunflower oil, and other agri
commodities like copra, wheat, barley, sugar and palm oil are down on a YoY basis.
Prices of crude and crude-linked commodities are also on a downward trend.
However, steep INR depreciation has negated the impact in many commodities,
prices of which are linked globally. Britannia, GlaxoSmithKline, Hindustan Unilever,
Nestle and Marico are likely to report EBITDA margin expansion while Asian Paints
and Colgate are likely to report flat margins.
New launches continue, albeit at a slower pace; we sense better pricing
environment: Despite the relatively sober macroeconomic environment, new launch
activity remained healthy during the quarter. However, the pace of new launches
has moderated. Our discussions with industry players as well as our channel checks
do not indicate any let down in competitive intensity. Consequently, sales promotion
Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected])
C–35October 2012
September 2012 Results Preview
Sector: Consumer
Slight moderation in volume growth visible
Quarter Ending Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12E
Asian Paints 0.0 27.0 16.0 15.0 15.0 12.0 18.0 -2.0 5.0
Colgate (Toothpaste) 12.0 13.0 13.0 14.0 15.0 15.0 14.0 13.0 14.0
Dabur 13.5 10.0 9.3 8.6 10.0 10.8 12.4 12.0 9.0
Godrej Consumer
Soaps -10.0 3.0 9.0 9.0 19.0 19.0 17.0 22.0 12.0
Hair Color 12.0 2.0 5.0 10.0 8.0 9.0 9.0 5.0 5.0
GSK Consumer 18.0 13.0 5.5 14.0 8.0 12.0 7.0 7.4 7.0
Hindustan Unilever 14.0 13.0 14.0 8.3 9.8 9.1 10.0 9.0 9.0
ITC (cigarette) -0.5 2.0 -2.0 8.0 7.5 5.0 5.5 1.5 1.0
Marico
Parachute 10.0 5.0 5.0 10.0 10.0 13.0 11.1 18.0 9.0
Hair Oil 18.0 31.0 21.0 32.0 26.0 20.0 17.5 12.0 14.0
Saffola 14.0 13.0 14.0 15.0 11.0 15.0 3.3 25.0 15.0
United Spirits 16.0 14.0 12.0 15.4 8.0 0.7 5.1 1.9 6.0
Source: Company, MOSL
Softening in input costs augurs well for sector gross margins
Input Price Trend Unit Current 12m Change from Impact Companies
(YoY) Price (INR) chg. % peak/bottom
LAB Sideways INR/Kg 117 7 Peak Negative HUL
Soda Ash Up INR/50Kg 1,140 18 Peak Neutral HUL
Palm Fatty Acid Down US$/MT 670 -17 -62 Positive HUL, Godrej Consumer
Palm Oil Down MYR/MT 2,169 -26 -64 Positive Britannia, Nestle, HUL, ITC
HDPE Sideways INR/Kg 93 19 Peak Negative All Companies
Sugar Sideways INR/Qtl 3,795 28 28 Positive Britannia, Nestle, GSK Consumer
Wheat Up INR/Qtl 1,460 26 Peak Negative Nestle, ITC and Britannia
Milk Up Index 206 48 Peak Negative Nestle, GSK Consumer
TiO2 Sideways INR/Kg 250 0 -16 Positive Asian Paints
Copra Down INR/Qtl 4,025 -29 7 Positive Marico
Source:Companies, MOSL
Relative Performance-3m (%)
Relative Performance-1Yr (%)
schemes continue unabated, especially in modern trade outlets. Pricing environment
in the HPC bucket has improved, given P&G's focus on improving profitability. Price-
based competition from P&G, especially in Hair Care, has softened.
Peak sector valuations drive our preference for niche plays: Consumer demand in the
staples and HPC categories continues to be healthy, higher base and tough macro
environment notwithstanding. Volume growth should remain healthy, barring few
exceptions. Given the absolute as well as relative peak sector valuations, we see
limited absolute upside in most of our coverage universe. We continue to prefer
niche plays with strong pricing power and greater visibility on volume growth and
profitability. ITC, Marico, GlaxoSmithKline Consumer and Pidilite are our top picks in
the sector.
96
100
104
108
112
Jun-
12
Jul-
12
Aug
-12
Sep-
12
Sensex Index
MOSL Consumer Index
85
100
115
130
145
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Sensex Index
MOSL Consumer Index
New launches during 2QFY13
Company Brand Category
Britannia Daily Fresh Flavoured yoghurt-mango, vanilla, strawberry
Parag Milk Foods Go Milk 100% natural & zero preservative UHT milk
CavinKare Cavin's Pure+ Beverages (UHT treated milk)
D S Group Yomil Milk-based powdered beverage
Perfetti Van Melle Alpenliebe Juzt Jelly Candy
HUL TRESemme/Comfort One Rinse Hair Care/Laundry Care
Marico Saffola Muesli Breakfast cereal market
Nestle India Munch Rollz, Kit Kat Chocolate/Chocolate
C–36October 2012
September 2012 Results Preview
Sector: Consumer
PFAD prices (INR/ton)
45,781
46,446
30,216
10,000
25,000
40,000
55,000
70,000
Oct
-09
Dec
-09
Apr
-10
Jul-
10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
LAB Prices
117
114
109
112
91
82
898590
71
76
116
50
65
80
95
110
125
140
Sep-
08
Dec
-08
Ma
r-0
9
Jun-
09
Sep-
09
Dec
-09
Ma
r-1
0
Jun-
10
Sep-
10
Dec
-10
Ma
r-1
1
Jun-
11
Sep-
11
Dec
-11
Ma
r-1
2
Jun-
12
Sep-
12
INR
/Kg
Copra Prices
6,125
6,700
6,250
5,400
5,525
4,3503,900
4,175
2,700
3,850
5,000
6,150
7,300
Jan
-10
Apr
-10
Jul-
10
Oct
-10
Jan
-11
Apr
-11
Jul-
11
Oct
-11
Jan
-12
Apr
-12
Jul-
12
INR
/Qtl
TiO2 Dupont price Delhi278
220152
250
100
140
180
220
260
300
Sep
-09
Dec
-09
Ma
r-10
Jun
-10
Sep
-10
Dec
-10
Ma
r-11
Jun
-11
Sep
-11
Dec
-11
Ma
r-12
Jun
-12
Sep
-12
Input costs: Mixed trends
Palm Fatty Acid: Range bound (INR/ton) LAB Prices: continue to stay firm (INR/kg)
Titanium Dioxide: at an all time high Copra prices; trending down after steep rise (INR/Qtl)
Source: Companies, MOSL
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Consumer
Asian Paints 3,937 Neutral 103.1 117.8 137.3 38.2 33.4 28.7 24.4 21.0 17.4 36.0 34.0 33.2
Britannia 476 Se l l 15.6 18.4 23.7 30.4 25.9 20.1 21.9 16.8 12.1 34.9 35.1 37.9
Colgate 1,206 Se l l 33.4 38.6 43.8 36.1 31.2 27.6 26.7 22.6 19.3 107.7 111.3 103.5
Dabur 128 Neutral 3.7 4.4 5.4 34.6 29.0 23.6 26.4 21.4 17.5 37.1 36.0 36.2
Godrej Consumer 668 Neutral 16.3 21.6 26.3 41.0 30.9 25.4 29.0 21.9 17.9 25.2 23.1 24.3
GSK Consumer 2,994 Neutral 84.5 101.7 113.5 35.4 29.4 26.4 22.2 19.0 16.6 31.0 31.4 29.8
Hind. Unilever 545 Neutral 11.9 15.5 18.0 45.7 35.1 30.2 34.6 27.2 23.3 74.6 72.1 63.4
ITC 272 Buy 8.0 9.4 11.0 34.1 29.0 24.7 22.9 19.1 16.0 32.7 32.5 32.4
Marico 199 Buy 5.2 6.8 8.5 38.4 29.4 23.6 27.7 20.5 16.3 28.0 21.6 21.8
Nestle 4,374 Neutral 105.7 117.1 138.5 41.4 37.4 31.6 27.6 22.7 18.7 95.7 73.6 63.5
Pidilite Inds. 206 Buy 7.0 8.4 10.1 29.5 24.5 20.4 20.4 15.4 12.5 26.3 24.6 24.8
United Spirits 1,218 Neutral 19.5 19.3 35.1 62.4 63.2 34.7 18.6 16.5 14.8 4.9 4.7 7.9
Sector Aggregate 38.1 31.6 26.6 25.5 21.0 17.6 34.9 34.2 34.0
C–37October 2012
September 2012 Results Preview
Sector: Consumer
Asian Paints
Bloomberg APNT IN
Equity Shares (m) 95.9
52-Week Range (INR) 4,170/2,551
1,6,12 Rel. Perf. (%) -1/17/12
M.Cap. (INR b) 377.6
M.Cap. (USD b) 7.2
CMP: INR3,937 Neutral
Year Net Sales Adj.PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 77,223 8,432 87.9 1.0 - - 38.5 50.7 - -
3/12A 96,322 9,887 103.1 17.3 38.2 13.7 36.0 47.8 3.8 24.4
3/13E 110,400 11,637 121.3 17.7 32.4 11.2 34.7 46.6 3.4 20.4
3/14E 129,785 13,718 143.0 17.9 27.5 9.3 33.8 45.6 2.8 16.8
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Volume Growth %* 15.0 15.0 12.0 18.0 -2.0 5.0 13.0 11.0 15.0 8.0
Net Sales 22,571 22,508 25,605 25,387 25,393 25,500 30,100 29,407 96,322 110,400
Change (%) 23.3 24.3 22.0 29.5 12.5 13.3 17.6 15.8 24.7 14.6
Raw Material/PM 13,537 13,507 15,514 15,213 14,838 15,045 17,910 17,431 57,770 65,224
Gross Profit 9,035 9,001 10,092 10,174 10,554 10,455 12,191 11,977 38,552 45,176
Gross Margin (%) 40.0 40.0 39.4 40.1 41.6 41.0 40.5 40.7 40.0 40.9
Operating Expenses 5,149 5,772 6,118 6,420 6,176 6,630 7,104 7,139 23,465 27,049
% of Sales 22.8 25.6 23.9 25.3 24.3 26.0 23.6 24.3 24.4 24.5
EBITDA 3,886 3,229 3,974 3,754 4,379 3,825 5,087 4,837 15,088 18,128
Margin (%) 17.2 14.3 15.5 14.8 17.2 15.0 16.9 16.4 15.7 16.4
Change (%) 11.9 -2.6 15.2 31.8 12.7 18.5 28.0 28.9 211.9 20.1
Interest 65 88 90 166 109 130 130 135 410 504
Depreciation 291 300 307 314 334 365 375 464 1,211 1,538
Other Income 338 292 225 470 326 300 300 282 1,074 1,209
PBT 3,868 3,133 3,802 3,744 4,262 3,630 4,882 4,521 14,541 17,295
Tax 1,155 955 1,138 1,097 1,273 1,107 1,489 1,406 4,335 5,275
Effective Tax Rate (%) 29.9 30.5 29.9 29.3 29.9 30.5 30.5 31.1 29.8 30.5
PAT before Minority 2,713 2,179 2,664 2,647 2,989 2,523 3,393 3,115 10,206 12,020
Minority Interest 79 91 96 52 106 95 95 87 319 382
Adjusted PAT 2,634 2,087 2,569 2,595 2,884 2,428 3,298 3,028 9,887 11,637
Change (%) 18.5 -2.8 16.6 39.5 9.5 16.3 28.4 16.7 17.3 17.7
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Asian Paints (APNT) to report net sales of INR25.5b, a growth of 13.3%. Domestic decorative paints
demand is likely to remain subdued but better than 1QFY13. We expect 4-5% volume growth.
In the international business, South Asia is likely to do well, but the Middle East business still remains under
pressure.
We expect gross margin to expand 100bp to 41% on stable INR and lower titanium dioxide prices. We estimate
EBITDA margin at 15% and adjusted PAT at INR2.4b, up 16.3%.
Average titanium dioxide (20% of RM) prices softened 3-4% in 2QFY13. APNT's RM index increased by 6% during
the quarter.
APNT's current valuations adequately capture the positives, viz. strong long-term growth visibility, dominant
market positioning, and thought leadership in the Paints industry. However, the current macroeconomic
environment presents near-term challenges for decorative paints demand. The stock trades at 32.4x FY13E EPS
and 27.5x FY14E EPS. Neutral.
What to look for
Volume growth in domestic market and the trend in gross and EBITDA margins.
C–38October 2012
September 2012 Results Preview
Sector: Consumer
Bloomberg BRIT IN
Equity Shares (m) 119.5
52-Week Range (INR) 600/434
1,6,12 Rel. Perf. (%) -9/-25/-9
M.Cap. (INR b) 56.9
M.Cap. (USD b) 1.1
CMP: INR476 Sell
Britannia Industries
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (x) (%) (%) Sales EBITDA
03/11A 41,983 1,453 12.2 -13.2 - - 32.2 31.2 - -
03/12A 49,470 1,867 15.6 28.5 30.4 10.6 34.9 36.1 1.1 21.9
03/13E 56,500 2,198 18.4 17.7 25.9 9.1 35.1 59.3 1.0 16.8
03/14E 66,094 2,828 23.7 28.7 20.1 7.6 37.9 53.8 0.8 12.1
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 11,030 12,941 12,474 13,096 12,216 14,500 14,150 15,634 49,541 56,500
YoY Change (%) 21.0 18.2 15.4 16.8 10.8 12.0 13.4 19.4 18.0 14.0
COGS 7,257 8,408 7,910 8,223 7,575 9,396 8,971 10,144 31,798 36,085
Gross Profit 3,773 4,533 4,565 4,873 4,642 5,104 5,179 5,491 17,743 20,415
Margins (%) 34.2 35.0 36.6 37.2 38.0 35.2 36.6 35.1 35.8 36.1
Other Exp 3,300 3,761 3,749 4,192 3,991 4,278 4,316 4,603 15,003 17,188
% of Sales 29.9 29.1 30.1 32.0 32.7 29.5 30.5 29.4 30.3 30.4
Total Exp 7,073 12,170 11,658 12,415 11,566 13,674 13,287 14,747 46,801 53,273
EBITDA 473 772 816 680 651 827 863 887 2,740 3,227
Margins (%) 4.3 6.0 6.5 5.2 5.3 5.7 6.1 5.7 5.5 5.7
YoY Growth (%) 15.6 45.9 46.3 8.0 37.6 7.1 5.8 30.4 32.8 17.8
Depreciation 111 116 122 125 130 135 140 142 473 547
Interest 93 97 95 95 95 90 75 63 381 323
Other Income 304 110 148 226 179 160 160 197 788 696
PBT 573 670 747 685 605 762 808 879 2,675 3,053
Tax 155 182 206 155 170 213 226 245 698 855
Rate (%) 27.0 27.1 27.6 22.6 28.1 28.0 28.0 27.9 26.1 28.0
Adjusted PAT 418 488 541 530 435 548 582 634 1,977 2,198
YoY Change (%) 27.2 48.8 42.8 22.6 4.0 12.3 7.6 19.5 36.1 11.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Britannia Industries (BRIT) to report sales of INR14.5b, a growth of 12%. Volume growth is likely to
remain in single digits, as the discretionary processed foods category is undergoing a slowdown.
We estimate 100bp expansion in gross margin to 35.2% and 30bp contraction in EBITDA margin due to firm input
costs.
We estimate 12.3% PAT growth, with tax rate at ~28%, up 90bp.
Among input costs, wheat prices are up ~16%, sugar prices are 18% higher. INR depreciation has negated the
effect of declining palm oil prices to a large extent.
We expect competitive intensity to remain elevated, as players like Parle, ITC and Cadbury try to increase share
in the high margin premium creams and cookies segment. The increased competition will keep growth and
margin expansion under check.
Premiumization across product portfolios and launches in non Bakery segments (Milk, Snacks and Breakfast
Cereals) is likely to continue, as it offers attractive potential for growth.
The stock trades at 25.9x FY13E EPS and 20.1x FY14E EPS. Sell.
What to look for
Gross and EBITDA margins, and new launches in premium categories.
C–39October 2012
September 2012 Results Preview
Sector: Consumer
Colgate Palmolive
Bloomberg CLGT IN
Equity Shares (m) 136.0
52-Week Range (INR) 1,264/932
1,6,12 Rel. Perf. (%) -3/-2/11
M.Cap. (INR b) 164.0
M.Cap. (USD b) 3.1
CMP: INR1,206 Sell
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 22,206 4,026 29.6 -0.3 - - 114.1 114.3 - -
03/12A 26,239 4,544 33.4 12.9 36.1 38.7 107.7 108.4 6.1 26.7
03/13E 30,921 5,251 38.6 15.6 31.2 31.5 111.3 111.7 5.1 22.6
03/14E 35,798 5,950 43.8 13.3 27.6 26.1 103.5 103.9 4.4 19.3
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Toothpaste Volume Gr % 14.0 15.0 15.0 14.0 13.0 14.0 14.0 13.0 14.0 13.0
Net Sales 6,111 6,572 6,696 6,859 7,361 7,700 7,850 8,010 26,239 30,921
YoY Change (%) 15.6 19.1 20.0 17.9 20.5 17.2 17.2 16.8 18.2 17.8
COGS 2,467 2,637 2,651 2,748 2,997 3,080 3,062 2,968 10,502 12,107
Gross Profit 3,644 3,936 4,045 4,112 4,364 4,620 4,789 5,042 15,736 18,814
Gross Margin (%) 59.6 59.9 60.4 59.9 59.3 60.0 61.0 62.9 60.0 60.8
Other operating Expenses 2,476 2,706 2,754 2,583 2,939 3,160 3,269 3,266 10,514 12,634
% to sales 40.5 41.2 41.1 37.7 39.9 41.0 41.6 40.8 40.1 40.9
Other operating Income 166 183 202 170 200 210 230 214 738 855
EBITDA 1,335 1,413 1,493 1,699 1,625 1,670 1,750 1,990 5,960 7,035
Margins (%) 21.3 20.9 21.6 24.2 21.5 21.1 21.7 24.2 22.1 22.1
Depreciation 88 106 99 100 105 100 100 95 393 400
Interest 4 8 6 2 0 8 7 5 21 20
Financial other Income 138 95 97 131 112 120 100 102 443 434
PBT 1,381 1,395 1,485 1,728 1,632 1,682 1,743 1,991 5,989 7,048
Tax 377 319 330 420 457 429 436 475 1,446 1,797
Rate (%) 27.3 22.9 22.2 24.3 28.0 25.5 25.0 23.9 24.1 25.5
Adj PAT 1,004 1,076 1,156 1,308 1,174 1,253 1,307 1,516 4,544 5,251
YoY Change (%) -17.6 7.2 74.3 14.6 16.9 16.5 13.1 15.9 12.9 15.6
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Colgate Palmolive (CLGT) to post sales growth of 17% to INR7.7b. Toothpaste volume growth is likely
to be 14% v/s ~13% in 1QFY13.
Gross margin would be flat at 60%. Price hikes and mix improvement would aid marginal gross margin expansion
of 10bp.
We expect 20bp expansion in EBITDA margin to 21.1% due to continuous investments in ad spends and sales
promotion on account of heightened competitive activity by HUL (has launched range of products under the
Pepsodent Expert Protection range).
PBT would grow 18%. Higher tax rate at 25.5% (up 260bp) would result in 16.3% increase in PAT to INR1.2b.
Though volume growth remains steady, input cost and increasing ad spends will keep earnings growth in check.
While we like CLGT's sustained double-digit volume growth in its core Toothpaste category, we believe current
valuations leave little room for error, given the context of rising competitive intensity, especially in the high
margin Sensitive category.
We estimate PAT CAGR of 14.4% over FY12-14. The stock trades at 31.2x FY13E EPS and 27.6x FY14E EPS. Sell.
What to look for
Ad spends and market share in both Toothpaste and Toothbrush categories.
C–40October 2012
September 2012 Results Preview
Sector: Consumer
Dabur India
Bloomberg DABUR IN
Equity Shares (m) 1,740.7
52-Week Range (INR) 132/92
1,6,12 Rel. Perf. (%) -1/14/11
M.Cap. (INR b) 223.0
M.Cap. (USD b) 4.2
CMP: INR128 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 40,774 5,686 3.3 13.2 - - 40.9 36.9 - -
3/12A 52,832 6,449 3.7 13.4 34.6 12.9 37.1 37.3 4.3 26.4
3/13E 61,276 7,698 4.4 19.4 29.0 10.4 36.0 39.4 3.6 21.4
3/14E 70,614 9,463 5.4 22.9 23.6 8.5 36.2 41.2 3.1 17.5
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Volume Growth (%) 8.6 10.0 10.8 12.4 12.0 9.0 9.0 8.0 10.5 9.5
Net Sales 12,046 12,623 14,527 13,636 14,620 14,700 16,500 15,457 52,832 61,276
YoY Change (%) 31.4 29.8 34.5 23.0 21.4 16.5 13.6 13.4 29.6 16.0
Total Exp 10,267 10,258 12,312 11,483 12,559 11,848 13,728 12,782 44,319 50,916
EBITDA 1,779 2,366 2,215 2,153 2,061 2,852 2,772 2,675 8,513 10,360
Margins (%) 14.8 18.7 15.2 15.8 14.1 19.4 16.8 17.3 16.1 16.9
YoY Growth (%) 29.9 16.5 5.7 4.7 15.9 20.5 25.2 24.2 10.0 21.7
Depreciation 248 217 208 293 267 280 300 300 967 1,147
Interest 145 172 183 57 213 180 160 161 557 714
Other Income 216 189 231 280 342 250 250 243 917 1,085
PBT 1,602 2,166 2,055 2,083 1,923 2,642 2,562 2,457 7,905 9,584
Tax 323 427 337 377 378 518 502 482 1,464 1,879
Rate (%) 20.1 19.7 16.4 18.1 19.6 19.6 19.6 19.6 18.5 19.6
Minority Interest 2 0 -10 0 2 2 2 2 -8 8
Adjusted PAT 1,277 1,739 1,728 1,705 1,543 2,122 2,058 1,974 6,449 7,698
YoY Change (%) 19.6 8.4 11.9 16.0 20.8 22.1 19.1 15.7 13.4 19.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Dabur to report net sales of INR14.7b, up 16.5%, with 9% volume growth. We expect the stable
growth trajectory to continue in 2QFY13. Growth would be led by a combination of volume growth (8-9%), mix
improvement and modest price hikes.
Competitive intensity remains strong in Shampoos, with companies running various sales promotion schemes
to gain market share. However, recent price hike by P&G in Pantene Bottles (up 5% w.e.f. October 2012) offers
some respite.
On the international business front, no positive surprises are expected and growth in the Middle East would
remain muted.
We expect 70bp EBITDA margin expansion, driven by a favorable input cost environment and price hikes taken
over the past 12 months. EBITDA is likely to grow 20.5% to INR2.8b.
PAT would grow 22% to INR2.1b.
The stock trades at 29x FY13E EPS and 23.6x FY14E EPS. Neutral.
What to look for
Organic volume growth, ad spends and margins in the domestic business.
C–41October 2012
September 2012 Results Preview
Sector: Consumer
GlaxoSmithKline Consumer
Bloomberg SKB IN
Equity Shares (m) 42.1
52-Week Range (INR)3,111/2,179
1,6,12 Rel. Perf. (%) -3/2/18
M.Cap. (INR b) 125.9
M.Cap. (USD b) 2.4
CMP: INR2,994 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
12/10A 23,800 2,998 71.3 28.8 - - 31.2 47.3 - -
12/11A 27,759 3,552 84.5 18.5 35.4 11.0 31.0 47.5 4.1 22.2
12/12E 30,253 4,278 101.7 20.4 29.4 9.2 31.4 47.2 3.6 19.0
13/13E 36,701 4,775 113.5 11.6 26.4 7.8 29.8 44.7 3.1 16.6
Quarterly Performance (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
MFD Volume Growth (%) 5.5 14.0 8.0 12.0 7.0 7.4 10.0 10.0 10.0 9.0
Net Sales 7,100 6,534 7,201 6,021 8,130 7,297 8,100 6,725 26,855 30,253
YoY Change (%) 9.5 21.6 17.5 18.6 14.5 11.7 12.5 11.7 16.5 12.7
Total Exp 5,647 5,548 6,021 5,404 6,514 6,191 6,723 5,943 22,566 25,370
EBITDA 1,453 985 1,180 616 1,617 1,107 1,377 782 4,289 4,883
Margins (%) 20.5 15.1 16.4 10.2 20.3 15.2 17.0 11.6 16.0 16.1
YoY Change (%) 9.2 10.2 24.1 5.5 11.3 12.3 16.7 26.9 13.8 13.8
Depreciation 109 113 117 121 119 86 137 228 460 570
Interest 7 9 10 9 12 8 11 9 35 40
Other Income 340 360 476 487 479 572 500 560 1,608 2,114
PBT 1,677 1,223 1,530 973 1,964 1,585 1,729 1,108 5,403 6,387
Tax 571 398 499 327 645 519 576 369 1,851 2,109
Rate (%) 34.0 32.6 32.6 33.6 33.0 32.8 33.3 33.3 34.3 33.0
Adj PAT 1,106 825 1,030 646 1,320 1,066 1,153 739 3,552 4,278
YoY Change (%) 15.0 14.9 31.1 21.0 19.3 29.3 11.9 14.5 18.5 20.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
In 3QCY12, we expect GlaxoSmithKline Consumer (SKB) to report net sales of INR8.1b, up 12.5%. MFD volume
would grow ~7%, in line with 2QCY12 performance. We do not see any pick-up in CSD offtake in the remaining
quarters of CY12.
We estimate 60bp increase in EBITDA margin despite high wheat prices on account of price hikes, mix
improvement due to underperformance of the CSD segment and lower ad spends in non-MFD categories.
EBITDA is likely to grow 16.7%; we expect ~13% growth in PBT due to lower other income.
We estimate ~12% increase in PAT, impacted by higher tax rate at 33.3%.
We are positive on SKB's strong leadership position in the MFD space. However, we believe that the stock price
and current valuations factor in the positives. We maintain Neutral at 29.4x CY12E and 26.4x CY13E EPS.
What to look for
MFD volume growth, performance of Horlicks Oats, update on CSD situation, and Foodles' current market
status.
C–42October 2012
September 2012 Results Preview
Sector: Consumer
Godrej Consumer Products
Bloomberg GCPL IN
Equity Shares (m) 340.3
52-Week Range (INR) 702/370
1,6,12 Rel. Perf. (%) -6/30/52
M.Cap. (INR b) 227.2
M.Cap. (USD b) 4.3
CMP: INR668 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 36,763 4,736 14.6 32.8 - - 27.5 18.4 - -
3/12A 48,509 5,266 16.3 11.2 41.0 10.3 25.2 20.4 4.9 27.7
3/13E 63,147 7,363 21.6 33.0 30.9 7.1 23.1 22.7 3.9 21.9
3/14E 78,327 8,962 26.3 21.7 25.4 6.2 24.3 24.6 3.2 17.9
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 9,978 11,860 13,441 13,230 13,886 16,250 17,000 16,010 48,509 63,147
YoY Change (%) 39.6 23.3 35.9 32.4 39.2 37.0 26.5 21.0 32.0 30.2
EBITDA 1,427 2,088 2,653 2,481 1,988 2,860 3,366 3,083 8,607 11,298
Margins (%) 14.3 17.6 19.7 18.8 14.3 17.6 19.8 19.3 17.7 17.9
YoY Growth (%) 11.5 25.1 60.1 39.6 39.3 36.9 26.9 24.3 35.4 31.3
Depreciation 159 159 171 155 199 220 230 238 644 887
Interest 111 241 287 194 164 300 300 282 658 1,046
Other Income 132 220 248 203 181 200 250 351 672 982
Forex gain / (loss) 24 -166 -55 -8 -176 0 0 176 -205 0
PBT 1,314 1,742 2,388 2,327 1,630 2,540 3,086 3,090 7,771 10,346
Tax 312 432 555 547 112 660 802 829 2,261 2,404
Rate (%) 23.8 24.8 23.2 23.5 6.9 26.0 26.0 26.8 29.1 23.2
Minority Int 0 33 162 50 213 144 144 78 245 579
Adj PAT 1,002 1,277 1,671 1,730 1,305 1,736 2,140 2,183 5,266 7,363
YoY Change (%) 10.3 -2.0 40.7 22.1 30.2 35.9 28.0 26.2 11.2 39.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Godrej Consumer Products (GCPL) to post 37% increase in net sales to INR16.2b, driven by continued
momentum in domestic business (both toilet soaps and household insecticides) and beneficial impact of
inorganic growth (Darling and Chile acquisition). We expect ~20% organic sales growth for the quarter.
Gross margin would expand in domestic business; we estimate EBITDA margin at 17.6% for 2QFY13.
Despite higher depreciation and interest costs, other income would lead PAT growth, which is likely to grow
36% YoY to INR1.7b.
The volume growth momentum achieved in Soaps in the last few quarters is likely to continue in 2QFY13.
However, margins in the category would be under pressure due to high competitive intensity and
disproportionate ad spends behind Cinthol re-launch.
GCPL has USD305m of unhedged forex loans; it plans to repay loans of USD60m in FY13 and retire its debt by
FY18.
We expect GCPL's domestic business growth to remain healthy, driven by continued synergistic benefits from
GHPL and GCPL trade integration. However, recent outperformance leaves limited upside potential in the near
term.
The stock trades at 30.9x FY13E EPS and 25.4x FY14E EPS. Neutral.
What to look for
Soaps volume growth, revenue growth in Home Insecticides and performance of Megasari.
C–43October 2012
September 2012 Results Preview
Sector: Consumer
Hindustan Unilever
Bloomberg HUVR IN
Equity Shares (m) 2,159.5
52-Week Range (INR) 554/319
1,6,12 Rel. Perf. (%) -2/22/49
M.Cap. (INR b) 1176.0
M.Cap. (USD b) 22.3
CMP: INR545 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 197,352 21,533 10.0 3.5 - - 81.8 103.7 - -
3/12A 229,214 26,567 12.3 23.4 44.3 34.1 74.6 97.2 5.2 34.6
3/13E 262,323 33,530 15.5 26.2 35.1 25.3 72.1 94.3 4.4 27.2
3/14E 293,494 38,973 18.0 16.2 30.2 19.1 63.4 83.4 3.8 23.3
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Volume Growth (%) 8.3 9.8 9.1 10.0 9.0 9.0 9.0 9.0 9.3 9.0
S&D EBIT Margin (%) 9.2 12.4 10.8 11.3 12.2 12.6 11.3 11.7 11.6 12.5
PP EBIT Margin (%) 25.3 24.4 25.9 26.3 25.8 25.0 26.4 26.5 25.5 25.3
Net Sales (incl service inc) 55,889 56,105 59,561 57,659 63,788 64,500 67,000 67,035 229,214 262,323
YoY Change (%) 14.6 17.8 16.2 16.1 14.1 15.0 12.5 16.3 16.1 14.4
COGS 30,798 30,010 30,751 31,223 33,677 33,540 34,237 34,808 122,781 136,262
Gross Profit 25,091 26,095 28,810 26,437 30,110 30,960 32,763 32,227 106,432 126,061
Margin % 44.9 46.5 48.4 45.8 47.2 48.0 48.9 48.1 46.4 48.1
Operating Exp 17,548 17,828 18,921 18,103 20,446 21,092 21,239 21,921 72,399 84,697
% to sales 31.4 31.8 31.8 31.4 32.1 32.7 31.7 32.7 31.6 32.3
EBITDA 7,543 8,267 9,890 8,334 9,665 9,869 11,524 10,306 34,033 41,363
YoY Change (%) 10.8 27.8 36.4 29.8 28.1 19.4 16.5 23.7 27.1 21.5
Margins (%) 13.5 14.7 16.6 14.5 15.2 15.3 17.2 15.4 14.8 15.8
Depreciation 562 571 568 571 576 590 595 596 2,272 2,357
Interest 0 5 5 2 53 3 2 2 12 70
Other Income 506 777 801 700 2,186 900 910 898 2,783 4,894
PBT 7,487 8,467 10,118 8,461 11,222 10,176 11,837 10,606 34,532 43,830
Tax 1,702 1,942 2,496 1,825 2,676 2,391 2,782 2,492 7,966 10,300
Rate (%) 22.7 22.9 24.7 21.6 23.8 23.5 23.5 23.5 23.1 23.5
Adjusted PAT 5,784 6,525 7,622 6,636 8,546 7,784 9,055 8,114 26,567 33,530
YoY Change (%) 11.0 22.3 29.9 29.0 47.7 19.3 18.8 22.3 26.6 26.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Hindustan Unilever (HUVR) to report 15% increase in sales to INR64.5b and estimate volume growth
of ~8%. Demand momentum in core categories remains healthy, barring some moderation in the discretionary
part of the Foods portfolio.
Gross margin would expand 240bp to 48%, led by change in product mix, better pricing environment for Soaps
& Detergents and softening in palm oil and PFAD prices.
We believe that HUVR's limited pricing actions and comparatively higher base should restrict operating margin
expansion during the quarter to 60bp. Other income should revert to the normative trend in the absence of
one-offs. We expect PAT growth of 19% YoY to INR7.8b. In 2QFY13, the company launched Tresseme Shampoo.
The stock trades at 35.1x FY13E and 30.2x FY14E earnings. We like the sustained volume momentum in HUVR's
categories as also the increased aggression in trade coupled with strong innovation pipeline. However, rich
valuations and tough comparables in 2HFY13 underscore our Neutral rating.
What to look for
Volume growth: sustenance of volume growth in mid to high single digits.
2Q margins for Soaps & Detergents and Personal Products.
Commentary around Foods business.
C–44October 2012
September 2012 Results Preview
Sector: Consumer
ITC
Bloomberg ITC IN
Equity Shares (m) 7,738.1
52-Week Range (INR) 273/189
1,6,12 Rel. Perf. (%) -5/10/24
M.Cap. (INR b) 2,104.0
M.Cap. (USD b) 39.9
CMP: INR272 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 214,590 49,867 6.5 28.9 - - 31.3 43.5 - -
3/12A 251,738 61,624 8.0 23.6 34.1 11.2 32.7 45.7 8.2 22.9
3/13E 291,436 72,431 9.4 17.5 29.0 9.5 32.5 45.8 6.9 19.1
3/14E 334,890 85,198 11.0 17.6 24.7 8.0 32.4 46.0 5.9 16.0
Quarterly Performance INR Million
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Cigarette Vol Gr (%) 8.0 7.5 5.0 5.0 1.5 1.0 2.2 2.5 6.4 2.0
Cigarette-net EBIT Margin (%) 54.9 58.2 57.0 54.1 57.5 58.2 57.8 55.0 56.1 57.1
Non Cigarette FMCG Loss (763) (559) (468) (167) (388) (297) (250) (50) (1,957) (985)
Net Sales 58,524 60,852 62,478 69,545 67,131 69,700 73,500 81,105 251,738 291,436
YoY Change (%) 20.4 17.6 14.2 16.9 14.7 14.5 17.6 16.6 17.3 15.8
Total Exp 38,945 38,662 38,667 46,913 43,447 44,050 45,350 53,939 163,252 186,786
EBITDA 19,579 22,190 23,811 22,633 23,683 25,650 28,151 27,166 88,486 104,650
Growth (%) 19.1 18.0 18.0 18.8 21.0 15.6 18.2 20.0 19.4 18.3
Margins (%) 33.5 36.5 38.1 32.5 35.3 36.8 38.3 33.5 35.2 35.9
Depreciation 1,665 1,701 1,739 1,880 1,948 1,800 2,030 2,263 6,985 8,041
Interest 200 142 157 148 138 200 200 212 779 750
Other Income 1,656 1,808 2,851 2,079 1,768 1,900 2,950 2,117 8,253 8,734
PBT 19,370 22,155 24,767 22,683 23,366 25,550 28,871 26,808 88,975 104,594
Tax 6,043 7,012 7,757 6,540 7,344 7,869 8,892 8,057 27,352 32,163
Rate (%) 31.2 31.6 31.3 28.8 31.4 30.8 30.8 30.1 30.7 30.8
Adj PAT 13,327 15,143 17,010 16,143 16,021 17,680 19,978 18,751 61,624 72,431
YoY Change (%) 24.5 21.5 22.5 26.0 20.2 16.8 17.5 16.2 23.6 17.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect ITC to post 14.5% revenue growth to INR69.7b. Margin expansion of 30bp would drive (a) ~15.6%
growth in EBITDA to INR25.6b, and (b) 16.8% YoY growth in PAT to INR17.6b.
Cigarette volumes would grow ~1%, impacted by price hikes post the changes in duty structure and increase in
VAT rates in many states. We expect flattish EBIT margin for the Cigarettes business.
Sustained momentum in Staples and Personal Care should drive non-Cigarette FMCG sales. We expect
sequential improvement in profitability and estimate INR300m loss at EBIT level.
Paper margins are likely to remain flat; revenue growth would be moderate at ~11% owing to capacity constraints.
The Hotels business is likely to remain under pressure, owing to continued weak macroeconomic environment
and higher supply. ITC commissioned its Chennai property during the quarter.
The company is test marketing cigarettes in the 64mm category and has launched 5-6 brands at the INR2 and
INR2.5 price points (Gold flake).
The stock trades at 29x FY13E EPS of INR9.4 and 24.7x FY14E EPS of INR11. Buy.
What to look for
Cigarette volume growth and margins, reduction in losses in FMCG business.
C–45October 2012
September 2012 Results Preview
Sector: Consumer
Marico
Bloomberg MRCO IN
Equity Shares (m) 643.8
52-Week Range (INR) 209/134
1,6,12 Rel. Perf. (%) -3/9/24
M.Cap. (INR b) 128.4
M.Cap. (USD b) 2.4
CMP: INR199 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 31,283 2,375 3.9 1.4 - - 25.9 29.7 - -
3/12A 39,968 3,189 5.2 34.2 38.4 10.7 28.0 30.5 3.1 26.5
3/13E 47,179 4,361 6.8 30.5 29.4 6.4 21.6 30.5 2.8 20.5
3/14E 54,963 5,442 8.5 24.8 23.6 5.1 21.8 30.6 2.3 16.3
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Volume Growth (%) 14.0 14.0 13.0 17.0 14.0 13.0 14.0 14.0 14.0 13.5
Net Sales 10,414 9,745 10,578 9,177 12,672 11,500 12,250 10,757 39,968 47,179
YoY Change (%) 31.8 25.6 29.4 22.9 21.7 18.0 15.8 17.2 27.9 18.0
COGS 5,952 5,329 5,451 4,264 6,411 5,923 6,125 6,012 20,987 24,470
Gross Profit 4,462 4,415 5,127 4,913 6,261 5,578 6,125 4,745 18,981 22,709
Gross margin (%) 42.8 45.3 48.5 53.5 49.4 48.5 50.0 44.1 47.5 48.1
Other Expenditure 3,211 3,249 3,909 3,814 4,414 4,014 4,557 3,339 14,240 16,323
% to Sales 30.8 33.3 37.0 41.6 34.8 34.9 37.2 31.0 35.6 34.6
EBITDA 1,251 1,167 1,217 1,100 1,848 1,564 1,568 1,407 4,741 6,386
Margins (%) 12.0 12.0 11.5 12.0 14.6 13.6 12.8 13.1 11.9 13.5
YoY Change (%) 18.6 17.7 22.1 38.8 47.7 34.1 28.8 27.9 15.9 34.7
Depreciation 169 177 188 191 193 205 220 240 725 858
Interest 98 91 82 113 170 180 160 155 424 665
Other Income 92 106 92 105 176 180 180 205 429 741
PBT 1,075 1,005 1,039 901 1,660 1,359 1,368 1,216 4,021 5,604
Tax 210 205 178 189 403 272 274 229 782 1,177
Rate (%) 19.6 20.4 17.1 20.9 24.2 20.0 20.0 18.8 19.5 21.0
Minority Interest 15 17 20 -2 19 13 13 21 50 66
Adjusted PAT 850 783 841 714 1,238 1,074 1,081 967 3,189 4,361
YoY Change (%) 15.3 9.4 21.0 -0.6 45.7 37.2 28.6 35.3 34.2 36.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Marico (MRCO) is likely to report net sales of INR11.5b, up 18%, with domestic volume growth at 13%.
We expect double-digit volume growth in value-added hair oil and Saffola. Parachute should report 8-10%
volume growth.
Copra prices witnessed a sharp fall, with the 2QFY13 average 33% lower than in 2QFY12. Rice bran and kardi oil
prices continue to be firm.
Gross margin should expand 300bp to 48.5% due to benefits of sharp fall in copra prices and lack of any meaningful
price cuts.
We expect 160bp expansion in EBITDA margin to 13.6%. PAT would grow 37% YoY to INR1.07b.
The stock trades at 29.4x FY13E EPS and 23.6x FY14E EPS. Buy.
What to look for
Volume growth in Parachute and Saffola, performance / gross margin of international business.
C–46October 2012
September 2012 Results Preview
Sector: Consumer
Nestle India
Bloomberg NEST IN
Equity Shares (m) 96.4
52-Wk. Range (INR) 5,024/3,930
1,6,12 Rel. Perf. (%) -13/-12/-11
M.Cap. (INR b) 421.8
M.Cap. (USD b) 8.0
CMP: INR4,374 Neutral
Year Net Sales Adj. PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) YoY (%) (X) (X) (%) (%) Sales EBITDA
12/10A 62,547 8,370 86.8 20.0 50.4 33.1 116.5 151.8 6.7 33.4
12/11A 74,908 10,188 105.7 21.7 41.4 33.1 95.7 89.6 5.7 27.6
12/12E 85,777 11,287 117.1 10.8 37.4 23.5 73.6 61.7 5.0 22.7
12/13E 101,953 13,349 138.5 18.3 31.6 17.5 63.5 59.6 4.2 18.7
Quarterly Performance (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Net Sales 18,100 17,631 19,631 19,547 20,475 19,866 22,750 22,686 74,908 85,777
YoY Change (%) 22.3 20.2 19.9 17.0 13.1 12.7 15.9 16.1 19.8 14.5
COGS 8,841 8,718 9,454 8,880 9,384 9,024 10,693 10,007 35,894 39,107
Gross Profit 9,259 8,912 10,177 10,667 11,091 10,842 12,058 12,680 39,015 46,670
Margin (%) 51.2 50.5 51.8 54.6 54.2 54.6 53.0 55.9 52.1 54.4
Operating Exp 5,406 5,467 6,074 6,540 6,519 6,547 7,098 7,682 23,487 27,846
EBITDA 3,853 3,445 4,103 4,127 4,572 4,295 4,960 4,997 15,528 18,824
Margins (%) 21.3 19.5 20.9 21.1 22.3 21.6 21.8 22.0 20.7 21.9
YoY Growth (%) 26.7 17.2 27.2 25.1 18.7 24.7 20.9 21.1 24.3 21.2
Depreciation 327 367 394 446 528 673 680 683 1,533 2,564
Interest 1 6 12 33 23 220 230 178 51 651
Other income 128 80 121 181 136 113 165 172 509 586
PBT 3,653 3,152 3,819 3,828 4,158 3,514 4,215 4,307 14,452 16,194
Tax 1,027 956 1,134 1,148 1,272 1,085 1,260 1,290 4,264 4,907
Rate (%) 28.1 30.3 29.7 30.0 30.6 30.9 29.9 29.9 29.5 30.3
Adjusted PAT 2,626 2,196 2,685 2,681 2,886 2,429 2,954 3,018 10,188 11,287
YoY Change (%) 33.3 9.0 23.5 20.9 9.9 10.6 10.0 12.6 21.7 10.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Nestle India (NEST) to report net sales of INR22.7b, up 16%. Growth would be price-led; volume
recovery would be gradual, in our view.
Gross margin is likely to expand 110bp YoY to 53% due to the benefit of price increases in the last few quarters.
We expect EBITDA margin to expand 90bp to 21.8% on account of mix improvement and savings in overheads.
EBITDA is likely to increase 21% to INR4.9b. We estimate higher interest at INR230m and depreciation at INR680m
due to capacity expansion.
We expect 10% growth in PBT and 10% growth in PAT, as tax rates remain flat at ~30%.
We remain positive on NEST's long-term prospects on healthy demand and growth potential of its portfolio.
However, at current valuations, the stock appears expensive, given the context of sub-par volume growth. The
stock trades at 37.4x CY12E and 31.6x CY13E EPS. Neutral.
C–47October 2012
September 2012 Results Preview
Sector: Consumer
Pidilite Industries
Bloomberg PIDI IN
Equity Shares (m) 506.1
52-Week Range (INR) 212/134
1,6,12 Rel. Perf. (%) 5/16/11
M.Cap. (INR b) 104.5
M.Cap. (USD b) 2.0
CMP: INR206 Buy
Year Net Sales Adj.PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 23,806 3,330 6.6 13.4 - - 29.2 30.9 - -
3/12A 28,164 3,557 7.0 6.5 29.5 7.8 26.3 29.1 3.6 20.5
3/13E 33,820 4,415 8.4 20.2 24.5 6.0 24.6 31.4 3.0 16.0
3/14E 40,398 5,305 10.1 20.2 20.4 5.1 24.8 32.5 2.5 13.0
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 7,680 7,103 6,918 6,519 9,125 8,450 8,300 7,946 28,164 33,820
Change (%) 21.5 20.5 16.5 15.6 18.8 19.0 20.0 21.9 18.3 20.1
Gross Profit 3,439 3,093 2,989 3,045 4,087 3,769 3,735 3,773 12,490 15,363
Gross Margin % 44.8 43.5 43.2 46.7 44.8 44.6 45.0 47.5 44.3 45.4
Operating Expenses 1,918 1,791 1,782 2,087 2,180 2,146 2,175 2,510 7,540 9,011
% of sales 25.0 25.2 25.8 32.0 23.9 25.4 26.2 31.6 26.8 26.6
EBITDA 1,521 1,302 1,207 958 1,907 1,622 1,560 1,263 4,950 6,353
EBITDA Margin % 19.8 18.3 17.4 14.7 20.9 19.2 18.8 15.9 17.6 18.8
Change (%) -2.2 4.8 1.9 17.8 25.4 24.6 29.3 31.8 2.5 28.3
Depreciation 116 118 121 124 124 135 140 150 479 548
Interest 48 59 73 47 91 40 35 39 245 205
Other Income 70 29 45 152 139 70 50 148 428 407
PBT 1,428 1,153 1,058 939 1,831 1,517 1,435 1,222 4,653 6,007
Tax 350 289 268 190 498 410 388 296 1,096 1,592
Effective Tax Rate (%) 24.5 25.1 24.8 20.2 27.2 27.0 27.0 24.2 23.6 26.5
Adj PAT 1,078 864 790 749 1,333 1,108 1,048 926 3,557 4,415
Change (%) 0.1 2.2 -6.5 41.6 23.6 28.2 32.7 23.7 6.8 24.1
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Pidilite Industries (PIDI) to post 19% revenue growth, led by double-digit volume growth in the
Consumer and Bazaar segments, though Industrial Chemicals would remain under pressure. We expect margin
pressure to sustain in Industrial Chemicals but margins would expand in the Consumer and Bazaar segments.
Gross margin would expand 100bp on account of decline in VAM prices. EBITDA margin is also likely to increase
90bp to 19.2%, driven by higher gross margin and operating leverage.
We expect tax rate to increase by 200bp to 27%. However, healthy revenue growth would ensure PAT growth of
~28% to INR1.1b.
Uncertainty regarding the synthetic elastomer project continues and the company is yet to take a call on the
project implementation.
The stock trades at 24.5x FY13E EPS of INR8.4 and 20.4x FY14E EPS of INR10.1. Maintain Buy.
C–48October 2012
September 2012 Results Preview
Sector: Consumer
United Spirits
Bloomberg UNSP IN
Equity Shares (m) 130.8
52-Week Range (INR) 1,295/450
1,6,12 Rel. Perf. (%) 25/98/37
M.Cap. (INR b) 159.3
M.Cap. (USD b) 3.0
CMP: INR1,218 Neutral
Year Net Sales Adj.PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 73,762 3,458 28.2 9.4 43.1 3.6 8.2 9.7 3.0 20.7
3/12A 87,794 2,390 19.5 -30.9 62.4 3.1 4.9 8.3 2.7 20.3
3/13E 101,377 2,359 19.3 -1.3 63.2 3.0 4.7 8.8 2.4 18.1
3/14E 116,676 4,299 35.1 82.2 34.7 2.8 7.9 10.4 2.1 14.8
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Volume Growth % 15.4 8.0 0.7 5.1 1.9 6.0 10.0 10.0 10.0 7.0
ENA Price/Case 147 153 164 162 151 153 154 154 154 154
Net Sales 19,354 17,906 19,539 18,627 20,573 19,700 24,500 22,414 75,427 87,186
YoY Change (%) 32.3 32.2 -0.3 17.0 6.3 10.0 25.4 20.3 18.4 15.6
Total Exp 16,051 15,346 17,671 16,867 17,223 16,784 21,193 20,299 65,934 75,499
EBITDA 3,303 2,560 1,869 1,760 3,350 2,916 3,308 2,115 9,492 11,687
Margins (%) 17.1 14.3 9.6 9.5 16.3 14.8 13.5 9.4 12.6 13.4
Depreciation 127 152 155 175 162 180 200 206 609 748
Interest 1,302 1,241 1,392 1,663 1,656 1,700 1,700 1,452 5,944 6,507
PBT From operations 1,874 1,167 322 -77 1,532 1,036 1,408 457 2,940 4,432
Other income 165 100 170 132 262 200 200 638 1,119 1,300
PBT 2,039 1,267 492 55 1,794 1,236 1,608 1,095 4,059 5,732
Tax 671 419 165 -24 689 408 530 322 1,288 1,949
Rate (%) 32.9 33.1 33.5 -43.8 38.4 33.0 33.0 29.4 31.7 34.0
PAT 1,369 848 327 79 1,105 828 1,077 774 2,771 3,783
YoY Change (%) 12.6 5.7 -71.3 -86.7 -19.3 -2.3 228.9 874.2 -20.5 36.5
Extraordinary Inc/(Exp) 8 632 143 21 345 657
Reported PAT 1,377 1,479 471 100 1,450 828 1,077 774 3,428 3,783
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect United Spirits (UNSP) to post 10% revenue growth to INR19.7b in 2QFY13, led by 6% volume growth.
The premium segment would grow at a faster pace, aided by up-trading and increased investments in this
segment by the company.
Modest ~3% QoQ growth in ENA prices would aid 50bp expansion in margins to 14.8%.
PAT would decline 2% to INR828m, impacted by 37% increase in interest cost and higher tax rate.
We note that Kerala has announced a price increase, which will provide support to margins. The industry
expects price increase in Andhra Pradesh in October, which could boost 3Q margins.
The stock trades at 63.2x FY13E EPS of INR19.3 and 34.7x FY14E EPS of INR35.1. Neutral. Positive news flow
around Diageo deal will favorably impact stock price.
What to look for
Volume growth recovery, given the slower volume growth in 1QFY13 (1.9%).
ENA price trend and outlook; increase in ENA prices post 2Q can limit expected margin recovery in FY13.
Interest cost trends.
C–49October 2012
September 2012 Results Preview
Sector: Financials
FinancialsCompany Name
Andhra Bank
Axis Bank
Bank of Baroda
Bank of India
Canara Bank
Dewan Housing
HDFC
HDFC Bank
Federal Bank
ICICI Bank
IDFC
Indian Bank
IndusInd Bank
ING Vysya
Kotak Mahindra Bank
LIC Housing
M&M Financial Services
Oriental Bank
Power Finance Corporation
Punjab National Bank
Rural Electrification
Shriram Transport
State Bank
Union Bank
Yes Bank
Challenges for the Financials sector continued in 2QFY13 as well, led by moderation
in growth and sustained pressure on asset quality. However, the government's
concrete steps towards reforms have brought in a ray of hope.
Banks - aggregate PAT growth to remain healthyFor 2QFY13, we expect our Banking coverage universe to report healthy PAT growth of
19% YoY (~15% YoY ex-SBIN), largely driven by 23% YoY profit growth from private
sector banks. PAT of state-owned banks is likely to grow 17% YoY (9% YoY ex-SBIN), but
decline 4% QoQ (led by higher provisions, muted fees and higher tax rate in some
cases).
A lean business quarter; CD ratio falls; higher monies parked in government securities:
For the fortnight ended 21 September 2012, loans grew 16.4% YoY and deposits grew
13.7% YoY. On a sequential basis, while loans were flat, deposits increased marginally.
Higher funds are flowing into G-Secs, as a result of which the incremental ID ratio is
100%+ whereas the overall CD ratio has declined from 76.4% to 75.8%. As in FY12, in
FY13 too, working capital would be a key driver for corporate loan growth. 2-3 years of
continued moderation in the capex cycle will have a lag impact on other loan segments
(Services and Retail). We expect loan growth for the system to be 15-16% for FY13.
While SA deposit growth is likely to improve, it is unlikely to keep pace with overall
deposit growth. Further, CA deposits in the system continue to decline. This would
pressurize CASA ratio.
Benefits of fall in deposit rates to be compensated by fall in yields on assets - NIM to
remain stable: QTD 3M, 6M and 12M bulk deposit rates have declined by 60bp each,
whereas on YTD basis the decline is much sharper at 225bp, 180bp and 130bp
respectively the benefits of which will percolate in the form of lower cost of funds.
However, this would be compensated by (a) fall in yields on loans, as banks have
reduced spreads on loans in certain cases and have reduced base rate/PLR in May
2012, (b) continued pressure on CASA ratio, and (c) higher flow of money into low
yielding investments due to muted loan growth. We expect margins to be flattish/
improve marginally QoQ. Specific banks (viz. Bank of India), wherein margins declined
significantly in 1QFY13 due to higher reversal of interest income (on the back of
restructuring / slippages) may see some relief.
Addition of stress on balance sheet to continue: Considering the challenging macro
environment, we expect slippages to remain elevated (especially for state-owned
banks), led by stress in mid-size corporate and SME segments. Retail focused banks
are likely to be better placed (most private sector banks). However, unlike the past,
retail delinquency has started increasing. Hence, NPAs are expected to rise in this
segment, as well. Increased focus on balance sheet management by banks may lead
to improvement in recoveries and upgradations, which would provide cushion to
asset quality.
Alpesh Mehta ([email protected])/
Sohail Halai ([email protected])/Umang Shah ([email protected])
C–50October 2012
September 2012 Results Preview
Sector: Financials
Pace of restructuring has slowed down: With most SEB loans restructured and SEB
restructuring package approved by the Cabinet, we do not expect significant SEB
restructuring in 2QFY13. As witnessed in 1QFY13, restructuring would be significantly
lower than in 4QFY12. However, stress in the large corporate segment and higher
referrals to CDR would lead to some increase in overall restructured portfolio.
Muted trading gains in debt market; equity gains can surprise positively: In 2QFY13,
the 1-year and 10-year benchmark G-Sec yields have remained largely stable. As a
result, higher MTM reversals in case of bond portfolio are unlikely, though there may
be some write-back on the equity portfolio. Trading gains would be flat/ decline
QoQ, as yields remained in a narrow range.
Estimate aggregate profit growth of ~19% YoY, led by private banks (23% YoY); Ex-
SBIN, state-owned banks' profit to grow 8.6% YoY: The performance of private sector
banks is likely to remain better than their state-owned counterparts. For the private
sector banks under our coverage, NII growth is likely to be ~22% YoY (led by healthy
loan growth and largely stable margins), operating profit growth is likely to be ~24%
YoY (due to contained cost) and PAT growth is likely to be ~23% (due to stable credit
cost). State-owned banks are likely to report NII and operating profit growth of ~10%
each YoY. PAT would grow 17% YoY, led by lower growth in provisions on a high base.
Continued reforms key to improvement in growth and asset quality outlook: Recent
reforms by the government have led to improvement in sentiment and growth outlook,
in turn leading to improvement in valuations. Further re-rating will be contingent
upon expected resolution of the problems faced in the Infrastructure space and fall in
interest rates (boost to G-Sec portfolio). On a reported basis, near-term profitability
is likely to be under pressure due to continued stress on asset quality, led by economic
moderation and sluggish growth. Benefits of reforms would be reflected in business
and asset quality with a lag.
Top picks in our Banking universe: Our top picks are SBIN (most exposed to
improvement in macroeconomic environment and strategy to recognize stress
upfront), ICICIBC (healthy capitalization and asset quality, improving core operations),
OBC (focused strategies and attractive valuations), and YES (strong play on
improvement in liquidity and healthy asset quality).
Loan growth remains moderate Deposit growth improves
Source: Company, MOSL
28
.0
28
.7
30
.2
34
.1
34
.3
37
.7
39
.4
40
.9
47
.6
47
.7
32
.4
41
.5
43
.7
46
.9
19.2
20
.0
15
.9 18.7
16
.5
16
.4
16
.2
12
.7
13
.8 17
.1 21
.9 24
.5
21
.5
19
.5
1Q
FY
10
2Q
FY
10
3Q
FY
10
4Q
FY
10
1Q
FY
11
2Q
FY
11
3Q
FY
11
4Q
FY
11
1Q
FY
12
2Q
FY
12
3Q
FY
12
4Q
FY
12
1Q
FY
13
21
-
Se
p-1
2
Loa ns (INR t) Chg YoY (%)
40
.3
41
.2
42
.7
44
.9
46
.4
47
.1
49
.9
52
.1
54
.9
56
.2
58
.3
61
.0
62
.3
62
.91
3.7
13
.4
14
.316
.9
17.4
18
.5
15
.9
16.
8
14
.4
15.
0
17
.2
17
.719
.822
.01
QF
Y1
0
2Q
FY
10
3Q
FY
10
4Q
FY
10
1Q
FY
11
2Q
FY
11
3Q
FY
11
4Q
FY
11
1Q
FY
12
2Q
FY
12
3Q
FY
12
4Q
FY
12
1Q
FY
13
21
-
Se
p-1
2
De pos i ts (INR t) Chg YoY (%)
C–51October 2012
September 2012 Results Preview
Sector: Financials
Incremental loans flat QoQ (INR b) Incremental deposit mobilization healthy (INR b)
CD ratio has moderated YTD Liquidity has improved since April/May-12
Bulk deposit rates have cooled off significantly Yield curve remains flat (%)
N et Repo (INR b)
‐2,400
‐1,600
‐800
0
800
1,600
Jan‐1
0
Ap
r‐10
Jun‐1
0
Sep
‐10
No
v‐10
Feb
‐11
Ap
r‐11
Jul‐
11
Sep
‐11
No
v‐11
Feb
‐12
Ap
r‐12
Jul‐
12
Sep
‐12
Slippage ratio for state-owned banks to remain high (%) Referrals to CDR remain high
Source: Company, MOSL
CD Ratio (%)
62.0
66.0
70.0
74.0
78.0
4Q
FY05
2Q
FY06
4Q
FY06
2Q
FY07
4Q
FY07
2Q
FY08
4Q
FY08
2Q
FY09
4Q
FY09
2Q
FY10
4Q
FY10
2Q
FY11
4Q
FY11
2Q
FY12
4Q
FY12
21‐S
ep‐
12
1.9 1.9
2.8
1.7
2.42.6 2.6
2.3 2.4
3.3
2.52.2
3.4 3.3
4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E
PSB s (Ex‐SBIN) PSBs
202
226
679
205
192
31
49
29
41
87
FY10 FY11 FY12 1QFY13 2Q‐QTD
Agg. De bt (INR b) No. o f Ca ses Re cd .
8.79.48.8
7.6
6.06.3
4.64.7
8.99.5
9.3
10.59.8
10.19.5
9.4
9.410.2
9.6
9.79.07.9
6.56.75.66.05.8
2.5
4.5
6.5
8.5
10.5
12.5
Ap
r‐09
Jul‐
09
Oct‐0
9
Feb
‐10
Ma
y‐10
Sep
‐10
Dec‐1
0
Ap
r‐11
Jul‐
11
No
v‐11
Feb
‐12
Jun‐1
2
Sep
‐12
6 Mon th (%) 12 Mo nth (%)
1,96
9
876
1,50
2
2,24
0
1,44
0
744
2,74
5
2,22
2
2,85
7
1,31
3
2,03
0
2,67
1
1,16
7
617
1Q
FY10
2Q
FY10
3Q
FY10
4Q
FY10
1Q
FY11
2Q
FY11
3Q
FY11
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
21‐S
ep‐
12
256
791
1,49
9 2,2
02
1,63
4
171
3,4
01
1,76
7
1,4
61
605
2,1
70
3,2
79
561
56
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
1QF
Y13
21‐
Sep
‐12
8.07.4
5.8
5.24.3
4.8
4.1
5.0
8.2
8.0
8.1
8.0
8.5
8.18.5
8.68.4
8.3
8.37.98.08.1
7.27.06.9
4.0
5.0
6.0
7.0
8.0
9.0
Ap
r‐09
Jun‐0
9
Aug
‐09
No
v‐09
Jan‐1
0
Ap
r‐10
Jun‐1
0
Sep
‐10
No
v‐10
Jan‐1
1
Ap
r‐11
Jun‐1
1
Sep
‐11
No
v‐11
Feb
‐12
Ap
r‐12
Jun‐1
2
Sep
‐12
1‐Year G‐Sec Yield 10‐Yea r G‐Se c Yield
C–52October 2012
September 2012 Results Preview
Sector: Financials
NBFCs - performance continues to be strongThe performance of retail NBFCs (HFCs as well as retail AFCs) remains strong, led by
healthy growth and benign asset quality outlook. Pick-up in monsoon, expected
resolution of some of the issues faced by the Infrastructure segment, SEB package,
and continued buoyancy in the rural economy augurs well for the growth and asset
quality of NBFCs. Even improvement in liquidity and decline in bulk borrowing rates
will lead to healthy spreads and profitability. While there are various positives at
play, increasing competition from banks (especially in home loan and auto loan
segments) and rising delinquencies in the CV segment reduce the margin of safety to
an extent, as valuations remain rich. Within the NBFC space, we continue to like
HDFC, IDFC and MMFS.
Housing Finance Companies: For housing finance companies (HFCs), 2QFY13 is likely
to remain a steady quarter, as growth in individual loans remains buoyant. Growth in
the developer loan portfolio is likely to remain muted due to unfavorable macro
environment. However, we expect overall loan growth for HDFC, LICHF (despite weak
developer loan growth) and DEWH to remain healthy. Margins are likely to remain
stable on a sequential basis. Asset quality would continue to be healthy. No major
regulatory changes were announced during the quarter.
Infrastructure Finance Companies: 2QFY13 witnessed one of the major and much
awaited reforms in the form of SEB Debt Restructuring Plan to improve the financial
health of DISCOMs. We believe this is a major step forward by the government towards
reforms and also for the Infrastructure / Power sector as a whole. For the major
infrastructure finance companies (IFCs) - IDFC, POWF and RECL, we expect growth to
remain healthy. Margins are likely to get some cushion due to fall in wholesale rates
YTD. Overall, we expect margins to be stable QoQ. While no large accounts are likely
to fall into NPA category, asset quality will remain a key monitorable in the current
environment.
Asset Finance Companies: Retail asset finance companies (AFCs) have delivered strong
performance both in terms of growth as well as asset quality in the current cycle.
Among the AFCs under our coverage, we expect MMFS to report healthy growth in
AUM on the back of its multi-product strategy; for SHTF, growth is likely to remain
sluggish. Margins would remain stable sequentially. Asset quality will be a key
monitorable against the backdrop of slowdown in the macroeconomic environment
and delayed monsoon. During the quarter, the RBI released the final securitization as
well as the final priority sector guidelines. The final guidelines on both the issues are
less disruptive and are unlikely to impact the AFCs in a negative way.
C–53October 2012
September 2012 Results Preview
Sector: Financials
Expected quarterly performance summary (INR Million)CMP Rating Net Interest income Operating Profit Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Financials
Private Banks
Axis Bank 1,137 Buy 22,743 13.3 4.3 20,314 14.4 3.5 11,242 22.2 -2.5
Federal Bank 446 Buy 5,190 9.4 5.6 3,835 6.1 10.7 2,006 4.9 5.4
HDFC Bank 629 Neutral 36,067 22.5 3.5 27,598 29.8 6.9 15,616 30.2 10.2
ICICI Bank 1,057 Buy 32,582 30.0 2.0 30,430 29.3 3.2 18,236 21.3 0.5
IndusInd Bank 354 Buy 5,232 24.8 8.1 4,300 29.1 6.4 2,481 28.5 5.0
ING Vysya Bank 407 Buy 3,527 16.1 2.7 2,254 19.0 3.6 1,321 14.5 1.5
Kotak Mah. Bank (SA) 648 Neutral 7,463 23.3 3.5 4,564 20.1 1.8 2,764 6.3 -2.1
Yes Bank 382 Buy 4,975 29.0 5.4 4,893 26.8 6.5 3,066 30.5 5.7
Pvt Banking Sector Aggregate 117,778 22.1 3.6 98,187 24.2 4.8 56,733 22.9 2.9
PSU Banks
Andhra Bank 113 Buy 9,737 2.4 3.8 6,990 1.8 -0.6 3,209 1.5 -11.3
Bank of Baroda 799 Neutral 28,121 9.6 0.5 22,446 5.5 0.2 10,833 -7.1 -4.9
Bank of India 310 Neutral 23,844 25.2 16.7 18,708 20.6 11.8 7,095 44.5 -20.0
Canara Bank 431 Buy 19,006 -3.1 3.1 13,970 -13.0 0.2 7,336 -13.9 -5.4
Indian Bank 192 Buy 11,991 5.6 4.0 8,908 -3.3 6.0 4,709 0.5 2.0
Oriental Bank of Comm. 302 Buy 11,799 19.2 4.8 8,840 16.6 -1.4 3,320 98.0 -15.2
Punjab National Bank 840 Buy 37,455 8.5 1.4 28,275 11.9 -0.5 12,183 1.1 -2.2
State Bank 2,238 Buy 114,777 9.5 3.2 84,660 13.3 3.5 36,952 31.5 -1.5
Union Bank 208 Buy 19,468 17.2 6.9 13,685 13.6 8.0 5,834 65.5 14.0
PSU Banking Sector Aggregate 276,198 10.0 4.1 206,482 9.5 3.1 91,472 16.8 -4.0
PSU Banking Sector Aggregate Ex SBI 161,421 10.4 4.7 121,822 7.0 2.7 54,520 8.6 -5.6
NBFC
Dewan Housing 200 Buy 1,596 43.3 11.1 1,417 44.1 18.5 954 32.8 22.7
HDFC 773 Buy 14,663 17.9 12.4 16,413 21.2 15.6 11,592 19.4 15.7
IDFC# 154 Buy 6,548 31.5 4.1 6,793 31.0 3.6 4,002 20.5 5.4
LIC Housing Fin 282 Buy 3,817 14.2 8.9 3,730 11.2 7.2 2,559 1.3 12.4
M & M Financial 898 Buy 5,214 33.6 6.9 3,430 35.1 5.6 1,863 37.4 15.7
Power Finance Corp.* 189 Buy 14,031 29.9 0.7 13,806 30.9 0.4 9,713 21.1 -5.6
Rural Electric. Corp.* 218 Buy 11,711 23.3 0.5 11,801 23.0 -1.5 8,548 19.3 -5.5
Shriram Transport F in. 619 Buy 8,384 0.4 4.5 6,882 0.9 1.4 3,295 10.1 2.4
NBFC Banking Sector Aggregate 65,964 21.2 5.1 64,272 22.2 5.0 42,527 18.7 3.6
Sector Aggregate 459,940 14.4 4.1 368,940 15.2 3.9 190,732 19.0 -0.4
* For POWF/RECL operating profit and profit after tax are adjusted for forex gains/losses
# For IDFC operating profit and profit after tax growth is adjusted for extraordinary gains in 2QFY12
C–54October 2012
September 2012 Results Preview
Sector: Financials
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Private Banks
Axis Bank 1,137 Buy 102.7 109.5 125.6 11.1 10.4 9.0 2.1 1.8 1.6 20.3 18.8 18.4
Federal Bank 446 Buy 45.4 47.0 55.7 9.8 9.5 8.0 1.3 1.2 1.1 14.4 13.4 14.3
HDFC Bank 629 Neutral 22.0 28.7 35.8 28.6 21.9 17.6 4.9 4.2 3.6 18.7 20.7 21.9
ICICI Bank 1,057 Buy 56.1 68.3 78.7 18.9 15.5 13.4 2.1 1.9 1.7 12.8 14.2 14.7
IndusInd Bank 354 Buy 17.2 22.0 27.5 20.6 16.1 12.9 3.7 3.1 2.5 19.2 20.7 21.6
ING Vysya Bank 407 Buy 30.4 35.4 40.3 13.4 11.5 10.1 1.6 1.4 1.3 14.3 13.0 13.2
Kotak Mah. Bank 648 Neutral 24.7 26.2 29.8 26.2 24.7 21.8 3.7 3.2 2.8 15.4 13.7 13.8
Yes Bank 382 Buy 27.7 35.4 43.0 13.8 10.8 8.9 2.9 2.4 1.9 23.1 24.1 23.9
Private Bank Aggregate 19.7 16.4 13.9 3.1 2.7 2.4 15.9 16.7 17.4
PSU Banks
Andhra Bank 113 Buy 24.0 25.0 28.0 4.7 4.5 4.0 0.8 0.7 0.7 19.2 17.5 17.2
Bank of Baroda 799 Neutral 121.4 110.6 129.0 6.6 7.2 6.2 1.3 1.1 1.0 22.1 16.6 16.8
Bank of India 310 Neutral 46.6 53.9 63.7 6.7 5.8 4.9 1.0 0.8 0.7 15.6 15.5 16.0
Canara Bank 431 Buy 74.1 73.7 85.5 5.8 5.9 5.0 0.9 0.8 0.7 17.1 14.9 15.2
Indian Bank 192 Buy 40.6 42.8 45.7 4.7 4.5 4.2 0.9 0.8 0.7 19.8 18.0 16.8
Oriental Bank 302 Buy 39.1 50.8 56.6 7.7 5.9 5.3 0.8 0.7 0.7 10.7 12.7 12.8
Punjab Nat. Bank 840 Buy 144.0 155.5 185.1 5.8 5.4 4.5 1.1 0.9 0.8 21.1 18.5 18.8
State Bank 2,238 Buy 228.6 284.5 330.3 9.4 7.5 6.5 1.4 1.2 1.0 17.2 17.8 18.0
Union Bank 208 Buy 32.3 42.0 48.1 6.4 4.9 4.3 0.9 0.8 0.7 14.9 16.8 16.9
PSU Bank Aggregate 7.4 6.5 5.6 1.3 1.1 0.9 17.4 16.7 16.8
NBFC
Dewan Housing 200 Buy 25.6 37.7 51.3 7.8 5.3 3.9 1.2 1.0 0.8 18.5 21.7 22.7
HDFC 773 Buy 27.9 32.1 38.6 22.7 19.1 15.0 5.9 5.4 4.3 27.3 29.4 30.9
IDFC 154 Buy 10.3 10.9 13.3 15.0 14.2 11.7 1.8 1.6 1.5 16.2 14.8 16.0
LIC Housing Fin 282 Buy 18.1 21.8 31.7 15.6 12.9 8.9 2.5 2.2 1.8 20.3 18.0 20.8
M & M Financial 898 Buy 60.4 79.4 93.7 14.9 11.3 9.6 3.1 2.6 2.2 22.8 25.1 24.6
Power Finance Corp 189 Buy 23.9 29.5 32.7 7.9 6.4 5.8 1.2 1.1 0.9 17.5 17.6 17.4
Rural Electric. Corp. 218 Buy 28.6 34.9 41.7 7.6 6.3 5.2 1.5 1.3 1.1 20.5 21.6 22.2
Shriram Transport 619 Buy 55.6 59.8 70.4 11.1 10.3 8.8 2.3 2.0 1.6 23.1 20.6 20.3
NBFC Aggregate 15.1 12.7 10.7 2.9 2.5 2.1 19.5 19.4 19.9
Sector Aggregate 12.3 10.6 9.0 2.1 1.8 1.6 17.3 17.2 17.5
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C–55October 2012
September 2012 Results Preview
Sector: Financials
Andhra Bank
Bloomberg ANDB IN
Equity Shares (m) 559.6
52 Week Range (INR) 139/79
1,6,12 Rel Perf (%) 17/-12/-23
Mcap (INR b) 63.0
Mcap (USD b) 1.2
CMP: INR113 Buy
Year NET INC. PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 41,179 12,671 22.6 5.0 5.0 116 1.0 1.0 1.3 23.2
3/12A 46,193 13,447 24.0 6.1 4.7 134 0.8 0.9 1.1 19.2
3/13E 49,767 13,998 25.0 4.1 4.5 152 0.7 0.9 1.0 17.5
3/14E 56,158 15,658 28.0 11.9 4.0 173 0.7 0.8 1.0 17.2
BSE Sensex S&P CNX
18,763 5,703
NIM is likely to be stable QoQ, as the benefit of fall in cost of funds would be negated by corresponding
pressure on yield on loans. The 25bp reduction in base rate in August 2012 and continuous reversal on account
of FITL would keep yields under pressure.
On a higher base of INR8.3b, slippages are likely to decline QoQ. However, due to challenges in the macro
environment, we model in slippages at an elevated level of INR5b+. ANDB has performed well on recoveries
and upgradations in 2HFY12, and strong performance on these could provide cushion to asset quality.
With the exception of SEBs, the pace of restructuring is likely to slow down in 2QFY13. However, ANDB's
exposure to some SEBs may get restructured in FY13.
The stock trades at 0.7x FY14E BV, and at 4x FY14E EPS. Maintain Buy.
Key things to watch for: (1) Asset quality: Net slippages and outlook on restructuring and (3) NIM performance.
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 26,342 27,825 29,230 29,990 31,215 32,004 32,887 34,083 113,387 130,188
Interest Expense 17,239 18,313 19,392 20,851 21,830 22,267 22,712 23,428 75,794 90,237
Net Interest Income 9,104 9,512 9,839 9,139 9,385 9,737 10,175 10,654 37,593 39,952
% Change (Y-o-Y) 23.7 21.4 17.1 6.1 3.1 2.4 3.4 16.6 16.7 6.3
Other Income 2,170 1,778 2,353 2,299 2,357 2,256 2,503 2,699 8,599 9,816
Net Income 11,273 11,290 12,191 11,438 11,742 11,993 12,679 13,354 46,193 49,767
Operating Expenses 4,277 4,423 4,515 4,828 4,708 5,003 5,172 5,656 18,042 20,540
Operating Profit 6,997 6,868 7,676 6,610 7,034 6,990 7,507 7,697 28,150 29,228
% Change (Y-o-Y) 37.1 21.7 22.5 -7.1 0.5 1.8 -2.2 16.5 16.7 3.8
Other Provisions 1,770 2,607 3,094 2,437 2,066 2,502 2,516 2,702 9,907 9,785
Profit before Tax 5,227 4,261 4,582 4,173 4,968 4,488 4,991 4,995 18,243 19,442
Tax Provisions 1,370 1,100 1,550 776 1,350 1,279 1,422 1,392 4,796 5,444
Net Profit 3,857 3,161 3,032 3,397 3,618 3,209 3,568 3,603 13,447 13,998
% Change (Y-o-Y) 20.4 4.3 -8.4 8.6 -6.2 1.5 17.7 6.1 6.1 4.1
Operating Metrics
NIM (Reported, %) 3.8 3.8 3.8 3.3 3.3 - - - 3.7 -
NIM (Cal, %) 3.7 3.8 3.8 3.3 3.2 3.3 3.3 3.3 3.5 3.2
Deposit Growth (%) 21.7 20.2 20.2 14.9 18.5 16.3 16.3 16.0 14.9 16.0
Loan Growth (%) 32.0 21.5 20.3 17.1 14.3 18.0 16.0 15.0 17.1 15.0
CASA Ratio (%) 27.8 26.1 26.6 26.4 26.7 - - - 26.4 -
Tax Rate (%) 26.2 25.8 33.8 18.6 27.2 28.5 28.5 27.9 26.3 28.0
Asset Quality
OSRL (INR b) 21.7 22.5 32.3 55.9 67.7 - - - 55.9 -
OSRL (%) 2.9 3.0 4.1 6.6 7.8 - - - 6.6 -
Gross NPA (INR b) 11.8 19.9 18.8 18.0 23.6 26.1 29.5 32.8 18.0 32.8
Gross NPA (%) 1.6 2.7 2.4 2.1 2.7 3.0 3.2 3.4 2.1 3.4
E: MOSL Estimates
C–56October 2012
September 2012 Results Preview
Sector: Financials
Axis Bank
Bloomberg AXSB IN
Equity Shares (m) 413.2
52 Week Range (INR) 1,309/785
1,6,12 Rel Perf (%) 5/-8/-8
Mcap (INR b) 469.7
Mcap (USD b) 8.9
CMP: INR1,137 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 111,951 33,885 82.5 33.0 - 463 - - 1.6 19.3
3/12A 134,380 42,422 102.7 24.4 11.1 547 2.1 2.1 1.6 20.3
3/13E 154,433 46,566 109.5 6.6 10.4 625 1.8 1.9 1.5 18.8
3/14E 182,976 53,422 125.6 14.7 9.0 731 1.6 1.6 1.5 18.4
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 48,814 52,760 57,770 60,603 64,829 66,526 68,292 69,665 219,946 269,311
Interest Expense 31,573 32,687 36,367 39,142 43,030 43,783 44,549 45,791 139,769 177,153
Net Interest Income 17,241 20,073 21,403 21,461 21,799 22,743 23,742 23,874 80,177 92,158
% Change (Y-o-Y) 13.9 24.3 23.5 26.2 26.4 13.3 10.9 11.2 22.2 14.9
Other Income 11,679 12,349 14,298 15,876 13,355 14,649 15,912 18,359 54,202 62,275
Net Income 28,920 32,422 35,701 37,337 35,154 37,392 39,654 42,233 134,380 154,433
Operating Expenses 13,335 14,665 15,109 16,962 15,517 17,078 18,104 19,007 60,071 69,706
Operating Profit 15,585 17,756 20,592 20,376 19,637 20,314 21,550 23,227 74,309 84,728
% Change (Y-o-Y) 7.5 19.5 24.2 11.9 26.0 14.4 4.7 14.0 15.8 14.0
Other Provisions 1,758 4,056 4,223 1,393 2,588 3,659 4,590 4,903 11,430 15,740
Profit before Tax 13,826 13,701 16,369 18,983 17,048 16,656 16,960 18,324 62,878 68,987
Tax Provisions 4,403 4,497 5,346 6,210 5,513 5,413 5,512 5,983 20,456 22,421
Net Profit 9,424 9,203 11,023 12,773 11,535 11,242 11,448 12,341 42,422 46,566
% Change (Y-o-Y) 27.0 25.2 23.7 25.2 22.4 22.2 3.9 -3.4 25.2 9.8
Operating Metrics
NIM (Reported,%) 3.3 3.8 3.8 3.6 3.4 - - - 3.6 -
NIM (Cal, %) 3.2 3.7 3.7 3.4 3.3 3.4 3.4 3.3 3.3 3.2
Deposit Growth (%) 24.5 23.9 33.9 16.3 21.3 17.9 14.3 15.0 16.3 15.0
Loan Growth (%) 21.4 26.7 20.4 19.2 29.8 25.8 24.4 18.0 19.2 18.0
CASA Ratio (%) 40.5 42.2 41.6 41.5 39.1 - - - 41.5 -
Tax Rate (%) 31.8 32.8 32.7 32.7 32.3 32.5 32.5 32.7 32.5 32.5
Asset Quality
OSRL (INR b) 21.5 24.1 27.0 30.6 38.3 - - - 30.6 -
OSRL (%) 1.6 1.7 1.8 1.8 2.2 - - - 1.8 -
Gross NPA (INR b) 15.7 17.4 19.1 18.1 20.9 24.7 28.3 32.5 18.1 32.5
Gross NPA (on customer assets, %) 1.1 1.1 1.1 0.9 1.1 1.4 1.5 1.6 0.9 1.6
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan growth is expected to remain strong at over 25% YoY, partially aided by a lower base of 2QFY12.
NIM are likely to expand by 10bp, as low yielding priority sector loans runs off and bulk deposit rates have
cooled down. In 1QFY13, AXSB had reported NIM of 3.4%.
Fee income growth is expected to be ~15% YoY. Pressure on fees from Corporate Banking and Capital Market-
related services is expected to continue, but Retail fees would remain strong.
Gross stress addition (i.e. gross slippage and addition to restructured loans) is expected to remain high, so does
the credit cost. Improvement in upgradations and recoveries remains the key.
The stock trades at 1.8x FY13E and 1.6x FY14E BV, and at 10.4x FY13E and 9.0x FY14E EPS. Buy.
Key things to watch for: (1) Pressure on asset quality has increased and performance on gross slippages and
restructured loans remains a key thing to monitor, (2) margins are expected to improve, but scope for positive
surprise remains, (3) fee income growth.
C–57October 2012
September 2012 Results Preview
Sector: Financials
Bank of Baroda
Bloomberg BOB IN
Equity Shares (m) 412.4
52 Week Range (INR) 881/606
1,6,12 Rel Perf (%) 21/-8/-13
Mcap (INR b) 329.3
Mcap (USD b) 6.2
CMP: INR799 Neutral
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 116,114 42,417 108 29.1 - 502 - - 1.3 25.2
3/12A 137,393 50,070 121 12.4 6.6 621 1.3 1.3 1.2 22.1
3/13E 154,075 45,605 111 -8.9 7.2 715 1.1 1.2 0.9 16.6
3/14E 180,172 53,193 129 16.6 6.2 825 1.0 1.0 0.9 16.8
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 66,318 72,514 76,720 81,185 85,576 86,580 89,114 93,379 296,737 354,649
Interest Expense 43,346 46,845 50,165 53,211 57,595 58,459 59,921 62,356 193,567 238,331
Net Interest Income 22,972 25,669 26,555 27,974 27,981 28,121 29,193 31,023 103,170 116,317
% Change (YoY) 23.6 25.9 15.8 7.0 21.8 9.6 9.9 10.9 17.2 12.7
Other Income 6,409 7,343 11,493 8,978 7,708 9,082 9,775 11,193 34,223 37,758
Net Income 29,380 33,013 38,048 36,952 35,689 37,203 38,968 42,216 137,393 154,075
Operating Expenses 11,198 11,743 12,097 16,550 13,281 14,757 15,187 17,007 51,587 60,232
Operating Profit 18,183 21,270 25,952 20,402 22,407 22,446 23,780 25,209 85,806 93,843
% Change (YoY) 19.0 28.4 40.2 4.9 23.2 5.5 -8.4 23.6 22.9 9.4
Other Provisions 3,911 4,834 8,367 8,437 8,938 7,807 8,109 8,981 25,548 33,836
Profit before Tax 14,272 16,436 17,585 11,965 13,469 14,639 15,671 16,227 60,258 60,007
Tax Provisions 3,944 4,775 4,686 -3,217 2,081 3,806 4,075 4,440 10,188 14,402
Net Profit 10,328 11,661 12,899 15,182 11,389 10,833 11,597 11,787 50,070 45,605
% Change (YoY) 20.2 14.4 20.7 17.3 10.3 -7.1 -10.1 -22.4 18.0 -8.9
Operating Metrics
NIM (Reported, %) 2.9 3.1 3.0 3.0 2.7 - - - 3.0 -
NIM (Calculated, %) 2.7 2.9 2.9 2.8 2.6 2.6 2.6 2.7 2.8 2.6
Deposit Growth (%) 22.9 22.1 24.0 26.0 22.3 19.8 18.5 16.0 26.0 16.0
Loan Growth (%) 25.2 23.9 25.8 25.7 23.0 22.5 17.4 16.0 25.7 16.0
CASA Ratio (%) 33.9 34.0 34.1 33.2 32.2 - - - 33.2 -
Tax Rate (%) 27.6 29.1 26.6 -26.9 15.4 26.0 26.0 27.4 16.9 24.0
Asset Quality
OSRL (INR b) 92.4 98.4 116.6 171.4 179.8 - - - 171.4 -
OSRL (%) 4.0 4.1 4.5 6.0 6.3 - - - 6.0 -
Gross NPA (INR b) 34.3 34.0 39.0 44.6 53.2 58.7 64.3 68.7 44.6 68.7
Gross NPA (%) 1.5 1.4 1.5 1.5 1.8 2.0 2.1 2.0 1.5 2.0
E: MOSL Estimates; # This includes loans restructured in international book
BSE Sensex S&P CNX
18,763 5,703
Margins should remain stable QoQ or decline marginally, as the pressure on yields on loans would offset any
benefits from fall in bulk deposit rates. NII is likely to grow 10% YoY.
We expect fee income growth to moderate to sub-5% YoY. However, higher trading gains would lead to strong
non-interest income growth of over 23% YoY.
Stress on the balance sheet has increased, with gross slippage ratio in the last two quarters at 2%+. While
slippages are expected to remain high, recoveries and upgradations could provide some respite to asset quality.
The pace of restructuring had slowed down in 1QFY13, with the bank restructuring loans worth INR7.7b as
against INR50.3b in 4QFY12. However, pressure in corporate segment restructuring is likely to continue.
The stock trades at 1.1x FY13E and 1x FY14E BV, and 7.2x FY13E and 6.2x FY14E EPS. Maintain Neutral.
Key things to watch for: (1) Performance on asset quality, especially on gross slippages, (2) Restructured portfolio,
(3) Fee income growth, (4) Guidance on tax rate.
C–58October 2012
September 2012 Results Preview
Sector: Financials
Bank of India
Bloomberg BOI IN
Equity Shares (m) 574.5
52 Week Range (INR) 408/254
1,6,12 Rel Perf (%) 11/-20/-16
Mcap (INR b) 178.3
Mcap (USD b) 3.4
CMP: INR310 Neutral
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr.(%) (X) (INR) (X) (X) (%) (%)
3/11A 104,525 24,887 45.5 37.4 - 283 - - 0.8 17.8
3/12A 116,346 26,775 46.6 2.5 6.7 327 1.0 1.1 0.7 15.6
3/13E 132,579 30,974 53.9 15.7 5.8 371 0.8 1.0 0.7 15.5
3/14E 156,010 36,582 63.7 18.1 4.9 423 0.7 0.9 0.7 16.0
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 66,336 68,864 71,501 78,106 77,092 81,777 83,948 86,111 284,807 328,928
Interest Expense 47,926 49,825 50,826 53,096 56,656 57,933 59,028 60,033 201,672 233,650
Net Interest Income 18,410 19,039 20,676 25,010 20,436 23,844 24,920 26,078 83,134 95,278
% Change (Y-o-Y) 5.8 7.2 4.1 8.4 11.0 25.2 20.5 4.3 6.4 14.6
Other Income 6,601 8,418 8,522 9,671 8,409 8,553 9,363 10,977 33,212 37,302
Net Income 25,011 27,457 29,197 34,681 28,844 32,397 34,283 37,055 116,346 132,579
Operating Expenses 11,051 11,942 11,878 14,535 12,109 13,689 14,059 16,726 49,407 56,582
Operating Profit 13,959 15,515 17,319 20,146 16,736 18,708 20,225 20,329 66,939 75,997
% Change (Y-o-Y) -1.0 12.5 24.7 67.1 19.9 20.6 16.8 0.9 24.3 13.5
Other Provisions 5,672 11,544 6,931 7,018 4,722 8,350 9,250 9,426 31,164 31,748
Profit before Tax 8,287 3,972 10,388 13,128 12,013 10,358 10,975 10,903 35,775 44,249
Tax Provisions 3,112 -940 3,227 3,601 3,139 3,263 3,457 3,416 9,000 13,275
Net Profit 5,175 4,911 7,162 9,527 8,875 7,095 7,518 7,487 26,775 30,974
% Change (Y-o-Y) -28.6 -20.4 9.7 93.0 71.5 44.5 5.0 -21.4 7.6 15.7
Operating Metrics
NIM (Reported, %) 2.2 2.4 2.6 2.9 2.3 - - - 2.5 -
NIM (Cal, %) 2.3 2.4 2.5 2.9 2.2 2.5 2.6 2.6 2.5 2.5
Deposit Growth (%) 25.4 24.1 21.7 6.5 15.7 16.7 17.6 18.0 6.5 18.0
Loan Growth (%) 21.6 17.7 20.9 16.3 22.9 24.9 19.9 17.2 16.3 17.2
CASA Ratio (Reported, %) 30.5 31.6 32.4 34.3 32.0 - - - 34.3 -
Tax Rate (%) 37.6 -23.7 31.1 27.4 26.1 31.5 31.5 31.3 25.2 30.0
Asset Quality
OSRL (INR b) 87.6 84.5 104.5 134.8 175.7 - - - 134.8 -
OSRL (%) 4.1 3.9 4.5 5.4 6.6 - - - 5.4 -
Gross NPA (INR b) 57.9 65.5 63.9 58.9 67.5 75.3 83.7 92.7 58.9 92.7
Gross NPA (%) 2.7 3.0 2.7 2.3 2.6 2.8 3.0 3.1 2.3 3.1
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan growth is likely to be above industry average at ~25% YoY, while deposit growth is likely to be lower at
~17%. Lower deposit growth is in line with the bank’s strategy to reduce bulk deposits in its balance sheet.
Margins are expected to improve by ~25bp in the absence of one-offs. In 1QFY13, margins had declined sharply
by 60bp led by reversal of interest income on Air India restructuring and NPAs.
Fee income should grow ~15% YoY. However, overall growth in non-interest income is likely to be flat, led by
muted treasury gains and recoveries from written-off accounts.
High slippages and restructuring are likely to continue translating into higher credit cost.
The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 5.8x FY13E and 4.9x FY14E EPS. Maintain Neutral.
Key things to watch for: (1) Gross and net slippages, (2) Restructured portfolio and outlook on the same,
(3) Margin movement.
C–59October 2012
September 2012 Results Preview
Sector: Financials
Canara Bank
Bloomberg CBK IN
Equity Shares (m) 443.0
52 Week Range (INR) 566/306
1,6,12 Rel Perf (%) 28/-15/-19
Mcap (INR b) 191.0
Mcap (USD b) 3.6
CMP: INR431 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 105,108 40,259 90.9 23.3 - 405 - - 1.3 26.4
3/12A 106,169 32,827 74.1 -18.5 5.8 464 0.9 1.0 0.9 17.1
3/13E 111,631 32,634 73.7 -0.6 5.9 525 0.8 0.9 0.8 14.9
3/14E 133,833 37,860 85.5 16.0 5.0 597 0.7 0.8 0.8 15.2
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 71,565 76,145 78,121 82,675 84,729 85,962 87,872 90,080 308,506 348,642
Interest Expense 53,877 56,528 58,935 62,273 66,293 66,956 67,626 68,343 231,613 269,218
Net Interest Income 17,688 19,617 19,186 20,402 18,435 19,006 20,246 21,736 76,893 79,424
% Change (Y-o-Y) 2.4 -2.1 -8.2 5.0 4.2 -3.1 5.5 6.5 -0.1 3.3
Other Income 5,510 8,283 7,791 7,693 6,926 7,542 8,344 9,395 29,276 32,208
Net Income 23,198 27,900 26,976 28,094 25,362 26,548 28,590 31,132 106,169 111,631
Operating Expenses 10,495 11,847 11,209 13,187 11,424 12,578 13,342 15,066 46,737 52,409
Operating Profit 12,703 16,053 15,767 14,907 13,938 13,970 15,248 16,066 59,432 59,222
% Change (Y-o-Y) -14.4 13.4 4.2 -12.0 9.7 -13.0 -3.3 7.8 -2.4 -0.4
Other Provisions 3,446 5,531 5,012 4,616 4,185 4,800 4,715 4,729 18,605 18,430
Profit before Tax 9,258 10,522 10,756 10,291 9,752 9,170 10,533 11,337 40,827 40,792
Tax Provisions 2,000 2,000 2,000 2,000 2,000 1,834 2,107 2,218 8,000 8,158
Net Profit 7,258 8,522 8,756 8,291 7,752 7,336 8,426 9,119 32,827 32,634
% Change (Y-o-Y) -28.4 -15.4 -20.8 -7.8 6.8 -13.9 -3.8 10.0 -18.5 -0.6
Operating Metrics
NIM (Rep, %) 2.4 2.6 2.6 2.6 2.4 - - - 2.5 -
NIM (Cal, %) 2.4 2.5 2.4 2.5 2.2 2.2 2.3 2.4 2.5 2.3
Deposit Growth (%) 25.7 25.4 19.7 11.5 11.5 10.3 12.5 12.0 11.5 12.0
Loan Growth (%) 23.7 23.8 15.5 10.0 4.9 6.6 10.2 11.0 10.0 11.0
CASA Ratio (%) 25.4 25.8 23.9 24.3 23.3 - - - 24.3 -
Tax Rate (%) 21.6 19.0 18.6 19.4 20.5 20.0 20.0 19.6 19.6 20.0
Asset Quality
OSRL (INR b) 78.1 77.2 85.1 75.1 129.6 - - - 75.1 -
OSRL (%) 3.6 3.5 3.9 3.2 5.7 - - - 3.2 -
Gross NPA (INR b) 36.1 37.9 40.0 40.3 45.0 48.1 50.0 51.3 40.3 51.3
Gross NPA (%) 1.7 1.7 1.8 1.7 2.0 2.1 2.1 2.0 1.7 2.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan and deposit growth is expected to be below industry average at ~7% and ~10%, respectively, in line with
CBK's strategy of de-bulking the balance sheet.
Margins are expected to remain largely flat QoQ.
Fee income growth is likely to be muted on a YoY basis. Lower decline in recoveries from written-off accounts
may pressurize overall non-interest income growth.
Slippages expected to remain at elevated levels. However, strong performance on recoveries and upgradations
may ease some pressure. As at the end of 1QFY13, CBK has restructured INR55b of SEB loans, out of its overall
exposure of INR120b.
The stock trades at 0.8x FY13E and 0.7x FY14E BV, and 5.9x FY13E and 5x FY14E EPS. Buy.
Key things to watch for: (1) Margins could surprise positively, (2) Trading profits and MTM write-back, given high
proportion of AFS investments, (3) Performance on net slippages.
C–60October 2012
September 2012 Results Preview
Sector: Financials
Dewan Housing Finance
Bloomberg DEWH IN
Equity Shares (m) 116.8
52 Week Range (INR) 279/142
1,6,12 Rel Perf (%) 13/-25/-19
Mcap (INR b) 23.4
Mcap (USD b) 0.4
CMP: INR200 Buy
Year Net Income PAT EPS EPS P/E BV P/BV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (%) (%)
3/11A 7,126 2,937 28.1 48.8 - 149 - 2.0 26.7
3/12E 8,418 2,987 25.6 -9.1 7.8 173 1.2 1.3 18.5
3/13E 12,158 4,408 37.7 47.6 5.3 206 1.0 1.5 21.7
3/14E 15,225 5,507 51.3 36.1 3.9 246 0.8 1.4 22.7
BSE Sensex S&P CNX
18,763 5,703
Consolidated financials
DEWH’s strong loan growth momentum is likely to continue in 2QFY13. We expect loan growth (on balance
sheet) of 35%+ YoY and AUM growth of 45%+ YoY. We expect NII to grow 43% YoY to INR1.6b.
Margins are likely to remain stable QoQ, as the liquidity situation has eased considerably and wholesale
borrowing costs have come off substantially.
We expect asset quality to remain stable sequentially.
We expect PAT to grow 33% YoY and 23% QoQ to INR954m.
The stock trades at 1x FY13E and 0.8x FY14E BV. Maintain Buy.
Key things to watch for: (1) Business growth trends, (2) Movement in spreads, (3) Cost to income ratio,
(4) FBHFL performance.
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 4,652 5,404 6,029 6,498 6,957 7,531 8,039 8,603 22,583 31,130
Interest Expenses 3,599 4,290 4,788 5,213 5,521 5,935 6,262 6,666 17,890 24,383
Net Interest Income 1,053 1,114 1,241 1,285 1,436 1,596 1,778 1,937 4,693 6,747
YoY Growth (%) 48.2 37.4 43.6 34.7 36.4 43.3 43.3 50.8 40.5 43.8
Fees and other income 325 486 590 714 432 600 650 713 2,114 2,395
Net Income 1,378 1,599 1,831 1,999 1,868 2,196 2,428 2,651 6,807 9,142
YoY Growth (%) 36.0 3.9 47.2 40.3 35.5 37.3 32.6 32.6 30.4 34.3
Operating Expenses 471 616 692 806 672 779 860 924 2,585 3,235
YoY Growth (%) 36.0 50.0 60.0 46.0 43.0 26.0 24.0 15.0 48.0 25.0
Operating Profits 907 983 1,138 1,193 1,196 1,417 1,568 1,727 4,221 5,907
YoY Growth (%) 36.0 -13.0 40.0 36.0 32.0 44.0 38.0 45.0 21.0 40.0
Provisions 33.0 116.0 150.0 -62.0 150.0 127.0 134.0 171.2 237.0 582.2
Profit before Tax 874 867 988 1,255 1,046 1,290 1,434 1,556 3,984 5,325
Tax Provisions 216 148 238 317 268 335 373 408 920 1,385
PAT including extraordinary item 658.1 718.9 749.7 937.6 778.0 954.5 1,061.0 1,147.2 3,064.3 3,940.7
YoY Growth (%) 28.4 -23.1 21.4 59.9 18.2 32.8 41.5 22.4 15.6 28.6
Extraordinary Items 0 0 0 250 0 0 0 0 250 0
PAT excluding extraordinary item 658 719 750 688 778 954 1,061 1,147 2,814 3,941
YoY Growth (%) 28.4 23.9 21.4 17.2 18.2 32.8 41.5 66.8 22.5 40.0
Operating Metrics
Loan growth (%) 56.7 50.7 49.8 37.2 39.5 37.2 37.1 44.6 37.2 44.6
Borrowings growth (%) 55.9 61.7 50.8 28.9 38.6 28.9 41.1 47.6 28.9 47.6
Cost to Income Ratio (%) 34.2 38.5 37.8 40.3 36.0 35.5 35.4 34.9 38.0 35.4
Tax Rate (%) 24.7 17.1 24.1 25.3 25.6 26.0 26.0 26.3 23.1 26.0
E: MOSL Estimates
C–61October 2012
September 2012 Results Preview
Sector: Financials
Federal Bank
Bloomberg FB IN
Equity Shares (m) 171.0
52 Week Range (INR) 480/322
1,6,12 Rel Perf (%) 4/-3/7
Mcap (INR b) 76.2
Mcap (USD b) 1.4
CMP: INR446 Buy
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 12,447 13,678 14,668 14,790 15,367 15,849 16,128 16,424 55,584 63,769
Interest Expense 7,850 8,934 9,388 9,878 10,451 10,660 10,793 10,928 36,050 42,832
Net Interest Income 4,598 4,744 5,280 4,912 4,916 5,190 5,335 5,496 19,534 20,937
% Change (YoY) 11.2 8.2 18.1 9.7 6.9 9.4 1.0 11.9 11.8 7.2
Other Income 1,169 1,170 1,379 1,606 1,243 1,451 1,596 1,821 5,323 6,111
Net Income 5,767 5,914 6,660 6,518 6,160 6,640 6,931 7,317 24,857 27,048
Operating Expenses 2,226 2,301 2,472 2,793 2,695 2,805 2,944 3,162 9,793 11,605
Operating Profit 3,541 3,613 4,187 3,724 3,465 3,835 3,988 4,156 15,065 15,443
% Change (YoY) 5.6 -6.2 17.4 6.3 -2.1 6.1 -4.8 11.6 5.6 2.5
Other Provisions 1,340 722 1,153 155 628 818 962 1,122 3,370 3,530
Profit before Tax 2,200 2,891 3,035 3,569 2,837 3,017 3,025 3,033 11,695 11,913
Tax Provisions 739 979 1,016 1,193 934 1,011 998 929 3,927 3,872
Net Profit 1,462 1,912 2,019 2,376 1,904 2,006 2,027 2,104 7,768 8,041
% Change (YoY) 10.8 36.2 41.1 38.4 30.2 4.9 0.4 -11.4 32.3 3.5
Operating Metrics
NIM (Reported,%) 3.9 3.8 3.9 3.6 3.4 - - - 3.8 -
NIM (Cal, %) 3.9 3.8 4.0 3.6 3.4 3.5 3.5 3.5 3.8 3.5
Deposit Growth (%) 22.7 30.9 26.6 13.8 17.8 10.7 16.4 16.0 13.8 16.0
Loan Growth (%) 17.8 21.6 17.6 18.2 19.0 16.6 22.7 15.0 18.2 15.0
CASA Ratio (%) 27.2 26.4 28.7 27.5 28.7 - - - 27.5 -
Tax Rate (%) 33.6 33.9 33.5 33.4 32.9 33.5 33.0 30.6 33.6 32.5
Asset Quality
OSRL (INR b) 14.2 14.5 14.4 24.7 26.7 - - - 24.7 -
OSRL (%) 4.4 4.3 4.3 6.5 7.0 - - - 6.5 -
Gross NPA (INR b) 13.0 12.5 13.6 13.0 14.1 15.3 16.5 18.1 13.0 18.1
Gross NPA (%) 3.9 3.6 4.0 3.4 3.6 3.8 3.9 4.1 3.4 3.4
E: MOSL Estimates
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 22,634 5,871 34.3 26.4 - 298 - - 1.2 12.0
3/12A 24,857 7,768 45.4 32.3 9.8 333 1.3 1.4 1.4 14.4
3/13E 27,048 8,041 47.0 3.5 9.5 369 1.2 1.3 1.2 13.4
3/14E 32,209 9,530 55.7 18.5 8.0 412 1.1 1.2 1.3 14.3
BSE Sensex S&P CNX
18,763 5,703
We expect loan growth to remain in line with industry average at ~17%. However, on a high base deposit growth
expected to be below industry average at ~11%.
Easing pressure on cost of deposits, improving yield on advances and absence of one-offs is likely to provide
cushion to margins, which are expected to improve ~10bp.
Fee income is expected to grow by ~5% YoY. However, expected strong trading gains would drive overall non-
interest income, which is likely to grow ~24% YoY.
On slippages, we expect a run-rate similar to 1QFY13. However, stress in the large corporate segment remains
a risk.
The stock trades at 1.2x FY13E and 1.1x FY14E BV, with RoA of over 1.2%. However, RoE is likely to be in lower-
teens, as leverage remains low on strong capital base. Maintain Buy.
Key things to watch for: (1) Trend in slippages and recoveries, (2) Business growth, (3) Fee income performance.
C–62October 2012
September 2012 Results Preview
Sector: Financials
HDFC
Bloomberg HDFC IN
Equity Shares (m) 1,477.0
52 Week Range (INR) 785/601
1,6,12 Rel Perf (%) 0/7/7
Mcap (INR b) 1,141.5
Mcap (USD b) 21.7
CMP: INR773 Buy
Year Net Income PAT EPS EPS P/BV ABV* AP/ABV* AP/AE# RoAA Adj RoE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 53,181 35,350 24.1 22.4 - 91.2 - - 2.9 26.6
3/12A 61,975 41,226 27.9 15.8 6.0 100.5 5.9 22.7 2.8 27.3
3/13E 75,126 49,225 32.1 15.1 4.9 105.9 5.4 19.1 2.9 29.4
3/14E 90,173 59,173 38.6 20.2 4.3 125.8 4.3 15.0 2.9 30.9
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 36,098 39,340 42,488 46,823 46,924 49,222 50,596 56,535 163,689 203,277
Interest Expense 25,149 26,905 30,124 29,389 33,882 34,560 35,078 35,906 111,568 139,426
Net Interest Income 10,948 12,435 12,364 17,434 13,042 14,663 15,518 20,629 52,121 63,852
YoY Change (%) 17.1 14.7 15.1 27.2 19.1 17.9 25.5 18.3 16.3 22.5
Profit on Sale of Inv. 163 869 880 791 202 500 750 1,048 2,702 2,500
Other operating income 1,909 1,430 1,306 1,233 2,223 2,550 1,600 2,151 6,939 8,524
Net Operating Income 13,020 14,734 14,549 19,458 15,467 17,713 17,868 23,828 61,762 74,876
YoY Change (%) 20.8 18.1 9.9 18.3 18.8 20.2 22.8 22.5 16.7 21.2
Other Income 47 52 52 63 74 50 50 40 213 250
Total Income 13,067 14,786 14,601 19,520 15,541 17,763 17,918 23,868 61,975 75,126
Operating Expenses 1,132 1,239 1,119 1,030 1,342 1,350 1,475 1,337 4,519 5,504
Pre Provisioning Profit 11,935 13,547 13,483 18,491 14,199 16,413 16,443 22,531 57,456 69,622
YoY Change (%) 21.6 17.9 9.8 17.1 19.0 21.2 22.0 21.8 16.4 21.2
Provisions 180 170 200 250 400 424 456 678 800 1,958
PBT Ex Invest. profits 11,593 12,508 12,403 17,450 13,597 15,489 15,237 20,805 53,954 65,164
YoY Change (%) 19.9 16.4 18.6 22.9 17.3 23.8 22.9 19.2 19.7 20.8
PBT 11,755 13,377 13,283 18,241 13,799 15,989 15,987 21,852 56,656 67,664
YoY Change (%) 21.6 18.0 9.5 17.4 17.4 19.5 20.4 19.8 16.4 19.4
Provision for Tax 3,310 3,670 3,470 4,980 3,780 4,397 4,356 5,905 15,430 18,438
PAT 8,445 9,707 9,813 13,261 10,019 11,592 11,630 15,947 41,226 49,225
YoY Change (%) 21.6 20.2 10.1 16.1 18.6 19.4 18.5 20.3 16.6 19.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
* Price adj. for value of key ventures. BV is adj. by deducting invt in key ventures from NW
# Price adj. for value of key ventures. EPS is adj. for dividend from key ventures
HDFC’s loan growth (net of sell downs) is likely to remain healthy at ~20%+ YoY. Spreads should be largely stable
at ~2.2%.
Non-interest income is likely to grow ~33% YoY. We have modeled investment gains of INR500m as against
INR869m in 2QFY12. We expect dividend income to increase to INR1.8b from INR1.6b in 1QFY13.
Asset quality has remained healthy over the past several quarters and the trend is likely to continue. In 1QFY13,
GNPAs were 0.79% on 90 days overdue basis and 0.49% on 180 days overdue basis.
However, we conservatively model higher provisions (similar to 1QFY13 levels) of INR424m against INR400m in
1QFY13 and INR170m in 2QFY12.
The stock trades at 4.3x FY14E AP/ABV and 15x FY14E AP/AEPS (price adjusted for value of other businesses and
book value adjusted for investments made in those businesses). Maintain Buy.
Key things to watch for: (1) Movement of spreads, (2) Loan growth and guidance, (3) Asset quality trend.
C–63October 2012
September 2012 Results Preview
Sector: Financials
HDFC Bank
Bloomberg HDFCB IN
Equity Shares (m) 2,346.7
52 Week Range (INR) 639/400
1,6,12 Rel Perf (%) 0/13/23
Mcap (INR b) 1,475.4
Mcap (USD b) 28.0
CMP: INR629 Neutral
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 148,783 39,264 16.9 31.0 - 109.1 - - 1.6 16.7
3/12A 175,405 51,671 22.0 30.4 28.6 127.4 4.9 5.0 1.7 18.7
3/13E 217,274 67,291 28.7 30.2 21.9 149.4 4.2 4.3 1.8 20.7
3/14E 263,511 83,920 35.8 24.7 17.6 176.8 3.6 3.6 1.8 21.9
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 59,780 67,177 72,026 73,880 80,074 82,658 85,171 87,352 272,864 335,254
Interest Expense 31,300 37,732 40,867 39,997 45,234 46,591 47,290 47,857 149,896 186,971
Net Interest Income 28,480 29,445 31,160 33,883 34,841 36,067 37,881 39,494 122,968 148,283
% Change (Y-o-Y) 18.6 16.6 12.2 19.3 22.3 22.5 21.6 16.6 16.6 20.6
Other Income 11,200 12,117 14,200 14,920 15,295 16,424 17,770 19,502 52,437 68,990
Net Income 39,680 41,562 45,360 48,803 50,135 52,491 55,651 58,996 175,405 217,274
Operating Expenses 19,346 20,304 21,580 24,671 24,326 24,894 25,304 28,336 85,901 102,860
Operating Profit 20,334 21,258 23,780 24,132 25,809 27,598 30,347 30,660 89,504 114,414
% Change (Y-o-Y) 16.3 17.6 14.7 15.1 26.9 29.8 27.6 27.1 15.9 27.8
Other Provisions 4,437 3,661 3,292 2,983 4,873 4,800 3,200 2,946 14,373 15,819
Profit before Tax 15,897 17,598 20,488 21,149 20,936 22,798 27,147 27,714 75,132 98,594
Tax Provisions 5,047 5,604 6,191 6,618 6,762 7,181 8,551 8,809 23,461 31,304
Net Profit 10,850 11,994 14,297 14,531 14,174 15,616 18,595 18,905 51,671 67,291
% Change (Y-o-Y) 33.7 31.5 31.4 30.4 30.6 30.2 30.1 30.1 31.6 30.2
Operating Metrics
NIM (Reported,%)* 4.2 4.1 4.1 4.2 4.3 - - - 4.2 -
NIM (Cal, %)# 4.7 4.5 4.6 4.7 4.6 4.5 4.5 4.5 4.6 4.5
Deposit Growth (%) 15.4 18.1 21.0 18.3 22.0 18.9 24.4 21.0 18.3 21.0
Loan Growth (%) 20.0 20.0 22.1 22.2 21.5 20.5 21.6 22.0 22.2 22.0
CASA Ratio (%) 49.1 47.3 48.6 48.4 46.0 - - - 48.4 -
Tax Rate (%) 31.7 31.8 30.2 31.3 32.3 31.5 31.5 31.8 31.2 31.8
Asset Quality
OSRL (INR b) 3.5 1.9 1.9 2.0 2.1 - - - 2.0 -
OSRL (%) 0.2 0.1 0.1 0.1 0.1 - - - 0.1 -
Gross NPA (INR b) 18.3 18.9 20.2 20.0 20.9 24.0 26.4 28.3 20.0 28.3
Gross NPA (%) 1.0 1.0 1.0 1.0 1.0 1.0 1.1 1.2 1.0 1.2
E: MOSL Estimates; * Reported on total assets; # Cal. on interest earning assets
BSE Sensex S&P CNX
18,763 5,703
HDFCB is expected to deliver above industry loan and deposit growth, both on a YoY and QoQ basis. On a YoY
basis, loans and deposits are likely to grow ~20% and ~19%, respectively.
NIMs are expected to decline marginally QoQ. Strong loan growth coupled with healthy margins would translate
into NII growth of 3% QoQ and ~23% YoY .
Fee income growth is expected to be 20%+, aided by lower base. Further, trading gains and strong growth in
forex income would boost growth in non-interest income to 30%+.
Asset quality is likely to remain healthy. However, stress in few segments of retail loans has increased, which
needs to be watched.
The stock trades at 4.2x FY13E and 3.6x FY14E BV, and at 21.9x FY13E and 17.6x FY14E EPS. Maintain Neutral.
Key things to watch for: (1) Traction in fee income, (2) Being largely in retail lending, HDFCB has reported
commendable asset quality performance; trend and outlook on retail portfolio remains a key factor to watch.
C–64October 2012
September 2012 Results Preview
Sector: Financials
ICICI Bank
Bloomberg ICICIBC IN
Equity Shares (m) 1,152.8
52 Week Range (INR) 1,087/641
1,6,12 Rel Perf (%) 8/13/8
Mcap (INR b) 1,218.8
Mcap (USD b) 23.1
CMP: INR1,057 Buy
Year Net Income PAT EPS EPS P/E AP/E* ABV* AP/ABV* Core RoAA
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (INR) (X) RoAE (%) (%)
3/11A 156,648 51,514 44.7 23.9 - 19.7 371 - 11.5 1.3
3/12A 182,369 64,653 56.1 25.4 18.9 15.6 409 2.1 12.8 1.5
3/13E 220,063 78,775 68.3 21.8 15.5 12.6 453 1.9 14.2 1.5
3/14E 256,506 90,734 78.7 15.2 13.4 10.7 504 1.7 14.7 1.5
* Price adjusted for value of key ventures and BV adjusted for investments in these ventures
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 76,185 81,576 85,919 91,746 95,457 98,015 100,263 102,354 335,427 396,088
Interest Expense 52,076 56,512 58,799 60,699 63,527 65,433 65,924 65,433 228,085 260,317
Net Interest Income 24,109 25,064 27,120 31,048 31,929 32,582 34,339 36,920 107,342 135,771
% Change (YoY) 21.1 13.7 17.3 23.7 32.4 30.0 26.6 18.9 19.0 26.5
Other Income 16,429 17,396 18,919 22,285 18,799 19,902 22,060 23,530 75,028 84,292
Net Income 40,538 42,460 46,039 53,332 50,729 52,484 56,399 60,451 182,369 220,063
Operating Expenses 18,200 18,922 19,168 22,216 21,235 22,054 22,996 24,595 78,504 90,880
Operating Profit 22,338 23,537 26,871 31,116 29,493 30,430 33,403 35,856 103,865 129,183
% Change (YoY) 2.1 6.4 14.7 35.0 32.0 29.3 24.3 15.2 14.8 24.4
Other Provisions 4,539 3,188 3,411 4,693 4,659 5,449 5,963 5,201 15,830 21,273
Profit before Tax 17,800 20,350 23,460 26,423 24,835 24,981 27,440 30,654 88,034 107,910
Tax Provisions 4,480 5,318 6,179 7,405 6,684 6,745 7,409 8,298 23,382 29,136
Net Profit 13,320 15,032 17,281 19,018 18,151 18,236 20,031 22,356 64,653 78,775
% Change (YoY) 29.8 21.6 20.3 31.0 36.3 21.3 15.9 17.6 25.5 21.8
Operating Metrics
NIM (Reported,%) 2.6 2.6 2.7 3.0 3.0 - - - 2.7 -
NIM (Cal, %) 2.5 2.5 2.5 2.8 2.8 2.8 2.8 2.9 2.6 2.8
Deposit Growth (%) 14.8 9.9 19.7 13.3 16.1 13.6 12.2 20.6 13.3 20.6
Loan Growth (%) 19.7 20.5 19.1 17.3 21.6 18.2 15.7 15.4 17.3 15.4
CASA Ratio (%) 40.0 38.3 39.0 39.0 39.1 - - - 39.0 -
Tax Rate (%) 25.2 26.1 26.3 28.0 26.9 27.0 27.0 27.1 26.6 27.0
Asset Quality
OSRL (INR b) 19.7 25.0 30.7 42.6 41.7 - - - 42.6 -
OSRL (%) 0.9 1.1 1.2 1.7 1.6 - - - 1.7 -
Gross NPA (INR b) 99.8 100.2 97.2 94.8 98.2 99.2 102.2 104.1 94.8 104.1
Gross NPA (%) 4.4 4.1 3.8 3.6 3.5 3.5 3.5 3.5 3.6 3.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan growth is expected to remain healthy at 18% YoY, led by growth in the domestic segment. While on a YoY
basis, deposit growth is likely to be a moderate 14%, on a QoQ basis, it is likely to be in line with loan growth.
Fee income is expected to be muted. However, trading profits as against trading loss of INR800m in 2QFY12
would provide cushion to non-interest income.
Asset quality has been holding fairly well over the past few quarters. We expect this to continue, given the
benign asset quality in the retail segment, changing loan portfolio mix (unsecured retail loans now constitute
just 1.3% of overall loans as against 9%+ in FY08), and better risk management practices.
Excluding subsidiaries, the stock trades at 1.7x FY14E ABV (BV adjusted for NPAs and investments in subsidiaries)
and 10.7x FY14E EPS. Maintain Buy.
Key things to watch for: (1) Margin performance, (2) Guidance on loan growth, (3) While performance on asset
quality has been strong, increasing stress in large and mid-corporate segments might lead to higher restructuring.
C–65October 2012
September 2012 Results Preview
Sector: Financials
IDFC
Bloomberg IDFC IN
Equity Shares (m) 1,512.4
52 Week Range (INR) 162/90
1,6,12 Rel Perf (%) 6/11/25
Mcap (INR b) 233.6
Mcap (USD b) 4.4
CMP: INR154 Buy
Year Net Inc. PAT EPS EPS P/E ABV AP/ABV RoAA Core
End (INR m) (INR m) (INR) Gr. (%) (x) (INR)* (x) (%) RoE (%)
3/11A 25,455 12,817 8.8 7.4 - 60.6 - 3.2 17.8
3/12A 29,788 15,540 10.3 17.1 15.0 72.7 1.8 2.9 16.2
3/13E 33,582 16,466 10.9 6.0 14.2 80.7 1.6 2.5 14.8
3/14E 39,479 20,047 13.3 21.7 11.7 90.5 1.5 2.6 16.0
*Adjusted for Investment in subsidaries , Prices adjusted for other ventures
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
NII 4,830 4,980 5,460 5,860 6,290 6,548 6,882 7,301 21,130 27,022
% Change (YoY) 43.3 33.2 18.7 22.6 30.2 31.5 26.1 24.6 28.1 27.9
- Infra Loans 4,280 4,390 4,730 5,400 5,550 5,763 6,022 6,352 18,800 23,687
- Treasury 550 590 730 460 740 786 860 949 2,330 3,335
Fees 1,165 1,480 1,220 1,037 1,392 1,145 1,270 1,530 4,902 5,336
- Asset management 620 800 680 600 640 750 800 940 2,700 3,130
- IB and Broking 150 180 240 140 90 95 145 208 710 538
- Loan related/others 395 500 300 297 662 300 325 382 1,492 1,669
Principal investments (20) 2,430 910 290 20 300 325 379 3,610 1,024
Other Income 76 11 7 63 14 40 65 81 157 200
Net Income 6,051 8,901 7,597 7,251 7,716 8,033 8,542 9,291 29,799 33,582
% Change (YoY) (1.1) 36.9 15.1 3.4 27.5 (9.7) 12.5 28.1 13.6 12.7
Operating Expenses 1,142 1,314 1,266 1,505 1,160 1,240 1,400 1,842 5,227 5,642
Operating profit 4,909 7,587 6,331 5,746 6,556 6,793 7,142 7,449 24,572 27,941
% Change (YoY) - 44.0 27.0 13.0 34.0 (10.0) 13.0 30.0 22.0 14.0
Provisions 399 631 978 838 1,026 1,000 1,000 1,051 2,846 4,077
PBT 4,509 6,956 5,353 4,908 5,530 5,793 6,142 6,398 21,726 23,864
Tax 1,378 1,715 1,537 1,590 1,713 1,796 1,904 1,984 6,219 7,398
PAT 3,132 5,241 3,816 3,319 3,817 3,997 4,238 4,413 15,508 16,466
Less: Consol Adjustments (4.8) (1.7) 4.1 (29.7) 19.2 (5.0) (5.0) (9.2) (32.1) 0.0
Consol PAT 3,136 5,243 3,812 3,348 3,798 4,002 4,243 4,423 15,540 16,466
% Change (YoY) (6.2) 54.9 18.6 16.5 21.1 (23.7) 11.3 32.1 21.2 6.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan growth is likely to remain strong. We model in 4% QoQ and 33% YoY loan growth.
We expect spreads to remain largely stable on a QoQ basis, translating into ~4% QoQ and 32% YoY growth in NII.
We factor modest gains of INR300m from principal investments as against INR2.4b in 2QFY12 (one-off; IDFC had
booked gains on partial stake sale in NSE).
Revenues from Investment Banking and Broking likely to remain muted sequentially, given the subdued activity
levels in capital markets. However, we expect revenues from Asset Management to improve marginally QoQ.
Asset quality is expected to remain stable. However, we conservatively model in provisions of INR1b as against
INR631m in 2QFY12.
The stock trades at 11.7x FY14E EPS and 1.5x FY14E ABV. Maintain Buy.
Key things to watch for: (1) Business growth guidance, (2) Movement in spreads, (3) Emerging asset quality
trends.
C–66October 2012
September 2012 Results Preview
Sector: Financials
Indian Bank
Bloomberg INBK IN
Equity Shares (m) 429.8
52 Week Range (INR) 265/152
1,6,12 Rel Perf (%) 12/-23/-25
Mcap (INR b) 82.6
Mcap (USD b) 1.6
CMP: INR192 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 52,180 17,141 39.9 10.2 - 184 - - 1.5 22.9
3/12A 56,502 17,470 40.6 1.9 4.7 215 0.9 0.9 1.3 19.8
3/13E 60,014 18,386 42.8 5.2 4.5 248 0.8 0.8 1.2 18.0
3/14E 68,846 19,621 45.7 6.7 4.2 283 0.7 0.7 1.1 16.8
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 27,814 30,348 32,240 31,911 33,738 34,530 35,220 35,799 122,313 139,287
Interest Expense 17,514 18,994 20,540 21,085 22,206 22,540 22,878 22,832 78,133 90,455
Net Interest Income 10,300 11,354 11,700 10,826 11,532 11,991 12,342 12,968 44,180 48,832
% Change (Y-o-Y) 11.2 15.5 12.8 -2.6 12.0 5.6 5.5 19.8 9.5 10.5
Other Income 2,493 3,423 2,812 3,070 2,227 2,958 2,973 3,024 12,322 11,181
Net Income 12,793 14,777 14,513 13,896 13,759 14,949 15,315 15,991 56,502 60,014
Operating Expenses 4,982 5,568 5,397 5,923 5,356 6,041 5,916 6,517 21,870 23,830
Operating Profit 7,811 9,209 9,116 7,973 8,402 8,908 9,399 9,474 34,632 36,183
% Change (Y-o-Y) -6.8 24.6 12.3 -11.7 7.6 -3.3 3.1 18.8 8.3 6.2
Other Provisions 1,770 2,203 2,361 5,618 1,457 1,982 2,348 3,158 11,953 8,945
Profit before Tax 6,042 7,005 6,754 2,354 6,945 6,926 7,051 6,316 22,679 27,238
Tax Provisions 1,972 2,318 1,495 -1,100 2,328 2,216 2,256 2,052 5,209 8,852
Net Profit 4,069 4,687 5,259 3,454 4,617 4,709 4,795 4,264 17,470 18,386
% Change (Y-o-Y) 10.5 12.7 7.0 -21.3 13.5 0.5 -8.8 23.4 1.9 5.2
Operating Metrics
NIM (%) 3.4 3.8 3.6 3.2 3.3 - - - 3.4 -
NIM (Cal, %) 3.6 3.8 3.7 3.3 3.5 3.5 3.5 3.5 3.6 3.5
Deposit Growth (%) 21.3 18.6 17.8 14.2 15.0 12.6 13.3 15.0 14.2 15.0
Loan Growth (%) 21.3 23.4 19.1 20.4 13.8 11.5 13.2 14.7 20.4 14.7
CASA Ratio (%) 31.3 30.0 31.3 31.5 29.3 - - - 31.5 -
Tax Rate (%) 32.6 33.1 22.1 (46.7) 33.5 32.0 32.0 32.5 23.0 32.5
Asset Quality
OSRL (INR b) 52.5 51.3 55.7 89.0 99.2 - - - 89.0 -
OSRL (%) 6.4 5.9 6.3 9.8 10.6 - - - 9.8 -
Gross NPA (INR b) 8.1 10.5 11.9 18.5 15.5 18.1 20.8 22.7 18.5 22.7
Gross NPA (%) 1.0 1.2 1.4 2.0 1.7 1.9 2.1 2.2 2.0 2.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect business growth to moderate further, with a loan and deposit growth of 12-13%.
NIM is likely to remain stable on a QoQ basis, however, decline ~30bp on a YoY basis. Consequently, NII growth
would be restricted to just 5% YoY.
Asset quality is expected to be under pressure, led by increased stress in the large corporate segment.
Performance on recoveries and upgradations would be a key thing to watch for.
INBK’s exposure to SEBs as at the end of 1QFY13 stood at INR50b, of which INR22b has been restructured.
Restructuring of SEBs and other corporate accounts would lead to an increase in the restructured portfolio.
The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 4.5x FY13E and 4.2x FY14E EPS. Maintain Buy.
Key things to watch for: (1) Asset quality outlook: Gross slippages and restructured portfolio, (2) Margin
performance.
C–67October 2012
September 2012 Results Preview
Sector: Financials
IndusInd Bank
Bloomberg IIB IN
Equity Shares (m) 467.7
52 Week Range (INR) 356/222
1,6,12 Rel Perf (%) 5/9/20
Mcap (INR b) 165.5
Mcap (USD b) 3.1
CMP: INR354 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 20,902 5,773 12.4 45.3 - 82 - - 1.4 19.3
3/12A 27,160 8,026 17.2 38.5 20.6 97 3.7 3.7 1.6 19.2
3/13E 35,438 10,287 22.0 28.2 16.1 115 3.1 3.1 1.6 20.7
3/14E 44,971 12,844 27.5 24.9 12.9 139 2.5 2.6 1.7 21.6
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 11,646 13,239 13,897 14,810 16,320 16,941 17,492 18,012 53,592 68,765
Interest Expense 7,746 9,047 9,591 10,166 11,479 11,709 11,885 12,012 36,549 47,085
Net Interest Income 3,900 4,192 4,307 4,644 4,841 5,232 5,607 6,000 17,042 21,680
% Change (YoY) 31.9 27.1 18.6 19.7 24.1 24.8 30.2 29.2 23.8 27.2
Other Income 2,154 2,392 2,651 2,921 3,188 3,264 3,494 3,812 10,118 13,758
Net Income 6,054 6,584 6,958 7,565 8,029 8,495 9,102 9,812 27,160 35,438
Operating Expenses 2,937 3,254 3,465 3,774 3,989 4,195 4,474 4,823 13,430 17,481
Operating Profit 3,117 3,330 3,492 3,791 4,040 4,300 4,628 4,989 13,730 17,957
% Change (YoY) 35.2 27.2 19.9 27.2 29.6 29.1 32.5 31.6 26.9 30.8
Other Provisions 446 470 428 460 535 625 725 832 1,804 2,717
Profit before Tax 2,671 2,860 3,064 3,331 3,505 3,675 3,903 4,157 11,927 15,240
Tax Provisions 870 929 1,005 1,097 1,143 1,194 1,268 1,347 3,900 4,953
Net Profit 1,802 1,931 2,060 2,234 2,363 2,481 2,635 2,809 8,026 10,287
% Change (YoY) 52.0 45.0 33.9 30.1 31.1 28.5 27.9 25.8 39.0 28.2
Operating Metrics
NIM (Reported,%) 3.4 3.4 3.3 3.3 3.2 - - - 3.3 -
NIM (Cal, %) 3.3 3.4 3.3 3.3 3.3 3.4 3.4 3.5 3.6 3.7
Deposit Growth (%) 28.8 22.6 32.3 23.3 27.8 23.4 23.7 25.0 23.3 25.0
Loan Growth (%) 31.4 28.5 29.7 34.0 31.2 29.8 27.8 25.0 34.0 25.0
CASA Ratio (%) 28.2 27.7 26.5 27.3 27.9 - - - 27.3 -
Tax Rate (%) 32.5 32.5 32.8 32.9 32.6 32.5 32.5 32.4 32.7 32.5
Asset Quality
OSRL (INR b) 1.1 0.9 0.7 0.9 0.9 - - - 0.9 -
OSRL (%) 0.4 0.3 0.2 0.3 0.2 - - - 0.3 -
Gross NPA (INR b) 3.1 3.3 3.3 3.5 3.7 4.1 4.6 5.1 3.5 5.1
Gross NPA (%) 1.1 1.1 1.0 1.0 1.0 1.0 1.1 1.2 1.0 1.2
E: MOSL Estimates; Quarterly calculated margins based on total assets, yearly on interest earning assets
BSE Sensex S&P CNX
18,763 5,703
We expect IIB to report above industry business growth, with loan growth of 30% and deposit growth of 23%.
Margins are likely to expand ~10bp, led by decline in cost of funds and higher proportion of fixed loans. As a
result, NII is expected to grow 25%. Traction in savings account (SA) deposits is likely to continue, providing
further cushion to margins.
Fee income growth expected to be strong at 30%.
Asset quality is likely to remain healthy. In 1QFY13, IIB had reported a slippage ratio of 1.5%, led by higher
slippages in the corporate segment.
The stock trades at 3,1x FY13E and 2.5x FY14E BV, and at 16.1x FY13E and 12.9x FY14E EPS. Maintain Buy.
Key things to watch for: (1) IIB has shown commendable performance on the asset quality front over the last
few quarters; however, given its high exposure to the CV segment, performance on asset quality needs to be
watched, (2) Growth in SA deposits, (3) Branch additions.
C–68October 2012
September 2012 Results Preview
Sector: Financials
ING Vysya Bank
Bloomberg VYSB IN
Equity Shares (m) 150.1
52 Week Range (INR) 415/276
1,6,12 Rel Perf (%) 4/8/20
Mcap (INR b) 61.1
Mcap (USD b) 1.2
CMP: INR407 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 16,614 3,186 26.3 42.3 - 208 - - 0.9 13.4
3/12A 18,781 4,563 30.4 15.4 13.4 258 1.6 1.6 1.1 14.3
3/13E 22,409 5,313 35.4 16.4 11.5 288 1.4 1.4 1.0 13.0
3/14E 26,809 6,055 40.3 14.0 10.1 322 1.3 1.3 1.0 13.2
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 8,708 9,331 9,915 10,615 11,714 11,973 12,248 12,516 38,568 48,451
Interest Expense 6,088 6,295 6,679 7,423 8,281 8,447 8,616 8,720 26,485 34,064
Net Interest Income 2,620 3,036 3,236 3,192 3,433 3,527 3,632 3,796 12,084 14,387
% Change (Y-o-Y) 10.1 19.4 31.6 18.9 31.0 16.1 12.2 18.9 20.1 19.1
Other Income 1,405 1,625 1,699 1,968 1,710 1,860 2,065 2,387 6,698 8,022
Net Income 4,025 4,661 4,935 5,160 5,142 5,387 5,697 6,183 18,781 22,409
Operating Expenses 2,557 2,767 2,822 2,957 2,967 3,133 3,289 3,455 11,102 12,844
Operating Profit 1,468 1,894 2,113 2,203 2,175 2,254 2,408 2,729 7,679 9,565
% Change (Y-o-Y) -1.2 2.8 32.5 53.9 48.1 19.0 13.9 23.8 20.9 24.6
Other Provisions 62 175 334 566 267 325 450 711 1,138 1,752
Profit before Tax 1,406 1,719 1,779 1,637 1,908 1,929 1,958 2,018 6,541 7,813
Tax Provisions 466 566 584 363 607 608 627 659 1,978 2,500
Net Profit 940 1,154 1,195 1,274 1,301 1,321 1,331 1,359 4,563 5,313
% Change (Y-o-Y) 36.1 53.3 44.0 39.5 38.4 14.5 11.4 6.7 43.2 16.4
Operating Metrics
NIM (Reported,%) 3.0 3.4 3.5 3.3 3.3 - - - 3.3 -
NIM (Calculated,%) 3.0 3.3 3.5 3.2 3.2 3.2 3.2 3.2 3.2 3.2
Deposit Growth (%) 29.4 17.8 16.1 16.6 14.6 21.5 25.0 22.0 16.6 22.0
Loan Growth (%) 25.5 22.8 22.6 21.8 22.9 20.7 19.8 20.0 21.8 20.0
CASA Ratio (%) 33.8 32.6 32.6 34.2 33.3 - - - 34.2 -
Tax Rate (%) 33.1 32.9 32.8 22.2 31.8 31.5 32.0 32.7 30.2 32.0
Asset Quality
Gross NPA (INR b) 5.2 5.1 5.4 5.6 5.9 6.4 6.9 7.5 5.6 7.5
Gross NPA (%) 2.2 2.0 2.0 1.9 2.0 2.1 2.1 2.1 1.9 2.1
PCR ( %) 83.9 84.8 85.0 90.7 90.4 86.0 82.0 79.3 90.7 79.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Business growth is expected to be above industry average, with loans and deposits growing at 21-22% YoY.
Though margins would be lower by 10bp on a YoY basis, they would be stable QoQ at 3.3%. NII is likely to grow
16% YoY and 3% QoQ.
Macro-economic challenges coupled with high exposure to the SME segment could lead to some pressure on
asset quality. In 1QFY13, slippages increased QoQ to INR1b, led by higher slippages in the mid-corporate and
SME segments. We expect similar run-rate of slippages to continue; upgradations and recoveries need to be
watched.
The stock trades at 1.4x FY13E and 1.3x FY14E BV, and at 11.5x FY13E and 10.1x FY14E EPS. Maintain Buy.
Key things to watch for: (1) Margin movement, (2) Fee income and opex growth, which would be key factors for
RoA improvement, (3) Performance on asset quality.
C–69October 2012
September 2012 Results Preview
Sector: Financials
Kotak Mahindra Bank
Bloomberg KMB IN
Equity Shares (m) 740.7
52 Week Range (INR) 650/418
1,6,12 Rel Perf (%) 6/15/27
Mcap (INR b) 479.9
Mcap (USD b) 9.1
CMP: INR648 Neutral
Year Cons. PAT Cons. EPS EPS P/E Cons. BV P/BV P/ABV Cons. RoAA* Core
End (INR m) (INR) Gr. (%) (X) (INR) (X) (X) RoE (%) (%) RoE*(%)
3/11A 15,667 21.3 13.3 - 148.8 - - 16.6 1.9 15.4
3/12A 18,322 24.7 16.3 26.2 174.2 3.7 3.8 15.4 1.9 15.4
3/13E 19,420 26.2 6.0 24.7 199.6 3.2 3.3 14.0 1.5 13.7
3/14E 22,046 29.8 13.5 21.8 228.5 2.8 2.9 13.9 1.5 13.8
KMB Group: Earnings Trends (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Kotak Bank (Standalone) 2,520 2,600 2,760 2,970 2,820 2,764 2,718 2,892 10,850 11,195
Kotak Prime 940 900 1,040 970 940 991 1,034 1,092 3,849 4,057
Kotak Mah. Investments 30 30 30 60 40 44 48 53 153 185
Lending Business 3,490 3,530 3,830 4,000 3,800 3,799 3,800 4,038 14,852 15,437
YoY Growth (%) 29.3 33.7 34.7 17.5 8.9 7.6 -0.8 0.9 28.0 3.9
Kotak Securities 230 290 240 500 230 256 269 288 1,260 1,044
Kotak Mah. Capital Co. 10 -40 40 50 60 49 54 59 60 222
Capital Market Business 240 250 280 550 290 305 323 347 1,320 1,265
YoY Growth (%) -55.8 -57.7 -48.4 -16.9 20.8 22.0 15.3 -36.9 -43.5 -4.2
Intl. Subsidiaries -30 -70 -40 30 -50 10 20 20 -110 0
Kotak Mah. AMC & Trustee Co. 90 70 30 30 40 55 70 95 220 260
Kotak Investment Advisors 110 80 70 100 80 90 95 110 360 375
Asset Management Business 170 80 60 160 70 155 185 225 470 635
YoY Growth (%) -52.0 -60.7 -71.3 -34.7 -58.8 93.8 208.3 40.6 -53.4 35.1
Consol. PAT excluding Kotak Life 3,900 3,860 4,170 4,710 4,160 4,259 4,308 4,610 16,642 17,337
YoY Growth (%) 8.4 12.4 16.0 9.2 6.7 10.3 3.3 -2.1 11.3 4.2
Kotak OM Life Insurance 460 530 470 570 320 583 541 790 2,030 2,233
Consolidation Adjust. -200 -60 -10 -70 -50 -30 -30 -40 -349 -150
Consol. PAT Including Kotak Life 4,160 4,330 4,630 5,210 4,430 4,812 4,818 5,359 18,322 19,420
YoY Growth (%) 26.9 18.9 20.7 6.2 6.5 11.1 4.1 2.9 16.9 6.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
* For standalone Bank
Lending business
Growth in profit of the lending business is likely to remain muted. We expect ~8% YoY growth in lending
business profit.
Growth in loans and deposits for the standalone bank is expected to be ~19% YoY and ~21% YoY, respectively.
Margins are likely to remain under pressure on a QoQ basis.
For Kotak Prime, we expect loan growth of ~18% YoY and PAT growth of ~10% YoY.
Capital Market and Asset Management business
We expect PAT of capital market related businesses to grow by ~22% YoY on a lower base. Profit from the
Securities business would grow sequentially but decline on a YoY basis.
In the Asset Management business, we expect strong growth in profit to INR155m v/s INR80m in 2QFY12 and
INR70m in 1QFY13, as international subsidiaries are expected to report profit in 2QFY13 v/s net loss of INR70m
in 2QFY12.
The stock trades at 3.2x FY13E and 2.8x FY14E BV. Maintain Neutral.
Key things to watch for: (1) Business growth and outlook, (2) Improvement in CASA ratio, (3) Asset quality
trends and (4) Margin movement.
C–70October 2012
September 2012 Results Preview
Sector: Financials
LIC Housing Finance
Bloomberg LICHF IN
Equity Shares (m) 505.0
52 Week Range (INR) 290/206
1,6,12 Rel Perf (%) 7/-1/21
Mcap (INR b) 142.3
Mcap (USD b) 2.7
CMP: INR282 Buy
Year Net Inc. PAT Adj. PAT EPS EPS P/E BV P/BV Adj. Adj. RoAE
End (INR m) (INR m) (INR m)* (INR)* Gr. (%) (X) (INR) (X) RoAA (%) (%)
3/11A 17,710 9,743 10,285 21.7 55.5 - 87.8 - 2.4 27.2
3/12A 16,240 9,142 10,011 19.8 -8.4 14.2 112.5 2.5 1.8 20.3
3/13E 19,094 11,015 11,015 21.8 10.0 12.9 129.2 2.2 1.6 18.0
3/14E 25,128 15,987 14,827 29.4 34.6 9.6 153.5 1.8 1.7 20.8
*Adjusted for extraordinary items
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 13,581 14,580 15,387 16,280 17,179 18,038 18,869 20,152 59,827 74,237
Interest Expenses 9,971 11,238 12,129 12,572 13,674 14,221 14,718 15,084 45,911 57,697
Net Interest Income 3,610 3,342 3,258 3,708 3,505 3,817 4,151 5,068 13,916 16,540
YoY Growth (%) 22.6 9.5 -7.5 -11.8 -2.9 14.2 27.4 36.7 1.4 18.9
Fees and other income 601 574 538 610 494 603 676 781 2,324 2,554
Net Income 4,211 3,916 3,795 4,318 3,999 4,420 4,826 5,849 16,240 19,094
YoY Growth (%) 24.7 5.9 -30.4 -16.7 -5.0 12.9 27.2 35.5 -8.3 17.6
Operating Expenses 422 561 534 854 521 690 715 872 2,371 2,798
Operating Profit 3,789 3,354 3,262 3,464 3,479 3,730 4,111 4,976 13,870 16,296
YoY Growth (%) 27.0 5.1 -33.3 -22.7 -8.2 11.2 26.0 43.7 -10.8 17.5
Provisions and Cont. 334 2,047 -797 -24 436 200 225 242 1,561 1,103
Profit before Tax 3,454 1,307 4,059 3,488 3,043 3,530 3,886 4,734 12,309 15,193
Tax Provisions 889 323 1,003 952 766 971 1,069 1,373 3,167 4,178
Net Profit 2,565 984 3,056 2,536 2,277 2,559 2,817 3,361 9,142 11,015
YoY Growth (%) 21.0 -58.0 43.1 -19.4 -11.2 160.1 -7.8 32.5 -6.2 20.5
Adj PAT (Post Tax) 2,565 2,527 2,258 2,536 2,277 2,559 2,817 3,361 10,011 11,015
YoY Growth (%) 21.0 7.9 -23.5 -12.9 -11.2 1.3 24.8 32.5 -2.7 10.0
Operating Metrics
Loan Growth (%) 32.1 29.3 26.6 23.5 24.1 23.4 24.3 23.9 23.5 23.9
Borrowings Growth (%) 31.3 28.0 25.9 24.2 23.7 22.7 24.0 26.1 24.2 26.1
Cost to Income Ratio (%) 10.0 14.3 14.1 19.8 13.0 15.6 14.8 14.9 14.6 14.7
Tax Rate (%) 25.7 24.7 24.7 27.3 25.2 27.5 27.5 29.0 25.7 27.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
LICHF’s loan growth is likely to remain healthy on the back of buoyant demand in the individual loans segment.
We expect loan growth to remain healthy at ~23% YoY. However, the YoY decline in the builder loan portfolio is
likely to continue.
We expect margins to expand ~10bp QoQ, led by (1) moderating cost of funds, and (2) re-pricing of teaser rate
loans (expected re-pricing of loans worth ~INR25b in 2QFY13), which would provide cushion to margins.
Asset quality is likely to remain healthy. We model provisioning expense of ~INR200m (v/s INR2b of provisions
in 2QFY12 on account of change in the standard asset provisioning requirement by NHB) for the quarter.
The stock trades at 2.2x FY13E and 1.8x FY14E BV. Maintain Buy.
Key things to watch for: (1) Outlook on disbursement growth, especially builder loans, (2) Movement in spreads,
(3) Emerging asset quality trends.
C–71October 2012
September 2012 Results Preview
Sector: Financials
M & M Financial Services
Bloomberg MMFS IN
Equity Shares (m) 102.7
52 Week Range (INR) 910/590
1,6,12 Rel Perf (%) 12/27/26
Mcap (INR b) 92.3
Mcap (USD b) 1.8
CMP: INR898 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoA on RoAE
End (INR m) (INR M) (INR) Gr. (%) (X) (INR) (X) (X) AUM (%) (%)
3/11A 13,173 4,631 45.2 26.0 - 243 - - 3.7 22.0
3/12A 16,743 6,201 60.4 33.6 14.9 287 3.1 3.2 3.5 22.8
3/13E 22,688 8,151 79.4 31.4 11.3 346 2.6 2.7 3.6 25.1
3/14E 27,460 9,625 93.7 18.1 9.6 415 2.2 2.2 3.5 24.6
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Operating Income 5,538 6,491 7,378 8,393 8,351 8,810 9,295 10,382 27,425 36,838
Other Income 64 159 36 77 39 100 100 133 521 372
Total income 5,603 6,650 7,414 8,470 8,390 8,910 9,395 10,515 27,946 37,210
YoY Growth (%) 39.6 38.9 39.9 44.6 49.8 34.0 26.7 24.1 41.3 33.2
Interest Expenses 2,160 2,589 3,150 3,304 3,475 3,596 3,722 3,729 11,203 14,523
Net Income 3,443 4,061 4,264 5,166 4,916 5,314 5,673 6,786 16,743 22,688
Operating Expenses 1,369 1,521 1,467 1,603 1,667 1,884 1,858 2,131 5,920 7,540
Operating Profit 2,074 2,539 2,797 3,563 3,248 3,430 3,815 4,654 10,823 15,148
YoY Growth (%) 25.5 22.3 22.8 45.0 56.6 35.1 36.4 30.6 29.0 40.0
Provisions 561 523 494 142 854 650 750 728 1,570 2,982
Profit before Tax 1,513 2,016 2,303 3,421 2,395 2,780 3,065 3,926 9,254 12,167
Tax Provisions 491 661 756 1,144 784 917 1,011 1,302 3,051 4,015
Net Profit 1,022 1,355 1,547 2,277 1,610 1,863 2,054 2,624 6,202 8,152
YoY Growth (%) 37.7 16.3 33.5 45.4 57.6 37.4 32.7 15.3 33.9 31.4
Operating Metrics
AUM growth (%) 38.9 40.7 40.1 36.2 37.9 31.6 27.9 25.6 36.2 25.6
Borrowings growth (%) 49.2 51.1 49.5 44.3 44.8 34.0 24.1 24.9 44.3 24.9
Cost to Income Ratio (%) 39.8 37.5 34.4 31.0 33.9 35.4 32.7 31.4 35.4 33.2
Provisions/Operating Profits (%) 27.1 20.6 17.7 4.0 26.3 18.9 19.7 15.6 14.5 19.7
Tax Rate (%) 32.4 32.8 32.8 33.4 32.8 33.0 33.0 33.2 33.0 33.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
MMFS will continue to benefit from its multi-product strategy and sustain the strong growth momentum in the
CV, used vehicle and car segments. We expect AUM growth to be healthy at ~32% YoY.
Margins are likely to remain stable on a sequential basis. In 1QFY13, gross spreads were 9.3%.
MMFS delivered strong asset quality performance in FY12, which continued in 1QFY13. As at June 2012, GNPAs
were 3.8% and NNPAs were 1.2%. We expect asset quality to remain healthy.
During the quarter, the company sold partial stakes in its insurance broking subsidiary. Gains on the same are
likely to be booked in 3QFY13.
The stock trades at 2.6x FY13E and 2.2x FY14E BV. Maintain Buy.
Key things to watch for: (1) Business growth trends, (2) Movement in spreads, (3) Asset quality trends.
C–72October 2012
September 2012 Results Preview
Sector: Financials
Oriental Bank of Commerce
Bloomberg OBC IN
Equity Shares (m) 291.8
52 Week Range (INR) 324/190
1,6,12 Rel Perf (%) 36/15/-11
Mcap (INR b) 88.0
Mcap (USD b) 1.7
CMP: INR302 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 51,376 15,029 51.5 13.7 - 350 - - 1.0 17.1
3/12A 54,560 11,416 39.1 -24.0 7.7 380 0.8 0.9 0.7 10.7
3/13E 64,461 14,821 50.8 29.8 5.9 419 0.7 0.8 0.8 12.7
3/14E 74,684 16,502 56.6 11.3 5.3 462 0.7 0.8 0.7 12.8
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 35,965 38,011 41,965 42,208 42,872 43,996 45,167 46,636 158,149 178,671
Interest Expense 25,782 28,116 30,566 31,526 31,613 32,197 32,738 33,261 115,991 129,810
Net Interest Income 10,183 9,895 11,399 10,682 11,258 11,799 12,429 13,375 42,158 48,861
% Change (YoY) -3.7 -8.1 10.7 5.4 10.6 19.2 9.0 25.2 0.9 15.9
Other Income 3,238 2,774 2,953 3,438 4,084 3,591 3,557 4,367 12,402 15,600
Net Income 13,421 12,669 14,352 14,119 15,343 15,390 15,986 17,743 54,560 64,461
Operating Expenses 5,408 5,087 6,081 6,580 6,377 6,550 6,781 7,417 23,155 27,125
Operating Profit 8,014 7,582 8,271 7,539 8,965 8,840 9,204 10,325 31,406 37,336
% Change (YoY) -2.5 -5.9 6.9 -10.6 11.9 16.6 11.3 37.0 -3.2 18.9
Other Provisions 3,143 4,853 3,809 5,344 3,321 4,097 4,180 4,565 17,148 16,163
Profit before Tax 4,871 2,729 4,462 2,196 5,644 4,744 5,024 5,761 14,258 21,172
Tax Provisions 1,324 1,051 920 -453 1,730 1,423 1,457 1,742 2,842 6,352
Net Profit 3,547 1,677 3,542 2,649 3,914 3,320 3,567 4,019 11,416 14,821
% Change (YoY) -2.4 -57.8 -13.2 -20.6 10.4 98.0 0.7 51.7 -24.0 29.8
Operating Metrics
NIM (Rep, %) 2.9 2.6 2.9 2.7 2.8 - - - 2.8 -
NIM (Cal,%) 2.7 2.6 2.9 2.6 2.7 2.8 2.8 2.9 2.7 2.7
Deposit Growth (%) 17.5 18.9 20.8 12.2 9.4 8.4 7.9 16.0 12.2 16.0
Loan Growth (%) 14.1 20.8 21.9 16.7 16.0 10.5 9.7 15.0 16.7 15.0
CASA Ratio (%) 23.4 22.9 22.3 24.1 24.0 - - - 24.1 -
Tax Rate (%) 27.2 38.5 20.6 -20.6 30.7 30.0 29.0 30.2 19.9 30.0
Asset Quality
OSRL (INR b) 36.6 41.2 60.9 95.1 109.5 - - - 95.1 -
OSRL (%) 3.7 3.9 5.5 8.4 9.6 - - - 8.4 -
Gross NPA (INR b) 20.3 31.1 32.3 35.8 33.8 34.8 36.0 37.0 35.8 37.0
Gross NPA (%) 2.1 3.0 2.9 3.2 3.0 3.0 3.0 2.8 3.2 2.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Focus on de-bulking of balance sheet coupled with higher base of 2QFY12 (sequential growth was 7.5%+) would
lead to moderation in business growth. We expect sub-10% YoY growth in loans and deposits.
Margins are likely to expand ~5bp, led by re-pricing of liabilities. However, pressure on loan yields would
contain the expansion. We expect NII to grow ~5% QoQ and 19% YoY.
Slippages are likely to remain elevated; continued traction in recoveries and upgradations would be the key.
With the cabinet approving the SEB debt restructuring package, the pending restructuring of SEB loans would
be important. Further stress in the large corporate segment could lead to increase in the restructuring pool.
The stock trades at 0.7x FY13E and 0.7x FY14E BV, and at 5.9x FY13E and 5.3x FY14E EPS. Buy.
Key things to watch for: (1) Performance on asset quality, especially on net slippages and restructured loans, (2)
Margin movement, (3) Fee income growth has been volatile in the last few quarters; improvement in fee
income growth would be a key positive, (4) Decrease in bulk deposits on the balance sheet.
C–73October 2012
September 2012 Results Preview
Sector: Financials
Power Finance Corporation
Bloomberg POWF IN
Equity Shares (m) 1,319.9
52 Week Range (INR) 224/131
1,6,12 Rel Perf (%) 11/0/10
Mcap (INR b) 249.0
Mcap (USD b) 4.7
CMP: INR189 Buy
Year Net Inc. Adj PAT EPS EPS P/E BV P/BV Adj. RoAA Adj. RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (%) (%)
3/11A 36,736 26,391 23.0 16.0 - 133 - 2.9 18.5
3/12A 43,756 31,539 23.9 3.9 7.9 158 1.2 2.7 17.5
3/13E 54,505 38,924 29.5 23.4 6.4 177 1.1 2.8 17.6
3/14E 61,599 43,180 32.7 10.9 5.8 200 0.9 2.7 17.4
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 28,480 30,740 32,130 35,890 39,000 39,780 40,377 41,725 97,605 126,025
Interest Expenses 18,580 19,940 21,160 23,600 25,060 25,749 26,393 27,375 64,606 84,940
Net Interest Income 9,900 10,800 10,970 12,290 13,940 14,031 13,984 14,351 43,960 56,305
YoY Gr % 15.4 20.5 18.5 45.8 40.8 29.9 27.5 16.8 24.5 37.0
Other Income 350 80 240 530 90 150 200 260 1,200 700
Net Operational Income 10,250 10,880 11,210 12,820 14,030 14,181 14,184 14,611 45,160 57,005
Exchange gain/(loss) -750 -5,040 4,210 200 -770 -600 -600 -530 -1,380 -2,500
Total Net Income 9,500 5,840 15,420 13,020 13,260 13,581 13,584 14,081 43,780 54,505
YoY Gr % 10.3 -41.6 64.7 48.6 39.6 132.5 -11.9 8.1 19.2 24.5
Operating Expenses 270 330 290 409 286 375 410 476 1,294 1,547
YoY Gr % N.M. -10.8 0.0 32.0 5.8 13.6 41.4 16.5 32.5 19.6
% to Income 2.8 5.7 1.9 3.1 2.2 2.8 3.0 3.4 3.0 2.8
Operating Profit 9,230 5,510 15,130 12,611 12,974 13,206 13,174 13,604 42,486 52,958
YoY Gr % 7.3 -42.8 66.8 49.2 40.6 139.7 -12.9 7.9 18.8 24.6
Adjusted PPP (For Forex) 9,980 10,550 10,920 12,411 13,744 13,806 13,774 14,134 43,861 55,458
YoY Gr % 8.2 17.6 17.7 51.4 37.7 30.9 26.1 13.9 23.0 26.4
Provisions 70 0 390 960 20 500 1,000 980 1,420 2,500
PBT 9,160 5,510 14,740 11,651 12,954 12,706 12,174 12,624 41,066 50,458
Tax 2,298 1,320 3,660 3,455 3,240 3,431 3,287 3,414 10,733 13,371
Tax Rate % 25.1 24.0 24.8 29.7 25.0 27.0 27.0 27.0 26.1 26.5
PAT 6,862 4,190 11,080 8,196 9,714 9,275 8,887 9,210 30,333 37,087
YoY Gr % 5.1 -40.2 68.1 35.2 41.6 121.4 -19.8 12.4 15.8 22.3
Adjusted PAT (For Forex) 7,424 8,023 7,915 8,055 10,292 9,713 9,325 9,597 31,417 38,927
E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification
BSE Sensex S&P CNX
18,763 5,703
We expect loan growth to remain healthy at ~25% YoY. On a sequential basis, loans and borrowings are expected
to grow at ~2%.
After increasing sharply in 1QFY13 (+31bp QoQ), we expect margins to decline by ~10bp QoQ. As a result, NII
would grow ~30% YoY, but remain largely flattish sequentially.
We expect MTM loss of INR600m in 2QFY13 (due to higher proportion of unhedged foreign currency borrowings),
lower than the INR770m recorded in 1QFY13 (due to currency appreciation during the quarter).
Asset quality would be a key monitorable given the uncertain macro environment. We are conservatively
factoring in INR500m of provisions for the quarter.
The stock trades at 1.1x FY13E and 0.9x FY14E BV. Maintain Buy.
Key things to watch for: (1) Management’s outlook on business growth, (2) Asset quality trend, and (3) Impact
of SEB debt restructuring plan.
C–74October 2012
September 2012 Results Preview
Sector: Financials
Punjab National Bank
Bloomberg PNB IN
Equity Shares (m) 339.2
52 Week Range (INR) 1091/659
1,6,12 Rel Perf (%) 18/-18/-27
Mcap (INR b) 284.8
Mcap (USD b) 5.4
CMP: INR840 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 154,199 44,335 139.9 13.0 - 632 - - 1.3 24.5
3/12A 176,175 48,847 144.0 2.9 5.8 777 1.1 1.2 1.2 21.1
3/13E 203,863 52,753 155.5 8.0 5.4 906 0.9 1.1 1.1 18.5
3/14E 235,001 62,776 185.1 19.0 4.5 1,059 0.8 0.9 1.1 18.8
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 83,152 89,520 94,810 96,798 105,450 107,251 110,304 113,782 364,280 436,787
Interest Expense 52,000 54,994 59,444 63,698 68,498 69,795 71,131 72,433 230,131 281,858
Net Interest Income 31,153 34,526 35,366 33,100 36,951 37,455 39,173 41,349 134,149 154,929
% Change (YoY) 19.9 16.0 10.4 9.3 18.6 8.5 10.8 24.9 13.6 15.5
Other Income 10,837 8,889 9,541 12,760 11,660 11,410 11,957 13,908 42,026 48,934
Net Income 41,990 43,414 44,907 45,859 48,611 48,865 51,130 55,257 176,175 203,863
Operating Expenses 17,250 18,137 18,143 16,498 20,203 20,590 20,880 21,815 70,028 83,488
Operating Profit 24,739 25,278 26,764 29,362 28,409 28,275 30,250 33,441 106,148 120,375
% Change (YoY) 17.9 20.4 13.9 17.1 14.8 11.9 13.0 13.9 17.2 13.4
Other Provisions 8,935 7,103 9,461 10,273 10,325 10,489 11,180 11,368 35,773 43,362
Profit before Tax 15,804 18,175 17,303 19,089 18,084 17,786 19,070 22,073 70,375 77,012
Tax Provisions 4,753 6,124 5,803 4,848 5,627 5,602 6,007 7,022 21,528 24,259
Net Profit 11,051 12,050 11,501 14,241 12,457 12,183 13,063 15,051 48,847 52,753
% Change (YoY) 3.4 12.1 5.5 18.6 12.7 1.1 13.6 5.7 10.2 8.0
Operating Metrics
NIM (Rep, %) 3.8 4.0 3.9 3.5 3.6 - - - 3.8 -
NIM (Cal, %) 3.6 3.9 3.8 3.3 3.5 3.5 3.5 3.5 3.5 3.4
Deposit Growth (%) 26.9 25.0 23.4 21.3 18.9 16.1 15.8 15.0 21.3 15.0
Loan Growth (%) 23.4 19.3 18.7 21.3 21.2 21.2 21.3 16.0 21.3 16.0
CASA Ratio (%) 38.1 37.1 36.2 36.2 35.6 - - - 36.2 -
Tax Rate (%) 30.1 33.7 33.5 25.4 31.1 31.5 31.50 31.81 30.6 31.50
Asset Quality
OSRL (INR b) 114.2 137.4 155.5 230.6 240.5 - - - 230.6 -
OSRL (%) 4.7 5.5 5.9 7.9 8.2 - - - 7.9 -
Gross NPA (INR b) 48.9 51.5 64.4 87.2 99.9 112.7 126.9 142.2 87.2 142.2
E: MOSL Estimates, Yearly numbers vary with full year number on account of reclassification
BSE Sensex S&P CNX
18,763 5,703
We expect loan growth to remain above industry average at 21% YoY. Deposit growth would be moderate at 16%
YoY on a higher base.
Margins are likely to be stable at ~3.6% QoQ, but would be lower by 35bp on a YoY basis. Consequently, NII is
likely to grow ~10% YoY and be flat QoQ.
Stress on the balance sheet has increased, with gross slippage ratio in the last two quarters at 4.5%+. We expect
slippages to remain high, but recoveries and upgradations could provide some respite to asset quality.
The pace of restructuring had slowed down in 1QFY13, with the bank restructuring loans worth INR12b as
against INR86b in 4QFY12. However, with referrals to CDR remaining at an elevated level, restructuring during
the quarter would be a key thing to watch for.
The stock trades at 0.9x FY13E and 0.8x FY14E BV, and at 5.4x FY13E and 4.5x FY14E EPS. Buy.
Key things to watch for: (1) Balance sheet growth and guidance, (2) Net slippages, (3) Outlook on restructuring,
(4) Margin movement, (4) CASA ratio.
C–75October 2012
September 2012 Results Preview
Sector: Financials
Rural Electrification Corp
Bloomberg RECL IN
Equity Shares (m) 987.5
52 Week Range (INR) 251/142
1,6,12 Rel Perf (%) 6/2/13
Mcap (INR b) 215.4
Mcap (USD b) 4.1
CMP: INR218 Buy
Year Net Inc. PAT EPS EPS P/E BV P/BV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (%) (%)
3/11A 36,443 25,664 25.9 28.2 - 129 - 3.4 21.5
3/12A 40,777 28,170 28.6 10.1 7.6 149 1.5 3.0 20.5
3/13E 49,817 34,455 34.9 22.2 6.3 174 1.3 3.1 21.6
3/14E 59,561 41,199 41.7 19.6 5.2 202 1.1 3.1 22.2
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Interest Income 9,097 9,501 10,052 10,207 11,654 11,711 11,925 12,322 38,852 47,612
YoY Gr (%) 17.3 21.8 18.5 19.5 28.1 23.3 18.6 20.7 19.3 22.5
Other Operational Income 393 171 136 595 717 250 250 169 736 1,386
Net Operational Income 9,490 9,673 10,188 10,803 12,372 11,961 12,175 12,491 39,588 48,999
YoY Gr (%) 18.9 18.1 12.6 22.2 30.4 23.7 19.5 15.6 16.2 23.8
Other Income 136 -880 1,221 145 -133 200 300 451 1,189 819
Total Net Income 9,625 8,793 11,408 10,948 12,239 12,161 12,475 12,943 40,777 49,817
YoY Gr (%) 16.3 0.5 21.4 9.2 27.2 38.3 9.4 18.2 11.9 22.2
Operating Expenses 419 456 779 671 456 560 660 831 2,326 2,506
YoY Gr (%) 22.2 18.5 101.6 19.7 8.7 22.9 -15.2 23.9 38.7 7.8
% to Income 4.4 5.2 6.8 6.1 3.7 4.6 5.3 6.4 5.7 5.0
Operating Profit 9,206 8,337 10,629 10,277 11,784 11,601 11,815 12,112 38,451 47,311
YoY Gr % 16.1 -0.3 17.9 8.6 28.0 39.1 11.2 17.9 10.6 23.0
Op. Profit adj. forex gain /loss 9,278 9,597 9,763 10,341 11,984 11,801 11,941 13,012 38,980 78,438
YoY Gr (%) 16.9 18.7 8.6 16.2 29.2 23.0 22.3 25.8 14.9 101.2
Provisions 250 0 241 32 0 250 250 250 523 750
PBT 8,956 8,337 10,389 10,245 11,784 11,351 11,565 11,862 37,929 46,561
YoY Gr (%) 12.9 -0.3 15.2 8.3 31.6 36.2 11.3 15.8 9.1 22.8
Tax 2,338 2,112 2,693 2,618 3,016 2,951 3,007 3,139 9,758 12,106
Tax Rate (%) 26.1 25.3 25.9 25.6 25.6 26.0 26.0 26.5 25.7 26.0
PAT 6,619 6,225 7,695 7,627 8,767 8,400 8,558 8,723 28,170 34,455
YoY Gr (%) 12.7 0.7 15.9 8.9 32.5 34.9 11.2 14.4 9.6 22.3
Adjusted PAT 6,672 7,166 7,054 7,675 9,046 8,548 8,706 8,816 28,566 35,115
YoY Gr (%) 13.5 19.8 6.5 16.5 35.6 19.3 23.4 14.9 14.0 22.9
E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification
BSE Sensex S&P CNX
18,763 5,703
We expect loan growth momentum to remain healthy at ~23% YoY and ~4% QoQ.
After the sharp improvement in 1QFY13, we expect NIM to moderate by ~20bp QoQ in 2QFY13, as RECL utilized
the excess liquidity on the balance sheet in 1QFY13. The higher increase in borrowings during the quarter could
impact margins.
We are factoring in MTM loss of INR200m for 2QFY13 v/s INR374m in 1QFY13.
Asset quality is likely to remain a key monitorable given the uncertain macro environment. We conservatively
model in higher provisions (INR250m) during the quarter.
The stock trades at 1.3x FY13E and 1.1x FY14E BV. Maintain Buy.
Key things to watch for: (1) Management’s outlook on business growth and asset quality, (2) Movement in
spreads, and (3) Impact of SEB debt restructuring plan.
C–76October 2012
September 2012 Results Preview
Sector: Financials
Shriram Transport Finance
Bloomberg SHTF IN
Equity Shares (m) 226.3
52 Week Range (INR) 680/416
1,6,12 Rel Perf (%) -6/-4/-14
Mcap (INR b) 140.1
Mcap (USD b) 2.7
CMP: INR619 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoA on AUM RoAE
End (INR m) (INR m) (INR) GR. (%) (X) (INR) (X) (X) (%) (%)
3/11A 30,680 12,028 53.2 37.4 - 217 - - 3.2 27.5
3/12A 34,130 12,574 55.6 4.5 11.1 265 2.3 2.4 2.8 23.1
3/13E 36,273 13,542 59.8 7.7 10.3 316 2.0 2.0 2.6 20.6
3/14E 41,445 15,930 70.4 17.6 8.8 377 1.6 1.7 2.6 20.3
BSE Sensex S&P CNX
18,763 5,703
We expect AUM to grow ~15% YoY. On a sequential basis, disbursements are likely to remain largely stable. We
are modeling growth of 1.5% QoQ.
Margins are expected to remain stable sequentially. As a result, NII (including securitization income) growth
should be flat on a YoY basis.
Given the uncertain macro environment, asset quality continues to be a key monitorable. We have factored in
higher provisions (INR2b) similar to 1QFY13 levels.
We expect PAT to grow ~10% YoY and 2% QoQ.
The stock trades at 2x FY13E and 1.6x FY14E BV. Maintain Buy.
Key things to watch for: (1) Outlook on growth, (2) Movement in spreads, (3) Asset quality trend.
Quaterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 8,368 9,675 9,458 9,158 8,876 10,384 11,215 11,850 35,581 42,325
Interest expenses 5,714 6,153 6,347 6,259 6,173 6,729 7,032 7,445 23,950 27,379
Net Interest Income 2,654 3,522 3,110 2,899 2,702 3,655 4,183 4,405 11,632 14,946
YoY Growth (%) -15.1 -4.4 -23.2 -10.6 1.8 3.8 34.5 51.9 -17.0 28.5
Securitisation income 5,167 4,825 4,927 5,157 5,323 4,729 4,530 4,565 20,075 19,147
Net Income (Incl. Securitization) 7,821 8,347 8,038 8,056 8,025 8,384 8,714 8,970 31,707 34,093
YoY Growth (%) 16.0 19.3 4.5 5.4 2.6 0.4 8.4 11.3 9.5 7.5
Fees and Other Income 477 258 294 255 702 450 475 553 2,423 2,181
Net Operating Income 8,297 8,605 8,331 8,311 8,727 8,834 9,189 9,523 34,130 36,273
YoY Growth (%) 16.8 19.0 5.7 6.3 5.2 2.7 10.3 14.6 11.2 6.3
Operating Expenses 1,678 1,788 1,867 1,782 1,940 1,952 2,159 2,196 7,638 8,248
Operating Profit 6,620 6,818 6,465 6,529 6,787 6,882 7,029 7,327 26,492 28,026
YoY Growth (%) 18.3 20.4 5.5 4.1 2.5 0.9 8.7 12.2 13.0 5.8
Provisions 1,420 2,363 1,920 1,918 2,026 2,000 1,975 1,963 7,683 7,963
Profit before Tax 5,200 4,454 4,545 4,610 4,761 4,882 5,054 5,365 18,809 20,062
Tax Provisions 1,727 1,460 1,518 1,530 1,543 1,587 1,643 1,748 6,235 6,520
Net Profit 3,473 2,994 3,027 3,081 3,219 3,295 3,412 3,617 12,574 13,542
YoY Growth (%) 20.2 0.2 0.4 -9.6 -7.3 10.1 12.7 17.4 4.5 7.7
Operating Metrics
AUM Growth (%) 22.3 19.9 16.2 11.1 13.3 14.5 15.1 15.5 11.1 15.5
Disbursement Growth (%) 20.4 5.0 -4.2 -19.7 12.2 13.7 12.3 11.9 -2.0 12.5
Securitization Inc. / Net Inc. (%) 62.3 56.1 59.1 62.0 61.0 53.5 49.3 47.9 58.8 52.8
Cost to Income Ratio (%) 20.2 20.8 22.4 21.4 22.2 22.1 23.5 23.1 22.4 22.7
Tax Rate (%) 33.2 32.8 33.4 33.2 32.4 32.5 32.5 32.6 33.1 32.5
E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting financial nos
C–77October 2012
September 2012 Results Preview
Sector: Financials
State Bank of India
Bloomberg SBIN IN
Equity Shares (m) 671.0
52 Wk Range (INR) 2,475/1,576
1,6,12 Rel Perf (%) 15/-2/0
Mcap (INR b) 1,501.7
Mcap (USD b) 28.5
CMP: INR2,238 Buy
Year Net Income PAT EPS *Cons. Cons. Cons. BV *Cons. *Cons. RoAA RoAE
End (INR m) (INR m) (INR) EPS (INR) P/E (X) (INR) P/BV (X) P/ABV (X) (%) (%)
3/11A 483,510 82,645 130.2 168.3 - 1,303 - - 0.7 12.7
3/12A 576,425 117,073 174.5 228.6 9.4 1,541 1.4 1.6 0.9 16.0
3/13E 636,297 151,763 226.2 284.5 7.5 1,773 1.2 1.5 1.0 17.4
3/14E 725,138 174,922 260.7 330.3 6.5 2,043 1.0 1.4 1.0 17.5
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 241,974 260,269 277,144 285,828 289,167 295,095 301,432 309,663 1,065,215 1,195,358
Interest Expense 144,979 155,452 161,956 169,918 177,979 180,318 182,934 187,877 632,304 729,107
Net Interest Income 96,995 104,817 115,188 115,911 111,189 114,777 118,499 121,786 432,911 466,250
% Change (YoY) 32.8 29.2 27.3 43.8 14.6 9.5 2.9 5.1 33.1 7.7
Other Income 35,342 33,674 20,730 53,768 34,988 36,421 39,885 58,752 143,514 170,046
Net Income 132,338 138,492 135,918 169,678 146,177 151,198 158,384 180,538 576,425 636,297
Operating Expenses 59,913 63,749 63,318 73,710 64,410 66,538 72,969 85,173 260,690 289,091
Operating Profit 72,424 74,743 72,600 95,968 81,767 84,660 85,414 95,365 315,735 347,206
% Change (YoY) 18.1 17.6 7.3 57.8 12.9 13.3 17.7 -0.6 24.6 10.0
Other Provisions 41,569 33,855 24,074 31,404 24,563 28,245 29,886 32,812 130,902 115,507
Profit before Tax 30,855 40,888 48,526 64,564 57,204 56,415 55,528 62,553 184,833 231,699
Tax Provisions 15,020 12,784 15,895 24,061 19,688 19,463 19,157 21,628 67,760 79,936
Net Profit 15,835 28,104 32,630 40,503 37,516 36,952 36,371 40,925 117,073 151,763
% Change (YoY) -45.7 12.4 15.4 N.A. 136.9 31.5 11.5 1.0 41.7 29.6
Operating Metrics
NIM (Reported, %) 3.6 3.8 4.1 3.9 3.6 - - - 3.9 -
NIM (Cal, %) 3.7 3.9 4.1 4.0 3.7 3.6 3.6 3.6 3.9 3.6
Deposit Growth (%) 16.5 13.8 13.9 11.7 16.1 17.3 18.0 18.0 11.7 18.0
Loan Growth (%) 18.0 16.1 16.5 14.7 18.9 18.9 15.5 18.0 14.7 18.0
CASA Ratio (%) 47.8 47.6 47.5 46.6 46.1 - - - 46.6 -
Tax Rate (%) 48.7 31.3 32.8 37.3 34.4 34.5 34.5 34.6 36.7 34.5
Asset Quality
OSRL (INR b) 289 277 261 312 295 - - - 312 -
OSRL (%) 3.8 3.5 3.1 3.6 3.2 - - - 3.6 -
Gross NPA (INR b) 278 340 401 397 472 528 581 631 397 631
Gross NPA (%) 3.5 4.2 4.6 4.4 5.0 5.4 5.8 6.0 4.4 6.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
* Valuation multiples are adjusted for SBI Life's value
Strong traction in CASA and fall in bulk deposits rates would keep a check on cost of funds. However, this would
be offset by the impact on yields, as the bank has reduced lending rates in specific segments. We expect
margins to remain largely stable QoQ; NII is likely to grow 3% QoQ and ~10% YoY.
We expect slippages to decline QoQ but still remain at an elevated level, given the challenging macro
environment. Improvement in upgrades and recoveries would be critical. In 1QFY13, gross slippages had increased
significantly to INR108.4b (annualized slippage ratio of 5.6%).
Restructuring is likely to increase sequentially, led by systemic restructuring.
Adjusted for the value of Insurance (INR107/share), the stock trades at 1x FY14E consolidated BV and 6.5x FY14E
consolidated EPS. Maintain Buy.
Key things to watch for: (1) Trend in slippages and recoveries, (2) Restructured loans and outlook on the same,
(2) Growth and margin outlook.
C–78October 2012
September 2012 Results Preview
Sector: Financials
Union Bank of India
Bloomberg UNBK IN
Equity Shares (m) 550.5
52 Week Range (INR) 274/150
1,6,12 Rel Perf (%) 29/-16/-31
Mcap (INR b) 114.3
Mcap (USD b) 2.2
CMP: INR208 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) GR. (%) (X) (INR) (X) (X) (%) (%)
3/11A 82,550 20,819 39.6 -3.6 - 211 - - 1.0 20.9
3/12A 92,413 17,871 32.3 -18.5 6.4 236 0.9 1.0 0.7 14.8
3/13E 102,017 23,221 42.0 30.1 4.9 267 0.8 1.0 0.8 16.7
3/14E 119,311 26,585 48.1 14.6 4.3 303 0.7 0.9 0.8 16.9
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 49,157 51,104 53,747 57,434 60,699 63,377 65,056 67,972 211,443 257,104
Interest Expense 33,255 34,492 35,939 38,668 42,482 43,909 44,863 46,838 142,354 178,091
Net Interest Income 15,902 16,611 17,809 18,766 18,217 19,468 20,193 21,134 69,089 79,013
% Change (YoY) 18.0 8.2 10.2 9.3 14.6 17.2 13.4 12.6 11.1 14.4
Other Income 4,840 5,009 5,921 7,554 4,912 5,247 5,886 6,960 23,324 23,004
Net Income 20,742 21,621 23,730 26,320 23,129 24,715 26,078 28,094 92,413 102,017
Operating Expenses 9,084 9,571 10,889 10,332 10,459 11,030 11,413 12,464 39,875 45,365
Operating Profit 11,658 12,050 12,841 15,988 12,671 13,685 14,666 15,631 52,538 56,652
% Change (YoY) 11.7 6.6 1.8 83.9 8.7 13.6 14.2 -2.2 22.0 7.8
Other Provisions 4,284 6,228 9,727 5,172 5,185 5,041 5,600 6,425 25,410 22,250
Profit before Tax 7,374 5,822 3,114 10,816 7,486 8,644 9,066 9,206 27,128 34,401
Tax Provisions 2,730 2,297 1,144 3,085 2,370 2,809 2,946 3,055 9,256 11,180
Net Profit 4,644 3,524 1,970 7,732 5,116 5,834 6,119 6,151 17,871 23,221
% Change (YoY) -22.8 16.2 -66.0 29.4 10.2 65.5 210.6 -20.4 -14.2 29.9
Operating Metrics
NIM (Reported,%) 3.1 3.2 3.3 3.3 3.0 - - - 3.3 -
NIM (Cal, %) 3.0 3.2 3.3 3.2 3.0 3.1 3.1 3.1 3.0 3.0
Deposit Growth (%) 16.4 10.0 10.0 10.1 11.5 17.0 15.9 16.0 10.1 16.0
Loan Growth (%) 16.7 16.5 16.8 18.3 19.5 21.7 19.5 15.0 18.3 15.0
CASA Ratio (%) 31.5 32.1 32.5 31.3 31.0 - - - 31.3 -
Tax Rate (%) 37.0 39.5 36.7 28.5 31.7 32.5 32.5 33.2 34.1 32.5
Asset Quality
OSRL - Facilitywise (INR b) 24.1 23.2 39.3 74.7 84.2 - - - 74.7 -
OSRL (%) 1.7 1.6 2.5 4.1 4.8 - - - 4.1 -
Gross NPA (INR b) 37.5 51.4 52.1 54.5 65.4 69.0 74.3 79.4 54.5 79.4
Gross NPA (%) 2.6 3.5 3.3 3.0 3.8 3.9 4.0 3.8 3.0 3.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan growth is expected to remain healthy at 22% YoY and deposit growth to improve to 17% YoY on lower base.
Margins are likely to expand by 10bp+ QoQ. In 1QFY13, UNBK reported a 25bp decline in NIM to 3%, led by
(1) higher reversal of interest income and (2) due to seasonal factors.
Fee income growth is expected to be healthy at ~15%, however, lower trading and forex gain would lead to
non-interest income growth of ~5%.
Slippages are expected to remain high. However, the high base of 1QFY13 would lead to a sequential decline.
In 1QFY13, UNBK had reported slippages of INR16.3b, led by slippages in few large corporate accounts. Recoveries
and upgradations are likely to remain healthy and provide cushion to asset quality.
The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 4.9x FY13E and 4.3x FY14E EPS. Maintain Buy.
Key things to watch for: (1) Margin movement, (2) Gross slippages and traction in recoveries and upgradations.
C–79October 2012
September 2012 Results Preview
Sector: Financials
Yes Bank
Bloomberg YES IN
Equity Shares (m) 353.0
52 Week Range (INR) 389/231
1,6,12 Rel Perf (%) 7/0/26
Mcap (INR b) 134.9
Mcap (USD b) 2.6
CMP: INR382 Buy
Year Net Income PAT EPS EPS P/E BV P/BV P/ABV RoAA RoAE
End (INR m) (INR m) (INR) Gr. (%) (X) (INR) (X) (X) (%) (%)
3/11A 18,702 7,271 20.9 48.9 - 109 - - 1.5 21.1
3/12A 24,728 9,770 27.7 32.1 13.8 132 2.9 2.9 1.5 23.1
3/13E 32,650 12,506 35.4 28.0 10.8 162 2.4 2.4 1.5 24.1
3/14E 40,727 15,167 43.0 21.3 8.9 197 1.9 2.0 1.5 23.9
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Interest Income 13,995 14,387 16,841 17,851 18,863 19,294 19,710 20,256 63,074 78,123
Interest Expense 10,454 10,530 12,565 13,369 14,142 14,318 14,461 14,742 46,917 57,663
Net Interest Income 3,542 3,856 4,276 4,482 4,722 4,975 5,249 5,514 16,156 20,460
% Change (Y-o-Y) 35.1 23.1 32.3 28.6 33.3 29.0 22.8 23.0 29.6 26.6
Other Income 1,653 2,141 2,114 2,664 2,881 2,925 3,075 3,308 8,571 12,189
Net Income 5,195 5,997 6,390 7,146 7,603 7,900 8,324 8,823 24,728 32,650
Operating Expenses 1,944 2,138 2,402 2,842 3,007 3,008 3,148 3,302 9,325 12,465
Operating Profit 3,251 3,859 3,988 4,304 4,596 4,893 5,175 5,520 15,402 20,184
% Change (Y-o-Y) 30.6 37.1 28.1 23.4 41.4 26.8 29.8 28.3 29.4 31.0
Other Provisions 15 379 224 285 300 350 450 557 902 1,657
Profit before Tax 3,236 3,481 3,765 4,019 4,296 4,543 4,725 4,963 14,500 18,527
Tax Provisions 1,075 1,130 1,224 1,301 1,395 1,476 1,536 1,615 4,730 6,021
Net Profit 2,161 2,350 2,541 2,718 2,901 3,066 3,190 3,348 9,770 12,506
% Change (Y-o-Y) 38.2 33.3 32.9 33.6 34.3 30.5 25.5 23.2 34.4 28.0
Operating Metrics
NIM (Reported,%) 2.8 2.9 2.8 2.8 2.8 - - - 2.8 -
NIM (Cal, %) 2.7 2.9 2.9 2.8 2.8 2.8 2.9 2.9 2.6 2.7
Deposit Growth (%) 44.1 10.2 18.9 7.0 15.2 17.3 15.7 17.0 7.0 17.0
Loan Growth (%) 26.1 12.7 15.3 10.5 16.4 15.5 14.5 15.0 10.5 15.0
CASA Ratio (%) 10.9 11.0 12.6 15.0 16.3 - - - 15.0 -
Tax Rate (%) 33.2 32.5 32.5 32.4 32.5 32.5 32.5 32.5 32.6 32.5
Asset Quality
OSRL (INR m) 870 1,755 1,757 2,013 1,965 - - - 2,013 -
OSRL in bp 26 51 49 53 51 - - - 53 -
Gross NPA (INR b) 0.6 0.7 0.7 0.8 1.1 1.4 1.9 2.3 0.8 2.3
Gross NPA (%) 0.2 0.2 0.2 0.2 0.3 0.4 0.4 0.5 0.2 0.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Loan growth is expected to be ~16% YoY as bank continues to focus on building granularity and invest in high
rated corporate papers. Deposit growth would be ~17%.
YES is focusing on increasing its CASA base to build its liability franchise. Its CASA ratio stood at 16.3% as at the
end of 1QFY13. Movement in CASA ratio remains a key parameter to monitor.
Margins are expected to remain largely stable QoQ, despite a decline in bulk deposit rates. As higher investment
in credit substitutes would put pressure on yields on assets.
YES has been able to manage asset quality fairly well as of 2QFY13. However, increasing stress in the large
corporate segment could throw a negative surprise.
The stock trades at 2.4x FY13E and 1.9x FY14E BV, and at 10.8x FY13E and 8.9x FY14E EPS. Buy.
Key things to watch for: (1) Business growth and outlook for FY14, (2) Margin movement in a falling interest rate
scenario, led by higher SA deposit rate, (3) CASA ratio, (4) Branch expansion.
C–80October 2012
September 2012 Results Preview
Sector: Healthcare
HealthcareCompany Name
Biocon
Cadila Healthcare
Cipla
Dishman Pharma
Divi’s Laboratories
Dr Reddy’s Labs.
GSK Pharma
Glenmark Pharma
IPCA Laboratories
Jubilant Life Sciences
Lupin
Opto Circuits
Ranbaxy Labs.
Sanofi India
Strides Arcolab
Sun Pharmaceuticals
Torrent Pharma
Expected quarterly performance summary (INR million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Biocon 275 Neutral 6,067 19.3 5.2 1,453 8.9 18.4 886 3.4 12.4
Cadila Health 872 Buy 15,810 27.0 2.1 3,439 24.7 0.6 2,158 110.1 10.8
Cipla 381 Neutral 20,468 15.1 17.2 5,156 17.8 24.8 3,735 20.9 22.2
Dishman Pharma 96 Neutral 3,436 27.6 9.0 830 76.5 -0.7 304 LP -21.6
Divis Labs 1,080 Buy 4,932 39.3 5.3 1,833 45.2 -3.8 1,350 27.3 -19.4
Dr Reddy’ s Labs 1,647 Buy 24,822 15.1 8.9 4,542 8.6 26.4 2,229 -17.0 -4.3
Glenmark Pharma 422 Buy 11,589 25.0 17.5 2,076 19.9 12.8 1,426 91.5 181.5
GSK Pharma 1,977 Buy 6,674 9.8 2.4 2,082 18.3 2.7 1,720 17.8 1.4
IPCA Labs. 482 Buy 7,133 14.4 12.4 1,639 3.7 23.3 1,098 40.9 155.5
Jubilant Life 212 Neutral 12,803 22.2 3.6 2,691 14.0 -0.1 1,326 67.0 43.8
Lupin 596 Buy 20,925 27.2 2.1 3,674 32.9 12.4 2,442 21.5 16.4
Opto Circuits 130 Neutral 7,012 24.8 -1.9 1,885 21.9 -0.7 1,337 10.5 -3.1
Ranbaxy Labs 530 Neutral 25,341 20.9 10.0 2,706 55.4 9.1 1,688 4.2 -2.0
Sanofi India 2,374 Neutral 3,901 24.8 4.3 636 26.4 21.8 499 -8.9 23.3
Strides Arcolab 883 Buy 6,185 -19.6 21.7 1,555 -9.6 37.6 1,347 189.9 1050.3
Sun Pharma 693 Neutral 22,526 26.4 -2.2 8,583 20.1 -17.5 7,063 29.5 5.2
Torrent Pharma 695 Buy 8,290 21.3 8.1 1,659 18.0 6.4 1,119 11.9 9.8
Sector Aggregate 207,915 19.7 6.8 46,439 20.2 4.9 31,728 28.2 16.7
Note: Historic numbers include one-offs and hence YoY comparison may not give the correct picture
Nimish Desai ([email protected])
Topline to grow by 21%, EBITDA by 22% on the back of strong operationalperformance by Sun Pharmaceuticals, Ranbaxy, Divi's Laboratories, Cadilaand LupinFor 2QFY13, we expect topline growth of 21% YoY for our universe (excluding one-
offs), with EBITDA growth at 22% YoY. Adjusted PAT is likely to grow 28% YoY. EBITDA
growth would be mainly led by strong performance by Sun Pharmaceuticals,
Ranbaxy, Cadila, Lupin and Divi's Laboratories, and would be partly aided by favorable
currency. Adjusted PAT growth at 28% would be higher than EBITDA growth, mainly
because of reversal of forex losses due to the appreciation of the INR v/s the USD in
the last few weeks.
2QFY13 aggregates excluding one-offs
Healthcare Universe YoY Growth (%) EBITDA Margin Net Profit Margin
Aggregates Sales EBITDA Adj. PAT Sep-12 Sep-11 Chg.(bp) Sep-12 Sep-11 Chg.(bp)
MNC Pharma 14.9 20.1 10.5 25.7 24.6 111 21.0 21.8 -83
Big 4 Generics 21.8 25.7 14.5 23.1 22.4 71 15.5 16.4 -98
CRAMS 26.7 30.8 66.4 25.3 24.5 79 14.1 10.7 336
Second Tier generics 18.7 16.6 52.2 20.4 20.8 -37 13.8 10.8 303
Sector Aggregate 20.9 22.6 28.2 22.6 22.3 32 15.1 14.2 87
Note: Above numbers exclude one-offs to facilitate comparison of core operations. Big-4
Generics include Ranbaxy, Cipla, Dr Reddy's and Sun.
C–81October 2012
September 2012 Results Preview
Sector: Healthcare
Core 2QFY13 performance: Key highlights Sun, Ranbaxy, Divi's, Cadila and Lupin to record strong operational improvement:
From our coverage universe, we expect Sun Pharmaceuticals, Ranbaxy, Divi's
Laboratories, Cadila and Lupin to record strong EBITDA growth for 2QFY13. We
attribute the following company-specific reasons for this performance:
1. Sun Pharmaceuticals: Expect strong operating performance, primarily led by
improvement in profitability of Taro and favorable currency.
2. Ranbaxy: Likely to report healthy growth in EBITDA, led by a very low base.
3. Divi's Laboratories: Strong operational performance, led by healthy topline
growth, favorable currency and low base effect.
4. Cadila: Expect strong growth in EBITDA, led by healthy topline growth, mainly
due to strong growth in the international business.
5. Lupin: Healthy growth in EBITDA, led by topline growth (mainly regulated and
semi-regulated markets) and partly due to favorable currency.
CRAMS companies to report strong operational performance: We expect Divi's
Laboratories and Dishman to report strong operational performance on a low base,
new order inflows and favorable currency.
Sector viewGenerics
Emerging markets to help improve profitability gradually from 2012.
New launches imperative for driving growth in core US business.
Differentiation becoming imperative - low competition/patent challenge products,
brands, NCE research will be key differentiators.
Increasing MNC interest in Generics space - may lead to large acquisitions/supply
arrangements with Indian companies.
Top picks: Dr Reddy's, Cadila, IPCA and Torrent.
CRAMS (Contract Research & Manufacturing Services)
Favorable macro trends: India on the threshold of significant opportunity, given
the optimum combination of strong chemistry & regulatory skills and low-costs.
Inventory de-stocking impacted performance over the last couple of years. Expect
healthy performance FY13 onwards.
Top picks: Divi's Laboratories.
MNC Pharma
Portfolio realignment in favor of lifestyle products to drive growth in medium-to-
long term.
Branded generics, patented products and in-licensing to drive long-term growth.
Parent's commitment to listed entity is imperative.
Short-term adverse impact likely from the proposed new pharma policy.
Top picks: GlaxoSmithKline Pharmaceuticals.
C–82October 2012
September 2012 Results Preview
Sector: Healthcare
Proposed New Pharma Policy: HighlightsThe GoM (Group of Ministers) has recently proposed the New Pharma Policy (although
the Supreme Court has raised some objections to it). We give below the key highlights
based on broad details released to the media:
All 348 drugs under the National List of Essential Medicines (NLEM) will come
under price control.
Price cap for these drugs will be calculated as the weighted average price (WAP)
of all the brands having market share of more than 1%. Players selling any of these
drugs at prices higher than WAP will have to lower their prices.
Combinations will be kept out of price controls.
These proposals will now be sent by the GoM to the Cabinet for a final approval.
Our view
Based on the overall details available (we are still awaiting the fine print and the
actual policy document), we expect MNC players to take the maximum hit due to
their premium pricing policy.
Among Indian players, companies with high exposure to anti-infectives may get
adversely impacted since such medicines account for 17% of NLEM. In our coverage
universe of Indian companies, Cipla, Cadila and Ranbaxy have high exposure to
anti-infectives. For the remaining companies, the impact is likely to be relatively
moderate-to-low. Actual impact on these companies may vary depending on their
positioning/pricing policy for each drug.
We await details from various companies on the exact impact.
Combinations to be kept outside price controls: The proposed policy is relatively
better than general expectations, since combination drugs have been kept outside
the purview of price control. It was generally perceived that combinations will be
subjected to price controls, thus increasing the overall span of price control to
~60%. If combinations are kept outside the purview of price controls, then the
span of price control will be 30-40% rather than 60%, which should please the
industry.
Market-based pricing: The GoM has resisted pressure of finalizing a cost-based
pricing policy, which is also incrementally positive, as for the first time, the policy
will make drug prices market-determined.
Trade channels to share part of the impact: The hit on the industry due to lower
prices will be partly compensated by lower margins for the trade/retail channels
for drugs that get impacted.
Preliminary estimates indicate that the hit to the overall industry will be higher
than the impact under the proposed NPPP (in October 2011), wherein the impact
was estimated at INR25b-30b. Once cleared by the Cabinet, prices of 60% of
essential medicines (NLEM) will be reduced by over 20%, while in certain cases
the prices may come down by even 70%.
This implies that under the new proposals, the overall impact on the industry will
be 2-3x that proposed under the NPPP.
C–83October 2012
September 2012 Results Preview
Sector: Healthcare
The table below gives the impact on key companies if the same ratio is applied:
Proposed Pharma Policy: Impact on FY14 EPS (INR m)
Company DF % of Total Impact on EPS (%)
Sales Sales NPPP w/o combinations 2x NPPP 3x NPPP
GSK Pharma 27,905 97 13 20-25 30-40
Ranbaxy 25,701 24 4 5-10 10-15
Cadila 27,151 36 3 5-7 7-10
Cipla 43,220 48 3 5-7 7-10
Dr Reddy's Lab 17,101 15 2 3-5 5-10
Glenmark 13,950 26 2 3-5 5-10
IPCA 10,050 32 2 3-5 5-10
Sun Pharma 38,734 34 1 2 3-5
Lupin 28,284 28 1 2 3-5
Source: Company, MOSL
However, it should be noted that application of the above multiples may not give
the exact picture, as the NPPP had proposed bringing all combination drugs under
price control whereas the latest proposals exclude combination drugs from price
control. The table above gives our approximate estimates.
We note that MNCs like GlaxoSmithKline Pharmaceuticals will be adversely
impacted along with Indian players like Ranbaxy, Cipla and Cadila. While the actual
impact on these companies will be known only when further details on the policy
are available, we believe that these three companies will be relatively more
impacted, given their significant exposure to the anti-infective segment.
None of the companies have confirmed the impact depicted in the table above
and we await more clarity from the management of these companies.
The above view is based on the preliminary details that have been made public.
We will analyze the actual impact post the receipt of the final policy document.
Spate of US FDA clearances during the quarter2QFY13 witnessed some positive news flows related to US FDA clearances for Indian
players. Some of the companies that had favorable outcome include:
1. Cadila: Resolved the US FDA warning letter for its Moraiya facility. This could
potentially have positive implications during the coming quarters, as the US FDA
starts clearing pending products from this facility.
2. Claris Lifesciences: Resolved the US FDA warning letter for its Gujarat facility. This
will help the company ramp up the US business gradually from CY13.
3. Sun Pharmaceuticals: US subsidiary, Caraco received US FDA clearance for resuming
manufacturing at its US facility. The manufacturing was stopped by the US FDA in
FY10.
Recent appreciation of the INR will reverse forex losses for many companiesThe INR has depreciated by ~17% YoY against the USD but has appreciated ~5% from 30
June 2012. This appreciation is likely to partially reverse the forex losses recorded by
many pharmaceuticals companies in 1QFY13. Some of the key companies where such
reversals will result in significant positive impact on profits are: 1. Ranbaxy, 2. Cadila,
3. Dishman, 4. Glenmark, 5. IPCA Labs and 6. Jubilant Lifesciences.
C–84October 2012
September 2012 Results Preview
Sector: Healthcare
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Healthcare
Biocon 275 Neutral 16.9 17.9 18.4 16.2 15.3 14.9 9.0 8.3 8.0 14.9 14.3 13.4
Cadila Health 872 Buy 27.6 41.2 52.4 31.5 21.2 16.7 17.3 13.9 11.3 23.8 29.0 29.3
Cipla 381 Neutral 14.0 16.2 18.4 27.2 23.5 20.7 17.6 15.0 14.0 15.0 15.0 15.1
Dishman Pharma 96 Neutral 7.0 15.6 17.5 13.8 6.2 5.5 7.6 4.8 4.3 6.3 12.9 12.9
Divis Labs 1,080 Buy 40.2 53.0 64.1 26.9 20.4 16.9 20.3 15.6 12.3 25.0 27.5 27.7
Dr Reddy’ s Labs 1,647 Buy 71.4 85.1 100.1 23.1 19.4 16.5 12.3 14.0 12.4 21.1 21.9 22.7
Glenmark Pharma 422 Buy 11.4 18.2 26.3 37.0 23.2 16.0 13.3 14.2 11.3 13.5 17.7 20.5
GSK Pharma 1,977 Buy 74.5 81.0 92.6 26.5 24.4 21.4 19.6 18.3 15.7 32.9 33.5 34.2
IPCA Labs. 482 Buy 21.9 29.3 38.2 22.0 16.4 12.6 12.8 10.3 8.7 24.0 26.4 27.6
Jubiliant Life 212 Neutral 13.6 21.0 33.4 15.5 10.1 6.3 8.4 6.0 5.0 9.7 13.5 18.8
Lupin 596 Buy 19.4 24.1 31.2 30.7 24.8 19.1 21.0 16.3 13.4 23.8 24.3 26.2
Opto Circuits 130 Neutral 23.6 22.5 25.3 5.5 5.8 5.1 6.7 5.6 4.9 37.2 28.7 26.6
Ranbaxy Labs 530 Neutral 14.1 18.0 21.8 37.5 29.5 24.3 14.6 12.4 16.5 -72.0 28.3 15.7
Sanofi India 2,374 Neutral 83.0 73.5 92.4 28.6 32.3 25.7 29.7 24.1 19.4 17.3 13.9 15.6
Strides Arcolab 883 Buy 38.5 52.8 61.5 23.0 16.7 14.4 15.9 11.4 10.7 16.9 18.5 14.5
Sun Pharma 693 Neutral 22.4 26.5 29.4 30.9 26.2 23.6 20.5 16.5 15.7 21.5 20.7 19.7
Torrent Pharma 695 Buy 38.4 49.5 59.0 18.1 14.0 11.8 11.3 9.0 7.3 29.3 30.9 29.2
Sector Aggregate 17 26.4 21.6 18.1 15.9 13.6 12.3 19.7 20.1 20.6
Ranbaxy core valuations adjusted for DCF value of Para-IV upsides of INR61/sh
Relative Performance-3m (%) Relative Performance-1Yr (%)
80
95
110
125
140
Sep
-11
De
c-11
Mar
-12
Jun
-12
Sep
-12
Sensex Index
MOSL Hea l thcare Index
95
100
105
110
115
Jun-
12
Jul-
12
Aug
-12
Sep-
12
Sens ex Index
MOSL Heal thcare Index
Currency movement (INR/USD)
Source: Bloomberg
40
43
46
49
52
55
58
Jun-
11
Jul-
11
Aug
-11
Sep-
11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb-
12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-
12
Aug
-12
Sep-
12
C–85October 2012
September 2012 Results Preview
Sector: Healthcare
Biocon
Bloomberg BIOS IN
Equity Shares (m) 200.0
52 Week Range (INR) 363/208
1,6,12 Rel Perf (%) 5/8/-35
Mcap (INR b) 54.9
Mcap (USD b) 1.0
CMP: INR275 Neutral
Consolidated Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 4,417 5,084 5,172 6,102 5,767 6,067 6,354 6,707 20,865 24,895
YoY Change (%) -33.3 -25.1 -29.0 -13.0 30.6 19.3 22.9 9.9 -24.7 19.3
Total Expenditure 3,213 3,750 3,898 4,556 4,540 4,615 4,855 5,117 15,691 19,126
EBITDA 1,204 1,334 1,274 1,546 1,227 1,453 1,500 1,590 5,174 5,769
Margins (%) 27.2 26.2 24.6 25.3 21.3 23.9 23.6 23.7 24.8 23.2
Depreciation 451 429 434 431 427 473 482 548 1,744 1,930
Interest 57 20 29 30 32 20 33 48 122 133
Other Income 123 160 150 13 159 161 215 233 618 769
PBT 820 1,045 961 1,099 927 1,121 1,199 1,228 3,926 4,475
Tax 119 188 113 121 137 235 258 265 541 895
Rate (%) 14.6 18.0 11.8 11.0 14.8 21.0 21.5 21.6 13.8 20.0
Minority Interest 0 0 0 0 2 0 0 -2 0 0
PAT 701 857 848 978 788 886 941 965 3,384 3,580
YoY Change (%) -8.7 -3.9 -15.8 -3.0 12.5 3.4 11.0 -1.3 518.6 5.8
Margins (%) 15.9 16.9 16.4 16.0 13.7 14.6 14.8 14.4 16.2 14.4
Licensing income 140 365 292 463 139 262 294 395 1,253 1,090
YoY Change (%) -33.3 58.7 -62.0 35.4 -0.7 -28.3 0.8 -14.7 -19.2 -13.0
Contract research 880 928 1,120 1,180 1,224 1,280 1,386 1,442 4,101 5,331
YoY Change (%) 22.2 19.0 42.1 32.3 39.1 37.9 23.8 22.2 29.0 30.0
E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements; FY12 topline shows degrowth due
to divestment of Axicorp business which had contributed INR9.7b to topline in FY11
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 27,707 547 2.7 -81.3 - - 2.7 6.5 - -
03/12A 20,865 3,384 16.9 518.6 16.3 2.4 14.9 13.0 2.2 9.0
03/13E 24,895 3,580 17.9 5.8 15.4 2.2 14.3 13.6 1.9 8.3
03/14E 27,549 3,675 18.4 2.7 15.0 2.0 13.4 13.2 1.8 8.0
BSE Sensex S&P CNX
18,763 5,703
We expect Biocon’s 2QFY13 topline to grow 19% YoY to INR6b, mainly on the back of (1) contract research
revenue, led by new customer additions, and (2) 19% growth in Biopharma revenue. Licensing income is likely
to decline 28% YoY to INR262m.
EBITDA would grow 9% YoY to INR1.45b and EBITDA margin would shrink 230bp to 24% due to increased R&D
spending on the biogeneric pipeline.
We expect adjusted PAT to grow just 3% YoY to INR886m on account of higher depreciation and higher tax rate.
The key growth drivers for FY13/14 would be: (1) traction in the company’s Insulin initiative in emerging markets,
(2) ramp-up in Contract Research business, and (3) incremental contribution from immunosuppressant API supplies.
However, given the high cost of developing biogeneric products, we believe cost pressures are likely to continue
in FY13/14, impacting earnings and return ratios. Option values for the future include separate listing of Contract
Research business and potential out-licensing of the Oral Insulin NCE. The stock trades at 15.4x FY13E and 15x FY14E
earnings. Return ratios are likely to remain subdued, with both RoE and RoCE in the 13-14% range for FY13 and FY14.
Maintain Neutral.
C–86October 2012
September 2012 Results Preview
Sector: Healthcare
Cadila Healthcare
Bloomberg CDH IN
Equity Shares (m) 204.7
52 Week Range (INR) 964/629
1,6,12 Rel Perf (%) -7/9/-2
Mcap (INR b) 178.6
Mcap (USD b) 3.4
CMP: INR872 Buy
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues 12,457 12,450 13,832 13,980 15,486 15,810 16,799 17,176 52,633 65,272
YoY Change (%) 9.9 11.5 18.6 15.3 24.3 27.0 21.4 22.9 13.7 24.0
Total Expenditure 9,433 9,693 11,193 11,152 12,067 12,372 13,304 13,402 41,385 51,145
EBITDA 3,024 2,757 2,640 2,828 3,419 3,439 3,495 3,774 11,248 14,127
Margins (%) 24.3 22.1 19.1 20.2 22.1 21.8 20.8 22.0 21.4 21.6
Depreciation 347 375 465 391 434 476 495 499 1,579 1,904
Interest 189 255 276 350 301 318 324 329 1,069 1,272
Other Income 140 -790 -160 151 -21 255 20 135 -658 389
PBT after EO Income 2,628 1,337 1,739 2,238 2,663 2,900 2,695 3,081 7,942 11,340
Tax 285 235 174 436 654 667 620 668 1,130 2,608
Rate (%) 10.9 17.6 10.0 19.5 24.5 23.0 23.0 21.7 14.2 23.0
Min. Int/Adj on Consol 45 75 74 93 61 75 74 90 286 300
Reported PAT 2,298 1,027 1,492 1,709 1,948 2,158 2,002 2,323 6,526 8,431
Adj PAT 1,433 1,027 1,492 1,709 1,948 2,158 2,002 2,323 5,660 8,431
YoY Change (%) -11.9 -39.9 -7.9 23.9 36.0 110.1 34.2 36.0 -10.6 49.0
Margins (%) 11.5 8.2 10.8 12.2 12.6 13.6 11.9 13.5 10.8 12.9
Adj PAT incl one-offs 2,298 1,027 1,492 1,709 1,948 2,158 2,002 2,323 6,526 8,431
E: MOSL Estimates; # Forex loss is lower
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 46,302 6,334 30.9 26.4 - - 37.5 30.5 - -
03/12A 52,633 5,660 27.6 -10.6 31.5 6.9 27.5 22.8 3.7 17.3
03/13E 65,272 8,431 41.2 49.0 21.2 5.5 29.0 25.2 3.0 13.8
03/14E 75,697 10,718 52.4 27.1 16.7 4.4 29.3 26.9 2.5 11.2
BSE Sensex S&P CNX
18,763 5,703
Cadila’s 2QFY13 topline is likely to grow 27% YoY to INR15.8b, led by 30% YoY growth in the domestic formulations
business and 29% YoY growth in the formulations export business. While the acquisition of Biochem would
drive growth in the domestic formulations, growth in the formulations export business would be partially led
by favorable currency.
We expect EBITDA to grow 25% YoY to INR3.4b. EBITDA margin is likely to contract by 30bp YoY to 21.8% due to
lower profitability of the acquired companies.
Adjusted PAT would grow 110% YoY to INR2.1b, primarily led by the low base of 2QFY12, when PAT was impacted
by forex losses of INR900m v/s estimated forex gains of INR160m.
We expect strong 37% EPS CAGR over FY12-14 for the core operations, excluding one-offs. Over the next two years,
RoCE would be 25% and RoE would be ~29%. Our estimates exclude the impact of the proposed new pharma policy.
Sustaining double-digit growth without diluting return ratios has been Cadila’s key USP over the past few years.
The company has chalked out a detailed plan to achieve revenue of USD3b in FY16. We believe it will be a difficult
target to achieve this organically. Yet, we expect strong earnings growth trajectory, given (1) recovery in growth for
the US business post the recent resolution of US FDA’s warning letter, (2) presence in key geographies, and (3)
strong growth expected in revenue from various JVs. The stock trades at 21.2x FY13E and 16.7x FY14E consolidated
EPS. Maintain Buy.
C–87October 2012
September 2012 Results Preview
Sector: Healthcare
Cipla
Bloomberg CIPLA IN
Equity Shares (m) 802.9
52 Week Range (INR) 395/276
1,6,12 Rel Perf (%) -3/17/18
Mcap (INR b) 305.6
Mcap (USD b) 5.8
CMP: INR381 Neutral
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues 15,914 17,780 17,580 18,530 19,582 20,468 19,832 19,709 70,207 79,591
YoY Change (%) 7.5 10.1 13.2 11.2 23.0 15.1 12.8 6.4 11.2 13.4
Total Expenditure 12,219 13,404 13,666 14,330 14,183 15,312 15,240 15,487 53,619 60,222
EBITDA 3,695 4,376 3,915 4,200 5,399 5,156 4,592 4,222 16,589 19,369
Margins (%) 23.2 24.6 22.3 22.7 27.6 25.2 23.2 21.4 23.6 24.3
Depreciation 703 656 757 1,006 728 766 781 850 3,122 3,125
Interest 43 24 32 22 11 12 13 13 383 49
Other Income 249 243 302 390 531 291 306 328 1,395 1,456
Profit before Tax 3,199 3,939 3,426 3,561 5,190 4,669 4,104 3,688 14,478 17,651
Tax 666 850 727 794 1,182 934 821 770 3,036 3,707
Rate (%) 20.8 21.6 21.2 22.3 22.8 20.0 20.0 20.9 21.0 21.0
Reported PAT 2,533 3,090 2,699 2,767 4,008 4,369 3,283 2,918 11,442 13,944
Adj PAT 2,533 3,090 2,699 2,577 3,057 3,735 3,283 2,918 11,252 12,993
YoY Change (%) -1.6 17.5 16.0 20.3 20.7 20.9 21.7 13.2 16.3 15.5
Margins (%) 15.9 17.4 15.4 13.9 15.6 18.3 16.6 14.8 16.0 16.3
Domestic formulation sales 7,202 8,208 8,457 7,182 9,388 9,771 9,581 8,068 31,048 36,808
YoY Change (%) 8.9 9.8 17.5 12.3 30.4 19.0 13.3 12.3 12.2 18.6
Other operating income 411 462 465 498 408 492 496 406 1,730 1,802
YoY Change (%) -21.6 30.2 -11.0 13.2 -0.7 6.5 6.5 -18.6 -6.1 4.1
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 63,145 9,671 12.0 -3.7 - - 14.5 15.8 - -
03/12A 70,207 11,442 14.0 16.2 27.1 4.0 14.7 18.8 4.3 18.3
03/13E 79,591 12,993 16.2 15.3 23.5 3.5 15.0 19.9 3.8 15.7
03/14E 88,698 14,779 18.4 13.6 20.6 3.1 15.1 19.0 3.4 14.8
BSE Sensex S&P CNX
18,763 5,703
Cipla’s core topline for 2QFY13 is likely to grow 15% YoY to INR20.46b while reported topline (including one-
offs) is likely to grow 23% YoY, driven by generic Lexapro supplies to Teva. The domestic formulations business
would grow 19% YoY to INR9.8b while exports (excluding one-offs) would grow 12% YoY to INR10.2b, impacted
by muted 10% YoY growth in formulation exports to INR8.2b.
Core EBITDA would grow 18% YoY. EBITDA margin is likely to expand 60bp YoY to 25.2%, led by favorable revenue
mix, improving capacity utilization at Indore SEZ, and favorable currency. Reported EBITDA (including one-offs)
is likely to grow 37% YoY.
We expect adjusted PAT to grow 21% YoY to INR3.7b, led by healthy operational performance and higher other
income. Reported PAT (including one-offs) is likely to grow 41% YoY to INR4.4b.
Cipla continues to face short-term headwinds in ramping up its core formulation exports business despite a favorable
currency. Its muted export performance raises uncertainty on the timelines of ramp-up at Indore SEZ. While large
capex (for past few years) is a long-term positive, we believe it is imperative for the company to improve asset
utilization at Indore to drive future growth and derive benefits of operating leverage (overhead expenses continue
to adversely impact performance). Strong 1HFY13 bottomline growth will be mainly driven by generic Lexapro
supplies to Teva which will not recur from 2HFY13. The stock trades at 23.5x FY13E and 20.6x FY14E earnings. Our
estimates exclude the impact of the proposed new pharma policy. Maintain Neutral.
C–88October 2012
September 2012 Results Preview
Sector: Healthcare
Dishman Pharma
Bloomberg DISH IN
Equity Shares (m) 81.3
52 Week Range (INR) 107/33
1,6,12 Rel Perf (%) -8/104/48
Mcap (INR b) 7.8
Mcap (USD b) 0.1
CMP: INR96 Neutral
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 2,372 2,692 2,655 3,502 3,153 3,436 3,565 3,745 11,221 13,898
YoY Change (%) 17.5 26.5 14.5 1.7 32.9 27.6 34.3 6.9 13.2 23.9
Total Expenditure 1,935 2,222 2,128 2,677 2,317 2,605 2,756 2,871 8,996 10,549
EBITDA 437 471 526 825 836 830 809 875 2,225 3,350
Margins (%) 18.4 17.5 19.8 23.5 26.5 24.2 22.7 23.3 19.8 24.1
Depreciation 187 207 191 180 193 203 216 234 765 847
Interest 137 150 164 218 231 238 243 239 729 951
Other Income 56 -183 89 95 26 39 35 35 150 135
PBT after EO Income 169 -70 260 522 438 428 385 436 880 1,686
Tax 17 -7 93 208 50 124 112 135 312 422
Rate (%) 10.4 9.3 35.7 39.9 11.5 29.0 29.0 31.1 35.4 25.0
Reported PAT 151 -64 167 313 387 304 274 300 568 1,265
Adj PAT 151 -64 167 313 387 304 274 300 568 1,265
YoY Change (%) -44.3 -121.6 859.7 36.4 156.1 63.6 -4.2 -30.1 122.5
Margins (%) 6.4 -2.4 6.3 8.9 12.3 8.8 7.7 8.0 5.1 9.1
CRAMS - India Sales 840 626 668 1,044 640 1,169 1,275 1,366 3,178 4,450
YoY Change (%) 56.9 -10.0 -15.1 19.6 -23.7 86.6 90.7 30.9 9.9 40.0
Carbogen AMCIS Sales 748 1,062 1,023 1,154 1,330 957 1,037 664 3,987 3,987
YoY Change (%) -16.1 16.4 28.7 9.1 77.8 -9.9 1.3 -42.5 9.0 0.0
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 9,908 814 10.0 -29.6 - - 9.7 8.1 - -
03/12A 11,221 568 7.0 -30.2 13.7 0.8 6.3 8.9 1.5 7.5
03/13E 13,898 1,265 15.6 122.5 6.2 0.7 12.9 13.6 1.2 4.8
03/14E 15,856 1,426 17.5 12.7 5.5 0.7 12.9 13.8 1.0 4.3
BSE Sensex S&P CNX
18,763 5,703
We expect Dishman’s revenue to increase 27.6% YoY to INR3.4b in 2QFY13, partially led by favorable currency.
The CRAMS business is likely to grow 26% YoY to INR2.1b, boosted mainly by strong performance in CRAMS
supplies from Indian facilities. Revenue from CarbogenAMCIS is would decline 10% YoY to INR957m. Revenue
from MM business would grow 30% YoY to INR1.3b.
EBITDA is likely to grow 76% YoY to INR830m. EBITDA margin would expand 670bp YoY to 24.2% due to low base
effect, better product mix with lower share of QUATs business, and favorable currency.
The company is likely to report net profit of INR304m due to better operational performance and absence of
forex losses (forex losses for 2QFY12 were INR187m).
The macro environment for CRAMS business remains favorable given India’s inherent cost advantages and chemistry
skills. We believe Dishman’s India operations will benefit from increased outsourcing from India, given its
strengthening MNC relations and expansion of some of the existing customer relationships. However, the company
needs to ramp-up its contracts with innovators to take advantage of the macro opportunity. We expect revenue
CAGR of 18.8%, EBITDA CAGR of 27.8% and earnings CAGR of 58% over FY12-14. Earnings growth is led by recovery
in operational performance, better product-mix and lower tax expense. Low asset utilization, high debt and delayed
ramp-up of CRAMS contracts remain our main concern. The stock currently trades at 6.2x FY13E and 5.5x FY14E
earnings. RoCE will continue to be subdued till new facilities and CRAMS contracts ramp up. Maintain Neutral.
C–89October 2012
September 2012 Results Preview
Sector: Healthcare
Divi's Laboratories
Bloomberg DIVI IN
Equity Shares (m) 132.7
52 Week Range (INR) 1,201/695
1,6,12 Rel Perf (%) -11/36/33
Mcap (INR b) 143.4
Mcap (USD b) 2.7
CMP: INR1,080 Buy
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Op Revenue 3,586 3,541 4,147 7,080 4,684 4,932 5,520 8,352 18,586 23,488
YoY Change (%) 36.1 38.7 33.9 47.9 30.6 39.3 33.1 18.0 42.2 26.4
Total Expenditure 2,308 2,279 2,663 4,251 2,780 3,100 3,456 5,220 11,736 14,555
EBITDA 1,277 1,262 1,484 2,829 1,904 1,833 2,064 3,132 6,850 8,932
Margins (%) 35.6 35.6 35.8 40.0 40.7 37.2 37.4 37.5 36.9 38.0
Depreciation 140 152 162 166 175 198 211 243 621 827
Interest 2 6 2 27 4 8 8 13 37 34
Other Income 164 227 284 78 418 83 124 203 615 827
PBT 1,299 1,332 1,604 2,714 2,143 1,708 1,969 3,079 6,806 8,899
Tax 273 257 341 566 469 359 413 627 1,474 1,869
Deferred Tax 1 14 38 0 0 0 0 0 0 0
Rate (%) 21.0 20.4 23.6 20.9 21.9 21.0 21.0 20.4 21.7 21.0
Reported PAT 1,026 1,061 1,226 2,148 1,674 1,350 1,555 2,452 5,333 7,030
Adj PAT 1,026 1,061 1,226 2,148 1,674 1,350 1,555 2,452 5,333 7,030
YoY Change (%) 22.5 47.4 24.5 22.9 63.2 27.3 26.9 14.1 24.2 31.8
Margins (%) 28.6 30.0 29.6 30.3 35.7 27.4 28.2 29.4 28.7 29.9
CCS Revenues 1,757 1,650 1,831 3,682 2,148 2,382 2,723 3,988 8,921 11,241
YoY Change (%) 42.6 49.3 26.8 58.9 22.2 44.3 48.7 8.3 46.3 26.0
Carotenoid Revenues 140 240 200 230 210 262 283 335 810 1,090
YoY Change (%) -17.6 100.0 33.3 27.1 50.0 9.0 41.7 45.7 30.4 34.6
E: MOSL Estimates; Quarterly financials from 1QFY12 are on stand-alone basis while annual financials are on consolidated basis
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 13,071 4,293 32.4 25.7 - - 25.9 28.2 - -
03/12A 18,586 5,333 40.2 24.1 26.9 6.7 27.1 34.1 7.7 21.0
03/13E 23,488 7,030 53.0 31.8 20.4 5.6 30.0 37.2 6.1 16.0
03/14E 29,363 8,507 64.1 21.0 16.9 4.7 30.2 37.6 4.9 12.9
BSE Sensex S&P CNX
18,763 5,703
Divi’s Laboratories (DIVI) is likely to post 39% YoY increase in 2QFY13 revenue to INR4.9b on new order inflows.
The CCS business would grow 44% YoY while the API business is likely to grow 39% YoY. Carotenoids revenue
would grow 10% YoY.
EBITDA is likely to grow 45% YoY to INR1.83b, led by strong revenue growth and low base effect. EBITDA margin
would expand 150bp.
We expect adjusted PAT to grow 27% YoY to INR1.35b. PAT growth would be lower than EBITDA growth YoY due
to higher depreciation and absence of forex gains (for 2QFY12, the company had recorded forex gains of
INR90m).
We expect DIVI to be a key beneficiary of the increased pharmaceutical outsourcing from India, given its strong
relationships with global innovator companies. It is targeting a fresh capex of INR1.5b-2b for FY13, despite the
~INR4.5b capex undertaken in the past two years. We believe that this reflects the management’s confidence in
driving future growth since DIVI does not usually undertake capex without adequate visibility of customer orders.
We estimate 37% RoCE and 30% RoE for the next two years, led by traction in the high-margin CRAMS business,
sustained profitability in the Generics business and increased contribution from the new SEZ. The stock trades at
20.4x FY13E and 16.9x FY14E earnings. Maintain Buy.
C–90October 2012
September 2012 Results Preview
Sector: Healthcare
Dr Reddy's Laboratories
Bloomberg DRRD IN
Equity Shares (m) 169.2
52 Wk Range (INR) 1,818/1,444
1,6,12 Rel Perf (%) -9/-13/-3
Mcap (INR b) 278.7
Mcap (USD b) 5.3
CMP: INR1,647 Buy
Quarterly Performance - IFRS (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Gross Sales 19,783 22,679 27,692 26,583 25,406 24,822 26,734 28,028 96,737 104,990
YoY Change (%) 17.5 21.3 45.9 31.8 28.4 9.5 -3.5 5.4 29.5 8.5
Total Expenditure 15,948 17,880 19,003 20,167 20,410 20,280 21,254 21,839 72,997 83,782
EBITDA 3,835 4,799 8,689 6,416 4,996 4,542 5,481 6,189 23,740 21,208
Margins (%) 19.4 21.2 31.4 24.1 19.7 18.3 20.5 22.1 24.5 20.2
Amortization 1,233 1,268 1,307 2,444 1,296 1,394 1,451 1,548 6,254 5,689
Other Income 144 178 365 292 25 -363 74 79 979 -185
Profit before Tax 2,746 3,709 7,747 4,264 3,725 2,786 4,104 4,719 18,465 15,334
Tax 120 631 2,616 837 365 557 821 1,017 4,204 2,760
Rate (%) 4.4 17.0 33.8 19.6 9.8 20.0 20.0 21.6 22.8 18.0
Net Profit 2,626 3,078 5,131 3,427 3,360 2,737 3,854 4,986 14,261 14,938
One-off/low-competition PAT in US 363 393 2,726 1,372 1,031 508 571 1,284 4,854 3,394
Adjusted PAT 2,263 2,685 2,405 2,055 2,329 2,229 3,283 3,702 9,408 11,543
YoY Change (%) 47.6 9.3 0.8 -3.5 2.9 -17.0 36.5 80.1 10.6 22.7
Margins (%) 11.4 11.8 8.7 7.7 9.2 9.0 12.3 13.2 9.7 11.0
E: MOSL Estimates; Note-Estimates do not include one-off upsides.
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 74,693 11,099 65.6 - - - 24.1 16.7 - -
03/12A 96,737 12,109 71.4 12.6 23.1 4.9 21.1 20.3 3.0 12.3
03/13E 104,990 14,426 85.1 19.1 19.4 4.2 21.9 17.0 2.8 14.0
03/14E 116,165 16,977 100.1 17.7 16.5 3.7 22.7 18.0 2.6 12.3
BSE Sensex S&P CNX
18,763 5,703
We expect Dr Reddy’s Laboratories (DRRD) to post 15% YoY growth in core revenue (excluding one-off sales) for
2QFY13 to INR24.8b. This would be led by 18% YoY growth in core US revenue and 16% YoY growth in the
international branded formulations segment. PSAI business revenue is likely to grow 15.5% YoY.
Core EBITDA is likely to grow just 7% YoY to INR4.5b, impacted mainly by higher SG&A and R&D expenses and
partly due to absence of export incentives. We expect core EBITDA margin to decline 140bp YoY to 18.3%.
Adjusted PAT would decline 17% YoY to INR2.2b, impacted mainly by muted EBITDA growth and estimated forex
loss of INR450m v/s forex gain of INR151m for 2QFY12. Higher tax rate will also adversely impact PAT growth.
Including contribution from one-off opportunities, we expect PAT to decline 11% YoY to INR2.7b.
Traction in the US, branded formulations and PSAI businesses will be the key growth drivers for DRRD over the next
two years. We believe that FY13 will be a year of strong growth for DRRD, with the management guiding a topline
of USD2.5b. Earnings upgrade is likely as and when the street gets convinced that DRRD can achieve this target. We
estimate core EPS at INR85.1 for FY13 and INR100 for FY14. Our estimates exclude upsides from patent challenges/
low-competition opportunities in the US (we estimate one-time PAT contribution of INR3.3b from such
opportunities in FY13). The stock currently trades at 19.4x FY13E and 16.5x FY14E core earnings. Our estimates
exclude the impact of the proposed new pharma policy. Maintain Buy.
C–91October 2012
September 2012 Results Preview
Sector: Healthcare
GlaxoSmithKline Pharmaceuticals
Bloomberg GLXO IN
Equity Shares (m) 84.7
52 Wk Range (INR) 2,338/1,830
1,6,12 Rel Perf (%) -11/-21/-19
Mcap (INR b) 167.5
Mcap (USD b) 3.2
CMP: INR1,977 Buy
Quarterly Performance (INR Million)
Y/E December CY11 CY12 CY11 CY12
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Net Sales 6,029 5,615 6,076 5,660 6,228 6,520 6,674 6,229 23,380 25,650
YoY Change (%) 11.4 12.8 4.4 15.4 3.3 16.1 9.8 10.0 10.7 9.7
Total Expenditure 3,920 3,746 4,316 3,954 4,271 4,492 4,592 4,353 15,935 17,707
EBITDA 2,109 1,870 1,760 1,706 1,957 2,028 2,082 1,876 7,445 7,944
Margins (%) 35.0 33.3 29.0 30.1 31.4 31.1 31.2 30.1 31.8 31.0
Depreciation 44 49 49 61 41 43 43 44 204 171
Interest 0 0 0 3 0 0 0 0 3 0
Other Income 580 421 441 535 804 479 472 492 1,978 2,248
PBT before EO Expense 2,645 2,242 2,152 2,177 2,720 2,464 2,511 2,324 9,216 10,020
Tax 782 725 692 703 863 768 791 734 2,902 3,156
Rate (%) 29.6 32.3 32.2 32.3 31.7 31.2 31.5 31.6 31.5 31.5
Adjusted PAT 1,863 1,517 1,460 1,474 1,857 1,696 1,720 1,590 6,314 6,864
YoY Change (%) 15.6 8.6 -7.7 20.5 -0.3 11.8 17.8 7.9 8.6 8.7
Margins (%) 30.9 27.0 24.0 26.0 29.8 26.0 25.8 25.5 27.0 26.8
Extra-Ord Expense 1,859 41 1 106 628 61 0 0 2,008 689
Reported PAT 5 1,475 1,459 1,367 1,229 1,635 1,720 1,590 4,306 6,175
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
12/10A 21,116 5,814 68.6 15.2 - - 30.1 44.8 - -
12/11A 23,380 6,314 74.5 8.6 26.5 8.7 32.9 47.9 6.2 19.6
12/12E 25,650 6,864 81.0 8.7 24.4 8.2 33.5 48.9 5.7 18.3
12/13E 28,899 7,840 92.6 14.2 21.4 7.3 34.2 49.9 5.0 15.7
BSE Sensex S&P CNX
18,763 5,703
We expect GlaxoSmithKline Pharmaceuticals (GLXO) to post 10% YoY growth in 3QCY12 topline to INR6.6b. The
muted growth in topline would be because of lower offtake of acute therapy products during the quarter due
to erratic rainfall.
EBITDA is likely to grow 18% YoY to INR2.1b, on a low base. EBITDA margin would expand 220bp to 31.2% due to
low base of 3QCY11, when EBITDA margin was 29%.
We expect PAT to grow 18% YoY to INR1.7b in 3QCY12, in line with operational performance.
We believe GLXO is one of the best plays on the IPR regime in India, with aggressive plans to launch new products
in the high-growth lifestyle segments. It is likely to record double-digit topline growth in the long-term, though
the proposed new pharma policy may adversely impact growth in the short term. Given the high profitability of
operations, we expect this growth to lead to sustainable RoE of ~30%. This growth is likely to be funded through
miniscule capex and negative net working capital. GLXO deserves premium valuations due to strong parentage,
brand-building ability and likely positioning in post patent era. It is one of the few companies with the ability to
drive reasonable growth without any major capital requirement, leading to high RoCE of 45-50%. Our estimates
exclude potential adverse impact of the proposed new pharma policy. The stock is currently valued at 24.4x CY12E
and 21.4x CY13E earnings. Maintain Buy.
C–92October 2012
September 2012 Results Preview
Sector: Healthcare
Glenmark Pharmaceuticals
Bloomberg GNP IN
Equity Shares (m) 269.8
52 Week Range (INR) 450/265
1,6,12 Rel Perf (%) -4/29/17
Mcap (INR b) 113.8
Mcap (USD b) 2.2
CMP: INR422 Buy
Quarterly performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues (Core) 8,683 10,554 10,311 10,659 10,404 11,589 12,464 12,931 40,206 47,388
YoY Change (%) 27.4 45.7 37.3 34.5 19.8 9.8 20.9 21.3 40.6 17.9
EBITDA 2,966 2,983 2,046 1,864 2,198 2,076 2,371 2,646 9,860 9,291
Margins (%) 34.2 28.3 19.8 17.5 21.1 17.9 19.0 20.5 24.5 19.6
Depreciation 264 247 231 236 275 261 272 259 979 1,067
Interest 408 291 357 410 380 385 371 346 1,466 1,482
Other Income 125 -808 -912 377 -521 250 -25 40 -1,218 -256
PBT before EO Expense 2,420 1,637 545 1,595 1,022 1,679 1,703 2,082 6,198 6,486
Extra-Ord Expense 0 1,317 0 0 0 0 0 0 1,317 0
PBT after EO Expense 2,420 321 545 1,595 1,022 1,679 1,703 2,082 4,881 6,486
Tax 319 -238 84 73 218 233 237 272 238 961
Rate (%) 13.2 -74.2 15.4 4.6 21.3 13.9 13.9 13.1 4.9 14.8
Reported PAT (incl one-offs) 2,101 559 461 1,522 804 1,589 1,577 1,920 4,643 5,891
Minority Interest 8 11 10 11 21 20 20 19 40 80
Adj PAT (excl one-offs) 1,092 745 76 1,331 506 1,426 1,446 1,791 3,244 5,169
YoY Change (%) 17.8 -24.6 -92.2 101.4 -53.6 91.5 1,803.5 34.5 -8.6 59.3
Margins (%) 12.6 7.1 0.7 12.5 4.9 12.3 11.6 13.8 8.1 10.9
US Sales 2,512 3,001 3,190 3,435 3,924 3,803 3,883 4,238 12,137 15,848
YoY Change (%) 37.2 34.1 56.3 53.1 56.2 26.8 21.7 23.4 45.3 30.6
R&D licensing income 1,112 1,185 238 0 0 0 0 0 2,535 245
YoY Change (%) 24.3 -100.0 183.2 -90.3
E: MOSL Estimates; 1Q and 2Q numbers will not be comparable yoy due to absence of R&D licensing income
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 29,491 3,548 12.5 7.2 - - 17.4 13.4 - -
03/12A 40,206 3,244 11.4 -8.6 37.0 4.8 13.5 12.1 3.3 13.3
03/13E 47,388 5,169 18.2 59.3 23.2 3.9 17.7 16.8 2.8 14.2
03/14E 54,005 7,472 26.3 44.5 16.1 3.1 20.5 20.6 2.4 11.3
BSE Sensex S&P CNX
18,763 5,703
Note: Company has adopted IFRS accounting wef FY11. Estimates exclude one-off upsides
We expect Glenmark Pharmaceuticals (GNP) to post 25% YoY growth in core revenue (excluding one-offs and
R&D income) for 2QFY13 to INR11.59b, led mainly by like-to-like growth of 33% in the generics business. The
branded business is likely to grow 19% YoY. We do not expect any R&D licensing income in 2QFY13 (INR1.18b
recorded in 2QFY12).
Core EBITDA is likely to grow 20% YoY to INR2.07b, while EBITDA margin would decline 80bp to 18% due to
higher R&D expenses.
GNP is likely to report 91% YoY growth in adjusted PAT to INR1.4b, primarily due to low base of 2QFY12, when
the company had recorded MTM forex losses of INR810m.
We believe that improved working capital and moderate capex will impart flexibility to the management to target
debt reduction. Return ratios should improve gradually over the next two years, with RoCE increasing from 12.1%
to 20-21% and RoE increasing from 13.5% to 20-21%. GNP has differentiated itself among Indian pharmaceutical
companies through its significant success in NCE research. Improved working capital cycle coupled with potential
debt reduction is likely to address investor concerns related to adverse balance sheet in the coming quarters. The
stock trades at 23.2x FY13E and 16.1x FY14E EPS. Our estimates exclude the impact of the proposed new pharma
policy. Maintain Buy.
C–93October 2012
September 2012 Results Preview
Sector: Healthcare
IPCA Laboratories
Bloomberg IPCA IN
Equity Shares (m) 125.7
52 Week Range (INR) 493/230
1,6,12 Rel Perf (%) 12/35/66
Mcap (INR b) 60.6
Mcap (USD b) 1.1
CMP: INR482 Buy
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues (Core) 5,299 6,235 6,148 5,611 6,344 7,133 7,112 7,378 23,587 27,968
YoY Change (%) 26.8 20.3 31.8 13.5 19.7 14.4 15.7 31.5 24.3 18.6
EBITDA 952 1,580 1,513 1,117 1,329 1,639 1,720 1,670 5,135 6,359
Margins (%) 18.0 25.3 24.6 19.9 21.0 23.0 24.2 22.6 21.8 22.7
Depreciation 154 176 181 142 199 202 219 222 671 843
Interest 83 118 108 111 95 102 117 112 413 426
Other Income 118 -245 -359 88 -470 130 60 125 -408 -155
PBT 832 1,042 864 952 565 1,464 1,444 1,461 3,643 4,935
Tax 215 262 225 186 135 366 361 372 881 1,234
Rate (%) 25.9 25.2 26.0 19.5 23.9 25.0 25.0 25.4 24.2 25.0
Reported PAT 617 780 639 766 430 1,098 1,083 1,090 2,762 3,701
Adj PAT 617 780 639 766 430 1,098 1,083 1,090 2,762 3,701
YoY Change (%) 58.8 -17.1 0.0 16.9 -30.3 40.9 69.4 42.2 5.3 34.0
Margins (%) 11.6 12.5 10.4 13.7 6.8 15.4 15.2 14.8 11.7 13.2
Domestic formulation 1,890 2,292 1,876 1,477 2,242 2,599 2,166 1,657 7,534 8,664
YoY Change (%) 12.3 3.3 5.7 14.7 18.6 13.4 15.5 12.2 8.2 15.0
Export formualtions 2,066 2,605 2,898 2,393 2,245 2,892 3,269 4,167 9,961 12,573
YoY Change (%) 69.3 48.8 73.4 5.2 8.7 11.0 12.8 74.2 44.0 26.2
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 18,969 2,628 20.9 25.7 - - 27.4 25.6 - -
03/12A 23,587 2,762 21.9 4.7 22.0 4.8 24.0 24.1 2.8 12.8
03/13E 27,968 3,701 29.3 34.0 16.4 3.9 26.4 27.7 2.3 10.3
03/14E 32,555 4,816 38.2 30.1 12.6 3.1 27.6 29.4 2.0 8.7
BSE Sensex S&P CNX
18,763 5,703
We expect IPCA’s 2QFY13 topline to grow 14.4% YoY to INR7.1b, led mainly by 23% growth in API exports.
Domestic formulations would grow 13.4% YoY to INR2.6b. The malaria season in the domestic market did not
pick up strongly due to erratic rainfall though there was some recovery in September. This would impact growth
in domestic formulations.
EBITDA is likely to grow just 4% YoY to INR1.6b due to a 230bp decline in EBITDA margin to 23%, led mainly by
lower growth in the domestic formulations business.
We expect adjusted PAT to grow 41% YoY to INR1b despite the muted growth in EBITDA due to low base of
2QFY12, when the company had reported forex loss of INR271m against which we expect it to report a forex
gain of INR100m.
Strong traction in exports coupled with growth recovery in the domestic formulations business will be the key
triggers for IPCA over the next two years. We expect IPCA to clock EPS CAGR of 32% over FY12-14 on the back of 17%
revenue CAGR, coupled with 120bp EBITDA margin expansion and reversal of MTM forex losses. Return ratios
continue to be strong, with RoCE of ~28% and RoE of 27%, which is reflective of the conservative management
strategy and efficient capital allocation. The stock currently trades at 16.4x FY13E and 12.6x FY14E EPS. Our estimates
exclude the impact of the proposed new pharma policy. Maintain Buy.
C–94October 2012
September 2012 Results Preview
Sector: Healthcare
Jubilant Life Sciences
Bloomberg JOL IN
Equity Shares (m) 159.3
52 Week Range (INR) 226/154
1,6,12 Rel Perf (%) 21/8/-7
Mcap (INR b) 33.7
Mcap (USD b) 0.6
CMP: INR212 Neutral
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 9,443 10,481 10,872 11,711 12,359 12,803 13,325 13,657 42,540 52,145
YoY Change (%) -3.8 6.1 25.5 31.5 30.9 22.2 22.6 16.6 23.9 22.6
Total Expenditure 7,623 8,120 8,801 9,899 9,666 10,113 10,594 11,210 34,547 41,584
EBITDA 1,820 2,361 2,071 1,812 2,693 2,691 2,731 2,447 7,992 10,561
Margins (%) 19.3 22.5 19.0 15.5 21.8 21.0 20.5 17.9 18.8 20.3
Depreciation 498 508 539 662 591 649 703 762 2,207 2,705
Interest 434 497 566 586 593 595 619 620 2,096 2,427
Other Income 37 -372 -1,507 29 -968 383 80 75 -929 -429
PBT before EO Expense 925 984 -541 593 541 1,830 1,489 1,140 2,761 5,000
Extra-Ord Expense 0 0 0 820 0 0 0 0 1,620 0
PBT after EO Expense 925 984 -541 -227 541 1,830 1,489 1,140 1,141 5,000
Tax 152 93 89 351 389 403 298 161 684 1,250
Rate (%) 16.4 9.5 -16.4 -154.5 71.8 22.0 20.0 14.1 60.0 25.0
PAT 774 891 -630 -578 152 1,427 1,191 979 457 3,750
Minority Interest 3 97 154 57 102 101 101 100 311 405
Reported PAT 771 794 -784 -635 50 1,326 1,090 879 146 3,345
Adjusted PAT 771 794 -784 476 50 1,326 1,090 879 2,173 3,345
YoY Change (%) 22.9 -3.3 -277.7 -22.8 -93.5 67.0 84.5 -5.4 53.9
Margins (%) 8.2 7.6 -7.2 4.1 0.4 10.4 8.2 6.4 5.1 6.4
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 34,334 2,297 14.4 -45.7 - - 10.5 6.0 - -
03/12A 42,540 2,173 13.6 -5.4 15.5 1.4 0.6 8.1 1.6 8.4
03/13E 52,145 3,345 21.0 53.9 10.0 1.3 13.5 12.2 1.2 6.0
03/14E 59,572 5,328 33.4 59.3 6.3 1.1 18.8 15.5 1.0 5.0
BSE Sensex S&P CNX
18,763 5,703
For 2QFY13, we expect healthy topline growth for Jubilant Organosys (JOL) at 22.2% YoY to INR12.8b, driven by
the Generics and Life Science Ingredients businesses. While the Generics business would grow 30% YoY, the
Life Science Ingredients business would grow 24% YoY. The Life Science Services business is likely to grow 8%
YoY.
We expect EBITDA to grow 14% YoY to INR2.69b despite 22% YoY topline growth due to a 150bp decline in EBITDA
margin to 21%.
Adjusted PAT would grow 67% YoY to INR1.3b, mainly led by a low base of 2QFY12, when JOL had reported forex
loss of INR426m against our expectation of a forex gain of INR313m.
We expect JOL to record 18% topline CAGR, 22% EBITDA CAGR, and 56% EPS CAGR (on a low base) over FY12-14.
Strong earnings growth would be partly led by the reversal of forex loss to forex gains based on our assumption of
currency appreciation over FY12. JOL needs to restructure its balance sheet significantly (currently, it has debt of
INR36b to support an overall topline of INR42.5b). High debt continues to be concerning. Some of its past acquisitions
(like Draxis) have been at expensive valuations, resulting in extended payback periods and lower return ratios.
High debt and low RoCE (12-15%) remain overhangs. The stock trades at 10x FY13E and 6.3x FY14E EPS. Maintain
Neutral.
C–95October 2012
September 2012 Results Preview
Sector: Healthcare
Lupin
Bloomberg LPC IN
Equity Shares (m) 446.2
52 Week Range (INR) 632/410
1,6,12 Rel Perf (%) -2/6/11
Mcap (INR b) 266.1
Mcap (USD b) 5.0
CMP: INR596 Buy
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 15,432 16,448 17,917 18,832 22,192 20,925 22,280 23,359 69,597 88,755
YoY Change (%) 17.6 17.1 22.1 23.7 43.8 27.2 24.3 24.0 22.0 27.5
Total Expenditure 12,734 13,684 14,134 15,511 17,961 17,250 17,831 18,681 56,382 71,723
EBITDA 2,698 2,764 3,783 3,321 4,230 3,674 4,449 4,678 13,215 17,032
Margins (%) 17.5 16.8 21.1 17.6 19.1 17.6 20.0 20.0 19.0 19.2
Depreciation 471 522 576 706 654 698 712 728 2,275 2,791
Interest 58 66 86 145 101 117 113 120 355 451
Other Income 257 324 -15 489 582 420 340 407 1,376 1,749
PBT 2,426 2,499 3,106 2,960 4,058 3,279 3,965 4,237 11,961 15,539
Tax 286 441 701 1,677 1,208 787 912 978 3,086 3,885
Rate (%) 11.8 17.6 22.6 56.7 29.8 24.0 23.0 23.1 25.8 25.0
Reported PAT 2,140 2,718 2,406 1,283 2,850 2,618 3,053 3,259 10,295 11,780
Extra-Ordinary Exp/(Inc) 0 -659 0 0 0 0 0 0 659 0
Minority Interest 39 49 55 56 46 50 50 54 199 200
Recurring PAT 2,101 2,010 2,498 499 2,098 2,442 3,003 3,205 8,677 10,748
YoY Change (%) 7.0 -6.5 11.5 -77.6 -0.1 21.5 20.2 542.3 1.1 23.9
Margins (%) 13.6 12.2 13.9 2.6 9.5 11.7 13.5 13.7 12.5 12.1
Advanced mkt formulations 7,013 7,761 9,300 11,811 11,826 10,729 12,030 13,021 35,885 47,606
YoY Change (%) 11.9 15.3 26.0 50.4 68.6 38.2 29.4 10.2 27.1 32.7
Emerging mkt formulations 6,317 6,711 6,637 6,065 8,049 8,095 8,113 8,376 25,730 32,633
YoY Change (%) 24.4 28.7 32.3 22.6 27.4 20.6 22.2 38.1 27.0 26.8
E: MOSL Estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 57,068 8,582 19.3 25.9 - - 29.3 25.1 - -
03/12A 69,597 8,676 19.4 0.7 30.7 6.6 23.8 24.6 4.0 21.0
03/13E 88,755 10,748 24.1 23.9 24.8 5.5 24.3 26.8 3.1 16.3
03/14E 101,852 13,950 31.2 29.8 19.1 4.6 26.2 27.8 2.7 13.4
BSE Sensex S&P CNX
18,763 5,703
We expect Lupin’s 2QFY13 topline to grow 27% YoY, driven mainly by 73% YoY growth in Japan on the back of Irom
acquisition and favorable currency, 28% YoY growth in revenue from advanced markets (Ex-Japan) and 31% YoY
growth in formulations revenue from exports to semi-regulated markets. The domestic formulations business
is likely to report 17% YoY growth to INR6b.
EBITDA would grow 33% YoY, with EBITDA margin expanding 80bp YoY on the back of a low base, favorable
currency and better product mix.
We expect adjusted PAT to grow 21.5% YoY to INR2.4b. PAT growth would be lower than EBITDA growth due to
higher tax rate.
Key growth drivers for Lupin will be: (1) increased traction in India formulations and emerging markets, (2) strong
launch pipeline for the US, and (3) contribution from oral contraceptives in the US. We expect EPS of INR24.1 for
FY13 (up 24%) and INR31.2 for FY14 (up 30%), translating into 27% EPS CAGR over FY12-14. Significant
internationalization of operations without dilution of return ratios has been Lupin’s key achievement over the last
five years. We expect this to sustain. The stock trades at 24.8x FY13E and 19.1x FY14 EPS. Our estimates exclude the
impact of the proposed new pharma policy. Maintain Buy.
C–96October 2012
September 2012 Results Preview
Sector: Healthcare
Opto Circuits
Bloomberg OPTC IN
Equity Shares (m) 242.3
52 Week Range (INR) 225/115
1,6,12 Rel Perf (%) -2/-41/-41
Mcap (INR b) 31.4
Mcap (USD b) 0.6
CMP: INR130 Neutral
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues 5,208 5,620 6,113 6,627 7,151 7,012 7,476 7,569 23,569 29,207
YoY Change (%) 78.4 69.6 46.4 21.7 37.3 24.8 22.3 14.2 48.6 23.9
Total Expenditure 3,776 4,074 4,403 5,163 5,251 5,126 5,510 5,682 17,404 21,569
EBITDA 1,432 1,547 1,710 1,464 1,899 1,885 1,966 1,887 6,165 7,638
Margins (%) 27.5 27.5 28.0 22.1 26.6 26.9 26.3 24.9 26.2 26.2
Depreciation 150 109 141 146 196 202 234 175 546 806
Interest 109 138 168 177 187 197 213 192 592 789
Other Income 49 -51 -42 186 27 16 18 9 136 70
PBT before EO Income 1,222 1,248 1,359 1,328 1,544 1,502 1,537 1,528 5,162 6,112
EO Exp/(Inc) 0 0 -5 0 0 0 0 0 0 0
PBT after EO Income 1,222 1,248 1,364 1,328 1,544 1,502 1,537 1,528 5,162 6,112
Tax 57 33 109 -772 150 150 154 158 -572 611
Rate (%) 4.7 2.7 8.0 -58.1 9.7 10.0 10.0 10.3 -11.1 10.0
Min. Int/Adj on Consol 1 5 3 6 15 15 -15 15 15 60
Reported PAT 1,164 1,210 1,251 2,093 1,380 1,337 1,398 1,355 5,719 5,441
Adj PAT 1,164 1,210 1,253 2,093 1,380 1,337 1,368 1,355 5,719 5,441
YoY Change (%) 40.6 56.3 30.4 90.9 18.6 10.5 9.2 -35.3 56.2 -4.9
Margins (%) 22.4 21.5 20.5 31.6 19.3 19.1 18.3 17.9 24.3 18.6
Non Invasive sales 4,220 4,640 4,770 5,090 5,828 5,566 5,913 5,883 18,720 23,190
YoY Change (%) 99.4 100.9 56.2 23.8 38.1 19.9 24.0 15.6 61.5 23.9
Invasive sales 940 940 1,300 1,490 1,251 1,401 1,518 1,667 4,670 5,838
YoY Change (%) 25.3 4.3 24.5 19.8 33.1 49.0 16.8 11.9 18.6 25.0
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 15,856 3,661 15.1 49.3 - - 30.4 24.1 - -
03/12A 23,569 5,719 23.6 56.2 5.5 1.8 37.2 22.4 1.7 6.7
03/13E 29,207 5,441 22.5 -4.9 5.7 1.5 28.7 22.5 1.5 5.6
03/14E 33,413 6,128 25.3 12.6 5.1 1.2 26.6 22.1 1.2 4.9
BSE Sensex S&P CNX
18,763 5,703
We expect Opto Circuits (OPTC) to post 25% YoY growth in 2QFY13 revenue to INR7b, led by a growth of 49% YoY
in the invasive business. The non-invasive segment is likely to post 20% YoY growth to INR5.6b.
EBITDA would grow 22% YoY to INR1.9b and EBITDA margin would contract by 60bp, mainly due to higher
overheads.
We expect OPTC to post PAT growth of 10.5% YoY despite healthy operational performance due to higher
depreciation & amortization, increased interest cost and higher tax rate.
OPTC has delivered strong revenue and earnings growth over the last few years, coupled with high return ratios.
Despite rapid growth, it remains a marginal player in the global medical devices industry, which gives OPTC the
opportunity to sustain its high revenue growth rate for the next couple of years. However, large accumulated
goodwill in the books , high working capital requirements leading to high debt, inadequate free cash flow generation
remain our major concerns. We note that the management is targeting reduction in working capital. We believe it
is imperative for the company to deliver this without diluting the overall growth for the business. Potential fund
raising in Eurocor could dilute earnings, with commensurate benefits from the equity dilution accruing only over
the long-term (since the funds are likely to be utilized for financing clinical trials for key products, which could be
time-consuming). The stock trades at 5.7x FY13E and 5.1x FY14E EPS. Maintain Neutral.
C–97October 2012
September 2012 Results Preview
Sector: Healthcare
Ranbaxy Laboratories
Bloomberg RBXY IN
Equity Shares (m) 420.4
52 Week Range (INR) 578/367
1,6,12 Rel Perf (%) -10/17/-6
Mcap (INR b) 222.6
Mcap (USD b) 4.2
CMP: INR530 Neutral
Quarterly performance (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Net Income 21,809 20,931 20,955 37,923 37,868 32,285 25,341 29,282 101,614 124,776
YoY Change (%) -19.2 -2.7 8.3 74.3 73.6 54.2 20.9 -22.8 13.4 22.8
EBITDA 4,032 1,817 1,741 8,601 9,552 5,113 2,706 3,221 16,189 20,592
Margins (%) 18.5 8.7 8.3 22.7 25.2 15.8 10.7 11.0 15.9 16.5
Depreciation 736 735 788 1,681 799 783 892 958 3,940 3,432
Interest 145 166 153 304 377 483 486 489 768 1,836
Other Income 671 607 -1,490 -790 1,556 -2,972 2,302 439 -1,001 1,325
PBT before EO Expense 3,823 1,522 -690 5,825 9,933 875 3,629 2,212 10,480 16,649
Extra-Ord Expense -20 -1,118 3,624 34,859 -4,047 5,994 -2,420 550 37,345 76
PBT after EO Expense 3,842 2,640 -4,313 -29,034 13,980 -5,119 6,049 1,662 -26,865 16,573
Tax 782 185 256 747 1,374 683 726 200 1,969 2,983
Rate (%) 20.4 7.0 -5.9 -2.6 9.8 -13.3 12.0 12.0 -7.3 18.0
Reported PAT 3,060 2,455 -4,569 -29,780 12,606 -5,801 5,323 1,461 -28,834 13,590
Minority Interest 16 23 77 47 139 56 100 106 -163 400
Reported PAT (incl one-offs) 3,044 2,432 -4,646 -29,828 12,468 -5,857 5,223 3,921 -28,997 16,610
Adj PAT 1,724 1,055 1,620 1,556 2,017 1,722 1,688 2,159 5,955 7,586
YoY Change (%) 223.2 -30.4 58.9 -2,675.7 17.0 63.2 4.2 38.7 98.0 27.4
Margins (%) 7.9 5.0 7.7 4.1 5.3 5.3 6.7 7.4 5.9 6.1
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) GR. (%) (X) (X) (%) (%) Sales EBITDA
12/10A 73,623 3,008 25.8 467.1 - - 19.4 15.9 - -
12/11A 80,509 5,955 14.1 -45.3 33.2 4.9 -72.0 19.4 2.3 14.6
12/12E 98,819 7,586 18.0 27.4 26.0 3.9 28.3 21.9 2.0 12.3
12/13E 110,022 9,203 21.8 21.3 21.5 3.4 15.7 14.7 2.2 16.5
Note: All valuation ratios adjusted for INR61/sh DCF value of FTFs
BSE Sensex S&P CNX
18,763 5,703
We expect Ranbaxy Laboratories (RBXY) to post 21% YoY growth in core topline for 3QCY12, partially led by
favorable currency. 3QCY12 performance will reflect the core operating performance after several quarters, as
we do not expect any one-offs from Para-IV upsides.
We expect core EBITDA to grow 55% YoY to INR2.7b. EBITDA margin would expand by 240bp YoY to 10.7% on a
very low base.
Adjusted PAT would grow 4% YoY to INR1.68b despite healthy operational performance due to higher interest
cost and significantly higher tax outgo.
The US FDA/DoJ settlement and signing of the consent decree is likely to delay the full recovery of supplies to US
from India into CY13 compared to our previous assumption of the benefits coming through in CY12. The current
valuations factor in the likely improvement in core EBITDA margin (we expect margins to improve to 13.6% by CY13
from the current 10-11%). We believe that for the stock to get higher valuations, it is imperative for RBXY to
improve core business margins, as one-offs wane in the coming quarters. The stock is valued at 26x CY12E and 21.5x
CY13E core EPS, adjusting for INR61/share of DCF value of Para-IV pipeline. Our estimates exclude the impact of the
proposed new pharma policy. We rate the stock Neutral.
C–98October 2012
September 2012 Results Preview
Sector: Healthcare
Sanofi India
Bloomberg SANL IN
Equity Shares (m) 23.0
52 Wk Range (INR) 2,430/2,002
1,6,12 Rel Perf (%) 4/1/-10
Mcap (INR b) 54.7
Mcap (USD b) 1.0
CMP: INR2,374 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
12/10A 10,850 1,550 67.3 -1.5 - - 15.5 23.6 - -
12/11A 12,297 1,912 83.0 23.3 28.6 4.9 17.3 25.3 4.3 29.7
12/12E 14,864 1,693 73.5 -11.4 32.3 4.5 13.9 20.6 3.4 24.1
12/13E 17,144 2,128 92.4 25.7 25.7 4.0 15.6 23.1 2.9 19.4
Quarterly Performance (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Net Sales 2,763 3,028 3,127 3,379 3,225 3,741 3,901 4,008 12,297 14,864
YoY Change (%) 9.9 11.5 13.5 17.9 16.7 23.5 24.8 18.6 13.3 20.9
Total Expenditure 2,328 2,600 2,624 2,985 2,733 3,219 3,266 3,525 10,537 12,743
EBITDA 435 428 503 394 492 522 636 483 1,760 2,122
Margins (%) 15.7 14.1 16.1 11.7 15.3 14.0 16.3 12.1 14.3 14.3
Depreciation 54 54 61 142 183 186 195 200 311 764
Interest 2 0 0 2 4 4 0 2 4 10
Other Income 379 361 369 286 289 267 309 323 1,395 1,188
PBT 758 735 811 535 594 599 750 604 2,839 2,535
Tax 252 238 263 -10 193 194 250 205 743 842
Effective tax Rate (%) 33.2 32.4 32.4 -1.8 32.5 32.4 33.4 33.8 26.2 33.2
PAT 506 497 548 545 401 405 499 400 2,096 1,693
YoY Change (%) 40.2 17.2 15.9 -20.8 -18.5 -8.9 -26.7 31.2 -19.2
Margins (%) 18.3 16.4 17.5 16.1 12.4 10.8 12.8 10.0 17.0 11.4
Domestic sales 2,221 2,440 2,575 2,788 2,765 3,029 3,276 3,293 10,024 12,364
YoY Change (%) 12.6 12.1 11.0 24.5 24.5 24.1 27.2 18.1 15.1 23.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Sanofi India’s 3QCY12 topline to grow 25% YoY to INR3.9b, led by the domestic formulations business.
The domestic formulations business is likely to grow 27% YoY to INR3.2b on the back of the acquisition of
Universal Medicare. The export business would grow 13% YoY to INR625m.
EBITDA is likely to grow 26% YoY to INR636m, led mainly by topline growth. We expect EBITDA margin to expand
by 20bp YoY to 16.3%.
We expect PAT to decline 9% YoY to INR499m, despite better operational performance. This is because other
income would decline 16% YoY due to payment made towards the acquisition of Universal Medicare and
depreciation & amortization charges would jump 219% YoY due to amortization of acquisition goodwill.
We believe Sanofi India (SANL) will be one of the key beneficiaries of the patent regime in the long term. The
parent has a strong R&D pipeline, with a total of 61 products undergoing clinical trials, of which 18 are in Phase-III
or pending approvals. Some of these are likely to be launched in India. However, SANL’s profitability has declined
significantly in the last five years, with EBITDA margin declining from 25% in CY06 to 14.3% in CY11, mainly impacted
by discontinuation of Rabipur sales in the domestic market, lower export growth and higher staff & promotional
expenses. RoE has declined from 28.6% to 17.3% during the period. The stock trades at 32.3x CY12E and 25.7x CY13E
EPS. Our estimates do not factor in the impact of the proposed new pharma policy. We believe that the stock
performance will remain muted in the short term until clarity emerges on future growth drivers. Maintain Neutral.
C–99October 2012
September 2012 Results Preview
Sector: Healthcare
Strides Arcolab
Bloomberg STR IN
Equity Shares (m) 57.7
52 Week Range (INR) 958/330
1,6,12 Rel Perf (%) 0/42/144
Mcap (INR b) 51.0
Mcap (USD b) 1.0
CMP: INR883 Buy
Quarterly performance (consolidated) (INR Million)
Y/E December CY11 CY12 CY11 CY12
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Net Revenues 4,875 5,813 7,693 6,865 5,275 5,083 6,185 7,338 25,245 23,880
YoY Change (%) 30.5 27.9 86.6 50.7 8.2 -12.6 -19.6 6.9 48.9 -5.4
Total Expenditure 3,958 4,731 5,973 5,893 4,007 3,952 4,630 5,458 20,594 18,048
EBITDA 917 1,081 1,720 972 1,267 1,130 1,555 1,879 4,652 5,833
Margins (%) 18.8 18.6 22.4 14.2 24.0 22.2 25.1 25.6 18.4 24.4
Depreciation 183 340 222 298 237 257 275 290 1,043 1,059
Interest 438 467 491 507 390 510 410 400 1,903 1,710
Other Income 245 515 -477 700 -143 -223 595 375 1,021 603
PBT before EO Income 540 790 530 867 497 141 1,464 1,565 2,727 3,666
EO Exp/(Inc) 0 0 0 0 -6,316 -946 0 0 0 -7,263
PBT after EO Income 540 790 530 867 6,813 1,087 1,464 1,565 2,727 10,929
Tax 89 94 62 141 392 182 117 116 387 807
Rate (%) 16.5 12.0 11.7 16.3 5.7 16.7 8.0 7.4 14.2 7.4
Minority Int/Adj on Consol 44 6 4 42 1 0 0 -1 95 0
Reported PAT 407 689 465 684 6,421 905 1,347 1,450 2,245 10,122
Adj PAT 407 689 465 684 467 117 1,347 1,450 2,245 2,860
YoY Change (%) 18.2 8.7 76.0 14.8 -83.0 189.9 111.9 84.0 27.4
Margins (%) 8.4 11.9 6.0 10.0 8.9 2.3 21.8 19.8 8.9 12.0
E: MOSL Estimates; Note: Quarterly numbers don't add up to full year numbers due to restatement
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) YOY (%) (X) (X) (%) (%) Sales EBITDA
12/10A 16,958 1,220 20.9 99.8 - - 11.6 11.9 - -
12/11A 25,245 2,245 38.5 84.0 23.4 3.8 16.9 12.8 2.3 12.7
12/12E 23,880 3,080 52.8 37.2 17.1 2.3 18.5 13.7 2.2 8.9
12/13E 25,790 3,588 61.5 16.5 14.6 2.0 14.5 14.8 2.0 8.3
BSE Sensex S&P CNX
18,763 5,703
We expect Strides Arcolabs (STR) to post 19.6% QoQ decline in 3QCY12 revenue to INR6.18b, impacted by the
divestment of the Australasia generics business. On a like-to-like basis, we expect topline growth of 7%, led by
33% growth in specialty business. The residual pharma business (post divestment) is likely to grow 20% YoY to
INR2.1b, while licensing income is likely to decline by a significant 51% YoY to INR839m.
EBITDA would decline 10% YoY to INR1.56b on account of lower licensing income and divestment of the Australasia
generics business. However, EBITDA margin would expand 280bp due to higher contribution of the high-margin
specialty business.
We expect adjusted net profit to grow 190% YoY to INR1.34b due to a significantly low base of 3QCY11, when the
company had reported forex loss of INR583m. Lower interest cost and lower tax rate is also likely to aid PAT
growth.
STR is set to emerge as a specialty products company, with revenue contribution from this segment increasing from
28% in CY09 to an estimated 67% in CY13. The company has an impressive specialty product pipeline. It has large
manufacturing capacities in place to support revenue scale-up, coupled with strong marketing partners like Pfizer
and GSK. We expect STR to post 26% earnings CAGR over CY11-13, led by revenue ramp-up in the SI (sterile injectables)
segment and substantial reduction in interest cost owing to debt repayment. Return ratios are set to improve over
CY11-13 and debt-equity should decline from 1.9x in CY10 to 0.6x in CY13. The stock trades at 17.1x CY12E and 14.6x
CY13E EPS. Maintain Buy.
C–100October 2012
September 2012 Results Preview
Sector: Healthcare
Sun Pharmaceuticals Industries
Bloomberg SUNP IN
Equity Shares (m) 1,035.6
52 Week Range (INR) 698/448
1,6,12 Rel Perf (%) -5/12/33
Mcap (INR b) 718.0
Mcap (USD b) 13.6
CMP: INR693 Neutral
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues 16,357 18,946 21,451 23,299 26,581 24,501 24,153 25,060 80,057 100,296
YoY Change (%) 16.9 38.3 34.0 59.2 62.5 29.3 12.6 7.6 39.9 25.3
Total Expenditure 10,883 11,106 11,814 13,748 14,413 14,910 15,296 16,772 47,550 61,392
EBITDA 5,474 7,840 9,638 9,552 12,169 9,591 8,856 8,288 32,507 38,904
Margins (%) 33.5 41.4 44.9 41.0 45.8 39.1 36.7 33.1 40.6 38.8
Depreciation 647 668 774 823 801 805 872 876 2,912 3,354
Net Other Income 969 1,183 -272 2,082 -231 1,165 1,940 2,203 3,958 5,078
PBT 5,796 8,355 8,591 10,811 11,136 9,951 9,925 9,615 33,554 40,627
Tax 143 1,281 634 1,768 1,925 1,791 1,786 1,810 3,826 7,313
Rate (%) 2.5 15.3 7.4 16.4 17.3 18.0 18.0 18.8 11.4 18.0
Profit after Tax 5,653 7,074 7,957 9,043 9,211 8,160 8,138 7,805 29,727 33,314
Share of Minority Partner 643 1,097 1,274 841 1,256 1,097 1,274 999 3,855 4,626
Reported PAT 5,010 5,977 6,683 8,202 7,956 7,775 7,999 7,229 25,873 30,958
One-off upsides 624 523 573 923 1,240 712 1,135 423 2,644 3,510
Adj Net Profit 4,386 5,454 6,110 7,279 6,716 7,063 6,864 6,806 23,228 27,449
YoY Change (%) 30.4 32.8 99.2 39.5 53.1 29.5 12.3 -6.5 65.4 18.2
Margins (%) 26.8 28.8 28.5 31.2 25.3 28.8 28.4 27.2 29.0 27.4
E: MOSL Estimates; Quarterly no. don’t match with annual no. because of reinstatement of financials
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 52,066 14,041 13.6 47.8 51.1 0.0 16.2 23.4 0.0 0.0
03/12A* 80,057 25,873 25.0 42.5 27.7 5.9 21.5 30.3 8.3 20.4
03/12A 74,406 23,228 22.4 65.4
03/13E 90,922 27,449 26.5 18.2 26.1 5.0 20.7 30.2 6.4 16.5
03/14E 111,894 30,425 29.4 10.8 23.6 4.3 19.7 27.0 5.5 15.7
*Including Para-IV/one-off upsides
BSE Sensex S&P CNX
18,763 5,703
We expect Sun Pharmaceuticals (SUNP) to post 37% YoY growth in core topline (excluding one-offs) for 2QFY13
to INR24.5b, mainly led by 37% YoY growth in revenue from Taro and 40% YoY growth in core revenue from the
US. While better product pricing would aid growth in revenue from Taro, low base would aid growth in core
revenue from the US. The domestic formulations business is likely to grow 21% YoY to INR8.5b. The export
formulations business (other than the US) is likely to grow 35% YoY. Including revenue from one-off product
opportunities, the topline would grow 40% YoY to INR26.5b.
Core EBITDA (ex-Para IV/low competition products) is likely to grow 34% YoY to INR9.6b. Core EBITDA margin
would decline 100bp to 39.1% on a high base. Including the upsides from one-off product opportunities, EBITDA
is likely to grow 35% YoY to INR10.6b.
We expect adjusted PAT to grow 30% YoY to INR7b, in line with strong operational performance, but pulled
down by increased tax rate. Including one-offs, reported PAT is likely to grow 30% YoY to INR7.8b.
An expanding generics portfolio coupled with sustained double-digit growth in high-margin lifestyle segments in
India is likely to bring in long-term benefits for SUNP. Its ability to sustain superior margins even on a high base is
a clear positive. Key drivers for the future include: (1) Ramp-up in US business and recovery of sales at Caraco post
the resolution of cGMP issues, (2) Monetization of the Para-IV pipeline in the US, (3) Launch of controlled substances
in the US, and (4) Sustaining Taro’s high profitability. The stock is currently valued at 26.1x FY13E and 23.6x FY14E
core earnings. Our estimates exclude the impact of the proposed new pharma policy. While we are positive on
SUNP’s business outlook, rich valuations have tempered our bullishness. We maintain Neutral. Large inorganic
initiatives (SUNP has cash of USD0.9b-1b) would be the key upside risk to our Neutral view.
C–101October 2012
September 2012 Results Preview
Sector: Healthcare
Torrent Pharma
Bloomberg TRP IN
Equity Shares (m) 84.6
52 Week Range (INR) 727/505
1,6,12 Rel Perf (%) -8/4/13
Mcap (INR b) 58.8
Mcap (USD b) 1.1
CMP: INR695 Buy
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues (Core) 6,475 6,833 6,966 6,743 7,669 8,290 8,476 8,171 26,959 32,764
YoY Change (%) 19.7 17.5 20.6 33.6 18.4 21.3 21.7 21.2 22.3 21.5
EBITDA 1,531 1,406 1,215 850 1,560 1,659 1,607 1,201 5,006 6,186
Margins (%) 23.6 20.6 17.4 12.6 20.3 20.0 19.0 14.7 18.6 18.9
Depreciation 202 201 197 218 201 224 238 269 817 932
Interest 41 28 2 89 94 89 82 106 395 371
Other Income 24 43 23 124 140 145 150 125 445 560
PBT before EO Expense 1,313 1,219 1,040 668 1,404 1,491 1,438 950 4,240 5,443
Extra-Ord Expense 0 0 0 654 0 0 0 0 654 0
PBT after EO Expense 1,313 1,219 1,040 14 1,404 1,491 1,438 950 3,586 5,443
Tax 287 212 201 24 374 373 324 182 723 1,252
Rate (%) 21.9 17.3 19.3 3.6 26.6 25.0 22.5 19.1 17.1 23.0
Reported PAT 1,026 1,008 839 -10 1,030 1,119 1,114 769 2,863 4,191
Minority Interest 1 8 7 7 12 0 0 0 23 0
Adj PAT 893 1,000 832 527 1,019 1,119 1,114 769 3,251 4,191
YoY Change (%) 20.3 31.2 8.1 23.1 14.1 11.9 34.0 45.8 20.3 28.9
Margins (%) 13.8 14.6 11.9 7.8 13.3 13.5 13.1 9.4 12.1 12.8
Dom. formulations sales 2,460 2,385 2,294 2,016 2,802 2,665 2,633 2,350 9,167 10,450
YoY Change (%) 10.1 8.4 8.4 9.6 13.9 11.7 14.8 16.6 9.3 14.0
Intl. formulations sales 3,061 3,762 3,787 3,854 4,071 4,745 4,910 4,928 14,332 18,795
YoY Change (%) 19.3 36.7 33.6 51.1 33.0 26.1 29.7 27.9 33.9 31.1
E: MOSL Estimates
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 22,049 2,702 31.9 0.8 - - 29.2 25.9 - -
03/12A 26,959 3,251 38.4 20.3 18.1 4.9 29.3 28.5 2.1 11.3
03/13E 32,764 4,191 49.5 28.9 14.0 3.9 30.9 32.0 1.7 9.0
03/14E 38,020 4,989 59.0 19.0 11.8 3.1 29.2 31.5 1.4 7.3
BSE Sensex S&P CNX
18,763 5,703
We expect Torrent Pharmaceuticals (TRP) to post 21% YoY growth in core topline for 2QFY13 to INR8.29b, led by
the international formulations segment, which is likely to grow 26% YoY on the back of strong growth in the US,
Europe (ex-Germany) and Brazil. Topline growth would be partially led by favorable currency. We expect
domestic formulations to grow 11.7% YoY to INR2.6b.
EBITDA is likely to grow 18% YoY while EBITDA margin is likely to decline by 60bp mainly due to higher staff costs
and overheads as well as uptick in R&D spending.
We expect adjusted PAT to grow 12% YoY to INR1.1b despite 18% EBITDA growth due to higher tax outgo.
Over the last seven years, TRP has delivered 33% EPS CAGR, though capital employed has grown at a CAGR of just
17%. It has consistently improved its profitability, with RoCE increasing from 14.5% in FY05 to 28.5% in FY12. We
expect 24% EPS CAGR over FY12-14, in line with strong operating performance. Its high return ratios are likely to
sustain, despite large capex and growing cash on the books. We believe that current valuations do not reflect the
improvement in business profitability, the turnaround of international operations, and TRP’s strong positioning in
the domestic formulations business, particularly in chronic therapeutic segments. TRP should trade at a premium
to most mid-cap pharma companies, and its valuation gap vis-à-vis frontline pharma companies should reduce. The
stock trades at 14x FY13E and 11.8x FY14E earnings. Our estimates exclude the impact of the proposed new pharma
policy. Maintain Buy.
C–102October 2012
September 2012 Results Preview
Sector: Media
MediaCompany Name
Dish TV
H T Media
Jagran Prakashan
Sun TV Network
Zee Entertainment
Shobhit Khare ([email protected])
Expected quarterly performance summary (INR million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Dish TV 83 Neutral 5,406 12.1 4.0 1,548 27.1 -0.5 -100 Loss Loss
HT Media 93 Neutral 4,982 1.0 1.7 674 -5.3 0.8 403 -8.0 -0.9
Jagran Prakashan 91 Neutral 3,317 8.6 4.5 864 9.3 9.6 729 59.2 30.7
Sun TV 349 Buy 4,491 -0.5 5.5 3,518 -3.7 8.9 1,787 -0.8 8.8
Zee Entertainment 196 Neutral 8,640 20.3 2.5 1,997 -3.8 -14.4 1,598 2.4 1.0
Sector Aggregate 26,836 9.5 3.4 8,602 1.8 0.3 4,417 17.1 14.3
Abbreviations and acronyms
GEC: General entertainment
channel
DTH: direct to home
Ad environment remains tough but worst likely behind; festive season holds the key:
Advertising spends remained subdued in 2QFY13. Zee is likely to clock another strong
quarter of ad growth (17% YoY), led by low base, contribution from the sports segment
and strong ratings performance. However, ad growth for other companies is likely to
remain subdued - 6-8% YoY growth for Sun TV / Jagran and ~1% YoY decline for HT
Media.
PAT to remain flat YoY for broadcasting companies; expect significant reduction in
Dish TV's Net loss: Zee's adjusted PAT is likely to remain largely flat YoY and QoQ, as
higher ad revenue would be offset by higher programming costs, launch expenses
and sports loss. Sun TV's PAT would be flat, led by muted ad growth and decline in
overall subscription revenue due to lower analog revenue from Tamil Nadu. Dish TV's
net loss is likely to decline 70-80% YoY/QoQ on better margin performance and no
forex loss. Among print companies, we expect Jagran to report 11% PAT growth while
HT Media is likely to report 19% PAT decline, largely due to ad revenue decline in the
English print segment v/s growth in Hindi.
DTH: Subscriber additions likely to remain flat QoQ; festive season and mandatory
digitization to favorably impact 3QFY13 numbers: We expect DTH subscriber additions
to remain largely flat QoQ, given the relatively tough macroeconomic situation and
limited benefit of digitization in the metros. DTH additions are likely to increase
meaningfully in 3QFY13, led by festive season as well as the implementation of
mandatory digitization in the metros.
All eyes on metro digitization; further postponement unlikely: Our interactions across
the industry value chain indicate that 31 October 2012 is likely to remain the deadline
for digitization of metros and further postponement is unlikely. Data released by the
Ministry of I&B indicate that 68% set-top box seeding has already been achieved as of
September 2012, with Mumbai at ~95% and other metros at 50-70%.
Hindi GEC ratings: Strong competition among top-4: During 2QFY13, Zee TV improved
its average weekly GRP by ~11% QoQ to 239 - third consecutive quarter of
improvement. All top-4 GECs, except Star Plus, improved average ratings performance
in 2QFY13, significantly bringing down the lead enjoyed by Star Plus. Sustenance of
ratings in 3QFY13 would be critical for Zee to monetize the festive season.
C–103October 2012
September 2012 Results Preview
Sector: Media
Media coverage - Quarterly1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%)
Advertisement Revenue (INR b)
ZEEL 3.8 4.1 4.4 4.8 3.8 3.9 4.0 4.2 4.5 4.6 17 3
Sun TV 2.6 2.7 3.0 3.0 2.7 2.7 2.9 2.8 2.8 2.9 6 4
Dish TV NM NM NM NM NM NM NM NM NM NM NM NM
HT Media 3.3 3.3 3.7 3.6 3.8 3.7 4.1 3.7 3.7 3.7 -1 -2
Jagran Prakashan 1.9 1.9 1.9 1.9 2.0 2.1 2.2 2.1 2.2 2.3 8 4
Subscription Revenue (INR b)
ZEEL 2.6 2.7 2.8 3.1 3.1 2.9 3.3 4.0 3.6 3.7 27 1
Sun TV 1.7 1.4 2.7 1.5 1.6 1.6 1.2 1.3 1.2 1.3 -17 10
Dish TV 2.5 2.7 3.1 3.7 3.9 4.1 4.3 4.3 4.6 4.7 14 3
HT Media 0.5 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 6 2
Jagran Prakashan 0.6 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 11 6
Total Revenue (INR b)
ZEEL 6.8 7.1 7.5 8.0 7.0 7.2 7.5 8.7 8.4 8.6 20 2
Sun TV 4.4 4.2 6.0 4.6 4.5 4.5 4.3 4.3 4.3 4.5 0 5
Dish TV 3.0 3.3 3.7 4.3 4.6 4.8 4.9 5.2 5.2 5.4 12 4
HT Media 4.0 4.5 4.7 4.7 5.0 4.9 5.3 4.9 4.9 5.0 1 2
Jagran Prakashan 2.7 2.8 2.9 2.8 3.0 3.1 3.2 3.1 3.2 3.3 9 4
EBITDA (INR b)
ZEEL 1.9 1.9 1.5 2.3 1.6 2.1 2.2 1.6 2.3 2.0 -4 -14
Sun TV 3.6 3.3 5.0 3.6 3.7 3.7 3.4 3.3 3.2 3.5 -4 9
Dish TV 0.3 0.5 0.7 0.9 1.1 1.2 1.2 1.4 1.6 1.5 27 -1
HT Media 0.80 0.79 0.88 0.88 0.90 0.71 0.78 0.48 0.67 0.67 -5 1
Jagran Prakashan 0.90 0.91 0.90 0.71 0.82 0.79 0.85 0.66 0.79 0.86 9 10
EBITDA Margin (%)
ZEEL 27.6 26.5 20.4 28.4 22.3 28.9 28.6 18.4 27.7 23.1 -578bp -455bp
Sun TV 81.7 78.2 83.9 79.0 80.6 81.0 80.2 76.9 75.9 78.3 -263bp 249bp
Dish TV 10.6 15.3 17.9 20.8 24.4 25.2 24.5 27.5 29.9 28.6 338bp -129bp
HT Media 19.8 17.8 19.0 18.6 18.2 14.4 14.8 9.7 13.7 13.5 -91bp -12bp
Jagran Prakashan 33.4 32.8 31.4 25.3 26.9 25.9 26.3 21.2 24.8 26.1 17bp 123bp
Adjusted PAT (INR b)
ZEEL 1.21 1.26 1.14 2.09 1.34 1.56 1.39 1.42 1.58 1.60 2 1
Sun TV 1.71 1.67 2.25 2.08 1.88 1.80 1.68 1.59 1.64 1.79 -1 9
Dish TV -0.63 -0.45 -0.44 -0.37 -0.18 -0.49 -0.43 -0.49 -0.32 -0.10 NM NM
HT Media 0.41 0.39 0.48 0.53 0.52 0.44 0.48 0.22 0.38 0.35 -19 -7
Jagran Prakashan 0.56 0.56 0.53 0.42 0.50 0.46 0.41 0.43 0.39 0.51 11 31
Source: Company, MOSL
Phase-I digitization status (September 2012)House TV penetration TV HHs DTH subs Cable TV 20% provision Cable TV STB STB seeding
Holds (m) (%) (m) (m) HHs (m) for 2nd TV subs (m) installed (m) achieved (%)
Mumbai 2.7 85 2.3 0.7 1.6 0.3 1.9 1.8 95
Kolkata 3.3 61 2.0 0.3 1.6 0.3 2.0 1.3 67
D e l h i 3.3 88 2.9 0.9 2.1 0.4 2.5 1.3 53
Chennai 1.1 95 1.1 0.6 0.4 0.1 0.5 0.3 49
Total 10.4 80 8.2 2.6 5.7 1.1 6.8 4.7 68
Source: Company, MOSL
Digitization remains a strong theme for broadcasting stocks; headwinds for print
receding: Ad revenue trends remain sluggish but likely bottoming out, with most
companies expecting stable/improving ad spends QoQ. Headwinds for print
companies seem to be receding, with gradual decline in newsprint costs and sharp
INR appreciation. Digitization remains a strong theme for broadcasting and distribution
as most participants do not foresee postponement in digitization deadline for metros.
C–104October 2012
September 2012 Results Preview
Sector: Media
Recent GRP trends of major Hindi GEC’s Hindi GEC: QoQ increase (decrease) in GRP (%)
GRPs of
leading
Hindi GECs,
except
Star Plus,
improved
during the
quarter.60
150
240
330
420D
ec-1
0Ja
n-1
1Ja
n-1
1M
ar-
11M
ar-
11A
pr-
11M
ay-
11Ju
n-1
1Ju
l-11
Aug
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ap
r-12
Ma
y-12
Jun
-12
Jul-
12A
ug-1
2S
ep-1
2
Zee TV Star Plus Co lorsSon y Sab Li fe Ok
-2%
10% 11%
6%
Star Plus Colors Zee TV Son y
Source: Bloomberg/MOSL
Hindi GEC (~31% of viewership)
Hindi movies (~12% of viewership)
Bengali GEC (~3% of viewership)
With a decline in ratings
for Star Plus, the top-4
GECs are evenly placed.
The success of launches
during the festive season
is likely to determine the
leadership position
Top-3 channels continue
to compete strongly in
the Hindi Movie genre.
Movies OK has emerged
as the undisputed
number-4 in a cluttered
genre
The Bengali GEC
market has become an
effective duopoly given
continued market share
decline for ETV
Market share trends
0
10
20
30
40
Jan
-09
Ma
r-09
Jun
-09
Aug
-09
Oct
-09
Jan
-10
Ma
r-10
Jun
-10
Aug
-10
No
v-10
Jan
-11
Ap
r-11
Jun
-11
Sep
-11
No
v-11
Feb
-12
Ap
r-12
Jul-
12
Sep
-12
S tar Plus Colo rs Zee TV Sony SAB
0
15
30
45
60
Jan
-09
Ma
r-09
Ma
y-09
Aug
-09
Oct
-09
Dec
-09
Ma
r-10
Ma
y-10
Jul-
10
Oct
-10
Dec
-10
Feb
-11
Ma
y-11
Jul-
11
Sep
-11
Dec
-11
Feb
-12
Ap
r-12
Jul-
12
Sep
-12
Zee Cin ema MAX Star Gold Movies OK
5
20
35
50
65
Jan
-09
Ma
r-09
Ma
y-09
Aug
-09
Oct
-09
Dec
-09
Ma
r-10
Ma
y-10
Jul-
10
Oct
-10
Dec
-10
Feb
-11
Ma
y-11
Jul-
11
Sep
-11
Dec
-11
Feb
-12
Ap
r-12
Jul-
12
Sep
-12
S tar Jals ha Ze e Ban gla ETV B angla
C–105October 2012
September 2012 Results Preview
Sector: Media
Marathi GEC (4% of viewership)
Star Pravah continues to
improve upon its
leadership position in the
Marathi GEC market
0
15
30
45
60
Jan
-09
Ma
r-09
Ma
y-09
Aug
-09
Oct
-09
Dec
-09
Ma
r-10
Ma
y-10
Jul-
10
Oct
-10
Dec
-10
Feb
-11
Ma
y-11
Jul-
11
Sep
-11
Dec
-11
Feb
-12
Ap
r-12
Jul-
12
Sep
-12
Ze e Marathi ETV Mara thi Sta r Pra va h
Tamil GEC (~5% of viewership)
Sun TV remains the
market leader in the
Tamil GEC market
Telugu GEC (~4% of viewership)
Gemini TV remains the
market leader in
Telugu GEC; Maa Telugu
has emerged as the clear
number-2 and has
been closing the gap
v/s Gemini
0
15
30
45
60
75
Jan
-09
Apr
-09
Jul-
09
Oct
-09
Jan
-10
Apr
-10
Jul-
10
Oct
-10
Jan
-11
Apr
-11
Jul-
11
Sep
-11
Dec
-11
Ma
r-1
2
Jun
-12
Sep
-12
Sun TV Star Vi jay TV Kalaignar TV Jaya TV
0
10
20
30
40
50
Jan
-09
Ap
r-09
Jul-
09
Sep
-09
Dec
-09
Ma
r-10
Jun
-10
Sep
-10
Dec
-10
Ma
r-11
Jun
-11
Sep
-11
Dec
-11
Ma
r-12
Jun
-12
Sep
-12
Gemini TV ETV Telugu Zee Te lugu Maa Telu gu
Kannada GEC (~3% of viewership)
Udaya TV continues to
maintain a wide lead over
competitors in the
Kannada GEC market
0
10
20
30
40
50
Jul-
09
Sep
-09
Dec
-09
Feb
-10
Ma
y-10
Jul-
10
Oct
-10
Jan
-11
Ma
r-11
Jun
-11
Aug
-11
No
v-11
Jan
-12
Ap
r-12
Jun
-12
Sep
-12
Uda ya TV Suvarna ETV Kanna da Zee Kan nada
C–106October 2012
September 2012 Results Preview
Sector: Media
Malyalam GEC (~1% of viewership)
Asianet remains a
strong number-1
0
15
30
45
60
75
Jan
-09
Ma
r-09
Jun
-09
Aug
-09
Oct
-09
Jan
-10
Ma
r-10
Jun
-10
Aug
-10
No
v-10
Jan
-11
Ap
r-11
Jun
-11
Sep
-11
No
v-11
Feb
-12
Ap
r-12
Jul-
12
Sep
-12
Asia net Su rya TV Mazhavi l Manora ma
Source: Company, MOSL
Balaji Telefilms: Trends in OPH and programming rates
Rate per hour for Balaji
Telefilms improved in
1QFY13 after two
consecutive quarters
of decline0
90
180
270
360
3QF
Y06
4QF
Y06
1QF
Y07
2QF
Y07
3QF
Y07
4QF
Y07
1QF
Y08
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
1QF
Y13
0.0
1.0
2.0
3.0
4.0Co mmissio ned programming hours Ra te pe r hour (INR m)
Industry DTH subscriber base and additions trend
Industry DTH additions
remain sluggish; expect
improvement in 3QFY13
7 8 13 15 17 26 32 36 39 41 44 4624211911
1.0 1.2
3.12.0 2.1 2.2 1.8 2.2 2.5 2.7
3.52.9
2.33.4
2.0
5.6
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
DTH s ubscribe rs (m) Quarte rly sub scriber a dds (m)
Newsprint prices have been largely stable (USD/MT)
Newsprint prices
(USD/ton) have
remained largely flat
400
500
600
700
800
Jan
-08
Ap
r-08
Jul-
08
Oct
-08
Jan
-09
Ap
r-09
Jul-
09
Sep
-09
Dec
-09
Ma
r-10
Jun
-10
Sep
-10
Dec
-10
Ma
r-11
Jun
-11
Sep
-11
Dec
-11
Ma
r-12
Jun
-12
Sep
-12
C–107October 2012
September 2012 Results Preview
Sector: Media
80
95
110
125
140
Jun-
12
Jul-
12
Au
g-1
2
Sep-
12
Sens ex Inde xMOSL Media Inde x
80
95
110
125
140
Sep-
11
Dec
-11
Ma
r-12
Jun-
12
Sep-
12
Sens ex Inde xMOSL Media Index
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Media
Dish TV 83 Neutral -1.5 -0.5 0.3 -55.2 -181.0 264.6 19.3 15.2 11.7 NA NA NA
HT Media 93 Neutral 7.0 6.0 6.8 13.2 15.5 13.8 6.4 6.3 5.2 11.0 8.6 8.8
Jagran Prakashan 91 Neutral 5.6 5.6 6.5 16.2 16.3 14.1 10.3 8.9 8.1 24.5 20.6 20.2
Sun TV 349 Buy 17.6 18.2 20.1 19.8 19.2 17.4 9.6 9.1 7.8 26.3 24.7 25.1
Zee Entertainment 196 Neutral 5.9 7.0 8.5 33.2 27.9 23.1 24.9 20.7 17.0 17.5 18.3 19.3
Sector Aggregate 32.0 27.9 23.2 14.4 12.8 10.7 17.7 18.0 19.4
Relative Performance-3m (%) Relative Performance-1Yr (%)
C–108October 2012
September 2012 Results Preview
Sector: Media
Dish TV
Bloomberg DITV IN
Equity Shares (m) 1,063.6
52 Week Range (INR) 85/52
1,6,12 Rel Perf (%) 14/29/-9
Mcap (INR b) 87.7
Mcap (USD b) 1.7
CMP: INR83 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 14,366 -1,897 -1.8 NA NA 139.8 NA NA - -
03/12A 19,578 -1,588 -1.5 NA NA NA NA NA 4.8 18.9
03/13E 22,622 -485 -0.5 NA NA NA NA 3 4.2 15.0
03/14E 28,197 332 0.3 NA 264.6 NA NA 10 3.3 11.5
Quarterly performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 4,604 4,822 4,905 5,247 5,200 5,406 5,773 6,243 19,578 22,622
YoY Change (%) 51.3 47.8 31.4 21.2 12.9 12.1 17.7 19.0 36.3 15.5
Operating expenses 3,482 3,605 3,703 3,805 3,644 3,858 4,366 4,458 14,594 16,326
EBITDA 1,122 1,217 1,202 1,442 1,556 1,548 1,408 1,785 4,984 6,296
YoY Change (%) 248.5 144.5 80.2 59.9 38.7 27.1 17.2 23.8 108.7 26.3
EBITDA margin (%) 24.4 25.2 24.5 27.5 29.9 28.6 24.4 28.6 25.5 27.8
Depreciation 1,107 1,162 1,232 1,678 1,512 1,452 1,474 1,502 5,180 5,939
Interest 334 634 477 348 473 303 234 263 1,778 1,273
Other Income 137 92 78 94 106 107 108 111 386 432
PBT -183 -487 -430 -490 -324 -100 -192 131 -1,588 -485
Adjusted net profit -183 -487 -430 -490 -324 -100 -192 131 -1,588 -485
YoY Change (%) -71.0 7.7 -3.0 32.4 76.8 -79.5 -55.4 -126.6 -16.3 -69.5
Net Subs (m) 8.9 9.2 9.5 9.6 9.8 10.0 10.8 11.3 9.6 11.3
ARPU (INR/month) 150 152 152 151 156 158 161 165 153 157
Revenue break-up (INR m)
Subscription revenue 3,923 4,133 4,258 4,338 4,556 4,707 5,039 5,474 16,650 19,776
Lease rentals 550 550 449 660 460 500 520 540 2,209 2,020
Others 131 140 198 249 184 199 215 229 719 827
Total revenue 4,604 4,822 4,905 5,247 5,200 5,406 5,773 6,243 19,578 22,622
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect revenue to increase 12% YoY and 4% QoQ to INR5.4b.
Subscription revenue is likely to grow 3% QoQ to INR4.7b.
We expect gross additions of 0.5m and net additions of 0.15m in 2QFY13.
EBITDA margin is likely to decline 130bp QoQ to 28.6% largely due to higher opex.
Net loss would decline 70-80% YoY/QoQ to INR0.1b. We have not modeled any forex gain/loss in 2QFY13.
The stock trades at an EV of 15x FY13E and 11.5x FY14E EBITDA. Maintain Neutral.
C–109October 2012
September 2012 Results Preview
Sector: Media
H T Media
Bloomberg HTML IN
Equity Shares (m) 235.0
52 Week Range (INR) 157/82
1,6,12 Rel Perf (%) -6/-38/-47
Mcap (INR b) 21.9
Mcap (USD b) 0.4
CMP: INR93 Neutral
Year Net Sales Adj. PAT Adj EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (x) (x) (%) (%) Sales EBITDA
03/11A 17,861 1,809 7.7 26 - - 14.9 13.0 - -
03/12A 20,030 1,655 7.0 -9 13.2 1.4 11.0 10.5 0.9 6.4
03/13E 20,226 1,594 6.0 -14 15.5 1.3 8.6 9.9 0.9 6.3
03/14E 22,417 1,792 6.8 12 13.8 1.2 8.8 10.4 0.7 5.2
Quarterly performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Revenue 4,969 4,931 5,266 4,941 4,899 4,982 5,243 5,102 20,107 20,226
YoY (%) 22.9 10.7 13.2 5.0 -1.4 1.0 -0.4 3.3 12.6 0.6
Operating expenses 4,066 4,219 4,489 4,460 4,230 4,308 4,459 4,475 17,234 17,472
EBITDA 903 713 777 481 669 674 784 627 2,873 2,754
YoY (%) 13.0 -9.9 -12.0 -45.1 -25.9 -5.3 0.9 30.4 -14.2 -4.1
EBITDA margin (%) 18.2 14.4 14.8 9.7 13.7 13.5 15.0 12.3 14.3 13.6
Depreciation 214 233 220 249 220 225 230 248 916 923
Interest 53 74 83 104 103 100 101 101 315 405
Other Income 146 204 168 179 209 185 190 190 697 774
Extra-ordinary exps 0 0 0 0 0 0 0 0 0 0
PBT 782 610 642 307 555 534 643 469 2,340 2,201
Tax 242 141 161 81 129 101 122 88 625 440
Effective Tax Rate (%) 30.9 23.1 25.1 26.4 23.2 18.9 19.0 18.9 26.7 20.0
PAT 540 469 481 226 426 433 521 380 1,715 1,761
Minority Interest 25 31 -1 6 19 30 48 70 61 167
Reported PAT 515 438 482 220 407 403 473 310 1,655 1,594
Adj PAT 515 438 482 220 407 403 473 310 1,655 1,594
YoY (%) 24.4 13.0 0.8 -58.5 -21.0 -8.0 -1.8 41.2 -9 -4
Ad revenue growth (%) 17 12 10 3 -3 -1 -3 1 10 -1
-English 18 8 11 -4 -6 -3 -10 0 8 -5
-Hindi 15 24 8 21 5 3 18 5 17 8
Circulation revenue growth (%) 3 21 7 3 8 6 7 13 8 9
-English 4 34 0 -15 -3 -5 -8 10 4 -2
-Hindi 3 16 10 13 13 11 15 15 10 14
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect revenue to grow 1% YoY to INR5b.
Ad revenue would decline 1% YoY to INR3.7b, led by 3% decline in the English business.
We expect circulation revenue to increase 6% YoY to INR0.53b.
EBITDA margin is likely to decline 90bp YoY to 13.5%.
Adjusted earnings would decline 19% YoY to INR0.35b.
The stock trades at 15.5x FY13E and 13.8x FY14E EPS. Neutral.
C–110October 2012
September 2012 Results Preview
Sector: Media
Jagran Prakashan
Bloomberg JAGP IN
Equity Shares (m) 316.3
52 Week Range (INR) 115/78
1,6,12 Rel Perf (%) -7/-19/-29
Mcap (INR b) 28.9
Mcap (USD b) 0.5
CMP: INR91 Neutral
Year Net Sales Adj PAT Adj EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 12,211 2,183 6.9 18 - - 33.2 24.4 - -
03/12A 13,557 1,783 5.6 -18 16.2 3.8 24.5 15.6 2.4 10.3
03/13E 15,833 1,777 5.6 0 16.3 3.8 20.6 18.1 1.9 8.9
03/14E 17,172 2,050 6.5 15 14.1 2.7 20.2 14.1 1.7 8.1
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 3,046 3,054 3,240 3,104 3,175 3,317 3,591 3,391 12,445 13,474
YoY (%) 12.9 10.3 13.3 9.8 4.2 8.6 10.8 9.2 11.6 8.3
Operating expenses 2,226 2,263 2,389 2,445 2,387 2,453 2,600 2,614 9,324 10,054
EBITDA 820 791 851 659 788 864 990 777 3,121 3,419
YoY (%) -9.0 -13.0 -5.2 -7.7 -3.9 9.3 16.3 17.9 -8.8 9.6
EBITDA margin (%) 26.9 25.9 26.3 21.2 24.8 26.1 27.6 22.9 25.1 25.4
Depreciation 150 160 165 181 148 150 150 150 657 598
Interest 28 29 44 45 76 73 70 68 146 287
Other Income 78 40 -42 183 -7 88 88 88 259 255
PBT 720 642 600 615 557 729 858 646 2,577 2,790
Tax 223 184 187 187 0 0 0 0 781 0
Effective Tax Rate (%) 31.0 28.6 31.2 30.4 0 0 0 0 30.3 0
Reported net profit 497 458 413 428 557 729 858 646 1,796 2,790
YoY (%) -10.6 -17.5 -21.5 1.8 12.1 59.2 107.7 50.9 -12.7 55.3
Extra-ordinary item 0 0 0 0 167 219 257 194 0 837
Adjusted net profit 497 458 413 428 390 510 600 452 1,796 1,953
Revenue break-up
Ad revenue 2,043 2,119 2,235 2,103 2,207 2,288 2,459 2,271 8,500 9,225
Circulation revenue 582 612 623 628 641 676 704 701 2,445 2,722
Others (Outdoor,event mgmt, etc) 422 323 382 373 328 352 428 418 1,500 1,527
Total revenue 3,046 3,054 3,240 3,104 3,175 3,317 3,591 3,391 12,445 13,474
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect advertising revenue to grow 8% YoY to INR2.3b on a standalone basis.
Circulation revenue is likely to grow 11% YoY and 6% QoQ to INR0.7b.
Aggregate revenue would increase 9% YoY to INR3.3b.
We estimate EBITDA at INR0.86b, up 9% YoY. We expect EBITDA margin to expand 20bp YoY to 26.1%.
Adjusted earnings would grow 11% YoY to INR0.51b.
The stock trades at 16.3x FY13E and 14.1x FY14E EPS. Neutral.
C–111October 2012
September 2012 Results Preview
Sector: Media
Sun TV Network
Bloomberg SUNTV IN
Equity Shares (m) 394.1
52 Week Range (INR) 362/177
1,6,12 Rel Perf (%) 15/6/19
Mcap (INR b) 137.7
Mcap (USD b) 2.6
CMP: INR349 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 19,237 7,722 19.6 36.1 - - 32.4 63.1 - -
3/12A 17,574 6,946 17.6 -10.0 19.8 5.2 26.3 51.2 7.7 9.6
3/13E 18,390 7,178 18.2 3.3 19.2 4.7 24.7 47.0 7.1 9.1
3/14E 20,616 7,914 20.1 10.3 17.4 4.4 25.1 49.5 6.1 7.8
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q* 4Q 1Q 2QE 3QE 4QE
Revenue 4,540 4,513 4,251 4,270 4,258 4,491 4,839 4,804 17,574 18,390
YoY (%) 3.1 6.2 -4.9 -7.3 -6.2 -0.5 13.8 12.5 -8.6 4.6
EBITDA 3,659 3,654 3,411 3,282 3,230 3,518 3,814 3,752 14,007 14,314
YoY (%) 1.7 10.0 -2.8 -9.8 -11.7 -3.7 11.8 14.3 -10.1 2.2
As of % Sales 80.6 81.0 80.2 76.9 75.9 78.3 78.8 78.1 79.7 77.8
Depreciation and Amortization 1,061 1,176 1,125 1,068 933 1,026 1,180 1,180 4,430 4,318
Interest 2 8 36 9 2 5 5 5 56 17
Other Income 173 186 232 151 132 152 172 167 742 623
PBT 2,769 2,657 2,483 2,355 2,427 2,640 2,801 2,734 10,263 10,602
Tax 892 856 804 765 784 853 905 883 3,317 3,425
Effective Tax Rate (%) 32.2 32.2 32.4 32.5 32.3 32.3 32.3 32.3 32.3 32.3
Reported PAT 1,876 1,801 1,679 1,590 1,643 1,787 1,896 1,851 6,946 7,178
Adj PAT 1,876 1,801 1,679 1,590 1,643 1,787 1,896 1,851 6,946 7,178
YoY (%) 9.8 7.6 -14.4 -23.7 -12.4 -0.8 13.0 16.4 -10.0 3.3
Revenue Breakup (INR m)
Advertising and Broadcast 2,700 2,740 2,850 2,800 2,800 2,904 3,192 3,113 11,090 12,009
International 200 180 240 220 260 270 276 286 840 1,092
DTH 840 790 840 860 890 916 941 959 3,330 3,706
Domestic Cable 560 470 290 310 300 370 400 420 1,630 1,490
Films and Others 240 333 31 80 8 30 30 25 684 93
Total 4,540 4,513 4,251 4,270 4,258 4,491 4,839 4,804 17,574 18,390
E: MOSL Estimates * YoY growth for 3QFY12 adjusted for one-time revenue/cost rela ted to 'Enthiran' in 3QFY11
BSE Sensex S&P CNX
18,763 5,703
We expect revenue to remain flat YoY but increase 5% QoQ to INR4.5b.
Advertising and broadcasting revenue would grow 6% YoY and 4% QoQ to INR2.9b.
We expect total subscription revenue (domestic + international) to decline 17% YoY to INR1.3b.
EBITDA is likely to decline 4% YoY to INR3.5b.
We expect PAT to decline 1% YoY to INR1.79b.
The stock trades at 19.2x FY13E and 17.4x FY14E EPS. Maintain Buy.
C–112October 2012
September 2012 Results Preview
Sector: Media
Zee Entertainment Enterprises
Bloomberg Z IN
Equity Shares (m) 958.8
52 Week Range (INR) 202/110
1,6,12 Rel Perf (%) 12/50/54
Mcap (INR b) 187.6
Mcap (USD b) 3.6
CMP: INR196 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 29,414 5,852 6.0 14.4 - - 16.9 23.8 - -
3/12A 30,406 5,712 5.9 -1.4 33.2 5.6 17.5 25.5 5.8 23.8
3/13E 35,139 6,730 7.0 19.0 27.9 4.9 18.3 26.4 4.9 19.7
3/14E 39,786 8,107 8.5 20.5 23.1 4.3 19.3 27.8 4.3 16.2
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Advertsing Revenue 3,787 3,949 3,955 4,150 4,472 4,621 4,701 4,774 15,841 18,567
Subscription Revenue 3,051 2,910 3,262 4,022 3,641 3,693 3,836 4,079 13,245 15,248
Other Sales and Services 145 324 332 519 317 327 337 345 1,320 1,325
Net Sales 6,983 7,184 7,548 8,691 8,430 8,640 8,873 9,197 30,406 35,139
Change (%) 3.2 1.0 0.0 8.9 20.7 20.3 17.5 5.8 3.4 15.6
Prog, Transmission & Direct Exp 3,423 3,224 3,422 4,242 3,757 4,283 4,283 4,283 14,311 16,605
Staff Cost 747 688 731 759 888 828 836 850 2,925 3,402
Selling and Other Exp 1,253 1,197 1,236 2,090 1,453 1,532 1,624 1,716 5,775 6,325
EBITDA 1,560 2,076 2,160 1,600 2,332 1,997 2,129 2,348 7,395 8,807
As of % Sales 22.3 28.9 28.6 18.4 27.7 23.1 24.0 25.5 24.3 25.1
Depreciation 89 78 74 81 99 100 101 102 323 401
Finance cost 30 56 182 -219 18 18 18 19 50 73
Other Income 255 279 340 330 301 302 304 302 1,204 1,210
Extraordinary items 0 0 0 180 0 0 0 0 180 0
PBT 1,696 2,221 2,243 2,248 2,517 2,181 2,314 2,530 8,407 9,543
Tax 394 621 867 618 947 595 632 689 2,500 2,863
Effective Tax Rate (%) 23.2 28.0 38.6 28.2 37.6 27.3 27.3 27.3 29.7 30.0
PAT 1,302 1,600 1,376 1,630 1,570 1,586 1,682 1,841 5,907 6,680
Minority Interest -35 40 -17 28 -12 -12 -12 -14 15 -50
Adj PAT after Minority Interest 1,337 1,560 1,393 1,422 1,582 1,598 1,694 1,855 5,712 6,730
Change (%) 10.4 23.6 22.1 -31.8 18.3 2.4 21.6 30.5 -2.4 17.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect advertising revenue to grow 17% YoY and 3% QoQ to INR4.6b.
We estimate subscription revenue at INR3.7b, up 1% QoQ. Broadcasters continue to focus on signing new deals
for upcoming digitization, limiting near-term growth in domestic subscription revenue.
EBITDA margin is likely to decline 580bp YoY and 450bp QoQ to 23.1%. Margins would be impacted by higher
programming costs, launch expenses for new channels like Zee Aflam and higher Sports loss due to India-Sri
Lanka series telecast (monetization was further impacted, as the series was not telecast on DD).
Adjusted PAT is likely to increase 2% YoY and 1% QoQ to INR1.6b.
The stock trades at 28x FY13E and 23x FY14E EPS. Neutral.
C–113October 2012
September 2012 Results Preview
Sector: Metals
540
630
720
810
900
Sep
‐10
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1
Ma
r‐11
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Sep
‐11
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v‐11
Jan‐1
2
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r‐12
Ma
y‐12
Jul‐
12
Sep
‐12
450
500
550
600
650Ru ss ia North America Europe RHS(Euro /to n)
MetalsCOMPANY NAME
Hinda lco
Hindustan Zinc
Jindal Steel & Power
JSW Steel
Nalco
NMDC
Sesa Goa
SAIL
Sterlite Industries
Tata Steel
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Hindalco 121 Buy 197,200 2.0 -1.0 22,023 1.8 10.0 9,117 -15.5 1.2
Hindustan Zinc 135 Buy 26,853 1.8 -2.3 14,162 -3.3 -0.9 13,555 -0.6 -14.3
JSPL 428 Neutral 50,958 15.2 8.4 15,591 -13.6 -2.1 8,401 -20.0 -12.4
JSW Steel 757 S e l l 83,636 9.6 -7.5 14,335 9.4 -19.1 3,882 -35.2 -41.5
Nalco 51 Neutral 16,991 5.3 -2.8 2,418 58.5 -20.5 1,714 23.0 -23.2
NMDC 194 Buy 28,466 -7.0 0.2 22,246 -8.7 -3.4 18,226 -7.2 -4.4
SAIL 85 S e l l 107,892 -3.6 0.1 13,918 4.9 -8.2 6,377 -36.4 -27.8
Sesa Goa 171 Neutral 3,363 -57.4 -80.6 1,001 -61.5 -85.2 5,621 138.8 -50.5
Sterlite Inds. 99 Buy 104,064 2.1 -2.3 24,805 -0.1 7.5 12,653 -15.3 -10.8
Tata Steel 401 S e l l 312,934 -4.6 -7.5 28,051 2.0 -22.1 791 -62.8 -90.0
Sector Aggregate 932,355 -0.5 -4.8 158,550 -1.8 -9.4 80,338 -12.1 -23.2
Sanjay Jain ([email protected]) / Pavas Pethia ([email protected])
Global steel prices decline, led by China; domestic prices also correct9-10% QoQGlobal steel prices continued their downtrend, with major correction in China. Average
steel prices declined 8%, 4%, 14% and 4% QoQ, respectively in Russia, Europe, China
and North America. Domestic steel prices also mirrored global steel prices, with long
and flat steel prices declining 9% and 10% QoQ, respectively. The price correction in
China is also impacting prices in other regions, as Chinese mills are flooding steel
products elsewhere to compensate for domestic slowdown. In India, imports have
already jumped by 39% YoY in 1HFY13 to 3.3mt.
Global HRC prices trending downwards (USD/ton)
Source: Bloomberg/MOSL
C–114October 2012
September 2012 Results Preview
Sector: Metals
500
600
700
800
Sep-
10
Nov
-10
De
c-1
0
Feb-
11
Apr
-11
May
-11
Jul-
11
Au
g-1
1
Oct
-11
Nov
-11
Jan-
12
Mar
-12
Apr
-12
Jun-
12
Jul-
12
Sep-
12
HRC Reb ar
China’s domestic steel prices also declining (USD/ton)
Source: Bloomberg/MOSL
In India, both flat and long steel prices witnessed 9-10% correction (INR/ton)
Source: Bloomberg/MOSL
31,000
33,000
35,000
37,000
39,000
Sep
-11
Oct
-11
No
v-11
Dec
-11
Jan
-12
Feb
-12
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r-12
Ap
r-12
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y-12
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y-12
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-12
Jul-
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Aug
-12
Sep
-12
HRC Mumbai
32,000
34,000
36,000
38,000
40,000
42,000
Sep
-11
No
v-1
1
Dec
-11
Feb
-12
Ma
r-1
2
Ma
y-1
2
Jun
-12
Aug
-12
Sep
-12
TMT (Mu mba i)
Global steel production growth stagnates, as Chinese demand plateausThe global monthly crude steel production decreased 0.5% YoY to 123.7mt in August,
as most regions registered degrowth/flat production. Though demand had been weak
in Europe and other developed regions, China alone was able to fuel global steel
consumption growth so far. However, demand in China too appears to have plateaued.
Major economic indicators in China point to a slowdown - China PMI dropped to 49.2
in August 2012. We expect China's per capita steel consumption growth to moderate
to ~2% from the double-digit growth witnessed in the last decade (refer to our report,
"Downhill Run" dated August 2012 for more information)
Global steel production flat in August, as capacity utilization declined 3pp to 75%
Source: Bloomberg/MOSL
105
112
119
126
133
Aug
-09
Oct
-09
Dec
-09
Feb
-10
Ap
r-10
Jun
-10
Aug
-10
Oct
-10
Dec
-10
Feb
-11
Ap
r-11
Jun
-11
Aug
-11
Oct
-11
Dec
-11
Feb
-12
Ap
r-12
Jun
-12
(m t
ons
)
-9
2
13
24
35
Glob al YoY (%)
70
74
77
81
84
Aug
-10
Oct
-10
Dec
-10
Feb
-11
Ap
r-11
Jun
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Aug
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Oct
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Dec
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Ap
r-12
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Aug
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Perc
ent
age
Capaci ty Uti l i zation
C–115October 2012
September 2012 Results Preview
Sector: Metals
China production growth averaged just 3% in last 12 months China PMI dipped below 50 to 49.2 in August 2012
Source: Bloomberg/MOSL
45
50
55
60
65
Aug
-09
Oct
-09
Dec
-09
Feb
-10
Ap
r-10
Jun
-10
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-10
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-10
Dec
-10
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-11
Ap
r-11
Jun
-11
Aug
-11
Oct
-11
Dec
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Feb
-12
Ap
r-12
Jun
-12
Aug
-12
(m t
ons
)
-9
4
17
30
43
YoY
(%)
China YoY (%)
46
50
54
58
Aug
-09
Oct
-09
Dec
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Feb
-10
Ap
r-10
Jun
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r-11
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r-12
Jun
-12
Aug
-12
PM
I
Spreads of Chinese steel mills unaffected due to falling raw material prices;expect steel prices to decline furtherDespite severe correction in steel prices, Chinese mills are still able to maintain healthy
spreads, as raw material prices have also declined. Low-vol premium hard coking coal
average prices (fob Australia) have declined 18% QoQ in 2QFY13. Similarly, average
iron ore prices have corrected 18% QoQ in 2QFY13. With China's burgeoning demand
for raw materials moderating, the downtrend in both iron ore and coking coal prices
is likely to continue. We expect Chinese steel prices to correct further, in line with
raw material prices.
Correction in raw material prices much more severe than in steel prices (USD/ton)
250
330
410
490
570
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
Ma
y-1
1
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
Ma
y-1
2
Jul-
12
Sep
-12
75
110
145
180
215
China 2n d grade coke 63.5% Iron ore F ines CIF
120
170
220
270
320
Oct
-10
De
c-1
0
Feb-
11
Apr
-11
Jun-
11
Au
g-1
1
Oct
-11
De
c-1
1
Feb-
12
Apr
-12
Jun-
12
Jul-
12
Au
g-1
2
Au
g-1
2
Sep-
12
Sep-
12
Sp ot coking co al (fob Aus tral ia)
... while Chinese mills spread remained healthy
Source: Bloomberg/MOSL
Richa rds B ay Ste am Coal
75
90
105
120
135
Sep
-10
No
v-10
Jan
-11
Ma
r-11
Ma
y-11
Jul-
11
Sep
-11
No
v-11
Jan
-12
Ma
r-12
Ma
y-12
Jul-
12
Sep
-12
US
D/t
0
50
100
150
200
250
Sep
-12
Aug
-12
Jul-
12Ju
n-1
2M
ay-
12A
pr-
12M
ar-
12F
eb-1
2Ja
n-1
2D
ec-1
1N
ov-
11S
ep-1
1S
ep-1
1A
ug-1
1Ju
l-11
Jun
-11
Ma
y-11
Ap
r-11
Ma
r-11
Jan
-11
Dec
-10
Dec
-10
No
v-10
US
D P
ER T
SS
C–116October 2012
September 2012 Results Preview
Sector: Metals
Non-ferrous
Base metal prices recover in September; aluminum spot premiums at all-time highAverage 2QFY13 non-ferrous metal prices have corrected 0-3% QoQ, with sharp
recovery in September, after the announcement of QE III. With LME prices remaining
weak during the quarter, aluminum spot premium has shot up to all-time high levels.
Weaker demand for the metal has resulted in capacity cuts by aluminum majors such
as Rusal, Alcoa Inc and Norsk Hydro. However, subsidies and other benefits offered
by the governments in Australia, China and Europe are still keeping some of the high
cost smelters afloat. We are factoring aluminum prices of USD1,996/ton in FY13 and
USD2,100/ton in FY14.
Margin pressure has eased a little
0
1,000
2,000
3,000
4,000
Oct
-07
Feb
-08
Ma
y-08
Sep
-08
Jan
-09
Ma
y-09
Au
g-0
9
De
c-0
9
Apr
-10
Jul-
10
No
v-10
Mar
-11
Jun
-11
Oct
-11
Feb
-12
Ma
y-12
Sep
-12
US
D/t
on
CPC Al um in a Po w er LME
Source: Bloomberg/MOSL
US aluminum spot premiums at all-time high
Source: Bloomberg/MOSL
40
105
170
235
300
Apr
-06
Oct
-06
Mar
-07
Sep-
07
Feb-
08
Au
g-0
8
Jan-
09
Jul-
09
De
c-0
9
Jun-
10
Nov
-10
May
-11
Oct
-11
Apr
-12
Sep-
12
A lumin ium Zinc Coppe r
C–117October 2012
September 2012 Results Preview
Sector: Metals
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Metals
Hindalco 121 Buy 17.1 18.9 20.6 7.1 6.4 5.9 6.9 7.2 6.3 20.3 20.2 18.5
Hindustan Zinc 135 Buy 13.2 14.4 16.7 10.3 9.4 8.1 6.5 5.6 4.1 22.5 20.8 20.4
JSPL 428 Neutral 42.4 39.8 38.5 10.1 10.7 11.1 8.4 9.5 8.9 24.6 19.7 17.0
JSW Steel 757 S e l l 66.5 49.9 73.7 11.4 15.2 10.3 6.7 6.6 6.0 8.9 6.6 9.3
Nalco 51 Neutral 3.4 3.5 3.3 15.2 14.7 15.6 7.2 7.3 6.5 7.6 7.5 6.8
NMDC 194 Buy 18.5 20.4 24.9 10.5 9.5 7.8 6.3 5.4 4.1 31.7 28.3 26.9
SAIL 85 S e l l 9.0 6.7 8.6 9.5 12.8 10.0 7.4 8.9 7.9 9.6 6.7 8.2
Sesa Goa 171 Neutral 31.8 36.1 33.5 5.4 4.8 5.1 5.2 13.6 10.9 19.8 20.6 18.7
Sterlite Inds. 99 Buy 16.7 16.3 17.7 6.0 6.1 5.6 3.0 2.8 2.4 14.1 12.4 12.3
Tata Steel 401 S e l l 18.6 31.2 56.6 21.6 12.9 7.1 7.3 6.8 6.1 7.8 11.5 18.9
Sector Aggregate 9.6 9.2 7.8 6.4 6.5 5.6 13.3 12.8 13.6
Relative performance-3m (%) Relative performance-1Yr (%)
Quarterly average of base metal prices on LME (USD/tonne)Quarter Zinc Aluminium Copper Lead Alumina Silver (INR/kg)
Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY
2QFY13 1,879 -2 -15 1,912 -3 -20 7,689 -2 -14 1,964 0 -20 315 -1 -15 55,532 2 -6
1QFY13 1,927 -5 -14 1,978 -9 -24 7,869 -5 -14 1,973 -6 -23 317 0 -22 54,406 -2 -5
4QFY12 2,024 7 -15 2,175 4 -13 8,308 11 -14 2,093 6 -20 317 -4 -19 55,256 3 15
3QFY12 1,897 -15 -18 2,090 -13 -11 7,488 -17 -13 1,982 -19 -17 329 -12 -10 53,770 -9 35
2QFY12 2,223 -1 10 2,398 -8 15 8,982 -2 24 2,458 -4 21 372 -8 17 58,791 2 96
1QFY12 2,249 -6 12 2,598 4 24 9,137 -5 30 2,550 -2 31 404 4 21 57,430 20 101
4QFY11 2,393 3 5 2,502 7 16 9,644 12 33 2,603 9 17 391 7 20 48,008 20 82
3QFY11 2,315 15 5 2,343 12 17 8,633 19 30 2,389 18 4 366 15 20 39,929 33 46
2QFY11 2,012 0 15 2,089 0 16 7,242 3 24 2,031 5 6 317 -5 18 29,948 5 28
1QFY11 2,017 -12 37 2,092 -3 41 7,013 -3 50 1,943 -12 29 335 3 61 28,557 8 30%
90
95
100
105
110
Jun
-12
Jul-
12
Aug
-12
Sep
-12
Sens ex Ind exMOSL Metals In dex
80
90
100
110
120
Sep-
11
Dec
-11
Ma
r-12
Jun-
12
Sep-
12
Sen sex In dex
MOSL Meta ls Inde x
C–118October 2012
September 2012 Results Preview
Sector: Metals
Hindalco
Bloomberg HNDL IN
Equity Shares (m) 1,990.0
52 Week Range (INR) 165/100
1,6,12 Rel Perf (%) 7/-14/-23
Mcap (INR b) 239.8
Mcap (USD b) 4.5
CMP: INR121 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 720,779 34,998 17.6 278.5 - - 23.1 10.1 - -
3/12A 808,214 33,970 17.1 -3.0 7.1 1.4 20.3 7.5 0.7 6.9
3/13E 816,863 37,671 18.9 10.9 6.4 1.2 20.2 7.6 0.8 7.2
3/14E 854,498 41,002 20.6 8.8 5.9 1.0 18.5 8.2 0.7 6.3
Consolidated
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Production ('000 tons)
Aluminium (sales, kt) 131 129 147 149 124 125 145 155 556 549
Copper (sales, kt) 73 75 84 94 71 80 86 95 325 332
Exchange USD/INR 44.7 45.4 51.0 50.2 54.5 55.5 54.0 54.0 47.9 54.5
Avg LME Aluminium (USD/T) 2,618 2,450 2,115 2,225 1,985 1,900 2,000 2,100 2,352 1,996
Net Sales 60,309 62,719 66,470 76,471 60,279 63,491 70,878 79,121 265,968 273,770
Change (YoY %) 16.5 7.0 11.3 11.7 0.0 1.2 6.6 3.5 11.5 2.9
EBITDA 8,671 6,692 7,149 8,648 4,631 5,804 6,775 8,536 31,160 25,746
As % of Net Sales 14.4 10.7 10.8 11.3 7.7 9.1 9.6 10.8 11.7 9.4
EBITDA - Aluminium 6761 4,758 4,532 5,258 3,415 3,815 4,627 6,127 21,309 15,403
EBITDA-Copper 1,909 1,935 2,618 3,390 1,216 2,147 2,306 2,567 9,851 10,343
Interest 667 675 793 801 815 847 881 916 2,936 3,460
Depreciation 1,754 1,741 1,747 1,658 1,705 1,776 1,782 1,824 6,900 7,087
Other Income 1,779 1,761 901 1,605 3,014 1,796 919 1,637 6,046 7,366
PBT (after EO item) 8,029 6,037 5,509 7,794 5,126 4,977 5,030 7,433 27,370 22,566
Total Tax 1,589 1,012 1,002 1,395 878 1,045 1,056 1,561 4,998 4,541
% Tax 19.8 16.8 18.2 17.9 17.1 21.0 21.0 21.0 18.3 20.1
Reported PAT 6,440 5,025 4,507 6,400 4,248 3,932 3,974 5,872 22,372 18,025
Adjusted PAT 6,440 5,025 4,507 6,400 4,248 3,932 3,974 5,872 22,372 18,025
Novelis adj. EBITDA (USD m) 306 301 213 233 259 266 252 270 1,053 1,047
Consolidated adj. PAT 11,772 10,784 7,519 10,141 9,008 8,993 8,340 10,945 33,970 37,296
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Net sales to grow 5% QoQ: We expect net sales to grow 5% QoQ (1% YoY) to INR63.5b on a lower base of 1QFY13,
where production of both copper and aluminium was affected due to operational hiccups. Copper operations
are back to normal and sales volume is likely to grow 13% QoQ to 80k tons. Aluminum volume is likely to remain
flat at 125k tons, as Hirakud smelter's captive power plant operations were partially shut due to breach of ash
pond. Average LME aluminum and copper prices have decreased 3% and 2% QoQ, respectively to USD1,912/ton
and USD7,689/ton. HNDL's blended realization for aluminum is likely to decrease 3% QoQ to INR162,311/ton
while copper realization would decrease 4% QoQ to INR540,340/ton.
EBITDA to grow 29% QoQ: We expect EBITDA to grow 29% QoQ to INR6b on a lower base of 1QFY13. We expect
aluminum EBITDA to increase 12% QoQ to INR3.8b and copper EBITDA to increase 77% QoQ to INR2.1b.
Maintain Buy: We expect consolidated EBITDA to increase 14% to INR100.8b in FY14, driven by 28% growth in
primary aluminum production to 700k tons and 36% growth in alumina production to 1.9m tons in India and 6%
volume growth at Novelis. EPS growth, however, would be lower at 9% to INR20.6 due to higher interest and
depreciation charge. The stock trades at 5.9x FY14E EPS and at an EV of 6.3x FY14E EBITDA. Maintain Buy .
C–119October 2012
September 2012 Results Preview
Sector: Metals
Hindustan Zinc
Bloomberg HZ IN
Equity Shares (m) 4,225.3
52 Week Range (INR) 150/107
1,6,12 Rel Perf (%) 3/-2/-2
Mcap (INR b) 572.3
Mcap (USD b) 10.9
CMP: INR135 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 99,121 49,179 11.6 21.7 - - 24.2 28.3 - -
3/12A 114,053 55,604 13.2 13.1 10.3 2.1 22.5 27.2 3.4 6.5
3/13E 119,276 60,947 14.4 9.6 9.4 1.8 20.8 24.8 3.0 5.6
3/14E 136,299 70,707 16.7 16.0 8.1 1.5 20.4 24.3 2.3 4.1
Consolidated
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Zn & Pb ('000 tons) 207 200 218 227 186 184 230 235 852 835
Silver (tons) 41 41 49 74 73 76 92 89 205 331
Net Sales 28,471 26,368 27,868 31,350 27,477 26,853 32,248 32,698 114,053 119,276
Change (YoY %) 44.3 19.8 6.0 -3.2 -3.5 1.8 15.7 4.3 15.1 4.6
EBITDA 15,923 14,648 14,023 16,590 14,286 14,162 17,180 17,390 60,695 63,018
As % of Net Sales 55.9 55.6 50.3 52.9 52.0 52.7 53.3 53.2 53.2 52.8
Interest 65 120 87 24 129 129 129 129 140 515
Depreciation 1,345 1,455 1,591 1,671 1,734 1,665 1,665 1,684 6,107 6,747
Other Income 3,554 3,868 3,819 3,811 5,743 4,366 4,496 4,783 15,428 19,388
PBT (before EO item) 18,066 16,940 16,164 18,706 18,166 16,734 19,882 20,360 69,877 75,143
Extra-ordinary Income -44 -239 -64 -84 0 0 0 0 -431 0
PBT (after EO item) 18,022 16,702 16,099 18,622 18,166 16,734 19,882 20,360 69,445 75,143
Total Tax 3,073 3,255 3,363 4,494 2,353 3,180 3,778 4,886 14,185 14,196
% Tax 17.1 19.5 20.9 24.1 13.0 19.0 19.0 24.0 20.4 18.9
Reported PAT 14,949 13,447 12,736 14,128 15,813 13,555 16,104 15,474 55,260 60,947
Adjusted PAT 14,986 13,639 12,787 14,192 15,813 13,555 16,104 15,474 55,604 60,947
Change (YoY %) 68.2 41.2 -0.8 -19.9 5.5 -9.5 18.1 21.0 13.1 9.6
Avg LME Zinc (USD/T) 2,271 2,247 1,917 2,050 1,938 1,900 1,900 1,900 2,121 1,910
Avg LME Lead (USD/T) 2,531 2,449 2,009 2,120 1,989 1,980 1,900 1,900 2,277 1,942
Silver (USD/oz) 35 36 29 31 28 28 28 28 33 28
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Net sales to decline 2% QoQ on lower LME prices and flat volumes: We expect net sales to decline 2% QoQ
(grow 2% YoY) to INR26.9b on lower LME prices and flat sales volume. LME zinc prices have declined 2% QoQ to
USD1,879/ton while lead prices have remained flat at USD1,964/ton. We expect zinc realization to decrease 1%
QoQ to INR112,515/ton and lead realization to increase 6% QoQ to INR121,070/ton. Refined zinc and lead
production volume is likely to decrease 1% QoQ to 184k tons.
EBITDA to decrease 1% QoQ: We expect EBITDA to decrease 1% QoQ to INR14.2b (-3% YoY) on lower LME prices.
Silver volumes are expected to increase 4% QoQ to 76 tons. Current metal production has been lower as per
mining plan which is expected to improve in 2HFY13.
Zinc production to remain flat in FY13; maintain Buy: Zinc production has been impacted as the Rampur Agucha
mines are currently mining narrow ore body. Though production ramp-up in 2HFY13 is likely to make up for lost
production in 1HFY13, we expect FY13 production to remain flat. Silver volume would increase to 331 tons. The
stock trades at 8.1x FY14E EPS and at an EV of 4.1x FY14E EBITDA. Maintain Buy.
C–120October 2012
September 2012 Results Preview
Sector: Metals
Jindal Steel & Power
Bloomberg JSP IN
Equity Shares (m) 934.8
52 Week Range (INR) 663/321
1,6,12 Rel Perf (%) 13/-28/-31
Mcap (INR b) 399.6
Mcap (USD b) 7.6
CMP: INR428 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 131,122 37,539 40.1 6.0 - - 30.5 21.3 - -
3/12A 182,086 39,649 42.4 5.6 10.1 2.2 24.6 16.9 3.1 8.4
3/13E 208,816 37,215 39.8 -6.1 10.7 2.0 19.7 13.6 3.0 9.5
3/14E 212,763 36,045 38.5 -3.1 11.1 1.8 17.0 12.2 3.1 8.9
Consolidated
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales volume
Steel ('000 tons) 457 598 591 737 561 615 735 741 2,385 2,652
Pellets (000 tons) 347 526 464 691 395 533 489 516 2,028 1,934
CPP (M kwh) 259 222 350 557 584 549 709 709 1,446 2,550
Net Sales 25,265 33,338 32,983 41,740 33,311 36,906 39,453 39,787 133,326 149,457
Change (YoY %) 19.1 45.0 36.8 52.2 31.8 10.7 19.6 -4.7 39.3 12.1
Total Expenditure 15,631 21,471 22,528 28,648 22,934 26,765 28,629 28,723 88,278 107,051
EBITDA 9,634 11,867 10,454 13,093 10,377 10,141 10,824 11,064 45,048 42,406
Change (YoY %) 21.7 38.6 11.7 22.5 7.7 -14.5 3.5 -15.5 23.3 -5.9
As % of Net Sales 38.1 35.6 31.7 31.4 31.2 27.5 27.4 27.8 33.8 28.4
Interest 1,325 1,459 1,553 2,490 2,186 1,870 1,870 1,870 6,827 7,796
Depreciation 2,066 2,139 2,103 2,364 2,372 2,390 2,366 2,342 8,672 9,469
Other Income 167 77 202 1,412 122 81 212 1,515 1,857 1,930
PBT (before EO item) 6,410 8,346 7,001 9,650 5,942 5,962 6,800 8,367 31,407 27,072
Extra-ordinary Income 0 -2,478 -500 0 -5,741 0 0 0 -2,978 -5,741
PBT (after EO item) 6,410 5,869 6,501 9,650 201 5,962 6,800 8,367 28,430 21,330
Total Tax 1,709 1,911 1,890 1,814 76 1,669 1,904 2,343 7,324 5,993
% Tax 26.7 32.6 29.1 18.8 38.1 28.0 28.0 28.0 25.8 28.1
Reported PAT 4,702 3,958 4,610 7,836 124 4,293 4,896 6,024 21,106 15,338
Adjusted PAT 4,702 6,435 5,110 7,836 4,602 4,293 4,896 6,024 24,083 19,816
Consolidated PAT 9,188 10,495 10,210 11,670 9,594 8,401 9,645 9,574 41,563 37,215
Change (YoY %) -2.4 19.1 15.4 2.0 4.4 -20.0 -5.5 -18.0 10.7 -10.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Steel volumes to increase 3% YoY: We expect standalone net sales to grow 11% YoY (11% QoQ) to INR36.9b on
liquidation of inventory accumulated in the previous quarter and higher power sales. Steel sales volume would
increase 3% YoY (10% QoQ) to 615k tons. We expect pellet sales volume to grow 1% YoY (35% QoQ). Power sales
are likely to grow 147% YoY (decline 6% QoQ) to 549m units. We expect standalone EBITDA to decline 2% QoQ
to INR10.1b on lower steel prices.
Jindal Power PAT to increase 21% QoQ: Power sales volumes at Jindal Power are likely to be up 2% YoY to 1.9b
units while the average rate is likely to decline 8% YoY (flat QoQ) to INR3.7/unit. PAT would grow 21% QoQ, as
performance in the previous quarter was impacted by INR1b of accumulated electricity duty imposed by
Chhattisgarh government.
Earnings have peaked; maintain Neutral: JSP's existing operating assets continue to deliver superior results,
but future projects are likely to have lower return ratios. We believe that earnings have already peaked and
expect them to decline at 5% per annum over FY12-14. The stock trades at 11.1x FY14E EPS, 1.8x FY14E BV, and an
EV of 8.9x FY14E EBITDA. Maintain Neutral.
C–121October 2012
September 2012 Results Preview
Sector: Metals
JSW Steel
Bloomberg JSTL IN
Equity Shares (m) 223.1
52 Week Range (INR) 885/464
1,6,12 Rel Perf (%) 0/-3/19
Mcap (INR b) 168.8
Mcap (USD b) 3.2
CMP: INR757 Sell
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 241,059 16,783 75.2 17.7 - - 12.3 9.9 - -
3/12A 343,681 14,844 66.5 -11.6 11.4 1.0 8.9 9.2 1.2 6.7
3/13E 363,204 11,143 49.9 -24.9 15.2 1.0 6.6 8.5 1.2 6.6
3/14E 363,314 16,442 73.7 47.6 10.3 0.9 9.3 9.5 1.2 6.0
Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales ('000 tons) 1,714 1,882 1,908 2,310 2,109 2,100 2,036 2,170 7,814 8,415
Change (YoY %) 44.0 19.0 19.8 33.3 23.0 11.6 6.7 -6.0 28.1 7.7
Realization (INR per ton) 41,245 40,553 41,281 41,319 42,853 39,827 37,066 36,324 41,109 39,014
Net Sales 70,694 76,321 78,765 95,447 90,376 83,636 75,464 78,836 321,227 328,312
Change (YoY %) 51.0 32.1 35.6 34.3 27.8 9.6 -4.2 -17.4 37.5 2.2
EBITDA 14,082 13,104 12,534 16,518 17,728 14,335 11,957 15,706 56,238 59,726
Change (YoY %) 36.1 32.1 25.3 -0.1 25.9 9.4 -4.6 -4.9 17.7 6.2
As % of Net Sales 19.9 17.2 15.9 17.3 19.6 17.1 15.8 19.9 17.5 18.2
EBITDA (USD per ton) 184 152 129 143 154 123 109 134 150 130
Interest 2,268 2,645 3,274 3,677 4,067 4,116 4,198 4,083 11,864 16,464
Depreciation 3,879 4,039 4,444 4,720 4,678 4,859 4,956 4,943 17,082 19,435
Other Income 327 527 456 483 723 537 465 493 1,793 2,218
PBT (before EO Item) 8,263 6,947 5,271 8,604 9,706 5,898 3,267 7,174 29,085 26,045
EO Items 0 -5,130 -3,188 1,992 -5,921 0 0 0 -6,326 -5,921
PBT (after EO Item) 8,263 1,817 2,083 10,596 3,786 5,898 3,267 7,174 22,759 20,124
Total Tax 2,480 546 -4,600 3,074 1,096 1,946 1,078 2,367 1,499 6,487
% Tax 30.0 30.0 -220.8 29.0 28.9 33.0 33.0 33.0 6.6 32.2
Reported PAT 5,783 1,271 6,684 7,522 2,690 3,951 2,189 4,806 21,260 13,637
Preference Dividend 70 70 70 70 70 70 70 70 279 279
Adjusted PAT 5,713 5,993 9,592 5,592 6,632 3,882 2,119 4,737 26,890 17,370
Change (YoY %) 66.6 82.6 155.7 -32.3 16.1 -35.2 -77.9 -15.3 36.5 -35.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Revenue to increase 10% YoY on higher steel sales: We expect standalone net sales to increase 10% YoY (fall 7%
QoQ) to INR83.6b due to lower steel realization and flat QoQ volumes. Average steel realization would fall 7%
QoQ to INR39,827/ton. Domestic steel pricing environment remained weak in 2QFY13; long and flat prices
decreased 9% and 10% QoQ, respectively.
EBITDA to decrease 19% QoQ: We expect JSTL's EBITDA to decline 19% QoQ to INR14.3b on lower realization and
higher iron ore cost. With rapidly depleting inventory at Karnataka, JSTL is forced to procure iron ore from
Odisha, which would result in higher raw material cost on account of transportation cost. We expect EBITDA/
ton to decrease 20% QoQ to USD123.
Low cost iron ore benefit faded permanently in Karnataka; maintain Sell: Availability of iron ore is likely to ease
post the starting of category A mines in Karnataka, but lower caps on volumes coupled with increased costs
such as FBT would result in higher iron ore prices. We believe that the benefit of low cost iron ore for steel mills
in Karnataka has faded permanently. We also expect steel prices to correct further and eat up any benefits on
account of lower coking coal prices. The stock trades at an expensive 10.3x FY14E EPS and an EV of 6x FY14E
EBITDA. Maintain Sell.
C–122October 2012
September 2012 Results Preview
Sector: Metals
Nalco
Bloomberg NACL IN
Equity Shares (m) 2,577.2
52 Week Range (INR) 68/48
1,6,12 Rel Perf (%) -6/-16/-32
Mcap (INR b) 131.8
Mcap (USD b) 2.5
CMP: INR51 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 59,590 10,703 4.2 33.2 - - 9.9 13.3 - -
3/12A 66,116 8,650 3.4 -19.2 15.2 1.1 7.6 10.0 1.2 7.2
3/13E 71,495 8,960 3.5 3.6 14.7 1.1 7.5 10.2 1.3 7.3
3/14E 77,506 8,448 3.3 -5.7 15.6 1.1 6.8 9.7 1.1 6.5
Consolidated
Quarterly performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Aluminium Sales ('000 tons) 109 101 98 107 102 103 105 107 415 417
Alumina Sales ('000 tons) 197 180 163 285 253 287 298 309 826 1,147
Avg LME Aluminium (USD/ton) 2,618 2,450 2,115 2,225 1,985 1,900 2,000 2,100 2,352 1,996
Alumina Exports (USD/ton) 428 448 358 343 341 304 320 336 394 325
Net Sales 17,625 16,139 14,509 17,845 17,481 16,991 17,833 19,190 66,118 71,495
Change (YoY %) 34.7 9.1 0.5 -2.2 -0.8 5.3 22.9 7.5 11.0 8.1
Total Expenditure 12,327 14,614 13,824 14,778 14,439 14,573 14,753 14,887 55,543 58,652
EBITDA 5,298 1,526 684 3,067 3,042 2,418 3,080 4,303 10,575 12,843
As % of Net Sales 30.1 9.5 4.7 17.2 17.4 14.2 17.3 22.4 16.0 18.0
Interest 0 0 1 8 32 0 0 0 9 32
Depreciation 1,019 1,179 1,235 1,232 1,224 1,230 1,236 1,242 4,666 4,931
Other Income 1,266 1,321 1,262 1,594 1,403 1,333 1,266 1,203 5,442 5,205
PBT 5,545 1,667 710 3,960 3,190 2,521 3,111 4,264 11,882 13,086
Total Tax 1,776 274 198 1,139 959 807 995 1,364 3,387 4,126
% Tax 32.0 16.4 27.9 28.8 30.1 32.0 32.0 32.0 28.5 31.5
Reported PAT 3,768 1,393 512 2,821 2,231 1,714 2,115 2,899 8,495 8,960
Adjusted PAT 3,768 1,393 512 2,437 2,231 1,714 2,115 2,899 8,109 8,960
Change (YoY %) 32.7 -37.8 -80.0 -20.2 -40.8 23.0 313.0 19.0 -24.2 10.5
E: MOSL Esitmates
BSE Sensex S&P CNX
18,763 5,703
Net sales to grow 5% YoY on higher alumina sales, despite lower LME prices: We expect net sales to grow 5% YoY
to INR17b on higher alumina volumes, despite lower realizations. LME prices have fallen 3% QoQ (20% YoY) to
USD1,912/ton. We expect average metal realization to decrease 3% QoQ to INR118,104/ton and alumina
realization to decrease 9% QoQ to INR16,872/ton. Alumina sales volume would grow 14% QoQ to 287k tons
while metal volumes would increase 1% QoQ to 103k tons.
EBITDA to decrease 21% QoQ: We expect EBITDA to decline 21% QoQ to INR2.4b on lower LME prices, despite
better volumes. Adjusted PAT would decline 23% QoQ to INR1.7b.
Power cost to remain high till Utkal coal block commissioning; maintain Neutral: NACL has been suffering on
account of high power cost and lower LME prices. It is unable to get sufficient linkage coal from Mahanadi Coal
Field and has to depend on high cost e-auction and imported coal. T ill the commissioning of Utkal coal block,
NACL will not be able to reap full benefits of its increased refining capacity and power capacity. Coal field
remains a risk. The stock trades at 15.6x FY14E EPS, 1.1x FY14E BV, and an EV of 6.5x FY14E EBITDA. Maintain
Neutral .
C–123October 2012
September 2012 Results Preview
Sector: Metals
NMDC
Bloomberg NMDC IN
Equity Shares (m) 3,964.7
52 Week Range (INR) 255/136
1,6,12 Rel Perf (%) -6/13/-29
Mcap (INR b) 768.4
Mcap (USD b) 14.6
CMP: INR194 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 113,689 64,992 16.4 88.8 - - 29.7 29.5 - -
3/12A 112,615 73,182 18.5 12.6 10.5 3.1 31.7 31.5 5.0 6.3
3/13E 126,708 81,052 20.4 10.8 9.5 2.6 28.3 28.2 4.2 5.4
3/14E 158,171 98,826 24.9 21.9 7.8 2.1 26.9 26.8 3.3 4.1
Consolidated
Quarterly performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales (m tons) 6.9 7.6 6.4 6.5 6.8 6.0 7.7 7.7 27.3 28.2
Avg Iron ore realisation (USD/t) 90 88 86 79 76 85 84 84 86 82
Net Sales 27,826 30,623 28,220 25,946 28,404 28,466 34,783 35,056 112,615 126,708
Change (YoY %) 10.5 24.5 7.7 -31.2 2.1 -7.0 23.3 35.1 -0.9 12.5
EBITDA 22,547 24,354 22,607 19,774 23,020 22,246 27,707 27,144 89,281 100,117
As % of Net Sales 81.0 79.5 80.1 76.2 81.0 78.1 79.7 77.4 79.3 79.0
EBITDA per ton (USD) 73 70 69 61 62 67 67 65 68 65
Interest 0 0 0 15 0 0 0 0 15 0
Depreciation 338 324 345 321 328 336 344 353 1,328 1,362
Other Income 4,418 5,029 5,254 5,468 5,521 5,705 5,937 6,222 20,169 23,385
PBT (before EO Item) 26,627 29,059 27,516 24,905 28,214 27,615 33,299 33,013 108,108 122,141
Extra-ordinary Income -513 -513
PBT (after EO Item) 26,627 29,059 27,516 24,392 28,214 27,615 33,299 33,013 107,595 122,141
Total Tax 8,615 9,428 8,928 7,970 9,154 9,389 11,322 11,224 34,941 41,089
% Tax 32.4 32.4 32.4 32.7 32.4 34.0 34.0 34.0 32.5 33.6
Reported PAT 18,012 19,632 18,588 16,423 19,060 18,226 21,977 21,789 72,654 81,052
Adjusted PAT 18,012 19,632 18,588 16,768 19,060 18,226 21,977 21,789 73,000 81,052
Change (YoY %) 19.8 42.4 22.4 -20.1 5.8 -7.2 18.2 29.9 12.3 11.0
E: MOSL Esitmates
BSE Sensex S&P CNX
18,763 5,703
Iron ore sales to decline 21% QoQ: We expect standalone net sales to decline 7% YoY (flat QoQ) to INR28.5b due
to lower iron ore sales. Production during the quarter was impacted due to heavy rains, leading to lower sales
volume. We expect iron ores sales volume to decrease 21% YoY to 6m tons. Iron ore realization is likely to
increase 17% YoY (15% QoQ) to INR4,744/ton.
EBITDA to decrease 3% QoQ: We expect EBITDA to decrease 3% QoQ to INR22.2b on lower iron ore volume and
higher operating cost. 1QFY13 margins were boosted by lower operating cost, especially royalty payments.
Domestic iron ore scenario favoring NMDC; maintain Buy: Declining grades and availability of iron ore, increased
regulatory vigil and increasing steel capacity has shifted the domestic iron ore demand-supply dynamics in
favor of NMDC. Despite falling iron ore prices internationally, NMDC is able to maintain its realization and
margins. It is our most preferred pick in the Metals space. We expect earnings to register a CAGR of 16% over
FY12-14 due to strong volume growth. The stock trades at 7.8x FY14E EPS, 2.1x FY14E BV, and an EV of 4.1x FY14E
EBITDA. Maintain Buy .
C–124October 2012
September 2012 Results Preview
Sector: Metals
Sesa Goa
Bloomberg SESA IN
Equity Shares (m) 869.1
52 Week Range (INR) 270/149
1,6,12 Rel Perf (%) -12/-19/-26
Mcap (INR b) 149.0
Mcap (USD b) 2.8
CMP: INR171 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 92,051 42,225 48.6 53.6 - - 40.0 47.3 - -
3/12A 83,101 27,616 31.8 -34.6 5.4 1.0 19.8 25.7 2.2 2.1
3/13E 39,514 31,359 36.1 13.6 4.8 1.0 20.6 19.5 4.6 5.5
3/14E 58,000 29,142 33.5 -7.1 5.1 0.9 18.7 18.9 3.2 4.5
Consolidated
Quarterly Performance (Consolidated) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Realization (USD/dmt) 102 84 93 102 99 80 62 58 99 74
Sales Qty ('000 dmt) 4,247 1,540 5,040 5,100 2,900 437 1,176 3,450 15,927 7,963
Net Sales 21,089 7,897 26,171 27,944 17,326 3,363 5,980 12,844 83,101 39,514
Change (YoY %) -12.6 -14.0 16.3 -22.9 -17.8 -57.4 -77.2 -54.0 -9.7 -52.5
EBITDA 11,474 2,600 10,852 11,579 6,762 1,001 1,845 3,861 36,505 13,469
As % of Net Sales 54.4 32.9 41.5 41.4 39.0 29.8 30.9 30.1 43.9 34.1
Interest 493 516 730 702 1,178 934 934 934 2,441 3,979
Depreciation 269 243 263 286 303 303 303 303 1,061 1,211
Other Income 1,521 504 180 141 151 129 77 39 2,346 397
PBT (before XO item) 12,232 2,345 10,039 10,732 5,432 -106 686 2,664 35,348 8,676
EO -15 -2,341 -1,779 79 -2,522 0 0 0 -4,056 -2,522
PBT (after XO item) 12,217 4 8,260 10,811 2,910 -106 686 2,664 31,292 6,154
Total Tax 3,811 -9 2,564 3,848 922 -32 206 799 10,214 1,895
% Tax 31.2 -245.9 31.0 35.6 31.7 30.0 30.0 30.0 32.6 30.8
Reported PAT before MI 8,406 13 5,696 6,963 1,988 -74 480 1,865 21,078 4,259
Profit from associates 0 0 1,219 4,658 7,652 5,696 5,708 5,523 5,877 24,578
Adjusted PAT 8,421 2,354 8,695 11,542 11,362 5,621 6,188 7,388 31,012 30,582
Change (YoY %) -39.7 -33.0 -18.4 -20.9 34.9 138.8 -28.8 -36.0 -27.2 -1.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Revenue to decline 57% YoY: We expect SESA's revenue to decline 57% YoY to INR3.4b due to lower sales
volumes. The Goa government temporarily suspended all mining operations in the state in September. The
announcement was followed by suspension of environmental clearances for iron ore mines in Goa by MoEF.
We expect iron ore sales volumes to decrease 72% YoY in 2QFY13 to 437k tons due to suspension of mining in
Goa. Average iron ore realization is likely to decline 19% QoQ to USD80/ton due to significant decline in
international iron ore prices in 2QFY13. Average iron ore spot prices in China have declined 18% YoY to USD118/
ton CFR.
EBITDA to decline 85% QoQ: We expect EBITDA to decline 85% QoQ to INR1b and EBIT/ton to decline 28% QoQ
to USD22 due to lower iron ore realization.
FY13 volumes at risk on Goa mining suspension; maintain Neutral: We have cut our volume assumption for FY13
from 14.7m tons to 7.9m tons due to Goa mining suspension. We are still maintaining our FY14 volume estimate
of 15.7m tons, which is contingent on restarting of mining in Goa (13.5m tons) and Karnataka (2.2m tons). The
stock trades at 5.1x FY14E EPS, 0.9x FY14E BV, and an EV of 4.5x FY14E EBITDA. We upgrade the stock to Buy , based
on the valuation of the Sesa-Sterlite merged entity.
C–125October 2012
September 2012 Results Preview
Sector: Metals
Steel Authority of India
Bloomberg SAIL IN
Equity Shares (m) 4,130.4
52 Week Range (INR) 117/73
1,6,12 Rel Perf (%) -3/-17/-34
Mcap (INR b) 352.9
Mcap (USD b) 6.7
CMP: INR85 Sell
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 428,144 49,466 12.0 -27.4 - - 13.9 13.9 - -
3/12A 463,726 37,174 9.0 -24.8 9.5 0.9 9.6 10.1 1.0 7.4
3/13E 439,733 27,527 6.7 -26.0 12.8 0.8 6.7 7.4 1.2 8.9
3/14E 483,437 35,442 8.6 37.7 10.0 0.8 8.2 8.2 1.2 7.3
Consolidated
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales (m tons) 2.75 2.85 2.60 3.20 2.50 2.70 3.0 3.2 11.4 11.4
Realization (INR per ton) 40,689 39,289 42,476 42,787 43,110 39,960 37,800 37,044 41,336 39,264
Change (YoY %) 3.4 10.2 22.0 10.6 5.9 1.7 -11.0 -13.4 11.8 -5.0
Net Sales 111,896 111,973 110,437 136,920 107,775 107,892 113,400 118,541 471,226 447,608
Change (%) 22.5 3.6 -2.4 12.9 -3.7 -3.6 2.7 -13.4 8.6 -5.0
EBITDA 13,114 13,271 15,811 18,713 15,153 13,918 13,222 17,854 60,909 60,147
Change (YoY %) -28.8 -21.7 -12.0 -15.4 15.5 4.9 -16.4 -4.6 -19.3 -1.3
As % of Net Sales 11.7 11.9 14.3 13.7 14.1 12.9 11.7 15.1 12.9 13.4
EBITDA per ton (USD) 107 102 119 117 111 93 82 103 111 97
Interest 1,710 2,000 1,855 1,210 1,249 1,499 2,411 2,878 6,774 8,036
Depreciation 3,742 3,938 4,093 3,891 4,018 4,871 5,070 5,922 15,664 19,881
Other Income 4,630 4,903 3,837 2,156 2,785 1,599 1,469 1,352 15,526 7,205
PBT (after EO Inc.) 12,293 7,149 9,037 23,014 10,101 9,148 7,211 10,407 51,493 36,866
Total Tax 3,913 2,203 2,716 7,244 3,137 2,744 2,163 3,122 16,076 11,166
% Tax 31.8 30.8 30.1 31.5 31.1 30.0 30.0 30.0 31.2 30.3
Reported PAT 8,381 4,946 6,321 15,770 6,964 6,403 5,048 7,285 35,418 25,700
Adjusted PAT 8,381 10,034 10,984 8,524 8,833 6,377 5,027 7,255 37,140 27,491
Change (YoY %) -28.8 -7.9 -0.8 -38.1 5.4 -36.4 -54.2 -14.9 -22.5 -26.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Net sales to decline 4% YoY on lower volumes: We expect net sales to decline 4% YoY (flat QoQ) to INR108b due
to lower saleable steel volumes. Sales volumes are likely to decrease 5% YoY to 2.7m tons. Realization would be
up 2% YoY (down 7% QoQ) to INR39,960/ton. The domestic steel pricing environment remained weak in 2QFY13;
long and flat prices decreased 9% and 10% QoQ, respectively. Global steel prices have also shown downward
bias. Average steel prices have decreased 8%, 4%, 14% and 4% QoQ, respectively in Russia, Europe, China and
North America
Margins to shrink 16% QoQ to USD93/ton: We expect EBITDA/ton to decline 16% QoQ to USD93/ton due to
lower realization. We expect the benefits of lower coking coal prices to accrue slowly but downward pressure
on realization would overshadow any incremental benefit. Other income would fall by 43% QoQ to INR1.6b, as
cash is used to support capex.
Steel volumes to remain flat in FY13; maintain Sell: We expect earnings to decline at 2% per annum over FY12-
14 despite 10% CAGR in volumes due to SAIL's uncompetitive cost structure, execution delays, decline in steel
realization and poor operating efficiencies. The full benefits of the INR720b capex will be seen only in FY15. The
stock still appears expensive at 10x FY14E EPS and an EV of 7.3x FY14E EBITDA. Maintain Sell.
C–126October 2012
September 2012 Results Preview
Sector: Metals
Sterlite Industries
Bloomberg STLT IN
Equity Shares (m) 3,361.2
52 Week Range (INR) 138/86
1,6,12 Rel Perf (%) -11/-19/-31
Mcap (INR b) 333.9
Mcap (USD b) 6.3
CMP: INR99 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 304,285 50,993 15.2 26.2 - - 13.9 15.2 - -
3/12A 411,789 56,058 16.7 9.9 6.0 0.8 14.1 15.1 0.7 4.0
3/13E 421,214 54,883 16.3 -2.1 6.1 0.7 12.4 13.7 0.7 3.8
3/14E 463,018 59,632 17.7 8.7 5.6 0.7 12.3 14.0 0.6 3.5
Consolidated
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Copper cathode ('000 tons) 74 87 84 80 88 88 82 82 325 340
Aluminum (BALCO, '000 tons) 61 60 63 62 60 61 62 61 246 260
Aluminum (VAL , '000 tons) 112 89 107 115 124 124 124 124 423 500
Net Sales 98,607 101,957 103,037 108,189 106,484 104,064 103,006 107,660 411,789 421,214
Change (YoY %) 65.2 67.6 23.7 7.6 8.0 2.1 0.0 -0.5 35.3 2.3
EBITDA 27,583 24,820 23,183 27,054 23,083 24,805 28,205 29,641 102,640 105,734
As % of Net Sales 28.0 24.3 22.5 25.0 21.7 23.8 27.4 27.5 24.9 25.1
Interest 1,740 1,549 1,573 3,280 2,419 2,501 2,601 2,701 8,142 10,223
Depreciation 4,200 4,450 4,575 5,072 5,182 5,268 6,018 6,768 18,298 23,234
Other Income 7,646 8,002 8,768 7,035 9,484 8,107 8,236 8,524 31,452 34,350
PBT (before XO item) 29,289 26,823 25,803 25,737 24,966 25,143 27,822 28,696 107,652 106,626
Extra-ordinary Exp. 726 -4,339 -4,318 -1,005 -2,174 0 0 0 -8,936 -2,174
PBT (after XO item) 30,015 22,485 21,484 24,733 22,792 25,143 27,822 28,696 98,717 104,452
Total Tax 6,137 5,049 5,053 4,867 3,339 5,783 6,677 7,174 21,106 22,973
% Tax 20.4 22.5 23.5 19.7 14.7 23.0 24.0 25.0 21.4 22.0
Reported PAT 23,878 17,436 16,431 19,866 19,453 19,360 21,145 21,522 77,611 81,479
Minority interest Profit/ (Loss) 6,420 5,030 4,660 5,499 5,771 4,706 5,721 5,670 21,609 21,867
Loss/(profit) of Associates 1,061 1,812 2,636 1,598 1,666 2,001 1,746 1,490 7,107 6,903
Adjusted PAT 15,672 14,932 13,453 13,774 14,190 12,653 13,678 14,361 57,831 54,883
Change (YoY %) 81.7 48.1 21.7 -20.5 -9.5 -15.3 1.7 4.3 22.8 -5.1
Avg LME Aluminium (USD/T) 2,618 2,450 2,090 2,225 1,985 1,900 2,000 2,100 2,346 1,996
Avg LME Copper (USD/T) 9,163 8,993 7,530 8,318 7,890 7,700 8,000 8,000 8,501 7,898
Avg LME Zinc (USD/T) 2,271 2,247 1,917 2,050 1,938 1,900 1,900 1,900 2,121 1,910
E: MOSL Estimate
BSE Sensex S&P CNX
18,763 5,703
Net sales to decrease 2% QoQ: We expect consolidated net sales to decline 2% QoQ (increase 2% YoY) to
INR104b on lower base metal prices. LME prices for all base metals have declined 0-3% QoQ. Refined zinc and
lead production would be 1% lower QoQ at 184k tons. Aluminum production from Balco is likely to increase 2%
QoQ to 61k tons. Copper cathode production would increase 1% QoQ to 88k tons.
EBITDA to grow 7% QoQ: We expect EBITDA to grow 7% QoQ (flat YoY) to INR24.8b on a lower base of 1QFY13,
when copper business was impacted by lower by-product realizations. Copper EBIT is likely to increase 29%
QoQ to INR2.6b. Aluminum (Balco) EBIT would decline to a negative INR358m on account of lower LME prices.
EBIT from the Power segment would grow 38% QoQ to INR2.6b.
Maintain Buy: We expect adjusted PAT to grow at a CAGR of just 3% over FY12-14 to INR59.6b due to project
commissioning delays, lower LME prices and higher raw material costs (coal and bauxite). Domestic zinc
production growth would be moderate, as mine production has witnessed some setbacks recently. However,
valuations remain attractive. The stock trades at 5.6x FY14E EPS and an EV of 3.5x FY14E EBITDA. Maintain Buy.
C–127October 2012
September 2012 Results Preview
Sector: Metals
Tata Steel
Bloomberg TATA IN
Equity Shares (m) 971.4
52 Week Range (INR) 501/332
1,6,12 Rel Perf (%) -1/-22/-20
Mcap (INR b) 389.3
Mcap (USD b) 7.4
CMP: INR401 Sell
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 1,187,531 59,724 62.3 -n/a- - - 40.5 13.2 - -
3/12A 1,328,997 18,054 18.6 -70.1 21.6 1.5 7.8 9.1 0.7 7.3
3/13E 1,354,936 30,279 31.2 67.7 12.9 1.4 11.5 8.8 0.7 6.8
3/14E 1,372,147 55,029 56.6 81.7 7.1 1.2 18.9 10.5 0.7 6.1
Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales ('000 tons) 1,593 1,648 1,622 1,768 1,590 1,650 1,900 2,350 6,631 7,490
Avg Seg. Realization (INR/tss) 45,832 46,402 47,340 49,103 51,530 48,840 45,900 44,982 47,214 47,455
Net Sales 78,603 82,119 83,819 94,794 89,080 86,509 94,549 113,509 339,335 383,647
Change (YoY %) 20.0 15.6 13.3 13.7 13.3 5.3 12.8 19.7 15.4 13.1
EBITDA 31,148 27,698 26,441 29,916 29,768 28,703 27,151 31,074 115,368 116,696
(% of Net Sales) 39.6 33.7 31.5 31.6 33.4 33.2 28.7 27.4 34.0 30.4
EBITDA(USD/tss) 419 357 305 324 324 304 251 223 347 268
Interest 4,537 2,343 4,811 5,140 4,544 5,460 5,559 5,657 19,254 21,221
Depreciation 2,853 2,871 2,891 2,900 3,544 3,886 4,132 4,379 11,514 15,941
Other Income 2,564 236 1,976 1,829 1,519 1,848 1,857 1,866 8,864 7,090
PBT (after EO Inc.) 30,482 22,720 20,716 23,706 21,229 21,204 19,317 22,904 97,624 84,654
Total Tax 8,288 7,767 6,503 8,101 7,663 5,513 4,443 4,810 30,659 22,429
% Tax 27.2 34.2 31.4 34.2 36.1 26.0 23.0 21.0 31.4 26.5
Reported PAT 22,194 14,952 14,213 15,605 13,566 15,691 14,874 18,094 66,964 62,225
Adjusted PAT 18,034 14,952 14,213 15,605 15,536 15,691 14,874 18,094 62,804 64,195
Consolidated Financials
Net Sales 330,002 327,979 331,031 339,986 338,212 312,934 338,232 365,559 1,328,997 1,354,936
EBITDA 44,572 27,500 19,133 31,788 36,003 28,051 37,967 40,068 124,168 142,088
Reported PAT (before MI & asso.) 52,937 1,390 -6,874 2,032 5,170 238 11,017 12,212 49,485 28,637
Adj. PAT (after MI & asso) 19,846 2,124 -6,027 4,335 7,949 791 11,469 12,686 20,279 32,895
E: MOSL Estimates; tss=ton of steel sales
BSE Sensex S&P CNX
18,763 5,703
Tata Steel India (TSI): We expect net revenue to increase 5% YoY (fall 3% QoQ) to INR86.5b due to increase of 5%
YoY (decline of 5% QoQ) in steel realization and flat YoY volumes. Sales volumes are likely to remain flat YoY
(increase 4% QoQ) to 1.65m tons in 2QFY13. Average steel price realization is expected to be INR48,840/ton.
Domestic steel pricing environment remained weak in 2QFY13; long and flat prices decreased 9% and 10% QoQ,
respectively. We expect EBITDA to decline 4% QoQ to INR28.7b and EBITDA/ton to decline 6% QoQ to USD304/
ton.
TSE and others: We expect Tata Steel Europe (TSE) and other subsidiaries to report negative EBITDA due to
declining realization in Europe. Average steel prices declined 4% QoQ in 2QFY13 in Europe. We expect EBITDA/
ton to decrease from USD28 in 1QFY13 to a negative USD3 in 2QFY13. We also expect steel shipments to decline
16% YoY (8% QoQ) to 3.8m tons, as demand is very weak in Europe.
Steel environment challenging, price outlook negative; maintain Sell: We expect further correction in steel
prices due to weak demand in developed regions, correction in raw material prices and slowdown in Chinese
steel consumption, which has been the major demand driver so far. Though TSE's converter model will enable
it to get benefits of lower raw material prices, lower realization will eat away the gains. TSI margins are also
likely to decline in FY13 and FY14 due to higher proportion of purchased coking coal in the mix and lower
realization. The stock trades at 7.1x FY14E EPS, 1.2x FY14E BV, and an EV of 6.1x FY14E EBITDA. Maintain Sell.
C–128October 2012
September 2012 Results Preview
Sector: Oil & Gas
Oil & GasCompany Name
BPCL
Cairn India
Chennai Petroleum
GAIL
Gujarat State Petronet
HPCL
IOC
Indraprastha Gas
MRPL
Oil India
ONGC
Petronet LNG
Reliance Industries
GRM up 36% QoQ, but YTD, both oil and GRM down 5% : Brent average crude price for
2QFY13 was marginally up 1% QoQ to USD110/bbl. However, volatility was high, led by
Eurozone uncertainty, geopolitical developments, and QE3. Brent, after hitting a low
of USD89/bbl in June-12, again rose to high of USD116/bbl in mid-Aug, before settling
at current levels of USD111/bbl.
Similar to oil, product cracks also were volatile with regional benchmark, Reuters
Singapore GRM averaging USD9.1/bbl v/s USD6.7/bbl in 1QFY13. Unless meaningful
refinery closures happen, we expect margins to remain subdued as global utilization
is likely to remain low led by lower demand and commissioning of new refineries.
Petchem spreads subdued: In 2QFY13, polymer spreads over naphtha are down 7-8%
QoQ, while integrated polyester spreads are down 2-4% QoQ. However, YoY, PE spreads
are up 24% and PP spreads 7%. Polymer margins seem to have bottomed out and are
expected to slowly recover, contingent on the global economic growth.
Lower LPG losses help QoQ drop in under-recoveries: We estimate 2QFY13 under-
recoveries at INR390b, down 18% QoQ, primarily helped by lower LPG losses due to
lower international prices. As the recent government decision to increase diesel price
by INR5/ltr and limit subsidized LPG cylinder was effected on 13 September 2012, the
meaningful positive impact of the same will be seen in subsequent quarters. Subsidy
sharing would be again ad hoc as in the previous years, and it will be finalized in the
last quarter. We model upstream sharing at 40% and downstream sharing at nil/8% for
FY13/FY14, with the balance being the government's share.
Valuation and view: Recent diesel price hike and limiting subsidized LPG cylinders
will reduce under-recoveries. However, FY13 estimated under-recoveries remain high
at INR1.6t (+14% YoY) v/s INR1.4t in FY12. Nevertheless, OMC stocks are at attractive
valuations and BPCL is our top pick for its E&P upside potential.
Harshad Borawake ([email protected])
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
BPCL 346 Buy 571,811 35.2 4.9 17,903 LP LP 10,183 LP LP
Cairn India 331 Neutral 48,725 83.7 9.7 37,609 78.8 7.7 28,308 271.0 -26.0
Chennai Petroleum 129 Buy 100,501 6.7 -8.9 4,499 LP LP 2,962 304.7 LP
GAIL 383 Neutral 111,932 15.4 0.9 13,935 -15.5 -26.6 8,364 -23.6 -26.2
Gujarat State Petronet 81 Neutral 2,426 -13.6 -9.3 2,218 -14.2 -10.0 1,085 -16.1 -13.1
HPCL 307 Buy 496,111 34.0 12.6 16,697 LP LP 11,403 LP LP
IOC 251 Buy 1,115,444 25.1 15.5 62,858 LP LP 41,570 LP LP
Indraprastha Gas 265 Under Review8,530 42.9 12.2 1,861 18.3 3.8 866 12.2 1.9
MRPL 61 Neutral 168,502 44.4 31.5 9,306 1134.8 LP 8,361 3365.2 LP
Oil India 490 Buy 25,886 -20.8 10.9 12,679 -21.7 15.7 9,399 -17.4 1.1
ONGC 280 Buy 217,664 -3.8 8.4 119,438 -15.6 8.2 64,009 -25.9 5.3
Petronet LNG 158 Buy 81,708 52.2 16.2 4,380 -2.3 -4.2 2,616 0.5 -3.4
Reliance Inds. 837 Neutral 937,028 19.3 2.0 82,024 -16.7 21.6 55,482 -2.7 24.0
Oil & Gas Sector Aggregate 3,886,267 24.3 8.9 385,406 101.9 LP 244,609 539.3 LP
Oil & Gas Excl. RMs 1,702,901 18.1 5.3 287,949 -4.4 24.8 181,453 1.3 25.7
C–129October 2012
September 2012 Results Preview
Sector: Oil & Gas
Crude price average largely flatQoQ (USD/bbl) Brent-WTI spread average at USD17.7/bbl in 2QFY13 (USD/bbl)
GRM up QoQ; crude average remains largely flat
Singapore GRM up 36% QoQ to USD9.1/bbl in 2QFY13 (USD/bbl) Auto fuel cracks meaningfully up QoQ (USD/bbl)
Our key assumptions
Our crude price assumption for FY13/14/15 is USD110/105/
100/bbl and USD90/bbl over long term.
We expect regional benchmark Singapore Reuters GRM
to remain in the USD7-9/bbl range for the near term.
We model Singapore GRM at USD8/bbl in FY13 and FY14.
Arab L-H differential lower by USD0.7/bbl in 2QFY13 (USD/bbl)
Valuations are also attractive for upstream companies, ONGC and Oil India. Likely
further policy actions to reduce under-recoveries augurs well for them too.
We maintain Neutral on GAIL and GSPL due to headwinds on incremental gas
availability in the medium term. In contrast, domestic gas scarcity is a positive for
Petronet LNG.
RIL's new mega projects (petcoke gasification and off-gases cracker) are likely to
add to earnings from FY15/FY16. However, the medium-term outlook on core
business remains weak with RoE reaching sub-15%. Neutral.
Source: Reuters/Bloomberg/MOSL
0
40
80
120
160
Sep-04 Sep-06 Sep-08 Sep-10 Sep-12-40
-25
-10
5
20
Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
9.1
4.9
8.1 9.1
6.77.58.0
8.6
7.4
5.5
4.23.7
1.9
3.2
4.1
5.5
3.6
5.87.0
7.7
6.4
9.5
6.8
3.9
4.7
8.9
4.6
6.3
8.0
7.2
6.2
8.8
6.6
2QF
Y05
4QF
Y05
2QF
Y06
4QF
Y06
2QF
Y07
4QF
Y07
2QF
Y08
4QF
Y08
2QF
Y09
4QF
Y09
2QF
Y10
4QF
Y10
2QF
Y11
4QF
Y11
2QF
Y12
4QF
Y12
2QF
Y13
Singapore GRM (Qtr Avg)
-6.4
-0.6
20.519.5
-31.9
12.6
-45
-30
-15
0
15
30
Gas ol ine Naphtha LPG Diesel Jet/Kero Fuel Oi l
2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
0
2
4
6
8
10
Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12
C–130October 2012
September 2012 Results Preview
Sector: Oil & Gas
Polymer spreads decline QoQ in 2QFY13 (INR/kg) POY/PSF spreads largely flat QoQ (INR/kg)
2QFY13 under-recoveries down 18% QoQ to INR390b; we model upstream share at 40% in FY13
(INR b) FY09 FY10 FY11 FY12 1QFY13 2QFY13E FY13E FY14E
Fx Rate (INR/USD) 46.0 47.5 45.6 47.9 54.2 55.5 54.4 53.0
Brent (USD/bbl) 84.8 69.6 86.3 114.5 108.7 110.2 110.0 105.0
Gross Under recoveries (INR b)
Auto Fuels 575 144 375 812 290 243 968 695
Domestic Fuels 458 316 405 573 188 147 610 508
Total 1,033 461 780 1,385 478 390 1,577 1,203
Sharing (INR b)
Oil Bonds/Cash 713 260 410 835 0 242 946 626
Upstream 329 145 303 550 151 148 631 481
OMC's sharing -9 56 67 0 324 0 0 96
Total 1,033 461 780 1,385 475 391 1,577 1,203
Sharing (%)
Government 69 56 53 60 0 62 60 52
Upstream 32 31 39 40 32 38 40 40
OMC's sharing -1 12 9 0 68 0 0 8
Total 100 100 100 100 100 100 100 100
Source: Company/MOSL
Source: Company/MOSL
Petchem margins weak on QoQ basis in 2QFY13 (INR/kg)
(RIL basic prices) Simple spreads Integrated spreads
PE PP PVC POY PSF Naphtha PE PP PVC POY PSF
2QFY11 70.1 72.4 52.0 69.7 68.9 31.2 38.9 41.3 20.8 45.2 44.3
3QFY11 73.4 76.1 53.3 79.8 80.8 36.4 37.0 39.7 16.9 51.0 52.0
4QFY11 74.3 81.9 53.5 97.1 103.8 41.9 32.4 40.0 11.6 64.2 70.9
1QFY12 76.6 87.9 60.7 95.1 104.4 44.8 31.8 43.0 15.8 59.8 69.1
2QFY12 76.3 81.9 57.3 89.3 93.4 44.1 32.1 37.8 13.2 54.4 58.5
3QFY12 80.3 84.0 53.5 91.2 97.1 45.6 34.7 38.5 7.9 55.2 61.1
4QFY12 83.4 84.1 56.2 91.7 96.4 51.9 31.4 32.1 4.2 50.5 55.2
1QFY13 91.9 92.1 61.8 92.4 95.8 48.5 43.3 43.5 13.3 54.0 57.4
2QFY13 91.2 91.9 63.5 93.8 96.2 51.3 39.9 40.6 12.2 53.0 55.4
QoQ (%) -0.7 -0.2 2.7 1.5 0.4 5.7 -7.9 -6.8 -8.3 -1.9 -3.5
YoY (%) 19.6 12.2 10.8 5.0 2.9 16.2 24.2 7.4 -7.6 -2.6 -5.4
Source: Bloomberg/MOSL
Relative Performance-3m (%)
Relative Performance-1Yr (%)
95
100
105
110
Jun-
12
Jul-
12
Aug
-12
Sep-
12
Sensex IndexMOSL Oi l & Gas Index
80
90
100
110
120
Sep
-11
De
c-1
1
Mar
-12
Jun
-12
Sep
-12
Sensex Index
MOSL Oi l & Gas Index
0
15
30
45
60
2Q
FY1
1
3Q
FY1
1
4Q
FY1
1
1Q
FY1
2
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2Q
FY1
3
PE PP PVC
20
35
50
65
802Q
FY11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
POY PSF
C–131October 2012
September 2012 Results Preview
Sector: Oil & Gas
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Oil & Gas
BPCL 346 Buy 10.8 21.6 21.5 32.1 16.1 16.1 11.5 8.5 8.8 5.0 9.5 8.9
Cairn India 331 Neutral 48.7 64.2 54.0 6.8 5.2 6.1 5.3 3.5 3.4 21.0 23.1 16.7
Chennai Petroleum 129 Buy 4.2 13.8 34.5 31.1 9.4 3.7 50.9 9.8 5.3 1.6 5.3 12.5
GAIL 383 Neutral 28.8 31.0 32.1 13.3 12.3 11.9 9.6 9.0 8.7 17.9 17.2 16.0
Guj. State Petronet 81 Neutral 9.3 7.7 7.6 8.7 10.4 10.5 5.4 5.9 5.8 23.4 16.4 14.3
HPCL 307 Buy 26.9 24.5 27.4 11.4 12.5 11.2 12.6 11.3 9.0 7.1 6.2 6.6
Indraprastha Gas 265 UR 21.9 25.3 28.0 12.1 10.5 9.5 6.4 5.5 4.8 27.5 26.4 24.7
IOC 251 Buy 49.2 24.4 30.3 5.1 10.2 8.3 8.1 8.9 7.0 20.2 9.5 11.0
MRPL 61 Neutral 5.2 2.9 8.5 11.7 21.2 7.2 6.5 7.3 4.6 13.2 6.8 18.2
Oil India 490 Buy 57.3 58.7 64.7 8.5 8.3 7.6 3.9 3.7 3.3 20.7 18.7 18.4
ONGC 280 Buy 30.4 29.8 33.4 9.2 9.4 8.4 3.7 3.7 3.1 20.7 17.7 17.8
Petronet LNG 158 Buy 14.1 13.1 15.0 11.2 12.1 10.5 7.6 7.9 5.9 34.1 25.1 23.8
Reliance Inds. 837 Neutral 67.7 67.8 69.7 12.4 12.3 12.0 8.0 9.3 8.9 13.0 11.7 11.0
Sector Aggregate 9.9 10.3 9.6 6.2 6.2 5.5 15.8 13.9 13.4
Oil & Gas Ex RMS 10.5 10.1 9.6 5.6 5.6 5.0 16.0 14.9 14.1
Lower Light-Heavy spreads to pressure RIL premium(USD/bbl) Cairn's Rajasthan production likely to average 173kbpd
Source: Company/MOSL
ONGC's net realization estimated at USD53/bbl GAIL transmission volumes under pressure (mmscmd)
Source: Company/MOSL
97107 109 115 116 115 120 120 117 119 119 116
110 109
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY10 FY11 FY12 FY13
58.356.457.751.448.162.764.8
38.748.183.7
45.044.346.653.3
14.119.027.732.816.524.370.1
73.233.2
66.877.363.359.4
2.3
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY10 FY11 FY12 FY13
Net Realizat ion (USD/bbl) Subsidy Burden (USD/bbl)
45
116125 118 125 125 125
138
167 173
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY11 FY12 FY13
-5
0
5
10
15
20
1234123412341234123412341234123412341234123412
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12FY13
Premium/ (discount) Singapore GRM (Qtr Avg)
RIL
C–132October 2012
September 2012 Results Preview
Sector: Oil & Gas
BPCL
Bloomberg BPCL IN
Equity Shares (m) 723.0
52 Week Range (INR) 395/230
1,6,12 Rel Perf (%) -9/-6/-6
Mcap (INR b) 250.4
Mcap (USD b) 4.8
CMP: INR346 BuyYear Net Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR b) (INR b) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 1,536 16.3 22.6 0.2 - - 11.1 5.5 - -
03/12A 2,121 7.8 10.8 -52.2 32.1 1.6 5.0 5.2 0.3 11.5
03/13E 2,455 15.6 21.6 99.8 16.1 1.5 9.5 7.4 0.2 8.5
03/14E 2,339 15.6 21.5 -0.1 16.1 1.4 8.9 6.5 0.2 8.8
* Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 461,177 422,819 588,245 646,422 545,227 571,811 662,679 571,855 2,118,662 2,351,572
Change (%) 34.7 19.7 60.4 42.9 18.2 35.2 12.7 -11.5 39.9 11.0
EBITDA -21,861 -27,148 36,874 50,571 -81,757 17,903 56,235 53,889 38,436 46,270
Change (%) nm nm 406.3 207.6 nm nm 52.5 6.6 12.6 20.4
% of Sales -4.7 -6.4 6.3 7.8 -15.0 3.1 8.5 9.4 1.8 2.0
Depreciation 4,901 4,600 4,667 4,681 4,801 4,950 5,245 5,564 18,849 20,560
Interest 3,349 4,532 5,174 4,941 5,205 5,215 5,200 5,000 17,996 20,619
Other Income 4,492 3,987 4,389 4,382 3,395 4,991 3,707 2,308 17,250 14,402
PBT -25,619 -32,293 31,422 45,331 -88,368 12,729 49,497 45,634 18,842 19,493
Tax 0 0 26 5,703 0 2,546 9,899 -6,013 5,729 6,433
Tax rate (%) 0.0 0.0 0.1 12.6 0.0 20.0 20.0 -13.2 30.4 33.0
PAT -25,619 -32,293 31,396 39,628 -88,368 10,183 39,598 51,646 13,113 13,060
Change (%) nm nm 1,575.5 323.8 nm nm 26.1 30.3 -15.2 -0.4
Adj. PAT -25,619 -32,293 31,396 39,628 -88,368 10,183 39,598 51,646 13,113 13,060
Adj. EPS -35.4 -44.7 43.4 54.8 -122.2 14.1 54.8 71.4 18.1 18.1
Key Assumption (INR b)
Gross under recovery 103 49 76 98 116 93 91 93 326 393
Upstream sharing 34 16 36 43 37 35 41 43 130 156
Govt. sharing 35 0 70 92 0 58 90 90 197 237
Net Under/(Over) recovery 34 32 -29 -36 80 0 -40 -40 0 0
As a % of Gross 32.6 66.3 nm nm 68.5 0.1 nm nm 0.0 nm
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which
is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.
OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the
quarter-end, and (b) forex gain as rupee has appreciated by ~4%.
2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily
due to lower LPG prices and diesel price hike effected on 13 September 2012.
For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing
at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.
We expect BPCL to report PAT of INR10b v/s loss of INR32.3b in 2QFY12 and INR88.4b in 1QFY13.
Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations and (c) GRM.
Adjusted for investment value of INR187/sh (E&P, Bina and other listed investments post 25% discount), the
stock trades at FY13E P/B of INR0.7x. Buy.
C–133October 2012
September 2012 Results Preview
Sector: Oil & Gas
Cairn India
Bloomberg CAIR IN
Equity Shares (m) 1,907.4
52 Week Range (INR) 401/258
1,6,12 Rel Perf (%) -9/-12/4
Mcap (INR b) 630.9
Mcap (USD b) 12.0
CMP: INR331 NeutralYear Net Sales PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) BOE (1P)EBITDA
03/11A 102,779 63,343 33.3 502.6 - - 17.1 17.9 18.5 -
03/12A 131,130 92,929 48.7 46.3 6.8 1.3 21.0 20.3 16.2 5.3
03/13E 188,419 122,387 64.2 31.7 5.2 1.1 23.1 23.9 12.7 3.5
03/14E 184,280 102,970 54.0 -15.9 6.1 1.0 16.7 18.5 11.5 3.4
*Consolidated
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 37,127 26,522 30,968 36,513 44,400 48,725 47,238 48,055 131,130 188,419
Change (%) 341.7 -1.3 0.0 -0.1 19.6 83.7 52.5 31.6 27.6 43.7
EBITDA 31,748 21,040 25,456 29,812 34,921 37,609 36,028 37,075 108,056 145,633
D,D & A (inc. w/off) 3,647 3,531 5,550 4,663 4,726 4,963 6,450 7,196 17,391 23,335
Interest 446 1,228 240 305 295 50 0 0 2,220 345
Other Income (Net) 528 620 1,124 923 964 1,476 1,597 1,809 3,194 5,846
Forex Fluctuations -8 5,310 3,015 -2,170 8,663 -2,752 0 0 6,148 5,910
Exceptional items 13,552 13,552 0
PBT 28,175 22,211 23,803 23,598 39,528 31,319 31,175 31,688 97,787 133,710
Tax 909 1,029 1,184 1,735 1,271 3,011 2,806 4,236 4,857 11,323
Tax rate* (%) 3.2 6.1 5.7 6.7 4.1 8.8 9.0 13.4 5.3 8.9
PAT 27,266 7,630 22,619 21,862 38,257 28,308 28,369 27,452 79,378 122,387
YoY Change (%) 868.9 -51.9 12.5 -11.0 40.3 271.0 25.4 25.6 25.3 54.2
EPS 14.3 4.0 11.9 11.5 20.1 14.8 14.9 14.4 41.6 64.2
Key Assumptions and Cain's share in production (kboepd)
Exchange rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4
Brent Price (USD/bbl) 116.8 112.9 109.3 118.8 108.7 110.2 110.0 111.1 114.5 110.0
Ravva and Cambay Prodn. 12.1 11.5 11.4 10.9 10.2 10.2 10.2 10.2 11.5 10.2
Rajasthan Production 87.6 87.7 87.6 96.3 117.0 121.1 122.5 123.8 89.8 121.1
Total 99.6 99.2 99.0 107.3 127.2 131.3 132.7 134.0 101.3 131.3
E: MOSL Estimates; * Excluding forex fluctuations, includes MAT credit.
BSE Sensex S&P CNX
18,763 5,703
We expect Cairn India to report net sales of INR48.7b (v/s INR44.4b in 1QFY13), led by higher average production
at its Rajasthan block. We estimate EBITDA at INR37.6b v/s INR21b in 2QFY12 and INR35b in 1QFY13.
We estimate gross oil sales of 173kbpd from Rajasthan field and total net sales of 131kboepd (v/s 99.2kboepd in
2QFY12 and 127kboepd in 1QFY13).
We expect Other income to increase led by higher cash balance. We estimate forex loss of INR2.7b v/s gain of
INR8.7b in 1QFY13 due to ~4% QoQ rupee appreciation v/s 10% depreciation in 1QFY13.
The company's near-term focus areas are: (1) debottlenecking of its pipeline, (2) production ramp-up, (3)
approvals on further exploration in Rajasthan, and (4) maiden dividend.
We model in Brent crude price of USD110/105/105bbl in FY13/14/15 and long-term price of USD90/bbl, and take
a quality discount for Cairn India of 10.5% in FY13 and 12% long-term. We have assumed FY13 tax rate of 9% at
the upper end of management guidance of 5-9%.
Key things to watch out for: (a) Net realization, (b) Forex fluctuations.
The stock currently trades at 5.2x FY13E EPS of INR64.2. Maintain Neutral.
C–134October 2012
September 2012 Results Preview
Sector: Oil & Gas
Chennai Petroleum Corporation
Bloomberg MRL IN
Equity Shares (m) 149.0
52 Week Range (INR) 206/117
1,6,12 Rel Perf (%) -10/-25/-51
Mcap (INR b) 19.3
Mcap (USD b) 0.4
CMP: INR129 BuyYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE Div EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Yld (%) EBITDA
03/11A 331,406 5,115 34.3 -15.2 - - 14.2 12.2 8.1 -
03/12A 407,962 619 4.2 -87.9 31.1 0.51 1.6 1.0 1.3 50.9
03/13E 520,945 2,053 13.8 231.9 9.4 0.49 5.3 7.2 3.4 9.8
03/14E 510,725 5,146 34.5 150.7 3.7 0.45 12.5 11.4 7.7 5.3
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 98,953 94,231 111,509 103,270 110,379 100,501 153,688 156,377 407,962 520,945
Change (%) 55.6 16.0 33.6 0.2 11.5 6.7 37.8 51.4 23.1 27.7
EBITDA 642 -2,102 619 2,239 -7,848 4,499 6,895 5,764 1,398 9,311
% of Sales 0.6 -2.2 0.6 2.2 -7.1 4.5 4.5 3.7 0.3 1.8
% Change 255.6 nm -82.2 -61.5 nm nm 1,014.3 157.4 -88.4 565.9
Depreciation 913 918 910 913 894 950 980 1,096 3,654 3,919
Interest 587 93 956 858 1,093 1,095 1,100 1,135 2,494 4,423
Other Income 42 110 309 2,707 60 1,350 480 480 3,168 2,370
PBT -816 -3,002 -939 3,175 -9,774 3,804 5,295 4,013 -1,582 3,338
Tax -265 -3,734 -305 2,103 -85 842 1,173 -929 -2,201 1,002
Rate (%) nm nm 32.5 66.2 0.9 22.1 22.1 -23.1 139.1 30.0
PAT -551 732 -634 1,072 -9,690 2,962 4,122 4,942 619 2,337
Change (%) nm -25.1 nm -65.9 nm 304.7 nm 361.1 -87.9 277.8
EPS -3.7 4.9 -4.3 7.2 -65.0 19.9 27.7 33.2 4.2 15.7
Key Assumptions
GRM (USD/bbl) 2.4 0.3 3.4 4.5 -2.2 7.1 7.1 6.7 2.6 4.7
Throughput (mmt) 2.5 2.6 2.7 2.7 2.5 2.0 3.2 3.2 10.6 10.9
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect CPCL to report 2QFY13 PAT of INR2.9b v/s INR732m in 2QFY12 and loss of INR9.7b in 1QFY13.
EBITDA is expected to be INR4.5b against EBITDA loss of INR7.8b in 1QFY13. The turnaround is led by positive
GRM helped by crude inventory gains. Regional benchmark Reuters Singapore GRM is up 36% QoQ to USD9.1/
bbl from USD6.7/bbl.
On the operational front, we expect refinery throughput at 2mmt (down 21% QoQ and 23% YoY) due to planned
75-day shutdown for tie-up of revamped CDU/VDU units which will increase its refining capacity by 0.6mmt.
We expect refining margins to remain subdued as the global operating rates (ex US) are likely to remain low led
by lower demand (particularly in Europe), commissioning of new refineries and delay in capacity closures
(protectionist policies by European governments).
Key things to watch out for: (a) GRM, (b) Forex fluctuations, (c) Inventory changes.
For CPCL we model in GRM of USD4.7/bbl for FY13 and USD5.5/bbl for FY14. The stock trades at FY14E P/E of 3.7x
and EV/EBITDA of 5.3x. Maintain Buy.
C–135October 2012
September 2012 Results Preview
Sector: Oil & Gas
GAIL (India)
Bloomberg GAIL IN
Equity Shares (m) 1,268.5
52 Week Range (INR) 445/303
1,6,12 Rel Perf (%) -2/-5/-23
Mcap (INR b) 485.9
Mcap (USD b) 9.2
CMP: INR383 NeutralYear Net Sales Adj. PAT EPS EPS *P/E *P/BV RoE RoCE *EV/ *EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 324,586 35,610 28.7 16.0 - - 19.8 24.8 - -
03/12A 402,807 36,538 28.8 0.4 10.6 1.8 17.9 21.0 1.1 7.2
03/13E 445,447 39,363 31.0 7.7 9.8 1.6 17.2 18.6 1.1 7.2
03/14E 489,873 40,771 32.1 3.6 9.5 1.4 16.0 16.2 1.1 7.1
*Adjustment for investments
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 88,674 96,990 112,598 104,546 110,886 111,932 113,224 109,405 402,807 445,447
Change (%) 25.0 19.7 34.6 17.6 25.0 15.4 0.6 4.6 24.1 10.6
EBITDA 15,556 16,482 17,605 7,338 18,991 13,935 17,409 15,214 56,981 65,549
% of Net Sales 17.5 17.0 15.6 7.0 17.1 12.4 15.4 13.9 14.1 14.7
Change (%) 8.4 15.0 33.9 -42.3 22.1 -15.5 -1.1 107.3 4.5 15.0
Depreciation 1,782 2,008 1,975 2,143 2,169 2,185 2,223 2,276 7,907 8,853
Interest 208 226 207 523 588 590 598 307 1,165 2,082
Other Income 863 1,434 557 2,637 612 1,008 1,350 39 5,491 3,008
PBT 14,429 15,682 15,980 7,309 16,846 12,168 15,938 12,670 53,400 57,622
Tax 4,582 4,738 5,066 2,476 5,508 3,804 4,997 3,950 16,862 18,259
Rate (%) 31.8 30.2 31.7 33.9 32.7 31.3 31.4 31.2 31.6 31.7
PAT 9,847 10,944 10,914 4,833 11,338 8,364 10,942 8,720 36,538 39,363
Change (%) 11.0 18.5 12.8 -38.3 15.1 -23.6 0.3 80.4 2.6 7.7
Key Assumptions
Gas Trans. volume (mmsmd) 117 119 119 116 110 109 114 124 118 114
Petchem sales ('000MT) 88 129 113 118 66 105 110 113 448 394
LPG realization (USD/MT) 958 898 819 977 1,015 710 900 800 912 856
Segmental EBIT Breakup (INRm)
Natural Gas transmission 6,520 5,562 6,208 3,248 5,673 5,487 5,740 5,527 21,539 22,427
LPG transmission 690 722 775 533 709 686 690 692 2,720 2,777
Natural Gas Trading 3,131 2,866 3,230 1,659 4,956 2,978 2,978 2,908 10,886 13,821
Petrochemicals 2,434 4,041 3,875 4,309 1,958 3,754 3,894 3,973 14,658 13,579
LPG & Liq.HC (pre-subsidy) 9,104 9,187 8,416 10,663 11,373 6,851 10,599 8,683 37,371 37,506
Total 21,544 21,560 22,068 20,037 24,751 19,755 23,900 21,783 85,209 90,189
Less: Subsidy -6,819 -5,666 -5,361 -13,980 -7,000 -7,887 -8,616 -9,354 -31,826 -32,858
Total 14,725 15,894 16,707 6,057 17,751 11,868 15,284 12,429 53,383 57,332
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect GAIL to report adjusted PAT of INR8.4b (down 24%YoY and 26% QoQ).
Subsidy sharing assumption: For FY13, we model upstream sharing at 40%, similar to FY12. We also model GAIL's
share at INR7.9b in 2QFY13 v/s INR5.7b in 2QFY12 and INR7b in 1QFY13.
Segmental EBIT (pre-subsidy) is sharply down 20% QoQ primarily due to lower LPG realizations (down 30%
QoQ) and lower gas trading EBIT (1Q included one-time gains). This is partly compensated by higher petchem
EBIT (volumes up 59% QoQ). We model gas transmission volumes at 109mmscmd v/s 119 in 2QFY12 and 110 in
1QFY13.
Key things to watch out for: a) Subsidy sharing, b) Transmission volumes.
Adjusted for investments, the stock trades at 9.5x FY14E EPS of INR32.1. Though we like the management's
strategy to build network to enable gas sourcing, we remain Neutral due to medium-term earnings concern led
by likely under-utilization of its new network on account of headwinds to incremental gas availability.
C–136October 2012
September 2012 Results Preview
Sector: Oil & Gas
Gujarat State Petronet
Bloomberg GUJS IN
Equity Shares (m) 562.7
52 Week Range (INR) 107/62
1,6,12 Rel Perf (%) -6/-2/-35
Mcap (INR b) 45.4
Mcap (USD b) 0.9
CMP: INR81 NeutralYear Net Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (x) (x) (%) (%) Sales EBITDA
03/11A 10,391 5,064 9.0 22.3 - - 28.4 25.6 - -
03/12A 11,153 5,221 9.3 3.1 8.7 1.8 23.4 22.8 4.9 5.4
03/13E 9,676 4,350 7.7 -16.7 10.4 1.6 16.4 17.9 5.4 5.9
03/14E 9,278 4,303 7.6 -1.1 10.5 1.4 14.3 15.9 5.3 5.8
*Our EPS numbers does not factor in any provision towards "Social Contribution Fund"
Quarterly Performance (INR Milllion)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 2,843 2,808 2,739 2,763 2,676 2,426 2,387 2,188 11,153 9,676
Change (%) 12.9 11.0 -1.9 8.3 -5.9 -13.6 -12.8 -20.8 7.3 -13.2
EBITDA 2,619 2,584 2,518 2,520 2,465 2,218 2,181 1,988 10,241 8,852
% of Net Sales 92.1 92.0 91.9 91.2 92.1 91.4 91.4 90.9 91.8 91.5
% Change 10.0 11.3 -3.9 9.7 -5.9 -14.2 -13.4 -21.1 6.5 -13.6
Depreciation 453 440 460 466 439 475 478 509 1,819 1,902
Interest 324 337 325 316 317 320 324 336 1,302 1,297
Other Income 112 143 175 165 176 175 175 353 593 878
PBT 1,954 1,949 1,907 1,902 1,884 1,598 1,554 1,495 7,714 6,532
Tax 581 656 646 610 636 513 499 534 2,493 2,182
Rate (%) 29.7 33.7 33.9 32.0 33.7 32.1 32.1 35.7 32.3 33.4
PAT 1,374 1,293 1,261 1,293 1,248 1,085 1,055 962 5,221 4,350
Change (%) 31 41 -21 -14 -9 -16 -16 -26 3 -17
EPS (INR) 2.4 2.3 2.2 2.3 2.2 1.9 1.9 1.7 9.3 7.7
Transmission Vol. (mmscmd) 36.8 35.2 32.8 31.1 31.1 30.0 29.5 29.4 34.0 30.0
Implied tariff (INR/mscm) 813 835 899 956 903 850 850 797 872 850
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect GSPL to report net sales of INR2.4b and PAT of INR1.1b (down 16% YoY and 13% QoQ).
We build lower gas transmission volumes at 30mmscmd in 2QFY13 (v/s 35.2mmscmd in 2QFY12 and 31.1mmscmd
in 1QFY13) led by decline in KG-D6 production.
The recent tariff approval by PNGRB for GSPL's high pressure pipeline indicates 12.5% tariff cut for GSPL,
however was above our and consensus estimate. Further, as against our earlier understanding of retrospective
likely impact of (a) tariff change and (b) return the cost of system use gas (SUG), including unaccounted gas;
management indicated that they are unlikely to have to refund. Given the non-clarity on this issue we do not
build any impact in our estimates and would await for more clarity.
GSPL has won all 3 bids for cross country pipelines and in JV with OMC's is currently building the same. However,
concerns remain on the gas availability for these pipelines and are likely to remain underutilized in the initial
years of operation.
Key things to watch out for: a) Transmission volumes, b) Clarity on the recent tariff order by PNGRB.
We build gas transmission volumes of 30mmscmd in FY13 and 33mmscmd in FY14. We model average tariff at
INR850/mscm in FY13 and INR800/mscm in FY14. The stock trades at 10.5x FY14E EPS of INR7.6. Neutral.
C–137October 2012
September 2012 Results Preview
Sector: Oil & Gas
HPCL
Bloomberg HPCL IN
Equity Shares (m) 339.0
52 Week Range (INR) 385/239
1,6,12 Rel Perf (%) -8/0/-29
Mcap (INR b) 104.2
Mcap (USD b) 2.0
CMP: INR307 BuyYear Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 1,309,342 15,390 45.4 18.3 - - 12.8 8.6 - -
03/12A 1,781,392 9,115 26.9 -40.8 11.4 0.8 7.1 6.7 0.2 9.6
03/13E 1,898,362 8,292 24.5 -8.7 12.5 0.8 6.2 6.2 0.1 7.9
03/14E 2,007,946 9,295 27.4 11.7 11.2 0.7 6.6 6.6 0.1 6.4
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 407,980 370,302 479,174 523,936 440,765 496,111 513,057 448,428 1,781,392 1,898,362
Change (%) 39.6 31.6 41.3 32.1 8.0 34.0 7.1 -14.4 36.1 6.6
EBITDA -26,873 -29,437 35,725 54,667 -88,759 16,697 52,817 50,319 34,082 31,073
% of Net Sales -6.6 -7.9 7.5 10.4 -20.1 3.4 10.3 11.2 1.9 2
Change (%) 66.3 nm 470.1 176.8 nm nm 47.8 -8.0 3.0 -215.6
Depreciation 3,886 4,150 4,368 4,726 4,544 4,650 4,755 4,995 17,129 18,944
Interest 2,641 3,028 6,982 4,326 5,492 4,160 3,520 3,040 16,977 16,212
Other income 2,585 2,971 2,876 3,790 6,337 4,925 1,925 1,291 12,222 14,478
Exceptional Item 12 0 -17 -29 0 0 0 -5 -29
PBT -30,803 -33,644 27,252 49,387 -92,488 12,812 46,467 43,574 12,193 10,366
Tax 0 0 0 3,077 0 1,409 5,111 -4,448 3,077 2,073
Rate (%) 0.0 0.0 0.0 6.2 0.0 11.0 11.0 nm 25.2 20.0
PAT -30,803 -33,644 27,252 46,310 -92,488 11,403 41,356 48,022 9,115 8,292
Change (%) 63.5 nm 1,191.6 312.5 nm nm 51.8 3.7 -40.8 -9.0
Adj. EPS -90.9 -99.2 80.4 136.6 -272.8 33.6 122.0 141.7 26.9 24.5
Key Assumptions (INR b)
Gross under recovery 95 47 71 91 107 86 84 85 304 362
Upstream sharing 32 16 34 40 34 33 38 40 121 144
Oil Bonds/Cash subsidy 33 0 66 85 0 53 83 82 183 218
Net Under recovery 31 31 -28 -34 73 0 -36 -36 0 0
Net Sharing (%) 32 67 nm nm 69 nm nm nm nm nm
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Standalone
Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which
is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.
OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the
quarter-end, and (b) forex gain as rupee has appreciated by ~4%.
2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily
due to lower LPG prices and diesel price hike effected on 13 September 2012.
For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing
at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.
We expect HPCL to report PAT of INR11.4b v/s loss of INR33.6b in 2QFY12 and INR92.5b in 1QFY13.
Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations and (c) GRM.
HPCL trades at 12.5x FY13E EPS and 0.8x FY13E BV. We have a Buy rating due to attractive valuations.
C–138October 2012
September 2012 Results Preview
Sector: Oil & Gas
Indian Oil Corporation
Bloomberg IOCL IN
Equity Shares (m) 2,428.0
52 Week Range (INR) 323/239
1,6,12 Rel Perf (%) -5/-13/-34
Mcap (INR b) 608.3
Mcap (USD b) 11.5
CMP: INR251 BuyYear Net Sales Adj. PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR b) (INR b) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 3,081 78.3 32.3 -26.9 - - 14.2 11.2 - -
03/12A 4,072 119.3 49.2 52.4 5.1 1.0 20.2 12.9 0.3 7.2
03/13E 4,261 59.4 24.4 -50.3 10.2 0.9 9.5 9.4 0.3 8.0
03/14E 4,425 73.6 30.3 24.0 8.3 0.9 11.0 11.1 0.3 6.3
*Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 1,007,239 891,456 1,152,084 1,277,355 966,028 1,115,444 1,199,679 1,257,876 4,328,133 4,539,026
Change (%) 40.5 16.1 43.4 30.0 -4.1 25.1 4.1 -1.5 32.3 4.9
EBITDA -24,225 -53,618 107,247 140,402 -202,360 62,858 149,549 143,184 169,807 153,230
% of Net Sales -2.4 -6.0 9.3 11.0 -20.9 5.6 12.5 11.4 3.9 3.4
% Change nm nm 293.2 163.7 nm nm 39.4 2.0 45.7 -9.8
Depreciation 12,235 12,638 12,839 10,966 12,775 13,500 13,700 14,099 48,678 54,074
Interest 10,376 14,840 15,652 15,038 18,491 15,930 14,813 14,672 55,905 63,906
Other Income 9,649 6,241 7,810 25,699 9,117 10,795 10,433 7,209 49,398 37,554
PBT -37,187 -74,855 86,566 140,098 -224,510 44,223 131,469 121,622 114,621 72,805
Tax 0 0 0 -2,003 0 2,653 10,518 1,390 -2,003 14,561
Rate (%) nm nm nm -1.4 nm 6.0 8.0 1.1 -1.7 20.0
Adj. PAT -37,187 -74,856 86,566 142,101 -224,510 41,570 120,952 120,232 116,624 58,245
Change (%) nm nm 429.5 263.9 nm nm 39.7 -15.4 56.6 -50.1
Extraordinary Items -61,682 -15,396 0 0 0 0 -77,078 0
PAT -37,187 -74,856 24,884 126,704 -224,510 41,570 120,952 120,232 39,546 58,245
Adj. EPS -15.3 -30.8 35.7 58.5 -92.5 17.1 49.8 49.5 48.0 24.0
Key Assumptions (INR b)
Gross under recovery 238 118 178 222 255 211 205 208 755 880
Upstream sharing 79 39 83 98 80 80 92 97 300 350
Govt. sharing 82 0 164 209 0 131 201 198 455 530
Net Under recovery 77 78 -70 -85 175 0 -87 -88 0 0
As a % of Gross 32.2 66.7 nm nm 68.5 0.1 nm nm 0.0 0.0
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which
is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.
OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the
quarter-end, and (b) forex gain as rupee has appreciated by ~4%.
2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily
due to lower LPG prices and diesel price hike effected on 13 September 2012.
For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing
at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.
We expect IOCL to report PAT of INR41.6b v/s loss of INR75b in 2QFY12 and INR224b in 1QFY13. Reported PAT in
FY12 was impacted due to one-time provision of INR77.1b towards entry tax for its Mathura refinery in UP.
Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations, and (c) GRM.
IOC trades attractively at 0.9x FY13E book value and 10.2x FY13E EPS. Buy.
C–139October 2012
September 2012 Results Preview
Sector: Oil & Gas
Indraprastha Gas
Bloomberg IGL IN
Equity Shares (m) 140.0
52 Week Range (INR) 439/170
1,6,12 Rel Perf (%) -1/-38/-51
Mcap (INR b) 37.1
Mcap (USD b) 0.7
CMP: INR265 Under ReviewYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 17,437 2,594 18.5 20.4 - - 28.4 35.7 - -
03/12A 25,151 3,072 21.9 18.4 12.1 3.0 27.5 33.2 1.6 6.4
03/13E 35,309 3,540 25.3 15.2 10.5 2.6 26.4 32.2 1.2 5.5
03/14E 43,200 3,916 28.0 10.6 9.5 2.2 24.7 29.5 0.9 4.8
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 5,364 5,969 6,615 7,203 7,602 8,530 9,178 9,999 25,151 35,309
Change (%) 60.1 34.1 45.5 41.4 41.7 42.9 38.7 38.8 44.2 40.4
EBITDA 1,573 1,574 1,488 1,685 1,793 1,861 1,899 1,977 6,320 7,529
EBITDA (INR/scm) 5.6 5.1 4.7 5.3 5.6 5.4 5.2 5.2 5.2 5.3
% of Net Sales 29.3 26.4 22.5 23.4 23.6 21.8 20.7 19.8 25.1 21.3
% Change 47.4 27.9 17.3 24.2 13.9 18.3 27.6 17.3 28.4 19.1
Depreciation 322 344 368 397 427 445 457 464 1,432 1,793
Interest 90 118 135 136 155 158 159 177 479 650
Other Income 24 21 31 27 36 39 45 51 103 171
PBT 1,185 1,132 1,016 1,179 1,247 1,297 1,327 1,386 4,512 5,257
Tax 384 360 324 372 396 431 441 449 1,440 1,717
Rate (%) 32.4 31.8 31.9 31.5 31.8 33.2 33.2 32.4 31.9 32.7
PAT 801 772 692 808 850 866 886 937 3,072 3,540
PAT (Rs/scm) 2.8 2.5 2.2 2.5 2.6 2.5 2.4 2.5 2.5 2.5
Change (%) 40.1 16.5 2.9 16.8 6.2 12.2 28.2 16.0 18.3 15.2
EPS (INR) 5.7 5.5 4.9 5.8 6.1 6.2 6.3 6.7 21.9 25.3
Gas Volumes (mmscmd)
CNG 2.38 2.60 2.64 2.66 2.67 2.80 2.97 3.19 2.57 2.91
PNG 0.71 0.74 0.77 0.86 0.88 0.92 0.98 1.06 0.77 0.96
Total 3.10 3.34 3.41 3.52 3.55 3.72 3.94 4.25 3.34 3.87
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect IGL to report 2QFY13 volume of 3.72mmscmd and PAT of INR866m (up 12% YoY and 2% QoQ).
We expect 2QFY13 CNG volumes to grow 8% YoY to 2.8mmscmd and PNG volumes to grow 24% YoY to 0.9mmscmd.
Historically, owing to favorable economics vis-à-vis alternative fuels, IGL has been able to pass on any hike in its
gas cost thereby insulating any impact on its EBITDA margin. But with absence of KG-D6 gas supply, there is
pressure on company's margin as it is sourcing more expensive RLNG to meet demand.
Key things to watch out for: (a) EBITDA margin, (b) Sales volume.
We model in total volumes of 3.9/4.5mmscmd in FY13/FY14. The stock trades at 10.5x FY13E EPS of INR25.3.
Post the High Court quashing PNGRB's tariff cut order on IGL, PNGRB has now approached Supreme Court and
the hearing is still on. Given the uncertainty in the likely judgment and impact on the profitability of the
company, we keep our rating Under Review.
C–140October 2012
September 2012 Results Preview
Sector: Oil & Gas
MRPL
Bloomberg MRPL IN
Equity Shares (m) 1,752.6
52 Week Range (INR) 75/50
1,6,12 Rel Perf (%) -12/-7/-17
Mcap (INR b) 106.6
Mcap (USD b) 2.0
CMP: INR61 NeutralYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 389,567 11,766 6.7 11.2 - - 19.4 23.7 - -
03/12A 537,703 9,086 5.2 -22.8 11.7 1.5 13.2 19.2 0.3 6.2
03/13E 659,992 5,026 2.9 -44.7 21.2 1.4 6.8 10.3 0.2 7.7
03/14E 648,920 14,841 8.5 195.3 7.2 1.2 18.2 16.8 0.2 4.4
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 133,691 116,657 129,308 158,384 128,099 168,502 175,883 187,438 538,040 659,922
Change (%) 69.9 39.6 25.3 27.6 -4.2 44.4 36.0 18.3 38.1 22.7
EBITDA 2,225 754 3,011 7,821 -12,966 9,306 8,015 8,538 13,811 12,893
% of Net Sales 1.7 0.6 2.3 4.9 nm 5.5 4.6 4.6 2.6 2.0
% Change 67 -80 -45 -8 nm 1,135 166 9 -27.2 -6.7
Depreciation -952 -965 -1,174 -1,248 -1,375 -1,380 -1,382 -1,382 -4,339 -5,519
Interest -270 -999 -423 -375 -1,102 -1,110 -1,113 -633 -2,067 -3,958
Other Income 1,352 1,522 248 2,697 495 1,694 800 881 5,819 3,869
Exceptional items -11 8 47 -22 0 0 0 0 22 0
PBT 2,366 304 1,615 8,918 -14,948 8,509 6,320 7,404 13,203 7,285
Tax -639 -63 -518 -2,897 -257 -148 -126 -1,727 -4,116 -2,258
Rate (%) nm -20.6 -32.0 -32.5 nm -1.7 -2.0 -23.3 -31.2 -31.0
PAT 1,727 241 1,098 6,021 -15,206 8,361 6,194 5,677 9,086 5,026
Change (%) 506.8 -91.5 -65.0 8.9 nm 3,365.2 464.3 -5.7 -22.9 -44.7
EPS (INR) 1.0 0.1 0.6 3.4 -8.7 4.8 3.5 3.2 5.2 2.9
GRM (USD/bbl) 3.0 1.7 3.8 7.1 -4.2 7.5 6.3 6.4 3.9 4.0
Throughput (mmt) 3.3 3.1 3.0 3.4 2.9 3.5 3.8 4.0 12.8 14.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect MRPL to report 2QFY13 PAT of INR8.4b (v/s INR241m in 2QFY12 and net loss of INR15b in 1QFY13).
EBITDA is expected at INR9.3b (v/s INR754m in 2QFY12 and EBITDA loss of INR13b in 1QFY12). The QoQ turnaround
to profit is led by positive GRM helped by crude inventory gains. Regional benchmark Reuters Singapore GRM
is up 36% QoQ to USD9.1/bbl from USD6.7/bbl.
On the operational front, we expect refinery throughput at 3.5mmt (up 21% QoQ and 14%YoY), helped by no
shutdowns and start of Phase 2 CDU by end-September 2012.
Key things to watch out for: a) GRM, b) Forex fluctuations, c) Inventory changes.
We expect refining margins to remain subdued as the global operating rates (ex US) are likely to remain low led
by lower demand (particularly in Europe), commissioning of new refineries and delay in capacity closures
(protectionist policies by European governments).
For MRPL, we model inn GRM of USD4/bbl for FY13 and USD7.3/bbl for FY14. The stock trades at FY14E P/E of 7.2x
and EV/EBITDA of 4.4x. Maintain Neutral.
C–141October 2012
September 2012 Results Preview
Sector: Oil & Gas
Oil India
Bloomberg OINL IN
Equity Shares (m) 601.1
52 Week Range (INR) 552/431
1,6,12 Rel Perf (%) -6/-10/-22
Mcap (INR b) 294.3
Mcap (USD b) 5.6
CMP: INR490 BuyYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV (USD)/ EV/
End (INR b) (INR b) (INR) Gr (%) (X) (X) (%) (%) BoE EBITDA
03/11A 83,034 28,872 48.0 10.6 - - 19.7 27.3 - -
03/12A 97,741 34,469 57.3 19.4 8.5 1.7 20.7 27.7 7.6 3.9
03/13E 102,845 35,259 58.7 2.3 8.3 1.5 18.7 25.8 6.7 3.7
03/14E 113,194 38,867 64.7 10.2 7.6 1.3 18.4 25.7 6.9 3.3
Quarterly Performance (Standalone) (INR Billion)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 22.9 32.7 25.0 17.2 23.3 25.9 27.1 26.5 97.7 102.8
Change (%) 50.2 37.8 4.5 -14.8 2.0 -20.8 8.5 54.4 0.0 5.2
EBITDA 12.5 16.2 13.3 4.8 11.0 12.7 13.5 12.4 46.9 49.6
% of Net Sales 54.5 49.5 53.5 28.0 47.0 49.0 49.9 46.9 47.9 48.2
Change (%) 67.8 19.9 -3.4 -50.0 -12.2 -21.7 1.2 158.0 5.5 352.4
D,D&A 3.6 5.9 2.9 2.8 2.0 3.9 4.1 4.2 15.3 14.2
Interest 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0
OI (incl. Oper. other inc) 3.8 6.8 4.7 4.2 4.8 5.1 4.9 5.5 19.5 20.3
PBT 12.6 17.1 15.1 6.2 13.8 13.8 14.3 13.8 51.0 55.7
Tax 4.1 5.7 5.0 1.7 4.5 4.4 4.7 4.5 16.5 18.2
Rate (%) 32.4 33.5 33.0 28.2 32.5 32.1 33.0 33.0 32.4 32.6
PAT 8.5 11.4 10.1 4.4 9.3 9.4 9.6 9.2 34.5 37.5
Change (%) 69.5 24.3 1.2 -20.9 9.5 -17.4 -5.6 107.3 15.6 303.2
% of Net Sales 37.1 34.8 40.6 25.9 39.9 36.3 35.3 34.7 35.3 36.5
Adj. PAT 8.5 11.4 10.1 4.4 9.3 9.4 9.6 9.2 34.5 37.5
Key Assumptions (USD/bbl)
Exchange rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4
Gross Oil Realization 116.3 112.5 110.1 119.7 109.8 110.4 110.2 111.3 114.7 110.4
Subsidy 56.8 26.2 53.1 80.8 55.9 54.9 51.3 50.1 54.2 53.1
Net Oil Realization 59.6 86.3 57.0 38.9 53.9 55.5 58.9 61.2 60.4 57.4
Subsidy (INR b) 17.8 8.4 18.5 28.7 20.2 21.2 19.7 19.1 73.5 80.1
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Oil India to report 2QFY13 PAT of INR9.4b (v/s INR11.4b in 2QFY12 and INR9.3b in 1QFY13). We
estimate EBITDA at INR12.7b (down 22% YoY and up 16% QoQ).
We estimate gross realization at USD110.4/bbl v/s USD112.5 in 2QFY12 and USD109.8 in 1QFY13 and net realization
at USD55.5/bbl v/s USD86.3 in 2QFY12 and USD53.9 in 1QFY13.
Subsidy sharing assumption: For FY13, we model upstream sharing at 40% (similar to FY12), and Oil India's share
at 13.2% of upstream. We model Oil India to share INR21.2b (USD55/bbl) in 2QFY13.
Key things to watch out for: (a) Subsidy sharing, (b) DD&A charges, (c) Oil & Gas production volumes.
Our Brent price assumption is USD110/105/100/90bbl for FY13/14/15/long-term and we model upstream sharing
at 40% in FY13/14 and 33% beyond that.
The stock trades at 7.6x FY14E EPS of INR64.7. We remain positive on Oil India due to its strong operational
foothold: (1) steady production growth, (2) high share of oil in its reserves (55% in 1P and 62% in 2P), and (3)
attractive valuations (>50% discount to its global peers on EV/BOE, 1P basis). Buy.
C–142October 2012
September 2012 Results Preview
Sector: Oil & Gas
ONGC
Bloomberg ONGC IN
Equity Shares (m) 8,555.5
52 Week Range (INR) 304/240
1,6,12 Rel Perf (%) -7/-1/-7
Mcap (INR b) 2,399.0
Mcap (USD b) 45.5
CMP: INR280 BuyYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR b) (INR b) (INR) Gr. (%) (X) (X) (%) (%) BoE EBITDA
03/11A 1,176 210 24.5 8.1 - - 19.5 18.8 6.9 -
03/12A 1,464 260 30.4 24.1 9.2 1.8 20.7 19.4 6.6 3.7
03/13E 1,599 255 29.8 -1.9 9.4 1.6 17.7 16.6 5.5 3.7
03/14E 1,696 286 33.4 11.8 8.4 1.4 17.8 16.8 5.3 3.1
*Consolidated, EV/BOE in USD on 1P basis
Quaterly performance (Standalone) (INR Billion)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 162.0 226.2 181.2 188.2 200.8 217.7 202.9 190.4 757.6 811.8
Change (%) 18.5 24.3 -2.5 22.2 24.0 -3.8 11.9 1.2 15.1 7.2
EBITDA 92.7 141.6 106.6 110.6 110.4 119.4 107.1 97.6 451.4 434.5
% of Net Sales 57.2 62.6 58.8 58.8 55.0 54.9 52.8 51.3 59.6 53.5
D,D & A 41.2 32.8 45.3 49.1 32.0 40.6 49.2 50.2 168.4 172.0
Interest 0.0 0.1 0.0 0.2 0.3 0.3 0.2 0.2 0.3 1.0
Other Income 9.3 14.4 44.9 15.1 11.3 14.4 13.3 15.9 83.8 54.9
PBT 60.7 123.2 106.2 76.4 89.4 92.9 70.9 63.0 366.5 316.3
Tax 19.8 36.7 38.7 20.0 28.6 28.9 21.7 15.8 115.2 95.1
Rate (%) 32.5 29.8 36.5 26.1 32.0 31.1 30.6 25.1 31.4 30.1
PAT 40.9 86.4 67.4 56.5 60.8 64.0 49.2 47.2 251.3 221.2
Adjusted PAT 40.9 86.4 46.4 56.4 60.8 64.0 49.2 47.2 230.2 221.2
Change (%) 11.8 60.4 -20.2 119.4 48.4 -25.9 6.1 -16.3 32.0 -3.9
Adj. EPS (INR) 4.8 10.1 5.4 6.6 7.1 7.5 5.7 5.5 26.9 25.9
Key Assumptions (USD/bbl)
Fx rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4
Gross Oil Realization 121.3 116.8 111.7 121.6 109.9 112.7 112.5 113.6 117.9 112.2
Subsidy 73.2 33.2 66.8 77.3 63.3 59.4 65.2 73.8 62.6 65.4
Net Oil Realization 48.1 83.6 45.0 44.3 46.6 53.3 47.3 39.8 55.2 46.8
Subsidy (INR b) 120.5 57.1 125.4 141.7 123.5 119.2 127.4 144.1 444.7 514.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect ONGC to report 2QFY13 PAT of INR64b (v/s INR86.4b in 2QFY12 and INR60.8b in 1QFY13). We estimate
EBITDA at INR119b (down 16% YoY and up 8% QoQ). YoY EBITDA decline is primarily due to lower net realization
and higher cess rate of INR4,500/MT v/s INR2,500MT in FY12.
We estimate gross realization at USD112.7/bbl v/s USD116.8 in 2QFY12 and USD109.9 in 1QFY13, and net realization
at USD53.3/bbl v/s USD83.6 in 2QFY12 and USD46.6 in 1QFY13.
Subsidy sharing assumption: For FY13, we model upstream sharing at 40% (similar to FY12), and ONGC's share at
~82% of upstream. We expect ONGC to share INR119.2b (USD59.4/bbl) in 2QFY13.
Key things to watch out for: (a) Subsidy sharing, (b) DD&A charges, (c) Oil & Gas production volumes.
Key medium term earnings triggers include (a) likely production increase in FY14 led by monetization of marginal
fields v/s flat production in last several years and (b) likely gas price hike in March-14. Further, likely reserve
upsides from its large NELP/nomination acreage would add value over longer term.
Our Brent price assumption is USD110/105/100/90bbl for FY13/14/15/long-term and we model upstream sharing
at 40% in FY13/14 and 33% beyond that.
Despite subsidy burden, RoE is at respectable level of ~18%. Stock trades at P/E of 8.4x FY14 EPs of INR33.4/sh;
attractive EV/BOE of 5.3x (1P basis; >40% discount to global peers) and has an implied dividend yield of 3.5%.
We value ONGC on SOTP basis at INR320/sh. Buy.
C–143October 2012
September 2012 Results Preview
Sector: Oil & Gas
Petronet LNG
Bloomberg PLNG IN
Equity Shares (m) 750.0
52 Week Range (INR) 180/122
1,6,12 Rel Perf (%) -3/-13/-13
Mcap (INR b) 118.3
Mcap (USD b) 2.2
CMP: INR158 BuyYear Net Sales PAT Adj. EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 131,973 6,197 8.3 53.2 - - 25.2 19.9 - -
03/12A 226,959 10,575 14.1 70.7 11.2 3.4 34.1 26.6 0.6 7.8
03/13E 310,807 9,795 13.1 -7.4 12.1 2.8 25.1 22.4 0.5 8.1
03/14E 362,088 11,253 15.0 14.9 10.5 2.3 23.8 34.1 0.4 6.1
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 46,233 53,669 63,303 63,754 70,304 81,708 77,291 81,503 226,959 310,807
Change (%) 83.0 75.5 74.5 0.6 0.5 0.5 0.2 0.2 72.0 36.9
EBITDA 4,381 4,483 5,080 3,655 4,571 4,380 4,022 4,524 17,600 17,497
% of Net Sales 9.5 8.4 8.0 5.7 6.5 5.4 5.2 5.6 7.8 5.6
Change (%) 76.9 65.1 47.0 4.0 4.3 -2.3 -20.8 23.8 44.7 -0.6
Depreciation 458 463 463 458 459 462 464 1,000 1,842 2,386
Interest 464 458 393 342 329 365 382 839 1,657 1,915
Other Income 263 201 164 796 266 295 275 268 1,424 1,104
PBT 3,722 3,763 4,389 3,651 4,048 3,848 3,451 2,953 15,525 14,299
Tax 1,155 1,160 1,435 1,200 1,340 1,231 1,104 829 4,950 4,504
Rate (%) 31.0 30.8 32.7 32.9 33.1 32.0 32.0 28.1 31.9 31.5
PAT 2,567 2,603 2,954 2,451 2,708 2,616 2,347 2,124 10,575 9,795
Change (%) 130.5 98.5 72.8 18.8 5.5 0.5 -20.5 -13.4 70.7 -7.4
EPS (INR) 3.4 3.5 3.9 3.3 3.6 3.5 3.1 2.8 14.1 13.1
Dahej Gas Volume (TBTU) 133.4 135.1 144.9 135.0 127.2 138.4 135.9 137.0 548.4 538.6
Dahej Gas Volumes (mmt) 2.7 2.7 2.9 2.7 2.5 2.8 2.7 2.7 10.9 10.7
Kochi Gas Volumes (mmt) 0.2 0.0 0.2
Avg. Dahej Regas (INR/mmbtu) 42.2 41.7 45.2 41.7 45.3 40.7 38.2 40.1 42.7 41.1
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Petronet to report 2QFY13 PAT of INR2.6b (largely flat YoY and QoQ). We estimate EBITDA at INR4.4b
(down 2% YoY and 4% QoQ). Our lower QoQ profit estimate is primarily due to our lower marketing margin
assumption.
We have built in LNG volumes at 2.8mmt in 2QFY13, higher than 2.5mmt in 1QFY13 given (1) completion of
seasonal fertilizer plant shutdown, and (2) likely uptick in spot volumes due to lower spot LNG prices. We
model in 10.7mmtpa volume in FY13 at Dahej, of which 7.5mmtpa would be on long-term contract, 2mmtpa on
2-year contract and the rest on spot/third party basis. We model in Kochi volumes at 0.2mmtpa in 4QFY13.
We model in 5% escalation in re-gasification tariff till FY14 and flat thereafter at Dahej, and Kochi volumes at
0.3/1.1mmt for FY13/14.
Key things to watch out for: (a) Spot volumes, (b) Regasification margin on spot volumes.
With no risk to near term earnings, we believe the next cycle of earnings growth would come post FY13 led by
(1) volume ramp-up at Kochi, (2) second jetty at Dahej, and (3) new capacity at Dahej and Gangavaram. We build
conservative marketing margin of INR22/15/mmbtu in FY13/14 and nil thereafter.
The stock trades at 10.5x FY14E consolidated EPS of INR15. Lower spot LNG prices and the likely gas price pooling
policy for power sector are key near-term positives for the stock. Buy.
C–144October 2012
September 2012 Results Preview
Sector: Oil & Gas
Reliance Industries
Bloomberg RIL IN
Equity Shares (m) 3,242.5
52 Week Range (INR) 902/671
1,6,12 Rel Perf (%) -1/6/-9
Mcap (INR b) 2,713.0
Mcap (USD b) 51.5
CMP: INR837 NeutralYear Net Sales PAT EPS P/E ADJ. EPS* Adj. P/E Adj. P/B RoE RoCE EV/
End (INR b) (INR b) (INR) (X) (INR) (X) (X) (%) (%) EBITDA
03/11A 2,482 203 62.0 - 68.4 - - 14.8 12.9 -
03/12A 3,299 200 61.3 13.7 67.7 12.4 1.5 13.0 12.1 8.1
03/13E 3,682 198 61.3 13.6 67.8 12.3 1.4 11.7 11.1 9.2
03/14E 3,364 204 63.0 13.3 69.7 12.0 1.2 11.0 10.7 8.9
*Adjusted for treasury shares
BSE Sensex S&P CNX
18,763 5,703
We estimate RIL to report strong 2QFY13 GRM at USD9.5/bbl v/s USD6.7/bbl in 1QFY13 helped by higher cracks in
auto fuels. However, petchem profits are unlikely to increase due to subdued product spreads.
We expect average 2QFY13 KG-D6 volume of 29mmscmd v/s 33mmscmd in 1QFY13.
We expect RIL to report PAT of INR55.5b (v/s INR57b in 2QFY12 and INR44.7b in 1QFY13).
Key things to watch out for: (a) GRM, (b) Petchem margin, (c) KG-D6 production.
RIL trades at 12x FY14E adjusted EPS of INR69.7. We maintain Neutral due to concerns on cash utilization, RoE
reaching sub-15% and increased share (80%) of cyclical refining and petchem businesses in its earnings.
Quarterly Performance (Standalone) (INR Billion)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 810.2 785.7 851.4 851.8 918.8 937.0 915.8 927.4 3,299.0 3,698.9
Change (%) 39.1 36.7 42.4 17.2 13.4 19.3 7.6 8.9 32.9 12.1
EBITDA 99.3 98.4 72.9 65.6 67.5 82.0 74.2 73.3 336.2 297.1
% of Net Sales 12.3 12.5 8.6 7.7 7.3 8.8 8.1 7.9 10.2 8.0
Change (%) 6.3 4.8 -23.7 -33.3 -32.0 -16.7 1.9 11.7 -11.8 -11.6
Depreciation 32.0 29.7 25.7 26.6 24.3 24.2 24.2 24.3 113.9 97.0
Interest 5.5 6.6 6.9 7.7 7.8 7.7 7.6 7.6 26.7 30.7
Other Income 10.8 11.0 17.2 23.0 19.0 19.2 20.3 20.6 61.9 79.1
PBT 72.6 73.2 57.4 54.3 54.3 69.3 62.8 62.0 257.5 248.4
Tax 16.0 16.1 13.0 12.0 9.6 13.8 13.1 13.5 57.1 50.1
Rate (%) 22.1 22.1 22.6 22.0 17.7 19.9 20.9 21.8 22.2 20.2
PAT 56.6 57.0 44.4 42.4 44.7 55.5 49.7 48.5 200.4 198.4
Change (%) 16.7 15.8 -13.6 -21.2 -21.0 -2.7 11.9 14.4 -1.2 250.4
Key Assumptions (USD/bbl)
Fx Rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.0 54.0 47.9 54.4
Brent Price (USD/bbl) 117 113 109 119 108.7 110.2 110.0 111.1 114 110
RIL GRM 10.3 10.1 6.8 7.6 7.6 9.5 8.4 8.3 8.7 8.5
Singapore GRM 8.6 9.1 7.9 7.5 6.7 9.1 8.1 8.1 8.3 8.0
Premium/(disc) to Singapore 1.7 1.0 -1.1 0.1 0.9 0.4 0.3 0.3 0.4 0.5
KG-D6 Gas Prodn (mmscmd) 48.6 45.3 41.0 35.5 33.0 29.0 26.5 23.5 42.6 28.0
Segmental EBIT Breakup (INR b)
Refining 32.0 30.8 16.9 17.0 21.5 35.0 26.7 26.3 96.6 109.4
Petrochemicals 22.2 24.2 21.6 21.7 17.6 17.5 17.6 20.1 89.7 72.8
E&P, others 14.8 15.4 12.9 9.5 9.7 8.7 8.7 7.2 52.7 34.3
Total 69.0 70.4 51.4 48.2 48.8 61.2 53.0 53.6 238.9 216.5
E: MOSL Estimates; EPS adjusted for treasury shares
C–145October 2012
September 2012 Results Preview
Sector: Real Estate
Real Estate
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Anant Raj Inds 71 Buy 868 -4.9 -12.2 425 -16.5 -15.1 299 -13.8 -15.6
DLF 234 Buy 21,370 -15.6 -2.8 8,762 -25.3 -17.9 2,331 -37.4 -20.4
HDIL 98 Neutral 4,192 -5.1 108.4 3,144 -14.6 8.2 1,084 -27.3 2.9
Mahindra Lifespace 378 Buy 1,173 25.0 12.6 293 13.5 -8.0 303 -3.4 3.5
Oberoi Realty 265 Buy 2,134 -4.1 6.7 1,238 7.1 8.7 1,090 -2.2 8.1
Phoenix Mills 196 Buy 628 32.5 0.3 396 18.7 0.4 301 26.2 -1.5
Unitech 24 Buy 4,888 -21.9 19.9 709 -48.7 29.5 492 -46.8 7.2
Sector Aggregate 35,252 -13.1 7.7 14,966 -21.4 -9.2 5,901 -27.6 -7.8
Company Name
Anant Raj Industries
DLF
HDIL
Mahindra Lifespaces
Oberoi Realty
Phoenix Mills
Unitech
Macro impetus and reform thrust positive for the sector Recent favorable macro trends and reform thrust, viz, much-awaited FDI in multi-
brand retail, policy relaxation in single brand retail, expected interest rate
downcycle, etc, are positive for the real estate (RE) sector.
Approval hurdles in worst performing Mumbai market are seemingly easing off
with fast-track clearances on the back of new DCR (development control
regulations), resulting in visible increase in new launches.
Rational approaches from developers in choosing right product and market mix
in their near-term monetization plan have led to better offtake in their recent
launches.
While leverage situation is broadly unaltered, improving liquidity outlook and
success in divestment transactions have enhanced the expectation of substantial
de-leveraging over 2HFY13.
Despite seasonal weakness, 2QFY13 to see YoY improvement in salesmomentum We expect our real estate universe to post a YoY uptick in 2QFY13 sales momentum
on the back of (1) spillover launches (which were deferred by delay in approvals)
and (2) low base of weak 2QFY12.
Some much awaited launches in Sep-12 (e.g. Phoenix's One Bangalore West and
Godrej Summit, Gurgaon) have seen encouraging success even during a weak
home buying season.
Phoenix sold ~0.7msf (275+ units @ INR7,000/sf, INR5.3b) in a week's time after
launch and Godrej Properties sold ~1msf (695 units @ INR5,800/sf) on the day of
launch, despite doing unconventional non-broker marketing. This reaffirms the
underlying demand for products offered by branded developers at right prices.
We expect the outperformance to continue in NCR and Southern Markets, but
meaningful sign of sales revival in Mumbai market is anticipated in take place
only over 2HFY13.
Sandipan Pal ([email protected])
C–146October 2012
September 2012 Results Preview
Sector: Real Estate
Key expectations For 2QFY13, our RE universe is expected to post revenue de-growth of 13.1% YoY
(up +7.7% QoQ), EBITDA decline of 21.4% YoY (down 9.2% QoQ) and PAT decline of
27.6% YoY (down 7.8% QoQ).
We expect operating cash flow to (a) improve for DLF (higher focus on execution),
HDIL (FSI and TDR sales), Phoenix (on the back of new launches in residential),
and (b) remain stable for Oberoi, Prestige, and Unitech. Despite improving support
from operating cash flow, meaningful success in debt reduction is likely to be
visible only in 2HFY13.
Key factors to watch for Status of planned launches for Mahindra Lifespaces, Oberoi, and DLF's Magnolia
launch.
Sign of uptick in revenue booking for Prestige (booked higher sales in past quarters),
DLF (execution outsourcing), Unitech (refinancing trouble) and customer
collection run-rate;
Leasing velocity and outlook of management in the commercial vertical.
Progress in divestment plan de-leveraging target.
New project acquisition by developers with better liquidity (Oberoi, Mahindra
Lifespaces).
Expect a restrained business focus to pay off during recovery; return metricsto improve We believe RE developers are now highly controlled and rational in their business
approach. Funding constraint has forced them to focus only on select verticals and
performing assets, which we believe would be beneficial for medium-term supply-
demand economics.
Higher focus on execution by moving to outsourcing model (DLF, IBREL) would
bring more certainty to construction and cash flow timelines.
We expect RoE to improve with (a) better asset turn, (b) stable costs, and (c)
easing financial leverage.
Sticking to bottom-up stock picking; prefer DLF, Prestige, Phoenix and Oberoi We continue to prefer companies with (a) strong operating performance, and (b)
delta from ebbing concerns - DLF (a play on improving operating and financial
leverage), Prestige, Phoenix (steady operations), and Oberoi (still the best
defensive bet in inefficient Mumbai market). Coincidentally DLF, Phoenix and
Prestige are also the biggest beneficiaries of the likely revival in the retail vertical.
Despite weaker operating performances, high beta stocks like UT, HDIL, IBREL and
Anantraj may surprise positively due to bigger scope of macro-driven operational
improvement.
C–147October 2012
September 2012 Results Preview
Sector: Real Estate
Prestige, Sobha, JPIN and DLF have been key outperformers in salesSales (INR b) 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13
DLF 12.9 12.6 15.0 18.9 11.1 6.3 9.6 25.8 6.0
Unitech 13.0 10.1 10.4 9.8 10.2 10.7 9.4 7.8 7.0
Anantraj 2.1 0.9 2.3 0.1 1.0 1.6 0.9 0.9 1.6
IBREL 3.1 31.0 8.7 5.6 3.8 4.9 4.5 6.3 NA
HDIL 6.4 5.2 7.7 1.5 1.9 7.7 0.6 0.5 0.5
ORL 1.8 1.4 3.3 3.5 2.6 2.3 1.8 2.8 2.1
PEPL 0.8 7.4 3.2 2.5 2.1 7.8 4.7 6.0 10.0
MAHLIFE 0.9 2.6 2.3 1.2 1.7 0.8 3.0 0.6 0.5
GPL 1.4 0.6 3.3 4.6 2.3 2.1 3.5 3.5 5.0
Sobha 2.7 2.7 2.8 2.7 3.0 4.9 4.5 5.0 4.8
JPIN 13.9 10.8 6.3 10.0 5.7 5.8 16.4 11.0 6.8
Source: Company/MOSL
Bank loan to developers rose to INR1157b as on July-12 Cost of debt stabilized (%)
Launch volume improved QoQ, sales volume steady Sales value (INR b) jumped 11%QoQ (Top 6 cities)
Trend of QoQ price growth (%) shows (a) moderation for Mumbai, b) stagnation for NCR
Source: Liases Foras/Company/MOSL
-10-5
05
10
1520
Mu
mb
ai
NCR
Ba
ng
alo
re
Pu
ne
Hyd
era
ba
d
Ch
en
na
i
4QCY09 1QCY10 2QCY10 3QCY10 4QCY101QCY11 2QCY11 3QCY11 4QCY11 2QCY12
38
55
7470
9589
84
63
88
53
61 67 69 62 6658 63 58 56
68 69 70
3Q
CY
09
4Q
CY
09
1Q
CY
10
2Q
CY
10
3Q
CY
10
4Q
CY
10
1Q
CY
11
2Q
CY
11
3Q
CY
11
4Q
CY
11
1Q
CY
12
2Q
CY
12
Launch (msf) Sale s (msf)
20
0
23
2
22
7
24
8
22
1
25
0
22
7
24
2
217 23
4 28
5
31
7
30
5
2Q
CY
09
3Q
CY
09
4Q
CY
09
1Q
CY
10
2Q
CY
10
3Q
CY
10
4Q
CY
10
1Q
CY
11
2Q
CY
11
3Q
CY
11
4Q
CY
11
1Q
CY
12
2Q
CY
12
-
400
800
1,200
1,600
Se
p-0
5
Fe
b-0
6Ju
l-0
6
De
c-0
6
Ma
y-0
7
Oct
-07
Ma
r-0
8
Au
g-0
8
Jan
-09
Jun
-09
No
v-0
9
Ap
r-1
0S
ep
-10
Fe
b-1
1
Jul-
11
De
c-1
1M
ay-
12
-8
0
8
16
24Loan (INR b) Growth (%)
10.5
9.5
12
.5
13
.0
12
.0
12
.5
9.9
13.
8
13
.0
13
.0
12.9
12.
8
11
.1
13.
7
14
.0
14
.0
14
.0
12
.8
11
.2
13
.5
14
.0
14
.0
14
.0
11
.8
DLF GPL PEPL HDIL UT Sobha
1QFY11 4QFY11 2QFY12 4QFY12
C–148October 2012
September 2012 Results Preview
Sector: Real Estate
Launch volume down, absence of any Pricings firm, inventory level decliningbig project (msf) Sales performance down QoQ (still very high at Noida)
81
21
6
12
21
16 16
11 12
9
171
1
27
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
2QC
Y12
New launches yet to pick up Sales volume up, value down - implyingto desired level (msf) higher sales in mid-segments Quoted prices refuse to fall
20 18 13 12 13 12 11 9 8 9 8 9 10
99 93
64 6271
80 79
57 50
6753
8572
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
2QC
Y12
Sales volume (ms f)Sales value (INR b)
2
4
6
8
10
12
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
2QC
Y12
Thou
sand
s
10
20
30
40
50
Avg. Quo ted p rice s (INR /s f)Avg. s ales prices (INR/sf)Inven tory mo nth
2
3
3
4
4
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
Tho
usan
ds
10
20
30
40
50
Avg Quoted prices (INR/sf)Avg. sa les price s (INR /s f)Invento ry month (RHS)
11 11
195
9
2649
305
0
48
19
34 32
17
2Q
CY0
9
3Q
CY0
9
4Q
CY0
91
QCY
10
2Q
CY1
03
QCY
10
4Q
CY1
0
1Q
CY1
12
QCY
11
3Q
CY1
14
QCY
11
1Q
CY1
22
QCY
12
0
9
18
27
36
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
2QC
Y12
0
35
70
105
140
Sales vo lume (ms f)Sales va lue (INR b)
Mumbai
NCR
Launch volume down QoQ (msf) Sales momentum showing spiraling trend Pricing strengthened, inventory down
Source: Liases Foras/Company/MOSL
51
4
11
61
0
7
11
8
31
4
111
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
2QC
Y12
3 8 4 8 8 11 10 7 9 7 9 14 11 16
8
27
12
2330
35
2336 33
23 3539
67
54
1QC
Y09
2QC
Y09
3QC
Y09
4QC
Y09
1QC
Y10
2QC
Y10
3QC
Y10
4QC
Y10
1QC
Y11
2QC
Y11
3QC
Y11
4QC
Y11
1QC
Y12
2QC
Y12
Sales volume (msf)Sales value (INR b)
Th
ou
san
ds
68
34 3030231816202222
30181712
1
2
3
4
5
1Q
CY09
2Q
CY09
3Q
CY09
4Q
CY09
1Q
CY10
2Q
CY10
3Q
CY10
4Q
CY10
1Q
CY11
2Q
CY11
3Q
CY11
4Q
CY11
1Q
CY12
2Q
CY12
Inven tory as k prices (INR/s f)Sold p rice s (INR/s f)Inven tory mon th
Bangalore
C–149October 2012
September 2012 Results Preview
Sector: Real Estate
Overall commercial absorption deteriorates; Bangalore remain best placed in vacancy2Q2011 3Q2011 4Q2011 1Q2012 2Q2012
NCR 2.0 1.6 2.0 1.0 0.7
Mumbai 3.4 2.4 1.0 2.7 0.5
Bangalore 1.7 1.6 0.8 1.7 0.7
Chennai 2.2 0.8 - 0.3 0.6
Pune 2.6 0.6 0.6 0.3 0.2
Hyderabad 1.8 - - - 0.3
Kolkata 0.4 - 0.3 - 0.2
India 14.1 7.0 4.7 6.0 3.1
NCR 2.0 1.0 1.6 0.9 1.7
Mumbai 2.1 1.0 1.2 1.1 0.4
Bangalore 3.3 2.4 3.0 3.6 1.8
Chennai 1.1 0.6 1.2 0.7 0.7
Pune 1.0 0.4 0.5 0.5 0.3
Hyderabad 1.3 0.6 0.4 0.5 0.5
Kolkata 0.3 1.4 0.5 0.2 0.5
India 11.0 7.4 8.4 7.5 5.9
NCR 32 32 31 31 30
Mumbai 23 24 23 23 23
Bangalore 18 18 16 15 14
Chennai 26 27 25 24 24
Pune 28 28 26 26 25
Hyderabad 10 10 11 10 10
Kolkata 28 21 19 18 15
India 24 24 22 22 22
Source: DTZ/MOSL
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Real Estate
Anant Raj Inds 71 Buy 3.8 5.0 6.6 18.6 14.3 10.8 17.9 13.6 9.7 3.1 3.8 4.8
DLF 234 Buy 7.1 9.0 10.7 33.0 26.1 21.8 16.3 17.1 13.4 4.5 5.5 6.3
Godrej Properties 599 Neutral 12.6 16.0 19.6 47.7 37.4 30.6 39.5 32.3 24.4 8.3 8.4 9.5
HDIL 98 Neutral 19.3 12.9 17.8 5.1 7.6 5.5 5.3 5.3 3.8 7.9 5.1 6.6
Indiabulls Real Estate58 Buy 3.5 4.2 6.1 16.5 13.7 9.5 11.5 9.8 7.8 2.2 2.6 3.6
Jaypee Infratech 52 Buy 9.3 6.7 7.2 5.6 7.7 7.2 8.3 7.8 6.2 24.5 15.2 14.3
Mahindra Lifespace 378 Buy 29.2 32.5 34.0 12.9 11.6 11.1 10.8 9.7 9.1 10.3 10.5 10.0
Oberoi Realty 265 Buy 14.1 15.8 24.7 18.8 16.8 10.7 15.3 11.9 6.9 13.1 13.1 17.9
Phoenix Mills 196 Buy 7.3 7.8 16.0 26.9 25.2 12.3 20.9 17.3 10.2 6.2 6.3 11.7
Prestige Estates 136 Buy 2.5 5.5 8.2 53.9 24.5 16.5 20.7 12.8 9.8 4.1 8.4 11.0
Unitech 24 Buy 0.9 0.8 1.3 26.8 30.2 18.8 34.3 37.8 23.0 2.0 1.7 2.7
Sector Aggregate 18.0 18.3 14.0 14.0 13.4 10.0 6.1 5.8 7.0
Supply (msf)
Absorption (msf)
Vacancy (%)
Relative Performance-3m (%) Relative Performance-1Yr (%)
60
75
90
105
120
Se
p-1
1
De
c-1
1
Ma
r-1
2
Jun
-12
Se
p-1
2
Se ns ex Inde xMOSL Re al Es tate Index
85
95
105
115
125
Jun
-12
Jul-
12
Au
g-1
2
Se
p-1
2
Sense x IndexMOSL Rea l Es tate Inde x
C–150October 2012
September 2012 Results Preview
Sector: Real Estate
Anant Raj Industries
Bloomberg ARCP IN
Equity Shares (m) 294.6
52 Week Range (INR) 80/35
1,6,12 Rel Perf (%) 47/17/9
Mcap (INR b) 21.0
Mcap (USD b) 0.4
CMP: INR71 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 4,241 1,681 5.7 -29.5 - - 4.6 5.9 - -
3/12A 3,115 1,135 3.8 -32.5 18.6 0.5 3.1 3.7 9.8 18.0
3/13E 4,326 1,473 5.0 29.7 14.3 0.5 3.8 4.4 6.7 13.6
3/14E 5,667 1,948 6.6 32.3 10.8 0.5 4.8 5.9 4.9 9.7
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Sales 838 913 922 449 989 868 1,180 1,244 3,115 4,326
Change (%) -19.0 -31.3 -25.9 -29.1 18.0 -4.9 28.1 176.7 -26.5 38.8
EBITDA 493 509 490 199 501 425 578 630 1,699 2,134
Change (%) -13.3 -18.8 -36.5 -56.2 1.5 -16.5 18.0 216.3 -27.9 25.6
As of % Sales 59 56 53 44 51 49 49 51 55 49
Depreciation 27 30 36 17 32 35 37 43 110 147
Interest 45 57 69 36 37 51 58 76 206 223
Other Income 45 76 51 25 44 55 51 62 195 213
PBT 466 498 437 174 475 394 535 573 1,578 1,977
Tax 115 135 97 48 110 95 134 156 396 494
Effective Tax Rate (%) 24.7 27.2 22.2 27.8 23.3 24.0 25.0 27.1 25.1 25.0
Reported PAT 351 347 315 122 355 299 401 418 1,135 1,473
Change (%) -23.5 -27.7 -37.4 -60.1 1.2 -13.8 27.3 242.1 -32.4 29.7
E MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Delay in Gold Course Road project revenue recognition: We expect revenue to de-grow 5% YoY to INR868m,
EBITDA to de-grow 17% YoY to INR425m and PAT to de-grow 14% YoY to INR299m. We estimate EBITDA margin of
49%. The de-growth is attributable to delay in revenue recognition from plotted project at Golf Course Road,
which is yet to reach 25% development expenditure hurdle (development expenditure comprises infrastructure
development like road network, water supply etc - almost INR7.5m/acre)
Sales run-rate lowered QoQ, collections up in Golf Course Road project: During 2QFY13, the company sold
additional 100 at Neemrana (v/s 462units in 1QFY13) and 20 units in Sector-91 (v/s 27 units in 1QFY13). Selling
prices at Sector-91 is up to INR4,800/sf (from INR,4200/sf in 1Q), while at Golf Course Road project, the company
is selling at INR90,000/sq yard as against initial launch price of INR75,000/sq yard. Of the total sales of INR4.5b
in the Golf Course Road project, the company has collected ~INR1.25b to date.
Rental income to improve with higher contribution from mall: Expect rental run-rate (ex Tricolor Hotel) to
improve to INR273m (v/s INR255m in 1QFY13) on account of higher contribution from Kirti Nagar mall. While the
mall is already 80% occupied, it is operating at effective rental of INR70/sf/m, almost 30% below minimum
guarantee rental of INR100/sf/m.
Anant Raj trades at 34% discount to our one-year forward NAV of INR108/share, 10.8x FY14E EPS of INR6.6 and
0.5x FY14E BV. Maintain Buy.
C–151October 2012
September 2012 Results Preview
Sector: Real Estate
DLF
Bloomberg DLFU IN
Equity Shares (m) 1,714.4
52 Week Range (INR) 261/170
1,6,12 Rel Perf (%) 10/9/-10
Mcap (INR b) 400.8
Mcap (USD b) 7.6
CMP: INR234 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 95,606 16,396 9.7 -5.2 - - 5.8 7.1 - -
3/12A 96,294 12,008 7.1 -26.8 33.0 1.5 4.5 7.4 6.5 16.0
3/13E 85,482 15,191 9.0 26.5 26.1 1.5 5.5 8.4 7.0 16.8
3/14E 103,723 18,243 10.7 20.1 21.8 1.4 6.3 8.6 5.6 13.2
Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 24,458 25,324 20,344 26,168 21,977 21,370 20,516 21,619 96,294 85,482
Change (%) 20.6 6.9 (18.0) -2.5 -10.1 (15.6) 0.8 -17.4 0.7 -11.2
Total Expenditure 13,349 13,594 12,116 18,192 11,307 12,609 12,309 13,368 57,251 49,592
EBITDA 11,110 11,730 8,227 7,976 10,670 8,762 8,206 8,251 39,043 35,889
Change (%) 13.4 26.3 -30.2 19.7 -4.0 -25.3 -0.3 3.4 4.0 -8.1
As % of Sales 45.4 46.3 40.4 30.5 48.6 41.0 40.0 38.2 40.5 42.0
Depreciation 1,702 1,753 1,797 1,636 1,786 1,751 1,860 1,898 6,888 7,295
Interest 4,964 5,263 6,199 6,039 6,226 6,321 5,896 5,142 22,465 23,585
Other Income 574 448 3,617 1,307 1,311 2,249 9,747 1,688 5,945 14,996
PBT 5,018 5,161 3,848 1,448 3,970 2,940 10,197 2,898 15,635 20,005
Tax 1,278 1,475 1,353 -413 1,137 705 2,651 707 3,694 5,201
Effective Tax Rate (%) 25 29 35 -28.5 29 24 26 24 23.6 26.0
Reported PAT 3,584 3,724 2,584 2,117 2,928 2,331 7,642 2,289 12,008 15,191
Change (%) (12.8) (11.0) (44.5) (38.6) (18.3) (37.4) 195.8 26.4 (26.8) 26.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
EBITDA, PAT to de-grow YoY: We expect DLF's 2QFY13 revenue at INR21.4b (near-flat QoQ), EBITDA to de-grow
25% YoY to INR8.8b, and PAT to de-grow 37% to INR2.3b owing to higher interest expense.
Leverage level to remain broadly unaltered: During 2QFY13, DLF concluded divestment of NTC Mills and received
initial tranche of INR5b. However, we expect leverage level to remain largely unaltered due to prevailing
operating deficit. Receipt of balance INR22b by 3QFY13 would be a key debt reduction trigger to watch out for.
Focus on luxury launches: In 2QFY13, DLF launched Bella Greens, a luxury-end villa project at Bannerghatta
Road, Bengaluru (ticket size INR28.4-45.6m), re-affirming its strong focus on premium projects in FY13. We
expect successful launch of super luxury Magnolia II in 3QFY13 to hold the key to improve its operating deficit.
Key things to watch out for:
1. Progress in major divestments (Aman Resort, windmills), and receipt of balance amount in NTC Mills sale
followed by debt-reduction.
2. Successful launch of Magnolia II.
3. Pick-up in cash conversion post shift to third-party contractors and
4. Leasing momentum in the backdrop of FY13 guidance of 2msf.
DLF trades at 21.8x FY14E EPS of INR10.7, 1.4x FY14E BV and 18% discount to our NAV estimate of INR286.
Maintain Buy.
C–152October 2012
September 2012 Results Preview
Sector: Real Estate
HDIL
Bloomberg HDIL IN
Equity Shares (m) 419.0
52 Week Range (INR) 135/52
1,6,12 Rel Perf (%) 28/9/-16
Mcap (INR b) 40.9
Mcap (USD b) 0.8
CMP: INR98 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 18,655 8,218 19.8 25.5 - - 9.0 10.7 - -
3/12A 20,064 8,098 19.3 -2.5 5.1 0.4 7.9 10.0 3.9 5.3
3/13E 19,054 5,394 12.9 -33.4 7.6 0.4 5.1 8.9 3.9 5.3
3/14E 24,259 7,461 17.8 38.3 5.5 0.4 6.6 10.9 2.8 3.8
Consolidated Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 5,144 4,416 4,254 6,251 2,012 4,192 5,145 7,706 20,064 19,054
Change (%) 13.0 15.7 -8.2 13.1 -60.9 -5.1 21.0 23.3 7.6 -5.0
Total Expenditure 920 733 1,229 2,122 -893 1,048 1,286 3,662 5,005 5,104
EBITDA 4,223 3,683 3,024 4,129 2,904 3,144 3,858 4,044 15,059 13,951
Change (%) 45.6 41.6 9.0 -6.5 -21.1 -14.6 27.6 -2.1 -9.4 -7.4
As % of Sales 82.1 83.4 71.1 66.0 144.4 75.0 75.0 52.5 75.1 73.2
Depreciation 213 214 216 215 210 225 225 234 858 901
Interest 1,437 1,527 1,603 1,682 1,541 1,806 1,878 1,998 6,249 7,222
Other Income 60 73 133 247 94 133 133 172 513 533
PBT 2,633 2,014 1,338 2,401 1,248 1,246 1,889 1,977 8,464 6,360
Tax 739 524 -220 -752 195 162 246 288 290 890
Effective Tax Rate (%) 28.1 26.0 -16.4 -31.3 15.6 13.0 13.0 14.6 3.4 14.0
Reported PAT 1,894 1,491 1,558 3,156 1,054 1,084 1,643 1,613 8,098 5,394
Change (%) -12.5 -24.2 -31.6 70.4 -29.3 -27.3 5.5 -48.9 -1.5 -33.4
E: MOSL Estimates; Numbers as per Schedule 6
BSE Sensex S&P CNX
18,763 5,703
We expect HDIL's 2QFY13 consolidated revenue at INR4.2b (down 5%YoY), EBITDA at INR3.1b, and PAT at INR1.1b
(down 27%).
The key revenue contributors are likely to be (1) 1.5-2msf/quarter of FSI sales in Virar/Vasai, (2) TDR sales from
newly generated 2msf at Kurla Premiere (owing to change in usage), and (3) other potential FSI sales like one
advance staged deal for 1.2msf of Metropolis commercial.
With deferment completion target of its three residential projects (Premiere, Galaxy and Metropolis) to 3/
4QFY13, no revenue is going to get recognized under project completion method (PCM) in 1HFY12.
We expect cash flow from FSI sales (has been weak till date) to improve on the back of early sign of easing off
of approval hurdles. This should also boost construction pace and customer collection run-rate.
Key things to watch out for:
1. Response to its recently launched plotted project Imperial County, Noida, and Premiere Kurla
2. Progress on new launches in Virar, Ghatkopar and Shahad
3. Clarity over other FSI sales under negotiation
4. Progress in de-leveraging
5. Progress in MIAL relocation and status of subsequent phases
The stock trades at 5.5x FY14E and 0.4x FY14E BV and 29% discount to NAV of INR138. Maintain Neutral.
C–153October 2012
September 2012 Results Preview
Sector: Real Estate
Mahindra Lifespaces
Bloomberg MLIFE IN
Equity Shares (m) 40.8
52 Week Range (INR) 390/235
1,6,12 Rel Perf (%) 3/10/15
Mcap (INR b) 15.4
Mcap (USD b) 0.3
CMP: INR378 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 6,119 1,082 26.5 37.7 - - 10.2 10.8 - -
3/12A 7,013 1,191 29.2 10.1 12.9 1.3 10.3 10.9 2.9 10.8
3/13E 7,760 1,325 32.5 11.3 11.6 1.2 10.5 11.1 2.7 9.7
3/14E 8,086 1,389 34.0 4.8 11.1 1.1 10.0 11.3 2.4 9.1
Quarterly Performance: Standalone (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 815 938 1,538 1,400 1,041 1,173 1,407 1,069 4,690 4,690
Change (%) 19.9 5.4 -1.3 -14.6 27.8 25.0 -8.5 -23.6 -1.6 0.0
Total Expenditure 642 679 1,076 1,082 723 879 1,055 814 3,479 3,471
EBITDA 172 258 462 318 319 293 352 255 1,210 1,219
As % of Sales 21.2 27.5 30.0 22.7 30.6 25.0 25.0 23.9 25.8 26.0
Change (%) -11.5 5.0 9.3 -7.7 44.6 -9.2 -16.7 5.0 -1.4 0.7
Depreciation 7 7 7 7 4 7 7 10 27 29
Interest 2 5 2 20 14 24 24 34 30 95
Other Income 91 182 87 162 134 154 154 173 522 614
PBT 255 428 539 453 434 416 474 385 1,676 1,709
Tax 84 114 144 132 141 112 123 102 474 479
Effective Tax Rate (%) 32.9 26.6 31.0 29.1 32.5 27.0 26.0 26.5 28.3 28.0
Reported PAT 171 314 395 321 293 303 351 283 1,202 1,231
Change (%) 18.0 27.4 18.1 5.3 71.5 -3.4 -11.1 -11.9 16.6 2.4
E: MOSL Estimates; *Revenue outside Standalone is largely contributed by Mahindra World City (MWC) Chennai and Jaipur
BSE Sensex S&P CNX
18,763 5,703
We expect Mahindra Lifespaces' 2QFY13 standalone revenue to grow 25% YoY to INR1,173m, EBITDA to de-grow
9.2% YoY to INR293m and PAT to de-grow 3.4% YoY to INR303m.
We expect EBITDA margin at 25%, lower than 31% in 1QFY13 given higher proportion revenue contribution from
non-Mumbai projects.
Key things to watch out for
1. Progress in stated launches at Hyderabad and Pune (yet to take off)
2. Leasing progress in Jaipur DTA
3. Progress of land acquisition in North Chennai SEZ.
The stock trades at a ~19% discount to our one-year forward SOTP value of INR469/share, 11.1x FY14E EPS of
INR4.8 and 1.1x FY14E BV. Buy.
C–154October 2012
September 2012 Results Preview
Sector: Real Estate
Oberoi Realty
Bloomberg OBER IN
Equity Shares (m) 328.2
52 Week Range (INR) 323/205
1,6,12 Rel Perf (%) 9/-6/5
Mcap (INR b) 87.0
Mcap (USD b) 1.7
CMP: INR265 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 9,960 5,172 15.8 12.9 - - 19.9 23.6 - -
3/12A 8,247 4,629 14.1 -10.5 18.8 2.3 13.1 17.1 9.0 15.3
3/13E 10,669 5,178 15.8 11.9 16.8 2.1 13.1 17.9 6.8 11.9
3/14E 17,178 8,109 24.7 56.6 10.7 1.8 17.9 24.8 4.1 6.9
Consolidated Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Revenue 1,609 2,226 1,873 2,548 1,999 2,134 2,347 4,189 8,247 10,669
Change (%) 0.5 30.9 -53.0 -4.5 24.2 -4.1 25.3 64.4 -17.2 29.4
Total Expenditure 706 1,071 739 906 860 896 962 1,877 3,412 4,596
EBITDA 903 1,156 1,134 1,642 1,139 1,238 1,385 2,312 4,835 6,073
Change (%) 6.6 14.8 -54.1 13.3 26.1 7.1 22.1 40.8 -16.2 25.6
As of % Sales 56 51.9 60.5 64.5 57 58.0 59 55 58.6 56.9
Depreciation 65 66 68 70 70 77 77 85 269 310
Interest 1 0 1 1 1 0 0 0 3 0
Other Income 542 343 310 307 309 333 333 356 1,501 1,330
PBT 1,374 1,432 1,375 1,879 1,376 1,493 1,640 2,585 6,059 7,090
Tax 316 317 354 443 368 403 443 701 1,430 1,915
Effective Tax Rate (%) 20.0 22.2 25.8 23.6 26.8 27.0 27.0 27.1 23.6 27.0
Reported PAT 1,058 1,114 1,021 1,436 1,008 1,090 1,197 1,883 4,629 5,174
Change (%) 32.5 16.7 -50.3 5.1 -4.7 -2.2 17.3 31.2 -10.5 11.9
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Oberoi Realty's 2QFY13 revenue to de-grow 4.1% YoY to INR2.1b, EBITDA to grow 7% YoY to INR1.2b
and PAT to de-grow ~2% to INR1.1b. We estimate EBITDA margin of 58%. Esquire is likely to cross revenue
recognition threshold by 4QFY13.
We expect 2QFY13 sales to remain largely flat QoQ. Post increase in the prices across its ongoing projects, the
offtake run-rate has declined to 2 apartments every 3 days from 1 per day.
Mulund project is yet to receive MoEF approvals and will be delayed further. On the other hand, we believe
Worli project is witnessing decent response during soft launch.
Key things to watch out for
1. Sales momentum in Esquire (Goregaon) and Grande (Andheri)
2. Visibility on new project acquisition
3. Leasing visibility in commercial projects.
The stock trades at 10.7x FY14E EPS of INR24.7, 1.8x FY14E BV and ~21% discount to one-year forward NAV of
INR337. Maintain Buy.
C–155October 2012
September 2012 Results Preview
Sector: Real Estate
Phoenix Mills
Bloomberg PHNX IN
Equity Shares (m) 144.8
52 Week Range (INR) 222/149
1,6,12 Rel Perf (%) 19/-15/-21
Mcap (INR b) 28.4
Mcap (USD b) 0.5
CMP: INR196 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 2,102 842 5.8 36.5 - - 5.0 5.2 - -
3/12A 3,666 1,056 7.3 25.5 26.9 1.7 6.2 6.1 12.1 20.9
3/13E 4,315 1,128 7.8 6.7 25.2 1.6 6.3 6.1 10.0 17.3
3/14E 8,690 2,316 16.0 105.4 12.3 1.4 11.7 10.4 4.8 10.2
BSE Sensex S&P CNX
18,763 5,703
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Cons. Cons.
Sales 535 474 505 600 626 628 638 630 3,666 4,315
Change (%) 32.4 6.9 12.0 28.3 17.0 32.5 26.4 5.0 74.4 17.7
Total Expenditure 205 141 132 237 232 232 223 221 1,552 1,804
EBITDA 331 333 373 363 394 396 415 410 2,114 2,511
Change (%) 12.6 5.1 14.0 13.2 19.3 18.7 11.1 12.7 50.4 18.8
As % of Sales 62 70 74 61 63 63 65 65 57.7 58.2
Depreciation 67 69 74 73 67 67 67 67 563 884
Interest 10 31 57 68 58 64 78 90 944 1,097
Other Income 110 89 113 146 143 137 143 147 446 646
PBT 363 323 355 368 413 402 412 401 1,053 1,175
Tax 91 84 86 95 107 100 103 97 189 282
Effective Tax Rate (%) 25 26 24 26 26 25 25 24 18.0 24.0
Adj. PAT 272 239 269 273 306 301 309 304 1,056 1,128
Change (%) 49.1 8.0 13.1 0.6 12.4 26.2 15.0 11.3 25.5 6.7
E: MOSL Estimates
In 1QFY13, PHNX changed its accounting practice by including electricity charges recovered from licensees in
revenue (on gross basis), which were earlier netted off against expense. With this, results for FY13 will not be
comparable YoY.
We expect High Street Phoenix's (HSP) 2QFY13 rental at INR628m (v/s INR626m in 1QFY13), EBITDA at INR396m
(v/s INR394m in 1QFY13), and PAT of INR301m, up 26%. The growth in rental is attributable to revenue sharing.
Among Market City retails, we expect further increase in pre-leasing in Bengaluru and Chennai, while in Pune,
we expect incremental pre-leasing to remain muted due to new product proposition under evaluation.
Recent residential launch at Bangalore One has been encouraging with sales of 0.7msf+ (INR5.3b). Steady sales
at Chennai project led to prices rising to INR10,000/sf.
Key things to watch out for:
1. Momentum in commercial and residential sales in Market City projects
2. Progress on ramp-up in recently commenced malls
3. Visibility over stake increase in Market City projects or new acquisitions.
The stock trades at a PER of 12.3x FY14E EPS of INR16, 1.4x FY14E BV and a 25% discount to its one-year forward
NAV of INR262. Maintain Buy.
C–156October 2012
September 2012 Results Preview
Sector: Real Estate
Unitech
Bloomberg UT IN
Equity Shares (m) 2,438.8
52 Week Range (INR) 38/17
1,6,12 Rel Perf (%) 20/-22/-24
Mcap (INR b) 59.3
Mcap (USD b) 1.1
CMP: INR24 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 33,960 5,677 2.2 -21.6 - - 4.9 5.6 - -
3/12A 24,219 2,373 0.9 -58.2 26.8 0.6 2.0 2.8 4.8 35.6
3/13E 22,217 2,106 0.8 -11.3 30.2 0.6 1.7 2.1 5.2 39.3
3/14E 28,746 3,470 1.3 60.6 18.8 0.6 2.7 3.2 4.0 23.9
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 6,155 6,261 5,086 6,717 4,077 4,888 5,999 7,253 24,219 22,217
Change (%) -25.7 -2.9 -22.9 -46.8 -33.8 -21.9 17.9 8.0 -28.7 -8.3
Total Expenditure 4,957 4,880 4,057 6,772 3,530 4,179 5,129 6,432 20,938 19,270
EBITDA 1,198 1,381 1,029 -54 547 709 870 822 3,281 2,948
Change (%) -59.2 -45.4 -50.7 -102.8 -54.3 -48.7 -15.4 -1,612 -65.3 -10.2
As of % Sales 19.5 22.1 20.2 -0.8 13.4 14.5 14.5 11.3 13.5 13.3
Depreciation 84 85 93 172 99 111 116 120 434 446
Interest 337 338 279 252 117 141 141 166 563 564
Other Income 714 403 387 576 345 322 322 299 2,080 1,289
PBT 1,490 1,362 1,044 97 677 779 935 834 4,365 3,227
Tax 468 424 469 475 261 265 318 189 1,896 1,033
Effective Tax Rate (%) 31.4 31.1 44.9 491.0 38.5 34.0 34.0 22.7 43.4 32.0
Reported PAT 984 924 552 23 459 492 595 622 2,373 2,106
Change (%) -45.4 -46.8 -50.4 -97.9 -53.4 -46.8 7.8 2,652 -58.2 -11.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect margins to improve: We expect 2QFY13 revenue to de-grow 22% YoY to INR4.9b, EBITDA to de-grow 49%
to INR709m and PAT to de-grow 47% YoY to INR492m. EBITDA margin is estimated at 14.5%, which should see
steady improvement with MTM loss provisioning taken out of P&L.
New launches subdued: Focus on new launches has been low (as guided by the management earlier) to prioritize
execution of ongoing projects. We expect sales to deteriorate YoY, except in Noida where run-rate should
remain steady. The company launched Exquisite in Noida during 2QFY13.
Execution run-rate contingent on liquidity improvement: Successful re-financing is the key to boost Unitech's
execution. We remain concerned about Unitech's FY13 repayment obligation of INR15b+.
Key things to watch out for
1. Sales momentum on the back of lower new launches (estimate INR37b in FY13)
2. Progress in construction and delivery (the company aims at INR4-4.5b/qtr run-rate v/s INR3b currently),
along with improvement in debtor days.
3. Strategy to address impending repayment of INR15b+ loan in FY13.
Unitech trades at 40% discount to its one-year forward NAV estimate of INR40 and 18.8x FY14E EPS of INR1.3 and
0.6x FY14E BV. Maintain Buy.
C–157October 2012
September 2012 Results Preview
Sector: Retail
RetailCompany Name
Jubilant Foodworks
Pantaloon Retail
Shoppers Stop
Titan Industries
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
JJubilant Foodworks 1,373 Neutral 3,450 43.5 9.7 628 46.9 9.6 344 45.5 6.4
Pantaloon Retail 214 Neutral 30,562 5.0 3.2 2,812 11.4 1.8 21 -93.6 -45.3
Shopper's Stop 401 Neutral 5,660 13.8 26.7 198 -48.8 43.7 36 -81.8 186.0
Titan Industries 262 Neutral 24,450 16.6 10.9 2,469 23.3 16.5 1,764 15.4 13.0
Sector Aggregate 64,122 11.6 8.1 6,107 14.4 9.2 2,165 -5.5 11.8
We expect our Retail universe to post 11.6% and 14.4% YoY growth in sales and EBITDA
respectively. PAT would decline 5%, due to weak performance by Shoppers Stop and
Pantaloon Retail. However, we estimate Jubilant Foodworks' to continue to outpeform
and post 45% YoY PAT growth. Titan should post sequentially better Jewellery volumes.
No recovery yet; expect specialty retailers to outperform: Consumer sentiment
remains subdued, impacting footfalls and same store sales (SSS) growth of traditional
retailers, in our view. Discretionary consumption has not shown any uptick
notwithstanding the improving macro environment post the recent government
announcements. Jewelry volumes, though sequentially better, are likely to remain
under pressure, as higher gold prices and macro uncertainty continue to deter buying.
The Quick Service Restaurant (QSR) segment remains an outlier, with continued
momentum on the back of more store openings and new launches.
Footfalls back to normal after discount season: Discount season sale attracted footfalls
in August. However, post the discount season, the footfalls did not sustain. This
coupled with weaker than expected ramp up in new stores will continue to impact
operating margins of traditional retailers. Committed capex plans will further put
strain on financials and increase debt. Shoppers Stop has added 1 department store
and Jubilant Foodworks is likely to add ~25 stores during the quarter. We understand
that Titan Industries is expanding Fastrack and Jewelry at a rapid pace, but is going
slow on Eyewear.
FDI in multi-brand retail cleared; do not expect deals in near term: During the quarter,
the Government of India (GoI) allowed 51% FDI in multi-brand retail and also amended
the sourcing norms for single-brand retail. The most important change vis-à-vis the
earlier announced policy is that state governments will have the final say in allowing
multi-brand retail in their respective states. It will be the privilege of state
governments to decide whether and where a multi-brand retailer with foreign partner
should be allowed to open outlets in the state. It will be restricted to cities with
population above one million. We believe letting in FDI is a long term positive for
Indian Retail, as apart from the natural benefits like technology, back-end expertise,
etc, which a global player may bring to the table, it allows capital starved players an
Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected])
C–158October 2012
September 2012 Results Preview
Sector: Retail
25.022.3
26.230.1
26.7
36.733.2
35.7
43.8
37.0
1Q
FY1
1
2Q
FY1
1
3Q
FY1
1
4Q
FY1
1
1Q
FY1
2
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2QFY
13E
26,60729,297
12,000
15,000
18,000
21,000
24,000
27,000
30,000
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
INR
/10
gm
10
7
2
1-111
14
22
132116
2
2
-6
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep
-12E
LTL Sa les Gr (%)
-30
0
30
60
903
QF
Y07
4Q
FY0
71
QF
Y08
2Q
FY0
83
QF
Y08
4Q
FY0
81
QF
Y09
2Q
FY0
93
QF
Y09
4Q
FY0
91
QF
Y10
2Q
FY1
03
QF
Y10
4Q
FY1
01
QF
Y11
2Q
FY1
13
QF
Y11
4Q
FY1
11
QF
Y12
2Q
FY1
23
QF
Y12
4Q
FY1
21
QF
Y13
2Q
FY1
3
Jewelry growth % Gold price change % (YoY)
Shoppers' Stop - SSS growth remains flat Titan's jewelry SBU; watch out for Gold prices, volume mix
Gold prices up 31% YoY and 5% QoQ (INR/10g) Jubilant Foodworks' LTL sales growth
Source: Company, MOSL
access to long-term capital. However, given the tough preconditions and complexity
in stitching a deal (separate entity, which complies with extant state FDI rules, will
have to be floated), we do not see any deal announcement in the near term.
No dawn yet; prefer specialty retailers: We remain cautious in the near term, as the
sector continues with flat to low single digit same store sales (SSS) growth. We believe
segments like Apparel, Home Retailing and Jewelry will take some time to recover
from the slowdown due to weak macroeconomic environment and low consumer
confidence. Shoppers Stop will face pressure on profitability due to low SSS growth
and resultant lack of operating leverage, given weaker ramp up in stores opened in
the past 18 months. Jubilant Foodworks has strong cash flows; we would watch for
SSS growth trends and revenue from the newly opened Dunkin Donuts. We maintain
our Neutral rating on Jubilant and Shoppers Stop. Festive season demand in 3Q holds
the key for Titan.
C–159October 2012
September 2012 Results Preview
Sector: Retail
60
80
100
120
140
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Sens ex IndexMOSL Reta i l Index
85
95
105
115
125
Jun-
12
Jul-
12
Aug
-12
Sep-
12Sens ex Index
MOSL Reta i l Index
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Retail
Jubilant Foodworks1,373 Neutral 16.4 23.9 35.4 83.9 57.3 38.8 46.0 30.7 21.4 37.7 38.2 39.0
Pantaloon Retail 214 Neutral 4.8 6.7 9.3 44.6 31.9 22.9 8.0 7.2 6.6 3.4 4.6 6.2
Shopper's Stop 401 Neutral 7.8 2.7 6.8 51.2 149.1 59.3 23.3 33.9 21.8 9.9 3.3 7.8
Titan Industries 262 Neutral 6.8 8.1 10.0 38.5 32.4 26.2 26.8 21.7 17.4 48.7 42.4 34.8
Sector Aggregate 45.2 38.3 28.9 19.0 16.1 13.2 16.0 16.7 19.1
Relative to performance-3m (%) Relative to performance-1Yr (%)
UR: Under Review
Area addition plans on trackShoppers Stop Jubilant Foodworks
55525149
4341
3010
87
1212
10
20
30
40
50
60
Jun-
10
Sep-
10
Dec
-10
Ma
r-1
1
Jun-
11
Sep-
11
Dec
-11
Ma
r-1
2
Jun-
12
Sep-
12
6
8
10
12
14
Shoppers Stop (LHS) Hyperci ty (RHS)
320 338378 392
439 465
74 77 87 90 93 96 100 105 110 115
514489
411364
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13E
Stores Ci ties
Source: Company, MOSL
C–160October 2012
September 2012 Results Preview
Sector: Retail
Jubilant Foodworks
Bloomberg JUBI IN
Equity Shares (m) 63.5
52 Week Range (INR) 1,397/633
1,6,12 Rel Perf (%) 12/18/44
Mcap (INR b) 87.2
Mcap (USD b) 1.7
CMP: INR1,373 Neutral
Year Net Sales Adj PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 6,783 720 11.2 112.4 - - 37.6 45.1 - -
03/12A 10,175 1,056 16.4 46.7 83.9 31.6 37.7 51.4 8.6 46.8
03/13E 14,807 1,545 23.9 46.3 57.3 21.9 38.2 53.7 5.8 31.2
03/14E 20,697 2,284 35.4 47.8 38.8 15.1 39.0 53.5 4.1 21.8
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
No of Stores 392 411 439 465 489 514 535 563 463 563
LTL Growth (%) 36.7 26.7 30.1 26.2 22.3 25.0 23.0 23.0 30.0 23.0
Net Sales 2,169 2,404 2,770 2,832 3,145 3,450 4,000 4,212 10,175 14,807
YoY Change (%) 60.0 47.1 49.2 46.2 45.0 43.5 44.4 48.7 50.0 45.5
Gross Profit 1,617 1,769 2,066 2,113 2,309 2,559 2,967 3,148 7,564 10,982
Gross Margin (%) 74.5 73.6 74.6 74.6 73.4 74.2 74.2 74.7 74.3 74.2
Other Expenses 1,196 1,341 1,551 1,604 1,736 1,931 2,207 2,348 5,698 8,221
% of Sales 55.2 55.8 56.0 56.6 55.2 56.0 55.2 55.7 56.0 55.5
EBITDA 420 427 516 509 573 628 760 800 1,866 2,761
EBITDA Growth % 67.2 43.8 59.9 54.0 36.3 46.9 47.4 57.2 55.3 48.0
Margins (%) 19.4 17.8 18.6 18.0 18.2 18.2 19.0 19.0 18.3 18.6
Depreciation 87 93 96 100 117 135 140 141 377 533
Interest 0 0 0 0 0 3 3 5 0 11
Other Income 12 14 14 17 19 24 24 23 57 90
PBT 346 348 434 425 475 514 641 676 1,546 2,306
YoY Change (%) 84.9 51.6 72.9 65.7 11.7 47.7 47.8 58.9 67.3 49.1
Tax 108 111 139 132 152 170 212 223 490 761
Rate (%) 31.1 32.0 32.1 31.1 31.9 33.0 33.0 33.0 31.7 33.0
Adjusted PAT 232 237 295 293 323 344 429 453 1,056 1,545
YoY Change (%) 52.0 28.4 55.4 51.8 39.3 45.5 45.8 54.5 46.7 46.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Jubilant Foodworks (JUBI) to report 43.5% increase in sales to INR3.4b. Like to like (LTL) sales growth
would be ~25%, marginally higher than in 1QFY13.
Gross margin would improve marginally to 74.2%; operating leverage would enable 40bp expansion in EBITDA
margin to 18.2%.
EBITDA is likely to grow 47% to INR628m. PAT would grow 45.5% to INR344m, driven by 100bp increase in tax
rate.
We expect the company to add 25 new stores, taking the total to 514 stores. In August, JUBI inaugurated its
500th store in Delhi.
Three Dunkin Donuts stores are under operation in New Delhi. The company plans to add 80-100 stores in India
in the next five years.
We estimate 47% PAT CAGR over FY12-14. However, valuations of 57.3x FY13E and 38.8x FY14E EPS capture the
positives and do not factor in an increase in competitive activity in the existing business. Neutral.
What to look for
Operating leverage; trend in EBITDA margin, given price increases and rising overheads on new stores.
C–161October 2012
September 2012 Results Preview
Sector: Retail
Pantaloon Retail
Bloomberg PF IN
Equity Shares (m) 217.1
52 Week Range (INR) 239/125
1,6,12 Rel Perf (%) 42/40/-15
Mcap (INR b) 46.4
Mcap (USD b) 0.9
CMP: INR214 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
06/11A 110,122 1,897 8.7 7.1 - - 6.2 12.1 - -
06/12A 122,526 1,071 4.8 -45.2 44.6 1.5 3.4 12.0 0.7 8.2
06/13E 139,931 1,498 6.7 39.9 31.9 1.5 4.6 13.2 0.7 7.2
06/14E 158,024 2,086 9.3 39.0 22.9 1.4 6.2 9.5 0.6 6.6
Quarterly Performance; Core Retailing (INR Million)
Y/E June FY11 FY12 FY12E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 5QE 6QE
Net Sales 25,814 27,586 28,119 28,604 29,106 28,933 30,264 29,627 30,562 31,827 180,319
YoY Change (%) 32.1 31.2 17.6 15.4 12.8 4.9 7.6 3.6 5.0 10.0 66.8
Total Exp 23,687 25,202 25,641 26,019 26,583 26,321 27,488 26,864 27,750 28,867 163,873
EBITDA 2,127 2,383 2,479 2,585 2,523 2,612 2,776 2,763 2,812 2,960 16,446
Growth (%) 15.3 12.1 14.0 26.2 18.6 9.6 12.0 6.9 11.4 13.3 117.3
Margins (%) 8.2 8.6 8.8 9.0 8.7 9.0 9.2 9.3 9.2 9.3 9.1
Depreciation 630 650 660 737 828 877 887 929 940 960 5,422
Interest 933 1,078 1,096 1,177 1,305 1,582 1,725 1,804 1,890 1,947 10,253
Other Income 81 52 34 63 79 40 16 28 50 53 266
PBT 645 708 757 735 468 193 180 58 32 106 1,037
Tax 218 235 252 242 138 58 60 19 10 35 321
Rate (%) 33.7 33.2 33.2 33.0 29.5 30.1 33.3 33.0 33.0 33.0 30.9
Adjusted PAT 428 472 505 492 330 135 120 39 21 71 716
YoY Change (%) 62.4 5.5 34.8 -17.1 -22.8 -71.4 -76.2 -92.1 -93.6 -47.5 -62.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect core retail sales to grow 5% to INR30.6b in 5QFY13 (year extended to December for FY12) for Pantaloon
Retail (PF).
Same store sales (SSS) growth dynamics has not seen improvement in the September quarter due to prevailing
weak consumer sentiment.
EBITDA would grow 11% to INR2.8b, with operating margins expanding 50bp YoY.
Adjusted PAT would decline 94% to INR21m, as interest cost continues to consume 2/3rd of EBITDA.
Recent deals (AB Nuvo-Pantaloon transaction, Future Capital) will help alleviate the debt strain for PF. Core
retail debt stands at INR60b.
News flow around potential deals after the allowance of 51% FDI in multi-brand retail will keep fundamentals
in the background, we believe.
The stock trades at 31.9x FY13E EPS and 22.9x FY14E EPS. Maintain Neutral.
What to look for
Same store sales growth for Value and Lifestyle business.
Space addition.
Interest cost.
C–162October 2012
September 2012 Results Preview
Sector: Retail
Shoppers Stop
Bloomberg SHOP IN
Equity Shares (m) 82.2
52 Week Range (INR) 427/251
1,6,12 Rel Perf (%) 7/-6/-1
Mcap (INR b) 32.9
Mcap (USD b) 0.6
CMP: INR401 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 16,589 752 9.1 120.1 - - 12.6 16.3 - -
03/12A 19,300 643 7.8 -14.5 51.2 5.1 9.9 11.0 1.7 23.3
03/13E 22,308 221 2.7 -65.7 149.1 4.9 3.3 5.0 1.5 35.1
03/14E 26,579 555 6.8 151.3 59.3 4.6 7.8 9.6 1.2 21.8
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
LTL Sales Gr % 7 11 -1 10 1 2 7 5 7 4
Deptt Stores 41 43 49 51 52 55 58 60 51 60
Net Sales 3,930 4,973 5,017 5,406 4,467 5,660 5,850 6,331 19,300 22,308
YoY Change (%) 14.4 14.9 9.9 18.5 13.6 13.8 16.6 17.1 16.3 15.6
Total Exp 3,667 4,586 4,603 5,042 4,329 5,462 5,558 6,006 17,873 21,354
EBITDA 263 387 414 363 138 198 293 325 1,427 954
Growth % 5.2 1.4 -19.7 -2.8 -47.7 -48.8 -29.3 -10.5 -6.2 -33.2
Margins (%) 6.7 7.8 8.2 6.7 3.1 3.5 5.0 5.1 7.4 4.3
Depreciation 81 88 94 115 120 110 115 108 377 453
Interest 44 57 76 74 77 75 75 102 250 329
Other Income 37 52 46 44 74 40 40 4 178 159
PBT 176 294 290 218 15 53 143 119 978 329
Tax 59 98 97 81 3 18 47 41 335 109
Rate (%) 33.5 33.5 33.5 37.1 17.9 33.0 33.0 34.9 34.3 33.0
Adjusted PAT 117 195 193 137 12 36 95 77 643 221
YoY Change (%) 17.2 12.5 -30.8 -31.0 -89.4 -81.8 -50.5 -43.8 -14.5 -65.7
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Shoppers Stop (SHOP) to report 13.8% increase in sales to INR5.7b. However, same store sales (SSS)
growth would be 1-2%, in our view.
We estimate EBITDA margin at 3.5%, still below the normal trend of 5-6%, as new stores continue to see weak
traction. We expect PAT to decline 81% due to weak SSS performance and consequent lack of operating leverage.
Like to like (LTL) sales are likely to grow 1-2% on account of modest demand, despite discount sale season in
August.
Higher overheads on new store openings and extended discount period would impact profit margins for the
quarter.
Hypercity would remain a drag on consolidated profitability.
The company has added one Shoppers Stop departmental store in 2QFY13.
The stock trades at 149.1x FY13E and 59.3x FY14E standalone EPS. Maintain Neutral.
C–163October 2012
September 2012 Results Preview
Sector: Retail
Titan Industries
Bloomberg TTAN IN
Equity Shares (m) 887.8
52 Week Range (INR) 263/154
1,6,12 Rel Perf (%) 12/7/12
Mcap (INR b) 232.2
Mcap (USD b) 4.4
CMP: INR262 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 65,209 4,336 4.9 65.8 - - 49.6 61.8 - -
03/12A 88,384 6,048 6.8 38.4 38.7 16.0 48.7 66.8 2.5 26.8
03/13E 103,823 7,158 8.1 19.3 32.4 12.0 42.4 58.7 2.1 21.7
03/14E 123,199 8,858 10.0 23.8 26.2 9.1 34.8 54.1 1.7 13.9
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Sales 20,205 20,963 24,401 22,814 22,057 24,450 29,000 28,316 88,384 103,823
YoY Change (%) 61.3 36.5 24.8 28.3 9.2 16.6 18.8 24.1 35.5 17.5
Total Exp 18,284 18,961 22,272 20,744 19,937 21,981 26,100 25,709 80,054 93,727
EBITDA 1,921 2,002 2,129 2,071 2,120 2,469 2,900 2,607 8,329 10,096
EBITDA Growth % 73 15 9.2 95.7 10.3 23.3 36.2 25.9 42 21
Margins (%) 9.5 9.6 8.7 9.1 9.6 10.1 10.0 9.2 9.4 9.7
Depreciation 99 106 119 125 123 110 117 131 449 482
Interest 88 2 10 131 126 160 160 204 437 650
Other Income 233 201 247 255 252 250 240 235 941 977
PBT 1,968 2,096 2,247 2,070 2,122 2,449 2,863 2,507 8,384 9,941
Tax 532 567 608 627 561 686 802 735 2,336 2,784
Rate (%) 27.0 27.1 28.5 30.3 28.0 28.0 28.0 29.3 27.9 28.0
Adjusted PAT 1,436 1,529 1,639 1,443 1,561 1,764 2,061 1,772 6,048 7,158
YoY Change (%) 76.9 19.7 16.4 72.0 8.7 15.4 25.8 22.8 39.5 18.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Titan Industries (TTAN) to post sales of INR24.5b, up 16.6%. EBITDA is likely to grow 23%, with margin
expansion of 50bp, driven by savings on excise and direct import of gold. PAT is likely to increase 15.4% to
INR1.7b.
Sequentially, footfalls have increased in the Jewelry segment, driven by improved consumer sentiment and
better wedding demand.
We estimate 10% decline in Jewelry volumes, as higher gold prices and weak consumer sentiment continue to
impact footfalls and demand; however, value growth will remain healthy due to ~23% higher gold prices.
We expect sales to grow 15% in the Jewelry segment and 14% in the Watches segment.
We believe store expansion and festive season demand in 3QFY13 are the key factors to watch for in FY13.
We estimate 21% PAT CAGR over FY12-14, but deterioration in consumer sentiment and decline in gold prices
are risks to our estimates. The stock trades at 32.4x FY13E EPS of INR8.1 and 26.2x FY14E EPS of INR10. Neutral.
C–164October 2012
September 2012 Results Preview
Sector: Technology
TechnologyCompany Name
Cognizant Technology
HCL Technologies
Infosys
MphasiS
TCS
Tech Mahindra
Wipro
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
HCL Technologies 577 Buy 62,080 33.5 4.9 11,987 54.4 -6.2 7,932 65.3 -5.7
Infosys 2,534 Buy 100,052 23.5 4.0 30,956 23.0 5.1 24,015 26.0 4.9
MphasiS 402 Se l l 13,551 3.1 0.0 2,768 17.9 3.5 2,092 14.3 0.2
TCS 1,294 Neutral 157,685 35.5 6.1 46,122 36.3 6.4 34,563 41.7 5.4
Tech Mahindra 972 Buy 16,291 22.2 5.6 3,085 51.1 -6.6 2,978 23.7 -12.0
Wipro 381 Buy 110,824 21.9 4.0 21,299 22.4 -0.6 15,927 22.4 0.8
Sector Aggregate 460,483 27.5 4.8 116,217 31.3 2.9 87,506 33.6 2.5
Ashish Chopra ([email protected])
Expect TCS, Cognizant to lead growth amid moderate traction in seasonally strong
quarter: We expect tier-I IT to grow USD revenue by 1-4.7% QoQ, led by TCS (4.1%
QoQ) and Cognizant (4.7% QoQ). Infosys' revenue growth estimate stands at 2.9%
QoQ, after two successive quarters of sequential revenue decline, bridging the growth
gap with leaders. HCL is likely to continue steady growth (3.6% QoQ), while Wipro
may lag, growing 1% QoQ (v/s guidance of 0.3-2.3%), as large deals remain elusive.
Margins to decline at HCL Tech and Wipro, remain flat at TCS and Infosys: INR has
depreciated by 1.9% QoQ in 2QFY13, which will be slight tailwind for margins. Also,
the commentary around pricing remained stable across the board, with no spike in
instances of abnormal pricing. Given the wage hikes effective from 1 June 2012 at
Wipro and 1 July 2012 at HCL Tech, we expect operating profit margins to decline at
these two companies (by 90bp QoQ and 220bp QoQ, respectively). Despite pressures
from continued hiring, onsite shift and geographic mix, we expect margins to remain
stable at TCS QoQ. Even at Infosys, we expect margins to remain within a tight band.
Expect guidance to remain unchanged on the back of unchanged macro outlook:
Worries on the macro front have not abated, and there is not enough to suggest
incremental change in the commentary across the board. We expect caution to
dominate the outlook for FY13, and guidance to remain unchanged. Deal signings
lend confidence to Infosys' outlook of at least 5% growth, and Cognizant too should
maintain guidance of at least 20% growth. Change in currency assumed in the guidance
is likely to moderate EPS estimate at Infosys by ~2pp to INR162. We expect hiring
guidance to remain unchanged at TCS and Wipro to guide 1-3% QoQ growth in USD
revenue for 3QFY13.
Watch for commentary on deal pipeline and velocity, BFSI and Europe: Given the
continued sluggishness in the environment, deal signing cycles are likely to remain
stretched, potentially thwarting the growth outlook. Also, continued trouble in Europe
and BFSI imply that outlook on the two would be keenly anticipated. From the
individual company's perspective, watch for volume growth and hiring at TCS, USD
revenue growth and pricing at Infosys, volume growth at Wipro and HCL Tech, and
BFSI performance at Cognizant.
C–165October 2012
September 2012 Results Preview
Sector: Technology
Prefer HCL Tech, Infosys: Large deals signed lend visibility to HCL Tech's revenue
growth in FY13, while Infosys' commentary improved slightly through the quarter on
the back of deals won. TCS' incrementally cautious outlook on Telecom and rich
valuations keep us Neutral on the stock. We agree with Wipro's strategy of investing
in the downturn; but improvement in environment remains imperative for quick
fruition of its efforts.
Expect TCS to lead growth, Infosys to bridge the gap
EBITDA margin to decline at HCL and Wipro on wage hikes
4.12.9
1.0
3.6
-3
1
5
9
13
Q1F
Y11
Q2F
Y11
Q3F
Y11
Q4F
Y11
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13E
TCS Infos ys Wipro HCL Tecg
Source: Company, MOSL
EBITDA Margins across top‐tier
14%
20%
26%
32%
38%
1Q
FY1
0
2Q
FY1
0
3Q
FY1
0
4Q
FY1
0
1Q
FY1
1
2Q
FY1
1
3Q
FY1
1
4Q
FY1
1
1Q
FY1
2
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2QF
Y13
E
Infosys TCS Wipro (overal l ) HCLT
Aggregate PAT to increase 35% YoY, aided by currency swing
Revenues (USD) Revenues (INR b)
Company 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%) 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%)
TCS 2,841 2,525 12.5 2,728 4.1 158 116 35.5 149 6.1
Infosys 1,803 1,746 3.2 1,752 2.9 100 81 23.5 96 4.0
Wipro 1,530 1,473 3.9 1,515 1.0 111 91 21.9 107 4.0
HCLT 1,119 1,002 11.6 1,080 3.6 62 47 33.5 59 4.9
Aggregate 7,292 6,746 8.1 7,074 3.1 431 335 28.6 411 4.9
EBIT Margin(%) PAT (INR b)
Company 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%) 2QFY13E 2QFY12 Yoy (%) 1QFY13 QoQ (%)
TCS 27.6 27.1 51 27.5 12 35 24 41.7 33 5.4
Infosys 28.3 28.2 16 28.0 32 24 19 26.0 23 4.9
Wipro 16.7 16.4 32 17.6 -89 16 13 22.4 16 0.8
HCLT 16.8 13.9 291 19.0 -224 8 5 65.2 8 -5.7
Aggregate 23.4 22.6 80 23.8 (42) 82 61 34.6 80 3.2
Source: Company, MOSL
Relative Performance - 3m (%)
Relative Performance - 1Yr (%)
8590
95100105110
Jun
-12
Jul-
12
Au
g-12
Sep
-12
Sensex IndexMOSL Technology Index
90
100
110
120
130
Sep-
11
De
c-11
Mar
-12
Jun-
12
Sep-
12
Sensex IndexMOSL Technology Index
C–166October 2012
September 2012 Results Preview
Sector: Technology
EBITDA margin to decline at HCL and Wipro on wage hikes
Source: Company, MOSL
Incremental revenues - USD m
-75
0
75
150
225
TCS Infos ys Wipro HCL Cognizant
EPS Estimates (INR) - MOSL v/s Consensus
2QFY13 FY13 FY14 Upside/Downside to Consensus (%)
MOSL Consensus MOSL Consensus MOSL Consensus 3QFY12 FY12 FY13
Infosys 42.0 42.0 166.4 164.3 180.7 177.0 0.1 1.3 2.1
TCS 17.7 17.4 71.6 69.3 78.8 76.6 1.4 3.5 3.0
Wipro 6.5 6.4 26.0 26.2 28.2 28.6 2.1 -0.9 -1.5
HCL Tech 11.3 11.0 46.3 43.5 47.6 48.3 2.6 6.4 -1.6
Mphasis 9.9 9.7 37.5 37.3 40.8 39.2 2.9 0.6 3.9
Tech Mahindra 22.4 22.5 87.2 81.9 101.0 89.1 -0.4 6.4 13.3
Cognizant 0.9 0.9 3.4 3.5 3.9 4.1 0.6 -2.2 -4.1
Source: Company, MOSL
2QFY13 Currency highlights (INR)
Rates (INR) Change (QoQ, %)
USD EUR GBP AUD USD EUR GBP AUD
Average 55.2 69.0 87.1 57.3 0.9 -0.1 1.9 5.0
Closing 52.9 68.3 85.6 55.1 -5.0 -2.5 -1.5 -2.8
Source: Company,MOSL
2QFY13 Currency highlights (in USD)
Rates (USD) Change (QoQ, %)
EUR GBP AUD EUR GBP AUD
Average 1.25 1.58 1.04 -2.5 -0.2 2.9
Closing 1.29 1.62 1.04 1.5 2.9 1.4
Source: Company/MOSL
2QFY13 guidance exchange rate assumptions
Guided at EUR GBP AUD INR/USD
Infosys 1.26 1.56 1.02 55.00
Wipro 1.26 1.58 1.01 54.76
Actual (Average) 1.25 1.58 1.04 55.30
Source: Company/MOSL
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Technology
HCL Technologies 577 Buy 35.1 46.3 47.6 16.5 12.5 12.1 10.2 8.0 7.4 26.0 27.8 25.8
Infosys 2,534 Buy 145.5 166.5 180.7 17.4 15.2 14.0 11.6 9.8 8.8 28.0 27.3 25.8
MphasiS 402 Se l l 37.5 40.8 37.2 10.7 9.9 10.8 8.3 7.6 8.2 18.7 17.5 13.9
TCS 1,294 Neutral 54.4 71.6 78.8 23.8 18.1 16.4 17.4 13.0 11.5 36.7 38.3 33.7
Tech Mahindra 972 Buy 70.4 87.2 101.0 13.8 11.1 9.6 10.5 6.6 5.6 30.2 24.4 23.0
Wipro 381 Buy 22.7 26.0 28.2 16.8 14.7 13.5 11.8 10.0 9.0 21.2 20.7 19.4
Sector Aggregate 19.3 15.7 14.5 13.5 10.8 9.7 25.2 26.4 23.5
C–167October 2012
September 2012 Results Preview
Sector: Technology
Cognizant Technology Solutions
Bloomberg CTSH US
Equity Shares (m) 307.3
52-Week Range (USD) 84/53
1,6,12 Rel. Perf. (%) 4/-5/21
M.Cap. (INRb) 1,118.6
M.Cap. (USD b) 21.2
CMP: USD69 Not RatedYear Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (USD m) (USD m) (USD) Gr. (%) (X) (X) (%) (%) Sales EBITDA
12/10A 4,592 734 2.38 34.2 - - 23.5 27.2 - -
12/11A 6,121 884 2.86 20.0 24.4 5.5 23.4 28.6 3.2 15.5
12/12E 7,347 1,060 3.45 20.5 20.3 4.6 24.6 29.5 2.6 12.5
12/13E 8,711 1,211 3.94 14.2 17.7 3.7 23.0 27.3 2.1 10.4
Quarterly Performance (US GAAP) (USD Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Revenues 1,371 1,485 1,601 1,664 1,711 1,795 1,880 1,961 6,121 7,347
Q-o-Q Change (%) 4.6 8.3 7.8 3.9 2.9 4.9 4.7 4.3 33.3 20.0
Direct Expenses 782 861 925 971 985 1,031 1,067 1,118 3,539 4,201
SG&A 296 327 353 352 374 397 413 431 1,329 1,616
SG&A as % of Sales 21.6 22.0 22.1 21.2 21.9 22.1 22.0 22.0 21.7 22.0
EBITDA 293 298 323 341 353 368 399 411 1,254 1,530
Margins (%) 21.3 20.0 20.2 20.5 20.6 20.5 21.2 21.0 20.5 20.8
Other Income 15 8 -5 15 4 3 9 10 33 26
Depreciation 27 28 30 32 35 36 38 39 117 147
PBT bef. Extra-ordinary 280 278 288 323 322 335 371 382 1,169 1,410
Provision for Tax 72 70 61 83 79 83 93 95 286 350
Rate (%) 25.7 25.1 21.1 25.7 24.4 24.8 25.0 25.0 24.4 24.8
PAT before EO 208 208 227 240 244 252 278 286 884 1,060
Q-o-Q Change (%) 1.0 -0.1 9.2 5.7 7.3 3.4 10.4 2.9 20.5 19.9
Operating Metrics
Headcount addition 7,200 7,100 11,700 7,700 2,800 4,500 6,399 5,335 33,700 19,150
Closing Headcount 111,200 118,300 130,000 137,700 140,500 145,000 151,450 156,850 137,700 156,850
Utilization (%) 70 70 70 68 67 68 69 69 69 68
BSE Sensex S&P CNX
18,763 5,703
We expect Cognizant's revenue to grow 4.7% QoQ to USD1.88b in 3QCY12. The company had guided revenue of
USD1.875b, implying a growth of 4.4% QoQ.
We expect Cognizant to retain its full-year revenue growth guidance of at least 20%, which implies 4QCY12
growth rate of 4.3% QoQ on our 3Q revenue estimate.
1QCY12 was only the second time in the past six years when the company lowered its full-year guidance. The
last time when it did so in CY08 (in the middle of the financial meltdown), it was just a one-quarter phenomenon
and guidance was again increased in the next quarter.
Our EBITDA margin estimate stands at 21.2% (+70bp QoQ) v/s 20.5% in 2QCY12, on some favorable impact from
currency.
Our GAAP EPS estimate is USD0.9 v/s the company's guidance of USD0.86.
Key things to watch: Commentary on likely client budgets in CY13; traction in discretionary spending; commentary
on Europe.
The stock trades at 20.3x CY12E and 17.7x CY13E EPS. Not Rated.
C–168October 2012
September 2012 Results Preview
Sector: Technology
HCL Technologies
Bloomberg HCLT IN
Equity Shares (m) 702.9
52 Week Range (INR) 595/374
1,6,12 Rel Perf (%) -3/13/28
Mcap (INR b) 405.8
Mcap (USD b) 7.7
CMP: INR577 Buy
Year Sales PAT* EPS* EPS P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
6/11A 159,118 16,098 23.1 35.0 - - 20.8 15.9 - -
6/12A 210,312 24,556 35.1 52.0 16.5 3.8 26.0 21.4 1.9 9.9
6/13E 257,162 32,655 46.3 31.9 12.5 3.1 27.8 25.2 1.5 7.9
6/14E 288,099 33,784 47.6 2.9 12.1 2.6 25.8 22.3 1.3 7.4
Quarterly Performance (US GAAP) (INR Million)
Y/E June FY12 FY13E FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Revenues 46,513 52,452 52,156 59,191 62,080 62,794 65,061 67,227 210,312 257,162
Q-o-Q Change (%) 8.2 12.8 -0.6 13.5 4.9 1.2 3.6 3.3 32.2 22.3
EBITDA 7,764 9,487 9,363 12,782 11,987 11,768 12,471 12,867 39,396 49,094
Margins (%) 16.7 18.1 18.0 21.6 19.3 18.7 19.2 19.1 18.7 19.1
Other Income 59 -670 -136 -423 287 342 370 400 -1,170 -942
PAT 4,800 5,526 5,818 8,409 7,932 7,774 8,334 8,615 24,553 27,685
Q-o-Q Change (%) -2.3 15.1 5.3 44.5 -5.7 -2.0 7.2 3.4
Y-o-Y Change (%) 59.8 48.5 30.6 71.2 65.3 62.0 50.8 48.1 43.6 12.8
Diluted EPS (INR) 6.9 7.9 8.3 12.0 11.3 11.0 11.8 12.2 35.1 46.3
USD Revenues 1,002 1,022 1,048 1,080 1,119 1,163 1,205 1,253 4,152 4,268
Q-o-Q Change (%) 4.1 2.0 2.5 3.0 3.6 4.0 3.6 4.0 17.1 2.8
Operating Metrics
Gross Margin (%) 31.1 32.6 32.1 34.8 33.2 32.8 33.0 33.0 31.3 31.3
SGA (%) 14.4 14.5 14.2 13.2 13.9 14.1 13.9 13.8 14.7 14.7
Tax rate (%) 26.3 25.5 25.5 22.4 24.0 24.0 24.0 24.0 24.5 24.5
Net Employee additions 3,474 2,556 -612 1,855 2,600 2,800 3,200 3,650 7,273 12,250
Util. - incl. trainees (%) 69.7 69.6 72.2 72.4 73.0 72.5 72.5 72.5 70.8 72.6
Q-o-Q Volume Growth (%) 4.0 4.9 2.9 1.8 3.6 3.8 3.7 3.7 16.7 13.9
Q-o-Q Realization change (%) 1.1 -1.2 -1.0 0.0 -0.1 -0.1 -0.1 0.0 0.4 -0.8
Offshore revenues (%) 42.3 42.1 43.8 42.8 42.9 43.0 43.1 43.1 42.8 43.0
E: MOSL Estimates; After adjusting for ESOP charges; Axon is consolidated since December 2008
BSE Sensex S&P CNX
18,763 5,703
* After ESOP charges
We estimate HCL Tech's 1QFY13 revenue at USD1.12b, up 3.6% QoQ. In INR terms, our revenue estimate is
INR62.08b, up 4.9% QoQ.
We expect volume growth of 3.6% QoQ in Software Services, and USD revenue growth of 3.5% QoQ in Software
Services, 2.1% QoQ in BPO and 4.2% QoQ in IMS.
Despite our assumption of 1.2% QoQ depreciation in the INR v/s the USD, we expect EBITDA margin to decline
230bp QoQ (after adjusting for ESOP charges) on account of wage hikes effective from 1 July 2012.
We estimate SGA spends at 13.9% of revenue, +70bp QoQ.
We expect PAT to decline 5.7% QoQ to INR7.9b (after adjusting for ESOP charges), translating into an EPS of
INR11.3.
Key things to watch: Commentary on deal pipeline; impact of wage hikes on margins.
The stock trades at 12.5x FY13E and 12.1x FY14E EPS. Maintain Buy.
C–169October 2012
September 2012 Results Preview
Sector: Technology
Infosys
Bloomberg INFO IN
Equity Shares (m) 571.4
52 Wk Range (INR) 2,990/2,102
1,6,12 Rel Perf (%) -2/-20/-12
Mcap (INR b) 1,447.9
Mcap (USD b) 27.5
CMP: INR2,534 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 275,010 68,230 119.4 11.2 - - 27.8 33.1 - -
3/12A 337,340 83,160 145.5 21.9 17.4 4.3 28.0 32.9 3.7 11.6
3/13E 405,699 95,045 166.5 14.4 15.2 4.0 27.3 32.5 3.0 9.9
3/14E 446,507 103,248 180.7 8.5 14.0 3.3 25.8 30.3 2.6 8.8
Quarterly Performance (IFRS) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Revenues 74,850 80,990 92,980 88,520 96,160 100,052 103,412 106,075 337,340 405,699
Q-o-Q Change (%) 3.2 8.2 14.8 -4.8 8.6 4.0 3.4 2.6 22.7 20.3
EBITDA 21,750 25,160 31,350 28,900 29,460 30,956 31,164 32,201 107,160 123,689
Margins (%) 29.1 31.1 33.7 32.6 30.6 30.9 30.1 30.4 31.8 30.5
Other Income 4,430 3,870 4,220 6,520 4,760 5,249 5,140 4,257 19,040 19,405
PAT 17,220 19,060 23,720 23,160 22,890 24,015 24,069 24,164 83,160 95,045
Q-o-Q Change (%) -5.3 10.7 24.4 -2.4 -1.2 4.9 0.2 0.4 21.9 14.3
Diluted EPS (INR) 30.1 33.4 41.5 40.5 40.1 42.0 42.1 42.3 145.5 166.5
USD Revenues 1,671 1,746 1,806 1,771 1,752 1,803 1,915 1,964 6,994 7,434
Q-o-Q Change (%) 4.3 4.5 3.4 -1.9 -1.1 2.9 6.2 2.6 15.8 6.3
Operating Metrics
Gross Margin (%) 41.8 44.3 45.7 44.0 42.2 42.7 42.6 42.6 44.1 42.5
SGA (%) 12.8 13.3 11.9 11.4 11.6 11.8 12.4 12.3 12.3 12.0
Tax rate (%) 28.1 28.6 28.6 29.8 27.8 28.5 28.5 28.5 28.8 28.3
Net Employee additions 2,740 8,262 3,266 4,906 1,157 5,210 4,159 3,184 19,174 13,710
Utilization - incl. trainees (%) 74.9 77.3 77.4 73 79.1 76.0
Q-o-Q Volume Growth (%) 3.2 4.4 3.0 -0.6 2.8 3.0 3.3 2.6 10.8 9.8
Q-o-Q Realization change (%) 1.2 0.5 (0.1) (1.1) (3.7) (0.1) 2.9 - 4.7 -3.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Our 2QFY13 revenue estimate stands at USD1.8b, up 2.9% QoQ. In INR terms, our revenue growth estimate is
INR100b, up 4% QoQ.
We expect Infosys to grow its volumes by 3% QoQ in 2QFY13. To meet its minimum volume growth of 9.5% in
FY13, the company requires a volume CQGR of 2.8% over 2Q-4Q.
Infosys had guided USD revenue growth of "at least" 5% for FY13, and had stopped giving guidance for the
immediate quarter.
We expect reported pricing to be flattish, after declining 3.2% on a blended basis in constant currency in 1Q.
This would still imply some like-to-like decline, given that there is a tailwind of ~80bp on the realization metric
from one-time revenue reversal in 1QFY13.
We expect EBITDA margin to expand 30bp QoQ to 30.9%, given our assumption of ~1% depreciation in the
realized INR QoQ.
We expect 4.9% increase in PAT to INR24b. Our EPS estimate is INR42.
Key things to watch: Volume growth in 2QFY13; commentary on discretionary spends and pricing; deal signings
performance QoQ.
The stock trades at 15.2x FY13E and 14x FY14E EPS. Maintain Buy.
C–170October 2012
September 2012 Results Preview
Sector: Technology
Mphasis
Bloomberg MPHL IN
Equity Shares (m) 210.0
52 Week Range (INR) 439/277
1,6,12 Rel Perf (%) 3/-12/4
Mcap (INR b) 84.5
Mcap (USD b) 1.6
CMP: INR402 Sell
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) Ratio (x) (%) (%) Sales EBITDA
10/10A 50,366 10,269 48.6 12.5 - - 36.4 36.4 - -
10/11A 50,980 8,308 39.3 -19.1 10.2 2.2 23.1 22.2 1.3 6.7
10/12E 54,063 7,921 37.5 -4.7 10.7 1.9 18.7 19.4 1.2 5.9
10/13E 56,775 8,611 40.8 8.7 9.9 1.6 17.5 18.6 1.0 4.9
Mphasis - Quarterly Performance (INR Million)
Y/E October FY11 FY12 FY11 FY12E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Revenues 12,335 12,571 12,936 13,138 13,672 13,289 13,551 13,551 50,980 54,063
Q-o-Q Change (%) -8.3 1.9 2.9 1.6 5.7 -2.8 2.0 0.0 1.2 6.0
Direct Expenses 8,769 8,950 9,396 9,626 9,995 9,454 9,596 9,513 36,741 38,558
Sales, Gen. & Admin. Exp. 1,167 949 1,024 1,165 1,155 1,221 1,280 1,271 4,305 4,927
Operating Profit 2,399 2,672 2,516 2,347 2,522 2,614 2,675 2,768 9,934 10,579
Margins (%) 19.5 21.3 19.4 17.9 18.4 19.7 19.7 20.4 19.5 19.6
Other Income 346 497 429 479 338 340 441 386 1,751 1,505
Depreciation 359 337 440 414 468 455 415 419 1,550 1,757
PBT bef. Extra-ordinary 2,386 2,832 2,505 2,412 2,392 2,499 2,701 2,735 10,135 10,327
Provision for Tax 295 393 557 582 544 605 614 643 1,827 2,406
Rate (%) 12.4 13.9 22.2 24.1 22.7 24.2 22.7 23.5 18.0 23.3
PAT bef. Extra-ordinary 2,091 2,439 1,948 1,830 1,848 1,894 2,087 2,092 8,308 7,921
Q-o-Q Change (%) -19.9 16.6 -20.1 -6.1 -5.1 2.5 10.2 0.2 -19.1 -4.7
Diluted EPS (INR) 9.9 11.6 9.3 8.7 8.8 9.0 9.9 9.9 39.3 37.5
USD Revs 271 282 290 276 271 266 252 254 1,119 1,042
Q-o-Q Change (%) -8.5 3.9 2.9 -4.7 -2.0 -1.8 -5.2 0.7 1.7 -6.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Mphasis to report sequentially flattish revenue at INR13.5b in 4QFY12, as growth in the direct
channel is offset by continued decline in the HP channel.
In USD terms, we expect revenue of USD254m v/s USD252m in 3QFY12 (+0.7% QoQ). We estimate 1.1% QoQ
growth in ITS and 1% QoQ decline in revenue from Applications.
We model INR400m hedge losses for the company in the topline.
Our EBITDA margin estimate is 20.4%, +70bp QoQ, given the company's continued cost focus amid limited
revenue visibility.
We expect 10.2% QoQ growth in PAT to INR2.09b, translating into an EPS of INR9.9.
Key things to watch: Outlook on HP channel in FY13; plans around cash; traction and deal pipeline in the direct
channel.
The stock trades at 10.7x FY12E and 9.9x FY13E EPS. Maintain Sell.
C–171October 2012
September 2012 Results Preview
Sector: Technology
Tata Consultancy Services
Bloomberg TCS IN
Equity Shares (m) 1,957.2
52 Wk Range (INR) 1,438/1,015
1,6,12 Rel Perf (%) -10/2/9
Mcap (INR b) 2,532.6
Mcap (USD b) 48.1
CMP: INR1,294 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 373,245 86,826 44.4 26.3 - - 37.4 42.2 - -
3/12A 488,938 106,384 54.4 22.5 23.8 7.8 36.7 44.1 5.1 17.4
3/13E 632,683 140,221 71.6 31.8 18.1 6.2 38.3 45.4 3.8 13.0
3/14E 725,936 154,286 78.8 10.0 16.4 5.0 33.7 39.8 3.2 11.5
Quarterly Performance (IFRS) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Revenues 107,970 116,335 132,040 132,593 148,687 157,685 159,882 166,429 488,938 632,683
Q-o-Q Change (%) 6.3 7.7 13.5 0.4 12.1 6.1 1.4 4.1 31.0 29.4
EBITDA 30,310 33,829 40,921 39,117 43,328 46,122 46,263 49,718 144,177 185,430
Margins (%) 28.1 29.1 31.0 29.5 29.1 29.2 28.9 29.9 29.5 29.3
Other Income 2,887 997 -920 1,077 1,754 2,430 3,011 3,156 4,041 10,351
PAT 23,804 24,390 28,866 29,324 32,806 34,563 35,057 37,796 106,384 140,221
Q-o-Q Change (%) -0.9 2.5 18.3 1.6 11.9 5.4 1.4 7.8 22.5 31.8
Diluted EPS (INR) 12.2 12.5 14.7 15.0 16.8 17.7 17.9 19.3 54.4 71.6
USD Revenues 2,412 2,525 2,586 2,648 2,728 2,841 2,961 3,082 10,171 11,612
Q-o-Q Change (%) 7.5 4.7 2.4 2.4 3.0 4.1 4.2 4.1 24.2 14.2
Operating Metrics
Gross Margin (%) 45.5 46.6 48.0 47.8 47.2 47.1 47.3 47.6 47.1 47.3
SGA (%) 17.5 17.5 17.1 18.3 18.1 17.9 18.3 17.8 17.6 18.0
Tax rate (%) 22.7 24.3 22.6 21.6 22.2 24.0 24.0 24.0 22.8 23.6
Net Employee additions 3,576 12,580 11,981 11,832 4,962 9,181 7,924 7,702 39,969 29,768
Utilization - excluding trainees (%) 83.2 83.1 82.0 80.6 81.3 83.7 84.0 83.9 82.2 83.3
Q-o-Q Volume Growth (%) 7.5 6.3 3.2 3.3 5.3 3.9 4.2 3.5 23.0 15.7
Q-o-Q Realization change (%) -0.5 -1.0 2.0 -1.0 -1.0 -0.1 0.0 0.6 1.1 -0.9
Offshore revenues (%) 55.2 54.8 55.0 54.8 55.3 55.4 55.9 55.9 54.9 55.6
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect TCS to grow its revenue by 4.1% QoQ to USD2.84b in 2QFY13, on the back of 3.9% sequential growth
in volumes.
In INR terms, we expect revenue growth of 6% QoQ to INR158b. Pricing would remain flat QoQ.
EBITDA margin would be sequentially flattish at 29.2%, as gains from currency would be offset by [1] continued
traction in hiring, [2] slight onsite shift on account of new project start-ups, and [3] higher growth from lower
margin geographies like APAC and South America.
We expect PAT to grow 5.4% QoQ to INR34.6b, translating into an EPS of INR17.7.
We expect net hiring of 9,181 employees. Utilization including trainees would increase by 200bp QoQ to 74.3%.
Key things to watch: Volume growth; gross hiring; impact from forex.
The stock trades at 18.1x FY13E and 16.4x FY14E EPS. Maintain Neutral.
C–172October 2012
September 2012 Results Preview
Sector: Technology
Tech Mahindra
Bloomberg TECHM IN
Equity Shares (m) 127.5
52 Week Range (INR) 980/524
1,6,12 Rel Perf (%) 9/29/53
Mcap (INR b) 123.9
Mcap (USD b) 2.4
CMP: INR972 Buy
Year Net Sales PAT# EPS* EPS P/E P/BV R0E RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 48,413 7,093 54.3 7.4 - - 30.2 22.1 - -
3/12A 54,897 9,299 70.4 29.7 13.8 2.9 30.2 24.5 2.9 13.8
3/13E 70,869 11,512 87.2 23.8 11.1 2.3 24.4 24.0 2.3 8.9
3/14E 82,293 13,337 101.0 15.9 9.6 1.7 23.0 22.1 1.7 7.6
# Reported PAT incl Satyam; * EPS incl profits from Satyam, adjusted for restructuring charge
Quarterly Performance (Indian GAAP) - SA (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Revenues 12,925 13,333 14,449 14,190 15,434 16,291 19,300 19,844 54,897 70,869
Q-o-Q Change (%) 2.5 3.2 8.4 -1.8 8.8 5.6 18.5 2.8 13.4 29.1
Direct Cost 8,540 9,069 9,861 9,312 9,684 10,551 12,790 13,003 36,782 46,027
Other Operating Exps 1,967 2,222 2,245 2,487 2,448 2,655 3,127 3,215 8,921 11,445
Operating Profit 2,418 2,042 2,343 2,391 3,302 3,085 3,384 3,626 9,194 13,397
Margins (%) 18.7 15.3 16.2 16.8 21.4 18.9 17.5 18.3 16.7 18.9
Other Income 460 972 147 -211 -174 -123 -39 -6 1,368 -342
Interest 223 721 338 131 240 286 258 231 1,413 1,014
Depreciation 334 507 390 383 421 436 507 512 1,614 1,876
PBT bef. Extra-ordinary 2,321 1,786 1,762 1,666 2,467 2,240 2,580 2,878 7,535 10,165
Provision for Tax 509 393 294 242 585 515 593 662 1,438 2,355
Rate (%) 21.9 22.0 16.7 14.5 23.7 23.0 23.0 23.0 19.1 23.2
Net Inc. aft. sh. of profits fr. asso. 2,768 2,407 2,763 3,023 3,384 2,978 3,190 3,479 4,104 5,863
Q-o-Q Change (%) 200.5 -13.0 14.8 9.4 11.9 -12.0 7.1 9.1 -17.6 42.9
Diluted EPS (INR) 18.2 15.3 17.8 19.7 22.6 19.5 21.1 23.3 70.9 86.7
USD Revenues 290 296 289 282 281 294 357 367 1,156 1,300
Q-o-Q Change (%) 4.1 2.2 -2.5 -2.5 -0.1 4.3 21.8 2.8 8.8 12.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Tech Mahindra's revenue to grow 4.3% QoQ to USD294m, on account of ~USD12m contribution from
the acquisition of HGS. In INR terms, we expect revenue of INR16.3b, +55.6% QoQ.
At Mahindra Satyam, we expect revenue to grow 3% QoQ to USD352m. In Rupee terms, revenue would be
INR19.55b.
Tech Mahindra's EBITDA margin is expected to decline 250bp QoQ to 18.9% in 2QFY13, on account of wage hikes
effective from the onset of the quarter. Even at Satyam, we expect EBITDA margin to decline 210bp QoQ to
19.6%.
Our PAT estimate for Tech Mahindra is INR1.73b and INR1.34b after adjusting the impact of restructuring fees.
Our PAT estimate for Satyam is INR2.9b.
Key things to watch: Pipeline in Managed Services; outlook on BT; margin profile post acquisitions.
The stock trades at 11.1x FY13E and 9.6x FY14E EPS. Maintain Buy.
C–173October 2012
September 2012 Results Preview
Sector: Technology
Wipro
Bloomberg WPRO IN
Equity Shares (m) 2,455.6
52 Week Range (INR) 453/324
1,6,12 Rel Perf (%) -2/-21/-4
Mcap (INR b) 936.3
Mcap (USD b) 17.8
CMP: INR381 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 310,986 52,794 21.6 15.1 - - 24.2 20.1 - -
3/12A 375,248 55,731 22.7 5.1 16.8 3.3 21.2 19.4 2.3 11.8
3/13E 440,757 63,749 26.0 14.4 14.7 2.8 20.7 19.5 1.9 10.0
3/14E 480,255 69,192 28.2 8.5 13.5 2.4 19.4 18.6 1.7 8.9
Wipro Quarterly Performance (IFRS) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Revenues 85,640 90,945 99,972 98,691 106,530 110,824 111,205 112,198 375,248 440,757
Q-o-Q Change (%) 3.2 6.2 9.9 -1.3 7.9 4.0 0.3 0.9 20.7 17.5
EBITDA 17,290 17,397 19,843 19,611 21,426 21,299 21,195 21,380 74,141 85,300
Margins (%) 20.2 19.1 19.8 19.9 20.1 19.2 19.1 19.1 19.8 19.4
Margins after taking hedges
on top-line (%) 17.5 16.4 17.2 17.2 17.6 16.7 16.5 16.5
Other Income 1,542 962 1,249 1,984 1,223 1,444 1,482 1,681 5,737 5,829
PAT 13,349 13,009 14,564 14,809 15,802 15,927 15,866 16,154 55,731 63,749
Q-o-Q Change (%) -2.9 -2.5 12.0 1.7 6.7 0.8 -0.4 1.8
Y-o-Y Change (%) 1.2 1.2 10.4 7.7 18.4 22.4 8.9 9.1 5.2 14.4
Diluted EPS (INR) 5.4 5.3 5.9 6.0 6.4 6.5 6.5 6.6 22.7 26.0
USD Revenues 1,408 1,473 1,506 1,536 1,515 1,530 1,568 1,601 5,921 6,213
Q-o-Q Change (%) 0.5 4.6 2.2 2.0 -1.4 1.0 2.5 2.1 13.4 4.9
Operating Metrics
Gross Margin (%) 29.9 28.6 30.3 30.6 30.4 30.3 30.2 29.8 29.9 30.6
SGA (%) 12.5 12.2 13.0 13.5 14.0 13.8 13.8 13.7 12.8 13.8
IT Services EBIT (%) 22.0 20.0 20.8 20.7 21.0 20.0 19.8 19.5 20.8 20.1
Tax rate (%) 18.9 18.0 20.7 21.2 20.2 19.5 19.5 19.5 19.8 19.7
Net Employee additions 4,105 5,240 5,004 -814 2,632 2,415 2,915 3,565 13,535 11,527
Utilization-incl.trainees (%) 71.2 70.1 67.0 67.8 69.5 69.3 70.0 70.0 69.0 69.7
Q-o-Q Volume Growth(%) 1.8 6.0 1.8 0.8 0.8 1.3 2.7 2.4 11.5 6.9
Q-o-Q Realization Chg. (%) -2.1 -0.5 2.7 0.5 -2.2 -0.3 -0.2 -0.3 3.2 -0.6
Offshore revenues (%) 47.6 45.7 45.6 46.1 45.6 46.1 46.2 45.6 46.2 46.1
Rev Guidance (USDm) 1,394- 1,436- 1,500- 1,520- 1,520- 1,520-
1,422 1,464 1,530 1,540 1,550 1,550
Q-o-Q Change (%) -0.4-+1.6 2.0-4.0 1.9-3.9 1-3 -1 to 1 0.3-2.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We estimate Wipro's IT revenue at USD1.53b, +1% QoQ, in line with the company's guidance of USD1.52b-1.55b.
In INR terms, we estimate Services revenue at INR84.9b, +2.1% QoQ.
We expect volume growth of 1.3% QoQ and flat pricing for IT Services. Wipro's overall revenue is likely to grow
4% QoQ to INR111b.
IT Services EBIT margin would decline 100bp QoQ to 20% on two months of residual impact from wage hikes.
Overall EBIT margin would decline 90bp QoQ to 16.7%.
We estimate PAT at INR15.9b, up 0.8% QoQ, and EPS at INR6.48.
Key things to watch: Guidance for 3QFY13; commentary around deals; outlook on BFSI and Telecom.
The stock trades at 14.7x FY13E and 13.5x FY14E EPS. Maintain Buy.
C–174October 2012
September 2012 Results Preview
Sector: Telecom
TelecomCompany Name
Bharti Airtel
Idea Cellular
Reliance Communication
Tulip Telecom
Wireless traffic to decline ~1% QoQ; RPM pressure to abate: We expect average
wireless traffic for top-4 operators to decline ~1% QoQ, led by seasonal weakness
and lower promotions. Wireless RPM decline is likely to abate, with average RPM
declining by 0.3% QoQ v/s ~2% QoQ declines in the preceding two quarters. Within
operators, we expect Bharti Airtel (BHARTI) to exhibit relatively lower traffic decline,
given its price aggression.
Wireless EBITDA margin to be under pressure: We expect consolidated EBITDA margin
for BHARTI to remain largely flat QoQ at 30.4%; margin for India and South Asia business
is also likely to be stable at 32%, despite flat revenue, driven by lower SGA expenses.
Idea Cellular (IDEA) is likely to report consolidated EBITDA margin of ~25%, down
80bp QoQ. For Reliance Communications (RCOM), we model 2QFY13 consolidated
EBITDA margin of 30%.
Forex gain could boost PAT: Consolidated PAT is likely to decline by 13-14% QoQ for
BHARTI/IDEA and 33% for RCOM, largely due to decline in wireless traffic. While we
have not modeled any forex gains, sharp appreciation of the INR v/s the USD could
drive mark-to-market gains for all the wireless companies, given their significant USD
liabilities.
Expect improved performance at Bharti Africa: We expect improved performance in
Africa business with QoQ revenue/EBITDA likely to grow at 3/5% QoQ. 2QFY13
performance in Africa should be supported by ~1% average appreciation in Bharti's
African currency basket vs USD. We have not modeled any forex gain/loss in Africa
business.
Industry subscriber numbers decline in July/August: Industry subscribers declined by
~21m in July 2012 and by a further ~6m in August 2012. While the decline in July was
largely due to disconnection by one operator (RCOM), all major operators except
RCOM/Aircel reported MoM decline in subscribers during August 2012. The decline
was led by lower promotions/ channel commissions as well as likely non-availability
of number series.
Abbreviations and acronymsRPM: revenue per minute
MNP: mobile number portability
VLR: visitor location register
TRAI: Telecom Regulatory
Authority of India
ARPU: average revenue per user
MOU: minutes of use
Expected quarterly performance summary (INR Million)CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Bharti Airtel 265 Neutral 195,659 13.3 1.1 59,536 2.4 1.8 6,563 -36.1 -13.9
Idea Cellular 85 Buy 54,458 17.9 -1.1 13,775 16.1 -4.0 2,036 92.5 -13.1
Reliance Comm 65 Neutral 52,462 4.1 -1.4 15,916 -0.8 -3.5 1,281 -60.3 -33.1
Tulip Telecom 46 S e l l 7,328 4.2 2.3 1,949 -4.1 1.6 545 -37.4 -0.4
Sector Aggregate 309,908 12.2 0.3 91,177 3.5 -0.1 10,424 -32.4 -16.1
Shobhit Khare ([email protected])
C–175October 2012
September 2012 Results Preview
Sector: Telecom
2G auction the key event to watch for: The regulatory environment continues to be
uncertain. 2G spectrum auction scheduled in November 2012 would be crucial in
determining spectrum pricing, going forward. While industry consolidation/exit of
new entrants could lead to an improvement in the operating environment, potential
participation of Reliance Industries in the 2G auction could disrupt the market
recovery.
Valuation and view: During FY12-14, we expect 7/19/5% EBITDA CAGR for BHARTI/
IDEA/RCOM, led by 9/15/6% traffic CAGR in the India wireless business. Reiterate Buy
on IDEA (trades at an EV of 5.3x FY14E EBITDA), and Neutral on BHARTI (trades at an EV
of 5.8x FY14E EBITDA) and RCOM (trades at an EV of 6.4x FY14E EBITDA).
Wireless subscriber net additions (m)
Industry subscriber
base declined in
July/August 2012
Operator wise monthly subscriber additions (m)
Negative additions
for operators during
August 2012
Source: TRAI/MOSL
We expect wireless traffic
for majors to decline by
~1% QoQ in 2QFY13
QoQ wireless traffic growth (%)
14
12
12
12 14 15
15 17 18 19
19
17
16 18
17 18
17 19 2
323
19 20
20
15
13
11
7 7 8 83
9 10
7 82
85
-21
-6
21
20
16
Feb
-09
Ma
r-09
Apr-
09
May
-09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct-
09
Nov
-09
Dec
-09
Jan
-10
Feb
-10
Ma
r-10
Apr-
10
May
-10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct-
10
Nov
-10
Dec
-10
Jan
-11
Feb
-11
Ma
r-11
Apr-
11
May
-11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct-
11
Nov
-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Apr-
12
May
-12
Jun
-12
Jul-
12
Au
g-1
2
C–176October 2012
September 2012 Results Preview
Sector: Telecom
6.0
3.5
2.7 2.6
RCom Vodafone
India
Bharti Idea
We expect RPM to remain largely flat QoQ (INR)
We expect RPM to remain
largely flat QoQ
Leverage remains
reasonable for
Bharti/Idea but alarming
for RCom
Net Debt/EBITDA (FY12, x) Net Debt/Equity (FY12, x)
Source: Company/MOSL
Aggregate traffic growth and RPM trend for wireless majors
Source: TRAI
Traffic to decline on
seasonality; RPM to
stabilize
0.90.9
1.2
RCom Ide a Bharti
0.41
0.43
0.38
0.40
0.42
0.44
0.46
1Q
FY1
1
2Q
FY1
1
3Q
FY1
1
4Q
FY1
1
1Q
FY1
2
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2QFY
13E
B harti Id ea Vodafone -In dia RCOM
10
1
4
75
-1
3
6
-1
4
-4-1
0-2 0
-2-2
22
-1
1Q
FY11
2Q
FY11
3Q
FY11
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2QF
Y13E
Qo Q traffi c growth (%) QoQ RPM Growth (%)
C–177October 2012
September 2012 Results Preview
Sector: Telecom
2QFY13: Summary Expectations
Wireless KPIs
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%)
EOP Wireless Subs (m)
Bharti (India) 137 143 152 162 169 173 176 181 187 186 8 -0.8
Idea* 69 74 82 90 95 100 106 113 117 116 16 -1.1
RCOM 111 117 126 136 143 147 150 153 155 135 -8 -12.6
Vodafone - India 109 116 124 135 142 145 148 150 154 154 6 -0.1
AV. Wireless Subs (m)
Bharti (India) 132 140 148 157 166 171 174 178 184 187 9 1.2
Idea* 66 72 78 86 92 98 103 110 115 116 19 1.4
RCOM 107 114 121 131 139 145 149 152 154 145 0 -5.8
Vodafone - India 105 112 120 129 138 143 146 149 152 154 7 1.0
ARPU (INR/month)
Bharti (India) 215 202 198 194 190 183 187 189 185 181 -1 -2.2
Idea* 182 167 168 161 160 155 159 160 156 152 -2 -2.4
RCOM 130 122 111 107 103 101 100 99 98 104 2 5.9
Vodafone - India 191 177 176 171 169 168 173 179 180 175 4 -3.0
MOU/Sub
Bharti (India) 480 454 449 449 445 423 419 431 433 424 0 -2.0
Idea* 415 394 401 397 391 364 369 379 379 371 2 -2.1
RCOM 295 276 251 241 233 227 224 227 228 242 7 6.4
Vodafone India (reported) 328 311 308 307 308 297 303 318 324 316 6 -2.5
Vodafone India (adj) 437 415 410 410 411 396 405 424 433 422 6 -2.5
Revenue per min (INR)
Bharti (India) 0.45 0.44 0.44 0.43 0.43 0.43 0.45 0.44 0.43 0.43 -1 -0.2
Idea* 0.44 0.42 0.42 0.41 0.41 0.43 0.43 0.42 0.41 0.41 -4 -0.2
RCOM 0.44 0.44 0.44 0.44 0.44 0.45 0.45 0.44 0.43 0.43 -4 -0.5
Vodafone India (reported) 0.58 0.57 0.57 0.56 0.55 0.57 0.57 0.56 0.55 0.55 -2 -0.5
Vodafone India (adj) 0.44 0.43 0.43 0.42 0.41 0.42 0.43 0.42 0.42 0.41 -2 -0.5
Wireless traffic (B min)
Bharti (India) 190 191 199 212 221 217 219 231 239 237 9 -0.8
Idea* 82 85 94 102 109 106 114 124 132 130 22 -1.0
RCOM 94 94 91 94 98 99 100 103 105 105 6 0.2
Vodafone India (reported) 103 105 111 119 128 128 133 142 148 146 14 -1.5
Vodafone India (adj) 138 140 147 159 170 170 178 190 197 194 14 -1.5
Source: Company/MOSL
Relative Performance-3m (%) Relative Performance-1Yr (%)
75
85
95
105
115
Jun-
12
Jul-
12
Au
g-1
2
Sep-
12
Sens ex Ind ex
MOSL Telecom In dex
60
75
90
105
120
Sep-
11
Dec
-11
Ma
r-12
Jun-
12
Sep-
12
Sens ex Ind ex
MOSL Telecom Ind ex
C–178October 2012
September 2012 Results Preview
Sector: Telecom
Quarterly Financials
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%)
Revenue (INR b)
Bharti (ex Africa)* 112.7 113.3 117.2 121.2 126.3 126.8 131.6 134.2 137.2 136.4 8 -0.5
Bharti (consolidated)* 122.3 152.2 157.6 162.7 169.7 172.7 184.8 187.3 193.5 195.7 13 1.1
Idea** 36.5 36.6 39.6 42.0 45.2 46.2 50.3 53.7 55.0 54.5 18 -1.1
RCOM# 51.1 51.2 50.0 53.3 53.1 50.4 50.5 53.1 53.2 52.5 4 -1.4
EBITDA (INR B)
Bharti (ex Africa)* 42.4 42.2 43.7* 44.3 46.0 45.7 45.2 47.4 43.6 43.7 -4 0.2
Bharti (consolidated)* 44.1 51.2 53.2* 54.5 57.1 58.2 59.6 62.3 58.5 59.5 2 1.8
Idea** 8.9 8.8 9.5 10.0 12.0 11.9 13.4 15.1 14.4 13.8 16 -4.0
RCOM# 16.3 16.6 16.7 15.9 16.0 16.1 16.1 16.3 16.5 15.9 -1 -3.5
EBITDA Margin (%)
Bharti (ex Africa) 37.6 37.3 37.3* 36.6 36.4 36.1 34.4 35.3 31.8 32.0 -405bp 24bp
Bharti (consolidated) 36.1 33.7 33.8* 33.5 33.6 33.7 32.2 33.3 30.2 30.4 -324bp 20bp
Idea** 24.3 24.0 24.0 23.9 26.6 25.7 26.7 28.1 26.1 25.3 -39bp -79bp
RCOM# 31.9 32.4 33.3 29.9 30.2 31.8 31.9 30.7 31.0 30.3 -151bp -68bp
PAT (INR B)
Bharti (ex Africa) 19.0 20.4 18.3 18.2 15.2 14.5 12.7 13.5 14.3 11.1 -23 -22.4
Bharti (consolidated) 16.8 16.6 13.0 14.0 12.2 10.3 10.1 10.1 7.6 6.6 -36 -13.9
Idea** 2.0 1.8 2.4 2.0 1.8 1.1 2.0 3.4 2.3 2.0 92 -13.1
RCOM 3.0 4.9 5.3 1.8 2.2 3.2 2.4 2.0 1.9 1.3 -60 -33.1
EPS (INR)
Bharti 4.4 4.4 3.4 3.7 3.2 2.7 2.7 2.7 2.0 1.7 -36 -13.9
I d e a 0.6 0.5 0.7 0.8 0.5 0.3 0.6 0.7 0.7 0.6 92 -13.1
RCOM 1.5 2.4 2.5 0.9 1.1 1.6 1.2 1.0 0.9 0.6 -60 -33.1
Capex (INR b)
Bharti (ex Africa) 17.4 29.3 29.3 31.1 24.7 20.6 7.8 11.0 29.3 25.0 21 -14.7
I d e a 3.6 3.0 9.5 14.6 10.4 11.0 9.0 8.4 4.1 8.8 -20 114.0
RCOM 7.9 9.3 19.1 6.6 3.6 3.5 3.6 4.3 3.7 3.7 7 1.2
* Before re-branding expenses in 3QFY11; # Adj for change in accounting for IRU sales in 4QFY11; ** Idea 4QFY10 includes 1 month
consolidation with Spice; full merger from 1QFY11; Adj for one-off revenue of ~Rs340m and costs reversal of ~Rs380m in 4QFY11
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Telecommunication
Bharti Airtel 265 Neutral 11.2 7.6 10.5 23.6 34.9 25.2 7.0 6.9 5.8 8.1 5.3 7.0
Idea Cellular 85 Buy 2.2 3.1 5.8 39.0 27.2 14.7 8.1 6.8 5.2 5.7 7.7 12.8
Reliance Comm 65 Neutral 4.8 3.6 5.9 13.5 17.8 11.0 7.6 7.2 6.4 2.9 2.3 3.6
Tulip Telecom 46 S e l l 19.1 12.2 11.2 2.4 3.8 4.2 4.0 4.7 4.7 22.9 11.3 9.5
Sector Aggregate 22.7 29.5 19.6 7.2 6.9 5.8 6.5 4.9 6.9
C–179October 2012
September 2012 Results Preview
Sector: Telecom
Bharti Airtel
Bloomberg BHARTI IN
Equity Shares (m) 3,793.9
52 Week Range (INR) 412/239
1,6,12 Rel Perf (%) 0/-31/-44
Mcap (INR b) 1,004.8
Mcap (USD b) 19.1
CMP: INR265 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR b) (INR b) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 595 60 15.9 -32.6 - - 12.6 8.7 - -
3/12A 715 43 11.2 -29.6 23.6 1.9 8.1 6.2 2.3 7.0
3/13E 796 29 7.6 -32.4 34.9 1.8 5.3 4.5 2.1 6.9
3/14E 870 40 10.5 38.4 25.2 1.7 7.0 5.1 1.8 5.8
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Revenue 169,749 172,698 184,767 187,294 193,501 195,659 200,269 206,559 714,507 795,989
QoQ Growth (%) 4.4 1.7 7.0 1.4 3.3 1.1 2.4 3.1
EBITDA 57,058 58,151 59,584 62,329 58,487 59,536 61,512 64,092 237,122 243,626
QoQ Growth (%) 4.7 1.9 2.5 4.6 -6.2 1.8 3.3 4.2
Margin (%) 33.6 33.7 32.2 33.3 30.2 30.4 30.7 31.0 33.2 30.6
Net Finance Costs 8,551 11,186 7,877 10,572 8,211 9,561 9,929 10,458 38,185 38,159
Depreciation & Amortization 31,314 31,839 35,845 34,683 37,571 38,335 39,168 40,260 133,680 155,334
Profit before Tax 17,195 15,126 15,807 17,056 12,629 11,592 12,366 13,324 65,184 49,911
Income Tax Expense / (Income) 5,141 4,900 5,585 6,976 4,878 4,985 5,273 5,629 22,602 20,765
Profit after Tax 12,054 10,226 10,222 10,080 7,751 6,607 7,093 7,696 42,582 29,146
Reported Net Profit / (Loss) 12,152 10,270 10,113 10,059 7,622 6,563 7,016 7,589 42,595 28,791
YoY Growth (%) -27.7 -38.2 -22.4 -28.2 -37.3 -36.1 -30.6 -24.6 -29.6 -32.4
India - Mobile ARPU (INR/month) 190 183 187 189 185 181 188 195 188 189
QoQ Growth (%) -1.6 -4.0 2.2 1.1 -2.2 -2.2 4.3 3.5
India - Mobile MOU/sub/month 445 423 419 431 433 424 437 447 431 438
QoQ Growth (%) -0.7 -5.0 -1.0 2.8 0.4 -2.0 3.0 2.2
India - Mobi le Traffic (B Min) 221 217 219 231 239 237 245 252 889 973
QoQ Growth (%) 4.6 -1.9 0.9 5.4 3.7 -0.8 3.0 3.0
India - Mobile RPM (INR/min) 0.43 0.43 0.45 0.44 0.43 0.43 0.43 0.44 0.44 0.43
QoQ Growth (%) -0.9 1.0 3.2 -1.7 -2.6 -0.2 1.3 1.3
Africa - Subscribers (m) 46 48 51 53 56 59 61 64 53 64
Africa - ARPU (USD/month) 7.2 7.3 7.1 6.8 6.5 6.4 6.3 6.2 7.1 6.3
Africa - EBITDA margin (%) 25.2 26.2 26.7 27.8 25.8 26.2 26.5 26.8 26.5 26.3
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect consolidated revenue to grow 13.3% YoY and 1.1% QoQ to INR195.7b, largely driven by Africa. India
and South Asia revenue would grow 8% YoY but decline 0.5% QoQ to INR136.5b. Africa business revenue is
likely to grow 3% QoQ to USD1.1b.
Consolidated EBITDA margin is likely to expand 20bp QoQ to 30.4%. EBITDA margin in the Africa business as well
as India and South Asia would remain flat QoQ at 26% and 32%, respectively.
We expect India and SA mobile revenue to grow 8% YoY but decline 1% QoQ to INR106b, led by 0.8% traffic
decline and 0.2% RPM decline. Mobile EBITDA margin is likely to be 30.6%, up 30bp QoQ, led by lower SGA costs.
Africa business performance is likely to improve, boosted by favorable currency movement resulting in 3%/5%
revenue/EBITDA growth on a QoQ basis. We estimate an ARPU of USD6.4 and subscriber base of 59m.
Consolidated net profit is likely to decline 36% YoY and 14% QoQ to INR6.6b. PAT for India and South Asia would
decline 22-23% YoY/QoQ. We have not assumed any forex gain/loss for BHARTI in our 2QFY13 estimates.
The stock trades at an EV of 6.9x FY13E and 5.8x FY14E EBITDA. Maintain Neutral.
Key things to watch: QoQ mobile traffic in India (we expect 0.8% decline), forex loss (we have not modeled any
forex loss/gain), Africa business financials (we expect 3%/5% revenue/EBITDA growth in USD terms).
C–180October 2012
September 2012 Results Preview
Sector: Telecom
Idea Cellular
Bloomberg IDEA IN
Equity Shares (m) 3,308.8
52 Week Range (INR) 103/71
1,6,12 Rel Perf (%) 8/-22/-27
Mcap (INR b) 282.4
Mcap (USD b) 5.4
CMP: INR85 Buy
Year Net sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 155,032 8,986 2.7 -11.6 - - 7.6 5.2 - -
3/12A 195,412 7,231 2.2 -19.6 39.0 2.2 5.7 5.4 2.1 8.1
3/13E 224,887 10,390 3.1 43.5 27.2 2.0 7.7 6.1 1.8 6.8
3/14E 255,652 19,228 5.8 85.0 14.7 1.8 12.8 9.2 1.5 5.2
Quarterly Performance (Consolidated) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q# 1Q 2QE 3QE 4QE
Gross Revenue 45,207 46,199 50,308 53,697 55,037 54,458 56,567 58,823 195,411 224,886
YoY Growth (%) 23.7 26.3 27.2 27.8 21.7 17.9 12.4 9.5 26.0 15.1
QoQ Growth (%) 7.6 2.2 8.9 6.7 2.5 -1.1 3.9 4.0
EBITDA 12,040 11,866 13,446 15,071 14,355 13,775 14,913 15,942 50,924 58,986
YoY Growth (%) 35.5 35.0 41.8 50.2 19.2 16.1 10.9 5.8 34.3 15.8
QoQ Growth (%) 20.0 -1.4 13.3 12.1 -4.8 -4.0 8.3 6.9
Margin (%) 26.6 25.7 26.7 28.1 26.1 25.3 26.4 27.1 26.1 26.2
Net Finance Costs 2,463 2,939 2,880 2,275 2,670 2,358 2,320 2,307 10,557 9,655
Depreciation & Amortization 7,026 7,369 7,575 7,844 8,324 8,509 8,712 8,929 29,814 34,474
Profit before Tax 2,551 1,559 2,991 4,952 3,361 2,909 3,882 4,706 10,553 14,857
Income Tax Exp. / (Income) 778 501 981 1,523 1,019 873 1,164 1,412 3,322 4,468
Adj Net Profit / (Loss) 1,773 1,058 2,010 3,429 2,342 2,036 2,717 3,294 7,231 10,390
YoY Growth (%) -12.0 -41.1 -17.3 69.4 32.1 92.5 35.2 -3.9 -19.5 43.7
Margin (%) 3.9 2.3 4.0 6.4 4.3 3.7 4.8 5.6 3.7 4.6
Mobile ARPU (INR/month) 160 155 159 160 156 152 158 162 158 158
QoQ Growth (%) -0.6 -3.1 2.6 0.6 -2.5 -2.4 3.9 2.7
Mobile MOU/sub/month 391 364 369 379 379 371 382 388 372 383
QoQ Growth (%) -1.5 -6.9 1.4 2.7 0.0 -2.0 2.9 1.6
Mobi le Traffic (B Min) 109 106 114 124 131 130 134 138 453 533
QoQ Growth (%) 6.5 -2.2 7.3 9.1 5.3 -0.9 3.0 3.0
Mobile RPM (INR) 0.41 0.43 0.43 0.42 0.41 0.41 0.41 0.42 0.42 0.41
QoQ Growth (%) 0.9 4.1 1.2 -2.0 -2.5 -0.4 0.9 1.0
E: MOSL Estimates; # Adjusted for INR1.5b one-off provision for licence and WPC charges
BSE Sensex S&P CNX
18,763 5,703
Consolidated revenue is likely to grow 18% YoY but decline 1% QoQ to INR54.5b.
We expect IDEA to report 0.9% QoQ decline in mobile traffic. RPM would decline 0.2% QoQ.
ARPU is likely to decline 2.4% QoQ to INR152 (v/s 2.5% decline in 1QFY13).
EBITDA margin would decline 80bp QoQ to 25.3%. We estimate EBITDA loss in new circles at INR1.7b, flat QoQ.
Net profit would grow 92% YoY but decline 13% QoQ to INR2b. The QoQ decline is largely due to negative
operating leverage.
The stock trades at an EV of 6.8x FY13E and 5.3x FY14E EBITDA. Maintain Buy .
Key things to watch for: QoQ RPM trend (we expect 0.2% decline), mobile traffic (we expect 0.9% QoQ decline),
EBITDA loss in new circles (we expect INR1.7b).
C–181October 2012
September 2012 Results Preview
Sector: Telecom
Reliance Communication
Bloomberg RCOM IN
Equity Shares (m) 2,063.0
52 Week Range (INR) 110/47
1,6,12 Rel Perf (%) 21/-33/-31
Mcap (INR b) 133.6
Mcap (USD b) 2.5
CMP: INR65 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 205,627 14,936 7.2 -69.4 - - 3.9 2.9 - -
3/12A 203,424 9,884 4.8 -33.8 13.5 0.4 2.9 2.7 2.4 7.6
3/13E 213,915 7,518 3.6 -23.9 17.8 0.4 2.3 2.9 2.2 7.2
3/14E 226,430 12,101 5.9 61.0 11.0 0.4 3.6 3.4 2.0 6.4
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Gross Revenue 49,401 50,402 50,521 53,100 53,192 52,462 53,237 53,136 203,424 213,915
YoY Growth (%) -3.3 -1.5 1.0 -0.4 7.7 4.1 5.4 0.1 -1.1 5.2
QoQ Growth (%) -7.3 2.0 0.2 5.1 0.2 -1.4 1.5 -0.2
EBITDA 16,021 16,051 16,111 16,322 16,502 15,916 16,550 16,912 64,506 65,880
YoY Growth (%) -1.8 -3.3 -3.4 2.5 3.0 -0.8 2.7 3.6 -1.5 2.1
QoQ Growth (%) 0.6 0.2 0.4 1.3 1.1 -3.5 4.0 2.2
Margin (%) 32.4 31.8 31.9 30.7 31.0 30.3 31.1 31.8 31.7 30.8
Net Finance Costs 4,050 2,274 3,782 5,795 5,534 5,316 5,278 5,067 15,901 21,036
Depreciation & Amortization 9,760 10,540 9,780 9,703 9,093 9,293 9,396 9,472 39,783 37,254
Profit before Tax 2,211 3,237 2,549 824 1,875 1,307 1,876 2,373 8,822 7,590
Income Tax Expense / (Income) -24 14 141 -1,193 -39 26 38 47 -1,062 72
Adjusted Net Profit / (Loss) 2,235 3,223 2,408 2,017 1,914 1,281 1,839 2,325 9,884 7,518
YoY Growth (%) -25.4 -34.3 -54.2 13.6 -14.4 -60.3 -23.6 15.3 -33.8 -23.9
Margin (%) 4.5 6.4 4.8 3.8 3.6 2.4 3.5 4.4 4.9 3.5
Extraordinary Exp/Minority Interest 661 702 546 -1,299 290 229 229 229 610 976
Reported Net Profit / (Loss) 1,574 2,521 1,862 3,316 1,624 1,052 1,610 2,096 9,274 6,542
Wireless ARPU (INR/month) 103 101 100 99 98 104 114 116 102 106
QoQ Growth (%) -3.4 -1.9 -1.6 -0.6 -1.0 5.9 9.7 1.9
Wireless MOU/sub/month 233 227 224 227 228 242 262 263 231 244
QoQ Growth (%) -3.3 -2.6 -1.3 1.3 0.4 6.4 8.1 0.5
Wireless Traffic (B Min) 98 99 100 103 105 105 107 109 399 426
QoQ Growth (%) 3.2 1.4 1.0 3.4 1.8 0.2 1.4 1.6
Wireless RPM (INR) 0.44 0.45 0.45 0.44 0.43 0.43 0.43 0.44 0.44 0.43
QoQ Growth (%) -0.1 0.7 -0.3 -2.0 -1.3 -0.5 1.4 1.4
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect revenue to decline 1.4% QoQ to INR52.5b.
Wireless ARPU is likely to grow 6% QoQ to INR104, led by ~20m subscriber disconnections in July 2012.
We expect RPM to decline 0.5% QoQ to INR0.43. RCOM's RPM has remained largely flat over the last several
quarters.
Wireless traffic is likely to grow 7% YoY and remain flat QoQ.
Consolidated EBITDA would grow 3% YoY to INR16.5b and margins would expand 30bp QoQ to 31%.
We expect RCOM to report proforma PAT of INR1.9b.
The stock trades at an EV of 7.2x FY13E and 6.4x FY14E EBITDA. Neutral.
Key things to watch for: Margin trajectory in wireless business (we expect 150bp QoQ decline), RPM trend (we
expect 0.5% decline).
C–182October 2012
September 2012 Results Preview
Sector: Telecom
Tulip Telecom
Bloomberg TTSL IN
Equity Shares (m) 145.0
52 Week Range (INR) 163/42
1,6,12 Rel Perf (%) -56/-58/-85
Mcap (INR b) 6.7
Mcap (USD b) 0.1
CMP: INR46 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 23,511 3,064 18.9 32.7 - - 28.6 14.0 - -
3/12A 27,050 3,096 19.1 1.0 2.4 0.5 22.9 12.0 1.1 4.0
3/13E 29,586 1,771 12.2 -35.9 3.8 0.4 11.3 8.1 1.2 4.7
3/14E 34,330 1,620 11.2 -8.6 4.1 0.4 9.5 7.4 1.2 4.7
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Gross Revenue 6,539 7,029 6,866 6,617 7,165 7,328 7,515 7,577 27,051 29,586
YoY Growth (%) 24.5 20.1 14.0 3.7 9.6 4.2 9.5 14.5 15.1 9.4
QoQ Growth (%) 2.5 7.5 -2.3 -3.6 8.3 2.3 2.5 0.8
Total Operating Expenses 4,691 4,998 4,875 4,925 5,246 5,379 5,592 5,674 19,490 21,892
EBITDA 1,848 2,032 1,991 1,691 1,919 1,949 1,923 1,903 7,561 7,694
YoY Growth (%) 30.3 24.4 16.0 -9.4 3.9 -4.1 -3.4 12.5 14.0 1.8
QoQ Growth (%) -1.0 10.0 -2.0 -15.0 13.5 1.6 -1.4 -1.0
Margin (%) 28.3 28.9 29.0 25.6 26.8 26.6 25.6 25.1 28.0 26.0
Net Finance Costs 319 345 427 537 556 571 748 734 1,629 2,600
Non-Operating Income -11 -26 10 68 0 8 8 10 41 26
Depreciation & Amortization 495 502 526 604 628 665 703 762 2,127 2,758
Profit before Tax 1,023 1,159 1,048 617 736 721 480 417 3,847 2,362
Income Tax Expense / (Income) 251 288 276 -42 189 177 120 103 772 590
Tax rate (%) 25 25 25 25 26 25 25 25 20 25
Adjusted Net Profit / (Loss) 772 871 773 660 547 545 360 314 3,075 1,771
YoY Growth (%) 20.3 11.6 -5.5 -20.2 -29.1 -37.4 -53.4 -52.4 0.3 -42.4
QoQ Growth (%) -6.7 12.8 -11.3 -14.6 -17.1 -0.4 -33.8 -12.8
Margin (%) 11.8 12.4 11.3 10.0 7.6 7.4 4.8 4.1 11.4 6.0
Exceptional items 0 0 0 0 616 0 0 0 0 616
Reported PAT 772 871 773 660 1,163 545 360 314 3,075 2,382
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect consolidated revenue to grow 4% YoY to INR7.3b
EBITDA margin is likely to remain flat QoQ at ~27%. EBITDA would grow 2% QoQ to INR1.95b.
We expect reported PAT to decline 37% YoY to INR545m.
The stock trades at an EV of 4.7x FY13/FY14E EBITDA. Neutral.
Key things to watch for: Net finance cost (we expect 3% QoQ increase to INR571m), EBITDA margin trend (we
expect margins to remain stable QoQ).
C–183October 2012
September 2012 Results Preview
Sector: Utilities
UtilitiesCOMPANY NAME
CESC
Coal India
JSW Energy
NHPC
NTPC
Power Grid
PTC India
Reliance Infrastructure
Tata Po wer
Expected quarterly performance summary (INR Million)
CMP Rating Sales EBITDA Net Profit
(INR) Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. Var.
28.09.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ
Adani Power 53 Neutral 11,649 8.6 -20.4 2,320 -55.3 88.3 -2,872 PL Loss
CESC 331 Buy 12,980 4.6 -8.6 2,882 10.8 -0.6 1,297 13.8 3.8
Coal India 359 Buy 147,128 11.9 -10.8 27,321 10.3 -43.3 27,919 25.0 -37.7
JSW Energy 61 Buy 20,198 102.7 -7.8 5,438 360.2 -6.8 1,100 LP -43.6
NHPC 19 Neutral 16,515 -11.1 16.2 11,540 -13.1 27.7 8,533 9.8 32.3
NTPC 168 Buy 155,840 1.3 -2.4 31,290 -3.4 -13.8 18,604 25.7 -22.1
Power Grid Corp. 120 Buy 31,672 39.9 9.7 27,572 45.3 11.9 9,392 23.6 3.6
PTC India 71 Buy 29,853 25.0 50.2 536 20.8 71.4 423 19.0 84.9
Reliance Infrastructure 539 Buy 37,700 -4.6 9.4 4,901 -30.9 6.6 2,551 -48.0 -22.0
Tata Po wer 107 Neutral 70,935 13.5 -2.2 13,048 -3.4 -7.7 3,097 -30.0 1.2
Sector Aggregate 534,468 10.1 -2.0 126,847 6.2 -13.8 70,044 7.0 -22.6
Sector Aggregate Ex Coal India 387,341 9.4 1.8 99,527 5.1 0.5 42,125 -2.3 -7.9
We expect utilities companies under our coverage (excluding Coal India) to report
aggregate revenue growth of 9% YoY and PAT de-growth of 2% YoY for 2QFY13. PAT
growth would be muted for IPPs. However, CPSUs would witness robust PAT growth,
led by 26% YoY PAT growth for NTPC (higher capacity addition) and 24% YoY PAT growth
for Power Grid (better capitalization).
July-August 2012 generation growth muted; PLFs of private coal-based plants most
impacted: In July-August 2012, All India generation grew 2% YoY v/s 1QFY13/FY12
generation growth of 6%/8%. Lower generation growth despite capacity addition
(6.9GW in YTD FY13) is led by de-growth in generation for gas-based (24% YoY) and
hydro plants (14% YoY). Coal-based plants reported generation growth of 12%;
however, PLF was muted. PLFs of private sector plants were most impacted in YTD
FY13, down 10ppt YoY to 60%. Over the last 12 months, India has commissioned 22.6GW
of projects (ex renewable energy). Capacity addition should remain strong, as CEA
has targeted to add 18GW of projects in FY13, while 6.9GW of projects are already
commissioned till August 2012.
Power demand strong at 10% YoY; deficit up: Power demand has been strong in YTD
FY13. Demand for the months of July-August 2012 grew 10% YoY. Uptick in demand has
led to uptick in the deficit for India. YTD FY13 base deficit stood at 8.5% v/s 5.9% a year
ago. Also, a relatively volatile monsoon season led to 239bp increase in peak deficit in
August 2012 to 11% - in double digits for the first time since March 2012.
Imported coal prices remain weak, ST prices also firm: Globally, imported coal prices
have weakened. However, INR depreciation has partially taken away the benefit. In
INR terms, during 2QFY13 the RB Index declined 5-6% QoQ (Coal Index down 8% QoQ
to USD88/ton; INR depreciated 2% QoQ to INR55.2/USD). However, the recent INR
appreciation could significantly improve fuel cost savings in 3QFY13. Average spot
rate at IEX for 2QFY13 stood at INR3.5/unit (down 1% QoQ and up 22% YoY). ST prices at
Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected])
Vishal Periwal ([email protected])
C–184October 2012
September 2012 Results Preview
Sector: Utilities
Generation and PLFs of various plants
Capacity Aug-12 Aug-11 Generation Chg
(MW)* Generation PLF (%) Generation PLF (%) Jul-Aug-12 Jul-Aug-11 (%)
Adani Power
- Mundra Phase 1 4,620.0 1,414.1 41.1 1,251.7 85.0 3,117.8 2,181.9 42.9
GVK
- JP 1 & 2 455.0 143.1 43.0 266.1 80.0 290.8 466.5 -37.7
- Gautami 464.0 92.8 27.4 268.5 79.3 200.6 512.1 -60.8
GMR
- Barge Mounted 220.0 38.1 23.7 125.5 78.1 90.2 361.5 NA
- Chennai 200.0 46.7 32.0 45.8 31.4 84.1 112.6 -25.3
- Vemagiri 370.0 70.4 26.1 198.8 73.6 292.8 465.3 -37.1
JPL
- Chattisgarh 1,000.0 707.3 95.1 662.5 89.0 1,343.8 1,412.4 -4.9
Rel Infra
- Dahanu 500.0 385.1 103.5 351.3 94.4 773.5 728.3 6.2
- Samalkot (AP) 220.0 58.8 36.6 136.0 84.7 133.0 231.6 -42.5
- Goa 48.0 23.3 66.4 19.6 55.9 38.3 19.6 95.2
- Kochi 174.0 0.0 0.0 0.0 0.0 0.0 0.0 NA
Rel Power
- Rosa 1,200.0 649.2 72.7 303.4 68.0 1,102.8 727.4 51.6
Tata Power
- Trombay 1,580.0 817.3 65.0 692.0 56.3 1,668.6 1,377.0 21.2
- TISCO (Jamshedpur) 441.3 265.0 94.3 226.5 84.6 549.9 429.9 27.9
- Mundra UMPP 800.0 394.5 33.1 0.0 0.0 561.5 0.0 NA
Torrent Power
- Existing 500.0 254.2 85.4 293.0 82.9 551.0 596.7 -7.7
- Sugen 1,147.5 428.8 51.2 732.7 87.5 825.9 1,410.7 -41.5
JSW Energy
- Rajwest Unit-I 540.0 295.1 73.5 0.0 0.0 474.6 0.0 NA
-Karnataka 2,060.0 1,401.6 91.5 873.8 133.5 2,710.8 762.4 255.6
CESC 1,285.0 814.6 85.2 790.6 83.0 1,640.9 1,613.9 1.7
Lanco Infratech
- Kondapali 716.0 202.9 38.8 230.7 44.1 443.7 634.4 -30.1
- Amarkantak (LANCO) 600.0 293.5 65.7 332.5 74.5 692.9 581.5 19.2
- UPCL 1,200.0 331.9 31.2 282.5 64.5 707.5 531.5 33.1
KSK
- Wardha 540.0 227.0 56.5 208.7 70.6 552.2 442.0 24.9
Sterlite
- Jharsuguda 2,400.0 749.6 42.0 494.5 37.6 1,517.2 1,099.8 37.9
*Monitored capacity by CEA Source: CEA
IEX touched a high of INR6/unit in the middle of July 2012, but have fallen sharply
since then. The ST forward curve has been strong; in the last three months, contacts
have been executed at over INR4/unit.
Valuation and view: The Power sector has begun to witness several initiatives by the
authorities to address concerns on SEBs, fuel supply pacts and PPAs. However, it
would take a while for clarity to emerge on several issues. In this environment, we
continue to prefer CPSUs, which are relatively better positioned on these fronts. Our
top picks are NTPC and JSW Energy .
C–185October 2012
September 2012 Results Preview
Sector: Utilities
July-August 2012: All-India generation grew 2% YoY PLFs of coal-based plants: Private sector most impacted (%)
Power demand: Strong; up 10% YoY in YTD FY13 Base deficit moving up (%)
ST prices flattish (INR/unit) Forward ST prices at over INR4/unit
RB Index* softening (USD/ton) INR depreciation negated some of the impact (INR/USD)
62 67 72 66 75 71 75 70 73 72 70 74 71 73 73 71 77 75 79 76 75 73
46
11
7 87
10
8
14
9 9
5
14
8
2
8
2
45
8
2 2
55
60
65
70
75
No
v-1
0
Feb
-11
Ma
y-1
1
Au
g-1
1
No
v-1
1
Feb
-12
Ma
y-1
2
Au
g-1
2
0
4
8
12
16Al l India Genera tion (BUs ) Gr (YoY, %)
50
60
70
80
90
100
Oct
-10
Dec
-10
Feb
-11
Ap
r-11
Jun
-11
Aug
-11
Oct
-11
Dec
-11
Feb
-12
Ap
r-12
Jun
-12
Aug
-12
Centre Sector Sta te Sector Private Sector
75 78 74 77 75 75 77 77 81 81 78 83
7984 85 86
83
60
65
70
75
80
85
90
Ap
ril
Ma
y
Jun
e
July
Aug
Sep
t
Oct
No
v
Dec Jan
Feb
Ma
r
0%
4%
8%
12%
16%FY 12 FY13 Gr (%)
4.22
4.22
4.264.20
9-S
ep-
12
24-S
ep-
12
9-O
ct-1
2
24-O
ct-1
2
8-N
ov-1
2
23-N
ov-1
2
8-D
ec-1
2
91 88 104 121 121 117 107 105 96 8840
80
120
160
1QF
Y1
1
2QF
Y1
1
3QF
Y1
1
4QF
Y1
1
1QF
Y1
2
2QF
Y1
2
3QF
Y1
2
4QF
Y1
2
1QF
Y1
3
2QF
Y1
3
-30%
0%
30%
60%Avg RB Index (USD/ton) YoY QoQ
* 6000Kcal, FoB South Africa, 2QFY12 price till 17 August Source: CEA, IEX, CERC, Bloomberg, MOSL
46 46 45 45 45 46
50 5054
55
36.0
40.5
45.0
49.5
54.0
58.5
1Q
FY11
2Q
FY11
3Q
FY11
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
-20
-5
10
25
40
55
QoQ (%) YoY (%) INR/USD
8.28.6
9.29.1
7.5
4.0
6.5
9.0
11.5
14.0
16.5
Apr
Ma
y
Jun
Jul
Au
g
Sep Oct
No
v
De
c
Jan
Feb
Mar
FY13 FY11 FY12
7.8
5.3
3.5 4.
1
5.3
3.1
2.3
3.6
2.9
4.6
3.4
3.6
3.6
3.1
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
1QF
Y13
2QF
Y13
C–186October 2012
September 2012 Results Preview
Sector: Utilities
Comparative valuation
CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
28.09.12 FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Utilities
Adani Power 53 Neutral -0.4 1.5 2.6 -124.7 36.2 20.3 28.6 13.8 10.0 -1.5 5.3 9.2
CESC 331 Buy 44.1 47.5 53.0 7.5 7.0 6.2 5.5 5.2 4.9 12.1 11.7 11.7
Coal India 359 Buy 25.4 28.8 30.9 14.1 12.5 11.6 10.3 8.1 7.1 31.9 28.5 25.0
JSW Energy 61 Buy 2.0 3.7 6.3 30.1 16.5 9.7 12.4 8.0 6.1 5.8 10.3 15.9
NHPC 19 Neutral 2.0 2.0 2.1 9.4 9.6 9.3 7.0 7.9 7.7 8.6 7.9 7.9
NTPC 168 Buy 10.1 11.5 13.5 16.6 14.6 12.4 11.6 11.3 9.3 11.8 12.5 13.7
Power Grid Corp. 120 Buy 7.2 8.6 10.3 16.8 14.0 11.6 12.4 10.1 9.4 14.8 16.1 17.4
PTC India 71 Buy 6.9 7.7 9.5 10.2 9.2 7.4 14.0 7.3 6.5 5.4 6.4 7.6
Reliance Infra. 539 Buy 74.8 43.5 48.0 7.2 12.4 11.2 2.0 3.0 2.4 11.4 6.3 6.6
Tata Power 107 Neutral 7.4 5.7 4.0 14.4 18.7 27.0 17.9 17.2 17.6 9.8 8.6 6.5
Sector Aggregate 14.6 13.3 12.0 11.0 9.6 8.4 16.3 16.1 16.2
* Coal India RoE adjusted for OB reserves
Relative Performance-3m (%) Relative Performance-1Yr (%)
98
101
104
107
110
Jun-
12
Jul-
12
Au
g-1
2
Sep-
12
Sen sex Ind exMOSL Util i tie s Index
80
90
100
110
120
Sep-
11
Dec
-11
Ma
r-12
Jun-
12
Sep-
12
Se nse x IndexMOSL Uti l i ties Inde x
C–187October 2012
September 2012 Results Preview
Sector: Utilities
CESC
Bloomberg CESC IN
Equity Shares (m) 125.6
52 Week Range (INR) 339/186
1,6,12 Rel Perf (%) 1/12/6
Mcap (INR b) 41.6
Mcap (USD b) 0.8
CMP: INR331 Buy
Year Net Sales PAT EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 40,942 4,670 38.9 - - 11.3 10.2 - -
03/12A 46,050 5,543 44.1 13.5 7.5 0.9 12.1 10.6 1.3 5.4
03/13E 52,527 5,970 47.5 7.7 7.0 0.8 11.7 10.4 1.1 5.1
03/14E 58,139 6,662 53.0 11.6 6.2 0.7 11.7 10.2 1.0 4.8
* Excl Spencers; fully diluted
Quarterly Performance (Standalone Numbers - excl Spencers Retail) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 11,830 12,410 10,320 13,790 14,200 12,980 13,125 12,782 45,930 52,527
Change (%) 7.9 12.3 9.9 57.6 20.0 4.6 27.2 -7.3 12.2 14.4
EBITDA 2,671 2,600 2,130 4,320 2,900 2,882 3,473 3,011 11,570 12,426
Change (%) 4.3 -18.2 -15.8 75.6 8.6 10.8 63.1 -30.3 7.8 7.4
As of % Sales 22.6 21.0 20.6 31.3 20.4 22.2 26.5 23.6 25.2 23.7
Depreciation 710 720 750 720 770 785 800 816 2,900 3,171
Interest 700 750 660 650 780 740 730 732 2,760 2,982
Other Income 130 290 200 380 210 275 310 399 1,000 1,194
PBT 1,391 1,420 920 3,330 1,560 1,632 2,253 1,862 6,910 7,467
Tax 280 280 180 670 310 335 462 391 1,410 1,497
Effective Tax Rate (%) 20.1 19.7 19.6 20.1 19.9 20.5 20.5 21.0 20.4 20.0
Reported PAT 1,111 1,140 740 2,660 1,250 1,297 1,791 1,471 5,500 5,970
Adjusted PAT 1,111 1,140 740 2,510 1,250 1,297 1,791 1,471 5,500 5,970
Change (%) 1.0 -15.6 -32.7 124.1 12.5 13.8 142.1 -41.4 17.8 8.5
E: MOSL Estimates
Operational Details1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Generation 2,395 2,356 2,197 1,997 2,430 2,425 2,220 2,041 8,945 9,116
S a l e s 2,256 2,324 2,005 1,811 2,467 2,392 2,026 1,678 8,396 8,556
Realization (INR/unit) 5.2 5.3 5.1 7.6 5.8 5.4 6.5 7.6 5.5 6.1
Overall PLF (Derived) (%) 89.3 87.8 81.9 74.4 90.6 90.4 82.8 76.1 83.3 92.5
BSE Sensex S&P CNX
18,763 5,703
We expect CESC to report revenue of INR13b (up 5% YoY) and PAT of INR1.3b (up 14% YoY) for 2QFY13. For the
period April-May 2012, CESC's 1,225MW generation projects operated at 92% PLF v/s 90% in April-May 2011,
while generation was 1.6BU, up 2% YoY.
After several rounds of discussions, the Cabinet has approved 51% FDI in multi-brand retail with a rider that the
states will have the final say in accepting the proposals. FDI in retail has opened up a window of opportunity for
Spencer's to raise long-term funds for its growth. However, state nod is the key to success; 53% of Spencer's
area is in states that are opposing the FDI policy.
Restructuring led to improvement in Spencer's gross margin and overall performance in 1QFY13. Average sales
at Spencer's grew 14% YoY in 1QFY13 to INR1,151/sf/month and store-level EBITDA improved to INR42/sf/
month v/s INR26/sf/month in 1QFY12. We understand that store EBITDA has improved further to INR50/sf/
month on the back of same store sales (SSS) growth of 15%. CESC targets EBITDA breakeven in 3QFY14.
CESC has spent INR8.3b (equity) towards 1.2GW of projects as at June 2012. The management expects the
Chandrapur project to commission in the next 12 months. The Haldia project is likely to be operational by FY15.
We expect CESC to post standalone PAT (ex Spencer's) of INR6b in FY13 (up 8%) and INR6.7b in FY14 (up 12%).
The stock trades at 7x FY13E and 6.2x FY14E reported EPS. Maintain Buy .
C–188October 2012
September 2012 Results Preview
Sector: Utilities
Coal India
Bloomberg COAL IN
Equity Shares (m) 6,316.4
52 Week Range (INR) 386/294
1,6,12 Rel Perf (%) -6/-1/-13
Mcap (INR b) 2,270.4
Mcap (USD b) 43.1
CMP: INR359 Buy
Year Net Sales* PAT* # EPS# EPS P/E P/BV RoE$ RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
FY11A 502,336 109,309 17.3 11.2 - - 26.4 54.8 - -
FY12A 624,154 160,725 25.4 47.0 14.1 5.6 31.9 57.3 2.7 10.3
FY13E 693,038 181,666 28.8 13.0 12.5 4.4 28.5 56.0 2.4 8.1
FY14E 746,196 194,891 30.9 7.3 11.6 3.6 25.0 48.2 2.1 7.1
*Consolidated; # Adjusted; $ RoE is adj. for OB reserves accounts, as appplicable under IFRS
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 144,991 131,481 153,493 194,190 165,006 147,128 172,505 208,400 624,154 693,038
Change (%) 26.8 18.2 20.9 29.7 13.8 11.9 12.4 7.3 24.3 11.0
EBITDA 48,197 24,773 45,421 37,856 48,146 27,321 49,319 75,073 156,388 203,049
Change (%) 55.5 39.8 34.5 -27.2 -0.1 10.3 8.6 98.3 16.6 29.8
As of % Sales 33.2 18.8 29.6 19.5 29.2 18.6 28.6 36.0 25.1 29.3
Depreciation 4,308 5,734 5,257 4,103 5,356 5,500 5,600 5,744 19,402 22,200
Interest 55 83 76 326 126 150 160 181 540 617
Other Income 15,589 17,942 18,559 23,280 20,714 18,500 19,500 20,576 75,369 79,290
EO Income/(Expense) 132 165 52 458 -103 0 0 0 734 0
PBT 59,555 37,064 58,699 57,164 63,275 40,171 63,059 89,725 212,549 259,522
Tax 18,115 11,132 18,322 17,221 18,582 12,252 19,391 27,632 64,790 77,857
Effective Tax Rate (%) 30.4 30.0 31.2 30.4 29.4 30.5 30.8 30.8 30.5 30.0
Reported PAT 41,439 25,931 40,378 39,943 44,693 27,919 43,668 62,093 147,759 181,666
Adjusted PAT* 41,308 22,341 36,901 60,493 44,796 27,919 43,668 62,093 160,725 181,666
Change (%) 62.8 46.8 39.7 43.6 8.4 25.0 18.3 2.6 47.1 13.0
E: MOSL Estimates
Operational Details1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Volume Assumptions (m tons)
Production 96.3 80.3 114.6 144.6 102.5 90.0 121.0 154.5 435.8 468.0
Sales/Offtake 106.3 93.2 110.3 122.9 113.0 104.0 119.0 132.0 433.1 468.0
Blended Realization (INR/ton)
- Regulated 1,188 1,225 1,174 1,339 1,261 1,260 1,260 1,349 1,235 1,285
- E-auction 2,246 2,435 2,852 2,852 2,562 2,300 2,750 2,802 2,599 2,617
BSE Sensex S&P CNX
18,763 5,703
We expect Coal India (COAL) to report revenue of INR147b (up 12% YoY) and PAT of INR28b (up 25% YoY).
We estimate production at 90m tons (up 12% YoY) and dispatches at 104m tons (up 12% YoY). During 2QFY13 (ti ll
9 September) COAL's production was 69m tons (up 9% YoY) and dispatches were 79m tons (up 6% YoY).
E-auction price has been one of the key drivers of earnings growth for COAL. However, we saw a marginal dip in
e-auction realization in 1QFY13. We gather that premium over notified prices has further weakened in 2QFY13.
We build in e-auction realization of INR2,300/ton in 2QFY13 v/s an average of INR2599/ton in FY12 and INR2,562/
ton in 1QFY13. Softening in global coal prices and appreciating INR could put pressure on realizations of market-
linked volumes (e-auction/washed) for COAL.
The board has approved new FSA (fuel supply agreement) norms, with supply of 65% coal from its own
production and 15% from imports. It has approved a revised penalty structure, with base penalty of 1.5%
(trigger level of 65-80%) and peak penalty of 40% (supply below 50%).
We expect COAL to report consolidated PAT of INR182b for FY13 (up 13%) and INR195b for FY14 (up 7%). The
stock trades at 12.5x FY13E and 11.6x FY14E reported EPS. Maintain Buy.
C–189October 2012
September 2012 Results Preview
Sector: Utilities
JSW Energy
Bloomberg JSW IN
Equity Shares (m) 1,640.1
52 Week Range (INR) 77/36
1,6,12 Rel Perf (%) 30/-4/-2
Mcap (INR b) 99.7
Mcap (USD b) 1.9
CMP: INR61 Buy
Year Net Sales * PAT* EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 42,944 8,418 5.1 12.5 11.8 1.8 14.8 9.7 - -
3/12A 61,189 3,314 2.0 -60.6 30.1 1.7 5.8 6.4 3.0 12.7
3/13E 90,980 6,056 3.7 82.7 16.5 1.7 10.3 10.7 2.3 8.2
3/14E 102,038 10,269 6.3 69.6 9.7 1.5 15.9 14.0 1.9 6.2
* Consolidated
Quarterly Performance (Consolidated) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Total Operating Income 12,724 9,965 17,687 20,812 21,915 20,198 23,142 25,724 61,187 90,980
Change (%) 36.5 17.8 64.3 44.6 72.2 102.7 30.8 23.6 42.5 48.7
EBITDA 3,932 1,182 3,495 5,869 5,834 5,438 6,556 7,342 14,477 25,169
Change (%) -13.1 -63.6 -1.2 35.5 48.4 360.2 87.6 25.1 -7.4 73.9
Depreciation 1,048 1,098 1,379 1,509 1,697 1,721 1,977 2,349 5,033 7,744
Interest 1,338 1,510 1,995 2,329 2,426 2,450 2,650 3,227 7,172 10,753
Other Income 220 708 288 259 764 425 440 428 1,466 2,057
Extraordinary items 0 868 1,375 -621 2,325 0 0 0 1,613 2,325
PBT 1,766 -1,586 -965 2,910 150 1,692 2,369 2,193 2,125 6,404
Tax 441 -481 -148 607 160 592 829 769 419 2,350
Effective Tax Rate (%) 25.0 30.3 15.3 20.9 106.4 35.0 35.0 35.0 19.7 36.7
Reported PAT 1,326 -1,105 -817 2,303 -10 1,100 1,540 1,425 1,706 4,055
Exceptional Income/ (Expense) 0 868 1,375 -621 1,915 0 0 0 1,613 1,915
Reported PAT (Post MI) 1,363 -1,089 -827 2,303 34 1,100 1,540 1,467 1,700 4,141
Adjusted PAT 1,363 -221 549 1,683 1,949 1,100 1,540 1,467 3,313 6,056
Change (%) -54.4 -114.3 -60.2 -18.3 43.0 n.a. 180.6 -12.8 -60.6 82.8
E: MOSL Estimates
Operational Details
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Sales (MUs) 2,422 2,593 3,965 4,617 4,731 4,481 5,149 5,806 13,594 20,167
- Long Term 672 646 1,441 2,157 2,233 2,062 2,714 3,273 4,902 10,282
- Merchant 1,750 1,947 2,524 2,460 2,498 2,419 2,435 2,533 8,692 9,885
ST as a % of total 72.3 75.1 63.7 53.3 52.8 54.0 47.3 43.6 63.9 49.0
Realization (INR/unit) 4.51 3.15 3.99 4.18 4.56 4.51 4.49 4.43 4.37 4.51
BSE Sensex S&P CNX
18,763 5,703
We expect JSWEL to report consolidated revenue of INR20.2b (up 103% YoY) and PAT of INR1.1b (v/s loss of
INR221m in 2QFY12) for 2QFY13.
JSWEL generated 3.2BU (up 74% YoY) during July-August 2012. Average PLF for the 2,060MW Karnataka/Ratnagiri
project stood at 90% (v/s 71% a year ago) and at 59% (v/s 74% in 1QFY13) for the 540MW Rajwest project. In
2QFY13, we expect JSWEL to sell 4.5BU (up 75% YoY). 55% of its sales would be on merchant tariffs.
JSWEL's gross margin had improved to INR2.1/unit in 1QFY13. Consumption of high cost inventory had restricted
margin expansion in 1Q. The management expects gross margin expansion from 2QFY13.
540MW of capacity at Rajwest is in operations and JSWEL has synchronized an additional 3 units (405MW). The
entire project would be ready for commissioning by 2QFY13.
We expect JSWEL to report consolidated PAT of INR6.2b for FY13 (up 88%) and INR10.5b for FY14 (up 69%). The
stock trades at 16.5x FY13E and 9.7x FY14E reported EPS. Maintain Buy .
C–190October 2012
September 2012 Results Preview
Sector: Utilities
NHPC
Bloomberg NHPC IN
Equity Shares (m) 12,300.7
52 Week Range (INR) 25/15
1,6,12 Rel Perf (%) 2/-10/-32
Mcap (INR b) 238.0
Mcap (USD b) 4.5
CMP: INR19 Neutral
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 51,436 18,169 1.6 17.4 - - 7.0 8.6 - -
03/12A 69,203 23,652 2.0 28.4 9.4 0.8 8.6 10.3 4.9 7.0
03/13E 60,489 23,187 2.0 -1.7 9.6 0.8 7.9 7.6 4.9 7.9
03/14E 67,177 24,071 2.1 3.8 9.3 0.8 7.9 7.9 4.8 7.7
* Pre Exceptional Earnings, Consolidated
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 14,708 18,585 8,820 14,437 14,218 16,515 10,170 9,426 56,550 50,329
Change (%) 44.2 45.1 17.5 23.0 -3.3 -11.1 15.3 -34.7 33.8 -11.0
EBITDA 9,565 13,283 3,788 9,942 9,040 11,540 5,095 3,816 36,579 29,491
Change (%) 17.4 25.4 -17.7 94.6 -5.5 -13.1 34.5 -61.6 28.6 -19.4
As of % Sales 65.0 71.5 43.0 68.9 63.6 69.9 50.1 40.5 64.7 58.6
Depreciation 2,258 2,234 2,237 2,199 2,218 2,350 2,550 2,702 8,927 9,819
Interest 865 883 876 799 798 830 875 1,096 3,422 3,599
Other Income 3,275 3,042 2,032 2,255 2,451 2,650 2,400 2,931 10,604 10,432
EO Income/(Expense) 0 -352 0 689 0 0 0 0 337 0
PBT 9,717 12,856 2,707 9,889 8,475 11,010 4,070 2,949 35,169 26,504
Tax 1,807 3,191 586 1,868 1,777 2,477 916 671 7,452 5,841
Effective Tax Rate (%) 18.6 24.8 21.6 18.9 21.0 22.5 22.5 22.7 21.2 22.0
Reported PAT 7,910 9,665 2,122 8,021 6,698 8,533 3,154 2,278 27,717 20,664
Adjusted PAT 6,050 7,769 2,976 2,109 6,450 8,533 3,154 2,279 18,884 20,664
Change (%) 18.4 13.3 63.9 -18.3 6.6 9.8 6.0 8.1 15.1 9.4
E: MOSL Estimates
Operational Details1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Generation (MUs) 6,284 6,939 860 1,423 6,148 7,618 1,313 3,673 18,683 18,752
Increase/ (Decrease) (%) 11.0 -2.6 -72.0 -46.1 -2.2 9.8 52.7 158.1 1.0 0.4
Installed Capacity (MW) 5,287 5,287 5,287 5,287 5,287 5,518 5,518 5,979 5,287 5,979
- Owned 3,767 3,767 3,767 3,767 3,767 3,998 3,998 4,459 3,767 4,459
- JV's 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520
BSE Sensex S&P CNX
18,763 5,703
We expect NHPC to report revenue of INR16.5b (down 11% YoY) and PAT of INR8.5b (up 10% YoY) for 2QFY13. In
July-August 2012, NHPC's generation was 5.2BU (up 10% YoY).
In FY13, NHPC is targeting to add 1.1GW of projects. It has commissioned Chamera-III 231MW in YTD FY13.
Chutak (44MW) and Nimo Bazgo (45MW) projects are ready for commissioning but CoD is partly impacted due
to transmission line delays. Local agitation has impacted the commissioning of Uri-II (240MW). The Kishanganga
project (330MW) is caught in the controversy between India and Pakistan.
The Supreme Court has asked the Ministry of Power (MoP), the Ministry of Environment and Forests (MoEF),
and NHPC to file an affidavit on the ongoing Lower Subansiri Hydel Electric Project (LSHEP), which is caught in
controversy after an NGO, Assam Public Works (APW), prayed before the apex court to take note of the impact
of the LSHEP on low lying areas.
As at the end of 1QFY13, NHPC's outstanding debtors stood at INR21b and debtors above 60 days stood lower at
INR9.1b (v/s INR12b+ as at the end of FY12).
We expect NHPC to report consolidated PAT of INR23.2b for FY13 (down 2%) and INR24.1b for FY14 (up 4%). The
stock trades at 9.6x FY13E and 9.3x FY14E reported EPS. Maintain Neutral.
C–191October 2012
September 2012 Results Preview
Sector: Utilities
NTPC
Bloomberg NTPC IN
Equity Shares (m) 8,245.5
52 Week Range (INR) 190/139
1,6,12 Rel Perf (%) -9/-6/-14
Mcap (INR b) 1,384.0
Mcap (USD b) 26.3
CMP: INR168 Buy
Year Net Sales PAT * EPS* EPS P/E P/BV RoE RoCE EV/ EV/
End* (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 548,740 79,580 9.7 -5.9 - - 12.2 12.2 - -
03/12A 611,449 79,720 9.7 0.2 17.4 1.9 11.8 11.8 2.8 11.7
03/13E 711,487 93,776 11.4 17.6 14.8 1.8 12.5 12.5 2.5 11.3
03/14E 790,502 111,540 13.5 18.9 12.4 1.6 13.7 13.7 2.4 9.3
* Pre Exceptional consolidated Earnings; We have factored in RoE gross-up based on MAT
wef FY11 onwards
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 141,715 153,775 153,333 162,639 159,600 155,840 181,322 214,725 611,462 711,487
Change (%) 9.5 4.2 13.6 4.8 12.6 1.3 18.3 32.0 7.8 16.4
EBITDA 28,662 32,387 28,564 41,127 36,306 31,290 38,372 45,978 131,437 151,947
Change (%) 2.2 -2.2 -22.1 12.9 26.7 -3.4 34.3 11.8 -2.1 15.6
As of % Sales 20.2 21.1 18.6 25.3 22.7 20.1 21.2 21.4 21.5 21.4
Depreciation 6,411 6,583 7,560 7,363 7,602 8,500 9,200 10,620 27,917 35,922
Interest 3,744 3,312 4,496 4,870 4,994 5,150 5,400 6,066 17,116 21,610
Other Income 9,964 10,093 9,121 7,679 8,849 7,500 7,550 7,713 36,858 31,612
PBT 28,472 32,586 25,629 36,574 32,559 25,140 31,322 37,005 123,262 126,026
Tax 7,714 8,346 4,324 10,640 7,573 6,536 8,144 9,648 31,024 31,151
Effective Tax Rate (%) 27.1 25.6 16.9 29.1 23.3 26.0 26.0 26.1 25.2 24.7
Reported PAT 20,758 24,240 21,304 25,934 24,987 18,604 23,179 27,357 92,238 94,875
Adjusted PAT 19,015 14,797 20,692 22,958 23,888 18,604 23,179 27,357 79,720 93,776
Change (%) 13.0 -8.4 -1.1 -10.6 25.6 25.7 12.0 19.2 0.2 17.6
E: MOSL Estimates; Adj profit based on the calculations provided by the management
Operational Details
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Installed Capacity (MW) 34,854 34,854 36,014 37,014 39,174 39,174 40,674 41,174 37,014 41,174
Addition (MW) 660 - 1,160 1,000 2,160 - 1,500 500 2,820 4,160
PLF (%)
- Coal based projects 86.9 78.4 83.5 91.1 86.5 80.0 89.0 95.3 85.0 85.0
- Gas based projects 62.6 60.8 71.1 66.8 64.5 65.0 65.0 64.5 65.2 65.0
BSE Sensex S&P CNX
18,763 5,703
We expect NTPC to report revenue of INR156b (up 2% YoY) and PAT of INR18.6b (up 26% YoY) for 2QFY13. PAT
growth would largely be on the back of base effect, as September 2011 operations were impacted due to coal
shortage/wet coal and due to strike at Coal India.
Generation for the period July-August 2012 was 36.5BU (up 2% YoY) while 1QFY13 generation was up 8% YoY.
This is largely due to maintenance shutdown taken for a large part of its coal capacity. Coal-based generation
was up 3% YoY in July-August 2012 while gas-based generation was down 1% YoY. NTPC's coal plant PLF for July-
August 2012 was 77% v/s 82% in July-August 2011.
YTD FY13, NTPC has added capacity of 2.1GW (FY13 target of 4.1GW) and has commercialized 2.3GW. In July-
August 2012, it commercialized 660MW Sipat U-III. We expect accelerated capacity addition and
commercialization in 2HFY13.
Under the 12th Plan, NTPC's capacity addition target is 14GW and it has 16.6GW capacity under construction.
Additional 2.6GW (Meja/Solapur) is targeted for addition during the 12th Plan period on best effort basis.
We expect NTPC to report PAT of INR94b for FY13 (up 13%) and INR112b for FY14 (up 18%). The stock trades at
14.8x FY13E and 12.4x FY14E reported EPS. Maintain Buy.
C–192October 2012
September 2012 Results Preview
Sector: Utilities
Power Grid Corporation
Bloomberg PWGR IN
Equity Shares (m) 4,629.7
52 Week Range (INR) 124/95
1,6,12 Rel Perf (%) -7/4/10
Mcap (INR b) 557.2
Mcap (USD b) 10.6
CMP: INR120 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR M) (INR) Gr (%) (X) (X) (%) (%) Sales EBITDA
3/11A 83,887 25,411 5.5 0.3 - - 13.6 9.3 - -
3/12A 100,353 33,199 7.2 30.6 16.8 2.4 14.8 9.2 10.4 12.4
3/13E 133,383 39,908 8.6 20.2 14.0 2.1 16.1 9.7 8.7 10.1
3/14E 158,493 47,902 10.3 20.0 11.6 1.9 17.4 9.5 8.1 9.4
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 22,025 22,644 24,666 31,019 28,883 31,672 34,010 38,820 100,353 133,383
Change (%) 10.2 6.5 20.2 40.3 31.1 39.9 37.9 25.1 19.6 32.9
EBITDA 18,455 18,978 21,027 26,038 24,646 27,572 29,560 32,597 83,824 114,375
Change (%) 9.8 6.3 21.7 40.2 33.6 45.3 40.6 25.2 18.9 36.4
As of % Sales 83.8 83.8 85.2 83.9 85.3 87.1 86.9 84.0 83.5 85.7
Depreciation 5,790 5,966 6,792 7,177 7,565 8,100 9,000 9,505 25,725 34,170
Interest 4,446 5,556 4,735 5,413 6,461 6,800 7,300 7,822 19,432 28,023
Other Income 1,432 1,942 1,096 3,069 920 650 700 718 7,497 2,989
Extraordinary Inc / (Exp) 13 -21 31 164 0 0 0 0 187 0
PBT 9,638 9,419 10,565 16,354 11,540 13,322 13,960 15,989 45,976 55,170
Tax 2,586 2,331 2,472 6,037 2,836 3,930 4,118 4,738 13,427 15,622
Effective Tax Rate (%) 26.8 24.8 23.4 36.9 24.6 29.5 29.5 29.6 29.2 28.3
Reported PAT 7,053 7,087 8,092 10,317 8,705 9,392 9,842 11,251 32,550 39,548
Adjusted PAT (Pre Exceptional) 7,022 7,601 7,743 10,832 9,065 9,392 9,842 11,251 33,199 39,908
Change (%) 18.9 27.1 28.1 44.7 29.1 23.6 27.1 3.9 30.7 20.2
E: MOSL Estimates
Operational Details1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Capitalization (INR m) 8,020 32,550 22,280 78,150 41,000 35,000 45,000 49,000 141,000 170,000
Regulated Equity (INR m) 137,918 147,683 154,367 177,812 190,112 200,612 214,112 228,812 177,812 228,812
BSE Sensex S&P CNX
18,763 5,703
We expect Power Grid Corporation of India (PWGR) to report revenue of INR32b (up 40% YoY) and PAT of
INR9.3b (up 24% YoY) for 2QFY13. PWGR capitalized ~INR9b in July 2012 and is likely to capitalize INR35b in
2QFY13. The board has accorded investment approval for projects worth INR72b (v/s INR97b YoY) in YTD FY13.
Over the last few months, PWGR's order awards have picked up. It has awarded orders worth INR74b
(v/s INR21.2b YoY) in YTDFY13, against project awards of INR232b in FY12 and INR161b in FY11.
For FY13, we expect PWGR to capitalize INR170b, up 21%. In FY12, fixed asset capitalization stood at INR141b
v/s INR68b in FY11. For FY13, PWGR has approved capex plans of INR200b v/s INR177b in FY12.
Despite the issues relating to fuel and SEB financials raising doubts on capacity addition in the country, PWGR
is upbeat on its capitalization target. Under the 12th Plan, it is focusing on capitalization of corridors rather than
transmission lines dedicated to generation projects.
We expect PWGR to report PAT of INR40b in FY13 (up 20%) and INR47.9b in FY14 (up 20%). The stock trades at 14x
FY13E and 12x FY14E reported EPS. Maintain Buy .
C–193October 2012
September 2012 Results Preview
Sector: Utilities
PTC India
Bloomberg PTCIN IN
Equity Shares (m) 294.5
52 Week Range (INR) 76/38
1,6,12 Rel Perf (%) 19/11/-11
Mcap (INR b) 20.8
Mcap (USD b) 0.4
CMP: INR71 Buy
Year Net Sales PAT* EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 90,632 1,660 5.6 50.0 - - 6.5 9.2 - -
03/12A 76,502 2,041 6.9 22.9 10.2 0.9 5.4 8.6 0.2 11.8
03/13E 99,995 2,266 7.7 11.0 9.2 0.9 6.4 6.0 0.2 14.8
03/14E 128,054 2,816 9.5 24.3 7.4 0.9 7.6 5.9 0.1 12.6
* Consolidated
Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 24,874 23,890 13,300 14,436 19,869 29,853 20,881 29,392 76,502 99,995
Change (%) -9.8 -3.3 -24.3 -30.6 -20.1 25.0 57.0 103.6 -15.6
EBITDA 476 444 210 323 313 536 400 590 1,453 1,838
Change (%) 77.1 16.5 -48.5 -5.9 -34.4 20.8 90.6 82.8 3.7 26.5
As of % Sales 1.9 1.9 1.6 2.2 1.6 1.8 1.9 2.0 1.9 1.8
Depreciation 11 11 11 11 10 11 11 14 45 45
Interest 14 79 103 64 1 0 0 1 260 2
Other Income 174 140 43 150 26 80 85 90 505 281
PBT 626 493 138 394 304 605 474 666 1,656 2,095
Tax 173 138 43 98 98 181 142 200 452 622
Effective Tax Rate (%) 27.7 27.9 31.0 25.0 32.3 30.0 30.0 30.0 27.3 29.7
Reported PAT 453 356 95 302 206 423 332 466 1,204 1,474
Adjusted PAT 453 356 95 299 229 423 332 466 1,201 1,450
Change (%) 59.4 -0.5 -74.9 -10.5 -49.4 19.0 248.5 56.0 -11.1
E: MOSL Estimates; % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards
Operational Details
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
Power Traded (MUs) 6,726 8,655 4,564 4,380 6,566 9,400 5,500 6,531 24,325 27,997
Adj Margins (Ps/Unit) 4.91 4.16 3.78 4.68 3.98 3.97 3.48 4.30 4.39 3.81
BSE Sensex S&P CNX
18,763 5,703
We expect PTC India (PTCIN) to report revenue of INR30b (up 25% YoY) and PAT of INR423m (up 19% YoY) for
2QFY13.
Over July-August 2012, PTCIN's volumes stood at ~6.3BU (up 4% YoY). In 2QFY13, we expect PTCIN's traded
volumes to be 9.4BU (up 8.6% YoY). Volume growth should pick up in 2HFY13, with the commissioning of sizable
projects (including tolling projects) on LT basis. In FY13, we expect PTCIN to trade 28BU (up 15%).
We expect average trading margin (adjusted for surcharge and rebates) of INR0.039/unit in 2QFY03 (v/s INR0.058/
unit in 2QFY12). The muted margin growth would be primarily led by increasing competitive intensity in India's
power trading market. PTCIN's market share (excluding cross border and intra-state) in ST volumes for July 2012
increased 2% YoY to 35%.
In 1QFY13, PTCIN received INR1b from Tamil Nadu (TN) and another tranche of INR750m from TN in July/August
2012. Thus, the outstandings from TN are lower at INR4.5b v/s INR7b earlier. The managment expects to receive
the balance dues from TN by 3QFY13. We understand that PTCIN has also begun to realize small sums from UP
and expect increased payments once the tariff hike is approved for UP.
We expect PTCIN to report consolidated PAT of INR2.2b for FY13 (11%) and INR2.8b for FY14 (up 24%). The stock
trades at 9.2x FY13E and 7.4x FY14E reported EPS. Maintain Buy.
C–194October 2012
September 2012 Results Preview
Sector: Utilities
Reliance Infrastructure
Bloomberg RELI IN
Equity Shares (m) 267.5
52 Week Range (INR) 680/328
1,6,12 Rel Perf (%) 9/-15/17
Mcap (INR b) 144.1
Mcap (USD b) 2.7
CMP: INR539 Buy
Year Net Sales PAT EPS* EPS P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) RATIO (X) (%) (%) Sales EBITDA
3/11A 95,289 10,809 40.4 1.0 - - 6.8 7.4 - -
3/12A 178,503 20,002 74.8 85.0 7.2 0.8 11.4 13.3 0.3 2.0
3/13E 163,041 11,638 43.5 -41.8 12.4 0.7 6.3 8.6 0.4 2.9
3/14E 151,643 12,845 48.0 10.4 11.2 0.7 6.6 8.0 0.3 2.2
* Consolidated, Fully Diluted
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 36,607 39,505 44,777 57,316 34,473 37,700 40,655 50,213 178,205 163,041
Change (%) 64.3 62.0 69.8 148.1 -12.7 -15.8 -29.1 -49.1 85.3 -8.5
EBITDA 6,961 7,096 6,518 6,173 4,598 4,901 5,285 5,447 26,748 20,231
Change (%) 174.7 70.5 144.1 156.1 -35.2 -24.8 -14.4 -47.2 127.1 -24.4
As of % Sales 19.0 18.0 14.6 10.8 13.3 13.0 13.0 10.8 15.0 12.4
Depreciation 689 638 615 736 1,130 1,100 1,100 1,121 2,678 4,452
Interest 570 833 1,231 1,832 1,902 1,925 1,900 1,852 4,466 7,579
Other Income 1,093 1,126 1,468 1,685 2,586 1,350 1,375 1,202 5,372 6,514
PBT 6,795 6,752 6,140 5,290 4,152 3,226 3,660 3,676 24,977 14,714
Tax (incl con tingencies) 2,490 1,794 1,982 -1,292 882 675 765 755 4,975 3,077
Effective Tax Rate (%) 36.6 26.6 32.3 -24.4 21.2 20.9 20.9 20.5 19.9 20.9
Reported PAT 4,305 4,957 4,158 6,581 3,270 2,551 2,895 2,921 20,002 11,638
PAT (Pre Exceptionals) 2,874 4,903 4,057 6,478 3,270 2,551 2,895 2,921 19,621 11,638
Change (%) 16.7 122.4 118.6 56.6 -33.3 -37.1 -55.3 -71.9 84.1 -40.7
E: MOSL Estimates; Quarterly nos. are on standalone basis
Operational Details1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 FY13E
EPC Revenues (INR m) 18,849 24,309 29,801 43,823 17,749 18,500 21,000 29,251 116,781 86,500
EPC EBITDA (INR m) 3,824 5,579 5,020 4,982 3,031 1,480 1,890 2,702 19,405 9,103
Margin (%) 20.3 23.0 16.8 11.4 17.1 8.0 9.0 9.2 16.6 10.5
BSE Sensex S&P CNX
18,763 5,703
We expect Reliance Infrastructure (RELI) to report revenue of INR37.7b (down 16% YoY) and PAT of INR2.5b
(down 37% YoY) for 2QFY13.
Towards its EPC segment, RELI is likely to post revenue of INR18.5b (v/s INR24b in 2QFY12) and EBITDA margin of
8% (v/s 23% in 2QFY12) for 2QFY13. The company's EPC order book stands at INR156b (book-to-bill ratio of 1.3x).
For FY13, RELI is targeting EPC revenue of INR90b-100b and margins of 8-10%.
The company has exited the INR51b Worli-Haji Ali Sealink project, citing changes in terms of contract by MSRDC.
It has received BG of INR1b from MSRDC however it had spent INR1.5b in preliminary activites towards the
project.
Post tariff hike in Mumbai business, RELI has not seen RAB (regulatory asset base) addition in the last three
quarters in its Mumbai distribution business. Similarly, for its Delhi distribution business, the accretion to RAB
is NIL on an ongoing basis post tariff hike and 8% surcharge. Fuel cost is also allowed to be passed through on a
quarterly basis. The Delhi business has RAB of INR130b, of which DERC has approved RAB of INR90b. RAB
addition of INR40b over 2011-12 is likely to be approved once the petition for 2013-14 is filed.
We expect RELI to report standalone PAT of INR11.6b for FY13 (down 42%) and INR12.8b for FY14 (up 10%). The
stock trades at 12.4x FY13E and 11.2x FY14E reported EPS. Maintain Buy.
C–195October 2012
September 2012 Results Preview
Sector: Utilities
Tata Power
Bloomberg TPWR IN
Equity Shares (m) 2,373.3
52 Week Range (INR) 122/81
1,6,12 Rel Perf (%) 2/3/-8
Mcap (INR b) 253.8
Mcap (USD b) 4.8
CMP: INR107 Neutral
Year Net Sales PAT* EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 69,180 17,516 7.4 18.4 - - 7.5 6.2 - -
03/12A 84,958 17,628 7.4 0.6 14.4 2.2 9.8 6.2 3.8 17.9
03/13E 93,003 13,490 5.7 -23.5 18.8 2.1 8.5 5.3 3.4 17.2
03/14E 97,488 9,357 3.9 -30.6 27.1 2.0 6.4 5.2 3.3 17.6
* Consolidated incl share of profit from KPC and Arutmin mines, Pre Exceptionals, Fully
Di luted
Quarterly Performance (Standalone) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Units Generated 3,889 3,772 3,970 3,599 4,259 3,850 4,100 3,783 15,230 15,992
Total Operating Income 19,212 19,481 22,519 23,747 22,841 21,170 23,925 25,067 84,958 93,003
Change (%) 2.9 19.1 36.3 34.7 18.9 8.7 6.2 5.6 22.8 9.5
EBITDA 4,279 4,189 4,751 4,443 3,759 4,745 4,725 5,059 17,662 18,288
Change (%) -5.1 19.3 43.2 7.8 -12.1 13.3 -0.6 13.9 14.3 3.5
As of % Sales 22.3 21.5 21.1 18.7 16.5 22.4 19.7 20.2 20.8 19.7
Depreciation 1,331 1,353 1,512 1,508 1,548 1,550 1,575 1,554 5,704 6,227
Interest 1,124 1,165 1,280 1,388 1,386 1,400 1,475 1,528 4,957 5,789
Other Income 2,476 3,323 4,105 -69 3,456 1,250 1,325 1,333 9,835 7,364
PBT 4,299 4,995 6,065 1,478 4,281 3,045 3,000 3,310 16,837 13,636
Tax 1,484 1,865 1,483 308 1,158 822 810 891 5,140 3,682
Effective Tax Rate (%) 34.5 37.3 24.5 20.9 27.1 27.0 27.0 26.9 30.5 27.0
Reported PAT 2,816 3,130 4,582 1,170 3,123 2,223 2,190 2,419 11,696 9,954
Adjusted PAT 2,940 3,658 1,844 2,295 3,721 2,223 2,190 2,419 10,736 10,553
Change (%) 33.9 68.3 23.9 43.1 26.6 -39.2 18.8 5.4 38.7 -1.7
Consolidated Adjusted PAT 4,158 4,425 5,523 3,522 3,059 3,097 3,521 3,839 17,628 13,490
Change (%) -1.0 12.8 34.9 -36.3 -26.4 -30.0 -36.3 9.0 -0.7 -23.5
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Tata Power (TPWR) to report standalone revenue of INR22b (up 9% YoY) and PAT of INR2.2b (down
39% YoY) for 2QFY13. Consolidated PAT for the quarter is likely to be INR3.1b (down 31% YoY).
Generation from TPWR's 2,021MW (Mumbai region) capacity in July-August 2012 was 2.2BU, up 23% YoY. Mundra
UMPP generation for the period was 561MU and PLF was muted at 30% v/s 87% in 1QFY13.
TPWR has synchronized the 2nd unit of Mundra UMPP and we expect FY14 to be the first full year of operations.
Losses from Mundra UMPP will limit consolidated earnings growth.
TPWR has filed a petition with India's CERC, asking for a tariff hike of ~INR0.67/unit for its Mundra project. CERC
has heard TPWR petition and has asked buyers of electricity from the 4,000MW Mundra project to submit their
response by the first week of October.
Owing to falling imported coal prices, PT Berau Coal Energy, a subsidiary of Bumi Plc has lowered its production
forecast to 20m-22m tons from 23m tons. However, KPC/Arutmin has kept production target intact.
We expect TPWR to report consolidated PAT of INR13.5b for FY13 (down 24%) and INR9.4b for FY14 (down 31%).
The stock trades at 18.8x FY13E and 27.1x FY14E reported EPS. Maintain Neutral.
C–196October 2012
Castrol India
Bloomberg CSTRL IN
Equity Shares (m) 494.6
52 Week Range (INR) 318/193
1,6,12 Rel Perf (%) -2/11/14
Mcap (INR b) 154.0
Mcap (USD b) 2.9
Siddharth Bothra ([email protected])
CMP: INR311 Buy
September 2012 Results Preview
Sector: Consumer
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) YoY (%) (X) (X) (%) (%) Sales EBITDA
12/10A 28,020 4,914 9.9 27.6 - - 79.4 112.6 - -
12/11A 30,821 4,853 9.8 -1.2 31.7 25.5 93.7 133.6 4.8 22.5
12/12E 33,290 4,715 9.5 -2.8 32.6 23.9 83.8 109.4 4.4 22.5
12/13E 35,811 5,768 11.7 22.3 26.7 21.5 75.6 101.0 4.1 18.0
Quarterly Performance (INR Million)
Y/E December CY11 CY12 CY11 CY12E
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE
Volumes (MT) 56 54 46 52 53 57 49 55 208 213
% YoY 2.4 -10.1 -8.7 -3.7 -5.9 4.8 5.8 -2.9 -7.3 6.6
Net Sales 7,507 7,900 6,716 7,694 7,817 8,513 7,746 9,214 29,817 33,290
YoY Change (%) 14.8 6.2 4.8 10.6 4.1 7.8 15.3 19.8 9.0 11.6
Net Raw Material 3,965 4,378 3,948 4,654 4,590 4,974 4,521 4,993 16,945 19,078
Employee Expenses 259 297 318 285 265 339 325 320 1,159 1,248
Other Operating Expenses 1,489 1,269 1,147 1,225 1,394 1,506 1,409 2,096 5,130 6,405
Total Expenditure 5,713 5,944 5,413 6,164 6,249 6,819 6,255 7,408 23,234 26,731
EBITDA 1,794 1,956 1,303 1,530 1,568 1,694 1,491 1,806 6,583 6,558
Margins (%) 23.9 24.8 19.4 19.9 20.1 19.9 19.2 19.6 22.1 19.7
Depreciation 63 63 62 63 60 60 67 70 251 257
Interest 4 2 9 4 7 3 5 5 19 19
Other Income 303 226 170 147 335 162 166 167 846 830
PBT 2,030 2,117 1,402 1,610 1,836 1,793 1,585 1,898 7,159 7,112
Tax 664 692 451 542 607 584 527 678 2,349 2,397
Rate (%) 32.7 32.7 32.2 33.7 33.1 32.6 33.3 35.7 32.8 33.7
PAT 1,366 1,425 951 1,068 1,229 1,209 1,058 1,219 4,810 4,715
YoY Change (%) 16.6 -5.2 -18.6 0.8 -10.0 -15.2 11.2 14.2 -1.9 -2.0
Margins (%) 18.2 18.0 14.2 13.9 15.7 14.2 13.7 13.2 16.1 14.2
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect Castrol (CSTRL) to report volume growth of ~5.8% YoY and value growth of ~15.3% YoY for 3QCY12,
primarily driven by a low base (3QCY11 volumes had declined 8.7% YoY) and recent price hikes. CSTRL had taken
price increases of 4-5% across key categories in June 2012 and 2-3% in 3QCY12, the impact of which would be
visible in 3QCY12.
Nonetheless, one-time marketing initiatives like discount of INR20/Kl for two-wheeler lubes during part of
3QCY12 are likely to partially negate the benefits of the price hikes.
Almost 80% of CSTRL's demand in volume terms is from the replacement market. The OEM market accounts for
only ~20%. Since profitability in the OEM segment is very low, the share of OEM market in operating profit is
even lower. Hence, we believe CSTRL is unlikely to be much impacted by the current growth slowdown in
automotive segments such as HCVs and two-wheelers.
EBITDA is likely to grow 14% YoY to INR1.5b while EBITDA margin is likely to shrink 20bp YoY to 19.2% on the back
of higher raw material cost. We expect net profit to grow 11.2% YoY to INR1.1b.
The stock trades at 32.6x CY12E and 26.7x CY13E EPS. We remain bullish on CSTRL's long-term prospects, given its
pricing power, unique positioning in the lubricants industry and strong fundamentals. Buy.
C–197October 2012
Multi Commodity Exchange of India
Bloomberg MCX IN
Equity Shares (m) 51.0
52 Week Range (INR) 1,426/838
1,6,12 Rel Perf (%) 11/-6/-
Mcap (INR b) 65.5
Mcap (USD b) 1.2
Ashish Chopra ([email protected])
CMP: INR1,284 Buy
September 2012 Results Preview
Year Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
3/11A 3,689 1,728 33.9 (21.6) - - 22.4 16.7 - -
3/12A 5,262 3,618 56.1 65.6 22.9 6.6 31.0 24.8 10.1 15.9
3/13E 5,172 3,542 56.1 - 22.9 5.8 26.9 25.8 10.1 16.2
3/14E 6,152 3,392 66.5 18.5 19.3 5.0 27.8 26.9 8.3 12.9
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Sales 1,169 1,558 1,296 1,239 1,230 1,283 1,326 1,352 5,262 5,172
Q-o-Q Gr. (%) 10.4 33.3 -16.8 -4.4 -0.7 4.3 3.4 2.0 42.6 -1.7
Staff Costs 69 67 65 79 78 79 80 82 280 340
Admin and other expenses 382 421 411 420 396 393 405 413 1,635 1,607
Depreciation 64 71 70 67 67 71 71 71 272 286
EBIT 654 999 750 672 689 740 769 787 3,075 2,940
Margins (%) 55.9 64.1 57.9 54.3 56.0 57.7 58.0 58.2 58.4 56.8
Other Income 215 224 280 308 233 256 272 280 1,027 1,044
PBT 869 1,223 1,030 981 921 996 1,040 1,067 4,102 3,984
Tax 248 327 342 181 274 284 297 304 1,098 1,121
Rate (%) 28.6 26.7 33.2 18.4 29.7 28.5 28.5 28.5 26.8 28.1
Net Income after exceptional item 620 896 688 800 647 712 744 763 2,862 2,863
Q-o-Q Gr. (%) 12.9 44.5 -23.2 16.3 -19.1 10.0 4.5 2.6 62.8 -
EPS (INR) 12.2 17.5 13.5 12.9 12.7 14.0 14.6 15.0 56.1 56.1
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
We expect revenue to grow 4.3% QoQ (but decline 17.7% YoY) to INR1.28b.
Total value of trades at the exchange increased 6.2% QoQ, but declined 19% YoY, on a huge base of 2QFY12,
when trading in gold and silver had surged.
Our EBIT estimate stands at INR740m, implying an EBIT margin of 57.7%, +170bp QoQ, on leverage effect of
quarterly volume increase. Our EBIT estimate implies a decline of 26% YoY.
Our PAT estimate is INR712m, up 10% QoQ but down 21% YoY.
Key things to watch: Terminal additions; market share; transaction yield.
The stock trades at 22.9x FY13E and 19.3x FY14E EPS. Maintain Buy.
C–198October 2012
Sintex Industries
Bloomberg SINT IN
Equity Shares (m) 271.0
52 Week Range (INR) 148/50
1,6,12 Rel Perf (%) 14/-29/-66
Mcap (INR b) 18.1
Mcap (USD b) 0.3
Sandipan Pal ([email protected])
CMP: INR67 Buy
September 2012 Results Preview
Sector: Diversified
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) YoY (%) (X) (X) (%) (%) Sales EBITDA
03/11A 44,837 4,553 16.8 57.2 - - 20.9 14.8 - -
03/12A 44,535 3,535 13.0 -22.4 5.1 0.7 14.0 11.3 0.9 5.4
03/13E 46,347 3,537 13.0 0.1 5.1 0.6 12.7 10.9 0.8 5.0
03/14E 51,778 4,151 15.3 17.4 4.4 0.5 13.3 12.7 0.7 4.0
Quarterly Performance (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Operating Income 11,120 11,571 11,608 10,236 10,806 10,710 11,980 12,891 44,535 46,347
YoY Growth (%) 22.1 25.4 -2.1 -30.1 -2.8 -7.4 3.2 25.9 -0.7 4.1
EBITDA 1,892 2,044 1,631 1,600 1,776 1,669 1,921 2,104 7,177 7,474
EBITDA Margin (%) 17.0 17.7 14.1 15.6 16.4 15.6 16.0 16.3 16.1 16.1
YoY Growth (%) 22.1 19.1 -17.1 -45.2 -3.4 -11.8 14.1 4.4 -12.0 4.1
Depreciation 439 437 467 335 483 435 452 404 1,678 1,774
Interest 350 416 354 238 354 365 365 377 1,358 1,461
Other Income 168 67 154 115 42 81 67 79 505 270
Extraordinary items -9 -596 135 4 -289 -8 -180 -189 -466 -666
Profit before Tax 1,271 662 1,099 1,147 692 942 991 1,214 4,179 3,842
Tax Provisions 338 275 283 263 241 207 227 266 1,160 941
Tax / PBT 26 22 29 23 35 22 23 19 25.0 20.9
PAT before MI & Income from Assoc 933 387 816 884 451 735 764 948 3,019 2,901
Min. Int. and Profit from Associate 0 0 -6 28 17 8 8 8 0 30
Consolidated PAT 946 389 824 913 468 742 772 956 3,068 2,871
Adj. Consolidated PAT 946 985 689 909 757 751 952 1,145 3,535 3,537
YoY Growth (%) 20.0 -61.1 -27.8 -45.3 -20.0 -23.8 38.2 26.0 -22.4 0.1
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect YoY de-growth: We expect Sintex Industries' 2QFY13 revenue to de-grow 7% YoY to INR10.7b, EBITDA to
de-grow 11% to INR1.7b and Adjusted PAT to de-grow 24% to INR751m.
Expect marginal uptick in monolithic; overseas composite to post another weak quarter: We expect the de-
growth to be driven by slowdown in Monolithic segment (18% YoY revenue de-growth, +7%QoQ) and overseas
composites (20% YoY revenue de-growth). In monolithic, Sintex is witnessing slow improvement in approval
process and expects full clarity on the stalled sites by 3QFY13. Overseas, automobile and electrical verticals are
yet to show any sign of improvement, but the management expects uptick in electrical segment by 3QFY13.
Prefab, Textiles to remain stable: Most other verticals are likely to remain stable: (1) Prefab 18% revenue
growth with margin of 20%, and (2) Stable margin in Textiles (21%) and Tanks (10%). Domestic composites is
expected to de-grow 14% YoY as Bright was impacted by strikes at Maruti during 2QFY13.
Clarity on funding of FCCB redemption key: Sintex has to redeem FCCBs worth USD285m in Mar-13. Of this,
USD110m is unutilized; Sintex plans to fund the balance with a mix of ECBs and internal accruals. Clarity on this
is a key factor to watch out for.
The stock trades at FY13E P/E of 4.4x and EV/EBITDA of 5x. Sintex's current valuation reflects both (1) growth
moderation, and (2) other concerns (FCCB repayment, potential conflict of interest in power venture, etc). We
value Sintex at INR91 per share based on FY13E P/E of 7x, which is a 33% discount to its LPA P/E.
C–199October 2012
United Phosphorus
Bloomberg UNTP IN
Equity Shares (m) 461.8
52 Week Range (INR) 169/105
1,6,12 Rel Perf (%) 7/-8/-19
Mcap (INR b) 60.6
Mcap (USD b) 1.2
Jinesh K Gandhi ([email protected])
September 2012 Results Preview
Sector: Agrochemicals
CMP: INR131 Buy
Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/
End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA
03/11A 58,045 5,701 12.3 3.8 - - 17.0 17.0 - -
03/12A 76,547 5,890 12.8 3.3 10.3 1.5 14.9 17.3 1.0 6.3
03/13E 87,801 6,885 14.9 16.9 8.8 1.3 15.5 17.0 0.8 5.2
03/14E 98,629 9,003 19.5 30.8 6.7 1.1 17.8 18.2 0.7 4.1
Quarterly Performance (Consolidated) (INR Million)
Y/E March FY12 FY13 FY12 FY13E
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE
Net Revenues 18,542 17,757 19,080 21,269 22,142 20,360 21,613 23,686 76,547 87,801
YoY Change (%) 26.3 41.3 56.1 15.9 19.4 14.7 13.3 11.4 32.9 14.7
Total Expenditure 15,173 14,502 15,798 17,402 18,278 16,839 17,813 19,296 62,873 72,225
EBITDA 3,370 3,255 3,282 3,867 3,864 3,521 3,800 4,390 13,674 15,576
Margins (%) 18.2 18.3 17.2 18.2 17.5 17.3 17.6 18.5 17.9 17.7
Depreciation 628 719 785 792 734 850 900 1,040 2,924 3,524
Interest 714 1,918 826 688 1,109 890 1,000 1,131 4,146 4,131
Other Income 305 196 305 173 354 190 300 202 979 1,046
PBT before EO Expense 2,332 814 1,977 2,560 2,375 1,971 2,200 2,421 7,582 8,968
Extra-Ord Expense 0 144 11 242 0 0 0 0 396 0
PBT after EO Expense 2,332 670 1,966 2,319 2,375 1,971 2,200 2,421 7,187 8,968
Tax 466 151 626 37 703 453 660 156 1,280 1,973
Rate (%) 20.0 22.5 31.8 1.6 29.6 23.0 30.0 6.5 17.8 22.0
Reported PAT 1,866 519 1,340 2,282 1,672 1,518 1,540 2,265 5,907 6,995
Income from Associate Co -23 51 -216 -263 357 50 -190 -327 -398 -135
Adjusted PAT 1,843 713 1,135 2,256 2,029 1,568 1,350 1,938 5,834 6,860
YoY Change (%) 29.5 -37.8 35.2 -3.4 10.1 119.9 19.0 -14.1 0.0 17.6
Margins (%) 9.9 4.0 5.9 10.6 9.2 7.7 6.2 8.2 7.6 7.8
E: MOSL Estimates
BSE Sensex S&P CNX
18,763 5,703
Expect United Phosphorus (UNTP) to report 15% YoY growth in consolidated revenue to INR20.4b, with domestic
revenue growing 6% and international revenue 30%. (Performance is strictly not comparable YoY due to
consolidation of Sipcam and DVA Agro.)
EBITDA margin is expected to decline by 100bp YoY to 17.3% due to higher RM costs and fixed cost, translating
into EBITDA growth of 8% to INR3.5b.
We are factoring in MTM forex gain of INR110m (v/s forex loss of INR1.1b in 2QFY12), boosting 120% YoY growth
in PAT to INR1.57b.
UNTP has guided for FY13 revenue growth of 15%, EBITDA margin of 18-20% and tax rate of 15-20%.
The company has announced buyback of up to 19.2m shares at a price up to INR150 i.e. cash outgo of up to
~INR2.9b.
We believe current valuations of 8.8x FY13E EPS of INR14.9 and 6.7x FY14E EPS of INR19.5 factor in short-term
headwinds. Maintain Buy with target price of INR195 (10x FY14E EPS).
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Disclosure of Interest Statement Companies where there is interest1. Analyst ownership of the stock Sesa Goa2. Group/Directors ownership of the stock Bharti Airtel, Birla Corporation, Cairn India, GSK Pharma, Hero MotoCorp, IOC, Marico, Nestle India, Oriental Bank,
State Bank3. Broking relationship with company covered State Bank of India4. Investment Banking relationship with company covered PTC India
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