january 2013 india strategy - motilal · pdf filehdfc 65 hdfc bank 66 icici bank 67 ......

January 2013

Research Team ([email protected])

India Strategy

Contents

1. Automobiles 2-12Ashok Leyland 6Bajaj Auto 7Eicher Motors 8Hero MotoCorp 9Mahindra & Mahindra 10Maruti Suzuki India 11Tata Motors 12

2. Capital Goods 13-24ABB 16BGR Energy 17BHEL 18Crompton Greaves 19Cummins India 20Havells India 21Larsen & Toubro 22Siemens 23Thermax 24

3. Cement 25-35ACC 28Ambuja Cement 29Birla Corporation 30Grasim Industries 31India Cements 32Jaiprakash Associates 33Shree Cement 34UltraTech Cement 35

4. Consumer 36-51Asian Paints 39Britannia Industries 40Colgate Palmolive 41Dabur India 42GSK Consumer 43Godrej Consumer Products 44Hindustan Unilever 45ITC 46Marico 47Nestle India 48Pidilite Industries 49Radico Khaitan 50United Spirits 51

5. Financials 52-82Andhra Bank 58Axis Bank 59Bank of Baroda 60Bank of India 61Canara Bank 62Dewan Housing 63Federal Bank 64HDFC 65HDFC Bank 66ICICI Bank 67IDFC 68Indian Bank 69IndusInd Bank 70

ING Vysya Bank 71Kotak Mahindra Bank 72LIC Housing Finance 73M & M Financial Services 74Oriental Bank 75Power Finance Corporation 76Punjab National Bank 77Rural Electricfication 78Shriram Transport 79State Bank 80Union Bank 81Yes Bank 82

6. Healthcare 83-107Biocon 91Cadila Healthcare 92Cipla 93Divi’s Laboratories 94Dishman Pharma 95Dr Reddy’s Labs. 96GSK Pharma 97Glenmark Pharma 98IPCA Laboratories 99Jubilant Life Sciences 100Lupin 101Opto Circuits 102Ranbaxy Labs. 103Sanofi India 104Strides Acrolab 105Sun Pharmaceuticals 106Torrent Pharma 107

7. Media 108-117D B Corp 112Dish TV 113HT Media 114Jagran Prakashan 115Sun TV Network 116Zee Entertainment 117

8. Metals 118-134Hindalco 125Hindustan Zinc 126Jindal Steel & Power 127JSW Steel 128Nalco 129NMDC 130Sesa Goa 131SAIL 132Sterlite Industries 133Tata Steel 134

9. Oil & Gas 135-151BPCL 139Cairn India 140Chennai Petroleum 141GAIL 142Gujarat State Petronet 143HPCL 144

IOC 145Indraprastha Gas 146MRPL 147Oil India 148ONGC 149Petronet LNG 150Reliance Industries 151

10. Real Estate 152-164Anant Raj Industries 157DLF 158HDIL 159Jaypee Infratech 160Mahindra Lifespaces 161Oberoi Realty 162Phoenix Mills 163Unitech 164

11. Retail 165-171Jubilant Food 168Pantaloon Retail 169Shoppers Stop 170Titan Industries 171

12. Technology 172-185Cognizant Technology 176HCL Technologies 177Hexaware Technologies 178Infosys 179KPIT Cummins 180Mindtree 181MphasiS 182TCS 183Tech Mahindra 184Wipro 185

13. Telecom 186-193Bharti Airtel 191Idea Cellular 192Reliance Communication 193

14. Utilities 194-206CESC 198Coal India 199JSW Energy 200NHPC 201NTPC 202Power Grid Corp. 203PTC India 204Reliance Infrastructure 205Tata Power 206

15. Others 207-211Castrol India 207Concor 208Multi Commodity Exchange 209Sintex Industries 210United Phosphorus 211

Note: All stock prices and indices for Section C as on 27 December 2012, unless otherwise stated

Section A: India Strategy - Happy times! ................................................................................... A1-75

Section B: 3QFY13 Highlights & Ready Reckoner ..................................................................... B1-12

Section C: Sectors & Companies .............................................................................................. C1-211

A–1January 2013

India Strategy | Happy times!

BSE Sensex: 19,324 S&P CNX: 5,870

Happy times!Reforms, rates to drive reversion mean | Earnings CAGR of 15% ahead

2012 Flashback: Strong returns, huge divergence in institutional flowsIn 2012, Indian markets outperformed global peers to deliver 26% returns, quite

unexpected at the beginning of the year. Financials was the best performing sector

(+57%) followed by Consumer (+47%). Tata Motors was the best performing Sensex

stock (+75%), followed by ICICI Bank and HDFC Bank (both +60%). Reliance Industries

regained the top market cap slot outperforming TCS/ONGC. FIIs invested another

USD24.5b in 2012, making it the second highest year of inflows. On the other hand,

DIIs withdrew a huge USD10.9b during the year.

3QFY13: MOSL Universe and Sensex PAT growth muted at 6% YoYWe expect both MOSL Universe and Sensex companies to report aggregate 3QFY13

PAT growth of just 6% YoY. Lightweight sectors like Real Estate, Media, Retail, Healthcare

and Consumer should grow well. Heavyweight sectors like Oil & Gas, PSU Banks, Autos,

Telecom and Metals are likely to clock moderate PAT growth or decline. While

Consumer, Private Banks, NBFCs and Non-ferrous Metals are the only sectors/sub-

India Strategy

Quarterly performance - MOSL Universe: Both aggregate and Sensex PAT growth muted at 6% YoY

Sales EBITDA PAT EBITDA Margin PAT Contbn

Dec-12 Var % Dec-12 Var % Dec-12 Var Dec-12 Chg Share Delta

(INR b) YoY (INR b) YoY (INR b) YoY (%) bp (%) (%)

High PAT growth sectors 669 16 151 18 100 27 22.6 29 12 43

Real Estate (8) 44 1 19 2 15 42 42.3 26 2 9

Health Care (17) 220 22 49 21 31 33 22.2 -14 4 16

Media (6) 33 13 11 14 5 26 32.4 12 1 2

Retail (4) 72 17 7 24 3 22 9.8 50 0 1

Consumer (13) 301 15 66 21 46 20 21.9 106 6 15

Low PAT growth sectors 3,277 13 905 9 536 12 27.6 -89 66 116

Oil & Gas ex RMs (10) 1,702 12 246 -1 158 14 14.5 -196 19 39

Oil & Gas incl RMs (13) 3,814 2 277 -35 156 -45 7.3 -422 19

Financials (25) 477 12 380 12 196 12 79.6 12 24 41

NBFC (8) 70 26 68 28 45 27 97.1 126 6 19

Private Banks (8) 128 24 110 23 65 23 85.9 -70 8 24

PSU Banks (9) 279 4 202 3 86 -1 72.3 -101 11 -2

Utilities (9) 564 14 153 26 88 12 27.1 250 11 18

Technology (9) 479 14 116 7 87 10 24.2 -178 11 17

Others (5) 55 9 11 7 6 4 19.6 -40 1 1

PAT de-growth sectors 2,666 5 418 -2 180 -14 15.7 -122 22 -60

Capital Goods (9) 384 7 45 0 29 -8 11.8 -83 4 -5

Cement (8) 181 8 33 -5 16 -10 18.2 -262 2 -3

Auto (7) 847 11 100 -3 52 -14 11.8 -168 6 -17

Telecom (3) 310 8 95 6 12 -16 30.5 -70 1 -5

Metals (10) 943 -1 146 -7 71 -17 15.4 -91 9 -30

MOSL ex RMs (143) 6,612 10 1,475 6 816 6 22.3 -73 100 100

MOSL incl RMs (146) 8,724 6 1,505 -4 814 -11 17.3 -175

Sensex (30) 4,414 9 884 6 486 6 20.0 -72 60 52

A–2January 2013


sectors where all companies are expected to clock PAT growth, Cement is the only

sector where all companies are expected to report PAT decline. Top 5 PAT growth

companies in Sensex are: Maruti (+138% YoY), M&M (+45%), Dr Reddy's (+42%), HDFC

Bank (+30%) and ICICI Bank (+23%). The PAT laggards are: Tata Steel (loss), Tata Power

(-41% YoY), Tata Motors (-37%), Bharti (-29%) and JSPL (-22%).

Introducing FY15 estimates: Back to 15% growth trajectoryWe have introduced FY15 estimates for our Universe of 150 companies. At the aggregate

level, India Inc is likely to reverse its recent track record of low earnings growth and

get back into its long period growth rate of 14-15%. Among benchmark constituents,

key companies are likely to reverse the worst - Tata Steel, Bharti, Maruti. Further

upsides to our estimates lie in 2 R's, viz, Rates and Reforms.

#1 RATES: Rate sensitives (and hence rate cuts by RBI) hold the key, both to aggregates

and benchmark PAT - Financials (35%/31% share of aggregate/Sensex PAT delta,

FY15 over FY13) and Auto (10%/18%).

#2 REFORMS: Fortunes of some key sectors and companies hinge on the government

taking the initiated reforms to the next level e.g. Oil & Gas (product price hikes/

deregulation, permissions for exploration), Power (coal linkages, land/

environment clearances), Telecom (no major regulatory negative surprises) etc.

MEAN REVERSION - Macro, Corporate sector, MarketsOur core theme for the next two years, FY14 and FY15, is Mean Reversion across the

board - government policy, macro economy, corporate earnings and stock markets.

Mean Reversion - Policy: (1) FDI in retail permitted, (2) Banking amendments

cleared, (3) Direct Benefit Transfer initiated, (4) Fiscal deficit coming under control

and (5) Monetary Policy poised to support growth.

Mean Reversion - Macro: Domestic variables should revert towards mean e.g. (1)

GDP to recover from decadal low of 5.2% in FY13 to 6.5% and (2) Fiscal deficit back

to mean of 4.9% in FY14 from 5.9% in FY12. External sector variables however may

settle at new normal - CAD at 3-3.5% and USD/INR at 53-55.

Mean Reversion - Corporate earnings: (1) Expect FY13-15 earnings CAGR to revert

to mean of 15% (v/s 8% during FY08-13) and (2) Select sectors (Telecom, Media)

and stocks (Tata Steel, Bharti, Maruti) should also recover from their worst.

2013 THEME #1

FY13-15 Sensex EPS trend suggests the beginning of a new earnings cycle

820 834

1,573

1,3891,2001,124

1,024833

718523450

34827223621628027829126625018112981

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

FY1

5E

FY93-96:

45% CAGRFY96-03: 1% CAGR

FY03-08:

25% CAGR

FY08-13:

8% CAGR

FY13-15E:

15% CAGR

A–3January 2013


Mean Reversion - Markets: (1) Expect domestic institutional flows into equities

to bounce back and (2) If mean earnings growth (FY15 Sensex EPS of 1,573) gets

the mean valuation (P/E of 15x), expect markets at new highs of 23,000 levels

within the next 12 months.

MANUFACTURING REVIVALIndia's manufacturing sector has virtually collapsed as reflected in the IIP growth of

1.1% in YTDFY13. This has been the key factor behind India's economic slowdown. The

past few months have raised some hopes of a likely recovery in FY14. While the base

itself will be favorable for growth, we believe that few other catalysts that could

drive this growth are emerging now: (1) Monetary easing, lowering cost of funds, (2)

Policy engine helping kick start several stalled projects, renewing confidence for

starting new projects and (3) Favorable currency driving manufacturing exports. Key

beneficiary sectors include Auto, Capital Goods, Metals, Healthcare and Financials.

PSUs – "Public" interest poised to revive!Over the 10 years, 2002-12, PSU stocks performed well in the initial period. However,

they underperformed the benchmark towards the latter half, more so in the past 3

years. Financial performance of PSUs has indeed weakened in some cases. However,

our estimates suggest that over FY13-15, there is likely to be some mean reversion.

PSUs' valuation de-rating seems overdone. With earnings getting back on track, there

are multiple re-rating triggers as well: (1) Government policy engine back on track e.g.

lower oil subsidy through measured product price hikes, (2) Pressure on PSUs to

increase dividend payouts, (3) Higher FII participation and benchmark weight due to

disinvestments etc. Our top PSU picks: SBI, ONGC, NMDC, NTPC and Concor.

PSU BANKS – Play on economic recovery, falling ratesOver the past two years, PSU banks have underperformed significantly, led by sharp

increase in slippages/ restructured assets and deterioration in operating performance

led by fall in margins. With expectation of economic recovery and monetary easing in

FY14, we expect stress in balance sheet to peak out in 1HCY13. Banks' SLR portfolio is

at a multi-year high which will benefit in a falling interest rate regime. Valuations

have seen some recovery and PSU banks now trade around LPA. Improvement in asset

quality trend would be a key catalyst. Our preferred PSU bank stocks: SBI, Canara

Bank, OBC and Union Bank.

AUTOS – Maruti, M&M, Hero hold exciting possibilitiesMacro headwinds, which impacted the performance of auto companies over the past

12-18 months, are turning favorable with initial signs of economic recovery, likely

monetary easing by RBI and increased policy actions by government. Expected

softening of commodity prices and favorable exchange rates would boost profitability.

Improving macro scenario is coupled with company specific triggers: (1) Depreciating

JPY should significantly improve Maruti's profits, (2) M&M could witness significant

upgrades on turnaround of loss-making subsidiaries and (3) Hero MotoCorp stands to

benefit from expiry of royalty payment post June 2015. Our top bets: Maruti Suzuki,

M&M, Hero MotoCorp.

2013 THEME #2

2013 THEME #3

2013 THEME #4

2013 THEME #5

A–4January 2013


METALS – Implied valuation of CWIP at steep discountDespite 30-40% earnings growth, the market capitalization of metal companies has

fallen by 30-35% over the last two to three years. Markets have de-rated metal stocks

due to exponential growth in their capital work in progress (CWIP) and resultant

increase in debt. As various projects start generating cash flows and capex intensity

peaks over the next two years, net debt should start coming off. Our top picks: Hindalco,

Sesa-Sterlite. Our calculations suggest that CWIP of Hindalco and Sesa-Sterlite is being

penalized more than warranted. Our valuation exercise indicates these stocks could

see a re-rating.

MIDCAPS – Outperformers during economic recoveriesOver CY08-12, BSE Midcap index has underperformed the BSE Sensex by ~17%.

Historically, the divergence between the two indices increases during a downtrend

and narrows during an upturn. BSE Midcap Index's one-year forward P/E at 11.7x is at

~20% discount to BSE Sensex's forward P/E of 14.5x and ~18% below its historical

average of 14.3x since FY04. Earnings growth for BSE Midcap Index for FY13/FY14 at

25%/26% is significantly higher than the estimates for BSE Sensex at 6.8%/15.8%, which

bodes positively for midcap stocks. Our top midcap picks: Dewan Housing, United

Phosphorus, Thermax, Havells, Financial Tech, Tech Mahindra and Jagran Prakashan.

Valuations at long-term averages; expect market returns to track earningsgrowthPost a strong 26% return in 2012, valuations are back at long-term averages. While the

earnings downgrade cycle is now behind, upgrades will return only when the

manufacturing engine revives and global commodity cycle turns favorable. We are

estimating a 15% EPS CAGR over FY13-15; this growth is being led by continued

momentum in the Financials, Consumer, Autos while some rebound in Metals and

Telecom will also aid growth.

We believe that return of 15% earnings CAGR with be an important catalyst for the

markets. Monetary easing and acceleration in reforms by the government will be

additional triggers for the markets. 1QCY13 will have several events for markets to get

confidence on both these counts. We too are positive on these 2 catalysts, and expect

markets to generate returns at least in line with earnings growth. This would lead to

Sensex levels of 23,000 over the next 12 months.

Our top Overweights are Financials (ICICI / SBI / LIC Housing), Autos (Tata Motors,

Maruti, Hero Motocorp), PSUs (ONGC, NMDC, NTPC, BPCL). We raise Telecom to

Overweight now as we believe the worst is behind and operational performance will

improve, driving stock returns. Our key Underweights are Consumer, Technology and

Utilities. We have a significant allocation to mid-caps too.

Strategy

Navin Agarwal

[email protected]

Rajat Rajgarhia

[email protected]

Economist

Dipankar Mitra

[email protected]

Sources of exhibits in this section

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

INVESTMENT STRATEGY

2013 THEME #7

2013 THEME #6

February

Q4

Q3

Q2

Q1

April May

July August

October November December

January March

June

September

RBI cuts CRR by 50bp but leaves rates unchanged Gold customs duty hiked to 2% ad valorem

(INR300/10gm earlier); silver customs dutyhiked to 6% ad valorem (INR1,500/kg earlier).Excise duty on gold/silver also hiked to1.5%/4% ad valorem v/s fixed rate earlier

Government raises export duty on iron oreto 30% from 20%

Coal India changes the basis of its coalprices from UHV (useful heat value) to GCV(gross calorific value)

RBI cuts repo rate by 50bp for the firsttime in three years

Standard & Poor's (S&P) lowers India'scredit rating outlook from 'stable' (BBB+)to 'negative' (BBB-)

Sri Lanka hikes import duties sharplyacross auto product segments;Bajaj Auto was the worst impacted,as Sri Lanka accounted for ~15% of totalexports

Time magazine dubs Manmohan Singh as 'underachiever' Pranab Mukherjee elected 13th President of India SEBI permits MCX-SX to operate a full-fledged stock

exchange Jindal Steel & Power terminates its contract to build the

USD2.1b El Mutun iron mine in Bolivia An HR manager was killed at Maruti Suzuki's

Manesar plant in large scale arson by theworkers; the plant was locked out for over amonth and over 500 workers were terminated

Tata Starbucks opens first store in India Kingfisher Airlines' flying license suspended

by DGCA RBI cuts CRR 25bp; policy rates unchanged Rain Commodities announces EUR702m

acquisition of Reutgers (second largestproducer of CT Pitch globally; CY11revenue of EUR831m)

Unitech settles dispute with Uninor Infosys cuts guidance for FY13

Supreme Court cancels all 122 licenses given byA Raja in 2G spectrum scam

Vedanta Group proposes merger of SterliteIndustries with Sesa Goa; Vedanta would hold58.3% stake in Sesa Sterlite, which in turn wouldhold 58.9% stake in Cairn India

Marico buys Paras Pharma personal carebrands from Reckitt Benckiser

FY12 GDP is placed at 6.5% Finance Minister postpones GAAR

(General Anti Avoidance Rules)implementation till 2013

RBI releases final guidelines for Basel III Jubilant launches Dunkin Donuts Petrol prices hiked by INR7.5/lt EGoM clears Mahan block for Hindalco

Motilal Oswal 8th Annual Global Investor Conference London Olympics 2012: Most successful for India ever,

with 6 medals (2 silver and 4 bronze) Hamid Ansari re-elected as Vice President of India,

the second such instance after S Radhakrishnan Hero MotoCorp invests USD20m in US-based

Erik Buell Racing for motorcycle R&D 1QFY13 GDP growth at 5.5%; June IIP plunges to -1.8% CAG releases final report on "Coalgate"; slashes

windfall gains figure from INR11t to INR1.8t

2QFY13 GDP growth of just 5.3% Diageo Plc of US agrees to buy 53.4% stake

in United Spirits for USD2.1b 2G spectrum auction flops; government

collects only INR94b v/s target of INR280b Wipro announces demerger of its non-IT

businesses into Wipro Enterprises PVR buys 69% stake in Cinemax for INR4b Ajmal Kasab hanged on account of the

2008 Mumbai attacks

Five state assembly election winners: SamajwadiParty (Uttar Pradesh), BJP (Goa), Congress(Manipur & Uttarakhand), Akali Dal-BJP combine(Punjab); Akhilesh Yadav becomes UP's CM

Dinesh Trivedi steps down as Railways Ministerafter pressure from TMC for hiking passenger fares

Union Budget presented: FY12 fiscal deficit at5.9% of GDP; FY13 target 5.1%

RBI cuts CRR by 75bp Draft report of CAG alleges govt misallocated

coal blocks, causing gains of INR11t to pvt players

Government hikes diesel price by INR5/liter; caps subsidizedLPG cylinders to 6 per annum

Government approves 51% FDI in retail, 49% in civil aviation Trinamool Congress withdraws support from UPA RBI cuts CRR 25bp; policy rates unchanged Infosys buys Lodestone of Switzerland at EV of USD350m Tech Mahindra buys Hutchison Global Services for USD87m

and 51% in mobile VAS provider Comviva Tech for INR2.6b JSPL acquires CIC Energy Corp of Canada for INR6.5b Iron ore mining in Goa suspended; Government de-allocates

coal blocks on recommendation of Inter-Ministerial Group

BJP's Narendra Modi (Chief Minister of Gujarat) wins thirdconsecutive assembly election. Congress overthrows BJP inHimachal Pradesh

DLF sells Aman Resorts for USD300m Lok Sabha passes Banking Amendment Bill,

clearing the way for new bank licenses Cyrus Mistry takes charge as Tata Group Chairman Government divests 10% stake in NMDC

to raise INR57b Sachin Tendulkar announces retirement from

one-day international cricket

Competition Commission of India implicates cementcompanies for cartelization, slapping a fine of INR66b;Cement companies are challenging it in the AppellateTribunal and the matter is sub-judice

Maruti merges Suzuki Powertrain with itself to en-hance its diesel engine capabilities; Suzuki's stake inMaruti rises 2pp to 56.2%

INR breaches 57 to reach its lowest ever valueof 57.16 on 22nd June 2012

Fitch lowers India's credit outlook to negative;sovereign credit rating maintained at 'BBB-'

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

S

E

N

S

E

X

17,194+ 11.2%

May

17,753+ 3.3%

17,319–0.5%

16,219–6.4%

S

E

N

S

E

X

17,404–2.0%

17,430+7.5%

17,236–1.1%

18,763+7.6%

17,430+1.1%

18,505–1.4%

19,340+4.5%

19,427+0.4%

+

+

2012 – India At A GlanceSensexClose

(MoM %)

2013 – Events CalendarFebruary

April May

July August

October November December

January March

June

September

3QFY13 Monetary Policy review

(RBI expected to cut policy

rates by 50bp)

Advance estimate of FY13 GDP

MOBIZ

3QFY13 GDP

Union Budget FY14

(Union Budget expected to placed budget deficit at 4.9% of

GDP, gross borrowing expected at INR6t)

Budget session of Parliament

(Budget session is expected to pass DTC, Land Acquisition

bill, Lokpal and Food Security Bill)

3QFY13 BOP


State elections in Meghalaya, Nagaland and Tripura

FY14 Monetary Policy FY13 GDP

(Expected at 5.2%)

State election in Karnataka

FY13 BOP


2QFY14 Monetary Policy

(RBI expected to continue with

its dovish stance)

1QFY14 GDP

1QFY14 BOP


Parliament Monsoon session

3QFY14 Monetary Policy 2QFY14 GDP

State election in J&K

2QFY14 BOP

Parliament Winter session

State elections in Madhya

Pradesh, Mizoram, NCR Delhi

and Chhattisgarh

Jan-Mar 13

Preview&

IndiaStrategy

Apr-Jun 13

Preview

&

IndiaStrategy

Jul-Sep 13

Preview

&

IndiaStrategy

Q4

Q3

Q2

Q1

Motilal Oswal

9th Annual Global

Investor Conference

Motilal Oswal

EUREKA INDIA

Conference, 2013

A–5January 2013


A year of strong returns, big outperformersAlso, a year of huge deviations in institutional flows

Indian markets ended 2012 with returns of 26%, a feat totally unexpected at the

beginning of 2012. Post the four quarters of negative returns in 2011, the BSE

Sensex delivered positive/flat returns in all four quarters of 2012.

India has also been the top performing market globally and has significantly

outperformed other emerging markets. With this, the Indian markets have

delivered a 10-year CAGR of 19%, in line with every BRIC market and significantly

ahead of all other markets.

The top performing sector in 2012 was Financials, which returned 57% v/s 26% for

the Sensex. The Consumer sector returned 47%. IT and Telecom were the only two

sectors with negative (-1% each) returns. For Telecom, 2012 marks the fourth year

of negative returns in the previous five years(ex 2010, when it returned +6%).

Tata Motors was the best performing Sensex stock, with 75% return. Both ICICI

Bank and HDFC Bank delivered returns of ~60%. Infosys and Bharti were the top

underperformers, with negative returns of 8-16%. L&T delivered a return of 61%

despite the IIP growth being almost nil throughout the year.

Within the top 10 companies by market cap, Bharti made way for ICICI Bank in

2012. Reliance regained the top market cap slot, outperforming TCS / ONGC. Infosys

moved down to number-8 from number-5.

In terms of sectoral weights in the Sensex, Financials are now at an all-time high

of 27%, while Autos have made a new high of 10.5%. Telecom weights are at a new

low of 2.6%, with Technology also at one of its lowest weights in the last decade.

Average market volumes in 2012 were lower than in 2011, despite a year of strong

returns. Moreover, the composition of F&O remained at an all-time high of 90%.

FIIs invested another USD24.5b in 2012, making it the second highest year of

inflows. On the other hand, DIIs withdrew a huge USD10.9b during the year.

2012: Sensex delivered all four quarters of positive returns

2012 flashback:

Positive return years: 24 (73%) 2012 26

Negative return years: 9 (27%) 2010 17

2004 13

2002 4

2011 -25 1997 19

2001 -18 1994 17 2007 47

2000 -21 1993 29 2006 47

1998 -16 1989 17 2005 42 2009 81

1996 -1 1984 7 1992 37 2003 73

1995 -21 1983 7 1990 35 1999 64

1987 -16 1982 4 1988 51 1991 82

2008 -52 1986 -1 1980 25 1981 54 1985 94

Year % Year % Year % Year % Year %

-30 to -60 -30 to 0 0 to 30 30 to 60 >60

Percentage Total Return Range

Note: Return is CY Ending.

A–6January 2013


Indian markets grew 26% in CY12 after a negative CY11

Sensex quarterly return (QoQ, %)

India is among the top performing markets globally

World equity indices: CY12 performance (%) in local currency Relative performance of India v/s regional peers

5.6 4.94.1

1.9

12.3

18.419.119.119.2

3.63.416.90.81.21.23.01.30.8

Ru

ssia

Indi

a

Ch

ina

Bra

zil

Ko

rea

Ta

iwa

n US

UK

Jap

an

CAGR 2002‐ 2012 (%)

Marke t Ca p USD Tri l l ion

613

‐10

2331

‐4

‐14

‐2

11

20

9

20

‐6

17

‐5 ‐4

1

49

18

2 0 1

13

2

‐5‐13

13

08

4

18

‐23‐14

‐25

‐3‐6

171218

1116 18

‐6 ‐8

Ma

r‐0

2

Se

p‐0

2

Ma

r‐0

3

Se

p‐0

3

Ma

r‐0

4

Se

p‐0

4

Ma

r‐0

5

Se

p‐0

5

Ma

r‐0

6

Se

p‐0

6

Ma

r‐0

7

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

6

6

7

9

9

13

15

15

23

26

Russ ia MICEX

UK

Brazi l

Taiwan

South Korea

S&P 500

China (HSCEI)

MSCI EM

Japan

India ‐ Sensex

26‐251781‐5247474213734

0

6,000

12,000

18,000

24,000

CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12

‐60

‐20

20

60

100

Tre nd in Se nse x ‐ RHS Indian Ma rket Annual Re turn (%) ‐ LHS

Annual Re turn (%)

CAGR of

19%

A–7January 2013


Sectoral performanceKey sectors that have seen significant outperformance in CY12 are: Financials, Realty,

Consumer, Auto, Healthcare, Cement and Capital Goods. Metals, Oil, Power, Telecom

and IT underperformed sharply. Telecom has delivered negative returns in four out of

the last five years.

Sectoral performance (% return)

Return YoY (%) CAGR

Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 2002-2012

Financial 108 33 37 39 61 -52 84 33 -32 57 27

Realty -82 70 -26 -52 53 -

Consumer -12 35 -5 56 17 20 -14 40 32 10 47 22

Auto 34 149 12 50 30 3 -57 204 38 -20 40 27

Healthcare 3 96 23 2 22 17 -33 69 34 -13 39 20

Cement 1 126 42 38 106 14 -60 87 13 4 35 28

Capital Goods 48 168 28 94 56 117 -65 104 9 -48 35 29

SENSEX 4 73 13 42 47 47 -52 81 17 -25 26 19

Metal 62 212 14 4 39 121 -74 234 1 -47 19 20

Oi l 72 127 0 40 40 115 -55 73 1 -29 13 20

Power 5 175 25 27 19 117 -39 42 -13 -27 6 23

Telecom 359 105 64 82 59 -48 -10 6 -9 -1 -

IT 4 23 26 43 41 -14 -51 133 32 -16 -1 13

Top companies by market capOf the top-10 market cap companies in December 2012, three are new listings during

the decade. The share of top-100 companies' market cap to overall market cap has

been very stable at 75-80%.

Sensex companies CY12 performance (% return): Tata Motors leads, Infosys lags

7566 62 61 59

48 47 4236 34 30 30 29 28 28 26 26 21 18 16 13 8

-16-8-7-4-3-1-10

4

Ta

ta M

oto

rs

ICIC

I B

an

k

Ma

ruti

L&T

HD

FC

Ba

nk

Su

n P

ha

rma

SB

I

ITC

M&

M

Ba

jaj

Au

to

Ste

rlit

e

Cip

la

HU

L

Ta

ta S

tee

l

HD

FC

Ta

ta P

ow

er

SE

NS

EX

Re

lia

nce

In

d.

Co

al

Ind

ia

Dr

Re

dd

y's

Hin

da

lco

TC

S

ON

GC

He

ro M

oto

Wip

ro

JSP

L

NT

PC

BH

EL

GA

IL

Bh

art

i

Info

sys

A–8January 2013


Sector weight in Sensex Sector Weight in Sensex (%)

Sector FY02 FY04 FY06 FY08 FY10 FY12 Dec 12

Auto 4.8 4.9 5.5 3.8 6.4 9.9 10.5

Banking 6.4 19.2 20.9 21.1 23.0 24.6 27.3

Capital Goods 3.4 1.9 7.1 10.7 9.7 6.4 6.6

Cement 3.3 5.0 5.3 3.5 2.2

Consumer 28.9 13.0 11.8 7.4 7.2 11.5 13.0

Health Care 9.7 7.7 4.4 2.1 1.1 2.7 4.6

Infrastructure 1.5 1.3

Media 2.7 1.0

Metals 3.7 6.1 5.5 4.6 7.2 6.1 5.0

Oil & Gas 16.4 21.8 12.9 19.3 16.8 14.5 13.6

Real Estate 1.5 1.0 0.6

Technology 15.6 12.6 18.1 11.8 14.6 16.1 12.8

Telecom 3.7 3.0 4.0 8.6 4.1 3.1 2.6

Uti l i t ies 1.2 3.8 4.5 4.2 5.4 4.5 4.0

SENSEX 100 100 100 100 100 100 100

Indian market volumes and billion dollar companiesWhile market volumes have exploded by 39% CAGR, cash volumes have grown only at

14% CAGR. The share of F&O (Futures and Options) has increased from 27% in 2002 to

as high as 90% in 2012.

Top-10 companies by market capCompany MCap Company MCap Company MCap

(USD b) (USD b) (USD b)

Dec 02 Dec 11 Dec 12

O N G C 10.4 TCS 42.8 RIL 49.3

RIL 8.7 RIL 42.8 TCS 44.8

Hind. Unilever 8.3 O N G C 41.4 O N G C 41.6

Wipro 7.9 Coal India 35.8 ITC 41.1

Infosys Tech. 6.6 Infosys 29.9 Coal India 40.8

I O C L 3.9 ITC 29.6 HDFC Bank 29.2

ITC 3.4 NTPC 25.0 SBI 29.1

SBI 3.1 Bharti Airtel 24.5 Infosys 24.2

Ranbaxy Labs. 2.3 SBI 19.4 ICICI Bank 23.8

H P C L 2.0 HDFC Bank 18.8 NTPC 23.5

Trend in top-100 companies' market cap share

10

5

22

3

30

4

41

4

61

6

1,3

61

50

7

1,0

00

1,2

18

77

1

93

7

75

77

74

76

79

757575

78

8081

De

c 0

2

De

c 0

3

De

c 0

4

De

c 0

5

De

c 0

6

De

c 0

7

De

c 0

8

De

c 0

9

De

c 1

0

De

c 1

1

De

c 1

2

TOP 100 Ma rket Ca p (USD b)

TOP 100 Ma rket Ca p % to Tota l

Indian market volumes Trend in companies with over USD1b market cap

108 169 240 397657

52661

8501,194

1,4411,361

909084

7572737165

60

52

27

CY

02

CY

03

CY

04

CY

05

CY

06

CY

07

CY

08

CY

09

CY

10

CY

11

CY

12

Total Da i ly Avg Volumes (INR B)F&O Volumes % to Total Volume s

F&O volumes as pe rce nta ge of total

CAGR of 39%

2753

6894

128101

179212

150186

1 3 726

240

26213413

381411

100 76141041662

De

c 0

2

De

c 0

3

De

c 0

4

De

c 0

5

De

c 0

6

De

c 0

7

De

c 0

8

De

c 0

9

De

c 1

0

De

c 1

1

De

c 1

2

Numbe r of Cos => 1 USD b Numbe r of Cos => 10 USD bNumbe r of Cos => 25 USD b

A–9January 2013


Market cap of 27 billion-dollar market cap companies in 2002 was USD78b; the number

of billion-dollar market cap companies has ballooned to 187, with aggregate market

cap of USD1,100b.

Flows: FII flows have remained strong in CY12, DIIs are big sellersFII inflow at over USD24.5b in CY12 is the second highest annual inflow so far after

CY10. This has been in a year, when downgrades at both macro and corporate sector

has sustained throught 2012.

In sharp contrast to FII activity, domestic funds were net sellers to the tune of USD10.9b

in CY12. This is the highest outflow ever by DIIs.

0.7 6.7 8.6 10.8 8.1 17.8 17.6 29.3 24.5

-0.5-12.2

1.0 1.01.4

0.0

1.9

0.6

1.8

-1.7

2.52.3

1.9

CY

02

CY

03

CY

04

CY

05

CY

06

CY

07

CY

08

CY

09

CY

10

CY

11

CY

12

Ne t FII Flows (USD b) FII Flows % to Mca p

Yearly trend in net FII investments and FII flows as % of mcap Trend in net DII investments (USD b)

-0.6

3.0

-10.9

5.9

-4.7

5.3

16.9

5.43.7

-0.3

0.1

CY

02

CY

03

CY

04

CY

05

CY

06

CY

07

CY

08

CY

09

CY

10

CY

11

CY

12

A–10January 2013


MEAN REVERSION – Macro, Corporate sector, MarketsThe statistic led by the systemic

Theme Thesis Our core theme for the next two years FY14 and FY15 is Mean Reversion across the

board - macroeconomy, corporate earnings and stock markets.

Such mean reversion may well be part statistic (low base of FY12 and FY13 in most

cases). But we believe the key change driver is systemic - the Indian government

is finally getting its policy act together. In a sense, Mean Reversion here too!

Mean Reversion - Policy: (1) FDI in retail permitted, (2) Banking amendments

cleared, (3) Direct Benefit Transfer initiated, (4) Fiscal consolidation, and (5)

Monetary Policy poised to support growth.

Mean Reversion - Macro: Domestic variables should revert towards mean e.g. (1)

GDP to recover from decadal low of 5.2% in FY13 to 6.5%, and (2) Fiscal deficit back

to mean of 4.9% in FY14 from 5.9% in FY12. External sector variables however may

settle at new normal - CAD at 3-3.5% and USD/INR at 53-55.

Mean Reversion - Corporate earnings: (1) Expect FY13-15 earnings CAGR to revert

to mean of 15% (v/s 8% during FY08-13). (2) Select sectors (Telecom, Media) and

stocks (Tata Steel, Bharti, Maruti) should also recover from their worst.

Mean Reversion - Markets: (1) Expect domestic institutional flows into equities

to bounce back, and (2) If mean earnings growth (FY15 Sensex EPS of 1,573) gets

the mean valuation (P/E of 15x), expect markets at new highs of 23,000 levels

within next 12 months.

2013 Theme #1

Our core theme for the next two years FY14 and FY15 is Mean Reversion across the

board – macroeconomy, corporate sector and stock markets. Such mean reversion

may well be part statistic (low base of FY12 and FY13 in most cases). But we believe

the key change driver is systemic – the Indian government is finally getting its policy

act together. In a sense, Mean Reversion here too!

We briefly illuminate and i llustrate the key elements of this Mean Reversion (MR) in

the next few pages.

Policy – From inertia to initiative

The Indian government seems to have shifted its policy approach from inertia to

initiative. Since Sep-12, it has initiated several measures that not only tested its political

strength but also marked its commitment to policies with far-reaching positives. The

stage thus seems to be set for the second generation reforms which already have

gathered a momentum of its own. We see several early indicators of this –

(1) FDI in retail permitted

(2) Banking amendments cleared

(3) Direct Benefit Transfer initiated,

(4) Fiscal deficit coming under control

(5) Monetary Policy poised to support growth.

Mean Reversion #1

A–11January 2013


MR-P #1: FDI in retail permitted; wide ranging benefitsPermitting FDI in retail is both a political and economic victory for the Indian

government, in our view. The government won the political battle by (1) strategically

allowing states to take the final call, and (2) by a show of strength in the Parliament.

Further, we believe, the government has bui lt in several conditions to safeguard

several economic interests too:

FDI in retail permitted up to 51%, with approval by state governments;

Minimum investment of USD100m; at least 50% of total FDI to be invested in

‘backend infrastructure’ excluding expenditure on land cost and rentals;

Retail sales locations may be set up only in cities with a population of more than

1m (as per 2011 Census only 53 of 8,000 cities/towns qualify for retail FDI);

Fresh agricultural produce, including fruits, vegetables, flowers, grains, meat, etc

to be unbranded;

At least 30% of the procurement of manufactured/ processed products shall be

sourced from ‘small industries’ which have a total investment in plant & machinery

not exceeding USD1m;

We see huge potential for FDI in retail to usher changes for all sectors of the economy,

particularly agriculture, industry and logistics services. The full benefit of the measure

would however be reaped once the goods and services tax (GST) and dedicated freight

corridor (DFC) would come into being.

FDI in retail has multiple benefits

Benefits to agriculture

Avoidance of huge wastage

(estimated at INR1t per annum)

Benefits to both producers and consumers

(lower number of intermediaries, better price & quality)

Outreach to world market

(e.g. access of Indian products to Wal-Mart's global

network)

Longer term changes

(e.g. reform of APMC Act to allow promotional and not mere

regulatory role of APMCs i.e. Agricultural Produce Marketing

Corporations)

Benefits to Industry/Services

Can revitalize the Indian SME sector

(given mandatory local sourcing norms)

Potential for 10m jobs to be created

(e.g. direct employment of 1.5m @ 1 person per 350-400 sq ft)

Unorganized retail may become more efficient

(going by past experience of domestic organized retail)

GST and DFC to magnify benefits

(Goods & Services Tax's "one country" concept leading to

scale economies; Dedicated Freight Corridor to address

transportation bottlenecks and warehousing inefficiencies)

MR-P #2: Banking amendments cleared; new banking licenses soonThe Parliament has approved Banking (Amendment) Bill paving the way for issuance

of new banking licenses by RBI. As in the case of retail FDI, here too the government

had to manage politics by dropping two provisions, namely, (1) allowing banks to

trade in futures, and (2) keeping the banking sector outside the purview of Competition

Commission. Other key amendments brought by the bill are:

Increasing voting rights to 10% (from 1%) in case of PSBs and 26% (from 10%) in

case of private banks

Allowing PSBs to issue bonus shares

Giving more powers to RBI to supersede boards and inspect books of associate

companies of banking company

Enabling nationalized banks to increase or decrease the authorized capital with

approval from the Central Government and the RBI without being limited by the

ceiling of a maximum of INR30b.

FDI

A–12January 2013


MR-P #3: Direct Benefit Transfer initiated; long-term transformative potentialDirect Benefit Transfers (DBT) are cash transfers to eligible people under various

government subsidy and expenditure programs. The three key ingredients of this

program are:

(1) Issuance of Unique Identification numbers (UID/Aadhaar)

(2) Laying down the eligibility criteria for beneficiaries of each transfer program and

(3) Ensuring bank accounts for each of the identified beneficiaries.

Since 3QFY13 the government has shown remarkable urgency in implementing the

scheme also touted as UPA’s trump card in their preparation for 2014 general elections.

The Central Government initially identified 34 government schemes for a rapid roll-

out of Direct Cash Transfer Scheme in 43 districts of the country from the beginning of

2013. Most of these schemes involve scholarships and pensions that are relatively

easier to roll out. The more significant schemes (kerosene, LPG, diesel, fertilizer, etc)

will be taken up in later phases. As per media reports government has started the

rollout in January 1, 2013 covering seven welfare schemes in 20 districts in 16 states.

Several pros and cons of DBT are currently being debated (e.g. cash v/s kind transfers,

access to banking, inflation indexation, room for new kinds of corruption, etc). While

the jury is still out on DBT, we believe a careful and calibrated approach in its

implementation has long-term potential to transform both, India’s social security

system and the government’s fiscal position (via efficient targeting of subsidy).

Direct Benefit Transfer: Rapid roll-out given political trump card?

29-Sep-12 Govt. hints at speeding up cash transfer of subsidies

11-Oct-12 Cabinet approved modified direct cash subsidy for urea and the incentive to

retailers on urea raised by INR50 per tonne

30-Nov-12 PMO directs concerned ministries and departments for immediate

commissioning of DBT

06-Dec-12 Government constitutes a National Committee chaired by the Prime Minister to

coordinate action for introduction of DBT

10-Dec-12 The Government proposes to introduce a pilot scheme in six Union Territories

(UTs) for direct trans fer of food subsidy under Targeted Public Distribution

System (TPDS)

11-Dec-12 Planning Commission holds consultations with 11 states for rapid roll-out of DBT

13-Dec-12 Government initiates the process for implementing the direct transfer of cash

subsidy on PDS kerosene in 11 identified s tates/UTs (6 UTs to begin with). Also

clarifies no move on direct cash transfer of fertilizer as yet.

14-Dec-12 PMO reviews preparedness for DBT

MR-P #4: Fiscal deficit coming under control; expect 4.9% of GDP in FY14Government has a well documented fiscal consolidation plan for the 12th Plan period

(FY13-17). Accordingly, it is expected to reduce the fiscal deficit by 0.5% of GDP in FY13

and FY14, and thereafter by 0.6% every year to finally reach the 3% of GDP mark by

FY17.

A–13January 2013


Expect fiscal deficit to GDP at 5.4% for FY13 and 4.9% for FY14: In FY13, while efforts

are being made to reach the tax targets despite growth shocks, we expect slippages

on subsidies and also in non-tax revenue (telecom spectrum sale and PSU

disinvestment). However, we expected bui lt-in expenditure buffers to help the

government contain FY13 fiscal deficit to GDP at 5.4% v/s the budgeted 5.1%.

We expect FY14 fiscal deficit to GDP to improve to 4.9% on the back of a few

assumptions –

GDP growth would revive to 6.5% in FY14 (v/s 5.2% in FY13)

Tax-GDP ratio would improve by 0.2% on re venue buoyancy and better

administrative effort

Government would garner higher revenue from disinvestment and other asset

sales avenues

Subsidy bill would be restrained to INR2.2t, i.e., within 2% of GDP and around

INR100b less than FY13 estimate. This is contingent upon a relatively stable oil

price outlook and continued policy emphasis to keep a lid on oil subsidy and

under-recovery.

Quality of expenditure is likely to improve with sharper increase in Plan

Expenditure in accordance with 12th Plan priorities.

MR-P #5: Monetary Policy poised to support growth; expect 100bp rate cutin CY13For large part of CY12, RBI displayed a bias to keep interest rates high on account of

inflation, sharp fall in growth notwithstanding. FY14 will mark the third consecutive

fiscal year of fall in inflation from a high of 9.6% in FY11. In CY13/FY14, we expect

inflation to fall below 5%, in line with RBI tolerance, on the back of – (1) Stable oil

prices and benign global commodity prices; (2) Release of food stocks easing food

inflation; and (3) Normalizing of the base effect.

We believe this will create enough headroom for the RBI to decisively shift its focus

from containing inflation to supporting growth. Accordingly, we expect RBI to cut

policy rates by at least 100bp in CY13. Much of this would be frontloaded beginning

with a 50bp cut in Jan-13 policy measure.

Expect government to broadly adhere to the fiscal correction plan

5.34.8

4.23.6

3.0

5.14.5

3.9

3.0

FY13 FY14 FY15 FY16 FY17

Fis ca l Pa th for 12th Plan FY13BE (MTFPF)

MTFPF: Medium Term Fiscal Policy Framer as per FY13BE

Fiscal deficit to GDP (%)

A–14January 2013


Macro – Domestic rebound, external relapse

We expect mean reversion in policymaking to drive mean reversion in macro. Several

macroeconomic variables like GDP, Inflation, Interest rates and fiscal deficit are

expected to show improvement from their weak performance over the last 1-2 years.

However, external sector variables – mainly current account deficit and INR – seem

unlikely to revert to mean, and instead settle at a new normal.

Expect inflation to ease below 5% for FY14 … … creating headroom for RBI to cut rates at least 100bp

Mean Reversion - Macro: Domestic rebound, external relapse

Domestic sector variables

GDP, IIP growth to rebound

Expect FY14 GDP growth to rebound to 6.5% v/s 5.2% for FY13

(still below decadal mean of 7.6%)

GDP growth rebound, in turn, is led by mean reversion in

IIP/Manufacturing sector (see Theme 2, page 21)

Inflation & Interest rates to ease

Expect FY14 inflation to ease to 4.9%, well below the mean

of 6.2%, after staying above it for 3 years.

On the back of easing inflation, expect interest rates to

fall in FY14, led by at least 100bp policy rate cut by RBI

(150bp over FY13-14, bringing rates back to mean)

Fiscal deficit to come back under control

Expect FY14 fiscal deficit to revert to mean of 4.9% of GDP.

This is on the back of tax revenue growth reverting to mean

of 7%, buoyed by IIP/GDP growth.

External sector variables

Current Account Deficit at new normal

India’s Current Account Deficit (CAD) has far drifted from its

long-period mean of 1.5%, and is likely to settle at a new

normal of 2.5-3.5%.

The government is considering measures like gold import

curbs to address the widening CAD.

INR hitting successive new lows

Widening CAD is finding reflection in the INR, which is now

almost 20% lower than its mean of 46 levels.

Expect new normal of 50-55.

Measures like FDI in retail should attract capital flows

and prevent further weakening of the INR.

GDP growth: Would revert to mean only gradually IIP: Would revive but may not revert to mean in near term

6.8

6.5

5.2

6.5

8.48.0

9.39.69.5

7.58.5

3.8

2

4

6

8

10

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY13

E

FY14

E

8.6

15.5

5.3

1.4

5.3

2.92.5

12.911.7

7.05.8

8.2

0

4

8

12

16

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY13

E

FY14

E

4.0%

9.6%9.0%

7.4%

4.9%

FY10 FY11 FY12 FY13 FY14

6.00%6.50%7.00%

7.50%

5.25%

7.00%7.50%8.00%8.50%

6.25%

8.00%8.50%9.00%

9.50%

8.25%

3%

5%

7%

9%

11%

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

No

v-12

Jan

-13

Ma

r-13

Ma

y-13

Jul-

13

Sep

-13

No

v-13

Re vers e R epo Rate R epo Rate MSF rate

Mean Reversion #2

GDP growth (%) IIP growth (%)

Mean 7.6%

Mean 7.4%

A–15January 2013


-1.3

-3.5

-4.2-4.2

-2.6

-2.8

-2.3

-1.0-1.2-0.3

1.22.3

-5.0

-3.0

-1.0

1.0

3.0

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

Inflation: Expected to revert to mean by FY14 Interest rates: likely to mean revert led by policy rates

Growth reversion to mean will drive tax collection growth Fiscal deficit should also revert to mean in FY14

Current account deficit: unlikely to mean revert in FY14 INR: towards a new normal

3.4

7.5

8.9

8.0

6.56.5

5.5

4.4

4.8

3.6

9.6

4.9

2

4

6

8

10

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

7.0

7.8

7.0

8.0

8.5

6.8

5.05.0

7.8

6.5

6.06.0

4.0

5.4

6.8

8.2

9.6

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

4.5

6.06.5

4.9

5.95.4

4.9

3.9

5.9

3.3

2.5

4.0

2

4

5

7

8

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

25.3

3.2

17.3

16.213.7

27.0

2.1

29.3

20.119.8

17.715.6

0

9

18

27

36

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

Tax Growth (YoY, %)

WPI inflation (%)

Mean 6.2%

Repo rates (%)

Mean 6.8%

Mean 17%

Mean 4.8%

Fiscal deficit to GDP (%)

CAD to GDP (%)

Mean -1.5%

USD/INR

Mean 46.445.9 45.6

40.2

45.344.344.9

48.3

45.9

47.447.9

54.553.0

34

40

46

52

58

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

A–16January 2013


13

17

15

19

232424

23

2120

16151615161618

16

14

1717171717

FY9

2

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

FY13

E

FY14

E

FY15

E

Long-period

average of 18%

Corporate earnings – Expect 15% CAGR over FY13-15

Corporate earnings is expected to grow at CAGR of 15% over FY13-15, back to its

long period averages. This would be a new growth period, post a phase of

consolidation when earnings grew by 8% CAGR (FY08-13).

We expect EBITDA and PAT margins to bottom out in FY13 and gradually revert

towards mean.

Over the last 10 years, the share of Financials in total earnings has risen, and now

contributes the largest share at 29%. It has replaced Oil & Gas, whose share has

almost halved during this period.

Telecom will be another interesting sector to bet, as it reverts back to normalized

levels of profitability. The sector's earnings had collapsed in the last four years.

Sensex EPS: Expect new earning cycle of 15% CAGR (FY13-15), in line with long-period trend

Sensex RoE (%)

21 19

29

20

3037

18

7

23 23

118 9

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Avg: 21%

MOSL Universe Ex RMs Sales Growth (%) MOSL Universe Ex F inancials & RMs EBIDTA Margin (%)

20.8 20.7

23.4 23.7

25.3

23.3

20.1

21.520.9

18.617.3

18.6 19.2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Avg: 21%

820 834

1,573

1,389

1,2001,1241,02 4

833718

52345 0

34827223 62162 802782912662 50

18 112981

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

FY1

5E

F Y93-96:

45% CAGRFY96 -03: 1% CAGR

F Y03-08: 25%

CAGR

FY08-13:

8% CAGR

FY13-15E:

15% CAGRFY 93-12: 1 5% CAGR

Mean Reversion #3

A–17January 2013


4

3

44

5

4

4

555

5

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

31

18

4740

28

1

149

3

1511

23

19

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Avg: 21%11.4

13.7

15.114.2

15.5

13.9

11.8 11.7 11.5

9.99.1

9.810.2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Avg: 13%

MOSL Universe Ex F inancials & RMs EBITDA Growth (%) MOSL Universe Ex Financials & RMs PAT Margin (%)

Banks & Oil Contribution to MOSL Universe PAT (%) Health Care & Tech Contribution to MOSL Universe PAT (%)

1718

20

2323

2728

16

2020

2120 20

1917

313029

272525

22

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Oil & Gas Ex RMS Financials

Average: 22%

Average: 22%5

55

5

77

7 66

66

33

33

4444

332

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Technology Health Care

Average: 3%

Average: 6%

Telecom PAT trend (INR b) Capital Goods Contribution to MOSL Universe PAT (%)

4 7.6

77.4

93.799.3

69 .55 5.7

8 0.5

3 9.749.8

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Average: INR 68 Average: 4%

A–18January 2013


-8

0

8

16

24

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

FY1

6E

FY1

7E

FY1

8E

-5

0

5

10

15

DII Flows (USD b) - LHS DII as % to Financial Savings - RHS

USD 28b

Avg DII/FS of 4.4%

USD 8b

Avg DII/FS of 1.7%

USD 76b

Avg DII/FS of 4.4%

101.2151.7

304.5

108.7

202.1

281.1

196.5 225.8

126.0101.6102.1

72.855.267.349.641.5

18.417.217.516.015.117.218.817.8

CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12

Mkt Valu e of F II ho ldings (USD B) Cu mmulative F II Inves tme nts (US$B)

FII Ho lding in Ind ian Market (%)

Markets - DII flows to rebound; markets to hit new highs

Rising ownership of FII's in Indian Capital Markets; Domestic flows to resume

Cumulative FII investments in India since CY93 add up to USD126b. Market value

of these investments stands at USD226b, implying unrealized gain of USD100b.

FII's hold 18.4% of India's total market cap. This makes them the second biggest

holders of India equities after promoters (followed by Indian public and DIIs).

FII flows into Indian equities have been steadier than domestic flows which appear

cyclical. In the previous upcycle, DII bought equities equivalent to 4.4% of India's

financial savings, which slipped to 1.7% in the subsequent downcycle. If DII

allocation reverts to ~4.4% (witnessed earlier during FY04-FY08), DIIs could

potentially buy USD76b of Indian equities over the next 5 years (14% of current

free float market cap).

Market value of FII holdings is USD226b v/s investment of USD126b

FIIs' holdings of equities rise while that of Indian public falls

53.6 54.0 57.8 58.4 57.3 55.8 55.7 54.2

17.8 18.8 17.2 15.1 16.0 17.5 17.2 18.4

8.9 9.1 8.3 9.8 10.3 10.1 10.619.8 18.0 16.7 16.7 16.4 16.5 16.5 16.7

10.7

CY05 CY06 CY07 CY08 CY09 CY10 CY11 Se p 12

Promoter (%) FIIs (%) DII (%) Pub l ic & Others (%)

DIIs could be meaningful buyers of equities over the next 5 years

Mean Reversion #4

A–19January 2013


Mean multiples to mean earnings growth imply markets at new highs

As stated earlier, we expect Sensex EPS CAGR to revert to mean levels of 15% over

FY13-15. This translates into FY15 Sensex EPS of 1,573. If this earnings gets valued at

mean multiples (P/E of 15x), expect markets at new highs within next 12 months with

Sensex at 23,000 levels (15x PE for FY15 EPS).

12-month forward Sensex P/E is close to its mean levels … … as is India’s Market Cap to GDP (%)

0.4

0.8

1.2

1.6

2.0

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

De

c-1

2

Publ ic Ba nks Se cto r - PB (x)

LPA of 1.2x

-3.8

-37.5

7.4

-40

-25

-10

5

20

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

De

c-1

2

Pvt B anks PB R elative to Sen sex PB

LPA of -15%

2623

4252

82 83

103

55

89

70 69

95

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

Average of 65% for the pe riod

1.9

3.2

4.2

1.2

2.1

3.0

3.9

4.8

De

c-1

2

De

c-1

1

De

c-1

0

De

c-0

9

De

c-0

8

De

c-0

7

De

c-0

6

De

c-0

5

De

c-0

4

De

c-0

3

De

c-0

2

10 Year Avg:

2.7x

14.6

24.6

8.37

12

17

22

27

De

c-1

2

Apr

-12

Au

g-1

1

De

c-1

0

Apr

-10

Au

g-0

9

De

c-0

8

Apr

-08

Au

g-0

7

De

c-0

6

Apr

-06

Au

g-0

5

De

c-0

4

Apr

-04

Au

g-0

3

De

c-0

2

10 Year Avg: 14.9x

24.2

16.1

17.1

15.0

17.5

20.0

22.5

25.0

Dec

-12

Ma

r-12

Jun

-11

Sep

-10

Dec

-09

Ma

r-09

Jun

-08

Sep

-07

Dec

-06

Ma

r-06

Jun

-05

Sep

-04

Dec

-03

Ma

r-03

10 Year Avg: 20.1%

Sensex RoE (%) is below mean … … explaining below mean 12-month forward Sensex P/B (x)

Sectoral valuations

Private Banks P/B relative to Sensex P/B (%) PSU Banks P/B (x)

A–20January 2013


16.4

5.5

6.8

2.0

6.0

10.0

14.0

18.0

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2

Telecom Sector EV/EB DITA

LPA of 9.4x

Metals Sector P/B relative to Sensex P/B (%) Oi l & Gas Sector P/B relative to Sensex P/B (%)

Health Care Sector P/E(x) Telecom Sector EV/EBIDTA (x)

Capital Goods Sector P/B (x) Consumer Sector P/E relative to Sensex P/E (%)

Technology Sector P/E (x) Media Sector P/E (x)

‐43.9

‐17.6

‐47.5‐50

‐40

‐30

‐20

‐10

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2

Oi l & Ga s PB R elative to Se nse x PB( )

LPA of ‐36%

42.8

10.3

23.1

8

18

28

38

48

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2

Media Sector ‐ PE

LPA of 23.3x

0.4

72.8 106.1

‐30

0

30

60

90

120

De

c‐05

De

c‐06

De

c‐07

De

c‐08

De

c‐09

De

c‐10

De

c‐11

De

c‐12

Con sumer PE Relative to Sens ex PE (%)

LPA of 53%

2.9

10.4

2.8

2.0

5.0

8.0

11.0

14.0

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2

Cap i tal Goo ds Sector ‐ PB (x)

LPA of 5.1x

27.6

8.0

14.9

4

10

16

22

28

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2Techno logy Sector ‐ PE( )

LPA of 17.8x

‐60.3

‐23.6

‐58.6

‐75

‐60

‐45

‐30

‐15

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2

Meta l PB Re lative to Se nse x PB

LPA of ‐44%

30.0

15.9

21.0

14.0

20.0

26.0

32.0

De

c‐0

5

De

c‐0

6

De

c‐0

7

De

c‐0

8

De

c‐0

9

De

c‐1

0

De

c‐1

1

De

c‐1

2

He al thcare Sector ‐ PE (x)

LPA of 22.0x

A–21January 2013


MANUFACTURING REVIVAL – An event to watch

Theme Thesis India's manufacturing sector has virtually collapsed as reflected in the IIP growth

of 1.4% in FY13. This has been the key contributors to India's economic slowdown.

The past few months have raised hopes of a likely recovery in FY14. While the

base itself will be favorable for growth, we believe that few other catalysts that

could drive growth are emerging now:

#1 - Monetary easing, lowering cost of funds.

#2 - Policy engine to help kick start several stalled projects, renew confidence to

start new projects.

#3 - Favorable currency driving manufacturing exports.

We also discuss the potential sectors that benefit from a revival in manufacturing

sector, led by these catalysts.

2013 Theme #2

Catalyst #1: Cut in interest ratesWe expect at least 100bp cut in policy rates in CY13, on top of a 50bp cut in 2012. The

impact of this total 150bp cut will begin to fully play out in FY14 and sustain in FY15 in

the form of revival in investment activity, a key trigger for the manufacturing sector.

Besides, CRR cuts and regular OMO would also ensure that liquidity does not constrain

growth.

Higher interest cost has been a headwind for medium-to-small size companies in

particular. Corporates with highly leveraged balance sheet, capex intensive businesses

and infrastructure companies are likely get a boost from lower rates.

5.25%

7.50%7.00%

6.50%6.25%

8.50% 8.00% 7.50%8.25%

9.50%9.00% 8.50%

3%

5%

7%

9%

11%

Jan-

11

Ma

r-1

1

May

-11

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Ma

r-1

2

May

-12

Jul-

12

Sep

-12

Nov

-12

Jan-

13

Ma

r-1

3

Revers e Repo Rate Repo Rate MSF rate

2

4

6

8

10

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

GDP Repo rate

We expect 50bp rate cut in Jan-13 policy measure

A–22January 2013


BSE 500 companies excluding financials, top 50 companies by market cap, and RMs

Catalyst #2: Policy engine getting back on trackOver the past 12-18 months, policy paralysis has been one of the key reasons for lack

of industrial activity in the economy. Since the change of guard in Finance Ministry in

Sep-12, there have been several positive developments on the reforms front. There

are two kinds of policy interventions coming into play to revive overall economic

activity, including manufacturing -

1. Enablers - These include the recently-cleared direct transfer of cash, FDI in retail,

cabinet approval for Land Acquisition Bill/insurance and pension reforms, Banking

Amendment Bill etc.

2. Expediters - The key measure here is the formation of the Cabinet Committee of

Investment (till recently referred to as the National Investment Board). Chaired

by the Prime Minister, the CCI is intended to be the single window for projects

with investment of INR10b and above, offering clearances such as land issues,

mining leases, forest/environment approvals etc. Consolidation of fiscal deficit

will be a big policy booster (expected in Budget 2013). The two other most

important reforms that investors would be looking for are resolution of subsidy

issues (recent events suggest some progress on this) and reforming the Indian

power/coal sector.

While many of these reforms would have a lagged impact on the economy, the

confidence of corporate sector would begin to rise, leading to hopes of recovery in

the industrial sector.

Catalyst #3: Favorable currency, cost structure drives manufacturing exports Over FY13, INR has depreciated 15% vis-à-vis the USD. It has twin benefits for the

Indian corporate sector. As the INR sustains at high levels of 53-55, all the export

oriented sectors will start benefiting meaningfully (more once the hedges run

off), leading to sustained high margins and return ratios. The other benefit comes

from the rising competitiveness of exporting out of India.

Over the past few years, INR has significantly depreciated against the Chinese

Yuan. This is increasing the competitiveness of India as an export hub notably.

Trends of making India a global production hub has begun e.g. Philips and Haier

(for kitchen appliances), Panasonic (consumer electronics), Suzuki and Hyundai

(small cars), Cummins (genset engines) etc.

A–23January 2013


In FY13, INR down 15% vis-à-vis USD… …and the Chinese Yuan

Playing of these catalysts could lead to mean reversion for IIPThe cumulative impact of the above coupled with low base of both FY12 (+3.3%) and

FY13 (+1.1%) should trigger a mean-reversion in the manufacturing sector, which has

positive implications for sales growth and profits across several sectors of India Inc.

Manufacturing sector seems poised for mean reversion

Autos Anecdotal evidence suggests that a recovery in industrial activity drives a sharp

recovery in CV demand, which would drive operating performance of CV players.

In previous downcycle (FY09) to upcycle (FY11), profits of CV players improved by

over 3x.

Large domestic market coupled with significant export potential is driving strong

local players to tap export opportunity by making India an export hub for

automobiles.

Also, Fx has played its part for OEMs to explore export opportunity, although with

different objectives. While Bajaj Auto (net exporter) will benefit from weak INR

enabling it to compete with Chinese competitors, for both Maruti Suzuki and Hero

MotoCorp, exports will also help to dilute impact of weaker INR on imports.

A–24January 2013


Bajaj Auto

Exports contribute ~36% of volumes, ~34% of revenues and an estimated 40-45%

of EBITDA. It aspires to increase contribution of exports to ~60% over next 4-5

years and has taken initiatives to tap relatively developed markets through tie-up

with KTM and Kawasaki.

Exports enjoy higher margins than domestic market, thereby boosting overall

EBITDA margins at 18-20% (one of the highest EBITDA margins in automotive

industry globally).

Its hedges limited average realisations in FY13 to INR50/USD. A 20% INR fall

provides a margin lever of 500-600bp to Bajaj. This helps to offset the adverse

impact of DEPB reduction and slowing exports volumes.

Eicher Motors

Eicher Motors' CV business (VECV) would benefit from expected revival in

industrial activity, especially as it plans to ramp up its M&HCV business through

new launches in the next 15 months.

VECV would also benefit from commissioning of exports of engines to Volvo under

MDEP, which will contribute 4%/13%/18% to VECV revenues in CY13/CY14/CY15.

We await clarity if this contract is on INR or EUR pricing.

With expansion of capacities at Royal Enfield in CY13, it would be able to better

explore export opportunities, potential of which is untapped. Exports have the

potential to not only drive volumes but also profitability as it would have better

product mix and benefit from current INR weakness.

Ashok Leyland

Ashok Leyland, being a pure play on CV (especially M&HCV), would benefit from

a revival in the industrial and infrastructure activities.

Improvement in demand would also improve pricing power and drive benefits of

operating leverage.

Further, reduction in interest rates could also drive savings in interest cost as it

would have net debt of ~INR43b and interest expense of ~INR4b (~49% of PBT). 1%

savings in interest cost to drive ~5% upgrade in FY14 EPS.

Capital Goods Capital goods sector is seeing fresh round of inquiries, which will take 6-8 months

in terms of fructification into actual order intake. Also, large part of the investment

inquiries are in base sectors like cement, food processing, textiles, engineering,

chemicals, automobiles, pharmaceuticals etc and thus we believe that there exists

a good probability of them getting converted into actual project awards. In terms

of mega projects, there are pockets of opportunities emerging in segments like

refineries, power generation etc. However, there are still several contentious

issues which remain to be addressed.

Currency movements have also increased the competitiveness of Indian

manufacturing and this shift has created opportunities to drive export-led business

models, particularly for 'product' based businesses. We believe that several capital

goods companies in segments like DG sets, chillers, waste heat recovery boilers,

heating equipments, industrial machinery etc will be a key beneficiary of this

trend.

A–25January 2013


L&T is more exposed to a revival in infrastructure investments and creation of the

Cabinet Committee on Investments/attempts to curtail fiscal deficit etc are steps

in the right direction. Also, we expect the overseas business would contribute

~28%/32% of L&T's profits in FY13/FY14 respectively, up significantly from ~21% in

FY12 and thus the company will be an important beneficiary of the currency

movements. Also, many of the manufacturing businesses like ship building, power

BTG, forgings etc which are new business segments, should also see improved

viability, given the currency movements.

Thermax is exposed to several of the base segments, which are witnessing initial

signs of revival in the investment climate. Also, given continued power shortages

and increased electricity tariffs, we expect that several of the business models

like captive power, alternative energy projects etc will become viable. Contribution

of exports stands at 22% of revenues and we believe that the currency movements

provide a unique opportunity to ramp up the business in a meaningful manner.

Cummins is a key beneficiary of the currency movements as exports are 29% of

revenues and the recent currency movements have made Cummins India more

competitive in the global network of Cummins Inc. Also, the company has recently

introduced Urja Gensets (low horse power), which are new products developed in

India for new geographical markets (including Africa etc). We believe that these

products provide possibilities to double the export volumes over the next 3 years,

entailing strong growth.

Crompton is a beneficiary of the currency movements as exports account for one

third of standalone power sales. Export margins have improved significantly over

past 2 years and there are plans to expand transformer capacity meaningfully in

India. Company is also exposed to industrial capex through motors and drives

(~25% of standalone revenues), where again there are plans to internationalize

the business meaningfully.

Metals Increased difficulties in acquiring land due to rising costs and greater awareness

of rights of land owner after recent court decision and environmental hurdles

have impacted new construction and industrial activities. Increased activism against

corruption has pushed many government projects into investigation.

Tighter bank credit norms too have affected demand.

Tata Steel, JSW Steel, Essar Steel and Bhushan Steel etc have build new capacities

but are not able to produce at full blast due to poor domestic demand, weaker

export market and high cost/shortage of iron ore/natural gas. Also, the country

premiums have shrunk. A revival in demand will benefit Tata Steel most as it is

near ready with the new 3mtpa capacity and captive mines, new pellet plant will

meet its raw material need, while competition like JSW Steel, Essar Steel will still

be struggling with high cost and shortage of inputs like iron and gas.

If the coal mine permits are expedited, there are low hanging fruits to be picked

in Indian metal space. Hindalco, Balco and JSPL each have coal blocks in advanced

stages of procedures for getting final mining leases. Since aluminum smelting is a

highly power intensive process, there will be significant boost to margins of

Hindalco and Sterlite. The coal block will work in favor of JSPL in a scenario of high

coking coal prices.

A–26January 2013


A sustained weaker INR/USD rate in general benefits Indian metal companies in

offsetting high domestic inflation. NMDC and Hindustan Zinc have benefited

more on revenues than the impact on operating cost due to low cost operations.

Healthcare Indian pharma companies derive 50-85% of their sales from exports. Companies

have also been running various levels of hedges, which has limited the benefits.

However, as INR stabilizes at high levels, we believe that the benefits from weak

currency will keep flowing in.

Additionally, companies like Cipla and Divi's Labs have undertaken sizeable long-

term capex targeting export markets. Most of the capex was incurred prior to the

steep Rupee depreciation in 2QFY12. Utilization of these assets through FY14-15

would generate revenues realized at relatively higher USD rates, in turn resulting

in better-than-expected return from these assets.

Cipla derives more than 53% of its sales from exports. About 40% of its raw

materials are imported. Keeping in mind the currency environment, company

had reshaped its hedging strategy by shortening the period for which it used to

hedge its receivables; currently hedges upcoming one month of expected sales.

Cipla had undertaken capex of INR9b over FY09-11 at its Indore SEZ which recently

received USFDA approval. This will facilitate Cipla's entry into the US as it plans to

file ANDAs from this facility in its own name (compared to the earlier practice of

filing through partners).

Divi's Labs derives over 85% of its revenues from exports. About 40% of its raw

materials are imported. Company leaves a large portion of its exports receivables

un-hedged. As such, it has realized the benefit of INR depreciation to larger extent

compared to other players. Its EBITDA margins increased from 36% for 9MFY12 to

upwards of 39% between 4QFY12-2QFY13. Divi's had spent INR2bn over FY11-12

on its SEZ facility in Vizag. The FDA inspection for this facility is expected in 1QFY14.

Dr. Reddy's derives more than 75% of its revenues from exports and less than 20%

of its raw material costs constitute of imports. As per its hedging policy, Dr. Reddy's

covers receivables for the upcoming 18 months and classifies these hedges as

cash-flow hedges. Its outstanding cash flow hedge position, as of September

2012, stood at ~USD600m. Company has not been able to realize the full benefit

of Rupee depreciation as some of its cash flow hedges were booked at appreciated

INR/USD rate. We believe that Dr. Reddy's will continue to see the benefit of INR

depreciation in its top line as new hedges get locked at current INR/USD rates.

Financials Slowing manufacturing growth has hurt Indian banking sector as it accounts for

~45% of bank loans.

With slowdown in IIP and existing run-down of sanction pipeline, not only has

the loan to industrial segment moderated but it also had a repercussion on asset

quality. Stress in mid-corporate and SME segment has resulted in higher slippages

and restructuring for Indian financials (especially PSBs).

Revival in industrial activity will lead to an improvement in loan growth, abate

asset quality pressures translating into earnings upgrade and re-rating of stocks.

A–27January 2013


Industrial segment forms 45%+ of overall loans With fall in IIP, loan growth moderates with a lag

Sector NPAs on the rise due to growth headwinds Revival in IIP could lead to re-rating of PSU banks

A–28January 2013


PSUs – “Public” interest poised to revive!De-rating seems overdone; room for significant upside in select stocks

Theme Thesis Over 10 years 2002-12, PSU stocks performed well initially. However, they under-

performed the benchmark towards the latter half, more so in the last 3 years.

Performance of PSUs has indeed weakened in some cases. However, our estimates

suggest that over FY13-15, there is likely to be some mean reversion.

PSUs’ valuation de-rating seems overdone. With earnings getting back on track,

there are multiple re-rating triggers as well: (1) Government policy engine back

on track e.g. lower oil subsidy through measured product price hikes, (2) Pressure

on PSUs to increase dividend payouts, (3) Higher FII participation and benchmark

weight due to disinvestments, etc. Expect significant upsides from current levels.

Our top picks: SBI, ONGC, NMDC, NTPC and Concor.

2013 Theme #3

Over 10 years 2002-12, PSU stocks However, they underperformed the benchmarkperformed well in the initial period towards the latter half, more so in the last 3 years

The underperformance can be mainly attributed to government’s policy paralysis on many aspects impacting PSUs e.g. oi l

subsidy, mining clearances, land acquisition, coal linkages, etc. Markets’ lack of confidence in the government also reflected

in a sharp de-rating of PSUs.

Performance of PSUs has indeed weakened but FY13-15 estimates suggest some mean reversionFY13-15 sales growth is mainly dragged by IOC … … but EBITDA growth is above LPA …

0

180

360

540

720

De

c-0

2

Jun-

03

De

c-0

3

Jun-

04

De

c-0

4

Jun-

05

De

c-0

5

Jun-

06

De

c-0

6

Jun-

07

De

c-0

7

Jun-

08

De

c-0

8

Jun-

09

De

c-0

9

Sen sex - R ebas ed B SE PSU Inde x - Re-ba sed

60

80

100

120

140

Jan

-10

Apr

-10

Jul-

10

Oct

-10

Jan

-11

Apr

-11

Jul-

11

Oct

-11

Jan

-12

Apr

-12

Jul-

12

Oct

-12

Sense x - Re-b ase d BSE PSU Ind ex - Reb ase d

20 20

-4

2225

3 42

15

FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

Sales Growth (%)

FY07-13 Avg: 14%

18 18

0

16 17

-4

16

1213


EBITDA Growth (%) FY07-13 Avg: 11%

For FY13, key financial indicators (Sales/EBITDA/PAT growth, RoE) are all below the long period average (LPA). Over FY13-15, at

least EBITDA and PAT growth are expected to revert to the mean. (Note: All data based on aggregates of 10 leading PSUs – BHEL,

Concor, GAIL, IOC, NMDC, NTPC, ONGC, SAIL, Punjab National Bank and SBI.)

A–29January 2013


PSUs' FY13-15 PAT CAGR back to LPA … … but RoE wi ll remain below LPA

PSUs’ valuation de-rating seems overdoneOne-year forward P/E well below LPA … … as is one-year forward P/B …

Multiple re-rating triggers; significant upside potential

Re-rating triggers include

(1) Government policy engine back on track, e.g. lower

oil subsidy through measured product price hikes

(2) Pressure on PSUs to increase dividend payouts

(3) Higher FII participation and benchmark weight due

to disinvestments, etc.

Valuation reversion to LPA P/E, P/B or dividend yield

could yield significant upside across major PSUs.

… and dividend yield is well above LPA

2123

‐4

17

1

21

‐6

129


PAT Gro wth (%)

FY07-13 Avg: 10%

2122

18 1918

15 15 1517


ROE (%)

FY07‐13 Avg: 18%

14.2 14.3 14.4

9.2

8.18.9

10.010.6

11.2


P/E (x)

FY07‐13 Avg: 12x

2.4

3.1

2.7

2.4

1.61.5

1.31.2

1.9


P/B (x)

FY07‐13 Avg: 2.2x

3.1

2.8

2.0 2.0

2.73.0

3.1

3.4

2.1


Div Yield (%)FY07‐13 Avg: 2.5%

A–30January 2013


Our top picks: SBI, ONGC, NMDC, NTPC and Concor

Our Top

PSU Picks

1. SBI Too big to be missed; 3.5x the nearest competitor.

Best play on (1) GDP growth mean reversion, and

(2) favorable rate cycle.

Has lowest stress asset book amongst the big PSU

Banks.

FY13 credit costs at peak; margins at bottom. Both

expected to improve in FY14, FY15.

SLR portfolio well above the stipulated norms,

will help in falling rate regime.

FY13-15E EPS CAGR above LPA; valuations at LPA.

Headroom for upsides in both earnings and

valuation.

3. NMDCBeneficiary of changing dynamics of

Indian iron ore market.

14% volume CAGR over FY13-15E due

to 11B, Kumarswamy mines and

uniflow system.

Low cost operations due to economy

of scale, high quality of ore and

superior infrastructure.

Enough headroom in pricing of iron

ore fines w.r.t. global/domestic prices

of lumps and pellets.

Debt free balance sheet, with surplus

cash of USD4b.

Attractive dividend yield of 4.7%; EV/

EBITDA of 4.1x FY15E. Headroom for

upsides in earnings and valuation.

2. ONGC Production growth issues being addressed through

IOR/EOR and new fields (3.3% CAGR over FY12-15E).

Best possible medium-term cash utilization; if the

recent acquisitions by OVL are approved, expect

4.7% CAGR in group production.

Expect gas price hike in March 2014; if it increases

to USD7/mmbtu (from USD4.2/mmbtu),

consolidated EPS will increase 22%.

Subsidy rationalization (long term) would lead to

re-rating;

Risk-reward favorable - valuations at 10-year low

of 1.4x FY14E BV and 8.1x FY14E EPS; dividend yield

at ~4%.

4. NTPC 12GW capacity addition over FY13-15E

v/s 6.9GW over the preceding three

years

Higher capacity addition /

commercialization to boost

generation growth - YTD FY13

generation growth at 6% YoY v/s 1%

YoY for both FY12 and FY11.

Regulated equity CAGR of 13% over

FY12-15, driving PAT CAGR of 18%.

Valuations reasonable at <12x FY14E

EPS and 1.5x FY14E BV.

5. Concor Play on GoI's thrust on Indian Railways (IR) to correct freight modal mix.

Key beneficiary of mega infrastructure projects like DFC/ DMIC and reforms like GST/ FDI in Retail.

Inimitable infrastructure advantages; competitors unable to mimic Concor's success.

Concor is undertaking preemptive capex of INR60b over FY12-17, which would further strengthen its moat

and establish it as a leading multi-modal logistics player in India.

While near-term concerns with regard to container traffic growth and impact of higher haulage charges on

margins remain, long-term prospects are favorable and outweigh near-term concerns.

The stock trades at 11.7x FY14E and 10.6x FY15E EPS. Concor's core RoCE (ex cash) is 27%. It has net cash of

INR230/share and offers a dividend yield of 2.3%.

A–31January 2013


PSU BANKS – Play on economic recovery, falling ratesDespite recent run-up, valuations near LPA; room for further upside

Theme Thesis Over the past two years, state-owned (PSU) banks have underperformed

significantly, led by sharp increase in slippages/ restructured assets, and

deterioration in operating performance, led by fall in margins.

Recovery in industrial growth and monetary easing will lead to improvement in

stress asset book in FY14-FY15. This will limit the credit costs, leading to

improvement in RoAs.

Banks' SLR portfolio is at a multi-year high, which will help as interest rates fall.

Valuations have seen some recovery and PSU bank stocks now trading at LPA.

Improvement in asset quality trend would be a key catalyst.

2013 Theme #4

Over past two years, PSU banks have Underperformance compared to private banksunderperformed benchmark index by 18%+ is higher due to divergent asset quality trends

The underperformance has been led by sharp increase in slippages / restructured assets, and deterioration in operating

performance, led by fall in margins.

40

60

80

100

120

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

De

c-1

1

Ma

r-1

2

Jun

-12

Se

p-1

2

De

c-1

2

40

70

100

130O

ct-1

0

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

De

c-1

1

Ma

r-1

2

Jun

-12

Se

p-1

2

De

c-1

2 Performance of PSUs banks has been impacted by challenging macro environmentEconomic slowdown has led to sharp rise in stress assets… … which are now 1.8x than in FY09 (%)

2.5

5.3

3.1

8.2

0.1

5.56.7

10.1

8.0

6.4

FY09 FY10 FY11 FY12 1HFY13

Overa l l I IP gr. (%) Stress Asse ts (%)

2.2 2.5 2.5 3.34.6

3.34.2 3.9

3.9

4.10.9

1.4

FY09 FY10 FY11 FY12 1HFY13

GNPA OSRL Ex-AI and SEB AI a nd SEB

5.56.7 6.4

8.1

10.1

Sensex - Rebased to 100

PSU Banks - Rebased to 100

Pvt Banks - Rebased to 100

PSU Banks - Rebased to 100

Note: All financial calculations based on aggregate of top five PSU Banks - SBI, PNB, BoB, BoI, Canara

A–32January 2013


528611

668

798

913

457513

560651 688

FY09 FY10 FY11 FY12 FY13E

BV ABV

16%16%

18%25%

13%

Credit costs have increased but RoA has been stable (%) Gap between BV and ABV now at ~25%+

0.94 0.93 0.89 1.04 1.17 1.03 0.97 0.98

0.79

0.36

0.51 0.56 0.51

0.790.91

1.05

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

RoA Cre di t Cost

Note: Adjusted BV is calculated by (1) adjusting NNPA (post tax,) and (2) reducing 30% of OSRL from BV (assumption of 50% hit

taken through P&L; rest falls into NNPA).

PSU banks expect improvement in operating performance; valuations can improve

Excess SLR built; fall in G-sec yields could boost treasury gainsAsset quality and earnings to improve over FY13-15 and aid profitability

2.0 1.7 1.1 1.0

12.6

17.8

FY12-13 FY14-15 FY12-13 FY14-15 FY10-13 FY13-15

Net Sl ippage Ratio

(%)

Cre di t Cost (%) PAT CAGR (%)

26.9 27.0 27.4 28.1 26.4 26.8 28.6

8.28.5

8.0 8.0

7.0

7.88.0

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

1H

FY

13

SLR Ra tio (%) 10 ye ar G-Sec yield (%)

Loan growth to improve and margins to stabilise (%) Core operating profit growth to bounce back in FY14

19.617.3

0.7

48.3

33.7

19.512.812.9

27.626.3

9.2

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

E

FY

14

E

FY

15

E

Core Ope rating Profi t Growth (%)

26.3 28.1 29.623.2

29.9

18.724.1

16.8 16.1 17.8 19.5

3.03.03.03.2

2.72.82.8

3.0

3.33.3

3.2

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Loan Growth (%) NIM (%)

% difference in shaded box

A–33January 2013


Dividend yield has increased (%) RoE to improve over FY13-15 (%)

RoE (%)19.8

18.5

18.0 18.2

16.516.7

17.2

FY09 FY10 FY11 FY12 FY13E FY14E FY15E

PSU banks trading at near LPA One-year forward P/E at LPA

0.3

0.9

1.5

2.1

De

c-0

4

Au

g-0

5

Ap

r-0

6

De

c-0

6

Au

g-0

7

Ap

r-0

8

De

c-0

8

Au

g-0

9

Ap

r-1

0

De

c-1

0

Au

g-1

1

Ap

r-1

2

De

c-1

2

Publ ic Banks Se ctor - PB (x)

LPA of 1.2x

2

4

7

9

12

De

c-0

4

Au

g-0

5

Ap

r-0

6

De

c-0

6

Au

g-0

7

Ap

r-0

8

De

c-0

8

Au

g-0

9

Ap

r-1

0

De

c-1

0

Au

g-1

1

Ap

r-1

2

De

c-1

2

Publ ic Banks Se ctor - PE (x)

LPA of 7x

38.9 40.8 46.4 49.157.1

67.8

1.3

2.0

2.3

2.7

1.91.8

FY10 FY11 FY12 FY13E FY14E FY15E

Divide nd (INR b) Dividend Yield (%)

A–34January 2013


AUTO - Headwinds turning into tailwindsMaruti, M&M and Hero hold scope for significant earnings upgrade cycle

Theme Thesis Macro headwinds, which impacted the performance of Auto companies over the

past 12-18 months are expected to turn favorable, with initial signs of economic

recovery, monetary easing by RBI and increased policy actions by the government.

Stable to easing commodity prices and favorable exchange rates would boost

profitability.

Improving macro scenario coupled with company specific triggers/catalysts would

drive continued strong outperformance for select Auto companies: (1) Maruti's

operating performance would significantly improve on depreciating JPY against

USD, (2) M&M could witness significant upgrades on loss-making subsidiaries

turning around, and (3) Hero MotoCorp would benefit from expiry of royalty

payments post June 2015, .

2013 Theme #5

Positive view on sector as headwinds turns into tailwinds Various macro headwinds such as high interest rates and fuel prices, coupled with

economic slowdown impacted the performance of the Auto sector over the past

12-18 months.

Headwinds that impacted past performance are expected to turn favorable in

2013, with initial signs of economic recovery, reduction in interest rates by RBI and

reform initiatives undertaken by the government.

Favorable macro factors would help in reviving economic growth with consequent

positive impact on consumer sentiment, which augurs well for demand. Apart

from higher volumes, softening of commodity prices and favorable forex would

boost profitability.

Easing of macro headwinds would be the key driver for volume growth,

profitability, and in-turn, for re-rating of Auto stocks.

Favorable sector view coupled with company-specific triggers can providesignificant upsides While the macro environment for the entire Auto sector is turning positive, there

are few company-specific triggers/catalysts, which will enable outperformance.

Maruti Suzuki: Forex movement, which severely impacted operating performance

over the last five years, is turning favorable. Moreover, consumer sentiment and

increase in diesel engine capacity would drive higher volumes, improve mix and

raise pricing power (lower discounts).

M&M: We expect recovery in tractor volumes and continued strong performance

in UVs. This coupled with strong growth in key subsidiaries (M&M Financial Services,

Tech Mahindra, etc) and potential turnaround of loss-making subsidiaries

(Ssangyong, CV & two-wheeler subsidiaries, auto component subsidiaries, etc)

could result in significant upside in consolidated EPS.

Hero MotoCorp: Expect strong earnings growth (~31%) in FY15, driven by expiry of

royalty payments post June 2014 to Honda.

A–35January 2013


Maruti Suzuki

FY07-13 operating performance severely impacted: With 27-28% import exposure

(20-22% JPY-based, including royalty), Maruti's operating performance is heavily

dependent on INR/JPY movement. Adverse currency movement has been the key

reason for decline in Maruti's margins (from 15.3% in FY07 to 6.8% in 1HFY13).

Recent JPY/USD movement has been favorable after a long period: Post the recent

general elections in Japan, JPY has significantly depreciated against USD on the

expectation of unlimited monetary easing to revive economic growth.

Rebound on industry growth, higher diesel engine capacity to drive volumes: We

expect Maruti to register volume CAGR of 14.5% over FY13-15 (v/s a negative 3.7%

over FY11-13).

Strong JPY had severely impacted Maruti's profitability JPY has now started weakening after a long period performance

15.3 14.6

9.8

13.3

7.1 6.8

9.7

0.7

0.6

0.50.5

0.40.4

0.5

2007 2008 2009 2010 2011 2012 1HFY13

EBITDA margin (%) JPY/INR

0.63

86.8

0.30

0.45

0.60

0.75

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

70

90

110

130

JPY/INR USD/JPY (RHS)

JPY ha s turned fa vorable after

long period

MSIL's FY14 earnings sensitivity to JPYJPY/INR EPS (INR) CEPS (INR) Cash PE (x) TP (10x CEPS)

0.750 69.9 144.3 10.8 1,443

0.700 87.0 161.5 9.6 1,615

0.646 105.6 180.0 8.7 1,800

0.600 121.3 195.8 8.0 1,958

0.550 138.5 212.9 7.3 2,129

0.500 155.6 230.0 6.8 2,300

MSIL's FY15 earnings sensitivity to JPYJPY/INR EPS (INR) CEPS (INR) Cash PE (x) TP (10x CEPS)

0.750 91.6 174.2 8.9 1,742

0.700 110.5 193.1 8.0 1,931

0.646 130.9 213.5 7.2 2,135

0.600 148.3 230.9 6.7 2,309

0.550 167.2 249.8 6.2 2,498

0.500 186.0 268.7 5.7 2,687

Mahindra & Mahindra

Loss making subsidiaries dragging consolidated performance: In FY12, M&M's

consolidated performance was impacted by loss-making subsidiaries. Ssangyong,

CV & two-wheeler subsidiaries, auto component subsidiaries, etc, had made a

negative contribution of INR18.6b in FY12.

Potential PAT breakeven would lead to 12% EPS upgrade: While we expect

reduction in losses in key subsidiaries, driven by our expectation of breakeven at

Ssangyong, PAT breakeven in all key subsidiaries would lead to 12% EPS upgrade

in FY15.

Expect recovery in tractor volumes, strong performance in UVs to continue: We

estimate 7.5% CAGR in tractor volumes and 12.5% CAGR in UV (including pick-ups)

volumes over FY13-15.

Given favorable JPY movement, Maruti's operating and stock performance could see meaningful boost, with 10% EPS upgrade

for every 5% JPY appreciation. This may well coincide with a favorable demand environment and stable commodity prices.

A–36January 2013


M&M FY12 EPS break-down M&M FY15 EPS break-down

25.818.6 51.2

44.0

FY12 S/A Core

EPS

Profi t ma king

subs

Loss making

subs

FY12 Consol

EPS

42.4

11.5 95.0

64.1

FY15 S/A Core

EPS

Profi t making

subs

Loss making

subs

FY15 Consol

EPS

M&M FY15 consolidated EPS could be INR106.5, if loss-making subsidiaries break even

42.4

106.5

0

64.1

FY15 S/A Core

EPS

Profi t ma king

subs

Loss ma king

subs

FY15 Consol

EPS

Potential Target Price (FY15) INR/Sh

S/A @ 16x PE 1,026

Profit making Subs @ 10x PE 254

Loss making subs at 1x BV 66

Potential Target Price 1,346

Hero MotoCorp

Smooth transition from 'Hero Honda' to 'Hero' branding: Huge corporate branding

exercise together with well planned product specific promotions has helped in

smooth brand transition.

Improvement in domestic demand: Improvement in consumer sentiment would

drive 15% CAGR in two-wheeler industry volumes over FY13-15. We expect Hero

MotoCorp to register 11% CAGR in the domestic segment.

Ramp-up in exports to new markets to start from 4QFY13: Hero MotoCorp aims at

exporting 1m units to Africa, South East Asia and Latin America by FY16. We

estimate export volumes at 501k units (v/s 187k units in FY12) by FY15, implying a

CAGR of 73%.

New product launches starting FY15: Hero MotoCorp has tied up with Erik Buell

Racing, AVL (Austria) and Italy's Engines Engineering, creating an 'extended arm'

of its own R&D center. This will help to shorten its product development learning

curve.

Expiry of royalty amortization post June 2014: With expiry of royalty payments on

existing products post June 2014, Hero's operating performance is likely to improve

significantly and will deliver EPS growth of 31% in FY15 (highest in the sector).

A–37January 2013


Royalty savings coupled with volume growth to be the key EPS growth driver

Trend in Hero MotoCorp's P/E and dividend yield Potential target price based on average P/E and target yield

1.5

2.1

2.7

3.3

3.9

Ap

r‐0

7

Oct‐0

7

Ap

r‐0

8

Oct‐0

8

Ap

r‐0

9

Oct‐0

9

Ap

r‐1

0

Oct‐1

0

Ap

r‐1

1

Oct‐1

1

Ap

r‐1

2

Oct‐1

2

6

10

14

18

22Div Yld (%) P/E (x)

Avg Div Yld: 2.6%Avg PE: 14.3x

2,615

2,885

PE base d @ 16x FY15 Div Yield base d @ 2.6%

targe t yield

EPS growth from FY14 after three years of muted growth Returns have been highly co-related with EPS growth

Hero MotoCorp is expected to deliver EPS growth after four years of muted performance, driven by recovery in volumes and

expiry of royalty payment on existing products post June 2014. Based on the average P/E of 16x during the growth phase and

average dividend yield of 2.6%, the fair value works out to INR2,615-2,885/share.

(50.0)

‐

50.0

100.0

150.0

200.0

Mar‐0

4

Nov‐0

4

Jul‐

05

Mar‐0

6

Nov‐0

6

Jul‐

07

Mar‐0

8

Nov‐0

8

Jul‐

09

Mar‐1

0

Nov‐1

0

Jul‐

11

Mar‐1

2

Nov‐1

2

Year‐end returns % EPS growth %

163.4‐4.6120.37.4

14.5

124.8

FY14 EPS Volumes Pricing/RM Roya l ty Other Inc. Taxes FY15 EPS

43.

0

48.5

64.

2 111

.8

100

.5

119.

1

114

.8

124

.8 163

.4

FY07

FY08

FY09

FY10

FY11

FY12

FY1

3E

FY1

4E

FY1

5E

37.5% CAGR

0.9% CAGR

19.3% CAGR

A–38January 2013


METALS: Implied valuation of CWIP at steep discountSesa-Sterlite, Hindalco penalized far more than warranted; Buy

Theme Thesis Despite 30-40% earnings growth, the market capitalization of metal companies

has fallen by 30-35% over the last two-three years.

The markets have de-rated metal stocks due to exponential growth in their capital

work in progress (CWIP) and resultant increase in debt.

As the various projects start generating cash flows and capex intensity peaks over

the next two years, net debt should start coming off.

Our top picks: Hindalco, Sesa-Sterlite. According to our calculations, Hindalco and

Sesa-Sterlite are being significantly discounted for their CWIP. These stocks could

see re-rating.

2013 Theme #6

Markets have de-rated Metals stocks due to high CWIPWith increasing debt, the markets have de-rated Metals companies' market

capitalization below the intrinsic value of operating assets (measured as 5x one-year

forward EBITDA). In other words, CWIP is being discounted heavily, perhaps for the

right reasons - the IRR of projects has declined much below the companies' WACC.

Except JSW Steel, every company has 10-20% share

in aggregate CWIP Market cap has declined despite earnings growth

CWIP/MCap has risen sharply to 67% Debt has risen in sync with CWIP

Note: Companies in our CWIP valuation exercise: Sesa-Sterlite, Hindalco, Jindal Steel & Power, JSW Steel, Tata Steel and SAIL.

0

20

40

60

80

Mar

-01

Jan

-02

No

v-0

2

Se

p-0

3

Jul-

04

Ma

y-0

5

Mar

-06

Jan

-07

No

v-0

7

Se

p-0

8

Jul-

09

Ma

y-1

0

Mar

-11

Jan

-12

No

v-1

2

(%)

CWIP/EV CWIP/Mcap

0

1,000

2,000

3,000

4,000

5,000

6,000

Ma

r-01

Ma

r-02

Ma

r-03

Ma

r-04

Ma

r-05

Ma

r-06

Ma

r-07

Ma

r-08

Ma

r-09

Ma

r-10

Ma

r-11

Ma

r-12

Ma

r-13

(IN

R B

illi

on)

5xEBTIDA CWIP Actua l EV Mkt Cap

0

20

40

60

80

Apr‐0

1

Apr‐0

2

Apr‐0

3

Apr‐0

4

Apr‐0

5

Apr‐0

6

Apr‐0

7

Apr‐0

8

Apr‐0

9

Apr‐1

0

Apr‐1

1

Apr‐1

2

Ses a ‐Sterl i teHinda lco

JSPL

JSW

Tata

SAIL

0

600

1,200

1,800

2,400

Ma

r‐0

1

Ma

r‐0

2

Ma

r‐0

3

Ma

r‐0

4

Ma

r‐0

5

Ma

r‐0

6

Ma

r‐0

7

Ma

r‐0

8

Ma

r‐0

9

Ma

r‐1

0

Ma

r‐1

1

Ma

r‐1

2

Ma

r‐1

3

(IN

R B

illio

n)

CWIP Net Debt

A–39January 2013


Investment cycle to peak in two yearsAs these projects start generating cash flows over the next two years and capex

intensity peaks, net debt should start coming off. The NPV of almost every project is

eroding due to falling IRR while the WACC is rising. However, there might be an

opportunity for equity value to grow because the investment cycles of most companies

will be peaking within two years for the following reasons:

Bearish outlook on metal prices and falling IRR has discouraged companies from

announcing new greenfield projects.

Most of the projects that commenced during 2005-2008 have already travelled the

troubled road and are at advanced stages of completion. Therefore, further

execution delays are likely to be limited.

We have evaluated the implied valuation of CWIP against our DCF-based valuation.

According to our calculations, CWIP of Hindalco and Sesa-Sterlite is being penalized

more than warranted.

Hindalco and Sesa-Sterlite could see re-ratingHindalco

The implied valuation of CWIP is at a steep 33% discount, which is quite significant.

Although Investments in the Mahan and Aditya Aluminum projects have low IRR,

its investments in Utkal Alumina and Novelis are value accretive.

We believe the conversion business of Novelis and copper TcRc provide steady

cash flows, resilience and sustainability to Hindalco. The primary aluminum

business is at the bottom of the cycle from the perspective of margins.

As the capex intensity peaks in 12 months and Utkal Alumina starts generating

positive cash flows, we believe the stock will get re-rated.

Sesa-Sterlite

Sesa-Sterlite's CWIP/MCap ratio has ballooned to 67%. The implied valuation of

its CWIP is at 82% discount. With capex intensity peaking and LME prices at the

bottom from the margins perspective, we do not anticipate further increase in

the discount.

The highly probable buyout of remaining stake in Hindustan Zinc and its

subsequent merger with Sesa-Sterlite will relieve balance sheet stress and

re-rate the stock.

A–40January 2013


MIDCAPS - Outperformers during economic recoveriesMidcaps divergence vis-à-vis large caps to narrow

Theme Thesis Over CY08-CY12, BSE Midcap index has underperformed the BSE Sensex by ~17%.

Historically, the divergence between the two indices increases during downtrend

and narrows during upturn. We expect the divergence between BSE Midcap Index

and BSE Sensex to narrow over the next couple of years.

BSE Midcap Index's one-year forward P/E at 11.7x is ~19% discount to BSE Sensex's

forward P/E of 14.5x and ~18% below its historical average of 14.3x since FY04.

Strong earnings growth for stocks in BSE Midcap Index has the potential to narrow

the P/E and P/B divergence between BSE Midcap Index and BSE Sensex.

Economic recovery and monetary easing will be important triggers for mid-caps,

given the leverage to growth. Moreover, valuation re-rating potential exists in

most of these stocks.

Earnings growth for BSE Midcap Index for FY13E/FY14E at 25%/26% is significantly

higher than the estimates for BSE Sensex at 6.8%/15.8% respectively, which bodes

positively for midcap stocks.

Our top picks: Dewan Housing; United Phosphorus; Thermax; Havells; Financial

Tech; Tech Mahindra; Jagran.

2013 Theme #7

The underperformance between BSE Sensex and BSE Midcap was highest ~31% in Mar'09 and lowest ~3.9% in Aug'10. We

expect the divergence between BSE Midcap Index and BSE Sensex to narrow over the next few quarters.

Over 2008-12, BSE Midcap Index has under- Divergence between BSE Midcap Index and BSEperformed BSE Sensex by ~17% Sensex to narrow

A–41January 2013


BSE Midcap Index's one-year forward P/E at 11.7x is ~19% discount to BSE Sensex's forward P/E of 14.5x. Strong earnings growth

for stocks in BSE Midcap Index has the potential to narrow the P/E and P/B divergence between BSE Midcap Index and BSE Sensex.

Over FY04-12, the average P/E for BSE Midcap Index has been 14.3x, while the average BSE Sensex P/E has been 16.3x.

Earnings growth estimate for BSE Midcap CNX Midcap RoE's divergence to BSE Sensex likelyIndex for FY13/ FY14 sharply higher to narrow

Earnings growth for BSE Midcap Index for FY13E/FY14E at 25%/26% is higher than the estimates for BSE Index at 6.8%/15.8%

respectively, which bodes positively for Midcap stocks. Expect divergence between BSE Midcap and BSE Index to narrow.

Our top picks: Dewan Housing; Thermax; Havells; Financial Technologies;Tech Mahindra; Jagran Prakashan; United Phosphorus

Dewan Housing Secular growth business with structural drivers in place.

Leveraging on domain expertise and niche presence; FBHFL acquisition to drive

growth further.

Margins to improve; commendable asset quality performance.

Strong growth, healthy return ratios (RoAs of 1.4%+ and RoE of 20%+) coupled

with attractive valuations of 0.7x FY14 BV (consolidate adjusted BV).

460

337406

640506465

418

26

25-13

1124-2731

FY08 FY09 FY10 FY11 FY12 FY13E FY14E

EPS (INR) EPS Growth (%)

17.5

11.7 11.8

8.911.4 11.7

22.8

19.0

15.316.9 17.1 16.7 17.1

11.6

FY08 FY09 FY10 FY11 FY12 FY13E FY14E

BSE Mi dcap RoE (%) Sensex ROE (%)

Sharp narrowing of PE multiples reflect BSE Midcap PB multiples are at 35% discount to BSEpotential for higher earnings upgrades Sensex, which should narrow on back of higher RoE

A–42January 2013


Thermax As a business model, positively exposed to power shortages and energy efficiency.

High power prices will kick start investments in energy-efficient products, a

structural trend.

Exports now at 22% of revenues, and with currency movements, this can possibly

improve meaningfully.

Service business at 15% of revenues, Green business at ~35% of revenues - robust

long term growth possibilities.

Unique example of a technology driven product company from India.

Havells Largest electrical wiring accessories - strong focus on branding and distribution.

Invested INR10b in manufacturing and brand building over 4 years creating strong

entry barriers.

Robust growth expected, with 2 winners in hand - can potentially become INR5b

revenue categories each over next 3 years.

Sylvania provides opportunity to leverage distribution network in overseas

markets.

Financial Technologies Presence across the exchanges' ecosystem enabling a rare self-fuelling growth

model.

Dominant market share in majority of the segments it operates in (MCX, IEX, NSEL,

ODIN, currency futures at MCX-SX).

Potential value unlocking from selling warrants in MCX-SX.

Anticipated boost to MCX's volumes from passage of FCRA Bill to rub off on FTECH

as well.

Net cash and stake in MCX accounts for over 50% of valuation, implying upside

potential from remaining assets.

Tech Mahindra Growth visibility at TECHM from deal signings despite a bleak outlook on telecom

spending.

Steadied ship at Mahindra Satyam to now focus on growth - ample potential

through client mining.

Impressive cost containment has helped limit the margin slide - margins to remain

range-bound hereon.

Integration with Satyam provides synergies from cross-sell of services, scale

benefits to growth and costs.

Growth comparable to industry, stable margins and integration benefits lend re-

rating potential.

A–43January 2013


Jagran Prakashan Ad-heavy business model with higher mix of cyclical categories offers excellent

play on economic rebound.

Print ad growth has bottomed out post near zero growth in 1HFY13 - expect recovery

from 2HFY13, with ad growth improving to 4-5% YoY and to 11% over FY13-15.

Expect earnings CAGR of 16% over FY13-15 driven by 12% ad revenue CAGR and

operating leverage.

Healthy balance sheet and FCF generation, with 70% dividend pay-out.

Valuations attractive at ~16x FY14 P/E and 3.4% dividend yield.

United Phosphorus FY14 to be a year of recovery driven by a) strong volume growth in key markets

and b) Brazil acquisition integration.

Margins to improve ~100bp p.a for next 2-3 years driven by a) mix improvement,

b) integration of Brazilian acquisition and c) strong revenue growth.

Focus on reducing working capital by 5-10 days to 100-105 days by March-end.

Improvement in RoE/RoCE due to margin improvement, reduction in working

capital and share buy-back.

A–44January 2013


Back to 15% growth trajectoryRates, Reform potential sources of upgrades; expect markets at new highs

We have introduced FY15 estimates for our Universe of 150 companies. At the aggregate

level, India Inc is likely to reverse its recent track record of low earnings growth and

get back into its long-period growth rate of 14-15%.

Key Sensex companies are likely to reverse the worst – Tata Steel, Bharti, Maruti.

Further upsides to our 14-15% growth estimate lie in 2 R’s, viz, Rates and Reforms.

#1 RATES: Rate sensitives (and hence rate cuts by RBI) hold the key, both to aggregates

and benchmark PAT – Financials (35%/31% share of aggregate/Sensex PAT delta,

FY15 over FY13) and Auto (10%/18%).

#2 REFORM: Fortunes of some key sectors and companies hinge on the government

taking the initiated reforms to the next level e.g. Oil & Gas (product price hikes /

deregulation, permissions for exploration), Power (coal linkages, land/

environment clearances), Telecom (no major regulatory negative surprises), etc.

Our FY15E Sensex EPS is 1,573 (FY13-15 CAGR of 15%). Applying the long-period 1-year

forward multiple of 15x, Sensex should hit a new high of 23,600 over next 12 months.

IntroducingFY15 estimates

Expect FY13-15 corporate earnings CAGR of 14-15%We have introduced FY15 estimates for our Universe of 150 companies. Bottom-up

aggregates suggest that India’s corporate sector earnings are poised to grow at a CAGR

of 14-15% over FY13-15, reversing the trend of sub-par growth of 8% during FY08-FY13.

Introducing FY15 Estimates: Expect 15% PAT CAGR over FY13-15Sector Sales Sales Gr./ EBITDA Margin EBITDA PAT Gr. / PAT delta

CAGR Margin % delta (bp) CAGR % CAGR (%) share

(No. of companies) FY13 FY14 FY15 FY13-15 FY13 FY14 FY15 (FY13-15) FY14 FY15 FY13-15 (%)

High PAT CAGR (>20%) 6,380 14 13 14 19.0 71 21 16 27 23 25 24

Telecom (3) 1,238 9 9 9 30.4 44 49 11 39 46 43 5

Retail (3) 139 25 23 24 9.9 48 32 29 33 28 30 1

Real Estate (11) 227 32 19 25 40.4 84 172 29 25 36 30 3

Cement (8) 959 16 13 15 22.5 132 -2 18 24 20 22 5

Media (6) 129 14 15 14 30.5 72 84 17 20 23 22 1

Auto (7) 3,688 14 13 14 12.9 58 13 17 26 16 21 10

Medium PAT CAGR (10-20%) 8,336 10 12 11 33.8 244 155 17 19 16 17 55

Financials (27) 2,104 19 18 18 78.9 34 115 19 19 19 19 35

Private Banks (8) 496 23 21 22 84.8 189 61 24 24 21 23 12

NHFC (8) 278 19 19 19 97.6 -48 -27 19 18 19 18 7

PSU Banks (11) 1,331 17 16 17 72.8 -29 146 18 17 18 17 15

Healthcare (17) 886 9 15 12 23.9 -68 21 11 20 18 19 5

Consumer (13) 1,183 16 16 16 21.1 49 33 18 19 18 19 7

Metals (10) 3,948 4 6 5 16.5 242 47 14 19 4 12 8

Low PAT CAGR (up to 10%) 13,071 4 5 5 18.2 99 55 9 6 8 7 21

Utilities (9) 2,037 9 10 10 28.8 40 91 12 9 11 10 8

Technology (9) 1,903 10 12 11 24.8 -115 -72 7 6 10 8 6

Oil & Gas Ex RMs (10) 7,483 0 1 1 14.8 181 85 9 6 5 6 7

Oil & Gas (13) 15,852 0 -2 -1 8.3 128 83 11 7 7 7 10

Capital Goods (9) 1,649 7 9 8 12.8 -66 -70 2 -1 2 0 0

MOSL Excl. RMs (147) 27,787 8 9 9 23.1 147 91 14 14 14 14 100

MOSL (150) 36,156 6 6 6 18.3 159 126 14 14 14 14 NA

Sensex (30) 9,756 6 8 7 19.2 157 96 14 16 13 15 NA

Nifty (50) 10,981 6 8 7 19.7 167 110 14 15 14 15 NA

For F inancials, Sales = Net Interest Income, EBIDTA = Operating Profits; Sensex & Nifty Numbers are based on free float

A–45January 2013


The earnings effectively capture and reflect our “building block” assumptions for

FY14 and FY15 –

1. Economic growth will revive on the back of Manufacturing sector;

2. Inflation will begin to ease; and

3. Interest rates will be lowered (Here, our estimates factor in 100bp cut in policy

rates. In the past, growth slowdown has typically led to larger rate cuts, a potential

source of upside.)

Our FY14 and FY14 estimates reflect our building block assumptionsBuilding Block assumption Reflection in FY14/15 results

#1 Economic growth will revive on the back of Ex BHEL, Capital Goods Sales CAGR is 15%

mean reversion in the Manufacturing sector and PAT CAGR 20% (BHEL is adversely affected

by power sector woes)

#2 Inflation will begin to ease Relatively low Sales CAGR of 9%, but more

importantly, higher EBITDA CAGR of 14%·

Low Sales/PAT CAGR for global commodity

sectors Oil & Gas (1%/6%) and Metals

(5%/12%)

#3 Interest rates will be lowered PAT growth higher than EBITDA growth in

debt-heavy sectors like Telecom and

Real Estate

Among benchmark constituents, key companies are likely to reverse the worst.

Examples: Such reversal is clearly reflected in Metals (mainly Tata Steel), Telecom (Bharti,

RCom) and in Maruti (hit by yen, workers’ strike, diesel engine constraints, etc).

Tata Steel, Bharti, RCom and Maruti are key examples of “REVERSAL”

Upside catalysts – The 2 R’s –Rates & ReformAn analysis of India Inc financial aggregates suggests that further upsides to our 14-

15% growth estimate lie in 2 R’s, viz, Rates and Reforms. We briefly discuss them

below.

R #1: RATES – Rate sensitives are heavyweights, both in aggregates and benchmarks

The major rate sensitive sectors are F inancials, Auto and Real Estate. Of these,

Financials and Auto are especially important – both together contribute 45% to

aggregate incremental PAT over FY13-15, and 48% to incremental Sensex PAT.

Financials: The sector contributes 35% to aggregate incremental PAT in FY15 over

FY13. In the Sensex, 4 Financials heavyweights account for as high as 31% of FY15

incremental PAT over FY13 – SBI (12%), HDFC Bank (7%), ICICI Bank (7%), HDFC (4%).

60

18

8

47 48

FY1

1

FY1

2

FY13

E

FY14

E

FY15

E

Tata Steel PAT (INR b)

9060

43 30 4057

49

15

1010

13

20

FY10

FY11

FY12

FY1

3E

FY1

4E

FY1

5E

Re l iance Comm

Bh arti Ai rte l PAT (INR b)

26.223.8

16.8

21.4

31.9

39.5

FY1

0

FY1

1

FY1

2

FY13

E

FY14

E

FY15

E

Maru ti Su zuk i PAT (INR b)

A–46January 2013


Share of FY13-15 incremental PAT (%)34.7

9.87.7 7.6 7.2 6.6 5.7 5.0 4.9 4.9

3.30.8 0.6 0.1

Fin ancials Auto Metals Uti l i ties Oi l & Gas

Ex RMs

Con s-

u mer

Techno-

lo gy

Heal th-

care

Cement Telecom Re al

Estate

Media Reta i l Ca p

Good s

Auto: The sector contributes 10% to aggregate incremental PAT in FY15 over FY13.

In the Sensex, 4 Auto stocks account for 17% of FY15 incremental PAT over FY13 –

Tata Motors (7%), Maruti (3%), M&M (3%), Bajaj Auto (2%), Hero MotoCorp (2%).

R #2: REFORM – Key to Oil & Gas, Power, Telecom

Fortunes of some key sectors and companies hinge on the government taking the

initiated reforms to the next level. The influence of Reform is tabled below.

REFORM will influence 27% of incremental Sensex PAT (FY13-15)

Sector Share in FY13-15 PAT delta % Key reforms

Aggregate Sensex

Oil & Gas 7 13 Product price hikes / deregulation·

Permissions for further exploration

Uti l i t ies 8 9 Coal linkages, land/environment clearances

Teleco m 5 5 No major regulatory negative surprises

Total REFORM Play 20 27

Sensex EPS CAGR of 15%; expect markets at new highs in 12 monthsOut bottom-up aggregates of Sensex constituent companies indicates PAT CAGR of 15%

over FY13-15. Accordingly, Sensex EPS CAGR also works out to 15%. This is in line with

the long-period trend, and marks a significant improvement over FY08-13 CAGR of 8%.

Our FY15E Sensex EPS is 1,573. Applying the long-period 1-year forward multiple of

15x, the Sensex should hit a new high of 23,600 over the next 12 months.

Financials and Autos contribute hugely to FY13-15 incremental PAT at aggregate level …

… and also to Sensex PAT

12

7 7

4

7

3 32 2

8

4

0

7

1 10

43 2

7

20

5

1

5

1 1 13

-6

SBI

HD

FC

Ban

k

ICIC

I Ba

nk

HD

FC

Tata

Mo

tors

M&

M

Ma

ruti

Baj

aj A

uto

Her

o M

oto

ON

GC

Re

lianc

e In

ds.

GA

IL

Tat

a S

tee

l

Hin

dalc

o

JSP

L

Ste

rlit

e In

ds.

TCS

Info

sys

Wip

ro

NTP

C

Coal

Ind

ia

Tata

Pow

er ITC

HU

L

Bha

rti

Dr

Red

dy’s

Sun

Pha

rma

Cip

la

L&T

BH

EL

Financials

30%

Auto

18%

Metals

10%

Technology

9%Utilities

9%

Consumer

6%

Tel.

5%

Health-

care 3%

Cap

Goods, -3%

Share of Sensex FY13-15 incremental PAT by sector & companies

Oil&Gas

13%

Re

lia

nce

In

ds

A–47January 2013


FY13-15 Sensex EPS trend suggests the beginning of a new earnings cycle

820 834

1,573

1,3891,2001,124

1,024833

718523450

34827223621628027829126625018112981

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

FY1

5E

FY93-96:

45% CAGRFY96-03: 1% CAGR

FY03-08:

25% CAGR

FY08-13:

8% CAGR

FY13-15E:

15% CAGR

Sector highlightsIn the next few pages, we present the outlook, assumptions and investment strategy

for each sector based on our FY14 and FY15 estimates.

FY13-15 Sensex estimates: Heavyweights like SBI, ONGC, Tata Steel, HDFC Bank, ICICI Bank, Tata Motors hold the key

Company Sales (INR b) Sales EBITDA Margin (%) EBITDA PAT (INR b) PAT Contb. to

FY13 FY14 FY15 CAGR % FY13 FY14 FY15 CAGR % FY13 FY14 FY15 CAGR % Delta %

High PAT Growth (6) 3,592 3,917 4,263 9 21 23 24 18 246 354 431 32 34

Tata Steel 1,360 1,372 1,393 1 9 12 12 16 8 47 48 151 7

Bharti Airtel 807 882 959 9 31 31 32 10 30 40 57 39 5

Maruti Suzuki 440 516 589 16 9 11 11 31 21 32 39 36 3

HDFC Bank 152 188 230 23 76 80 81 28 67 88 108 27 7

ICICI Bank 138 168 201 21 95 97 97 22 81 100 121 22 7

M&M 695 791 890 13 14 14 14 16 39 47 57 21 3

Medium PAT Growth (9) 4,207 4,748 5,379 13 27 28 29 16 590 699 816 18 41

Bajaj Auto 201 236 273 16 18 19 19 20 30 37 43 19 2

Hero MotoCorp 235 273 313 15 11 11 13 29 23 25 33 19 2

NTPC 676 758 843 12 24 25 27 20 92 112 130 19 7

HDFC 62 76 91 20 110 108 107 19 49 58 69 19 4

ITC 295 341 393 16 36 37 38 18 74 87 103 18 5

Cipla 82 89 103 12 26 25 25 9 13 16 18 17 1

Tata Motors 1,924 2,140 2,397 12 14 14 14 12 105 133 144 17 7

State Bank 623 718 834 16 70 68 70 16 189 214 257 17 12

Dr Reddy ’s Labs 109 117 133 11 21 21 21 10 15 18 21 17 1

Low PAT Growth (15) 10,919 11,130 11,606 3 18 19 20 8 1,278 1,332 1,418 5 25

Larsen & Toubro 634 727 854 16 12 12 12 18 54 59 69 13 3

Hind. Unilever 260 296 336 14 16 16 16 15 33 38 41 11 1

Hindalco 816 855 936 7 11 12 12 16 38 41 45 9 1

Sun Pharma 103 116 131 13 41 35 35 3 29 30 34 9 1

ONGC 1,537 1,667 1,709 5 34 37 38 11 243 276 287 9 8

TCS 630 698 793 12 29 28 27 8 139 149 163 8 4

Wipro 434 469 518 9 20 19 19 6 65 67 75 8 2

Infosys 398 428 473 9 29 28 27 6 90 96 105 8 3

Tata Po wer 93 97 102 5 20 21 20 6 11 12 13 7 0

JSPL 203 215 265 14 32 35 36 20 35 36 40 6 1

Reliance Inds. 3,723 3,430 3,304 -6 8 9 10 6 202 207 227 6 4

Coal India 673 701 746 5 29 28 28 3 176 175 187 3 2

GAIL 497 532 601 10 13 13 13 10 39 39 41 3 0

Sterlite Inds. 438 460 466 3 24 26 26 8 58 59 59 0 0

BHEL 479 439 371 -12 19 16 13 -28 64 48 31 -30 -6

Sensex (PAT free float) 18,717 19,795 21,248 7 21 22 23 12 1,021 1,183 1,339 15 100

A–48January 2013


11.911.710.710.8

12.213.7 14.1

13.1 12.2

9.6

14.6

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY1

3E

FY1

4E

FY1

5E

EBITDA Margins (%)

Autos

2HFY13: What to expect, what to watch out for

Festive demand recovery to drive 5% YoY/6% QoQ volume

growth. However, pressure on MHCVs to continue.

EBITDA margins to improve 50bp QoQ (flat YoY) led by higher

volumes, better mix (BJAUT, Hero, MSIL, M&M), favorable

Fx (Hero, MSIL). However, CV players to report weak

performance on demand slowdown.

Sector outlook is positive, with expected recovery in

economic activity and consumer sentiments driven by govt

policy actions and easing monetary policy.

Maruti Suzuki (better volumes, mix, price hike, lower

discounts & favorable Fx); Tata Motors (domestic business

to report loss; however, JLR performance to improve on

higher volumes, better mix).

FY14, FY15: Outlook, assumptions, sector strategy

Over FY13-15E, we estimate volume CAGR of 13.9% for Bajaj,

13.1% for Hero, 10.7% for M&M, 14.5% for Maruti and 20%

for AL. Expect TTMT’s domestic volume CAGR at 13.9%, JLR

at 12.2%. Expect 28% and 16% CAGR in Royal Enfield and

VECV volumes for Eicher over CY12-14E.

Higher volumes (led by economic recovery), favorable Fx

(for Maruti, Hero, Bajaj) and lower discounts (CVs, PVs)

would drive 70bp margin increase over FY13-15E.

Hero and Maruti to see 270bp and 250bp margin increase.

Prefer TTMT (JLR's new launches) and MSIL (consumer

sentiment recovery). In mid-caps, we like Eicher (projects

coming on stream in CY13/14) and Ashok Leyland (play on

economic recovery).

Autos: Introducing FY15 estimates

Mcap Rating FY13-15E CAGR (%) EPS (INR) EV/EBITDA (x)

(USDb) Sales EBITDA PAT FY12 FY13E FY14E FY15E FY12 FY13E FY14E FY15E

Ashok Leyland 1.3 Buy 19.4 22.0 43.1 2.1 1.7 2.6 3.4 12.5 15.9 10.4 7.8

Bajaj Auto 11.1 Buy 16.5 20.1 19.3 107.4 103.5 128.6 147.3 19.6 20.4 16.4 14.3

Eicher Motors 1.3 Buy 28.9 33.0 22.2 114.4 117.8 121.6 176.1 23.5 22.8 22.1 15.3

Hero MotoCorp 6.9 Buy 15.4 29.2 19.7 119.1 114.8 124.8 163.4 15.9 16.9 15.5 11.8

M&M 10.2 Buy 13.1 15.6 21.3 51.2 64.6 78.9 95.0 18.3 14.5 11.9 9.9

Maruti Suzuki 8.1 Buy 15.7 31.2 35.9 58.2 70.8 105.4 130.7 25.4 20.9 14.0 11.3

Tata Motors 18.5 Buy 11.6 12.2 16.7 37.8 31.7 40.0 43.2 8.1 9.7 7.7 7.1

Autos: Key insights

RM cost trend

EBITDA margin trend

Volume growth (%)

FY12 FY13E FY14E FY15E

Bajaj Auto 13.7 -1.0 13.4 14.4

Hero MotoCorp 15.4 -2.1 13.2 13.0

Maruti Suzuki -10.8 4.1 15.0 14.1

M&M 24.2 11.5 10.5 10.8

Tata Motors-JLR 29.1 15.9 9.3 15.5

Tata Motors-Standalone 10.3 -5.8 13.6 14.2

Ashok Leyland 7.2 15.8 23.3 16.7

Eicher Motors-Royal Enfield 41.9 52.3 31.4 24.9

Eicher Motors-VECV 26.6 1.2 13.5 17.9

EBITDA margins (%)


Bajaj Auto 19.0 18.2 19.3 19.3

Hero MotoCorp 11.0 10.6 11.0 13.2

Maruti Suzuki 7.1 8.8 10.8 11.3

M&M 11.8 11.7 11.6 11.7

Tata Motors (Consol) 14.3 13.7 14.2 13.8

JLR 14.7 14.7 15.1 14.5

S/A 8.1 6.6 8.1 8.7

Ashok Leyland 9.7 9.6 10.2 10.0

Eicher Motors (Consol.) 10.5 9.0 8.2 9.5

Royal Enfield 12.1 15.0 14.1 15.2

VECV 10.1 7.7 7.1 8.5

69.9

70.4 70.271.0 71.5

73.5 73.474.5 74.3

73.7 73.5

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY1

3E

FY1

4E

FY1

5E

RM Cos t (% of net s a les )

A–49January 2013


Capital Goods


Ordering activity remain sluggish impacted by slowdown

in industrial capex and slowing order intake in power

generation segment. Revenues have been showing a

moderating trend due to depleting order book. In 2HFY13,

we expect revenues to grow 9% YoY.

EBITDA margins will be impacted by negative operating

leverage. Though softening commodity prices would

support margins, a large part of the positive impact would

be negated by depreciating currency.

In FY13, aggregate net profit is likely to remain flat due to

a decline in EBITDA margins and moderating sales.


Sales growth will remain muted in FY14/15 due to

constrained order book. We expect a recovery in ordering

during FY14 and a pick-up in FY15 led by industrial demand.

BHEL will face significant headwinds due to its

concentration in power generation, while companies

exposed to industrial capex shall see increased ordering.

We expect EBITDA margins to bottom out in FY13 and show

a gradual improvement over FY14/15. BHEL's EBITDA

margins to face significant headwinds due to negative

operating leverage. Barring BHEL and BGR, all companies

are to show improved margins in range of 50-100bp.

Preferred picks are Cummins, Havells, Thermax, L&T and

Crompton.

Capital Goods: Key insightsOrder inflows expected to remain muted Revenues likely to slow down due to slowing orders (% YoY)

Capital Goods: Introducing FY15 estimates



ABB 2.8 Neutral 14.5 50.4 60.1 8.7 8.6 13.2 22.2 79.5 80.1 52.3 31.2

BHEL 10.6 Neutral -12.0 -28.5 -30.3 28.2 26.1 19.7 12.7 11.5 8.7 11.5 17.8

BGR Energy 0.4 Neutral 13.9 8.3 3.8 30.9 21.3 22.0 23.0 8.4 12.2 11.8 11.3

Crompton 1.4 Buy 10.9 53.1 17.6 5.7 3.0 8.9 13.7 18.5 38.0 12.6 8.2

Cummins 2.7 Buy 16.5 18.6 16.6 19.8 23.8 28.1 32.3 23.5 21.6 18.3 15.9

L&T 18.9 Buy 16.1 17.7 13.7 78.0 88.6 96.7 113.2 18.5 18.2 16.7 14.3

Siemens 4.3 Neutral 17.5 24.9 29.2 14.9 17.3 22.6 28.8 44.6 38.6 29.4 23.1

Thermax 1.4 Neutral 14.4 23.1 12.8 33.9 27.0 30.5 34.4 15.1 22.7 20.1 17.9

Havel ls 1.5 Buy 10.1 7.3 5.6 34.1 30.9 40.0 47.4 18.5 20.4 15.7 13.3

BHEL's margins likely to face significant headwinds Working capital cycle likely to elongate

20

7

28

6

38

3

44

7

59

2

90

8

1,1

87

1,4

85

1,6

58

1,7

42

1,5

33

1,6

02

1,8

96

1,2

39

5

1824

517

-29

1225

31

53

32343824

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

FY1

5E

Order intake (INR b) Order i ntake growth (%)

32

9

42

1

56

7

71

6

90

5

1,2

43

1,4

35

1,81

7

1,6

69

1,5

54

1,02

0

7.4

26.3

8.98.3

15.421.9

12.7

26.4

34.727.932.2

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

Sal es (INR b) Sa l es Growth (%, YoY)

11.712.6

13.414.1

14.714.7

13.5

10.5

13.113.9

12.2

10.911.111.8

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY1

3E

FY1

4E

FY1

5E

EBITDA Margin (%)

7784

7963

312117

1116

40

5456

81

109

133

110

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

FY1

5E

Net worki ng capita l days (x)

A–50January 2013


Cement


After muted demand and weak pricing in 3QFY13, we expect

significant recovery in demand and pricing from Jan-13

onwards, driven by robust rural demand and gradual pick-

up in infrastructure activities on the back of multiple state

and central elections.

While we expect INR300/ton QoQ increase in realizations

in 4QFY13, stabilization in variable cost coupled with

benefit of operating leverage would drive ~INR320/ton.

Given high sensitivity to cement prices and high fixed cost,

ACC will see ~24% QoQ decline in PAT, while Ambuja and

UltraTech will see 8-9% QoQ fall.


Though the sector would continue to be plagued by over-

capacity, there would be gradual and consistent

improvement in capacity utilization (280bp improvement

to 77.6%), driven by sustained volume recovery (~10% CAGR)

and slowing capacity addition.

Hence, we expect strong pricing with ~INR15/bag and

INR12/bag increase in cement prices in FY14/FY15. This

coupled with cost stabilization, would drive improvement

in profitability (~INR90/ton improvement in EBITDA to

~INR1,180) and RoE (~110bp improvement to 20%).

Prefer companies that are prepared for demand recovery

and have limited dependence on domestic coal.

Prefer UltraTech/Grasim and Shree Cement/Birla Corp.

Cement: Introducing FY15 estimates



ACC 4.8 Neutral 16.0 18.3 22.0 58.3 66.0 80.4 98.2 13.7 11.3 9.1 7.0

ACEM 5.6 Buy 14.7 13.6 16.7 8.2 10.6 12.2 14.4 14.0 10.6 9.1 7.4

UTCEM 9.8 Buy 15.6 21.2 21.2 87.5 100.6 129.2 147.7 13.0 10.8 8.5 7.5

GRASIM 5.2 Buy 14.7 44.5 20.0 288.6 318.7 379.3 459.1 6.3 4.9 4.4 2.4

SRCM 2.9 Buy 14.7 17.4 21.1 274.4 306.6 375.6 461.1 10.3 7.8 6.3 4.7

BCORP 0.4 Buy 15.8 32.8 32.4 31.1 32.7 41.4 57.3 4.5 5.0 3.4 2.2

ICEM 0.5 Buy 15.9 21.2 54.0 9.6 7.7 12.6 18.1 5.5 5.8 4.5 3.5

Cement: Key insights

Driving improvement in utilizations… …as well as cement prices & profitability

Volume growth to witness recovery (m tons) Capacity addition to slowdown

200 210243 267

293

225

1010

8

7

5

10


Volume (mt) Volume growth (%)

15

2942

2128 25

5

25

40

1.2

6.37.36.17.7

13.215.2

13.7

7.7

FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E FY16E

Effecti ve capaci ty addi ti on (MT) % of Capaci ty

75 76

8178

7574

84

92

99101

FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E FY16E

Utilizations to

improve

from FY13

onwards

1,070763 846 961

1,095 1,183

312299

264240241

284


EBITDA (INR/Ton) Pan-Indi a avg prices (INR/bag)

A–51January 2013


Consumer


Slowdown in processed foods categories exacerbated by

inventory down-stocking in CSD channel. CSD volume

recovery beginning CY13 would be a key trigger for

processed foods categories.

Festive season has started on a good note with demand

pick-up for discretionary.

RM cost trends have turned selectively benign, with

correction in copra, palm and Tio2 and can have a

beneficial impact on gross margins in 2H.

Acceleration in brand spends is a key monitorable given

pressure on volumes in some discretionary HPC categories.

Expect stable quarter with slight moderation in volumes.

Titan and Asian Paints are our result picks.

Consumer: Key insights

Sector margins (%)

P/E multiples premium to sensex is 110%, a new high

Volume Growth is expected to remain healthy (%)

FY11 FY12 FY13E FY14E FY15E

Asian Paints 16.8 14.5 8.0 12.0 14.0

Britannia 14.8 6.7 4.7 9.1 9.5

Colgate (Toothpaste) 9.0 13.2 12.5 12.2 12.2

Godrej Consumer

Soaps -4.3 12.9 7.0 6.0 6.0

Hair Color 4.6 5.0 8.3 8.0 8.0

GSK Consumer 13.3 9.0 8.0 12.0 10.0

Hindustan Unilever 11.0 7.9 8.4 8.7 8.5

ITC (cigarette) -2.8 7.0 2.0 7.1 7.1

Marico

Parachute 7.0 8.8 7.0 7.0 7.0

Hair Oil 23.0 24.0 16.0 16.0 16.0

Saffola 16.0 15.0 15.0 15.0 15.0

Radico Khaitan 10.1 9.8 8.7 10.2 10.6

United Spirits 12.0 8.5 6.2 11.0 10.9

Consumer: Introducing FY15 estimates



Asian Paints 7.6 Neutral 18.0 21.0 20.5 103.1 118.8 139.3 172.3 42.2 35.8 30.4 24.3Britannia 1.1 S e l l 16.7 22.6 18.3 15.6 17.3 21.0 24.2 31.5 26.7 20.8 16.8Colgate 3.8 Neutral 15.8 17.1 16.2 32.8 40.0 46.5 54.0 46.5 38.2 32.8 28.3Dabur 4.1 Buy 16.8 18.6 22.1 3.7 4.4 5.5 6.5 34.1 29.2 23.3 19.6GSK Cons. 2.9 Buy 16.9 18.3 16.0 84.5 106.3 122.6 143.1 45.2 36.3 31.1 26.7Godrej Cons. 4.5 Neutral 20.0 22.1 22.7 15.5 22.0 27.4 33.2 47.0 33.0 26.2 21.7HUL 20.4 Neutral 13.6 14.5 10.9 11.9 15.5 17.5 19.0 43.5 33.3 29.6 27.0ITC 40.7 Buy 15.6 17.7 17.9 7.9 9.5 11.1 13.2 36.6 30.5 25.8 18.4Marico 2.6 Buy 16.6 17.8 24.1 5.2 6.5 8.1 10.0 42.5 34.0 26.7 21.6Nestle 8.7 Neutral 18.9 19.6 21.3 105.7 112.3 133.9 163.4 46.8 44.1 37.0 30.3Pidi l i te 2.0 Buy 19.5 19.9 19.2 7.2 8.5 10.2 12.0 30.2 25.5 21.2 17.3Radico 0.4 Buy 15.1 19.7 31.2 6.0 6.7 8.9 11.5 24.8 21.7 16.8 13.3United Spirits 4.5 Buy 15.5 26.0 64.6 19.5 30.0 58.6 81.2 97.2 63.3 32.4 23.4

45.545.5

45.444.8

45.746.7

44.946.5

45.3

22.021.721.1

20.320.3

21.3

19.1

20.7

19.8

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY13 FY14 FY15

Gross Profit margi ns (%) EBITDA ma rgin (%)


Our estimates factor 8% volume growth for HUVR, 7% for

ITC, 6% for Nestle, 12% for Marico, 12% for Colgate.

Deflation in some RM constituents should aid gross

margin improvement for staples. This coupled with

continued premiumization trends for HPC categories will

drive our estimated 60bp and 80bp EBITDA margin

expansion for the universe in FY14E and FY15E.

We expect competitive intensity to increase further due

to benign RM environment in some HPC categories.

Consequently, brand investments due to increased

competition and new launches should trend higher.

Tax rates expected to increase both in FY14 and FY15 due

to expiration of backward area benefits.

106.1

-1.4

93.5

-20

30

80

130

Mar

-00

Apr

-01

Ma

y-

Jun

-03

Jul-

04

Aug

-05

Sep

-06

Oct

-07

Nov

-08

Dec

-09

Jan

-11

Feb

-12

Mar

-13

Consumer PE Rel ative to Sens ex PE (%)

LPA of 52%

A–52January 2013


Financials


Government’s concrete steps for reforms during 2HCY12

have brought a ray of hope for the sector – though this

will take time to percolate. Meanwhile, slippages are

likely to remain at a high level (especially for PSBs; though

would be lower QoQ at 3.4% v/s 3.9% in 2QFY13) led by

stress in mid-corporate and SME segment.

Increased focus of PSBs on balance sheet could result in

higher upgrades and recoveries and provide cushion to

asset quality. Retail focused banks are likely to be better

placed (most private sector banks).

Restructured loans in 2HFY13 is expected to rise led by

stress in large corporate portfolio, though pace of

addition is likely to decelerate. Sequentially, NIMs are

expected to be stable and loan growth to improve.

Overall performance of private banks is likely to remain

better than public sector counterparts.


With inflation showing signs of cooling off and as growth

moderation continues, we expect RBI to start cutting

interest rates from 4QFY13. This coupled with steps

initiated by the government is expected to improve the

business climate and economic growth, which will be a

big positive for financials (especially PSBs).

Loan growth for FY14 is expected to be at 17% and improve

further in FY15. Pressure on asset quality is also likely to

abate, translating into lower credit cost.

However, key would be resolution of problems faced by

infrastructure segment. PAT growth over FY13/15 is

expected to remain healthy at ~20%. Despite 15-20% run-

up from the bottom for PSBs, we believe valuations remain

attractive and further re-rating is possible with the

expected turn in asset quality.

Our top picks are, PSBs - SBIN, CBK, UNBK and OBC, private

banks - ICICIBC, AXSB and YES, NBFCs - SHTF and LICHF.

Financials: Key insights

Loan growth expected to improve (YoY, %) NIMs expected to be stable/improve (%)

17.016.0

17.819.2

20.119.4

22.3 22.8


PSU Banks Pvt. Banks

3.3

3.1 3.1 3.1

3.43.6

3.7 3.8


PSU Banks Pvt Banks

1.0 1.0 1.0 1.0

0.4

0.60.7 0.7


PSU Banks Pvt Banks

14.7

8.9

16.918.3

27.6

23.8 24.0

21.1


PSU Banks Pvt Banks

Conservatively estimate higher credit cost (%) PAT growth to remain healthy (YoY, %)

A–53January 2013


Financials: Introducing FY15 estimatesMcap Rating FY13-15E CAGR (%) BV (INR) P/BV (x)

(USDb) NII Op.Profit PAT EPS FY12 FY13E FY14E FY15E FY12 FY13E FY14E FY15E

Private Banks

Axis Bank 10.3 Buy 21.6 21.2 19.8 19.8 547 632 751 894 2.5 2.2 1.8 1.5

Federal Bank 1.7 Buy 17.0 16.1 16.2 16.2 333 370 412 461 1.6 1.4 1.3 1.2

HDFC Bank 29.0 Neutral 23.2 27.7 26.9 26.9 127 149 177 212 5.3 4.6 3.8 3.2

ICICI Bank 23.9 Buy 20.8 21.8 21.8 21.8 409 454 511 579 2.8 2.5 2.2 2.0

IndusInd Bank 3.9 Buy 27.3 29.1 27.8 27.8 97 142 165 193 4.3 2.9 2.5 2.2

ING Vysya Bank 1.4 Buy 18.3 24.0 15.0 15.0 258 291 328 371 2.0 1.8 1.6 1.4

Kotak Mahindra Bank 8.8 Neutral 22.1 26.1 19.3 19.3 174 201 234 272 3.7 3.2 2.8 2.4

Yes Bank 3.0 Buy 24.9 24.2 23.1 23.1 132 162 199 244 3.5 2.9 2.3 1.9

PSU Banks

Andhra Bank 1.2 Buy 15.8 16.0 15.7 15.7 134 151 171 194 0.9 0.8 0.7 0.6

Bank of Baroda 6.5 Neutral 17.1 18.6 15.9 15.9 621 720 833 965 1.4 1.2 1.0 0.9

Bank of India 3.5 Neutral 18.3 16.9 19.5 19.5 327 361 404 453 1.0 0.9 0.8 0.7

Canara Bank 3.9 Buy 20.1 23.8 21.9 21.9 464 518 585 666 1.1 0.9 0.8 0.7

Indian Bank 1.5 Buy 16.3 16.7 11.5 11.5 215 248 285 326 0.9 0.8 0.7 0.6

Oriental Bank of Commerce 1.8 Buy 19.3 17.4 17.7 17.7 380 417 461 512 0.9 0.8 0.7 0.7

Punjab National Bank 5.2 Buy 16.1 17.9 20.3 20.3 777 894 1,035 1,203 1.1 0.9 0.8 0.7

State Bank 29.2 Buy 15.7 16.4 16.6 16.6 1,541 1,774 2,039 2,357 1.6 1.3 1.2 1.0

Union Bank 2.7 Buy 17.1 20.2 22.2 22.3 236 268 309 356 1.1 1.0 0.9 0.8

NBFC

Dewan Housing 0.4 Buy 28.4 25.5 25.6 31.3 173 203 242 290 1.0 0.9 0.7 0.6

HDFC 22.2 Neutral 20.5 19.3 18.8 18.8 129 159 179 199 6.4 5.2 4.6 4.1

IDFC 4.7 Buy 18.1 17.8 17.1 17.1 81 90 100 112 2.1 1.9 1.7 1.5

LIC Housing Fin 2.7 Buy 27.4 27.3 27.7 28.6 113 128 150 175 2.6 2.3 1.9 1.7

M & M Financial 2.1 Neutral 22.7 23.5 23.6 23.6 287 397 470 558 3.9 2.8 2.4 2.0

Power Finance Corp 4.8 Buy 17.8 17.8 16.3 16.3 158 179 204 233 1.3 1.1 1.0 0.8

Rural Electric. Corp. 4.3 Buy 16.6 16.0 16.0 16.0 149 176 205 239 1.6 1.4 1.2 1.0

Shriram Transport Fin. 3.0 Buy 16.8 17.1 17.6 17.6 265 317 379 452 2.8 2.3 1.9 1.6

A–54January 2013


Healthcare

3QFY13: What to expect, what to watch out for

Expect top line growth of 21.8% YoY (excluding one-offs),

with EBITDA growth at 21% YoY. Adj. PAT to grow by 33% YoY.

EBITDA growth is led by strong performance by Cipla and

Divi’s on the back of ramp-up in new capacity utilization;

Dr. Reddy’s and Cadila led by new product launches;

Strides, Ranbaxy, Glenmark Pharma and Torrent Pharma

on a low base.

Prefer Dr. Reddy’s – strong growth driven by new launches

in the US; Divi’s Lab – growth on high base driven by ramp-

up in SEZ unit and Torrent Pharma – recovery in Brazil and

India along with new launches in the US.


Emerging markets, India formulations, US and Japan would

be the key top line growth drivers for generics. CRAMS

companies likely to record steady double-digit growth

given the increasing outsourcing from India.

MNCs operating in India shall witness upward trending

growth as new launches (including patented products)

make meaningful contribution to their overall revenues.

Indian formulations market would be impacted by

implementation of NPPPP-12 in FY13-FY14. We await clarity

from companies before factoring this into our estimates.

Prefer Dr. Reddy’s in large cap space, Divi’s Lab in CRAMS

space, GSK Pharma in MNC space, IPCA and Torrent Pharma

in mid-cap space.

Healthcare: Introducing FY15 estimates



Aventis Pharma 1.0 Neutral 14.8 14.9 17.5 83.0 73.6 87.2 101.6 27.6 31.1 26.3 22.5Biocon 1.0 Neutral 9.7 15.6 9.3 16.9 17.0 17.2 19.7 16.7 16.6 16.4 14.3Cadila Health 3.3 Neutral 15.5 21.0 31.0 27.6 33.1 47.5 56.8 32.3 27.0 18.8 15.7Cipla 6.1 UR 15.4 15.9 16.7 14.0 16.5 19.5 22.5 29.7 25.1 21.3 18.5Divis Labs 2.6 Buy 22.4 22.5 21.5 40.2 50.2 61.3 74.2 27.0 21.6 17.7 14.6Dishman 0.2 Neutral 14.0 12.8 22.9 7.0 12.3 15.7 18.6 16.4 9.3 7.3 6.2Dr Reddy’ s 5.6 Neutral 13.2 16.3 16.5 71.4 89.2 103.7 121.0 25.6 20.5 17.6 15.1GSK Pharma 3.2 Buy 12.9 15.5 14.5 74.5 78.5 91.1 103.0 28.3 26.8 23.2 20.5Glenmark 2.6 Neutral 17.1 23.4 35.1 11.4 17.2 26.0 31.4 46.8 31.0 20.5 17.0IPCA Ltd 0.0 Buy 15.9 18.3 29.9 21.9 27.3 39.7 46.1 23.7 19.0 13.1 11.2Jubilant Org. 0.6 Neutral 16.1 17.3 41.0 13.6 19.2 33.3 38.1 16.3 11.6 6.7 5.9Lupin 5.0 Buy 16.8 24.7 24.5 19.4 24.1 31.1 37.3 31.6 25.5 19.7 16.4Ranbaxy ## 3.8 Neutral 9.2 25.5 15.2 14.1 20.6 22.3 27.3 31.3 21.5 19.8 16.2Sun Pharma 0.0 Neutral 15.9 6.9 8.7 25.0 28.0 29.2 33.1 29.9 26.6 25.5 22.5pto Circuits 0.5 Neutral 16.6 15.3 18.5 23.6 21.5 25.4 30.3 4.4 4.9 4.1 3.5orrent Pharma 1.1 Buy 16.0 18.7 19.0 38.4 47.8 58.2 67.7 18.5 14.8 12.2 10.5Strides Arcolab 1.2 Buy 26.3 27.0 50.2 38.5 38.6 61.0 87.1 28.2 28.1 17.8 12.5##core - Adjusted for INR59/sh of DCF value of FTF pipelineHealthcare: Key insightsFY13-15 revenue CAGR for core US business (%) FY13-15 revenue CAGR for Domestic Formulation business (%)

10.013.1

9.9

19.4 24.4 20.0

Ranbaxy Dr

Reddy's

Lab

Sun

Pharma

Lupin Glenmark Cadi la

14.0 15.5 17.0 14.0 18.0 13.4 13.219.0

Ranbaxy Dr

Reddy's

Lab

Sun

Pharma

Cipla LupinGlenmarkCadila GSK

Pharma

25.5 16.3

6.9

15.9 24.7 19.7 21.015.5

Ranbaxy Dr

Reddy's

La b

Sun

Pharma

Cipla LupinGl enmarkCadi la GSK

Pharma

15.2 16.58.7

16.724.5 31.0

14.535.1

Ranbaxy Dr

Reddy's

Lab

Sun

Pharma

Cipl a LupinGlenmarkCadi l a GSK

Pharma

FY13-15 core EBITDA CAGR (%) FY13-15 core PAT CAGR (%)

A–55January 2013


Metals

3QFY13: What to expect, what to watch out for

Steel demand, especially long products, remains sluggish

as construction related activities are subdued. Although

steel prices corrected 1-2% QoQ, the lag effect of last

quarter's correction would result in much lower

realizations. We remain bearish on steel prices and expect

flat/lower margins in 3QFY13, compared to 2QFY13.

Base metals have improved QoQ but rupee appreciation

would partially offset gains. We expect improved operating

margin for smelters.

We expect JSP's margins to contract in the quarter. It

witnessed margin expansion in 2QFY13, against a

contraction witnessed by the industry. NMDC will report

lower margins and sales volume due to industry slowdown.

Metals: Key insights


Ferrous: We believe that steel prices shall correct further

as China's steel consumption growth moderates. Prices

are expected to correct by 6-8% YoY in FY14.

Non-ferrous: We expect Al, Zn and Pb prices of USD2,100/t,

USD2,000/t and USD2,100/t respectively in FY14

Ferrous: We like NMDC as strong domestic demand

coupled with constrained supply have made it favorable

for the Indian miners. Expansion projects at Deposit 11b

and Kumarswampy shall lead to 5% CAGR volume growth.

Non-Ferrous: We like Hindalco as its capex intensity has

already peaked, while cash flow from growth projects is

expected to start contributing from FY14. Primary aluminum

business seems to be at the bottom of the cycle.

Steel sales volume (mt) assumptionsMajor assumptions (USD/ton)


Aluminium 2,315 2,002 2,100 2,100

Zinc 2,098 1,928 2,000 2,000

Lead 2,250 2,087 2,100 2,100

Copper 8,479 7,875 7,500 7,400

Silver (US$/oz) 33 29 27 27

Iron ore 153 104 90 90

Coking coal 288 185 140 136

Metals: Introducing FY15 estimates



Tata Steel 7,615 S e l l 1 16 151 18.6 7.9 48.3 49.8 7.6 8.5 6.6 6.5SAIL 6,702 S e l l 9 22 8 9.1 5.9 8.4 6.8 7.4 8.9 7.7 7.7JSW Steel 3,270 S e l l 0 2 -2 66.5 40.2 34.2 38.7 6.9 7.0 7.2 7.2JSPL 7,600 S e l l 14 20 6 42.4 37.4 38.3 42.2 8.6 10.0 9.0 7.5NMDC 11,544 Buy 12 12 11 18.5 16.6 18.6 20.5 4.8 5.5 4.7 4.1Sesa Goa 3,039 Buy 33 28 -4 31.8 30.7 24.8 28.2 2.5 11.4 14.2 7.3SterliteInds. 6,986 Buy 3 1 0 16.7 17.4 17.5 17.4 4.7 4.2 3.9 3.4Hind. Zinc 10,404 Buy 3 7 5 13.2 14.9 15.9 16.4 6.5 5.5 4.3 3.5Nalco 2,344 Neutral 10 48 42 3.4 1.7 3.2 3.5 7.6 16.9 7.4 6.5Hindalco 4,641 Buy 7 16 9 17.1 19.1 20.7 22.7 7.1 7.5 6.4 5.4

Steel margins to compress (USD/ton) Aluminium volumes (kt)

556 536 700 800

415 404450

475246 255255

255423 518500

500


Hi ndal co Nalco Balco VAL

11192 110 107

347

257225 212

150 132 125 122


SAIL TSI JSW

11.4 11.1 13.6 14.8

6.6 7.58.6

9.67.8 8.5

9.410.4


SAIL TSI JSW

A–56January 2013


Media

2HFY13: What to expect; what to watch out for

Broadcasting universe to exhibit strong traction with

advertising as well as subscription revenue growth of ~20%

YoY during 2HFY13. Growth rates in print universe expected

at ~5% YoY in 2HFY13E (vs ~1% in 1HFY13) for advertising

and ~15% YoY for circulation revenue on aggregate basis.

Broadcasting as well as print universe expected to report

~20% EBITDA growth on a YoY basis. Print companies

expected to report margin expansion led by stable RM

prices, tight cost control and increased cover prices.

Expect robust earnings growth of ~30% YoY for broadcasting

universe and ~25% YoY for print universe.

Digitization remains key theme for broadcasting; ad growth

rebound expected to revive earnings growth for print.

Media: Key insightsYoY ad growth (%) YoY subscription/circulation revenue growth (%)


We expect aggregate ad revenue CAGR of 12% for our media

universe while subscription CAGR is expected to be

stronger at 19%. Media universe revenue CAGR expected

at 14% with Dish TV leading the growth rate at 22%

followed by broadcasters (14%) and print (10-12%).

Dish TV expected to lead in EBITDA CAGR at 30% followed

by others at 12-17%. Expect 17% aggregate EBITDA CAGR.

We expect aggregate PAT CAGR of 19% for media universe.

Zee/DB Corp to report earnings CAGR of 18% over FY13-15.

Print media accounts for 45% of total ad spends and offers

an excellent play on economic rebound. Ad recovery and

cost control to drive 16-18% earnings CAGR. DB Corp and

Jagran Prakashan are our top-picks.

Media: Introducing FY15 estimates



Zee Enter 3.8 Neutral 14 17 18 5.9 7.4 8.5 10.3 37.4 29.7 25.9 21.4

Sun TV 3.0 Neutral 14 14 16 17.6 17.1 19.4 23.0 24.0 24.7 21.8 18.4

Dish TV 1.5 Neutral 22 30 NA -1.5 -0.9 -0.2 0.8 NA NA NA NM

DB Corp 0.7 Buy 11 14 18 11.0 11.4 13.8 15.9 20.4 19.7 16.4 14.1

Jagran 0.6 Buy 11 12 16 5.6 5.6 6.4 7.5 18.1 18.2 15.8 13.5

HT Media 0.4 Neutral 10 13 13 7.0 6.3 7.5 8.1 14.7 16.2 13.7 12.7

HMVL 0.2 Buy 12 19 22 8.6 12.4 16.0 18.4 17.5 12.1 9.5 8.2

FY13-15 EBITDA CAGR (%) FY13-15 PAT CAGR (%)

4

10 12 12

-10

0

10

20

30


ZEEL Sun TVDB Corp Jagran Prakas hanHT Medi a HMVLAggregate

30

19 1714 14 13 12

17

Dis

h T

V

HM

VL

Agg

rega

te

ZEEL

Sun

TV

DB

Co

rp

HT

Med

ia

Jagr

an

Pra

kash

an

2219 18 18

16 1613

HM

VL

Ag

greg

ate

DB

Co

rp

ZEEL

Sun

TV

Jag

ran

Pra

kash

an

HT

Me

dia

2216 18 19

0

12

24

36

48


ZEEL Sun TVDis h TV DB CorpJagran Prakas han HT MediaHMVL Aggregate

A–57January 2013


Oil & Gas


Expect GRM to remain weak (down 31% QoQ in 2QFY13)

impacting all refiners. Some respite likely in Petchem

margins, with likely revival in economy. Improved light-

heavy crude price differentials to benefit RIL.

Similar to previous years, ad-hocism in subsidy sharing to

continue and hence not much to read into quarterly

numbers of oil PSUs.

Gas availability headwinds to impact GAIL, GSPL and

benefit PLNG. Expect steady production at Cairn’s Rajasthan

field till March-13.

To watch out for (1) subsidy sharing, (2) RIL’s GRM

performance, (3) clarity on domestic gas price hike and (4)

exploration approval for Cairn India.


Expect gas price hike in March-14 to benefit ONGC, OIL,

RIL and impact GAIL, IGL. Under-recoveries would come

down with the help of price hikes, targeted cash subsidy.

We model Brent price at USD100/90/bbl in FY13/FY14.

Headwinds to incremental gas to continue, with subdued

domestic production impacting GAIL, GSPL. PLNG well-

placed to benefit with Kochi terminal’s start in 2013.

Cairn’s Rajasthan production to increase at a steady rate.

Mega projects to come on line: (1) IOC’s Paradip refinery

and (2) RIL’s polyester expansion followed by IGCC & offgas

cracker.

Prefer ONGC, OIL, PLNG. Risk-reward turning favorable in

Cairn India.

Oil & Gas: Key insights (mainly annual trends ending with FY15)Brent price: Expect to remain at higher levels (USD/bbl) Expect GRM to remain subdued (USD/bbl)

Oil & Gas: Introducing FY14 estimatesMcap Rating FY13-15E CAGR (%) EPS (INR) EV/EBITDA (x)


RIL 48.7 Neutral (5.8) 6.1 5.8 67.7 69.3 70.8 77.3 12.1 11.8 11.6 10.6

ONGC 40.4 Buy 5.4 11.2 8.7 30.4 28.4 32.3 33.6 8.5 9.1 8.0 7.7

Cairn India 8.0 Neutral 0.2 (6.3) (10.7) 48.7 63.7 54.0 50.8 6.5 5.0 5.9 6.2

Oil India 5.0 Buy 14.8 22.4 12.7 56.1 57.0 60.3 72.4 8.2 8.1 7.6 6.3

IOC 11.3 Buy (3.1) 23.9 20.2 49.2 23.2 27.7 33.6 5.3 11.2 9.4 7.8

BPCL 4.5 Buy (3.5) 11.8 5.3 10.8 24.6 25.0 27.3 32.0 14.0 13.8 12.7

HPCL 1.7 Buy 3.6 21.6 10.0 26.9 23.4 25.4 28.3 10.5 12.0 11.1 9.9

GAIL² 8.0 Neutral 10.0 10.5 2.7 28.8 30.9 31.0 32.6 12.1 11.3 11.2 10.7

GSPL 0.8 Neutral (0.6) (0.8) 4.1 9.3 8.8 8.9 9.5 8.2 8.6 8.5 8.0

PLNG 2.2 Buy 27.5 14.0 7.4 14.1 14.0 14.5 16.1 11.3 11.3 11.0 9.8

IGL 0.6 U/R 20.0 10.7 12.4 21.9 26.6 30.3 33.6 11.4 9.4 8.2 7.4

MRPL 1.9 Neutral (1.4) 38.8 71.2 5.2 2.9 8.5 9.3 11.6 21.0 7.1 6.5

CPCL 0.4 Buy 1.2 124.2 LP 4.2 (17.1) 26.0 27.2 33.1 (8.0) 5.3 5.0

Domestic gas headwinds continue (mmscmd) Expect under-recoveries to decline (INR b)


Brent (USD/bbl) 86 114 110 105 100

Petrol 27 0 0 0 0

Diese l 348 819 949 728 679

PDS Kerosene 200 278 304 258 227

Domestic LPG 205 284 408 260 305

Total 780 1,381 1,660 1,246 1,211

Oil Bonds 410 829 996 648 642

Upstream 303 552 664 499 448

OMC's sharing 67 0 0 100 121

Total 780 1,381 1,660 1,246 1,211

28 2942

58 6482 85

7087

114 110 105 100

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3E

FY1

4E

FY1

5E

2.73.9

6.8 6.5 6.1

7.6

5.8

3.5

5.2

8.37.6 7.9 7.9

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY1

3E

FY1

4E

FY1

5E

3529

333641

454951

5658

4037 424245

424239

31 36 37 35 33 31 2931

35

115

106

110

116119119117

120120

2QFY11 4QFY11 2QFY12 4QFY12 2QFY13

9 5

1 0 0

1 0 5

1 1 0

1 1 5

1 2 0

1 2 5

RIL KG-D6 PLNG GSPL GAIL

A–58January 2013


41 44 29 37 3631 37 26 28 29

1818171818

2010 2011 2012F 2013F 2014F

New s upply (ms f) Net Absorption (ms f)Vacancy rate (%)

Real Estate


Easing of operational constraints coupled with better

liquidity support is expected to augment monetization

and execution pace.

Faster execution is expected to improve revenue booking

and operating cash flow.

Success in divestment plan should reduce leverage.

2HFY13 will test recovery strength of Mumbai market which

is witnessing several launches after a hiatus of 2 years.

View on the sector remains positive as companies are

poised for steady operational recovery.

DLF is expected to report first trend of de-leveraging.

Prestige is likely to see 2-2.5x jump in quarterly revenue

bookings.


We estimate a healthy growth in numbers of real estate

companies over FY13-15 on the back of (1) diluting

operational and financial challenges, (2) low base effect,

and most importantly (3) the benefit of consolidation

strategy adopted by some developers over FY12-13.

Rate down-cycle to reduce cost of capital of developers

and home buyers, thus boosting financial leverage.

This coupled with a better balance sheet (a result of

restrained business focus) should reduce the gap

between asset and earning based valuation and render

further re-rating opportunity.

We prefer DLF and JPIN. Our defensive bets are Prestige,

Phoenix and Oberoi.

Real Estate: Introducing FY15 estimates



DLF 7.0 Buy 16.7 21.5 16.4 7.1 10.4 10.9 14.1 31.8 21.7 20.7 16.0

Unitech 1.5 Buy 23.5 45.4 48.4 0.9 1.0 1.4 2.1 37.1 35.5 24.1 16.4

IBREL 0.6 Buy 29.4 28.7 55.4 3.5 3.8 6.0 10.8 21.9 19.9 12.8 7.1

HDIL 0.8 Neutral 25.2 16.6 17.5 19.3 18.0 19.4 25.0 5.7 6.1 5.7 4.4

Anant Raj 0.5 Buy 34.3 38.6 37.0 3.8 6.6 9.1 12.3 23.9 14.0 10.1 7.5

Phoenix Mills 0.7 Buy 67.4 64.9 74.9 7.3 7.1 11.3 21.8 33.9 34.7 21.9 11.3

Mah Life 0.3 Buy 8.6 16.1 17.1 29.2 34.3 39.0 47.0 13.9 11.8 10.4 8.6

GPL 0.9 Neutral 27.5 35.7 43.3 12.6 18.4 29.5 37.8 52.6 35.9 22.4 17.5

Oberoi Realty 1.8 Buy 60.5 63.6 54.8 14.1 13.9 23.8 33.2 20.9 21.2 12.3 8.9

Prestige 1.1 Buy 35.1 38.2 53.2 2.5 6.6 10.4 15.5 74.5 28.4 18.1 12.1

JPIN 1.3 Buy 24.9 25.6 27.2 9.3 5.9 7.2 9.6 5.6 8.7 7.1 5.4

Real Estate: Key insightsExpect steady recovery in sales (INR b) Expect DLF's balance sheet in much better shape

Despite curb in supply, commercial vertical could remainunder pressure due to high vacancy (JLL) FDI approval to be major driver in retail, going ahead (JLL)

43

12 14

53

38

922

57

39

11

30

67

43

213230

38

6050

72

DLF UT OBEROI PEPL


122

133

138

131 136 14

516

2

198

208

220

226

227 23

723

7

236

235

240

220

202

176

161

0.6

0.7 0.7

0.6 0.6

0.6

0.5 0.

8

0.8 0.

9

0.9

0.9 0.9

0.9

0.9

20

.91

0.9

2

0.85

0.7

5

0.62

0.53

2QF

Y09

4QF

Y09

2QF

Y10

4QF

Y10

2QF

Y11

4QF

Y11

2QF

Y12

4QF

Y12

2QF

Y13

FY13

E

FY15

E

Net debt (INR b) Net DER (x)

6.9

14

5

9 9

4.0

11

47 7

2020

1921

20

2010 2011 2012F 2013F 2014F

New s upply (msf) Net Absorption (ms f)Vacancy rate (%)

A–59January 2013


Retail


Footfalls have improved in the festive season led by

better consumer sentiments. Anecdotal evidence

suggests this was the best festive season in three years.

However, spill-over of sentiment in 4Q is a key factor to

be seen. Expect high single-to-double digit same store

growth.

Possible deferral of customary January discount sale by

a fortnight can have positive margin impact.

We expect speciality retailers (Titan, Jubilant) to

outperform traditional retailers (Pantaloon, Shoppers

Stop).

Expansion plans of retailers are a key monitorable as it

has a bearing on margins, especially in this weak macro

environment.

News flow on potential deals post FDI approval in retail

will be a key event to watch.


Our estimates factor 10% jewelry volume growth for Titan

and 23% and 7% same store growth for Jubilant and

Shoppers Stop.

Given the aggressive expansion plans of all companies

in our retail coverage universe, we expect margins to

remain under pressure, barring Titan – it is expected to

benefit from potential direct import of gold and rising

share of studded jewelry.

Pantaloon's recent de-leveraging deals and hive-off of

fashion business creates a FDI ready entity for various

formats. We have not arrived at our estimates and await

clarity on numbers post the deal's approvals.

Titan is our top pick in the retail sector.

Valuations for Jubilant and Shoppers Stop are expensive

and factor most of the positives.

Retail: Introducing FY15 estimates



Jubilant 1.5 Neutral 39.4 42.8 50.5 16.5 22.6 33.6 51.3 77.7 56.6 38.2 25.0

Pantaloon 0.9 Neutral - - - 4.8 6.7 9.3 - 49.5 35.4 25.5 -

Shopper's 0.7 Neutral 17.7 44.0 93.4 7.8 2.7 6.8 10.0 56.9 165.5 65.9 44.2

Titan Ind. 4.6 Buy 19.4 19.5 21.1 6.7 8.1 10.1 11.9 42.1 34.8 27.9 23.7

Retail: Key insights

LTL sales growth and margins to marginally expand (%)

LTL sales growth (%) FY10 FY11 FY12 FY13 FY14 FY15

Jubilant 17.0 14.0 21.0 17.0 15.0 14.0

Shoppers Stop -0.1 16.4 4.8 4.8 7.2 7.2

Titan* 4.2 9.2 6.7 5.0 15.0 12.0

*Jewelry Volume Gr

EBIDTA Margin (%) FY10 FY11 FY12 FY13 FY14 FY15

Jubilant 15.6 17.7 18.4 17.7 17.7 17.9

Shoppers Stop 7.6 8.9 7.5 4.3 5.7 6.4

Titan 8.2 9.0 9.4 10.0 10.2 10.2

Interest (% of EBITDA) FY10 FY11 FY12 FY13 FY14 FY15

Jubilant 12.6 0.3 0.0 0.4 0.3 0.2

Shoppers Stop 21.1 9.6 17.5 36.7 25.7 20.6

Titan 0.0 0.0 0.0 0.0 0.0 0.0

45.1 43.2

27.022.9

39.5

34.6

15.718.7 20.2

18.2 15.2

0.8

89.0

72.5

33.5

14.531.5 25.8

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY13 FY14 FY15

Sales growth (%) PAT growth (%)

Stores

FY10 FY11 FY12 FY13 FY14 FY15

Jubilant Foodworks 241 306 378 463 573 673

Shoppers Stop (Dept) 26 32 38 51 60 68

PAT growth bottoms out acceleration likely

A–60January 2013


Technology


2H is expected to remain sluggish on account of continued

deal closure delays and uncertain macro environment.

Lower working days in areas impacted by furloughs and

marginal impact from hurricane Sandy would affect both

revenues and margins in 3QFY13.

On an organic basis, we expect top tier to grow USD

revenues by 2.6% QoQ and tier II to decline by 1% (QoQ

decline at TECHM - organic, KPIT and HEXW). PAT across

tier I is estimated to decline by 4.4% QoQ and at tier II is

estimated to increase 4% QoQ on a low 2Q base marred

by forex losses.

Sector outlook remains cautious, with early indicators

suggesting low double-digit industry growth in FY14.

Watch out for CY13 guidance by CTSH and HEXW, comments

on clients’ budgets by peers. Deal signings at HCLT will

be keenly watched.


Early indicators possess little evidence, if any, of growth

acceleration in FY14, driving our expectation of low double

digit industry growth (10-12%) in FY14, like FY13.

For FY14/15, our estimates factor 13.6%/13.6% growth in

USD revenues at TCS, 12.6%/14.4% at HCLT, 10.4%/10.6% at

INFY and 9.8%/9.8% at Wipro.

We model 40-100bp YoY erosion in OPM across the top

tier as wage hikes impact would not get absorbed by

employee pyramid at low double digit revenue growth.

We expect smaller players like HEXW, KPIT, MTCL and PSYS

to edge growth relative to their larger counterparts, but

only marginally.

We prefer Infosys (greater flexibility at Infosys in pursuit

of growth), HCL Tech (deal prowess continues to hold it in

good stead) and Tech Mahindra (fundamentals remain

sanguine vis-à-vis valuations). Wipro’s demerger of non-

core businesses is a positive.

Technology: Introducing FY15 estimates



TCS 45.2 Neutral 12.2 8.5 8.4 54.4 70.9 75.9 83.4 23.0 17.6 16.5 15.0

Infosys 24.2 Buy 9.0 5.7 7.7 145.5 158.0 168.7 183.2 15.7 14.5 13.6 12.5

Wipro 17.5 Buy 9.2 8.0 6.0 22.7 26.3 27.1 30.7 17.0 14.7 14.2 12.6

HCL Tech 7.9 Buy 13.5 5.8 7.6 35.1 49.0 50.0 56.0 17.8 12.8 12.5 11.2

Technology: Key insightsIncremental revenues yet to catch up with FY11 levels Expect USD revenue growth to remain in low teenson a much higher base going forward

Decline in margins have been most prominent at INFY,highlighting increased flexibility HCL Tech leads growth in PAT over FY12-15E

0

2,000

4,000

6,000

8,000


0

200

400

600

800

Tier I Tier I I

0

15,000

30,000

45,000

60,000

FY09 FY10 FY11 FY12 FY13E FY14E FY15E

0.0

8.0

16.0

24.0

32.0

Top-tier USD revenue (m) YoY Growth (%)

8

14

20

26

32

FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

TCS CTSH INFY WIPRO HCL FY12-15 PAT CAGR

15.3 14.7

8.0

10.6

17.8

TCS CTSH INFY WIPRO HCL

A–61January 2013


Telecom


Wireless traffic for GSM incumbents to clock 2.5-3% CQGR

driven by seasonal strength but impacted by decline in

gross adds due to lower channel commissions/promotions

and implementation of stringent KYC norms. Pricing to

remain stable.

We expect domestic wireless EBITDA margin performance

to improve in 2HFY13 led by operating leverage and lower

subscriber acquisition costs.

Within GSM incumbents, YoY earnings to remain flat for

Idea during 2HFY13 but decline ~27% YoY for Bharti largely

dragged down by Africa business.

Sector outlook mixed; while near-term break-even targets

for challengers to prevent irrational pricing, sharp price

hikes unlikely given mkt share competition among

incumbents. Spectrum pricing/re-farming policy and results

of impending spectrum auction key events to watch-out.


We expect wireless traffic CAGR of 10% for Idea followed

by Bharti-India (7%) and RCom (4%). We model 3% CAGR

in blended RPM including accretion from growth in data

revenues.

Rationalization in channel commissions and other

measures being undertaken to control rotational churn

along with abating pricing pressure should have positive

impact on EBITDA margins. We model 50-200bp margin

improvement across operators

Regulatory environment remains tough given high reserve

price for spectrum and issues related to re-farming and

licence renewal. We believe that there is a risk of

prolonged litigation between the industry and

government on these issues.

Telecom: Introducing FY15 estimates



Bharti Airtel 22 Neutral 9 10 39 237 250 274 304 7.8 7.6 6.7 5.7

Idea Cellular 6.3 Buy 13 18 52 51 59 72 82 9.4 8.4 6.6 5.4

Reliance Com. 2.8 Neutral 6 7 45 65 68 71 77 7.9 7.5 6.8 5.9

Telecom: Key insightsYoY growth in Indian wireless traffic and RPM Aggregate proforma EBITDA growth (YoY, %)

Bharti: Spectrum liability at current pricing (INR b) Idea: Spectrum liability at current pricing (INR b)

0 -2

3 3

16

10

8 7

-4

4

12

20

28


Bharti IdeaRCom VodafoneBlended RPM Aggregate tra ffic 9

4

11 11


45

121

88

83

20

357

Immediate 2 Years 3-4 years 9 years 11 years Aggregate

121

88

83

357

142

20

45

Immediate 2 yrs 3-4 yrs 9 yrs 11 years Aggr. Incorpor.

Outlay for

excess

spectrum

Outlay for

excess

spectrum

A–62January 2013


Utilities


1HFY13 generation growth at 4%, vs FY12 growth of 8%.

2HFY13 generation growth should be higher led by demand.

Improvement in coal based generation/PLF as hydro /gas

generation contribution would come down.

ST realization has been flat at ~INR3.50/unit in 1HFY13,

which Could strengthen in 2HFY13.

Key sectoral developments to watch out: 1) New framework

of coal price pooling and implementation, 2) New standard

bidding document and 3) Adoption of Financial

restructuring plan by DISCOMs.

Key stocks to watch out would be NTPC (higher generation/

PLF), JSW Energy (ST realn & Fuel cost) and Coal India (Mkt.

linked realn. and cost increases on fuel/employee front).


Capacity addition remains robust in YTDFY13 (~9GW) and

thus, we remain optimistic on capacity addition being

maintained at 15GW+ pa over next 2 years.

Coal price pooling, SBD and DISCOMs financial health

remains critical to revival of investment cycle in sector.

PPA tariff revision has been one of the key contentious

issue raised by developer - outcome on this front would

be another key milestone for sector. We remain cautious

on such a possibility.

We continue to believe that companies with sound

business model/projects and financial bandwidth are

best placed. Re-iterate Buy on NTPC, PGCIL and among

IPPs, we prefer CESC.

Utilities: Introducing FY15 estimates



CESC 0.7 Buy 10.7 6.5 9.9 44.1 47.7 52.6 57.5 6.9 6.4 5.8 5.3

Coal India 40.7 UR 5.3 3.4 3.1 25.4 27.9 27.8 29.6 13.9 12.7 12.7 11.9

JSW Energy 2.0 Neutral 1.3 5.0 16.3 2.0 4.5 5.8 6.0 32.5 14.7 11.4 10.9

NHPC 5.7 Neutral 8.6 9.3 8.1 2.0 1.8 2.0 2.2 12.5 13.9 12.6 11.9

NTPC 23.3 Buy 11.6 20.0 18.8 9.7 11.1 13.6 15.7 16.1 13.9 11.5 9.9

Power Grid 9.6 Buy 20.2 21.0 20.7 7.2 8.9 10.7 13.0 15.8 12.8 10.6 8.8

PTC India 0.4 Buy 28.6 6.8 13.5 6.9 8.5 9.4 10.9 10.5 8.6 7.8 6.7

Reliance Infra. 2.5 Buy 5.8 2.5 9.4 74.8 50.9 53.8 60.9 6.9 10.2 9.6 8.5

Tata Power 4.7 Neutral 4.8 5.6 7.1 7.4 4.8 4.9 5.5 14.6 22.8 22.2 19.9

Utilities: Key insights

Trend in operating performance

Capacity addn (MW) FY12 FY13E FY14E FY15E

CESC 600 600

JSW Energy 870 540

NHPC 120 440 1,106 1,496

NTPC 2,820 4,160 3,210 4,300

Tata Power 2,172 2,400 801

CIL prodn (m tons) 433 466 490 522

PTC India (BUs) 24.3 28.2 35.2 44.1

Capacity addition expected to be robust (GW)

Demand growth expected to pick-up too… Deficit levels to moderate, in our view…

98 102

105

108

113

119

124

132

143

148

159

174

200

219

245

270

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY1

3E

FY1

4E

FY1

5E

CAGR of 5%

CAGR of 12%

0

400

800

1,200

1,600

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

0%

3%

6%

9%

12%Demand (BUs) Growth (% YoY)

7.8%

7.5

%

8.8%

7.1%

7.3% 8.4

%

9.6%

9.9

%

8.9% 10

.1%

8.5

%

8.5

% 10.9

%

6.2%

2.3%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

E

FY13

E

FY14

E

FY15

E

A–63January 2013


Sector / Portfolio Picks BSE-100 MOSL Wt Wt relative to BSE-100 Sector Stance

Financials 28.7 29.0 0.3 Overweight

Private 15.4 13 -2.4 Neutral

ICICI Bank 5.6 7 1.4 Buy

HDFC Bank 5.5 4 -1.5 Neutral

Yes Bank 0.5 2 1.5 Buy

PSU 6.1 9 2.9 Overweight

SBI 2.7 5 2.3 Buy

Canara Bank 0.3 2 1.7 Buy

Union Bank 0.3 2 1.7 Buy

NBFCs 7.2 7 -0.2 Neutral

LIC Housing 0.4 4 3.6 Buy

IDFC 0.9 3 2.1 Buy

Infrastructure & Related sectors 9.9 11.0 1.1 Overweight

Larsen & Toubro 3.8 4 0.2 Buy

Ambuja Cement 0.7 2 1.3 Buy

Jaiprakash Associates 0.5 2 1.5 Buy

Cummins 0.3 2 1.7 Buy

DLF 0.4 1 0.6 Buy

Oil & Gas 11.4 10.0 -1.4 Underweight

Reliance Inds. 6.3 3 -3.3 Neutral

ONGC 2.4 3 0.6 Buy

Cairn India 0.9 2 1.1 Neutral

BPCL 0.4 2 1.6 Buy

Auto 8.0 10.0 2.0 Overweight

Tata Motors 2.5 3 0.5 Buy

Maruti Suzuki 0.9 3 2.1 Buy

M&M 1.8 2 0.2 Buy

Hero Motocorp 0.8 2 1.2 Buy

Information Technology 10.0 8.0 -2.0 Underweight

Infosys 4.8 6 1.2 Buy

Tech Mahindra 0.0 2 2.0 Buy

Consumer / Retail / Media 13.6 6.0 -7.6 Underweight

ITC 6.7 4 -2.7 Buy

ZEE Entertainment 0.5 2 1.5 Neutral

Healthcare 4.9 4.0 -0.9 Underweight

Dr Reddy's 1.0 2 1.0 Buy

Divi's Lab 0.3 1 0.7 Buy

Glenmark 0.3 1 0.7 Buy

Metals 3.9 4.0 0.1 Neutral

NMDC 0.3 2 1.7 Buy

Hindalco 0.7 1 0.3 Buy

Sesa Sterlite 0.8 1 0.2 Buy

Telecom 2.4 4.0 1.6 Overweight

Bharti Airtel 1.8 2 0.2 Buy

IDEA 0.4 2 1.6 Buy

Utilities 5.4 3.0 -2.4 Underweight

NTPC 1.1 3 1.9 Buy

Others 1.9 11.0 9.1 Overweight

CESC 0.0 1 1.0 Buy

Concor 0.0 1 1.0 Buy

Crompton 0.2 1 0.8 Buy

DB Corp 0.0 1 1.0 Buy

Dewan Housing 0.0 1 1.0 Buy

Havel ls 0.0 1 1.0 Buy

Hexaware 0.0 1 1.0 Buy

Jagran 0.0 1 1.0 Buy

Sun TV 0.0 1 1.0 Neutral

Thermax 0.0 1 1.0 Neutral

United Phosphorous 0.2 1 0.8 Buy

Total 100.0 100.0

MOSL modelportfolio

A–64January 2013


3QFY13 PREVIEW Lightweights fly but heavyweights dragBoth MOSL Universe and Sensex PAT growth muted at 6% YoY

3QFY13 PAT growth just 6% YoY, despite low base effect.

Lightweights fly but heavyweights drag: Sectors like Real Estate, Media, Retail, Healthcare

and Consumer grow well but account for a small share of aggregate PAT. Heavyweight

sectors like Oil &Gas, PSU Banks, Autos, Metals, Cement and Telecom are likely to clock

moderate PAT growth or de-growth.

Consumer, Private Banks, NBFCs and Non-ferrous Metals are the only sectors/sub-sectors

where all companies are expected to clock PAT growth. Cement is the only sector where

all companies are expected to report PAT de-growth.

Expected Sensex PAT growth of 6% YoY for 3QFY13 is the lowest except in the global

crisis-ridden 3QFY09.

3QFY13 PAT growth only 6% YoY despite low base effectWe expect MOSL Universe (143 companies ex RMs i.e. oil refiners & marketers) to

report aggregate PAT growth of just 6% YoY in 3QFY13. There are two key takeaways

from this:

1. This is the third consecutive quarter of PAT growth lower than the long-period

average (LPA) of 14%. This is unprecedented, except in the global crisis quarters.

2. Further, based on the trends of 3Q alone, 3QFY13 will be a rare instance where the

benefit of low base will not translate into growth bounce back. In the past several

years, every time the base 3Q PAT growth has been below LPA, the next year’s

growth has been well above LPA.

3QFY13 wi ll be third successive quarter of sub-LPA PAT growth 3QFY13’s low PAT growth despite low base is unprecedented

Sector breakdown: Lightweights fly but heavyweights dragOf the 14 major sectors in MOSL Universe:

A. 5 sectors are expected to report PAT growth of 20% or higher (Real Estate,

Healthcare, Media, Retail, Consumer)

B. 4 sectors’ PAT growth is likely to be 0-15% (Oil & Gas, F inancials, Uti lities,

Technology)

C. 5 sectors are expected to report PAT de-growth (Capital Goods, Cement, Auto,

Telecom, Metals).

Aggregate PAT growth is muted, as the 5 high-growth sectors are lightweight, i.e. they

account for only 12% of aggregate PAT. In contrast, the muted-growth sectors account

for 66% of PAT, and the de-growth sectors for 22% of PAT. Likewise, Group A is expected

3125 28

4132

27 29

17 18

6811612

14

-10-14-13

-9

Avg: 14%

1Q

FY09

2Q

FY09

3Q

FY09

4Q

FY09

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

2Q

FY13

3Q

FY13

Global crisis

PAT growth YoY (%) 57

2328 29

12

-9

6 6

Avg: 19%

3QF

Y06

3QF

Y07

3QF

Y08

3QF

Y09

3QF

Y10

3QF

Y11

3QF

Y12

3Q

FY1

3E

Global crisis

3Q PAT growth YoY (%)

A–65January 2013


to contribute 43% of YoY incremental PAT, and Group B 116%, whereas Group C is

expected to take away 60% of incremental PAT.

Interestingly, the above contrast in performance is visible even within the Financials

sector. NBFCs’ PAT growth is expected to be high at 27% YoY and Private Banks’ at 23%

YoY. But both these sub-sectors are relatively lightweight – NBFCs (25% of sector PAT)

and Private Banks (33%). The biggest contributor to Financials – PSU banks (44% of

sector PAT) – is expected to clock 1% PAT de-growth, dragging down overall Financials

PAT growth to just 12%.

Lightweight sectors fly, but heavyweights drag Most heavyweights are slow-growing or de-growing

Quarterly performance - MOSL Universe (INR b)

Sales EBITDA PAT EBITDA Margin PAT Contbn

Dec-12 Var % Dec-12 Var % Dec-12 Var Dec-12 Chg Share Delta

YoY YoY YoY (%) bp (%) (%)

High PAT growth sectors 669 16 151 18 100 27 22.6 29 12 43

Real Estate (8) 44 1 19 2 15 42 42.3 26 2 9

Health Care (17) 220 22 49 21 31 33 22.2 -14 4 16

Media (6) 33 13 11 14 5 26 32.4 12 1 2

Retail (4) 72 17 7 24 3 22 9.8 50 0 1

Consumer (13) 301 15 66 21 46 20 21.9 106 6 15

Low PAT growth sectors 3,277 13 905 9 536 12 27.6 -89 66 116

Oil & Gas ex RMs (10) 1,702 12 246 -1 158 14 14.5 -196 19 39

Oil & Gas incl RMs (13) 3,814 2 277 -35 156 -45 7.3 -422 19

Financials (25) 477 12 380 12 196 12 79.6 12 24 41

NBFC (8) 70 26 68 28 45 27 97.1 126 6 19

Private Banks (8) 128 24 110 23 65 23 85.9 -70 8 24

PSU Banks (9) 279 4 202 3 86 -1 72.3 -101 11 -2

Utilities (9) 564 14 153 26 88 12 27.1 250 11 18

Technology (9) 479 14 116 7 87 10 24.2 -178 11 17

Others (5) 55 9 11 7 6 4 19.6 -40 1 1

PAT de-growth sectors 2,666 5 418 -2 180 -14 15.7 -122 22 -60

Capital Goods (9) 384 7 45 0 29 -8 11.8 -83 4 -5

Cement (8) 181 8 33 -5 16 -10 18.2 -262 2 -3

Auto (7) 847 11 100 -3 52 -14 11.8 -168 6 -17

Telecom (3) 310 8 95 6 12 -16 30.5 -70 1 -5

Metals (10) 943 -1 146 -7 71 -17 15.4 -91 9 -30

MOSL ex RMs (143) 6,612 10 1,475 6 816 6 22.3 -73 100 100

MOSL incl RMs (146) 8,724 6 1,505 -4 814 -11 17.3 -175

Sensex (30) 4,414 9 884 6 486 6 20.0 -72 60 52

42 3327 26 23 22 20

14 12 10 6 6‐1

‐8 ‐10 ‐14 ‐16‐17

Rea

l Est

ate

Hea

lth

Care

NB

FC

Med

ia

Ban

ks ‐ P

vt

Re

tail

Con

sum

er

Oil

Ex.R

Ms

Uti

liti

es

Tech

nolo

gy

MO

SLEx

.RM

s

Sen

sex

Ban

ks‐P

SU

Cap

Goo

ds

Cem

ent

Aut

o

Tele

com

Met

als

YoY PAT growth by sector (%) 3924 19 18 17 16 15

92 1

‐2 ‐3 ‐5 ‐5‐17

‐30O

il E

x.R

Ms

Ban

ks‐P

vt

NB

FC

Uti

liti

es

Tech

nolo

gy

Hea

lth

Cons

umer

Rea

l Es

t

Me

dia

Ret

ail

Ban

ks‐P

SU

Cem

ent

Tele

com

Cap

. Goo

ds

Aut

o

Met

als

Contribution to YoY PAT delta (%)

A–66January 2013


60 54 52 48 44 45 35 30 26 27 32 41 43 5138 32 39 35

22 20 25 24 27 28 27

1919 23 23 21 11

18 1810 14

22 10 17 1322 21 18 23

24 25 17 23 18 18

11 11 11 1514 19 24 26

22 1814 14

9 9 10 20 18 1823 19 17 13 25 16 20

11 17 14 14 21 24 23 2642 41 32 35 31 27 30 27 25 24 31 35 41 40 31 39 35

18

De

c 06

Mar

07

June

07

Sep

07

De

c 07

Mar

08

June

08

Sep

08

De

c 08

Mar

09

June

09

Sep

09

De

c 09

Mar

10

June

10

Sep

10

De

c 10

Mar

11

June

11

Sep

11

De

c 11

Mar

12

June

12

Sep

12

Dec

12E

>30% >15‐30% >0‐15% <0% Ex RMs (%)

Sector & company highlights Consumer is the only sector where all companies are expected to clock PAT growth

while the sector growth continues to be very steady at 20%.

Within Financials, Private Banks and NBFCs are expected to report ~25% PAT

growth, with all companies reporting PAT growth.

In Media, except Dish TV, all other companies are expected to report PAT growth.

Within Metals, all Non-ferrous companies are expected to clock PAT growth. In

contrast, all Ferrous companies are expected to report PAT decline or a loss.

Cement is the only sector where all companies are expected to report PAT de-growth.

3QFY13 sales growth modest … … but EBITDA margin damage widespread

PAT growth skewed towards less than 15% and de-growth

AUTOS: Except MHCVs, growth picks-up across segments on festive demandrecovery Festive season led growth in wholesale volumes has picked up on a YoY basis

across two-wheelers, passenger vehicles and tractors. However, MHCVs remain

under stress, with 30% YoY decline, reflecting weak macroeconomic conditions.

EBITDA margin for Autos is expected to improve by 50bp QoQ (flat YoY) led by

higher volumes, better mix (BJAUT, HMCL, MSIL, MM), favorable forex (JPY/USD

movement for HMCL, MSIL) and stable RM cost.

However, demand slowdown and higher competitive intensity would impact the

performance of CV companies (TTMT standalone, AL, EIM).

HMCL and MSIL would report margin expansion of 190bp and 130bp QoQ, while

AL’s margins expected to drop 170bp QoQ.

We cut our earnings estimates for AL and upgrade our estimates for MSIL and TTMT.

22

17

15 14 14 13 12

11

10 8 8 7

1

-1

Hea

lthc

are

Re

tail

Con

sum

er

Uti

liti

es

Tech

nol

ogy

Med

ia

Oil

& G

as*

Aut

o

MO

SL*

Cem

ent

Tel

eco

m

Cap

Goo

dsR

eal

Est

ate

Met

als

3QFY13 Sa les growth YoY (%) 250

106

50

26 12

-14

-70

-83

-87

-91

-168

-178

-19

6

-262

Uti

liti

es

Con

sum

er

Re

tail

Re

al

Est

ate

Med

ia

Hea

lthc

are

Tel

eco

m

Cap

Goo

ds

MO

SL*

Met

als

Au

to

Tech

nol

ogy

Oil

& G

as

Cem

ent

3QFY13 EBITDA Margin ch ange YoY (bp)

% o

f M

OSL

Un

ive

rse

co

mp

an

ies PAT Growth %

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 13.2 10.6 4.2 18.3 11.0 8.5 6.5

A–67January 2013


MARUTI SUZUKI (MSIL): Improvement in consumer sentiment, higher diesel engine

capacity, favorable forex

With festive demand recovery coupled with Manesar operations getting

normalized, we expect strong improvement in operating performance for MSIL.

EBITDA margin is likely to expand 110bp QoQ (200bp YoY) to 7.2% on higher

volumes, better mix (higher diesel sales), lower discounts (with recovery in

demand for petrol cars) and 1% price increase in October 2012.

Improvement in consumer sentiment and commencement of new diesel engine

plant in 3QFY14, coupled with favorable forex would drive strong performance

over FY13-15.

CAPITAL GOODS: Slowing order inflow impacting performance We expect continued moderation in revenue growth in 3QFY13 (7.3% YoY v/s 11%

YoY in 1HFY13), impacted by depleting order book and execution constraints due

to overall economic slowdown.

Due to slowing orders, BTB has been showing a declining trend after peaking out

in 2QFY11. The sector aggregate BTB (x) currently stands at 2.3x, the lowest in 19

quarters.

In 3QFY13, we expect aggregate EBITDA margin at 12.3%, down 80bp YoY, impacted

by poor fixed cost absorption. While commodity prices have corrected

meaningfully, a large part of the benefit is negated by adverse currency

movements.

Companies with high local manufacturing content and lower imports (like KKC,

TMX and BHEL) will be the key beneficiaries.

CUMMINS INDIA (KKC): Domestic demand remains strong

KKC is likely to post strong results on the back of robust domestic demand for DG

sets (30% of sales) and steady growth in distribution segment (30% of sales).

Margins would be strong, supported by declining commodity prices, price

increases and favorable currency movement.

Domestic demand for DG sets is likely to grow 27% YoY in 3QFY13 v/s 14% YoY in

2QFY13; however, exports (30% of sales) are likely to decline 10% YoY and 20%

QoQ, impacted by poor demand environment.

We expect KKC to post strong margins at 18.6%, driven by the twin trends of

softening commodity prices and INR depreciation, coupled with recent price

increases.

LARSEN &TOUBRO (LT): Ordering likely to be muted

LT ’s order inflow is likely to be below expectations, given poor order

announcements during the quarter at INR98b v/s the quarterly run rate of INR125b-

130b.

The company has guided for strong order inflow from overseas markets (up 50-

60% YoY on top of INR127b worth of orders during FY12) during FY13.

However, in 9MFY13, LT has received orders of only ~INR69b (reported plus

announced orders), which raises concerns about the company meeting its annual

intake guidance of 15-20% YoY growth.

A–68January 2013


CEMENT: Unusual quarter with weak demand, weaker pricing; EPSdowngrade of 3-10% for FY14 Cement demand growth is likely to be moderate at ~5.5% YoY (10% QoQ) in 3QFY13,

impacted by delayed festive season and continued sluggishness in housing and

infrastructure.

Capacity utilization is expected to remain stable YoY (+5pp QoQ) at 74%.

Cement prices were unusually weak in 3QFY13, with national average retail prices

down ~INR10/bag QoQ (down ~INR5/bag YoY adjusted for excise duty increase in

February 2012). This, coupled with full impact of diesel price hike on freight (~INR4-

6/bag QoQ increase), would drive down EBITDA to INR786/ton (down INR223/ton

QoQ, INR50/ton YoY).

North-based players would be worst impacted due to weaker pricing, reflecting in

sharp drop in their performance.

SHREE CEMENT (SRCM): Timely capacity addition to drive growth

SRCM will be adding ~2m tons of clinker capacity by June 2013 and another 2m

tons by June 2014, with a split grinding unit in Bihar commissioning by 2HCY14.

SRCM’s timely capacity addition will allow it to fully leverage any recovery in

volumes, especially in North India.

This, coupled with efficient operations and zero dependence on linkage coal,

augurs well for cost stability.

Further, improvement in merchant power volumes will support overall EBITDA.

CONSUMER: Volumes to moderate; discretionary segments still underpressure; margins should improve While volume growth for our Staples Universe would be healthy, there would be

some moderation, driven by continued muted growth in the discretionary

segments of the HPC and Foods categories.

Issues pertaining to the CSD channel would continue to adversely impact the sector

and the effect of low base would show up from CY13.

Correction in some of the input cost elements like palm oil, titanium dioxide and

copra should help boost margins for the quarter.

Competitive intensity continues to be elevated.

GODREJ CONSUMER (GCPL): Both engines firing; expect strong quarterly performance

We expect GCPL to deliver strong performance for 3QFY13, driven by continued

strong momentum in its domestic segment (especially Home Insecticides) and

high-teen growth in Indonesia. Further, it should also benefit from Darling Phase-

II consolidation.

While PFAD prices have corrected, benefits should reflect in 4QFY13 owing to

inventory.

We estimate 30% plus topline and bottomline growth for GCPL in 3QFY13.

FINANCIALS: Divergence in performance of private and state-owned banksto continue While stress on asset quality is likely to continue and business growth would

remain sluggish, we expect our Banking Universe to report healthy PAT growth of

12% YoY for 3QFY13. This would be largely driven by strong profit growth of 23%

YoY for private sector banks and 27% YoY for NBFCs.

A–69January 2013


For state-owned banks, PAT is likely to be flat YoY (down 6% YoY ex SBIN) and QoQ,

led by higher provisioning, muted fees, and higher tax rate in some cases. Some

state-owned banks could surprise positively on the profitability front, as they

have begun guiding peaking out of GNPA, led by higher recoveries, while we

remain conservative in our estimates.

Pending restructuring applications of some large corporate borrowers would result

in an increase in restructured loans in 2HFY13. However, the pace of addition is

likely to be lower than earlier.

ICICI BANK (ICICIBC): Core operations continue to improve; RoE on the upturn

ICICIBC has turned around, and its RoA has improved decisively from 1.1% in FY10

to 1.5% in FY12, led by (1) higher margins, (2) sharp fall in credit cost, and (3)

control over opex.

We expect robust NII growth of 31% YoY and PAT growth of 23% YoY for 3QFY13.

UNION BANK (UNBK): Highest PAT growth in coverage universe, though on lower

base; asset quality the key

UNBK surprised positively in 2QFY13, with negligible addition of stress loans,

while its peers saw significant increase. We expect the healthy trend in asset

quality to continue.

This coupled with (1) healthy business growth, (2) stable NIM, and (3) higher

base of provisioning expense in 3QFY12 (led by higher NPA provisions and NPV

loss of INR3.5b on restructuring of one large Telecom account) would drive the

highest PAT growth in our coverage universe.

While NII and operating profit would grow 8% YoY and 2% YoY, respectively PAT is

likely to grow 194% YoY.

HEALTHCARE: Expect growth on a low base, increased capacity utilization,currency benefitFor 3QFY13, we expect topline growth of 22% YoY for our Healthcare Universe

(excluding one-offs), with EBITDA growth of 21% YoY. Adjusted PAT is likely to grow

34% YoY. EBITDA growth would be mainly led by strong performance from Ranbaxy,

Glenmark, Strides and Torrent. EBITDA growth would be higher than sales growth for

Cipla and Divi’s, aided by increased capacity uti lization. Operating performance during

the quarter would also be partially driven by favorable currency. Adjusted PAT growth

at 34% would be higher than EBITDA growth, mainly because of reversal of forex

losses due to the appreciation of the INR v/s the USD.

RANBAXY (RBXY): High growth on a low base as business normalizes

RBXY will report sales growth of 35% YoY on a very low base (had reported decline

in US, LatAm and CIS in 4QCY11) and driven by 35% YoY growth in core US sales

(core sales stood flat YoY).

4QCY11 EBITDA was lower due to adverse product mix, fixed overhead costs,

higher R&D expenditure and payment made to Teva.

We expect EBITDA growth of 69% YoY and adjusted PAT growth of 44% YoY, mainly

led by healthy growth in operations on a low base.

A–70January 2013


DIVI’S LABS (DIVI): Ramp-up in capacity utilization, increased order execution

We expect DIVI to report topline growth of 31% YoY and EBITDA growth of 34%

YoY, driven by increased order execution, ramp-up in new Vizag SEZ unit and

favorable currency, as DIVI does not hedge its exports.

Adjusted PAT is likely to grow 20% YoY, lower than EBITDA growth due to absence

of forex gains (INR160m in 3QFY12).

MEDIA: Mixed bag; digitization, ad revenue recovery key themes During 3QFY13 we expect strong earnings growth for Zee, Jagran and DB Corp, but

muted earnings growth for Sun TV/Dish TV (margin compression).

Broadcasters would report strong YoY ad revenue growth, given higher exposure

to the Consumer sector and low base. We expect Zee to post the highest ad growth

at 29% YoY. Sun TV would post ad growth of 12% YoY.

Digitization remains a strong theme for broadcasting and distribution stocks, as

the government remains committed to future timelines.

We expect ad growth for our Print Media Universe to improve from 0% in 1HFY13

to 4% in 3QFY13.

DB CORP, JAGRAN: Ad-heavy business model; excellent play on economic rebound

In 1HFY13, print ad growth was near zero, one of the lowest in the last decade.

We believe ad growth has bottomed out and expect recovery from 2HFY13. We

expect ad growth of 4-5% YoY in 2HFY13, improving to 11% over FY13-15.

We expect 3QFY13 earnings for DB/Jagran to grow 20/40% YoY, largely led by

improved ad growth and margin recovery.

METALS: Steel prices and margins to decline QoQ; aluminum smelter marginsto improve QoQ Steel prices in most regions declined QoQ, driven by lackluster demand, inventory

de-stocking and lower raw material prices. However, Chinese HRC prices have

recovered from their lows.

Indian steel prices have corrected marginally QoQ but lag effect of 2QFY13

correction will lead to much lower realization. Price correction in Indian steel

intermediates was much sharper. We expect flat/lower margins for steel companies

under our coverage universe.

Base metal prices have shown 3-10% QoQ improvement, which is expected to

boost smelter margins. However, rupee appreciation will partially offset gains

due to higher LME prices.

HINDALCO: EBITDA to increase 17% QoQ; capex cycle has peaked

We expect net sales to grow 13% QoQ (5% YoY) to INR69.7b on a lower base of

2QFY13, when aluminum production was impacted by operational hiccups and

monsoon. EBITDA would grow 17% QoQ to INR6b on improved profitability of

smelters on higher LME prices.

We believe Hindalco’s capex intensity has already peaked, while cash flow from

growth projects would start contributing from FY14. The primary aluminum

business is also at the bottom of the cycle. It is our top pick in the Non-ferrous

Metals space.

A–71January 2013


OIL & GAS: Government policy a key risk/trigger Ex OMCs, we expect EBITDA to decline 1% YoY while PAT would be up 14% YoY.

The quantum of government support to OMCs and subsidy sharing by upstream

companies remains uncertain. Refiners’ earnings are expected to decline on lower

GRMs.

We expect Reliance Industries to report 4% QoQ EBITDA decline, led by lower

GRM and KG-D6 gas volumes.

Cairn is likely to report 33% YoY EBITDA growth, led by growth in Rajasthan production.

ONGC and Oil India are likely to report 10% and 21% YoY decline in EBITDA, led by

lower net realization (~USD41/ bbl and ~USD51/bbl, respectively) and higher cess

rate of INR4,500/MT v/s INR2,500/MT in FY12.

CAIRN INDIA: Expect approval for exploration in near term; risk-reward seems

favorable

We expect approval for further exploration in the Rajasthan block, which would

result in higher reserves, and also increase plateau production in the medium

term.

Of the in-place resources of 7.3bboe, Cairn has fully explored 2.2bboe, partly

explored 2bboe, and the balance 3.1bboe is yet to be explored. We model 1.2bboe

of recoverable reserves in our estimates.

We believe that the risk-reward seems favorable at current levels. Our SOTP

valuation stands at INR350/share at long-term Brent price of USD90/bbl.

REAL ESTATE: Expect volume recovery, execution uptick We expect sales volume to increase YoY across developers, with pick-up in

launches. In terms of sales momentum, we expect the outperformance of southern

markets to continue in 3QFY13, along with recovery for Mumbai developers

(following easing of approval headwinds).

With better liquidity support and outsourcing of construction by various

developers, the execution momentum should improve, which should get reflected

with better revenue bookings.

Financial cost is likely to stabilize; developers like DLF and HDIL are also likely to

lower their net debt.

DLF: Expect consecutive divestments of NTC Mills and Aman Resort to reduce net

debt to a meaningful extent.

PRESTIGE ESTATES: We expect 2-2.5x jump in revenue recognition run rate from

3QFY13, led by strong sales and execution, with some key projects crossing the

recognition threshold.

UNITECH: Better liquidity support and easier re-financing should augment

execution hereon. We expect early signs of uptick in 3QFY13, though meaningful

benefits would accrue only in FY14.

TECHNOLOGY: Seasonal slowdown compounded by hurricane Sandy 3QFY13 would be a weak quarter from the revenue growth standpoint, given

seasonal furloughs and some impact from hurricane Sandy.

On an organic basis, we expect USD revenue growth of 1.1-3.5% across tier-I IT

companies. Among tier-II companies, we expect at least three companies (Tech

Mahindra, KPIT and Hexaware) to post revenue decline QoQ.

A–72January 2013


We expect EBIT margin contraction of 20-150bp across tier-I and 80-430bp across

tier-II companies. Among tier-I companies, Infosys and HCL Tech should see greater

declines due to impact of wage hike during the quarter.

We expect Infosys to cut its organic revenue growth guidance for FY13 to 3.5%

(from 5%) and Cognizant to guide for at least 16% revenue growth in CY13.

INFOSYS: Earnings to decline YoY, a first in 11 quarters

We expect Infosys’ earnings to decline 10% YoY in 3QFY13. This is despite a 5.2%

YoY depreciation in INR.

On an organic basis, USD revenue is likely to be flattish YoY (+0.6%).

Infosys’ increased flexibility towards pricing to revive revenue growth has driven

YoY decline in per capita productivity, and lower-than-guided growth has led to

under-utilized resources. This double whammy will pull down EBIT margin by

620bp YoY to 25% in 3QFY13.

TELECOM: Regulatory overhang to supersede numbers Wireless traffic for GSM incumbents would grow 2.5-3% during 2HFY13, driven by

seasonal strength but impacted by decline in gross additions due to lower channel

commissions/promotions and implementation of stringent KYC norms.

Near-term breakeven targets for challengers would prevent irrational pricing and

aid pricing recovery.

The regulatory environment remains tough, given high reserve price for spectrum

and issues related to re-farming and license renewal, exposing the sector to risk

of prolonged litigation.

IDEA: Continues to outperform peers by a wide margin

We expect EBITDA/PAT growth of 10%/30% YoY in 3QFY13.

Idea is set to report its second consecutive year of superior EBITDA growth

performance vis-à-vis peers. We expect Idea to clock 17% EBITDA growth in FY13

v/s ~5% growth for Bharti/RCom. Idea is set to report 40% earnings growth in

FY13 v/s declines for peers.

UTILITIES: Performance of CPSUs to remain robust We expect Uti lities companies (ex Coal India) under our coverage to report

aggregate revenue growth of 15% YoY and PAT growth of 12% YoY in 3QFY13. PAT

growth would be subdued due to muted PAT of few IPPs.

Among CPSUs, NTPC (higher capacity addition) would report PAT growth of 11%

YoY and PGCIL (better capitalization) would report higher growth of 31% YoY.

Among IPPs, JSW Energy is expected to report strong PAT growth (2x YoY) due to

low base/robust performance and strong ST prices in 3QFY13.

COAL INDIA: Watch for cost pressure, realizations on market-linked products

We expect Coal India to report PAT growth of 15% YoY on the back of robust

volume growth (8%+ dispatch growth YoY).

Improvement in volumes has been a key positive in YTD FY13, but cost pressure

owing to diesel price increase (September 2012) and wage inflation is a key

monitorable.

A–73January 2013


Realizations of market-linked products (e-auction/washed coal) have been

declining in 1HFY13.

We expect flat QoQ realizations for e-auction coal. We notice that coal prices

have come off by ~3% QoQ in INR terms.

Sensex PAT to grow 6% YoY in 3QFY13Based on bottom-up aggregates, we expect 6% YoY growth in Sensex PAT (the same as

the growth in MOSL Universe PAT). As in the case of aggregates, 3QFY13 is one of the

lowest growth quarters ex global crisis. Further, within 3Q results, excluding the global

crisis quarter of 3QFY09, this is the lowest 3Q Sensex PAT growth.

The 30 Sensex constituent companies fit into three growth categories, with exactly 10

companies in each – (A) PAT growth >15%, (B) PAT growth of 0-15%, and (C) PAT de-

growth. As tabled below, Group A aggregate PAT growth is a healthy 25%, but accounts

for only 28% of Sensex PAT. This has been largely offset by 14% PAT de-growth in

Group C (27% of Sensex PAT). Thus, aggregate PAT growth of 6% is largely a function of

the heavyweight Group B (45% of PAT), which has clocked PAT growth of about 10%.

Sensex Companies 3QFY13E Performance (INR b)Company Sales EBITDA EBITDA margin PAT PAT Contbn

Dec-12 Var Dec-12 Var Dec-12 Var Dec-12 Var To To

% YoY % YoY (bp) % YoY Total Delta

High PAT Growth (10) 655 25 200 23 30.5 -44 137 25 28 107

Maruti Suzuki 112 44 8 100 7.2 201 5 138 1 11

Mahindra & Mahindra 106 29 15 39 14.4 108 10 45 2 12

Dr Reddy’ s Labs 27 23 6 22 21.0 -21 3 42 1 4

HDFC Bank 39 26 31 29 78.4 208 19 30 4 17

ICICI Bank 36 31 34 27 95.9 -315 21 23 4 15

Cipla 20 15 5 20 23.3 108 3 21 1 2

Hind. Unilever 67 13 12 17 17.2 60 9 19 2 6

HDFC 15 18 16 20 111.0 190 12 19 2 7

ITC 74 18 29 20 38.8 69 20 19 4 12

TCS 160 21 45 11 28.3 -269 34 19 7 21

Med/Low PAT Growth (10) 2,123 9 348 7 16.4 -29 217 10 45 77

Coal India 167 9 49 9 29.6 -1 43 15 9 22

Sun Pharma 25 22 9 6 38.0 -569 7 15 1 3

Reliance Inds. 939 10 70 -4 7.4 -114 50 12 10 21

NTPC 175 14 36 24 20.3 168 23 11 5 9

Wipro 109 9 21 8 19.6 -29 16 10 3 5

Hindalco 201 5 21 9 10.4 37 8 8 2 2

State Bank 115 0 80 10 69.1 608 35 7 7 9

GAIL 120 7 18 2 14.9 -75 10 7 2 3

Sterlite Inds. 111 7 27 15 24.3 164 14 4 3 2

Larsen & Toubro 161 15 18 13 10.9 -29 11 1 2 0

Negative PAT Growth (10) 1,636 4 335 -4 20.5 -181 132 -14 27 -84

ONGC 189 4 95 -10 50.5 -828 46 0 10 0

Hero Motocorp 61 2 7 1 11.0 -19 6 0 1 0

Bajaj Auto 52 5 9 -4 18.2 -159 8 -8 2 -2

Infosys 101 8 28 -11 27.8 -594 21 -10 4 -9

BHEL 102 -3 18 -10 17.8 -147 12 -13 3 -7

JSPL 54 24 16 -13 28.9 -1227 8 -22 2 -9

Bharti Airtel 202 9 63 5 31.0 -129 7 -29 1 -11

Tata Motors 474 5 57 -17 12.0 -308 22 -37 5 -51

Tata Power 81 22 18 76 21.8 674 3 -41 1 -9

Tata Steel 320 -3 25 30 7.8 198 -2 Loss 0 15

Sensex (30) 4,414 9 884 6 20.0 -72 486 6 100 100

Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit

A–74January 2013


1724

37

24 2618

2531

37

2227 29

20 2328

18

-5-13 -12

-4

31

50

26 2720

15 136

14

16811 910

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 2Q 3QE

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E

Sensex YoY PAT growth trend: 3QFY13 growth the lowest ever 3Q PAT growth excluding 3QFY09 (global crisis)

Sensex YoY EBITDA growth: 3QFY13 the eighth consecutive quarter of sub-LPA EBITDA growth

Sensex YoY sales growth: 3QFY13 the fourth consecutive quarter of sub-LPA sales growth

25 28

39 4233

24

126

31 30

4333 30

2617 19

25 23

-7-15

-25-21

20

44

26 2722

-2

13 15

6

30

14

3 6



2027

34

23 21 2016

22

33 30 32

22

37 36 3844

31 30

6

-5-11

-6

19

3228

2218

23 2622 25

19 17

912



LPA: 18%

LPA: 18%

LPA: 22%

A–75January 2013


Intra-sector 3QFY13 earnings divergence (%)Sectors Sector +30% Growth 15-30% growth 0-15% growth -ve earnings Earnings

Growth (%) growth (%) momentum

Autos -14 MSIL: 138 HMCL: 0 BJAUT: -8, EIM: -22,

M & M: 45 TTMT: -37, AL: -47

Capital Goods -8 Cummins: 9 BHEL: -13,

Havells: 9, TMX: -18

L&T: 1 CRG: -52,

Cement -10 ACC: -3, ACEM: -6,

Shree Cement: 246 Ultratech: -12,

Grasim: -26, JPA: -40

Consumer 20 United Spirits: 160 Marico: 30, APNT: 23, Britannia: 15,

Godrej Consumer: 31 HUVR/ITC: 19, Colgate: 12,

Pidilite/Dabur: 17 Nestle: 7

Bank - Private 23 HDFC Bank: 30, KMB: 15,

IndusInd Bank: 32 Yes Bank: 29, Axis Bank: 15

ICICI Bank: 23

Bank - PSU -1 PNB: -4, OBC: -8,

Union Bank: 194 SBIN: 7 BOB: -10, INBK: -18,

CBK: -24; BOI: -24

Bank - NBFC 27 IDFC: 50, Dewan Housing: 22,

M&M Financial: 43, HDFC: 19, LIC Hsg. Fin.: 12

REC: 31 Shriram Trans: 18

Healthcare 34 Glenmark: 1,842, Cadila Health: 23, Sun Pharma: 15,

Strides Arcolab: 50, Cipla: 21, Lupin: 14, GSK Pharma: -1,

Ranbaxy Labs: 44, Divis Lab: 20 Sanofi India: 5 Biocon: -3

Dr Reddy's: 42, IPCA: 39

Media 26 Jagran Prakashan: 41, D B Corp: 21 HT Media: 11, Dish TV: Loss

Zee Ent: 32 Sun TV: 6

Metals -17 Tata Steel: Loss,

Nalco: 40 Hind. Zinc: 21 Hindalco: 8, JSPL: -22, NMDC: -27,

STLT: 4 Sesa Goa: -31

SAIL: -59, JSW: -66

Oil & Gas 14 Cairn India: 42 RIL: 12, GAIL: 7,

(Ex RMS) Indraprastha Petronet LNG: 0 Oil India: -15

Gas: 36 ONGC: 0

Real Estate 42 DLF: 238, Unitech: 28, HDIL: -6,

Anant Raj Inds: 59 Phoenix Mills: 23, Jaypee

Oberoi Realty: 16 Infratech : 55

Retai l 22 Jubilant Foodworks: 43, Pantaloon: -20,

Titan Inds: 31 Shopper's Stop: -54

Technology 10 HCL Tech: 51, Tech Mah: 24, Wipro: 10 Infosys: -10,

KPIT Cummins: 37 TCS: 19 MphasiS: 6 Hexaware: -28

Teleco m -16 Idea Cellular: 30 Rel iance Bharti Airtel: -29

Communication: 2

Uti l i t ies 12 JSW Energy: 215, Coal India: 15, NHPC: -14,

CESC: 126, NTPC: 11 Tata Power: -41

Powergrid: 31

Earnings momentum: Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to Profit

2 0 41

0 054

1 070

2 8 03

1 03

171

3 4 01

7 3 25

1 162

4 024

2 330

3 2 22

4 0 32

2 0 20

0

0 1 11

1 122

4

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 27 December 2012, unless otherwise stated.

December 2012 Results Preview

January 2013

MOSL Universe:3QFY13 Highlights

&Ready Reckoner

B–1January 2013

MOSL Universe

MOSL Universe: 3QFY13 aggregate performance highlights

Quarterly performance - MOSL universe (INR Billion)

Sales EBITDA Net Profit

(No of companies) Dec-12 Var. Var. Dec-12 Var. Var. Dec-12 Var. Var.

YoY (%) QoQ (%) YoY (%) QoQ (%) YoY (%) QoQ (%)

Auto (7) 847 10.5 11.7 100 -3.3 11.6 52 -14.1 10.4

Capital Goods (9) 384 6.6 8.1 45 -0.4 9.4 29 -7.5 9.3

Cement (8) 181 8.5 8.4 33 -5.2 -12.7 16 -9.8 -22.1

Consumer (13) 301 15.4 4.1 66 21.3 10.7 46 20.1 11.6

Financials (25) 477 11.8 4.9 380 12.0 6.5 196 11.7 3.0

Private Banks (8) 128 23.5 5.5 110 22.5 10.6 65 22.5 11.5

PSU Banks (9) 279 4.3 4.8 202 2.9 5.5 86 -1.1 -1.1

NBFC (8) 70 26.1 4.7 68 27.8 2.9 45 26.7 0.0

Health Care (17) 220 21.8 5.2 49 21.0 -2.7 31 33.5 -5.2

Media (6) 33 13.4 5.6 11 13.8 16.1 5 25.7 14.6

Metals (10) 943 -1.3 -2.4 146 -6.8 -1.2 71 -17.1 -5.6

Oil & Gas (13) 3,814 2.2 2.5 277 -35.4 -33.7 156 -45.1 -54.6

Excl. RMs (10) 1,702 12.4 5.7 246 -1.0 -6.2 158 14.1 -8.7

Real Estate (8) 44 0.9 7.5 19 1.6 11.4 15 41.8 102.6

Retail (4) 72 17.3 14.6 7 23.7 16.5 3 22.3 24.7

Technology (9) 479 14.3 2.3 116 6.5 -1.0 87 10.4 -3.6

Telecom (3) 310 8.5 0.6 95 6.0 0.4 12 -15.8 11.9

Utilities (9) 564 14.5 6.5 153 26.1 10.2 88 11.5 11.5

Others (5) 55 9.1 10.3 11 6.9 10.7 6 4.5 4.9

MOSL (146) 8,724 6.0 3.7 1,505 -3.8 -5.4 814 -10.8 -16.7

MOSL Excl. RMs (143) 6,612 10.0 4.9 1,475 6.5 2.7 816 6.5 1.1

Sensex (30) 4,414 9.5 4.9 884 5.7 4.1 486 5.6 1.3

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) Dec.11 Dec.12 Chg. (%) Dec.11 Dec.12 Chg. (%)

Auto (7) 13.5 11.8 -1.7 7.8 6.1 -1.7

Capital Goods (9) 12.6 11.8 -0.8 8.7 7.6 -1.2

Cement (8) 20.8 18.2 -2.6 10.4 8.6 -1.7

Consumer (13) 20.9 21.9 1.1 14.6 15.2 0.6

Financials (25) 79.5 79.6 0.1 41.1 41.1 0.0

Private Banks (8) 86.6 85.9 -0.7 51.5 51.1 -0.4

PSU Banks (9) 73.3 72.3 -1.0 32.4 30.7 -1.7

NBFC (8) 95.9 97.1 1.3 63.8 64.1 0.3

Health Care (17) 22.3 22.2 -0.1 13.1 14.3 1.3

Media (6) 32.3 32.4 0.1 14.0 15.5 1.5

Metals (10) 16.3 15.4 -0.9 9.0 7.6 -1.4

Oil & Gas (13) 11.5 7.3 -4.2 7.6 4.1 -3.5

Excl. RMs (10) 16.4 14.5 -2.0 9.2 9.3 0.1

Real Estate (8) 42.0 42.3 0.3 24.4 34.2 9.9

Retail (4) 9.3 9.8 0.5 3.7 3.9 0.2

Technology (9) 26.0 24.2 -1.8 18.9 18.2 -0.7

Telecom (3) 31.2 30.5 -0.7 5.1 4.0 -1.1

Utilities (9) 24.6 27.1 2.5 16.1 15.7 -0.4

Others (5) 20.0 19.6 -0.4 11.9 11.4 -0.5

MOSL (146) 19.0 17.3 -1.7 11.1 9.3 -1.7

MOSL Excl. RMs (143) 23.0 22.3 -0.7 12.7 12.3 -0.4

Sensex (30) 20.7 20.0 -0.7 11.4 11.0 -0.4

B–2January 2013

MOSL Universe

MOSL Universe: 3QFY13 aggregate performance highlights (Ex RMs)

Quarter-wise sales growth (% YoY) Quarter-wise net profit growth (% YoY)

Sectoral sales growth - quarter ended December 2012 (%)

Sectoral EBITDA growth - quarter ended December 2012 (%)

Sectoral net profit growth - quarter ended December 2012 (%)

17.6%

15.2%

11.6%10.0%

Mar-12 June-12 Sep-12 Dec-12E

17.6%

11.4%

8.3%6.5%

Mar-12 June-12 Sep-12 Dec-12E

2217

15 14 14 13 12 12 118 8

7

1

-1

10

Hea

lth

Care

Ret

ail

Con

sum

er

Uti

litie

s

Tech

nolo

gy

Med

ia

Oil

Ex.

RM

s

Fin

anc

ials

Aut

o

MO

SL E

x.

RM

s

Cem

ent

Tele

com

Cap

Goo

ds

Re

al

Esta

te

Met

als

26 24 21 21

14 12

7 62 0

-1 -3 -5

6

-7

Uti

litie

s

Ret

ail

Con

sum

er

Hea

lth

Care

Med

ia

Fin

anc

ials

Tech

nolo

gy

MO

SL E

x.

RM

s

Tele

com

Re

al

Esta

te

Cap

Goo

ds

Oil

Ex.

RM

s

Aut

o

Cem

ent

Met

als

4233

26 22 2014 12 12 10

-10 -14 -16 -17-8

6

Rea

l

Esta

te

Hea

lth

Care

Med

ia

Ret

ail

Cons

umer

Oil

Ex. R

Ms

Fin

anci

als

Uti

litie

s

Tech

nol

ogy

MO

SL

Ex.

RM

s

Cap

Goo

ds

Cem

ent

Aut

o

Tele

com

Me

tals

B–3January 2013

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 December 2012)

Source: MOSL

6053 50

47 44 41 40 40 39 39

PTC

Ind

ia

An

ant

Raj

Inds

Jub

ilan

t

Food

wor

ks

KPI

T

Cum

min

s

Mar

uti

Suzu

ki

Cair

n In

dia

Pow

er G

rid

Corp

.M

& M

Fina

ncia

l

Pow

er

Fina

nce

Dew

an

Ho

usin

g

-24-19 -18

-13 -11-9 -9 -8 -7

-86

Sesa

Goa

NM

DC

HD

IL

Mah

indr

a

Life

spac

e

Re

lianc

e

Infr

astr

uctu

reA

sho

k

Leyl

and

Jayp

ee

Infr

ate

ch

The

rmax

And

hra

Ba

nk

IOC

188

10081 79 76 76 69 66 50

570

Chen

nai

Petr

ole

um

PTC

Indi

a

Mar

uti

Suz

uki

JSW

Ene

rgy

MR

PL

Tata

Pow

er

St

ride

s

Arc

olab

Ran

baxy

Labs

CESC

Gle

nm

ark

Pha

rma

-89 -86-80

-36-31 -31 -31 -28 -28

-94

Sesa

Goa

HPC

L

BPC

L

IOC

NM

DC

Mah

indr

a

Life

spa

ce

Bir

la

Corp

ora

tio

n

BG

R E

nerg

y

Sho

ppe

r's

Stop

SAIL

391

246 238 215 194 191 160 138 126

1,842

Gle

nma

rk

Pha

rma

PTC

Ind

ia

Shre

e

Cem

ent

DLF

JSW

Ener

gyU

nio

n

Ban

k

MR

PL

Un

ite

d

Spir

its

Mar

uti

Suzu

ki

CES

C

-99

-77-66

-59 -58 -55 -54 -52 -50 -47

IOC

Ind

ia

Cem

ent

s

JSW

Ste

el

SAIL

Bir

la

Cor

pora

tion

Jayp

ee

Infr

atec

h

Sho

pper

's

Sto

pCr

om

pto

n

Gre

aves

BG

R E

ner

gy

Ash

ok

Leyl

and

B–4January 2013

MOSL Universe

Valuations - MOSL universe

Sector P/E EV/EBITDA P/BV RoE Div. PAT

(x) (x) (x) (%) yld (%) CAGR

(No. of companies) FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY12 FY13-15

Auto (7) 14.0 11.2 9.6 6.6 5.4 4.5 3.3 2.7 2.2 23.6 24.5 23.5 1.5 20.7

Capital Goods (9) 16.0 16.2 15.9 10.2 9.8 9.2 3.0 2.7 2.4 18.9 16.7 15.3 1.5 0.4

Cement (8) 16.9 13.6 11.4 10.2 7.0 5.9 2.6 2.3 2.1 15.5 16.8 17.5 1.0 21.7

Consumer (13) 33.3 27.9 23.7 22.3 18.5 15.5 11.0 9.6 8.2 33.1 34.3 35.1 1.3 18.7

Financials (27) 11.6 9.8 8.2 NM NM NM 2.0 1.7 1.5 17.0 17.6 18.6 1.7 19.2

Private Banks (8) 17.5 14.1 11.7 NM NM NM 3.0 2.6 2.4 17.1 18.4 20.2 1.0 22.6

PSU Banks (11) 7.4 6.3 5.3 NM NM NM 1.2 1.0 0.9 15.9 16.3 16.9 2.4 17.5

NBFC (8) 13.3 11.3 9.5 NM NM NM 2.7 2.3 2.0 19.9 20.1 20.9 1.9 18.3

Health Care (17) 23.2 19.2 16.4 14.0 13.0 10.9 4.6 4.0 3.5 19.9 20.6 20.7 0.8 18.9

Media (6) 30.4 25.4 20.6 13.9 11.7 9.6 5.4 4.8 4.3 17.7 19.1 20.7 1.3 21.5

Metals (10) 10.6 8.9 8.5 7.2 6.2 5.7 1.2 1.1 1.0 11.3 12.3 11.8 1.9 11.6

Oil & Gas (13) 10.1 9.4 8.8 6.5 5.5 5.0 1.4 1.2 1.2 13.6 13.1 12.8 2.1 6.8

Excl. RMs (10) 9.8 9.3 8.8 5.7 4.9 4.5 1.4 1.3 1.2 14.6 13.9 13.3 2.1 5.5

Real Estate (11) 17.9 14.4 10.6 14.5 10.4 8.2 1.0 1.0 0.9 5.6 6.6 8.4 0.9 30.2

Retail (3) 40.8 30.8 24.0 25.5 19.1 14.6 12.3 9.5 7.5 30.0 31.0 30.9 0.5 30.3

Technology (9) 15.2 14.3 13.0 10.4 9.6 8.5 4.0 3.4 2.9 26.5 24.0 22.7 1.9 8.0

Telecom (3) 34.7 24.9 17.0 7.7 6.7 5.7 1.8 1.7 1.6 5.1 6.7 9.0 0.3 42.7

Utilities (9) 13.2 12.1 10.9 9.3 8.6 7.6 2.1 1.9 1.8 16.1 16.0 16.2 2.7 10.2

Others (5) 15.2 12.8 10.9 9.5 7.8 6.5 2.7 2.4 2.1 17.6 18.9 19.6 1.7 18.4

MOSL (150) 14.2 12.4 11.0 N.M N.M N.M 2.2 2.0 1.8 15.7 16.1 16.3 1.7 14.0

MOSL Excl. RMs (147) 14.3 12.5 11.0 N.M N.M N.M 2.3 2.0 1.8 16.1 16.3 16.5 1.7 14.0

Sensex (30) 16.1 13.9 12.3 N.M N.M N.M 2.7 2.4 2.1 16.7 17.1 17.3 1.7 14.5

Nifty (50) 15.7 13.6 11.9 N.M N.M N.M 2.6 2.3 2.1 16.8 17.2 17.4 1.6 14.7

N.M. - Not Meaningful. Source: MOSL

Annual performance - MOSL universe (INR Billion)

Sales EBITDA Net Profit

FY13E FY14E FY15E Chg.# Chg.@ FY13E FY14E FY15E Chg.# Chg.@ FY13E FY14E FY15E Chg.# Chg.@

(%) (%) (%) (%) (%) (%)

Auto (7) 3,688 4,192 4,752 14.3 13.7 476 566 647 14.0 18.8 226 284 329 -4.5 25.8

Capital Goods (9) 1,649 1,765 1,923 7.9 7.1 211 215 220 2.8 1.5 143 142 144 -0.1 -1.0

Cement (8) 959 1,113 1,260 12.4 16.1 215 265 299 13.3 22.9 107 133 159 8.2 23.9

Consumer (13) 1,183 1,377 1,595 16.4 16.4 249 297 349 20.9 19.1 170 203 239 22.2 19.4

Financials (27) 2,104 2,499 2,944 14.2 18.8 1,660 1,980 2,367 12.7 19.3 867 1,031 1,231 15.4 19.0

Private Banks (8) 496 610 738 23.8 23.1 420 529 644 25.0 25.8 257 318 385 23.8 24.0

PSU Banks (11) 1,331 1,558 1,811 9.0 17.0 969 1,129 1,339 5.6 16.5 428 499 590 8.3 16.6

NBFC (8) 278 332 396 25.7 19.4 271 322 383 23.7 18.8 182 214 255 22.8 17.7

Health Care (17) 886 969 1,115 19.8 9.4 212 225 261 20.3 6.3 126 152 178 21.2 20.3

Media (6) 129 147 168 11.5 13.9 39 46 54 9.5 16.6 18 22 27 10.6 19.8

Metals (10) 3,948 4,104 4,345 0.8 3.9 651 776 842 -6.6 19.2 332 396 413 -9.1 19.3

Oil & Gas (13) 15,852 15,910 15,653 8.7 0.4 1,323 1,531 1,635 -8.6 15.7 745 795 849 -5.5 6.7

Excl. RMs (10) 7,483 7,510 7,565 13.3 0.4 1,109 1,249 1,323 -6.4 12.6 663 701 738 1.7 5.7

Real Estate (11) 227 300 356 0.1 32.2 92 124 153 4.8 35.0 50 63 85 7.1 24.7

Retail (3) 139 174 214 19.3 24.9 14 18 23 20.2 30.9 9 12 15 16.4 32.6

Technology (9) 1,903 2,088 2,340 21.5 9.7 472 494 537 20.5 4.7 357 377 417 21.8 5.8

Telecom (3) 1,238 1,351 1,477 11.2 9.2 377 417 463 6.8 10.8 49 69 100 -17.4 39.1

Utilities (9) 2,037 2,227 2,456 10.0 9.3 588 651 740 15.6 10.9 373 406 453 7.3 9.1

Others (5) 216 245 273 9.3 13.7 43 52 60 4.2 19.4 27 33 38 2.7 19.5

MOSL (150) 36,156 38462 40872 9.9 6.4 6,622 7655 8652 6.1 15.6 3,599 4117 4678 5.1 14.4

Excl. RMs (147) 27,787 30061 32784 11.5 8.2 6,408 7374 8339 7.2 15.1 3,517 4023 4567 7.0 14.4

Sensex (30) 9,756 10,339 11,168 13.5 6.0 1,874 2,148 2,428 7.7 14.7 1,021 1,183 1,339 8.1 15.8

Nifty (50) 10,981 11,638 12,589 10.9 6.0 2,159 2,482 2,823 9.1 15.0 1,190 1,372 1,565 10.6 15.2

# 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–5January 2013

MOSL Universe

Ready reckoner: quarterly performance

(INR Million) CMP Rating Sales EBITDA Net Profit

(INR) Dec.12 Var. Var. Dec.12 Var. Var. Dec.12 Var. Var.

27.12.12 % YoY % QoQ % YoY % QoQ % YoY % QoQ

Automobiles

Ashok Leyland 27 Buy 25,735 -11.4 -21.9 2,189 4.0 -34.5 352 -47.4 -75.3

Bajaj Auto 2,135 Buy 52,238 4.8 5.1 9,482 -3.7 3.6 7,694 -7.7 3.9

Eicher Motors 2,758 Buy 16,775 6.2 13.1 1,465 -3.9 31.6 666 -22.1 0.9

Hero Motocorp 1,869 Buy 61,205 2.3 18.8 6,705 0.6 43.0 6,100 -0.5 38.5

Mahindra & Mahindra 931 Buy 105,941 29.0 14.5 15,202 39.4 18.8 9,803 44.8 0.2

Maruti Suzuki 1,482 Buy 111,687 44.5 34.5 8,074 100.2 58.8 4,886 137.6 114.8

Tata Motors 310 Buy 473,509 4.6 9.1 56,821 -16.8 6.5 22,149 -37.3 6.4

Sector Aggregate 847,089 10.5 11.7 99,938 -3.3 11.6 51,649 -14.1 10.4

Capital Goods

ABB 692 Neutral 24,632 12.0 36.2 1,251 15.8 88.5 624 -2.6 192.2

BGR Energy 260 Neutral 7,869 -2.1 25.4 910 -30.7 -4.5 273 -50.2 -21.5

BHEL 226 Neutral 102,163 -3.1 -1.8 18,216 -10.5 -4.1 12,479 -12.9 -2.1

Crompton Greaves 113 Buy 30,382 0.3 3.9 1,443 -21.0 5.7 370 -52.0 -12.0

Cummins India 514 Buy 10,941 13.7 0.7 2,031 26.0 1.6 1,538 9.1 -4.6

Havells India 630 Buy 10,598 18.0 9.9 1,330 16.2 2.9 902 8.7 12.2

Larsen & Toubro 1,615 Buy 161,466 15.5 22.4 17,600 12.5 25.2 11,395 1.1 24.5

Siemens 665 Neutral 24,825 4.9 -26.4 1,497 19.4 50.5 723 2.3 76.6

Thermax 615 Neutral 11,568 -8.9 -3.0 1,144 -16.2 -6.1 784 -17.9 -13.9


Cement

ACC 1,405 Neutral 26,091 4.3 6.7 3,327 -14.5 -23.5 1,885 -2.6 -24.2

Ambuja Cements 200 Buy 25,143 7.6 16.0 4,879 13.9 -13.6 3,110 -5.8 -7.8

Birla Corporation 294 Buy 5,900 24.2 -6.0 608 -8.4 -44.8 295 -32.5 -63.2

Grasim Industries 3,141 Buy 11,555 -7.0 -13.4 2,200 -22.9 -24.1 2,020 -26.4 -47.2

India Cements 88 Buy 9,850 4.6 -12.3 1,522 -21.8 -25.8 130 -76.9 -73.5

Jaiprakash Associates 97 Buy 37,922 14.7 27.1 7,679 -5.9 -0.4 1,228 -39.6 -4.1

Shree Cement 4,522 Buy 14,666 16.5 10.9 3,732 12.4 -5.0 2,046 245.5 -10.6

Ultratech Cement 1,969 Buy 50,053 9.6 6.5 9,175 -4.9 -8.9 5,009 -12.0 -8.9

Sector Aggregate 181,029 8.5 8.4 32,972 -5.2 -12.7 15,609 -9.8 -22.1

Consumer

Asian Paints 4,352 Neutral 29,920 16.9 14.4 4,997 25.7 38.3 3,159 23.0 32.1

Britannia 493 Se l l 14,080 12.9 0.4 859 5.3 41.7 622 15.0 36.4

Colgate 1,525 Neutral 7,850 17.2 1.5 1,720 15.2 -2.2 1,300 12.5 -10.4

Dabur 128 Neutral 16,300 12.2 7.1 2,690 21.4 1.7 2,016 16.6 -0.4

Godrej Consumer 728 Neutral 17,630 31.2 10.5 3,403 28.3 39.5 2,187 30.9 37.3

GSK Consumer 3,816 Buy 6,684 11.0 -19.2 819 32.8 -41.7 799 23.7 -37.8

Hind. Unilever 518 Neutral 67,325 13.0 6.7 11,580 17.1 18.6 9,098 19.4 12.9

ITC 289 Buy 73,500 17.6 1.7 28,518 19.8 6.1 20,226 18.9 10.1

Marico 221 Buy 12,250 15.8 6.0 1,715 40.9 16.2 1,097 30.4 27.7

Nestle 4,947 Neutral 21,713 11.1 2.6 4,845 17.4 9.3 2,880 7.4 9.5

Pidilite Inds. 216 Buy 8,400 21.9 2.3 1,579 32.9 7.6 1,099 17.0 -1.6

Radico Khaitan 150 Buy 3,420 13.4 15.1 530 18.7 7.9 251 18.3 21.0

United Spirits 1,899 Buy 21,500 10.0 -3.2 2,623 40.3 3.6 853 160.5 117.2

Sector Aggregate 300,571 15.4 4.1 65,877 21.3 10.7 45,586 20.1 11.6

PULL OUT

B–6January 2013

MOSL Universe


Healthcare

Biocon 282 Neutral 6,152 18.9 3.8 1,300 2.0 11.6 821 -3.2 -8.4

Cadila Health 892 Buy 16,743 21.0 8.3 3,215 21.8 9.7 1,842 23.4 93.6

Cipla 416 Neutral 20,171 14.7 2.6 4,709 20.3 -13.1 3,254 20.5 -18.4

Dishman Pharma 115 Neutral 3,215 21.1 11.1 677 28.5 16.2 187 11.7 -29.7

Divis Labs 1,085 Buy 5,410 30.5 14.5 1,986 33.9 7.6 1,475 20.3 25.0

Dr Reddy’ s Labs 1,827 Buy 26,823 23.1 1.3 5,633 21.9 -3.5 3,417 42.1 1.9

Glenmark Pharma 534 Buy 12,296 25.7 0.8 2,407 50.1 1.8 1,476 1842.2 3.6

GSK Pharma 2,109 Buy 6,218 9.8 -7.0 1,713 0.4 -13.9 1,463 -0.7 -10.6

IPCA Labs. 519 Buy 7,292 18.6 -5.5 1,771 17.1 -1.0 887 38.7 -29.1

Jubiliant Life 223 Neutral 12,998 19.6 6.6 2,507 21.1 -1.7 574 LP -48.5

Lupin 614 Buy 22,566 27.4 1.9 4,165 14.0 -4.9 2,849 14.0 2.5

Opto Circuits 105 Neutral 7,297 19.4 20.2 1,904 11.3 15.2 1,374 9.7 18.2

Ranbaxy Labs 501 Neutral 28,616 34.7 16.7 3,439 69.5 11.9 2,236 43.7 -17.6

Sanofi India 2,290 Neutral 3,932 16.4 -0.9 472 19.7 -41.4 377 4.5 -26.6

Strides Arcolab 1,085 Neutral 6,697 -2.4 16.0 1,710 75.9 19.2 1,023 49.6 95.0

Sun Pharma 746 Neutral 24,757 21.5 0.7 9,409 5.7 -11.9 7,012 14.8 -15.7

Torrent Pharma 709 Buy 8,350 19.9 7.4 1,655 36.3 6.6 1,149 38.1 7.1

Sector Aggregate 219,533 21.8 5.2 48,669 21.0 -2.7 31,415 33.5 -5.2

Media

D B Corp 225 Buy 4,211 6.4 11.3 1,144 12.4 32.9 671 21.3 38.1

Dish TV 75 Neutral 5,680 15.8 6.4 1,497 24.6 -3.8 -256 Loss Loss

HT Media 102 Neutral 5,545 5.3 8.6 860 10.7 52.2 534 10.7 60.2

Jagran Prakashan 102 Buy 3,480 7.4 8.0 991 16.4 26.7 582 40.8 19.6

Sun TV 422 Neutral 4,836 13.8 11.6 3,747 9.8 13.9 1,775 5.7 17.1

Zee Entertainment 220 Neutral 9,330 23.6 -2.2 2,482 14.9 14.0 1,835 31.7 -2.2


Metals

Hindalco 128 Buy 200,915 4.7 2.0 20,943 8.6 -3.9 8,128 8.1 -10.9

Hindustan Zinc 135 Buy 32,345 16.1 12.9 16,338 16.5 13.2 15,456 20.9 0.4

JSPL 447 Se l l 54,024 24.0 16.0 15,591 -13.0 -8.1 7,982 -21.8 -11.0

JSW Steel 806 Se l l 79,113 0.4 -10.8 13,671 9.1 -10.4 3,268 -65.9 -37.0

Nalco 50 Neutral 14,728 1.5 -8.4 980 43.2 LP 718 40.2 1,402.0

NMDC 160 Buy 21,548 -23.6 -17.5 14,361 -36.5 -25.8 13,638 -26.6 -18.8

SAIL 89 Se l l 106,134 -3.9 -1.9 11,420 -27.8 2.9 4,542 -58.6 -7.5

Sesa Goa 192 Buy 3,659 -86.0 24.3 605 -94.4 942.0 6,007 -30.9 48.2

Sterlite Inds. 114 Buy 110,664 7.4 -0.3 26,850 15.2 6.3 13,883 3.9 -8.9

Tata Steel 431 Se l l 320,248 -3.3 -6.2 24,847 29.9 7.6 -2,172 Loss Loss

Sector Aggregate 943,378 -1.3 -2.4 145,607 -6.8 -1.2 71,449 -17.1 -5.6

Others

Castrol India 296 Neutral 8,096 5.2 12.2 1,680 9.8 38.3 1,171 9.6 36.6

Container Corpn. 914 Buy 11,784 12.6 11.7 2,807 1.2 9.0 2,285 -5.3 -1.7

MCX 1,472 Buy 1,243 -4.1 -5.1 732 -10.7 -10.4 668 -3.0 -18.0

Sintex Inds. 64 Buy 11,953 3.0 -0.3 1,861 14.1 1.8 895 30.0 16.0

United Phosphorous 123 Buy 21,630 13.4 16.5 3,654 11.3 12.0 1,240 9.3 3.5


PL: Profit to Loss; LP: Loss to Profit




PULL OUT

B–7January 2013

MOSL Universe


Oil & Gas

BPCL 345 Buy 577,243 -1.9 1.5 5,142 -86.1 -87.7 -1,443 PL PL

Cairn India 316 Neutral 43,775 41.4 -1.5 33,841 32.9 -2.0 32,156 42.2 38.5

Chennai Petroleum 137 Buy 132,523 18.8 70.3 4,148 570.4 215.8 2,593 LP 338.8

GAIL 348 Neutral 120,121 6.7 5.7 17,880 1.6 29.5 10,363 6.9 5.2

Gujarat State Petronet 76 Neutral 2,572 -6.1 -5.8 2,366 -6.0 -6.1 1,208 -4.3 -9.1

HPCL 281 Buy 469,003 -2.1 -3.2 3,877 -89.1 -82.8 -2,119 PL PL

IOC 261 Buy 1,065,835 -7.5 0.7 21,633 -79.8 -76.1 1,132 -98.7 -98.8

Indraprastha Gas 249 UR 9,098 37.5 6.5 2,009 34.9 -2.5 944 36.5 -4.9

MRPL 60 Neutral 169,368 31.0 3.8 5,390 79.0 -53.4 3,190 190.6 -73.1

Oil India 459 Buy 23,349 -6.5 -2.8 10,509 -21.3 -8.4 8,665 -14.5 -9.2

ONGC 259 Buy 188,898 4.2 -4.5 95,436 -10.5 -7.1 46,243 -0.3 -21.6

Petronet LNG 159 Buy 73,450 16.0 -2.7 4,824 -5.0 -6.9 2,948 -0.2 -6.3

Reliance Inds. 818 Neutral 939,157 10.3 4.0 69,633 -4.4 -9.6 49,831 12.2 -7.3

Sector Aggregate 3,814,392 2.2 2.5 276,689 -35.4 -33.7 155,711 -45.1 -54.6

Oil & Gas Excl. RMs 1,702,311 12.4 5.7 246,036 -1.0 -6.2 158,141 14.1 -8.7

Real Estate

Anant Raj Inds 92 Buy 1,408 52.8 2.6 725 48.0 1.1 501 59.1 -0.2

DLF 225 Buy 20,585 1.2 0.9 8,440 2.6 13.1 8,741 238.4 531.1

HDIL 110 Neutral 3,430 -19.4 32.6 2,058 27.6 1.9 1,462 -6.1 4.0

Jaypee Infratech 52 Buy 8,202 -9.1 16.4 4,265 -14.2 19.0 1,754 -55.3 -3.1

Mahindra Lifespace 411 Buy 1,266 -17.6 51.1 317 -31.4 110.2 367 -7.0 17.0

Oberoi Realty 294 Buy 2,318 23.8 -10.0 1,368 20.6 -8.6 1,186 16.2 -4.6

Phoenix Mills 247 Buy 671 32.8 0.9 439 17.7 0.2 332 23.5 0.5

Unitech 34 Buy 6,076 19.5 12.6 972 -5.5 18.8 704 27.5 60.5


Retail

Jubilant Foodworks 1,283 Neutral 4,160 50.2 21.6 749 45.2 27.6 422 43.2 30.4

Pantaloon Retail 237 Neutral 31,827 10.0 4.0 2,928 12.1 10.6 108 -20.2 266.1

Shopper's Stop 446 Neutral 5,930 18.2 2.3 297 -28.3 2.0 88 -54.3 37.9

Titan Industries 282 Buy 29,800 22.1 30.9 3,040 42.8 21.9 2,147 31.0 19.2


Technology

HCL Technologies 625 Buy 62,256 18.7 2.2 12,542 32.2 -5.6 8,358 51.2 -4.1

Hexaware Tech. 84 Buy 4,985 15.4 -1.8 871 -12.4 -20.7 634 -28.1 -24.5

Infosys 2,287 Buy 100,548 8.1 2.0 27,928 -10.9 -2.8 21,356 -10.0 -9.9

KPIT Cummins 107 Buy 5,557 46.7 -2.0 867 49.5 -8.3 562 36.7 35.7

Mindtree 698 Buy 5,875 13.0 -1.5 1,196 33.3 -9.3 868 43.3 20.3

MphasiS 379 Se l l 13,169 -3.7 0.8 2,596 2.9 -3.8 1,951 5.6 -6.8

TCS 1,250 Neutral 159,845 21.1 2.3 45,233 10.5 1.9 34,305 18.8 -2.3

Tech Mahindra 920 Buy 17,477 21.0 7.1 3,437 46.7 1.8 3,414 23.5 15.3

Wipro 386 Buy 109,200 9.2 2.5 21,363 7.7 -0.1 15,953 9.5 -0.9


Telecom

Bharti Airtel 319 Buy 202,275 9.5 -0.2 62,615 5.1 -1.4 7,152 -29.3 -0.8

Idea Cellular 105 Buy 54,826 9.0 3.2 14,803 10.1 4.1 2,623 30.5 9.3

Reliance Comm 73 Neutral 52,679 4.3 1.3 17,099 6.1 4.4 2,465 2.4 86.3

Sector Aggregate 309,779 8.5 0.6 94,517 6.0 0.4 12,240 -15.8 11.9




PULL OUT

UR = Under Review

B–8January 2013

MOSL Universe


CMP Rating Net Interest Income Operating Profit Net Profit



Financials

Private Banks

Axis Bank 1,364 Buy 24,798 15.9 6.6 23,233 12.8 6.7 12,651 14.8 12.6

Federal Bank 535 Buy 5,138 -2.7 1.6 3,988 -4.8 14.1 2,062 2.2 -4.1

HDFC Bank 679 Neutral 39,114 25.5 4.8 30,664 28.9 19.3 18,607 30.2 19.3

ICICI Bank 1,137 Buy 35,588 31.2 5.6 34,140 27.0 6.9 21,228 22.8 8.5

IndusInd Bank 416 Buy 5,543 28.7 8.7 4,714 35.0 12.3 2,710 31.6 8.3

ING Vysya Bank 519 Buy 3,766 16.4 2.1 2,417 14.4 6.2 1,453 21.6 -3.3

Kotak Mahindra Bank 649 Neutral 7,877 20.9 3.9 5,089 14.7 5.5 3,171 14.9 13.1

Yes Bank 466 Buy 5,758 34.7 9.8 5,355 34.3 10.5 3,277 29.0 7.1

Pvt Banking Sector Aggregate 127,583 23.5 5.5 109,599 22.5 10.6 65,160 22.5 11.5

PSU Banks

Andhra Bank 116 Buy 9,029 -8.2 1.0 6,513 -15.2 2.1 2,765 -8.8 -15.1

Bank of Baroda 860 Neutral 30,358 14.3 6.1 24,700 -4.8 3.7 11,569 -10.3 -11.9

Bank of India 338 Neutral 22,650 9.6 3.1 18,669 7.8 0.7 5,416 -24.4 79.4

Canara Bank 488 Buy 20,579 7.3 5.2 13,613 -13.7 6.2 6,676 -23.7 1.0

Indian Bank 192 Buy 11,588 -1.0 3.4 8,919 -2.2 -1.8 4,326 -17.7 -12.9

Oriental Bank 336 Buy 12,463 9.3 7.7 9,636 16.5 4.6 3,260 -8.0 7.9

Punjab National Bank 845 Buy 38,307 8.3 5.0 27,246 1.8 7.6 11,075 -3.7 3.9

State Bank 2,389 Buy 115,213 0.0 5.0 79,618 9.7 8.3 34,924 7.0 -4.5

Union Bank 270 Buy 19,159 7.6 3.6 13,098 2.0 2.9 5,793 194.0 4.5

PSU Banking Sector Aggregate 279,346 4.3 4.8 202,012 2.9 5.5 85,802 -1.1 -1.1

NBFC

Dewan Housing 177 Buy 1,724 38.9 10.6 1,419 24.7 6.7 914 21.9 6.5

HDFC 828 Buy 14,608 18.2 5.4 16,208 20.2 2.1 11,683 19.1 1.5

IDFC 171 Buy 6,951 27.3 6.0 7,456 35.8 2.7 4,701 49.7 -1.2

LIC Housing Fin 289 Buy 3,811 17.0 7.8 3,671 12.5 8.2 2,519 11.6 3.7

M & M Financial 1,127 Buy 5,914 39.9 12.4 4,146 48.3 14.4 2,209 42.8 17.7

Power Finance Corp 198 Buy 15,252 39.0 3.4 15,062 37.9 3.4 10,151 28.3 -3.7

Rural Electric. Corp. 239 Buy 12,778 27.1 -0.2 12,804 31.1 -1.6 9,226 30.8 -4.3

Shriram Transport Fin. 735 Buy 9,082 13.0 4.7 7,350 13.7 3.2 3,577 18.2 6.0

NBFC Banking Sector Aggregate 70,120 26.1 4.7 68,115 27.8 2.9 44,980 26.7 0.0





Utilities

CESC 305 Buy 12,942 25.4 -3.7 3,530 65.7 13.5 1,674 126.3 23.1

Coal India 354 UR 167,185 8.9 14.7 49,450 8.9 72.8 42,568 15.4 38.3

JSW Energy 66 Neutral 23,615 33.5 13.7 6,338 81.3 9.9 1,730 215.3 7.1

NHPC 26 Neutral 9,499 7.7 -46.4 4,424 16.8 -63.2 2,568 -13.7 -65.4

NTPC 155 Buy 174,810 14.0 8.4 35,503 24.3 -16.0 23,030 11.3 9.8

Power Grid Corp. 114 Buy 34,649 40.5 12.3 30,199 43.6 13.1 10,131 30.8 -3.2

PTC India 73 Buy 21,233 59.6 -24.0 603 187.7 6.0 467 390.8 4.7

Reliance Infrastructure 517 Buy 39,155 -12.6 11.9 5,090 -21.9 12.2 2,998 -26.1 -27.6

Tata Power 109 Neutral 81,168 21.9 5.4 17,691 76.4 17.2 3,259 -41.0 58.0


PL: Profit to Loss; LP: Loss to Profit; UR = Under Review

PULL OUT

B–9January 2013

MOSL Universe

Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)

27.12.12 FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E

Automobiles

Ashok Leyland 27 Buy 1.7 2.6 3.4 16.1 10.5 7.9 7.5 5.7 4.7 10.2 14.7 17.9

Bajaj Auto 2,135 Buy 103.5 128.6 147.3 20.6 16.6 14.5 14.7 11.4 9.3 44.7 45.0 41.0

Eicher Motors 2,758 Buy 117.8 121.6 176.1 23.4 22.7 15.7 11.2 9.5 6.1 19.6 17.7 22.2

Hero Motocorp 1,869 Buy 114.8 124.8 163.4 16.3 15.0 11.4 13.6 10.8 7.4 43.3 39.0 41.3

Mahindra & Mah. 931 Buy 64.6 78.9 95.0 14.4 11.8 9.8 5.7 4.8 3.9 22.5 20.8 19.9

Maruti Suzuki 1,482 Buy 70.8 105.4 130.7 20.9 14.1 11.3 9.7 6.4 4.8 11.0 14.4 15.6

Tata Motors 310 Buy 31.7 40.0 43.2 9.8 7.7 7.2 4.6 4.0 3.5 24.4 24.3 21.2

Sector Aggregate 14.0 11.2 9.6 6.6 5.4 4.5 23.6 24.5 23.5

Capital Goods

ABB 692 Neutral 8.6 13.2 22.2 80.1 52.3 31.2 43.6 30.6 19.1 7.0 10.1 15.3

BGR Energy 260 Neutral 21.3 22.0 23.0 12.2 11.8 11.3 7.4 6.5 6.8 13.2 12.7 12.4

BHEL 226 Neutral 26.1 19.7 12.7 8.7 11.5 17.8 5.2 6.5 8.3 23.2 15.4 9.2

Crompton Greaves 113 Buy 3.0 8.9 13.7 38.0 12.6 8.2 14.5 8.5 6.0 5.2 14.7 20.1

Cummins India 514 Buy 23.8 28.1 32.3 21.6 18.3 15.9 15.7 12.9 11.2 30.3 31.8 32.3

Havells India 630 Buy 30.9 40.0 47.4 20.4 15.7 13.3 9.9 9.8 8.0 38.5 28.6 27.0

Larsen & Toubro 1,615 Buy 88.6 96.7 113.2 18.2 16.7 14.3 12.5 10.4 8.9 17.8 17.2 17.6

Siemens 665 Neutral 17.7 23.1 29.3 37.5 28.7 22.7 19.6 15.7 12.9 14.7 17.9 20.4

Thermax 615 Neutral 27.0 30.5 34.4 22.7 20.1 17.9 14.0 10.9 8.3 18.6 18.7 18.9


Cement

ACC 1,405 Neutral 66.0 80.4 98.2 21.3 17.5 14.3 11.4 9.5 7.7 16.8 19.0 20.8

Ambuja Cements 200 Buy 10.6 12.2 14.4 18.9 16.4 13.9 10.8 9.4 8.0 19.3 20.1 21.1

Birla Corporation 294 Buy 34.7 43.3 58.8 18.9 16.4 13.9 4.7 3.2 2.0 10.9 12.3 14.7

Grasim Industries 3,141 Buy 318.7 379.3 459.1 9.9 8.3 6.8 4.5 3.3 2.5 14.9 15.3 15.8

India Cements 88 Buy 7.7 12.6 18.1 11.4 6.9 4.8 6.6 5.1 3.8 5.1 7.8 10.8

J P Associates 97 Buy 3.0 4.2 4.9 32.1 22.8 19.6 19.6 9.7 9.0 6.5 9.2 9.9

Shree Cement 4,522 Buy 306.6 375.6 461.1 14.7 12.0 9.8 8.0 6.4 4.8 34.1 33.1 30.9

Ultratech Cement 1,969 Buy 100.6 129.2 147.7 19.6 15.2 13.3 11.9 8.9 7.6 19.6 21.1 20.2


Consumer

Asian Paints 4,352 Neutral 118.8 139.3 172.3 36.6 31.2 25.3 23.1 19.0 15.6 34.2 33.4 34.0

Britannia 493 Se l l 17.3 21.0 24.2 28.5 23.5 20.4 20.5 15.9 13.2 33.6 34.9 34.4

Colgate 1,525 Neutral 40.0 46.5 54.0 38.1 32.8 28.3 28.2 23.8 20.3 114.7 108.7 103.7

Dabur 128 Neutral 4.4 5.5 6.5 29.2 23.4 19.6 22.0 18.0 15.0 34.7 35.7 35.1

Godrej Consumer 728 Neutral 22.0 27.4 33.2 33.0 26.5 22.0 23.4 18.4 15.4 23.1 24.7 25.0

GSK Consumer 3,816 Buy 106.3 122.6 143.1 35.9 31.1 26.7 24.6 20.5 17.0 32.6 31.6 31.0

Hind. Unilever 518 Neutral 15.5 17.5 19.0 33.5 29.6 27.2 25.4 21.8 18.8 71.1 62.1 56.4

ITC 289 Buy 9.5 11.1 13.2 30.5 25.9 22.0 19.9 16.7 14.0 36.0 38.4 40.9

Marico 221 Buy 6.5 8.1 10.0 34.1 27.2 22.1 22.1 18.0 14.9 20.9 21.2 21.2

Nestle 4,947 Neutral 112.3 133.9 163.4 44.1 36.9 30.3 26.6 21.9 18.1 71.6 63.5 60.1

Pidilite Inds. 216 Buy 8.5 10.2 12.0 25.5 21.2 18.0 16.3 13.2 10.8 24.7 25.0 24.7

Radico Khaitan 150 Buy 6.7 8.9 11.5 22.3 16.9 13.0 12.8 10.6 8.9 12.1 14.3 16.4

United Spirits 1,899 Buy 30.0 58.6 81.2 63.3 32.4 23.4 24.8 18.2 14.3 4.3 7.8 9.9


PULL OUT

B–10January 2013

MOSL Universe



Healthcare

Biocon 282 Neutral 17.0 17.2 19.7 16.6 16.4 14.3 9.1 8.2 6.9 13.1 12.5 13.1

Cadila Health 892 Buy 33.1 47.5 56.8 27.0 18.8 15.7 15.4 12.2 10.2 23.8 27.8 26.9

Cipla 416 Neutral 16.5 19.5 22.5 25.1 21.3 18.5 14.9 14.3 12.3 15.1 15.7 16.0

Dishman Pharma 115 Neutral 12.3 15.7 18.6 9.3 7.3 6.2 6.4 5.3 4.6 10.3 11.8 12.6

Divis Labs 1,085 Buy 50.2 61.3 74.2 21.6 17.7 14.6 15.8 12.5 10.1 28.6 29.3 29.6

Dr Reddy’ s Labs 1,827 Buy 89.2 103.7 121.0 20.5 17.6 15.1 14.2 13.6 11.8 22.6 23.0 23.4

Glenmark Pharma 534 Buy 17.2 26.0 31.4 31.0 20.5 17.0 15.7 13.4 11.1 16.5 20.1 19.6

GSK Pharma 2,109 Buy 78.5 91.1 103.0 26.8 23.2 20.5 20.4 17.3 14.9 33.0 34.3 34.4

IPCA Labs. 519 Buy 27.3 39.7 46.1 19.0 13.1 11.2 11.1 9.2 7.8 24.8 28.9 26.9

Jubiliant Life 223 Neutral 19.2 33.3 38.1 11.6 6.7 5.9 6.6 5.5 4.5 12.4 18.8 18.4

Lupin 614 Buy 24.1 31.1 37.3 25.5 19.7 16.4 16.4 13.6 11.1 24.3 26.1 26.0

Opto Circuits 105 Neutral 21.5 25.4 30.3 4.9 4.1 3.5 4.4 3.5 2.8 27.7 27.0 26.5

Ranbaxy Labs 501 Neutral 20.6 22.3 27.3 24.3 22.4 18.3 11.2 15.6 13.1 30.8 15.9 16.9

Sanofi India 2,290 Neutral 73.6 87.2 101.6 31.1 26.3 22.5 21.6 18.3 15.5 14.4 15.8 16.9

Strides Arcolab 1,085 Neutral 38.6 61.0 87.1 28.1 17.8 12.5 13.9 10.9 8.5 13.5 15.2 18.6

Sun Pharma 746 Neutral 28.0 29.2 33.1 26.6 25.5 22.5 16.4 17.0 14.6 22.1 20.0 19.6

Torrent Pharma 709 Buy 47.8 58.2 67.7 14.8 12.2 10.5 9.8 7.7 6.5 29.9 29.0 27.2


Media

Dish TV 75 Neutral -0.9 -0.2 0.8 -86.1 -346.8 96.3 14.1 11.1 8.2 NA NA NA

D B Corp 225 Buy 11.4 13.8 15.9 19.7 16.4 14.1 10.9 9.0 7.7 20.6 22.0 22.3

HT Media 102 Neutral 6.3 7.5 8.1 16.2 13.7 12.7 7.2 5.4 4.7 9.0 9.7 9.4

Jagran Prakashan 102 Buy 5.6 6.4 7.5 18.2 15.8 13.5 10.2 9.1 7.9 20.5 20.1 21.8

Sun TV 422 Neutral 17.1 19.4 23.0 24.7 21.8 18.4 11.3 9.7 8.1 23.5 24.8 26.3

Zee Entertainment 220 Neutral 7.4 8.5 10.3 29.7 25.9 21.4 21.9 18.7 15.4 19.3 19.3 20.3


Metals

Hindalco 128 Buy 19.1 20.7 22.7 6.7 6.2 5.6 7.5 6.4 5.4 20.6 18.8 17.4

Hindustan Zinc 135 Buy 14.9 16.0 16.5 9.1 8.5 8.2 5.5 4.2 3.5 21.4 19.5 17.4

JSPL 447 Se l l 37.4 38.3 42.2 12.0 11.7 10.6 10.0 9.0 7.5 18.6 17.0 16.1

JSW Steel 806 Se l l 40.2 34.2 38.7 20.1 23.6 20.8 7.0 7.2 7.2 5.3 4.3 4.7

Nalco 50 Neutral 1.7 3.2 3.5 29.2 15.5 14.5 16.9 7.4 6.5 3.8 7.0 7.3

NMDC 160 Buy 16.6 18.6 20.5 9.6 8.6 7.8 5.5 4.7 4.1 26.3 22.8 22.1

SAIL 89 Se l l 5.9 8.4 6.8 15.2 10.7 13.0 8.9 7.7 7.7 5.9 8.1 6.3

Sesa Goa 192 Buy 30.7 24.8 28.2 6.3 7.8 6.8 25.2 30.3 15.8 17.7 14.4 16.6

Sterlite Inds. 114 Buy 17.4 17.5 17.5 6.6 6.5 6.5 3.3 2.7 2.3 13.1 11.9 10.9

Tata Steel 431 Se l l 7.9 48.3 49.8 54.4 8.9 8.6 8.5 6.6 6.5 3.0 17.8 16.3


OthersCastrol India 296 Neutral 9.0 11.1 12.5 32.8 26.7 23.8 22.8 18.0 15.9 83.8 71.4 81.2Container Corpn. 914 Buy 71.4 78.4 86.2 12.8 11.7 10.6 8.8 7.4 6.2 15.8 15.5 15.3MCX 1,472 Buy 53.3 62.2 73.2 27.6 23.7 20.1 18.1 14.8 12.1 25.7 26.6 27.6Sintex Inds. 64 Buy 10.8 12.8 14.5 6.0 5.0 4.4 5.4 4.3 3.4 11.5 12.3 12.4United Phosphor. 123 Buy 15.0 19.5 24.8 8.2 6.3 5.0 4.6 3.5 2.7 15.4 18.0 19.6Sector Aggregate 15.2 12.8 10.9 9.5 7.8 6.5 17.6 18.9 19.6

PULL OUT

B–11January 2013

MOSL Universe



Oil & Gas

BPCL 345 Buy 24.6 25.0 27.3 14.0 13.8 12.7 9.9 8.0 7.4 10.8 10.2 10.3

Cairn India 316 Neutral 63.7 54.0 50.8 5.0 5.9 6.2 3.6 3.3 3.0 22.9 16.7 14.0

Chennai Petroleum 137 Buy -17.1 26.0 27.2 -8.0 5.3 5.0 25.7 5.0 4.5 -6.9 10.6 10.3

GAIL 348 Neutral 30.9 31.0 32.6 11.3 11.2 10.7 8.2 8.3 7.2 16.2 14.6 13.9

Guj. State Petronet 76 Neutral 8.8 8.9 9.5 8.6 8.5 8.0 4.9 4.5 4.0 18.5 16.1 15.0

HPCL 281 Buy 23.4 25.4 28.3 12.0 11.1 9.9 14.5 10.2 9.9 5.9 6.2 6.6

Indraprastha Gas 249 UR 26.6 30.3 33.6 9.4 8.2 7.4 5.0 4.2 3.5 27.6 26.4 24.7

IOC 261 Buy 23.2 27.7 33.6 11.2 9.4 7.8 10.5 7.9 6.7 9.1 10.2 11.5

MRPL 60 Neutral 3.2 8.5 9.3 19.0 7.1 6.5 8.1 4.5 3.8 7.5 18.1 17.3

Oil India 459 Buy 57.0 60.3 72.4 8.1 7.6 6.3 4.1 3.2 2.4 18.2 17.3 18.4

ONGC 259 Buy 28.4 32.3 33.6 9.1 8.0 7.7 3.8 3.1 2.8 16.9 17.3 16.2

Petronet LNG 159 Buy 14.0 14.5 16.1 11.3 11.0 9.8 7.6 6.1 5.5 26.7 22.7 21.2

Reliance Inds. 818 Neutral 69.3 70.8 77.3 11.8 11.6 10.6 9.4 8.8 8.1 11.9 11.2 11.1


Oil & Gas Ex RMS 9.8 9.3 8.8 5.7 4.9 4.5 14.6 13.9 13.3

UR = Under Review

Real Estate

Anant Raj Inds 92 Buy 6.6 9.1 12.3 14.0 10.1 7.5 13.6 9.5 6.7 5.0 6.4 8.0

DLF 225 Buy 10.4 10.9 14.1 21.7 20.7 16.0 16.3 11.7 10.2 6.3 6.3 7.7

Godrej Properties 640 Neutral 18.4 29.5 37.8 34.8 21.7 17.0 26.6 17.8 14.1 9.6 13.8 15.6

HDIL 110 Neutral 18.0 19.4 24.8 6.1 5.7 4.4 7.5 6.5 4.9 6.9 7.0 8.3

Indiabulls Real Est. 71 Buy 3.8 6.0 10.8 18.5 11.9 6.6 10.1 8.0 5.7 2.5 3.8 5.5

Jaypee Infratech 52 Buy 5.9 7.2 9.6 8.7 7.1 5.4 8.5 6.1 5.0 13.5 14.7 17.3

Mahindra Lifespace 411 Buy 34.3 39.0 47.0 12.0 10.5 8.7 10.7 9.5 7.5 11.0 11.2 12.0

Oberoi Realty 294 Buy 13.9 23.8 33.2 21.2 12.3 8.9 15.8 8.2 5.5 11.6 17.5 20.6

Phoenix Mills 247 Buy 7.1 11.3 22.0 34.7 21.9 11.2 20.2 13.2 8.1 5.8 8.5 14.5

Prestige Estates 177 Buy 6.6 10.4 15.5 26.8 17.1 11.4 13.8 9.9 7.3 10.1 14.4 18.7

Unitech 34 Buy 1.0 1.4 2.1 35.5 24.1 16.4 37.3 26.0 17.7 2.0 2.9 4.2


Retail

Jubi. Foodworks 1,283 Neutral 22.6 32.8 48.1 56.7 39.1 26.7 30.0 20.9 14.3 36.9 37.8 38.6

Shopper's Stop 446 Neutral 2.6 6.5 9.7 169.1 68.2 46.0 37.8 24.7 18.9 3.3 7.6 10.3

Titan Industries 282 Buy 8.3 10.5 12.9 34.0 26.8 21.9 23.2 17.9 14.1 43.3 36.0 33.8


Technology

HCL Technologies 625 Buy 49.0 50.0 56.0 12.8 12.5 11.2 8.1 7.6 6.6 29.1 26.9 25.1

Hexaware Tech. 84 Buy 11.1 11.3 12.4 7.6 7.5 6.8 4.9 4.7 3.9 31.8 28.6 26.8

Infosys 2,287 Buy 158.0 168.7 183.2 14.5 13.6 12.5 9.1 8.4 7.4 25.4 23.8 22.5

KPIT Cummins 107 Buy 11.0 11.9 14.0 9.7 9.0 7.7 4.9 4.4 3.8 24.3 23.2 25.0

Mindtree 698 Buy 82.0 83.9 93.0 8.5 8.3 7.5 4.6 4.3 3.4 26.0 23.8 21.3

MphasiS 379 Se l l 36.8 36.7 39.1 10.3 10.3 9.7 8.0 7.9 7.0 18.7 17.2 17.3

TCS 1,250 Neutral 70.9 75.9 83.4 17.6 16.5 15.0 12.9 11.8 10.4 38.8 34.6 31.5

Tech Mahindra 920 Buy 90.3 102.0 110.6 10.2 9.0 8.3 5.4 5.2 4.5 21.9 21.9 19.5

Wipro 386 Buy 26.3 27.1 30.7 14.7 14.2 12.6 10.1 9.5 8.5 21.6 19.8 19.6


Telecommunication

Bharti Airtel 319 Buy 7.8 10.6 15.0 40.9 30.0 21.2 7.6 6.7 5.7 5.6 7.3 9.5

Idea Cellular 105 Buy 3.1 4.7 7.1 34.3 22.6 14.8 8.4 6.6 5.4 7.5 10.4 14.0

Reliance Comm 73 Neutral 4.6 6.2 9.7 15.8 11.8 7.6 7.5 6.8 5.9 3.0 3.9 5.8


PULL OUT

B–12January 2013

MOSL Universe

PULL OUT

CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)


Private Banks

Axis Bank 1,364 Buy 117.9 141.3 169.2 11.6 9.7 8.1 2.2 1.8 1.5 20.1 20.3 20.5

Federal Bank 535 Buy 47.3 55.2 63.9 11.3 9.7 8.4 1.4 1.3 1.2 13.5 14.1 14.6

HDFC Bank 679 Neutral 28.5 37.1 45.9 23.8 18.3 14.8 4.6 3.8 3.2 20.7 22.8 23.6

ICICI Bank 1,137 Buy 70.5 86.9 104.6 16.1 13.1 10.9 2.5 2.2 2.0 14.6 16.1 17.2

IndusInd Bank 416 Buy 20.1 26.3 32.9 20.7 15.8 12.6 2.3 2.1 1.8 17.6 17.1 20.0

ING Vysya Bank 519 Buy 38.5 43.8 50.9 13.5 11.9 10.2 1.8 1.6 1.4 14.0 14.2 14.6

Kotak Mah. Bank 649 Neutral 27.9 33.2 39.7 23.3 19.5 16.3 3.2 2.8 2.4 14.9 15.3 15.7

Yes Bank 466 Buy 36.0 45.2 54.6 12.9 10.3 8.5 2.9 2.3 1.9 24.4 25.0 24.6

Private Bank Aggregate 17.5 14.1 11.7 3.0 2.6 2.4 17.1 18.4 20.2

PSU Banks

Andhra Bank 116 Buy 22.9 26.0 30.7 5.1 4.5 3.8 0.8 0.7 0.6 16.1 16.2 16.8

Bank of Baroda 860 Neutral 115.9 134.2 155.6 7.4 6.4 5.5 1.2 1.0 0.9 17.3 17.3 17.3

Bank of India 338 Neutral 41.7 52.1 59.5 8.1 6.5 5.7 0.9 0.8 0.7 12.1 13.6 13.9

Canara Bank 488 Buy 65.1 80.5 96.7 7.5 6.1 5.0 0.9 0.8 0.7 13.3 14.6 15.5

Corporation Bank 448 Neutral 98.9 112.2 133.3 4.5 4.0 3.4 0.7 0.6 0.5 16.6 16.6 17.3

Dena Bank 115 Neutral 24.1 26.9 30.1 4.8 4.3 3.8 0.8 0.7 0.6 18.1 17.3 18.0

Indian Bank 192 Buy 43.3 47.7 53.8 4.4 4.0 3.6 0.8 0.7 0.6 18.2 17.5 17.2

Oriental Bank 336 Buy 48.2 57.3 66.7 7.0 5.9 5.0 0.8 0.7 0.7 12.1 13.1 13.7

Punjab Nat. Bank 845 Buy 140.2 170.4 202.9 6.0 5.0 4.2 0.9 0.8 0.7 16.8 17.7 18.1

State Bank 2,389 Buy 281.2 318.5 382.4 8.1 7.2 6.0 1.3 1.1 1.0 17.6 17.2 17.9

Union Bank 270 Buy 40.7 51.8 61.3 6.6 5.2 4.4 1.0 0.9 0.8 16.2 18.1 18.7

PSU Bank Aggregate 7.4 6.3 5.3 1.2 1.0 0.9 15.9 16.3 16.9

NBFC

Dewan Housing 177 Buy 35.1 48.6 60.5 5.0 3.6 2.9 0.9 0.7 0.6 20.5 21.8 22.8

HDFC 828 Buy 32.0 38.0 45.1 25.9 21.8 18.3 5.2 4.6 4.1 29.2 30.4 30.6

IDFC 171 Buy 11.9 13.7 16.3 14.3 12.4 10.5 1.9 1.7 1.5 13.9 14.4 15.4

LIC Housing Fin 289 Buy 19.8 28.7 32.8 14.6 10.1 8.8 2.3 1.9 1.7 16.5 19.0 20.0

M & M Financial 1,127 Buy 78.4 98.5 119.8 14.4 11.4 9.4 2.8 2.4 2.0 23.8 22.7 23.3

Power Fin. Corp 198 Buy 31.7 36.4 42.8 6.3 5.4 4.6 1.1 1.0 0.8 18.8 19.0 19.6

Rural Electric. Corp. 239 Buy 37.0 42.0 49.7 6.5 5.7 4.8 1.4 1.2 1.0 22.8 22.1 22.4

Shriram Transport 735 Buy 61.2 71.6 84.6 12.0 10.3 8.7 2.3 1.9 1.6 21.0 20.6 20.4

NBFC Aggregate 13.3 11.3 9.5 2.7 2.3 2.0 19.9 20.1 20.9




Utilities

CESC 305 Buy 47.7 52.6 57.5 6.4 5.8 5.3 5.0 4.6 4.1 11.7 11.6 11.5

Coal India 354 UR 27.9 27.8 29.6 12.7 12.7 11.9 8.5 8.0 7.0 28.2 24.0 21.9

JSW Energy 66 Neutral 4.5 5.8 6.0 14.7 11.4 10.9 8.2 6.9 6.5 12.3 14.5 13.8

NHPC 26 Neutral 1.8 2.0 2.2 13.9 12.6 11.9 10.1 9.6 8.4 7.2 7.7 7.8

NTPC 155 Buy 11.1 13.6 15.7 13.9 11.5 9.9 10.4 9.1 7.8 12.1 13.6 14.6

Power Grid Corp. 114 Buy 8.9 10.7 13.0 12.8 10.6 8.8 9.6 9.1 8.1 16.6 17.8 19.1

PTC India 73 Buy 8.5 9.4 10.9 8.6 7.8 6.7 7.3 7.8 3.7 7.6 7.3 8.3

Reliance Infra. 517 Buy 50.9 53.8 60.9 10.2 9.6 8.5 3.1 3.0 2.3 7.3 7.3 7.7

Tata Power 109 Neutral 4.8 4.9 5.5 22.8 22.2 19.9 17.6 16.2 15.8 8.8 7.4 7.2


UR = Under Review

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 27 December 2012, unless otherwise stated.

BSE Sensex: 19,324 S&P CNX: 5,870


January 2013 C–1

Sectors & Companies

C–2January 2013

December 2012 Results Preview | Sector: Automobiles

Expected quarterly performance summary (INR Million)

CMP Rating Sales EBITDA Net Profit



Ashok Leyland 27 Buy 25,735 -11.4 -21.9 2,189 4.0 -34.5 352 -47.4 -75.3

Bajaj Auto 2,135 Buy 52,238 4.8 5.1 9,482 -3.7 3.6 7,694 -7.7 3.9

Eicher Motors 2,758 Buy 16,775 6.2 13.1 1,465 -3.9 31.6 666 -22.1 0.9

Hero Motocorp 1,869 Buy 61,205 2.3 18.8 6,705 0.6 43.0 6,100 -0.5 38.5

Mahindra & Mahindra 931 Buy 105,941 29.0 14.5 15,202 39.4 18.8 9,803 44.8 0.2

Maruti Suzuki 1,482 Buy 111,687 44.5 34.5 8,074 100.2 58.8 4,886 137.6 114.8

Tata Motors 310 Buy 473,509 4.6 9.1 56,821 -16.8 6.5 22,149 -37.3 6.4


Demand improves with festive season, but MHCVs remain under stressWith the festive season falling in 3Q this financial year, growth in wholesale volumes

has picked up YoY across two-wheelers, passenger vehicles and tractors. We estimate

that retail demand has grown 5-7% for two-wheeler companies and 8-9% for Maruti

Suzuki (MSIL). Tractor sales recovered, with flat YoY sales during the festive season

(compared to YoY decline earlier). The MHCV segment, however, continues to be

under stress, with 30% YoY decline in 3Q, reflecting weak macroeconomic conditions.

This coupled with higher competitive intensity has led to sharp increase in discounts.

LCVs, however, continued their growth momentum, driven by proliferation of the

hub and spoke model and relatively stable consumption spend. While long-term

demand drivers remain intact, expected softening in interest rates and reform-

driven improvement in the macro environment and consumer sentiment should

drive volumes over the next few years.

Margins to expand QoQ on higher volumes, better mix, favorable forexmovement and stable RM costWe expect EBITDA margins for our Auto Universe to expand 50bp QoQ (and 10bp

YoY) on higher volumes, better mix [Bajaj Auto (BJAUT), Hero MotoCorp (HMCL),

MSIL, Mahindra & Mahindra (MM)], favorable forex movement (depreciating JPY

against USD - HMCL, MSIL) and stable RM cost. However, demand slowdown and

higher competitive intensity would impact the performance of CV companies [Tata

Motors (TTMT) standalone, Ashok Leyland (AL), and Eicher Motors (EIM)]. While

HMCL and MSIL would report 190bp and 110bp QoQ margin expansion, respectively,

AL is likely to report 170bp QoQ contraction to 8.5%.

Easing of macro headwinds to be key catalyst for demand recoveryOver the last few months, major auto financiers have reduced lending rates. This

augurs well for the auto industry, particularly for PV and CV demand. Moreover,

with expected monetary easing in CY13, economic activity and consumer sentiment

would improve. Price increases and softening of commodity prices would be an

added advantage for auto companies. Easing macro headwinds would be the key

driver of volume growth and profitability, and in turn, for re-rating.

Jinesh Gandhi ([email protected]) / Chirag Jain ([email protected])

AutomobilesCompanies Covered

Ashok Leyland

Bajaj Auto

Eicher Motors

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki India

Tata Motors

C–3January 2013


Valuation and viewWe are downgrading our earnings estimates for BJAUT (factoring in volume and margin

weakness) and AL (factoring near-term weakness in MHCV demand). On the other

hand, we are upgrading our estimates for MSIL (to factor in recent JPY depreciation

against USD), TTMT (factoring in volume upgrades in JLR) and HMCL (favourable forex

movement). Changing competitive landscape in the auto sector would be one of the

key determinants of stock performance. While we believe that the worst of

competitive pressure is behind for passenger cars, increasing competitive intensity

for two-wheelers, UVs and CVs pose a challenge for incumbent OEMs. We prefer TTMT

and MSIL. Within mid-caps, we like EIM and AL.

Volume snapshot for 3QFY13 ('000 units)

3QFY13E 3QFY12 YoY (%) 2QFY13 QoQ (%) FY13-YTD FY12-YTD YoY (%)

Two wheelers 4,016 3,877 3.6 3,739 7.4 11,798 11,490 2.7

Three wheelers 245 222 10.3 216 13.6 632 668 -5.5

Passenger cars 605 577 4.9 627 -3.5 1,773 1,745 1.6

UVs & MPVs 216 176 23.1 181 19.5 569 462 23.0

M&HCV 63 90 -29.8 80 -20.8 214 265 -19.1

LCV 150 132 13.0 146 2.6 429 373 14.9

Total CVs 213 222 -4.3 226 -5.7 643 637 0.8

Total 5,295 5,074 4.4 4,988 6.1 15,414 15,003 2.7

Source: SIAM, MOSL

Trend in Industry volumes

Source: Company, MOSL

3,948 4,090 4,388 4,551

5,2954,905

5,2145,3015,0745,1084,8224,7433,5593,4843,108

4%-4%

8%12%11%

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

13

3QFY

13E

Industry ('000 uni ts ) Growth YoY (%)

Revised EPS Estimates (INR)EPS FY13E FY14E

Rev Old Chg (%) Rev Old Chg (%)

Bajaj Auto 103.5 106.3 -2.7 128.6 127.3 1.0

Hero MotoCorp 114.8 107.2 7.1 124.8 125.3 -0.4

Maruti * 70.8 69.5 1.9 105.4 98.2 7.4

M&M * 64.6 63.3 2.1 78.9 78.4 0.7

Tata Motors * # 31.7 33.5 -5.3 40.0 40.4 -1.0

Ashok Leyland 1.7 2.1 -21.1 2.6 2.8 -7.7

Eicher Motors * 117.8 116.5 1.1 121.6 120.9 0.6

* Consolidated; # Normalized EPS adj. for R&D capitalization

C–4January 2013


Commodity cost (INR, indexed) Trend in INR movement against major currencies (indexed)

Source: Bloomberg, MOSL

Trend in EBITDA margins (%) Trend in segment-wise EBITDA margins (%)


HDFC Bank's Base rate trend Differential between petrol and diesel remains high

97

90 95

83

103

87

100

86 9

3 9595 95 9599101

92

82

10110

7

93

Steel (HRC) Lead Aluminium Rubber


80

110

140

170

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

Dec

-12

USD Euro GBP JPY

6

9

12

15

18

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

3QFY

13E

Aggregate Aggregate (incl JLR)13

.9

11.2

9.0

15.0

8.8

7.9

15.

1

8.9

6.8

14.7

8.7 9

.8

13.9

9.4

7.5

13.7

9.0

6.8

14.3

9.8

6.1

2W Ca rs CVs

1QFY12 2QFY12 3QFY12 4QFY121QFY13 2QFY13 3QFY13E

7.0

8.0

9.0

10.0

11.0

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-1

1

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Ap

r-1

2

Jun-

12

Aug

-12

Oct

-12

Dec

-12

HDFC Bank Base Rate

20

35

50

65

80

Ap

r-0

5A

ug-0

5D

ec-0

5A

pr-

06

Aug

-06

Dec

-06

Ap

r-0

7A

ug-0

7D

ec-0

7A

pr-

08

Aug

-08

Dec

-08

Ap

r-0

9A

ug-0

9D

ec-0

9A

pr-

10

Aug

-10

Dec

-10

Ap

r-1

1A

ug-1

1D

ec-1

1A

pr-

12

Aug

-12

Dec

-12

Petrol (INR/l tr) Dies el (INR/l tr)

INR20/Ltr

Source: HDFC Bank PLR Source: Bloomberg, MOSL

C–5January 2013


Comparative valuation

CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)


Automobiles

Ashok Leyland 27 Buy 1.7 2.6 3.4 16.1 10.5 7.9 7.5 5.7 4.7 10.2 14.7 17.9

Bajaj Auto 2,135 Buy 103.5 128.6 147.3 20.6 16.6 14.5 14.7 11.4 9.3 44.7 45.0 41.0

Eicher Motors 2,758 Buy 117.8 121.6 176.1 23.4 22.7 15.7 11.2 9.5 6.1 19.6 17.7 22.2

Hero Motocorp 1,869 Buy 114.8 124.8 163.4 16.3 15.0 11.4 13.6 10.8 7.4 43.3 39.0 41.3

Mahindra & Mah. 931 Buy 64.6 78.9 95.0 14.4 11.8 9.8 5.7 4.8 3.9 22.5 20.8 19.9

Maruti Suzuki 1,482 Buy 70.8 105.4 130.7 20.9 14.1 11.3 9.7 6.4 4.8 11.0 14.4 15.6

Tata Motors 310 Buy 31.7 40.0 43.2 9.8 7.7 7.2 4.6 4.0 3.5 24.4 24.3 21.2


* Consolidated # Normalized EPS (for R&D capitalization)

Trend in Key Financials

Volumes (‘000 units) EBITDA Margins (%) Adj PAT (INR M)

3Q YoY QoQ 3Q YoY QoQ 3Q YoY QoQ

FY13E (%) (%) FY13E (bp) (bp) FY13E (%) (%)

BJAUT 1,109 3.1 5.7 18.2 -1.6 -0.3 7,694 -7.7 3.9

HMCL* 1,577 -0.8 18.3 11.0 -0.2 1.9 6,100 -0.5 38.5

MSIL 303 26.7 31.7 7.2 2.0 1.1 4,886 137.6 114.8

MM 215 17.1 13.9 12.3 0.1 0.9 9,173 38.5 1.7

TTMT (S/A) 207 -10.5 -7.4 5.5 -1.2 -0.4 -1,321 -152.6 -112.2

TTMT (Cons) 12.0 -3.1 -0.3 22,149 -37.3 6.4

Ashok Leyland 23 0.8 -21.7 8.5 1.3 -1.6 352 -47.4 -75.3

Eicher Motors 8.7 -0.9 1.2 666 -22.1 0.9

Aggregate ** 3,434 2.7 12.4 9.7 10 50 27,549 1.3 -23.5

*Normalized; **Aggregate includes Tata Motor’s standalone performance only

90

100

110

120

Sep-12 Oct-12 Nov-12 Dec-12

Sens ex Index

MOSL Automobi les Index

Relative Performance-3m (%) Relative Performance-1Yr (%)

80

100

120

140

160

De

c-11

Feb-

12

Apr

-12

Jun-

12

Au

g-12

Oct

-12

De

c-12

Sens ex IndexMOSL Automobi les Index

C–6January 2013


Quarterly Performance (INR Million)

Y/E March FY12 FY13 FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE

MHCVs (units) 19,277 23,659 20,685 30,776 20,239 21,175 14,301 26,144 94,397 81,859

Growth (%) -8.8 -3.2 13.3 4.6 5.0 -10.5 -30.9 -15.1 -0.9 -13.3

Dost (units) - 210 2,490 4,893 7,248 8,665 9,066 10,021 7,593 35,000

Growth (%) - - - - - 4,026 264.1 104.8 - 361.0

Total Volumes (units) 19,277 23,869 23,175 35,669 27,487 29,840 23,367 36,165 101,990 116,859

Growth (%) -9.9 -2.9 25.7 20.2 42.6 25.0 0.8 1.4 8.4 14.6

Realizations (INR '000/unit) 1,303.5 1,305.0 1,252.8 1,208.6 1,094.1 1,104.6 1,101.3 1,117.0 1,261.1 1,105.3

Growth (%) 18.8 18.2 3.7 -6.8 -16.1 -15.4 -12.1 -7.6 6.4 -12.4

Net Sales 25,127 31,148 29,035 43,110 30,074 32,960 25,735 40,395 128,619 129,164

Growth (%) 7.0 14.8 30.4 12.0 19.7 5.8 -11.4 -6.3 15.3 0.4

RM Cost (%) 72.1 73.6 74.0 74.4 72.8 72.8 72.5 72.2 73.6 72.5

Staff Cost (%) 9.9 8.1 9.4 5.7 8.9 8.0 10.5 7.0 7.9 8.4

Other Exp. (%) 8.2 7.7 9.4 8.9 10.3 9.1 8.5 9.9 8.6 9.4

EBITDA 2,446 3,312 2,104 4,699 2,407 3,341 2,189 4,408 12,760 12,431

EBITDA Margins (%) 9.7 10.6 7.2 10.9 8.0 10.1 8.5 10.9 9.9 9.6

Other Income 74 135 86 109 129 239 100 92 404 560

Interest 567 658 603 724 834 1,036 875 901 2,553 3,646

Depreciation 847 859 866 956 893 984 1,000 1,066 3,528 3,943

PBT before EO Exp 1,107 1,929 720 3,128 810 1,559 414 2,534 7,083 5,402

PBT after EO Exp 1,107 1,929 720 3,144 810 1,559 414 2,534 7,099 5,402

Effective Tax Rate (%) 22.1 20.1 7.0 17.7 17.3 8.5 15.0 25.2 17.5 18.0

Rep. PAT 862 1,541 669 2,587 670 1,426 352 1,896 5,859 4,430

Adj. PAT 862 1,541 669 2,574 670 1,426 352 1,896 5,846 4,430

Growth (%) -29.6 -7.8 54.3 -13.7 -22.3 -7.5 -47.4 -26.3 -12.3 -24.2

E: MOSL Estimates

Ashok LeylandCMP: INR27 Buy

We expect Ashok Leyland's (AL) volumes to grow 0.8% YoY (decline

22% QoQ), driven by higher Dost (LCV) sales. MHCV volumes are likely

to decline 31% YoY (33% QoQ).

Margins are likely to shrink 160bp QoQ (expand 130bp YoY) to 8.5%,

despite price increase in Oct-12 due to lower MHCV volumes and

higher discounts.

Our channel interaction indicates doubling of discounts over the last

six months due to weak demand scenario and higher competitive

intensity, resulting into delaying of purchases by transporters.

Adjusted PAT is likely to decline 47% YoY (75% QoQ) to INR352m on

lower margins.

Key issues to watch out

Current demand scenario and discounting pressure, channel and plant

inventory for MHCVs.

Guidance for MHCVs and Dost (LCV) volumes for FY13 and FY14.

Pantnagar volume guidance, RM cost outlook and margin guidance

for FY13 and FY14.

Capex and investment guidance for FY13 and FY14.

Financials & Valuation (INR b)Y/E March 2012 2013E 2014E 2015E

Sa les 128.4 129.2 155.3 184.1

EBITDA 12.6 12.4 15.9 18.5

NP 5.6 4.4 6.8 9.1

Adj. EPS (INR) 2.1 1.7 2.6 3.4

EPS Gr. (%) (10.3) (21.7) 53.7 33.2

BV/Sh. (INR) 15.8 16.3 17.4 19.1

RoE (%) 13.4 10.2 14.7 17.9

RoCE (%) 12.5 10.5 13.1 15.5

Payout (%) 47.0 60.1 48.8 44.0

Valuation

P/E (x) 12.6 16.1 10.5 7.9

P/BV (x) 1.7 1.6 1.5 1.4

EV/EBITDA (x) 7.8 8.8 6.9 5.8

Div. Yield (%) 3.7 3.7 4.7 5.6

Bloomberg AL IN

Equity Shares (m) 2,660.7

M. Cap. (INR b)/(USD b) 71 / 1

52-Week Range (INR) 33/20

1,6,12 Rel Perf. (%) -6/-6/-5

C–7January 2013





Motorcycles 963,051 1,027,357 946,749 897,248 982,623 928,524 967,913 942,511 3,834,405 3,821,571

Growth (%) 16.3 16.3 12.9 7.2 2.0 (9.6) 2.2 5.0 13.2 (0.3)

Three-wheelers 129,764 136,780 128,692 119,919 96,348 120,684 140,882 126,184 515,155 484,098

Growth (%) 29.9 16.8 18.8 7.5 (25.8) (11.8) 9.5 5.2 17.9 (6.0)

Total Volumes ('000 nos) 1,092.8 1,164.1 1,075.4 1,017.2 1,079.0 1,049.2 1,108.8 1,068.7 4,349.6 4,305.7

Growth (%) 17.7 16.3 13.6 10.7 -1.3 -9.9 3.1 1.9 13.7 (1.0)

Realization 43,066 44,543 46,361 47,392 45,095 47,392 47,113 47,590 44,899 46,794

Growth (%) 2.8 2.6 5.1 8.4 4.7 6.4 1.6 0.4 4.7 4.2

Net Sales 47,063 51,854 49,859 49,724 48,657 49,724 52,238 50,859 195,290 201,478

Growth (%) 21.0 19.4 19.4 20.0 3.4 -4.1 4.8 2.3 19.1 3.2

RM Cost (%) 73.6 72.6 71.5 71.8 72.1 71.8 72.0 71.8 72.2 71.9

Staff Cost (%) 3.0 2.7 2.6 3.1 3.3 3.1 3.0 3.1 2.8 3.1

Other Exp. (%) 5.5 6.2 6.5 7.0 6.9 7.0 7.0 7.0 6.2 7.0

EBITDA 8,398 9,755 9,841 9,152 8,717 9,152 9,482 9,274 37,200 36,625

EBITDA Margins (%) 17.8 18.8 19.7 18.4 17.9 18.4 18.2 18.2 19.0 18.2

Other Income 1,441 1,564 1,681 1,395 1,820 1,667 1,800 1,984 6,080 7,271

Interest 2 202 0 18 0 2 0 2 222 5

Depreciation 306 394 321 434 352 410 415 427 1,456 1,605

Extraordinary Inc/(Exp) 0 -954 -589 203 0 0 0 0 -1,340 0

PBT 9,531 9,768 10,612 10,298 10,184 10,407 10,867 10,828 40,262 42,286


Rep. PAT 7,111 7,258 7,952 7,407 7,184 7,407 7,694 7,654 30,041 29,938

Adj. PAT 7,111 7,898 8,340 7,590 7,184 7,407 7,694 7,654 31,069 29,938

Growth (%) 20.5 15.8 25.0 9.6 1.0 (6.2) (7.7) 3.3 -9.7 -3.6

E: MOSL Estimates

Bajaj AutoCMP: INR2,135 Buy

We expect Bajaj Auto's (BJAUT) 3QFY13 volumes to grow 3% YoY (6%

QoQ), buoyed by the delayed festive season and recent launches.

EBITDA margin to shrink 150bp YoY (and 20bp QoQ) to 18.2%, with the

reduction in export incentives more than offsetting the benefit of

mix improvement. BJAUT had raised export prices by 2% effective

Dec-12 to partially pass on the impact of export incentive reduction.

The PAT decline of 7.7% YoY (up 3.9% QoQ) would be higher than the

EBITDA decline because of higher tax rate following the partial expiry

of tax incentives at the Pantnagar plant.

BJAUT expect market share gains in the executive motorcycle segment

with the launch of new Discover 100cc (on Discover 125ST platform)

motorcycle in January 2013.

We downgrade our EPS estimate for FY13 by 2.7%, factoring in the

near term volume and margin weakness. However, favorable forex

drives a 1% upgrade in our EPS estimate for FY14.


Updates on retail demand post festive season, channel inventory,

export volume ramp-up in Sri Lanka and new launches.

FY14 volume and margin guidance; update on forex hedges on exports

for FY14.


Sa les 195.3 201.5 235.7 273.3

EBITDA 37.2 36.6 45.6 52.8

NP 31.1 29.9 37.2 42.6

Adj. EPS (INR) 107.4 103.5 128.6 147.3

EPS Gr. (%) 18.8 (3.6) 24.3 14.5

BV/Sh. (INR) 208.8 253.7 318.0 401.0

RoE (%) 56.7 44.7 45.0 41.0

RoCE (%) 73.0 61.6 62.1 56.4

Payout (%) 48.7 56.5 50.0 43.7

Valuation

P/E (x) 19.9 20.6 16.6 14.5

P/BV (x) 10.2 8.4 6.7 5.3

EV/EBITDA (x) 14.9 14.7 11.4 9.3

Div. Yield (%) 2.1 2.3 2.6 2.6

Bloomberg BJAUT IN

Equity Shares (m) 289.4

M. Cap. (INR b)/(USD b) 618 / 11

52-Week Range (INR) 2,165/1,410

1,6,12 Rel Perf. (%) 12/23/9

C–8January 2013



Y/E December CY11 CY12 CY11 CY12E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Royal Enfield (units) 16,968 18,581 20,068 19,009 23,899 27,519 30,046 32,212 74,626 113,676

Growth (%) 36.2 48.6 56.6 28.4 40.8 48.1 49.7 69.5 41.9 52.3

Net Realizations (INR/unit) 88,160 89,376 89,680 89,863 92,083 92,162 91,476 91,576 89,305 91,798

EBITDA Margins (%) 13.0 13.3 12.8 9.2 13.9 15.3 15.1 15.4 11.9 15.0

VECV volumes (units) 12,701 11,029 12,560 12,753 14,289 12,016 10,791 12,360 49,043 49,456

Growth (%) 28.5 21.7 25.7 23.3 12.5 8.9 -14.1 -3.1 24.9 0.8

Net Realizations (INR'000/unit) 971.6 1,017.1 1,001.7 1,095.5 1,023.5 1,098.1 1,108.2 1,106.2 1,021.8 1,080.7

EBITDA Margins (%) 11.5 9.2 10.1 9.7 10.1 7.6 5.8 7.1 10.1 39.8

Net Op Income 13,927 12,984 14,513 15,791 16,950 15,850 14,831 16,775 57,262 64,406

Growth (%) 33.8 25.0 32.1 27.0 21.7 22.1 2.2 6.2 29.5 12.5

RM Cost (%) 73.4 73.3 72.5 73.6 72.1 71.4 71.6 71.7 73.3 71.7

Staff Cost (%) 5.3 6.6 6.1 6.2 6.0 7.3 7.8 7.5 6.0 7.1

Other Exp (%) 10 10.4 11.0 10.6 11.3 12.5 13.1 12.0 10.4 12.2

EBITDA 1,621 1,262 1,511 1,525 1,802 1,395 1,114 1,465 5,894 5,776

EBITDA Margins (%) 11.6 9.7 10.4 9.7 10.6 8.8 7.5 8.7 10.3 9.0

Depreciation 154 154 162 170 177 187 213 226 640 803

Other income 256 412 289 442 543 306 246 95 1,425 1,190

Interest cost 14 21 34 7 9 9 12 13 77 42

PBT 1,709 1,499 1,604 1,791 2,160 1,506 1,135 1,321 6,602 6,121

Effective tax rate (%) 28.3 22.6 25.0 22.6 24.3 25.3 17.4 28.2 24.7 24.1

PAT 1,226 1,160 1,203 1,385 1,634 1,125 937 949 4,974 4,645

Recurring PAT (after minority) 733 763 737 854 1,096 759 660 666 3,088 3,180

Growth (%) 82.2 38.3 90.7 55.7 49.5 -0.6 -10.5 -22.1 63.4 3.0

E: MOSL Estimates

Eicher MotorsCMP: INR2,758 Buy

With higher production and continued demand momentum, Royal

Enfield volumes are likely to improve by 70% YoY (7.2% QoQ). We

expect standalone margins at 15.4% (+30bp QoQ, +620bp YoY).

We expect VECV's volumes to drop 1.1% YoY, as higher growth in buses

(23.3% YoY) is negated by pressure on the LMD (down 4.5% YoY) and

HD (down 9% YoY) segments. Margins would remain under pressure

at 7.1% (down 270bp YoY) on higher discounts. However, QoQ, margins

would expand 130bp on higher volumes.

We expect 6.2% YoY (13.1% QoQ) growth in consolidated sales.

Consolidated margins would expand 120bp QoQ to 8.7%. Consolidated

PAT (after minority) would decline 22% YoY on lower profits from VECV.


Updates on the key projects slated to commence operations in CY13:

(a) new Royal Enfield plant, (b) medium duty engine project, (c) bus

body plant, and (d) new HCV range.

Updates on CV demand trends, discount levels and channel inventory.

Financials & Valuation (INR b)Y/E December 2011 2012E 2013E 2014E

Net Income 57.3 64.4 81.8 107.1

EBITDA 6.0 5.8 6.7 10.2

Net Profit 3.1 3.2 3.3 4.8

Adj. EPS (INR) 114.4 117.8 121.6 176.1

EPS Gr. (%) 63.1 3.0 3.2 44.8

BV/Sh. (INR) 553.2 646.7 730.9 854.9

RoE (%) 22.7 19.6 17.7 22.2

RoCE (%) 29.8 23.2 20.9 26.7

Payout (%) 0.6 0.7 0.7 1.0

Valuation

P/E (x) 24.1 23.4 22.7 15.7

P/BV (x) 5.0 4.3 3.8 3.2

EV/EBITDA (x) 17.6 16.9 14.0 9.1

Div. Yield (%) 0.6 0.7 0.7 1.0

Bloomberg EIM IN



52-Week Range (INR) 3,240/1,457

1,6,12 Rel Perf. (%) 3/24/56

C–9January 2013





Motorcycles ('000) 1,423.8 1,436.8 1,474.8 1,444.2 1,522.8 1,201.1 1,420.0 1,403.6 5,779.6 5,547.5

Growth (%) 22.9 19.3 10.6 7.4 7.0 -16.4 -3.7 -2.8 14.7 -4.0

Scooters 105,784 107,556 114,461 127,783 119,482 131,662 156,555 147,342 455,584 555,040

Growth (%) 39.8 32.0 20.4 17.0 12.9 22.4 36.8 15.3 26.0 21.8

Total Volumes ('000 nos) 1,529.6 1,544.3 1,589.3 1,572.0 1,642.3 1,332.8 1,576.5 1,551.0 6,235.2 6,102.6

Growth (%) 23.9 20.1 11.3 8.1 7.4 -13.7 -0.8 -1.3 15.4 -2.1

Net Realization (INR/unit) 36,858 37,456 37,649 37,929 37,799 38,649 38,823 38,802 37,478 38,504

Growth (%) 6.7 6.8 5.0 3.1 2.6 3.2 3.1 2.3 5.2 2.7

Net Sales 56,376 57,843 59,836 59,625 62,078 51,512 61,205 60,180 233,681 234,975

Growth (%) 32.2 28.2 16.9 11.4 10.1 -10.9 2.3 0.9 21.4 0.6

RM Cost (%) 75.3 73.0 73.4 74.1 74.1 73.2 73.0 73.2 74.0 73.4

Staff Cost (%) 2.9 3.1 3.3 3.2 3.3 3.7 3.3 3.6 3.1 3.5

Other Exp (%) 7.9 8.7 8.3 8.4 8.1 9.8 9.3 8.6 8.3 8.9

EBITDA 7,840 8,753 8,949 8,529 8,974 6,829 8,775 8,788 34,078 33,366

EBITDA Margins (%) 13.9 15.1 15.0 14.3 14.5 13.3 14.3 14.6 14.6 14.2

Adj. EBITDA Margins (%) 10.7 11.5 11.1 10.8 10.8 9.1 11.0 11.2 11.0 10.6

Other Income 1,379 1,306 1,305 1,774 1,439 1,356 1,400 1,502 5,756 5,697

Interest 125 29 29 29 29 30 30 61 213 150

Depreciation 2,398 2,785 2,987 2,804 3,035 2,895 2,840 2,722 10,973 11,492

PBT 6,696 7,245 7,238 7,469 7,349 5,261 7,305 7,505 28,647 27,420

Tax Rate (%) 16.7 16.7 15.3 19.2 16.3 16.3 16.5 16.6 18.3 16.4

PAT 5,579 6,036 6,130 6,036 6,155 4,406 6,100 6,263 23,396 22,923

Growth (%) 13.5 19.4 24.3 20.3 10.3 -27.0 -0.5 3.8 17.5 -2.0

E: MOSL Estimates

Hero MotoCorpCMP: INR1,869 Buy

We expect HMCL's volumes to grow 18% QoQ (decline of 0.8% YoY),

with recovery in festive demand and healthy demand during the

marriage season in December 2012 in the northern states.

Post inventory correction in 2Q, dispatches of Splendor, Passion and

premium motorcycles (under the 'Hero' brand) have improved, driving

better QoQ product mix.

Adjusted margins are likely to expand 190bp QoQ (shrink 10bp YoY) to

11% with better mix, favorable JPY/USD movement, price hike of

INR300/unit effective October 2012 to pass on the freight cost increase,

and stable RM cost. We expect favorable forex to contribute 50bp

margin improvement on a QoQ basis.

We upgrade our EPS estimate for FY13 by 7.1%, factoring in better

forex movement. However, we have marginally lowered our EPS

estimate for FY14 by 0.4% factoring higher competitive intensity from

HMSI.


Updates on retail demand post festive season, particularly during

the marriage season in the northern region.

Guidance on FY14 volume growth and margins; updates on export

plans and new launches.


Sa les 233.7 231.6 269.0 308.3

EBITDA 34.1 32.7 37.7 42.3

NP 23.8 22.3 24.3 32.0

Adj. EPS (INR) 119.1 111.7 121.8 160.2

EPS Gr. (%) 18.4 (6.2) 9.0 31.5

BV/Sh. (INR) 214.8 262.2 313.8 386.2

RoE (%) 55.4 42.6 38.8 41.5

RoCE (%) 46.5 41.2 47.8 54.7

Payout (%) 43.5 56.6 56.6 53.8

Valuation

P/E (x) 15.7 16.7 15.3 11.7

P/BV (x) 8.7 7.1 6.0 4.8

EV/EBITDA (x) 10.3 10.4 8.7 7.3

Div. Yield (%) 2.4 2.9 3.2 4.0

Bloomberg HMCL IN


M. Cap. (INR b)/(USD b) 373 / 7

52-Week Range (INR) 2,279/1,703

1,6,12 Rel Perf. (%) -1/-23/-23

C–10January 2013





Total Volumes (nos) 159,197 170,701 183,228 195,478 182,149 188,412 214,541 201,155 704,935 786,257

Growth (%) 25.1 29.2 23.3 21.8 14.4 10.4 17.1 2.9 24.2 11.5

Net Realization (INR/unit) 416,344 424,385 451,808 472,753 507,713 512,664 516,411 513,253 445,318 512,690

Growth (%) 3.4 5.6 10.5 14.4 21.9 20.8 14.3 8.6 9.7 15.1

Net Sales 66,281 72,443 82,784 92,413 92,479 96,592 110,791 103,243 313,920 403,106

Growth (%) 29.3 36.4 36.3 39.3 39.5 33.3 33.8 11.7 36.2 28.4

Operating Other Income 990 1,121 1,045 1,459 1,195 1,538 1,100 1,418 4,615 5,250

RM Cost (%) 71.9 72.6 74.4 75.5 75.1 74.9 74.7 74.9 73.8 74.9

Staff Cost (%) 6.0 5.8 5.4 4.6 4.9 4.9 4.4 5.0 5.4 4.8

Other Exp. (%) 8.9 9.6 8.1 9.6 8.2 8.8 8.6 8.9 9.0 8.7

EBITDA 8,954 8,830 10,230 9,694 11,094 11,189 13,763 11,728 37,707 47,774

EBITDA Margins (%) 13.3 12.0 12.2 10.3 11.8 11.4 12.3 11.2 11.8 11.7

EBITDA Margins (incl MVML) 14.2 13.3 13.3 12.1 13.9 13.8 14.4 13.3 13.3 13.9

Other income 550 2,484 667 956 599 3,229 850 981 4,658 5,658

Interest 262 308 348 709 460 475 400 617 1,628 1,952

Depreciation 1,099 1,257 1,408 1,997 1,548 1,784 1,900 1,968 5,761 7,200

EO Expense - - - -1,083 - - - - 1,083 -

PBT 8,143 9,749 9,141 9,026 9,684 12,160 12,313 10,124 36,059 44,280


Reported PAT 6,049 7,374 6,622 8,745 7,256 9,018 9,173 7,541 28,789 32,989

Adj PAT 6,049 7,374 6,622 7,696 7,256 9,018 9,173 7,541 27,924 32,989

Growth (%) 7.6 1.4 7.3 26.9 20.0 22.3 38.5 -2.0 8.1 18.1

PAT (incl MVML) 6,183 7,615 6,770 8,030 7,785 9,781 9,803 8,275 28,888 35,643

E: MOSL Estimates

Mahindra & MahindraCMP: INR931 Buy

The 3QFY13 performance of Mahindra & Mahindra (MM) is not strictly

comparable YoY due to the MADPL merger in 4QFY12. We expect MM

to report overall volume growth of 17.1% YoY (13.9% QoQ), driven by

23.7% YoY (5.7% QoQ) growth in UVs and pick-ups. Tractor sales

expected to grow 2% YoY (34.5% QoQ).

EBITDA margin (including MVML) would expand 110bp YoY (60bp QoQ),

driven by higher overall volumes and higher share of tractors.

Other income is likely to grow 27% YoY but decline 74% QoQ, as 2Q

included dividend receipt from subsidiaries. Including MVML, we

estimate adjusted PAT at INR9.8b (up 45% YoY).

MM's plans to acquire Navistar's stake would impact FY14 consolidated

EPS by ~4%. However 8% upgrade in standalone EPS (upgrade in tractor

volumes and margins) and ~11% upgrade in Mahindra Finance EPS

results in ~1% upgrade in consolidated EPS estimate for FY14.


Update on festive demand for auto and tractor divisions; channel

inventory.

Auto: FY14 guidance on volumes given competitive launches in CY13.

Tractors: Demand in Southern region and guidance for FY14 volumes.

Ssangyong: Update on business and financial performance.


Sa les 318.5 408.4 462.0 523.7

EBITDA 37.7 47.8 53.9 61.3

NP 27.9 33.0 36.0 40.6

Adj. EPS (INR) 48.3 59.5 66.1 74.5

EPS Gr. (%) 12.2 23.4 11.0 12.7

Cons. EPS (INR) 51.2 64.6 78.9 95.0

BV/Share (INR) 206 249 294 347

RoE (%) 23.0 22.5 20.8 19.9

RoCE (%) 23.1 25.2 24.5 23.9

Payout (%) 29.9 29.2 30.6 27.2

Valuation

P/E (x) 19.3 15.6 14.1 12.5

Cons.P/E (x) 18.2 14.4 11.8 9.8

P/BV (x) 4.5 3.7 3.2 2.7

EV/EBITDA (x) 10.9 8.6 7.3 6.0

Div. Yield (%) 1.3 1.0 0.9 0.7

Bloomberg MM IN


M. Cap. (INR b)/(USD b) 557 / 10


1,6,12 Rel Perf. (%) -2/21/11

C–11January 2013



Y/E March FY12 FY13* FY12 FY13E*

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Total Volumes (nos) 281,526 252,307 239,528 360,334 295,899 230,376 303,423 350,034 1,133,695 1,179,732

Growth (%) -0.6 -19.6 -27.6 4.9 5.1 -8.7 26.7 -2.9 -10.8 4.1

Realizations (INR/car) 293,279 293,210 314,247 318,770 355,839 350,302 359,355 366,630 306,131 358,864

Growth (%) 3.2 2.9 12.0 11.7 21.3 19.5 14.4 15.0 7.7 17.2

Net Op. Revenues 84,541 76,744 77,316 117,270 107,782 83,054 111,687 131,116 355,871 433,639

Growth (%) 1.7 -16.1 -18.6 17.2 27.5 8.2 44.5 11.8 -2.8 21.9

RM Cost (%) 78.0 78.5 79.1 79.6 77.8 79.6 79.0 78.1 78.9 78.6

Staff Cost (%) 2.1 2.6 2.7 2.2 2.2 2.8 2.2 1.9 2.4 2.2

Other exp. (%) 10.3 13.2 13.0 10.9 12.6 11.4 11.6 11.8 11.7 11.9

EBITDA 8,104 4,406 4,034 8,585 7,863 5,085 8,074 10,663 25,129 31,685

EBITDA Margins (%) 9.6 5.7 5.2 7.3 7.3 6.1 7.2 8.1 7.1 7.3

Growth (%) -5.5 -54.1 -55.3 -15.3 -3.0 15.4 100.2 24.2 -30.9 26.1

Non-Operating Income 1,841 1,713 1,746 2,969 1,123 1,563 2,000 2,637 8,269 7,323

Interest 58 109 178 208 332 380 410 478 552 1,600

Depreciation 2,425 2,664 2,989 3,306 3,399 3,470 3,594 3,637 11,384 14,100

PBT 7,462 3,347 2,613 8,040 5,255 2,798 6,070 9,185 21,462 23,308


PAT 5,492 2,404 2,056 6,398 4,238 2,274 4,886 7,364 16,351 18,763

Adjusted PAT 5,492 2,404 2,056 6,398 4,238 2,274 4,886 7,364 16,351 18,763

Growth (%) 7.2 -59.8 -63.6 1.4 -22.8 -5.4 137.6 15.1 -29.2 14.7

E:MOSL Estimates; * Excluding SPIL Merger

Maruti Suzuki IndiaCMP: INR1,482 Buy

Our quarterly estimates for Maruti Suzuki (MSIL) are excluding the

SPIL merger, as the company would be reporting performance without

SPIL. However, our full year estimates include SPIL.

We expect volumes to grow 26.7% YoY (31.7% QoQ), with recovery in

festive demand and low base (lower production due to labour issues

in 3QFY12/2QFY13).

Realizations would improve 14.4% YoY (2.6% QoQ) on better mix

(higher proportion of diesel cars on Manesar ramp-up), 1% price hike

effective October 2012, reduction in discounts in November 2012 and

higher volumes of new Alto (with no discounts currently).

Better realizations and higher volumes would drive 200bp YoY (110bp

QoQ) margin improvement. Benefit of lower royalty from the recent

JPY/USD movement would be largely neutralized by the lag impact of

adverse currency movement on indirect imports for 2Q.

We upgrade our FY13/14 EPS estimates by 1.9%/7.4%, factoring in the

favorable JPY/USD movement.


Updates on retail demand scenario post festive season, channel

inventory, discount trends, and new launches.

Guidance on FY14 volume growth, margins, forex hedges, and

localization efforts.


Sa les 355.9 433.6 508.2 588.9

EBITDA 25.1 38.3 54.8 66.5

Adj. PAT 16.4 21.1 31.4 39.5

Con.adj.EPS(INR) 58.2 70.8 105.4 130.7

EPS Growth (%) (35.9) 21.6 49.0 24.0

BV/Share (INR) 525.7 631.7 722.9 839.6

RoE (%) 10.8 11.0 14.4 15.6

RoCE (%) 13.2 13.0 17.4 18.9

Payout (%) 13.3 14.3 10.6 9.2

Valuation

P/E (x) 25.5 20.9 14.1 11.3

P/BV (x) 2.8 2.3 2.0 1.8

EV/EBITDA (x) 14.1 9.8 6.4 4.8

Div. Yield (%) 0.5 0.7 0.7 0.8

Bloomberg MSIL IN


M. Cap. (INR b)/(USD b) 448 / 8

52-Week Range (INR) 1,537/912

1,6,12 Rel Perf. (%) -3/18/32

C–12January 2013


Quarterly Performance (Consolidated) (INR Million)



JLR volumes 62,037 68,000 86,322 98,074 83,452 77,442 95,546 107,910 314,433 364,350

Growth (%) 4.8 23.3 36.7 48.3 34.5 13.9 10.7 10.0 29.1 15.9

Avg. realizations (GBP) 43,571 42,868 43,430 42,254 43,594 42,458 42,097 44,218 42,973 43,144

Growth (%) 14.5 5.9 3.5 2.2 0.1 (1.0) (3.1) 4.6 6.1 0.4

JLR margins (%) 13.4 14.4 17.0 14.6 14.5 14.8 14.5 15.1 15.0 14.7

Standalone volumes 197,606 211,400 231,328 286,019 190,783 223,665 207,020 252,859 922,867 869,743

Growth (%) 3.8 1.8 19.2 16.7 -3.5 5.8 -10.5 -11.6 10.4 (6)

Avg. realizations (INR) 585,076 609,564 573,327 569,792 550,921 554,238 527,105 580,417 585,192 557,584

Growth (%) 7.6 13.1 (0.8) (2.2) (5.8) (9.1) (8.1) 1.9 4.4 (4.7)

Standalone margins (%) 8.8 7.2 6.7 9.5 7.3 5.9 5.5 7.7 8.1 6.6

Total Op Income 332,888 361,975 452,603 509,079 433,236 434,029 473,509 582,816 1,656,545 1,923,590

Growth (%) 23.0 26.9 44.0 44.3 30.1 19.9 4.6 14.5 35.6 16.1

EBITDA 42,358 45,039 68,270 67,445 57,548 53,336 56,821 80,333 223,112 248,039

EBITDA Margins (%) 12.7 12.4 15.1 13.2 13.3 12.3 12.0 13.8 13.5 12.9

Depreciation 11,432 13,308 16,159 15,354 15,659 15,944 18,000 17,900 56,254 67,503

Other Income 1,658 608 1,675 1,586 2,386 2,068 2,000 2,019 6,618 8,473

Interest Expenses 8,556 5,251 7,204 7,721 8,044 8,474 8,000 8,109 29,822 32,627

PBT before EO Exp 24,028 27,089 46,581 45,956 36,232 30,987 32,821 56,342 143,654 156,382

EO Exp/(Inc) 570 4,390 1,643 1,713 4,405 101 0 0 8,315 4,506

PBT after EO Exp 23,458 22,700 44,938 44,243 31,826 30,886 32,821 56,342 135,339 151,876

Tax rate (%) 15.0 16.0 23.8 -41.3 27.3 32.0 32.5 34.2 -0.3 31.9

PAT 19,939 19,069 34,227 62,504 23,138 21,010 22,154 37,079 135,739 103,381

Adj PAT (after minority) 20,481 22,461 35,307 44,403 25,651 20,816 22,149 37,029 125,568 105,442

Growth (%) (3.5) 6.4 43.9 79.2 25.2 (7.3) -37.3 -16.6 38.5 -16.0

E: MOSL Estimates

Tata MotorsCMP: INR310 Buy

JLR volumes are likely to grow 10.7% YoY, driven by 13.9% YoY rise in

Landrover sales. EBITDA margin would decline 30bp QoQ on lower

contribution from Range Rover. With dispatches of the new Range

Rover starting, we expect depreciation and amortization charges to

increase 22% QoQ. We estimate JLR's PAT at GBP307m (stable QoQ), as

the benefit of higher volumes would be negated by lower margins

and higher depreciation/amortization.

Tata Motors' (TTMT) standalone volumes would decline 10.5% YoY (7.4%

QoQ), led by 36.5%/32.4% YoY decline in MHCVs/PVs, though LCV

volumes would grow 26.5% YoY. Standalone margins are likely to drop

further by 50bp on lower volumes and higher discounts.

We expect 4.6% YoY (9.1% QoQ) increase in TTMT's cons. revenue.

Cons. margins would decline 310bp YoY (30bp QoQ). Cons. PAT would

decline 37.3% YoY (increase 6.4% QoQ) to INR22.2b.


JLR demand trends and outlook for FY14, particularly in China and US.

Order book for new Range Rover, ramp-up schedule, update on new

RR Sport launch.

FY14 volume guidance for MHCVs and PVs, channel inventory, and

discount trends.


Net Sales 1,657 1,924 2,140 2,397

EBITDA 237 264 303 332

NP 126 105 133 144

Adj. EPS (INR) 37.8 31.7 40.0 43.2

EPS Gr. (%) 38.5 (16.0) 26.0 8.1

BV/Sh. (INR) 103.0 131.9 166.5 203.2

RoE (%) 38.4 24.4 24.3 21.2

RoCE (%) 24.1 23.9 24.2 23.1

Payout (%) 11.8 16.4 14.4 13.5

Valuation

P/E (x) 8.2 9.8 7.7 7.2

P/BV (x) 3.0 2.3 1.9 1.5

EV/EBITDA (x) 5.0 4.5 3.9 3.5

Div. Yield (%) 1.3 1.5 1.6 1.6

Bloomberg TTMT IN


M. Cap. (INR b)/(USD b) 1029 / 19


1,6,12 Rel Perf. (%) 14/16/48

C–13January 2013

December 2012 Results Preview | Sector: Capital Goods

Satyam Agarwal ([email protected]) / Deepak Narnolia ([email protected])

Slowing order inflow impacting performance: We expect continued moderation in

revenue growth in 3QFY13 (up 7% YoY v/s 11% YoY in 1HFY13), impacted by depleting

order book and execution constraints . Ordering activity remains sluggish, particularly

in the industrial / power generation segment. Ordering by Power Grid Corporation

(PGCIL) has also been muted during 3QFY13. BTB continues to show a declining trend

after peaking out in 2QFY11 and currently stands at 2.3x, the lowest in 19 quarters. In

3QFY13, we expect EBITDA margin at 12.3%, down 80bp 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.

Environment remains challenging; sentiment has improved: Net bank credit to the

Infrastructure sector is declining since June 2011 and has reached FY09 levels. Quarterly

run rate of project sanctions has reached INR250b-270b v/s a peak of INR1,250b in

1QFY11. This indicates accentuating slowdown in Industrial and Infrastructure

spending. Trailing twelve month (TTM) net projects added per quarter have shown a

continuous decline after peaking out in March 2009. Our interactions with several

companies suggest improved sentiment and improved order enquiries; however,

conversion into concrete ordering is yet to be seen. Structural issues like SEB finances

(for power sector), land/water/environment clearances, and tight liquidity remain

challenges for capex upturn. The government is attempting to address these issues.

Initial rays of hope, but near-term concerns impact valuations: Our Capital Goods

Universe trades at 15x FY14E EPS (20% discount to long-term average of 18x). The

premium relative to the Sensex enjoyed by our Capital Goods Universe has significantly

eroded over the past two years. It now trades at a 4% discount to the Sensex v/s the

long-term average premium of 17%. We expect flat earnings CAGR over FY12-15 for

our Capital Goods Universe. The government's resolve to address the contentious

issues in the Power sector, close monitoring of the 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 and RBI's recent CRR cuts on the

back of easing inflation provide another ray of hope. We are Neutral on the sector;

our top picks are L&T, Cummins and Crompton Greaves.





ABB 692 Neutral 24,632 12.0 36.2 1,251 15.8 88.5 624 -2.6 192.2

BGR Energy 260 Neutral 7,869 -2.1 25.4 910 -30.7 -4.5 273 -50.2 -21.5

BHEL 226 Neutral 102,163 -3.1 -1.8 18,216 -10.5 -4.1 12,479 -12.9 -2.1

Crompton Greaves 113 Buy 30,382 0.3 3.9 1,443 -21.0 5.7 370 -52.0 -12.0

Cummins India 514 Buy 10,941 13.7 0.7 2,031 26.0 1.6 1,538 9.1 -4.6

Havells India 630 Buy 10,598 18.0 9.9 1,330 16.2 2.9 902 8.7 12.2

Larsen & Toubro 1,615 Buy 161,466 15.5 22.4 17,600 12.5 25.2 11,395 1.1 24.5

Siemens 665 Neutral 24,825 4.9 -26.4 1,497 19.4 50.5 723 2.3 76.6

Thermax 615 Neutral 11,568 -8.9 -3.0 1,144 -16.2 -6.1 784 -17.9 -13.9


Capital GoodsCompanies Covered

ABB

BGR Energy

BHEL

Crompton Greaves

Cummins India

Havells India

Larsen & Toubro

Siemens

Thermax

C–14January 2013


Revenue growth impacted by declining orders Margins likely to be supported by softening commodity price


Moderating sales growth likely to impact margins while softening commodity prices could have a positive impact going

forward; Expect 3QFY13 industry margins to be at 12.3% (down 80p YoY).

3QFY13 order inflow likely to be supported by NTPC ordering BTB (x) declining on slowing order inflow


Order intake remains sluggish impacted by slowdown in power generation sector and slowing

industrial capex; Powergrid ordering has also been muted during 3QFY13 while building and

construction and roads segment continue to show healthy traction.

Engineering Sector (revenue growth %)

38.

035

.13

2.2

19.1 3

1.3

28.

819

.7 26.

88.

97

.24

.725

.01

5.6 24.

1 30.4

14.5

15.

31

7.3

15.

318

.51

7.3

6.2

7.3

1QF

Y08

3QF

Y08

1QF

Y09

3QF

Y09

1QF

Y10

3QF

Y10

1QF

Y11

3QF

Y11

1QF

Y12

3QF

Y12

1QF

Y13

3QF

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 12

.4

8.2

8.0

8.1

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

12.2

13.

1

11.0 12

.2

12.

3

17.6

1Q

FY09

3Q

FY09

1Q

FY10

3Q

FY10

1Q

FY11

3Q

FY11

1Q

FY12

3Q

FY12

1Q

FY13

3Q

FY13

Net Profi t Margin (%) EBITDA Margin (%)

534

01

3 2546 41

22

-2-1

9-7

23

64

920

-16

20-2

2 -12

36

-15

7

-47

-18

1QFY

08

3QFY

08

1QFY

09

3QFY

09

1QFY

10

3QFY

10

1QFY

11

3QFY

11

1QFY

12

3QFY

12

1QFY

13

3QFY

13

Order intake YoY %

1,42

71,

529

1,63

21,

849

2,05

12,

196

2,23

22,

340

2,49

42,

705

2,88

83,

007

3,17

03,

199

3,39

73,

405

3,47

23,

374

3,22

83,

318

3,26

53,

265

2.4

2.4 2.4 2.6 2.7 2.8

2.6 2.7 2.8 3

.03.

03

.0 3.1

2.9

2.9

2.9

2.8

2.6

2.4

2.4

2.3

2.3

2QFY

08

1QFY

09

4QFY

09

3QFY

10

2QFY

11

1QFY

12

4QFY

12

3QFY

13

Order book (INR bn) BTB (x)

Infra credit disbursements continues to be lower than Infrastructure credit disbursement showing signs ofIndustry bottoming out


400

700

1,000

1,300

1,600

Apr

-08

Oct

-08

Apr

-09

Oct

-09

Apr

-10

Oct

-10

Apr

-11

Oct

-11

Apr

-12

Oct

-12

-55

-5

45

95

Infras tructure (Bank Credi t, ttm, INR b)

Infras tructure bank credi t (ttm, % YoY)

0

800

1,600

2,400

3,200

Sep-

05

Feb-

06

Jul-

06

De

c-06

May

-07

Oct

-07

Mar

-08

Au

g-08

Jan-

09

Jun-

09

Nov

-09

Apr

-10

Sep-

10

Feb-

11

Jul-

11

De

c-11

May

-12

Oct

-12

Infras tructure (Bank Credi t, ttm, INR b)Indus tries excl infra (Bank Credi t, ttm INR b)

C–15January 2013





Capital Goods

ABB 692 Neutral 8.6 13.2 22.2 80.1 52.3 31.2 43.6 30.6 19.1 7.0 10.1 15.3

BGR Energy 260 Neutral 21.3 22.0 23.0 12.2 11.8 11.3 7.4 6.5 6.8 13.2 12.7 12.4

BHEL 226 Neutral 26.1 19.7 12.7 8.7 11.5 17.8 5.2 6.5 8.3 23.2 15.4 9.2

Crompton Greaves* 113 Buy 3.0 8.9 13.7 38.0 12.6 8.2 14.5 8.5 6.0 5.2 14.7 20.1

Cummins India 514 Buy 23.8 28.1 32.3 21.6 18.3 15.9 15.7 12.9 11.2 30.3 31.8 32.3

Havells India* 630 Buy 30.9 40.0 47.4 20.4 15.7 13.3 9.9 9.8 8.0 38.5 28.6 27.0

Larsen & Toubro** 1,615 Buy 88.6 96.7 113.2 18.2 16.7 14.3 12.5 10.4 8.9 17.8 17.2 17.6

Siemens 665 Neutral 17.7 23.1 29.3 37.5 28.7 22.7 19.6 15.7 12.9 14.7 17.9 20.4

Thermax 615 Neutral 27.0 30.5 34.4 22.7 20.1 17.9 14.0 10.9 8.3 18.6 18.7 18.9


Relative Performance - 3m (%) Relative Performance-1Yr (%)

95

105

115

125

135

Dec

-11

Feb

-12

Ap

r-1

2

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Sensex IndexMOSL Capi ta l Goods Index

96

98

100

102

104


Sensex IndexMOSL Capi ta l Goods Index

2QFY13 project sanctions at lowest levels indicating slowerNet project addition at lowest levels since FY06 industrial capex in next 2-3 quarters


0

5,000

10,000

15,000

20,000

25,000

Mar

-96

Sep

-97

Mar

-99

Sep

-00

Mar

-02

Sep

-03

Mar

-05

Sep

-06

Mar

-08

Sep

-09

Mar

-11

Sep

-12

Net Projects added (INR b, ttm)

908

1,32

7

1,19

4

827

1,25

0

1,06

7

787

821

787

575

506

255

268

0

50

100

150

200

250

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

0

350

700

1,050

1,400Sanctions (INR b) Projects (Nos)

* Consolidated; ** EPS and P/E consolidated. EV/EBITDA, RoE are standalone.

C–16January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Sales 17,960 17,125 17,435 21,999 17,903 18,838 18,086 24,632 74,742 79,459

Change (%) 21.7 18.4 24.8 6.2 (0.3) 10.0 3.7 12.0 17.5 6.3

EBITDA 1,016 855 666 1,080 975 1,060 664 1,251 3,618 3,950

Change (%) 356.2 70.8 93.3 230.5 -4.0 24.0 -0.4 15.8 131.9 9.2

As % of Sales 5.7 5.0 3.8 4.9 5.4 5.6 3.7 5.1 4.8 5.0

Depreciation 144 264 263 124 223 231 240 300 795 995

Interest 40 67 71 129 54 77 117 72 307 320

Other Income 45 65 38 14 19 14 10 34 162 77

PBT 877 589 371 840 716 766 316 913 2,677 2,712

Tax 282 202 149 199 240 250 102 289 832 881


Repoted PAT 595 387 222 641 476 516 214 624 1,845 1,831

Adj. PAT 595 387 222 641 476 516 214 624 1,845 1,831

Change (%) 796.8 1.1 92.6 845.3 -20.0 33.2 -3.6 -2.6 191.8 -0.8

Order Intake 16,951 17,918 24,926 22,093 16,320 20,450 16,800 27,987 81,888 81,557

Order Book 83,291 84,150 91,513 91,288 90,280 91,892 90,606 95,225 91,288 95,225

BTB (x) 1.2 1.2 1.2 1.2 1.2 1.2 1.5 1.2 1.2 1.3

E: MOSL Estimates

ABBCMP: INR692 Neutral

Profitability would remain under pressure, particularly in project

business, impacted by higher competitive intensity, slower execution

and low margin fixed price contracts. Also, the benefit of softening

commodity prices has largely been negated by INR depreciation as ~

40% of raw materials is imported (largely from parent company).

Order book currently stands at INR90.6b, down 1% YoY, as ABB has not

received any meaningful large order in CY12. In CY11, it had received

significant large orders from PGCIL (HVDC order), Isolux and SAIL. We

expect order intake to decline 10% YoY. Excluding the large orders of

CY11, base orders are likely to grow 25% in CY12.

We maintain our Neutral rating.


EBITDA margin remains under pressure, impacted by cost overruns

and pricing pressure, particularly in project business. In 9MCY12,

EBITDA margin was 5%, flat YoY.

Over 9MCY12, ABB reported 10% decline in order intake, impacted

by lack of large orders; however, base orders continue to do well and

are growing 10-15% YoY.

Execution of projects has been constrained, impacted by delayed

offtake by customers.

Profit margins are likely to be impacted by adverse currency

movement, as imports constitute ~40% of material consumption (75%

of which is from parent) while exports are just at 15% of revenue.


Net Sales 73.7 78.8 87.8 103.2

EBITDA 2.8 3.3 4.6 7.4

Adj PAT 1.8 1.8 2.8 4.7

Adj EPS (INR) 8.7 8.6 13.2 22.2

EPS Gr (%) 191.9 -0.8 53.3 67.3

BV/Share (INR) 119.6 125.7 135.9 153.0

RoE (%) 7.4 7.0 10.1 15.3

RoCE (%) 8.1 7.7 10.4 15.1

Payout (%) 40.1 25.0 20.0 20.0

Valuation

P/E (x) 79.5 80.1 52.3 31.2

P/BV (x) 5.8 5.5 5.1 4.5

EV/EBITDA (x) 50.7 43.6 30.6 19.1

Div. Yield (%) 1.9 1.8 1.6 1.4

Bloomberg ABB IN


M. Cap. (INR b)/(USD b) 147 / 3


1,6,12 Rel Perf. (%) -4/-26/-4

C–17January 2013


Quarterly Performance (Standalone) (INR Million)



Sales 7,329 7,715 8,037 11,377 6,109 6,273 7,869 12,529 34,471 32,780

Change (%) -19.2 -32.1 -36.1 -22.2 -16.6 -18.7 -2.1 10.1 -27.6 -4.9

EBITDA 948 1,102 1,313 1,356 880 953 910 1,388 4,731 4,131

Change (%) -8.7 -16.7 -10.8 -19.0 -7.2 -13.5 -30.7 2.3 -14.1 -12.7

As of % Sales 12.9 14.3 16.3 11.9 14.4 15.2 11.6 11.1 13.7 12.6

Depreciation 37 40 41 43 41 43 48 44 161 176

Interest 180 302 461 411 342 401 460 431 1,354 1,634

Other Income 13 0 0 51 0 5 2 0 53 6

PBT 743 761 811 954 496 514 404 912 3,268 2,327

Tax 241 247 263 282 162 167 131 299 1,033 758


Reported PAT 503 514 548 672 335 347 273 614 2,235 1,568

Adj PAT 503 514 548 672 335 347 273 614 2,235 1,568

Change (%) -17.0 -34.0 -37.4 -31.7 -33.4 -32.4 -50.2 -8.6 -31.1 -29.8

E: MOSL Estimates

BGR EnergyCMP: INR260 Neutral

We expect revenue to decline 2% YoY due to lack of orders for

execution. BGRL has two major orders worth INR32b (one from Gayatri

Project and one from TRN Energy), which would be the main revenue

drivers. BGR is yet to start execution of NTPC orders.

We expect EBITDA margin of 11.6%, down 470bp, impacted by negative

operating leverage and higher share of EPC contracts. The

management expects 11-12% EBITDA margin in FY13/14.

Order book as at the end of September 2012 stood at INR140b, of

which INR6b were product orders and INR134b were projects. Projects

include NTPC bulk tenders of INR86b (61% of total order book), INR21b

of EPC and INR25b of BOP. We expect order intake to remain muted

due to ongoing issues in the power generation sector.

Land for the turbine factory has already been acquired and construction

work is expected to commence shortly. Also, 70% of the land for the

boiler factory has been acquired.

We maintain Neutral.


Net working capital remains elevated at INR21b, led by increase in

receivables and non receipt of retention money (part of receivables).

Any positive development on this account would be a key positive.

EBITDA margin is likely to decline as the share of EPC orders increases.

Revenue growth would remain constrained . Execution of NTPC orders

is yet to begin. Revenue would largely be driven by orders from

Gayatri Project and TRN Energy (INR32b in order book).


Net Sales 34.5 32.8 36.0 42.5

EBITDA 4.6 4.1 4.5 4.8

Adj PAT 2.2 1.5 1.6 1.7

EPS (INR) 30.9 21.3 22.0 23.0

EPS Gr. (%) (28.6) (31.0) 3.1 4.5

BV/Sh. (INR) 155.2 168.4 179.9 192.4

RoE (%) 21.6 13.2 12.7 12.4

RoCE (%) 13.1 10.3 10.6 11.0

Payout (%) 37.8 38.3 47.8 45.7

Valuation

P/E (x) 11.4 12.2 11.8 11.3

P/BV (x) 2.3 1.5 1.4 1.4

EV/EBITDA (x) 5.3 4.3 4.0 3.7

Div Yield (%) 2.8 2.7 3.5 3.5

Bloomberg BGRL IN




1,6,12 Rel Perf. (%) -5/-26/19

C–18January 2013





Sales (Net) 71,234 102,991 105,426 192,595 83,262 103,996 102,163 180,295 472,279 469,717

Change (%) 9.9 23.7 19.1 7.5 16.9 1.0 -3.1 -6.4 13.6 -0.5

EBITDA 10,184 18,616 20,350 49,372 12,022 18,995 18,216 43,413 98,880 92,646

As a % Sales 14.3 18.1 19.3 25.6 14.4 18.3 17.8 24.1 20.2 19.4

Adjusted EBITDA 8,524 16,956 20,350 49,372 12,022 18,995 18,216 43,413 97,076 92,646

Change (%) -17.1 -0.6 -5.3 68.5 41.0 12.0 -10.5 -12.1 20.6 -4.6

As a % Sales 14.1 16.0 19.1 25.2 14.2 18.0 17.5 23.5 20.3 19.4

Interest 88 96 145 183 55 259 130 274 513 718

Depreciation 1,709 1,888 1,861 2,541 2,284 2,163 2,200 2,081 8,000 8,728

Other Income 3,435 3,174 2,415 3,989 3,663 1,307 2,200 2,189 12,656 9,358

PBT 11,822 19,806 20,758 50,637 13,346 17,880 18,086 43,247 103,023 92,558

Tax 3,667 5,686 6,432 16,838 4,137 5,135 5,607 13,815 32,623 28,693


Reported PAT 8,155 14,120 14,326 33,798 9,209 12,745 12,479 29,432 70,400 63,865

Change (%) 21.8 23.6 2.1 20.8 12.9 -9.7 -12.9 -12.9 17.1 -9.3

Adj. PAT 8,155 12,858 14,326 33,580 9,209 12,745 12,479 29,432 68,919 63,865

Change (%) 14.8 11.1 -0.2 73.6 12.9 -0.9 -12.9 -12.4 21.8 -7.3

Order intake 24,710 143,060 (15,040) 68,230 55,900 31,530 35,000 172,591 220,960 295,021

Order book (INRb) 1,596 1,610 1,465 1,347 1,330 1,223 1,156 1,139 1,353 1,139

BTB (x) 3.8 3.6 3.2 2.9 2.7 2.5 2.4 2.4 2.9 2.4

E: MOSL Estimates

BHELCMP: INR226 Neutral

We expect revenue to decline by 3% YoY, impacted by declining order

book. Orders in the Industrial segment have also declined significantly

over the first half of the year. Execution is also likely to be constrained,

particularly in private sector orders.

Order intake is likely to remain muted. The quarter has not seen any

major activity/announcement of orders in the Power generation

segment. BHEL is also facing sluggish order inflow in the Industrial as

well as Export market. We expect INR30b-35b worth of orders during

the quarter, largely in the Industrial segment, though in the last

quarter, BHEL had reported steep decline in industrial orders.

Net working capital excluding cash was at 36% of sales in 1HFY13, up

from 28% of sales as at the end of March 2012 and 21% as at the end of

March 2011, and we expect further deterioration in working capital.


Revenue growth moderating due to declining order book,

compounded by execution constraints in private sector orders, which

constitute 32% of the order book.

EBITDA margin is likely to shrink due to negative operating leverage.

Further pressure on working capital due to decline in customer

advances and tightening liquidity.

Order intake muted, also reflected in Industry segment.


Net Sales 479.8 478.5 439.0 370.9

EBITDA 99.1 92.6 71.1 47.4

Adj PAT 68.9 63.9 48.2 31.0

EPS (INR) 28.2 26.1 19.7 12.7

EPS Gr. (%) 21.7 (7.3) (24.6) (35.6)

BV/Sh. (INR) 103.7 121.2 134.0 142.2

RoE (%) 30.3 23.2 15.4 9.2

RoCE (%) 33.0 24.7 16.3 9.8

Payout (%) 22.3 28.0 30.0 30.0

Valuation

P/E (x) 11.5 8.7 11.5 17.8

P/BV (x) 3.1 1.9 1.7 1.6

EV/EBITDA (x) 7.3 5.2 6.5 8.3

Div Yield (%) 2.8 3.2 2.6 1.7

Bloomberg BHEL IN


M. Cap. (INR b)/(USD b) 554 / 10


1,6,12 Rel Perf. (%) -2/-11/-28

C–19January 2013


Quarterly performance (INR Million)



Standalone Performance

Sales 14,688 14,515 16,245 19,406 16,592 16,702 17,525 19,281 64,854 70,100

Change (%) 9.4 0.5 16.1 9.9 13.0 15.1 7.9 -0.6 9.0 8.1

EBITDA 1,867 1,614 1,753 1,973 1,584 1,470 1,700 1,957 7,207 6,710

Change (%) -10.8 -30.1 -23.1 -25.3 -15.2 -8.9 -3.0 -0.9 -22.7 -6.9

As of % Sales (Adj) 12.7 11.1 10.8 10.2 9.5 8.8 9.7 10.1 11.1 9.6

Subsidiaries Performance

Sales 9,689 12,541 14,035 11,367 11,520 12,540 12,857 12,274 47,632 49,191

Revenue growth (%) 1.0 31.6 40.6 -0.5 18.9 0.0 -8.4 8.0 17.5 3.3

EBITDA -48 646 73 158 84 -105 -257 -422 830 -701

As of % Sales (Adj) -0.5 5.2 0.5 1.4 0.7 -0.8 -2.0 -3.4 1.7 -1.4

Consolidated Performance

Sales 24,377 27,056 30,280 30,774 28,111 29,242 30,382 31,555 112,486 119,291

Change (%) 5.9 12.8 26.3 5.8 15.3 8.1 0.3 2.5 12.4 6.0

EBITDA 1,819 2,260 1,826 2,132 1,668 1,365 1,443 1,534 8,037 6,009

Change (%) -38.8 -32.2 -46.3 -42.9 -8.3 -39.6 -21.0 -28.0 -40.2 -25.2

As of % Sales (Adj) 7.5 8.4 6.0 6.9 5.9 4.7 4.7 4.9 7.1 5.0

Depreciation 608 726 627 639 466 544 570 636 2,600 2,216

Interest 110 102 112 139 99 190 212 255 463 755

Other Income 151 215 155 3 192 208 149 161 524 709

PBT 1,253 1,647 1,242 1,357 1,294 838 811 805 5,498 3,748

Tax 475 463 487 396 445 414 458 527 1,821 1,844


Minority interest -17.1 16.5 -16.4 -42.9 -9.6 4.2 -17.3 -46.4 -59.9 -69.0

Adjusted PAT 795 1,167 771 1,003 859 420 370 324 3,736 1,973

Change (%) (58.4) (45.4) (66.9) (65.4) 8.1 (64.0) (52.0) (67.7) (59.7) (47.2)

Order book 70,880 71,200 81,830 83,664 91,720 94,000 101,429 111,949 83,664 111,949

Order Intake 17,040 22,600 34,010 28,961 27,170 25,750 31,678 29,265 102,611 113,863

BTB (x) 0.7 0.7 0.7 0.7 0.8 1.0 0.9 1.2 0.7 0.9

Crompton GreavesCMP: INR113 Buy

We expect standalone sales to grow 7.9% YoY in 3QFY12 to INR17.5b

and cons. sales to be flat YoY at INR30.4b.

Standalone/Cons EBITDA margin is likely to shrink 110/130bp YoY to

9.7%/4.7%.

Cons Adj PAT is expected to decline 52% YoY to INR370m.


Restructuring in Belgium, as 260 employees were to be retrenched in

December 2012, and the associated costs.

Impact of increased rejection rates in Belgium and the ramp-up

challenges in Hungary on EBITDA margin. During 1HFY13, these factors

had led to an EBITDA impact of INR1.4b.

Order intake in overseas market has been robust at INR15b-19b/

quarter; continuation of this trend is important.

Consumer business margin had declined to 9.5% in 2QFY13 (down

180bp YoY); this was expected to be corrected, with price increases.

ZIV financials, as the initial expectaions were that CY13 revenues

would be EUR85m and EBITDA margin would be 21%.


Net Sales 112.5 119.3 127.9 146.8

EBITDA 8.0 6.0 9.9 14.1

Adj PAT 3.7 1.9 5.7 8.8

EPS(INR) 5.7 3.0 8.9 13.7

EPS Gr. (%) (60.0) (48.2) 201.1 53.8

BV/Sh. (INR) 56.3 57.3 63.0 73.1

RoE (%) 10.7 5.2 14.7 20.1

RoCE (%) 9.6 4.6 11.5 15.8

Payout (%) 20.7 25.0 25.0 25.0

Valuation

P/E (x) 19.7 38.0 12.6 8.2

P/BV (x) 4.1 2.3 2.1 1.8

EV/EBITDA (x) 14.8 10.4 8.8 7.3

Div Yield (%) 1.2 1.5 1.7 2.0

* Consolidated

Bloomberg CRG IN




1,6,12 Rel Perf. (%) -6/-21/-30

C–20January 2013





Sales 10,335 10,903 9,624 10,404 12,588 10,869 10,941 11,190 41,172 45,588

Change (%) 11.4 -0.1 -3.0 -0.1 21.8 -0.3 13.7 7.6 1.8 10.7

EBITDA 1,739 1,759 1,612 1,948 2,325 1,999 2,031 2,155 6,972 8,510

Change (%) -11.9 -19.0 -10.3 9.2 33.7 13.6 26.0 10.6 -8.7 22.1

As of % Sales 16.8 16.1 16.7 18.7 18.5 18.4 18.6 19.3 16.9 18.7

Depreciation 94 98 109 119 114 117 125 144 420 500

Interest 11 5 11 21 14 13 15 19 54 60

Other Income 283 163 454 242 385 338 275 293 1,233 1,291

PBT 2,432 1,819 1,945 2,049 2,583 2,207 2,166 2,285 7,732 9,241

Tax 661 534 536 604 777 596 628 656 2,334 2,657


Reported PAT 1,772 1,286 1,410 1,446 1,806 1,611 1,538 1,630 5,913 6,585

Change (%) 26.3 -23.4 1.5 0.4 1.9 25.3 9.1 12.7 0.0 11.4

Adjusted PAT 1,360 1,286 1,410 1,446 1,806 1,611 1,538 1,630 5,501 6,585

Change (%) (3.0) (23.4) 1.5 0.4 32.7 25.3 9.1 12.7 (6.9) 19.7

Operational Details

Domestic Sales 7,456 7,689 6,653 6,846 8,104 7,650 8,011 8,605 28,614 32,370

Change (%) 10.3 0.2 (4.0) (11.2) 8.7 (0.5) 20.4 25.7 (0.3) 12.3

Exports 2,763 3,009 2,768 3,367 4,310 3,033 2,750 2,410 11,908 12,503

Change (%) 27.9 9.0 4.5 24.7 56.0 0.8 (0.7) (28.4) 12.3 5.0

E: MOSL Estimates

Cummins IndiaCMP: INR514 Buy

On the back of buoyant demand environment, KKC announced a

further price increase of 3% from January 2013. This is the second

increase, with the earlier 3% made in June 2012. Importantly, the price

increases have been taken during a period when cost pressures,

particularly commodity prices, have moderated. In our view, the twin

trends of softening commodity prices and INR depreciation have

improved near-term margin outlook.

During 2QFY13, exports declined 28% QoQ (flat YoY). We expect 3QFY13

exports to decline 20% QoQ, impacted by slowdown in global demand,

particularly in the HHP segment. Our estimates factor 60% decline in

HHP exports in 4QFY13, from the peak levels in 2QFY09, and a further

decline of 20% in FY14 (to levels lower than FY08). Hence, we believe

that a sharp bounce-back could happen, as the demand environment

improves globally.

New emission norms for the domestic market are yet to be notified,

and we expect the implementation to be pushed to the end of CY13.


Domestic DG Set demand growth expected at 27% YoY in 3QFY13 v/s

14% YoY in 2QFY13.

Exports to decline by 10% YoY, impacted by poor demand.

Margins robust at 18.6%, given operating leverage and benefit from

lower commodity prices.

Capex incurred in 1HFY13 was INR400m, and target for FY13 is INR6.5b.


Net Sales 41.2 45.6 52.7 61.8

EBITDA 7.0 8.5 10.4 12.0

Adj PAT 5.5 6.6 7.8 8.9

EPS (INR) 19.8 23.8 28.1 32.3

EPS Gr. (%) (6.9) 19.7 18.5 14.7

BV/Sh. (INR) 73.5 83.2 93.7 106.1

RoE (%) 28.8 30.3 31.8 32.3

RoCE (%) 28.8 30.5 32.0 32.5

Payout (%) 64.2 59.1 62.4 61.6

Valuation

P/E (x) 25.9 21.6 18.3 15.9

P/BV (x) 7.0 6.2 5.5 4.8

EV/EBITDA (x) 16.3 15.8 13.0 11.3

Div Yield (%) 2.5 2.3 2.9 3.3

Bloomberg KKC IN


M. Cap. (INR b)/(USD b) 143 / 3


1,6,12 Rel Perf. (%) 8/2/30

C–21January 2013





Sales 8,235 8,504 8,982 10,485 10,328 9,642 10,598 12,174 36,220 42,743

Change (%) 19.4 28.2 29.8 24.2 25.4 13.4 18.0 16.1 25.4 18.0

EBITDA 973 1,022 1,144 1,468 1,197 1,293 1,330 1,582 4,621 5,402

Change (%) 8.7 37.1 39.6 46.8 44.1 18.0 9.5 7.8 29.1 16.9

Adj EBITDA margin (%) 10.8 12.8 13.5 13.8 12.4 12.4 12.5 13.0 12.8 12.6

Depreciation 86 91 104 166 118 159 160 162 447 599

Interest 94 79 75 197 102 99 85 79 444 365

Other Income 2 16 1 3 28 20 15 13 8 75

PBT 795 868 967 1,108 1,004 1,054 1,100 1,355 3,738 4,513

Tax 146.6 165.7 178.4 192.2 203.5 184.7 198.0 248.7 682.6 834.9


Reported PAT 648 702 789 916 800 870 902 1,106 3,060 3,683

Change (%) 21.5 21.0 29.1 34.4 23.5 23.8 14.3 20.8 26.4 20.3

Adj PAT 566 741 830 1,022 880 804 902 1,106 3,056 3,678

Change (%) 3.6 39.9 44.1 50.0 55.5 8.5 8.7 8.2 26.5 20.4

E: MOSL Estimates

Havells IndiaCMP: INR630 Buy

Havells has continuously added new product categories / segments

which have, over a period become ~INR5b revenue product categories.

For instance, the company entered the lighting segment in 2003 and

the business contributed INR5.5b of revenues in FY12. It entered the

fans market in 2005 and contributed revenues of INR4.9b in FY12. Going

forward, new product portfolios including Consumer / Kitchen

appliances (launched in FY11 and FY13 revenues expected at INR2b),

Reo switches (mass market, launched in FY13), etc have possibilities

to become INR5b+ categories over the next 3-5 years. This will drive a

robust 15-20%+ revenue growth in the standalone business.

Sylvania reported a sharp decline in normalized EBITDA margins from

9.7% in 3QFY12 to ~3.3% in 2QFY13; and this was largely driven by cost

increases and one-time factors. To mitigate the impact of cost

increases, the company has pushed through price increases of ~3-4%,

and thus the management expects that post stabilization, margins

should again move towards normative levels. EBITDA to cash

conversion in Sylvania is targeted at ~80%, as the incremental capex /

working capital requirements will be limited.


Price increase in Fans and Consumer Appliances during 3QFY13 to

offset cost pressures. Consumer Appliances including Geysors have

been particularly impacted by the currency movements.

Price increase of 3-4% in Sylvania to offset cost increases. Margins in

Europe have declined to 0.8% in 2QFY13 v/s 8.9% in FY12. Also,

revenue growth in Europe declined 13% in 2QFY13, and we expect

decline of 6% in 3QFY13.

Improved profitability of Switchgear business, where margins fell to

33.2% in 2QFY13 (down 305bp) due to various one-off costs.


Net Sales 65.2 71.0 77.5 86.1

EBITDA 6.6 8.3 8.1 9.5

Adj PAT 4.3 3.9 5.0 5.9

EPS (INR) 34.1 30.9 40.0 47.4

EPS Gr. (%) 64.6 (9.4) 29.4 18.7

BV/Share (INR) 76.6 99.2 139.7 175.4

RoE (%) 38.7 38.5 28.6 27.0

RoCE (%) 23.6 28.8 23.6 23.6

Payout (%) 25.5 20.6 26.4 24.7

Valuation

P/E (x) 18.5 20.4 15.7 13.3

P/BV (x) 8.2 6.3 4.5 3.6

EV/EBITDA (x) 8.9 9.9 9.8 8.0

Div Yield (%) 1.0 1.2 1.4 1.6

Bloomberg HAVL IN




1,6,12 Rel Perf. (%) 7/-3/39

C–22January 2013





Net Sales 94,826 112,442 139,836 184,609 119,554 131,952 161,466 220,572 531,705 633,544

Change (%) 21.1 20.5 22.5 21.0 26.1 17.4 15.5 19.5 21.1 19.2

EBITDA 11,265 12,165 13,641 25,608 10,870 14,054 17,600 30,678 62,826 73,201

Change (%) 12.1 21.0 10.2 9.3 -3.5 15.5 29.0 19.8 11.4 16.5

Margin (%) 11.9 10.8 9.8 13.9 9.1 10.7 10.9 13.9 11.8 11.6

Adjusted EBITDA 11,265 12,165 15,641 25,608 12,470 14,054 17,600 30,678 64,826 74,801

Adjusted Margin (%) 11.9 10.8 11.2 13.9 10.4 10.7 10.9 13.9 12.2 11.8

Depreciation 1,679 1,709 1,803 1,804 1,919 2,040 2,100 2,137 6,995 8,196

Interest 1,613 1,970 1,907 1,211 2,284 2,350 2,300 2,266 6,661 9,200

Other Income 2,962 3,201 4,271 3,142 6,058 3,294 2,850 2,954 13,383 15,156

Extraordinary Inc/(Exp) 0 0 0 550 -383 2,672 0 0 550 2,289

Reported PBT 10,935 11,687 14,202 26,285 12,341 15,630 16,050 29,229 63,103 73,249

Tax 3,474 3,703 4,286 6,988 3,705 4,257 4,654 8,320 18,538 20,936


Reported PAT 7,461 7,984 9,915 19,297 8,636 11,373 11,395 20,908 44,565 52,313

Adjusted PAT 7,461 7,984 11,275 18,747 10,025 9,151 11,395 20,908 44,825 51,511

Change (%) 12.0 15.0 40.0 22.7 34.4 14.6 1.1 11.5 23.7 14.9

Adj PAT (excl Subs Dividend) 6,901 7,094 9,085 18,237 7,105 8,521 10,945 20,124 40,745 46,695

Change (%) 12.0 10.6 19.5 26.2 2.9 20.1 20.5 10.3 20.0 14.6

Order Intake 162 161 171 212 196 210 130 284 706 820

Order book (INR b) 1,362 1,422 1,458 1,457 1,531 1,585 1,554 1,643 1,457 1,643

BTB (x) 3.0 3.0 2.9 2.7 2.8 2.8 2.6 2.6 3.3 3.1

E: MOSL Estimates; MTM Forex loss in 3QFY12 of INR2b

Larsen & ToubroCMP: INR1,615 Buy

L&T had guided 15-20% YoY growth (INR810b-850b) in order intake

over FY13, against which it has reported orders worth INR406b over

1HFY13 and announced orders worth INR98b in 3QFY13. It had indicated

that the strong growth in order inflow would be supported by 50-60%

growth (INR190b-200b) in overseas order intake, against which it has

reported overseas orders of INR63b in 1HFY13 and INR6b in 3QFY13.

Net working capital has been showing a rising trend due to increased

vendor support in a tough market. L&T had reported net working capital

at 16.5% of sales during 2QFY13 (up from 15.3% in 1QFY13 and 11.9% in

FY12). We expect net working capital to peak at ~17% by FY13-end.

In 1HFY13, E&C EBITDA margin was at 11.6%, down 40bp YoY v/s

management guidance of +/-50bp in FY13. In 2HFY13, margins would

be supported by the decline in commodity prices, as 30-40% of the

order book is on fixed price contracts.


Order inflow, particularly from overseas markets, as L&T had guided

15-20% growth in FY13 order intake.

Net working capital continues to be under pressure due to tightening

liquidity and increased vendor support in a tough market.

EBITDA margin would be favorably impacted by softening commodity

prices, as a large part of order book (~40%) is on fixed price basis.


Sa les 537.4 640.3 734.8 863.3

EBITDA 62.6 73.2 86.8 101.4

Adj PAT * 47.7 54.2 59.2 69.3

EPS (INR)* 78.0 88.6 96.7 113.2

EPS Gr. (%) 11.9 13.6 9.1 17.1

BV/Sh (INR) 412.1 473.3 539.5 616.8

RoE (%) 17.8 17.8 17.2 17.6

RoCE (%) 14.1 14.3 14.2 14.8

Payout (%) 25.3 29.7 28.9 28.9

Valuation

P/E (x)* 18.5 18.2 16.7 14.3

P/BV (x) 3.5 3.4 3.0 2.6

EV/EBITDA (x) 14.3 14.1 12.1 10.5

Div Yield (%) 1.1 1.3 1.4 1.7

* Consolidated

Bloomberg LT IN


M. Cap. (INR b)/(USD b) 983 / 18


1,6,12 Rel Perf. (%) -3/6/35

C–23January 2013



Y/E September FY12 FY13E FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Total Revenues 23,676 38,524 30,186 33,752 24,825 34,491 32,588 42,660 129,199 134,564

Change (%) -8.2 23.4 8.5 -4.6 4.9 -10.5 8.0 26.4 7.4 4.2

EBITDA 1,254 5,495 1,298 995 1,497 2,195 2,664 4,477 8,913 10,833

Change (%) -66.0 28.1 -48.2 -65.3 19.4 -60.1 105.2 349.9 -33.2 21.5

As % of Revenues 5.3 14.3 4.3 2.9 6.0 6.4 8.2 10.5 6.9 8.1

PBT 1,050 4,516 537 -711 1,079 1,756 2,165 3,928 5,210 8,928

Tax 343 1,476 175 -154 356 579 715 1,296 1,777 2,946


Reported PAT 707 3,040 362 -557 723 1,176 1,451 2,632 3,433 5,981

Adjusted PAT 707 3,426 530 409 723 1,176 1,451 2,632 5,032 5,981

Change (%) -70.3 24.9 -65.7 -77.0 2.3 -65.7 173.7 543.1 -40.5 18.9

Order Intake (INR b) 28 18 27 29 31 20 30 32 102 113

Order book (INR b) 140 126 124 137 143 128 125 115 137 115

BTB (x) 1.2 1.0 1.0 1.1 1.1 1.1 1.0 0.9 1.1 0.9

E: MOSL Estimates

SiemensCMP: INR665 Neutral

We expect revenue growth to remain muted, impacted by delay in

offtake by customers, sluggish industrial capex and completion of

Qatar/Torrent projects, which had supported revenue last year. A large

part of SIEM's business portfolio comprises of early and mid-cycle

products where the impact of slowdown is 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 10% in

1QFY13. Post the Qatar project, SIEM is aggressively tapping other

MENA (Middle East and North Africa) markets, which should help

support order intake.


Project execution has been constrained over the last year, impacted

by high cost of capital and slower offtake by customers. In FY12, SIEM

had reported just 7% growth in revenue, despite the positive impact

of VAI Metals.

EBITDA margin has been significantly eroded, impacted by cost

overruns and delay in project execution. We expect margins to show

gradual improvement over FY13, driven by cost reduction measures.

Order intake remains sluggish across segments, declining 17% during

FY12. Any large order in the Middle East region would be a positive.

Working capital continues to be at healthy levels despite the tough

economic environment, partially due to the management's strict

preference for project cash flows over revenue.

Profit margins are also likely to be adversely impacted by unfavorable

currency movement, as ~45% of raw material is imported.

Financials & Valuation (INR b)Y/E September 2012 2013E 2014E 2015E

Net Sales 129.2 134.6 155.9 186.0

EBITDA 8.9 10.8 13.7 16.9

Adj PAT 5.0 6.0 7.8 9.9

Adj EPS (INR) 14.9 17.7 23.1 29.3

EPS Gr (%) -40.3 18.8 30.4 26.6

BV/Sh. (INR) 117.6 123.6 135.1 152.7

RoE (%) 12.9 14.7 17.9 20.4

RoCE (%) 14.3 16.4 19.7 22.2

Payout (%) 65.9 50.6 39.9 39.4

Valuation

P/E (x) 44.5 37.5 28.7 22.7

P/BV (x) 5.7 5.4 4.9 4.4

EV/EBITDA (x) 23.7 19.3 15.5 12.7

Div. Yield (%) 1.6 1.6 1.4 1.2

Bloomberg SIEM IN


M. Cap. (INR b)/(USD b) 224 / 4


1,6,12 Rel Perf. (%) -4/-20/-22

C–24January 2013





Sales 10,443 13,035 12,693 16,868 9,835 11,924 11,568 15,576 53,041 48,903

Change (%) 32.2 19.4 2.3 -4.5 -5.8 -8.5 -8.9 -7.7 9.3 -7.8

EBITDA 1,135 1,405 1,364 1,853 964 1,218 1,144 1,528 5,839 4,853

As of % Sales 10.9 10.8 10.7 11.0 9.8 10.2 9.9 9.8 11.0 9.9

Depreciation 111 117 120 121 132 139 142 150 470 563

Interest 4 11 17 34 37 34 39 40 66 150

Other Income 149 208 157 272 187 274 190 209 705 859

PBT 1,170 1,485 1,384 1,971 981 1,318 1,153 1,547 6,009 5,000

Tax 371 468 429 673 309 407 369 489 1,940 1,575


Reported PAT 799 1,017 955 1,298 672 911 784 1,058 4,069 3,425

Change (%) 20.7 13.6 -4.7 2.6 -15.9 -10.4 -17.9 -18.5 6.4 -15.8

Adj PAT 799 1,017 955 1,298 672 911 784 1,058 4,069 3,425

Change (%) 20.7 13.6 (4.7) 2.6 (15.9) (10.4) (17.9) (18.5) 6.4 (15.8)

Order Book 58,890 57,700 51,000 42,300 44,740 44,120 43,559 43,559 42,300 43,559

Order Intake 14,440 11,890 5,900 8,090 12,580 11,620 10,620 14,680 40,320 49,500

BTB (x) 1.1 1.1 0.9 0.8 0.9 0.9 0.9 0.9 0.8 0.9

E: MOSL Estimates

ThermaxCMP: INR615 Neutral

Over 1HFY13, EBITDA margin declined just 100bp despite 7% decline

in sales, which is commendable, considering poor fixed cost

absorption. TMX is a beneficiary of lower commodity prices, as ordinary

steel constitutes 15-20% of raw material cost and is largely procured

on spot basis. We expect EBITDA margin of 9.9% (down 80bp) during

3QFY13.

Order intake has picked up from the lows and is sustaining at INR12b-

14b per quarter (consolidated). Over 1HFY13, order inflow declined

8% YoY. The management had indicated an increase in order enquiries

and improving signs of ordering activity.

Consolidated PAT has been impacted by losses in subsidiaries (down

20% YoY to INR874m during 2QFY13). However, the losses were

significantly curtailed at just INR37m v/s INR147m in 1QFY13 (cost

overruns in Meenakhshi Project, losses in Chinese subsidiaries, etc).

We expect profitability in subsidiaries to show further improvement,

given that the Meenakhshi Project is largely over and Danstoker had

reported profits last quarter.


Any uptick in order inflow would be an important positive.

Consolidated profit had been impacted by losses in subsidiaries -

particularly losses in Meenakshi Project, Thermax-Babcock JV and

Danstoker.

EBITDA margin has been showing strong resilience despite decline in

sales, benefiting from softening commodity prices and cost efficiency

measures. The management expects to maintain low double-digit

margins.


Net Sales 60.3 54.5 61.5 71.4

EBITDA 5.9 4.6 5.6 7.0

Adj PAT 4.0 3.2 3.6 4.1

EPS (INR) 33.9 27.0 30.5 34.4

EPS Gr. (%) 5.7 (20.1) 12.8 12.7

BV/Sh. (INR) 139.9 156.5 175.4 195.8

RoE (%) 27.4 18.6 18.7 18.9

RoCE (%) 22.9 15.8 17.3 17.9

Payout (%) 26.6 33.3 32.8 34.9

Valuation

P/E (X) 15.1 22.7 20.1 17.9

P/BV (X) 3.7 3.9 3.5 3.1

EV/EBITDA (X) 9.2 14.0 10.9 8.3

Div Yield (%) 1.8 1.5 1.6 2.0

Bloomberg TMX IN




1,6,12 Rel Perf. (%) 5/14/25

C–25January 2013

December 2012 Results Preview | Sector: Cement





ACC 1,405 Neutral 26,091 4.3 6.7 3,327 -14.5 -23.5 1,885 -2.6 -24.2

Ambuja Cements 200 Buy 25,143 7.6 16.0 4,879 13.9 -13.6 3,110 -5.8 -7.8

Birla Corporation 294 Buy 5,900 24.2 -6.0 608 -8.4 -44.8 295 -32.5 -63.2

Grasim Industries 3,141 Buy 11,555 -7.0 -13.4 2,200 -22.9 -24.1 2,020 -26.4 -47.2

India Cements 88 Buy 9,850 4.6 -12.3 1,522 -21.8 -25.8 130 -76.9 -73.5

Jaiprakash Associates 97 Buy 37,922 14.7 27.1 7,679 -5.9 -0.4 1,228 -39.6 -4.1

Shree Cement 4,522 Buy 14,666 16.5 10.9 3,732 12.4 -5.0 2,046 245.5 -10.6

Ultratech Cement 1,969 Buy 50,053 9.6 6.5 9,175 -4.9 -8.9 5,009 -12.0 -8.9

Sector Aggregate 181,029 8.5 8.4 32,972 -5.2 -12.7 15,609 -9.8 -22.1

Jinesh K Gandhi ([email protected]) / Sandipan Pal ([email protected])

Delayed festivities lead to moderate dispatch growth; utilization stable YoY: We expect

moderate growth in cement demand in 3QFY13, impacted by a delayed festive season

and continued sluggishness in housing and infrastructure. We estimate growth of

5.5% YoY (~10% QoQ). However, capacity utilization would be stable YoY (up 5pp QoQ)

at 74%. We expect demand recovery to resume from January 2013, with volume growth

of 7.9% for the industry in FY13, translating into capacity utilization of 75% v/s 74% in

FY12. 9MFY13 volume growth of ~6.9% YoY implies residual growth of 10.4% for 4QFY13.

Prices under pressure QoQ - unusual for 3Q; expect strong recovery in 4QFY13: Delayed

festive season followed by an early marriage season impacted demand, and more

importantly, cement prices. Cement prices were unusually weak in 3QFY13, with

national average retail prices down by ~INR10/bag QoQ (down ~INR5/bag YoY, adjusted

for excise duty increase in February 2012). Prices are (1) broadly stable QoQ in the

South (except in Andhra Pradesh, where prices are volatile and down ~INR5/bag QoQ),

(2) down INR7/INR10/bag in Central/East India, and (3) down INR13-14/bag in North

and West India. We factor in ~INR20/bag improvement in FY13 realizations over the

FY12 average, which is ~INR7/bag higher than 3QFY13 average pricing. We factor in

INR15/INR12/bag higher realizations in FY14/FY15.

Weak pricing, higher freight cost to result in QoQ decline in profitability: The QoQ

drop in realizations coupled with full impact of diesel price hike on freight (QoQ

increase of INR4-6/bag) would drive down EBITDA to INR786/ton (down INR223/ton

QoQ, INR50/ton YoY). The impact of lower prices and higher freight is partly diluted

by soft imported coal prices (~4% QoQ decline) and operating leverage (~5.5% YoY,

10% QoQ volume growth). For FY13, we estimate just ~INR122/ton improvement in

EBITDA to INR1,019/ton against INR400/ton improvement in realizations, diluted by

cost push. However, we believe that cost push is moderating and expect improvement

of ~INR165/ton in EBITDA/ton on the back of INR300/ton improvement in realizations.

Valuation and view: The worst is behind and we expect gradual improvement in

operating performance. Though the sector would continue to be plagued by over-

capacity, there would be gradual and consistent improvement in capacity utilization,

driven by sustained volume recovery and slowing capacity addition. As a result, we

expect strong pricing, with ~INR15/INR12/bag increase in cement prices in FY14/FY15.

This coupled with cost stabilization, albeit at higher levels, would drive improvement

CementCompanies Covered

ACC

Ambuja Cements

Birla Corporation

Grasim Industries

India Cements

Jaiprakash Associates

Shree Cement

UltraTech Cement

C–26January 2013


Expect demand growth to moderate at 2.9% …utilization to decline YoY

Source: CMA/MOSL

3QFY13 average cement prices seasonally down QoQ, although lower than estimated (INR/bag)

3QFY13 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 (INR/ton)

Source: Company/MOSL

in profitability and capital efficiencies. Cement prices have been resilient even during

the seasonally weak period, which is also a reflection of high capex and opex cost,

leaving little risk of a major price correction in the medium-to-long term. The

outperformance of cement stocks is driven by strength in pricing, resulting in large

caps trading at premium to replacement cost. While we see limited scope of further

re-rating, we expect strong earnings growth to drive stock performance. Recovery in

cement volume growth would be the key catalyst. We prefer UltraTech/Grasim among

large caps, and Shree Cement among mid-caps.

50 46 49 55 53 48 51 58 51 56 64 59 5953

545.5

9.310.8

4.9

10.39.0

10.2

6.1

0.9

6.0

3.24.0

6.9

9.4

12.2

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

3QFY

13E

Despatches (MT) Growth (%)

74%

69%

74%

60%

70%

80%

90%

100%

110%

1QF

Y07

3QF

Y07

1QF

Y08

3QF

Y08

1QF

Y09

3QF

Y09

1QF

Y10

3QF

Y10

1QF

Y11

3QF

Y11

1QF

Y12

3QF

Y12

1QF

Y13

3QFY

13E

238

238

250

252

229

232

243

237

258

261

248

264

284

299

294

285

223

3.0

2.7 6

.2

5.9

-3.5

-2.4

-2.7

-11.

2

3.2

11.0

7.6 11

.1

11.

5

10.2 14

.3

18.6

8.1

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

3

3QFY

13E

Avg National Reta i l Prices (INR/bag) Change (%)

262

260

259 29

5

264

274

299

283

304

250

284

273

340

290 31

0

279 29

9

272

327

295

303

270

294

259

316

282

300

263

285

North East West South Central Nationa l

Average


3,44

1

3,5

20

3,7

40

3,7

44

3,41

0

3,4

97

3,70

7

3,3

46

3,52

4

3,9

10

4,09

7

3,9

10 4,21

5

4,3

00

4,56

6

4,5

92

4,43

0

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

3

3QFY

13E

Real i zation (INR/ton)

1,2

18

444

1,06

9

610 8

37 1,03

6

1,20

3

1,00

9

78392

1

601

965

908

843

1,29

8

1,1

02

894

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

3

3QFY

13E

EBITDA (INR/ton)

C–27January 2013


Trend in key operating parametersVolume (m tons) Realization (INR/ton) EBITDA (INR/ton)

3QFY13E YoY (%) QoQ (%) 3QFY13E YoY (INR) QoQ (INR) 3QFY13E YoY (INR) QoQ (INR)

ACC 6.0 1.3 11.7 4,327 121 -200 552 -103 -254

Ambuja Cement 5.9 2.8 22.6 4,283 193 -245 831 81 -349

UltraTech 10.2 1.1 10.0 4,898 445 -161 884 -56 -185

Birla Corp 1.5 8.1 -4.7 3,933 82 -53 520 -43 -279

India Cement 2.3 3.0 -10.4 4,255 13 -100 676 -214 -140

Shree Cement 3.1 8.1 1.0 3,731 -67 -160 1,010 -105 -171

Sector Aggregate 29.0 2.7 8.8 4,430 215 -162 783 -54 -226

Recent correction makes valuations attractive (FY12)

Relative Performance - 3m (%)

Relative Performance-1Yr (%)




Cement

ACC 1,405 Neutral 66.0 80.4 98.2 21.3 17.5 14.3 11.4 9.5 7.7 16.8 19.0 20.8

Ambuja Cements 200 Buy 10.6 12.2 14.4 18.9 16.4 13.9 10.8 9.4 8.0 19.3 20.1 21.1

Birla Corporation 294 Buy 34.7 43.3 58.8 18.9 16.4 13.9 4.7 3.2 2.0 10.9 12.3 14.7

Grasim Industries 3,141 Buy 318.7 379.3 459.1 9.9 8.3 6.8 4.5 3.3 2.5 14.9 15.3 15.8

India Cements 88 Buy 7.7 12.6 18.1 11.4 6.9 4.8 6.6 5.1 3.8 5.1 7.8 10.8

J P Associates 97 Buy 3.0 4.2 4.9 32.1 22.8 19.6 19.6 9.7 9.0 6.5 9.2 9.9

Shree Cement 4,522 Buy 306.6 375.6 461.1 14.7 12.0 9.8 8.0 6.4 4.8 34.1 33.1 30.9

Ultratech Cement 1,969 Buy 100.6 129.2 147.7 19.6 15.2 13.3 11.9 8.9 7.6 19.6 21.1 20.2


Revised EPS estimates (INR)FY13E FY14E

Rev Old Chg (%) Rev Old Chg (%)

ACC 66.0 71.8 -8.1 80.4 89.1 -9.8

Ambuja Cement 10.6 11.4 -6.8 12.2 13.3 -8.9

Grasim 318.7 344.3 -7.4 379.3 396.9 -4.4

UltraTech 100.6 109.8 -8.4 129.2 136.9 -5.6

Birla Corp 34.7 33.8 2.8 41.4 42.8 -3.2

India Cement 7.7 8.9 -14.3 12.6 13.2 -4.9

Shree Cement 306.6 351.0 -12.6 375.6 403.1 -6.8

Trend in key financial parametersNet Sales (INR m) EBITDA Margins (%) Net Profit (INR m)

3QFY13 YoY (%) QoQ (%) 3QFY13 YoY (BP) QoQ (BP) 3QFY13 YoY (%) QoQ (%)

ACC 26,091 4.3 6.7 12.8 -280 -500 1,885 -2.6 -24.2

Ambuja Cement 25,143 7.6 16.0 19.4 110 -660 3,110 -5.8 -7.8

UltraTech 50,053 9.6 6.5 18.3 -280 -310 5,009 -12.0 -8.9

Birla Corp 5,900 10.5 -6.0 10.3 -210 -730 295 -32.5 -63.2

India Cement 9,850 4.6 -12.3 15.4 -520 -280 130 -76.9 -73.5

Shree Cement 14,666 16.5 10.9 25.4 -90 -430 2,046 245.5 -10.6

Sector Aggregate 131,702 8.5 6.3 17.6 -190 -430 12,474 -0.4 -16.5


98

100

102

104

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Sensex IndexMOSL Cement Index

Ambuja

Gras im

UltraTech

Birla Corp

India Cement

ShreeACC

0

50

100

150

200

0% 6% 12% 18% 24% 30% 36% 42% 48%RoCE (%)

EV (

USD

/Ton

)

Replacement Cos t a t

USD140/ton

80100120

140160

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

De

c-1

2

Sensex IndexMOSL Cement Index

C–28January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Cement Sales (m ton) 6.16 5.93 5.69 5.95 6.72 6.05 5.40 6.03 23.7 24.2

YoY Change (%) 10.4 12.5 17.8 6.1 9.1 2.0 -5.1 1.3 11.5 2.0

Cement Realization 3,893 4,052 3,779 4,206 4,256 4,591 4,527 4,327 3,978 4,418

YoY Change (%) 3.4 5.7 11.5 20.5 9.3 13.3 19.8 2.9 9.7 11.1

QoQ Change (%) 11.6 4.1 -6.8 11.3 1.2 7.9 -1.4 -4.4

Net Sales 23,982 24,030 21,500 25,027 28,602 27,778 24,445 26,091 94,387 106,917

YoY Change (%) 14.1 18.9 31.3 27.8 19.3 15.6 13.7 4.3 22.3 13.3

Total Expenditure 18,439 18,527 19,296 21,134 22,442 21,270 20,095 22,764 77,395 86,571

EBITDA 5,542 5,503 2,204 3,893 6,161 6,508 4,350 3,327 16,992 20,346

Margins (%) 23.1 22.9 10.3 15.6 21.5 23.4 17.8 12.8 18.0 19.0

Depreciation 1,125 1,158 1,199 1,270 1,305 1,356 1,352 1,409 4,753 5,422

Interest 253 271 253 192 316 301 257 261 969 1,135

Other Income 669 771 1,561 982 948 1,157 840 1,054 3,518 4,000

PBT before EO Item 4,834 4,845 2,312 3,414 5,487 6,009 3,581 2,712 14,788 17,789

EO Income/(Expense) 0 0 0 2,280 -3,354 0 0 0 2,280 -3,354

PBT after EO Item 4,834 4,845 2,312 5,693 2,134 6,009 3,581 2,712 17,068 14,435

Tax 1,327 1,479 637 2,466 580 1,829 1,094 827 4,431 4,330

Rate (%) 27.5 30.5 27.5 43.3 27.2 30.4 30.6 30.5 26.0 30.0

Reported PAT 3,507 3,366 1,676 3,227 1,554 4,179 2,487 1,885 12,637 10,104

Adjusted PAT 3,507 3,366 1,676 1,935 3,859 4,179 2,487 1,885 10,949 12,410

Margins (%) 14.6 14.0 7.8 7.7 13.5 15.0 10.2 7.2 11.6 11.6

YoY Change (%) -13.4 -6.2 67.5 39.2 10.1 24.2 48.4 -2.6 8.0 13.3

E: MOSL Estimates

ACCCMP: INR1,405 Neutral

We expect dispatches to grow just 1.3% YoY (12% QoQ) in 4QCY12 to

6.03m tons. Average realizations are likely to decline 4.4% QoQ (grow

~3% YoY) to INR4,327/ton.

EBITDA margin is likely to shrink 2.8pp YoY (5pp QoQ) to 12.8%,

impacted by lower realizations and higher freight cost. EBITDA/ton

would decline by ~INR100/ton YoY (~INR250/ton QoQ) to INR552/ton.

PAT would decline 3% YoY (~24% QoQ) to INR1.9b.

We are downgrading our EPS estimates by 8%/5% for CY12/CY13 to

INR66 and INR84 respectively, to factor in the reduction in volumes

and realizations.

The stock trades at 17.5x CY13E EPS, and at an EV of 9.1x CY13E EBITDA

and USD129/ton. Maintain Neutral with a target price of INR1,619 (EV

of 8x CY14E EBITDA).


Volume growth recovery, given the slower volume growth in 4QCY12

(1.3% YoY).

Cement pricing outlook, considering unusual price correction in

4QCY12.

Further clarity on proposed royalty to parent.


Sa les 94.4 106.9 124.0 143.8

EBITDA 17.0 20.3 24.0 28.5

NP 10.9 12.4 15.1 18.5

Adj. EPS (INR) 57.0 63.9 80.4 98.2

EPS Gr. (%) -32.8 21.9 41.1 53.7

BV/Sh (INR) 383 401 444 501

RoE (%) 16.0 16.8 19.0 20.8

RoCE (%) 15.7 18.0 20.6 23.0

Payout (%) 48.2 65.3 47.3 41.7

Valuation

P/E (x) 24.1 21.3 17.5 14.3

P/BV (x) 3.7 3.5 3.2 2.8

EV/EBITDA (x) 13.7 11.3 9.1 7.0

EV/Ton (x) 138 136 129 118

Bloomberg ACC IN


M. Cap. (INR b)/(USD b) 264 / 5

52-Week Range (INR) 1,515/1,083

1,6,12 Rel Perf. (%) -2/3/-2

C–29January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Sales Volume (m ton) 5.64 5.29 4.81 5.71 6.18 5.63 4.79 5.87 21.45 22.47

YoY Change (%) 6.7 -3.5 6.7 12.6 9.6 6.5 -0.4 2.8 5.4 4.8

Realization (INR/ton) 3,923 4,114 3,756 4,090 4,260 4,556 4,529 4,283 3,977 4,398

YoY Change (%) 4.2 10.1 8.2 15.9 8.6 10.7 20.6 4.7 9.5 10.6

QoQ Change (%) 11.2 4.9 -8.7 8.9 4.2 6.9 -0.6 -5.4

Net Sales 22,125 21,764 18,061 23,356 26,333 25,660 21,684 25,143 85,306 98,819

YoY Change (%) 11.2 6.3 15.5 30.6 19.0 17.9 20.1 7.6 15.4 15.8

EBITDA 6,170 5,853 2,899 4,282 7,445 7,223 5,650 4,879 19,315 25,197

Margins (%) 27.9 26.9 16.1 18.3 28.3 28.2 26.1 19.4 22.6 25.5

Depreciation 1,061 1,074 1,079 1,238 1,209 1,215 1,373 1,400 4,452 5,197

Interest 138 152 138 99 168 180 166 132 526 646

Other Income 621 693 866 937 1,147 908 963 1,232 3,050 4,250


Extraordinary Inc/(Exp) 0 0 0 -243 -2,791 0 -499 0 -358 -3,110

PBT after EO Exp/(Inc) 5,592 5,320 2,548 3,640 4,424 6,736 4,575 4,580 17,029 20,495

Tax 1,517 1,845 834 544 1,301 2,047 1,535 1,470 4,740 6,353

Rate (%) 27.1 34.7 32.7 15.0 29.4 30.4 33.6 32.1 27.8 31.0

Reported Profit 4,075 3,475 1,715 3,096 3,122 4,689 3,040 3,110 12,289 14,141

Adj PAT 4,075 3,475 1,715 3,302 5,075 4,689 3,371 3,110 12,547 16,245

YoY Change (%) -7.8 -11.2 12.7 31.1 24.5 34.9 96.6 -5.8 0.9 29.5

E: MOSL Estimates

Ambuja CementsCMP: INR200 Buy

We expect dispatches to grow 23% QoQ (3% YoY) in 4QCY12 to 5.87m

tons. Average realizations are likely to decline 5.4% QoQ (grow ~4.7%

YoY) to INR4,283/ton.

EBITDA margin would decline 6.7pp QoQ (expand 110bp YoY) to 19.4%,

impacted by lower realizations and higher freight cost. EBITDA/ton is

likely to decline ~INR350/ton QoQ (increase ~INR80/ton YoY) to

INR831/ton.

PAT would decline ~8% QoQ (6% YoY) to INR3.1b.

We are downgrading our EPS estimates by 7%/4% for CY12/CY13 to

INR10.6 and INR12.8, respectively to factor in the reduction in volumes

and realizations.

The stock trades at 16.4x CY13E EPS, and at an EV of 9.1x CY13E EBITDA

and USD170/ton. Maintain Buy with target price of INR221 (EV of 8x

CY14E EBITDA).


Volume growth recovery, given the slower volume growth in 4QCY12

(3% YoY).


4QCY12.

Further clarity on proposed royalty to parent.


Sa les 85.3 98.8 114.2 130.1

EBITDA 19.3 25.2 28.3 32.5

NP 12.5 16.2 18.7 22.1

Adj. EPS (INR) 8.2 10.6 12.2 14.4

EPS Gr. (%) 5.0 30.3 48.7 36.1

BV/Sh. (INR) 52.4 57.2 64.1 72.7

RoE (%) 16.3 19.3 20.1 21.1

RoCE (%) 23.2 28.7 29.1 30.4

Payout (%) 46.7 50.8 43.3 40.6

Valuation

P/E (x) 24.4 18.9 16.4 13.9

P/BV (x) 3.8 3.5 3.1 2.7

EV/EBITDA (x) 14.1 10.6 9.1 7.4

EV/Ton (USD) 180 177 170 159

Bloomberg ACEM IN


M. Cap. (INR b)/(USD b) 306 / 6


1,6,12 Rel Perf. (%) -5/3/1

C–30January 2013





Cement Sales (m ton) 1.52 1.41 1.39 1.63 1.63 1.57 1.50 1.76 5.96 6.47

YoY Change (%) 2.0 2.0 -6.7 7.2 7.1 11.4 8.1 8.1 0.4 8.5

Cement Realization 3,413 3,143 3,500 3,612 4,021 3,946 3,746 4,055 3,415 3,949

YoY Change (%) -2.8 0.8 18.5 5.7 17.8 25.6 7.0 12.3 6.3 15.6

QoQ Change (%) -0.1 -7.9 11.4 3.2 11.3 -1.9 -5.1 8.2

Net Sales 5,570 5,053 5,341 6,514 6,580 6,274 5,900 6,905 22,469 25,660

YoY Change (%) -3.1 4.3 11.4 9.7 18.1 24.2 10.5 6.0 5.8 14.2


EBITDA 1,487 202 664 782 1,258 1,102 608 959 3,124 3,927

Margins (%) 26.7 4.0 12.4 12.0 19.1 17.6 10.3 13.9 13.9 15.3

Depreciation 175 178 188 259 235 252 300 311 800 1,098

Interest 120 117 161 128 237 141 265 257 525 899

Other Income 346 389 341 575 346 347 350 578 1,662 1,620

Profit before Tax 1,538 296 656 970 1,132 1,056 393 968 3,461 3,549

Tax 420 34 219 396 284 254 98 242 1,068 878

Rate (%) 27.3 11.5 33.4 40.8 25.1 24.0 25.0 25.0 30.9 24.8

PAT 1,119 262 437 575 847 802 295 726 2,392 2,671

Margins (%) 20.1 5.2 8.2 8.8 12.9 12.8 5.0 10.5 10.6 10.4

YoY Change (%) -5.4 -62.1 -37.2 -8.9 -24.3 206.8 -32.5 26.4 -25.2 11.7

E: MOSL Estimates

Birla CorporationCMP: INR294 Buy

We expect 3QFY13 volumes to decline 5% QoQ (grow 8% YoY on a low

base; mining ban in 3QFY12) to 1.5m tons. Average realizations are

likely to decline 5% QoQ (increase ~7% YoY) to INR3,746/ton.

EBITDA margin is likely to shrink by 7.3pp QoQ (210bp YoY) to 10.3%,

impacted by lower realizations and higher freight cost. EBITDA/ton

would decline by ~INR280/ton QoQ (INR40/ton YoY) to INR520/ton.

We expect PAT to decline ~63% QoQ (33% YoY) to INR295m.

We are upgrading our EPS estimates by 3%/1% for FY13/FY14 to INR34.7

and INR43.3, respectively to factor in lower realizations.

The stock trades at 6.8x FY14E EPS, and at an EV of 3.2x EBITDA and

USD32/ton. We maintain Buy, with a target price of INR464 (EV of 4x

FY15E EBITDA).


Volume growth recovery, given the slower industry volume growth

in 3QFY13.


3QFY13.

Status of mining ban at Rajasthan plant and any contingency plans.


Sa les 22.5 25.7 29.7 34.3

EBITDA 3.1 3.9 5.2 6.7

NP 2.4 2.7 3.3 4.5

Adj. EPS (INR) 31.1 34.7 43.3 58.8

EPS Growth (%) -25.2 11.7 24.8 35.8

BV/Share (INR) 291.3 317.2 351.1 399.4

RoE (%) 10.7 10.9 12.3 14.7

RoCE (%) 11.3 11.9 13.7 16.2

Payout (%) 22.6 25.3 21.6 17.9

Valuation

P/E (x) 9.5 8.5 6.8 5.0

P/BV (x) 1.0 0.9 0.8 0.7

EV/EBITDA (x) 4.5 4.7 3.2 2.0

EV/Ton (x) 33 36 32 27

Bloomberg BCORP IN




1,6,12 Rel Perf. (%) -2/14/-11

C–31January 2013





VSF Volume (ton) 54,839 78,959 78,215 94,904 77,013 85,312 77,838 98,264 306,917 338,428

YoY Change (%) -18.5 17.0 -7.6 10.8 40.4 8.0 -0.5 3.5 0.6 10.3

VSF Realization (INR/ton) 152,409 124,689 128,499 121,293 128,024 126,656 121,656 124,402 129,563 125,163

YoY Change (%) 29.3 7.1 4.4 -16.3 -16.0 1.6 -5.3 2.6 2.3 -3.4

QoQ Change (%) 5.1 -18.2 3.1 -5.6 5.5 -1.1 -3.9 2.3

Net Sales 10,237 12,175 12,429 13,885 12,390 13,345 11,555 13,523 48,724 50,813

YoY Change (%) 8.3 30.5 2.4 -2.6 21.0 9.6 -7.0 -2.6 7.3 4.3


EBITDA 3,529 3,060 2,854 2,168 2,953 2,898 2,200 2,964 11,611 11,015

Margins (%) 34.5 25.1 23.0 15.6 23.8 21.7 19.0 21.9 23.8 21.7

Depreciation 351 356 366 369 360 386 400 646 1,442 1,792

Interest 106 107 72 74 61 78 75 76 358 290

Other Income 1,010 2,002 1,093 1,503 844 2,106 800 1,750 5,607 5,500

PBT after EO Items 4,082 4,599 3,509 3,228 3,376 4,540 2,525 3,992 15,418 14,433

Tax 941 1,150 765 792 647 712 505 878 3,648 2,742

Rate (%) 23.0 25.0 21.8 24.5 19.2 15.7 20.0 22.0 23.7 19.0

Reported PAT 3,141 3,448 2,745 2,436 2,729 3,827 2,020 3,114 11,770 11,690

Adj. PAT 3,141 3,448 2,745 2,436 2,729 3,827 2,020 3,114 11,770 11,690

Margins (%) 30.7 28.3 22.1 17.5 22.0 28.7 17.5 23.0 24.2 23.0

YoY Change (%) 40.3 23.3 -2.9 -38.4 -13.1 11.0 -26.4 27.9 -0.4 -0.7

E: MOSL Estimates; '* Not comparable YoY due to demerger of cement business

Grasim IndustriesCMP: INR3,141 Buy

We expect VSF volumes to be flat YoY (decline 9% QoQ) at 77,838 tons,

impacted by the uncertain global economic outlook. VSF realizations

are likely to decline by ~INR7/kg YoY (~INR5/kg QoQ) to INR122/kg,

influenced by weak Chinese VSF pricing and soft cotton prices. We are

assuming price/kg of INR125/127 for FY13/14.

Standalone EBITDA margin is likely to decline by ~400bp YoY (~270bp

QoQ) to 19%.

We expect EBITDA to decline 23% YoY (24% QoQ) to INR2.2b, translating

into a PAT of INR2b - down 26% YoY (47% QoQ).

We are downgrading our FY13/14 consolidated EPS estimates by 7%/

4% to INR319/INR379, respectively impacted by uncertain VSF outlook

in the short term and downgrades in UltraTech.

The stock trades at 8.3x FY14E consolidated EPS, and at an EV of 4.8x

FY14E EBITDA and USD93/ton. Maintain Buy with a target price of

INR4,445 (FY15E SOTP).


Outlook on VSF business and strategy to utilize upcoming capacities

(~47% capacity growth).

Cement business outlook on demand and pricing, and status of

capacity addition.


Sa les 249.9 269.4 312.9 354.3

EBITDA 53.2 59.8 76.6 86.3

NP 35.3 39.6 47.8 56.5

Adj. EPS (INR) 288.6 318.7 379.3 459.1

EPS Gr. (%) -3.2 28.3 31.4 44.0

BV/Sh. (INR) 1,861 2,145 2,483 2,898

RoE (%) 15.5 14.9 15.3 15.8

RoCE (%) 21.9 21.9 24.4 24.6

Payout (%) 9.0 11.0 10.8 9.6

Valuation

P/E (x) 10.9 9.9 8.3 6.8

P/BV (x) 1.7 1.5 1.3 1.1

EV/EBITDA (x) 6.9 6.6 4.8 3.7

EV/Ton (x) 123 129 93 71

Bloomberg GRASIM IN


M. Cap. (INR b)/(USD b) 288 / 5

52-Week Range (INR) 3,511/2,216

1,6,12 Rel Perf. (%) -5/9/5

C–32January 2013





Sales Dispatches (m ton) 2.31 2.43 2.19 2.60 2.38 2.51 2.25 2.69 9.52 9.83

YoY Change (%) -13.0 -10.6 7.1 2.0 2.9 3.5 3.0 3.4 -4.4 3.2

Realization (INR/ton) 4,148 4,223 4,242 4,245 4,464 4,355 4,255 4,505 4,216 4,399

YoY Change (%) 29.2 45.2 15.7 11.4 7.6 3.1 0.3 6.1 24.9 4.4

QoQ Change (%) 8.8 1.8 0.5 0.1 5.1 -2.4 -2.3 5.9

Net Sales 10,568 10,891 9,415 11,160 12,014 11,227 9,850 12,252 42,034 45,343

YoY Change (%) 20.0 29.5 20.6 11.8 13.7 3.1 4.6 9.8 20.1 7.9

EBITDA 2,417 2,520 1,946 2,152 2,777 2,051 1,522 2,426 9,034 8,775

Margins (%) 22.9 23.1 20.7 19.3 23.1 18.3 15.4 19.8 21.5 19.4

Depreciation 619 626 622 646 692 699 705 752 2,513 2,847

Interest 619 895 750 640 949 667 680 675 2,867 2,971

Other Income 49 29 46 70 37 32 60 96 193 225

PBT before EO expense 1,229 1,027 620 935 1,173 717 197 1,095 3,846 3,182

Extra-Ord expense 0 0 0 0 200 0 0 0 0 200

PBT 1,229 1,027 620 935 973 717 197 1,095 3,846 2,982

Tax 208 330 57 286 353 226 66 369 880 1,014

Rate (%) 16.9 32.1 9.2 30.6 36.2 31.5 33.8 33.7 22.9 34.0

Reported PAT 1,021 697 563 649 621 491 130 726 2,966 1,968

Adj PAT 1,021 697 563 649 748 491 130 726 2,966 2,100

YoY Change (%) 749.5 -257.4 137.0 -9.5 -26.7 -29.6 -76.9 11.9 347.1 -29.2

Margins (%) 9.7 6.4 6.0 5.8 6.2 4.4 1.3 5.9 7.1 4.6

E: MOSL Estimates

India CementsCMP: INR88 Buy

We expect India Cements' volumes to decline 10% QoQ (grow 3% YoY)

to 2.25m tons. Stable pricing environment (except Andhra Pradesh)

would result in just 2% QoQ decline (flat YoY) in realizations to

INR4,255/ton.

We estimate revenue from IPL at ~INR140m (v/s INR38m/INR52m in

3QFY12/2QFY13).

EBITDA would decline 26% QoQ (22% YoY) to INR1.5b and EBITDA

margin would shrink 2.9pp QoQ (5.3pp YoY) to 15.4%, translating into

PAT de-growth of 74% QoQ (77% YoY) to INR130m.

Pure Cement's EBITDA/ton is likely to decline ~INR122/ton QoQ

(INR214/ton YoY) to INR648/ton.

We are downgrading our EPS estimates by 14%/5% for FY13/14 to

INR7.7/INR12.6, led by lower realizations. Valuations at 6.9x FY14E EPS,

and at an EV of 4.6x FY14E EBITDA and USD64/ton are attractive.

Maintain Buy with a target price of INR119 (EV of 4x FY15E EBITDA).


Demand and pricing outlook, especially in South India.

Update on captive coal block in Indonesia, with expected timeline

for supplies and potential cost savings.

Roadmap for increase in stake in Trinetra (Rajasthan plant).


Sa les 42.0 45.3 52.4 60.9

EBITDA 9.0 8.8 10.8 12.9

NP 3.0 2.1 3.4 5.0

Adj. EPS (INR) 9.6 7.7 12.6 18.1

EPS Gr. (%) -15.4 231.3 31.5 137.0

BV/Sh (INR) 141.6 145.3 153.3 166.8

RoE (%) 7.3 5.1 7.8 10.8

RoCE (%) 10.1 8.5 10.3 12.7

Payout (%) 24.5 45.7 32.1 21.8

Valuation

P/E (x) 9.1 11.4 6.9 4.8

P/BV (x) 0.6 0.6 0.6 0.5

EV/EBITDA (x) 5.7 6.0 4.6 3.4

EV/Ton (USD) 63 68 64 56

Bloomberg ICEM IN




1,6,12 Rel Perf. (%) 1/-8/4

C–33January 2013


Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected])




Sales 31,833 31,324 33,054 40,621 29,636 29,825 37,922 40,824 128,531 138,611

Change (%)* 0.3 4.6 14.2 4.0 -0.9

EBITDA 7,728 7,482 8,160 10,194 7,713 7,711 7,679 9,190 34,397 32,843

Change (%)* 20.4 9.9 3.1 31.7 19.1

As of % Sales 24.3 23.9 24.7 25.1 26.0 25.9 20.3 22.5 26.8 23.7

Depreciation 1,721 1,761 2,022 1,638 1,763 1,778 1,800 1,835 6,142 7,176

Interest 4,284 4,049 4,485 5,800 4,653 4,544 4,750 4,928 17,817 18,874

Other Income 74 560 1,205 317 731 448 650 665 2,645 2,494

Extra-ordinary income -2 -3 16 49 9 33 0 0 61 0

PBT 1,796 2,228 2,873 3,123 2,037 1,870 1,779 3,092 13,143 9,287

Tax 726 942 824 285 649 590 552 1,089 2,880 2,879


Reported PAT 1,070 1,287 2,050 2,838 1,388 1,280 1,228 2,003 10,264 6,408

Adj PAT 1,072 1,287 2,034 2,789 1,379 1,280 1,228 2,003 10,203 6,408

Change (%)* 1.3 11.4 -12.9 -3.3 37.8

Cement Business

Volumes (m ton) 3.88 4.10 4.25 4.25 3.59 3.25 4.10 4.06 13.49 15.00

Realization (INR/t) 3,936 3,229 3,994 3,969 4,354 4,221 4,021 4,331 4,051 4,228

EBITDA (INR/t) 861 306 811 847 1,035 873 593 931 941 851

E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger

Jaiprakash AssociatesCMP: INR97 Buy

In 3QFY13, we expect Jaiprakash Associates (JPA) to post revenues of

INR38b, EBITDA of INR7.7b and net profit of INR1.2b; not comparable

YoY due to cement de-merger.

Cement business is expected to witness realization pressure as we

assume QoQ decline of INR200/ton and cost increase of INR80/ton.

Volumes (excluding Gujarat/Andhra Pradesh) would be ~4.1m tons.

EPC division's revenues expected at INR16b (up 29% YoY), but EBIT

margin are expected to contract by ~10ppt to 19%.

Company has been working on disinvestment of its cement units in

Gujarat and Andhra Pradesh. Funds mobilized through monetization

would be utilized to deleverage.

We expect JPA to post standalone net profit of INR6.4b in FY13E (down

37% YoY) and INR9b in FY14E (up 41% YoY). The stock trades at a

reported PER of 22.8x FY14E. Buy.


Cement realizations and cost and update on disinvestment.

EPC division profitability and visibility on revenues/order book.

Ramp-up in real estate division, revenue recognition.


Sa les 128.5 138.6 160.6 171.6

EBITDA 34.4 32.8 37.3 39.3

NP 10.2 6.4 9.0 10.5

Adj. EPS (INR) 4.8 3.0 4.2 4.9

EPS Gr. (%) 37.5 -37.2 40.9 16.2

BV/Sh. (INR) 47.9 44.6 47.9 51.7

RoE (%) 10.4 6.5 9.2 9.9

RoCE (%) 10.0 9.9 11.7 12.1

Payout (%) 22.7 22.8 22.8 22.8

Valuation

P/E (x) 20.2 32.1 22.8 19.6

P/BV (x) 2.0 2.2 2.0 1.9

EV/ EBITDA (x) 10.3 11.1 9.7 9.0

Div. yield (%) 1.0 0.6 0.9 1.0

Bloomberg JPA IN


M. Cap. (INR b)/(USD b) 206 / 4


1,6,12 Rel Perf. (%) 2/26/58

C–34January 2013



Y/E June FY12 FY13 FY12 FY13E

1Q 2Q 3Q 4Q 5Q * 1Q 2QE 3QE 4QE (15 Mon)

Sales Dispatches (m ton) 2.69 2.49 2.85 3.47 3.37 3.05 3.08 3.76 3.67 14.87 13.56

YoY Change (%) 8.3 9.0 8.8 20.6 25.1 22.7 8.1 8.1 9.0 15.9 -8.8

Realization (INR/Ton) 3,405 3,401 3,798 3,560 3,805 3,891 3,731 3,931 4,030 3,576 3,903

YoY Change (%) 4.0 13.0 33.2 7.9 11.8 14.4 -1.8 10.4 5.9 14.8 9.2

QoQ Change (%) 3.2 -0.1 11.7 -6.2 6.9 2.2 -4.1 5.4 2.5

Net Sales 10,187 8,520 12,586 14,241 14,553 13,230 14,666 18,460 15,182 58,980 61,538

YoY Change (%) 7.9 18.7 61.4 33.1 42.9 55.3 16.5 29.6 4.3 36.6 4.3

EBITDA 2,591 2,003 3,320 4,210 4,812 3,930 3,732 5,296 4,653 16,456 17,635

Margins (%) 25.4 23.5 26.4 29.6 33.1 29.7 25.4 28.7 30.6 27.9 28.7

Depreciation 1,598 1,619 2,351 2,346 818 942 950 950 2,615 8,731 5,456

Interest 476 468 519 411 480 543 525 500 489 2,354 2,057

Other Income 158 204 172 774 322 300 400 500 300 1,630 1,500

PBT before EO Exp 676 119 622 2,227 3,836 2,745 2,657 4,346 1,849 7,001 11,622

Extra-Ord Expense 83 11 0 508 1 10 0 0 -10 123 0

PBT 593 108 622 1,719 3,835 2,736 2,657 4,346 1,859 6,878 11,622

Tax 43 -277 30 576 320 454 611 999 465 693 2,557

Rate (%) 7.3 -256.7 4.9 33.5 8.3 16.6 23.0 23.0 25.0 10.1 22.0

Reported PAT 550 385 592 1,143 3,515 2,281 2,046 3,346 1,394 6,185 9,065

Adj PAT 627 426 592 1,481 3,516 2,289 2,046 3,346 1,387 6,296 9,065

YoY Change (%) -73.7 -13.7 304.8 NA 460.9 438.0 245.5 126.0 -60.6 66.9 44.0

E:MOSL Estimates; ^ Y/E March for FY11; * volumes are estimated

Shree CementCMP: INR4,522 Buy

We expect cement volumes to grow 8% YoY (decline 1% QoQ) to 3.08m

tons (including clinker) and realizations to decline 2% YoY (4.1% QoQ)

to INR3,731/ton.

We estimate merchant power sales at 730m units (v/s 586m units in

3QFY12 and 307m units in 2QFY13) at ~INR4.35/unit (v/s INR4.37/unit in

3QFY12 and INR4.44/unit in 2QFY13).

Lower realizations and higher freight cost would impact cement

business profitability by ~ INR105/ton YoY (INR170/ton QoQ) to

INR1,010/ton. However, higher power volumes would dilute the

impact on EBITDA, with EBITDA contribution from Power estimated at

INR621m (v/s INR144m in 3QFY12 and INR326m in 2QFY13). Lower

depreciation would boost adjusted PAT to INR2.05b (v/s INR592m in

3QFY12 and INR2.29b in 2QFY13).

We are downgrading our adjusted EPS estimates for FY13/FY14 by

12.6%/6.8% to INR307/INR376.

Valuations are attractive at 12x FY14E EPS, and at an EV of 6.4x FY14E

EBITDA and USD124/ton. We maintain Buy with a target price of

INR6,157 (FY15E SOTP-based).


Volume and pricing outlook for North India.

Pet coke price trend and update on any forward agreements for

merchant power.

Update on cement capacity addition and capex plans.

Financials & Valuation (INR b)Y/E June 2012 2013E 2014E 2015E

Sa les 48.8 61.5 70.2 81.0

EBITDA 13.9 17.6 20.9 24.3

NP 5.7 9.1 10.2 13.5

Adj EPS (INR) 274.4 306.6 375.6 461.1

EPS Growth (%) 37.1 11.8 22.5 22.8

BV/Share (Rs) 785 1,019 1,283 1,640

RoE (%) 40.5 34.1 33.1 30.9

RoCE (%) 19.6 27.8 25.3 27.8

Payout (%) 14.5 9.9 9.6 7.8

Valuation

P/E (x) 16.5 14.7 12.0 9.8

P/BV (x) 5.8 4.4 3.5 2.8

EV/EBITDA (x) 10.4 8.0 6.4 4.8

EV/Ton (USD) 173 146 124 111

Bloomberg SRCM IN


M. Cap. (INR b)/(USD b) 158 / 3

52-Week Range (INR) 4,551/1,948

1,6,12 Rel Perf. (%) 1/42/93

C–35January 2013





Sales (m ton) 9.86 9.22 10.11 11.54 10.33 9.29 10.22 12.73 40.7 42.6

YoY Change (%) -3.9 0.3 3.2 6.9 4.8 0.7 1.1 10.3 1.7 4.5

Grey Cement Realn.(INR/ton) * 3,749 3,504 3,759 3,894 4,121 4,203 4,013 4,304 3,738 4,168

YoY Change (%) 11.8 19.2 19.0 10.3 9.9 19.9 6.8 10.5 14.7 11.5

QoQ Change (%) 6.2 -6.5 7.3 3.6 5.8 2.0 -4.5 7.3

Net Sales 43,515 39,077 45,681 53,366 50,719 46,996 50,053 64,740 181,664 212,507

YoY Change (%) 9.1 21.6 23.0 18.9 16.6 20.3 9.6 21.3 37.6 17.0

EBITDA 11,882 5,836 9,647 12,641 12,918 10,074 9,175 14,774 40,007 46,940

Margins (%) 27.3 14.9 21.1 23.7 25.5 21.4 18.3 22.8 22.0 22.1

Depreciation 2,230 2,228 2,236 2,332 2,281 2,325 2,375 2,425 9,026 9,406

Interest 712 660 281 586 498 600 595 594 2,239 2,287

Other Income 641 1,003 876 2,000 849 685 900 1,417 4,520 3,850

PBT before EO expense 9,583 3,951 8,005 11,723 10,987 7,834 7,105 13,172 33,262 39,098

PBT after EO Expense 9,583 3,951 8,672 11,723 10,987 7,834 7,105 13,172 33,929 39,098

Tax 2,752 1,162 2,503 3,050 3,203 2,334 2,096 3,901 9,467 11,534

Rate (%) 28.7 29.4 28.9 26.0 29.2 29.8 29.5 29.6 27.9 29.5

Reported PAT 6,831 2,789 6,169 8,673 7,784 5,500 5,009 9,271 24,462 27,564

Adj PAT 6,831 2,789 5,695 8,673 7,784 5,500 5,009 9,271 23,982 27,564

YoY Change (%) 22.5 140.9 78.5 19.3 14.0 97.2 -12.0 6.9 70.8 14.9

E: MOSL Estimates; * Grey cement realization is our estimate

UltraTech CementCMP: INR1,969 Buy

We expect cement volumes to be flat YoY (increase 10% QoQ) at 9.3m

tons. Realizations would increase by 6.8% YoY (decline by 4.5% QoQ)

to INR4,013/ton. The supplementary business of white cement would

grow 12% YoY, while RMC business volumes are likely to grow 10% YoY.

Lower realizations and higher freight would impact EBITDA/ton by

INR60/ton YoY (INR185/ton QoQ) to INR884/ton, and EBITDA margin

would decline 280bp YoY (310bp QoQ) to 18.3%.

EBITDA is likely to decline ~5% YoY (~9% QoQ) to INR9.18b, translating

into PAT de-growth of ~12% YoY (9% QoQ) to INR5b.

We are downgrading our EPS estimates for FY13/FY14 by 8%/6% to

INR100.6/INR129.

The stock trades at 15.2x FY14E EPS, and at an EV of 8.5x FY14E EBITDA

and USD158/ton. Maintain Buy with a target price of INR2,351 (EV of 9x

FY15E EBITDA).


Volume growth and cement pricing outlook, considering weak 3QFY13

performance.

Update on capacity addition of 10.2mt, which is slated to commission

in 1HFY14.

Update on financial performance of Star Cement, UAE.


Sa les 181.7 212.5 249.0 283.9

EBITDA 40.0 46.9 61.7 69.0

NP 24.0 27.6 35.4 40.5

Adj EPS (INR) 87.5 100.6 129.2 147.7

EPS Growth (%) 70.8 14.9 28.5 14.3

BV/Share (Rs) 469.2 555.8 667.5 792.0

RoE (%) 20.4 19.6 21.1 20.2

RoCE (%) 23.7 23.2 26.0 25.9

Payout (%) 10.4 13.9 13.5 15.7

Valuation

P/E (x) 22.5 19.6 15.2 13.3

P/BV (x) 4.2 3.5 2.9 2.5

EV/EBITDA (x) 13.0 10.8 8.5 7.5

EV/Ton (USD) 191 184 158 155

Bloomberg UTCEM IN


M. Cap. (INR b)/(USD b) 539 / 10

52-Week Range (INR) 2,075/1,094

1,6,12 Rel Perf. (%) 2/20/44

C–36January 2013

December 2012 Results Preview | Sector: Consumer





Asian Paints 4,352 Neutral 29,920 16.9 14.4 4,997 25.7 38.3 3,159 23.0 32.1

Britannia 493 Se l l 14,080 12.9 0.4 859 5.3 41.7 622 15.0 36.4

Colgate 1,525 Neutral 7,850 17.2 1.5 1,720 15.2 -2.2 1,300 12.5 -10.4

Dabur 128 Neutral 16,300 12.2 7.1 2,690 21.4 1.7 2,016 16.6 -0.4

Godrej Consumer 728 Neutral 17,630 31.2 10.5 3,403 28.3 39.5 2,187 30.9 37.3

GSK Consumer 3,816 Buy 6,684 11.0 -19.2 819 32.8 -41.7 799 23.7 -37.8

Hind. Unilever 518 Neutral 67,325 13.0 6.7 11,580 17.1 18.6 9,098 19.4 12.9

ITC 289 Buy 73,500 17.6 1.7 28,518 19.8 6.1 20,226 18.9 10.1

Marico 221 Buy 12,250 15.8 6.0 1,715 40.9 16.2 1,097 30.4 27.7

Nestle 4,947 Neutral 21,713 11.1 2.6 4,845 17.4 9.3 2,880 7.4 9.5

Pidilite Inds. 216 Buy 8,400 21.9 2.3 1,579 32.9 7.6 1,099 17.0 -1.6

Radico Khaitan 150 Buy 3,420 13.4 15.1 530 18.7 7.9 251 18.3 21.0

United Spirits 1,899 Buy 21,500 10.0 -3.2 2,623 40.3 3.6 853 160.5 117.2


3QFY13 organic sales and PAT to grow 20%: We estimate our coverage universe to

post ~15% revenue growth and 20% PAT growth during 3QFY13. EBITDA is likely to

grow by 21.3% led by margin expansion in Hindustan Unilever (HUL), ITC, Asian Paints

(APNT), Nestle (NEST), GSK Consumer and Marico (MRCO). We expect ITC to post

17.6% sales growth (2% cigarette volume growth) and 19% PAT growth. HUL’s sales

are likely to grow 13% (volume growth of 7%), with EBITDA margin expansion of

60bp to 16.2%. Discretionary segments in personal care and processed foods continue

to remain under stress.

Volume growth to moderate marginally; discretionary segment under pressure:

Consumer demand is showing softening in certain discretionary categories like

premium skin care, processed foods, ice-cream etc. We expect some moderation in

volume growth in the staples universe. CSD de-stocking would continue to suppress

volumes for one more quarter, in our view. We assume a slight moderation in volume

growth for HUL, MRCO, GSK Consumer and Colgate. Godrej Consumer’s (GCPL)

domestic business momentum, especially in home insecticide, shall continue, in

our view.

Input costs correction offset by currency depreciation; premiumization continues:

Input costs have shown a mixed trend, with a correction in palm oil, copra and Tio2,

while LAB, milk, packaging sugar and wheat prices remain high. Gains from input

correction could be offset to an extent by currency depreciation, thus preventing

full flow through of benefits to gross margins. We expect gross margin expansion for

HUL, MRCO, ITC, Dabur, GSK, NEST. Premiumization remains strong in most HPC

categories.

New launches modest; ad spends to remain high to defend market shares: New

launch activity has been modest in 3QFY13. HUL entered the premium hair oils

category with the launch of Dove Elixir. However, we expect ad-spends to remain

high to support the launches done in the past. Rising competition, due to soft PFAD

prices, would prevent any contraction in advertising spends.

Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected])

ConsumerCompanies Covered

Asian Paints

Britannia Industries

Colgate Palmolive

Dabur India

GSK Consumer

Godrej Consumer Products

Hindustan Unilever

ITC

Marico

Nestle India

Pidilite Industries

Radico Khaitan

United Spirits

C–37January 2013


Slight moderation in volume growth visible

Quarter Ending Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12

Asian Paints 27.0 16.0 15.0 15.0 12.0 18.0 -2.0 5.0 7.0

Colgate (Toothpaste) 13.0 1 3.0 14.0 15.0 15.0 14.0 13.0 11.0 11.0

Dabur 10.0 9.3 8.6 10.0 10.8 12.4 12.0 10.5 9.0

Godrej Consumer

Soaps 3.0 9.0 9.0 19.0 19.0 17.0 22.0 6.0 6.0

Hair Color 2.0 5.0 10.0 8.0 9.0 9.0 5.0 4.0 7.0

GSK Consumer 13.0 5.5 14.0 8.0 12.0 7.0 7.4 4.5 6.0

Hindustan Unilever 13.0 14.0 8.3 9.8 9.1 10.0 9.0 7.0 7.0

ITC (cigarette) 2.0 -2.0 8.0 7.5 5.0 5.5 1.5 0.5 2.0

Marico

Parachute 5.0 5.0 10.0 10.0 13.0 11.1 18.0 9.0 8.0

Hair Oil 31.0 21.0 32.0 26.0 20.0 17.5 12.0 20.0 17.0

Saffola 13.0 14.0 15.0 11.0 15.0 3.3 25.0 6.0 6.0

Radico Khaitan 12.3 9.7 10.5 6.8 8.2 7.8 7.0

United Spirits 14.0 12.0 15.4 8.0 0.7 5.1 1.9 -1.0 5.0


Impact of Input price changes

Input Price Trend Unit Current 12 month Impact Companies

(YoY) Price change %

LAB Up INR/Kg 115 6.1 Negative HUL

Soda Ash Up INR/50Kg 1140 18.1 Negative HUL

Palm Fatty Acid Down US$/MT 598 -28.0 Positive HUL, Godrej Consumer

Palm Oil Down MYR/MT 2101 -32.9 Positive Britannia, Nestle, HUL, ITC

HDPE Up INR/Kg 90 9.7 Negative All Companies

Sugar Up INR/Qtl 3430 11.2 Negative Britannia, Nestle, GSK Consumer

Wheat Up INR/Qtl 1569 31.9 Negative Nestle, ITC and Britannia

Milk Sideways Index 210 6.1 Neutral Nestle, GSK Consumer

TiO2 Down INR/Kg 230 -14.2 Positive APNT, BRGR

Copra Down INR/Qtl 4600 -13.2 Positive Marico

Source:Bloomberg, Company

Relative Performance-3m (%)


Valuations at multi-year premium; prefer niche plays with pricing power: Consumer

staples has outperformed the markets (4.3% v/s Sensex in 3QFY13) underscoring

preference for quality defensives in a weak macro environment, despite rich

valuations. We continue to prefer niche plays with strong pricing power and greater

visibility on volume growth and profitability. ITC remains our top pick in the sector.

We like Marico, Pidilite and Radico in the mid-caps.

New launches during 3QFY13

Company Brand Category

Dabur Réal Activ Fiber+ Fruit Juices (Banana Strawberry and Green Apple Punch)

Britannia Masala Chaas Butter Milk

Ruchi Soya Nutrela Table Spread (Zero Cholestrol)

Tata I- Shakti Besan (unpolished Chana dal)

Rite Bite Naturell Protein Bars

MTR Foods MTR Multigrain breakfast mixes

Parle Parle Namkeen

CavinKare Garden RTD Rasgulla and Gulab Jamun

HUL Pureit Marvella UV Water Purifier

HUL Lakme Kajal and Mascara

HUL Dove Shampoo

HUL Bru Exotica Gautemala Coffee

HUL Closeup Toothpaste

98

101

104

107

110

Sep

-12

Oct

-12

No

v-12

De

c-1

2

Sensex IndexMOSL Cons umer Index

80

100

120

140

160

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Sens ex IndexMOSL Cons umer Index

C–38January 2013


Input costs: Mixed trends

Palm Fatty Acid: Range bound (INR/ton) Copra Prices (INR/Qtl)

Titanium Dioxide Lab Prices (INR/kg)

Source: Companies, MOSL




Consumer

Asian Paints 4,352 Neutral 118.8 139.3 172.3 36.6 31.2 25.3 23.1 19.0 15.6 34.2 33.4 34.0

Britannia 493 Se l l 17.3 21.0 24.2 28.5 23.5 20.4 20.5 15.9 13.2 33.6 34.9 34.4

Colgate 1,525 Neutral 40.0 46.5 54.0 38.1 32.8 28.3 28.2 23.8 20.3 114.7 108.7 103.7

Dabur 128 Neutral 4.4 5.5 6.5 29.2 23.4 19.6 22.0 18.0 15.0 34.7 35.7 35.1

Godrej Consumer 728 Neutral 22.0 27.4 33.2 33.0 26.5 22.0 23.4 18.4 15.4 23.1 24.7 25.0

GSK Consumer 3,816 Buy 106.3 122.6 143.1 35.9 31.1 26.7 24.6 20.5 17.0 32.6 31.6 31.0

Hind. Unilever 518 Neutral 15.5 17.5 19.0 33.5 29.6 27.2 25.4 21.8 18.8 71.1 62.1 56.4

ITC 289 Buy 9.5 11.1 13.2 30.5 25.9 22.0 19.9 16.7 14.0 36.0 38.4 40.9

Marico 221 Buy 6.5 8.1 10.0 34.1 27.2 22.1 22.1 18.0 14.9 20.9 21.2 21.2

Nestle 4,947 Neutral 112.3 133.9 163.4 44.1 36.9 30.3 26.6 21.9 18.1 71.6 63.5 60.1

Pidilite Inds. 216 Buy 8.5 10.2 12.0 25.5 21.2 18.0 16.3 13.2 10.8 24.7 25.0 24.7

Radico Khaitan 150 Buy 6.7 8.9 11.5 22.3 16.9 13.0 12.8 10.6 8.9 12.1 14.3 16.4

United Spirits 1,899 Buy 30.0 58.6 81.2 63.3 32.4 23.4 24.8 18.2 14.3 4.3 7.8 9.9


115114113

109109

87

868694

86

71

86

60

80

100

120

140

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

Dec

-12

PFAD prices (INR/ton)

38,050

47,870

37,744

47,012

26,703

14,578

Nov

-06

Mar

-07

Aug

-07

Dec

-07

Apr

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Feb-

10

Jun-

10

Oct

-10

Feb-

11

Jul-

11

Nov

-11

Mar

-12

Aug

-12

Dec

-12

6,700

5,400

4,150

2,700

3,850

5,000

6,150

7,300

May

-10

Aug

-10

Nov

-10

Feb

-11

May

-11

Aug

-11

Nov

-11

Feb

-12

May

-12

Aug

-12

Nov

-12

TiO2 Dupont price Delhi

100

150

200

250

300

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

C–39January 2013





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 22,447 25,605 25,387 25,393 26,160 29,920 28,928 96,010 110,400

Change (%) 23.3 24.0 22.0 29.5 12.5 16.5 16.9 13.9 24.3 15.0

Raw Material/PM 13,537 13,507 15,514 15,213 14,838 15,714 17,802 16,843 57,770 65,198

Gross Profit 9,035 8,940 10,092 10,174 10,554 10,445 12,118 12,085 38,240 45,202

Gross Margin (%) 40.0 39.8 39.4 40.1 41.6 39.9 40.5 41.8 39.8 40.9

Operating Expenses 5,149 5,772 6,118 6,420 6,176 6,834 7,121 7,287 23,459 27,417

% of Sales 22.8 25.7 23.9 25.3 24.3 26.1 23.8 25.2 24.4 24.8

EBITDA 3,886 3,168 3,974 3,754 4,379 3,612 4,997 4,798 14,781 17,785

Margin (%) 17.2 14.1 15.5 14.8 17.2 13.8 16.7 16.6 15.4 16.1

Change (%) 11.9 -4.4 15.2 31.8 12.7 14.0 25.7 27.8 208.1 20.3

Interest 65 88 90 166 109 122 130 144 410 504

Depreciation 291 300 307 314 334 357 400 468 1,211 1,559

Other Income 338 353 225 470 326 422 250 208 1,387 1,207

PBT 3,868 3,133 3,802 3,744 4,262 3,555 4,717 4,395 14,547 16,928

Tax 1,155 955 1,138 1,097 1,273 1,041 1,462 1,387 4,344 5,163


PAT before Minority 2,713 2,179 2,664 2,647 2,989 2,514 3,254 3,007 10,203 11,765

Minority Interest 79 91 96 52 106 122 95 51 319 374

Adjusted PAT 2,634 2,087 2,569 2,595 2,884 2,392 3,159 2,957 9,884 11,392

Change (%) 18.5 -2.8 16.6 39.5 9.5 14.6 23.0 13.9 17.2 15.2

E: MOSL Estimates

CMP: INR4,352 Neutral

We expect Asian Paints to post 17% revenue growth to INR29.9b in

3QFY13, led by 8-9% volume growth.

Festive season demand was good but post November it has failed to

sustain.

Expect margin expansion of 150bp (poor base) to 120bp, led by gross

margin uptick, post correction in Ti02 prices.

International business shall continue to report mixed performance in

our view as in the past.

Company has secured the approval for foray into Home Décor segment

in the long term.

The stock trades at 31.2x FY14E EPS of INR139.3. Neutral.


Comments on volume growth trends.

Outlook on raw material scenario.

International business margins.


Sa les 96.3 110.4 129.8 153.8

EBITDA 15.1 17.8 21.5 26.0

Adj. PAT 9.9 11.4 13.4 16.5

Adj. EPS (INR) 103.1 118.8 139.3 172.3

EPS Gr. (%) 17.3 15.2 17.3 23.7

BV/Sh.(INR) 286.5 347.4 416.5 506.9

RoE (%) 36.0 34.2 33.4 34.0

RoCE (%) 47.8 45.9 45.0 45.2

Payout (%) 38.8 42.1 43.1 40.6

Valuation

P/E (x) 42.2 36.6 31.2 25.3

P/BV (x) 15.2 12.5 10.4 8.6

EV/EBITDA (x) 27.1 23.1 19.0 15.6

Div. Yield (%) 1.1 1.3 1.6 1.9

Bloomberg APNT IN


M. Cap. (INR b)/(USD b) 417 / 8

52-Week Range (INR) 4,494/2,551

1,6,12 Rel Perf. (%) 3/2/42

Asian Paints

C–40January 2013





Net Sales 11,030 12,905 12,474 13,096 12,216 14,028 14,080 14,674 49,504 54,998

YoY Change (%) 21.0 17.8 15.4 16.8 10.8 8.7 12.9 12.1 17.9 11.1

COGS 7,257 8,408 7,910 8,223 7,575 9,042 9,011 9,593 31,798 35,221

Gross Profit 3,773 4,496 4,565 4,873 4,642 4,986 5,069 5,081 17,707 19,777

Margins (%) 34.2 34.8 36.6 37.2 38.0 35.5 36.0 34.6 35.8 36.0

Other Exp 3,300 3,761 3,749 4,192 3,991 4,379 4,210 4,440 15,002 17,020

% of Sales 29.9 29.1 30.1 32.0 32.7 31.2 29.9 30.3 30.3 30.9

Total Exp 7,073 12,169 11,658 12,415 11,566 13,422 13,221 14,033 46,800 52,241

EBITDA 473 736 816 680 651 606 859 641 2,704 2,757

Margins (%) 4.3 5.7 6.5 5.2 5.3 4.3 6.1 4.4 5.5 5.0

YoY Growth (%) 15.6 39.1 46.3 8.0 37.6 -17.6 5.3 -5.8 31.1 1.9

Depreciation 111 116 122 125 130 143 140 134 473 547

Interest 93 97 95 95 95 88 75 95 381 353

Other Income 304 146 148 226 179 266 220 271 824 937

PBT 573 670 747 685 605 642 864 683 2,674 2,794

Tax 155 191 206 155 170 186 242 133 707 731

Rate (%) 27.0 28.5 27.6 22.6 28.1 29.0 28.0 19.5 26.4 26.2

Adjusted PAT 418 479 541 530 435 456 622 550 1,967 2,062

YoY Change (%) 27.2 45.9 42.8 22.6 4.0 -4.8 15.0 3.7 35.4 4.8

E: MOSL Estimates

CMP: INR493 Sell

We estimate Britannia to post sales of INR14.1b, a growth of 13% YoY.

Volume growth is likely to remain in single digits as the discretionary

processed foods category is facing moderation.

We estimate a 40bp contraction in EBITDA margins due to high

conversion costs and ad-spends.

Among input costs, wheat prices are up ~16% YoY, sugar prices are

higher by 18% YoY. INR depreciation has negated the effect of declining

palm oil prices to a large extent.

We expect competitive intensity to remain high as players like Parle,

ITC and Cadbury try to increase share in the high-margin premium

creams and cookies segment.

Premiumization across product portfolios is expected to continue as

it offers attractive potential for growth.

The stock trades at 23.5x FY14E EPS. Sell.


Volume growth in biscuits which has decelerated significantly in the

past 5 quarters.



Sa les 49.5 55.0 64.2 74.9

EBITDA 2.5 2.8 3.5 4.1

Adj. PAT 1.9 2.1 2.5 2.9

Adj. EPS (INR) 15.6 17.3 21.0 24.2

EPS Gr. (%) 28.5 10.4 21.4 15.2

BV/Sh.(INR) 44.8 51.4 60.1 70.3

RoE (%) 34.9 33.6 34.9 34.4

RoCE (%) 36.1 53.7 52.5 48.5

Payout (%) 54.4 45.6 50.0 50.0

Valuation

P/E (x) 31.5 28.5 23.5 20.4

P/BV (x) 11.0 9.6 8.2 7.0

EV/EBITDA (x) 22.7 20.5 15.9 13.2

Div. Yield (%) 1.7 1.6 2.1 2.5

Bloomberg BRIT IN




1,6,12 Rel Perf. (%) -1/-19/-11

Britannia Industries

C–41January 2013





Toothpaste Volume Gr % 14.0 15.0 15.0 14.0 11.0 11.0 10.0 12.0 14.0 13.0

Net Sales 6,111 6,572 6,696 6,859 7,361 7,738 7,850 7,972 26,239 30,921

YoY Change (%) 15.6 19.1 20.0 17.9 20.5 17.7 17.2 16.2 18.2 17.8

COGS 2,467 2,637 2,651 2,748 2,997 3,238 3,062 3,241 10,502 12,538

Gross Profit 3,644 3,936 4,045 4,112 4,364 4,499 4,789 4,731 15,736 18,382

Gross Margin (%) 59.6 59.9 60.4 59.9 59.3 58.1 61.0 59.3 60.0 59.5

Other operating Expenses 2,476 2,736 2,754 2,583 2,939 2,928 3,299 2,912 10,645 12,077

% to sales 40.5 41.6 41.1 37.7 39.9 37.8 42.0 36.5 40.6 39.1

Other operating Income 166 172 202 170 200 187 230 238 694 855

EBITDA 1,335 1,371 1,493 1,699 1,625 1,758 1,720 2,057 5,785 7,160

Margins (%) 21.3 20.3 21.6 24.2 21.5 22.2 21.3 25.1 21.5 22.5

Depreciation 88 106 99 100 105 106 100 89 393 400

Interest 4 6 6 2 0 0 7 8 15 15

Financial other Income 138 108 97 131 112 149 120 175 507 556

PBT 1,381 1,368 1,485 1,728 1,632 1,801 1,733 2,135 5,884 7,300

Tax 377 293 330 420 457 350 433 621 1,419 1,862

Rate (%) 27.3 21.4 22.2 24.3 28.0 19.4 25.0 29.1 24.1 25.5

Adj PAT 1,004 1,076 1,156 1,308 1,174 1,451 1,300 1,514 4,465 5,439

YoY Change (%) -17.6 7.2 74.3 14.6 16.9 34.9 12.5 15.8 10.9 21.8

E: MOSL Estimates


We expect sales growth of 17% YoY to INR7.85b; toothpaste volume

growth is estimated at 10%.

We expect marginal 20bp contraction in EBITDA margins at 21.3% led

by higher ad spends due to Oral Health month and sales promotion on

account of heightened competitive activity by HUL.

We estimate PBT to grow by 17%; higher tax rate at 25% (up 280bp YoY)

shall result in 12.5% increase in PAT to INR1.3b.

Steady and consistent double digit volume growth in its core

toothpaste category demonstrates the brand resilience,

notwithstanding moderation in volumes in other FMCG categories.

The stock trades at 32.8x FY14E EPS. Neutral.


Volume growth in toothpaste.

Tax rate.


Sa les 26.2 30.9 35.8 41.4

EBITDA 5.8 7.2 8.4 9.8

Adj. PAT 4.5 5.4 6.3 7.3

Adj. EPS (INR) 32.8 40.0 46.5 54.0

EPS Gr. (%) 10.9 21.8 16.4 16.0

BV/Sh.(INR) 31.2 38.5 47.1 57.0

RoE (%) 109.4 114.7 108.7 103.7

RoCE (%) 110.1 115.0 109.0 104.0

Payout (%) 78.0 70.0 70.0 70.0

Valuation

P/E (x) 46.5 38.1 32.8 28.3

P/BV (x) 48.9 39.6 32.4 26.8

EV/EBITDA (x) 35.0 28.2 23.8 20.3

Div. Yield (%) 1.7 1.8 2.1 2.5

Bloomberg CLGT IN


M. Cap. (INR b)/(USD b) 207 / 4


1,6,12 Rel Perf. (%) 5/18/28

Colgate Palmolive

C–42January 2013





Volume Growth (%) 8.6 10.0 10.8 12.4 12.0 10.5 9.0 8.0 10.5 9.5

Net Sales 12,046 12,623 14,527 13,636 14,620 15,226 16,300 15,451 52,832 61,597

YoY Change (%) 31.4 29.8 34.5 23.0 21.4 20.6 12.2 13.3 29.6 16.6

Total Exp 10,267 10,204 12,312 11,483 12,559 12,582 13,611 12,698 44,152 51,449

EBITDA 1,779 2,419 2,215 2,153 2,061 2,644 2,690 2,753 8,680 10,148

Margins (%) 14.8 19.2 15.2 15.8 14.1 17.4 16.5 17.8 16.4 16.5

YoY Growth (%) 29.9 19.1 5.7 4.7 15.9 9.3 21.4 27.9 12.1 16.9

Depreciation 248 252 208 293 267 270 245 308 1,032 1,090

Interest 145 172 183 57 213 149 165 309 538 835

Other Income 216 171 231 280 342 275 230 404 797 1,251

PBT 1,602 2,166 2,055 2,083 1,923 2,500 2,510 2,541 7,906 9,474

Tax 323 427 337 377 378 464 492 498 1,464 1,857

Rate (%) 20.1 19.7 16.4 18.1 19.6 18.6 19.6 19.6 18.5 19.6

Minority Interest 2 0 -10 0 2 13 2 2 3 8

Adjusted PAT 1,277 1,739 1,728 1,705 1,543 2,023 2,016 2,041 6,439 7,609

YoY Change (%) 19.6 8.4 11.9 16.0 20.8 16.4 16.6 19.7 13.2 18.2

E: MOSL Estimates

CMP: INR128 Buy

We expect sales growth of 12.2% to INR16.3b led by 8% domestic

organic volume growth.

Price hike component would begin to fade incrementally.

International business to continue to post strong growth.

Expect margin expansion of 130bps to 16.5%.

Expect PAT growth of 17% to INR2b.

The stock trades at 23.4x FY14E EPS of INR5.5. Buy.


Performance of hair oil and its oral care business.

Margin outlook comments.

Progress on distribution expansion initiative.


Sa les 52.8 61.6 72.0 84.0

EBITDA 8.7 10.1 12.2 14.3

Adj. PAT 6.5 7.6 9.5 11.3

Adj. EPS (INR) 3.7 4.4 5.5 6.5

EPS Gr. (%) 14.6 16.7 25.2 19.1

BV/Sh.(INR) 9.9 12.6 15.3 18.6

RoE (%) 37.9 34.7 35.7 35.1

RoCE (%) 30.0 38.5 40.9 40.9

Payout (%) 37.1 40.3 42.7 42.7

Valuation

P/E (x) 34.1 29.2 23.4 19.6

P/BV (x) 12.9 10.1 8.3 6.9

EV/EBITDA (x) 26.6 22.1 18.0 15.0

Div. Yield (%) 1.1 1.4 1.8 2.2

Bloomberg DABUR IN


M. Cap. (INR b)/(USD b) 222 / 4


1,6,12 Rel Perf. (%) 0/-1/3

Dabur India

C–43January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

MFD Volume Growth (%) 5.5 14.0 8.0 12.0 7.0 7.4 6.0 6.0 7.0 10.5

Net Sales 7,100 6,534 7,201 6,021 8,130 7,297 8,275 6,684 30,387 35,642

YoY Change (%) 9.5 21.6 17.5 18.6 14.5 11.7 14.9 11.0 13.2 17.3

Total Exp 5,647 5,548 6,021 5,404 6,514 6,191 6,871 5,865 25,440 29,686

EBITDA 1,453 985 1,180 616 1,617 1,107 1,405 819 4,947 5,956

Margins (%) 20.5 15.1 16.4 10.2 20.3 15.2 17.0 12.2 16.3 16.7

YoY Change (%) 9.2 10.2 24.1 5.5 11.3 12.3 19.1 32.8 16.8 2.6

Depreciation 109 113 117 121 119 86 77 66 348 647

Interest 7 9 10 9 12 8 3 17 40 45

Other Income 340 360 476 487 479 572 578 560 2,114 2,431

PBT 1,677 1,223 1,530 973 1,964 1,585 1,903 1,221 6,674 7,695

Tax 571 398 499 327 645 519 617 422 2,203 2,541

Rate (%) 34.0 32.6 32.6 33.6 33.0 32.8 32.4 33.3 33.0 33.0

Adj PAT 1,106 825 1,030 646 1,320 1,066 1,286 799 4,470 5,155

YoY Change (%) 15.0 14.9 31.1 21.0 19.3 29.3 24.8 23.7 23.9 15.3

E: MOSL Estimates

CMP: INR3,816 Buy

We expect GSK to report net sales of INR6.7b, up 11% YoY, led by 6%

volume growth. CSD issues shall continue to impact volumes in

4QCY12, in our view.

We estimate 200bp EBITDA margin expansion to 12.2% on account of

mix improvement, price hikes and low base.

Estimate 24% growth in PAT led by strong margin expansion and lower

depreciation costs (Sonepat plant fully depreciated).

The stock trades at 31.1x CY13E EPS. Buy.


Volume growth – processed foods have shown significant slowdown

in past few quarters.

Comments on CSD issues, noodles strategy.


Sa les 27.8 31.5 36.9 43.0

EBITDA 5.2 6.0 7.2 8.4

Adj. PAT 3.6 4.5 5.2 6.0

Adj. EPS (INR) 84.5 106.3 122.6 143.1

EPS Gr. (%) 18.5 25.9 15.3 16.7

BV/Sh.(INR) 272.1 326.1 388.5 461.2

RoE (%) 31.0 32.6 31.6 31.0

RoCE (%) 47.5 49.0 47.4 46.6

Payout (%) 48.2 49.1 49.1 49.1

Valuation

P/E (x) 45.2 35.9 31.1 26.7

P/BV (x) 14.0 11.7 9.8 8.3

EV/EBITDA (x) 28.8 24.6 20.5 17.0

Div. Yield (%) 0.9 1.2 1.3 1.6

Bloomberg SKB IN


M. Cap. (INR b)/(USD b) 160 / 3

52-Week Range (INR) 3,895/2,179

1,6,12 Rel Perf. (%) 1/30/30

GlaxoSmithKline Consumer

C–44January 2013





Net Sales 9,978 11,860 13,441 13,230 13,886 15,953 17,630 15,677 48,509 63,147

YoY Change (%) 39.6 23.3 35.9 32.4 39.2 34.5 31.2 18.5 32.0 30.2

EBITDA 1,427 2,068 2,653 2,481 1,988 2,440 3,403 3,307 8,607 11,138

Margins (%) 14.3 17.4 19.7 18.8 14.3 15.3 19.3 21.1 17.7 17.6

YoY Growth (%) 11.5 23.8 60.1 39.6 39.3 18.0 28.3 33.3 35.4 29.4

Depreciation 159 159 171 155 199 206 210 153 644 769

Interest 111 154 287 194 164 200 200 180 658 744

Other Income 132 160 248 203 181 194 200 191 672 766

PBT 1,314 1,741 2,388 2,327 1,630 2,151 3,193 3,417 7,771 10,391

Tax 312 432 555 547 112 476 862 860 2,261 2,310

Rate (%) 23.8 24.8 23.2 23.5 6.9 22.1 27.0 25.2 29.1 22.2

Minority Int 0 33 162 50 213 83 144 139 245 579

Adj PAT 1,002 1,277 1,671 1,730 1,305 1,593 2,187 2,279 5,266 7,503

YoY Change (%) 10.3 -2.0 40.7 22.1 30.2 24.8 30.9 31.7 11.2 42.5

E: MOSL Estimates

CMP: INR728 Neutral

We expect GCPL to post 31% revenue growth to INR17.6b in 3QFY13,

led by inorganic growth and strong momentum in domestic household

insecticide segment.

Indonesia continues to maintain its high teens revenue growth

momentum, according to management.

Expect margin contraction of 40bp to 19.3% as benefits of input price

correction shall be seen in 4Q. Meanwhile, ad-spends continue to

remain aggressive to support new launches in soaps and hair colors.

Estimate 31% PAT growth.



Comments on volume growth trends in soaps.


Darling integration update.


Sa les 48.5 63.1 78.3 90.9

EBITDA 8.6 11.1 14.1 16.6

Adj. PAT 5.3 7.5 9.3 11.3

Adj. EPS (INR) 15.5 22.0 27.4 33.2

EPS Gr. (%) 5.7 42.5 24.4 20.9

BV/Sh.(INR) 82.7 95.4 111.1 132.6

RoE (%) 18.7 23.1 24.7 25.0

RoCE (%) 20.7 25.2 28.8 30.1

Payout (%) 29.7 36.3 36.5 30.2

Valuation

P/E (x) 47.0 33.0 26.5 22.0

P/BV (x) 8.8 7.6 6.6 5.5

EV/EBITDA (x) 30.2 23.4 18.4 15.4

Div. Yield (%) 0.6 1.1 1.4 1.4

Bloomberg GCPL IN


M. Cap. (INR b)/(USD b) 248 / 5


1,6,12 Rel Perf. (%) 0/15/65

Godrej Consumer Products

C–45January 2013





Volume Growth (%) 8.3 9.8 9.1 10.0 9.0 7.0 9.0 9.0 9.3 9.0

S&D EBIT Margin (%) 9.2 12.4 10.8 11.3 12.2 14.3 11.3 11.7 11.6 12.5

PP EBIT Margin (%) 25.3 24.4 25.9 26.3 25.8 24.2 26.4 26.5 25.5 25.3

Net Sales (incl service inc) 55,889 56,101 59,561 57,659 63,788 63,108 67,325 66,179 221,164 260,400

YoY Change (%) 14.6 17.7 16.2 16.1 14.1 12.5 13.0 14.8 228.5 17.7

COGS 30,798 30,088 30,751 31,223 33,677 32,695 34,403 35,105 117,378 135,880

Gross Profit 25,091 26,014 28,810 26,437 30,110 30,414 32,922 31,074 103,786 124,519

Margin (%) 44.9 46.4 48.4 45.8 47.2 48.2 48.9 47.0 46.9 47.8

Operating Exp 17,548 17,747 18,921 18,103 20,446 20,646 21,342 20,574 70,873 83,008

% to sales 31.4 31.6 31.8 31.4 32.1 32.7 31.7 31.1 32.0 31.9

EBITDA 7,543 8,267 9,890 8,334 9,665 9,767 11,580 10,499 32,913 41,511

YoY Change (%) 10.8 27.8 36.4 29.8 28.1 18.2 17.1 26.0 184.2 26.1

Margins (%) 13.5 14.7 16.6 14.5 15.2 15.5 17.2 15.9 14.9 15.9

Depreciation 562 571 568 571 576 577 595 609 2,183 2,357

Interest 0 5 5 2 53 63 2 2 12 70

Other Income 506 811 801 700 2,186 1,488 910 311 2,783 4,894

PBT 7,487 8,502 10,118 8,461 11,222 10,615 11,893 10,199 33,502 43,978

Tax 1,702 1,942 2,496 1,825 2,676 2,556 2,795 2,397 7,776 10,335

Rate (%) 22.7 22.8 24.7 21.6 23.8 24.1 23.5 23.5 23.2 23.5

Adjusted PAT 5,784 6,559 7,622 6,636 8,546 8,059 9,098 7,802 25,725 33,643

YoY Change (%) 11.0 22.9 29.9 29.0 47.7 22.9 19.4 17.6 182.8 30.8

E: MOSL Estimates

CMP: INR518 Neutral

We expect HUL to post 7% volume growth and 13% revenue growth.

The premium segment would grow at a faster pace, aided by up-

trading. Price hikes should drive soaps and detergents.

Personal care would see the impact of 1) F&L pricing transition and 2)

high base in hair care.

Expect margin expansion of 60bp to 17.2%.

Discretionary PP and foods continue to remain under pressure.



Comments on volume growth.

Competitive environment in HPC space.

F&L performance post price hike.

Performance of new launches in hair care (TRESemme).


Sa les 217.4 256.2 291.6 330.5

EBITDA 32.9 41.5 48.0 55.2

Adj. PAT 25.7 33.6 37.8 41.4

Adj. EPS (INR) 11.9 15.6 17.5 19.2

EPS Gr. (%) 22.4 30.9 12.5 9.3

BV/Sh.(INR) 16.3 21.7 28.1 33.8

RoE (%) 73.2 71.7 62.3 56.7

RoCE (%) 95.4 93.9 84.3 81.0

Payout (%) 63.0 54.6 54.2 60.0

Valuation

P/E (x) 43.5 33.3 29.6 27.0

P/BV (x) 31.9 23.9 18.4 15.3

EV/EBITDA (x) 33.0 25.6 21.8 18.7

Div. Yield (%) 1.4 1.6 1.8 2.2

Bloomberg HUVR IN


M. Cap. (INR b)/(USD b) 1,119 / 20


1,6,12 Rel Perf. (%) -7/1/3

Hindustan Unilever

C–46January 2013


Quarterly Performance INR Million



Cigarette Vol Gr (%) 8.0 7.5 5.0 5.0 1.5 0.5 2.0 2.5 6.4 2.0

Cigarette-net EBIT Margin (%) 54.9 58.2 57.0 54.1 57.5 61.4 57.8 55.0

Non Cigarette FMCG Loss -763 -559 -468 -167 -388 -303 -250 -50

Net Sales 58,524 60,906 62,478 69,545 67,131 72,266 73,500 81,617 251,738 294,513

YoY Change (%) 20.4 17.7 14.2 16.9 14.7 18.7 17.6 17.4 17.3 17.0

Total Exp 38,945 38,689 38,667 46,913 43,447 45,383 44,982 53,925 163,252 187,737

EBITDA 19,579 22,217 23,811 22,633 23,683 26,883 28,518 27,692 88,486 106,776

Growth (%) 19.1 18.2 18.0 18.8 21.0 21.0 19.8 22.4 19.4 20.7

Margins (%) 33.5 36.5 38.1 32.5 35.3 37.2 38.8 33.9 35.2 36.3

Depreciation 1,665 1,701 1,739 1,880 1,948 1,889 2,040 2,158 6,985 8,034

Interest 200 207 157 148 138 233 200 180 779 750

Other Income 1,656 1,847 2,851 2,079 1,768 1,850 2,950 2,206 8,253 8,773

PBT 19,370 22,155 24,767 22,683 23,366 26,611 29,228 27,560 88,975 106,765

Tax 6,043 7,012 7,757 6,540 7,344 8,247 9,002 8,237 27,352 32,830

Rate (%) 31.2 31.6 31.3 28.8 31.4 30.8 30.8 29.9 30.7 30.8

Adj PAT 13,327 15,143 17,010 16,143 16,021 18,364 20,226 19,323 61,624 73,934

YoY Change (%) 24.5 21.5 22.5 26.0 20.2 21.3 18.9 19.7 23.6 20.0

E: MOSL Estimates

CMP: INR289 Buy

We expect ITC to post ~2% cigarette volume growth.

Net sales to grow at 17.6% to INR73.5b.

Expect margin expansion of 70bp to 38.8%.

Cigarette margins should benefit from price hikes and mix

improvement.

Expect FMCG losses to decline 20% QoQ to INR240m.

We expect one more round of price hike in January.



Performance of 64mm cigarettes and its roll-out.

Signs of pick-up in hotels business.

Budget expectations on cigarettes excise increase.


Sa les 248.0 290.7 336.9 388.9

EBITDA 88.5 106.8 126.0 148.0

Adj. PAT 61.6 73.9 87.0 102.8

Adj. EPS (INR) 7.9 9.5 11.1 13.2

EPS Gr. (%) 22.3 20.0 17.7 18.2

BV/Sh.(INR) 24.0 26.3 29.0 32.1

RoE (%) 32.8 36.0 38.4 40.9

RoCE (%) 45.4 50.1 54.0 57.9

Payout (%) 67.2 76.1 76.1 76.1

Valuation

P/E (x) 37.1 30.5 25.9 22.0

P/BV (x) 12.0 11.0 10.0 9.0

EV/EBITDA (x) 25.0 25.4 0.0 0.0

Div. Yield (%) 1.6 2.1 2.5 3.0

Bloomberg ITC IN


M. Cap. (INR b)/(USD b) 2234 / 41


1,6,12 Rel Perf. (%) -4/3/19

ITC

C–47January 2013





Volume Growth (%) 14.0 14.0 13.0 17.0 14.0 14.0 14.0 15.0 14.0 13.5

Net Sales 10,414 9,674 10,578 9,177 12,672 11,559 12,250 10,698 39,968 47,179

YoY Change (%) 31.8 24.7 29.4 22.9 21.7 19.5 15.8 16.6 27.9 18.0

COGS 5,952 5,358 5,451 4,264 6,411 5,606 6,125 5,356 20,987 23,498

Gross Profit 4,462 4,316 5,127 4,913 6,261 5,953 6,125 5,342 18,981 23,681

Gross margin (%) 42.8 44.6 48.5 53.5 49.4 51.5 50.0 49.9 47.5 50.2

Other Expenditure 3,211 3,161 3,909 3,814 4,414 4,476 4,410 3,833 14,240 17,132

% to Sales 30.8 32.7 37.0 41.6 34.8 38.7 36.0 35.8 35.6 36.3

EBITDA 1,251 1,155 1,217 1,100 1,848 1,477 1,715 1,510 4,741 6,549

Margins (%) 12.0 11.9 11.5 12.0 14.6 12.8 14.0 14.1 11.9 13.9

YoY Change (%) 18.6 16.5 22.1 38.8 47.7 27.8 40.9 37.3 15.9 38.1

Depreciation 169 177 188 191 193 225 220 220 725 858

Interest 98 104 82 113 170 145 160 156 424 631

Other Income 92 131 92 105 176 75 125 149 429 526

PBT 1,075 1,005 1,039 901 1,660 1,182 1,460 1,283 4,021 5,585

Tax 210 205 178 189 403 293 350 294 782 1,340

Rate (%) 19.6 20.4 17.1 20.9 24.2 24.8 24.0 22.9 19.5 24.0

Minority Interest 15 17 20 -2 19 30 13 4 50 66

Adjusted PAT 850 783 841 714 1,238 859 1,097 985 3,189 4,178

YoY Change (%) 15.3 9.4 21.0 -0.6 45.7 9.7 30.4 37.8 34.2 31.0

E: MOSL Estimates

CMP: INR221 Buy

We expect sales growth of 15.8% to INR12.2b led by 10% domestic

organic volume growth.

Consumer demand has remained unchanged vis-à-vis 2Q for Marico’s

categories.

Expect margin expansion of 250bp to 14%.

Copra prices continue to correct (down 4% QoQ). However, other RM

prices are mixed (kardi up 4%, rice bran down 14%).

Expect PAT growth of 30%.



Performance of Paras brands and distribution synergies for the same.

Bangladesh revenue growth.

Management comments on Kaya and input cost outlook.


Sa les 40.0 47.2 55.0 64.1

EBITDA 4.7 6.5 7.8 9.1

Adj. PAT 3.2 4.2 5.2 6.4

Adj. EPS (INR) 5.2 6.5 8.1 10.0

EPS Gr. (%) 34.2 25.1 25.0 23.3

BV/Sh.(INR) 18.6 31.0 38.2 47.3

RoE (%) 28.0 20.9 21.2 21.2

RoCE (%) 30.5 30.5 31.0 31.3

Payout (%) 13.5 11.6 9.9 8.0

Valuation

P/E (x) 42.6 34.1 27.2 22.1

P/BV (x) 11.9 7.1 5.8 4.7

EV/EBITDA (x) 29.3 22.1 18.0 14.9

Div. Yield (%) 0.3 0.3 0.4 0.4

Bloomberg MRCO IN


M. Cap. (INR b)/(USD b) 142 / 3


1,6,12 Rel Perf. (%) 0/8/31

Marico

C–48January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Net Sales 18,100 17,631 19,631 19,547 20,475 19,866 21,156 21,713 74,908 83,209

YoY Change (%) 22.3 20.2 19.9 17.0 13.1 12.7 7.8 11.1 19.8 11.1

COGS 8,841 8,718 9,454 8,880 9,384 9,024 9,712 9,879 35,894 37,998

Gross Profit 9,259 8,912 10,177 10,667 11,091 10,842 11,444 11,834 39,015 45,210

Margin (%) 51.2 50.5 51.8 54.6 54.2 54.6 54.1 54.5 52.1 54.3

Operating Exp 5,406 5,467 6,074 6,540 6,519 6,547 7,010 6,988 23,487 27,064

EBITDA 3,853 3,445 4,103 4,127 4,572 4,295 4,434 4,845 15,528 18,146

Margins (%) 21.3 19.5 20.9 21.1 22.3 21.6 21.0 22.3 20.7 21.8

YoY Growth (%) 26.7 17.2 27.2 25.1 18.7 24.7 8.1 17.4 24.3 16.9

Depreciation 327 367 394 446 528 673 735 608 1,533 2,544

Interest 1 6 12 33 23 220 44 364 51 651

Other income 128 80 121 181 136 113 173 159 509 581

PBT 3,653 3,152 3,819 3,828 4,158 3,514 3,827 4,032 14,452 15,531

Tax 1,027 956 1,134 1,148 1,272 1,085 1,197 1,152 4,264 4,706

Rate (%) 28.1 30.3 29.7 30.0 30.6 30.9 31.3 28.6 29.5 30.3

Adjusted PAT 2,626 2,196 2,685 2,681 2,886 2,429 2,630 2,880 10,188 10,825

YoY Change (%) 33.3 9.0 23.5 20.9 9.9 10.6 -2.0 7.4 21.7 6.3

E: MOSL Estimates


We expect Nestle India to report net sales of INR21.7b, up 11% YoY; we

expect growth to be price-led. Volume recovery shall be gradual, in

our view.

We estimate 120bp EBITDA margin expansion to 22.3% on account of

mix improvements and price hikes.

Expect 7% growth in PAT due to higher capital costs due to aggressive

capex of past two years.

Volume growth should pick up, beginning CY13, as base starts looking

more comparable.

The stock trades at 36.9x CY13E EPS. Neutral.


Volume growth – processed foods have shown significant slowdown

in the past few quarters.

Capital costs.


Sa les 74.9 83.2 98.9 117.6

EBITDA 15.5 18.1 21.9 26.0

Adj. PAT 10.2 10.8 12.9 15.8

Adj. EPS (INR) 105.7 112.3 133.9 163.4

EPS Gr. (%) 21.7 6.3 19.3 22.0

BV/Sh.(INR) 132.1 181.4 240.5 302.9

RoE (%) 95.7 71.6 63.5 60.1

RoCE (%) 89.6 59.8 58.9 62.2

Payout (%) 53.3 50.3 50.4 57.0

Valuation

P/E (x) 46.8 44.1 36.9 30.3

P/BV (x) 37.4 27.3 20.6 16.3

EV/EBITDA (x) 31.1 26.6 21.9 18.1

Div. Yield (%) 1.0 1.0 1.2 1.6

Bloomberg NEST IN


M. Cap. (INR b)/(USD b) 477 / 9

52-Week Range (INR) 5,025/3,930

1,6,12 Rel Perf. (%) 5/-4/-4

Nestle India

C–49January 2013





Sales 7,680 7,075 6,890 6,519 9,125 8,209 8,400 8,087 28,163 33,820

Change (%) 21.5 20.0 16.1 15.6 18.8 16.0 21.9 24.0 18.3 20.1

Gross Profit 3,439 3,064 2,961 3,045 4,087 3,680 3,780 3,783 12,509 15,330

Gross Margin (%) 44.8 43.3 43.0 46.7 44.8 44.8 45.0 46.8 44.4 45.3


% of sales 25.0 25.2 25.7 32.0 23.9 26.9 26.2 29.9 26.8 26.6

EBITDA 1,521 1,281 1,189 958 1,907 1,468 1,579 1,366 4,949 6,319

EBITDA Margin (%) 19.8 18.1 17.3 14.7 20.9 17.9 18.8 16.9 17.6 18.7

Change (%) -2.2 3.2 0.3 17.8 25.4 14.5 32.9 42.5 2.5 27.7

Depreciation 116 118 121 124 124 128 144 152 479 548

Interest 48 68 83 47 91 18 50 45 245 205

Other Income 70 57 223 152 139 121 100 109 503 469

PBT 1,428 1,153 1,208 939 1,831 1,443 1,485 1,276 4,727 6,036

Tax 350 289 268 190 498 325 386 390 1,096 1,599


Adj PAT 1,078 864 940 749 1,333 1,117 1,099 887 3,631 4,436

Change (%) 0.1 2.2 11.3 41.6 23.6 29.3 17.0 18.5 9.1 22.2

E: MOSL Estimates

CMP: INR216 Buy

We expect Pidilite to post 22% revenue growth, led by double digit

volume growth in consumer and bazaar segments, even as industrial

chemicals remain under pressure.

EBITDA margins are also expected to increase by 150bp YoY to 18.8%

on account of higher gross margins and operating leverage.

PAT is expected to register 17% YoY growth 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 21.2x FY14E EPS of INR10.2 Maintain Buy.


Volume growth and price hike in Fevicol.

Comments on industrial segment.

Progress on Elastomer project.


Sa les 28.2 33.8 40.4 48.3

EBITDA 4.9 6.3 7.6 9.1

Adj. PAT 3.6 4.4 5.4 6.3

Adj. EPS (INR) 7.2 8.5 10.2 12.0

EPS Gr. (%) 8.7 18.3 20.7 17.8

BV/Sh.(INR) 26.6 34.2 40.9 48.7

RoE (%) 26.9 24.7 25.0 24.7

RoCE (%) 29.5 31.5 32.9 32.9

Payout (%) 36.0 34.6 34.4 35.0

Valuation

P/E (x) 30.2 25.5 21.2 18.0

P/BV (x) 8.1 6.3 5.3 4.4

EV/EBITDA (x) 21.5 16.9 13.7 11.2

Div. Yield (%) 0.9 1.2 1.4 1.7

Bloomberg PIDI IN


M. Cap. (INR b)/(USD b) 109 / 2


1,6,12 Rel Perf. (%) 1/17/34

Pidilite Industries

C–50January 2013





Net sales 2,976 2,607 3,017 2,838 3,038 2,970 3420 3,377 11,445 12,806

YoY Change (%) 24.8 14.6 10.5 14.7 2.1 13.9 13.4 19.0 20.9 11.9

EBITDA 428 444 446 277 524 491 530 469 1,731 2,015

Margins (%) 14.4 17.0 14.8 9.8 17.3 16.5 15.5 13.9 15.1 15.7

YoY Change (%) 25.8 21.5 8.4 -25.1 22.4 10.7 22.4 22.4 15.9

Depreciation 73 75 78 103 90 85 90 111 328 376

Interest 109 196 119 187 210 159 150 162 611 681

Other Income 31 53 54 76 62 84 45 69 237 260

PBT 277 226 304 63 286 331 335 266 1,028 1,217

Tax 70 78 67 18 75 110 84 60 229 329

Rate (%) 25.2 34.4 22.1 28.7 26.2 33.3 25.0 22.6 22.3 27.0

Reported PAT 207 148 237 45 211 221 251 206 799 889

YoY Change (%) 29.2 -21.5 15.5 -74.4 1.8 49.1 6.2 359.9 11.0 11.2

Extraordinary Items 0 54 -24 107 0 -13 0 0 -163 0

Adjusted PAT 207 202 212 152 211 208 251 206 637 889

E: MOSL Estimates

CMP: INR150 Buy

We expect Radico to post 13% revenue growth to INR3.4b in 3QFY13,

led by 7% volume growth.

The premium segment would grow at a faster pace, aided by up-

trading. Price hikes in Andhra Pradesh should also contribute to

realization growth though it materialized only in late November.

Expect margin expansion of 100bp to 15.8% leading to 18% PAT growth.

ENA prices have remained flat QoQ.



Price hike in Karnataka.

Trade issues in Tamil Nadu.

ENA price trend and outlook.


Sa les 11.4 12.8 14.8 17.0

EBITDA 1.7 2.0 2.4 2.9

Adj. PAT 0.8 0.9 1.2 1.5

Adj. EPS (INR) 6.0 6.7 8.9 11.5

EPS Gr. (%) 10.9 11.2 32.3 30.2

BV/Sh.(INR) 52.4 58.2 65.5 75.0

RoE (%) 11.9 12.1 14.3 16.4

RoCE (%) 10.0 10.3 11.8 13.3

Payout (%) 15.4 17.6 17.6 17.6

Valuation

P/E (x) 24.8 22.3 16.9 13.0

P/BV (x) 2.9 2.6 2.3 2.0

EV/EBITDA (x) 15.1 13.4 11.1 9.2

Div. Yield (%) 0.9 1.2 0.0 0.0

Bloomberg RDCK IN




1,6,12 Rel Perf. (%) 1/12/12

Radico Khaitan

C–51January 2013





Volume Growth (%) 15.4 8.0 0.7 5.1 1.9 -1.0 10.0 10.0 10.0 7.0

ENA Price/Case 147 153 164 162 151 159 154 154 154 154

Net Sales 19,354 17,906 19,539 18,627 20,573 22,207 21,500 19,929 75,427 84,209

YoY Change (%) 32.3 32.2 -0.3 17.0 6.3 24.0 10.0 7.0 18.4 11.6

Total Exp 16,051 15,346 17,671 16,867 17,223 19,676 18,877 17,675 65,934 73,451

EBITDA 3,303 2,560 1,869 1,760 3,350 2,531 2,623 2,254 9,492 10,758

Margins (%) 17.1 14.3 9.6 9.5 16.3 11.4 12.2 11.3 12.6 12.8

Depreciation 127 152 155 175 162 188 200 198 609 748

Interest 1,302 1,442 1,392 1,663 1,656 1,700 1,650 1,501 5,944 6,507

PBT From operations 1,874 966 322 -77 1,532 643 773 555 2,940 3,503

Other income 165 1,352 170 132 262 -48 500 586 1,119 1,300

PBT 2,039 2,318 492 55 1,794 595 1,273 1,141 4,059 4,803

Tax 671 729 165 -24 689 202 420 322 1,288 1,633

Rate (%) 32.9 31.5 33.5 -43.8 38.4 34.0 33.0 28.2 31.7 34.0

PAT 1,369 1,589 327 79 1,105 393 853 819 2,771 3,170

YoY Change (%) 12.6 98.2 -71.3 -86.7 -19.3 -75.3 160.5 931.9 -20.5 14.4

Extraordinary Inc/(Exp) 8 -109 143 21 345 0 657

Reported PAT 1,377 1,480 471 100 1,450 393 853 819 3,428 3,170

E: MOSL Estimates

CMP: INR1,899 Buy

We expect United Spirits (UNSP) to post 10% revenue growth to

INR21.5b in 3QFY13, led by 4-5% volume growth.

The premium segment would grow at a faster pace aided by up-trading.

Price hikes would also contribute to realization growth.

Expect margin expansion of 260bp (poor base) to 12.2%.

Expect PAT growth of ~80%, driven by extremely low base (3QFY12

PAT declined 64%).

We note that Andhra Pradesh has announced a price increase, which

would provide support to margins.



Trade issues in Tamil Nadu and volume performance in West Bengal.

ENA price trend and outlook.

Debt reduction strategy.

News flow on Diageo open offer.


Sa les 82.1 92.4 106.5 123.7

EBITDA 11.9 12.7 16.2 20.1

Adj. PAT 2.4 3.7 7.2 9.9

Adj. EPS (INR) 19.5 30.0 58.6 81.2

EPS Gr. (%) -30.9 53.6 95.3 38.7

BV/Sh.(INR) 397.9 693.7 629.0 692.2

RoE (%) 4.9 4.3 7.8 9.9

RoCE (%) 8.3 8.5 10.9 13.4

Payout (%) 15.4 13.3 7.7 6.2

Valuation

P/E (x) 97.3 63.3 32.4 23.4

P/BV (x) 4.8 2.7 3.0 2.7

EV/EBITDA (x) 27.8 23.6 18.2 14.3

Div. Yield (%) 0.2 0.2 0.2 0.3

Bloomberg UNSP IN


M. Cap. (INR b)/(USD b) 248 / 5


1,6,12 Rel Perf. (%) -11/169/209

United Spirits

C–52January 2013

December 2012 Results Preview | Sector: Financials

FinancialsCompanies Covered

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

The government of India's (GoI) concrete steps towards reforms in 2HCY12 brought

rays of hope for Financials. With inflation showing signs of cooling off and growth

moderating, we expect the RBI to start cutting interest rates from 4QFY13. Expected

improvement in business climate and economic growth, led by continued reforms

and RBI actions, will be a big positive (especially for state-owned banks). Despite 15-

20% run-up from the bottom for state-owned banks, we believe valuations remain

attractive. With the expected turn in asset quality, further re-rating is possible. Our

top picks: state-owned banks - SBIN, CBK, UNBK and OBC; private sector banks - ICICIBC,

AXSB and YES; NBFCs - SHTF and LICHF.

Expect healthy earnings growth, driven by private sector banksThough asset quality has been under stress and business growth remains sluggish, we

expect healthy PAT growth of 12% YoY (13% YoY ex-SBIN) for our Financials coverage

universe in 3QFY13. This would largely be driven by strong profit growth of 23% YoY

for private sector banks and 27% YoY for NBFCs. For state-owned banks, PAT is likely to

be flat YoY (down 6% YoY ex-SBIN) and QoQ (led by higher provisions, muted fees and

higher tax rate in some cases). Some state-owned banks could surprise positively on

the profitability front, as they have been guiding for peaking out of GNPAs while we

remain conservative in our estimates.

Lack of activity at the ground level leading to muted business growthFor the fortnight ended 14 December 2012, loans grew 16.3% YoY and deposits grew

13.3% YoY. On a sequential basis, while deposits increased marginally, loan growth

picked up, led by busy season. During the quarter, deposits grew by INR229b (0.4%)

while loans grew by INR1.5t (3.2%). YTD loan and deposit growth has been low at 5.5%

and 5.3%, respectively. To achieve 16% loan and 15% deposit growth for FY13, banks

will have to grow loans and deposits by INR4.95t and INR5.9t, respectively. During the

same period last year, absolute growth in both loans and deposits was INR4.36t.

Sanctions pipeline shrinking; more reforms required to instill confidenceAs in FY12, in FY13 too, working capital remains a key driver for corporate loan growth.

Our interactions with bankers suggest that while sentiment has improved, at the

ground level, people still remain skeptical about the business environment. Further,

the existing pipeline of sanctions is shrinking. Thus, to improve growth and

investments for FY14, continued reforms and monetary easing is a must. The lag impact

of 2-3 years of continued moderation in capex cycle will affect other loan segments

(Services and Retail). We expect loan growth for the system to be ~15% for FY13/14.

On the deposits front, 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 lower yields on assetsQTD 3M, 6M and 12M bulk deposit rates have been stable, but YTD, the rates are down

215bp, 170bp and 135bp, respectively. This would result in lower cost of funds, which

Alpesh Mehta ([email protected])/Sohail Halai ([email protected])

C–53January 2013


would be compensated by (a) fall in yield on loans, as banks have reduced spreads

and have also lowered base rates/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/marginally improve QoQ. Specific banks,

wherein margins declined significantly in 1HFY13 due to higher asset quality stress,

may see some relief.

Addition of stress on balance sheet to continue; though pace would moderateConsidering the challenging macro environment, we expect slippages to remain

elevated (especially for state-owned banks), led by stress in the mid-corporate and

SME segment (though expected to decline QoQ). Retail-focused banks (most private

sector banks) are likely to be better placed. However, unlike the past, retail delinquency

has started increasing and NPAs are likely to rise in this segment as well. Increased

focus on balance sheet management by banks may lead to improvement in recoveries

and upgradations, providing cushion to asset quality. Pending restructuring

applications of some large corporates will increase restructured loans in 2HFY13.

However, the pace of addition is likely to be lower. Banks are likely to make additional

provisions of 75bp (due to change in guidelines on restructuring) on restructured loan

which may impact profitability.

Muted trading gains in debt market, equity gains can surprise positivelyDuring the quarter (as on 31 December 2012), the 1-year and 10-year benchmark G-

Sec yields have remained largely stable. Hence, higher MTM reversals in case of the

bond portfolio are unlikely though there may be some write-back on the equity

portfolio. Trading gains are expected to be flat/decline QoQ, as yields have remained

in a narrow range.

Private banks performance to be better than state-owned counterpartsThe performance of private sector banks is likely to remain better than their state-

owned counterparts. For the private sector banks under our coverage, we expect NII

growth of ~24% YoY (led by healthy loan growth and largely stable margins), operating

profit growth of ~23% YoY and PAT growth of ~23% (due to stable credit costs). State-

owned banks are likely to report NII and operating profit growth of ~5% on a YoY basis.

PAT is expected to be flat YoY.

Continued reforms key to improvement in growth and asset quality outlookRecent reforms by GoI have led to the 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 by the Infrastructure segment 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 are likely to be

reflected in business and asset quality with a lag. Our top picks: state-owned banks -

SBIN, CBK, UNBK and OBC ; private sector banks - ICICIBC, AXSB and YES; NBFCs - SHTF

and LICHF.

C–54January 2013


NBFCs - on a strong growth pathThe performance of retail NBFCs (HFCs as well as AFCs) is likely to remain strong, led

by healthy growth and asset quality outlook. The liquidity situation remains benign

and wholesale rates are under control. Though the monsoon got delayed, it was normal

and the threat to asset quality of certain AFCs was marginalized. While competition

(from banks) is intensifying in the retail financing space, the growth outlook remains

healthy, led by buoyancy in the rural economy, market share gains and expanding

branch network. During 3QFY13, the draft NBFC regulations were announced, which

should bring an end to the regulatory uncertainty over NBFCs.

Within the NBFC space, we like Shriram Transport Finance (SHTF), as we believe it

would be a major beneficiary of the expected revival in economic activity, Mahindra

& Mahindra Financial Services (MMFS) for its multi-product approach and strong rural

focus, and LIC Housing Finance (LICHF), which is witnessing margin expansion while

the growth and asset quality outlook remains healthy.

Housing Finance Companies: For housing finance companies (HFCs), 3QFY13 is likely

to remain a steady quarter, as growth in individual loans would remain buoyant. Growth

in developer loans is likely to pick up. We expect overall loan growth for HDFC, LICHF

(despite weak developer loan growth) and Dewan Housing Finance (DEWH) to remain

healthy. Margins are likely to remain stable/improve QoQ. Asset quality would remain

healthy. No major regulatory changes were announced during the quarter.

Infrastructure Finance Companies: The much awaited SEB Debt Restructuring Plan

having been announced in the previous quarter, the key now lies in execution. With

inflation likely to moderate and come within the RBI's comfort zone, and the RBI

hinting at a more accommodative monetary policy in 2013, the outlook for infrastructure

companies should improve. For the major infrastructure finance companies (IFCs) -

IDFC, Power Finance Corporation (POWF) and Rural Electrification Corporation (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 the NPA category, asset quality would 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. SHTF delivered healthy growth in the

previous two quarters after recording sluggish growth in FY12; we expect that trend to

continue. Margins should remain stable/improve sequentially. Asset quality would

remain a key monitorable. During the quarter, the RBI released draft NBFC regulations

based on the recommendations of the Usha Thorat Committee. However, the draft

guidelines have provided for a transition period for adopting the revised capital

adequacy and prudential norms, which is a positive.

C–55January 2013


Loan growth remains at 16% Deposit growth moderates further

Incremental loans up QoQ (INR b) Incremental deposits largely flat (INR b)

CD ratio has improved QoQ (%) Liquidity remains in deficit mode

Bulk deposit rates largely stable QoQ; but down YTD Yield curve remains flat (%)


40.

3

41.

2

42.

7

44.

9

46.

4

47.

1

49.

9

52.

1

54.

9

56.

3

58.

3

61.

0

62.

3

64.

1

64.

31

3.3

13.9

13.

4

14.

3

16.

9

17.5

18.

5

15.

9

16.

8

14.

4

15.

0

17.

2

17.7

19.82

2.0

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

2Q

FY13

14‐D

ec‐

12

Depos i ts (INR t) Chg YoY (%)

28.0

28.7

30.2

34.1

34.3

37.7

39.4

40.9

47.6

48.1

49.6

46.9

43.7

41.5

32.4

12.

7

13.

8 20.

0

15.

9

18.

7

16.

5

15.9

16.

3

17.1

19.2

16.

2 19.

5

21.

5

24.5

21.

9

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

14‐

De

c‐12

Loans (INR t) Chg YoY (%)

C–56January 2013


Slippage ratio expected to remain high for state-owned banks CDR referrals moderating

CMP Rating Net Interest Income Operating Profit Net Profit



Financials

Private Banks

Axis Bank 1,364 Buy 24,798 15.9 6.6 23,233 12.8 6.7 12,651 14.8 12.6

Federal Bank 535 Buy 5,138 -2.7 1.6 3,988 -4.8 14.1 2,062 2.2 -4.1

HDFC Bank 679 Neutral 39,114 25.5 4.8 30,664 28.9 19.3 18,607 30.2 19.3

ICICI Bank 1,137 Buy 35,588 31.2 5.6 34,140 27.0 6.9 21,228 22.8 8.5

IndusInd Bank 416 Buy 5,543 28.7 8.7 4,714 35.0 12.3 2,710 31.6 8.3

ING Vysya Bank 519 Buy 3,766 16.4 2.1 2,417 14.4 6.2 1,453 21.6 -3.3

Kotak Mahindra Bank 649 Neutral 7,877 20.9 3.9 5,089 14.7 5.5 3,171 14.9 13.1

Yes Bank 466 Buy 5,758 34.7 9.8 5,355 34.3 10.5 3,277 29.0 7.1

Pvt Banking Sector Aggregate 127,583 23.5 5.5 109,599 22.5 10.6 65,160 22.5 11.5

PSU Banks

Andhra Bank 116 Buy 9,029 -8.2 1.0 6,513 -15.2 2.1 2,765 -8.8 -15.1

Bank of Baroda 860 Neutral 30,358 14.3 6.1 24,700 -4.8 3.7 11,569 -10.3 -11.9

Bank of India 338 Neutral 22,650 9.6 3.1 18,669 7.8 0.7 5,416 -24.4 79.4

Canara Bank 488 Buy 20,579 7.3 5.2 13,613 -13.7 6.2 6,676 -23.7 1.0

Indian Bank 192 Buy 11,588 -1.0 3.4 8,919 -2.2 -1.8 4,326 -17.7 -12.9

Oriental Bank 336 Buy 12,463 9.3 7.7 9,636 16.5 4.6 3,260 -8.0 7.9

Punjab National Bank 845 Buy 38,307 8.3 5.0 27,246 1.8 7.6 11,075 -3.7 3.9

State Bank 2,389 Buy 115,213 0.0 5.0 79,618 9.7 8.3 34,924 7.0 -4.5

Union Bank 270 Buy 19,159 7.6 3.6 13,098 2.0 2.9 5,793 194.0 4.5

PSU Banking Sector Aggregate 279,346 4.3 4.8 202,012 2.9 5.5 85,802 -1.1 -1.1

NBFC

Dewan Housing 177 Buy 1,724 38.9 10.6 1,419 24.7 6.7 914 21.9 6.5

HDFC 828 Buy 14,608 18.2 5.4 16,208 20.2 2.1 11,683 19.1 1.5

IDFC 171 Buy 6,951 27.3 6.0 7,456# 35.8 2.7 4,701 49.7 -1.2

LIC Housing Fin 289 Buy 3,811 17.0 7.8 3,671 12.5 8.2 2,519 11.6 3.7

M & M Financial 1,127 Buy 5,914 39.9 12.4 4,146 48.3 14.4 2,209 42.8 17.7

Power Finance Corp 198 Buy 15,252 39.0 3.4 15,062* 37.9 3.4 10,151 28.3 -3.7

Rural Electric. Corp. 239 Buy 12,778 27.1 -0.2 12,804 31.1 -1.6 9,226 30.8 -4.3

Shriram Transport Fin. 735 Buy 9,082 13.0 4.7 7,350 13.7 3.2 3,577 18.2 6.0

NBFC Banking Sector Aggregate 70,120 26.1 4.7 68,115 27.8 2.9 44,980 26.7 0.0



2.9

4.2

3.02.7

4.2 3.93.4

2.43.8

2.22.9 3.3

4.13.2

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY

13

2Q

FY

13

3QF

Y13E

PSBs PSBs (Ex-SBIN)

202

226

679

205

189

31

4941

33

87

FY10 FY11 FY12 1QFY13 2QFY13

Agg. De bt (INR b) No. o f Ca ses Re cd .

* Excluding forex impact; # Adjusted for 25% stake sale in AMC business of INR840m in 3QFY12


C–57January 2013




CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)


Private Banks

Axis Bank 1,364 Buy 117.9 141.3 169.2 11.6 9.7 8.1 2.2 1.8 1.5 20.1 20.3 20.5

Federal Bank 535 Buy 47.3 55.2 63.9 11.3 9.7 8.4 1.4 1.3 1.2 13.5 14.1 14.6

HDFC Bank 679 Neutral 28.5 37.1 45.9 23.8 18.3 14.8 4.6 3.8 3.2 20.7 22.8 23.6

ICICI Bank 1,137 Buy 70.5 86.9 104.6 16.1 13.1 10.9 2.3 2.1 1.8 14.6 16.1 17.2

IndusInd Bank 416 Buy 20.1 26.3 32.9 20.7 15.8 12.6 2.9 2.5 2.2 17.6 17.1 20.0

ING Vysya Bank 519 Buy 38.5 43.8 50.9 13.5 11.9 10.2 1.8 1.6 1.4 14.0 14.2 14.6

Kotak Mah. Bank 649 Neutral 27.9 33.2 39.7 23.3 19.5 16.3 3.2 2.8 2.4 14.9 15.3 15.7

Yes Bank 466 Buy 36.0 45.2 54.6 12.9 10.3 8.5 2.9 2.3 1.9 24.4 25.0 24.6

Private Bank Aggregate 17.5 14.1 11.7 3.0 2.6 2.4 17.1 18.4 20.2

PSU Banks

Andhra Bank 116 Buy 22.9 26.0 30.7 5.1 4.5 3.8 0.8 0.7 0.6 16.1 16.2 16.8

Bank of Baroda 860 Neutral 115.9 134.2 155.6 7.4 6.4 5.5 1.2 1.0 0.9 17.3 17.3 17.3

Bank of India 338 Neutral 41.7 52.1 59.5 8.1 6.5 5.7 0.9 0.8 0.7 12.1 13.6 13.9

Canara Bank 488 Buy 65.1 80.5 96.7 7.5 6.1 5.0 0.9 0.8 0.7 13.3 14.6 15.5

Corporation Bank 448 Neutral 98.9 112.2 133.3 4.5 4.0 3.4 0.7 0.6 0.5 16.6 16.6 17.3

Dena Bank 115 Neutral 24.1 26.9 30.1 4.8 4.3 3.8 0.8 0.7 0.6 18.1 17.3 18.0

Indian Bank 192 Buy 43.3 47.7 53.8 4.4 4.0 3.6 0.8 0.7 0.6 18.2 17.5 17.2

Oriental Bank 336 Buy 48.2 57.3 66.7 7.0 5.9 5.0 0.8 0.7 0.7 12.1 13.1 13.7

Punjab Nat. Bank 845 Buy 140.2 170.4 202.9 6.0 5.0 4.2 0.9 0.8 0.7 16.8 17.7 18.1

State Bank 2,389 Buy 281.2 318.5 382.4 8.1 7.2 6.0 1.3 1.1 1.0 17.6 17.2 17.9

Union Bank 270 Buy 40.7 51.8 61.3 6.6 5.2 4.4 1.0 0.9 0.8 16.2 18.1 18.7

PSU Bank Aggregate 7.4 6.3 5.3 1.2 1.0 0.9 15.9 16.3 16.9

NBFC

Dewan Housing 177 Buy 35.1 48.6 60.5 5.0 3.6 2.9 0.9 0.7 0.6 20.5 21.8 22.8

HDFC 828 Buy 32.0 38.0 45.1 25.9 21.8 18.3 5.2 4.6 4.1 29.2 30.4 30.6

IDFC 171 Buy 11.9 13.7 16.3 14.3 12.4 10.5 1.9 1.7 1.5 13.9 14.4 15.4

LIC Housing Fin 289 Buy 19.8 28.7 32.8 14.6 10.1 8.8 2.3 1.9 1.7 16.5 19.0 20.0

M & M Financial 1,127 Buy 78.4 98.5 119.8 14.4 11.4 9.4 2.8 2.4 2.0 23.8 22.7 23.3

Power Fin. Corp 198 Buy 31.7 36.4 42.8 6.3 5.4 4.6 1.1 1.0 0.8 18.8 19.0 19.6

Rural Electric. Corp. 239 Buy 37.0 42.0 49.7 6.5 5.7 4.8 1.4 1.2 1.0 22.8 22.1 22.4

Shriram Transport 735 Buy 61.2 71.6 84.6 12.0 10.3 8.7 2.3 1.9 1.6 21.0 20.6 20.4

NBFC Aggregate 13.3 11.3 9.5 2.7 2.3 2.0 19.9 20.1 20.9


85

105

125

145

165

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

Aug

-12

Oct

-12

Dec

-12

Sens ex Inde xMOSL F inancials Inde x

96

100

104

108

112

Sep -12 Oct -12 Nov-12 Dec-12

Sen se x IndexMOSL Fin ancials Inde x

C–58January 2013


Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Interest Income 26,342 27,825 29,230 29,990 31,215 31,982 32,591 33,673 113,387 129,461

Interest Expense 17,239 18,313 19,392 20,851 21,830 23,044 23,563 24,061 75,794 92,498

Net Interest Income 9,104 9,512 9,839 9,139 9,385 8,938 9,029 9,612 37,593 36,963

% Change (Y-o-Y) 23.7 21.4 17.1 6.1 3.1 -6.0 -8.2 5.2 16.7 -1.7

Other Income 2,170 1,778 2,353 2,299 2,357 2,195 2,505 2,713 8,599 9,769

Net Income 11,273 11,290 12,191 11,438 11,742 11,132 11,533 12,325 46,193 46,732


Operating Profit 6,997 6,868 7,676 6,610 7,034 6,381 6,513 6,869 28,150 26,797

% Change (Y-o-Y) 37.1 21.7 22.5 -7.1 0.5 -7.1 -15.2 3.9 16.7 -4.8

Other Provisions 1,770 2,607 3,094 2,437 2,066 1,395 2,619 2,410 9,907 8,490

Profit before Tax 5,227 4,261 4,582 4,173 4,968 4,986 3,894 4,459 18,243 18,307

Tax Provisions 1,370 1,100 1,550 776 1,350 1,730 1,129 1,283 4,796 5,492

Net Profit 3,857 3,161 3,032 3,397 3,618 3,256 2,765 3,176 13,447 12,815

% Change (Y-o-Y) 20.4 4.3 -8.4 8.6 -6.2 3.0 -8.8 -6.5 6.1 -4.7

Operating Parameters

NIM (Reported, %) 3.8 3.8 3.8 3.3 3.3 3.1 3.7

NIM (Cal, %) 3.7 3.8 3.8 3.3 3.2 3.0 3.0 3.0 3.5 3.0

Deposit Growth (%) 21.7 20.2 20.2 14.9 18.5 15.0 14.5 15.0 14.9 15.0

Loan Growth (%) 32.0 21.5 20.3 17.1 14.3 15.9 12.9 14.0 17.1 14.0

CASA Ratio (%) 27.8 26.1 26.6 26.4 26.7 25.9 26.4

Tax Rate (%) 26.2 25.8 33.8 18.6 27.2 34.7 29.0 28.8 26.3 30.0

Asset Quality

OSRL (INR B)* 21.7 22.5 32.3 55.9 67.7 90.8 55.9

OSRL (%)* 2.9 3.0 4.1 6.6 7.8 10.5 6.6

Gross NPA (INR B) 11.8 19.9 18.8 18.0 23.6 30.1 34.9 39.1 18.0 39.1

Gross NPA (%) 1.6 2.7 2.4 2.1 2.7 3.5 3.9 4.0 2.1 4.0

E: MOSL Estimates * 2QFY13 OSRL is on borrower-wise classification as against facility-wise reported earlier

E: MOSL Estimates

Andhra BankCMP: INR116 Buy

On a QoQ basis, ANDB's business growth is likely to improve, with

loan and deposit expected to grow by 3%+. However, on a YoY basis,

loan and deposit growth is expected to remain below industry average

at ~13% and 14%, respectively.

Though ANDB is likely to benefit from cooling bulk deposit rates, NIM

is expected to be stable at ~3.1%, led by pressure on loan yields.

Slippages are likely to remain elevated, led by stress in some large

accounts. One of these - a large media account of INR2b - is expected

to be recognized as NPA this quarter.

Restructuring is likely to continue and there may even be restructuring

of some SEBs. Provision on restructured pool is likely to be INR500m.

The stock trades at 0.8x FY13E and 0.7x FY14E BV, and 5.1x FY13E and

4.5x FY14E EPS. Maintain Buy.

Key issues to watch for

While slippages are expected to be elevated, recoveries and

upgradations remain a key.

Moderation in CD ratio and higher slippages could impact margins.


NII 37.6 37.0 42.6 49.5

OP 28.2 26.8 30.6 36.1

NP 13.4 12.8 14.6 17.2

NIM (%) 3.5 3.0 3.0 3.0

EPS (INR) 24.0 22.9 26.0 30.7

EPS Gr. (%) 6.1 -4.7 13.6 17.9

BV/Sh. (INR) 133.7 150.7 170.6 194.1

RoE (%) 19.2 16.1 16.2 16.8

RoA (%) 1.1 1.0 0.9 0.9

Payout (%) 26.6 22.0 20.0 20.0

Valuations

P/E(X) 4.8 5.1 4.5 3.8

P/BV (X) 0.9 0.8 0.7 0.6

P/ABV (X) 0.9 1.0 0.9 0.8

Div. Yield (%) 4.7 4.3 4.5 5.3

Bloomberg ANDB IN




1,6,12 Rel Perf. (%) 8/-13/21

C–59January 2013





Interest Income 48,814 52,760 57,770 60,603 64,829 66,872 68,946 71,499 219,946 272,147



% Change (Y-o-Y) 13.9 24.3 23.5 26.2 26.4 15.9 15.9 23.3 22.2 20.1

Other Income 11,679 12,349 14,298 15,876 13,355 15,931 16,505 18,729 54,202 64,519

Net Income 28,920 32,422 35,701 37,337 35,154 39,200 41,303 45,183 134,380 160,840



% Change (Y-o-Y) 7.5 19.5 24.2 11.9 26.0 22.7 12.8 28.7 15.8 22.3



Tax Provisions 4,403 4,497 5,346 6,210 5,513 5,453 6,091 7,090 20,456 24,147

Net Profit 9,424 9,203 11,023 12,773 11,535 11,235 12,651 14,728 42,422 50,151

% Change (Y-o-Y) 27.0 25.2 23.7 25.2 22.4 22.1 14.8 15.3 25.2 18.2


NIM (Reported,%) 3.3 3.8 3.8 3.6 3.4 3.5 3.6

NIM (Cal, %) 3.2 3.7 3.7 3.4 3.3 3.5 3.5 3.5 3.3 3.3

Deposit Growth (%) 24.5 23.9 33.9 16.3 21.3 21.2 18.5 20.0 16.3 20.0

Loan Growth (%) 21.4 26.7 20.4 19.2 29.8 22.9 22.7 18.0 19.2 18.0

CD Ratio (%) 71.8 72.0 71.3 77.1 76.9 73.1 73.8 75.8 77.1 77.1

CASA Ratio (%) 40.5 42.2 41.6 41.5 39.1 40.5 41.5

Asset Quality

OSRL (INR b) 21.5 24.1 27.0 30.6 38.3 40.7 30.6

OSRL (%) 1.6 1.7 1.8 1.8 2.2 2.4 1.8

Gross NPA (INR b) 15.7 17.4 19.1 18.1 20.9 21.9 24.9 28.0 18.1 28.0

Gross NPA (on customer assets, %) 1.1 1.1 1.1 0.9 1.1 1.1 1.3 1.4 0.9 1.4

E: MOSL Estimates

Axis BankCMP: INR1,364 Buy

Loan growth is expected to be above industry average at 22%+ YoY, led

by healthy growth in the corporate segment and secured retail loans.

The benefit of lower bulk deposit rates is expected to reflect in 5bp+

QoQ margin expansion to 3.5%+.

Fee income growth is likely to moderate to ~13% YoY, as fees from the

corporate segment is under pressure. However, growth in the retail

segment is expected to remain strong.

We factor in higher slippages on a sequential basis, positive surprise

likely in our view.

We factor in credit cost of 0.9%, similar to that reported in 2QFY13.

The stock trades at 2.2x FY13E and 1.8x FY14E BV, and at 11.6x FY13E

and 9.7x FY14E EPS. Maintain Buy .


Asset quality performance and outlook on the same.

Fee income has been one of the key drivers and continuous traction

in the same could help provide cushion to asset quality.

Margin performance and traction in savings account deposits.


NII 80.2 96.3 119.0 142.4

OP 74.3 90.9 112.3 133.5

NP 42.4 50.2 60.1 72.0

NIM (%) 3.3 3.3 3.5 3.5

EPS (INR) 102.7 117.9 141.3 169.2

EPS Gr. (%) 24.4 14.9 19.9 19.7

BV/Sh. (INR) 547.4 631.8 751.2 894.2

RoE (%) 20.3 20.1 20.3 20.5

RoA (%) 1.6 1.6 1.6 1.6

Payout (%) 18.2 15.5 15.5 15.5

Valuations

P/E(X) 13.3 11.6 9.7 8.1

P/BV (X) 2.5 2.2 1.8 1.5

P/ABV (X) 2.5 2.2 1.9 1.6

Div. Yield (%) 1.2 1.3 1.6 1.6

Bloomberg AXSB IN


M. Cap. (INR b)/(USD b) 564 / 10


1,6,12 Rel Perf. (%) 3/22/40

C–60January 2013





Interest Income 66,318 72,514 76,720 81,185 85,576 87,226 88,667 90,954 296,737 352,423



% Change (YoY) 23.6 25.9 15.8 7.0 21.8 11.5 14.3 16.5 17.2 15.9

Other Income 6,409 7,343 11,493 8,978 7,708 8,283 8,536 9,725 34,223 34,252

Net Income 29,380 33,013 38,048 36,952 35,689 36,906 38,893 42,326 137,393 153,814



% Change (YoY) 19.0 28.4 40.2 4.9 23.2 12.0 -4.8 14.4 22.9 9.9



Tax Provisions 3,944 4,775 4,686 -3,217 2,081 4,223 3,754 3,818 10,188 13,876

Net Profit 10,328 11,661 12,899 15,182 11,389 13,138 11,569 11,700 50,070 47,796

% Change (YoY) 20.2 14.4 20.7 17.3 10.3 12.7 -10.3 -22.9 18.0 -4.5


NIM (Reported, %) 2.9 3.1 3.0 3.0 2.7 2.7 3.0

NIM (Calculated, %) 2.7 2.9 2.9 2.8 2.6 2.6 2.7 2.7 2.8 2.7

Deposit Growth (%) 22.9 22.1 24.0 26.0 22.3 24.0 21.6 18.0 26.0 18.0

Loan Growth (%) 25.2 23.9 25.8 25.7 23.0 22.2 18.8 18.0 25.7 18.0

CASA Ratio (%) 33.9 34.0 34.1 33.2 32.2 31.8 33.2

Tax Rate (%) 27.6 29.1 26.6 -26.9 15.4 24.3 24.5 24.6 16.9 22.5

Asset Quality

OSRL (INR B) 92.4 98.4 116.6 171.4 179.8 195.8 171.4

OSRL (%) 4.0 4.1 4.5 6.0 6.3 6.7 6.0

Gross NPA (INR B) 34.3 34.0 39.0 44.6 53.2 58.8 66.0 73.3 44.6 73.3

Gross NPA (%) 1.5 1.4 1.5 1.5 1.8 2.0 2.1 2.1 1.5 2.1

E: MOSL Estimates

Bank of BarodaCMP: INR860 Neutral

Loan growth is expected to be above industry average at 19%+ YoY,

whereas deposit growth is expected to be higher at 22% YoY.

Margins are expected to improve QoQ to 2.8%.

Moderate fee income growth of 9% and lower treasury gains would

translate into a YoY decline of 25%+ in non-interest income. In 3QFY12,

BOB had booked treasury gains of INR3.9b.

In the last few quarters, pressure on asset quality has increased. We

expect slippages to remain at an elevated level of INR14-15b.

Despite factoring higher credit cost of 95bp+ (v/s 80bp in 3QFY12) and

provisions on restructured loans, the growth in overall provisioning

expense is likely to be contained at 12% YoY, led by absence of MTM

loss of INR2.2b on investments.

The stock trades at 1.2x FY13E and 1x FY14E BV, and at 7.4x FY13E and

6.4x FY14E EPS. Maintain Neutral.



Performance on margins.


NII 103.2 119.6 140.5 163.8

OP 85.8 94.3 112.8 132.6

NP 50.1 47.8 55.3 64.2

NIM (%) 2.8 2.7 2.6 2.6

EPS (INR) 121.4 115.9 134.2 155.6

EPS Gr. (%) 12.4 -4.5 15.8 15.9

BV/Sh. (INR) 620.9 719.5 833.4 965.2

RoE (%) 22.1 17.3 17.3 17.3

RoA (%) 1.2 1.0 1.0 0.9

Payout (%) 16.2 14.0 14.0 14.0

Valuations

P/E(X) 7.1 7.4 6.4 5.5

P/BV (X) 1.4 1.2 1.0 0.9

P/ABV (X) 1.4 1.3 1.1 1.0

Div. Yield (%) 2.0 1.9 2.2 2.5

Bloomberg BOB IN


M. Cap. (INR b)/(USD b) 355 / 6


1,6,12 Rel Perf. (%) 15/6/5

C–61January 2013





Interest Income 66,336 68,864 71,501 78,106 77,092 80,055 82,051 85,020 284,807 324,217



% Change (Y-o-Y) 5.8 7.2 4.1 8.4 11.0 15.3 9.6 -4.2 6.4 7.1

Other Income 6,601 8,418 8,522 9,671 8,409 8,941 9,938 11,116 33,212 38,403

Net Income 25,011 27,457 29,197 34,681 28,844 30,901 32,588 35,084 116,346 127,417



% Change (Y-o-Y) -1.0 12.5 24.7 67.1 19.9 19.5 7.8 -1.0 24.3 10.4



Tax Provisions 3,112 -940 3,227 3,601 3,139 1 2,003 2,419 9,000 7,561

Net Profit 5,175 4,911 7,162 9,527 8,875 3,019 5,416 6,636 26,775 23,945

% Change (Y-o-Y) -28.6 -20.4 9.7 93.0 71.5 -38.5 -24.4 -30.4 7.6 -10.6


NIM (Reported, %) 2.2 2.4 2.6 2.9 2.3 2.4 2.5

NIM (Cal, %) 2.3 2.4 2.5 2.9 2.2 2.4 2.4 2.4 2.5 2.3

Deposit Growth (%) 25.4 24.1 21.7 6.5 15.7 11.2 12.6 16.0 6.5 16.0

Loan Growth (%) 21.6 17.7 20.9 16.3 22.9 20.0 16.3 16.0 16.3 16.0

CASA Ratio (Reported, %) 30.5 31.6 32.4 34.3 32.0 32.8 34.3

Tax Rate (%) 37.6 -23.7 31.1 27.4 26.1 0.0 27.0 26.7 25.2 24.0

Asset Quality

OSRL (INR b) 87.6 84.5 104.5 134.8 175.7 177.7 134.8

OSRL (%) 4.1 3.9 4.5 5.4 6.6 6.8 5.4

Gross NPA (INR b) 57.9 65.5 63.9 58.9 67.5 89.0 106.3 123.8 58.9 123.8

Gross NPA (%) 2.7 3.0 2.7 2.3 2.6 3.4 3.9 4.2 2.3 4.2

E: MOSL Estimates

Bank of IndiaCMP: INR338 Neutral

Loan and deposit growth is expected to be in line with the industry

average at ~16% YoY and 13% YoY respectively.

Margins are expected to be stable/improve marginally QoQ on account

of lower net slippages, and resultantly, lower interest income

reversals. Domestic CD ratio is low at 69%; an improvement could

boost margins further.

Led by lower provision expense, PBT is likely to grow 2.4x QoQ.

However, tax rate is expected to be 27% as compared to nil in 2QFY13,

restricting PAT growth to ~80% QoQ (however would decline 24% YoY).

The stock trades at 0.9x FY13E and 0.8x FY14E BV, and at 8.1x FY13E and

6.5x FY14E EPS. Maintain Neutral.


Asset quality performance so far, has been inferior to peers, however

for 3QFY13 managment guidance is very positive. Strong performance

of asset quality could provide delta in earnings.

New CMD has recently joined the bank and her comments on strategy

would be a key thing to watch for.


NII 83.1 89.0 105.5 124.5

OP 66.9 73.9 86.1 101.0

NP 26.8 23.9 29.9 34.2

NIM (%) 2.5 2.3 2.4 2.4

EPS (INR) 46.6 41.7 52.1 59.5

EPS Gr. (%) 2.5 -10.6 25.0 14.2

BV/Sh. (INR) 326.5 360.9 403.9 452.9

RoE (%) 15.6 12.1 13.6 13.9

RoA (%) 0.7 0.6 0.6 0.6

Payout (%) 17.4 15.0 15.0 15.0

Valuations

P/E(X) 7.2 8.1 6.5 5.7

P/BV (X) 1.0 0.9 0.8 0.7

P/ABV (X) 1.2 1.2 1.1 1.0

Div. Yield (%) 2.1 1.9 2.3 2.6

Bloomberg BOI IN


M. Cap. (INR b)/(USD b) 194 / 4


1,6,12 Rel Perf. (%) 21/-16/-4

C–62January 2013





Interest Income 71,565 76,145 78,121 82,675 84,729 85,955 84,974 84,657 308,506 340,315



% Change (Y-o-Y) 2.4 -2.1 -8.2 5.0 4.2 -0.2 7.3 8.1 -0.1 4.9

Other Income 5,510 8,228 7,791 7,693 6,926 6,081 6,664 8,266 29,276 27,937

Net Income 23,198 27,845 26,976 28,094 25,362 25,649 27,243 30,314 106,169 108,567



% Change (Y-o-Y) -14.4 13.0 4.2 -12.0 9.7 -19.9 -13.7 0.7 -2.4 -6.8



Tax Provisions 2,000 2,000 2,000 2,000 2,000 2,000 1,465 1,742 8,000 7,207

Net Profit 7,258 8,522 8,756 8,291 7,752 6,610 6,676 7,791 32,827 28,830

% Change (Y-o-Y) -28.4 -15.4 -20.8 -7.8 6.8 -22.4 -23.7 -6.0 -18.5 -12.2


NIM (Rep, %) 2.4 2.6 2.6 2.6 2.4 2.5 2.5

NIM (Cal, %) 2.3 2.5 2.4 2.4 2.1 2.2 2.3 2.4 2.4 2.3

Deposit Growth (%) 25.7 25.4 19.7 11.5 11.5 7.7 8.9 12.0 11.5 12.0

Loan Growth (%) 23.7 23.8 15.5 10.0 4.9 -1.0 2.3 7.0 10.0 7.0

CD Ratio (%) 71.6 69.7 69.5 71.1 67.4 64.1 65.3 67.9 71.1 67.9

CASA Ratio (%) 25.4 25.8 23.9 24.3 23.3 24.8 24.3

Asset Quality

OSRL (INR b) 78.1 77.2 85.1 75.1 129.6 137.7 75.1

OSRL (%) 3.6 3.5 3.9 3.2 5.7 6.4 3.2

Gross NPA (INR b) 36.1 37.9 40.0 40.3 45.0 56.1 62.2 68.0 40.3 68.0

Gross NPA (%) 1.7 1.7 1.8 1.7 2.0 2.6 2.8 2.7 1.7 2.7

E: MOSL Estimates

Canara BankCMP: INR488 Buy

Loan growth is expected to improve on a sequential basis. However,

would be flat YoY, due to consolidation strategy adopted by the bank.

Margins are likely to expand by 5bp+, led by (1) re-pricing of deposits,

and (2) fall in net slippages.

Fee income is expected to decline 10% YoY. Gains from stake sale in

CARE would provide cushion to overall non-interest income.

Slippages are expected to decline (on a higher base), but still factor in

at an elevated level of INR15b+, positive surprise likely.

Consolidation in last 18 months, sharp fall in bulk deposits, low CD

ratio and stabilizing CASA ratio are some of the positives from margins

and asset quality perspectives. Further treasury portfolio is favorably

placed which would provide cushion to earnings in the event of

interest rate reversal. The stock trades at 0.9x FY13E and 0.8x FY14E

BV, and at 7.5x FY13E and 6.1x FY14E EPS. Maintain Buy.


Business growth and margin performance.



NII 76.9 80.6 99.5 116.3

OP 59.4 55.4 71.2 84.9

NP 32.8 28.8 35.7 42.8

NIM (%) 2.4 2.2 2.4 2.4

EPS (INR) 74.1 65.1 80.5 96.7

EPS Gr. (%) -18.5 -12.2 23.7 20.1

BV/Sh. (INR) 463.8 518.2 585.3 665.8

RoE (%) 17.1 13.3 14.6 15.5

RoA (%) 0.9 0.7 0.8 0.8

Payout (%) 14.8 15.0 15.0 15.0

Valuations

P/E(X) 6.6 7.5 6.1 5.0

P/BV (X) 1.1 0.9 0.8 0.7

P/ABV (X) 1.2 1.1 1.0 0.9

Div. Yield (%) 2.3 2.0 2.5 3.0

Bloomberg CBK IN


M. Cap. (INR b)/(USD b) 216 / 4


1,6,12 Rel Perf. (%) 9/5/16

C–63January 2013





Interest Income 4,652 5,404 6,029 6,498 6,924 7,658 8,099 8,180 22,583 30,861



YoY Growth (%) 48.2 33.6 43.6 34.7 33.2 43.9 38.9 47.9 39.6 41.3

Fees and other income 325 486 590 714 465 520 550 635 2,114 2,170

Net Income 1,378 1,569 1,831 1,999 1,868 2,078 2,274 2,535 6,776 8,755

YoY Growth (%) 36.0 1.9 47.2 40.3 35.5 32.5 24.2 26.9 29.8 29.2

Operating Expenses 471 585 692 806 672 748 855 916 2,554 3,191

YoY Growth (%) 35.9 42.0 59.9 46.5 42.7 28.0 23.5 13.7 46.6 25.0

Operating Profits 907 984 1,138 1,193 1,196 1,330 1,419 1,619 4,222 5,565

YoY Growth (%) 36.1 -12.8 40.4 36.4 31.9 35.2 24.7 35.8 21.3 31.8

Provisions 33 117 150 -62 150 150 183 175 238 659

Profit before Tax 874 867 988 1,255 1,046 1,180 1,235 1,444 3,984 4,906

Tax Provisions 216 148 238 317 268 322 321 364 920 1,276

PAT including extraordinary item 658 719 750 938 778 858 914 1,080 3,064 3,630

YoY Growth (%) 28.4 -23.1 21.4 59.9 18.2 19.4 21.9 15.2 15.6 18.5

Extraordinary Items 0 0 0 250 0 0 0 0 250 0

PAT excluding extraordinary item 658 719 750 688 778 858 914 1,080 2,814 3,630

YoY Growth (%) 28.4 23.9 21.4 17.2 18.2 19.4 21.9 57.0 22.5 29.0

Loan growth (%) 56.7 50.7 49.8 37.2 39.5 38.0 36.3 40.1 37.2 40.1

Borrowings growth (%) 55.9 61.7 50.8 28.9 38.6 35.2 40.2 43.0 28.9 43.0

Cost to Income Ratio (%) 34.2 37.3 37.8 40.3 36.0 36.0 37.6 36.1 37.7 36.4

Tax Rate (%) 24.7 17.1 24.1 25.3 25.6 27.3 26.0 25.2 23.1 26.0

E: MOSL Estimates

Dewan Housing FinanceCMP: INR177 Buy

DEWH's strong loan growth momentum is expected to continue, given

the buoyancy in the housing market. We expect loan growth (on

balance sheet) of 35%+ YoY and AUM growth of 45%+ YoY.

Margins are likely to remain largely stable. There might be some

improvement in the coming quarters, led by the expected decline in

cost of funds. We expect NII to grow 39% YoY and 11% QoQ to INR1.7b.

We expect asset quality to remain stable sequentially. We model in

provisions worth INR183m as against INR150m in 2QFY13.

We expect PAT to grow 22% YoY and 6% QoQ to INR914m.

The stock trades at 0.9x FY13E and 0.7x FY14E BV. Maintain Buy.


Business growth and leverage will be a key monitorable, as the

reported debt-to-equity ratio stood at 9.9x as at September 2012.

Margin trends in the context of declining cost of funds and increasing

share of builder portfolio.

FBHFL performance; timeline for DEWH's reporting of the

consolidated performance after all approvals are in place.

Movement in cost to income ratio


NII 5.1 8.7 11.3 14.3

PPP 5.1 7.2 9.1 11.3

Adj. PAT 3.3 4.5 5.7 7.1

EPS (INR) 25.6 35.1 48.6 60.5

EPS Gr. (%) -9.1 37.2 38.5 24.6

BV/Share (INR) 173.0 203.4 241.9 289.8

RoAA (%) 1.3 1.4 1.4 1.3

RoE (%) 18.5 20.5 21.8 22.8

Payout (%) 13.3 15.0 15.0 15.0

Valuation

P/E (x) 6.9 5.0 3.6 2.9

P/BV (x) 1.0 0.9 0.7 0.6

Div. Yield (%) 2.0 2.6 3.3 4.2

Bloomberg DEWH IN




1,6,12 Rel Perf. (%) -11/-5/-31

C–64January 2013





Interest Income 12,447 13,678 14,668 14,790 15,367 15,256 15,412 15,923 55,584 61,959



% Change (YoY) 11.2 8.2 18.1 9.7 6.9 6.6 -2.7 10.0 11.8 5.0

Other Income 1,169 1,170 1,379 1,606 1,243 1,394 1,871 1,675 5,323 6,183

Net Income 5,767 5,914 6,660 6,518 6,160 6,453 7,009 7,076 24,857 26,698



% Change (YoY) 5.6 -6.2 17.4 6.3 -2.1 -3.2 -4.8 3.1 5.6 -1.8

Other Provisions 1,340 722 1,153 155 628 305 933 939 3,370 2,804


Tax Provisions 739 979 1,016 1,193 934 1,041 993 927 3,927 3,895

Net Profit 1,462 1,912 2,019 2,376 1,904 2,151 2,062 1,972 7,768 8,089

% Change (YoY) 10.8 36.2 41.1 38.4 30.2 12.5 2.2 -17.0 32.3 4.1


NIM (Reported,%) 3.9 3.8 3.9 3.6 3.4 3.6 3.8

NIM (Cal, %) 3.9 3.8 4.0 3.6 3.4 3.6 3.6 3.5 3.8 3.4

Deposit Growth (%) 22.7 30.9 26.6 13.8 17.8 4.8 10.7 17.0 13.8 17.0

Loan Growth (%) 17.8 21.6 17.6 18.2 19.0 8.0 13.7 13.0 18.2 13.0

CASA Ratio (%) 27.2 26.4 28.7 27.5 28.7 29.0 27.5

Asset Quality

Gross NPA (INR b) 13.0 12.5 13.6 13.0 14.1 14.4 15.3 16.4 13.0 16.4

Gross NPA (%) 3.9 3.6 4.0 3.4 3.6 3.8 3.9 3.7 3.4 3.4

E: MOSL Estimates

Federal BankCMP: INR535 Buy

On a sequential basis, FB's loan growth is expected to be near industry

average at 4%. On a YoY basis, loan growth is expected to be at ~14%,

whereas deposit growth is expected to be lower at ~11%.

Margins are likely to be stable QoQ at 3.5%. Shedding of high cost

deposits in 2QFY13 would provide cushion to NIM.

Non-interest income should grow by ~35%, driven by healthy fee

income growth and higher profit on sale of investments (led by FB

booking proceeds from the CARE stake sale).

Slippages are likely to increase sequentially, led by some stress in the

large corporate segment. In 2QFY13, slippages in the large corporate

segment were negligible but this trend is unlikely to continue.


and 9.7x FY14E EPS. Maintain Buy .


Gross slippages and outlook on slippages in the large corporate

segment.

Fee income growth has been volatile over the past few quarters; any

improvement would be a key positive.

Business growth.


NII 19.5 20.5 24.1 28.1

OP 15.1 14.8 17.3 19.9

NP 7.8 8.1 9.4 10.9

NIM (%) 3.8 3.4 3.5 3.5

EPS (INR) 45.4 47.3 55.2 63.9

EPS Gr. (%) 32.3 4.1 16.8 15.7

BV/Sh. (INR) 333.3 369.5 411.8 460.8

RoE (%) 14.4 13.4 14.1 14.6

RoA (%) 1.4 1.2 1.3 1.2

Payout (%) 0.2 0.2 0.2 0.2

Valuations

P/E(X) 11.8 11.3 9.7 8.4

P/BV (X) 1.6 1.4 1.3 1.2

P/ABV (X) 1.6 1.5 1.3 1.2

Div. Yield (%) 1.7 1.8 2.1 2.4

Bloomberg FB IN




1,6,12 Rel Perf. (%) 13/6/38

C–65January 2013





Interest Income 36,098 39,340 42,488 46,823 46,924 49,273 51,084 59,150 163,689 206,432



YoY Change (%) 17.1 14.7 15.1 27.2 19.1 11.5 18.2 20.1 16.3 19.8

Profit on Sale of Inv. 163 869 880 791 202 941 1,500 1,107 2,702 3,750

Other operating income 1,909 1,430 1,306 1,233 2,223 2,480 1,550 1,629 6,939 7,882

Net Operating Income 13,020 14,734 14,549 19,458 15,467 17,281 17,658 23,667 61,762 74,073

YoY Change (%) 20.8 18.1 9.9 18.3 18.8 17.3 21.4 21.6 16.7 19.9

Other Income 47 52 52 63 74 78 80 94 213 325

Total Income 13,067 14,786 14,601 19,520 15,541 17,358 17,738 23,761 61,975 74,398


Pre Provisioning Profit 11,935 13,547 13,483 18,491 14,199 15,881 16,208 22,102 57,456 68,390

YoY Change (%) 21.6 17.9 9.8 17.1 19.0 17.2 20.2 19.5 16.4 19.0

Provisions 180 170 200 250 400 400 420 514 800 1,734

PBT 11,755 13,377 13,283 18,241 13,799 15,481 15,788 21,588 56,656 66,657

YoY Change (%) 21.6 18.0 9.5 17.4 17.4 15.7 18.9 18.4 16.4 17.7

Provision for Tax 3,310 3,670 3,470 4,980 3,780 3,970 4,105 5,809 15,430 17,664

PAT 8,445 9,707 9,813 13,261 10,019 11,511 11,683 15,779 41,226 48,993

YoY Change (%) 21.6 20.2 10.1 16.1 18.6 18.6 19.1 19.0 16.6 18.8

E: MOSL Estimates

HDFCCMP: INR828 Buy

HDFC's loan growth (net of sell-downs) is likely to remain healthy at

~23% YoY. Spreads should be largely stable at ~2.2%.

Non-interest income is likely to grow strongly by ~40% YoY on a lower

base, but should be down ~11% QoQ. We have modeled investment

gains of INR1.5b as against INR880m in 3QFY12. However, dividend

income is expected to moderate to INR900m v/s INR1.9b in 2QFY13.

Asset quality has remained healthy over the past several quarters and

the trend is likely to continue. In 2QFY13, GNPAs were 0.77% on 90

days overdue basis.

We model in provisions of INR420m, similar to the levels seen in

2QFY13 (INR400m).

The stock trades at 4.6x FY14E BV and 16.5x FY14E EPS (price adjusted

for value of other businesses and book value adjusted for investments

made in those businesses). Maintain Buy.


Loan growth and movement in spreads (on individual loans).

Asset quality trends.


NII 52.1 62.4 75.8 90.6

PPP 57.5 68.4 82.1 97.4

PAT 41.2 49.0 58.2 69.1

Adj. EPS (INR) 26.0 29.6 35.1 41.5

EPS Gr. (%) 15.1 13.8 18.5 18.2

BV/Share (INR) 128.8 159.4 178.7 199.5

RoAA (%) 2.8 2.9 2.9 2.9

Core RoE (%) 27.3 29.2 30.4 30.6

Payout (%) 39.5 40.0 40.0 40.0

Valuation

P/E (x) 24.5 20.8 16.5 15.4

P/BV (x) 6.4 5.2 4.6 4.1

Div. Yield (%) 1.3 1.5 1.8 2.2

Bloomberg HDFC IN


M. Cap. (INR b)/(USD b) 1,222 / 22


1,6,12 Rel Perf. (%) 1/15/2

C–66January 2013




Interest Income 59,780 67,177 72,026 73,880 80,074 85,247 88,002 90,317 272,864 343,640



% Change (Y-o-Y) 18.6 16.6 12.2 19.3 22.3 26.7 25.5 18.9 16.6 23.2

Other Income 11,200 12,117 14,200 14,920 15,295 13,451 17,232 18,799 52,437 64,777

Net Income 39,680 41,562 45,360 48,803 50,135 50,768 56,346 59,078 175,405 216,327



% Change (Y-o-Y) 16.3 17.6 14.7 15.1 26.9 21.0 28.9 35.3 15.9 28.3



Tax Provisions 5,047 5,604 6,191 6,618 6,762 7,184 8,557 8,841 23,461 31,345

Net Profit 10,850 11,994 14,297 14,531 14,174 15,600 18,607 18,998 51,671 67,379

% Change (Y-o-Y) 33.7 31.5 31.4 30.4 30.6 30.1 30.2 30.7 31.6 30.4


NIM (Reported,%)* 4.2 4.1 4.1 4.2 4.3 4.2 4.2

NIM (Cal, %)# 4.7 4.5 4.6 4.7 4.6 4.7 4.7 4.6 4.6 4.6

Deposit Growth (%) 15.4 18.1 21.0 18.3 22.0 18.8 22.6 20.0 18.3 20.0

Loan Growth (%) 20.0 20.0 22.1 22.2 21.5 22.9 24.0 24.0 22.2 24.0

CASA Ratio (%) 49.1 47.3 48.6 48.4 46.0 46.4 48.4

Asset Quality

OSRL (%) 0.2 0.1 0.1 0.1 0.1 0.1 0.1

Gross NPA (%) 1.0 1.0 1.0 1.0 1.0 0.9 1.0 1.1 1.0 1.1

E: MOSL Estimates; * Reported on total assets; # Cal. on interest earning assets

HDFC BankCMP: INR679 Neutral

On the back of buoyant retail demand, we expect HDFCB to deliver

above industry average loan growth of 24%+ YoY. Deposit growth is

expected to be healthy at 23% YoY.

NIM is likely to remain stable on a sequential basis. However, on a YoY

basis, it is likely to be higher by 10bp. Resultantly, NII is expected to

grow 5% QoQ and 25% YoY.

Fee income is expected to grow 20%+, aided by a lower base. Better

trading gains is likely to compensate for expected decline in forex

income. Overall non-interest income is likely to grow 20%+.

Asset quality is expected to remain healthy. However, stress in few

segments of retail loans has increased, which needs to be watched.


and 18.3x FY14E EPS. Maintain Neutral.


Traction in fee income.

With its focus on retail lending, HDFCB has reported commendable

performance on asset quality. The trend and outlook on its retai l

portfolio should be watched.


NII 123.0 151.5 187.8 230.0

OP 89.5 114.8 149.5 187.4

NP 51.7 67.4 87.6 108.4

NIM (%) 4.6 4.6 4.8 4.8

EPS (INR) 22.0 28.5 37.1 45.9

EPS Gr. (%) 30.4 29.6 30.0 23.8

BV/Sh. (INR) 127.4 148.5 176.9 212.1

RoE (%) 18.7 20.7 22.8 23.6

RoA (%) 1.7 1.8 1.9 1.9

Payout (%) 19.5 20.0 20.0 20.0

Valuations

P/E(X) 30.9 23.8 18.3 14.8

P/BV (X) 5.3 4.6 3.8 3.2

P/ABV (X) 5.4 4.6 3.9 3.3

Div. Yield (%) 0.6 0.8 1.1 1.4

Bloomberg HDFCB IN


M. Cap. (INR b)/(USD b) 1,594 / 29


1,6,12 Rel Perf. (%) -3/10/33

C–67January 2013


ICICI BankCMP: INR1,137 Buy



Interest Income 76,185 81,576 85,919 91,746 95,457 100,263 103,137 105,578 335,427 404,434



% Change (YoY) 21.1 13.7 17.3 23.7 32.4 34.5 31.2 18.4 19.0 28.5

Other Income 16,429 17,396 18,919 22,285 18,799 20,430 22,287 23,385 75,028 84,902

Net Income 40,538 42,460 46,039 53,332 50,729 54,142 57,875 60,133 182,369 222,879



% Change (YoY) 2.1 6.4 14.7 35.0 32.0 35.7 27.0 15.1 14.8 26.5



Tax Provisions 4,480 5,318 6,179 7,405 6,684 7,293 7,851 8,246 23,382 30,075

Net Profit 13,320 15,032 17,281 19,018 18,151 19,561 21,228 22,372 64,653 81,313

% Change (YoY) 29.8 21.6 20.3 31.0 36.3 30.1 22.8 17.6 25.5 25.8


NIM (Reported,%) 2.6 2.6 2.7 3.0 3.0 3.0 2.7

NIM (Cal, %) 2.5 2.5 2.5 2.8 2.8 2.9 3.0 3.0 2.7 3.0

Deposit Growth (%) 14.8 9.9 19.7 13.3 16.1 14.8 11.2 16.6 13.3 16.6

Loan Growth (%) 19.7 20.5 19.1 17.3 21.6 17.6 15.1 16.1 17.3 16.1

CASA Ratio (%) 40.0 38.3 39.0 39.0 39.1 37.5 39.0

Asset Quality

OSRL (INR b) 19.7 25.0 30.7 42.6 41.7 41.6 42.6

OSRL (%) 0.9 1.1 1.2 1.7 1.6 1.5 1.7

Gross NPA (INR b) 99.8 100.2 97.2 94.8 98.2 100.4 101.4 101.5 94.8 101.5

Gross NPA (%) 4.4 4.1 3.8 3.6 3.5 3.5 3.5 3.4 3.6 3.4

E: MOSL Estimates

We expect loan growth to moderate to 15% YoY. However, retail loan

growth should remain healthy. While on a YoY basis, deposit growth is

likely to be a moderate 11%, on a sequential basis, it is likely to be in

line with loan growth.

Fee income is expected to be muted. However, expected trading

profits as against trading loss of INR650m in 3QFY12 would provide

cushion to non-interest income.

Asset quality has been holding fairly well over the past few quarters

even as the bank recognized a large media account of INR5b as NPA in

2QFY13. We expect healthy asset quality trend to continue.

Excluding subsidiaries, the stock trades at 1.8x FY14E ABV (BV adjusted

for investments in subsidiaries) and at an adjusted PE of 13.1x FY14E.

Maintain Buy.


Margin performance and guidance on loan growth.

While performance on asset quality has been strong, higher stress in

the large and mid-corporate segments might lead to higher

restructuring.


NII 107.3 138.0 168.0 201.5

OP 103.9 131.4 162.5 194.8

NP 64.7 81.3 100.2 120.6

NIM (%) 2.7 3.0 3.2 3.2

EPS (INR) 56.1 70.5 86.9 104.6

EPS Growth (%) 25.4 25.8 23.2 20.3

BV/Sh (INR)* 408.6 454.3 510.8 578.6

RoE (%) 12.8 14.6 16.1 17.2

RoA (%) 1.5 1.6 1.7 1.7

Payout (%) 29.4 30.0 30.0 30.0

Valuations

P/E (x) 20.3 16.1 13.1 10.9

P/BV (x) 2.3 2.1 1.8 1.5

Adj P/ABV (x) 2.4 2.1 1.9 1.6

* BV adjusted for investment in

susbdiaries, Prices adj for sub value

Bloomberg ICICIBC IN


M. Cap. (INR b)/(USD b) 1,311 / 24


1,6,12 Rel Perf. (%) 7/20/35

C–68January 2013




NII 4,830 4,980 5,460 5,860 6,290 6,560 6,951 7,383 21,130 27,184

% Change (YoY) 43.3 33.2 18.7 22.6 30.2 31.7 27.3 26.0 28.1 28.7

- Infra Loans 4,280 4,390 4,730 5,400 5,550 5,960 6,117 6,497 18,800 24,124

- Treasury 550 590 730 460 740 600 834 886 2,330 3,060

Fees 1,165 1,590 1,220 1,037 1,392 1,438 1,430 1,549 5,012 5,809

- Asset management 620 920 680 600 640 690 800 910 2,820 3,040

- IB and Broking 150 230 240 140 90 270 180 191 760 731

- Loan related/others 395 440 300 297 662 478 450 448 1,432 2,038

Principal investments (20) 2,320 910 290 20 490 500 514 3,500 1,524

Other Income 76 11 7 63 14 16 25 45 157 100

Net Income 6,051 8,901 7,597 7,251 7,716 8,504 8,906 9,491 29,799 34,617

% Change (YoY) (1.1) 36.9 15.1 3.4 27.5 (4.5) 17.2 30.9 13.6 16.2



% Change (YoY) 0.4 44.1 27.5 13.4 33.6 (4.3) 17.8 31.6 21.7 17.4

Provisions 399 631 978 838 1,026 305 750 775 2,846 2,856

PBT 4,509 6,956 5,353 4,908 5,530 6,957 6,706 6,787 21,726 25,981

Tax 1,378 1,715 1,537 1,590 1,713 2,188 2,065 2,088 6,219 8,054

PAT 3,132 5,241 3,816 3,319 3,817 4,770 4,641 4,699 15,508 17,927

Less: Consol Adjustments (5) (2) 4 (30) 19 13 (60) (48) (32) (75)

Consol PAT 3,136 5,243 3,812 3,348 3,798 4,757 4,701 4,747 15,540 18,002

% Change (YoY) (6.2) 54.9 18.6 16.5 21.1 (9.3) 23.3 41.8 21.2 15.8

E: MOSL Estimates

IDFCCMP: INR171 Buy

Loan growth is likely to remain healthy at 4% QoQ and 26% YoY (on a

lower base).

We expect spreads to remain largely stable on a QoQ basis, translating

into ~5% QoQ and 27% YoY growth in NII.

We factor modest gains of INR500m from principal investments as

against INR910m in 3QFY12 (when IDFC had booked gains of INR840m

on 25% stake sale in the AMC business).

Revenue from Investment Banking and Broking businesses is likely to

decline sequentially, given the subdued capital market activity.

However, we expect revenue from Asset Management to improve

marginally QoQ. Loan-related and other fee income is likely to remain

stable QoQ.

Asset quality is expected to remain stable. However, we

conservatively model in provisions of INR750m as against INR305m in

2QFY13 and INR1.3b in 1HFY13.

The stock trades at 12.4x FY14E EPS and 1.7x FY14E BV. Maintain Buy.


Loan growth guidance.

Movement in spreads.



NII 20.3 27.3 31.8 38.0

PPP 24.6 28.8 33.7 40.0

Cons. PAT 15.5 18.0 20.7 24.7

EPS (INR) 10.3 11.9 13.7 16.3

EPS Gr. (%) 17.1 15.8 15.2 19.0

BV/Share (INR) 81.2 90.0 100.1 112.1

RoAA (%) 2.9 2.8 2.7 2.7

Core RoE (%) 16.2 15.9 16.3 17.1

Payout (%) 21.7 21.5 21.5 21.6

Valuation

P/E (x) 16.6 14.3 12.4 10.5

P/BV (x) 2.1 1.9 1.7 1.5

Div. Yield (%) 1.3 1.6 1.8 2.2

Bloomberg IDFC IN


M. Cap. (INR b)/(USD b) 258 / 5


1,6,12 Rel Perf. (%) 2/13/55

C–69January 2013





Interest Income 27,814 30,348 32,240 31,911 33,738 34,104 34,718 35,461 122,313 138,021



% Change (Y-o-Y) 11.2 15.5 12.8 -2.6 12.0 -1.3 -1.0 11.6 9.5 5.0

Other Income 2,493 3,423 2,812 3,070 2,227 3,645 3,332 3,446 12,322 12,651

Net Income 12,793 14,777 14,513 13,896 13,759 14,848 14,921 15,526 56,502 59,054



% Change (Y-o-Y) -6.8 24.6 12.3 -11.7 7.6 -1.4 -2.2 14.4 8.3 4.5



Tax Provisions 1,972 2,318 1,495 -1,100 2,328 2,096 1,854 2,076 5,209 8,354

Net Profit 4,069 4,687 5,259 3,454 4,617 4,967 4,326 4,684 17,470 18,594

% Change (Y-o-Y) 10.5 12.7 7.0 -21.3 13.5 6.0 -17.7 35.6 1.9 6.4


NIM (Rep, %) 3.4 3.8 3.6 3.2 3.3 3.1 3.4

NIM (Cal, %) 3.6 3.8 3.7 3.3 3.5 3.2 3.2 3.2 3.6 3.3

Deposit Growth (%) 21.3 18.6 17.8 14.2 15.0 12.9 14.1 18.0 14.2 18.0

Loan Growth (%) 21.3 23.4 19.1 20.4 13.8 10.8 13.1 16.8 20.4 16.8

CASA Ratio (%) 31.3 30.0 31.3 31.5 29.3 29.0 31.5

Tax Rate (%) 32.6 33.1 22.1 -46.7 33.5 29.7 30.0 30.7 23.0 31.0

Asset Quality

OSRL (INR b) 52.5 51.3 55.7 89.0 99.2 103.5 89.0

OSRL (%) 6.4 5.9 6.3 9.8 10.6 10.8 9.8

Gross NPA (INR b) 8.1 10.5 11.9 18.5 15.5 19.8 19.1 22.2 18.5 22.2

Gross NPA (%) 1.0 1.2 1.4 2.0 1.7 2.1 1.9 2.1 2.0 2.1

E: MOSL Estimates

Indian BankCMP: INR192 Buy

Business growth is expected to remain moderate, with loans and

deposits growing 13-14% YoY.

NIMs are likely to remain stable QoQ, as the pressure on yield on

loans is likely to be offset by the easing cost of funds. As a consequence,

NII would remain flat YoY.

In 2QFY13, the bank booked INR1b on account of interest on IT refund.

In the absence of this, non-interest income is likely to decline QoQ.

While gross slippages are likely to be at an elevated level, net slippages

are expected to fall as bank was expecting one large account of

INR3.8b, which had slipped in 2QFY13, to be upgraded (due to

restructuring) during the quarter.

The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 4.4x FY13E and

4x FY14E EPS. Maintain Buy.


Traction in recoveries and upgradations (apart from those via

restructuring), and fresh slippages.

Margin performance.


NII 44.2 46.4 55.2 62.8

OP 34.6 35.5 42.5 48.4

NP 17.5 18.6 20.5 23.1

NIM (%) 3.6 3.3 3.3 3.2

EPS (INR) 40.6 43.3 47.7 53.8

EPS Gr. (%) 1.9 6.4 10.3 12.6

BV/Sh. (INR) 214.9 248.1 284.8 326.3

RoE (%) 19.8 18.2 17.5 17.2

RoA (%) 1.3 1.2 1.1 1.1

Payout (%) 18.5 18.0 18.0 18.0

Valuations

P/E (x) 4.7 4.4 4.0 3.6

P/ BV (x) 0.9 0.8 0.7 0.6

P/ABV (x) 1.0 0.8 0.7 0.6

Div. Yield (%) 3.9 4.1 4.5 5.0

Bloomberg INBK IN




1,6,12 Rel Perf. (%) 3/-2/-17

C–70January 2013





Interest Income 11,646 13,239 13,897 14,810 16,320 17,279 17,786 18,304 53,592 69,690



% Change (YoY) 31.9 27.1 18.6 19.7 24.1 21.6 28.7 37.7 23.8 28.4

Other Income 2,154 2,392 2,651 2,921 3,188 3,205 3,516 3,786 10,118 13,695

Net Income 6,054 6,584 6,958 7,565 8,029 8,302 9,060 10,183 27,160 35,574



% Change (YoY) 35.2 27.2 19.9 27.2 29.6 26.1 35.0 47.2 26.9 35.0

Other Provisions 446 470 428 460 535 491 700 1,240 1,804 2,966


Tax Provisions 870 929 1,005 1,097 1,143 1,205 1,305 1,407 3,900 5,060

Net Profit 1,802 1,931 2,060 2,234 2,363 2,503 2,710 2,934 8,026 10,509

% Change (YoY) 52.0 45.0 33.9 30.1 31.1 29.6 31.6 31.3 39.0 30.9


NIM (Reported,%) 3.4 3.4 3.3 3.3 3.2 3.3 3.3

NIM (Cal, %) 3.3 3.4 3.3 3.3 3.3 3.3 3.5 3.9 3.6 3.8

Deposit Growth (%) 28.8 22.6 32.3 23.3 27.8 24.5 18.9 21.0 23.3 21.0

Loan Growth (%) 31.4 28.5 29.7 34.0 31.2 30.8 28.9 27.0 34.0 27.0

CASA Ratio (%) 28.2 27.7 26.5 27.3 27.9 28.0 27.3

Asset Quality

OSRL (%) 0.4 0.3 0.2 0.3 0.2 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 1.1 1.0 1.1

E: MOSL Estimates; Quarterly calculated margins based on total assets, yearly on interest earning assets

IndusInd BankCMP: INR416 Buy

Led by continued traction in consumer finance book and healthy

growth in corporate finance, loan book is likely to grow by 30% YoY.

Lag impact of deposit re-pricing at lower rates, lower base on account

of one-off forex expense in interest expense in 2QFY13 and higher

share of fixed rate loans is likely to push margins up by ~20bp. Further,

IIB has raised INR20b, some benefit of which is likely to accrue.

Fee income is likely to grow 45%+ YoY, led by healthy growth in most

fee income streams.

IIB is likely to recognize one large media account of INR1b as NPA

during the quarter. However, overall asset quality would be

manageable. In 2QFY13, slippage ratio was 1.5%.


and 15.8x FY14E EPS. Maintain Buy.


Outlook on asset quality, especially on the CV portfolio, given the

slowdown in the industry.

In 2QFY13, savings account (SA) deposit growth moderated, led by

redemption of some large value accounts. Watch for resumption of

growth in SA deposits.


NII 17.0 21.9 28.5 35.4

OP 13.7 18.5 24.5 30.9

NP 8.0 10.5 13.7 17.2

NIM (%) 3.6 3.8 4.0 4.0

EPS (INR) 17.2 20.1 26.3 32.9

EPS Gr. (%) 38.5 17.4 30.5 25.2

BV/Sh. (INR) 96.7 142.2 164.7 192.8

RoE (%) 19.2 17.6 17.1 18.4

RoA (%) 1.6 1.7 1.8 1.8

Payout (%) 12.8 12.5 12.5 12.5

Valuations

P/E(X) 24.2 20.7 15.8 12.6

P/BV (X) 4.3 2.9 2.5 2.2

P/ABV (X) 4.4 3.0 2.6 2.2

Div. Yield (%) 0.5 0.6 0.8 1.0

Bloomberg IIB IN


M. Cap. (INR b)/(USD b) 195 / 4


1,6,12 Rel Perf. (%) 3/12/52

C–71January 2013





Interest Income 8,708 9,331 9,915 10,615 11,714 11,976 12,220 12,538 38,568 48,448



% Change (Y-o-Y) 10.1 19.4 31.6 18.9 31.0 21.5 16.4 20.8 20.1 22.0

Other Income 1,405 1,625 1,699 1,968 1,710 1,689 2,020 2,278 6,698 7,697

Net Income 4,025 4,661 4,935 5,160 5,142 5,377 5,786 6,133 18,781 22,438



% Change (Y-o-Y) -1.2 2.8 32.5 53.9 48.1 20.2 14.4 20.9 20.9 24.1

Other Provisions 62 175 334 566 267 64 280 423 1,138 1,034


Tax Provisions 466 566 584 363 607 710 684 718 1,978 2,720

Net Profit 940 1,154 1,195 1,274 1,301 1,502 1,453 1,522 4,563 5,779

% Change (Y-o-Y) 36.1 53.3 44.0 39.5 38.4 30.2 21.6 19.5 43.2 26.6


NIM (Reported,%) 3.0 3.4 3.5 3.3 3.3 3.5 3.3

NIM (Cal, %) 3.0 3.3 3.5 3.2 3.2 3.4 3.4 3.3 3.2 3.3

Deposit Growth (%) 29.4 17.8 16.1 16.6 14.6 17.8 21.1 22.0 16.6 22.0

Loan Growth (%) 25.5 22.8 22.6 21.8 22.9 20.8 19.9 20.0 21.8 20.0

CASA Ratio (%) 33.8 32.6 32.6 34.2 33.3 32.8 34.2

Asset Quality

Gross NPA (INR B) 5.2 5.1 5.4 5.6 5.9 5.8 6.2 6.6 5.6 6.6

Gross NPA (%) 2.2 2.0 2.0 1.9 2.0 1.9 1.9 1.9 1.9 1.9

Net NPA (%) 0.4 0.3 0.3 0.2 0.2 0.1 0.2 0.2 0.2 0.2

E: MOSL Estimates

ING Vysya BankCMP: INR519 Buy

On a YoY basis, loan growth is expected to be above industry average

at ~20%. Deposits are expected to grow 21% YoY.

Margins are likely to remain stable sequentially at ~3.4%, resulting in

a healthy NII growth of ~16% YoY.

While asset quality improved in 2QFY13, with slippage ratio at just

56bp, high exposure to the SME segment could lead to some pressure

on asset quality. On a conservative basis, we factor higher credit cost,

which may lead to a positive surprise.

Fee income (including forex) is expected to grow 13% YoY and 17%

QoQ (on a lower base). Forex income included a reversal of INR219m

in 2QFY13; adjusted for this, fee income (including forex) is expected

to be largely flat QoQ.




Fee income growth has shown some signs of improvement and

traction in the same could help profitability, going forward.

Lower credit cost has been one of the key drivers of VYSB's RoA.

Performance and outlook on asset quality remains critical.

Branch expansion strategy.


NII 12.1 14.7 17.5 20.6

OP 7.7 9.5 11.9 14.6

NP 4.6 5.8 6.6 7.6

NIM (%) 3.0 3.0 3.0 3.0

EPS (INR) 30.4 38.5 43.8 50.9

EPS Gr. (%) 15.4 26.6 13.7 16.3

BV/Sh. (INR) 258.2 290.9 328.0 371.2

RoE (%) 14.3 14.0 14.2 14.6

RoA (%) 1.1 1.1 1.1 1.0

Payout (%) 13.2 13.0 13.0 13.0

Valuations

P/E(X) 17.1 13.5 11.9 10.2

P/BV (X) 2.0 1.8 1.6 1.4

P/ABV (X) 2.0 1.8 1.6 1.4

Div. Yield (%) 0.8 1.0 1.1 1.3

Bloomberg VYSB IN




1,6,12 Rel Perf. (%) 9/38/55

C–72January 2013


KMB Group: Earnings Trends (INR Million)Y/E March FY12 FY13 FY12 FY13E


Kotak Bank (Standalone) 2,520 2,600 2,760 2,970 2,820 2,800 3,171 3,260 10,850 12,051

Kotak Prime 940 900 1,040 970 940 1,140 1,150 1,172 3,849 4,402

Kotak Mah. Investments 30 30 30 60 40 160 50 54 153 304

Lending Business 3,490 3,530 3,830 4,000 3,800 4,100 4,371 4,486 14,852 16,757

YoY Growth (%) 29.3 33.7 34.7 17.5 8.9 16.1 14.1 12.1 28.0 12.8

Kotak Securities 230 290 240 500 230 400 327 350 1,260 1,306

Kotak Mah. Capital Co. 10 -40 40 50 60 40 56 68 60 224

Capital Market Business 240 250 280 550 290 440 382 418 1,320 1,530

YoY Growth (%) -55.8 -57.7 -48.4 -16.9 20.8 76.0 36.5 -24.0 -43.5 15.9

Intl. Subsidiaries -30 -70 -40 30 -50 80 30 40 -110 100

Kotak Mah. AMC & Trustee Co. 90 70 30 30 40 -50 50 80 220 120

Kotak Investment Advisors 110 80 70 100 80 90 100 105 360 375

Asset Management Business 170 80 60 160 70 120 180 225 470 595

YoY Growth (%) -52.0 -60.7 -71.3 -34.7 -58.8 50.0 200.0 40.6 -53.4 26.6

Consol. PAT excluding Kotak Life 3,900 3,860 4,170 4,710 4,160 4,660 4,934 5,129 16,642 18,882

YoY Growth (%) 8.4 12.4 16.0 9.2 6.7 20.7 18.3 8.9 11.3 13.5

Kotak OM Life Insurance 460 530 470 570 320 470 541 700 2,030 2,030

Consolidation Adjust. -200 -60 -10 -70 -50 -110 -50 -40 -349 -250

Consol. PAT Including Kotak Life 4,160 4,330 4,630 5,210 4,430 5,020 5,424 5,788 18,322 20,662

YoY Growth (%) 26.9 18.9 20.7 6.2 6.5 15.9 17.2 11.1 16.9 12.8

E: MOSL Estimates

Kotak Mahindra BankCMP: INR649 Neutral

Lending business

Profit from the Lending business is expected to grow ~14% YoY and

~6% QoQ, led by the standalone bank.

For the standalone bank, we expect loan and PAT growth of 19% and

15% YoY, respectively. Margins are likely to remain stable QoQ.

Meanwhile, for Kotak Prime, loans and PAT are expected to grow by

29% and 11% YoY, respectively.

Capital Market and Asset Management business

We expect PAT from Capital Market related businesses to grow ~37%

YoY on a lower base. Profit from the Securities business would grow

on a YoY basis but decline sequentially.

In the Asset Management business, we expect profit of INR180m v/s

INR60m in 3QFY12 and INR120m in 2QFY13. International subsidiaries

are likely to report profit in 3QFY13 v/s net loss of INR40m in 3QFY12.

The stock trades at 19.5x FY14E EPS and 2.8x FY14E BV. Maintain Neutral.


Business growth and CASA trends.

Asset quality trends, especially in the CV segment.


NII 25.1 30.9 37.4 46.1

OP 16.6 19.7 24.5 31.2

NP 10.9 12.1 14.4 17.6

NIM (%) 4.6 4.6 4.6 4.6

EPS (INR) 24.7 27.9 33.2 39.7

EPS Gr. (%) 16.3 12.8 19.2 19.5

BV/Sh. (INR) 174.2 201.3 233.5 272.1

Cons. RoE (%) 15.4 14.9 15.3 15.7

RoA (%) 1.9 1.6 1.6 1.6

Payout (%) 4.8 5.0 5.0 4.9

Valuations

P/E(X) 26.3 23.3 19.5 16.3

P/BV (X) 3.7 3.2 2.8 2.4

P/ABV (X) 3.8 3.3 2.8 2.4

Div. Yield (%) 0.1 0.1 0.1 0.2

Bloomberg KMB IN


M. Cap. (INR b)/(USD b) 481 / 9


1,6,12 Rel Perf. (%) 0/0/22

C–73January 2013





Interest Income 13,581 14,580 15,387 16,280 17,179 18,081 18,866 20,210 59,827 74,336



YoY Growth (%) 22.6 9.5 -7.5 -11.8 -2.9 5.8 17.0 17.6 1.4 9.3

Fees and other income 601 574 538 610 494 537 595 724 2,324 2,351

Net Income 4,211 3,916 3,795 4,318 3,999 4,073 4,406 5,083 16,240 17,561

YoY Growth (%) 24.7 5.9 -30.4 -16.7 -5.0 4.0 16.1 17.7 -8.3 8.1



YoY Growth (%) 27.0 5.1 -33.3 -22.7 -8.2 1.2 12.5 21.3 -10.8 6.3

Provisions and Cont. 334 2,047 -797 -24 436 69 220 293 1,561 1,018


Tax Provisions 889 323 1,003 952 766 894 932 1,115 3,167 3,706

Net Profit 2,565 984 3,056 2,536 2,277 2,430 2,519 2,794 9,142 10,021

YoY Growth (%) 21.0 -58.0 43.1 -19.4 -11.2 147.0 -17.6 10.2 -6.2 9.6

Adj PAT (Post Tax) 2,565 2,527 2,258 2,536 2,277 2,430 2,519 2,794 10,011 10,021

YoY Growth (%) 21.0 7.9 -23.5 -12.9 -11.2 -3.8 11.6 10.2 -2.7 0.1

Loan Growth (%) 32.1 29.3 26.6 23.5 24.1 23.2 24.2 24.5 23.5 24.5

Borrowings Growth (%) 31.3 28.0 25.9 24.2 23.7 24.2 23.9 26.7 24.2 26.7


Tax Rate (%) 25.7 24.7 24.7 27.3 25.2 26.9 27.0 28.5 25.7 27.0

E: MOSL Estimates

LIC Housing FinanceCMP: INR289 Buy

LICHF's loan growth is likely to remain healthy on the back of buoyant

demand in the individual loans segment. The YoY decline in the builder

loan portfolio is likely to continue. We expect loan growth to remain

healthy at ~24% YoY and ~5% QoQ.

We expect margins to expand by ~5bp QoQ, led by (1) moderating

cost of funds, and (2) re-pricing of teaser rate loans (expected re-

pricing of loans worth ~INR22b in 3QFY13), which should provide

cushion to margins.

Asset quality is likely to remain healthy. We model provisioning

expense of ~INR220m (v/s write-back of INR797m worth excess

provisions in 3QFY12 on account of change in the standard asset

provisioning requirement by NHB) for the quarter.



Disbursements in the developer category; outlook on growth in the

developer portfolio.

Margin trends; LICHF has been disappointing on the margin front for

the past few quarters.



NII 13.9 15.2 20.2 24.7

PPP 13.9 14.7 19.6 23.9

Adj. PAT 10.0 10.0 13.3 16.4

Adj. EPS (INR) 19.8 19.8 26.4 32.4

EPS Gr. (%) -8.4 0.1 33.1 22.6

BV/Share (INR) 112.5 127.7 149.7 174.9

RoAA (%) 1.8 1.4 1.5 1.5

RoE (%) 20.3 16.5 19.0 20.0

Payout (%) 19.9 20.0 20.0 20.0

Valuation

P/E (x) 16.0 14.6 10.1 8.8

P/BV (x) 2.6 2.3 1.9 1.7

Div. Yield (%) 1.2 1.4 2.0 2.3

Bloomberg LICHF IN


M. Cap. (INR b)/(USD b) 146 / 3


1,6,12 Rel Perf. (%) 13/-3/8

C–74January 2013




Operating Income 5,538 6,410 7,378 8,393 8,351 9,157 9,890 11,368 27,425 38,766

Other Income 64 49 36 77 39 135 100 98 521 372

Total income 5,603 6,459 7,414 8,470 8,390 9,292 9,990 11,466 27,946 39,139

YoY Growth (%) 39.6 34.9 39.9 44.6 49.8 43.9 34.7 35.4 41.3 40.1


Net Income 3,443 3,870 4,264 5,166 4,916 5,394 6,014 7,279 16,743 23,602



YoY Growth (%) 25.5 15.0 22.8 45.0 56.6 51.8 48.3 48.5 29.0 50.7

Provisions 561 373 494 142 854 836 850 615 1,570 3,155


Tax Provisions 491 661 756 1,144 784 914 1,088 1,556 3,051 4,341

Net Profit 1,022 1,355 1,547 2,277 1,610 1,876 2,209 3,119 6,202 8,815

YoY Growth (%) 37.7 16.3 33.5 45.4 57.6 38.4 42.8 37.0 33.9 42.1

AUM growth (%) 38.9 40.7 40.1 36.2 37.9 34.3 30.9 27.6 36.2 27.6

Borrowings growth (%) 49.2 51.1 49.5 44.3 44.8 38.9 27.0 27.1 44.3 27.1


Provisions/Operating Profits (%) 27.1 15.6 17.7 4.0 26.3 23.1 20.5 11.6 14.5 19.3

Tax Rate (%) 32.4 32.8 32.8 33.4 32.8 32.7 33.0 33.3 33.0 33.0

E: MOSL Estimates

M & M Financial ServicesCMP: INR1,127 Buy

MMFS continues to ride high on its multi-product strategy and strong

rural focus. Healthy growth momentum in the CV, used vehicle and

car segments is likely to sustain on the back of the festive season

gone by. AUM is likely to grow at a healthy pace of 30%+.

Margins are likely to remain healthy. Some improvement in margins

is expected due to the seasonal nature of the business. In 2QFY13,

calculated NIM stood at 9.5%.

Asset quality is expected to remain healthy. As at September 2012,

GNPAs were 3.9% and NNPAs were 1.4%.

During the quarter, the company successfully raised INR8.7b through

QIP to fund its future growth. The benefit of the same in terms of

margins should accrue in the next quarter.



Business growth momentum, as the company has been growing its

AUM at 30%+ for the past 10 quarters.

Margin trends, as wholesale rates have started to cool off.



NII 16.2 23.2 28.9 35.2

PPP 10.8 16.3 20.4 24.9

PAT 6.2 8.8 11.1 13.5

EPS (INR) 60.4 78.4 98.5 119.8

EPS Gr. (%) 33.6 29.8 25.6 21.6

BV/Share (INR) 287.4 397.3 469.8 558.1

RoA on AUM (%) 3.5 3.8 3.8 3.7

RoE (%) 22.8 23.8 22.7 23.3

Payout (%) 23.2 22.5 22.5 22.5

Valuation

P/E (x) 18.7 14.4 11.4 9.4

P/BV (x) 3.9 2.8 2.4 2.0

Div. Yield (%) 1.2 1.6 2.0 2.4

Bloomberg MMFS IN


M. Cap. (INR b)/(USD b) 116 / 2


1,6,12 Rel Perf. (%) 11/62/64

C–75January 2013





Interest Income 35,965 38,011 41,965 42,208 42,872 44,146 45,560 46,930 158,149 179,507



% Change (YoY) -3.7 -8.1 10.7 5.4 10.6 16.9 9.3 25.8 0.9 15.6

Other Income 3,238 2,774 2,953 3,438 4,084 4,068 3,898 4,432 12,402 16,482

Net Income 13,421 12,669 14,352 14,119 15,343 15,639 16,361 17,870 54,560 65,212



% Change (YoY) -2.5 -5.9 6.9 -10.6 11.9 21.5 16.5 36.3 -3.2 21.3



Tax Provisions 1,324 1,051 920 -453 1,730 1,592 1,236 1,468 2,842 6,026

Net Profit 3,547 1,677 3,542 2,649 3,914 3,022 3,260 3,864 11,416 14,060

% Change (YoY) -2.4 -57.8 -13.2 -20.6 10.4 80.2 -8.0 45.9 -24.0 23.2


NIM (Rep, %) 2.9 2.6 2.9 2.7 2.8 2.8 2.8

NIM (Cal,%) 2.7 2.6 2.9 2.7 2.7 2.7 2.8 2.9 2.7 2.7

Deposit Growth (%) 17.5 18.9 20.8 12.2 9.4 9.8 9.3 16.0 12.2 16.0

Loan Growth (%) 14.1 20.7 21.9 16.7 16.0 12.5 11.7 14.9 16.7 14.9

CASA Ratio (%) 23.4 22.9 22.3 24.1 24.0 24.1 24.1

Tax Rate (%) 27.2 38.5 20.6 -20.6 30.7 34.5 27.5 27.5 19.9 30.0

Asset Quality

OSRL (INR b) 36.6 41.2 60.9 95.1 109.5 114.8 95.1

OSRL (%) 3.7 3.9 5.5 8.4 9.6 9.7 8.4

Gross NPA (INR b) 20.3 31.1 32.3 35.8 33.8 34.7 36.4 37.4 35.8 37.4

Gross NPA (%) 2.1 3.0 2.9 3.2 3.0 2.9 2.9 2.9 3.2 2.9

E: MOSL Estimates

Oriental Bank of CommerceCMP: INR336 Buy

Business growth is likely to remain healthy at 4% QoQ. However, on a

YoY basis, business growth is expected to be below industry average,

led by the bank's strategy to de-bulk the balance sheet.

Shedding of bulk deposits (22% as at the end of 2QFY13 v/s 30%+ in

3QFY12) and re-pricing of deposits at lower rates would buoy margins.

We expect ~10bp QoQ expansion in margins.

We model in slippages of INR7b-7.5b, similar to 2QFY13 levels.

However, restructured loans could increase on account of SEBs (which

are yet to be restructured) and stress in the large corporate segment.

Provisions are likely to increase 35% YoY, led by higher provisions on

restructured loans. PAT is expected to decline 8% YoY.

The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 7x FY13E and



Performance on net slippages and restructured loans

Margin movement

The bank's guidance on balance sheet growth


NII 42.2 48.7 59.2 69.4

OP 31.4 38.1 44.8 52.5

NP 11.4 14.1 16.7 19.5

NIM (%) 2.7 2.7 2.8 2.8

EPS (INR) 39.1 48.2 57.3 66.7

EPS Growth (%) -24.0 23.2 18.9 16.5

BV/Sh. (INR) 379.9 416.8 460.7 511.8

RoE (%) 10.7 12.1 13.1 13.7

RoA (%) 0.7 0.7 0.7 0.7

Payout (%) 20.2 20.0 20.0 20.0

Valuations

P/E (x) 8.6 7.0 5.9 5.0

P/BV (x) 0.9 0.8 0.7 0.7

P/ABV (x) 1.0 0.9 0.8 0.7

Div. Yield (%) 2.3 2.9 3.4 4.0

Bloomberg OBC IN




1,6,12 Rel Perf. (%) 3/21/35

C–76January 2013




Interest Income 28,480 30,740 32,130 35,890 39,000 41,300 42,333 43,993 127,240 166,625



YoY Gr (%) 15.4 20.5 18.5 45.8 40.8 36.6 39.0 29.7 24.5 45.8

Other Income 350 80 240 530 90 160 200 225 1,200 675

Net Operational Income 10,250 10,880 11,210 12,820 14,030 14,910 15,452 16,166 45,160 60,557

YoY Gr (%) 11.1 16.5 17.1 50.6 36.9 37.0 37.8 26.1 23.2 34.1

Exchange gain/(loss) -750 -5,040 4,210 200 -770 -240 -600 -590 -1,380 -2,200

Total Net Income 9,500 5,840 15,420 13,020 13,260 14,670 14,852 15,576 43,780 58,357

YoY Gr (%) 10.3 -41.6 64.7 48.6 39.6 151.2 -3.7 19.6 19.2 33.3


YoY Gr (%) N.M. -10.8 0.0 32.0 5.8 6.2 34.5 12.2 32.5 14.8

% to Income 2.8 5.7 1.9 3.1 2.2 2.4 2.6 2.9 3.0 2.5


YoY Gr (%) 7.3 -42.8 66.8 49.2 40.6 159.9 -4.4 19.9 18.8 33.9

Provisions 70 0 390 960 20 -30 1,250 966 1,420 2,206

PBT 9,160 5,510 14,740 11,651 12,954 14,350 13,212 14,151 41,066 54,666

Tax 2,298 1,320 3,660 3,455 3,240 3,978 3,501 3,768 10,733 14,486

Tax Rate (%) 25.1 24.0 24.8 29.7 25.0 27.7 26.5 26.6 26.1 26.5

PAT 6,862 4,190 11,080 8,196 9,714 10,372 9,710 10,383 30,333 40,179

YoY Gr (%) 5.1 -40.2 68.1 35.2 41.6 147.5 -12.4 26.7 15.8 32.5

Adjusted PAT (For Forex) 7,424 8,023 7,915 8,055 10,292 10,545 10,151 10,816 31,417 41,804

YoY Gr (%) 6.0 22.9 17.4 37.1 38.6 31.4 28.3 34.3 20.1 33.1

E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

Power Finance CorporationCMP: INR198 Buy

Loan growth is expected to remain healthy at ~24% YoY. On a sequential

basis, loans and borrowings are likely to grow ~4% and ~5%,

respectively.

Margins are likely to remain stable QoQ, as wholesale rates have come

off substantially. As a result, NII is expected to grow by ~39% YoY and

3% QoQ.

We expect MTM loss of INR600m in 3QFY13 (due to higher proportion

of unhedged foreign currency borrowings), as compared with INR1b

booked during 1HFY13.

Asset quality is a key monitorable, given the uncertain macro

environment. Besides, POWF has decided to make standard asset

provisions as per the roadmap submitted to GoI. Consequently, we

model in total provisions of ~INR1.25b.

The stock trades at 1.1x FY13E and 1x FY14E BV. Maintain Buy .


Growth trends against the backdrop of challenging macro

environment.

Asset quality performance.

Guidance on how standard asset provisioning will be routed in

following quarters.


NII 41.1 59.9 69.7 82.3

PPP 42.5 56.9 66.5 79.0

Adj. PAT 31.5 41.8 48.1 56.5

Adj. EPS (INR) 23.9 31.7 36.4 42.8

EPS Gr. (%) 3.9 32.5 15.0 17.5

BV/Share (INR) 157.5 179.1 204.0 233.4

RoAA (%) 2.6 2.8 2.8 2.8

RoE (%) 17.5 18.8 19.0 19.6

Payout (%) 26.1 25.0 25.0 25.0

Valuation

P/E (x) 8.3 6.3 5.4 4.6

P/BV (x) 1.3 1.1 1.0 0.8

Div. Yield (%) 3.0 3.8 4.4 5.2

Bloomberg POWF IN


M. Cap. (INR b)/(USD b) 261 / 5


1,6,12 Rel Perf. (%) 6/0/23

C–77January 2013




Interest Income 83,152 89,520 94,810 96,798 105,450 104,211 105,444 107,076 364,280 422,182



% Change (YoY) 19.9 16.0 10.4 9.3 18.6 5.7 8.3 22.7 13.6 13.6

Other Income 10,837 8,889 9,541 12,760 11,660 9,054 10,051 12,351 42,026 43,116

Net Income 41,990 43,414 44,907 45,859 48,611 45,548 48,358 52,977 176,175 195,493



% Change (YoY) 17.9 20.4 13.9 17.1 14.8 0.2 1.8 4.2 17.2 5.1



Tax Provisions 4,753 6,124 5,803 4,848 5,627 3,935 4,523 5,339 21,528 19,424

Net Profit 11,051 12,050 11,501 14,241 12,457 10,656 11,075 13,368 48,847 47,555

% Change (YoY) 3.4 12.1 5.5 18.6 12.7 -11.6 -3.7 -6.1 10.2 -2.6


NIM (Rep, %) 3.8 4.0 3.9 3.5 3.6 3.5 3.8

NIM (Cal, %) 3.6 3.9 3.8 3.3 3.5 3.4 3.4 3.4 3.5 3.3

Deposit Growth (%) 26.9 25.0 23.4 21.3 18.9 17.3 16.9 16.0 21.3 16.0

Loan Growth (%) 23.4 19.3 18.7 21.3 21.2 18.4 17.9 17.0 21.3 17.0

CASA Ratio (%) 38.1 37.1 36.2 36.2 35.6 0.0 36.2

Tax Rate (%) 30.1 33.7 33.5 25.4 31.1 27.0 29.0 28.5 30.6 29.0

Asset Quality

OSRL (INR B) 114.2 137.4 155.5 230.6 240.5 259.0 230.6

OSRL (%) 4.7 5.5 5.9 7.9 8.2 8.8 7.9

Gross NPA (INR B) 48.9 51.5 64.4 87.2 99.9 140.2 161.5 182.5 87.2 182.5

Gross NPA (%) 2.0 2.1 2.4 2.9 3.3 4.7 5.1 5.2 2.9 5.2

E: MOSL Es timates, Yearly numbers vary with full year number on account of r eclassification

Punjab National BankCMP: INR845 Buy

On a YoY basis, loan growth is expected to remain above industry

average at 18%, and deposit growth is expected to be largely in line

with loan growth at 17%.

On a sequential basis, margins are expected improve marginally to

3.5%+, led by sharp decline in net slippages (lower interest income

reversals). However, pressure on yield on loans is expected to

continue, which will contain margin expansion.

Though on a sequential basis, slippages are expected to decline, they

would remain at an elevated level (annualized slippage ratio of 4.5%+).

Traction in recoveries and upgradations would be a critical factor for

asset quality performance.

The stock trades at 0.9x FY13E and 0.8x FY14E BV, and at 6x FY13E and 5x

FY14E EPS. Buy.


Management commentary about asset quality.

Balance sheet growth and management guidance.

CASA ratio, as it has been declining in the last few quarters (except in

2QFY13).


NII 134.1 152.4 177.6 205.4

OP 106.1 111.6 130.6 155.0

NP 48.8 47.6 57.8 68.8

NIM (%) 3.5 3.3 3.3 3.3

EPS (INR) 144.0 140.2 170.4 202.9

EPS Gr. (%) 2.9 -2.6 21.5 19.1

BV/Sh. (INR) 777 894 1,035 1,203

RoE (%) 21.1 16.8 17.7 18.1

RoA (%) 1.2 1.0 1.0 1.0

Payout (%) 15.3 15.0 15.0 15.0

Valuations

P/E(X) 5.9 6.0 5.0 4.2

P/BV (X) 1.1 0.9 0.8 0.7

P/ABV (X) 1.2 1.2 1.0 0.9

Div. Yield (%) 2.6 2.5 3.0 3.6

Bloomberg PNB IN


M. Cap. (INR b)/(USD b) 287 / 5


1,6,12 Rel Perf. (%) 10/-6/-17

C–78January 2013





YoY Gr (%) 17.3 21.7 18.5 19.5 28.1 34.8 27.1 27.4 19.3 29.3

Other Operational Income 393 288 136 595 717 514 200 255 736 1,686

Net Operational Income 9,490 9,784 10,188 10,803 12,372 13,316 12,978 13,259 39,588 51,924

YoY Gr (%) 18.9 19.4 12.6 22.2 30.4 36.1 27.4 22.7 16.2 31.2

Other Income 136 -988 1,221 145 -133 79 300 354 1,189 600

Total Net Income 9,625 8,796 11,408 10,948 12,239 13,394 13,278 13,613 40,777 52,524

YoY Gr (%) 16.3 0.6 21.4 9.2 27.2 52.3 16.4 24.3 11.9 28.8


YoY Gr (%) 22.2 13.3 101.6 19.7 8.7 34.2 -15.2 20.2 38.7 7.8

% to Income 4.4 5.0 6.8 6.1 3.7 4.4 5.0 5.9 5.7 4.8


YoY Gr (%) 16.1 0.0 17.9 8.6 28.0 53.2 18.7 24.6 10.6 30.1

Op. Profit adj. forex gain /loss 9,278 9,616 9,763 10,341 11,924 13,009 12,804 13,707 38,999 81,164

YoY Gr (%) 16.9 18.9 8.6 16.2 28.5 35.3 31.1 32.6 15.0 108.1

Provisions 250 0 241 32 0 0 350 350 523 700

PBT 8,956 8,360 10,389 10,245 11,784 12,809 12,268 12,457 37,929 49,318

YoY Gr (%) 12.9 0.0 15.2 8.3 31.6 53.2 18.1 21.6 9.1 30.0

Tax 2,338 2,118 2,693 2,618 3,016 3,270 3,190 3,356 9,758 12,823

Tax Rate (%) 26.1 25.3 25.9 25.6 25.6 25.5 26.0 26.9 25.7 26.0

PAT 6,619 6,243 7,695 7,627 8,767 9,539 9,078 9,101 28,170 36,495

YoY Gr (%) 12.7 1.0 15.9 8.9 32.5 52.8 18.0 19.3 9.6 29.6

Adjusted PAT 6,672 7,180 7,054 7,675 9,046 9,643 9,226 9,237 28,580 37,152

YoY Gr (%) 13.5 20.1 6.5 16.5 35.6 34.3 30.8 20.4 14.0 30.0

E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

Rural Electrification CorpCMP: INR239 Buy

Loan growth is likely to remain healthy at 20%+. We model in loan

growth of ~21% YoY and ~3% QoQ.

Over the past two quarters, RECL's margins have expanded by more

than 50bp, led by improvement in yields and its tight leash on cost of

funds. However, in the current quarter, we expect margins to moderate

by ~18bp QoQ to 4.5%.

We are factoring in MTM loss of INR200m for 3QFY13 v/s INR140m in

2QFY13 and INR514m in 1HFY13.

Asset quality has remained healthy, but will remain a key monitorable,

given the uncertain macro environment. We conservatively model in

higher provisions (INR350m).

While POWF has announced that it will make standard asset provisions

from 2HFY13, RECL's strategy on the same should be watched for.



Growth trends and asset quality performance against the backdrop

of challenging macro environment.

Guidance for making standard asset provisions based on the roadmap

submitted to GoI.


NII 38.9 50.2 57.8 68.3

PPP 38.5 50.0 57.1 67.3

PAT 28.2 36.5 41.5 49.1

EPS (INR) 28.6 37.0 42.0 49.7

EPS Gr. (%) 10.1 29.4 13.7 18.3

BV/Share (INR) 149.2 175.6 204.8 239.3

RoAA (%) 3.0 3.2 3.1 3.1

RoE (%) 20.5 22.8 22.1 22.4

Payout (%) 26.3 24.4 26.2 26.2

Valuation

P/E (x) 8.4 6.5 5.7 4.8

P/BV (x) 1.6 1.4 1.2 1.0

Div. Yield (%) 3.1 3.8 4.6 5.4

Bloomberg RECL IN


M. Cap. (INR b)/(USD b) 236 / 4


1,6,12 Rel Perf. (%) 6/16/40

C–79January 2013


Quaterly Performance (INR Million)



Interest Income 8,368 9,675 9,458 9,158 8,876 10,946 12,314 12,652 35,581 44,788

Interest expenses 5,714 6,153 6,347 6,259 6,173 6,859 7,407 7,940 23,950 28,379


YoY Growth (%) -15.1 -4.4 -23.2 -10.6 1.8 16.0 57.8 62.5 -17.0 41.1

Securitization income 5,167 4,825 4,927 5,157 5,323 4,590 4,176 4,765 20,075 18,854

Net Income (Incl. Securitization) 7,821 8,347 8,038 8,056 8,025 8,678 9,082 9,478 31,707 35,263

YoY Growth (%) 16.0 19.3 4.5 5.4 2.6 4.0 13.0 17.7 9.5 11.2

Fees and Other Income 477 258 294 255 702 314 340 340 2,423 1,696

Net Operating Income 8,297 8,605 8,331 8,311 8,727 8,991 9,422 9,818 34,130 36,959

YoY Growth (%) 16.8 19.0 5.7 6.3 5.2 4.5 13.1 18.1 11.2 8.3



YoY Growth (%) 18.3 20.4 5.5 4.1 2.5 4.4 13.7 16.6 13.0 9.0

Provisions 1,420 2,363 1,920 1,918 2,026 2,106 2,050 2,174 7,683 8,356


Tax Provisions 1,727 1,460 1,518 1,530 1,543 1,638 1,722 1,765 6,235 6,667

Net Profit 3,473 2,994 3,027 3,081 3,219 3,376 3,577 3,676 12,574 13,847

YoY Growth (%) 20.2 0.2 0.4 -9.6 -7.3 12.7 18.2 19.3 4.5 10.1

AUM Growth (%) 22.3 19.9 16.2 11.1 13.3 15.8 16.5 18.1 11.1 18.1

Disbursement Growth (%) 20.4 5.0 -4.2 -19.7 12.2 28.6 18.9 20.2 -2.0 20.0

Securitization Inc. / Net Inc. (%) 62.3 56.1 59.1 62.0 61.0 51.1 44.3 48.5 58.8 51.0


Tax Rate (%) 33.2 32.8 33.4 33.2 32.4 32.7 32.5 32.4 33.1 32.5

E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting financial nos

Shriram Transport FinanceCMP: INR735 Buy

SHTF's asset growth moderated in FY12. However, some pick-up was

witnessed in 1HFY13. We expect AUM to grow ~16% YoY and ~4% QoQ.

Disbursements, which had grown sharply by 15% QoQ in 2QFY13, may

see some decline. We model in 5% QoQ decline.

Margins are likely to remain stable, sequentially. NII (including

securitization income) should grow 5% QoQ.

Given the uncertain macro environment, asset quality continues to

be a key monitorable.

Securitization trends will be watched keenly. We expect PAT to grow

~18% YoY and 6% QoQ.



Business growth (as some pick-up in growth was observed in 1HFY13)

and management commentary on the same.

Asset securitization.



NII 31.7 35.3 41.0 48.1

PPP 26.5 28.9 33.6 39.6

PAT 12.6 13.8 16.2 19.2

EPS (INR) 55.6 61.2 71.6 84.6

EPS Gr. (%) 4.5 10.1 17.0 18.3

B V/Sh.(INR) 264.8 317.4 378.9 451.6

RoA on AUM (%) 2.8 2.7 2.7 2.7

RoE (%) 23.1 21.0 20.6 20.4

Payout (%) 11.7 12.0 12.0 12.0

Valuation

P/E (x) 13.2 12.0 10.3 8.7

P/BV (x) 2.8 2.3 1.9 1.6

Div. Yield (%) 0.9 1.0 1.2 1.4

Bloomberg SHTF IN


M. Cap. (INR b)/(USD b) 166 / 3


1,6,12 Rel Perf. (%) 13/28/47

C–80January 2013





Interest Income 241,974 260,269 277,144 285,828 289,167 296,068 307,857 314,421 1,065,215 1,207,514



% Change (YoY) 32.8 29.2 27.3 43.8 14.6 4.7 0.0 0.3 33.1 4.5

Other Income 35,342 33,674 20,730 53,768 34,988 33,466 36,697 55,985 143,514 161,136

Net Income 132,338 138,492 135,918 169,678 146,177 143,205 151,910 172,288 576,425 613,580



% Change (YoY) 18.1 17.6 7.3 57.8 12.9 -1.6 9.7 -4.1 24.6 3.6



Tax Provisions 15,020 12,784 15,895 24,061 19,688 18,699 17,911 21,140 67,760 77,438

Net Profit 15,835 28,104 32,630 40,503 37,516 36,581 34,924 41,299 117,073 150,320

% Change (YoY) -45.7 12.4 15.4 N.A. 136.9 30.2 7.0 2.0 41.7 28.4


NIM (Reported, %) 3.6 3.8 4.1 3.9 3.6 3.3 3.9

NIM (Cal, %) 3.7 3.9 4.1 4.0 3.7 3.5 3.5 3.4 3.8 3.4

Deposit Growth (%) 16.5 13.8 13.9 11.7 16.1 16.5 16.7 17.0 11.7 17.0

Loan Growth (%) 18.0 16.1 16.5 14.7 18.9 17.2 15.0 18.0 14.7 18.0

Domestic CD Ratio (%) 76.7 75.8 78.6 78.5 77.8 76.6 78.5

CASA Ratio (%) 47.8 47.4 47.5 46.6 46.1 45.0 46.6

Tax Rate (%) 48.7 31.3 32.8 37.3 34.4 33.8 33.9 33.9 36.7 34.0

Asset Quality

OSRL (INR B) 289 277 261 312 295 328 312

OSRL (%) 3.8 3.5 3.1 3.6 3.2 3.5 3.6

Gross NPA (INR B) 278 339 401 397 472 492 523 564 397 564

Gross NPA (%) 3.5 4.2 4.6 4.4 5.0 5.2 5.2 5.3 4.4 5.3

State Bank of IndiaCMP: INR2,389 Buy

While on a sequential basis, loan growth is expected to be strong at 4-

5%, on a YoY basis, it is likely to be below industry average at 15%.

Strong traction in CASA and fall in bulk deposit 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

5% QoQ, but on a higher base, it would be flat 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 2QFY13, gross slippages

stood at INR71b (annualized slippage ratio of 3.6%).

Adjusted for the value of Insurance (INR107/share), the stock trades at

1.1x FY14E consolidated BV and 7.2x FY14E consolidated EPS. Buy .


Trend in slippages and recoveries.

Restructured loans and outlook on the same.

Growth and margin outlook.


NII 432.9 452.4 521.0 606.4

OP 315.7 326.9 372.4 445.0

NP 117.1 150.3 171.9 204.1

NIM (%) 3.8 3.4 3.4 3.3

Cons EPS (INR) 228.6 281.2 318.5 382.4

EPS Gr. (%) 35.9 23.0 13.2 20.1

Cons. BV (INR) 1,541 1,774 2,039 2,357

RoE (%) 16.0 17.2 17.2 17.8

RoA (%) 0.9 1.0 1.0 1.0

Payout (%) 23.4 21.3 21.0 21.2

Valuations

Cons. P/E (x) 10.1 8.1 7.2 6.0

Cons. P/BV (x) 1.5 1.3 1.1 1.0

Cons P/ABV (x) 1.7 1.6 1.5 1.3

Div. Yield (%) 1.5 1.7 1.9 2.3

Bloomberg SBIN IN


M. Cap. (INR b)/(USD b) 1,603 / 29

52-Week Range (INR) 2,475/1,590

1,6,12 Rel Perf. (%) 11/-1/24

C–81January 2013




Interest Income 49,157 51,104 53,747 57,434 60,699 61,098 62,190 62,970 211,443 246,957



% Change (YoY) 18.0 8.2 10.2 9.3 14.6 11.4 7.6 10.6 11.1 10.9

Other Income 4,840 5,009 5,921 7,554 4,912 5,458 5,830 6,596 23,324 22,796

Net Income 20,742 21,621 23,730 26,320 23,129 23,960 24,989 27,351 92,413 99,429



% Change (YoY) 11.7 6.6 1.8 83.9 8.7 5.6 2.0 -9.4 22.0 0.8



Tax Provisions 2,730 2,297 1,144 3,085 2,370 2,310 2,483 2,608 9,256 9,771

Net Profit 4,644 3,524 1,970 7,732 5,116 5,546 5,793 6,075 17,871 22,529

% Change (YoY) -22.8 16.2 -66.0 29.4 10.2 57.3 194.0 -21.4 -14.2 26.1


NIM (Reported,%) 3.1 3.2 3.3 3.3 3.0 3.0 3.3

NIM (Cal, %) 3.0 3.2 3.3 3.2 3.0 3.0 3.0 3.1 3.0 2.9

Deposit Growth (%) 16.4 10.0 10.0 10.1 11.5 15.6 15.6 15.0 10.1 15.0

Loan Growth (%) 16.7 16.5 16.8 18.3 19.5 20.0 17.1 14.7 18.3 14.7

CASA Ratio (%) 31.5 32.1 32.5 31.3 30.9 30.5 31.3

Asset Quality

OSRL - Facilitywise (INR b) 24.1 23.2 39.3 74.7 84.2 83.2 74.7

OSRL (%) 1.7 1.6 2.5 4.1 4.8 4.7 4.1

Gross NPA (INR b) 37.5 51.4 52.1 54.5 65.4 64.7 66.2 67.6 54.5 67.6

Gross NPA (%) 2.6 3.5 3.3 3.0 3.8 3.7 3.6 3.3 3.0 3.3

E: MOSL Estimates

Union Bank of IndiaCMP: INR270 Buy

We expect loan growth to be in line with the industry average of ~17%.

Deposit growth would be healthy at 15%+ YoY (on a lower base).

Margins are expected to remain largely stable at ~3%.

In the last few quarters, fee income growth has improved significantly.

However, on a higher base, we expect fee income to be flat YoY.

Slippages are expected to be contained at INR8b (annualized slippage

ratio of 2.1%). This coupled with healthy upgradations and recoveries

will keep net slippages under check.

At the end of 2QFY13, the management had guided restructuring of

INR26-30b in 2HFY13. Increase in restructured loan portfolio would be

an important thing to watch for.

The stock trades at 1x FY13E and 0.9x FY14E BV, and at 6.6x FY13E and



Margin movement.

Gross slippages and movement in restructured loans

Traction in recoveries and upgradations.


NII 92.4 99.4 118.5 138.2

OP 27.1 32.3 42.1 49.8

NP 17.9 22.5 28.6 33.9

NIM (%) 3.0 2.9 3.0 3.0

EPS (INR) 32.3 40.7 51.8 61.3

EPS Gr. (%) -18.5 26.2 27.2 18.3

BV/Sh. (INR) 235.9 266.2 304.6 351.6

RoE (%) 14.8 16.2 18.1 18.7

RoA (%) 0.7 0.8 0.9 0.9

Payout (%) 24.8 22.0 22.0 22.0

Valuations

P/E(X) 8.4 6.6 5.2 4.4

P/BV (X) 1.1 1.0 0.9 0.8

P/ABV (X) 1.3 1.2 1.0 0.9

Div. Yield (%) 3.0 3.3 4.2 4.5

Bloomberg UNBK IN


M. Cap. (INR b)/(USD b) 149 / 3


1,6,12 Rel Perf. (%) 13/16/43

C–82January 2013





Interest Income 13,995 14,387 16,841 17,851 18,863 19,864 20,672 21,434 63,074 80,834



% Change (Y-o-Y) 35.1 23.1 32.3 28.6 33.3 35.9 34.7 32.4 29.6 34.0

Other Income 1,653 2,141 2,114 2,664 2,881 2,768 2,950 3,454 8,571 12,054

Net Income 5,195 5,997 6,390 7,146 7,603 8,009 8,708 9,388 24,728 33,710



% Change (Y-o-Y) 30.6 37.1 28.1 23.4 41.4 25.6 34.3 33.9 29.4 33.5

Other Provisions 15 379 224 285 300 317 500 605 902 1,723


Tax Provisions 1,075 1,130 1,224 1,301 1,395 1,469 1,578 1,681 4,730 6,122

Net Profit 2,161 2,350 2,541 2,718 2,901 3,061 3,277 3,475 9,770 12,716

% Change (Y-o-Y) 38.2 33.3 32.9 33.6 34.3 30.2 29.0 27.9 34.4 30.2


NIM (Reported,%) 2.8 2.9 2.8 2.8 2.8 2.9 2.8

NIM (Cal, %) 2.7 2.9 2.9 2.8 2.8 2.9 3.1 3.0 2.6 2.8

Deposit Growth (%) 44.1 10.2 18.9 7.0 15.2 18.6 15.9 16.0 7.0 16.0

Loan Growth (%) 26.1 12.7 15.3 10.5 16.4 22.9 20.7 18.0 10.5 18.0

CASA Ratio (%) 10.9 11.0 12.6 15.0 16.3 17.3 15.0

Tax Rate (%) 33.2 32.5 32.5 32.4 32.5 32.4 32.5 32.6 32.6 32.5

Asset Quality

Gross NPA (INR B) 0.6 0.7 0.7 0.8 1.1 1.0 1.8 2.3 0.8 2.3

Gross NPA (%) 0.2 0.2 0.2 0.2 0.3 0.2 0.4 0.5 0.2 0.5

E: MOSL Estimates

Yes BankCMP: INR466 Buy

We expect loans to grow ~21% and deposits to grow ~16% YoY. The

bank's cautious stance continues, as a result of which higher growth is

expected in investment substitutes.

Increasing CASA base remains a key focus area for the bank to build its

liability franchise. CASA ratio stood at 17.3% as at the end of 2QFY13.

SA deposit growth is likely to remain healthy.

Despite higher growth in investment in credit substitutes (which are

comparatively low yielding), margins are expected to improve 10bp+,

led by fall in bulk deposit rates.

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. We conservatively factor in higher credit cost.




Margin movement and cost of funds.

Branch roll-out strategy

Treatment of one large media account

Growth in fee income streams


NII 16.2 21.7 27.7 33.8

OP 15.4 20.6 26.3 31.7

NP 9.8 12.7 15.9 19.3

NIM (%) 2.6 2.8 2.8 2.8

EPS (INR) 27.7 36.0 45.2 54.6

EPS Gr. (%) 32.1 30.2 25.4 20.8

BV/Sh. (INR) 132.5 162.2 199.4 244.4

RoE (%) 23.1 24.4 25.0 24.6

RoA (%) 1.5 1.5 1.6 1.6

Payout (%) 14.5 15.0 15.0 15.0

Valuations

P/E(X) 16.8 12.9 10.3 8.5

P/BV (X) 3.5 2.9 2.3 1.9

P/ABV (X) 3.5 2.9 2.4 1.9

Div. Yield (%) 0.9 1.2 1.5 1.8

Bloomberg YES IN


M. Cap. (INR b)/(USD b) 165 / 3


1,6,12 Rel Perf. (%) 5/25/64

C–83January 2013

December 2012 Results Preview | Sector: Healthcare

Expected quarterly performance summary (INR million)




Biocon 282 Neutral 6,152 18.9 3.8 1,300 2.0 11.6 821 -3.2 -8.4

Cadila Health 892 Buy 16,743 21.0 8.3 3,215 21.8 9.7 1,842 23.4 93.6

Cipla 416 Neutral 20,171 14.7 2.6 4,709 20.3 -13.1 3,254 20.5 -18.4

Dishman Pharma 115 Neutral 3,215 21.1 11.1 677 28.5 16.2 187 11.7 -29.7

Divis Labs 1,085 Buy 5,410 30.5 14.5 1,986 33.9 7.6 1,475 20.3 25.0

Dr Reddy’ s Labs 1,827 Buy 26,823 23.1 1.3 5,633 21.9 -3.5 3,417 42.1 1.9

Glenmark Pharma 534 Buy 12,296 25.7 0.8 2,407 50.1 1.8 1,476 1842.2 3.6

GSK Pharma 2,109 Buy 6,218 9.8 -7.0 1,713 0.4 -13.9 1,463 -0.7 -10.6

IPCA Labs. 519 Buy 7,292 18.6 -5.5 1,771 17.1 -1.0 887 38.7 -29.1

Jubiliant Life 223 Neutral 12,998 19.6 6.6 2,507 21.1 -1.7 574 LP -48.5

Lupin 614 Buy 22,566 27.4 1.9 4,165 14.0 -4.9 2,849 14.0 2.5

Opto Circuits 105 Neutral 7,297 19.4 20.2 1,904 11.3 15.2 1,374 9.7 18.2

Ranbaxy Labs 501 Neutral 28,616 34.7 16.7 3,439 69.5 11.9 2,236 43.7 -17.6

Sanofi India 2,290 Neutral 3,932 16.4 -0.9 472 19.7 -41.4 377 4.5 -26.6

Strides Arcolab 1,085 Neutral 6,697 -2.4 16.0 1,710 75.9 19.2 1,023 49.6 95.0

Sun Pharma 746 Neutral 24,757 21.5 0.7 9,409 5.7 -11.9 7,012 14.8 -15.7

Torrent Pharma 709 Buy 8,350 19.9 7.4 1,655 36.3 6.6 1,149 38.1 7.1


Hardick Bora ([email protected])

Topline to grow by 22%, EBITDA by 21% on the back of strong operationalperformance by Ranbaxy, Glenmark, Strides, Torrent and Divi'sFor 3QFY13, we expect topline growth of 22% YoY and EBITDA growth of 21% YoY for

our Pharma Universe (excluding one-offs). Adjusted PAT is likely to grow 33.5% YoY.

EBITDA growth would be mainly led by strong performance by Ranbaxy, Glenmark,

Strides and Torrent, which would witness high growth over a low base in 3QFY12.

EBITDA growth would be higher than sales growth for Cipla and Divi's, aided by

increased capacity utilization. Dr. Reddy's and Cadila too will report healthy operating

performance driven by new product launches. Operating performance would also

be partially driven by favorable currency.

Adjusted PAT growth at 33.5% would be higher than EBITDA growth, mainly because

of high forex losses in 3QFY12 on account of appreciation of the INR v/s the USD.

3QFY13 aggregates excluding one-offs

Healthcare Universe YoY Growth (%) EBITDA Margin Net Profit Margin

Aggregates Sales EBITDA Adj. PAT Dec-12 Dec-11 Chg.(bp) Dec-12 Dec-11 Chg.(bp)

MNC Pharma 12.3 4.0 0.3 26.2 24.6 164 20.2 21.8 -164

Big 4 Generics 23.9 19.1 24.7 26.3 22.4 384 19.3 16.4 284

CRAMS 22.3 26.7 267.1 25.1 24.5 63 12.9 10.7 221

Second Tier generics 20.5 26.1 42.1 20.3 20.8 -48 11.6 10.8 81

Sector Aggregate 21.8 21.0 33.5 24.0 22.3 169 15.9 14.2 163

Note: Above numbers exclude one-offs to facilitate comparison of core operations. Big-4

Generics include Ranbaxy, Cipla, Dr Reddy's and Sun.

HealthcareCompanies Covered

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

Note: Historic numbers exclude upside from one-off opportunities

C–84January 2013


Core 3QFY13 performance: Key highlights Ranbaxy, Glenmark, Strides, Torrent and Divi's to record strong operational

improvement: We expect Ranbaxy, Glenmark, Strides, Torrent and Divi's to record

strong EBITDA growth for 3QFY13. We attribute the following company-specific

reasons for this performance:

1. Ranbaxy: We expect Ranbaxy to report healthy growth in EBITDA on a very low

base. In 3QFY12, the company had reported 20%, 38% and 8.5% decline in US

(excluding one-offs), LatAm and CIS, with core sales flat YoY. EBITDA was lower

due to adverse product mix, higher R&D expenditure and payment made

towards Teva.

2. Glenmark: Glenmark's performance would be driven by strong topline growth

in US generics, SRM branded formulations and favorable currency. EBITDA and

PAT growth would be faster than topline growth on a low base in 3QFY12.

3. Strides: We expect strong EBITDA growth of 75% YoY, led by higher contribution

from the high-margin specialty business.

4. Divi's: Divi's strong operational performance would be led by healthy topline

growth due to increased order execution and ramp-up in new Vizag SEZ.

Growth would be partially driven by favorable currency, as Divi's does not

hedge its exports.

5. Torrent: We expect strong EBITDA growth, led by low base in 3QFY12, which

was impacted by (a) adverse product mix in international business, (b) higher

overheads in domestic formulations, (c) forex loss of INR180m, and (d)

withdrawal of DEPB benefits.

6. Sun Pharma: We expect muted EBITDA growth due to high base in 3QFY13,

when Taro had reported strong performance by taking price increases in its

dermatology portfolio.

7. GSK Pharma: We expect flat growth in EBITDA due to high base in 4QCY11.

CRAMS companies to report strong operational performance: We expect Divi's

and Dishman to report strong operational performance on low base, new order

inflows and favorable currency.

Sector viewGenerics

Emerging markets to help improve profitability gradually from 2013.

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, 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 from FY13.

Top picks: Divi's Laboratories.

C–85January 2013


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.

National Pharmaceutical Pricing Policy, 2012The government released National Pharmaceutical Pricing Policy (NPPP), 2012 in the

public domain. Below are the key highlights:

Pricing methodology: All strengths and dosages specified in the National List of

Essential Medicines (NLEM) 2011 will be under price control. Ceiling Prices (CP)

will be fixed on the basis of market-based data (MBD). Formula for computing CP

is simple average price of all brands having MS (Moving Annual Turnover) of 1% or

more. Manufacturers will be free to fix any price for their products equal to or

below CP.

Annual price increases: Automatic annual price adjustment (up or down) linked

to WPI for NLEM products allowed. CP will be revised every five years or as and

when the NLEM is updated / revised. However, if there is a significant change in

the market structure of a product, the government will revise the CP even earlier.

CP will also apply to imported drugs under the NLEM. Annual price increase of up

to 10% for non-NLEM drugs allowed (this is allowed even currently).

Combinations outside the purview of price control: It seems that combination

drugs have been kept outside the purview of price control, as the policy states

that "the Span of Price Control shall be as per the dosages and strengths as listed

in NLEM 2011". This implies that all combinations that are outside the NLEM will

not be subjected to price controls. We await final confirmation of this from the

industry.

Existing DPCO drugs: Prices of existing DPCO products not in NLEM 2011 would be

frozen for one year, and thereafter, an increase of up to 10% per annum will be

allowed. This will be a key positive for MNCs over the long term.

New combinations: Any new combination of NLEM+NLEM or NLEM+Non-NLEM

will require price approval by the government. Any addition to NLEM 2011 by the

Ministry of Health will come under price control. The Department of

Pharmaceuticals will monitor production and availability of NLEM products.

Original research products having product/process patents and NDDS products

exempted from price control for five years.

We await detailed feedback from the industry. While the policy has also been approved

by the cabinet, there is a fair probability that this proposed policy can be challenged

in the Supreme Court by the proponents of cost-based price control, including some

NGOs. A hearing on one of the petitions is scheduled during the second week of

January 2013.

C–86January 2013


Impact

Among home-grown 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 home-grown pharma companies, Cipla, Cadila and Ranbaxy

have high exposure to anti-infectives. For the remaining companies, the impact is

likely to be moderate. Actual impact on these companies may vary depending on

their positioning/pricing policy for each drug.

We maintain our stance that MNCs like GSK Pharma will be adversely impacted in

the short term, given its premium pricing policy and reasonably high NLEM

coverage. We also believe that Indian players like Ranbaxy, Cipla and Cadila may

be more adversely impacted relative to other Indian companies. However, since

WPI-linked price increases are allowed, companies with strong brand equity (like

GSK Pharma) will be able to recoup the adverse impact of the policy in the long

term. Also MNCs will benefit in the long term, as existing DPCO drugs come out of

price control and a 10% annual price increase on them is allowed.

Preliminary impact assessment

Both AIOCD and IMS Health had released their preliminary assessments of the impact

of the policy on various companies some weeks ago. While we wait for fresh

assessments from them post the NPPP-12 announcement, we present below their

initial assessment (released in November 2012) and the consequential impact on

earnings of key companies:

New Pharma Policy - Impact on companies

Company AIOCD IMS Health

Sales loss FY14E EPS (INR) % Chg Sales loss FY14E EPS (INR) % Chg

(INR m) Current Revised in EPS (INR m) Current Revised in EPS

GSK Pharma 2,806 91.1 68.2 -25 1,680 91.1 77.4 -15

Ranbaxy 1,414 23.1 20.4 -12 1,430 23.1 20.4 -12

Cadila 1,325 47.5 42.7 -10 690 47.5 45.0 -5

Cipla 1,677 19.5 17.9 -8 890 19.5 18.7 -4

Dr. Reddy's 995 103.9 99.3 -4 N/A N/A N/A N/A

Sun Pharma 505 29.2 28.8 -1 420 91.1 87.7 -4

Lupin 261 31.1 30.7 -1 N/A N/A N/A N/A

Glenmark 0 26.1 26.1 0 N/A N/A N/A N/A

IPCA 331 38.7 36.7 -5 N/A N/A N/A N/A

Torrent Pharma 219 57.8 55.8 -3 N/A N/A N/A N/A

Biocon 36 18.1 18.0 -1 N/A N/A N/A N/A

Source: AIOCD, IMS Health & MOSL estimates

Note - Above calculations are not confirmed by respective companies. Also they do not

include the +ve impact of existing DPCO drugs coming out of price control

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. The impact table above does not take into account this possibility.

C–87January 2013


Spate of acquisitions during the quarter3QFY13 saw three major acquisition announcements by Sun Pharma and Cipla. While

these acquisitions may not immediately add to earnings, we consider them to be

long-term growth catalysts for the respective acquirers. Below is a summary of these

acquisitions:

1. Sun Pharma has acquired DUSA Pharmaceutical, USA for a cash consideration of

~USD230m, implying a valuation of 5x DUSA's CY11 sales and 20x EBITDA. The

company had reported revenue of USD45m for CY11, with PAT of USD7.3m.

DUSA has US FDA's NDA approval to market its dermatology product, Aminolevulinic

Acid HCL, for the treatment of moderate inflammatory acne vulgaris and general

dermatological conditions. DUSA seems to be a technologically driven company

with access to certain proprietary technologies.

We do not expect any major financial upside for Sun Pharma from this acquisition

in the near term, given the small size of the acquired company. While the valuation

offered seems to be rich, Sun Pharma intends to strengthen its presence in the

dermatology segment by unlocking the latent value in this proprietary franchise.

2. Cipla has proposed to acquire Cipla Medpro South Africa (CMSA) for USD220m,

valuing Cipla-Medpro at an EV of 7.7x CY12E EBITDA and 6.8x CY13E EBITDA based

on Bloomberg consensus estimates for CMSA. For CY11, it had reported revenue

of USD244m, EBITDA of USD74m (EBITDA margin of 30.4%) and PAT of USD50m. This

proposed acquisition will require various government and other approvals.

CMSA is one of South Africa's top-10 pharmaceutical groups. The Group's

operations comprise of two divisions: (1) selling chronic and OTC medicines to the

public and private sector, and (2) contract manufacturing services.

We expect a minor 3-4% upgrade in our FY14 EPS estimate for Cipla if the CMSA

acquisition goes through. However, we note that intangibles of USD170m-180m

account for almost 50% of CMSA's balance sheet, which will reflect on Cipla's

balance sheet.

3. Caraco (Sun Pharma's US subsidiary) to acquire URL Pharma based in US (subject

to regulatory approvals) from Takeda Pharma for an undisclosed amount. URL's

overall business includes its star brand - Colcrys - which remains with Takeda

while the rest of the business has been acquired by Caraco.

Takeda's past press releases indicate that Colcrys generates USD450m-470m in

annual sales out of URL's total revenue of ~USD600m. This implies that the acquired

generic business is likely to have annual revenue of USD130m-150m. This business

is likely to be a mix of normal generics and some potential low-competition

products.

Takeda had paid USD800m (1.33x CY11 sales) for acquiring the entire business

(including both branded and generic products) in June 2012 and has now divested

the generic business in favor of Caraco. We believe that URL's generic product

portfolio will be mostly non-overlapping with that of Sun Pharma.

C–88January 2013


Key launches in US - Hits and MissesThe quarter ended December saw some interesting developments in terms of generic

launches in the US. While Lupin was able to capitalize on the Tricor opportunity by

launching its own generic version, Ranbaxy and Dr Reddy's saw some delays in product

approvals.

Hits and Misses

Generic Brand Indication US sales Competition

name equivalent (USD m)

Hits Fenofibrate Tricor Cholesterol 1,300 None

tablets, 145mg & 48mg lowering agent

Ethinyl Estradiol & Yasmin Oral contraceptive 275 Teva, Watson,

Drospirenone, 0.03mg/3mg tablets Sandoz

Miss Valsartan Diovan Novartis 1,900 NA

Source: MOSL Research

Hits

Lupin launches generic Tricor…

Lupin launched its generic version of Tricor (Fenofibrate tablets, 145mg & 48mg) on 20

November 2012. Tricor generates ~USD1.26b of sales annually in the US.

Currently, there are no other players in the market. Biovail (Valeant) has product

approval (FTF filing on 48mg) but has not yet launched. Teva had an FTF filing on the

145mg dosage but has not launched failing timely approval. Other players that have

indicated a potential launch in the past include Impax, Ranbaxy and Wockhardt, none

of whom have received approval from the FDA. We also expect an authorized generic

launch for the product.

This will be a low-competition opportunity for Lupin but may not be sustainable in

the long term, as more players enter the market. Assuming a three-player market

(Lupin, AzG and innovator) for the next two months, we estimate a one-time PAT

upside of USD25m-30m for Lupin. This upside can reduce if other players are able to

enter the market before January 2013.

…receives approval for generic Yasmin

Further, Lupin also received final approval for its generic version of Yasmin. The product

currently generates annual revenue of ~USD275m.

Teva, Watson and Sandoz have already launched their generic versions of this product

between 2008 and 2011. Lupin will be the fourth player to enter the market. We do not

expect any significant price erosion due to Lupin's entry, given that it is a low-

competition market.

We expect incremental upside for Lupin from this launch, as gaining market share in

the US OC market is a time-consuming process. We expect it to generate revenue of

USD3m-5m from this opportunity in FY13 and USD20m-25m in FY14.

C–89January 2013


Misses

Ranbaxy's generic Diovan yet to be launched

Although Ranbaxy has exclusive rights for marketing the generic version of Diovan, it

is late by over three months in launching the drug due to pending FDA approval.

Consequently, Mylan had sued the FDA in the first week of October 2012 for not

revoking Ranbaxy's exclusivity and allowing another generic player in the market.

However, a federal court dismissed Mylan's lawsuit in the last week of December

2012, rejecting its argument against the FDA.

While this is a positive development for Ranbaxy, there is still no certainty as to when

the company will capitalize on this opportunity. The market will look forward to the

management's comments in this regard during the 4QCY12 earnings call.

Diovan generates USD1.9b in sales from the US for Novartis. If successfully launched,

we expect this opportunity to generate one-off sales of ~USD190m for Ranbaxy over

the exclusivity period. We also expect Novartis to introduce an authorized generic

version through its generic unit, Sandoz.

Delay in product approval for Dr Reddy's

We also expected Dr Reddy's to receive a couple of product approvals during the

quarter. These were opportunities of relatively smaller market size but with limited

competition. We believe these will come in 4QFY13.

Recent appreciation of the INR will reverse forex losses for many companiesThe INR has depreciated ~4% against the USD, since both 31st December 2011 and 30th

September 2012. This depreciation is likely to partially reverse the forex gains recorded

by many pharma companies in 2QFY13. Some of the companies where such reversals

will result in significant negative impact on profits are: (1) Ranbaxy, (2) IPCA, (3)

Glenmark, (4) Jubilant Life Sciences and (5) Dishman. However, the expected loss will

be less than the loss reported in 3QFY12, when the INR had depreciated by more than

9% over that quarter.

Currency movement

Source: Bloomberg

43

46

49

52

55

58

Sep

-11

Oct

-11

Nov

-11

De

c-11

Jan

-12

Jan

-12

Feb

-12

Mar

-12

Mar

-12

Apr

-12

May

-12

Jun

-12

Jun

-12

Jul-

12

Au

g-12

Au

g-12

Sep

-12

Oct

-12

Nov

-12

De

c-12

De

c-12

INR/USD

C–90January 2013





Healthcare

Biocon 282 Neutral 17.0 17.2 19.7 16.6 16.4 14.3 9.1 8.2 6.9 13.1 12.5 13.1

Cadila Health 892 Buy 33.1 47.5 56.8 27.0 18.8 15.7 15.4 12.2 10.2 23.8 27.8 26.9

Cipla 416 Neutral 16.5 19.5 22.5 25.1 21.3 18.5 14.9 14.3 12.3 15.1 15.7 16.0

Dishman Pharma 115 Neutral 12.3 15.7 18.6 9.3 7.3 6.2 6.4 5.3 4.6 10.3 11.8 12.6

Divis Labs 1,085 Buy 50.2 61.3 74.2 21.6 17.7 14.6 15.8 12.5 10.1 28.6 29.3 29.6

Dr Reddy’ s Labs 1,827 Buy 89.2 103.7 121.0 20.5 17.6 15.1 14.2 13.6 11.8 22.6 23.0 23.4

Glenmark Pharma 534 Buy 17.2 26.0 31.4 31.0 20.5 17.0 15.7 13.4 11.1 16.5 20.1 19.6

GSK Pharma 2,109 Buy 78.5 91.1 103.0 26.8 23.2 20.5 20.4 17.3 14.9 33.0 34.3 34.4

IPCA Labs. 519 Buy 27.3 39.7 46.1 19.0 13.1 11.2 11.1 9.2 7.8 24.8 28.9 26.9

Jubiliant Life 223 Neutral 19.2 33.3 38.1 11.6 6.7 5.9 6.6 5.5 4.5 12.4 18.8 18.4

Lupin 614 Buy 24.1 31.1 37.3 25.5 19.7 16.4 16.4 13.6 11.1 24.3 26.1 26.0

Opto Circuits 105 Neutral 21.5 25.4 30.3 4.9 4.1 3.5 4.4 3.5 2.8 27.7 27.0 26.5

Ranbaxy Labs 501 Neutral 20.6 22.3 27.3 24.3 22.4 18.3 11.2 15.6 13.1 30.8 15.9 16.9

Sanofi India 2,290 Neutral 73.6 87.2 101.6 31.1 26.3 22.5 21.6 18.3 15.5 14.4 15.8 16.9

Strides Arcolab 1,085 Neutral 38.6 61.0 87.1 28.1 17.8 12.5 13.9 10.9 8.5 13.5 15.2 18.6

Sun Pharma 746 Neutral 28.0 29.2 33.1 26.6 25.5 22.5 16.4 17.0 14.6 22.1 20.0 19.6

Torrent Pharma 709 Buy 47.8 58.2 67.7 14.8 12.2 10.5 9.8 7.7 6.5 29.9 29.0 27.2



96

99

102

105

108


Sens ex IndexMOSL Hea l th care Index

95

110

125

140

De

c-1

1

Feb

-12

Apr

-12

Jun

-12

Au

g-12

Oct

-12

De

c-1

2

Sens ex IndexMOSL Hea l th care Index

C–91January 2013


Consolidated Quarterly Performance (INR Million)



Net Sales 4,417 5,084 5,172 6,102 5,767 5,924 6,152 6,508 20,865 24,350

YoY Change (%) -33.3 -25.1 -29.0 -13.0 30.6 16.5 18.9 6.6 -24.7 16.7


EBITDA 1,204 1,334 1,274 1,546 1,227 1,165 1,300 1,383 5,174 5,075

Margins (%) 27.2 26.2 24.6 25.3 21.3 19.7 21.1 21.3 24.8 20.8

Depreciation 451 429 434 431 427 446 462 470 1,744 1,806

Interest 57 20 29 30 32 11 26 36 122 106

Other Income 123 160 150 13 159 495 215 208 618 1,077

PBT 820 1,045 961 1,099 927 1,203 1,026 1,084 3,926 4,240

Tax 119 188 113 121 137 304 205 202 541 848

Rate (%) 14.6 18.0 11.8 11.0 14.8 25.3 20.0 18.6 13.8 20.0

Minority Interest 0 0 0 0 2 3 0 -5 0 0

PAT 701 857 848 978 788 896 821 887 3,384 3,392

YoY Change (%) -8.7 -3.9 -15.8 -3.0 12.5 4.6 -3.2 -9.2 518.6 0.2

Margins (%) 15.9 16.9 16.4 16.0 13.7 15.1 13.3 13.6 16.2 13.9

Licensing income 140 365 292 463 139 0 200 206 1,253 545

YoY Change (%) -33.3 58.7 -62.0 35.4 -0.7 -100.0 -31.4 -55.6 -19.2 -56.5

Contract research 880 928 1,120 1,180 1,224 1,291 1,333 1,483 4,101 5,331

YoY Change (%) 22.2 19.0 42.1 32.3 39.1 39.1 19.0 25.7 29.0 30.0

E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements

BioconCMP: INR282 Neutral

We expect Biocon's 3QFY13 topline to grow 19% YoY to INR6.15b,

mainly on the back of (1) 23% growth in Biopharma revenue, and (2)

19% growth in Contract Research revenue. Licensing income is likely

to decline 31% YoY to INR200m.

EBITDA would grow just 2% YoY to INR1.3b and EBITDA margin would

shrink 350bp to 21% due to lower licensing income and increased R&D

spending on the biogenerics pipeline.

We expect adjusted PAT to decline 3% YoY to INR821m on account of

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 till FY15, 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 by BMS. The stock trades at 16.4x FY14E and 14.3x FY15E

earnings. Return ratios are likely to remain subdued, with both RoE and

RoCE in the 13-14% range during FY13-15. Maintain Neutral.


Update on initiatives to out-license Anti-CD6 along with further

insights on the agreement with BMS for IN-105.

Ramp-up in Fidoxomicin bulk supplies to Europe; timeline for

commencement of Atorvastatin bulk supplies to the US.


Sa les 20.9 24.4 26.8 30.5

EBITDA 5.2 5.1 5.9 6.8

Net Profit 3.4 3.4 3.5 4.0

Adj. EPS (INR) 16.9 17.0 17.2 19.7

EPS Gr. (%) 518.6 0.2 1.2 14.6

BV/Sh. (INR) 113.6 129.6 141.0 154.2

RoE (%) 14.9 13.1 12.5 13.1

RoCE (%) 13.0 12.6 12.9 14.0

Payout (%) 34.3 35.1 36.1 36.1

Valuation

P/E (x) 16.7 16.6 16.4 14.3

P/BV (x) 2.5 2.2 2.0 1.8

EV/EBITDA (x) 9.3 9.1 8.2 6.9

Div. Yield (%) 1.8 1.8 1.9 2.2

Bloomberg BIOS IN




1,6,12 Rel Perf. (%) -3/9/-15

C–92January 2013





Net Revenues 12,457 12,450 13,832 13,980 15,486 15,459 16,743 17,138 52,633 64,828

YoY Change (%) 9.9 11.5 18.6 15.3 24.3 24.2 21.0 22.6 13.7 23.2


EBITDA 3,024 2,757 2,640 2,828 3,419 2,930 3,215 3,470 11,248 13,035

Margins (%) 24.3 22.1 19.1 20.2 22.1 19.0 19.2 20.2 21.4 20.1

Depreciation 347 375 465 391 434 432 478 494 1,579 1,839

Interest 189 255 276 350 301 272 303 312 1,069 1,188

Other Income 140 -790 -160 151 -21 -692 120 145 -658 -448

PBT after EO Income 2,628 1,337 1,739 2,238 2,663 1,534 2,554 2,809 7,942 9,560

Tax 285 235 174 436 654 494 638 700 1,130 2,486

Rate (%) 10.9 17.6 10.0 19.5 24.5 32.2 25.0 24.9 14.2 26.0

Min. Int/Adj on Consol 45 75 74 93 61 88 74 77 286 300

Reported PAT 2,298 1,027 1,492 1,709 1,948 951 1,842 2,032 6,526 6,774

Adj PAT 1,433 1,027 1,492 1,709 1,948 951 1,842 2,032 5,660 6,774

YoY Change (%) -11.9 -39.9 -7.9 23.9 36.0 -7.3 23.4 18.9 -10.6 19.7

Margins (%) 11.5 8.2 10.8 12.2 12.6 6.2 11.0 11.9 10.8 10.4

Adj PAT incl one-offs 2,298 1,027 1,492 1,709 1,948 951 1,842 2,032 6,526 6,774

E: MOSL Estimates

Cadila HealthcareCMP: INR892 Buy

We expect Cadila Healthcare's (CDH) 3QFY13 topline to grow 21% YoY

to INR16.74b, led by 34% YoY growth in the domestic formulations

business and 12.5% YoY growth in the formulations export business.

While the acquisition of Biochem would drive growth in domestic

formulations, growth in the formulations export business would be

subdued due to high base effect and one-off income from Nycomed

in 3QFY12.

We expect EBITDA to grow 22% YoY to INR3.2b. EBITDA margin is likely

to remain flat YoY at 19%.

Adjusted PAT would grow 23.4% YoY to INR1.84b, aided by the low

base of 3QFY12, when PAT was impacted by forex losses of INR318m.

However, higher tax rate would restrict further growth.

Over FY12-15, we estimate 27% EPS CAGR for core operations (excluding

one-offs), and RoCE of 28% and RoE of ~27%. Sustaining double-digit growth

without diluting return ratios has been CDH's key USP over the past few

years. We expect strong earnings growth trajectory given (1) its strong

product pipeline which includes many niche therapeutic categories, (2)

presence in key geographies, and (3) strong growth expected in revenue

from various JVs. US and Brazil sales should improve in 2HFY13, led by

new launches in the US and normalization of operations in Brazil. Stock

trades at 18.8x FY14E and 15.7x FY15E consolidated EPS. Maintain Buy.


Update on US FDA approval of products from the Moraiya facility.

Growth in domestic formulations excluding Biochem acquisition.

View on expected impact from the implementation of the National

Pharmaceutical Pricing Policy (NPPP), 2012.


Sa les 52.6 64.8 75.3 86.6

EBITDA 11.2 13.0 16.3 19.1

Net Profit 5.7 6.8 9.7 11.6

Adj. EPS (INR) 27.6 33.1 47.5 56.8

EPS Gr. (%) -10.6 19.7 43.5 19.6

BV/Sh. (INR) 125.9 152.2 188.9 232.8

RoE (%) 27.5 23.8 27.8 26.9

RoCE (%) 22.8 21.8 26.6 28.1

Payout (%) 21.6 23.8 25.4 25.4

Valuation

P/E (x) 32.3 27.0 18.8 15.7

P/BV (x) 7.1 5.9 4.7 3.8

EV/EBITDA (x) 17.6 15.4 12.2 10.2

Div. Yield (%) 0.7 0.8 1.2 1.4

Bloomberg CDH IN


M. Cap. (INR b)/(USD b) 183 / 3


1,6,12 Rel Perf. (%) 6/3/14

C–93January 2013





Net Revenues 15,914 17,780 17,580 18,530 19,582 21,919 20,171 20,001 70,207 81,672

YoY Change (%) 7.5 10.1 13.2 11.2 23.0 23.3 14.7 7.9 11.2 16.3


EBITDA 3,695 4,376 3,915 4,200 5,399 6,770 4,709 4,652 16,589 21,529

Margins (%) 23.2 24.6 22.3 22.7 27.6 30.9 23.3 23.3 23.6 26.4

Depreciation 703 656 757 1,006 728 740 781 876 3,122 3,125

Interest 43 24 32 22 11 54 7 3 383 75

Other Income 249 243 302 390 531 641 360 183 1,395 1,716


Tax 666 850 727 794 1,182 1,618 1,027 984 3,036 4,811

Rate (%) 20.8 21.6 21.2 22.3 22.8 24.4 24.0 24.9 21.0 24.0

Reported PAT 2,533 3,090 2,699 2,767 4,008 5,000 3,254 2,974 11,442 15,235

Adj PAT 2,533 3,090 2,699 2,577 3,057 3,987 3,254 2,974 11,252 13,270

YoY Change (%) -1.6 17.5 16.0 20.3 20.7 29.0 20.5 15.4 16.3 17.9

Margins (%) 15.9 17.4 15.4 13.9 15.6 18.2 16.1 14.9 16.0 16.2

Domestic formulation sales 7,202 8,208 8,457 7,182 9,388 9,332 9,771 8,317 31,048 36,808

YoY Change (%) 8.9 9.8 17.5 12.3 30.4 13.7 15.5 15.8 12.2 18.6

Other operating income 411 462 465 498 408 460 496 438 1,730 1,802

YoY Change (%) -21.6 30.2 -11.0 13.2 -0.7 -0.5 6.5 -12.1 -6.1 4.1

E: MOSL Estimates

CiplaCMP: INR416 Neutral

Cipla's topline for 3QFY13 is likely to grow 15% YoY to INR20.17b. The

domestic formulations business would grow 15.5% YoY to INR9.77b

while exports would grow 14% YoY to INR9.9b, driven by 15% YoY growth

in formulation exports to INR8.1b.

EBITDA would grow 20% YoY to INR4.71. EBITDA margin is likely to

expand 100bp YoY to 23.3%, led by lower other expenses on the back

of improving capacity utilization at Indore SEZ and favorable currency.

We expect adjusted PAT to grow 20.5% YoY to INR3.25b. PAT growth

would be led by healthy operational performance, lower interest and

depreciation costs, but restricted by higher tax rate.

Cipla continues to face short-term headwinds in ramping up its formulation

exports business despite a favorable currency. Its muted export

performance raises uncertainty on the timelines of ramp-up at Indore SEZ

(although this facility has been recently approved by US FDA). 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). Based on our revised

estimates, the stock trades at 21.3x FY14E and 18.5x FY15E EPS. Neutral.


Update on launch of inhalers in Europe.

Timeline for completion of Cipla Medpro acquisition; expected

contribution from the South African AIDS drug contract.




Sa les 70.2 81.7 89.4 102.6

EBITDA 16.6 21.5 22.1 25.4

Net Profit 11.3 13.3 15.7 18.1

Adj. EPS (INR) 14.0 16.5 19.5 22.5

EPS Gr. (%) 16.3 17.9 17.9 15.4

BV/Sh. (INR) 95.0 109.3 123.9 140.8

RoE (%) 14.7 15.1 15.7 16.0

RoCE (%) 18.8 22.6 20.9 21.6

Payout (%) 24.6 25.0 25.0 25.0

Valuation

P/E (x) 29.7 25.1 21.3 18.5

P/BV (x) 4.4 3.8 3.4 3.0

EV/EBITDA (x) 20.1 15.5 15.1 13.1

Div. Yield (%) 0.7 1.0 1.0 1.2

Bloomberg CIPLA IN


M. Cap. (INR b)/(USD b) 334 / 6


1,6,12 Rel Perf. (%) 4/21/8

C–94January 2013





Net Sales 2,372 2,692 2,655 3,502 3,153 2,893 3,215 3,561 11,221 12,822

YoY Change (%) 17.5 26.5 14.5 1.7 32.9 7.4 21.1 1.7 13.2 14.3


EBITDA 437 471 526 825 836 582 677 722 2,225 2,817

Margins (%) 18.4 17.5 19.8 23.5 26.5 20.1 21.0 20.3 19.8 22.0

Depreciation 187 207 191 180 193 204 214 227 765 839

Interest 137 150 164 218 231 132 210 250 729 824

Other Income 56 -183 89 95 26 91 35 33 150 185

PBT after EO Income 169 -70 260 522 438 337 287 277 880 1,338

Tax 17 -7 93 208 50 71 101 113 312 335

Rate (%) 10.4 9.3 35.7 39.9 11.5 21.1 35.0 40.7 35.4 25.0

Reported PAT 151 -64 167 313 387 266 187 164 568 1,004

Adj PAT 151 -64 167 313 387 266 187 164 568 1,004

YoY Change (%) -44.3 -121.6 859.7 36.4 156.1 11.7 -47.6 -30.1 76.6

Margins (%) 6.4 -2.4 6.3 8.9 12.3 9.2 5.8 4.6 5.1 7.8

CRAMS - India Sales 840 626 668 1,044 640 770 838 850 3,178 3,099

YoY Change (%) 56.9 -10.0 -15.1 19.6 -23.7 23.0 25.4 -18.6 9.9 -2.5

Carbogen AMCIS Sales 748 1,062 1,023 1,154 1,330 1,114 1,267 1,162 3,987 4,872

YoY Change (%) -16.1 16.4 28.7 9.1 77.8 4.9 23.8 0.7 9.0 22.2

E: MOSL Estimates

Dishman PharmaCMP: INR115 Neutral

We expect Dishman Pharmaceuticals' (DISH) revenue to grow 21% YoY

to INR3.2b in 3QFY13, partially led by favorable currency. The CRAMS

business is likely to grow 24.5% YoY boosted mainly by strong

performance in CarbogenAMCIS and CRAMS supplies from Indian

facilities. Revenue from CarbogenAMCIS would grow 24% YoY while

MM business would grow 15% YoY.

EBITDA is likely to grow 28% YoY to INR677m. EBITDA margin would

expand 120bp YoY to 21% due to better product mix, with lower share

of QUATs business and favorable currency.

The company is likely to report net profit of INR187m, up 12% YoY. PAT

growth will be lower than EBITDA growth due to lower other income

(forex gain of INR81m in 3QFY12).

We believe DISH'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. The stock currently trades at 7.3x FY14E and 6.2x FY15E

earnings. RoCE will continue to be subdued till new facilities and CRAMS

contracts ramp up. Maintain Neutral.


Ramp-up at High Potency (HIPO) facility commissioned in FY13.

Update on Gemcitabine supplies to Abbott; current order size.

Recovery at CarbogenAMCIS, which witnessed a turnaround this

financial year.


Sa les 11.2 12.8 14.8 16.7

EBITDA 2.2 2.8 3.3 3.6

Net Profit 0.6 1.0 1.3 1.5

Adj. EPS (INR) 7.0 12.3 15.7 18.6

EPS Gr. (%) -30.2 76.6 27.2 18.7

BV/Sh. (INR) 115.5 126.7 140.9 157.8

RoE (%) 6.3 10.3 11.8 12.6

RoCE (%) 8.9 11.4 12.6 13.5

Payout (%) 0.0 0.0 0.0 0.0

Valuation

P/E (x) 16.4 9.3 7.3 6.2

P/BV (x) 1.0 0.9 0.8 0.7

EV/EBITDA (x) 8.2 6.4 5.3 4.6

Div. Yield (%) 1.0 0.9 1.2 1.4

Bloomberg DISH IN




1,6,12 Rel Perf. (%) -2/64/178

C–95January 2013





Net Op Revenue 3,586 3,541 4,147 7,080 4,684 4,726 5,410 8,203 18,586 23,023

YoY Change (%) 36.1 38.7 33.9 47.9 30.6 33.5 30.5 15.9 42.2 23.9


EBITDA 1,277 1,262 1,484 2,829 1,904 1,846 1,986 3,080 6,850 8,817

Margins (%) 35.6 35.6 35.8 40.0 40.7 39.1 36.7 37.6 36.9 38.3

Depreciation 140 152 162 166 175 188 211 253 621 827

Interest 2 6 2 27 4 3 10 17 37 34

Other Income 164 227 284 78 418 -112 175 219 615 699

PBT 1,299 1,332 1,604 2,714 2,143 1,544 1,940 3,029 6,806 8,656

Tax 273 257 341 566 469 364 466 692 1,474 1,991

Deferred Tax 1 14 38 0 0 0 0 0 0 0

Rate (%) 21.0 20.4 23.6 20.9 21.9 23.6 24.0 22.8 21.7 23.0

Reported PAT 1,026 1,061 1,226 2,148 1,674 1,180 1,475 2,337 5,333 6,665

Adj PAT 1,026 1,061 1,226 2,148 1,674 1,180 1,475 2,337 5,333 6,665

YoY Change (%) 22.5 47.4 24.5 22.9 63.2 11.2 20.3 8.8 24.2 25.0

Margins (%) 28.6 30.0 29.6 30.3 35.7 25.0 27.3 28.5 28.7 28.9

CCS Revenues 1,757 1,650 1,831 3,682 2,148 2,268 2,681 3,966 8,921 11,062

YoY Change (%) 42.6 49.3 26.8 58.9 22.2 37.5 46.4 7.7 46.3 24.0

Carotenoid Revenues 140 240 200 230 210 250 255 266 810 981

YoY Change (%) -17.6 100.0 33.3 27.1 50.0 4.2 27.5 15.6 30.4 21.1

E: MOSL Estimates; Quarterly financials from 1QFY12 are on stand-alone basis while annual financials are on consolidated basis

Divi's LaboratoriesCMP: INR1,085 Buy

Divi's Laboratories (DIVI) is likely to post 30.5% YoY increase in 3QFY13

revenue to INR5.4b on new order inflows. The CCS business would

grow 46% YoY while the API business is likely to grow 17% YoY.

Carotenoids revenue would grow 27.5% YoY.

EBITDA is likely to grow 34% YoY to INR1.99b, led by strong revenue

growth and better sales mix. EBITDA margin would expand 90bp.

We expect adjusted PAT to grow 20% YoY to INR1.47b. PAT growth

would be lower than EBITDA growth YoY mainly due to absence of

forex gains (for 3QFY12, the company had recorded forex gains of

INR160m).

We expect DIVI to be a key beneficiary of the increased pharmaceutical

outsourcing from India, given its strong relationships with global

innovators and strong chemistry skills. We estimate 36-38% RoCE and 29-

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 17.7x FY14E and 14.6x

FY15E earnings. Maintain Buy.


Ramp-up at Vizag SEZ and timeline for its US FDA inspection.

Impact of increased power cost (in Andhra Pradesh) on profitability.

Revenue contribution from carotenoids and guidance for the full year.


Sa les 18.6 23.0 28.8 34.5

EBITDA 6.8 8.8 11.0 13.2

Net Profit 5.3 6.7 8.1 9.8

Adj. EPS (INR) 40.2 50.2 61.3 74.2

EPS Gr. (%) 24.1 25.0 22.1 20.9

BV/Sh. (INR) 160.6 191.0 228.2 273.2

RoE (%) 27.1 28.6 29.3 29.6

RoCE (%) 34.1 36.3 37.4 37.9

Payout (%) 37.6 39.4 39.3 39.3

Valuation

P/E (x) 27.0 21.6 17.7 14.6

P/BV (x) 6.8 5.7 4.8 4.0

EV/EBITDA (x) 21.1 16.3 13.1 10.9

Div. Yield (%) 1.2 1.6 1.9 2.3

Bloomberg DIVI IN


M. Cap. (INR b)/(USD b) 144 / 3


1,6,12 Rel Perf. (%) -10/-5/20

C–96January 2013


Quarterly Performance - IFRS (INR Million)



Gross Sales 19,783 22,679 27,692 26,583 25,406 28,809 26,823 27,653 96,737 108,691

YoY Change (%) 17.5 21.3 45.9 31.8 28.4 27.0 -3.1 4.0 29.5 12.4


EBITDA 3,835 4,799 8,689 6,416 4,996 6,909 5,633 5,505 23,740 23,042

Margins (%) 19.4 21.2 31.4 24.1 19.7 24.0 21.0 19.9 24.5 21.2

Amortization 1,233 1,268 1,307 2,444 1,296 2,064 1,467 1,550 6,254 6,377

Other Income 144 178 365 292 25 796 330 54 979 1,205


Tax 120 631 2,616 837 365 1,567 1,079 921 4,204 3,932

Rate (%) 4.4 17.0 33.8 19.6 9.8 27.8 24.0 23.0 22.8 22.0

Net Profit 2,626 3,078 5,131 3,427 3,360 4,074 3,988 4,372 14,261 15,795

One-off/low-competition PAT in US 363 393 2,726 1,372 1,031 720 571 1,284 4,854 3,607

Adjusted PAT 2,263 2,685 2,405 2,055 2,329 3,354 3,417 3,088 9,408 12,188

YoY Change (%) 47.6 9.3 0.8 -3.5 2.9 24.9 42.1 50.3 10.6 29.5

Margins (%) 11.4 11.8 8.7 7.7 9.2 11.6 12.7 11.2 9.7 11.2

US Sales 5,756 6,287 11,114 8,732 7,920 9,270 7,092 7,955 31,889 32,237

YoY Change (%) 47.7 42.4 133.2 47.5 37.6 47.4 -36.2 -8.9 67.9 1.1

Branded formualtion sales 6,751 7,732 7,747 7,865 8,968 9,056 9,166 9,178 30,095 36,368

YoY Change (%) 11.0 12.3 15.6 26.0 32.8 17.1 18.3 16.7 16.1 20.8

E: MOSL Estimates; Note-Estimates do not include one-off upsides.

Dr Reddy's LaboratoriesCMP: INR1,827 Buy

We expect Dr Reddy's Laboratories (DRRD) to post 23% YoY growth in

core revenue (excluding one-off sales) for 3QFY13 to INR26.82b. This

would be led by 36% YoY growth in core US revenue and 22.5% YoY

growth in the international branded formulations segment. PSAI

business revenue is likely to grow 32% YoY.

Core EBITDA would grow just 22% YoY to INR5.63b driven by revenue

growth. We expect core EBITDA margin to stand flat YoY at 21%.

Adjusted PAT would be INR3.42b, up 42% YoY - higher than the growth

in EBITDA due to lower tax rate. Including the contribution from one-

off opportunities, we expect PAT to decline 22% YoY to INR3.99b.

Traction in the US, branded formulations and PSAI businesses would be

the key growth drivers for DRRD for FY13. We believe that with strong

growth visibility for FY13, the stock is poised to give reasonable returns.

While there are concerns about the likely muted growth for FY14 (given

the adverse impact of patent cliff for DRRD's US and PSAI businesses), we

believe that these are already discounted in current valuations. The stock

trades at 17.6x FY14E and 15.1x FY15E core earnings. Maintain Buy.


Market share in generic versions of Lipitor and Toprol-XL.

Outlook on growth drivers in FY14, for both generics and PSAI

businesses.




Sa les 96.7 108.7 116.8 132.9

EBITDA 23.7 23.0 24.2 27.8

Net Profit 12.1 15.1 17.6 20.5

Adj. EPS (INR) 71.4 89.2 103.7 121.0

EPS Gr. (%) 8.8 24.9 16.3 16.7

BV/Sh. (INR) 338.7 394.9 450.2 516.3

RoE (%) 21.1 22.6 23.0 23.4

RoCE (%) 20.3 17.4 17.0 19.2

Payout (%) 29.2 29.2 29.2 29.2

Valuation

P/E (x) 25.6 20.5 17.6 15.1

P/BV (x) 5.4 4.6 4.1 3.5

EV/EBITDA (x) 13.6 14.2 13.6 11.8

Div. Yield (%) 1.0 1.2 1.4 1.7

Bloomberg DRRD IN


M. Cap. (INR b)/(USD b) 309 / 6

52-Week Range (INR) 1,913/1,528

1,6,12 Rel Perf. (%) 0/0/-6

C–97January 2013



Y/E December CY11 CY12 CY11 CY12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Net Sales 6,029 5,615 6,076 5,660 6,228 6,520 6,685 6,218 23,380 25,650

YoY Change (%) 11.4 12.8 4.4 15.4 3.3 16.1 10.0 9.8 10.7 9.7


EBITDA 2,109 1,870 1,760 1,706 1,957 2,028 1,989 1,713 7,445 7,687

Margins (%) 35.0 33.3 29.0 30.1 31.4 31.1 29.8 27.5 31.8 30.0

Depreciation 44 49 49 61 41 43 48 62 204 195

Interest 0 0 0 3 0 0 0 0 3 0

Other Income 580 421 441 535 804 479 479 457 1,978 2,219

PBT before EO Expense 2,645 2,242 2,152 2,177 2,720 2,464 2,419 2,108 9,216 9,711

Tax 782 725 692 703 863 768 783 645 2,902 3,059

Rate (%) 29.6 32.3 32.2 32.3 31.7 31.2 32.4 30.6 31.5 31.5

Adjusted PAT 1,863 1,517 1,460 1,474 1,857 1,696 1,636 1,463 6,314 6,652

YoY Change (%) 15.6 8.6 -7.7 20.5 -0.3 11.8 12.1 -0.7 8.6 5.4

Margins (%) 30.9 27.0 24.0 26.0 29.8 26.0 24.5 23.5 27.0 25.9

Extra-Ord Expense 1,859 41 1 106 628 61 113 0 2,008 802

Reported PAT 5 1,475 1,459 1,367 1,229 1,635 1,523 1,463 4,306 5,850

E: MOSL Estimates

GlaxoSmithKline PharmaceuticalsCMP: INR2,109 Buy

We expect GlaxoSmithKline Pharmaceuticals (GLXO) to post 10% YoY

growth in 4QCY12 topline to INR6.22b.

EBITDA is likely to stand flat YoY to INR1.71b. EBITDA margin would

decline 260bp to 27.5% due to higher other expenses.

We expect adjusted PAT to record flat growth at INR1.46b in 4QCY12,

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. Given the high profitability of operations, we expect this

growth to lead to sustainable double-digit earnings growth and 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 (giving access to large product pipeline), brand-building

ability and likely positioning in the post patent era. It is one of the few

companies with ability to drive reasonable growth without any major

capital requirement, leading to high RoCE of 45-50%. We expect GLXO to

record EPS of INR91.1 (up 16%) for CY13 and INR103 (up 13%) for CY14. Our

estimates exclude potential adverse impact of the proposed new pharma

policy, pending implementation. Based on our current estimates, the stock

is valued at 23.2x CY13E and 20.5x CY14E earnings. Maintain Buy.


Update on product launches from the parent's portfolio.




Sa les 23.4 25.7 28.9 32.7

EBITDA 7.4 7.7 9.0 10.3

Net Profit 6.3 6.7 7.7 8.7

Adj. EPS (INR) 74.5 78.5 91.1 103.0

EPS Gr. (%) 8.6 5.4 16.0 13.1

BV/Sh. (INR) 226.7 237.9 265.4 299.0

RoE (%) 32.9 33.0 34.3 34.4

RoCE (%) 47.9 48.2 50.1 50.3

Payout (%) 68.8 72.6 68.9 66.4

Valuation

P/E (x) 28.3 26.8 23.2 20.5

P/BV (x) 9.3 8.9 7.9 7.1

EV/EBITDA (x) 21.1 20.4 17.3 14.9

Div. Yield (%) 2.1 2.4 2.6 2.8

Bloomberg GLXO IN


M. Cap. (INR b)/(USD b) 179 / 3

52-Week Range (INR) 2,338/1,876

1,6,12 Rel Perf. (%) 1/-9/-12

C–98January 2013


We expect Glenmark Pharmaceuticals (GNP) to post 26% YoY growth

in core revenue (excluding one-offs and R&D income) for 3QFY13 to

INR12.3b, led mainly by like-to-like growth of 28% in the generics

business. The branded business is likely to grow 19% YoY. We do not

expect any R&D licensing income in 3QFY13 (INR238m recorded in

3QFY12).

Core EBITDA is likely to grow 50% YoY to INR2.41b, while core EBITDA

margin will increase by 320bp YoY, mainly due to the low base of

3QFY12.

GNP is likely to report adjusted PAT of INR1.47b, against INR76m in

3QFY12, when the company had recorded MTM forex losses of

INR1.02b.

GNP is likely to start reporting the clinical data for various NCEs,

commencing with Revamilast in January 2013 and three other NCEs in

1HFY14. This will be an important news flow to track, as favorable data can

facilitate potential out-licensing deals for some of the NCEs. However,

our estimates exclude these upsides. The stock trades at 20.5x FY14E and

17x FY15E EPS. Maintain Buy.


Recognition of income from Forest Labs for mPGES-I inhibitors.

Timeline for reporting clinical data for NCE pipeline.


Pharmaceutical Pricing Policy (NPPP), 2012.Quarterly performance (INR Million)



Net Revenues (Core) 8,683 10,554 10,311 10,659 10,404 12,552 12,296 13,518 40,206 48,770

YoY Change (%) 27.4 45.7 37.3 34.5 19.8 18.9 19.3 26.8 40.6 21.3

EBITDA 2,966 2,983 2,046 1,864 2,198 2,560 2,407 3,171 9,860 10,336

Margins (%) 34.2 28.3 19.8 17.5 21.1 20.4 19.6 23.5 24.5 21.2

Depreciation 264 247 231 236 275 321 329 365 979 1,289

Interest 408 291 357 410 380 384 371 347 1,466 1,482

Other Income 125 -808 -912 377 -521 219 30 18 -1,218 -254

PBT before EO Expense 2,420 1,637 545 1,595 1,022 2,074 1,737 2,477 6,198 7,311

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 2,074 1,737 2,477 4,881 7,311

Tax 319 -238 84 73 218 477 241 320 238 1,257

Rate (%) 13.2 -74.2 15.4 4.6 21.3 23.0 13.9 12.9 4.9 17.2

Reported PAT (incl one-offs) 2,101 559 461 1,522 804 1,597 1,607 2,267 4,643 6,275


Adj PAT (excl one-offs) 1,092 745 76 1,331 506 1,424 1,476 1,485 3,244 4,892

YoY Change (%) 17.8 -24.6 -92.2 101.4 -53.6 91.3 1,842.2 11.5 -8.6 50.8

Margins (%) 12.6 7.1 0.7 12.5 4.9 11.3 12.0 11.0 8.1 10.0

US Sales 2,512 3,001 3,190 3,435 3,924 4,307 3,969 4,337 12,137 16,537

YoY Change (%) 37.2 34.1 56.3 53.1 56.2 43.5 24.4 26.3 45.3 36.3

R&D licensing income 1,112 1,185 238 0 0 0 0 736 2,535 736

YoY Change (%) 24.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 183.2 -71.0

Note: 2Q, 3Q, 4Q numbers are not comparable due to shift to IFRS accounting. 1Q numbers are comparable as per IFRS

Glenmark PharmaceuticalsCMP: INR534 Buy


Sa les 40.2 48.8 55.9 65.6

EBITDA 9.9 10.3 11.9 14.0

Net Profit 3.2 4.9 7.4 8.9

Adj. EPS (INR) 11.4 17.2 26.0 31.4

EPS Gr. (%) -8.6 50.8 51.3 20.5

BV/Sh. (INR) 88.8 109.7 136.5 168.5

RoE (%) 13.5 16.5 20.1 19.6

RoCE (%) 12.1 17.3 20.9 21.7

Payout (%) 13.6 5.2 4.7 5.1

Valuation

P/E (x) 46.8 31.0 20.5 17.0

P/BV (x) 6.0 4.9 3.9 3.2

EV/EBITDA (x) 16.4 15.7 13.4 11.1

Div. Yield (%) 0.4 0.2 0.2 0.3

Bloomberg GNP IN


M. Cap. (INR b)/(USD b) 144 / 3


1,6,12 Rel Perf. (%) 20/32/69

C–99January 2013






YoY Change (%) 26.8 20.3 31.8 13.5 19.7 23.7 18.6 19.3 24.3 18.9

EBITDA 952 1,580 1,513 1,117 1,329 1,788 1,771 1,462 5,135 6,350

Margins (%) 18.0 25.3 24.6 19.9 21.0 23.2 24.3 21.8 21.8 22.6

Depreciation 154 176 181 142 199 209 215 221 671 844

Interest 83 118 108 111 95 89 93 96 413 373

Other Income 118 -245 -359 88 -470 155 -280 61 -408 -534

PBT 832 1,042 864 952 565 1,646 1,183 1,206 3,643 4,600

Tax 215 262 225 186 135 395 296 324 881 1,150

Rate (%) 25.9 25.2 26.0 19.5 23.9 24.0 25.0 26.9 24.2 25.0

Reported PAT 617 780 639 766 430 1,251 887 882 2,762 3,450

Adj PAT 617 780 639 766 430 1,251 887 882 2,762 3,450

YoY Change (%) 58.8 -17.1 0.0 16.9 -30.3 60.5 38.7 15.1 5.3 24.9

Margins (%) 11.6 12.5 10.4 13.7 6.8 16.2 12.2 13.2 11.7 12.3

Domestic formulation 1,890 2,292 1,876 1,477 2,242 2,628 2,204 1,742 7,534 8,815

YoY Change (%) 12.3 3.3 5.7 14.7 18.6 14.6 17.5 18.0 8.2 17.0

Export formualtions 2,066 2,605 2,898 2,393 2,245 3,392 3,236 3,113 9,961 11,986

YoY Change (%) 69.3 48.8 73.4 5.2 8.7 30.2 11.7 30.1 44.0 20.3

E: MOSL Estimates

IPCA LaboratoriesCMP: INR519 Buy

We expect Ipca Laboratories' (IPCA) 3QFY13 topline to grow 18.6% YoY

to INR7.3b, led mainly by 44.5% growth in API exports. Domestic

formulations would grow 17.5% YoY, while export formulations would

grow 11.7% YoY on a high base in 3QFY12.

EBITDA is likely to grow just 17.1% YoY to INR1.77b, with a 30bp decline

in EBITDA margin to 24.3%.

We expect adjusted PAT to grow 38.7% YoY to INR887m despite slower

growth in EBITDA due to low base of 3QFY12. IPCA had reported forex

loss of INR399m in 3QFY12, against which we expect forex loss of

INR300m in 3QFY13. Lower interest cost will also aid PAT growth.

We expect significant ramp-up in IPCA's international formulations

revenue, led by 26% CAGR in US business for FY12-15 and 25% CAGR in

branded formulations exports. Domestic formulations growth is likely to

recover to 16%, while the institutional business likely to record 15% sales

CAGR. We expect IPCA to clock EPS CAGR of 28% over FY12-15 on the back

of 17% revenue CAGR, coupled with 180bp EBITDA margin expansion and

reversal of MTM forex losses. Return ratios continue to be strong, with

RoCE of ~28% and RoE of 27%, which reflect conservative management

strategy and efficient capital allocation. The stock is valued at 13.1x FY14E

EPS and 11.2x FY15E EPS. Reiterate Buy.


Update on resolution of manufacturing issues at Indore SEZ; timeline

for commencement of supplies to the US.

Continued recovery in domestic formulations business.

View on expected impact from the implementation of the NPPP 2012.


Sa les 23.6 28.0 32.5 37.7

EBITDA 5.1 6.4 7.6 8.9

Net Profit 2.8 3.4 5.0 5.8

Adj. EPS (INR) 21.9 27.3 39.7 46.1

EPS Gr. (%) 4.7 24.9 45.1 16.2

BV/Sh. (INR) 99.4 121.3 153.0 189.9

RoE (%) 24.0 24.8 28.9 26.9

RoCE (%) 24.1 25.8 30.6 30.0

Payout (%) 17.0 20.0 20.0 20.0

Valuation

P/E (x) 23.7 19.0 13.1 11.2

P/BV (x) 5.2 4.3 3.4 2.7

EV/EBITDA (x) 13.7 11.1 9.2 7.7

Div. Yield (%) 0.7 1.1 1.5 1.8

Bloomberg IPCA IN




1,6,12 Rel Perf. (%) 12/35/68

C–100January 2013





Net Sales 9,443 10,481 10,872 11,711 12,359 12,197 12,998 13,317 42,539 50,871

YoY Change (%) -3.8 6.1 25.5 31.5 30.9 16.4 19.6 13.7 23.9 19.6


EBITDA 1,820 2,361 2,071 1,812 2,693 2,550 2,507 2,308 7,992 10,058

Margins (%) 19.3 22.5 19.0 15.5 21.8 20.9 19.3 17.3 18.8 19.8

Depreciation 498 508 539 662 591 620 669 695 2,207 2,575

Interest 434 497 566 586 593 574 588 550 2,096 2,305

Other Income 37 -372 -1,507 29 -968 581 -425 163 -929 -648

PBT before EO Expense 925 984 -541 593 541 1,938 824 1,227 2,760 4,529

Extra-Ord Expense 0 0 0 820 0 0 0 0 1,620 0

PBT after EO Expense 925 984 -541 -227 541 1,938 824 1,227 1,141 4,529

Tax 152 93 89 351 389 353 165 226 519 1,132

Rate (%) 16.4 9.5 -16.4 -154.5 71.8 18.2 20.0 18.4 45.4 25.0

PAT 774 891 -630 -578 152 1,585 659 1,001 622 3,397


Reported PAT 771 794 -784 -635 50 1,520 574 911 311 3,055

Adjusted PAT 771 794 -784 476 50 1,520 574 911 2,173 3,055

YoY Change (%) 22.9 -3.3 -277.7 -22.8 -93.5 91.5 0.0 91.1 -5.4 40.6

Margins (%) 8.2 7.6 -7.2 4.1 0.4 12.5 4.4 6.8 5.1 6.0

E: MOSL Estimates

Jubilant Life SciencesCMP: INR223 Neutral

We expect healthy 19.6% YoY growth in Jubilant Organosys' (JOL)

topline to INR13b in 3QFY13, mainly driven by generic products in the

Life Sciences division.

EBITDA would grow 21% YoY to INR2.51b; EBITDA margin is likely to

expand 30bp YoY to 19.3%.

Adjusted PAT would be INR574m, compared to net loss of INR784m in

3QFY12, when JOL had reported forex loss of INR1.5b. We expect MTM

forex loss of INR500m.

We expect JOL to record 17.3% topline CAGR, 20% EBITDA CAGR, and 41%

EPS CAGR (on a low base) over FY12-15. EPS CAGR will be much higher

than EBITDA CAGR, as the company had reported a large forex loss of

INR1.6b in FY12. High debt (net debt was INR35.95b as at the end of

September 2012) continues to be our main concern area. We believe JOL

needs to restructure its balance sheet significantly for its stock to get re-

rated. We also believe that some of its past acquisitions (like Draxis) have

been made at expensive valuations, resulting in extended payback periods

and lower return ratios. High debt and low RoCE (12-16%) remain

overhangs. The stock trades at 6.7x FY14E and 5.9x FY15E EPS. We maintain

Neutral.


Update on ramp-up in Symtet facility.

Update on new product launches in APIs, Generics and Specialty

Pharma businesses.


Sa les 42.5 50.9 59.1 68.6

EBITDA 8.0 10.1 11.8 13.8

Net Profit 2.2 3.1 5.3 6.1

Adj. EPS (INR) 13.6 19.2 33.3 38.1

EPS Gr. (%) -5.4 40.6 73.6 14.5

BV/Sh. (INR) 146.3 162.5 190.8 223.2

RoE (%) 0.6 12.4 18.8 18.4

RoCE (%) 8.1 11.3 15.4 16.3

Payout (%) 381.6 15.0 15.0 15.0

Valuation

P/E (x) 16.3 11.6 6.7 5.9

P/BV (x) 1.6 1.4 1.2 1.0

EV/EBITDA (x) 8.6 6.6 5.5 4.5

Div. Yield (%) 1.3 1.1 1.9 2.2

Bloomberg JOL IN




1,6,12 Rel Perf. (%) 2/13/9

C–101January 2013


We expect Lupin's (LPC) 3QFY13 topline to grow 27% YoY to INR22.56b,

driven mainly by 43% YoY growth in Japan on the back of the I'rom

acquisition, 28% YoY growth in advanced markets (Ex-Japan) and 22%

YoY growth in formulation exports to semi-regulated markets. The

domestic formulations business is likely to report 12% YoY growth.

Core EBITDA would grow 14% YoY to INR4.16b, lower than the topline

growth, impacted by I'rom acquisition. Core EBITDA margin is likely to

decline 220bp YoY to 18.5% due to higher raw material and staff costs.

We expect adjusted PAT to grow 14% YoY to INR2.85b.

Significant internationalization without dilution of return ratios has been

LPC's key achievement over the last five years. We expect this to sustain

in future. LPC aspires to reach the USD3b revenue mark by FY15. Achieving

this target organically could be challenging (as implied topline CAGR for

FY12-15 will be 30%); however, this can be achieved through potential

acquisitions. We expect 24.3% EPS CAGR over FY12-15. The stock trades at

19.7x FY14E and 16.4x FY15E EPS. Maintain Buy.


Upside from launch of generic version of Tricor; outlook on future

launches in the US.

Improvement in profitability at I'rom.






Net Sales 15,432 16,448 17,917 18,832 22,192 22,393 22,566 22,719 69,597 89,869

YoY Change (%) 17.6 17.1 22.1 23.7 43.8 36.1 25.9 20.6 22.0 29.1


EBITDA 2,698 2,764 3,783 3,321 4,230 4,545 4,165 4,465 13,215 17,405

Margins (%) 17.5 16.8 21.1 17.6 19.1 20.3 18.5 19.7 19.0 19.4

Depreciation 471 522 576 706 654 690 712 736 2,275 2,791

Interest 58 66 86 145 101 101 122 128 355 451

Other Income 257 324 -15 489 582 657 500 551 1,376 2,290

PBT 2,426 2,499 3,106 2,960 4,058 4,412 3,831 4,152 11,961 16,453

Tax 286 441 701 1,677 1,208 1,438 920 1,042 3,086 4,607

Rate (%) 11.8 17.6 22.6 56.7 29.8 32.6 24.0 25.1 25.8 28.0

Reported PAT 2,140 2,718 2,406 1,283 2,850 2,974 3,747 3,111 10,295 12,681

Extra-Ordinary Exp/(Inc) 0 -659 0 0 0 0 0 0 659 0


Recurring PAT 2,101 2,010 2,498 499 2,098 2,779 2,849 3,038 8,677 10,765

YoY Change (%) 7.0 -6.5 11.5 -77.6 -0.1 38.3 14.0 508.9 1.1 24.1

Margins (%) 13.6 12.2 13.9 2.6 9.5 12.4 12.6 13.4 12.5 12.0

Advanced mkt formulations 7,013 7,761 9,300 11,811 11,826 10,995 12,322 13,600 35,885 48,744

YoY Change (%) 11.9 15.3 26.0 50.4 68.6 41.7 32.5 15.1 27.1 35.8

Emerging mkt formulations 6,317 6,711 6,637 6,065 8,049 8,045 8,064 8,280 25,730 32,439

YoY Change (%) 24.4 28.7 32.3 22.6 27.4 19.9 21.5 36.5 27.0 26.1

E: MOSL Estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters

LupinCMP: INR614 Buy


Sa les 69.6 89.9 103.0 119.8

EBITDA 13.2 17.4 20.9 25.3

Net Profit 8.7 10.8 13.9 16.7

Adj. EPS (INR) 19.4 24.1 31.1 37.3

EPS Gr. (%) 0.7 24.1 29.2 19.9

BV/Sh. (INR) 89.8 108.2 130.2 156.7

RoE (%) 23.8 24.3 26.1 26.0

RoCE (%) 24.6 28.3 28.9 30.9

Payout (%) 24.7 28.6 28.6 28.7

Valuation

P/E (x) 31.6 25.5 19.7 16.4

P/BV (x) 31.6 25.5 19.7 16.4

EV/EBITDA (x) 21.6 16.4 13.6 11.1

Div. Yield (%) 0.8 1.1 1.3 1.5

Bloomberg LPC IN


M. Cap. (INR b)/(USD b) 274 / 5


1,6,12 Rel Perf. (%) 4/3/23

C–102January 2013





Net Revenues 5,208 5,620 6,113 6,627 7,151 6,070 7,297 7,807 23,569 28,325

YoY Change (%) 78.4 69.6 46.4 21.7 37.3 8.0 19.4 17.8 48.6 20.2


EBITDA 1,432 1,547 1,710 1,464 1,899 1,653 1,904 1,851 6,165 7,307

Margins (%) 27.5 27.5 28.0 22.1 26.6 27.2 26.1 23.7 26.2 25.8

Depreciation 150 109 141 146 196 196 199 204 546 795

Interest 109 138 168 177 187 186 179 164 592 716

Other Income 49 -51 -42 186 27 -35 18 61 136 70

PBT before EO Income 1,222 1,248 1,359 1,328 1,544 1,235 1,544 1,543 5,162 5,866

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 1,235 1,544 1,543 5,162 5,866

Tax 57 33 109 -772 150 63 154 219 -572 587

Rate (%) 4.7 2.7 8.0 -58.1 9.7 5.1 10.0 14.2 -11.1 10.0

Min. Int/Adj on Consol 1 5 3 6 15 9 15 21 15 60

Reported PAT 1,164 1,210 1,251 2,093 1,380 1,162 1,374 1,302 5,719 5,219

Adj PAT 1,164 1,210 1,253 2,093 1,380 1,162 1,374 1,302 5,719 5,219

YoY Change (%) 40.6 56.3 30.4 90.9 18.6 -4.0 9.7 -37.8 56.2 -8.7

Margins (%) 22.4 21.5 20.5 31.6 19.3 19.1 18.8 16.7 24.3 18.4

Non Invasive sales 4,220 4,640 4,770 5,090 5,828 4,860 5,748 6,105 18,720 22,541

YoY Change (%) 99.4 100.9 56.2 23.8 38.1 4.7 20.5 19.9 61.5 20.4

Invasive sales 940 940 1,300 1,490 1,251 1,170 1,513 1,670 4,670 5,604

YoY Change (%) 25.3 4.3 24.5 19.8 33.1 24.5 16.4 12.1 18.6 20.0

E: MOSL Estimates

Opto CircuitsCMP: INR105 Neutral

We expect Opto Circuits (OPTC) to post 19.4% YoY growth in 3QFY13

revenue to INR7.3b, led by 20.5% YoY growth in the non-invasive

business. The invasive segment is likely to post 16.4% YoY growth to

INR1.5b.

EBITDA would grow 11.3% YoY to INR1.9b and EBITDA margin would

contract by 190bp, mainly due to higher manufacturing costs.

We expect OPTC to post PAT growth of 9.7% YoY to INR1.37b. Higher

tax outgo will result in PAT growth being lower than EBITDA growth.

We remain cautious on OPTC due to the high working capital requirement

(leading to low free cash flows) and potential dilution in earnings due to

proposed Eurocor fund raising. We believe the company needs to

demonstrate ability to drive strong growth despite challenges like delayed

debtor cycle and slowdown in certain markets. We note that the

management is targeting reduction in working capital. Expensing R&D

costs is also a positive step. The stock trades at 4.1x FY14E and 3.5x FY15E

EPS. Maintain Neutral.


Ramp-up in non-invasive business post slowdown in 2QFY13.

Update on receivables issue highlighted in 2QFY13.

Timeline for release of rating report by CRISIL.

Impact of new R&D accounting policy on EBITDA margin.


Sa les 23.6 28.3 33.0 38.5

EBITDA 6.2 7.3 8.5 9.7

Net Profit 5.7 5.2 6.2 7.3

Adj. EPS (INR) 23.6 21.5 25.4 30.3

EPS Gr. (%) 56.2 -8.7 18.1 18.9

BV/Sh. (INR) 70.1 85.4 103.4 124.8

RoE (%) 37.3 27.7 27.0 26.5

RoCE (%) 22.9 22.3 23.3 24.7

Payout (%) 14.8 28.9 28.9 28.9

Valuation

P/E (x) 4.4 4.9 4.1 3.5

P/BV (x) 1.5 1.2 1.0 0.8

EV/EBITDA (x) 5.5 4.4 3.5 2.8

Div. Yield (%) 2.9 5.2 6.1 8.0

Bloomberg OPTC IN




1,6,12 Rel Perf. (%) 4/-46/-55

C–103January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Net Income 21,809 20,931 20,955 37,923 37,868 32,285 26,910 28,616 101,614 125,748

YoY Change (%) -19.2 -2.7 8.3 74.3 73.6 54.2 28.4 -24.5 13.4 23.8

EBITDA 4,032 1,817 1,741 8,601 9,552 5,113 3,495 3,439 16,189 21,667

Margins (%) 18.5 8.7 8.3 22.7 25.2 15.8 13.0 12.0 15.9 17.2

Depreciation 736 735 788 1,681 799 783 816 844 3,940 3,241

Interest 145 166 153 304 377 483 399 417 768 1,676

Other Income 671 607 -1,490 -790 1,556 -2,972 1,900 -692 -1,001 -208

PBT before EO Expense 3,823 1,522 -690 5,825 9,933 875 4,179 1,486 10,480 16,541

Extra-Ord Expense -20 -1,118 3,624 34,859 -4,047 5,994 -3,933 2,794 37,345 807

PBT after EO Expense 3,842 2,640 -4,313 -29,034 13,980 -5,119 8,112 -1,308 -26,865 15,734

Tax 782 185 256 747 1,374 683 542 233 1,969 2,832

Rate (%) 20.4 7.0 -5.9 -2.6 9.8 -13.3 6.7 -17.9 -7.3 18.0

Reported PAT 3,060 2,455 -4,569 -29,780 12,606 -5,801 7,571 -1,541 -28,834 12,902

Minority Interest 16 23 77 47 139 56 29 37 -163 260

Reported PAT (incl one-offs) 3,044 2,432 -4,646 -29,828 12,468 -5,857 7,542 -1,140 -28,997 12,642

Adj PAT 1,724 1,055 1,620 1,556 2,017 1,722 2,715 2,236 5,955 8,690

YoY Change (%) 223.2 -30.4 58.9 -2,675.7 17.0 63.2 67.6 43.7 98.0 45.9

Margins (%) 7.9 5.0 7.7 4.1 5.3 5.3 10.1 7.8 5.9 6.9

Adj PAT incl one-offs 3,208 1,564 1,620 3,934 5,059 2,692 2,715 2,236 10,325 11,733

US Sales (USD m) 155 95 84 387 400 255 152 90 720 897

YoY Change (%) -38.1 -34.9 -2.3 230.8 157.0 168.4 81.0 -76.7 20.0 24.6

India formulation sales 4,357 4,822 5,157 5,440 5,002 5,540 5,829 6,174 19,776 22,545

YoY Change (%) 12.1 7.5 4.7 24.3 14.8 14.9 13.0 13.5 12.4 14.0

E: MOSL Estimates; Note-Estimates do not include one-off upsides.

Ranbaxy LaboratoriesCMP: INR501 Neutral

We expect Ranbaxy Laboratories (RBXY) to post 35% YoY growth in

core topline for 4QCY12 at INR28.6b on a low base of 4QCY11, when

RBXY had reported decline in sales from the US, LatAm and the CIS.

We expect core EBITDA to grow 69% YoY to INR3.44b, mainly due to

adverse product mix and higher R&D expenses booked in 4QCY11.

Core EBITDA margin would expand by 250bp YoY to 12% on a low base.

Adjusted PAT would grow 43.7% YoY to INR2.23b, mainly led by healthy

growth in operations on a low base.

RBXY is currently valued at 22.4x CY13E and 18.3x CY14E core EPS. Our

current DCF value for all potential Para-IV upsides is INR59/share. The

management has not given any further update on the timeline of the

resolution of the US FDA issues. We believe that current valuations factor

in likely improvement in core EBITDA margin (to improve to 14% by CY13

from 10-11% in CY11). It is imperative for RBXY to improve core business

margins, as one-offs wane in the coming quarters. Maintain Neutral.


Timeline for resolving the US FDA issues under the consent decree

Update on generic Lipitor recall and resulting loss in market share

Timeline for launch of generic Diovan




Sa les 99.6 123.3 104.1 116.1

EBITDA 16.2 21.7 14.9 17.5

Net Profit 6.0 8.7 9.4 11.5

Adj. EPS (INR) 14.1 20.6 22.3 27.3

EPS Gr. (%) -45.3 45.9 8.3 22.4

BV/Sh. (INR) 95.5 119.9 140.6 161.7

RoE (%) -72.0 30.8 15.9 16.9

RoCE (%) 19.4 23.2 14.8 17.2

Payout (%) 0.0 20.0 25.0 25.0

Valuation

P/E (x) 31.3 21.5 19.8 16.2

P/BV (x) 5.2 4.2 3.6 3.1

EV/EBITDA (x) 13.9 11.2 15.6 13.1

Div. Yield (%) 0.0 1.2 1.3 1.4

Bloomberg RBXY IN


M. Cap. (INR b)/(USD b) 211 / 4


1,6,12 Rel Perf. (%) -3/-11/0

C–104January 2013




1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Net Sales 2,763 3,028 3,127 3,379 3,225 3,741 3,966 3,932 12,297 14,864

YoY Change (%) 9.9 11.5 13.5 17.9 16.7 23.5 26.8 16.4 13.3 20.9


EBITDA 435 428 503 394 492 522 805 472 1,760 2,291

Margins (%) 15.7 14.1 16.1 11.7 15.3 14.0 20.3 12.0 14.3 15.4

Depreciation 54 54 61 142 183 186 307 188 311 864

Interest 2 0 0 2 4 4 3 4 4 15

Other Income 379 361 369 286 289 267 266 279 1,395 1,101

PBT 758 735 811 535 594 599 761 558 2,839 2,512

Tax 252 238 263 175 193 194 248 181 928 816

Effective tax Rate (%) 33.2 32.4 32.4 32.7 32.5 32.4 32.6 32.5 32.7 32.5

Reported PAT 506 497 548 360 401 405 513 377 1,911 1,696

Adj PAT 506 497 548 360 401 405 513 377 1,911 1,696

YoY Change (%) 40.2 17.2 15.9 0.0 -20.8 -18.5 -6.4 4.5 19.6 -11.3

Margins (%) 18.3 16.4 17.5 10.7 12.4 10.8 12.9 9.6 15.5 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

Sanofi IndiaCMP: INR2,290 Neutral

We expect Sanofi India's (SANL) topline to grow 16.4% YoY in 4QCY12

to INR3.93b, led by the domestic formulations business.

EBITDA is likely to grow 20% YoY to INR472m, driven mainly by topline

growth. EBITDA margin would expand 30bp YoY to 12% on lower raw

material and staff costs.

We expect PAT to grow just 4.5% YoY to INR377m, despite better

operational performance. This is because other income would decline

2.5% YoY due to payment for the acquisition of Universal Medicare

and 32% YoY jump in depreciation and amortization charges.

We believe 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 61 products

undergoing clinical trials. Of these, 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. EBITDA margin

has shrunk from 25% in CY06 to 13.3% in CY11, mainly impacted by

discontinuation of Rabipur sales in the domestic market, lower export

growth, and higher staff and promotional expenses. RoE has declined

from 28.6% to 17.3%. The stock trades at 26.3x CY13E and 22.5x CY14E EPS.

Our estimates do not factor in the impact of the proposed new pharma

policy. We believe stock performance will remain muted until clarity

emerges on future growth drivers. Maintain Neutral.


Amortization of goodwill and brands acquired from Universal

Medicare.


Sa les 12.3 14.9 17.1 19.6

EBITDA 1.8 2.3 2.6 3.0

Net Profit 1.9 1.7 2.0 2.3

Adj. EPS (INR) 83.0 73.6 87.2 101.6

EPS Gr. (%) 23.3 -11.3 18.5 16.5

BV/Sh. (INR) 479.7 512.7 553.5 602.9

RoE (%) 17.3 14.4 15.8 16.9

RoCE (%) 25.3 21.1 23.1 24.7

Payout (%) 46.0 55.1 53.2 51.4

Valuation

P/E (x) 27.6 31.1 26.3 22.5

P/BV (x) 4.8 4.5 4.1 3.8

EV/EBITDA (x) 28.6 21.6 18.3 15.5

Div. Yield (%) 1.4 1.5 1.7 2.0

Bloomberg SANL IN



52-Week Range (INR) 2,430/2,002

1,6,12 Rel Perf. (%) 2/-8/-23

C–105January 2013


We expect Strides Arcolabs (STR) to post 2.4% YoY decline in 4QCY12

revenue to INR6.7b, impacted by the divestment of Ascent Pharma.

We expect topline growth of 41% on a like-to-like basis, led by

specialty business (low base in 4QCY11). Residual pharma business is

likely show muted growth, while licensing income is likely to decline

by a significant 46% YoY to INR920m.

EBITDA would grow 76% YoY to INR1.71b over a low base in 4QCY11

(INR310m write-off on Brazilian operations). EBITDA margin would be

25.5% as compared to 14.2% last year, on account of higher contribution

from the high-margin specialty business.

We expect adjusted net profit to grow 50% YoY to INR1.02b. PAT growth

will be lower than EBITDA growth mainly due to lower other income;

4QCY11 other income included MTM forex gain of INR582m.

STR has witnessed significant re-rating, led by the expected benefits from

its injectables business. We believe that current valuations at 17.8x CY13E

and 12.5x CY14E EPS adequately discount this upside; Neutral. Potential

sale of the injectables business could be a key risk to our Neutral rating.


Update on ramp-up of Penam exports to the US from the Brazilian

facility; ramp-up in facilities at Hosur and Poland.

Spillover of sales from 2QFY13 in Brazil due to ANVISA strike.

Comments on possible sale of injectables business.

Quarterly performance (consolidated) (INR Million)

Y/E December CY11 CY12 CY11 CY12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Net Revenues 4,875 5,813 7,693 6,865 5,275 5,083 5,773 6,697 25,245 22,828

YoY Change (%) 30.5 27.9 86.6 50.7 8.2 -12.6 -25.0 -2.4 48.9 -9.6


EBITDA 917 1,081 1,720 972 1,267 1,130 1,435 1,710 4,652 5,542

Margins (%) 18.8 18.6 22.4 14.2 24.0 22.2 24.9 25.5 18.4 24.3

Depreciation 183 340 222 298 237 257 295 309 1,043 1,097

Interest 438 467 491 507 390 510 456 456 1,903 1,812

Other Income 245 515 -477 700 -143 -223 139 280 1,021 52

PBT before EO Income 540 790 530 867 497 141 823 1,225 2,727 2,686

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 1,087 823 1,225 2,727 9,948

Tax 89 94 62 141 392 182 299 202 387 1,074

Rate (%) 16.5 12.0 11.7 16.3 5.7 16.7 36.3 16.5 14.2 10.8

Minority Int/Adj on Consol 44 6 4 42 1 0 0 -1 95 0

Reported PAT 407 689 465 684 6,421 905 525 1,023 2,245 8,874

Adj PAT 407 689 465 684 467 117 525 1,023 2,245 1,611

YoY Change (%) 18.2 8.7 76.0 0.0 14.8 -83.0 13.0 49.6 84.0 -28.2

Margins (%) 8.4 11.9 6.0 10.0 8.9 2.3 9.1 15.3 8.9 7.1

Specialty Sales 1,253 1,465 2,440 1,022 2,740 2,500 2,720 3,031 6,180 10,991

YoY Change (%) 218.8 70.3 207.7 -30.7 118.7 70.6 11.5 196.6 75.1 77.9

Licesnign income 1,121 740 1,720 1,699 630 570 1,150 920 5,280 3,270

YoY Change (%) 35.1 -45.2 264.4 122.7 -43.8 -23.0 -33.1 -45.9 54.6 -38.1

E: MOSL Estimates; Note: Quarterly numbers don't add up to full year numbers due to restatement

Strides ArcolabCMP: INR1,085 Neutral


Sa les 25.2 22.8 28.8 36.4

EBITDA 4.7 5.5 7.1 8.9

Net Profit 2.2 2.3 3.6 5.1

Adj. EPS (INR) 38.5 38.6 61.0 87.1

EPS Gr. (%) 84.0 0.5 57.9 42.8

BV/Sh. (INR) 234.9 374.3 429.6 508.6

RoE (%) 16.9 13.5 15.2 18.6

RoCE (%) 12.8 11.6 16.0 19.1

Payout (%) 5.8 1.8 9.4 9.4

Valuation

P/E (x) 28.2 28.1 17.8 12.5

P/BV (x) 4.6 2.9 2.5 2.1

EV/EBITDA (x) 14.3 10.4 8.2 6.4

Div. Yield (%) 0.2 0.2 0.4 0.6

Bloomberg STR IN




1,6,12 Rel Perf. (%) -6/33/161

C–106January 2013


We expect Sun Pharmaceuticals (SUNP) to post 22% YoY growth in

core topline (excluding one-offs) for 3QFY13 to INR24.75b, mainly led

by growth in domestic and RoW formulations. High base of Taro sales

in 3QFY12 would result in a moderate 16% growth in core US sales. The

domestic formulations business is likely to grow 23% YoY.

Core EBITDA is likely to grow 6% YoY to INR9.41b. Core EBITDA margin

would decline to 38% from a high base of 43.7% in 3QFY13.

We expect adjusted PAT to grow 15% YoY to INR7b. PAT growth will be

higher than EBITDA growth due to higher other income.

Key drivers for the future include: (1) ramp-up in the US business, (2)

monetization of the Para-IV/low competition pipeline in the US, (3) launch

of controlled substances in the US, (4) sustaining Taro's high profitability,

and (5) ability to leverage on DUSA's technology franchise. Though we are

positive SUNP's business outlook, rich valuations have tempered our

bullishness. The stock trades at 25.5x FY14E and 22.5x FY15E core earnings;

Neutral. Inorganic initiatives are a key risk to our rating.


Outlook on URL Pharma acquisition.

Impact on Taro's profitability from the dermatology portfolio, with

increasing competition.

View on expected impact from the implementation of the NPPP 2012.




Net Revenues 16,357 18,946 21,451 23,299 26,581 26,572 24,757 25,405 80,057 103,316

YoY Change (%) 16.9 38.3 34.0 59.2 62.5 40.3 15.4 9.0 39.9 29.1


EBITDA 5,474 7,840 9,638 9,571 12,169 11,685 9,409 9,470 32,527 42,731

Margins (%) 33.5 41.4 44.9 41.1 45.8 44.0 38.0 37.3 40.6 41.4

Depreciation 647 668 774 823 801 829 834 871 2,912 3,335

Net Other Income 969 1,183 -272 2,242 -231 1,476 1,318 1,455 3,941 4,017

PBT before EO Exp 5,796 8,355 8,591 10,991 11,136 12,332 9,892 10,054 33,556 43,414

EO Exp/(Inc) 0 0 0 0 0 5,836 0 0 0 5,836

PBT 5,796 8,355 8,591 10,991 11,136 6,496 9,892 10,054 33,556 37,578

Tax 143 1,281 634 2,604 1,925 2,139 1,781 1,970 3,826 7,815

Rate (%) 2.5 15.3 7.4 23.7 17.3 32.9 18.0 19.6 11.4 20.8

Profit after Tax 5,653 7,074 7,957 8,388 9,211 4,357 8,112 8,083 29,730 29,764

Share of Minority Partner 643 1,097 1,274 841 1,256 1,161 1,100 1,109 3,855 4,626

Reported PAT 5,010 5,977 6,683 7,547 7,956 3,196 7,724 7,398 25,875 26,273

One-off upsides 624 523 573 923 1,240 712 712 423 2,644 3,087

Adj Net Profit 4,386 5,454 6,110 6,624 6,716 8,320 7,012 6,974 23,231 29,022

YoY Change (%) 30.4 32.8 99.2 26.9 53.1 52.6 14.8 5.3 65.4 24.9

Margins (%) 26.8 28.8 28.5 28.4 25.3 31.3 28.3 27.5 29.0 28.1

US Sales 6,220 7,991 10,400 10,106 15,411 13,301 10,814 10,666 34,716 50,192

YoY Change (%) 4.9 61.2 61.0 78.4 147.8 66.5 4.0 5.5 50.9 44.6

Taro Sales 3,931 5,337 6,294 6,565 7,737 7,897 7,116 6,900 22,128 29,651

YoY Change (%) 0.0 1,060.2 36.0 34.5 0.0 48.0 13.1 5.1 122.1 34.0

E: MOSL Estimates; * Quarterly no. don’t match with annual no. because of reinstatement of financials

Sun Pharmaceuticals IndustriesCMP: INR746 Neutral

Financials & Valuation (INR b)Y/E March 2012* 2012 2013E 2014E

Sa les 80.1 74.4 103.3 115.6

EBITDA 32.5 29.0 42.7 40.7

Net Profit 25.9 23.2 29.0 30.3

Adj. EPS (INR) 25.0 22.4 28.0 29.2

EPS Gr. (%) 42.5 65.4 24.9 4.3

BV/Sh. (INR) 117.5 135.7 157.0

RoE (%) 21.5 22.1 20.0

RoCE (%) 30.3 28.2 27.3

Payout (%) 17.2 21.1 23.7

Valuation

P/E (x) 29.9 26.6 25.5

P/BV (x) 6.4 5.5 4.8

EV/EBITDA (x) 22.1 15.3 15.3

Div. Yield (%) 0.6 0.7 0.7

*Including Para-IV/one-off upsides

Bloomberg SUNP IN


M. Cap. (INR b)/(USD b) 773 / 14


1,6,12 Rel Perf. (%) 4/6/28

C–107January 2013


We expect Torrent Pharmaceuticals (TRP) to post 20% YoY growth in

3QFY13 topline to INR8.35b, led by the international formulations

segment, which is likely to grow 25% YoY on strong growth in the US,

Europe (ex-Germany) and Brazil. We expect domestic formulations to

grow 15% YoY to INR2.6b.

EBITDA is likely to grow 36% YoY to INR1.65b on a low base in 3QFY12

(impacted by adverse product mix in international formulations,

higher overheads in domestic formulations business and forex losses).

EBITDA margin will expand 240bp due to lower RM costs and overheads.

Adjusted PAT would be INR1.15b, up 38% YoY - faster than EBITDA

growth due to higher other income.

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. We believe that TRP should

trade at a premium to most mid-cap pharma companies, and that its

valuation gap vis-à-vis frontline pharma companies should reduce. The

stock trades at 12.2x FY14E and 10.5x FY15E EPS. Maintain Buy.


Spillover of sales from 2QFY13 in Brazil due to ANVISA strike.

Sustained recovery in domestic formulations.







YoY Change (%) 19.7 17.5 20.6 33.6 18.4 13.7 19.9 19.4 22.3 18.1

EBITDA 1,531 1,406 1,215 850 1,560 1,553 1,655 1,058 5,006 5,826

Margins (%) 23.6 20.6 17.4 12.6 20.3 20.0 19.8 13.1 18.6 18.3

Depreciation 202 201 197 218 201 203 221 241 817 866

Interest 41 28 2 89 94 80 73 84 395 331

Other Income 24 43 23 124 140 123 150 147 445 560

PBT before EO Expense 1,313 1,219 1,040 668 1,404 1,394 1,512 880 4,240 5,189

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 1,394 1,512 880 3,586 5,189

Tax 287 212 201 24 374 309 363 96 723 1,142

Rate (%) 21.9 17.3 19.3 3.6 26.6 22.2 24.0 10.9 17.1 22.0

Reported PAT 1,026 1,008 839 -10 1,030 1,085 1,149 784 2,863 4,048


Adj PAT 893 1,000 832 527 1,019 1,073 1,149 784 3,251 4,048

YoY Change (%) 20.3 31.2 8.1 23.1 14.1 7.3 38.1 48.6 20.3 24.5

Margins (%) 13.8 14.6 11.9 7.8 13.3 13.8 13.8 9.7 12.1 12.7

Dom. formulations sales 2,460 2,385 2,294 2,016 2,802 2,743 2,633 2,272 9,167 10,450

YoY Change (%) 10.1 8.4 8.4 9.6 13.9 15.0 14.8 12.7 9.3 14.0

Intl. formulations sales 3,061 3,762 3,787 3,854 4,071 4,173 4,717 4,679 14,332 17,639

YoY Change (%) 19.3 36.7 33.6 51.1 33.0 10.9 24.6 21.4 33.9 23.1

E: MOSL Estimates

Torrent PharmaCMP: INR709 Buy


Sa les 27.0 31.8 37.1 42.8

EBITDA 5.0 5.8 7.1 8.2

Net Profit 3.3 4.0 4.9 5.7

Adj. EPS (INR) 38.4 47.8 58.2 67.7

EPS Gr. (%) 20.3 24.5 21.7 16.3

BV/Sh. (INR) 141.1 178.4 223.2 275.3

RoE (%) 29.3 29.9 29.0 27.2

RoCE (%) 28.5 31.3 33.0 32.8

Payout (%) 21.8 22.0 23.0 23.0

Valuation

P/E (x) 18.5 14.8 12.2 10.5

P/BV (x) 5.0 4.0 3.2 2.6

EV/EBITDA (x) 11.6 9.8 7.7 6.5

Div. Yield (%) 1.0 1.5 1.9 2.2

Bloomberg TRP IN




1,6,12 Rel Perf. (%) 5/7/15

C–108January 2013

December 2012 Results Preview | Sector: Media

Shobhit Khare ([email protected])

Expected quarterly performance summary (INR million)




D B Corp 225 Buy 4,211 6.4 11.3 1,144 12.4 32.9 671 21.3 38.1

Dish TV 75 Neutral 5,680 15.8 6.4 1,497 24.6 -3.8 -256 Loss Loss

HT Media 102 Neutral 5,545 5.3 8.6 860 10.7 52.2 534 10.7 60.2

Jagran Prakashan 102 Buy 3,480 7.4 8.0 991 16.4 26.7 582 40.8 19.6

Sun TV 422 Neutral 4,836 13.8 11.6 3,747 9.8 13.9 1,775 5.7 17.1

Zee Entertainment 220 Neutral 9,330 23.6 -2.2 2,482 14.9 14.0 1,835 31.7 -2.2


Abbreviations and acronyms

GEC: General entertainment

channel

DTH: direct to home

Ad growth—Zee to outperform significantly; Sun to climb back to double digits;

improved performance for print companies: Broadcasting companies are expected to

report strong YoY advertising growth given higher exposure to consumer sector and a

low base. We expect Zee to post the highest ad growth at 29%, while Sun TV's ad

revenues are expected to grow at 12% YoY. Print universe ad growth is expected to

improve from 0% in 1HFY13 to 4% in 3QFY13.

Strong earnings growth for Zee, Jagran, DB Corp; flat earnings for Sun TV; expect QoQ

margin decline for Dish TV: Zee's Adj PAT is expected to increase 32% YoY led by lower

sports loss and ~20% EBITDA growth in non-sports business. Sun TV's earnings growth

is expected to remain muted at ~6% YoY largely on lower margins. Dish TV's net loss is

expected to increase QoQ due to ~300bp margin decline on higher subscriber

acquisitions and content costs. We expect strong YoY earnings performance for print

companies led by postponement of festive season ad-spends partially from 2Q to 3Q,

healthy subscription growth on cover price hikes and tight cost control, including

newsprint costs. We expect Jagran to report 41% PAT growth followed by DB Corp

(21%) and HT Media (3%).

DTH — Subscriber additions to increase QoQ but below expectations due to festive

demand benefit of digitization: We expect DTH subscriber additions to improve QoQ

due to festive demand and benefit of digitization in the metros. However, our industry

interactions indicate lower-than-expected gains for DTH v/s cable. We have lowered

3Q gross addition estimates for Dish TV from 1.2m to 0.9m.

Government reiterates phase II digitization timeline of March 2013: Government has

reiterated the March 2013 timeline for digitization in 38 phase II cities. While there

could be a 3 to 6-month delay, smooth implementation of digitization in the metros

has raised confidence on a smooth pan-India transition by 2014-15.

Digitization remains a strong theme for broadcasting; expect earnings revival for print:

Ad revenue trends seem to be improving. We believe that the print media sector

offers an excellent play on economic rebound given the ad-heavy business model

and higher dependence on cyclical categories. Digitization remains a strong theme

for broadcasting and distribution companies as the government remains committed

to digitization timelines.

MediaCompanies Covered

D B Corp

Dish TV

H T Media

Jagran Prakashan

Sun TV Network

Zee Entertainment

C–109January 2013


Media coverage - Quarterly

FY11 FY12 FY13 YoY QoQ

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE (%) (%)

Advertisement Revenue (INR b)

ZEEL 3.8 4.1 4.4 4.8 3.8 3.9 4.0 4.2 4.5 5.3 5.1 29 -3

Sun TV 2.6 2.7 3.0 3.0 2.7 2.7 2.9 2.8 2.8 2.8 3.2 12 14

Dish TV NM NM NM NM NM NM NM NM NM NM NM NM NM

DB Corp 2.3 2.3 2.7 2.4 2.7 2.6 2.9 2.5 2.7 2.6 3.0 4 14

Jagran Prakashan 1.9 1.9 1.9 1.9 2.0 2.1 2.2 2.1 2.2 2.2 2.4 6 8

HT Media 3.3 3.3 3.7 3.6 3.8 3.7 4.1 3.7 3.7 3.6 4.2 3 15

HMVL 1.0 0.9 0.9 0.9 1.1 1.1 1.0 1.1 1.2 1.1 1.2 18 5

Subscription Revenue (INR b)

ZEEL 2.6 2.7 2.8 3.1 3.1 2.9 3.3 4.0 3.6 3.9 3.9 20 -1

Sun TV 1.4 1.4 1.4 1.6 1.6 1.4 1.4 1.4 1.5 1.5 1.6 18 8

Dish TV 2.5 2.7 3.1 3.7 3.9 4.1 4.3 4.3 4.6 4.7 5.0 18 7

DB Corp 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.7 0.7 0.7 16 5


HT Media 0.5 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 13 1

HMVL 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 17 2

Total Revenue (INR b)

ZEEL 6.8 7.1 7.5 8.0 7.0 7.2 7.5 8.7 8.4 9.5 9.3 24 -2

Sun TV 4.4 4.2 6.0 4.6 4.5 4.5 4.3 4.3 4.3 4.3 4.8 14 12

Dish TV 3.0 3.3 3.7 4.3 4.6 4.8 4.9 5.2 5.2 5.3 5.7 16 6

DB Corp 3.0 3.0 3.5 3.2 3.5 3.5 4.0 3.6 3.8 3.8 4.2 6 11


HT Media 4.0 4.5 4.7 4.7 5.0 4.9 5.3 4.9 4.9 5.1 5.5 5 9

HMVL 1.3 1.3 1.3 1.3 1.5 1.5 1.4 1.6 1.6 1.6 1.7 18 5

EBITDA (INR b)

ZEEL 1.9 1.9 1.5 2.3 1.6 2.1 2.2 1.6 2.3 2.2 2.5 15 14

Sun TV 3.6 3.3 5.0 3.6 3.7 3.7 3.4 3.3 3.2 3.3 3.7 10 14

Dish TV 0.3 0.5 0.7 0.9 1.1 1.2 1.2 1.4 1.6 1.6 1.5 25 -4

DB Corp 1.1 1.0 1.1 0.8 1.0 0.8 1.0 0.8 0.8 0.9 1.1 12 33


HT Media 0.8 0.8 0.9 0.9 0.9 0.7 0.8 0.5 0.7 0.6 0.9 11 52

HMVL 0.3 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.3 0.3 0.3 101 17

EBITDA Margin (%)

ZEEL 27.6 26.5 20.4 28.4 22.3 28.9 28.6 18.4 27.7 22.8 26.6 -201bp 377bp

Sun TV 81.7 78.2 83.9 79.0 80.6 81.0 80.2 76.9 75.9 75.9 77.5 -278bp 154bp

Dish TV 10.6 15.3 17.9 20.8 24.4 25.2 24.5 27.5 29.9 29.2 26.4 187bp -282bp

DB Corp 38.0 31.6 33.0 25.1 28.4 21.8 25.7 21.0 20.3 22.7 27.2 143bp 442bp

Jagran Prakashan 33.4 32.8 31.4 25.3 26.9 25.9 26.3 21.2 24.8 24.3 28.5 220bp 420bp

HT Media 19.8 17.8 19.0 18.6 18.2 14.4 14.8 9.7 13.7 11.1 15.5 76bp 445bp

HMVL 24.6 14.4 14.1 15.3 18.1 20.3 11.7 13.7 17.7 18.0 20.0 829bp 201bp

Adj. PAT (INR b)

ZEEL 1.2 1.3 1.1 2.1 1.3 1.6 1.4 1.4 1.6 1.9 1.8 32 -2

Sun TV 1.7 1.7 2.3 2.1 1.9 1.8 1.7 1.6 1.6 1.5 1.8 6 17

Dish TV -0.6 -0.5 -0.4 -0.4 -0.2 -0.5 -0.4 -0.5 -0.3 -0.2 -0.3 NM NM

DB Corp 0.7 0.6 0.7 0.4 0.6 0.4 0.6 0.5 0.4 0.5 0.7 21 38


HT Media 0.4 0.4 0.5 0.5 0.5 0.4 0.5 0.2 0.4 0.3 0.5 3 61

HMVL 0.2 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.2 0.2 0.2 116 7


C–110January 2013


3QFY13 ad revenue growth (YoY, %)

3QFY13 subscription/circulation revenue growth (YoY, %)

Industry DTH subscriber base and additions trend

Newsprint prices have been largely stable (USD/MT)

Industry DTH additions

remain sluggish

Newsprint prices

(USD/ton) have

remained largely flat


29

12

64 3

ZEEL Sun TV Jagran

Prakashan

DB Corp HT Media

2018 18

16

13

10

ZEEL Dis h TV Sun TV DB Corp HT Media Ja gra n

Pra kas ha n

13 15 17 26 32 36 39 41 44 46 4887 24211911

1.0 1.2

3.12.0 2.1 2.2

1.82.2 2.5 2.7

3.52.9

2.33.4

2.0 2.2

5.6

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

DTH subscribers (m) Quarterly s ubscriber adds (m)

400

500

600

700

800

Jan-

08

Apr

-08

Jul-

08

Oct

-08

Jan-

09

Apr

-09

Jul-

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

Dec

-12

C–111January 2013





Media

Dish TV 75 Neutral -0.9 -0.2 0.8 -86.1 -346.8 96.3 14.1 11.1 8.2 NA NA NA

D B Corp 225 Buy 11.4 13.8 15.9 19.7 16.4 14.1 10.9 9.0 7.7 20.6 22.0 22.3

HT Media 102 Neutral 6.3 7.5 8.1 16.2 13.7 12.7 7.2 5.4 4.7 9.0 9.7 9.4

Jagran Prakashan 102 Buy 5.6 6.4 7.5 18.2 15.8 13.5 10.2 9.1 7.9 20.5 20.1 21.8

Sun TV 422 Neutral 17.1 19.4 23.0 24.7 21.8 18.4 11.3 9.7 8.1 23.5 24.8 26.3

Zee Entertainment 220 Neutral 7.4 8.5 10.3 29.7 25.9 21.4 21.9 18.7 15.4 19.3 19.3 20.3



95

100

105

110

115


Sens ex IndexMOSL Media Index

90

105

120

135

150

Dec

-11

Feb-

12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Sens ex IndexMOSL Media Index

C–112January 2013





Sales 3,537 3,539 3,956 3,606 3,770 3,784 4,211 3,882 14,638 15,646

YoY (%) 18.4 17.6 13.6 13.6 6.6 6.9 6.4 7.7 15.7 6.9

Operating expenses 2,534 2,768 2,938 2,849 3,005 2,923 3,067 2,992 11,088 11,987

EBITDA 1,003 771 1,018 757 765 861 1,144 890 3,550 3,659

YoY (%) -11.7 -18.9 -11.3 -4.9 -23.8 11.6 12.4 17.5 -11.9 3.1

EBITDA margin (%) 28.4 21.8 25.7 21.0 20.3 22.7 27.2 22.9 24.3 23.4

Depreciation 117 124 134 130 135 143 144 145 506 567

Interest 27 67 81 -19 17 19 26 27 155 88

Other Income 37 20 25 34 46 38 37 38 115 159

PBT 896 600 828 681 658 736 1,011 757 3,004 3,162

Tax 284 197 271 229 222 251 339 254 982 1,066


PAT 612 403 556 452 436 486 672 503 2,022 2,097

Minority Interest 1 0 3 -2 0 0 1 1 2 2

Adj PAT after minority 611 403 554 454 437 486 671 501 2,021 2,095

YoY (%) -12.1 -26.9 -16.1 0.8 -28.5 20.7 21.3 10.5 -11.9 3.7

Revenue break-up (INR m)

Ad revenue (print) 2,707 2,610 2,902 2,484 2,701 2,636 3,005 2,705 10,703 11,047

Circulation revenue 568 601 632 620 656 698 733 718 2,421 2,805

Radio 125 127 157 146 140 153 176 167 555 636

Event management 36 62 48 48 46 40 40 40 195 166

Others 101 139 216 308 227 257 257 253 764 993

Total revenue 3,537 3,539 3,956 3,606 3,770 3,784 4,211 3,882 14,638 15,646

E: MOSL Estimates

D B CorpCMP: INR225 Buy

We expect print advertising revenue to grow 4% YoY to INR3b.

We expect circulation revenue to grow 16% YoY to INR0.73b.

DB's aggregate revenue is likely to increase 6% YoY to INR4.2b.

We estimate 3QFY13 EBITDA of INR1.14b, up 12% YoY. We expect EBITDA

margin improvement of 140bp YoY to 27.2%.

Net profit is expected at INR0.67b, up 21% YoY.

The stock trades at a P/E of 16.4x FY14E and 14.1x FY15E. Buy.


YoY ad growth (we expect 4%), EBITDA margin (we expect 27.2%).


Net Sales 14.6 15.6 17.5 19.3

EBITDA 3.5 3.7 4.2 4.8

Adj. Net Profit 2.0 2.1 2.5 2.9

Adj. EPS (INR) 11.0 11.4 13.8 15.9

Adj. EPS Gr. (%) -12.3 3.7 20.4 15.8

BV/Sh (INR) 52.4 58.7 66.7 76.0

RoE (%) 22.6 20.6 22.0 22.3

RoCE (%) 17.8 16.7 18.4 19.0

Div. payout (%) 42.2 41.0 41.0 41.5

Valuation

P/E (x) 20.4 19.7 16.4 14.1

P/BV (x) 4.3 3.8 3.4 3.0

EV/EBITDA (x) 11.7 11.0 9.1 7.8

Div. Yield (%) 1.8 1.8 2.2 2.5

Bloomberg DBCL IN




1,6,12 Rel Perf. (%) 2/-4/-4

C–113January 2013





Sales 4,604 4,822 4,905 5,247 5,200 5,336 5,680 6,140 19,578 22,355

YoY Change (%) 51.3 47.8 31.4 21.2 12.9 10.7 15.8 17.0 36.3 14.2


EBITDA 1,122 1,217 1,202 1,442 1,556 1,557 1,497 1,628 4,984 6,238

YoY Change (%) 248.5 144.5 80.2 59.9 38.7 27.9 24.6 12.9 108.7 25.2

EBITDA margin (%) 24.4 25.2 24.5 27.5 29.9 29.2 26.4 26.5 25.5 27.9

Depreciation 1,107 1,162 1,232 1,678 1,512 1,533 1,547 1,569 5,180 6,161

Interest 334 634 477 348 473 317 289 283 1,778 1,362

Other Income 137 92 78 94 106 80 82 85 386 353

PBT -183 -487 -430 -490 -324 -213 -256 -139 -1,588 -931

Adjusted net profit -183 -487 -430 -490 -324 -213 -256 -139 -1,588 -931

YoY Change (%) -71.0 7.7 -3.0 32.4 76.8 -56.3 -40.4 -71.6 -16.3 -41.4

Net Subs (m) 8.9 9.2 9.5 9.6 9.8 10.0 10.6 11.2 9.6 11.2

ARPU (INR/month) 150 152 152 151 156 159 163 167 153 158

Revenue break-up (INR m)

Subscription revenue 3,923 4,133 4,258 4,338 4,556 4,729 5,038 5,467 16,650 19,791

Lease rentals 550 550 449 660 460 430 440 456 2,209 1,786

Others 131 140 198 249 184 177 201 216 719 778

Total revenue 4,604 4,822 4,905 5,247 5,200 5,336 5,680 6,140 19,578 22,355

E: MOSL Estimates

Dish TVCMP: INR75 Neutral

We expect DITV's revenue to increase 16% YoY and 6% QoQ to INR5.7b.

Subscription revenue is expected to increase 18% QoQ to INR5b.

We expect gross additions of 0.92m (vs 0.48m in 2QFY13) and net

additions of 0.63m in 3QFY13 (vs 0.17m in 2QFY13).

EBITDA margin is expected to decline 280bp QoQ to 26.4% largely due

to higher subscriber acquisition and content costs.

Net loss is expected to decline by 40% YoY but increase 20%QoQ to

INR 256m. We have not modeled any forex gain/loss in 3QFY13.

The stock trades at EV/EBITDA of 10.9x FY14E and 8.1x FY15E. Neutral.


Quarterly gross adds (we expect 0.92m), ARPU (we expect INR163),

and EBITDA margin (we expect 26.4%).


Net Sales 19.6 22.4 27.4 33.5

EBITDA 5.0 6.2 8.0 10.6

Adj. Net Profit -1.6 -0.9 -0.2 0.8

Adj. EPS (INR) -1.5 -0.9 -0.2 0.8

Adj. EPS Gr. (%) NA NA NA NA

BV/Sh (INR) -0.9 -1.0 -1.3 -0.5

RoE (%) NA NA NA NA

RoCE (%) NA 6.4 5.7 13.9

Div. payout (%) NA NA NA NA

Valuation

P/E (x) NA NA NA 96.3

P/BV (x) NA NA NA NA

EV/EBITDA (x) 17.4 13.9 10.9 8.1

Div. Yield (%) 0.0 0.0 0.0 0.0

Bloomberg DITV IN




1,6,12 Rel Perf. (%) -6/8/0

C–114January 2013


Quarterly performance (Consolidated) (INR Million)



Revenue 4,969 4,931 5,266 4,941 4,899 5,107 5,545 5,122 20,107 20,673

YoY (%) 22.9 10.7 13.2 5.0 -1.4 3.6 5.3 3.7 12.6 2.8


EBITDA 903 713 777 481 669 565 860 596 2,873 2,690

YoY (%) 13.0 -9.9 -12.0 -45.1 -25.9 -20.7 10.7 24.0 -14.2 -6.4

EBITDA margin (%) 18.2 14.4 14.8 9.7 13.7 11.1 15.5 11.6 14.3 13.0

Depreciation 214 233 220 249 220 242 245 248 916 955

Interest 53 74 83 104 103 98 98 97 315 396

Other Income 146 204 168 179 209 244 220 212 697 885

PBT 782 610 642 307 555 469 737 463 2,340 2,225

Tax 242 141 161 81 129 107 170 106 625 512


PAT 540 469 481 226 426 362 568 357 1,715 1,713

Minority Interest 25 31 -1 6 19 29 34 35 61 117

Reported PAT 515 438 482 220 407 333 534 322 1,655 1,596

YoY (%) 24.4 13.0 0.8 -58.5 -21.0 -24.0 10.7 46.8 -9 -4

Ad revenue growth (%) 17 12 10 3 -3 -2 3 1 10 0

-English 18 8 11 -4 -6 -3 -2 0 8 -3

-Hindi 15 24 8 21 5 1 18 5 16 8

Circulation revenue growth (%) 3 21 7 3 8 11 13 16 8 12

-English 4 34 0 -15 -3 1 5 10 4 3

-Hindi 3 16 10 13 13 16 17 18 10 16

E: MOSL Estimates

H T MediaCMP: INR102 Neutral

We expect HT Media to post revenue of INR5.5b, up 5% YoY.

We expect ad revenue to grow 3% YoY to INR3.9b led by Hindi business.

We expect circulation revenue to increase 13% YoY to INR0.57b.

EBITDA margin is expected to improve by 80bp YoY to 15.5%.

Net profit is expected to increase 3% YoY to INR0.5b.

The stock trades at a P/E of 13.7x FY14 and 12.7x FY15. Neutral.


YoY English ad growth (we expect 2% decline), Hind ad growth (we

expect 18%), EBITDA margin (we expect 15.5%).


Net Sales 20.0 20.7 23.0 25.2

EBITDA 2.8 2.7 3.3 3.4

Adj. Net Profit 1.6 1.5 1.8 1.9

Adj. EPS (INR) 7.0 6.3 7.5 8.1

Adj. EPS Gr. (%) -9.5 -9.2 18.6 7.7

BV/Sh (INR) 67.4 73.5 81.3 89.7

RoE (%) 10.9 9.0 9.7 9.4

RoCE (%) 10.4 9.7 11.0 11.4

Div. payout (%) 6.7 10.2 8.3 8.3

Valuation

P/E (x) 14.7 16.2 13.7 12.7

P/BV (x) 1.5 1.4 1.3 1.1

EV/EBITDA (x) 7.2 7.2 5.4 4.7

Div. Yield (%) 0.4 0.6 0.7 0.7

Bloomberg HTML IN




1,6,12 Rel Perf. (%) -1/-8/-36

C–115January 2013





Sales 3,046 3,054 3,240 3,104 3,175 3,221 3,480 3,335 12,445 13,212

YoY (%) 12.9 10.3 13.3 9.8 4.2 5.5 7.4 7.5 11.6 6.2


EBITDA 820 791 851 659 788 782 991 817 3,121 3,378

YoY (%) -9.0 -13.0 -5.2 -7.7 -3.9 -1.1 16.4 24.0 -8.8 8.2

EBITDA margin (%) 26.9 25.9 26.3 21.2 24.8 24.3 28.5 24.5 25.1 25.6

Depreciation 150 160 165 181 148 161 150 150 657 609

Interest 28 29 44 45 76 59 80 80 146 295

Other Income 78 40 -42 183 -7 133 70 70 259 266

PBT 720 642 600 615 557 694 831 657 2,577 2,740

Tax 223 184 187 187 0 0 0 0 781 0


Reported net profit 497 458 413 428 557 694 831 657 1,796 2,740

Extra-ordinary item 0 0 0 0 167 208 249 197 0 822

Adjusted net profit 497 458 413 428 390 486 582 460 1,796 1,918

YoY (%) -10.6 -17.5 -21.5 1.8 -21.5 6.2 40.8 7.4 -12.7 6.8

Revenue break-up

Ad revenue 2,043 2,119 2,235 2,103 2,207 2,196 2,369 2,229 8,500 9,001

Circulation revenue 582 612 623 628 641 666 685 691 2,445 2,683

Others (Outdoor,event mgmt, etc) 422 323 382 373 328 359 425 415 1,500 1,528

Total revenue 3,046 3,054 3,240 3,104 3,175 3,221 3,480 3,335 12,445 13,212

E: MOSL Estimates

Jagran PrakashanCMP: INR102 Buy

We expect advertising revenue to grow 6% YoY to INR2.37b on a

standalone basis.

We expect circulation revenue to grow 10% YoY to INR0.69b.

Jagran's aggregate revenue is likely to increase 7% YoY to INR3.48b.

We estimate 3QFY13 EBITDA of INR0.99b, up 16% YoY. We expect EBITDA

margin improvement of 220bp YoY to 28.5%.

Adjusted earnings are expected at INR0.58b, up 41% YoY.

The stock trades at a P/E of 15.8x FY14E and 13.5x FY15E. Buy.


YoY ad growth (we expect 6%), EBITDA margin (we expect 28.5%).


Net Sales 13.6 15.6 17.2 19.3

EBITDA 3.2 3.4 3.7 4.2

Adj. Net Profit 1.8 1.8 2.0 2.4

Adj. EPS (INR) 5.6 5.6 6.4 7.5

Adj. EPS Gr. (%) -18.3 -0.5 14.8 17.2

BV/Sh (INR) 23.8 30.9 33.2 36.1

RoE (%) 24.5 20.5 20.1 21.8

RoCE (%) 15.6 18.4 14.6 16.0

Div. payout (%) 72.6 73.0 54.4 53.0

Valuation

P/E (x) 18.1 18.2 15.8 13.5

P/BV (x) 4.3 3.3 3.1 2.8

EV/EBITDA (x) 11.4 10.2 9.1 7.9

Div. Yield (%) 3.4 3.4 3.4 3.9

Bloomberg JAGP IN




1,6,12 Rel Perf. (%) -3/4/-12

C–116January 2013




1Q 2Q 3Q* 4Q 1Q 2Q 3QE 4QE

Revenue 4,540 4,513 4,251 4,270 4,258 4,333 4,836 4,824 17,574 18,252

YoY (%) 3.1 6.2 -4.9 -7.3 -6.2 -4.0 13.8 13.0 -8.6 3.9

EBITDA 3,659 3,654 3,411 3,282 3,230 3,290 3,747 3,721 14,007 13,988

YoY (%) 1.7 10.0 -2.8 -9.8 -11.7 -10.0 9.8 13.4 -10.1 -0.1

As of % Sales 80.6 81.0 80.2 76.9 75.9 75.9 77.5 77.1 79.7 76.6

Depreciation and Amortization 1,061 1,176 1,125 1,068 933 1,138 1,218 1,157 4,430 4,446

Interest 2 8 36 9 2 5 5 5 56 17

Other Income 173 186 232 151 132 96 97 99 742 423

PBT 2,769 2,657 2,483 2,355 2,427 2,243 2,620 2,658 10,263 9,947

Tax 892 856 804 765 784 726 845 858 3,317 3,213


Reported PAT 1,876 1,801 1,679 1,590 1,643 1,517 1,775 1,801 6,946 6,734

Adj PAT 1,876 1,801 1,679 1,590 1,643 1,517 1,775 1,801 6,946 6,734

YoY (%) 9.8 7.6 -14.4 -23.7 -12.4 -15.8 5.7 13.2 -10.0 -3.0

Revenue Breakup (INR m)

Advertising and Broadcast 2,700 2,740 2,850 2,800 2,800 2,810 3,192 3,115 11,090 11,917

International 200 180 240 220 260 260 276 286 840 1,082

DTH 840 790 840 860 890 900 957 993 3,330 3,741

Domestic Cable 560 470 290 310 300 340 380 400 1,630 1,420

Films and Others 240 333 31 80 8 23 31 31 684 93

Total 4,540 4,513 4,251 4,270 4,258 4,333 4,836 4,824 17,574 18,252

E: MOSL Estimates * YoY growth for 3QFY12 adjusted for one-time revenue/cost related to 'Enthiran' in 3QFY11

Sun TV NetworkCMP: INR422 Neutral

We expect Sun TV's revenue to increase 14% YoY to INR4.8b.

Advertising and broadcasting revenue is expected to grow 12% YoY

and 14% QoQ to INR3.2b.

We expect total subscription revenue (domestic + international) to

grow 18% YoY to INR1.6b.

Sun TV's EBITDA is estimated to grow 10% YoY to INR3.7b.

PAT is expected to increase 6% YoY to INR1.78b.

The stock trades at a P/E of 21.8x FY14E and 18.4x FY15E. Neutral.


YoY ad growth (we expect 12%), QoQ subscription growth (we expect

8%).


Net Sales 17.6 18.3 20.6 23.5

EBITDA 14.0 14.0 15.8 18.2

Adj. Net Profit 6.9 6.7 7.6 9.1

Adj. EPS (INR) 17.6 17.1 19.4 23.0

Adj. EPS Gr. (%) -10.0 -3.0 13.3 18.8

BV/Sh (INR) 67.1 72.7 78.2 87.3

RoE (%) 26.3 23.5 24.8 26.3

RoCE (%) 51.2 45.9 49.4 51.9

Div. payout (%) 53.9 58.5 62.0 52.2

Valuation

P/E (x) 24.0 24.7 21.8 18.4

P/BV (x) 6.3 5.8 5.4 4.8

EV/EBITDA (x) 11.7 11.3 9.7 8.1

Div. Yield (%) 2.3 2.4 2.8 2.8

Bloomberg SUNTV IN


M. Cap. (INR b)/(USD b) 166 / 3


1,6,12 Rel Perf. (%) 6/26/26

C–117January 2013





Advertsing Revenue 3,787 3,949 3,955 4,150 4,472 5,281 5,102 4,981 15,841 19,836

Subscription Revenue 3,051 2,910 3,262 4,022 3,641 3,950 3,918 4,017 13,245 15,526

Other Sales and Services 145 324 332 519 317 305 310 315 1,320 1,247

Net Sales 6,983 7,184 7,548 8,691 8,430 9,536 9,330 9,313 30,406 36,609

Change (%) 3.2 1.0 0.0 8.9 20.7 32.7 23.6 7.2 3.4 20.4

Prog, Transmission & Direct Exp 3,423 3,224 3,422 4,242 3,757 4,791 4,291 4,291 14,311 17,130

Staff Cost 747 688 731 759 888 873 882 902 2,925 3,544

Selling and Other Exp 1,253 1,197 1,236 2,090 1,453 1,695 1,675 1,673 5,775 6,495

EBITDA 1,560 2,076 2,160 1,600 2,332 2,177 2,482 2,448 7,395 9,440

As of % Sales 22.3 28.9 28.6 18.4 27.7 22.8 26.6 26.3 24.3 25.8

Depreciation 89 78 74 81 99 96 100 106 323 401

Finance cost 30 56 182 -219 18 23 17 15 50 73

Other Income 255 279 340 330 301 260 275 282 1,204 1,118

Extraordinary items 0 0 0 180 0 0 0 0 180 0

PBT 1,696 2,221 2,243 2,248 2,517 2,318 2,640 2,609 8,407 10,084

Tax 394 621 867 618 947 444 823 812 2,500 3,025


PAT 1,302 1,600 1,376 1,630 1,570 1,874 1,817 1,797 5,907 7,059

Minority Interest -35 40 -17 28 -12 -2 -18 -18 15 -50

Adj PAT after Minority Interest 1,337 1,560 1,393 1,422 1,582 1,876 1,835 1,815 5,712 7,109

Change (%) 10.4 23.6 22.1 -31.8 18.3 20.3 31.7 27.7 -2.4 24.5

E: MOSL Estimates

Zee Entertainment EnterprisesCMP: INR220 Neutral

We expect advertising revenue to increase 29% YoY to INR 5.1b.

We estimate subscription revenue growth of 20% YoY to INR3.9b.

EBITDA margin is expected to decline 200 bp YoY to 26.6%. Margins

would be impacted by higher programming costs, launch expenses

for new channels and higher sports loss

Adj PAT is expected to increase 32% YoY to INR1.84b.

The stock trades at a P/E of 25.9x FY14E and 21.4x FY15E. Neutral.


YoY ad growth (we expect 29%), sports loss (we expect INR200m).


Net Sales 30.4 36.6 41.4 47.6

EBITDA 7.4 9.4 10.8 12.9

Adj. Net Profit 5.7 7.1 8.2 9.9

Adj. EPS (INR) 5.9 7.4 8.5 10.3

Adj. EPS Gr. (%) -1.4 25.7 29.7 5.5

BV/Sh (INR) 35.8 41.1 47.1 54.4

RoE (%) 17.5 19.3 19.3 20.3

RoCE (%) 25.5 27.8 27.8 29.2

Div. payout (%) 24.3 25.0 25.0 25.0

Valuation

P/E (x) 37.4 29.7 25.9 21.4

P/BV (x) 6.3 5.5 4.8 4.1

EV/EBITDA (x) 27.1 21.0 18.0 14.8

Div. Yield (%) 0.7 0.8 1.0 1.2

Bloomberg Z IN


M. Cap. (INR b)/(USD b) 211 / 4


1,6,12 Rel Perf. (%) 7/41/66

C–118January 2013

December 2012 Results Preview | Sector: Metals





Hindalco 128 Buy 200,915 4.7 2.0 20,943 8.6 -3.9 8,128 8.1 -10.9

Hindustan Zinc 135 Buy 32,345 16.1 12.9 16,338 16.5 13.2 15,456 20.9 0.4

JSPL 447 Se l l 54,024 24.0 16.0 15,591 -13.0 -8.1 7,982 -21.8 -11.0

JSW Steel 806 Se l l 79,113 0.4 -10.8 13,671 9.1 -10.4 3,268 -65.9 -37.0

Nalco 50 Neutral 14,728 1.5 -8.4 980 43.2 LP 718 40.2 1,402.0

NMDC 160 Buy 21,548 -23.6 -17.5 14,361 -36.5 -25.8 13,638 -26.6 -18.8

SAIL 89 Se l l 106,134 -3.9 -1.9 11,420 -27.8 2.9 4,542 -58.6 -7.5

Sesa Goa 192 Buy 3,659 -86.0 24.3 605 -94.4 942.0 6,007 -30.9 48.2

Sterlite Inds. 114 Buy 110,664 7.4 -0.3 26,850 15.2 6.3 13,883 3.9 -8.9

Tata Steel 431 Se l l 320,248 -3.3 -6.2 24,847 29.9 7.6 -2,172 Loss Loss

Sector Aggregate 943,378 -1.3 -2.4 145,607 -6.8 -1.2 71,449 -17.1 -5.6

Sanjay Jain ([email protected]) / Pavas Pethia ([email protected])

Steel destocking continues due to lackluster demandGlobal monthly crude steel production decreased 3% MoM (up 5% YoY) to 122mt in

November. Capacity utilization continues to remain low at 76% in November. Crude

steel production in the EU, North America, China and India declined 5%, 3%, 4% and

2% respectively MoM in November. Steel demand continues to remain lackluster,

while traders continue to destock, thus maintaining lower level of inventories. Steel

inventories in North America and China have declined significantly in the past few

months. China's fixed assets investment growth continues to remain low. However,

China's Purchasing Manager Index (PMI) has been above 50 level for last three months

and was 50.6 in December.

Global steel production growth subdued, capacity utilization at 76% in November

MetalsCompanies Covered

Hindalco

Hindustan Zinc

Jindal Steel & Power

JSW Steel

Nalco

NMDC

Sesa Goa

SAIL

Sterlite Industries

Tata Steel


107

114

121

128

135

Nov-10 Mar-11 Jul -11 Nov-11 Mar-12 Jul -12 Nov-12

(m t

ons)

-10

0

10

20

30Globa l YoY (%, RHS)

C–119January 2013


Global: Monthly capacity utilization


China: Monthly crude steel production India: Monthly crude steel production

Inventory destocking continues due to demand uncertainty


60

65

70

75

80

85

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-

12

Sep-

12

Nov

-12

Perc

ent

age

Capaci ty Uti l i za tion

45

50

55

60

65

Nov

-10

Jan-

11

Ma

r-1

1

May

-11

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Ma

r-1

2

May

-12

Jul-

12

Sep

-12

Nov

-12

(m t

ons

)

-9

4

17

30

43

YoY

(%)

China YoY (%)

5.0

5.5

6.0

6.5

7.0

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep-

11

Oct

-11

De

c-11

Feb-

12

Apr

-12

Jun-

12

Jul-

12

Sep-

12

Nov

-12

(m t

ons

)

-10

0

10

20

30

YoY

(%)

India YoY (%)

5

6

7

8

9

Nov

-10

Dec

-10

Feb-

11

Apr

-11

Jun-

11

Jul-

11

Sep-

11

Nov

-11

Dec

-11

Feb-

12

Apr

-12

Jun-

12

Jul-

12

Sep-

12

Nov

-12

6

7

8

9

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

Nov

-12

China steel inventories across major cities (m tons) US steel inventories (m tons)

C–120January 2013


China PMI up 40bp to 50.6, while fixed asset investment growth continues to remain low


Global HRC prices trend downwards (USD/ton), while Chinese steel prices show signs of recovery


44

47

50

53

56

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-

11

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-

12

Sep-

12

Nov

-12

PMI

China PMI China fixed asset investment

18

23

28

33

38

Nov

-08

Mar

-09

Jul-

09

Nov

-09

Mar

-10

Jul-

10

Nov

-10

Mar

-11

Jul-

11

Nov

-11

Mar

-12

Jul-

12

Nov

-12

Gro

wth

YoY

%

China HRC prices recover, while in other regions downtrend in pricescontinuesGlobal steel prices continued their downtrend and fell in CIS, North America and

Europe by 5%, 4% and 8% respectively QoQ. Price hike announcements by some

European producers have not been effective so far as market continues to remain

subdued. On the other hand, China steel prices, which suffered the sharpest correction

in 2QFY13, have shown signs of recovery. China flat steel prices increased 6% QoQ,

while China long steel prices were flat QoQ. Differential premium between Chinese

flat and long steel prices have increased to yearly high levels of USD74/t due to lack of

infrastructure related demand.

500

620

740

860

980

Dec

-10

Ma

r-11

Ma

y-11

Jul-

11

Oct

-11

Dec

-11

Feb

-12

Ma

y-12

Jul-

12

Sep

-12

No

v-12

400

470

540

610

680CIS North America Europe RHS(Euro/ton)

500

600

700

800

Dec

-10

Feb-

11

Mar

-11

May

-11

Jul-

11

Aug

-11

Oct

-11

Nov

-11

Jan-

12

Feb-

12

Apr

-12

Jun-

12

Jul-

12

Sep-

12

Oct

-12

Dec

-12

HRC Rebar

Indian steel prices correct marginally; Steel intermediaries show majordeclineIndian steel prices also mirrored global sentiments as both long and flat steel prices

declined 2% and 1% respectively QoQ. However, flat steel prices witnessed some

uptrend in December. Corrections in steel intermediaries' prices were much sharper

as several secondary steel mills have curtailed production due to lackluster demand.

Margins continue to remain subdued for the industry. Billet, sponge and pig iron

prices have corrected 4%, 3% and 4% respectively QoQ.

C–121January 2013


Indian steel flat prices (INR/t, exl. ED & VAT) Indian steel longs prices (INR/t, exl. ED & VAT)


Steel intermediates prices (INR/t, exl. ED & VAT) Steel intermediates prices (INR/t, exl. ED & VAT)


Raw materials: Iron ore recovers but coking coal remains subduedQuarterly average iron ore prices (63.5% Fe fines CFR, China) have improved 4% QoQ,

while average coking coal prices (low vol. HCC Spot fob, Australia) continue to decline

and were down 9% QoQ. Thermal coal (Richard bay, 6,000kcal fob) prices were also

down 2% QoQ. Iron ore market is stronger due to slightly improved sentiments in

China; however, coke/coking coal market is in surplus, thus affecting prices. China

recently scrapped the 40% export tax on coke, a move aimed at aligning itself to WTO

norms and to get rid of surplus production.

Key Raw Materials (USD/T) Coal price index


C–122January 2013



Coal price index

120

180

240

300

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Spot coking coa l (fob Aus tral ia )

Domestic iron ore prices decline as secondary steel producers curtailproductionIndian iron ore prices declined significantly QoQ due to lackluster demand, especially

from secondary steel producers, who have curtailed production due to thin margins.

Iron ore fines (63% Fe) and iron ore lumps (5-18mm) prices have declined 12% and 6%

respectively QoQ. NMDC has also cut prices for both iron ore fines and lumps by an

average of 13% and 9% respectively QoQ. Average pellet prices are higher by 3% QoQ

but have shown significant correction in December.

Iron ore fines 63% (INR/t) ex mine Iron ore lumps 63% 5-18 (INR/t)

1,600

1,900

2,200

2,500

2,800

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

I ron ore fines 63%

6,000

7,000

8,000

9,000

Dec

-10

Ma

r-1

1

Jun-

11

Sep-

11

Dec

-11

Ma

r-1

2

Jun-

12

Sep-

12

Dec

-12

I ron ore lumps 5-18

Pellet (Barbil) INR/t NMDC Prices (INR/t)


7,000

7,700

8,400

9,100

9,800

Mar

-12

Apr

-12

May

-12

Jun

-12

Jul-

12

Au

g-12

Sep

-12

Oct

-12

Nov

-12

De

c-1

2

Pe l let (Barbi l )

1,500

2,500

3,500

4,500

5,500

6,500

1QCY

11

2QCY

11

3QCY

11

4QCY

11

1QCY

12

2QCY

12

Oct

-12

Nov

-12

De

c-12

10mm-150mm 6-40mm Fines

C–123January 2013


Steel outlook: Margins and prices to remain under pressure

We believe that steel prices would continue to remain weak on account of subdued

global demand. Although flat steel demand has shown an uptick, long product demand

remains subdued due to lack of infrastructure/construction related activities. Iron

ore market is showing some uptrend due to temporary tightness in global supply-

demand scenario, but long term outlook remains negative. Coking coal market is

already in surplus and supply is expected to improve further post abolishment of 40%

export tax on coking coal by China. We believe that both steel prices and margins shall

continue to remain under pressure. Indian steel producers are also facing increasing

threat of imports as global capacities look for outlets amid weak demand. So far,

domestic producers benefited from rupee depreciation which is keeping import parity

prices higher. Sharp appreciation in INR against USD could affect domestic steel

producers' margins further.

Non-ferrous - base metals prices recover 3-10% QoQ; Smelters' margins to

improve

Some signs of recovery in Chinese economy boosted base metals prices. Average

3QFY13 non-ferrous metal prices have increased 3-10% QoQ, with a sharp appreciation

in December. Base metals spot premium continues to remain at high levels. Base

metals' price appreciation augurs well for smelters (aluminum, zinc, lead) and would

boost margins. Aluminum smelters shall benefit the most as majority of them have

been operating at wafer thin margins. We factor aluminum, zinc and lead prices of

USD2,100/t, USD2,000/t and USD2,100/t respectively in FY14E.

Base metals price recovery, higher premiums and peaking costs augur well for aluminum, zinc

and lead smelters

0

1,000

2,000

3,000

4,000

Jan-0

8

Mar-08

Jun-0

8

Aug

-08

Oct-0

8

Jan-0

9

Mar-09

Jun-0

9

Aug

-09

Nov-

09

Jan-1

0

Apr-10

Jun-1

0

Sep

-10

Nov-

10

Feb

-11

Apr-11

Jul-11

Sep

-11

Nov-

11

Feb

-12

Apr-12

Jul-12

Sep

-12

Dec

-12

USD/t

on

CPC Alumina Power LME

Base metals premium at high levels


C–124January 2013





Metals

Hindalco 128 Buy 19.1 20.7 22.7 6.7 6.2 5.6 7.5 6.4 5.4 20.6 18.8 17.4

Hindustan Zinc 135 Buy 14.9 16.0 16.5 9.1 8.5 8.2 5.5 4.2 3.5 21.4 19.5 17.4

JSPL 447 Se l l 37.4 38.3 42.2 12.0 11.7 10.6 10.0 9.0 7.5 18.6 17.0 16.1

JSW Steel 806 Se l l 40.2 34.2 38.7 20.1 23.6 20.8 7.0 7.2 7.2 5.3 4.3 4.7

Nalco 50 Neutral 1.7 3.2 3.5 29.2 15.5 14.5 16.9 7.4 6.5 3.8 7.0 7.3

NMDC 160 Buy 16.6 18.6 20.5 9.6 8.6 7.8 5.5 4.7 4.1 26.3 22.8 22.1

SAIL 89 Se l l 5.9 8.4 6.8 15.2 10.7 13.0 8.9 7.7 7.7 5.9 8.1 6.3

Sesa Goa 192 Buy 30.7 24.8 28.2 6.3 7.8 6.8 25.2 30.3 15.8 17.7 14.4 16.6

Sterlite Inds. 114 Buy 17.4 17.5 17.5 6.6 6.5 6.5 3.3 2.7 2.3 13.1 11.9 10.9

Tata Steel 431 Se l l 7.9 48.3 49.8 54.4 8.9 8.6 8.5 6.6 6.5 3.0 17.8 16.3


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

3QFY13 1,941 3 2% 1,995 4% -5 7,910 3 6 2,192 11 11 326 3 -1 60,196 8 12

2QFY13 1,885 -2 -15 1,918 -3 -20 7,705 -2 -14 1,974 0 -20 316 0 -15 55,755 2 -5

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

94

96

98

100

102

104


Sens ex IndexMOSL Meta ls Index

90

100

110

120

130

Dec

-11

Feb

-12

Ap

r-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Sensex IndexMOSL Meta ls Index

C–125January 2013





Alumina (Production, kt) 335 332 343 345 335 328 355 365 1,355 1,383

Aluminium (sales, kt) 131 129 147 149 124 127 135 150 556 536

Copper (sales, kt) 73 75 84 94 71 73 86 95 325 325

Exchange USD/INR 44.7 45.4 51.0 50.2 54.5 55.5 54.2 54.0 47.9 54.5

Avg LME Aluminium (USD/T) 2,598 2,398 2,090 2,175 1,978 1,918 2,011 2,100 2,315 2,002

Net Sales 60,309 62,719 66,470 76,471 60,279 61,635 69,662 78,898 265,968 270,475

Change (YoY %) 16.5 7.0 11.3 11.7 0.0 -1.7 4.8 3.2 11.5 1.7

EBITDA 8,671 6,692 7,149 8,648 4,631 5,153 6,021 8,351 31,160 24,157

As % of Net Sales 14.4 10.7 10.8 11.3 7.7 8.4 8.6 10.6 11.7 8.9

EBITDA - Aluminium 6,761 4,758 4,532 5,258 3,415 2,609 3,719 5,784 21,309 15,528

EBITDA-Copper 1,909 1,935 2,618 3,390 1,216 2,544 2,302 2,567 9,851 8,628

Interest 667 675 793 801 815 279 290 301 2,936 1,684

Depreciation 1,754 1,741 1,747 1,658 1,705 1,728 1,782 1,824 6,900 7,038

Other Income 1,779 1,761 901 1,605 3,014 1,324 919 1,637 6,046 6,894

PBT (after EO item) 8,029 6,037 5,509 7,794 5,126 4,471 4,868 7,863 27,370 22,328

Total Tax 1,589 1,012 1,002 1,395 878 882 1,022 1,651 4,998 4,434

% Tax 19.8 16.8 18.2 17.9 17.1 19.7 21.0 21.0 18.3 19.9

Reported PAT 6,440 5,025 4,507 6,400 4,248 3,589 3,846 6,212 22,372 17,894

Adjusted PAT 6,440 5,025 4,507 6,400 4,248 3,589 3,846 6,212 22,372 17,894

Novelis Shipments (kt) 767 720 648 703 722 719 720 750 2,838 2,911

Novelis adj. EBITDA (USD m) 306 301 213 233 259 277 252 270 1,053 1,058

Consolidated adj. PAT 11,772 10,784 7,519 10,141 8,863 9,127 8,128 11,167 33,970 38,079

E: MOSL Estimates

HindalcoCMP: INR130 Buy

Net sales to increase 13% QoQ: We expect net sales to rise 13% QoQ to

INR69.7b on a lower base of 2QFY13, when aluminum production was

affected due to operational hiccups and monsoon. Aluminum sales

volume is expected to increase 6% QoQ, while copper sales volume is

likely to grow 17% QoQ. HNDL’s blended realizations for aluminum is

likely to increase 2% QoQ on higher LME, partially offset by rupee

appreciation. We expect Novelis’ shipments to remain flat QoQ at

720kt, while operating margins could decline 9% QoQ to USD350/ton.

EBITDA to increase 17% QoQ: We expect EBITDA to increase 17% QoQ

to INR6b. We estimate aluminum EBITDA to increase 43% QoQ to

INR3.7b and copper EBITDA to decrease 10% QoQ to INR2.3b.

Maintain Buy: We expect cons. PAT to post a CAGR of 10% over FY12-

15E to INR45.3b, driven by 13% CAGR in aluminum sales (India) to

800kt due to Mahan coal block commissioning and 6% volume growth

at Novelis. The stock trades at 5.6x FY15E EPS and at an EV of 5.4x FY15E

EBITDA. Maintain Buy.


Mahan coal block is critical to drive profitability of its 359ktpa Mahan

smelter. The coal block recently received stage I forest clearance.

Novelis adj. EBITDA had shown a sequential uptrend for the past three

quarters. However, we expect EBITDA to decline QoQ from USD277m

to USD252m due to some pricing pressure in developing markets.


Sa les 808.2 816.0 854.6 935.8

EBITDA 81.9 87.0 101.7 116.8

NP 34.0 38.1 41.2 45.3

Adj. EPS (INR) 17.1 19.1 20.7 22.7

EPS Gr(%) -3.0 12.1 8.2 9.9

BV/Sh. (INR) 84.9 100.9 119.9 140.8

RoE (%) 20.3 20.6 18.8 17.4

RoCE (%) 7.5 7.5 8.2 8.9

Payout (%) 10.3 9.2 8.5 7.7

Valuation

P/E (x) 7.5 6.7 6.2 5.6

P/BV 1.5 1.3 1.1 0.9

EV/EBITDA (x) 7.1 7.5 6.4 5.4

Div. Yield (%) 1.2 1.2 1.2 1.2

Bloomberg HNDL IN


M. Cap. (INR b)/(USD b) 255 / 5


1,6,12 Rel Perf. (%) 12/-4/-15

C–126January 2013





Zn (000 tons) 189 185 191 190 153 153 172 190 755 668

Pb (000 tons) 16 16 23 31 27 24 29 32 86 112

Silver (tons) 47 49 58 83 79 80 82 90 237 331

Net Sales 28,471 26,368 27,868 31,350 27,477 28,655 32,345 34,210 114,053 122,686

Change (YoY %) 44.3 19.8 6.0 -3.2 -3.5 8.7 16.1 9.1 15.1 7.6

EBITDA 15,923 14,648 14,023 16,590 14,286 14,431 16,338 18,238 60,695 63,293

As % of Net Sales 55.9 55.6 50.3 52.9 52.0 50.4 50.5 53.3 53.2 51.6

Interest 65 120 87 24 129 -21 55 55 140 217

Depreciation 1,345 1,455 1,591 1,671 1,734 1,746 1,685 1,709 6,107 6,874

Other Income 3,554 3,868 3,819 3,811 5,743 5,398 4,483 4,703 15,428 20,326

PBT (before EO item) 18,066 16,940 16,164 18,706 18,166 18,104 19,081 21,177 69,877 76,528

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 18,104 19,081 21,177 69,445 76,528

Total Tax 3,073 3,255 3,363 4,494 2,353 2,706 3,625 5,083 14,185 13,766

% Tax 17.1 19.5 20.9 24.1 13.0 14.9 19.0 24.0 20.4 18.0

Reported PAT 14,949 13,447 12,736 14,128 15,813 15,398 15,456 16,095 55,260 62,762

Adjusted PAT 14,986 13,639 12,787 14,192 15,813 15,398 15,456 16,095 55,604 62,762

Change (YoY %) 68.2 41.2 -0.8 -19.9 5.5 12.9 20.9 13.4 13.1 12.9

Avg LME Zinc (USD/T) 2,249 2,223 1,897 2,024 1,927 1,885 1,950 1,950 2,098 1,928

Avg LME Lead (USD/T) 2,550 2,458 2,009 1,982 1,973 1,974 2,200 2,200 2,250 2,087

Silver (USD/oz) 35 36 29 31 28 28 31 29 33 29

E: MOSL Estimates

Hindustan ZincCMP: INR140 Buy

Net sales to increase 16% QoQ on increased mined metal production:

We expect net sales to increase 16% QoQ (up 13% YoY) to INR32.3b on

increased mined metal production, while realizations are expected

to remain flat. LME zinc prices rose 3% QoQ to USD1,941/ton, while

lead prices rose 11% QoQ to USD2,192/ton. However, 2% QoQ INR

appreciation against USD would erode most of the gains. Mine metal

production is expected to increase 10% QoQ to 209kt, while integrated

lead/zinc sales could increase 14% QoQ to 202kt.

EBITDA to increase 17% QoQ: We expect EBITDA to increase 17% QoQ

to INR16.3b (+13% YoY) on higher sales volume. Integrated silver sales

volumes are expected to increase 2% QoQ to 82 tons.

Zinc production to remain flat in FY13; Maintain Buy: Production ramp-

up in 2HFY13 is likely to make up for lost mined metal production in

1HFY13. Integrated silver volumes would increase 40% YoY to 331 tons.

The stock trades at 8.3x FY15E EPS and at an EV of 3.5x FY15E EBITDA.

Maintain Buy.


Silver ppm of 120 at SK mine is below the mine average of 159. PPM

levels are expected to increase as the mine goes deeper. Integrated

silver production is expected to reach a run rate of 500tons by FY15.

Three mines at Zawar are awaiting Supreme Court's approval to restart

and would add ~0.8mtpa ore production capacity.


Sa les 114.1 122.7 129.1 131.0

EBITDA 60.7 63.3 70.8 72.6

NP 55.6 62.8 67.0 69.1

Adj. EPS (INR) 13.2 14.9 15.9 16.4

EPS Gr(%) 13.1 12.9 6.8 3.2

BV/Sh. (INR) 63.6 75.4 88.0 101.1

RoE (%) 22.5 21.4 19.4 17.3

RoCE (%) 27.2 25.1 23.1 20.6

Payout (%) 21.5 20.5 20.7 20.0

Valuation

P/E (x) 10.3 9.1 8.5 8.3

P/BV 2.1 1.8 1.5 1.3

EV/EBITDA (x) 6.5 5.5 4.3 3.5

Div. Yield (%) 1.8 1.9 2.1 2.1

Bloomberg HZ IN


M. Cap. (INR b)/(USD b) 572 / 10


1,6,12 Rel Perf. (%) -3/0/-12

C–127January 2013





Sales volume

Steel (000 tons) 457 598 591 737 561 639 735 741 2,385 2,676

Metalics (000 tons) 29 69 39 28 2 25 -89 -104 164 -166

Pellets (000 tons) 347 526 464 691 395 436 489 516 2,028 1,837

CPP (M kwh) 259 222 350 557 584 547 709 709 1,446 2,548

Net Sales 25,265 33,338 32,983 41,740 33,311 35,890 39,453 39,787 133,326 148,441

EBITDA 9,634 11,867 10,454 13,093 10,377 12,606 10,648 10,754 45,048 44,386

As % of Net Sales 38.1 35.6 31.7 31.4 31.2 35.1 27.0 27.0 33.8 29.9

Interest 1,325 1,459 1,553 2,490 2,186 1,779 1,870 1,870 6,827 7,705

Depreciation 2,066 2,139 2,103 2,364 2,372 2,489 2,366 2,342 8,672 9,568

Other Income 167 77 202 1,412 122 74 212 1,515 1,857 1,923

PBT (before EO item) 6,410 8,346 7,001 9,650 5,942 8,412 6,625 8,057 31,407 29,036

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 8,412 6,625 8,057 28,430 23,295

Total Tax 1,709 1,911 1,890 1,814 76 2,591 1,855 2,256 7,324 6,778

% Tax 26.7 32.6 29.1 18.8 38.1 30.8 28.0 28.0 25.8 29.1

Reported PAT 4,702 3,958 4,610 7,836 124 5,822 4,770 5,801 21,106 16,517

Adjusted PAT 4,702 6,435 5,110 7,836 4,602 5,822 4,770 5,801 24,083 20,995

JPL Power Sales (MU) 1,906 1,839 2,030 1,976 2,015 1,702 1,792 2,057 7,750 7,566

JPL PAT 4,528 4,098 4,813 4,214 3,144 2,603 2,720 3,376 17,650 11,843

Consolidated PAT 9,188 10,495 10,210 11,670 9,594 8,973 7,982 8,402 41,563 34,952

Change (YoY %) -2.4 19.1 15.4 2.0 4.4 -14.5 -21.8 -28.0 10.7 -15.9

E: MOSL Estimates

Jindal Steel & PowerCMP: INR447 Sell

Net sales to increase 20% YoY: We expect standalone net sales to rise

20% YoY (10% QoQ) to INR39.5b on liquidation of inventory

accumulated in the previous quarters. Steel sales volume would

increase 24% YoY (15% QoQ) to 735k tons. We estimate pellet sales

volume to increase 5% YoY (12% QoQ), while power sales are likely to

grow 102% YoY (up 30% QoQ) to 709m units. We assume standalone

EBITDA would decline 16% QoQ to INR10.6b on lower steel prices.

Jindal Power sales volume to decline 12% YoY: Power sales volumes

at Jindal Power are likely to decline 12% YoY (but up 5% QoQ) to 1.8b

units, while the average rate could decrease 11% YoY (up 5% QoQ) to

INR3.5/unit. PAT would increase 5% QoQ to INR2.7b.

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 earnings have peaked and expect

them to remain flat over FY12-15E. The stock trades at 10.6x FY15E EPS

and at an EV of 7.5x FY15E EBITDA. We recently downgraded to Sell.


Standalone steel business margins shall decline in line with industry

trend. However, JSP has so far shown operating margin expansion

amid declining steel realizations.

JPL's PLF has been on a declining trend lately. PLF has been 83% in the

first two months of 3QFY13.


Sa les 182.1 202.9 214.6 265.4

EBITDA 67.9 65.0 75.1 94.3

Adj. PAT 39.6 35.0 35.8 39.5

Adj. EPS (INR) 42.4 37.4 38.3 42.2

EPS Gr(%) 5.6 -11.8 2.6 10.3

BV/Sh. (INR) 193.7 207.7 242.3 280.9

RoE (%) 24.6 18.6 17.0 16.1

RoCE (%) 16.9 13.0 12.0 12.0

Payout (%) 3.9 5.5 5.4 4.9

Valuation

P/E (x) 10.5 12.0 11.7 10.6

P/BV 2.3 2.2 1.8 1.6

EV/EBITDA (x) 8.6 10.0 9.0 7.5

Div. Yield (%) 0.4 0.4 0.4 0.4

Bloomberg JSP IN


M. Cap. (INR b)/(USD b) 418 / 8


1,6,12 Rel Perf. (%) 15/-10/-30

C–128January 2013





Sales ('000 tons) 1,714 1,882 1,908 2,310 2,109 2,170 2,036 2,170 7,814 8,485

Realization (INR per ton) 41,245 40,553 41,281 41,319 42,853 40,880 38,858 37,627 41,109 40,053

Net Sales 70,694 76,321 78,765 95,447 90,376 88,709 79,113 81,664 321,227 339,862

Change (YoY %) 51.0 32.1 35.6 34.3 27.8 16.2 0.4 -14.4 37.5 5.8

EBITDA 14,082 13,104 12,534 16,518 17,728 15,252 13,671 14,100 56,238 60,750

As % of Net Sales 19.9 17.2 15.9 17.3 19.6 17.2 17.3 17.3 17.5 17.9

EBITDA (USD per ton) 184 152 129 143 154 128 124 120 150 132

Interest 2,268 2,645 3,274 3,677 4,067 4,208 4,198 3,992 11,864 16,464

Depreciation 3,879 4,039 4,444 4,720 4,678 4,812 4,956 4,990 17,082 19,435

Other Income 327 527 456 483 723 783 465 493 1,793 2,463

PBT (before EO Item) 8,263 6,947 5,271 8,604 9,706 7,015 4,981 5,611 29,085 27,313

EO Items 0 -5,130 -3,188 1,992 -5,921 4,224 0 0 -6,326 -1,697

PBT (after EO Item) 8,263 1,817 2,083 10,596 3,786 11,239 4,981 5,611 22,759 25,617

Total Tax 2,480 546 -4,600 3,074 1,096 3,016 1,644 1,852 1,499 7,607

% Tax 30.0 30.0 -220.8 29.0 28.9 26.8 33.0 33.0 6.6 29.7

Reported PAT 5,783 1,271 6,684 7,522 2,690 8,223 3,337 3,760 21,260 18,009

Preference Dividend 70 70 70 70 70 70 70 70 279 279

Adjusted PAT 5,713 5,993 9,592 5,592 6,783 5,183 3,268 3,690 26,890 18,923

Change (YoY %) 66.6 82.6 155.7 -32.3 18.7 -13.5 -65.9 -34.0 36.5 -29.6

E: MOSL Estimates

JSW SteelCMP: INR806 Sell

Revenues to remain flat YoY: We expect standalone net sales to remain

flat YoY (fall 11% QoQ) to INR79.1b due to lower steel realizations.

Average steel realizations would fall 5% QoQ (down 6% YoY) to

INR38,858/ton. Steel sales volume would decline 6% QoQ due to iron

ore availability constraint.

EBITDA to decrease 10% QoQ: We expect JSTL's EBITDA to decline 10%

QoQ to INR13.7b on lower realizations and higher iron ore cost. Iron

ore procured from e-auction has not been of consistent quality, thus

leading to higher operating cost. We expect EBITDA/ton to decrease

3% QoQ to USD124.

Low-cost iron ore benefit fades permanently in Karnataka; Maintain

Sell: Lower caps on output from Karnataka mines coupled with

increased costs, such as FBT, would result in higher iron ore prices for

JSW. We believe the benefit of low cost iron ore for steel mills in

Karnataka has faded permanently. We also expect steel prices to

correct further and erode any benefits due to lower coking coal prices.

The stock trades at an expensive 20.8x FY14E EPS and an EV of 7.2x

FY14E EBITDA. Maintain Sell.


Impact on operating cost due to availability of inferior quality ore

locally and import of ore from other states.

Production guidance for FY14 given that availability of iron ore remains

critical in Karnataka. Till now only four category A mines (~2mtpa)

have begun operations.


Sa les 343.7 367.9 361.5 370.4

EBITDA 61.0 62.3 62.7 64.2

Adj. PAT 14.8 9.0 7.6 8.6

Adj. EPS (INR) 66.5 40.2 34.2 38.7

EPS Gr(%) -11.6 -39.6 -14.9 13.3

BV/Sh. (INR) 750.7 778.1 802.3 831.0

RoE (%) 8.9 5.3 4.3 4.7

RoCE (%) 9.2 8.0 7.9 7.6

Payout (%) 25.0 16.0 18.8 17.2

Valuation

P/E (x) 12.1 20.1 23.6 20.8

P/BV 1.1 1.0 1.0 1.0

EV/EBITDA (x) 6.9 7.0 7.2 7.2

Div. Yield (%) 0.9 0.9 0.9 0.9

Bloomberg JSTL IN


M. Cap. (INR b)/(USD b) 180 / 3


1,6,12 Rel Perf. (%) 7/7/37

C–129January 2013





Aluminium Sales ('000 tons) 109 101 98 107 102 101 100 102 415 404

Alumina Sales ('000 tons) 197 180 163 285 253 190 129 221 826 793

Avg LME Aluminium (USD/ton) 2,598 2,398 2,090 2,175 1,978 1,918 2,011 2,100 2,315 2,002

Net Sales 17,625 16,139 14,509 17,845 17,481 16,083 14,728 16,916 66,118 65,208

Change (YoY %) 34.7 9.1 0.5 -2.2 -0.8 -0.3 1.5 -5.2 11.0 -1.4

EBITDA 5,298 1,526 684 3,067 3,042 -16 980 2,074 10,575 6,080

As % of Net Sales 30.1 9.5 4.7 17.2 17.4 -0.1 6.7 12.3 16.0 9.3

Interest 0 0 1 8 32 41 0 0 9 72

Depreciation 1,019 1,179 1,235 1,232 1,224 1,239 1,245 1,252 4,666 4,960

Other Income 1,266 1,321 1,262 1,594 1,403 1,391 1,321 1,255 5,442 5,371

PBT (before EO Item) 5,545 1,667 710 3,421 3,190 95 1,056 2,078 11,343 6,419

Extra-ordinary Income 0 0 0 539 0 0 0 0 539 0

PBT (after EO Item) 5,545 1,667 710 3,960 3,190 95 1,056 2,078 11,882 6,419

Total Tax 1,776 274 198 1,139 959 47 338 665 3,387 2,009

% Tax 32.0 16.4 27.9 28.8 30.1 49.5 32.0 32.0 28.5 31.3

Reported PAT 3,768 1,393 512 2,821 2,231 48 718 1,413 8,495 4,410

Adjusted PAT 3,768 1,393 512 2,437 2,231 48 718 1,413 8,109 4,410

Change (YoY %) 32.7 -37.8 -80.0 -20.2 -40.8 -96.6 40.2 -42.0 -24.2 -45.6

E: MOSL Esitmates

NalcoCMP: INR50 Neutral

Net sales to decline 8% QoQ on lower alumina sales: We expect net

sales to decline 8% QoQ (up 2% YoY) to INR17b on lower alumina

volumes. Alumina production was affected due to lower bauxite

availability. Its Panchpatmal bauxite mining operations were

temporarily shut down due to expiry of mining lease. Alumina sales

volumes would decrease 32% QoQ to 129k tons, while metal volumes

would decrease 1% QoQ to 100k tons.

EBITDA to turn positive: We expect EBITDA to improve QoQ and turn

positive to INR980m. Operating performance was severely impacted

in 2QFY13 due to insufficient and inferior quality of coal during the

monsoon.

Power cost to remain high till Utkal coal block's 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 the Mahanadi Coal Field and has to depend on high cost e-auction

and imported coal. Till the commissioning of Utkal coal block, company

would not be able to reap full benefits of its increased refining and

power capacity. Coal field linkage remains a risk. The stock trades at

14.5x FY15E EPS and an EV of 6.5x FY15E EBITDA. Maintain Neutral.


Utkal coal block remains the key to future profitability of the company.

It has received stage I forest clearance so far.

Panchpatmal bauxite mining operations were temporarily shut down

due to expiry of mining lease, which is expected to affect refinery

output in the quarter. Recently, it got a temporary 1-year work permit.


Sa les 66.1 65.2 77.5 79.4

EBITDA 11.4 6.1 12.7 13.3

NP 8.7 4.4 8.3 8.9

Adj. EPS (INR) 3.4 1.7 3.2 3.5

EPS Gr(%) -19.2 -49.0 88.9 7.0

BV/Sh. (INR) 45.5 45.5 46.9 48.5

RoE (%) 7.6 3.8 7.0 7.3

RoCE (%) 10.0 5.2 9.9 10.3

Payout (%) 48.9 95.7 57.9 54.1

Valuation

P/E (x) 14.9 29.2 15.5 14.5

P/BV 1.1 1.1 1.1 1.0

EV/EBITDA (x) 7.6 16.9 7.4 6.5

Div. Yield (%) 2.8 2.8 3.2 3.2

Bloomberg NACL IN


M. Cap. (INR b)/(USD b) 129 / 2


1,6,12 Rel Perf. (%) 10/-32/-21

C–130January 2013





Production (m tons) 6.2 7.6 7.1 7.0 6.9 5.9 5.5 6.5 27.8 24.8

Sales (m tons) 6.9 7.6 6.4 6.5 6.9 5.9 5.5 6.5 27.3 24.8

Avg Iron ore realization (USD/t) 90 88 86 79 75 81 72 76 86 76

Net Sales 27,826 30,623 28,220 25,946 28,404 26,120 21,548 26,649 112,615 102,721

Change (YoY %) 10.5 24.5 7.7 -31.2 2.1 -14.7 -23.6 2.7 -0.9 -8.8


EBITDA 22,547 24,354 22,607 19,774 23,020 19,349 14,361 18,088 89,281 74,818

As % of Net Sales 81.0 79.5 80.1 76.2 81.0 74.1 66.6 67.9 79.3 72.8

EBITDA per ton (USD) 73 70 69 61 62 60 48 52 68 56

Interest 0 0 0 15 0 0 0 0 15 0

Depreciation 338 324 345 321 328 332 340 349 1,328 1,348

Other Income 4,418 5,029 5,254 5,468 5,521 5,831 6,034 6,226 20,169 23,612

PBT (before EO Item) 26,627 29,059 27,516 24,905 28,214 24,848 20,055 23,965 108,108 97,081

Extra-ordinary Income -513 -513

PBT (after EO Item) 26,627 29,059 27,516 24,392 28,214 24,848 20,055 23,965 107,595 97,081

Total Tax 8,615 9,428 8,928 7,970 9,154 8,062 6,418 7,669 34,941 31,302

% Tax 32.4 32.4 32.4 32.7 32.4 32.4 32.0 32.0 32.5 32.2

Reported PAT 18,012 19,632 18,588 16,423 19,060 16,786 13,638 16,296 72,654 65,780

Adjusted PAT 18,012 19,632 18,588 16,768 19,060 16,786 13,638 16,296 73,000 65,780

E: MOSL Esitmates

NMDCCMP: INR160 Buy

Iron ore sales to decline 6% QoQ: We expect standalone net sales to

decline 24% YoY (down 18% QoQ) to INR21.5b due to lower iron ore

sales and realizations; iron ore sales volume to decrease 6% QoQ to

5.5m tons. Iron ore realizations could fall 12% QoQ to INR3,918/ton as

NMDC has reduced prices in the quarter due to subdued demand from

the industry, despite lower availability.

EBITDA to fall 26% QoQ: We expect EBITDA to decrease 26% QoQ to

INR14.3b on lower iron ore volumes and realizations.

Sales volumes to post 5% CAGR over FY12-15E; Maintain Buy: We

expect NMDC to deliver 32mt of iron ore sales in FY15E due to

incremental capacity coming from Deposit 11b and Kumarswamy mine.

Declining grades and availability of iron ore, strict regulatory vigil and

increasing steel capacity have shifted the domestic iron ore demand-

supply dynamics in favor of the company. The stock trades at 7.8x

FY15E EPS, 1.7x FY15E BV and an EV of 4.1x FY15E EBITDA. Maintain Buy.


Recent e-auction in Karnataka witnessed tepid response from the

steel industry despite limited ore supply. Sales volumes are expected

to decline due to lower demand. Secondary steel producers are

resorting to shutdown/curtailment of production due to thin margins.

NMDC's 3mtpa steel plant has been progressing at a slower pace. It is

unlikely to spend the budgeted FY13 capex for the project.


Sa les 112.6 102.7 118.2 129.9

EBITDA 89.3 74.8 84.6 93.8

Adj. PAT 73.2 65.8 73.6 81.3

Adj. EPS (INR) 18.5 16.6 18.6 20.5

EPS Gr(%) 12.6 -10.1 12.0 10.4

BV/Sh. (INR) 61.6 71.7 82.7 94.4

RoE (%) 31.7 26.3 22.8 22.1

RoCE (%) 31.5 26.2 22.7 22.0

Payout (%) 26.1 38.8 40.9 42.8

Valuation

P/E (x) 8.7 9.6 8.6 7.8

P/BV 2.6 2.2 1.9 1.7

EV/EBITDA (x) 4.8 5.5 4.7 4.1

Div. Yield (%) 2.8 3.4 4.1 4.7

Bloomberg NMDC IN


M. Cap. (INR b)/(USD b) 635 / 12


1,6,12 Rel Perf. (%) -2/-26/-21

C–131January 2013





Realization (USD/dmt) 102 84 93 102 99 83 0 0 99 98

Sales Qty ('000 dmt) 4,247 1,540 5,040 5,100 2,900 200 0 0 15,927 3,100

Net Sales 21,089 7,897 26,171 27,944 17,326 2,944 3,659 3,803 83,101 27,733

Change (YoY %) -12.6 -14.0 16.3 -22.9 -17.8 -62.7 -86.0 -86.4 -9.7 -66.6


EBITDA 11,474 2,600 10,852 11,579 6,762 58 605 648 36,505 8,074

Change (YoY %) -26.0 -14.3 -11.8 -45.3 -41.1 -97.8 -94.4 -94.4 -29.8 -77.9

As % of Net Sales 54.4 32.9 41.5 41.4 39.0 2.0 16.5 17.0 43.9 29.1

Interest 493 516 730 702 1,178 817 990 1,044 2,441 4,030

Depreciation 269 243 263 286 303 334 323 323 1,061 1,283

Other Income 1,521 504 180 141 151 142 47 47 2,346 386

PBT (before XO item) 12,232 2,345 10,039 10,732 5,432 -951 -661 -672 35,348 3,148

EO -15 -2,341 -1,779 79 -2,522 1,878 0 0 -4,056 -644

PBT (after XO item) 12,217 4 8,260 10,811 2,910 927 -661 -672 31,292 2,504

Tax 3,811 -9 2,564 3,848 922 351 -198 -202 10,214 873

% Tax 31.2 -245.9 31.0 35.6 31.7 37.9 30.0 30.0 32.6 34.9

Reported PAT before MI 8,406 13 5,696 6,963 1,988 576 -463 -470 21,078 1,631

Profit from associates 0 0 1,219 4,658 7,652 4,644 6,470 5,610 5,877 24,375

Adjusted PAT 8,421 2,354 8,695 11,542 11,362 4,053 6,007 5,139 31,012 26,426

Change (YoY %) -39.7 -33.0 -18.4 -20.9 34.9 72.2 -30.9 -55.5 -27.2 -14.8

E: MOSL Estimates

Sesa GoaCMP: INR180 Buy

Mining operations remain shut: We do not expect any iron ore sales

volumes from Goa due to the recent mining suspension in the state.

We estimate Sesa's revenues would decline 86% YoY to INR3.7b due

to lower pig iron and met coke sales.

EBITDA to decline 94% QoQ: In the absence of revenues from mining

business, we expect EBITDA to decline 94% QoQ to INR605m. However,

adj. PAT is likely to increase by 48% QoQ to INR6b due to higher PAT

from associate Cairn Energy.

Reducing FY14E volumes to 5.5mt; maintain Buy: We have reduced

our volume assumption for FY14E from 15.7m tons to 5.5m tons due to

a delay in restarting mining in Goa. We are assuming 3.7m tons and

1.8m tons of iron ore sales from Goa and Karnataka respectively in

FY14E. The stock trades at 6.8x FY15E EPS and an EV of 7.3x FY15E EBITDA.


Sesa Goa's Western Cluster project is on track and is expected to

deliver the first shipment in FY14. It has also acquired the remaining

49% stake in Liberia's Western Cluster project for USD33.5m.

Mining in Karnataka and Goa is expected to start in FY14 and would

contribute to FY14 sales volumes. Further delay to restart mining will

result in reductions in sales volume assumptions. We note the

company has to increasingly depend on dividend from Cairn India

and external financing to support its Liberia capex.


Sa les 83.1 27.7 27.7 49.0

EBITDA 35.0 8.1 6.9 13.2

Adj. PAT 27.6 26.7 21.5 24.5

Adj. EPS (INR) 31.8 30.7 24.8 28.2

EPS Gr(%) -34.6 -3.5 -19.2 14.0

BV/Sh. (INR) 174.0 173.5 169.6 170.7

RoE (%) 19.8 17.7 14.4 16.6

RoCE (%) 25.7 16.7 13.9 16.5

Payout (%) 7.4 7.6 19.5 16.6

Valuation

P/E (x) 6.0 6.3 7.8 6.8

P/BV 1.1 1.1 1.1 1.1

EV/EBITDA (x)* 2.5 11.4 14.2 7.3

Div. Yield (%) 1.0 1.0 2.1 2.1

* ex Cairn

Bloomberg SESA IN


M. Cap. (INR b)/(USD b) 167 / 3


1,6,12 Rel Perf. (%) 9/-13/-3

C–132January 2013





Production (m tons) 3.0 3.1 3.0 3.3 3.0 3.2 3.0 3.3 12.4 12.5

Sales (m tons) 2.75 2.85 2.60 3.20 2.50 2.60 2.8 3.2 11.4 11.1

Realization (INR per ton) 40,689 39,289 42,476 42,787 43,110 41,616 37,905 37,044 41,336 39,698

Net Sales 111,896 111,973 110,437 136,920 107,775 108,202 106,134 118,541 471,226 440,652

Change (%) 22.5 3.6 -2.4 12.9 -3.7 -3.4 -3.9 -13.4 8.6 -6.5

EBITDA 13,114 13,271 15,811 18,713 15,153 11,093 11,420 18,017 60,909 55,683

Change (YoY %) -28.8 -21.7 -12.0 -15.4 15.5 -16.4 -27.8 -3.7 -19.3 -8.6

As % of Net Sales 11.7 11.9 14.3 13.7 14.1 10.3 10.8 15.2 12.9 12.6

EBITDA per ton (USD) 107 102 119 117 111 77 75 104 111 92

Interest 1,710 2,000 1,855 1,210 1,249 1,862 1,955 2,052 6,774 8,036

Depreciation 3,742 3,938 4,093 3,891 4,018 4,026 4,228 4,439 15,664 19,881

Other Income 4,630 4,903 3,837 2,156 2,785 2,255 1,664 1,527 15,526 8,230

PBT (before EO Inc.) 12,293 12,236 13,700 15,767 12,670 7,460 6,902 13,053 53,997 35,997

EO Income(exp) -5,087 -4,663 7,246 -2,569 418 -2,504 -2,151

PBT (after EO Inc.) 12,293 7,149 9,037 23,014 10,101 7,879 6,902 13,053 51,493 33,846

Total Tax 3,913 2,203 2,716 7,244 3,137 2,448 2,071 3,916 16,076 11,571

% Tax 31.8 30.8 30.1 31.5 31.1 31.1 30.0 30.0 31.2 34.2

Reported PAT 8,381 4,946 6,321 15,770 6,964 5,431 4,831 9,137 35,418 22,276

Adjusted PAT 8,381 10,034 10,984 8,524 8,339 4,910 4,542 8,591 37,140 23,691

Change (YoY %) -28.8 -7.9 -0.8 -38.1 -0.5 -51.1 -58.6 0.8 -22.5 -36.2

E: MOSL Estimates

Steel Authority of IndiaCMP: INR89 Sell

Net sales to decline 4% YoY on lower realizations: We expect net sales

to decline 4% YoY (down 2% QoQ) to INR106b due to lower realizations

despite higher volumes. Sales volumes are likely to increase 8% YoY

to 2.8m tons. Realizations are expected to decline 11% YoY (down 9%

QoQ) to INR37,905/ton due to weak steel pricing environment.

Margins to shrink 3% QoQ to USD75/ton: We expect EBITDA/ton to

decline 3% QoQ to USD75/ton due to lower realizations. Though we

expect the benefits of lower coking coal prices to accrue slowly,

downward pressure on realizations would overshadow any

incremental benefit. Other income would fall by 26% QoQ to INR1.7b

as cash is being used to support capex.

Steel volumes to remain flat in FY13E; maintain Sell: We expect

earnings to decline 11% per annum over FY12-15E despite 8% CAGR in

volumes due to SAIL's uncompetitive cost structure, execution delays,

decline in steel realizations and poor operating efficiencies. The full

benefits of INR721b capex shall be seen only in FY15E. The stock still

appears expensive at 13x FY15E EPS and an EV of 7.7x FY15E EBITDA.

Maintain Sell.


Quantum of decline in realizations in 3QFY13, given that 2QFY13

decline was lower-than-expected.

Margins suppression as both steel and key raw material coking coal

prices declined significantly.


Sa les 466.6 444.0 488.1 524.0

EBITDA 64.0 59.6 83.4 88.5

NP 37.7 24.2 34.6 28.3

Adj. EPS (INR) 9.1 5.9 8.4 6.8

EPS Gr(%) -23.5 -35.8 42.9 -18.2

BV/Sh. (INR) 97.5 100.7 106.7 111.2

RoE (%) 9.7 5.9 8.1 6.3

RoCE (%) 10.6 7.3 8.5 7.6

Payout (%) 26.9 42.4 28.0 34.2

Valuation

P/E (x) 9.8 15.2 10.7 13.0

P/BV 0.9 0.9 0.8 0.8

EV/EBITDA (x) 7.4 8.9 7.7 7.7

Div. Yield (%) 2.2 2.2 2.2 2.2

Bloomberg SAIL IN


M. Cap. (INR b)/(USD b) 368 / 7


1,6,12 Rel Perf. (%) 11/-13/-10

C–133January 2013





Copper cathode ('000 tons) 74 87 84 80 88 87 86 82 325 343

Aluminum (BALCO, '000 tons) 61 60 63 62 60 63 62 62 246 260

Aluminum (VAL, '000 tons) 112 89 107 115 124 134 130 130 423 500

Net Sales 98,630 101,968 103,037 108,189 106,484 111,026 110,664 110,210 411,823 438,384

EBITDA 27,512 24,065 23,312 27,054 23,083 25,270 26,850 28,919 101,943 104,123

As % of Net Sales 27.9 23.6 22.6 25.0 21.7 22.8 24.3 26.2 24.8 23.8

Interest 1,643 2,372 1,790 3,280 2,419 1,777 2,196 2,503 9,085 8,896

Depreciation 4,200 4,459 4,575 5,072 5,182 5,221 5,146 5,491 18,306 21,040

Other Income 8,391 8,010 8,768 7,035 9,484 8,476 8,406 8,626 32,205 34,991

PBT (before XO item) 30,059 25,244 25,715 25,737 24,966 26,748 27,914 29,551 106,756 109,178

Extra-ordinary gain (loss) -44 -2,760 -4,231 -1,005 -2,174 2,188 0 0 -8,039 15

PBT (after XO item) 30,015 22,485 21,484 24,733 22,792 28,936 27,914 29,551 98,717 109,193

Total Tax 6,137 5,049 5,053 4,867 3,339 5,109 6,699 7,092 21,106 22,240

% Tax 20.4 22.5 23.5 19.7 14.7 17.7 24.0 24.0 21.4 20.4

Reported PAT 23,878 17,436 16,431 19,866 19,453 23,827 21,215 22,459 77,611 86,953

Less: Minority int. 6,420 5,030 4,660 5,499 5,771 5,793 5,854 6,082 21,609 23,499

add: share in associates profit -1,061 -2,428 -2,636 -1,598 -1,666 -607 -1,478 -1,240 -7,723 -4,991

Adjusted PAT 16,442 12,738 13,366 13,774 14,190 15,239 13,883 15,137 56,318 58,449

Avg LME Aluminium (USD/T) 2,598 2,398 2,090 2,175 1,978 1,918 2,011 2,100 2,315 2,002

Avg LME Copper (USD/T) 9,137 8,982 7,488 8,308 7,869 7,705 7,925 8,000 8,479 7,875

Avg LME Zinc (USD/T) 2,249 2,223 1,897 2,024 1,927 1,885 1,950 1,950 2,098 1,928

E: MOSL Estimates

Sterlite IndustriesCMP: INR114 Buy


Sa les 411.8 438.4 459.3 465.9

EBITDA (attrib.) 76.7 81.7 81.1 83.9

NP 56.1 58.5 58.7 58.6

Adj. EPS (INR) 16.7 17.4 17.5 17.4

EPS Gr(%) 9.9 4.3 0.5 -0.2

BV/Sh. (INR) 124.9 140.0 153.7 167.4

RoE (%) 14.1 13.1 11.9 10.9

RoCE (%) 15.1 14.0 14.0 12.8

Payout (%) 14.0 14.8 16.1 14.9

Valuation

P/E (x) 6.9 6.6 6.5 6.6

P/BV 0.9 0.8 0.7 0.7

EV/EBITDA (x) 4.7 4.2 3.9 3.4

Div. Yield (%) 1.8 1.9 2.1 2.3

Bloomberg STLT IN


M. Cap. (INR b)/(USD b) 384 / 7


1,6,12 Rel Perf. (%) 10/1/3

Net sales to remain flat QoQ: We expect consolidated net sales to

remain flat QoQ at INR111b as higher lead/zinc sales would be offset

by lower power revenues. Higher LME prices for all base metals shall

be partially offset due to INR appreciation against USD. Mine metal

production at HZL is expected to increase 10% QoQ to 209kt, while

integrated lead/zinc sales are likely to increase 14% QoQ to 202kt.

Aluminum production from Balco is likely to decrease 2% QoQ to 62k

tons. Copper cathode production would decrease 1% QoQ to 86k tons.

EBITDA to increase 6% QoQ: We estimate EBITDA to increase 6% QoQ

(up 15% YoY) to INR26.9b mainly on account of improved performance

by HZL. Copper EBIT is likely to increase 32% QoQ to INR3.7b, while

aluminum (Balco) EBIT would decline to 6% QoQ to INR406m. EBIT

from the power segment would decline 24% QoQ to INR1.4b.

Maintain Buy: We expect adjusted PAT to post a CAGR of only 1% over

FY12-15E to INR58.6b due to project commissioning delays, higher raw

material costs (coal and bauxite) and moderate lead/zinc production

growth. However, valuations remain attractive. The stock trades at

6.6x FY15E EPS and an EV of 3.4x FY15E EBITDA. Buy.


Sterlite Energy's 600x 3MW continues to operate at ~50% PLF due to

evacuation woes. It has 1,800MW of evacuation capacity but power

grid has restricted evacuation due to power outage in the region.

Balco's Manipat bauxite mine renewal (under progress in 3QFY13).

C–134January 2013





Sales ('000 tons) 1,593 1,648 1,622 1,768 1,590 1,730 1,800 2,350 6,631 7,470

Avg Seg.Realization (INR/tss) 45,832 46,402 47,340 49,103 51,530 48,459 46,028 44,982 47,214 47,433

Net Sales 78,603 82,119 83,819 94,794 89,080 91,506 90,188 113,509 339,335 384,283

EBITDA 31,148 27,862 26,441 29,916 29,768 25,162 26,564 31,023 115,368 112,517

(% of Net Sales) 39.6 33.9 31.5 31.6 33.4 27.5 29.5 27.3 34.0 29.3

EBITDA(USD/tss) 419 359 305 324 324 246 258 223 347 257

Interest 4,537 4,767 4,811 5,140 4,544 4,539 5,559 5,657 19,254 20,300

Depreciation 2,853 2,871 2,891 2,900 3,544 3,913 4,132 4,379 11,514 15,968

Other Income 2,564 2,495 1,976 1,829 1,519 2,397 1,857 1,866 8,864 7,639

PBT (after EO Inc.) 30,482 22,720 20,716 23,706 21,229 19,203 18,730 22,853 97,624 82,014

Total Tax 8,288 7,767 6,503 8,101 7,663 5,695 4,308 4,799 30,659 22,465

% Tax 27.2 34.2 31.4 34.2 36.1 29.7 23.0 21.0 31.4 27.4

Reported PAT 22,194 14,952 14,213 15,605 13,566 13,508 14,422 18,054 66,964 59,549

Adjusted PAT 18,034 14,952 14,213 15,605 15,536 13,412 14,422 18,054 62,804 61,423

TSE Sales (000 tons) 3,500 3,570 3,350 3,550 3,210 3,420 3,350 3,550 13,970 13,530

TSE EBITDA(USD/tss) 78 31 -44 8 35 -2 -8 26 16 13

Consolidated Financials

Net Sales 330,002 327,979 331,031 339,986 338,212 341,327 320,248 360,469 1,328,997 1,360,256

EBITDA 44,572 28,674 19,133 31,788 36,003 23,101 24,847 36,720 124,168 120,671

Adj. PAT (after MI & asso) 19,846 2,124 -6,027 4,335 7,949 -4,066 -2,172 8,601 20,279 10,311

E: MOSL Estimates; tss=ton of steel sales; 1HFY12 numbers don't reconcile with FY12 due to revised format under Schedule 6

Tata SteelCMP: INR431 Sell

Tata Steel India (TSI): We expect net revenues to increase 8% YoY (down

1% QoQ) to INR90.2b due to higher sales volume, despite lower

realizations. Steel volumes are expected to increase 11% YoY (up 4%

QoQ) to 1.8mt, while realizations are expected to decline 3% YoY (down

5% QoQ). EBITDA/ton to increase 5% QoQ to USD258/ton.

TSE and others: We expect Tata Steel Europe (TSE) and subsidiaries to

report negative USD8/ton EBITDA due to a weak pricing environment

in Europe. Steel prices declined 5% QoQ in Europe to their two-year

low levels. We also expect steel shipments to remain flat YoY (down

2% QoQ) at 3.4m tons as demand remains weak in Europe.

Steel environment challenging, price outlook negative; maintain Sell:

We assume further correction in steel prices due to a weak global

demand, lower raw material prices and slowing growth in Chinese

steel consumption. Though TSE's converter model would enable it to

get benefits of lower raw material prices, lower realizations shall

erode gains. TSI margins are also likely to decline during FY13E-15E

due to higher proportion of purchased coking coal in the mix and lower

realizations. The stock trades at 8.6x FY15E EPS and an EV of 6.5x FY15E

EBITDA. Maintain Sell.


Funding of TSE modernization and upgradation program as cash flows

are insufficient to support capex.

TSI margins' suppression due to increased use of external coke on

account of incremental volumes and lower realizations.


Sa les 1,329 1,360 1,372 1,393

EBITDA 124.2 120.7 159.0 163.6

Adj. PAT 18.1 7.7 46.9 48.4

Adj. EPS (INR) 18.6 7.9 48.3 49.8

EPS Gr(%) -70.1 -57.4 509.6 3.2

BV/Sh. (INR) 264.4 255.1 288.9 324.2

RoE (%) 7.8 3.0 17.8 16.3

RoCE (%) 9.1 6.9 10.0 10.0

Payout (%) 27.6 211.4 28.1 27.3

Valuation

P/E (x) 23.2 54.4 8.9 8.6

P/BV 1.6 1.7 1.5 1.3

EV/EBITDA (x) 7.6 8.5 6.6 6.5

Div. Yield (%) 2.8 2.8 2.8 2.8

Bloomberg TATA IN


M. Cap. (INR b)/(USD b) 419 / 8


1,6,12 Rel Perf. (%) 12/-11/2

C–135January 2013

December 2012 Results Preview | Sector: Oil & Gas

GRM down 29% QoQ, YTD down by 11%; Brent flat QoQ, however, down by 4% YTD:

Brent average crude price for 3QFY13 was flat QoQ at USD110/bbl (has averaged

~USD110/bbl for 3 quarters in FY13) and has even witnessed low volatility. However,

it was down by 4% YTD due to lower global demand and pessimism on growth. IEA/

Opec oil demand growth estimates remain weak, with 0.67-0.8mmbbl/d in 2012 and

0.8mmbbl/d in 2013.

Reuters Singapore GRMs nosedived to average USD6.5/bbl in 3QFY13 v/s USD9.1/bbl

in 2QFY13. This is primarily led by a decline in FO (averaged USD -5.4/bbl during 3QFY13

v/s USD -0.6/bbl in 2QFY13) and gasoline cracks (USD -5.4/bbl v/s USD -0.6/bbl in

2QFY13). We believe the outlook on GRMs is bleak due to weak global demand and

commissioning of new refineries (also slower pace of capacity closures).

Petchem spreads subdued: In 3QFY13, polymer spreads over naphtha are down QoQ,

while integrated polyester spreads are flat/improved marginally QoQ. However, PE

spreads are up 10% and PP spreads 6% YoY. Polymer margins are at the lowest levels in

the past ~10 years and we expect a revival with the global economic recovery.

Higher LPG losses lead to QoQ jump in under-recoveries: We estimate 3QFY13 under-

recoveries at INR415b, up 10% QoQ, primarily led by higher LPG subsidies due to

higher international prices (USD984/mt, up 38% QoQ). The impact of diesel price hike

in September 2012 led to lower under recovery at INR10.3/lt, against INR12.3/lt in

2QFY13 and YTD average of INR12/lt. Subsidy sharing would again be ad hoc as in the

previous years and it will be finalized in the last quarter. We estimate upstream sharing

at 40% and downstream sharing at nil/8% for FY13E/FY14E, with the balance being the

government's share.

Valuation and view: Recent diesel price hike and limiting subsidized LPG cylinders

would reduce under-recoveries. However, FY13 estimated under-recoveries remain

Harshad Borawake ([email protected])/Kunal Gupta([email protected])

Oil & GasCompanies Covered

BPCL

Cairn India

Chennai Petroleum

GAIL

Gujarat State Petronet

HPCL

IOC

Indraprastha Gas

MRPL

Oil India

ONGC

Petronet LNG

Reliance Industries





BPCL 345 Buy 577,243 -1.9 1.5 5,142 -86.1 -87.7 -1,443 PL PL

Cairn India 316 Neutral 43,775 41.4 -1.5 33,841 32.9 -2.0 32,156 42.2 38.5

Chennai Petroleum 137 Buy 132,523 18.8 70.3 4,148 570.4 215.8 2,593 LP 338.8

GAIL 348 Neutral 120,121 6.7 5.7 17,880 1.6 29.5 10,363 6.9 5.2

Gujarat State Petronet 76 Neutral 2,572 -6.1 -5.8 2,366 -6.0 -6.1 1,208 -4.3 -9.1

HPCL 281 Buy 469,003 -2.1 -3.2 3,877 -89.1 -82.8 -2,119 PL PL

IOC 261 Buy 1,065,835 -7.5 0.7 21,633 -79.8 -76.1 1,132 -98.7 -98.8

Indraprastha Gas 249 UR 9,098 37.5 6.5 2,009 34.9 -2.5 944 36.5 -4.9

MRPL 60 Neutral 169,368 31.0 3.8 5,390 79.0 -53.4 3,190 190.6 -73.1

Oil India 459 Buy 23,349 -6.5 -2.8 10,509 -21.3 -8.4 8,665 -14.5 -9.2

ONGC 259 Buy 188,898 4.2 -4.5 95,436 -10.5 -7.1 46,243 -0.3 -21.6

Petronet LNG 159 Buy 73,450 16.0 -2.7 4,824 -5.0 -6.9 2,948 -0.2 -6.3

Reliance Inds. 818 Neutral 939,157 10.3 4.0 69,633 -4.4 -9.6 49,831 12.2 -7.3

Sector Aggregate 3,814,392 2.2 2.5 276,689 -35.4 -33.7 155,711 -45.1 -54.6

Oil & Gas Excl. RMs 1,702,311 12.4 5.7 246,036 -1.0 -6.2 158,141 14.1 -8.7

C–136January 2013


Crude price was flat in 3QFY13 (USD/bbl) Brent-WTI spread average at USD22.5/bbl in 3QFY13 (USD/bbl)

GRM down QoQ; Crude average flat in past 3 quarters; Arab L-H spread increases QoQ

Singapore GRM down 29% QoQ to USD6.5/bbl in 3QFY13 (USD/bbl) Auto fuel cracks meaningfully up QoQ (USD/bbl)

Our key assumptions

Our crude price assumptions for FY13E/14E/15E are

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 estimate Singapore GRM at USD8/bbl in FY13E and

FY14E.

Arab L-H differential higher by USD1.5/bbl in 3QFY13 (USD/bbl)

high at INR1.7t (+20% YoY) v/s INR1.4t in FY12. Nevertheless, OMCs are trading at

attractive valuations and BPCL is our top pick for its E&P upside potential.

Recent big ticket acquisitions by OVL and likely positive policy actions and attractive

valuations augur well for ONGC and Oil India.

RIL's new projects (petcoke gasification and off-gases cracker) are likely to add to

earnings from FY15E/FY16E. However, medium term outlook on core business

remain weak, with RoE reaching sub-15%; maintain Neutral.

We also remain Neutral on GAIL and GSPL due to headwinds on incremental gas in

the medium term. However, domestic gas scarcity augurs well for Petronet LNG.

Source: Reuters/Bloomberg/MOSL

50

70

90

110

130

Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

-36

-24

-12

0

12

Dec-09 Dec-10 Dec-11 Dec-12

9.1

6.56.4

7.58.0

9.18.6

7.4

5.5

4.23.7

4.9

1.9

3.2

4.1

5.5

3.6

5.8

8.1

7.0

7.7

6.4

9.5

6.8

3.94.7

8.9

4.6

6.3

8.07.2

6.2

8.8

3QFY

05

1QFY

06

3QFY

06

1QFY

07

3QFY

07

1QFY

08

3QFY

08

1QFY

09

3QFY

09

1QFY

10

3QFY

10

1QFY

11

3QFY

11

1QFY

12

3QFY

12

1QFY

13

3QFY

13

Singapore GRM (Qtr Avg)

10.5

-4.5

-24.1

17.9 19.6

-5.5

-42

-24

-6

12

30

Gas ol ine Naphtha LPG Diesel Jet/Kero Fuel Oi l


0

2

3

5

6

Dec-09 Dec-10 Dec-11 Dec-12

C–137January 2013


Polymer spreads decline QoQ in 3QFY13 (INR/kg) POY/PSF spreads largely flat QoQ (INR/kg)

3QFY13 under-recoveries up 10% QoQ to INR415b; We model upstream share at 40% in FY13E

(INR b) FY11 FY12 FY13 FY13E FY14E FY15E

1Q 2Q 3QE 4QE

Fx Rate (INR/USD) 45.6 47.9 54.2 55.5 54.2 54.2 54.5 53.0 53.0

Brent (USD/bbl) 86.3 114.5 108.7 110.2 110.5 110.6 110.0 105.0 100.0

Gross Under recoveries (INR b)

Auto Fuels 375 812 290 237 218 203 949 728 679

Domestic Fuels 405 573 187 142 197 186 712 518 532

Total 780 1,385 477 379 415 390 1,660 1,246 1,211

Sharing (INR b)

Oil Bonds/Cash 410 835 0 300 200 496 996 648 642

Upstream 303 550 151 151 166 196 664 499 448

OMC's sharing 67 0 326 -72 49 -303 0 100 121

Total 780 1,385 477 380 417 393 1,660 1,246 1,211

Sharing (%)

Government 53 60 0 79 48 126 60 52 53

Upstream 38.8 40 32 40 40 50 40 40 37

OMC's sharing 9 0 68 -19 12 -77 0 8 10

Total 100 100 100 100 100 100 100 100 100



Petchem margins weak on QoQ basis in 3QFY13 (INR/kg)

(RIL basic prices) Simple spreads Integrated spreads

PE PP PVC POY PSF Naphtha PE PP PVC POY PSF

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 50.9 40.3 41.0 12.6 53.3 55.7

3QFY13 89.4 92.2 62.0 94.0 98.3 51.4 37.9 40.7 10.6 53.2 57.5

QoQ (%) -2.0 0.3 -2.4 0.2 2.2 1.0 -5.9 -0.6 -16.1 -0.3 3.2

YoY (%) 11.2 9.7 15.9 3.1 1.2 12.8 9.2 5.9 33.5 -3.6 -5.9

Source: Bloomberg/MOSL

Relative Performance-3m (%)


0

15

30

45

60

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

PE PP PVC

0

20

40

60

803Q

FY1

1

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

2QF

Y13

3QF

Y13

POY PSF

94

96

98100

102

104

Sep

-12

Oct

-12

No

v-12

De

c-1

2

Sens ex IndexMOSL Oi l & Gas Index

90

100

110

120

130

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Sens ex IndexMOSL Oi l & Gas Index

C–138January 2013





Oil & Gas

BPCL 345 Buy 24.6 25.0 27.3 14.0 13.8 12.7 9.9 8.0 7.4 10.8 10.2 10.3

Cairn India 316 Neutral 63.7 54.0 50.8 5.0 5.9 6.2 3.6 3.3 3.0 22.9 16.7 14.0

Chennai Petroleum 137 Buy -17.1 26.0 27.2 -8.0 5.3 5.0 25.7 5.0 4.5 -6.9 10.6 10.3

GAIL 348 Neutral 30.9 31.0 32.6 11.3 11.2 10.7 8.2 8.3 7.2 16.2 14.6 13.9

Guj. State Petronet 76 Neutral 8.8 8.9 9.5 8.6 8.5 8.0 4.9 4.5 4.0 18.5 16.1 15.0

HPCL 281 Buy 23.4 25.4 28.3 12.0 11.1 9.9 14.5 10.2 9.9 5.9 6.2 6.6

Indraprastha Gas 249 UR 26.6 30.3 33.6 9.4 8.2 7.4 5.0 4.2 3.5 27.6 26.4 24.7

IOC 261 Buy 23.2 27.7 33.6 11.2 9.4 7.8 10.5 7.9 6.7 9.1 10.2 11.5

MRPL 60 Neutral 3.2 8.5 9.3 19.0 7.1 6.5 8.1 4.5 3.8 7.5 18.1 17.3

Oil India 459 Buy 57.0 60.3 72.4 8.1 7.6 6.3 4.1 3.2 2.4 18.2 17.3 18.4

ONGC 259 Buy 28.4 32.3 33.6 9.1 8.0 7.7 3.8 3.1 2.8 16.9 17.3 16.2

Petronet LNG 159 Buy 14.0 14.5 16.1 11.3 11.0 9.8 7.6 6.1 5.5 26.7 22.7 21.2

Reliance Inds. 818 Neutral 69.3 70.8 77.3 11.8 11.6 10.6 9.4 8.8 8.1 11.9 11.2 11.1


Oil & Gas Ex RMS 9.8 9.3 8.8 5.7 4.9 4.5 14.6 13.9 13.3

High light-heavy spreads to enhance RIL premium (USD/bbl) Cairn's Rajasthan production likely to average 172kbpd


ONGC's net realizations estimated at USD41/bbl GAIL transmission volumes under pressure (mmscmd)


48.1

83.6

45.0 44.3 46.6 46.8 40.9

73.2

33.2

66.8 77.3 63.3 63.1 69.6

1Q 2Q 3Q 4Q 1Q 2Q 3QE

FY12 FY13

Net Oi l Real i za tion Subs idy

116 115

120 120117

119 119116

110106

103

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

FY11 FY12 FY13

Gas - Trans miss ion (mms cmd)

-4

2

8

14

20

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

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Premium/ (dis count)Singapore GRM (Qtr Avg)RIL

125 125 125138

167 172 172

1Q 2Q 3Q 4Q 1Q 2Q 3Q

FY12 FY13

C–139January 2013





Net Sales 461,177 422,819 588,245 646,422 545,227 568,595 577,243 640,933 2,118,662 2,331,998

Change (%) 34.7 19.7 60.4 42.9 18.2 34.5 -1.9 -0.8 39.9 10.1

EBITDA -21,861 -27,148 36,874 50,571 -81,757 41,932 5,142 74,193 38,436 39,511

Change (%) nm nm 406.3 207.6 nm nm -86.1 46.7 12.6 2.8

% of Sales -4.7 -6.4 6.3 7.8 -15.0 7.4 0.9 11.6 1.8 1.7

Depreciation 4,901 4,600 4,667 4,681 4,801 3,983 5,605 6,171 18,849 20,560

Interest 3,349 4,532 5,174 4,941 5,205 4,117 5,211 5,350 17,996 19,883

Other Income 4,492 3,987 4,389 4,382 3,395 16,516 4,231 2,053 17,250 26,195

PBT -25,619 -32,293 31,422 45,331 -88,368 50,348 -1,443 64,725 18,842 25,263

Tax 0 0 26 5,703 0 0 0 8,337 5,729 8,337

Tax rate (%) 0.0 0.0 0.1 12.6 0.0 0.0 0.0 12.9 30.4 33.0

PAT -25,619 -32,293 31,396 39,628 -88,368 50,348 -1,443 56,388 13,113 16,926

Change (%) nm nm 1,575.5 323.8 nm nm nm 42.3 -15.2 29.1

Adj. PAT -25,619 -32,293 31,396 39,628 -88,368 50,348 -1,443 56,388 13,113 16,926

Adj. EPS (INR) -35.4 -44.7 43.4 54.8 -122.2 69.6 -2.0 78.0 18.1 23.4

Key Assumption (INR b)

Gross under recovery 103 49 76 98 116 90 101 97 326 404

Upstream sharing 34 16 36 43 37 36 40 48 130 161

Govt. sharing 35 0 70 92 0 72 49 122 197 243

Net Under/(Over) recovery 34 32 -29 -36 80 -18 12 -73 0 0

As a % of Gross 32.6 66.3 nm nm 68.5 nm 11.9 nm 0.0 nm

E: MOSL Estimates

BPCLCMP: INR345 Buy

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.

3QFY13 under-recoveries are up 10% QoQ, despite full impact of diesel

price hike on September 13, 2012, primarily due to higher LPG prices.

For subsidy sharing, we estimate OMCs’ sharing at nil/8%, upstream

sharing at 40%/40% and government sharing at 60%/52% in FY13E/FY14E.

We peg refinery throughput at 6.1 mmt for 3QFY13.

We expect BPCL to report a loss of INR1.4b v/s profit of INR31b in

3QFY12 and INR50b in 2QFY13.

BPCL trades at 14x FY13E EPS and 1.5x FY13E BV. E&P upsides from

Mozambique and Brazil are the key medium term triggers for the

company. Buy.


Subsidy sharing

GRM


Sa les 2,121 2,433 2,329 2,264

EBITDA 48.1 52.3 62.5 65.3

Adj. PAT 7.8 17.8 18.1 19.7

Adj. EPS (INR) 10.8 24.6 25.0 27.3

EPS Gr. (%) -52.2 127.7 1.7 9.1

BV/Sh.(INR) 220 236 254 274

RoE (%) 5.0 10.8 10.2 10.3

RoCE (%) 5.2 5.5 7.2 7.5

Payout (%) 83.3 33.3 28.1 25.7

Valuation

P/E (x) 32.0 14.0 13.8 12.7

P/BV (x) 1.6 1.5 1.4 1.3

EV/EBITDA (x) 11.5 9.9 8.0 7.4

Div. Yield (%) 1.6 2.0 1.7 1.7

Bloomberg BPCL IN


M. Cap. (INR b)/(USD b) 250 / 5


1,6,12 Rel Perf. (%) 3/-22/15

C–140January 2013





Net Sales 37,127 26,522 30,968 36,513 44,400 44,431 43,775 44,817 131,130 177,423

Change (%) 341.7 -1.3 0.0 -0.1 19.6 67.5 41.4 22.7 27.6 35.3

EBITDA 31,748 21,040 25,456 29,812 34,921 34,516 33,841 35,067 108,056 138,345

D,D & A (inc. w/off) 3,647 3,531 5,550 4,663 4,726 4,778 5,050 5,599 17,391 20,152

Interest 446 1,228 240 305 295 188 150 135 2,220 768

Other Income (Net) 528 620 1,124 923 964 2,226 2,447 2,815 3,194 8,452

Forex Fluctuations -8 5,310 3,015 -2,170 8,663 -7,858 4,175 -1,335 6,148 3,645

Exceptional items 13,552 13,552 0

PBT 28,175 22,211 23,803 23,598 39,528 23,918 35,263 30,813 97,787 129,522

Tax 909 1,029 1,184 1,735 1,271 697 3,107 2,930 4,857 8,005

Tax rate* (%) 3.2 6.1 5.7 6.7 4.1 2.2 10.0 9.1 5.3 6.4

Adj. PAT 27,266 7,630 22,619 21,862 38,257 23,222 32,156 27,883 79,378 121,517

YoY Change (%) 868.9 -51.9 12.5 -11.0 40.3 204.3 42.2 27.5 25.3 53.1

Adj. EPS (INR) 14.3 4.0 11.9 11.5 20.1 12.2 16.9 14.6 41.6 63.7

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 54.2 54.2 47.9 54.5

Brent Price (USD/bbl) 116.8 112.9 109.3 118.8 108.7 110.0 110.0 111.3 114.5 110.0

Ravva and Cambay Prodn. 12.1 11.5 11.4 10.9 10.2 9.2 9.0 8.6 11.5 9.3

Rajasthan Production 87.6 87.7 87.6 96.3 117.0 120.3 120.4 120.4 89.8 119.5

Total 99.6 99.2 99.0 107.3 127.2 129.4 129.4 129.1 101.3 128.8

E: MOSL Estimates; * Excluding forex fluctuations, includes MAT credit.

Cairn IndiaCMP: INR316 Neutral

We expect Cairn India to report net sales of INR43.8b (v/s INR44.4b in

2QFY13), led by stable average production at its Rajasthan block. We

estimate EBITDA at INR33.8b v/s INR25.5b in 3QFY12 and INR34.5b in

2QFY13.

Company’s near term focus areas are: (1) debottlenecking of its

pipeline, (2) production ramp-up and (3) approvals on further

exploration in Rajasthan.

We estimate gross oil sales of 172kbpd from the Rajasthan field and

total net sales of 129kboepd (v/s 99kboepd in 3QFY12 and 129kboepd

in 2QFY13).

We expect other income to increase led by higher cash balance. We

estimate forex gain of INR4.2b v/s loss of INR7.9b in 2QFY13 due to 3%

rupee depreciation as on December 31, 2012, compared to September

30, 2012.

We estimate Brent crude price of USD110/105/100bbl in FY13E/14E/15E

and long term price of USD90/bbl, and take a quality discount for Cairn

India of 10.8% in FY13E and 12% long term.

The stock trades at 5x FY13E EPS of INR63.7. Maintain Neutral.


Net realization

Forex fluctuations


Sa les 131.1 177.4 178.8 178.3

EBITDA 108.1 138.3 130.0 121.6

Adj. PAT 92.9 121.5 103.0 96.8

Adj. EPS (INR) 41.6 63.7 54.0 50.8

EPS Gr. (%) 46.7 53.1 -15.2 -6.0

BV/Sh.(INR) 253 302 344 383

RoE (%) 21.0 22.9 16.7 14.0

RoCE (%) 20.3 23.5 18.2 15.4

Payout (%) 0.0 22.9 22.9 22.9

Valuation

P/E (x) 7.6 5.0 5.9 6.2

P/BV (x) 1.2 1.0 0.9 0.8

EV/EBITDA (x) 5.0 3.6 3.3 3.0

Div. Yield (%) 0.0 4.1 3.5 3.2

Bloomberg CAIR IN


M. Cap. (INR b)/(USD b) 603 / 11


1,6,12 Rel Perf. (%) -6/-17/-24

C–141January 2013





Net Sales 98,953 94,231 111,509 103,270 110,379 77,828 132,523 143,255 407,962 463,985

Change (%) 55.6 16.0 33.6 0.2 11.5 -17.4 18.8 38.7 23.1 13.7

EBITDA 642 -2,102 619 2,239 -7,848 1,314 4,148 5,405 1,398 3,020

% of Sales 0.6 -2.2 0.6 2.2 -7.1 1.7 3.1 3.8 0.3 0.7

Change (%) 255.6 nm -82.2 -61.5 nm nm 570.4 141.4 -88.4 116.0

Depreciation 913 918 910 913 894 866 885 901 3,654 3,546

Interest 587 93 956 858 1,093 1,318 1,320 1,323 2,494 5,054

Other Income 42 110 309 2,707 60 1,421 650 778 3,168 2,909

PBT -816 -3,002 -939 3,175 -9,774 551 2,593 3,959 -1,582 -2,671

Tax -265 -3,734 -305 2,103 -85 -40 0 0 -2,201 -125

Rate (%) nm nm 32.5 66.2 0.9 -7.3 0.0 0.0 139.1 4.7

PAT -551 732 -634 1,072 -9,690 591 2,593 3,959 619 -2,546

Change (%) nm -25.1 nm -65.9 nm -19.2 nm 269.4 -87.9 nm

Adj PAT -551 732 -634 1,072 -9,690 591 2,593 3,959 619 -2,546

EPS (INR) -3.7 4.9 -4.3 7.2 -65.0 4.0 17.4 26.6 4.2 -17.1

Key Assumptions

GRM (USD/bbl) 2.4 0.3 3.4 4.5 -2.2 4.6 4.8 6.3 2.6 3.4

Throughput (mmt) 2.5 2.6 2.7 2.7 2.5 1.9 3.2 3.3 10.6 10.9

E: MOSL Estimates

Chennai Petroleum CorporationCMP: INR137 Buy

We expect CPCL to report 3QFY13 PAT of INR2.6b v/s INR1.5b in 3QFY12

and INR591m in 2QFY13.

EBITDA is expected to be INR4.2b, against INR1.3b in 2QFY13 mainly

due to higher throughput at 3.2 mmt, against 1. 9 during 2QFY13.

Regional benchmark Reuters Singapore GRM is down 29% QoQ to

USD6.5/bbl from USD9.1/bbl.

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 CPCL, we assume GRM of USD3.4/bbl for FY13E and USD6/bbl for

FY14E. The stock trades at FY14E P/E of 5.3x and EV/EBITDA of 5x.

Maintain Buy.


GRM

Inventory changes


Sa les 408.0 464.0 515.0 475.6

EBITDA 1.4 3.0 15.0 15.2

Adj. PAT 0.6 -2.5 3.9 4.1

Adj. EPS (INR) 4.2 -17.1 26.0 27.2

EPS Gr. (%) -87.9 -511.6 -252.2 4.6

BV/Sh.(INR) 255 237 254 272

RoE (%) 1.6 -6.9 10.6 10.3

RoCE (%) 1.1 2.7 11.9 12.1

Payout (%) 56.4 0.0 36.0 34.4

Valuation

P/E (x) 33.1 -8.0 5.3 5.0

P/BV (x) 0.5 0.6 0.5 0.5

EV/EBITDA (x) 43.4 25.7 5.0 4.5

Div. Yield (%) 1.3 0.0 5.8 5.8

Bloomberg MRL IN




1,6,12 Rel Perf. (%) 6/0/-35

C–142January 2013





Net Sales 88,674 96,990 112,598 104,546 110,886 113,612 120,121 152,050 402,807 496,669

Change (%) 25.0 19.7 34.6 17.6 25.0 17.1 6.7 45.4 24.1 23.3

EBITDA 15,556 16,482 17,605 7,338 18,991 13,803 17,880 13,767 56,981 64,441

% of Net Sales 17.5 17.0 15.6 7.0 17.1 12.1 14.9 9.1 14.1 13.0

Change (%) 8.4 15.0 33.9 -42.3 22.1 -16.3 1.6 87.6 4.5 13.1

PBT 14,429 15,682 15,980 7,309 16,846 13,736 15,467 11,168 53,400 57,217

Tax 4,582 4,738 5,066 2,476 5,508 3,882 5,104 3,528 16,862 18,023

Rate (%) 31.8 30.2 31.7 33.9 32.7 28.3 33.0 31.6 31.6 31.5

PAT 9,847 10,944 10,914 4,833 11,338 9,854 10,363 7,640 36,538 39,194

Change (%) 11.0 18.5 12.8 -38.3 15.1 -10.0 -5.1 58.1 2.6 7.3

Adj PAT 9,847 10,944 9,691 3,610 11,338 9,854 10,363 7,640 34,092 39,194

EPS (INR) 7.8 8.6 7.6 2.8 8.9 7.8 8.2 6.0 26.9 30.9

Key Assumptions

Gas Trans. volume (mmsmd) 117 119 119 116 110 106 103 102 118 105

Petchem sales ('000MT) 88 129 113 118 66 101 108 110 448 385

Segmental EBIT Breakup (INRm)

Transmission

Natural Gas 6,520 5,562 6,208 3,248 5,673 6,049 4,899 4,674 21,539 21,295

LPG 690 722 775 533 709 -489 633 651 2,720 1,504

Natural Gas Trading 3,131 2,866 3,230 1,659 4,956 2,447 2,210 2,513 10,886 12,126

Petrochemicals 2,434 4,041 3,875 4,309 1,958 4,182 3,735 3,914 14,658 13,788

LPG & Liq.HC (pre-subsidy) 9,104 9,187 8,416 10,663 11,373 8,521 13,078 10,889 37,371 43,861

Unallocated; GAILTEL -335 -818 -436 -375 81 69 90 144 -1,964 384

Total 21,544 21,560 22,068 20,037 24,751 20,779 24,645 22,785 85,209 92,959

Less: Subsidy -6,819 -5,666 -5,361 -13,980 -7,000 -7,857 -8,678 -10,911 -31,826 -34,446

Total 14,725 15,894 16,707 6,057 17,751 12,922 15,967 11,873 53,383 58,513

E: MOSL Estimates

GAIL (India)CMP: INR348 Neutral

We expect GAIL to report adjusted PAT of INR10.4b (down 5%YoY but

up 5% QoQ).

Subsidy sharing assumption: For FY13E, we model upstream sharing

at 40%, similar to FY12. We also assume GAIL’s share at INR9.5b

(excluding writeback of last quarter’s excess provision) in 3QFY13 v/s

INR5.4b in 3QFY12 and INR7.9b in 2QFY13.

We estimate gas transmission volumes at 103mmscmd v/s 119 in

3QFY12 and 106 in 2QFY13. Segmental EBIT (pre-subsidy) is expected

to be up 18% QoQ, primarily due to higher LPG realizations (up 33%

QoQ). This is partly negated by lower EBI from natural gas transmission

and trading segment.

Adjusted for investments, the stock trades at 9.1x FY14E EPS of INR31.

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.


a) Subsidy sharing, b) Transmission volumes.


Sa les 402.8 496.7 532.4 601.1

EBITDA 57.0 64.4 68.6 78.6

Adj. PAT 36.5 39.2 39.3 41.3

Adj. EPS (INR) 28.8 30.9 31.0 32.6

EPS Gr. (%) 2.6 7.3 0.4 5.1

BV/Sh.(INR) 170 191 212 235

RoE (%) 16.9 16.2 14.6 13.9

RoCE (%) 19.0 17.4 15.0 15.2

Payout (%) 35.1 32.7 32.6 31.0

Valuation

P/E (x) 9.7 9.1 9.1 8.6

P/BV (x) 1.6 1.5 1.3 1.2

EV/EBITDA (x) 8.1 7.7 7.8 6.8

Div. Yield (%) 2.6 2.6 2.6 2.6

Bloomberg GAIL IN


M. Cap. (INR b)/(USD b) 441 / 8


1,6,12 Rel Perf. (%) 0/-16/-34

C–143January 2013


Quarterly Performance (INR Milllion)



Net Sales 2,843 2,808 2,739 2,763 2,676 2,732 2,572 2,532 11,153 10,511

Change (%) 12.9 11.0 -1.9 8.3 -5.9 -2.7 -6.1 -8.4 7.3 -5.8

EBITDA 2,619 2,584 2,518 2,520 2,465 2,520 2,366 2,321 10,241 9,672

% of Net Sales 92.1 92.0 91.9 91.2 92.1 92.2 92.0 91.7 91.8 92.0

Change (%) 10.0 11.3 -3.9 9.7 -5.9 -2.5 -6.0 -7.9 6.5 -5.6

Depreciation 453 440 460 466 439 464 470 484 1,819 1,857

Interest 324 337 325 316 317 316 324 340 1,302 1,297

Other Income 112 143 175 165 176 226 230 240 593 872

PBT 1,954 1,949 1,907 1,902 1,884 1,966 1,802 1,736 7,714 7,389

Tax 581 656 646 610 636 638 595 570 2,493 2,438

Rate (%) 29.7 33.7 33.9 32.0 33.7 32.5 33.0 32.8 32.3 33.0

PAT 1,374 1,293 1,261 1,293 1,248 1,328 1,208 1,167 5,221 4,951

Change (%) 31 41 -21 -14 -9 3 -4 -10 3 -5

EPS (INR) 2.4 2.3 2.2 2.3 2.2 2.4 2.1 2.1 9.3 8.8

Transmission Vol. (mmscmd) 36.8 35.2 32.8 31.1 31.1 28.6 27.5 27.4 34.0 28.7

Implied tariff (INR/mscm) 850 835 899 956 903 993 950 955 872 950

E: MOSL Estimates

Gujarat State PetronetCMP: INR76 Neutral

We expect GSPL to report net sales of INR2.6b and PAT of INR1.2b

(down 6% and 9% QoQ).

We estimate lower gas transmission volumes at 27.5mmscmd in

3QFY13 (v/s 32.8mmscmd in 3QFY12 and 27.5mmscmd in 2QFY13) led

by a decline in KG-D6 production.

The recent tariff approval by PNGRB for GSPL’s high pressure pipeline

indicates 12.5% tariff cut for GSPL. Also, GSPL will have to (a) adjust

the change in tariff and (b) return the cost of system use gas (SUG),

including unaccounted gas, with retrospective effect from November

20, 2008 (date of notification for PNGRB regulations).

GSPL has won all 3 bids for cross-country pipelines conducted by PNGRB

last year. We await clarity on the timelines and other details regarding

these pipelines.

We estimate gas transmission volumes of 28.7mmscmd in FY13E and

29mmscmd in FY14E. We model average tariff at INR950/mscm in FY13E

and INR920/mscm in FY14E. The stock trades at 8.5x FY14E EPS of INR8.9.

Maintain Neutral.


Transmission volumes

Tariff


Sa les 11.2 10.5 10.4 10.4

EBITDA 10.2 9.7 9.5 9.5

Adj. PAT 5.2 5.0 5.0 5.4

Adj. EPS (INR) 9.3 8.8 8.9 9.5

EPS Gr. (%) 3.1 -5.2 1.6 6.7

BV/Sh.(INR) 44 51 59 68

RoE (%) 23.3 18.5 16.1 15.0

RoCE (%) 23.6 20.4 18.1 17.4

Payout (%) 13.0 12.6 13.3 13.1

Valuation

P/E (x) 8.2 8.6 8.5 8.0

P/BV (x) 1.7 1.5 1.3 1.1

EV/EBITDA (x) 5.0 4.9 4.5 4.0

Div. Yield (%) 1.3 1.3 1.3 1.3

Bloomberg GUJS IN




1,6,12 Rel Perf. (%) 3/-2/-30

C–144January 2013





Net Sales 407,980 370,302 479,174 523,936 440,765 484,639 469,003 449,872 1,781,392 1,844,279

Change (%) 39.6 31.6 41.3 32.1 8.0 30.9 -2.1 -14.1 36.1 3.5

EBITDA -26,873 -29,437 35,725 54,667 -88,759 22,480 3,877 87,205 34,082 24,803

% of Net Sales -6.6 -7.9 7.5 10.4 -20.1 4.6 0.8 19.4 1.9 1

Change (%) 66.3 nm 470.1 176.8 nm nm -89.1 59.5 3.0 -192.3

Depreciation 3,886 4,150 4,368 4,726 4,544 4,910 5,015 5,203 17,129 19,673

Interest 2,641 3,028 6,982 4,326 5,492 3,899 3,901 3,206 16,977 16,498

Other income 2,585 2,971 2,876 3,790 6,337 9,600 2,919 2,440 12,222 21,296

Exceptional Item 12 0 -17 -29 0 0 0 -5 -29

PBT -30,803 -33,644 27,252 49,387 -92,488 23,271 -2,119 81,235 12,193 9,898

Tax 0 0 0 3,077 0 0 0 1,980 3,077 1,980

Rate (%) 0.0 0.0 0.0 6.2 0.0 0.0 0.0 2.4 25.2 20.0

PAT -30,803 -33,644 27,252 46,310 -92,488 23,271 -2,119 79,255 9,115 7,919

Change (%) 63.5 nm 1,191.6 312.5 nm nm nm 71.1 -40.8 -13.1

Adj. EPS (INR) -90.9 -99.2 80.4 136.6 -272.8 68.6 -6.3 233.8 26.9 23.4

Key Assumptions (INR b)



Govt. subsidy 33 0 66 85 0 67 46 113 183 225

Net Under recovery 31 31 -28 -34 73 -17 11 -68 0 0

Net Sharing (%) 32 67 nm nm 69 nm 12 nm nm nm

E: MOSL Estimates

HPCLCMP: INR281 Buy



fundamentals. Government’s subsidy compensation typically comes

with a delay.



For subsidy sharing, we model OMCs’ sharing at nil/8%, upstream


We peg refinery throughput at 4.1 mmt for 3QFY13.

We expect HPCL to report a loss of INR2b v/s profit of INR27b in 3QFY12

and INR23b in 2QFY13.

HPCL trades at 12x FY13E EPS and 0.7x FY13E BV. We have a Buy rating

due to attractive valuations.


Subsidy sharing

GRM


Sa les 1,781 1,844 2,068 1,978

EBITDA 34.1 24.8 36.4 36.7

Adj. PAT 9.1 7.9 8.6 9.6

Adj. EPS (INR) 26.9 23.4 25.4 28.3

EPS Gr. (%) -40.8 -13.1 8.5 11.6

BV/Sh.(INR) 387 403 421 441

RoE (%) 7.1 5.9 6.2 6.6

RoCE (%) 6.7 6.0 6.6 6.6

Payout (%) 60.4 30.1 31.4 28.5

Valuation

P/E (x) 10.5 12.0 11.1 9.9

P/BV (x) 0.7 0.7 0.7 0.6

EV/EBITDA (x) 9.3 10.3 7.3 7.1

Div. Yield (%) 3.0 2.1 2.4 2.5

Bloomberg HPCL IN




1,6,12 Rel Perf. (%) -1/-30/-14

C–145January 2013





Net Sales 1,007,239 891,456 1,152,084 1,277,355 966,028 1,057,913 1,065,835 1,305,218 4,328,133 4,394,993

Change (%) 40.5 16.1 43.4 30.0 -4.1 18.7 -7.5 2.2 32.3 1.5

EBITDA -24,225 -53,618 107,247 140,402 -202,360 90,627 21,633 221,816 169,807 131,716

% of Net Sales -2.4 -6.0 9.3 11.0 -20.9 8.6 2.0 17.0 3.9 3.0

Change (%) nm nm 293.2 163.7 nm nm -79.8 58.0 45.7 -22.4

Depreciation 12,235 12,638 12,839 10,966 12,775 12,865 13,548 15,310 48,678 54,498

Interest 10,376 14,840 15,652 15,038 18,491 15,108 17,384 16,628 55,905 67,611

Other Income 9,649 6,241 7,810 25,699 9,117 33,460 10,530 8,232 49,398 61,338

PBT -37,187 -74,855 86,566 140,098 -224,510 96,113 1,231 198,110 114,621 70,945

Tax 0 0 0 -2,003 0 0 98 14,090 -2,003 14,189

Rate (%) nm nm nm -1.4 nm 0.0 8.0 7.1 -1.7 20.0

Adj. PAT -37,187 -74,856 86,566 142,101 -224,510 96,113 1,132 184,019 116,624 56,757

Change (%) nm nm 429.5 263.9 nm nm -98.7 29.5 56.6 -51.3

Extraordinary Items -61,682 -15,396 0 0 0 0 -77,078 0

PAT -37,187 -74,856 24,884 126,704 -224,510 96,113 1,132 184,019 39,546 56,757

Adj. EPS (INR) -15.3 -30.8 35.7 58.5 -92.5 39.6 0.5 75.8 48.0 23.4

Key Assumptions (INR b)



Govt. sharing 82 0 164 209 0 161 108 270 455 539

Net Under recovery 77 78 -70 -85 175 -38 27 -163 0 0

As a % of Gross 32.2 66.7 nm nm 68.5 nm 11.9 nm 0.0 nm

E: MOSL Estimates

Indian Oil CorporationCMP: INR261 Buy



fundamentals. Government’s subsidy compensation typically comes

with a delay.



For subsidy sharing, we model OMCs’ sharing at nil/8%, upstream


We peg the refinery throughput at 14 mmt respectively for 3QFY13.

We expect IOCL to report PAT of INR1b v/s INR25b in 3QFY12 and INR96b

in 2QFY13.

The stock trades attractively at 1x FY13E book value and 11.2x FY13E

EPS. Buy.


Subsidy sharing

GRM


Sa les 4,072 4,092 4,003 3,846

EBITDA 180.3 137.0 182.6 210.3

Adj. PAT 119.3 56.4 67.3 81.5

Adj. EPS (INR) 49.2 23.2 27.7 33.6

EPS Gr. (%) 52.4 -52.7 19.2 21.1

BV/Sh.(INR) 249 264 282 304

RoE (%) 20.2 9.1 10.2 11.5

RoCE (%) 12.9 9.4 10.2 11.3

Payout (%) 10.2 30.1 28.9 29.8

Valuation

P/E (x) 5.3 11.2 9.4 7.8

P/BV (x) 1.0 1.0 0.9 0.9

EV/EBITDA (x) 7.4 9.4 7.0 6.0

Div. Yield (%) 1.9 2.7 3.1 3.8

Bloomberg IOCL IN


M. Cap. (INR b)/(USD b) 633 / 12


1,6,12 Rel Perf. (%) -2/-13/-22

C–146January 2013





Net Sales 5,364 5,969 6,615 7,203 7,602 8,546 9,098 9,431 25,151 34,678

Change (%) 60.1 34.1 45.5 41.4 41.7 43.2 37.5 30.9 44.2 37.9

EBITDA 1,573 1,574 1,488 1,685 1,793 2,060 2,009 1,994 6,320 7,856

EBITDA (INR/scm) 5.6 5.1 4.7 5.3 5.6 6.1 5.6 5.5 5.2 5.7

% of Net Sales 29.3 26.4 22.5 23.4 23.6 24.1 22.1 21.1 25.1 22.7

Change (%) 47.4 27.9 17.3 24.2 13.9 30.9 34.9 18.4 28.4 24.3

Depreciation 322 344 368 397 427 477 492 506 1,432 1,902

Interest 90 118 135 136 155 140 148 148 479 591

Other Income 24 21 31 27 36 39 42 45 103 161

PBT 1,185 1,132 1,016 1,179 1,247 1,482 1,411 1,385 4,512 5,524

Tax 384 360 324 372 396 489 467 452 1,440 1,804

Rate (%) 32.4 31.8 31.9 31.5 31.8 33.0 33.1 32.6 31.9 32.7

PAT 801 772 692 808 850 992 944 933 3,072 3,720

PAT (INR/scm) 2.8 2.5 2.2 2.5 2.6 2.9 2.6 2.6 2.5 2.7

Change (%) 40.1 16.5 2.9 16.8 6.2 28.5 36.5 15.6 18.3 21.1

EPS (INR) 5.7 5.5 4.9 5.8 6.1 7.1 6.7 6.7 21.9 26.6

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 0.88 0.90 0.87 0.77 0.88

Total 3.10 3.34 3.41 3.52 3.55 3.69 3.87 4.06 3.34 3.79

E: MOSL Estimates

Indraprastha GasCMP: INR249 Under Review

We expect IGL to report 3QFY13 volumes of 3.87mmscmd and PAT of

INR944m (up 36% YoY but down 5% QoQ).

Historically, due 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 the absence of KG-D6 gas

supply, there is pressure on company’s margin as it is sourcing more

expensive RLNG to meet demand.

We expect 3QFY13 CNG volumes to grow 13% YoY to 3mmscmd and

PNG volumes to grow 17% YoY to 0.9mmscmd.

We assume total volumes of 3.8/4.3mmscmd in FY13E/FY14E. The stock

trades at 9.4x FY13E EPS of INR26.6.

Post the High Court quashing PNGRB’s tariff cut order, it has now

approached the Supreme Court and the hearing is in progress. Given

the uncertainty in the likely judgment and impact on profitability of

the company, we keep our rating Under Review.


EBITDA margin

Sales volume


Sa les 25.2 34.7 42.2 50.0

EBITDA 6.3 7.9 8.7 9.6

Adj. PAT 3.1 3.7 4.2 4.7

Adj. EPS (INR) 21.9 26.6 30.3 33.6

EPS Gr. (%) 18.4 21.1 14.0 10.8

BV/Sh.(INR) 88 105 125 147

RoE (%) 27.5 27.6 26.4 24.7

RoCE (%) 33.2 33.4 31.7 30.2

Payout (%) 22.8 30.1 29.7 29.8

Valuation

P/E (x) 11.4 9.4 8.2 7.4

P/BV (x) 2.8 2.4 2.0 1.7

EV/EBITDA (x) 6.1 5.0 4.2 3.5

Div. Yield (%) 2.0 3.2 3.6 4.0

Bloomberg IGL IN




1,6,12 Rel Perf. (%) -6/-10/-55

C–147January 2013





Net Sales 133,691 116,657 129,308 158,384 128,099 163,101 169,368 187,762 538,040 648,329

Change (%) 69.9 39.6 25.3 27.6 -4.2 39.8 31.0 18.5 38.1 20.5

EBITDA 2,225 754 3,011 7,821 -12,966 11,569 5,390 8,335 13,811 12,327

% of Net Sales 1.7 0.6 2.3 4.9 nm 7.1 3.2 4.4 2.6 1.9

Change (%) 67 -80 -45 -8 nm 1,435 79 7 -27.2 -10.7

Depreciation -952 -965 -1,174 -1,248 -1,375 -1,456 -1,498 -1,503 -4,339 -5,832

Interest -270 -999 -423 -375 -1,102 -701 -789 -982 -2,067 -3,574

Other Income 1,352 1,522 248 2,697 495 3,205 650 747 5,819 5,097

Exceptional items -11 8 47 -22 0 -30 0 0 22 -30

PBT 2,366 304 1,615 8,918 -14,948 12,647 3,753 6,596 13,203 8,048

Tax -639 -63 -518 -2,897 -257 -796 -563 -879 -4,116 -2,495

Rate (%) nm 20.6 32.0 32.5 nm 6.3 15.0 13.3 31.2 31.0

PAT 1,727 241 1,098 6,021 -15,206 11,851 3,190 5,718 9,086 5,553

Change (%) 506.8 -91.5 -65.0 8.9 nm 4,811.4 190.6 -5.0 -22.9 -38.9

EPS (INR) 1.0 0.1 0.6 3.4 -8.7 6.8 1.8 3.3 5.2 3.2

GRM (USD/bbl) 3.0 1.7 3.8 7.1 -4.2 9.2 4.7 6.3 3.9 4.0

Throughput (mmt) 3.3 3.1 3.0 3.4 2.9 3.6 3.7 4.0 12.8 14.2

E: MOSL Estimates

MRPLCMP: INR60 Neutral

We expect MRPL to report 3QFY13 PAT of INR3.2b (v/s INR1.1b in 3QFY12

and INR12b in 2QFY13).

EBITDA is expected at INR5.4b (v/s INR7.4b in 3QFY12 and INR11.6b in

2QFY13). Regional benchmark Reuters Singapore GRM is down 29%

QoQ to USD6.5/bbl from USD9.1/bbl due to decline in fuel oil cracks.

On the operational front, we expect refinery throughput at 3.7mmt.

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 assume GRM of USD4/bbl for FY13E and USD7.3/bbl for

FY14E. The stock trades at FY14E P/E of 7.1x and EV/EBITDA of 4.3x.

Maintain Neutral.


GRM

Forex fluctuations

Inventory changes


Sa les 537.7 648.3 649.2 629.9

EBITDA 22.6 18.8 34.7 36.3

Adj. PAT 9.1 5.6 14.9 16.3

Adj. EPS (INR) 5.2 3.2 8.5 9.3

EPS Gr. (%) -22.8 -38.9 167.9 9.3

BV/Sh.(INR) 41 44 50 57

RoE (%) 13.2 7.5 18.1 17.3

RoCE (%) 19.2 10.2 16.9 21.2

Payout (%) 22.4 22.2 23.4 24.0

Valuation

P/E (x) 11.6 19.0 7.1 6.5

P/BV (x) 1.5 1.4 1.2 1.1

EV/EBITDA (x) 6.2 7.9 4.3 3.5

Div. Yield (%) 1.7 1.0 2.8 3.2

Bloomberg MRPL IN


M. Cap. (INR b)/(USD b) 106 / 2


1,6,12 Rel Perf. (%) -2/-4/-9

C–148January 2013


Quarterly Performance (Standalone) (INR Billion)



Net Sales 22.9 32.7 25.0 17.2 23.3 24.0 23.3 20.6 97.7 91.3

Change (%) 50.2 37.8 4.5 -14.8 2.0 -26.6 -6.5 20.0 0.0 -6.5

EBITDA 12.5 16.2 13.3 4.8 11.0 11.5 10.5 7.3 46.9 40.3

% of Net Sales 54.5 49.5 53.5 28.0 47.0 47.8 45.0 35.6 47.9 44.1

Change (%) 67.8 19.9 -3.4 -50.0 -12.2 -29.2 -21.3 52.2 5.5 267.5

D,D&A 3.6 5.9 2.9 2.8 2.0 2.6 3.0 3.2 15.3 10.8

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 5.2 5.4 5.9 19.5 21.4

PBT 12.6 17.1 15.1 6.2 13.8 14.1 12.9 10.1 51.0 50.9

Tax 4.1 5.7 5.0 1.7 4.5 4.6 4.3 3.3 16.5 16.6

Rate (%) 32.4 33.5 33.0 28.2 32.5 32.4 33.0 32.9 32.4 32.7

PAT 8.5 11.4 10.1 4.4 9.3 9.5 8.7 6.8 34.5 34.3

Change (%) 69.5 24.3 1.2 -20.9 9.5 -16.2 -14.5 51.9 15.6 268.5

Adj. PAT 8.5 11.4 10.1 4.4 9.3 9.5 8.7 6.8 34.5 34.3

Adj. EPS (INR) 14.1 18.9 16.9 7.4 15.5 15.9 14.4 11.2 57.3 57.0

Key Assumptions (USD/bbl)

Exchange rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.2 54.2 47.9 54.5

Gross Oil Realization 116.3 112.5 110.1 119.7 109.8 108.6 109.0 111.3 114.7 109.7

Subsidy 56.8 26.2 53.1 80.8 55.9 56.1 58.8 67.6 54.2 59.6

Net Oil Realization 59.6 86.3 57.0 38.9 53.9 52.5 50.2 43.7 60.4 50.1

Subsidy (INR b) 17.8 8.4 18.5 28.7 20.2 20.8 22.1 25.9 73.5 88.9

E: MOSL Estimates

Oil IndiaCMP: INR459 Buy

We expect Oil India to report 3QFY13 PAT of INR8.7b (v/s INR10.1b in

3QFY12 and INR9.5b in 2QFY13). We estimate EBITDA at INR10.5b (down

21% YoY and 10% QoQ).

We estimate gross realization at USD109.0/bbl v/s USD110.1 in 3QFY12

and USD108.6 in 2QFY13 and net realization at USD50.2/bbl v/s USD57

in 3QFY12 and USD52.5 in 2QFY13.

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

estimate Oil India to share INR22.1b (USD59/bbl) in 3QFY13.

Our Brent price assumption is USD110/105/100/90bbl for FY13E/14E/

15E/long-term and we model upstream sharing at 40% in FY13E/14E

and 35% beyond that.

The stock trades at 7.6x FY14E EPS of INR60.3. We remain positive on

Oil India due to its strong operational foothold: (1) steady production

growth, (2) high share of oil in its reserves (50% in 1P and 62% in 2P)

and (3) attractive valuations (>40% discount to its global peers on EV/

BOE, 1P basis). Buy.


Subsidy sharing

DD&A charges

Oil & gas production volumes


Sa les 97.7 91.3 108.3 120.4

EBITDA 46.9 40.3 51.9 60.3

Adj. PAT 33.7 34.3 36.3 43.5

Adj. EPS (INR) 56.1 57.0 60.3 72.4

EPS Gr. (%) 16.9 1.5 5.8 20.1

BV/Sh.(INR) 295 330 368 418

RoE (%) 20.3 18.2 17.3 18.4

RoCE (%) 27.7 25.3 24.1 25.7

Payout (%) 38.4 38.4 36.1 31.4

Valuation

P/E (x) 8.2 8.1 7.6 6.3

P/BV (x) 1.6 1.4 1.2 1.1

EV/EBITDA (x) 3.6 4.1 3.2 2.4

Div. Yield (%) 4.1 4.1 4.1 4.4

Bloomberg OINL IN


M. Cap. (INR b)/(USD b) 276 / 5


1,6,12 Rel Perf. (%) -2/-21/-23

C–149January 2013


Quaterly performance (Standalone) (INR Billion)



Net Sales 162.0 226.2 181.2 188.2 200.8 197.9 188.9 163.1 757.6 750.7

Change (%) 18.5 24.3 -2.5 22.2 24.0 -12.5 4.2 -13.3 15.1 -0.9

EBITDA 92.7 141.6 106.6 110.6 110.4 102.7 95.4 92.2 451.4 400.7

% of Net Sales 57.2 62.6 58.8 58.8 55.0 51.9 50.5 56.5 59.6 53.4

D,D & A 41.2 32.8 45.3 49.1 32.0 37.3 43.4 50.1 168.4 162.8

Interest 0.0 0.1 0.0 0.2 0 0 0 0.5 0.3 1.0

Other Income 9.3 14.4 44.9 15.1 11.3 20.0 15.0 14.5 83.8 60.8

PBT 60.7 123.2 106.2 76.4 89.4 85.4 66.8 56.2 366.5 297.8

Tax 19.8 36.7 38.7 20.0 28.6 26.4 20.6 20.1 115.2 95.7

Rate (%) 32.5 29.8 36.5 26.1 32.0 30.9 30.8 35.8 31.4 32.1

PAT 40.9 86.4 67.4 56.5 60.8 59.0 46.2 36.1 251.3 202.1

Change (%) 11.8 60.4 -4.8 102.3 48.4 -31.8 -31.4 -36.1 32.8 -19.6

Adjusted PAT 40.9 86.4 46.4 56.4 60.8 59.0 46.2 36.1 230.2 202.1

Change (%) 11.8 60.4 -20.2 119.4 48.4 -31.8 -0.3 -36.1 32.0 -12.2

Adj. EPS (INR) 4.8 10.1 5.4 6.6 7.1 6.9 5.4 4.2 26.9 23.6


Fx rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.2 54.2 54.4 47.9 54.5

Gross Oil Realization 121.3 116.8 111.7 121.6 109.9 109.9 110.5 111.6 117.9 110.5

Subsidy 73.2 33.2 66.8 77.3 63.3 63.1 69.6 81.9 62.6 69.4

Net Oil Realization 48.1 83.6 45.0 44.3 46.6 46.8 40.9 29.7 55.2 41.0

Subsidy (INR b) 120.5 57.1 125.4 141.7 123.5 123.3 134.3 162.9 444.7 544.0

E: MOSL Estimates

ONGCCMP: INR259 Buy

We expect ONGC to report 3QFY13 PAT of INR46.2b (v/s INR46.4b in

3QFY12 and INR59b in 2QFY13). We estimate EBITDA at INR95.4b (down

11% YoY and 7% QoQ).

We estimate gross realization at USD110.5/bbl v/s USD111.7 in 3QFY12

and USD109.9 in 2QFY13 and net realization at USD40.9/bbl v/s USD45

in 3QFY12 and USD46.8 in 2QFY13.

Subsidy sharing assumption: For FY13E, we model upstream sharing

at 40% (similar to FY12) and ONGC’s share at ~82% of upstream. We

expect ONGC to share INR134.3b (USD69.6/bbl) in 3QFY13.

Our Brent price assumption is USD110/105/100/90bbl for FY13E/14E/

15E/long-term and we estimate upstream sharing at 40% in FY13E/14E

and 35% beyond that. The stock trades at 8x FY14E consolidated EPS of

INR32.3. Maintain Buy.


Subsidy sharing

DD&A charges

Oil & gas production volumes


Sa les 1,464 1,537 1,667 1,709

EBITDA 577.7 521.4 609.6 645.0

Adj. PAT 263.1 244.9 280.4 292.2

Adj. EPS (INR) 30.4 28.4 32.3 33.6

EPS Gr. (%) 23.3 -6.9 14.5 4.2

BV/Sh.(INR) 159 176 197 218

RoE (%) 20.7 16.9 17.3 16.2

RoCE (%) 19.4 15.9 16.5 15.5

Payout (%) 32.8 41.1 36.2 38.3

Valuation

P/E (x) 8.5 9.1 8.0 7.7

P/BV (x) 1.6 1.5 1.3 1.2

EV/EBITDA (x) 3.4 3.8 3.1 2.8

Div. Yield (%) 3.8 3.9 3.9 4.2

Bloomberg ONGC IN


M. Cap. (INR b)/(USD b) 2219 / 40


1,6,12 Rel Perf. (%) 1/-20/-23

C–150January 2013





Net Sales 46,233 53,669 63,303 63,754 70,304 75,484 73,450 80,571 226,959 299,809

Change (%) 83.0 75.5 74.5 59.9 52.1 40.6 16.0 26.4 72.0 32.1

EBITDA 4,381 4,483 5,080 3,655 4,571 5,182 4,824 3,988 17,600 18,565

% of Net Sales 9.5 8.4 8.0 5.7 6.5 6.9 6.6 4.9 7.8 6.2

Change (%) 76.9 65.1 47.0 4.0 4.3 15.6 -5.0 9.1 44.7 5.5

Depreciation 458 463 463 458 459 467 469 1,057 1,842 2,453

Interest 464 458 393 342 329 317 325 945 1,657 1,915

Other Income 263 201 164 796 266 248 305 320 1,424 1,138

PBT 3,722 3,763 4,389 3,651 4,048 4,646 4,335 2,306 15,525 15,335

Tax 1,155 1,160 1,435 1,200 1,340 1,500 1,387 603 4,950 4,830

Rate (%) 31.0 30.8 32.7 32.9 33.1 32.3 32.0 26.2 31.9 31.5

PAT 2,567 2,603 2,954 2,451 2,708 3,146 2,948 1,702 10,575 10,504

Change (%) 130.5 98.5 72.8 18.8 5.5 20.8 -0.2 -30.5 70.7 -0.7

EPS (INR) 3.4 3.5 3.9 3.3 3.6 4.2 3.9 2.3 14.1 14.0

Dahej Gas Volume (TBTU) 133.4 135.1 144.9 135.0 127.2 135.0 134.3 137.2 548.4 533.7

Dahej Gas Volumes (mmt) 2.7 2.7 2.9 2.7 2.5 2.7 2.7 2.7 10.9 10.6

Kochi Gas Volumes (mmt) 0.0 0.0 0.0

Avg. Dahej Regas (INR/mmbtu) 42.2 41.7 45.2 41.7 45.3 49.2 45.4 39.8 42.7 44.9

E: MOSL Estimates

Petronet LNGCMP: INR159 Buy

We expect Petronet to report 3QFY13 PAT of INR2.9b (flat YoY and

down 6% QoQ). We estimate EBITDA at INR4.8b (down 5% YoY and 7%

QoQ).

We have assumed LNG volumes at 2.7mmt in 3QFY13, flat QoQ given.

We model 10.6mmtpa volume in FY13E at Dahej, of which 7.4mmtpa

would be on long term contract and 3.2mmtpa on short term. We

estimate almost nil volumes from Kochi in 4QFY13E.

We assume 5% escalation in re-gasification tariff till FY14E and flat

thereafter at Dahej, and Kochi volumes at 0.0/0.8mmt for FY13E/14E.

The stock trades at 11x FY14E consolidated EPS of INR14.5. Lower spot

LNG prices and the likely gas price pooling policy for power sector are

key near term positives for the stock. Buy.


Spot volumes

Regasification margin on spot volumes.


Sa les 227.0 299.8 376.1 487.3

EBITDA 18.3 18.6 21.9 24.1

Adj. PAT 10.6 10.5 10.9 12.1

Adj. EPS (INR) 14.1 14.0 14.5 16.1

EPS Gr. (%) 70.7 -0.7 3.4 11.4

BV/Sh.(INR) 47 58 70 83

RoE (%) 34.1 26.7 22.7 21.2

RoCE (%) 26.6 23.7 33.4 32.8

Payout (%) 20.7 20.9 19.9 19.9

Valuation

P/E (x) 11.3 11.3 11.0 9.8

P/BV (x) 3.4 2.7 2.3 1.9

EV/EBITDA (x) 7.8 7.9 6.3 5.7

Div. Yield (%) 1.6 1.6 1.6 1.7

Bloomberg PLNG IN


M. Cap. (INR b)/(USD b) 119 / 2


1,6,12 Rel Perf. (%) -3/-1/-23

C–151January 2013


Quarterly Performance (Standalone) (INR Billion)



Net Sales 810.2 785.7 851.4 851.8 918.8 903.4 939.2 961.6 3,299.0 3,722.9

Change (%) 39.1 36.7 42.4 17.2 13.4 15.0 10.3 12.9 32.9 12.8

EBITDA 99.3 98.4 72.9 65.6 67.5 77.1 69.6 72.5 336.2 286.6

% of Net Sales 12.3 12.5 8.6 7.7 7.3 8.5 7.4 7.5 10.2 7.7

Change (%) 6.3 4.8 -23.7 -33.3 -32.0 -21.7 -4.4 10.4 -11.8 -14.7

Depreciation 32.0 29.7 25.7 26.6 24.3 22.8 21.7 21.1 113.9 89.9

Interest 5.5 6.6 6.9 7.7 7.8 7.4 7.5 7.4 26.7 30.1

Other Income 10.8 11.0 17.2 23.0 19.0 21.1 22.6 24.0 61.9 86.7

PBT 72.6 73.2 57.4 54.3 54.3 68.0 63.1 67.9 257.5 253.3

Tax 16.0 16.1 13.0 12.0 9.6 14.3 13.2 13.9 57.1 51.0

Rate (%) 22.1 22.1 22.6 22.0 17.7 21.0 21.0 20.4 22.2 20.1

PAT 56.6 57.0 44.4 42.4 44.7 53.8 49.8 54.0 200.4 202.4

Change (%) 16.7 15.8 -13.6 -21.2 -21.0 -5.7 12.2 27.6 -1.2 257.5

Adj. PAT 56.6 57.0 44.4 42.4 44.7 53.8 49.8 54.0 200.4 202.4

Adj. EPS (INR) 19.4 19.5 15.2 14.5 15.3 18.4 17.0 18.5 68.5 69.2


Fx Rate (INR/USD) 44.7 45.8 51.0 50.2 54.2 55.5 54.2 54.2 47.9 54.5

KG-D6 Gas Price (USD/mmbtu) 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2

Brent Price (USD/bbl) 116.8 112.9 109.3 118.8 108.7 110.2 110.0 111.1 114.5 110.0

RIL GRM 10.3 10.1 6.8 7.6 7.6 9.5 8.5 8.8 8.7 8.6

Singapore GRM 8.6 9.1 7.9 7.5 6.7 9.1 6.5 8.1 8.3 7.6

Premium/(disc) to Singapore 1.7 1.0 -1.1 0.1 0.9 0.4 2.0 0.7 0.4 1.0

KG-D6 Gas Prodn (mmscmd) 48.6 45.3 41.0 35.5 33.0 28.5 24.0 22.5 42.6 27.0

Segmental EBIT Breakup (INRb)

Refining 32.0 30.8 16.9 17.0 21.5 35.4 28.4 31.2 96.6 116.6

Petrochemicals 22.2 24.2 21.6 21.7 17.6 17.4 17.8 17.8 89.7 70.5

E&P, others 14.8 15.4 12.9 9.5 9.7 8.7 8.2 8.0 52.7 34.5

Total 69.0 70.4 51.4 48.2 48.8 61.5 54.4 57.0 238.9 221.6

E: MOSL Estimates; EPS adjusted for treasury shares

Reliance IndustriesCMP: INR818 Neutral

We estimate RIL to report 3QFY13 GRM at USD8.5/bbl v/s USD9.5/bbl in

2QFY13. Singapore GRMs plunged 29% QoQ due to weak fuel oil cracks.

However, petchem profits are unlikely to increase due to subdued

product spreads.

We expect average 3QFY13 KG-D6 volumes of 24mmscmd v/s

29mmscmd in 2QFY13.

We expect RIL to report PAT of INR49.8b (v/s INR44.4b in 3QFY12 and

INR53.8b in 2QFY13).

RIL trades at 11.6x FY14E adjusted EPS of INR70.8. 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.


GRM

Petchem margin

KG-D6 production


Sa les 3,299 3,723 3,430 3,304

EBITDA 336.2 286.6 299.2 315.5

Adj. PAT 200.4 202.4 207.0 221.5

Adj. EPS (INR) 67.7 69.3 70.8 75.6

EPS Gr. (%) -1.2 1.0 2.3 7.0

BV/Sh.(INR) 561 617 675 737

RoE (%) 13.0 11.9 11.2 10.9

RoCE (%) 12.1 11.3 10.8 11.3

Payout (%) 14.7 17.7 17.1 16.3

Valuation

P/E (x) 13.4 13.1 12.8 12.0

P/BV (x) 1.5 1.3 1.2 1.1

EV/EBITDA (x) 7.9 9.4 8.7 8.3

Div. Yield (%) 1.0 1.2 1.1 1.2

Bloomberg RIL IN


M. Cap. (INR b)/(USD b) 2653 / 48


1,6,12 Rel Perf. (%) 1/-1/-13

C–152January 2013

December 2012 Results Preview | Sector: Real Estate





Anant Raj Inds 92 Buy 1,408 52.8 2.6 725 48.0 1.1 501 59.1 -0.2

DLF 225 Buy 20,585 1.2 0.9 8,440 2.6 13.1 8,741 238.4 531.1

HDIL 110 Neutral 3,430 -19.4 32.6 2,058 27.6 1.9 1,462 -6.1 4.0

Jaypee Infratech 52 Buy 8,202 -9.1 16.4 4,265 -14.2 19.0 1,754 -55.3 -3.1

Mahindra Lifespace 411 Buy 1,266 -17.6 51.1 317 -31.4 110.2 367 -7.0 17.0

Oberoi Realty 294 Buy 2,318 23.8 -10.0 1,368 20.6 -8.6 1,186 16.2 -4.6

Phoenix Mills 247 Buy 671 32.8 0.9 439 17.7 0.2 332 23.5 0.5

Unitech 34 Buy 6,076 19.5 12.6 972 -5.5 18.8 704 27.5 60.5


Macro impetus and better liquidity outlook led to sector's re-rating Favorable macro trends, easing of operational constraints and better liquidity

outlook resulted in outperformance of Real Estate index over 3QFY13, led by

sharp recovery in beaten down stocks.

Fast track project approvals which led to a slew of new launches across markets,

especially in Mumbai, and the encouraging offtake of some attractive project

propositions augur well for the near term demand outlook.

Rational business approaches from developers in choosing right product and

market mix for near term monetization plans are expected to bolster cash flows.

Leverage situation is expected to improve for MOSL coverage universe of real

estate companies due to (1) success in large ticket divestments (DLF), (2) ease of

refinancing (visible for Unitech), (3) monetary easing, and (4) uptick in operations.

2HFY13 to benefit on demand spill-over Companies are expected to post a YoY uptick in 2HFY13 sales momentum driven

by (1) spill-over of launches and (2) low base of weak 2HFY12.

Key launches in 3QFY13 includes, DLF and GPL's projects in Bangalore, DLF's Sky

Court (New Gurgaon), Mahindra Lifespaces' (MILFE) Hyderabad project and HDIL's

Virar Township etc.

Though Southern markets' outperformance is expected to continue, meaningful

signs of sales revival in Mumbai market are also anticipated from 3QFY13.

Key expectations For 3QFY13, the real estate universe is expected to post a revenue growth of 1%

YoY (up +7.5% QoQ), EBITDA growth of 1.6% YoY (down 11.4% QoQ) and PAT

growth of 42% YoY (+103% QoQ).

We expect the operating cash flow to improve for (a) DLF (higher focus on

execution), HDIL (FSI and TDR sales), Unitech (uptick in execution post

refinancing) and Phoenix (due to strong collections in One Bangalore West

project) and (b) remain stable for Oberoi and Prestige. Improving support from

operating cash flow is expected to result in success in debt reduction in 3QFY13.

Sandipan Pal ([email protected])

Real EstateCompanies Covered

Anant Raj Industries

DLF

HDIL

Jaypee Infratech

Mahindra Lifespaces

Oberoi Realty

Phoenix Mills

Unitech

C–153January 2013


Key issues to watch out Status of planned launches viz. Oberoi's Worli/Mulund, DLF's super luxury projects

etc.

Scale-up in revenue booking for Prestige (booked higher sales in past quarters),

DLF (execution outsourcing), Unitech (refinancing success) and customer

collection run-rate.

Leasing velocity and managements' outlook in commercial verticals.

Progress in divestment plan and de-leveraging target.

New projects acquisition by developers with better liquidity (Oberoi, MILFE).

Any revival in retail development plan post approval of FDI in retail.

Restrained business focus to pay off during recovery; Return metrics toimprove Real estate developers have demonstrated a much focused and rational approach

in their business strategy by prioritizing on select verticals and performing assets.

Higher focus on execution by moving to outsourcing model (DLF, Indiabulls Real

Estate) 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.

Re-rating done, further upside hinges on operating performances Realty index has outperformed sensex by 15pp during 3QFY13. With this recent

rally, the sector has been re-rated with P/B up from 0.64x in Aug-12 to 0.85x

currently.

The re-rating factors in ongoing and potential operational improvements across

companies bolstered by stronger macro.

We anticipate upgrade cycle to continue with further improvement in outlook

and better operational support from companies.

At current valuations, we find better risk-reward for DLF (a play on improving

operating and financial leverage) and JPIN. Prestige, Phoenix and Oberoi remain

our defensive bet, while steady improvement in execution and cash flow could

be key driver for UT.

Quaterly sales trends: Prestige, Sobha and JPIN have been key sales outperformers (INR b) FY11 FY12 FY13 FY13E % achi. FY12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q Sales YTD sales

DLF 12.9 12.6 15.0 18.9 11.1 6.3 11.1 24.3 6.0 6.3 57.0 21.6 52.8

Unitech 13.0 10.1 10.4 9.8 10.2 10.7 9.4 7.8 7.0 8.4 37.0 41.6 38.1

Anantraj 2.1 0.9 2.3 0.1 1.0 1.6 0.9 0.9 1.6 0.7 12.0 19.2 4.4

IBREL 3.1 31.0 8.7 5.6 3.8 4.9 4.5 6.3 6.0 6.1 25.0 48.6 19.5

HDIL 6.4 5.2 7.7 1.5 1.9 7.7 0.6 0.5 1.5 2.5 12.0 33.3 10.6

ORL 1.8 1.4 3.3 3.5 2.6 2.3 1.8 2.8 2.1 2.2 14.0 30.7 9.5

PEPL 0.8 7.4 3.2 2.5 2.1 7.8 4.7 6.0 10.0 8.2 30.0 60.7 20.6

MAHLIFE 0.9 2.6 2.3 1.2 1.7 0.8 3.0 0.6 0.5 0.5 4.5 22.2 6.0

GPL 1.4 0.6 3.3 4.6 2.3 2.1 3.5 3.5 5.0 7.2 28.0 43.6 11.4

Sobha 2.7 2.7 2.8 2.7 3.0 4.9 4.5 5.0 4.8 5.3 20.0 50.5 17.4

JPIN 13.9 10.8 6.3 10.0 5.7 5.8 16.4 11.0 9.3 13.4 40.0 56.8 38.9


C–154January 2013


Uptick in new launches bolstered sales momentum in 3QCY12

Trend of QoQ price increase (%) shows (a) stability in Mumbai, b) uptick for NCR and Bangalore

Source: Liases Foras, MOSL

Bank loans to developers witnessed rising trend in 3QFY13

Source: RBI, MOSL

Source: Liases Foras, MOSL

0

200

400

600

800

1,000

1,200

1,400

Sep

-05

Jan

-06

Ma

y-0

6

Sep

-06

Jan

-07

Ma

y-0

7

Sep

-07

Jan

-08

Ma

y-0

8

Sep

-08

Jan

-09

Ma

y-0

9

Sep

-09

Jan

-10

Ma

y-1

0

Sep

-10

Jan

-11

Ma

y-1

1

Sep

-11

Jan

-12

Ma

y-1

2

Sep

-12

-10

-5

0

5

10

15

20Loan (INR b ) Gro wth (%)

38

55

74

70

95

89

84

63

88

53

86

56

69 69 77

75

63 70 61 59 7

0 77

66 7

8

3QC

Y09

4QC

Y09

1QC

Y10

2QC

Y10

3QC

Y10

4QC

Y10

1QC

Y11

2QC

Y11

3QC

Y11

4QC

Y11

1QC

Y12

2QC

Y12

3QC

Y12

Launc h (msf) Sales (msf)

200

232

227

248

221

250

227

242

217 234 28

5

317

286 342

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

3QC

Y12

-10

-5

0

5

10

15

20

Mum

bai

NC

R

Ba

ngal

ore

Pune

Hyd

era

bad

Che

nnai

4QCY09 1QCY10 2QCY10 3QCY10 4QCY10

1QCY11 2QCY11 3QCY11 2QCY12 3QCY12

Sales value (INR b)

C–155January 2013


Sales volume stable QoQ, value up -

implying higher sales in premium

New launches picked up (msf) segment projects Inventory at high level

812

1612

21

16

16

11 12

91

711

14

27

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

3Q

CY12

20 18 13 12 13 12 11 9 8 9 8 9 10 10

8372

8553

6750

57

79

80

71

62

6493

99

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

3QC

Y12

Sales volume (ms f)

Sales value (INR b)

2

5

7

10

12

2Q

CY09

4Q

CY09

2Q

CY10

4Q

CY10

2Q

CY11

4Q

CY11

2Q

CY12

Thou

sand

s

10

20

30

40

50

Avg. Quoted prices (INR/sf)Avg. sale s p rices (INR/s f)Inventory month (RHS)

Pricing firm, inventory level up

Launch volume up sharply (msf) Sales performance improves QoQ (still very high in Noida)

11

11

19

59

264

930

50

481

93

4

32

17

40

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

3Q

CY12

0

5

10

15

20

25

30

35

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

3QC

Y12

0

35

70

105

140Sa le s volu me (msf)Sa le s valu e (INR b )

Launch volume improved Sales momentum continues with

post July 2012 (msf) spiraling up trend Pricing strengthens, inventory down

Th

ou

sa

nd

s

Source: Liases Foras/MOSL

2

3

4

5

2QCY

09

4QCY

09

2QCY

10

4QCY

10

2QCY

11

4QCY

11

2QCY

12

Thou

san

ds

10

20

30

40

50

Avg Quoted prices (INR/s f)Avg. s ales prices (INR/sf)Inventory month (RHS)

1

2

3

4

5

1QCY

09

3QCY

09

1QCY

10

3QCY

10

1QCY

11

3QCY

11

1QCY

12

3QCY

12

0

20

40

60

80

Inventory as k prices (INR/sf)Sold prices (INR/s f)Inventory month

3 8 4 8 8 11 10 7 9 7 9 14 11 16 16

8

27

12

23303536

23

33

636754

3923

35

1Q

CY0

9

3Q

CY0

9

1Q

CY1

0

3Q

CY1

0

1Q

CY1

1

3Q

CY1

1

1Q

CY1

2

3Q

CY1

2

Sa les volume (msf)Sa les va lue (INR b)

51

411

61

07

118

314

11

19

2QCY

093Q

CY09

4QCY

091Q

CY10

2QCY

103Q

CY10

4QCY

101Q

CY11

2QCY

113Q

CY11

4QCY

111Q

CY12

2QCY

123Q

CY12

3 8 4 8 8 11 10 7 9 7 9 14 11 16 16

8

27

12

23303536

23

33

636754

3923

35

1Q

CY0

9

3Q

CY0

9

1Q

CY1

0

3Q

CY1

0

1Q

CY1

1

3Q

CY1

1

1Q

CY1

2

3Q

CY1

2

Sa les volume (msf)Sa les va lue (INR b)

Mumbai

Bangalore

b/w

C–156January 2013






Real Estate

Anant Raj Inds 92 Buy 6.6 9.1 12.3 14.0 10.1 7.5 13.6 9.5 6.7 5.0 6.4 8.0

DLF 225 Buy 10.4 10.9 14.1 21.7 20.7 16.0 16.3 11.7 10.2 6.3 6.3 7.7

Godrej Properties 640 Neutral 18.4 29.5 37.8 34.8 21.7 17.0 26.6 17.8 14.1 9.6 13.8 15.6

HDIL 110 Neutral 18.0 19.4 24.8 6.1 5.7 4.4 7.5 6.5 4.9 6.9 7.0 8.3

Indiabulls Real Est. 71 Buy 3.8 6.0 10.8 18.5 11.9 6.6 10.1 8.0 5.7 2.5 3.8 5.5

Jaypee Infratech 52 Buy 5.9 7.2 9.6 8.7 7.1 5.4 8.5 6.1 5.0 13.5 14.7 17.3

Mahindra Lifespace 411 Buy 34.3 39.0 47.0 12.0 10.5 8.7 10.7 9.5 7.5 11.0 11.2 12.0

Oberoi Realty 294 Buy 13.9 23.8 33.2 21.2 12.3 8.9 15.8 8.2 5.5 11.6 17.5 20.6

Phoenix Mills 247 Buy 7.1 11.3 22.0 34.7 21.9 11.2 20.2 13.2 8.1 5.8 8.5 14.5

Prestige Estates 177 Buy 6.6 10.4 15.5 26.8 17.1 11.4 13.8 9.9 7.3 10.1 14.4 18.7

Unitech 34 Buy 1.0 1.4 2.1 35.5 24.1 16.4 37.3 26.0 17.7 2.0 2.9 4.2


90

95

100

105

110

Sep -12 Oct-12 Nov-12 Dec-12

Sens ex Inde xMOSL Re al Estate Inde x

85

100

115

130

145

Dec

-11

Feb

-12

Ap

r-12

Jun

-12

Aug

-12

Oct

-12

Dec

-12

Sens ex Ind exMOSL R eal Estate Index

C–157January 2013




Total Sales 838 913 922 449 989 1,373 1,408 1,698 3,115 5,468

Change (%) -19.0 -31.3 -25.9 -29.1 18.0 50.5 52.8 277.9 -26.5 75.5

EBITDA 493 509 490 199 501 717 725 871 1,699 2,814

Change (%) -13.3 -18.8 -36.5 -56.2 1.5 40.8 48.0 338 -27.9 65.7

As of % Sales 59 56 53 44 51 52 52 51 55 51

Depreciation 27 30 36 17 32 33 33 33 110 131

Interest 45 57 69 36 37 41 53 66 206 198

Other Income 45 76 51 25 44 41 38 36 195 160

PBT 466 498 437 174 475 683 677 809 1,578 2,645

Tax 115 135 97 48 110 185 176 217 396 688


Reported PAT 351 347 315 122 355 502 501 579 1,135 1,937

Change (%) -23.5 -27.7 -37.4 -60.1 1.2 44.6 59.1 374.1 -32.4 70.7

E MOSL Estimates

Anant Raj IndustriesCMP: INR92 Buy

Revenue booking upside hinges on recognition of Golf Course Road

project: We estimate revenues to grow 53% YoY to INR1.4b, EBITDA by

48% YoY to INR725m and PAT to grow 59% YoY to INR501m. EBITDA

margin seen at 48%. We assume partial revenue recognition from the

plotted project at Golf Course Road in 3QFY13.

Expect stable QoQ sales run-rate: We expect sales volume to be mainly

driven by the Golf Course Road project, with moderating contribution

from Neemrana and Sector 91 as both the projects are 75-80% sold

and balance inventories are expected to be monetized on completion.

Selling price at Sector 91 is up to INR5,000/sf (from INR4,800/sf in 2Q),

while at the Golf Course Road project it is selling at INR90,000/sq yard,

against an initial launch price of INR75,000/sq yard. Of the total sales

of ~INR5b in the Golf Course Road project, Anant Raj has collected

~INR1.5b till date.

Rental income to decline due to Manesar cancellations: Expect rental

run-rate to deteriorate QoQ due to certain cancellations in Manesar IT

Park. However, a ramp-up in Kirti Nagar Mall is expected to render

support. Though the mall is 80% occupied, it is operating at an effective

rental of INR70/sf/m.

Ongoing land acquisition and construction outgo could augment net

debt QoQ by ~INR0.5-1b.

Anant Raj trades at ~16% discount to our one-year forward NAV of

INR110/share, 10.1x FY14E EPS of INR9.1 and 0.6x FY14E BV. Maintain

Buy.


Net Sales 3.1 5.5 7.2 9.9

EBITDA 1.7 2.8 3.9 5.4

Adj PAT 1.1 1.9 2.7 3.6

Adj EPS (INR) 3.8 6.6 9.1 12.3

EPS Growth (%) -32.5 70.7 39.1 35.0

BV/Share (INR) 129.9 135.3 143.2 154.4

RoE (%) 3.1 5.0 6.4 8.0

RoCE (%) 3.7 5.5 7.3 9.8

Pauout (%) 11.7 17.6 12.7 9.4

Valuation

P/E (x) 23.9 14.0 10.1 7.5

P/BV (x) 0.7 0.7 0.6 0.6

EV/EBITDA (x) 21.6 13.6 9.5 6.7

Div. Yield (%) 0.4 1.1 1.1 1.1

Bloomberg ARCP IN




1,6,12 Rel Perf. (%) -5/82/83

C–158January 2013




Sales 24,458 25,324 20,344 26,168 21,977 20,395 20,585 22,812 96,294 85,770

Change (%) 20.6 6.9 -18.0 -2.5 (10.1) -19.5 1.2 -12.8 0.7 -10.9


EBITDA 11,110 11,730 8,227 7,976 10,670 7,464 8,440 9,445 39,043 36,019

Change (%) 13.4 26.3 -30.2 19.7 -4.0 -36.4 2.6 18.4 4.0 -7.7

As % of Sales 45.4 46.3 40.4 30.5 48.6 36.6 41.0 41.4 40.5 42.0

Depreciation 1,702 1,753 1,797 1,636 1,786 1,837 1,946 1,914 6,888 7,483

Interest 4,964 5,263 6,199 6,039 6,226 5,224 5,027 4,913 22,465 21,390

Other Income 574 448 3,617 1,307 1,311 1,173 10,047 3,416 5,945 15,948

PBT 5,018 5,161 3,848 1,448 3,970 1,575 11,515 6,034 15,635 23,094

Tax 1,278 1,475 1,353 -413 1,137 394 2,879 1,507 3,694 5,916

Effective Tax Rate (%) 25 28.6 35 -28.5 29 25.0 25 25 23.6 25.6

Reported PAT Pre MI 3,739 3,686 2,495 1,861 2,833 1,271 8,636 4,437 12,008 17,177

Change (%) (7.8) (11.9) (50.2) (13.8) (24.2) (65.5) 246.2 138.4 -26.8 43.0

Reported PAT 3,584 3,724 2,584 2,117 2,928 1,385 8,741 4,544 12,008 17,598

Adj. PAT 3,584 3,724 2,584 2,117 2,928 1,385 8,741 4,544 12,008 17,598

Change (%) (12.8) (11.0) (44.5) (38.6) (18.3) (62.8) 238.4 114.6 (26.8) 46.6

E: MOSL Estimates

DLFCMP: INR225 Buy

Revenues, EBITDA to post flattish YoY trend: We expect DLF's 3QFY13

revenues at INR20.6b (up 1.2% YoY), EBITDA up 2.6% YoY to INR8.4b

and recognition of NTC deal to boost PAT 2.4x YoY. We estimate DLF's

3QFY13 PAT at INR8.7b (2.3x YoY increase), led by recognition of NTC

Mill's land transaction with Lodha (at INR27.27b). We estimate, at a

book value of ~INR18b, the deal value to contribute ~INR9.1b to DLF's

other income and with a tax expense of ~INR1.8b, ~INR7.3b to PAT.

Leverage to reduce by ~INR20b: As guided by the management, benefit

of NTC transaction would be visible in 3QFY13, with net debt declining

by ~INR20b to ~INR220b. Impact of Aman resort transaction to be visible

by 4QFY13.

Luxury launches to take off in 4QFY13: DLF launched Bella Greens

(villas, 0.4msf) and Woodland Heights (0.5msf) in Bangalore. Of its 9-

10msf of guided launches in 2HFY13, it has launched Sky Court (1.2msf)

at new Gurgaon (sector 86) in Dec-12, and plans to launch super luxury

projects Park Place II and Magnolia II over the next month. Company's

super luxury launches are key to its sales guidance of ~INR60b.

DLF trades at 20.7x FY14E EPS of INR10.9, 1.3x FY14E BV and ~20%

discount to our NAV estimate of INR280. Maintain Buy.


Progress in major Wind Mill divestment and cash flow from Aman

Resort, along with reduction in gross debt.

Successful launch of Magnolia II.

Pick-up in cash conversion post shift to third-party contractors.

Leasing momentum in the backdrop of FY13 guidance of 2msf.


Net Sales 96.3 85.8 111.3 116.7

EBITDA 39.0 36.0 47.6 53.2

Adj PAT 12.0 17.6 18.4 23.9

EPS (INR) 7.1 10.4 10.9 14.1

EPS Gr. (%) -26.8 46.6 4.8 29.4

BV/Sh. (INR) 150.9 158.9 167.5 169.8

RoE (%) 4.5 6.3 6.3 7.7

RoCE (%) 7.4 8.6 8.5 9.6

Payout (%) 33.1 22.6 21.5 25.0

Valuation

P/E (x) 31.8 21.7 20.7 16.0

P/BV (x) 1.5 1.4 1.3 1.3

EV/EBITDA (x) 15.6 15.9 11.5 10.2

Div. Yield (%) 0.9 0.9 0.9 1.3

Bloomberg DLFU IN


M. Cap. (INR b)/(USD b) 386 / 7


1,6,12 Rel Perf. (%) 7/3/-4

C–159January 2013


Consolidated Quarterly Performance (INR Million)Y/E March FY12 FY13 FY12 FY13E


Sales 5,144 4,416 4,254 6,251 2,012 2,586 3,430 11,027 20,064 19,054

Change (%) 13.0 15.7 -8.2 13.1 -60.9 -41.4 -19.4 76.4 7.6 -5.0

Total Expenditure 2,169 2,067 2,641 3,605 434 566 1,372 6,338 10,503 8,710

EBITDA 2,975 2,349 1,612 2,647 1,577 2,019 2,058 4,690 9,562 10,344

Change (%) 2.6 -9.7 -41.9 -40.0 -32.9 -14.0 27.6 77.2 -14.6 8.2

As % of Sales 57.8 53.2 37.9 42.3 78.4 78.1 60.0 42.5 47.7 54.3

Depreciation 213 214 216 215 210 210 223 232 858 892

Interest 189 190 191 199 214 248 218 192 752 871

Other Income 60 64 133 247 94 89 93 96 513 372

PBT 2,633 2,008 1,338 2,401 1,248 1,650 1,710 4,344 8,464 8,952

Tax 739 524 -220 -752 195 242 248 659 290 1,343

Effective Tax Rate (%) 28.1 26.1 -16.4 -31.3 15.6 14.7 14.5 15.2 3.4 15.0

Reported PAT post MI 1,894 1,485 1,558 3,156 1,054 1,406 1,462 3,613 8,098 7,534

Change (%) -12.5 -24.5 -31.6 70.4 -29.0 -5.3 -6.1 14.5 -1.5 -7.0

E: MOSL Estimates; Numbers as per Schedule 6

HDILCMP: INR110 Neutral

We expect HDIL's 3QFY13 consolidated revenues at INR3.4b (down -

19% YoY), EBITDA at INR2.1b and PAT at INR1.5b (down 6%).

The key revenue contributors are likely to be (1) 1.5-2msf/quarter of

FSI sales in Virar/Vasai and (2) recognition of balance revenue from

concluded FSI sales.

With the delay in completion of its three residential projects

(Premiere, Galaxy and Metropolis), we do not expect revenues under

the project completion method (PCM) in 3QFY13.

We expect cash flow from FSI sales (has been weak ti ll date) to improve

on the back of easing in approval hurdles. This should also boost the

construction pace and customer collection run-rate.

The stock trades at 5.7x FY14E EPS, 0.4x FY14E BV and ~20% discount to

NAV of INR138. Maintain Neutral.


Response to its recently-launched plotted projects -- Imperial County

(Noida), Premiere Kurla and Virar.

Progress in launch of Ghatkopar and Shahad projects.

Clarity on other big ticket FSI sales under negotiation (Metropolis,

Andheri).

Progress in de-leveraging.

Progress in MIAL relocation and status of subsequent phases.


Net Sales 20.1 19.1 23.2 29.9

EBITDA 9.6 10.3 11.4 14.1

Adj PAT 8.2 7.6 8.2 10.5

Adj EPS (INR) 19.3 18.0 19.4 25.0

EPS Growth (%) -2.5 -7.0 7.7 29.3

BV/Share (INR) 246.1 261.8 278.9 301.5

RoE (%) 7.9 6.9 7.0 8.3

RoCE (%) 6.2 5.9 6.0 7.2

Payout (%) 10.3 11.0 10.2 8.0

Valuation

P/E (x) 5.7 6.1 5.7 4.4

P/BV (x) 0.4 0.4 0.4 0.4

EV/EBITDA (x) 8.8 7.5 6.5 4.8

Div. Yield (%) 1.8 1.8 1.8 1.8

Bloomberg HDIL IN




1,6,12 Rel Perf. (%) 0/16/67

C–160January 2013



1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Cons. Cons.

Sales 6,170 7,158 9,027 9,205 6,783 7,047 8,202 10,775 31,559 32,806

Change (%) 3.4 0.6 19.5 28.8 9.9 -1.5 -9.1 17.1 13.6 4.0


EBITDA 2,974 3,933 4,972 4,357 2,721 3,584 4,265 5,475 16,492 16,045

Change (%) -39.8 -23.1 4.4 30.6 -8.5 -8.9 -14.2 25.7 -9.1 -2.7

As of % Sales 48.2 54.9 55.1 47.3 40.1 50.9 52.0 50.8 52.3 48.9

Depreciation 4 4 4 4 6 35 698 812 16 1,550

Interest 64 65 99 147 98 1,323 1,443 1,509 632 4,373

Other Income 67 20 33 11 8 35 67 115 130 225

PBT 2,973 3,883 4,902 4,217 2,625 2,262 2,193 3,271 15,974 10,347

Tax 595 777 981 724 525 453 439 705 3,077 2,121


Reported PAT 2,378 3,106 3,921 3,493 2,099 1,810 1,754 2,566 12,897 8,226

Change (%) -39.8 -24.6 3.0 51.2 -11.7 -41.7 -55.3 -26.5 -10.1 -36.2

Adj PAT 2,378 3,106 3,921 3,493 2,099 1,810 1,754 2,566 12,897 8,226

Change (%) -39.8 -24.6 3.0 39.7 -11.7 -41.7 -55.3 -26.5 -10.1 -36.2

E: MOSL Estimates

Jaypee InfratechCMP: INR52 Buy

Revenue, EBITDA to post sequential growth: We expect Jaypee

Infratech's (JPIN) 3QFY13 revenues at INR8.2b (-9% YoY), EBITDA at

INR4.2b (-14% YoY) and PAT at INR1.8b (-55% YoY). PAT decline is

attributable to higher interest and depreciation accruing from the

expressway project.

Operation strength to continue: We expect JPIN's sales momentum to

remain steady at 2.5-3msf, with monetization in Noida and GB Nagar

parcel along with contribution from recent launch in Agra. We expect

customer collections of INR8-9b in 3QFY13.

JPIN trades at 7.1x FY14E EPS of INR7.2, 1x FY14E BV and ~12% discount

to our NAV estimate of INR59. Maintain Buy.


Progress in projects delivery scheduled in FY13.

Traffic growth and toll revenue trend in expressway.

Response to Agra launch.

Any de-leveraging progress led by healthy operating cash flow.


Net Sales 31.6 32.8 45.2 51.2

EBITDA 16.5 16.0 21.7 25.3

Adj PAT 12.9 8.2 10.0 13.3

Adj EPS (INR) 9.3 5.9 7.2 9.6

EPS Gr. (%) -10.1 -36.2 21.9 32.7

BV/Sh. (INR) 41.6 46.3 51.8 59.1

RoE (%) 24.5 13.5 14.7 17.3

RoCE (%) 13.8 11.2 14.1 16.3

Payout (%) 12.6 19.8 24.3 24.4

Valuation

P/E (x) 5.6 8.7 7.1 5.4

P/BV (x) 1.2 1.1 1.0 0.9

EV/EBITDA (x) 8.3 8.5 6.1 5.0

Div. Yield (%) 1.9 1.9 2.9 3.9

Bloomberg JPIN IN




1,6,12 Rel Perf. (%) 9/-15/24

C–161January 2013


Quarterly Performance: Standalone (INR Million)



Sales 815 938 1,538 1,400 1,041 838 1,266 1,544 4,690 4,690

Change (%) 19.9 5.4 -1.3 -14.6 27.8 -10.6 -17.6 10.3 -1.6 0.0

Total Expenditure 642 679 1,076 1,082 723 688 950 1,108 3,479 3,468

EBITDA 172 258 462 318 319 151 317 436 1,210 1,222

As % of Sales 21.2 27.5 30.0 22.7 30.6 18.0 25.0 28.2 25.8 26.0

Change (%) -11.5 5.0 9.3 -7.7 44.6 -34.8 -16.7 24.2 -1.4 0.9

Depreciation 7 7 7 7 4 4 7 13 27 29

Interest 2 5 2 20 14 14 19 29 30 76

Other Income 91 182 87 162 134 301 216 215 522 866

PBT 255 428 539 453 434 433 507 609 1,676 1,983

Tax 84 114 144 132 141 119 139 166 474 565


Adj. PAT 171 314 395 321 293 314 367 443 1,202 1,418

Change (%) 18.0 27.4 18.1 5.3 71.5 -0.1 -7.0 37.9 16.6 18.0

E: MOSL Estimates; *Revenue outside Standalone is largely contributed by Mahindra World City (MWC) Chennai and Jaipur

Mahindra LifespacesCMP: INR411 Buy

We expect Mahindra Lifespaces' (MILFE) 3QFY13 standalone revenues

to decline 18% YoY to ~INR1.3b due to a high base effect. EBITDA is

expected to decline 17% YoY to INR317m and PAT 7% YoY to INR367m.

Post a hiatus, due to approval hurdles, it started to launch projects

from 2QFY13. In 3QFY13, company made an entry into the Hyderabad

market with the launch of a premium residential project "Ashvita" at

Kukatpally @INR3,900/sf.

The stock trades at a ~16% discount to our one-year forward SOTP

value of INR490/share, 10.6x FY14E EPS of INR39 and 1.2x FY14E BV.

Maintain Buy.


Progress in stated launches at Chennai (Avadi) and Pune.

Leasing progress in Jaipur DTA.

Progress of land acquisition in North Chennai SEZ.


Net Sales 7.0 7.6 8.1 9.0

EBITDA 1.9 2.1 2.3 2.8

Adj PAT 1.2 1.4 1.6 1.9

Adj EPS (INR) 29.2 34.3 39.0 47.0

EPS Growth (%) 10.1 17.4 13.7 20.7

BV/Share (INR) 283.3 312.4 346.8 390.4

RoE (%) 10.3 11.0 11.2 12.0

RoCE (%) 10.9 11.3 12.0 13.3

Payout (%) 22.8 19.5 17.0 13.9

Valuation

P/E (x) 14.1 12.0 10.6 8.7

P/BV (x) 1.5 1.3 1.2 1.1

EV/EBITDA (x) 11.5 10.7 9.5 7.5

Div. Yield (%) 1.2 1.2 1.2 1.2

Bloomberg MLIFE IN




1,6,12 Rel Perf. (%) -6/14/45

C–162January 2013


Consolidated Quarterly Performance (INR Million)



Total Revenue 1,609 2,226 1,873 2,548 1,999 2,577 2,314 2,368 8,247 9,258

Change (%) 0.5 30.9 -53.0 -4.5 24.2 15.7 23.6 -7.1 -17.2 12.3

Total Expenditure 706 1,071 739 906 860 1,081 949 940 3,412 3,830

EBITDA 903 1,156 1,134 1,642 1,139 1,496 1,366 1,428 4,835 5,428

Change (%) 6.6 14.8 -54.1 13.3 26.1 29.5 20.4 -13.1 -16.2 12.3

As of % Sales 56 52 60.5 64.5 57 58 59 60 58.6 58.6

Depreciation 65 66 68 70 70 71 77 91 269 310

Interest 1 0 1 1 1 1 0 0 3 0

Other Income 542 343 310 307 309 250 249 228 1,501 1,035

PBT 1,374 1,432 1,375 1,879 1,376 1,674 1,537 1,566 6,059 6,150

Tax 316 317 354 443 368 430 400 402 1,430 1,600


Reported PAT 1,058 1,114 1,021 1,436 1,008 1,244 1,137 1,164 4,629 4,550

Change (%) 32.5 16.7 -50.3 5.1 -4.7 11.6 11.4 -19.0 -10.5 -1.6

E: MOSL Estimates

Oberoi RealtyCMP: INR294 Buy

We expect Oberoi Realty's 3QFY13 revenues to grow 24% YoY to

INR2.3b, EBITDA 20% YoY to INR1.4b and PAT to grow ~11% to INR1.1b,

with EBITDA margin of 59%. We assume revenue recognition from

Esquire to be delayed further to FY14.

3QFY13 sales run-rate is expected to remain largely flat QoQ. No major

launch is in the pipeline over the next 3 months as Mulund (Mumbai)

approval is sti ll a quarter away.

The stock trades at 12.3x FY14E EPS of INR23.8, 2x FY14E BV and ~11%

discount to one-year forward NAV of INR332. Maintain Buy.


Sales momentum in Esquire (Goregaon) and Grande (Andheri).

Visibility on new launches (Mulund/Worli/Phase III of Exquisite).

Visibility on new project acquisition.

Leasing visibility in Commerz II Phase I

Visibility on change in usage at JVLR project from commercial to

residential.


Net Sales 8.2 9.3 16.2 23.8

EBITDA 4.8 5.4 9.9 14.5

Adj PAT 4.6 4.6 7.8 10.9

Adj EPS (INR) 14.1 13.9 23.8 33.2

EPS Growth (%) -10.5 -1.6 71.8 39.4

BV/Share (INR) 113.8 125.3 146.8 176.5

RoE (%) 13.1 11.6 17.5 20.6

RoCE (%) 17.1 15.7 24.3 29.3

Payout (%) 16.6 16.9 9.8 10.6

Valuation

P/E (x) 20.9 21.2 12.3 8.9

P/BV (x) 2.6 2.3 2.0 1.7

EV/EBITDA (x) 17.3 15.8 8.2 5.5

Div. Yield (%) 0.7 0.7 0.7 1.0

Bloomberg OBER IN




1,6,12 Rel Perf. (%) 1/8/16

C–163January 2013


Quarterly Performance (Standalone) (INR Million)Y/E March FY12 FY13 FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Cons. Cons.

Sales 535 539 505 600 626 665 671 679 3,666 4,475

Change (%) 32.4 21.5 12.0 28.3 17.0 23.4 32.8 13.1 74.4 22.1

EBITDA 331 333 373 363 394 438 439 444 2,114 2,557

Change (%) 12.6 5.1 14.0 13.2 19.3 31.4 17.7 22.3 50.4 21.0

As % of Sales 62 62 74 61 63 66 66 65 57.7 57.1

Depreciation 67 69 74 73 67 69 70 75 563 685

Interest 10 31 57 68 58 72 78 81 944 1,281

Other Income 110 89 113 146 143 156 152 156 446 496

PBT 363 323 355 368 413 454 443 443 1,053 1,087

Tax 91 84 86 95 107 123 111 111 189 272

Effective Tax Rate (%) 25 26 24 26 26 27 25 25 18.0 25.0

Reported PAT Pre MI 272 239 269 273 306 330 332 332 864 815

Adj. PAT 272 239 269 273 306 330 332 332 1,056 1,031

Change (%) 49.1 8.0 13.1 0.6 12.4 38.2 23.5 21.4 25.5 -2.4

E: MOSL Estimates

Phoenix MillsCMP: INR247 Buy

We expect High Street Phoenix's (HSP) 3QFY13 rentals at INR671m

(largely stable QoQ), EBITDA at INR439m and PAT of INR332m, up 24%.

The growth in rentals is attributable to rising revenue sharing

component, which currently stands at ~15% at HSP.

In 1QFY13, Phoenix Mills (PHNX) changed its accounting practice by

including electricity charges recovered from licensees in revenues

(on gross basis), which were earlier netted off against expenses.

Hence, 3QFY13 estimated numbers will not be comparable YoY.

Company has opened the Shangri La Hotel, with the official

inauguration on January 1, 2013, while the Chennai Mall is expected

to contribute to rentals from end-January 2013. The mall is expected

to open with an occupancy of ~50% and a multiplex. PHNX expects a

faster ramp-up in Chennai Mall compared to other malls.

Sales at Bangalore W project have moderated post a price increase to

~INR9,000/sf v/s launch price of INR6,500/sf. It has already witnessed

encouraging collections of ~INR1b v/s pre-sales of INR6b.

During 3QFY13, it bought out 26% stake of Horizon at Island Star

(Bangalore E SPV) for INR680m. With this, PHNX will hold 68% stake in

the SPV by FY13-end.

We expect net debt to increase marginally led by construction funding

in commercial and residential projects at phase II of market city SPVs.

The stock trades at a PER of 21.9x FY14E EPS of INR11.3, 1.9x FY14E BV

and 12% discount to its one-year forward NAV of INR280. Buy.


Momentum in commercial and residential sales in Market City

projects.

Progress on ramp-up in recently-commenced malls.

Initial response at Shangri La Hotel.


Net Sales 3.7 4.5 8.0 12.5

EBITDA 2.1 2.6 4.5 7.0

Adj PAT 1.1 1.0 1.6 3.2

EPS (INR) 7.3 7.1 11.3 21.8

EPS Growth (%) 25.5 -2.4 58.1 93.5

BV/Share (INR) 118.1 122.9 131.8 150.1

RoE (%) 6.2 5.8 8.5 14.5

RoCE (%) 6.1 6.3 8.5 13.1

Payout (%) 32.1 32.9 20.8 16.1

Valuation

P/E (x) 33.9 34.7 21.9 11.3

P/BV (x) 2.1 2.0 1.9 1.6

EV/EBITDA (x) 24.4 20.2 13.2 8.1

Div. Yield (%) 0.8 0.8 0.8 1.2

Bloomberg PHNX IN




1,6,12 Rel Perf. (%) 14/28/29

C–164January 2013





Sales 6,155 6,261 5,086 6,717 4,077 5,398 6,076 6,952 24,219 22,504

Change (%) -25.7 -2.9 -22.9 -46.8 -33.8 -13.8 19.5 3.5 -28.7 -7.1


EBITDA 1,198 1,381 1,029 -54 547 818 972 1,351 3,281 3,689

Change (%) -59.2 -45.4 -50.7 -102.8 -54.3 -40.8 -5.5 -2,586 -65.3 12.4

As of % Sales 19.5 22.1 20.2 -0.8 13.4 15.2 16.0 19.4 13.5 16.4

Depreciation 84 85 93 172 99 98 100 104 434 401

Interest 337 338 279 252 117 87 108 119 563 431

Other Income 714 403 387 576 345 340 331 308 2,080 1,324

PBT 1,490 1,362 1,044 97 677 973 1,095 1,436 4,365 4,182

Tax 468 424 469 475 261 240 372 465 1,896 1,338

Effective Tax Rate (%) 31.4 31.1 44.9 491.0 38.5 24.7 34.0 32 43.4 32.0

Reported PAT 1,022 938 575 -378 417 733 723 971 2,469 2,843

Change (%) -44.0 -46.1 -48.4 -132.8 -59.2 -21.9 25.7 -356.8 -57.7 15.2

Adjusted PAT 984 924 552 23 373 439 704 971 2,373 2,486

Change (%) -45.4 -46.8 -50.4 -97.9 -62.1 -52.6 27.5 4,196 -58.2 4.7

E: MOSL Estimates

UnitechCMP: INR34 Buy

Expect revenue booking to improve sequentially: We expect 3QFY13

revenues to grow 20% YoY to INR6.1b, EBITDA to decline 5% to INR972m

and PAT to grow 29% YoY to INR712m. EBITDA margin is estimated at

16%.

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 run-rate to remain stable led by Noida

projects. Company plans to resume new launches in Gurgaon from

1QFY14 onward.

Execution run-rate contingent on liquidity improvement: Successful

refinancing of ~INR7b in 1HFY13 is expected to boost Unitech's

execution, resulting in an improvement in revenue booking and cash

collections. Ease of refinancing would dilute concern on INR15b+ of

FY13 repayment obligation. It plans to improve the construction budget

by ~15% YoY in FY13, followed by ~25% YoY in FY14.

Unitech trades at 26% discount to its one-year forward NAV estimate

of INR46 and 24.1x FY14E EPS of INR1.4 and 0.8x FY14E BV of INR39.7.

Maintain Buy.


Sales momentum on the back of lesser new launches (estimate

INR38b in FY13).

Progress in construction and delivery (company aims at INR4-4.5b/

qtr run-rate v/s INR3b currently), along with an improvement in

debtor days. It targets total worker strength to increase from 20,000

currently to 25,000 by March 2013.

Progress in balance refinancing.

Clarity on divestment of maturing UCP assets.


Net Sales 24.2 22.5 27.6 34.3

EBITDA 3.3 3.7 5.3 7.8

Adj PAT 2.4 2.5 3.7 5.4

Adj. EPS (INR) 0.9 1.0 1.4 2.1

EPS Growth (%) -58.2 4.7 47.0 47.3

BV/Share (INR) 37.8 38.6 39.7 49.4

RoE (%) 2.0 2.0 2.9 4.2

RoCE (%) 2.8 2.6 3.3 4.6

Payout (%) 0.0 9.2 10.5 9.6

Valuation

P/E (x) 37.1 35.5 24.1 16.4

P/BV (x) 0.9 0.9 0.8 0.7

EV/EBITDA (x) 43.1 38.9 27.1 18.5

Div. Yield (%) 0.0 0.3 0.4 0.6

Bloomberg UT IN




1,6,12 Rel Perf. (%) 12/46/48

C–165January 2013

December 2012 Results Preview | Sector: Retail





Jubilant Foodworks 1,283 Neutral 4,160 50.2 21.6 749 45.2 27.6 422 43.2 30.4

Pantaloon Retail 237 Neutral 31,827 10.0 4.0 2,928 12.1 10.6 108 -20.2 266.1

Shopper's Stop 446 Neutral 5,930 18.2 2.3 297 -28.3 2.0 88 -54.3 37.9

Titan Industries 282 Buy 29,800 22.1 30.9 3,040 42.8 21.9 2,147 31.0 19.2


We estimate our retail universe to post 17.3% YoY growth in sales, while EBITDA is

likely to increase by 23.7% YoY. PAT is estimated to grow 22.3% led by strong

performance of Titan and Jubilant Foodworks (JUBI). Traditional retailers shall report

good improvement in footfalls but profitability would remain constrained due to

expansion related expenses.

Festive season drives footfalls; expect improvement in same storeperformanceConsumer sentiments improved during the quarter, driving footfalls on account of

festive season and wedding dates. This shall aid recovery in same store growth for

retailers, which saw subdued performance in the past few quarters. Our discussions

with companies indicate this was the best festive season in the past three years.

Jewelry volumes would show a strong improvement for Titan led by a low base, good

wedding demand plus Diwali and Dhanteras sales. JUBI shall report another 20% plus

same store growth, in our view. We expect Pantaloon to report significantly better

same store performance in 3Q, with probable double digit growth in Lifestyle division.

Can the recovery spill over into 4Q?Sustenance of the current recovery in consumer sentiment is a key near term

monitorable. Spill-over of the recovery into 4Q would augur well for retail footfalls

and margins, in our view. Given the strong expansion plans for our coverage universe,

sustained improvement in same store metrics is a key catalyst for near term margins

and cash flows. Also, if the footfalls sustain, we expect retailers to defer the customary

discount period which begins in January.

FDI in multi-brand retail receives parliamentary approvalGovernment secured parliamentary approval for FDI in retail during the quarter. While

it did not require parliament’s approval as it was an executive decision, strong political

opposition resulted in voting on the issue in parliament. We believe allowing FDI is

clearly a long term positive for Indian retail industry 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 access to long term capital. However, given the

tough pre-conditions and complexity in stitching a deal (separate entity will be required

that complies with states’ FDI rules), we do not see any deal announcements in the

near term.

Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected])

RetailCompanies Covered

Jubilant Foodworks

Pantaloon Retail

Shoppers Stop

Titan Industries

C–166January 2013


Shoppers Stop - SSS growth remains flat Titan's jewelry SBU; watch out for gold prices, volume mix

Gold prices up 12% YoY and 3% QoQ (INR/10 gm) Jubilant Foodworks' LTL sales growth


Continue to prefer specialty retailers; Titan is our top pickWhile the expected improvement in same store growth metrics is a positive

development, we remain cautious on the sector. Sustenance of the same would be

key for any material improvement in financials. Aggressive expansion plans of retailers

shall continue to impact operating leverage in the absence of steady same store

growth. We expect specialty retailers like Titan, JUBI to continue to outperform

Pantaloon and Shoppers Stop. We maintain our Neutral rating on JUBI, Pantaloon and

Shopper Stop. We had upgraded Titan during 2QFY13 and reiterate it as our top pick.

-30

0

30

60

90

1QFY

08

3QFY

08

1QFY

09

3QFY

09

1QFY

10

3QFY

10

1QFY

11

3QFY

11

1QFY

12

3QFY

12

1QFY

13

3QFY

13

Jewelry growth % Gold price change % (YoY)

14,000

19,000

24,000

29,000

34,000

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

LTL Sa les Gr (%)

2.1

7.05.0

1.0

10.0

-1.3

11.0

7.0

14.0

22.0

13.0

21.0

16.0

2.3

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

Dec

-12

43.8

35.733.2

36.7

26.730.1

26.222.3

19.823.0

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QF

Y13E

C–167January 2013





Retail

Jubi. Foodworks 1,283 Neutral 22.6 32.8 48.1 56.7 39.1 26.7 30.0 20.9 14.3 36.9 37.8 38.6

Shopper's Stop 446 Neutral 2.6 6.5 9.7 169.1 68.2 46.0 37.8 24.7 18.9 3.3 7.6 10.3

Titan Industries 282 Buy 8.3 10.5 12.9 34.0 26.8 21.9 23.2 17.9 14.1 43.3 36.0 33.8


Relative to performance-3m (%) Relative to performance-1Yr (%)

Area addition plans on trackShoppers Stop Jubilant Foodworks Pantaloon Value and Lifestyle retailing


30

38

46

54

62

Sep

-10

De

c-1

0

Mar

-11

Jun

-11

Sep

-11

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

De

c-1

2

6

8

10

12

14

Shoppers Stop (LHS)Hyperci ty (RHS)

4436

3337

2730

2622

2023

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13E

0

6

12

18

24

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

Aug

-12

Dec

-12

-5

0

5

10

15

Li festyle Reta i l ing (%)Va lue Reta i l ing (%)

95

100

105

110


Sens ex IndexMOSL Reta i l Index

80

105

130

155

180

Dec

-11

Feb-

12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Sensex IndexMOSL Reta i l Index

C–168January 2013





No of Stores 392 411 439 465 489 514 542 573 463 573

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 3,421 4,160 4,167 10,175 14,893

YoY Change (%) 60.0 47.1 49.2 46.2 45.0 42.3 50.2 47.2 50.0 46.4

Gross Profit 1,617 1,769 2,066 2,113 2,309 2,530 3,085 3,122 7,564 11,046

Gross Margin (%) 74.5 73.6 74.6 74.6 73.4 74.0 74.2 74.9 74.3 74.2

Other Expenses 1,196 1,333 1,551 1,604 1,736 1,943 2,337 2,389 5,689 8,404

% of Sales 55.2 55.4 56.0 56.6 55.2 56.8 56.2 57.3 55.9 56.4

EBITDA 420 436 516 509 573 587 749 733 1,875 2,642

EBITDA Growth (%) 67.2 46.7 59.9 54.0 36.3 34.5 45.2 44.0 56.0 40.9

Margins (%) 19.4 18.1 18.6 18.0 18.2 17.2 18.0 17.6 18.4 17.7

Depreciation 87 93 96 100 117 138 140 144 376 539

Interest 0 0 0 0 0 0 3 8 0 11

Other Income 12 14 14 17 19 20 24 27 57 90

PBT 346 357 434 425 475 468 630 608 1,556 2,181

YoY Change (%) 84.9 55.6 72.9 65.7 11.7 477.9 45.2 43.0 68.3 40.2

Tax 108 111 139 132 152 145 208 201 490 720

Rate (%) 31.1 31.1 32.1 31.1 31.9 30.9 33.0 33.0 31.5 33.0

Adjusted PAT 232 237 295 293 323 323 422 407 1,066 1,461

YoY Change (%) 52.0 28.5 55.4 51.8 39.3 36.5 43.2 38.9 48.0 37.2

E: MOSL Estimates

Jubilant FoodworksCMP: INR1,283 Neutral

We expect Jubilant to report a 50% increase in sales to INR4.2b, while

LTL sales growth is estimated at ~23%.

Festive season has gone well for QSR industry as per our channel

checks.

We expect the company to post 60bp contraction in EBITDA margins to

18% due to Dunkin Donuts expansion costs. A 100bp increase in tax

rate shall reduce the PAT growth to 45.5% YoY at INR344m.

We expect Jubilant to add 28-30 stores during 3QFY13.

Stock trades at 39.1x FY14E EPS of INR32.8 and adequately discounts

the positives in our view. Neutral.


Performance of Dunkin Donuts.

Management comments on sustenance of festive demand.

Changes in expansion strategy, if any.


Sa les 10.2 14.9 21.0 29.1

EBITDA 1.9 2.6 3.7 5.2

Adj. PAT 1.1 1.5 2.1 3.1

Adj. EPS (INR) 16.5 22.6 32.8 48.1

EPS Gr. (%) 48.0 37.2 45.0 46.3

BV/Sh.(INR) 43.4 61.4 86.8 124.5

RoE (%) 38.1 36.9 37.8 38.6

RoCE (%) 51.7 51.7 52.7 53.6

Payout (%) 12.1 17.7 19.8 18.7

Valuation

P/E (x) 77.7 56.7 39.1 26.7

P/BV (x) 29.6 20.9 14.8 10.3

EV/EBITDA (x) 43.5 30.5 21.3 14.5

Div. Yield (%) 0.2 0.3 0.5 0.7

Bloomberg JUBI IN




1,6,12 Rel Perf. (%) 0/-1/46

C–169January 2013


Quarterly Performance; Core Retailing (INR Million)

Y/E June FY11 FY12 FY12E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 5Q 6QE

Net Sales 25,814 27,586 28,119 28,604 29,106 28,933 30,264 29,627 30,600 31,827 180,358

YoY Change (%) 32.1 31.2 17.6 15.4 12.8 4.9 7.6 3.6 5.1 10.0 66.8

Total Exp 23,687 25,202 25,641 26,019 26,583 26,321 27,488 26,864 27,953 28,899 164,108

EBITDA 2,127 2,383 2,479 2,585 2,523 2,612 2,776 2,763 2,647 2,928 16,250

Growth (%) 15.3 12.1 14.0 26.2 18.6 9.6 12.0 6.9 4.9 12.1 114.7

Margins (%) 8.2 8.6 8.8 9.0 8.7 9.0 9.2 9.3 8.7 9.2 9.0

Depreciation 630 650 660 737 828 877 887 929 975 1,004 5,500

Interest 933 1,078 1,096 1,177 1,305 1,582 1,725 1,804 1,761 1,814 9,991

Other Income 81 52 34 63 79 40 16 28 132 50 345

PBT 645 708 757 735 468 193 180 58 44 161 1,104

Tax 218 235 252 242 138 58 60 19 14 53 343

Rate (%) 33.7 33.2 33.2 33.0 29.5 30.1 33.3 33.0 33.0 33.0 31.1

Adjusted PAT 428 472 505 492 330 135 120 39 29 108 761

YoY Change (%) 62.4 5.5 34.8 -17.1 -22.8 -71.4 -76.2 -92.1 -90.6 -20.2 -59.9

E: MOSL Estimates

Pantaloon RetailCMP: INR237 Neutral

We expect Pantaloon’s core retail sales to grow 10% to INR31.8b in

6QFY13 (year extended to December for FY12).

Same store growth would come in at 7-8% in Lifestyle segment, driven

by strong festive season performance.

Estimated EBITDA is INR2.93b, up 12%, as operating margins expand

20bp YoY to 9.2%.

Adj PAT shall decline 20% to INR108m as interest cost continues to

remain high.

Recent deals (AB Nuvo – Pantaloon transaction, Future Capital,

restructuring of fashion business) would help alleviate debt strain for

PF. Core retail debt stands at ~INR58b.

News flow on potential deal after passage of FDI in MBR would keep

fundamentals in the background.

The stock trades at 69.6x FY12E EPS. Maintain Neutral.


Same store performance – especially Value and Lifestyle.

Clarity on CY13 and FY15E numbers post the consummation of all

deals and restructuring.

Update on eZone and Home Town strategy.

Financials & Valuation (INR b)Y/E June 2009 2010 2011 2012E

Sa les 63.4 89.3 110.1 122.5

EBITDA 6.5 8.2 9.6 11.0

Adj. PAT 1.2 1.7 1.9 1.1

Adj. EPS (INR) 6.5 8.2 8.7 4.8

EPS Gr. (%) -18.0 25.8 7.1 -45.2

BV/Sh.(INR) 119.4 136.1 140.1 139.5

RoE (%) 5.4 6.0 6.2 3.4

RoCE (%) 14.9 16.1 13.5 13.3

Payout (%) 10.2 9.8 10.3 25.0

Valuation

P/E (x) 36.6 29.1 27.2 49.5

P/BV (x) 2.0 1.7 1.7 1.7

EV/EBITDA (x) 10.7 8.4 9.0 8.7

Div. Yield (%) 0.3 0.3 0.4 0.5

Bloomberg PF IN




1,6,12 Rel Perf. (%) 15/19/52

C–170January 2013





LTL Sales Gr (%) 7.0 11.0 -1.3 10.0 1.0 2.0 7.0 5.0 7.0 4.0

Deptt Stores 41 43 49 51 52 55 58 60 51 60

Net Sales 3,930 4,973 5,017 5,406 4,467 5,796 5,930 6,115 19,300 22,308

YoY Change (%) 14.4 14.9 9.9 18.5 13.6 16.5 18.2 13.1 16.3 15.6

Total Exp 3,667 4,586 4,603 5,042 4,329 5,505 5,634 5,887 17,873 21,354

EBITDA 263 387 414 363 138 291 297 228 1,427 954

Growth (%) 5.2 1.4 -19.7 -2.8 -47.7 -24.9 -28.3 -37.1 -6.2 -33.2

Margins (%) 6.7 7.8 8.2 6.7 3.1 5.0 5.0 3.7 7.4 4.3

Depreciation 81 88 94 115 120 142 115 76 377 453

Interest 44 57 76 74 77 77 90 105 250 350

Other Income 37 52 46 44 74 31 40 28 178 173

PBT 176 294 290 218 15 102 132 75 978 323

Tax 59 98 97 81 3 38 43 23 335 107

Rate (%) 33.5 33.5 33.5 37.1 17.9 37.1 33.0 30.4 34.3 33.0

Adjusted PAT 117 195 193 137 12 64 88 52 643 217

YoY Change (%) 17.2 12.5 -30.8 -31.0 -89.4 -67.3 -54.3 -62.0 -14.5 -66.3

E: MOSL Estimates

Shoppers StopCMP: INR446 Neutral

We estimate Shoppers Stop would report 18.2% increase in sales to

INR5.9b. Same store sales (SSS) growth shall be 7-8%, driven by strong

festive season footfalls.

We expect EBITDA margins at 5%, still below the normal trend of 7-

8%, as new stores continue to see weak traction. PAT to decline by

54% due to weak traction in new stores and consequent lack of

operating leverage.

Like-to-like (LTL) sales are expected to increase by 7-8% due to strong

festive season demand.

Hypercity would continue to remain a drag on consolidated

profitability.

It has added one Shopper Stop departmental store during 2QFY13.

The stock trades at 68.2x FY14E EPS (standalone). Maintain Neutral.


Comments on same store performance.

Margin outlook for future.



Sa les 19.0 22.3 26.6 30.9

EBITDA 1.4 1.0 1.5 2.0

Adj. PAT 0.6 0.2 0.5 0.8

Adj. EPS (INR) 7.8 2.6 6.5 9.7

EPS Gr. (%) -14.5 -66.3 147.8 48.4

BV/Sh.(INR) 78.9 81.0 86.4 94.4

RoE (%) 9.9 3.3 7.6 10.3

RoCE (%) 11.0 4.8 9.0 11.8

Payout (%) 14.6 15.0 15.0 15.0

Valuation

P/E (x) 57.0 169.1 68.2 46.0

P/BV (x) 5.7 5.5 5.2 4.7

EV/EBITDA (x) 25.9 39.4 24.7 18.9

Div. Yield (%) 0.3 0.1 0.2 0.3

Bloomberg SHOP IN




1,6,12 Rel Perf. (%) 3/22/51

C–171January 2013





Net Sales 20,205 20,963 24,401 22,814 22,057 22,760 29,800 27,676 88,384 102,293

YoY Change (%) 61.3 36.5 24.8 28.3 9.2 8.6 22.1 21.3 35.5 15.7

Total Exp 18,284 18,874 22,272 20,744 19,937 20,266 26,760 25,086 80,054 92,049

EBITDA 1,921 2,089 2,129 2,071 2,120 2,494 3,040 2,590 8,329 10,243

EBITDA Growth (%) 73 20 9.2 95.7 10.3 19.4 42.8 25.1 42 23

Margins (%) 9.5 10.0 8.7 9.1 9.6 11.0 10.2 9.4 9.4 10.0

Depreciation 99 106 119 125 123 130 117 111 449 482

Interest 88 89 10 131 126 121 180 223 437 650

Other Income 233 205 247 255 252 238 240 232 941 962

PBT 1,968 2,100 2,247 2,070 2,122 2,481 2,983 2,488 8,384 10,074

Tax 532 615 608 627 561 679 835 644 2,336 2,720

Rate (%) 27.0 29.3 28.5 30.3 26.4 27.4 28.0 25.9 27.9 27.0

Adjusted PAT 1,436 1,485 1,639 1,443 1,561 1,801 2,147 1,844 6,048 7,354

YoY Change (%) 76.9 16.2 16.4 72.0 8.7 21.3 31.0 27.8 39.5 21.6

E: MOSL Estimates

Titan IndustriesCMP: INR282 Buy

We expect Titan to post sales of INR29.8b, up 22% YoY.

We estimate 23% increase in EBITDA, with margin expansion of 150bp

YoY on account of savings in excise and lower base. PAT is estimated to

increase 31% to INR2.14b.

Sequentially, footfalls have improved in the jewelry segment driven

by improved consumer sentiment and better wedding demand.

We expect the watch segment to post a subdued quarter.

Titan’s expansion strategy in jewelry is on track.

The stock trades at 26.7x FY14E EPS of 10.5x. Buy.


Clarity on gold lease arrangement and direct import of gold as

management had earlier guided for 40-50bp savings due to direct

import.

Footfalls post festive season.



Sa les 87.8 102.3 126.6 154.1

EBITDA 8.2 10.2 12.9 15.8

Adj. PAT 5.9 7.4 9.3 11.4

Adj. EPS (INR) 6.7 8.3 10.5 12.9

EPS Gr. (%) 37.1 23.7 26.7 22.7

BV/Sh.(INR) 16.3 21.9 29.2 38.1

RoE (%) 48.0 43.3 36.0 33.8

RoCE (%) 66.3 59.0 55.3 51.7

Payout (%) 30.0 30.0 30.0 30.0

Valuation

P/E (x) 42.1 34.0 26.8 21.9

P/BV (x) 17.2 12.9 9.7 7.4

EV/EBITDA (x) 29.3 23.2 17.9 14.1

Div. Yield (%) 0.7 0.9 1.1 1.4

Bloomberg TTAN IN


M. Cap. (INR b)/(USD b) 250 / 5


1,6,12 Rel Perf. (%) -10/16/39

C–172January 2013

December 2012 Results Preview | Sector: Technology





HCL Technologies 625 Buy 62,256 18.7 2.2 12,542 32.2 -5.6 8,358 51.2 -4.1

Hexaware Tech. 84 Buy 4,985 15.4 -1.8 871 -12.4 -20.7 634 -28.1 -24.5

Infosys 2,287 Buy 100,548 8.1 2.0 27,928 -10.9 -2.8 21,356 -10.0 -9.9

KPIT Cummins 107 Buy 5,557 46.7 -2.0 867 49.5 -8.3 562 36.7 35.7

Mindtree 698 Buy 5,875 13.0 -1.5 1,196 33.3 -9.3 868 43.3 20.3

MphasiS 379 Se l l 13,169 -3.7 0.8 2,596 2.9 -3.8 1,951 5.6 -6.8

TCS 1,250 Neutral 159,845 21.1 2.3 45,233 10.5 1.9 34,305 18.8 -2.3

Tech Mahindra 920 Buy 17,477 21.0 7.1 3,437 46.7 1.8 3,414 23.5 15.3

Wipro 386 Buy 109,200 9.2 2.5 21,363 7.7 -0.1 15,953 9.5 -0.9


Ashish Chopra ([email protected])

Seasonal deceleration in volume growth - Infosys, tier-II worst hit: Furloughs in the

holiday season usually impact volume growth in 3Q, which is likely to be more

pronounced this time around as lower working days get compounded by some impact

from hurricane Sandy. On an organic basis, we expect USD revenue growth of 1.1-3.5%

across tier-I IT companies led by TCS , while Infosys is expected to lag. Among tier-II,

we expect at least 3 companies (organic revenues at Tech Mahindra, KPIT and Hexware)

to post sequential decline in USD revenues during the quarter. Revenues from

acquisitions would drive higher consolidated growth at Infosys (INFY) and Tech

Mahindra (TECHM).

Cross currency benefits: On an average, Euro has appreciated 3.6% QoQ and GBP 1.6%

QoQ. This is expected to rub off positively on revenue growth, impacting top tier IT

firms positively to the extent of 40-60bp as per our estimates.

Margins to decline across the board; INFY, HCL to be the most hit; Hexaware in tier-II:

We expect EBIT margin contraction of 20-150bp across tier-I and 80-430bp across tier-

II companies. INFY and HCL Tech should see greater declines on account of impacts

from wage hikes during the quarter. Among tier-II, large client ramp-down at Hexware

(HEXW) is expected to have a huge impact on the margins (we estimate 430bp QoQ

decline), and we expect margin declines of 80-190bp across rest of the pack.

Watch out for Cognizant's revenue guidance, HCL's deal signings: Two numbers that

could lend some visibility on the growth outlook for FY14 are revenue growth guidance

by Cognizant for CY13 (consensus is building 16.5% growth) and the quantum of deal

signings by HCL (following the comments of a deal-heavy OND quarter). Also,

comments by Infy and TCS on the outlook of BFSI spends will be crucial.

Prefer Infy, TECHM, HCL: We prefer Infy and HCL among the top tier and expect the

increased flexibility by the former towards revenue growth to bear fruits over time.

HCL should continue to benefit from its deal signing prowess in the current

environment for restructuring deals. Also, demerger of non-core business is a positive

for Wipro. Among tier-II, TECHM is our top pick, where peer-matching growth (along

with Mahindra Satyam) despite exposure to challenged telecom vertical would help

drive valuations, notwithstanding a seasonally weak 3QFY13.

TechnologyCompanies Covered

Cognizant Technology

HCL Technologies

Hexaware Technologies

Infosys

KPIT Cummins

MindTree

MphasiS

TCS

Tech Mahindra

Wipro

C–173January 2013


TCS to lead revenue growth, INFY to lag on organic basis

Incremental revenues inch up QoQ at Wipro and HCLT

-50

25

100

175

250

TCS Infosys Wipro HCL Cognizant

3.5

3.32.2

3.2

-3

0

3

6

9

12

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

2QF

Y13

3QFY

13E

TCS Infos ys Wipro HCL Tech

7.9

0.3

-0.9-2.0

2.0

(7.0)

1.0

9.0

17.0

25.0

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

2QF

Y13

3QFY

13E

Tech Mahindra Mphas is Hexaware KPIT Cummins Mindtree

Expect at least 3 tier-II companies to report organic QoQ revenue decline (TECHM, HEXW, KPIT)


Relative to performance-3m (%) Relative to performance-1Yr (%)

96

98

100

102

104


Sens ex IndexMOSL Technology Index

90

100

110

120

130

Dec

-11

Feb-

12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Sensex IndexMOSL Technology Index

C–174January 2013


Expect aggregate USD revenue to grow 3% QoQ, but PAT to decline 4.4% across tier-I

Revenues (USD) Revenues (INR b)

Company 3QFY13E 3QFY12 YoY (%) 2QFY13 QoQ (%) 3QFY13E 3QFY12 YoY (%) 2QFY13 QoQ (%)

TCS 2,952 2,586 14.1 2,853 3.5 160 132 21.1 156 2.3

Infosys 1,857 1,806 2.8 1,797 3.3 101 93 8.1 99 2.0

Wipro 1,575 1,506 4.6 1,541 2.2 109 100 9.2 107 2.5

HCLT 1,150 1,022 12.5 1,114 3.2 62 52 18.7 61 2.2

Aggregate 7,533 6,919 8.9 7,304 3.1 432 377 14.4 422 2.3

EBIT Margin(%) PAT (INR b)


TCS 26.6 29.2 -269 26.8 -19 34 29 18.8 35 -2.3

Infosys 25.0 31.2 -621 26.3 -138 21 24 -10.0 24 -9.9

Wipro 16.9 17.2 -30 17.4 -50 16 15 9.5 16 -0.9

HCLT 17.5 15.4 205 19.0 -155 8 6 51.2 9 -4.1

Aggregate 22.4 24.6 -218 23.2 (74) 80 73 10.0 84 -4.4

Hexaware to be the key laggard across tier-II in the seasonally weak quarter

Revenues (USD) Revenues (INR b)


Tech Mahindra 323 289 11.8 299 7.9 17.5 14.4 21.0 16.3 7.1

Mphasis 249 271 -8.0 248 0.3 13.2 13.7 -3.7 13.1 0.8

Hexaware 92 84 9.4 93 -0.9 5.0 4.3 15.4 5.1 -1.8

KPIT Cummins 103 73 39.7 103 -0.8 5.6 3.8 46.7 5.7 -2.0

Mindtree 109 104 5.5 107 2.0 5.9 5.2 13.0 6.0 -1.5

Aggregate 766 717 6.9 743 3.1 41 36 13.7 40 2.7

EBIT Margin(%) PAT (INR b)


Tech Mahindra 16.8 13.5 325 17.8 -99 3.4 2.8 23.5 3.0 15.3

Mphasis 16.5 15.0 152 17.6 -101 2.0 1.8 5.6 2.1 -6.8

Hexaware 15.6 21.6 -591 19.9 -426 0.6 0.9 -28.1 0.8 -24.5

KPIT Cummins 13.5 11.8 170 14.6 -116 0.5 0.4 33.7 0.4 35.1

Mindtree 17.5 13.9 361 19.4 -186 0.9 0.6 43.3 0.7 20.3

Aggregate 16.1 14.9 125 17.5 (140) 7 6 10.9 6 3.9


3QFY13 Currency highlights (INR)

Rates (INR) Change (QoQ, %)

USD EUR GBP AUD USD EUR GBP AUD

Average 54.1 70.2 86.9 56.2 -2.0 1.7 -0.3 -2.0

Closing 55.0 72.8 89.1 57.3 4.1 6.5 4.1 3.8

Source: Company,MOSL

3QFY13 Currency highlights (in USD)

Rates (USD) Change (QoQ, %)

EUR GBP AUD EUR GBP AUD

Average 1.30 1.61 1.04 3.6 1.6 0.0

Closing 1.32 1.62 1.04 2.8 0.2 0.3


C–175January 2013





Technology

HCL Technologies 625 Buy 49.0 50.0 56.0 12.8 12.5 11.2 8.1 7.6 6.6 29.1 26.9 25.1

Hexaware Tech. 84 Buy 11.1 11.3 12.4 7.6 7.5 6.8 4.9 4.7 3.9 31.8 28.6 26.8

Infosys 2,287 Buy 158.0 168.7 183.2 14.5 13.6 12.5 9.1 8.4 7.4 25.4 23.8 22.5

KPIT Cummins 107 Buy 11.0 11.9 14.0 9.7 9.0 7.7 4.9 4.4 3.8 24.3 23.2 25.0

Mindtree 698 Buy 82.0 83.9 93.0 8.5 8.3 7.5 4.6 4.3 3.4 26.0 23.8 21.3

MphasiS 379 Se l l 36.8 36.7 39.1 10.3 10.3 9.7 8.0 7.9 7.0 18.7 17.2 17.3

TCS 1,250 Neutral 70.9 75.9 83.4 17.6 16.5 15.0 12.9 11.8 10.4 38.8 34.6 31.5

Tech Mahindra 920 Buy 90.3 102.0 110.6 10.2 9.0 8.3 5.4 5.2 4.5 21.9 21.9 19.5

Wipro 386 Buy 26.3 27.1 30.7 14.7 14.2 12.6 10.1 9.5 8.5 21.6 19.8 19.6


EPS Estimates (INR) - MOSL v/s Consensus

2QFY13 FY13 FY14 Upside/Downside to Consensus (%)

MOSL Consensus MOSL Consensus MOSL Consensus 3QFY12 FY12 FY13

Infosys 37.4 41.2 158.0 161.4 168.7 173.3 -9.4 -2.1 -2.6

TCS 17.5 17.2 70.9 69.6 75.9 76.6 1.6 1.9 -0.9

Wipro 6.5 6.7 26.3 26.3 27.1 28.3 -3.2 0.3 -4.2

HCL Tech 11.9 10.5 49.0 46.4 50.0 50.9 12.8 5.6 -1.6

Mphasis 9.3 8.8 36.8 37.7 36.7 38.4 5.6 -2.4 -4.4

Tech Mahindra 25.7 23.8 90.3 87.9 102.0 97.2 8.0 2.7 4.9

Cognizant 0.91 0.91 3.5 3.4 3.9 4.2 0.1 1.0 -7.4

Hexaware 2.1 2.2 11.1 10.9 11.3 11.3 -3.9 2.5 0.2

KPIT Cummins 2.8 3.0 11.0 11.5 11.9 13.6 -7.3 -4.1 -12.2

Mindtree 21.0 18.5 82.0 74.6 83.9 79.8 13.5 9.9 5.1


C–176January 2013


Quarterly Performance (US GAAP) (USD Million)


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Revenues 1,371 1,485 1,601 1,664 1,711 1,795 1,892 1,950 6,121 7,349

Q-o-Q Change (%) 4.6 8.3 7.8 3.9 2.9 4.9 5.4 3.1 33.3 20.1

Direct Expenses 782 861 925 971 985 1,031 1,112 1,157 3,539 4,285

SG&A 296 327 353 352 374 397 385 396 1,329 1,552

SG&A as % of Sales 21.6 22.0 22.1 21.2 21.9 22.1 20.3 20.3 21.7 21.1

EBITDA 293 298 323 341 353 368 395 397 1,254 1,512

Margins (%) 21.3 20.0 20.2 20.5 20.6 20.5 20.9 20.4 20.5 20.6

Other Income 15 8 -5 15 4 3 9 12 33 28

Depreciation 27 28 30 32 35 36 39 39 117 149

PBT bef. Extra-ordinary 280 278 288 323 322 335 364 369 1,169 1,391

Provision for Tax 72 70 61 83 79 83 87 92 286 342

Rate (%) 25.7 25.1 21.1 25.7 24.4 24.8 24.0 25.0 24.4 24.6

PAT before EO 208 208 227 240 244 252 277 277 884 1,050

Q-o-Q Change (%) 1.0 -0.1 9.2 5.7 7.3 3.4 9.9 0.1 20.5 18.8

Headcount addition 7,200 7,100 11,700 7,700 2,800 4,500 5,400 5,350 33,700 18,100

Closing Headcount 111,200 118,300 130,000 137,700 140,500 145,000 150,400 155,800 137,700 155,800

Utilization (%) 70 70 70 68 67 68 70 70 69 69

Cognizant TechnologyCMP: USD72 Not Rated

We expect Cognizant to report revenues of USD1,950m during the

quarter, +3.1% QoQ.

Company had guided for revenues of 'at least' USD1,940m, implying a

growth of 2.6% QoQ. Consensus estimates stand at USD1,950m.

For CY13, we expect Cognizant to guide for a revenue growth of 'at

least' 16% to USD8,524m. We currently estimate revenues of

USD8,575m, +16.7% YoY for CY13 and consensus estimate stands at

USD8,578m.

Operating margin is expected to remain within its guided range. We

expect a marginal 40bp QoQ decline in OPM to 18.4%. Our SGA estimate

is flat QoQ at 20.3%.

We model a slight decline in offshore utilization during the quarter.

We expect diluted GAAP EPS at USD0.91, in line with the company's

guidance for the quarter.

We estimate an addition of 5,000 technical employees during the

quarter, taking the total technical headcount to 145,600.


Revenue growth guidance and outlook on headcount additions in

CY13.

Outlook on growth break-up between verticals like BFSI and

Healthcare.

4QCY12 revenue growth v/s guidance.

Financials & Valuation (USD b)Y/E December 2011 2012E 2013E 2014E

Sa les 6.1 7.3 8.6 9.8

EBITDA 1.3 1.5 1.7 1.9

PAT 0.9 1.0 1.2 1.3

EPS (INR) 2.9 3.5 3.9 4.4

EPS Gr. (%) 20.0 21.0 13.0 12.5

BV/Sh. (INR) 12.8 16.0 19.9 24.3

RoE (%) 23.4 23.8 21.8 19.9

RoCE (%) 28.6 29.0 26.7 24.3

Payout (%) 0.0 0.0 0.0 0.0

Valuation

P/E (x) 23.5 19.5 17.2 15.3

P/BV (x) 5.3 4.2 3.4 2.8

EV/EBITDA (x) 14.9 11.8 9.9 8.3

Div. Yield (%) 0.0 0.0 0.0 0.0

Bloomberg CTSH US


M.Cap. (USD b) 21.7


C–177January 2013


Quarterly Performance (US GAAP) (INR Million)

Y/E June FY12 FY13 FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Revenues 46,513 52,452 52,156 59,191 60,910 62,256 64,016 65,293 210,312 252,475

Q-o-Q Change (%) 8.2 12.8 -0.6 13.5 2.9 2.2 2.8 2.0 32.2 20.0

EBITDA 7,764 9,487 9,363 12,782 13,283 12,542 12,980 12,880 39,396 51,685

Margins (%) 16.7 18.1 18.0 21.6 21.8 20.1 20.3 19.7 18.7 20.5

Other Income 59 -670 -136 -423 -253 453 597 710 -1,170 1,507

PAT 4,800 5,526 5,818 8,409 8,719 8,358 8,803 8,784 24,553 34,664

Q-o-Q Change (%) -2.3 15.1 5.3 44.5 3.7 -4.1 5.3 -0.2

Y-o-Y Change (%) 59.8 48.5 30.6 71.2 81.6 74.1 59.3 51.0 43.6 41.2

Diluted EPS (INR) 6.9 7.9 8.3 12.0 12.4 11.9 12.5 12.4 35.1 49.0

USD Revenues 1,002 1,022 1,048 1,080 1,114 1,150 1,185 1,232 4,152 4,681

Q-o-Q Change (%) 4.1 2.0 2.5 3.0 3.2 3.2 3.1 3.9 17.1 12.7

Gross Margin (%) 31.1 32.6 32.1 34.8 34.8 33.9 33.9 33.6 31.3 34.0

SGA (%) 14.4 14.5 14.2 13.2 13.0 13.7 13.7 13.8 14.7 13.6

Tax rate (%) 26.3 25.5 25.5 22.4 23.1 24.5 24.5 24.5 24.5 24.1

Net Employee additions 3,474 2,556 -612 1,855 1,016 2,350 2,950 3,350 19,100 9,666

Util. - incl. trainees (%) 69.7 69.6 72.2 72.4 74.2 73.0 73.0 73.5 75.7 75.9

Q-o-Q Volume Growth (%) 4.0 4.9 2.9 1.8 2.5 2.4 3.1 3.8 22.7 13.9

Q-o-Q Realization change (%) 1.1 -1.2 -1.0 0.0 -1.9 0.6 0.0 0.0 0.4 -2.0

Offshore revenues (%) 42.3 42.1 43.8 42.8 44.3 44.2 44.2 44.2 42.8 44.2

E: MOSL Estimates; After adjusting for ESOP charges; Axon is consolidated since December 2008

HCL TechnologiesCMP: INR625 Buy

We expect HCL Tech to grow its revenues in 2QFY13 by 3.2% QoQ to

USD1,150m, aided by ~50bp positive contribution from cross currency.

Cross currency movements should have favorable impact on revenue

growth during the quarter. We model 50bp.

We expect software services revenues to grow 3% QoQ to USD791m

and IMS revenues to grow 4.1% QoQ to USD308m.

In Rupee terms, our revenue growth estimate stands at INR62.3b,

+2.2% QoQ, given our currency assumption of INR54.15, which implies

an appreciation of 1% QoQ.

We expect EBIT margin to decline 150bp QoQ on account of: [1] 100bp

residual impact from wage hikes and [2] increased investments in

SGA due to anticipated deal-signing activity. We expect SGA spends to

increase 70bp QoQ to 13.7%.

We expect utilization including trainees to decline 120bp QoQ at

offshore to 73%, and model net addition of 1,750 employees in 2QFY13.

We expect PAT to decline 4% QoQ to INR8.36b, and our EPS estimate

for the quarter is INR11.9.


Deal signing performance in 2QFY13 as the company invests heavily

towards the same.

Volume growth in software services as IMS continues to be the

revenue growth driver.

Performance and comments on operating margins.

Financials & Valuation (INR b)Y/E June 2012 2013E 2014E 2015E

Sa les 210.3 252.5 284.3 325.2

EBITDA 39.4 51.7 52.2 57.8

PAT 24.6 34.7 35.6 40.1

EPS (INR) 35.1 49.0 50.0 56.0

EPS Gr. (%) 52.0 39.7 2.1 11.9

BV/Sh. (INR) 151.0 193.1 228.1 265.8

RoE (%) 26.0 29.1 26.9 25.1

RoCE (%) 21.4 26.2 23.3 22.8

Payout (%) 34.2 26.5 26.0 24.1

Valuation

P/E (x) 17.8 12.8 12.5 11.2

P/BV (x) 4.1 3.2 2.7 2.4

EV/EBITDA (x) 10.8 8.0 7.6 6.5

Div. Yield (%) 1.9 2.1 2.1 2.1

Bloomberg HCLT IN


M. Cap. (INR b)/(USD b) 439 / 8


1,6,12 Rel Perf. (%) -5/19/38

C–178January 2013


Quarterly Performance (Indian GAAP) (USD Million)


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Revenues 3,185 3,341 3,660 4,319 4,383 5,001 5,075 4,985 14,505 19,444

Q-o-Q Change (%) 13.1 4.9 9.5 18.0 31.2 14.1 1.5 -1.8 37.6 34.1

Direct Cost 1,998 2,117 2,262 2,562 2,574 2,995 3,067 3,138 8,939 11,774

Other Operating Exps 732 713 712 763 827 859 910 977 2,920 3,573

Operating Profit 455 511 686 994 982 1,147 1,098 871 2,646 4,098

Margins (%) 14.3 15.3 18.7 23.0 22.4 22.9 21.6 17.5 18.2 21.1

Other Income 188 267 160 62 138 49 55 38 677 280

Depreciation 62 59 64 63 71 76 88 91 248 326

PBT bef. Extra-ordinary 581 719 782 993 1,049 1,120 1,065 818 3,075 4,052


Rate (%) 7.6 16.1 17.4 11.2 15.7 20.5 21.1 22.5 13.2 19.8

Net Income bef. Extra-ordinary 537 603 646 882 884 890 840 634 2,668 3,248

Q-o-Q Change (%) 35.6 12.3 7.1 36.5 0.2 0.7 -5.6 -24.5 212.8 21.7

Net Income aft. Extra-ordinary 537 603 646 882 884 890 840 634 2,668 3,248

Q-o-Q Change (%) 35.6 12.3 7.1 36.5 0.2 0.7 -5.6 -24.5 147.7 21.7

USD Revenues 70.4 74.8 78.8 84.1 88.0 91.2 92.8 92.0 308 364

Q-o-Q Change (%) 5.7 6.3 5.3 6.7 4.6 3.6 1.8 -0.9 33.3 18.1

Diluted EPS - Before EOI (INR) 1.8 2.0 2.2 3.0 2.9 3.0 2.8 2.1 8.9 7.1

Diluted EPS - After EOI (INR) 1.8 2.0 2.2 3.0 2.9 3.0 2.8 2.1 8.9 10.8

E: MOSL Estimates

Hexaware TechnologiesCMP: INR84 Buy

We expect Hexaware's 4QCY12 revenues to decline 0.9% QoQ to

USD92m, in line with the management's changed guidance mid-way

through the quarter.

Company had earlier guided for QoQ growth of 2-4%, which was

reduced later on account of ramp-down in one of the projects with a

large client and also due to some impact from hurricane Sandy.

Hexaware also guided for a sharp cut in operating margins QoQ by

500-700bp. This was due to the fact that costs on the project continued

to get incurred and SGA efforts were increased QoQ.

We model EBIT margin decline of 430bp QoQ to 15.6% on account of

our Rupee assumption of INR54.15, v/s the closing rate of INR52.86 in

3QCY12.

Our PAT estimate is INR634m, down 24.5% QoQ, translating into an

EPS of INR2.1.

We expect quarterly dividend payout of INR1 per share, down from

INR1.2 per share in the previous quarter, lower due to a weak

performance.


Revenue growth guidance for CY13 on the back of a weak exit.

Outlook on budget spends among top clients and deal signing scenario.

Commentary on roll out of Peoplesoft's new version by Oracle.


Sa les 14.5 19.4 21.3 23.9

EBITDA 2.6 4.1 4.2 4.7

PAT 2.7 3.3 3.4 3.7

EPS (INR) 8.9 11.1 11.3 12.4

EPS Gr. (%) 319.3 24.8 1.0 10.2

BV/Sh. (INR) 34.4 36.3 42.4 50.3

RoE (%) 26.3 30.8 26.5 24.7

RoCE (%) 23.6 34.8 30.6 28.7

Payout (%) 43.9 45.6 34.7 31.5

Valuation

P/E (x) 9.4 7.6 7.5 6.8

P/BV (x) 2.5 2.3 2.0 1.7

EV/EBITDA (x) 7.8 5.0 4.8 3.9

Div. Yield (%) 4.7 6.2 4.7 4.7

Bloomberg HEXW IN




1,6,12 Rel Perf. (%) -26/-48/-12

C–179January 2013


Quarterly Performance (IFRS) (INR Million)



Revenues 74,850 80,990 92,980 88,520 96,160 98,580 100,548 103,012 337,340 398,301

Q-o-Q Change (%) 3.2 8.2 14.8 -4.8 8.6 2.5 2.0 2.5 22.7 18.1

EBITDA 21,750 25,160 31,350 28,900 29,460 28,720 27,928 29,576 107,160 115,684

Margins (%) 29.1 31.1 33.7 32.6 30.6 29.1 27.8 28.7 31.8 29.0

Other Income 4,430 3,870 4,220 6,520 4,760 7,060 4,763 4,566 19,040 21,150

PAT 17,220 19,060 23,720 23,160 22,890 23,690 21,356 22,344 83,160 90,281

Q-o-Q Change (%) -5.3 10.7 24.4 -2.4 -1.2 3.5 -9.9 4.6 21.9 8.6

Diluted EPS (INR) 30.1 33.4 41.5 40.5 40.1 41.5 37.4 39.1 145.5 158.0

USD Revenues 1,671 1,746 1,806 1,771 1,752 1,797 1,857 1,908 6,994 7,313

Q-o-Q Change (%) 4.3 4.5 3.4 -1.9 -1.1 2.6 3.3 2.7 15.8 4.6

Operating Metrics

Gross Margin (%) 41.8 44.3 45.7 44.0 42.2 40.9 39.7 40.5 44.1 40.8

SGA (%) 12.8 13.3 11.9 11.4 11.6 11.8 11.9 11.8 12.3 11.8

Tax rate (%) 28.1 28.6 28.6 29.8 27.8 28.3 28.5 28.5 28.8 28.3

Net Employee additions 2,740 8,262 3,266 4,906 1,157 2,610 -150 -376 19,174 3,240

Utiliz. - excl. trainees (%) 74.9 77.3 77.4 73 71.6 73.3 76.6 75.9 75.6 74.3

Q-o-Q Volume Growth (%) 3.2 4.4 3.0 -0.6 2.8 3.8 1.1 1.5 10.8 10.9

Q-o-Q Realization chg (%) 1.2 0.5 (0.1) (1.1) (3.7) (0.2) 2.2 1.2 4.7 -5.7

E: MOSL Estimates

InfosysCMP: INR2,287 Buy

We expect Infosys to grow revenues by 3.3% QoQ to USD1,857m. This

builds organic revenue growth of 1.1% QoQ, lower than 3.6% implied

in the company's full year organic revenue growth guidance of 5%.

Our revenue growth expectation is broken into the following: [1]

organic volume growth of 1% QoQ, [2] positive impact from cross

currency movements of 0.4% QoQ, [3] USD40m incremental revenues

from 2-month revenues following Lodestone's acquisition and [4]

~30bp negative impact from mix-based pricing.

In Rupee terms, we expect revenue growth of 2% QoQ to INR100.5b

assuming 1.3% QoQ appreciation in the Rupee.

We expect EBIT margin to decline 130bp QoQ to 25% on account of: [1]

wage hikes at offshore, implying negative impact of 120bp, [2]

revenues from lower-margin Lodestone acquisition, [3] headwinds

offset partly by higher utilization, as net employee additions are

expected to remain flattish given deferment of ~5,000 joinees to FY14.

We expect PAT to decline 10% QoQ to INR21.4b on account of lower

margins and lower forex gains (we estimate INR386m forex gains v/s

INR1,570m in 2QFY13). Our EPS estimate for the quarter stands at

INR37.4, down 10% YoY, a first in 11 quarters.


Organic growth guidance cut for FY13.

Margin decline in 3QFY13 following offshore wage hikes and below-

estimate growth.

Management comments on client budgets across industries in CY13.


Sa les 337.3 398.3 427.8 473.0

EBITDA 107.2 115.7 120.3 129.2

PAT 83.2 90.3 96.4 104.7

EPS (INR) 145.5 158.0 168.7 183.2

EPS Gr. (%) 21.9 8.6 6.8 8.6

BV/Sh. (INR) 585.0 659.3 757.7 865.9

RoE (%) 28.0 25.4 23.8 22.5

RoCE (%) 32.9 29.4 26.9 25.4

Payout (%) 32.3 34.8 35.6 34.9

Valuation

P/E (x) 15.7 14.5 13.6 12.5

P/BV (x) 3.9 3.5 3.0 2.6

EV/EBITDA (x) 10.3 9.1 8.4 7.4

Div. Yield (%) 2.1 2.4 2.6 2.8

Bloomberg INFO IN


M. Cap. (INR b)/(USD b) 1,307 / 24

52-Week Range (INR) 2,990/2,102

1,6,12 Rel Perf. (%) -10/-21/-39

C–180January 2013





Revenues 3,161 3,250 3,789 4,697 5,383 5,672 5,557 5,779 14,897 22,390

QoQ Change (%) 6.4 2.8 19.8 24.0 42.1 5.4 3.2 4.0 47.2 50.3

Direct Expenses 2,124 2,132 2,493 3,186 3,506 3,703 3,701 3,776 9,934 14,685

SG&A 640 674 716 854 1,065 1,024 989 1,046 2,885 4,124

EBITDA 397 444 580 658 812 945 867 957 2,078 3,580

Margins (%) 12.6 13.6 15.3 14.0 15.1 16.7 15.6 16.6 13.9 16.0

Other Income 22 110 108 -113 30 -191 60 -5 128 -105

Depreciation 94 116 133 102 113 114 117 120 445 465

Interest 10 13 16 39 35 34 51 51 78 171

PBT bef. Extra-ordinary items 315 425 539 404 694 605 759 781 1,683 2,839


Rate (%) 22.5 20.6 23.8 37.1 26.6 31.6 26.0 26.0 25.9 27.4

PAT bef. Extra-ordinary items 244 338 411 254 509 414 562 578 1,246 2,062

QoQ Change (%) (6.4) 37.1 68.5 (9.5) 31.6 (12.2) 4.8 0.8 28.2 66.7

Diluted EPS (INR) 1.3 2.0 2.3 2.4 2.8 2.5 2.8 2.9 8.0 11.0

USD Revenues 70 70 73 93 98 103 103 107 307 411

QoQ Change (%) 7.0 0.4 4.3 27.2 33.5 5.5 (0.8) 4.3 38.6 33.8

E: MOSL Estimates

KPIT CumminsCMP: INR107 Buy

We expect KPIT Cummins' 3QFY13 revenues to decline by 0.8% QoQ to

USD102.6m. This is largely on account of furloughs which impact the

industries served by KPIT the most and also due to a project closure in

its top account, Cummins.

In Rupee terms, we expect revenues to decline by 2% QoQ to INR5.56b.

We expect EBIT margin to moderate by 110bp QoQ to 13.5%; furloughs

shall impact utilization. In absolute terms, EBIT is expected to decline

by 9.8% QoQ to INR750m.

We have estimated 120bp QoQ decline in utilization at offshore to

73.5% and 100bp at onsite to 93.5%.

However, our PAT estimate of INR549m is up 10% QoQ on lower tax

rate and higher other income (tax rate in 2Q was 31.6% and other

income was -INR191m due to a forex loss of INR213m).

We expect the company to retain its guidance for the full year,

suggesting a stronger 4Q in terms of revenue growth v/s peers.


Extent of sequential revenue decline during the quarter and

contribution of furloughs to the same.

Operating margin performance at acquired entities and outlook on

margins going forward.

Growth outlook keeping top clients' budgets in perspective in general

and Cummins spend in particular.


Sa les 14.9 22.4 25.0 28.5

EBITDA 2.1 3.6 3.8 4.3

PAT 1.2 2.0 2.4 2.8

EPS (INR) 8.0 11.0 11.9 14.0

EPS Gr. (%) 41.4 37.4 8.2 17.3

BV/Sh. (INR) 39.0 48.4 54.4 57.4

RoE (%) 22.4 26.0 24.0 25.9

RoCE (%) 20.6 30.4 26.6 27.5

Payout (%) 8.7 9.1 8.4 10.7

Valuation

P/E (x) 13.4 9.7 9.0 7.7

P/BV (x) 2.8 2.2 2.0 1.9

EV/EBITDA (x) 9.2 4.9 4.4 3.8

Div. Yield (%) 0.7 0.9 0.9 1.4

Bloomberg KPIT IN




1,6,12 Rel Perf. (%) -19/-21/21

C–181January 2013





Revenues 4,131 4,567 5,197 5,257 5,630 5,963 5,875 6,047 19,152 23,515

Q-o-Q Change (%) 7.4 10.6 13.8 1.2 23.3 5.9 -1.5 2.9 26.9 22.8

Direct Expenses 2,793 3,047 3,242 3,179 3,442 3,570 3,650 3,715 12,261 14,377

SGA 878 932 1,058 1,093 1,014 1,074 1,028 1,089 3,961 4,205

Operating Profit 460 588 897 985 1,174 1,319 1,196 1,244 2,930 4,933

Margins (%) 11.1 12.9 17.3 18.7 20.9 22.1 20.4 20.6 15.3 21.0

Other Income 31 70 36 51 52 74 77 92 188 295

Forex Gain / (Loss) 91 171 -25 -40 86 -415 0 0 197 -329

Depreciation & Amort. 180 174 173 168 159 159 167 175 695 659

Interest 0 1 1 3 3 4 0 0 5 7

PBT bef. Extra-ordinary 402 654 734 825 1,150 815 1,106 1,161 2,615 4,232


Rate (%) 14.2 16.7 17.4 16.5 22.6 11.4 21.5 21.5 16.4 19.9

Reported PAT 345 545 606 689 890 722 868 911 2,185 3,392

Q-o-Q Change (%) 13.2 58.0 11.2 13.7 63.3 -18.9 20.3 5.0 101.4 55.2

USD Revenue 92.5 101.3 103.7 105.0 105.5 107.3 109.4 112.0 402.6 434.1

Q-o-Q Change (%) 7.3 9.5 2.3 1.3 4.1 1.7 2.0 2.4 21.7 7.8

E: MOSL Estimates

MindTreeCMP: INR698 Buy

We expect Mindtree's revenues to grow by 2% QoQ in 3QFY13 to

USD109.4m. Company had guided for better 2H v/s 1H, when it grew at

a CQGR of 1%.

While growth in ITS is expected to accelerate, PES is expected to

witness a sequential decline during the quarter. There will be minimal

impact from furloughs and hurricane Sandy in 3QFY13.

In Rupee terms, we expect a revenue decline of 1.5% QoQ to

INR5,875m. Assumed USD rate for the quarter is INR53.7 v/s INR55.6 in

2QFY13 (Mindtree books rates for any particular month at the closing

currency rate of the previous month).

Company expects margins to be stable ex-currency. We expect 170bp

QoQ decline in EBITDA margin to 20.4%, primarily due to 3.7% QoQ

appreciation (sensitivity of margins to currency movement is high due

to higher offshore revenue proportion).

We expect PAT to rebound and grow 20% QoQ, largely on account of

the low base set in the previous quarter by INR415m forex losses. Our

PAT estimate is INR868m, implying an EPS of INR21 in 3QFY13.


Revenue growth split between IT Services and PES.

Outlook on revenue growth in IT Services in FY14 and strategy around

PES segment.

Margin performance in 3QFY13 over and above currency-related

headwinds.


Sa les 19.2 23.5 25.2 28.3

EBITDA 2.9 4.9 4.8 5.3

PAT 2.2 3.4 3.5 3.9

EPS (INR) 53.7 82.0 83.9 93.0

EPS Gr. (%) 116.5 52.7 2.3 10.9

BV/Sh. (INR) 233.5 314.7 389.3 482.3

RoE (%) 22.8 26.0 21.5 19.3

RoCE (%) 25.2 26.0 23.8 21.3

Payout (%) 7.4 5.5 6.0 5.4

Valuation

P/E (x) 13.0 8.5 8.3 7.5

P/BV (x) 1.4 2.2 1.8 1.4

EV/EBITDA (x) 8.4 4.6 4.3 3.4

Div. Yield (%) 0.6 0.6 0.7 0.7

Bloomberg MTCL IN




1,6,12 Rel Perf. (%) -1/-4/55

C–182January 2013


Mphasis - Quarterly Performance (INR Million)

Y/E October FY12 FY13E FY12 FY13E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Revenues 13,672 13,289 13,551 13,062 13,169 14,513 15,750 16,043 53,574 59,475

Q-o-Q Change (%) 5.7 -2.8 2.0 -3.6 -0.9 10.2 8.5 1.9 5.1 11.0

Direct Expenses 9,995 9,454 9,596 9,088 9,332 10,243 11,123 11,206 38,319 41,904

Sales, Gen. & Admin. Exp. 1,155 1,221 1,280 1,274 1,241 1,845 1,980 2,005 4,893 7,071


Margins (%) 18.4 19.7 19.7 20.7 19.7 16.7 16.8 17.6 19.3 17.7

Other Income 338 340 441 394 372 372 380 393 1,513 1,516

Depreciation 468 455 415 407 418 458 494 502 1,745 1,873

PBT bef. Extra-ordinary 2,392 2,499 2,701 2,687 2,550 2,338 2,533 2,721 10,129 10,143

Provision for Tax 544 605 614 594 599 550 595 640 2,357 2,384

Rate (%) 22.7 24.2 22.7 22.1 23.5 23.5 23.5 23.5 23.3 23.5

PAT bef. Extra-ordinary 1,848 1,894 2,087 2,093 1,951 1,789 1,938 2,082 7,772 7,759

Q-o-Q Change (%) -5.1 2.5 10.2 0.3 3.0 -8.3 8.3 7.4 -6.5 -0.2

Diluted EPS (INR) 8.8 9.0 9.9 9.9 9.3 8.5 9.2 9.9 36.8 36.7

USD Revs 271 266 252 248 249 274 301 306 1,036 1,015

Q-o-Q Change (%) -2.0 -1.8 -5.2 -1.6 -1.2 10.0 9.9 1.7 -7.4 -2.1

E: MOSL Estimates

MphasisCMP: INR379 Sell

We expect Mphasis' 1QFY13 revenues to remain flattish at USD249m

as growth in the direct channel would be offset by continued revenue

decline in the HP channel.

Revenues during the quarter are purely organic as we expect Mphasis

to integrate numbers from its acquisition of Digital LLC from 2QFY13.

In Rupee terms, we expect a marginal revenue growth of 0.8% QoQ to

INR13.2b. We model forex losses of INR318m in the top line.

We expect EBIT margins to decline 90bp QoQ to 16.5% on account of

low growth and limited room to extract margins from higher utilization

going forward or from G&S rationalization.

In absolute terms, we expect EBIT of INR2.18b, down 5% QoQ.

Mphasis' utilization in both Applications and ITO is near peak, and we

do not expect that to be a margin lever going forward.

We expect PAT to decline 7% QoQ to INR1,951m, with lower other

income due to cash outflow on acquisition. Our EPS estimate for the

quarter stands at INR9.3.


Performance of the direct channel and revenue decline in HP channel.

Outlook of organic revenue growth in the direct channel in FY13.

Growth outlook for the acquired entity Digital LLC for the next year.

Financials & Valuation (INR b)Y/E October 2011 2012 2013E 2014E

Sa les 51.0 53.6 59.5 67.2

EBITDA 9.9 10.4 10.5 11.4

PAT 8.3 7.8 7.8 8.3

EPS (INR) 39.3 36.8 36.7 39.1

EPS Gr. (%) -19.1 -6.5 -0.2 6.4

BV/Sh. (INR) 185.7 209.6 218.7 234.3

RoE (%) 23.1 18.7 17.2 17.3

RoCE (%) 22.2 19.3 17.9 18.8

Payout (%) 16.5 46.2 49.0 51.1

Valuation

P/E (x) 9.6 10.3 10.3 9.7

P/BV (x) 2.0 1.8 1.7 1.6

EV/EBITDA (x) 6.2 5.2 5.7 4.6

Div. Yield (%) 1.7 4.5 4.7 5.3

Bloomberg MPHL IN




1,6,12 Rel Perf. (%) -8/-9/3

C–183January 2013


Quarterly Performance (IFRS) (INR Million)



Revenues 107,970 116,335 132,040 132,593 148,687 156,208 159,845 165,502 488,938 630,241

Q-o-Q Change (%) 6.3 7.7 13.5 0.4 12.1 5.1 2.3 3.5 31.0 28.9

EBITDA 30,310 33,829 40,921 39,117 43,328 44,403 45,233 47,849 144,177 180,813

Margins (%) 28.1 29.1 31.0 29.5 29.1 28.4 28.3 28.9 29.5 28.7

Other Income 2,887 997 -920 1,077 1,754 3,103 1,658 2,235 4,041 8,748

PAT 23,804 24,390 28,866 29,324 32,806 35,121 34,305 36,534 106,384 138,765

Q-o-Q Change (%) -0.9 2.5 18.3 1.6 11.9 7.1 -2.3 6.5 22.5 30.4

Diluted EPS (INR) 12.2 12.5 14.7 15.0 16.8 17.9 17.5 18.7 54.4 70.9

USD Revenues 2,412 2,525 2,586 2,648 2,728 2,853 2,952 3,065 10,171 11,597

Q-o-Q Change (%) 7.5 4.7 2.4 2.4 3.0 4.6 3.5 3.8 24.2 14.0

Operating Metrics

Gross Margin (%) 45.5 46.6 48.0 47.8 47.2 46.4 46.4 46.9 47.1 46.7

SGA (%) 17.5 17.5 17.1 18.3 18.1 18.0 18.1 18.0 17.6 18.0

Tax rate (%) 22.7 24.3 22.6 21.6 22.2 21.0 21.5 22.0 22.8 21.7

Net Employee additions 3,576 12,580 11,981 11,832 4,962 10,531 8,648 8,432 39,969 32,573

Utilization - excluding trainees (%) 83.2 83.1 82.0 80.6 81.3 81.6 81.3 81.9 82.2 81.5

Q-o-Q Volume Growth (%) 7.5 6.3 3.2 3.3 5.3 5.0 3.0 4.1 23.0 16.1

Q-o-Q Realization change (%) -0.5 -1.0 2.0 -1.0 -1.0 -0.5 0.6 -0.3 1.1 -1.4


E: MOSL Estimates

Tata Consultancy ServicesCMP: INR1,250 Neutral

We expect TCS to continue leading growth, with our revenue estimate

of USD2,952m, growth of 3.5% QoQ. Company guided at deceleration

in revenue growth in 3Q on account of seasonality (USD revenues

grew by 4.6% in 2QFY13).

We expect revenue growth to be driven entirely by volume growth of

3% QoQ and positive impact from cross currency movements of +50bp

QoQ.

Our rupee revenue estimate is INR159.8b, +2.3% QoQ, at an average

currency rate of INR54.2/USD, v/s INR54.8/USD in 2QFY13.

We estimate a marginal decline in EBIT margin (20bp QoQ) to 26.6% on

account of lower working days at onsite in 3Q.

In absolute terms, we expect EBIT to grow 1.6% QoQ to INR42.5b.

TCS guided for a forex loss of INR300-350m during the quarter. Our PAT

estimate stands at INR33.4b, -2.2% QoQ, on account of Rupee

appreciation and INR1.4b differential in forex items QoQ.


Indicators for growth in FY14 based on interactions with key clients

on CY13 budgets.

Growth outperformance to peers in 3QFY13.

Comments on outlook for BFSI spends and discretionary budgets in

FY14 .


Sa les 488.9 630.2 698.4 793.2

EBITDA 144.2 180.8 193.9 212.7

PAT 106.4 138.8 148.6 163.1

EPS (INR) 54.4 70.9 75.9 83.4

EPS Gr. (%) 22.5 30.4 7.1 9.8

BV/Sh. (INR) 166.7 198.6 240.3 289.3

RoE (%) 36.7 38.8 34.6 31.5

RoCE (%) 44.1 45.2 40.5 36.9

Payout (%) 46.0 38.1 38.2 34.8

Valuation

P/E (x) 23.0 17.6 16.5 15.0

P/BV (x) 7.5 6.3 5.2 4.3

EV/EBITDA (x) 16.8 12.9 11.8 36.9

Div. yield (%) 2.0 2.2 2.3 2.3

Bloomberg TCS IN


M. Cap. (INR b)/(USD b) 2,447 / 45

52-Week Range (INR) 1,438/1,047

1,6,12 Rel Perf. (%) -6/-14/-15

C–184January 2013


Quarterly Performance (Indian GAAP) - SA (INR Million)



Revenues 12,925 13,333 14,449 14,190 15,434 16,314 17,477 18,916 54,897 68,141

Q-o-Q Change (%) 2.5 3.2 8.4 -1.8 8.8 5.7 7.1 8.2 13.4 24.1

Direct Cost 8,540 9,069 9,861 9,312 9,684 10,336 11,244 12,154 36,782 43,418

Other Operating Exps 1,967 2,222 2,245 2,487 2,448 2,601 2,796 3,027 8,921 10,872


Margins (%) 18.7 15.3 16.2 16.8 21.4 20.7 19.7 19.7 16.7 20.3

Other Income 460 972 147 -211 -174 -640 -82 -43 1,368 -938

Interest 223 721 338 131 240 228 75 75 1,413 618

Depreciation 334 507 390 383 421 481 507 539 1,614 1,947

PBT bef. Extra-ordinary 2,321 1,786 1,762 1,666 2,467 2,028 2,774 3,079 7,535 10,348

Provision for Tax 509 393 294 242 585 251 638 708 1,438 2,182

Rate (%) 21.9 22.0 16.7 14.5 23.7 12.4 23.0 23.0 19.1 21.1

Net Inc. after sh. of profits fr. asso. 2,768 2,407 2,763 3,023 3,384 2,962 3,414 3,717 4,104 6,220

Q-o-Q Change (%) 200.5 -13.0 14.8 9.4 11.9 -12.5 15.3 8.9 -17.6 51.6

Diluted EPS (INR) 18.2 15.3 17.8 19.7 22.6 19.0 22.8 25.1 70.9 89.6

USD Revenues - TECHM 290 296 289 282 281 299 323 350 1,156 1,254

Q-o-Q Change (%) 4.1 2.2 -2.5 -2.5 -0.1 6.4 7.9 8.5 8.8 8.4

USD Revenues - SCS 320 330 325 332 342 354 356 367 1,307 1,419

Q-o-Q Change (%) 5.3 3.2 -1.6 2.2 3.0 3.5 0.5 3.0 15.9 8.5

E: MOSL Estimates

Tech MahindraCMP: INR920 Buy

We expect Tech Mahindra's revenue growth at 8% QoQ to USD323m.

However, on an organic basis, revenues are expected to decline

marginally on account of 3-4% QoQ decline in revenues from BT.

~USD30m of incremental revenues are expected from acquisitions

(USD27m from HGS and USD2-3m from Comviva).

Furloughs are expected to impact Manufacturing and Technology

verticals at Mahindra Satyam, which is expected to report flattish

revenues QoQ.

We expect EBIT margin at TECHM to decline 100bp QoQ to 16.8% on

account of: [1] ~60bp impact from HGS and [2] ~40bp impact from

furloughs. At Mahindra Satyam, we expect EBIT margin to decline 50bp

QoQ to 18.8%.

At Satyam, we expect EBIT margin to decline 50bp QoQ to 19.8%, largely

on account of some impact from furloughs. We expect PAT at Satyam

to grow 12% QoQ to INR3.1b, on a lower base set by forex losses in

2QFY13.

Adjusted PAT at TECHM is expected at INR1.75b and our estimate for

consolidated reported PAT, including share of profits from Mahindra

Satyam, stands at INR3.41b.


Traction in revenue growth and deal signings outside BT.

Revenue decline in the BT account.

Deal pipeline traction in top accounts at Mahindra Satyam.


Sa les 54.9 68.1 76.9 83.3

EBITDA 9.2 13.9 14.2 13.8

PAT 9.3 11.9 13.5 14.6

EPS (INR) 70.4 90.3 102.0 110.6

EPS Gr. (%) 29.7 28.2 13.0 8.5

BV/Sh. (INR) 339.7 426.6 535.2 641.7

RoE (%) 26.0 21.9 21.9 19.5

RoCE (%) 21.4 22.4 21.4 19.1

Payout (%) 5.7 5.5 5.9 7.2

Valuation

P/E (x) 13.1 10.2 9.0 8.5

P/BV (x) 2.7 2.2 1.7 0.7

EV/EBITDA (x) 13.1 7.5 7.3 6.6

Div. Yield (%) 0.4 0.5 0.7 0.9

Bloomberg TECHM IN


M. Cap. (INR b)/(USD b) 117 / 2


1,6,12 Rel Perf. (%) 1/18/38

C–185January 2013


Wipro Quarterly Performance (IFRS) (INR Million)



Revenues 85,640 90,945 99,972 98,691 106,530 106,566 109,200 112,138 375,248 434,434

Q-o-Q Change (%) 3.2 6.2 9.9 -1.3 7.9 0.0 2.5 2.7 20.7 15.8

EBITDA 17,290 17,397 19,843 19,611 21,426 21,382 21,363 22,819 74,141 86,990

Margins (%) 20.2 19.1 19.8 19.9 20.1 20.1 19.6 20.3 19.8 20.0

Margins after taking hedges

on top-line (%) 17.5 16.4 17.2 17.2 17.6 17.4 16.9 17.7

Other Income 1,542 962 1,249 1,984 1,223 2,662 2,313 2,075 5,737 8,274

PAT 13,349 13,009 14,564 14,809 15,802 16,106 15,953 16,832 55,731 64,693

Q-o-Q Change (%) -2.9 -2.5 12.0 1.7 6.7 1.9 -0.9 5.5

Y-o-Y Change (%) 1.2 1.2 10.4 7.7 18.4 23.8 9.5 13.7 5.2 16.1

Diluted EPS (INR) 5.4 5.3 5.9 6.0 6.4 6.6 6.5 6.9 22.7 26.3

USD Revenues 1,408 1,473 1,506 1,536 1,515 1,541 1,575 1,606 5,921 6,236

Q-o-Q Change (%) 0.5 4.6 2.2 2.0 -1.4 1.7 2.2 1.9 13.4 5.3

Operating Metrics

Gross Margin (%) 29.9 28.6 30.3 30.6 31.3 31.0 31.6 30.8 29.9 31.4

SGA (%) 12.5 12.2 13.0 13.5 14.0 13.9 14.1 13.9 12.8 14.0

IT Services EBIT (%) 22.0 20.0 20.8 20.7 21.0 20.7 20.3 21.3 20.8 20.8

Tax rate (%) 18.9 18.0 20.7 21.2 20.2 23.9 23.0 23.0 19.8 22.5

Net Employee additions 4,105 5,240 5,004 -814 2,632 2,017 3,115 2,815 13,535 10,579

Utilization-incl.trainees (%) 71.2 70.1 67.0 67.8 69.5 67.5 67.0 67.5 69.0 67.8

Q-o-Q Volume Growth(%) 1.8 6.0 1.8 0.8 0.8 0.2 1.6 2.1 11.5 5.4

Q-o-Q Realization Chg. (%) -2.1 -0.5 2.7 0.5 -2.2 1.5 0.6 -0.1 3.2 0.7


Rev Guidance (USDm) 1,394- 1,436- 1,500- 1,520- 1,520- 1,520- 1,560-

1,422 1,464 1,530 1,540 1,550 1,550 1,590

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 1.3-3.2

E: MOSL Estimates

WiproCMP: INR386 Buy

We expect Wipro to grow its revenues in 3QFY13 by 2.2% QoQ to

USD1,575m. Company had guided for a revenue band of USD1,560-

1,590m for 3QFY13. We expect overall company revenues to grow by

2.5% QoQ to INR109.2b.

Our revenue growth estimate for 3Q is based on the following: [1]

volume growth of 1.6% QoQ and [2] 60bp growth from productivity

gains and benefits from cross currency impact during the quarter.

Our IT Services EBIT margin estimate stands at 20.3%, down 40bp QoQ,

on account of P&L impact of lower working days. Our overall company

EBIT margin estimate stands at 16.9%, down 50bp QoQ.

We expect 4QFY13 revenue growth guidance of 1-3% QoQ to USD1,591-

1,622m. Our current estimate for the quarter stands at USD1,606m.

PAT is estimated to remain flat QoQ at INR16b (v/s INR16.1b in 2QFY13).

Our EPS estimate for the quarter is INR6.5.


USD revenue growth in 3QFY13 v/s guidance of 1.9-2.9% QoQ.

Guidance of a usually strong 4QFY13.

Deal signings during the quarter following a strong end to 2QFY13.


Sa les 375.2 434.4 469.3 517.6

EBITDA 74.1 87.0 90.1 97.7

PAT 55.7 64.7 66.6 75.4

EPS (INR) 22.7 26.3 27.1 30.7

EPS Gr. (%) 5.1 16.1 2.9 13.3

BV/Sh. (INR) 116.5 127.9 146.2 167.6

RoE (%) 21.2 21.6 19.8 19.6

RoCE (%) 19.4 20.5 19.1 18.4

Payout (%) 26.4 24.7 27.7 26.1

Valuation

P/E (x) 17.0 14.7 14.2 12.6

P/BV (x) 3.3 3.0 2.6 2.3

EV/EBITDA (x) 11.9 10.1 9.5 8.5

Div yield (%) 1.6 1.7 1.9 2.1

Bloomberg WPRO IN


M. Cap. (INR b)/(USD b) 949 / 17


1,6,12 Rel Perf. (%) -1/-17/-27

C–186January 2013

December 2012 Results Preview | Sector: Telecom

Wireless traffic expected to grow ~3% QoQ; blended RPM to increase ~1% QoQ: During

3QFY13, we expect average wireless traffic for top 4 operators to grow by ~3% QoQ

led by seasonal strength but impacted by decline in subscriber base. Wireless RPM is

likely to increase by ~1% QoQ on a blended basis led by lower discounting.

EBITDA margin to remain largely stable: Wireless EBITDA margin is expected to remain

largely stable. Adjusting for the interconnect revenue booked by Bharti in 2QFY13,

we expect company's consolidated/India & SA EBITDA margin to remain flat QoQ at

31/32.1%. Idea is expected to report consolidated EBITDA margin of ~27%, up 20bp

QoQ. For RCom, we expect 3QFY13 consolidated EBITDA margin of 32.5%.

Bharti Africa - growth momentum to remain steady: We expect 3/5% QoQ growth in

USD denominated revenue/EBITDA for Bharti Africa, supported by strong traffic growth

but offset by ~1% depreciation in Bharti's Africa currency basket v/s USD.

Fifth consecutive month of decline in wireless subscribers: Industry wireless

subscriber base is estimated to have declined to ~900m in November 2012 v/s peak of

934m in June 2012. Wireless subscriber additions have been in the negative territory

for five consecutive months due to 1) industry-wide measures undertaken to

rationalize channel commissions and control "rotational churn", 2) "clean-up" of

dormant subscriber base by some operators and 3) implementation of stringent

subscriber verification and acquisition process mandated by the government effective

from November 2012.

Profitability focus increasing for challengers; pricing seems to have bottomed out:

Recent industry interactions indicate increasing focus on profitability and break-even

targets across challengers, including measures like reduction in overall footprint. We

believe these corrective measures would lower the overall pricing pressure emanating

from smaller operators. However, increase in pricing would be contingent on industry

discipline and market share aspirations exhibited by larger incumbents.

Abbreviations and acronyms

RPM: 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





Bharti Airtel 319 Buy 202,275 9.5 -0.2 62,615 5.1 -1.4 7,152 -29.3 -0.8

Idea Cellular 105 Buy 54,826 9.0 3.2 14,803 10.1 4.1 2,623 30.5 9.3

Reliance Comm 73 Neutral 52,679 4.3 1.3 17,099 6.1 4.4 2,465 2.4 86.3

Sector Aggregate 309,779 8.5 0.6 94,517 6.0 0.4 12,240 -15.8 11.9

Shobhit Khare ([email protected])

TelecomCompanies Covered

Bharti Airtel

Idea Cellular

Reliance Communication

C–187January 2013

December 2012 Result s Preview | Sector: Telecom

Regulatory environment remains tough: Regulatory environment remains tough given

high reserve price for spectrum and issues related to re-farming and licence renewal.

We believe that there could be prolonged litigation between the industry and

government on these issues.

Valuation and view: During FY13E-15E, we expect 10/18/7% EBITDA CAGR for Bharti/

Idea/RCom led by 7/10/4% traffic CAGR in the India wireless business. Upgrade Bharti

from Neutral to Buy (trades at 6.7x FY14E EV/EBITDA). Reiterate Buy on Idea (trades at

6.6x FY14E EV/EBITDA) and Neutral on RCom (trades at 6.8x FY14E EV/EBITDA).

Wireless subscriber net additions (m)

Industry subscriber base

set to decline for fifth

consecutive month

QoQ wireless traffic growth (%)

Source: TRAI, MOSL

We expect wireless traffic

for majors to increase by

~3% QoQ and 10% YoY in

3QFY13E

Trend in wireless RPM (INR)

We expect RPM to

remain largely flat QoQ

19 2015 13 11

7 7 8 83

10 82

85

-21

-6-2 -3

20

9 7

Jan

-11

Feb

-11

Mar

-11

Apr

-11

Ma

y-1

1

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

De

c-11

Jan

-12

Feb

-12

Mar

-12

Apr

-12

Ma

y-1

2

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

10

65

1

54 3

1310

97 7

53

1 0

-3

3 31 1

32 1

10

2

58 7

0

47

4 3

-2 -3

5

0

-2-4

9

3

-3 -3

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3QF

Y13E

Bharti (India) Ide a RCOM Voda fone-In dia

0.43

0.41

0.42

0.44

0.40

0.41

0.42

0.43

0.44

0.45

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

3

3QF

Y13

E

Bharti Idea Vodafone‐India RCOM

C–188January 2013


Aggregate traffic growth and RPM trend for wireless majors

Traffic to improve on

seasonality; RPM to

increase modestly

Leverage remains

reasonable for Bharti/

Idea but alarming

for RCom

Net Debt/EBITDA (FY12, x) Net Debt/Equity (FY12, x)


Aggregate India wireless revenue growth of top-4 operators (YoY, %)

Source: TRAI

YoY revenue growth

expected to decline

further


10

1

4

75

-1

3

6

3

-3

4

-4

-10

-2 10

-2-2

22

-1

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

3

3QFY

13E

QoQ tra ffic growth (%) QoQ RPM Growth (%)

5

10

1314

1315 16 16

12

87

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3Q

FY1

3E

6.0

3.5

2.7 2.6

RCom Vodafone

India

Bharti Idea

0.9 0.9

1.2

RCom Idea Bharti

C–189January 2013


3QFY13: Summary Expectations

Wireless KPIs


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE (%) (%)

EOP Wireless Subs (m)

Bharti (India) 137 143 152 162 169 173 176 181 187 186 184 4.8 -1.0

Idea 69 74 82 90 95 100 106 113 117 115 114 7.6 -0.9

RCOM 111 117 126 136 143 147 150 153 155 135 133 -11.1 -1.1

Vodafone - India 109 116 124 135 142 145 148 150 154 153 151 2.2 -1.1

AV. Wireless Subs (m)

Bharti (India) 132 140 148 157 166 171 174 178 184 187 185 6.2 -0.9

Idea 66 72 78 86 92 98 103 110 115 116 115 11.3 -1.2

RCOM 107 114 121 131 139 145 149 152 154 145 134 -9.7 -7.3

Vodafone - India 105 112 120 129 138 143 146 149 152 153 152 3.7 -0.9

ARPU (INR/month)

Bharti (India) 215 202 198 194 190 183 187 189 185 177 187 -0.1 5.2

Idea 182 167 168 161 160 155 159 160 156 149 155 -2.2 4.5

RCOM 130 122 111 107 103 101 100 99 98 102 113 13.2 10.9

Vodafone - India 191 177 176 171 169 168 173 179 180 174 182 5.0 4.4

MOU/Sub

Bharti (India) 480 454 449 449 445 423 419 431 433 417 433 3.2 3.9

Idea 415 394 401 397 391 364 369 379 379 360 375 1.7 4.2

RCOM 295 276 251 241 233 227 224 227 228 236 258 15.2 9.3

Vodafone India (reported) 328 311 308 307 308 297 303 318 324 313 326 7.3 3.9

Vodafone India (adj) 437 415 410 410 411 396 405 424 433 418 434 7.3 3.9

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 0.43 -3.2 1.3

Idea 0.44 0.42 0.42 0.41 0.41 0.43 0.43 0.42 0.41 0.41 0.41 -3.9 0.3

RCOM 0.44 0.44 0.44 0.44 0.44 0.45 0.45 0.44 0.43 0.43 0.44 -1.7 1.4

Vodafone India (reported) 0.58 0.57 0.57 0.56 0.55 0.57 0.57 0.56 0.55 0.56 0.56 -2.1 0.5

Vodafone India (adj) 0.44 0.43 0.43 0.42 0.41 0.42 0.43 0.42 0.42 0.42 0.42 -2.1 0.5

Wireless traffic (B min)

Bharti (India) 190 191 199 212 221 217 219 231 239 233 240 9.6 3.0

Idea 82 85 94 102 109 106 114 124 131 126 129 13.6 3.0

RCOM 94 94 91 94 98 99 100 103 105 102 104 3.9 1.3

Vodafone India (reported) 103 105 111 119 128 128 133 142 148 144 148 11.3 3.0

Vodafone India (adj) 138 140 147 159 170 170 178 190 197 192 198 11.3 3.0



90

100

110

120

130


Sens ex IndexMOSL Telecom Index

70

85

100

115

130

Dec

-11

Feb

-12

Apr

-12

Jun

-12

Aug

-12

Oct

-12

Dec

-12

Sens ex IndexMOSL Telecom Index

C–190January 2013


Quarterly Financials


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE (%) (%)

Revenue (INR b)

Bharti (ex Africa)* 112.7 113.3 117.2 121.2 126.3 126.8 131.6 134.2 137.2 138.6 142.7 8.4 2.9

Bharti (consolidated)* 122.3 152.2 157.6 162.7 169.7 172.7 184.8 187.3 193.5 196.9 202.3 9.5 2.7

Idea** 36.5 36.6 39.6 42.0 45.2 46.2 50.3 53.7 55.0 53.1 54.8 9.0 3.2

RCOM# 51.1 51.2 50.0 53.3 53.1 50.4 50.5 53.1 53.2 52.0 52.7 4.3 1.3

EBITDA (INR b)

Bharti (ex Africa)* 42.4 42.2 43.7* 44.3 46.0 45.7 45.2 47.4 43.6 44.7 45.8 1.2 2.4

Bharti (consolidated)* 44.1 51.2 53.2* 54.5 57.1 58.2 59.6 62.3 58.5 61.1 62.6 5.1 2.5

Idea** 8.9 8.8 9.5 10.0 12.0 11.9 13.4 15.1 14.4 14.2 14.8 10.1 4.1

RCOM# 16.3 16.6 16.7 15.9 16.0 16.1 16.1 16.3 16.5 16.4 17.1 6.1 4.4

EBITDA Margin (%)

Bharti (ex Africa)* 37.6 37.3 37.3* 36.6 36.4 36.1 34.4 35.3 31.8 32.2 32.1 -228bp -16bp

Bharti (consolidated)* 36.1 33.7 33.8* 33.5 33.6 33.7 32.2 33.3 30.2 31.0 31.0 -129bp -8bp

Idea 24.3 24.0 24.0 23.9 26.6 25.7 26.7 28.1 26.1 26.8 27.0 27bp 23bp

RCOM# 31.9 32.4 33.3 29.9 30.2 31.8 31.9 30.7 31.0 31.5 32.5 57bp 97bp

PAT (INR b)

Bharti (ex Africa) 19.0 20.4 18.3 18.2 15.2 14.5 12.7 13.5 14.3 12.6 12.0 -5.9 -5.1

Bharti (consolidated) 16.8 16.6 13.0 14.0 12.2 10.3 10.1 10.1 7.6 7.2 7.2 -29.3 -0.8

Idea** 2.0 1.8 2.4 2.0 1.8 1.1 2.0 3.4 2.3 2.4 2.6 30.5 9.3

RCOM# 3.0 4.9 5.3 1.8 2.2 3.2 2.4 2.0 1.9 1.3 2.5 2.4 86.3

EPS (INR)

Bharti 4.4 4.4 3.4 3.7 3.2 2.7 2.7 2.7 2.0 1.9 1.9 -29.3 -0.8

Idea** 0.6 0.5 0.7 0.8 0.5 0.3 0.6 0.7 0.7 0.7 0.8 30.4 9.3

RCOM# 1.5 2.4 2.5 0.9 1.1 1.6 1.2 1.0 0.9 0.6 1.2 2.4 86.3

Capex (INR b)

Bharti (ex Africa) 17.4 29.3 29.3 31.1 24.7 20.6 7.8 11.0 29.3 29.0 27.4 250.9 -5.3

Idea** 3.6 3.0 9.5 14.6 10.4 11.0 9.0 8.4 4.1 9.7 10.4 15.0 6.5

RCOM# 7.9 9.3 19.1 6.6 3.6 3.5 3.6 4.3 3.7 4.2 3.9 8.7 -8.9

* Before re-branding expenses in 3QFY11; 2QFY13 adjusted for one-time interconnect revenue of ~INR5.9b and one-time EBITDA

of ~INR2.4b; ** Spice merger from 1QFY11; Adj for one-off revenue of ~INR340m and costs reversal of ~INR380m in 4QFY11; # Adj for

change in accounting for IRU sales in 4QFY11.




Telecommunication

Bharti Airtel 319 Buy 7.8 10.6 15.0 40.9 30.0 21.2 7.6 6.7 5.7 5.6 7.3 9.5

Idea Cellular 105 Buy 3.1 4.7 7.1 34.3 22.6 14.8 8.4 6.6 5.4 7.5 10.4 14.0

Reliance Comm 73 Neutral 4.6 6.2 9.7 15.8 11.8 7.6 7.5 6.8 5.9 3.0 3.9 5.8


C–191January 2013





Revenue 169,749 172,698 184,767 187,294 193,501 202,732 202,275 208,323 714,507 806,831

YoY Growth (%) 38.8 13.5 17.3 15.1 14.0 17.4 9.5 11.2 20.2 12.9

EBITDA 57,058 58,151 59,584 62,329 58,487 63,508 62,615 65,119 237,122 249,728

YoY Growth (%) 29.3 13.5 19.6 14.4 2.5 9.2 5.1 4.5 18.8 5.3

Margin (%) 33.6 33.7 32.2 33.3 30.2 31.3 31.0 31.3 33.2 31.0

Net Finance Costs 8,551 11,186 7,877 10,572 8,211 10,219 11,071 11,707 38,185 41,208

Depreciation & Amortization 31,314 31,839 35,845 34,683 37,571 38,560 39,351 40,454 133,680 155,937


Income Tax Expense / (Income) 5,141 4,900 5,585 6,976 4,878 7,714 5,237 5,528 22,602 23,357

Profit after Tax 12,054 10,226 10,222 10,080 7,751 7,015 6,956 7,430 42,582 29,151

Reported Net Profit / (Loss) 12,152 10,270 10,113 10,059 7,622 7,212 7,152 7,602 42,595 29,589

YoY Growth (%) -27.7 -38.2 -22.4 -28.2 -37.3 -29.8 -29.3 -24.4 -29.6 -30.5

India - Mobile ARPU (INR/month) 190 183 187 189 185 177 187 193 188 187

QoQ Growth (%) -1.6 -4.0 2.2 1.1 -2.2 -3.9 5.2 3.6

India - Mobile MOU/sub/month 445 423 419 431 433 417 433 443 431 435

QoQ Growth (%) -0.7 -5.0 -1.0 2.8 0.4 -3.8 3.9 2.3

India - Mobile Traffic (B Min) 221 217 219 231 239 233 240 246 889 958

QoQ Growth (%) 4.6 -1.9 0.9 5.4 3.7 -2.6 3.0 2.2

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 62 64 53 64

Africa - ARPU (USD/month) 7.2 7.3 7.1 6.8 6.5 6.4 6.3 6.1 7.1 6.3

Africa - EBITDA margin (%) 25.2 26.2 26.7 27.8 25.8 27.1 27.7 28.3 26.5 27.3

E: MOSL Estimates

Bharti AirtelCMP: INR319 Buy

We expect consolidated revenue to grow 9% YoY to INR202.3b. We

expect India and South Asia revenue to grow 8% YoY to INR142.7b

while Africa business revenue is estimated to remain grow 3% QoQ at

USD1.13b. We note that 2QFY13 numbers included one-time

interconnect revenue of ~INR5.9b and one-time EBITDA of ~INR2.4b

Consolidated EBITDA margin is expected to remain flat QoQ on an

adjusted basis at 31%. We expect flat QoQ EBITDA margin for India &

SA business and 60bp EBITDA margin improvement for Africa business.

India and SA mobile revenue is expected to grow 7% YoY to INR108.5b

driven by 10% YoY traffic growth (3% QoQ). Wireless RPM is expected

to improve 1.3% QoQ to 43.1p. EBITDA margin is expected at 30.3%.

Africa business performance is likely to be healthy with an expected

3/5% revenue/EBITDA growth on a QoQ basis. We estimate an ARPU

of USD6.3 and subscriber base of 61.5m.

Consolidated net profit is expected to decline 29% YoY to INR7.2b.

We have not assumed any forex gain/loss for Bharti in our 3QFY13E .

Bharti trades at an EV/EBITDA of 6.7x FY14E and 5.7x FY15E. Buy.


QoQ mobile traffic in India (we expect 3% growth), forex loss (not

modeled any forex loss/gain), Africa business financials (we expect

3/5% revenue/EBITDA growth in USD terms).


Net Sales 714.5 806.8 881.8 959.3

EBITDA 237.1 249.7 274.2 304.2

Adj. Net Profit 42.6 29.6 40.3 57.0

Adj. EPS (INR) 11.2 7.8 10.6 15.0

Adj. EPS Gr. (%) -29.6 -30.5 36.3 41.3

BV/Sh (INR) 140.7 139.7 150.7 166.9

RoE (%) 8.1 5.6 7.3 9.5

RoCE (%) 6.2 4.8 5.5 6.1

Div. payout (%) 10.0 10.0 10.0 10.0

Valuation

P/E (x) 28.4 40.9 30.0 21.2

P/BV (x) 2.3 2.3 2.1 1.9

EV/EBITDA (x) 7.8 7.6 6.7 5.7

Div. Yield (%) 0.4 0.2 0.3 0.5

Bloomberg BHARTI IN


M. Cap. (INR b)/(USD b) 1209 / 22


1,6,12 Rel Perf. (%) -5/-9/-29

C–192January 2013




1Q 2Q 3Q 4Q# 1Q 2Q 3QE 4QE

Gross Revenue 45,207 46,199 50,308 53,697 55,037 53,140 54,826 56,917 195,411 219,920

YoY Growth (%) 23.7 26.3 27.2 27.8 21.7 15.0 9.0 6.0 26.0 12.5

QoQ Growth (%) 7.6 2.2 8.9 6.7 2.5 -3.4 3.2 3.8

EBITDA 12,040 11,866 13,446 15,071 14,355 14,225 14,803 15,957 50,924 59,341

YoY Growth (%) 35.5 35.0 41.8 50.2 19.2 19.9 10.1 5.9 34.3 16.5

QoQ Growth (%) 20.0 -1.4 13.3 12.1 -4.8 -0.9 4.1 7.8

Margin (%) 26.6 25.7 26.7 28.1 26.1 26.8 27.0 28.0 26.1 27.0




Income Tax Exp. / (Income) 778 501 981 1,523 1,019 1,136 1,234 1,308 3,322 4,698

Adj Net Profit / (Loss) 1,773 1,058 2,010 3,429 2,342 2,400 2,623 2,781 7,231 10,145

YoY Growth (%) -12.0 -41.1 -17.3 69.4 32.1 126.9 30.5 -18.9 -19.5 40.3

Margin (%) 3.9 2.3 4.0 6.4 4.3 4.5 4.8 4.9 3.7 4.6

Mobile ARPU (INR/month) 160 155 159 160 156 149 155 161 158 156

QoQ Growth (%) -0.6 -3.1 2.6 0.6 -2.5 -4.6 4.5 3.2

Mobile MOU/sub/month 391 364 369 379 379 360 375 384 372 383

QoQ Growth (%) -1.5 -6.9 1.4 2.7 0.0 -5.0 4.2 2.4

Mobile Traffic (B Min) 109 106 114 124 131 126 129 133 453 528

QoQ Growth (%) 6.5 -2.2 7.3 9.1 5.3 -4.0 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 0.3 0.3 0.9

E: MOSL Estimates; # Adjusted for INR1.5b one-off provision for licence and WPC charges

Idea CellularCMP: INR105 Buy

Idea's consolidated revenue is expected to grow 9% YoY and 3% QoQ

to INR54.8b.

We expect Idea to report mobile traffic growth of 3% QoQ (14% YoY).

We expect RPM to improve 0.3% QoQ (decline 4% YoY).

ARPU is expected to increase 4.5% QoQ to INR155 (v/s 4.6% decline in

2QFY13).

EBITDA margin is expected increase 20bp QoQ to 27%. EBITDA loss in

new circles is estimated at INR1.6b.

Net Profit is expected to grow 31% YoY and 9% QoQ to INR2.6b.

Idea trades at an EV/EBITDA of 6.6x FY14E and 5.4x FY15E. Maintain

Buy.


QoQ RPM trend (we expect 0.3% growth), mobile traffic (we expect

3% QoQ growth) and EBITDA loss in new circles (we expect INR1.6b)


Net Sales 195.4 219.9 248.1 281.9

EBITDA 50.9 59.3 72.0 82.1

Adj. Net Profit 7.2 10.1 15.4 23.5

Adj. EPS (INR) 2.2 3.1 4.7 7.1

Adj. EPS Gr. (%) -19.6 40.2 51.9 52.6

BV/Sh (INR) 39.5 42.4 47.1 54.2

RoE (%) 5.7 7.5 10.4 14.0

RoCE (%) 5.4 5.6 7.4 9.9

Div. payout (%) 0.0 0.0 0.0 0.0

Valuation

P/E (x) 48.1 34.3 22.6 14.8

P/BV (x) 2.7 2.5 2.2 1.9

EV/EBITDA (x) 9.4 8.4 6.6 5.4

Div. Yield (%) 0.0 0.0 0.0 0.0

Bloomberg IDEA IN


M. Cap. (INR b)/(USD b) 348 / 6


1,6,12 Rel Perf. (%) 3/28/10

C–193January 2013





Gross Revenue 49,401 50,402 50,521 53,100 53,192 52,020 52,679 51,540 203,424 210,778

YoY Growth (%) -3.3 -1.5 1.0 -0.4 7.7 3.2 4.3 -2.9 -1.1 3.6

QoQ Growth (%) -7.3 2.0 0.2 5.1 0.2 -2.2 1.3 -2.2

EBITDA 16,021 16,051 16,111 16,322 16,502 16,382 17,099 17,573 64,506 67,556

YoY Growth (%) -1.8 -3.3 -3.4 2.5 3.0 2.1 6.1 7.7 -1.5 4.7

QoQ Growth (%) 0.6 0.2 0.4 1.3 1.1 -0.7 4.4 2.8

Margin (%) 32.4 31.8 31.9 30.7 31.0 31.5 32.5 34.1 31.7 32.1



Profit before Tax 2,211 3,237 2,549 824 1,875 1,323 2,465 3,080 8,822 9,534

Income Tax Expense / (Income) -24 14 141 -1,193 -39 0 0 0 -1,062 -39

Adjusted Net Profit / (Loss) 2,235 3,223 2,408 2,017 1,914 1,323 2,465 3,080 9,884 9,573

YoY Growth (%) -25.4 -34.3 -54.2 13.6 -14.4 -59.0 2.4 52.7 -33.8 -3.1

Margin (%) 4.5 6.4 4.8 3.8 3.6 2.5 4.7 6.0 4.9 4.5

Extraordinary Exp/Minority Interest 661 702 546 -1,299 290 302 229 229 610 1,050

Reported Net Profit / (Loss) 1,574 2,521 1,862 3,316 1,624 1,021 2,236 2,851 9,274 8,523

Wireless ARPU (INR/month) 103 101 100 99 98 102 113 116 102 105

QoQ Growth (%) -3.4 -1.9 -1.6 -0.6 -1.0 3.8 10.9 2.9

Wireless MOU/sub/month 233 227 224 227 228 236 258 262 231 241

QoQ Growth (%) -3.3 -2.6 -1.3 1.3 0.4 3.6 9.3 1.5

Wireless Traffic (B Min) 98 99 100 103 105 102 104 105 399 417

QoQ Growth (%) 3.2 1.4 1.0 3.4 1.8 -2.5 1.3 1.5

Wireless RPM (INR) 0.44 0.45 0.45 0.44 0.43 0.43 0.44 0.44 0.44 0.44

QoQ Growth (%) -0.1 0.7 -0.3 -2.0 -1.3 0.2 1.4 1.4

E: MOSL Estimates

Reliance CommunicationsCMP: INR73 Neutral

We expect revenue to grow 1.3% QoQ to INR 52.7b.

During the quarter, we expect RPM to increase 1.4% QoQ to INR0.44.

RCom's RPM has remained largely flat over the last several quarters.

Wireless traffic is estimated to increase 4% YoY and 1.3% QoQ.

Consolidated EBITDA is expected to grow 6% YoY to INR17.1b and

margins are expected to improve 100bp QoQ to 32.5%.

We expect RCom to report proforma PAT of INR2.5b.

RCom trades at an EV/EBITDA of 6.8x FY14E and 5.9x FY15E. Neutral.


Margin trajectory in wireless business (we expect 80bp QoQ increase),

RPM trend (we expect 1.4% increase).


Net Sales 203.4 210.8 221.5 236.2

EBITDA 64.5 67.6 71.0 76.9

Adj. Net Profit 9.9 9.6 12.8 19.9

Adj. EPS (INR) 4.8 4.6 6.2 9.7

Adj. EPS Gr. (%) -33.8 -3.1 34.2 55.2

BV/Sh (INR) 157.9 156.5 162.4 171.8

RoE (%) 2.9 3.0 3.9 5.8

RoCE (%) 2.7 3.2 3.6 4.4

Div. payout (%) 6.5 7.1 5.4 3.4

Valuation

P/E (x) 15.3 15.8 11.8 7.6

P/BV (x) 0.5 0.5 0.5 0.4

EV/EBITDA (x) 7.9 7.5 6.8 5.9

Div. Yield (%) 0.4 0.4 0.4 0.4

Bloomberg RCOM IN


M. Cap. (INR b)/(USD b) 151 / 3


1,6,12 Rel Perf. (%) 3/3/-21

C–194January 2013

December 2012 Results Preview | Sector: Utilities





CESC 305 Buy 12,942 25.4 -3.7 3,530 65.7 13.5 1,674 126.3 23.1

Coal India 354 UR 167,185 8.9 14.7 49,450 8.9 72.8 42,568 15.4 38.3

JSW Energy 66 Neutral 23,615 33.5 13.7 6,338 81.3 9.9 1,730 215.3 7.1

NHPC 26 Neutral 9,499 7.7 -46.4 4,424 16.8 -63.2 2,568 -13.7 -65.4

NTPC 155 Buy 174,810 14.0 8.4 35,503 24.3 -16.0 23,030 11.3 9.8

Power Grid Corp. 114 Buy 34,649 40.5 12.3 30,199 43.6 13.1 10,131 30.8 -3.2

PTC India 73 Buy 21,233 59.6 -24.0 603 187.7 6.0 467 390.8 4.7

Reliance Infrastructure 517 Buy 39,155 -12.6 11.9 5,090 -21.9 12.2 2,998 -26.1 -27.6

Tata Power 109 Neutral 81,168 21.9 5.4 17,691 76.4 17.2 3,259 -41.0 58.0


We expect utility companies in our coverage to report aggregate 3QFY13 revenue

growth of 15% YoY and PAT growth of 12% YoY. Muted PAT growth is on account muted

PAT of few IPP's however CPSU's led by NTPC (higher capacity addition), PGCIL (better

Capitalization) would show PAT growth of 11% and 31% YoY respectively. Amongst the

IPPs, JSW energy is expected to report strong PAT growth (2x YoY), due to low base/

robust performance and ST prices in 3QFY13.

Oct/Nov 2012 generation growth muted; Coal plant PLF though looks upmarginallyIn Oct/Nov-12, all India generation grew by 4% YoY v/s 1HFY13/FY12 generation growth

of 4%/8% YoY. While generation growth picked up from 2QFY13 (2.5% YoY), it still

remains muted. Also, a large part of generation growth is driven by capacity additions

(8.9GW in YTDFY13). Generation growth in Oct/Nov-12 is however much better for

coal-based projects at 15% YoY, while lower generation growth/decline in gas (down

32% YoY) and hydro projects (down 22% YoY) have pulled the overall generation growth

down. PLFs have also marginally picked up for coal-based projects, as gas supply

dwindles and seasonality leads to lower contribution from hydro projects from now

on. PLFs for coal projects thus stand at 71%, down 165bp, while gas projects PLFs stood

at 41% (down 23ppt YoY). Coal plant PLFs were however up in November 2012, reaching

~80% for the central sector (NTPC).

Power demand growth dips in November 2012, deficit range-boundPower demand in YTDFY13 has been strong, led by ~9% growth in 1Q and 2QFY13. For

October 2012 too, demand growth in the system remained at ~9% YoY. Demand growth

has been looking up, particularly after a series of tariff hikes by Discoms from 3.8% in

FY11 to ~9% in FY12 and till October CY12 in FY13. However, demand growth for

November 2012 stood merely at 2% YoY, despite the festive season. This came as a

surprise and if not for the strong demand growth expected in the coming months, we

believe that generation growth/coal projects' PLFs would be impacted. YTDFY13 base

deficit stood at 8.6% v/s 7.4% YoY, thus remaining in a narrow band of 8-9% in all

months in FY13. Peak deficit however narrowed to 9% in YTDFY13, v/s 11.4% YoY.

Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected])

UtilitiesCompanies Covered

CESC

Coal India

JSW Energy

NHPC

NTPC

Power Grid

PTC India

Reliance Infrastructure

Tata Power

C–195January 2013


Imported coal prices remain weak, ST prices in INR3.5-4/unit rangeThough globally imported coal prices weakened, INR depreciation took away the

benefit partly. RB Index is down QoQ to USD85/ton, v/s USD88/ton in 2Q. For 3QFY13,

currency on an average basis appreciated on a QoQ basis from 55/USD to 54/USD.

However, the benefit of appreciation is largely attributable to the movement in

quarter's beginning, as it has begun to weaken of late at ~55/USD. Continued INR

depreciation could negate the benefit of lower coal prices. We also note a

strengthening trend in global coal prices and any rise could impact the cost of imported

coal on landed basis. Average spot rate at IEX for 3QFY13 stood at INR3.5/unit (flat QoQ

and down 23% YoY). ST prices at IEX touched lows of INR2.5/unit in mid Nov-12;

however, it has moved up to ~INR4/unit levels now.

Valuation and view: Power sector has begun to witness several initiatives by authorities

to address concerns on SEBs, fuel supply pacts and PPAs. However, it would take a

while for clarity on several issues to emerge. Hence, we continue to prefer CPSUs

which are relatively better-positioned on these fronts. Top picks are NTPC and

Powergrid.

Generation and PLFs of various plants

Capacity Nov-12 Nov-11 Generation Chg

(MW)* Generation PLF (%) Generation PLF (%) Oct-Nov-12 Oct-Nov-11 (%)

Adani Power

- Mundra Phase 1 5,280.0 2,046.1 63.0 943.2 66.2 4,473.4 2,004.5 123.2

GVK

- JP 1 & 2 455.4 101.9 30.7 211.6 63.7 230.7 435.3 -47.0

- Gautami 464.0 58.1 17.2 210.8 62.2 156.2 480.9 -67.5

GMR

- Barge Mounted 220.0 30.3 18.9 122.1 76.0 57.4 248.3 -76.9

- Chennai 200.0 31.6 21.6 95.7 65.6 83.7 189.3 -55.8

- Vemagiri 370.0 44.5 16.5 179.2 66.3 245.4 225.0 9.1

JPL

- Chattisgarh 1,000.0 572.3 79.5 733.5 101.9 1,208.4 1,502.7 -19.6

Rel Infra

- Dahanu 500.0 369.4 102.6 364.8 101.3 758.7 747.0 1.6

- Samalkot (AP) 220.0 45.0 28.0 113.0 70.3 102.3 232.8 -56.0

- Goa 48.0 21.6 61.6 24.1 68.9 38.9 45.8 -15.2

- Kochi 174.0 0.0 0.0 0.0 0.0 0.1 0.0 NA

Rel Power

- Rosa 1,200.0 821.6 95.1 408.9 94.7 1,590.2 641.2 148.0

Tata Power

- Trombay 1,580.0 765.5 62.2 815.3 67.6 1,640.7 1,710.9 -4.1

- TISCO (Jamshedpur) 441.3 206.6 79.7 217.3 76.3 444.6 468.3 -5.1

- Mundra UMPP 2,400.0 1,266.7 73.3 0.0 0.0 2,426.9 0.0 NA

JSW Energy

- Rajwest Unit-I 540.0 325.0 83.6 192.8 67.3 616.9 299.7 NA

-Karnataka 2,060.0 1,413.1 95.3 1,231.9 90.0 2,909.9 1,777.5 63.7

CESC 1,285.0 655.5 70.9 707.6 76.5 1,449.3 1,512.9 -4.2

Lanco Infratech

- Kondapali 716.0 170.1 32.5 392.5 75.1 355.5 814.9 -56.4

- Amarkantak (LANCO) 600.0 257.4 59.6 374.5 86.7 477.5 731.7 -34.7

- UPCL 1,200.0 663.5 88.5 106.5 24.3 1,186.1 208.8 468.

*Monitored capacity by CEA Source: CEA

C–196January 2013


Oct-Nov 2012: All-India generation grew 4% YoY Coal plant PLF looks up marginally for CPSUs (NTPC)

Power demand growth bit muted in Nov (BUs) Base deficit in a narrow range (%)

ST prices largely flattish (INR/unit) Forward ST price trading at ~INR4/unit

RB Index* softens (USD/ton) INR depreciation negated some impact (INR/USD)

* 6,000Kcal, FoB South Africa Source: CEA, CERC and Bloomberg

62 67 72 66 75 71 75 70 73 72 70 74 71 73 73 71 77 75 79 76 75 73 72 78 73

46

11

7 87

89 9

5

8

2

8

2

4 5

8

2 24

6

3

10

1414

55

60

65

70

75

Nov

-10

Feb

-11

May

-11

Aug

-11

Nov

-11

Feb

-12

May

-12

Aug

-12

Nov

-12

0

4

8

12

16

Al l India Generation (BUs) Gr (YoY, %)

50

60

70

80

90

100

Oct

-10

De

c-10

Feb-

11

Apr

-11

Jun-

11

Au

g-11

Oct

-11

De

c-11

Feb-

12

Apr

-12

Jun-

12

Au

g-12

Oct

-12

Centre Sector State Sector Private Sector

75 78 74 77 75 75 77 77 81 81 78 83

7984 85 86 83

8084

79

60

68

76

84

92

Apr

il

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 (%)

8.29.19.1

8.69.29.18.6

7.5

4.0

7.0

10.0

13.0

16.0

Ap

r

May Jun

Jul

Aug

Sep Oct

Nov

Dec Jan

Feb

Ma

r

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

3.5

3.5

3.1

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

3QFY

13

3.75

4.32

4.32

4.36

9-N

ov-1

2

23-N

ov-1

2

7-D

ec-1

2

21-D

ec-1

2

4-Ja

n-13

18-

Jan-

13

1-Fe

b-13

15-F

eb-1

3

1-M

ar-1

3

15-M

ar-1

3

29-M

ar-1

3

12-

Apr

-13

26-

Apr

-13

10-M

ay-1

3

24-M

ay-1

3

7-Ju

n-13

91 88 104 121 121 117 107 105 96 88 8540

80

120

160

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

-30%

0%

30%

60%Avg RB Index (USD/ton) YoY QoQ

48 4847 46 46 46 45 45 45

46

5150

545555

36.0

41.0

46.0

51.0

56.0

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

3QFY

13

-10%

0%

10%

20%

30%

QoQ (%) YoY (%) INR/USD

C–197January 2013





Utilities

CESC 305 Buy 47.7 52.6 57.5 6.4 5.8 5.3 5.0 4.6 4.1 11.7 11.6 11.5

Coal India 354 UR 27.9 27.8 29.6 12.7 12.7 11.9 8.5 8.0 7.0 28.2 24.0 21.9

JSW Energy 66 Neutral 4.5 5.8 6.0 14.7 11.4 10.9 8.2 6.9 6.5 12.3 14.5 13.8

NHPC 26 Neutral 1.8 2.0 2.2 13.9 12.6 11.9 10.1 9.6 8.4 7.2 7.7 7.8

NTPC 155 Buy 11.1 13.6 15.7 13.9 11.5 9.9 10.4 9.1 7.8 12.1 13.6 14.6

Power Grid Corp. 114 Buy 8.9 10.7 13.0 12.8 10.6 8.8 9.6 9.1 8.1 16.6 17.8 19.1

PTC India 73 Buy 8.5 9.4 10.9 8.6 7.8 6.7 7.3 7.8 3.7 7.6 7.3 8.3

Reliance Infra. 517 Buy 50.9 53.8 60.9 10.2 9.6 8.5 3.1 3.0 2.3 7.3 7.3 7.7

Tata Power 109 Neutral 4.8 4.9 5.5 22.8 22.2 19.9 17.6 16.2 15.8 8.8 7.4 7.2


* Coal India RoE adjusted for OB reserves; UR = Under Review


96

98

100

102

104


Sensex IndexMOSL Uti l i ties Index

80

95

110

125

140

Dec

-11

Feb-

12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Sensex IndexMOSL Uti l i ties Index

C–198January 2013


Quarterly Performance (Standalone Numbers - excl Spencers Retail) (INR Million)



Sales 11,830 12,410 10,320 13,790 14,200 13,440 12,942 13,403 45,930 53,425

Change (%) 7.9 12.3 9.9 57.6 20.0 8.3 25.4 -2.8 12.2 16.3

EBITDA 2,671 2,600 2,130 4,320 2,900 3,110 3,530 3,287 11,570 12,987

Change (%) 4.3 -18.2 -15.8 75.6 8.6 19.6 65.7 -23.9 7.8 12.2

As of % Sales 22.6 21.0 20.6 31.3 20.4 23.1 27.3 24.5 25.2 24.3

Depreciation 710 720 750 720 770 760 810 831 2,900 3,171

Interest 700 750 660 650 780 890 910 931 2,760 3,511

Other Income 130 290 200 380 210 240 310 425 1,000 1,185

PBT 1,391 1,420 920 3,330 1,560 1,700 2,120 1,950 6,910 7,489

Tax 280 280 180 670 310 340 445 406 1,410 1,502


Reported PAT 1,111 1,140 740 2,660 1,250 1,360 1,674 1,543 5,500 5,988

Adjusted PAT 1,111 1,140 740 2,510 1,250 1,360 1,674 1,543 5,500 5,988

Change (%) 1.0 -15.6 -32.7 124.1 12.5 19.3 126.3 -38.5 17.8 8.9


Generation (MUs) 2,395 2,356 2,197 1,997 2,430 2,426 2,200 2,109 8,945 9,165

Sa les 2,256 2,324 2,005 1,811 2,467 2,393 2,068 1,962 8,396 8,603

Realization (INR/unit) 5.2 5.3 5.1 7.6 5.8 5.6 6.3 6.8 5.5 6.2

Overall PLF (Derived) (%) 89.3 87.8 81.9 74.4 90.6 90.4 82.0 78.6 83.3 93.0

E: MOSL Estimates

CESCCMP: INR305 Buy

We expect CESC to report PAT of INR1.7b led by INR0.06/unit tariff

increase retrospectively from April 2012.

For the months of Oct-Nov 2012, CESC's 1,225MW generation projects

operated at 77% PLF v/s 80% YoY, while generation stood at 1.45BUs,

down 4% YoY.

CESC acquired ~49.5% stake in First Source Ltd (FSL) in October 2012

for an investment of INR4b and has launched an open offer to acquire

up to 26% share capital. Offer was open during December 17-31, 2012.

Spencer's operating performance continues to look up in 1HFY13,

while company is optimistic on further improvement in 3QFY13 buoyed

by the festive season. Same store sales grew by 16.6% YoY to INR1,270/

sq.ft in 1HFY13, v/s INR1,089/sq.ft and average sales growth was 14.2%

YoY to INR1,218/sq.ft, v/s INR1,066/sq.ft. Stores' EBITDA stood at INR57/

sq.ft in 2QFY13, v/s INR43/sq.ft in 1QFY13. Cash loss in management's

view is now at INR55-60m per month in 2QFY13.

We expect CESC to post standalone PAT (ex Spencer) of INR6b in FY13E

(up 8% YoY) and INR6.6b in FY14E (up 11% YoY). Stock trades at reported

P/E of 5.8x FY14E.


Performance of Spencer - same stores' revenue growth, stores'

EBITDA.

Status on FSL open offer/quantum.


Sa les 46.0 53.4 59.3 65.4

EBITDA 10.8 12.3 13.3 13.9

Net Profit 5.5 6.0 6.6 7.2

Adj. EPS (INR) 44.1 47.7 52.6 57.5

EPS Gr. (%) 13.5 8.0 10.2 9.5

BV/Sh (INR) 386.6 428.6 475.5 527.3

RoE (%) 12.1 11.7 11.6 11.5

RoCE (%) 10.6 10.4 10.1 10.2

Payout (%) 11.3 12.6 13.3 13.9

Valuation

P/E (x) 6.9 6.4 5.8 5.3

P/BV (x) 0.8 0.7 0.6 0.6

EV/EBITDA (x) 5.1 5.0 4.5 4.0

Div. yield (%) 1.6 2.0 2.3 2.6

Bloomberg CESC IN




1,6,12 Rel Perf. (%) 1/-9/31

C–199January 2013





Sales 144,991 131,481 153,493 194,190 165,006 145,725 167,185 194,999 624,154 672,915

Change (%) 26.8 18.2 20.9 29.7 13.8 10.8 8.9 0.4 24.3 7.8

EBITDA 48,197 24,773 45,421 37,856 48,146 28,617 49,450 68,311 156,388 196,969

Change (%) 55.5 39.8 34.5 -27.2 -0.1 15.5 8.9 80.5 16.6 25.9

As of % Sales 33.2 18.8 29.6 19.5 29.2 19.6 29.6 35.0 25.1 29.3

Depreciation 4,308 5,734 5,257 4,103 5,356 3,872 5,890 5,949 19,402 21,067

Interest 55 83 76 326 126 102 160 226 540 614

Other Income 15,589 17,942 18,559 23,280 20,714 20,929 19,200 19,262 75,369 80,105

EO Income/(Expense) 132 165 52 458 -103 -107 0 0 734 0

PBT 59,555 37,064 58,699 57,164 63,275 45,464 62,600 81,398 212,549 255,393

Tax 18,115 11,132 18,322 17,221 18,582 14,703 20,032 25,855 64,790 79,172


Reported PAT 41,439 25,931 40,378 39,943 44,693 30,761 42,568 55,543 147,759 176,221

Adjusted PAT 41,308 22,341 36,901 60,493 44,796 30,781 42,568 55,543 160,725 176,221

Change (%) 62.8 46.8 39.7 43.6 8.4 37.8 15.4 -8.2 47.1 9.6

Key Operational metrics

Production 96.3 80.3 114.6 144.6 102.5 89.1 120.2 152.2 435.8 464.0

Sales/Offtake 106.3 93.2 110.3 122.9 113.0 101.7 119.3 132.0 433.1 466.0

Blended Realization (INR/ton)

- Regulated 1,188 1,225 1,174 1,339 1,261 1,294 1,260 1,321 1,235 1,285

- E-auction 2,246 2,435 2,852 2,852 2,562 2,282 2,300 2,330 2,599 2,373

- Washed Coal 2,180 2,261 1,794 2,479 2,315 2,085 2,100 2,146 2,228 2,155

- Own Consumption 1,556 2,762 3,463 2,389 3,023 2,626 2,550 2,543 2,643 2,723

E: MOSL Estimates

Coal IndiaCMP: INR354 Under Review

For 3QFY13, we expect COAL to report PAT of INR42.6b (up 15% YoY)

and production/dispatch to be ~120mt (up 5/8% YoY).

RB Index is down QoQ to USD85/ton, v/s USD88/ton in 2Q, while

currency has appreciated from 55/USD to 54/USD. Lower coal price and

INR appreciation could continue to impact market realizations for COAL

- a key trend to watch.

Diesel prices were hiked in September 2012 by INR5/litre and would

have an impact on operating cost for COAL. Management had

commented that such a hike could impact cost by INR500-600mpa.

Government's recent proposal to increase diesel prices would be an

important milestone to monitor as it could increase cost.

MoEF recently approved a 25% increase in production from existing

mines for COAL without public hearing, subject to critical area norms

and overall ceiling of 2/5 mtpa based on roads/railways evacuation.

We expect COAL to report PAT of INR176b in FY13E (up 10% YoY) and

INR175b in FY14E (flat YoY). Stock trades at P/E of 12.7x FY14E.


Volumes, realization trend for 3Q and guidance for FY13. Likely

production increase due to new guidelines.

Cost impact due to diesel price increase; possibility of price increase

for coal supplied under FSA to power sector.


Sa les 624.2 672.9 700.6 746.2

EBITDA 165.5 197.0 195.6 210.6

NP* 160.7 176.2 175.4 187.2

EPS (INR)* 25.4 27.9 27.8 29.6

EPS Gr. (%) 47.0 9.6 -0.4 6.7

BV/Sh. (INR) 64.0 78.6 93.0 108.4

RoE (%)** 31.9 28.2 24.0 21.9

RoCE (%) 57.2 56.3 46.7 43.2

Payout (%) 48.0 48.0 48.0 0.0

Valuation

P/E (x) 13.9 12.7 12.7 11.9

P/BV (x) 5.5 4.5 3.8 3.3

EV/EBITDA (x) 10.1 8.5 8.0 7.0

Div. yield (%) 3.4 3.8 3.8 4.0

*Adj. EPS, **RoE is adj.for OB reserves

accounts, as appplicable under IFRS

Bloomberg COAL IN


M. Cap. (INR b)/(USD b) 2235 / 41


1,6,12 Rel Perf. (%) -5/-11/-3

C–200January 2013





Total Operating Income 12,724 9,965 17,687 20,812 21,915 20,765 23,615 24,917 61,187 91,212

Change (%) 36.5 17.8 64.3 44.6 72.2 108.4 33.5 19.7 42.5 49.1

EBITDA 3,932 1,182 3,495 5,869 5,834 5,769 6,338 7,510 14,477 25,451

Change (%) -13.1 -63.6 -1.2 35.5 48.4 388.2 81.3 28.0 -7.4 75.8

Depreciation 1,048 1,098 1,379 1,509 1,697 1,605 1,767 1,996 5,033 7,065

Interest 1,338 1,510 1,995 2,329 2,426 2,281 2,350 2,551 7,172 9,608

Other Income 220 708 288 259 764 453 350 385 1,466 1,952

Extraordinary items 0 868 1,375 -621 2,325 -925 0 0 1,613 1,400

PBT 1,766 -1,586 -965 2,910 150 3,261 2,571 3,349 2,125 9,332

Tax 441 -481 -148 607 160 721 861 1,361 419 3,104


Reported PAT 1,326 -1,105 -817 2,303 -10 2,540 1,710 1,988 1,706 6,228

Exceptional Income/ (Expense) 0 868 1,375 -621 1,915 -925 0 0 1,613 990

Reported PAT (Post MI) 1,363 -1,089 -827 2,303 34 2,541 1,730 2,023 1,700 6,327

Adjusted PAT 1,363 -221 549 1,683 1,949 1,615 1,730 2,023 3,313 7,317

Change (%) -54.4 -114.3 -60.2 -18.3 43.0 n.a. 215.3 20.2 -60.6 120.9

Operational Details

Sales (MUs) 2,422 2,593 3,965 4,617 4,731 4,593 4,824 5,137 13,594 19,289

- Long Term 672 646 1,441 2,157 2,233 2,036 2,305 2,618 4,902 9,196

- Merchant 1,750 1,947 2,524 2,460 2,498 2,557 2,518 2,519 8,692 10,092

ST as a % of total 72.3 75.1 63.7 53.3 52.8 55.7 52.2 49.0 63.9 52.3

Realization (INR/unit) 4.51 3.15 3.99 4.18 4.56 4.81 4.69 4.66 4.37 4.66

- PPA 3.32 3.17 3.16 2.55 3.64 3.65 3.40 3.37 2.65 3.41

- Merchant 5.27 3.86 4.26 4.33 4.40 4.60 4.55 4.50 4.40 4.55

E: MOSL Estimates

JSW EnergyCMP: INR66 Buy

We expect JSWEL to report consolidated revenues of INR23.6b (up

34% YoY) and PAT of INR1.7b (up 215% YoY) in 3QFY13.

Company generated 3.5BUs (up 70% YoY) during Oct-Nov 2012. Average

PLF for 2,060MW Karnataka/Ratnagiri stood at 96.5% (v/s 87.6% YoY)

and for 540MW Rajwest stood at 78% v/s 60.3% YoY.

JSWEL's gross margin had improved to INR2.22/unit ni 2Q on the back

of strong ST prices. In 2QFY13, the change in mix in favor of South

Africa coal led to an increase in fuel cost, which will alter in 2HFY13.

Thus, 3QFY13 would see the benefit of lower fuel cost due to a change

in mix and lower coal prices QoQ. ST realizations would however be

key to performance and we assume realizations of INR4.55/unit in 3Q.

Rajwest 540MW of capacity is in operation. JSWEL plans to announce

commercialization of Unit 4-8 in January 2013 as it expects to receive

clearance for expansion of production for its Kapurdi lignite mines.

We expect consolidated PAT of INR7.3b in FY13E (up 121% YoY) and

INR9.4b in FY14E (up 29% YoY). Stock trades at P/E of 11.4x FY14E.


ST realizations, fuel mix/cost for 3QFY13 and guidance for FY13.

Rajwest project: Unit 5-8 CoD timeline, lignite mine clearance and

tariff approval for project.


Sa les 61.2 91.2 103.0 93.7

EBITDA 14.5 25.5 29.1 28.1

NP 3.3 7.3 9.4 9.9

Adj. EPS (INR) 2.0 4.5 5.8 6.0

EPS Gr. (%) -60.6 120.8 28.9 4.9

BV/Sh. (INR) 34.8 37.5 41.7 46.0

RoE (%) 5.8 12.3 14.5 13.8

RoCE (%) 6.4 12.0 13.0 12.6

Payout (%) 24.7 21.6 25.0 25.0

Valuation

P/E (x) 32.5 14.7 11.4 10.9

P/BV (x) 1.9 1.7 1.6 1.4

EV/EBITDA (x) 13.2 8.4 7.0 6.7

Div. yield (%) 0.8 1.5 2.2 2.3

Bloomberg JSW IN


M. Cap. (INR b)/(USD b) 108 / 2


1,6,12 Rel Perf. (%) 5/14/48

C–201January 2013





Sales 14,708 18,585 8,820 14,437 14,218 17,725 9,499 7,848 56,550 49,290

Change (%) 44.2 45.1 17.5 23.0 -3.3 -4.6 7.7 -45.6 33.8 -12.8

EBITDA 9,565 13,283 3,788 9,942 9,040 12,036 4,424 3,062 36,579 28,561

Change (%) 17.4 25.4 -17.7 94.6 -5.5 -9.4 16.8 -69.2 28.6 -21.9

As of % Sales 65.0 71.5 43.0 68.9 63.6 67.9 46.6 39.0 64.7 57.9

Depreciation 2,258 2,234 2,237 2,199 2,218 2,532 2,500 2,499 8,927 9,748

Interest 865 883 876 799 798 1,047 910 926 3,422 3,680

Other Income 3,275 3,042 2,032 2,255 2,451 2,406 2,300 2,331 10,604 9,488

EO Income/(Expense) 0 -352 0 689 0 0 0 0 337 0

PBT 9,717 12,856 2,707 9,889 8,475 10,863 3,314 1,969 35,169 24,620

Tax 1,807 3,191 586 1,868 1,777 3,028 746 508 7,452 6,059


Reported PAT 7,910 9,665 2,122 8,021 6,698 7,834 2,568 1,460 27,717 18,561

Adjusted PAT 6,050 7,769 2,976 2,109 6,450 7,429 2,568 1,867 18,884 18,561

Change (%) 18.4 13.3 63.9 -18.3 6.6 -4.4 -13.7 -11.5 15.1 -1.7

Operational Details

Generation (MUs) 6,284 6,939 3,119 2,386 6,148 7,634 2,499 2,329 18,683 18,610

Increase/ (Decrease) (%) 11.0 -2.6 1.6 -9.7 -2.2 10.0 -19.9 -2.4 1.0 -0.4

Installed Capacity (MW) 5,287 5,287 5,287 5,287 5,287 5,518 5,518 5,607 5,287 5,607

- Owned 3,767 3,767 3,767 3,767 3,767 3,998 3,998 4,087 3,767 4,087

- JV's 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520

E: MOSL Estimates

NHPCCMP: INR26 Neutral

We expect NHPC to report 3QFY13 revenues of INR9.5b (up 9% YoY)

and PAT of INR2.6b (down 14% YoY). During Oct-Nov 2012, NHPC's

generation stood at 1.9BUs (down 23% YoY).

For FY13, NHPC is targeting to add 1.1GW of projects, while it has

commissioned Chamera-III 231MW and 33MW of Chutak HEP (44MW)

in YTDFY13.

In addition, Nimo Bazgo (45MW) project is ready for commissioning

but CoD is partly impacted due to transmission line delays, while local

agitation has impacted commissioning of Uri-II (240MW).

As in 2QFY13, NHPC's outstanding debtors stood at INR26b, up from

INR21b as in March 2012. While company had initiated schemes to

lower the debtors, it is important to observe the trend in the current

quarter.

We expect NHPC to report consolidated PAT of INR21.1b in FY13E (down

10% YoY) and INR23.3b in FY14E (up 10% YoY). Stock trades at reported

P/E of 12.6x FY14E.


Availability and reason for generation decline.

Commissioning status for balance projects targeted in FY13; downward

revision in capacity addition guidance.

Status of debtors above 60 days and guidance on recovery.


Sa les 69.2 59.5 65.7 70.1

EBITDA 48.1 36.7 41.0 43.9

NP 25.2 22.7 24.9 26.5

Adj. EPS (INR) 2.0 1.8 2.0 2.2

EPS Gr. (%) 28.4 -10.0 10.0 6.3

BV/Sh. (INR) 23.3 24.2 25.2 26.3

RoE (%) 8.6 7.2 7.7 7.8

RoCE (%) 10.3 7.3 7.8 7.8

Payout (%) 29.4 42.3 43.2 43.7

Valuation

P/E (X) 12.5 13.9 12.6 11.9

P/BV (X) 1.1 1.1 1.0 1.0

EV/EBITDA (X) 8.6 10.1 9.6 8.4

Div. Yield (%) 2.7 2.6 3.0 3.2

Bloomberg NHPC IN


M. Cap. (INR b)/(USD b) 314 / 6


1,6,12 Rel Perf. (%) 7/26/15

C–202January 2013





Sales 141,715 153,775 153,333 162,639 159,600 161,197 174,810 180,763 611,462 676,369

Change (%) 9.5 4.2 13.6 4.8 12.6 4.8 14.0 11.1 7.8 10.6

EBITDA 28,662 32,387 28,564 41,127 36,306 42,243 35,503 37,628 131,437 151,680

Change (%) 2.2 -2.2 -22.1 12.9 26.7 30.4 24.3 -8.5 -2.1 15.4

As of % Sales 20.2 21.1 18.6 25.3 22.7 26.2 20.3 20.8 21.5 22.4

Depreciation 6,411 6,583 7,560 7,363 7,602 7,865 8,750 9,709 27,917 33,927

Interest 3,744 3,312 4,496 4,870 4,994 3,035 4,900 5,484 17,116 18,412

Other Income 9,964 10,093 9,121 7,679 8,849 10,482 8,450 9,102 36,858 36,883

PBT 28,472 32,586 25,629 36,574 32,559 41,825 30,303 31,536 123,262 136,224

Tax 7,714 8,346 4,324 10,640 7,573 10,402 7,273 7,551 31,024 32,798


Reported PAT 20,758 24,240 21,304 25,934 24,987 31,424 23,030 23,985 92,238 103,425

Adjusted PAT 19,015 14,797 20,692 22,958 23,888 20,984 23,030 23,985 79,720 91,888

Change (%) 13.0 -8.4 -1.1 -10.6 25.6 41.8 11.3 4.5 0.2 15.3

Operational Details

Installed Capacity (MW) 34,854 34,854 36,014 37,014 39,174 39,174 39,674 41,174 37,014 41,174

Addition (MW) 660 - 1,160 1,000 2,160 - 500 1,500 2,820 4,160

PLF (%)

- Coal based projects 86.9 78.4 83.5 91.1 86.5 74.9 85.0 87.4 85.0 80.0

- Gas based projects 62.6 60.8 71.1 66.8 64.5 57.7 67.5 69.3 65.2 65.0

E: MOSL Estimates; Adj profit based on the calculations provided by the management

NTPCCMP: INR155 Buy

We expect NTPC to report PAT of INR23b (up 11% YoY), led by strong

capacity commercialization and improvement in generation/PLF YoY .

Generation for the period Oct/Nov-2012 stood at 39BUs (up 6% YoY).

Coal-based generation was up 8% YoY in Oct/Nov 2012, while gas

generation was down 13% YoY. NTPC coal plant's PLF for the Oct/Nov

period stood at 83%, flat YoY.

In YTDFY13, NTPC's capacity additions stood at 2.66GW (FY13 target of

4.1GW) and it commercialized 3.82GW capacity. During Oct/Nov-12 it

commercialized 500MW each at Vallur and Rihand. Current capacity

addition is almost equal to FY12, while commercialization is higher

than FY11 and FY12 put together (2.7GW).

For the 12th Five Year Plan, company's capacity addition target is 14GW

and it has 16.6GW capacity under construction. Additional 2.6GW

(Meja/Solapur) is targeted for addition on best effort basis.

We expect NTPC to report PAT of INR92b in FY13E (up 15% YoY) and

INR112b in FY14E (up 22% YoY). Stock trades at P/E of 11.5x FY14E.


Plant availability factor (PAF) for coal-based projects and generation

loss.

Guidance on capacity addition/commercialization for FY13E/14E.

Clarity on new FSA signing and captive coal block development.


Sa les 611.5 676.4 758.2 843.0

EBITDA 140.5 159.2 193.1 229.3

NP 79.7 91.9 111.8 129.7

Adj EPS (INR) 9.7 11.1 13.6 15.7

EPS Gr. (%) 0.2 15.3 21.6 16.0

BV/Sh. (INR) 88.9 95.9 103.5 112.2

RoE (%) 11.8 12.1 13.6 14.6

RoCE (%) 11.9 11.8 12.0 13.0

Payout (%) 41.3 44.2 44.2 44.2

Valuation

P/E (x) 16.1 13.9 11.5 9.9

P/BV (x) 1.7 1.6 1.5 1.4

EV/EBITDA (x) 10.9 10.4 9.1 7.8

Div. yield (%) 2.6 3.1 3.3 3.9

Bloomberg NTPC IN


M. Cap. (INR b)/(USD b) 1,282 / 23


1,6,12 Rel Perf. (%) -5/-14/-23

C–203January 2013





Sales 22,025 22,644 24,666 31,019 28,883 30,858 34,649 41,255 100,353 135,644

Change (%) 10.2 6.5 20.2 40.3 31.1 36.3 40.5 33.0 19.6 35.2

EBITDA 18,455 18,978 21,027 26,038 24,646 26,693 30,199 35,098 83,824 116,635

Change (%) 9.8 6.3 21.7 40.2 33.6 40.6 43.6 34.8 18.9 39.1

As of % Sales 83.8 83.8 85.2 83.9 85.3 86.5 87.2 85.1 83.5 86.0

Depreciation 5,790 5,966 6,792 7,177 7,565 8,252 9,000 10,072 25,725 34,889

Interest 4,446 5,556 4,735 5,413 6,461 5,295 7,300 8,967 19,432 28,023

Other Income 1,432 1,942 1,096 3,069 920 1,570 1,000 1,026 7,497 4,516

Extraordinary Inc / (Exp) 13 -21 31 164 0 -140 0 0 187 -140

PBT 9,638 9,419 10,565 16,354 11,540 14,856 14,899 17,084 45,976 58,379

Tax 2,586 2,331 2,472 6,037 2,836 3,597 4,768 5,330 13,427 16,530


Reported PAT 7,053 7,087 8,092 10,317 8,705 11,259 10,131 11,754 32,550 41,848

Adjusted PAT (Pre Exceptional) 7,022 7,601 7,743 10,832 9,065 10,467 10,131 11,498 33,199 41,161

Change (%) 18.9 27.1 28.1 44.7 29.1 37.7 30.8 6.1 30.7 24.0

Operational Details

Capitalization (INR m) 8,020 32,550 22,280 78,150 41,000 26,600 40,000 62,400 141,000 170,000

Regulated Equity (INRm) 137,918 147,683 154,367 177,812 190,112 198,092 210,092 228,812 177,812 228,812

E: MOSL Estimates

Power Grid CorporationCMP: INR114 Buy

We expect Powergrid to report 3QFY13 PAT of INR10.1b (up 31% YoY)

driven by capitalization in 1HFY13 (INR676b, up 67% YoY); in 3QFY13,

we expect company to capitalize INR40b. PWGR's board has accorded

investment approvals for projects worth INR72b (v/s INR97b YoY) in

YTDFY13.

Over the past few months, PWGR orders award has picked up. It

awarded orders worth INR74b (v/s INR21.2b YoY) in YTDFY13, v/s

projects award of INR232b in FY12 and INR161b in FY11.

For FY13E, we expect company to capitalize INR170b, up 21% YoY. In

FY12, fixed assets capitalization stood at INR141b v/s INR68b YoY. PWGR

approved capex plans for FY13 at INR200b v/s INR177b in FY12 (up 13%

YoY).

Despite fuel and SEBs financial issues increasing in the country,

company is upbeat on capitalization target. In the 12th Plan, it is

focusing on capitalization of corridors than transmission lines

dedicated to generation projects.

We expect PWGR to report PAT of INR41.2b in FY13E (up 24% YoY) and

INR49.5b in FY14E (up 20% YoY). Stock trades at reported P/E of 10.6x

FY14E.


Capitalization/capex for 3QFY13 and guidance for 4QFY13.

12th Plan capex target and possibility of dilution.


Sa les 100.4 135.6 159.7 195.9

EBITDA 83.8 116.6 137.9 170.8

NP 33.2 41.2 49.5 60.0

EPS (INR) 7.2 8.9 10.7 13.0

EPS Gr. (%) 30.6 24.0 20.2 21.2

BV/Sh. (INR ) 50.7 56.7 63.6 72.0

RoE (%) 14.8 16.6 17.8 19.1

RoCE (%) 9.2 10.1 9.7 10.3

Payout (%) 35.6 34.4 35.0 35.0

Valuation

P/E (x) 15.8 12.8 10.6 8.8

P/BV (x) 2.2 2.0 1.8 1.6

EV/EBITDA (x) 12.1 9.6 9.1 8.1

Div. yield (%) 1.9 2.3 2.8 3.4

Bloomberg PWGR IN


M. Cap. (INR b)/(USD b) 526 / 10


1,6,12 Rel Perf. (%) -7/-10/-7

C–204January 2013





Power Traded (MUs) 6,726 8,655 4,564 4,380 6,566 9,428 5,150 5,977 24,325 27,121

Sales 24,874 23,890 13,300 14,436 19,869 27,928 21,233 31,182 76,502 100,212

Change (%) -9.8 -3.3 -24.3 -30.6 -20.1 16.9 59.6 116.0 -15.6

EBITDA 476 444 210 323 313 569 603 845 1,453 2,331

Change (%) 77.1 16.5 -48.5 -5.9 -34.4 28.3 187.7 162.0 3.7 60.4

As of % Sales 1.9 1.9 1.6 2.2 1.6 2.0 2.8 2.7 1.9 2.3

Depreciation 11 11 11 11 10 10 11 14 45 45

Interest 14 79 103 64 1 4 3 2 260 10

Other Income 174 140 43 150 26 63 85 -1 505 173

PBT 626 493 138 394 304 619 674 829 1,656 2,473

Tax 173 138 43 98 98 173 207 256 452 735


Reported PAT 453 356 95 302 206 446 467 573 1,204 1,738

Adjusted PAT 453 356 95 299 229 446 467 573 1,201 1,715

Change (%) 59.4 -0.5 -74.9 -10.5 -49.4 25.4 390.8 91.6 -11.1

Operational Details

Power Traded (MUs) 6,726 8,655 4,564 4,380 6,566 9,428 5,150 5,977 24,325 27,121

Adj Margins (Ps/Unit) 4.91 4.16 3.78 4.68 3.98 3.06 4.76 4.47 4.39 3.76

E: MOSL Estimates; % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards

PTC IndiaCMP: INR73 Buy

We expect PTC India (PTCIN) to report 3QFY13 revenues of INR21b (up

60% YoY) and PAT of INR467m (up 390% YoY), led by contribution from

tolling projects.

Over Oct/Nov-12, PTCIN's volumes stood at ~3.3BUs (up 2% YoY). In

3QFY13, we expect its traded volumes to be 5.3BUs (up 13% YoY);

company's volume growth would pick up in 2HFY13 due to

commissioning of sizable projects on LT basis, including tolling

projects. For FY13E, we expect PTCIN to trade 27BUs (up 11% YoY).

We expect 3QFY13 average trading margin (adjusted for surcharge and

rebates) of 4.8paise per unit (v/s paise 3.8/unit YoY). The margin growth

would primarily be led by changing mix in favor of LT volumes.

On tolling business, we estimate PTCIN to post sales volume of 320MUs

and PBT spread of INR1.10/unit, flat QoQ.

We expect company to report consolidated PAT of INR2.5b in FY13E

(up 23% YoY) and INR2.8b in FY14E (up 11% YoY). Stock trades at

reported P/E of 7.8x FY14E.


Trading margin, as it has been lower in 1HFY13, v/s expectation due

to seasonality and mix.

Tolling business volumes and PBT contribution.

Receipt of outstanding dues from Tamil Nadu and Uttar Pradesh

Discoms.


Sa les 76.5 100.2 131.4 165.8

EBITDA 1.5 2.3 2.4 2.7

NP 2.0 2.5 2.8 3.2

Adj. EPS (INR) 6.9 8.5 9.4 10.9

EPS Gr. (%) 22.9 22.6 10.7 16.2

BV/Sh. (INR) 76.3 79.5 82.8 86.7

RoE (%) 5.4 7.6 7.3 8.3

RoCE (%) 8.6 6.1 6.1 8.3

Payout (%) 45.0 45.0 45.0 45.0

Valuation

P/E (x) 10.5 8.6 7.8 6.7

P/BV (x) 1.0 0.9 0.9 0.8

EV/EBITDA (x) 12.3 15.0 13.5 8.1

Div. yield (%) 2.5 3.6 3.7 4.3

Bloomberg PTCIN IN




1,6,12 Rel Perf. (%) 1/2/57

C–205January 2013





Sales 36,607 39,505 44,777 57,316 34,473 35,002 39,155 46,095 178,205 154,726

Change (%) 64.3 62.0 69.8 148.1 -12.7 -21.8 -31.7 -53.3 85.3 -13.2

EBITDA 6,961 7,096 6,518 6,173 4,598 4,535 5,090 5,570 26,748 19,794

Change (%) 174.7 70.5 144.1 156.1 -35.2 -30.4 -17.5 -46.0 127.1 -26.0

As of % Sales 19.0 18.0 14.6 10.8 13.3 13.0 13.0 12.1 15.0 12.8

Depreciation 689 638 615 736 1,130 922 1,200 1,199 2,678 4,452

Interest 570 833 1,231 1,832 1,902 1,980 2,000 2,171 4,466 8,053

Other Income 1,093 1,126 1,468 1,685 2,586 3,457 1,900 1,975 5,372 9,917

PBT 6,795 6,752 6,140 5,290 4,152 5,090 3,790 4,175 24,977 17,207

Tax (incl contingencies) 2,490 1,794 1,982 -1,292 882 949 792 975 4,975 3,598

Effective Tax Rate (%) 36.6 26.6 32.3 -24.4 21.2 18.6 20.9 23.4 19.9 20.9

Reported PAT 4,305 4,957 4,158 6,581 3,270 4,141 2,998 3,200 20,002 13,609

PAT (Pre Exceptionals) 2,874 4,903 4,057 6,478 3,270 4,141 2,998 3,200 19,621 13,609

Change (%) 16.7 122.4 118.6 56.6 -33.3 2.1 -53.7 -69.2 84.1 -30.6

Operational Details

EPC Revenues 18,849 24,309 29,801 43,823 17,749 18,500 21,000 29,251 116,781 86,500

E: MOSL Estimates; Quarterly nos. are on standalone basis

Reliance InfrastructureCMP: INR517 Buy

We expect Reliance Infrastructure (RELI) to report 3QFY13 revenues

of INR39.2b (down 32% YoY) and PAT of INR3b (down 54% YoY). During

the quarter, we expect RELI to post EPC revenues of INR21b (v/s INR30b

YoY).

Reliance Group has signed MoU with Wanda group of China to conduct

business of mutual interest. Among the projects, RELI plans to develop

80 acres of land owned by it at Hyderabad (10m sq.ft) to begin with.

3QFY13 would be the first quarter of cement business (through a

wholly-owned subsidiary) and would have an impact on the

consolidated performance. RELI is executing 10mtpa facility at

Maharashtra and Madhya Pradesh (5mtpa at each location) at an

investment of INR60b.

RELI has begun work on the 4 to 6-laning of Delhi-Agra project and it is

now the 8th toll road project which is generating revenues (toll

collection at existing 4-lane has commenced).

During 3QFY13, RELI participated in an offer for sale (OFS) of Reliance

Power and monetized 53.1m shares, leading to inflow of INR5b+.

We expect RELI to report standalone PAT of INR13.6b in FY13E (down


P/E of 9.4x FY14E.


Performance of EPC division and order book position.

Performance of infrastructure business and development on under-

construction projects.

Contribution from cement business.


Sa les 178.5 154.7 151.8 173.3

EBITDA 25.7 19.8 18.8 20.8

NP 20.0 13.6 14.4 16.3

Adj. EPS(INR) 76.0 51.7 54.7 60.9

EPS Gr. (%) 88.2 -32.0 5.7 11.3

BV/Sh. (INR) 685.7 730.1 777.3 817.0

RoE (%) 11.4 7.3 7.3 7.7

RoCE (%) 13.3 9.7 8.7 9.1

Payout (%) 8.9 14.1 13.8 13.6

Valuation

P/E (X) 6.8 10.0 9.4 8.5

P/BV (X) 0.8 0.7 0.7 0.6

EV/EBITDA (X) 1.7 3.0 2.8 2.2

Div. yield (%) 1.2 1.3 1.3 1.5

Bloomberg RELI IN


M. Cap. (INR b)/(USD b) 138 / 3


1,6,12 Rel Perf. (%) 7/-19/18

C–206January 2013





Units Generated (MW) 3,889 3,772 3,970 3,599 4,259 4,272 4,000 3,461 15,230 15,992

Total Operating Income 19,212 19,481 22,519 23,747 22,841 25,198 23,625 21,339 84,958 93,003

Change (%) 2.9 19.1 36.3 34.7 18.9 29.3 4.9 -10.1 22.8 9.5

EBITDA 4,279 4,189 4,751 4,443 3,759 5,279 4,725 4,460 17,662 18,224

Change (%) -5.1 19.3 43.2 7.8 -12.1 26.0 -0.6 0.4 14.3 3.2

As of % Sales 22.3 21.5 21.1 18.7 16.5 21.0 20.0 20.9 20.8 19.6

Depreciation 1,331 1,353 1,512 1,508 1,548 1,556 1,575 1,548 5,704 6,227

Interest 1,124 1,165 1,280 1,388 1,386 1,643 1,375 1,385 4,957 5,789

Other Income 2,476 3,323 4,105 -69 3,456 1,963 1,200 1,257 9,835 7,876

PBT 4,299 4,995 6,065 1,478 4,281 4,043 2,975 2,785 16,837 14,084

Tax 1,484 1,865 1,483 308 1,158 1,083 803 758 5,140 3,803


Reported PAT 2,816 3,130 4,582 1,170 3,123 2,960 2,172 2,027 11,696 10,281

Adjusted PAT 2,940 3,658 1,844 2,295 3,721 2,969 2,172 2,027 10,736 10,880

Change (%) 33.9 68.3 23.9 43.1 26.6 -18.8 17.8 -11.7 38.7 1.3

Consolidated Adjusted PAT 4,158 4,425 5,523 3,522 3,059 2,062 3,259 2,930 17,628 11,310

Change (%) -1.0 12.8 34.9 -36.3 -26.4 -53.4 -41.0 -16.8 -0.7 -35.8

E: MOSL Estimates

Tata PowerCMP: INR109 Neutral

We expect Tata Power (TPWR) to report standalone PAT of INR2.2b (up

18% YoY) and consolidated PAT of INR3.3b (down 41% YoY).

Generation from TPWR's 2,021MW (Mumbai region) capacity in Oct-

Nov 2012 stood at 2.1BUs, down 4% YoY. Mundra UMPP generation for

the period stood at 2.43BUs and PLF stood at 81% v/s 2QFY13 PLF at

47%.

Company has filed a petition with India's CERC seeking a tariff hike of

~paise 67/ unit for its Mundra project. The matter is sub-judice.

Global coal prices have cooled off, which could impact the realizations

for KPC/Arutmin mines. However, the INR depreciation could help

TPWR in translation.

We expect TPWR to report consolidated PAT of INR11.3b in FY13E (down


P/E of 22.2x FY14E.


Contribution/loss of Maithon/Mundra UMPP project and any

impairment to equity for Mundra UMPP.

Comments from management on Mundra UMPP tariff revision.

Sales/realizations for KPC/Arutmin mines and any downward revision

in volume growth/realizations.


Sa les 85.0 93.0 97.5 102.2

EBITDA 17.8 18.2 20.2 20.3

NP 17.6 11.3 11.6 13.0

Adj. EPS (INR) 7.4 4.8 4.9 5.5

EPS Gr. (%) 0.6 (35.8) 2.5 12.0

BV/Sh. (INR) 47.9 50.9 53.4 56.1

RoE (%) 9.8 8.8 7.4 7.2

RoCE (%) 6.2 5.2 5.9 5.9

Payout (%) 39.9 27.6 30.0 33.7

Valuation

P/E (x) 14.6 22.8 22.2 19.9

P/BV (x) 2.3 2.1 2.0 1.9

EV/EBITDA (x) 18.1 17.6 16.2 15.8

Div. yield (%) 1.2 1.2 1.2 1.2

Bloomberg TPWR IN


M. Cap. (INR b)/(USD b) 258 / 5


1,6,12 Rel Perf. (%) 3/-3/-1

C–207January 2013

Siddharth Bothra ([email protected])



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Volumes (MT) 56 54 46 52 53 57 46 53 208 211

YoY Change (%) 2.4 -10.1 -8.7 -3.7 -5.9 4.8 - 3.3 -0.1 0.0

Net Sales 7,507 7,900 6,716 7,694 7,817 8,513 7,213 8,096 29,818 31,639

YoY Change (%) 14.8 6.2 4.8 10.6 4.1 7.8 7.4 5.2 9.0 6.1

Net Raw Material 3,965 4,378 3,948 4,654 4,590 4,974 4,334 4,959 16,945 18,857

Employee Expenses 259 297 318 285 265 339 310 225 1,159 1,139

Other Operating Expenses 1,489 1,269 1,147 1,225 1,394 1,506 1,354 1,232 5,130 5,486


EBITDA 1,794 1,956 1,303 1,530 1,568 1,694 1,215 1,680 6,584 6,157

YoY Change (%) 0.8 -13.0 -22.3 -1.1 -12.6 -13.4 -6.8 9.8 -9.2 -6.5

Margins (%) 23.9 24.8 19.4 19.9 20.1 19.9 16.8 20.7 22.1 19.5

Depreciation 63 63 62 63 60 60 66 71 251 257

Interest 4 2 9 4 7 3 1 8 19 19

Other Income 303 226 170 147 335 162 130 181 846 808

PBT 2,030 2,117 1,402 1,610 1,836 1,793 1,278 1,781 7,160 6,688

Tax 664 692 451 542 607 584 421 628 2,349 2,240

Rate (%) 32.7 32.7 32.2 33.7 33.1 32.6 32.9 35.3 32.8 33.5

Adj PAT 1,366 1,425 951 1,068 1,229 1,209 857 1,152 4,807 4,447

YoY Change (%) 16.6 -5.2 -18.6 0.8 -10.0 -15.2 -9.9 7.9 -2.0 -7.5

Margins (%) 18.2 18.0 14.2 13.9 15.7 14.2 11.9 14.2 16.1 14.1

E: MOSL Estimates


Castrol IndiaCMP: INR296 Neutral

We expect CSTRL to post volume growth of 3.3% YoY and value growth

of 5.2% YoY to INR8.1b for 4QCY12.

CSTRL has taken several price hikes across its key auto brands to pass

on cost pressure.

EBITDA is likely to grow 9.8% YoY to INR1.7b, while EBITDA margin is

likely to expand by 86bp to 20.7% on the back of price hikes taken by

the company over CY12.

~80% of CSTRL's demand in volume terms is from the replacement

market, while the OEM market accounts for just ~20%. Since the

profitability in the OEM segment is low, the share of the OEM market

in operating profit is even lower. Hence, we believe CSTRL is unlikely

to be much impacted by the current growth slowdown in automobile

segments (CVs in particular).

We model 9.6% YoY increase in net profit to INR1.2b.

We expect CSTRL to post earnings CAGR of 17.5% and FCF CAGR of 16%

over CY12-14. The stock trades at 26.7x CY13E and 23.8x CY14E EPS. Our

DCF-based price target for CSTRL is INR307/share (3.5% upside). Though

we remain positive on CSTRL's long-term prospects, the stock appears

fairly priced and upside is limited. We maintain our Neutral rating.


Sa les 29.8 31.6 34.0 37.1

EBITDA 6.6 6.2 7.7 8.7

Adj NP 4.8 4.5 5.5 6.2

EPS (INR) 9.8 9.0 11.1 12.5

EPS Growth (%) -2.0 -7.1 23.0 12.2

BV/Share (INR) 12.2 13.1 14.3 15.7

RoE (%) 93.7 83.8 71.4 81.2

RoCE (%) 133.6 109.1 94.3 110.1

Payout (%) 88.5 90.4 89.2 88.9

Valuation

P/E(X) 30.2 32.8 26.7 23.8

P/BV (X) 24.2 22.6 20.7 18.9

EV/EBITDA (X) 21.5 22.8 18.0 15.9

Div Yield 2.5 2.4 2.9 3.2

Bloomberg CSTRL IN


M. Cap. (INR b)/(USD b) 146 / 3


1,6,12 Rel Perf. (%) -4/2/25

C–208January 2013

Siddharth Bothra ([email protected])




Net Sales 9,490 9,946 10,463 10,711 10,370 10,549 11,784 12,621 40,609 45,323

YoY Change (%) 3.6 5.3 7.7 6.9 9.3 6.1 12.6 17.8 5.9 11.6

Terminal & Other Service Charges 5,390 5,630 5,985 6,161 5,920 6,124 6,943 7,514 23,166 26,500

Employee Expenses 229 230 247 293 275 279 283 296 999 1,133

Other Operating Expenses 1,275 1,458 1,457 2,018 1,503 1,570 1,751 1,909 6,207 6,734


EBITDA 2,597 2,628 2,773 2,240 2,672 2,576 2,807 2,902 10,237 10,956

Margins (%) 27.4 26.4 26.5 20.9 25.8 24.4 23.8 23.0 25.2 24.2

Depreciation 402 373 413 397 407 423 451 522 1,585 1,802

Interest 0 0 0 0 0 0 12 18 0 29

Other Income 588 753 698 1,126 823 810 689 611 3,166 2,933


PBT after EO Exp/(Inc) 2,783 3,008 3,059 2,968 3,088 2,962 3,034 2,974 11,818 12,058

Tax 441 1,254 647 697 636 638 749 751 3,039 2,773

Rate (%) 15.9 41.7 21.1 23.5 20.6 21.5 25 25 25.7 23.0

Reported Profit 2,342 1,754 2,412 2,271 2,451 2,325 2,285 2,223 8,779 9,285

Adj PAT 2,342 2,222 2,412 2,271 2,451 2,325 2,285 2,223 8,779 9,285

YoY Change (%) 21.0 7.5 5.6 -8.1 4.7 4.6 -5.3 -2.1 0.2 5.8

Margins (%) 24.7 22.3 23.1 21.2 23.6 22.0 19.4 17.6 21.6 20.5

E: MOSL Estimates

December 2012 Results Preview | Sector: Logistics

Container Corporation of IndiaCMP: INR914 Buy

We expect CCRI to post overall revenue growth of ~12.6% YoY to

INR11.7b in 3QFY13, driven by 14% YoY growth in the EXIM vertical and

~6.5% YoY growth in the domestic vertical.

While overall volume growth is likely to be subdued at ~3% YoY (4.2%

YoY for EXIM and -3% YoY for domestic), we expect realizations to

increase by 9.7%/9.9% for the EXIM/domestic verticals.

EBITDA margin would contract 268bp YoY to 23.8%, on the back of sharp

increase in haulage charges (~85% passed on) and increased empties

cost.

We model 5.3% YoY decline in net profit to INR2.3b.

Despite low volume growth, CCRI is likely to continue its 2QFY13

momentum and register further gain in market share to ~77% (76% in

2QFY13), with overall rail freight industry volume growth for 3QFY13

being lower at ~2.4% compared to ~3% for CCRI.

The stock has been under pressure primarily due to higher than

expected hike in railway haulage (up ~31%) and muted EXIM and port

growth rates. Nonetheless, we believe that CCRI's long-term prospects

remain extremely positive and outweigh near-term concerns. CCRI

trades at 11.7x FY14E and 10.6x FY15E earnings. We maintain Buy, with

a DCF-based target price of INR1,242 (36% upside).


Sa les 41.0 45.3 55.0 61.8

EBITDA 10.2 11.0 13.1 15.6

Adj NP 8.7 9.3 10.2 11.2

EPS (INR) 66.6 71.4 78.4 86.2

EPS Gr. (%) -1.2 7.3 9.8 9.9

BV/Sh. (INR) 427.4 477.4 532.6 592.7

RoE (%) 16.5 15.8 15.5 15.3

RoCE (%) 22.3 20.5 20.2 21.0

Payout (%) 28.8 30.0 29.6 30.3

Valuation

P/E (x) 13.7 12.8 11.7 10.6

P/BV (x) 2.1 1.9 1.7 1.5

EV/EBITDA (x) 8.9 8.8 7.4 6.2

Div Yield 2.1 2.3 2.5 2.9

Bloomberg CCRI IN


M. Cap. (INR b)/(USD b) 119 / 2


1,6,12 Rel Perf. (%) -4/-11/-12

C–209January 2013

Ashish Chopra ([email protected])





Sales 1,169 1,558 1,296 1,239 1,230 1,310 1,243 1,286 5,262 5,069

Q-o-Q Gr. (%) 10.4 33.3 -16.8 -4.4 -0.7 6.5 -5.1 3.5 42.6 -3.7

Staff Costs 69 67 65 79 78 78 80 82 280 340

Admin and other expenses 382 421 411 420 396 415 431 442 1,635 1,719

Depreciation 64 71 70 67 67 71 70 70 272 279

EBIT 654 999 750 672 689 746 662 693 3,075 2,731

Margins (%) 55.9 64.1 57.9 54.3 56.0 57.0 53.3 53.9 58.4 53.9

Other Income 215 224 280 308 233 338 272 280 1,027 1,044

PBT 869 1,223 1,030 981 921 1,084 934 973 4,102 3,775

Tax 248 327 342 181 274 270 266 277 1,098 1,057

Rate (%) 28.6 26.7 33.2 18.4 29.7 24.9 28.5 28.5 26.8 28.0

PAT 620 896 688 800 647 814 668 696 2,862 2,718

Q-o-Q Gr. (%) 12.9 44.5 -23.2 16.3 -19.1 25.7 -18.0 4.3 62.8 -5.0

EPS (INR) 12.2 17.5 13.5 12.9 12.7 16.0 13.1 13.6 56.1 53.3

E: MOSL Estimates

Multi Commodity ExchangeCMP: INR1,472 Buy

Value of the total volumes transacted during the quarter at MCX is

INR37t, down 3.6% YoY and 5.8% QoQ.

Hence, our revenue estimate for the exchange stands at INR1,243m,

down 4.2% YoY and 5.1% QoQ.

With fixed AMC fees to FTECH increased to INR20m per month (from

INR10m), our EBITDA margin for the quarter stands at 58.9%, down

270bp QoQ.

Our EBIT estimates for the quarter stands at INR662m, implying an

EBIT margin of 53.3%.

Our PAT estimate stands at INR668m, down 18% QoQ on account of

lower revenues, profitability and other income.


Revenue growth and transaction yield in 3QFY13.

Trend in profitability after increase in fixed AMC to FTECH for

technology services.

Comments on the expected launch of MCX-SX.


Sa les 5.3 5.1 6.0 7.1

EBITDA 3.3 3.0 3.6 4.4

PAT 3.6 3.5 4.1 4.8

EPS (INR) 56.1 53.3 62.2 73.2

EPS Gr. (%) 65.6 -5.0 16.6 17.8

BV/Sh. (INR) 195.5 219.2 248.7 282.2

RoE (% 31.0 25.7 26.6 27.6

RoCE (%) 24.8 24.7 25.6 26.7

Payout (%) 50.0 54.9 52.7 54.3

Valuation

P/E (x) 25.2 26.6 22.8 19.3

P/BV (x) 7.2 6.5 5.7 5.0

EV/ EBITDA (x) 18.0 19.7 16.0 12.9

Div. Yield (%) 2.0 2.1 2.3 2.8

Bloomberg MCX IN




1,6,12 Rel Perf. (%) -7/29/-

C–210January 2013

Sandipan Pal ([email protected])




Operating Income 11,120 11,571 11,608 10,236 10,806 11,985 11,953 12,053 44,535 46,632

YoY Growth (%) 22.1 25.4 -2.1 -30.1 -2.8 3.6 3.0 17.8 -0.7 4.7

EBITDA 1,892 2,044 1,631 1,600 1,776 1,828 1,861 1,918 7,177 7,418

EBITDA Margin (%) 17.0 17.7 14.1 15.6 16.4 15.3 15.6 15.9 16.1 15.9

YoY Growth (%) 22.1 19.1 -17.1 -45.2 -3.4 -13.6 10.8 1.8 -12.0 3.4

Depreciation 439 437 467 335 483 505 505 450 1,678 1,942

Interest 350 416 354 238 354 361 355 350 1,358 1,420

Other Income 168 67 154 115 42 64 70 103 505 278

Extraordinary items -9 -596 135 4 -289 -49 -180 -149 -466 -666

Profit before Tax 1,271 662 1,099 1,147 692 978 890 1,072 4,179 3,667

Tax Provisions 338 275 283 263 241 258 183 272 1,160 953

Tax / PBT 26 22 29 23 35 22 21 22 25.0 22.0

Consolidated PAT 946 389 824 913 468 723 715 807 3,068 2,684

Adj. Consolidated PAT 946 985 689 909 757 772 895 957 3,535 3,350

YoY Growth (%) 20.0 -61.1 -27.8 -45.3 -20.0 -21.6 30.0 5.3 -22.4 -5.2

E: MOSL Estimates

December 2012 Results Preview | Sector: Diversified

Sintex IndustriesCMP: INR64 Buy

Expect moderate YoY growth: We expect Sintex Industries' 3QFY13

revenues to grow 3% YoY to INR11.9b, EBITDA 11% to INR1.9b and

Adjusted PAT to grow 30% to INR895m. We believe the growth is

broadly attributable to the weaker base in 3QFY12, when the company

started witnessing challenges across Monolithic and Composite

segments.

Expect uptick in monolithic; Overseas composite to post improvement

in electrical: We expect Monolithic segment to post QoQ improvement

in revenues (8% QoQ, flat YoY) and uptick in margin. Company has

completed 3 of its 7 problematic sites and is expected to exit 2 more

by March 2013. The process would steadily improve the margin in

Monolithic business. Overseas, the automobile vertical is yet to show

any signs of improvement, but management expects an uptick in the

electrical segment by 3QFY13. Domestic custom molding is expected

to post strong YoY growth (17% YoY) on the back of a weak 3QFY12

when Maruti's strike took place.

Prefab, textiles to remain stable: Other verticals are likely to remain

stable: (1) prefab 13% growth, with margin of 18% and (2) stable margins

in textiles (20%) and tanks (10%).

The stock trades at FY14E P/E of 5x and EV/EBITDA of 4.4x. We value

Sintex at INR83 (post dilution). Maintain Buy.


Oper. Income 44.5 46.6 52.6 59.6

EBITDA 7.2 7.4 8.7 10.2

Adj. PAT 3.5 3.3 4.1 5.1

Adj EPS (INR) 13.0 10.8 12.8 14.5

EPS Gr. (%) -22.4 -17.5 18.7 13.5

BV/share (INR) 97.7 102.0 110.3 124.0

RoE (%) 14.0 11.5 12.3 12.4

RoCE (%) 11.0 9.9 11.4 11.7

Payout (%) 6.7 8.8 5.9 4.9

Valuation

P/E (x) 4.9 6.0 5.0 4.4

P/BV (x) 0.7 0.6 0.6 0.5

EV/EBITDA (x) 5.5 5.3 4.3 3.4

Div. Yield (%) 1.0 1.0 1.0 1.0

Bloomberg SINT IN




1,6,12 Rel Perf. (%) 1/-4/-28

C–211January 2013

Jinesh K Gandhi ([email protected])




Net Revenues 18,542 17,716 19,080 21,269 22,222 18,560 21,630 24,445 76,547 86,857

YoY Change (%) 26.3 40.9 56.1 15.9 19.8 4.8 13.4 14.9 32.9 13.5


EBITDA 3,370 3,205 3,282 3,867 3,944 3,261 3,654 4,284 13,674 15,142

Margins (%) 18.2 18.1 17.2 18.2 17.7 17.6 16.9 17.5 17.9 17.4

Depreciation 628 719 785 792 734 820 850 912 2,924 3,316

Interest 714 1,918 826 688 1,109 869 950 881 4,146 3,809

Other Income 305 246 305 173 275 262 275 168 1,029 980

PBT before EO Expense 2,332 814 1,977 2,560 2,375 1,834 2,129 2,659 7,633 8,997

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 1,834 2,129 2,659 7,237 8,997

Tax 466 151 626 37 703 457 639 270 1,280 2,069

Rate (%) 20.0 22.5 31.8 1.6 29.6 24.9 30.0 10.2 17.7 23.0

Reported PAT 1,866 519 1,340 2,282 1,672 1,377 1,490 2,389 5,957 6,928

Income from Associate Co -23 51 -216 -263 357 -179 -250 -213 -398 -35

Adjusted PAT 1,843 713 1,135 2,256 2,029 1,198 1,240 2,176 5,885 6,893

YoY Change (%) 29.5 -37.8 35.2 -3.4 10.1 68.0 9.3 -3.6 0.9 17.1

Margins (%) 9.9 4.0 5.9 10.6 9.1 6.5 5.7 8.9 7.7 7.9

Market-mix

Domestic 5,360 5,690 3,810 2,330 6,220 4,910 4,151 2,768 17,190 18,050

YoY Change (%) 32.3 25.3 14.8 -23.1 16.0 -13.7 9.0 18.8 15.1 5.0

% of sales 28.4 31.7 19.6 10.9 27.6 26.1 19.2 11.1 22.1 20.5

Exports 13,490 12,260 15,580 19,120 16,280 13,910 17,478 22,119 60,450 69,787

YoY Change (%) 24.7 48.2 70.1 21.1 20.7 13.5 12.2 15.7 37.2 15.4

% of sales 71.6 68.3 80.4 89.1 72.4 73.9 80.8 88.9 77.9 79.5

Total Sales (incl OI) 18,850 17,950 19,390 21,450 22,500 18,820 21,630 24,887 77,640 87,837

E: MOSL Estimates

December 2012 Results Preview | Sector: Agrochemicals

United PhosphorusCMP: INR123 Buy

We expect United Phosphorus (UNTP) to report 13.4% YoY growth in

consolidated revenue to INR21.6b, driven by on-going season in

LatAm. We estimate 9% growth in domestic revenue and 14% growth

in international revenue.

EBITDA margin would contract 30bp YoY to 16.9% due to higher fixed

cost, translating into EBITDA growth of 11% YoY to INR3.65b.

We are factoring in MTM forex loss of INR200m (v/s forex loss of

INR110m in 2QFY13). PAT is likely to grow 9% YoY to INR1.24b.

The company has guided revenue growth of 15%, EBITDA margin of

18-20% and tax rate of 15-20%.

We have upgraded our EPS estimates for FY13/FY14 by 4%/3% to INR15/

INR19.5 to factor in completion of buyback, resulting in 4.2% reduction

in equity.

Current valuations of 6.3x FY14E EPS and 4x EV/EBITDA are very

attractive. Maintain Buy, with a target price of INR175 (9x FY14E EPS).


Outlook for FY13 and FY14.

Price trend in key raw materials.


Sa les 76.5 86.9 97.4 107.3

EBITDA 13.7 15.1 17.9 20.5

NP 5.9 6.6 8.6 11.0

Adj EPS (INR) 12.8 15.0 19.5 24.8

EPS Growth (%) 3.3 17.7 29.7 27.4

BV/Share (Rs) 90.4 100.7 116.1 136.8

RoE (%) 14.9 15.4 18.0 19.6

RoCE (%) 17.3 16.9 18.4 20.1

Payout (%) 22.5 22.4 20.6 16.7

Valuation

P/E (x) 9.7 8.2 6.3 5.0

P/BV (x) 1.4 1.2 1.1 0.9

EV/EBITDA (x) 5.8 5.1 4.0 3.1

Div. yield (%) 2.0 2.4 2.8 2.8

Bloomberg UNTP IN




1,6,12 Rel Perf. (%) 8/-14/-28

DisclosuresThis report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducementto invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been

furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates

or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOStor any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its

affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or

employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliatesor employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness

for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision

based on this report or for any necessary explanation of its contents.

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of InterestStatement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

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, Eicher Motors, GSK Pharma, Hero MotoCorp, IOC, Marico, Nestle India,

Oriental Bank, State Bank of India3. Broking relationship with company covered None4. Investment Banking relationship with company covered Dewan Housing, Dishman Pharma, PTC India, UltraTech Cement

Analyst CertificationThe views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, orwill be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible

for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Regional Disclosures (outside India)This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary tolaw, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.K.This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial

Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity towhich this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S.Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.

In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable statelaws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein

are not available to or intended for U.S. persons.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutionalinvestors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major

institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended

(the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered intoa chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Any business interaction pursuant to this report will have to be executed within the provisions of this

chaperoning agreement.

This website and its respective contents does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be consideredas an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living

abroad may also be deemed "U.S. Persons " under certain rules.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MarcoPolo, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For SingaporeMotilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors

Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore

to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Nihar Oza Kadambari Balachandran

Email: [email protected] Email : [email protected]: (+65) 68189232 Contact: (+65) 68189233 / 65249115

Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 049318

Motilal Oswal Securities LtdMotilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025

Phone: +91 22 3982 5500 E-mail: [email protected]

january 2013 india strategy - motilal · pdf filehdfc 65 hdfc bank 66 icici bank 67 ......

Documents