june 03, 2013 · june 03, 2013 economy news rbi has decided to allow new banking licensees more...

JUNE 03, 2013

Economy News

RBI has decided to allow new banking licensees more time to set up banks.The banking regulator will announce a consolidated clarification on newbank licence norms on Monday. (BS)

The Met Department has declared the onset of monsoon over Kerala onSaturday. This came a day after a Japanese research agency warned thatthe monsoon could end up below normal due to heating abnormalities inthe Indian Ocean. (BL)

Passenger vehicle sales in the domestic market continued to sputter inMay, with high financing costs, an increase in fuel prices and sluggisheconomic activity keeping customers away from showrooms. During themonth, eight of the country's leading automobile makers together sold1,83,468 units, a 9% decline compared with 2,01,533 units in May 2012.(BS)

A Group of Ministers (GOM), led by Agriculture Minister Sharad Pawar, islikely to consider an increase in retail prices of urea. This is part of aproposed new pricing policy for urea, which is to be discussed at themeeting on June 6. (BL)

The commerce ministry's nodal agency for foreign direct investment policyhas sent a formal communication to the finance ministry asking it not toclear FDI proposals in pharmaceutical sector after the Foreign InvestmentPromotion Board brushed aside its informal request at its last meeting.(ET)

Corporate News

In a surprise rejig at the top, N.R. Narayana Murthy is back in Infosys asExecutive Chairman at a time when the IT major has lost ground to rivals,and the stock has been among the worst performers in its league. (BL)

Sun Pharmaceutical Industries is said to be in talks to buy Sweden'spharma firm Meda AB in a deal worth up to $5bn. It has been reportedlyin talks with several banks to raise funds to buy out Meda as part of itsexpansion plans. (BL)

JK Lakshmi Cement has taken up a Rs.21bn expansion plan, to be largelyfunded by debt. The biggest portion of the expansion project - to cost Rs15.5bn would entail the setting up of a 2.7mtpa greenfield project atDurg in Chhattisgarh. (BL)

GVK Power and Infrastructure has received environmental approvalfrom the Coordinator-General of Australia for its $4.2bn (Rs237.6bn)Kevin's Corner mine project in the Galilee Basin in western Queensland.The Kevin's Corner project proposes to produce 30mtpa. (BS)

Pantaloons Fashion & Retail Ltd will be investing up to Rs 1.75bn in thenext 12 months on store expansion across India, mainly in smaller towns.The company, which became a part of Aditya Birla Nuvo effective fromApril this year, is targeting to open at least one store per month in thenext 12 months at an investment of up to Rs150mn per outlet. (ET)

Lanco Infratech plans to raise Rs.10bn this fiscal by selling non-coreassets across wind, solar and road segments as part of its efforts toreduce debt burden. The group's net debt touched Rs 335.9bn at the endof March 2013. (ET)

DLF has estimated it may face a financial liability of up to Rs1bn for thevarious legal cases it is fighting across the country, mainly an investigationby SEBI into insufficient disclosures during its IPO in 2007. The admission iscontained in a company's filing with the Securities and Exchange Board ofIndia on April 29. (ET)

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

Equity% Chg

30 May 13 1 Day 1 Mth 3 Mths

Indian IndicesSENSEX Index 19,760 (2.3) 0.9 4.4NIFTY Index 5,986 (2.3) 0.7 4.7BANKEX Index 14,261 (2.5) 0.5 7.7BSET Index 6,065 0.9 3.1 (10.3)BSETCG INDEX 9,407 (1.7) (5.6) 0.8BSEOIL INDEX 8,655 (2.7) (0.6) 0.1CNXMcap Index 7,822 (1.0) (1.0) 2.6BSESMCAP INDEX 5,943 (1.6) (1.5) (4.1)

World IndicesDow Jones 15,116 (1.4) 0.9 7.3Nasdaq 3,456 (1.0) 2.3 9.0FTSE 6,583 (1.1) 0.9 3.2NIKKEI 13,775 1.4 (1.3) 16.5HANGSENG 22,392 (0.4) (0.8) (1.6)

Value traded (Rs cr)30 May 13 % Chg - Day

Cash BSE 1,954 (50.8)Cash NSE 13,855 0.3

Net inflows (Rs cr)29 May 13 % Chg MTD YTD

FII 1,497 54.2 21,175 82,334Mutual Fund (96) 3.8 (3,486) (12,077)

29 May 13 % Chg

FII Index Futures 8,836 (57.8)FII Index Options 40,217 (27.9)FII Stock Futures 27,656 (23.9)FII Stock Options 534 (82.9)

Advances / Declines (BSE)30 May 13 A B T Total % total

Advances 36 576 163 791 8.24Declines 169 1196 221 1,591 74.6Unchanged 1 92 24 118 16.0

Commodity % Chg

30 May 13 1 Day 1 Mth 3 Mths

Crude (NYMEX) (US$/BBL) 91.8 (0.2) (4.0) 1.2Gold (US$/OZ) 1,396.1 (1.2) (5.0) (11.4)Silver (US$/OZ) 22.4 (2.1) (6.9) (21.6)

Debt / forex market30 May 13 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 7.3 7.3 7.7 7.9Re/US$ 56.5 56.3 53.80 54.36

Sensex

15,000

16,500

18,000

19,500

21,000

May-12 Aug-12 Nov-12 Feb-13 May-13

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

MORNING INSIGHT June 03, 2013

HIND DORR OLIVER

PRICE: RS.13.5 RECOMMENDATION: SELL

TARGET PRICE: RS.11 P/E FY14 1.8X P/BV

The company has reported huge loss for yet another quarter. Y-O-Y Num-bers are not comparable as the company has transferred the manufactur-ing division to its subsidiary HDO Technologies. Numbers are highly disap-pointing and provide limited visibiility on profitability.

We have been negative on the stock since past two quarters and have beenrecommending "Sell" on the stock. We maintain our negative stance onthe company. Maintain Sell

Rs mn Q3 FY13 Q2 FY13 qoq (%)

Net Sales 825 754 9

Raw material 746.5 1,038.5 -28

Staff costs 57.7 62.2 -7

Other expenditure 285.9 30.8 828

Total Expenditure 1090.1 1131.5 -4

PBIDT -265 -378 -30

Depreciation 6.5 6.8 -4

Other Income 21.3 4.5 373

EBIT -250 -380 -34

Interest 157.1 121.1 30

PBT -407.5 -500.9 -19

Tax (575.6) -

Adjusted PAT 168.1 -500.9 -134

Extraordinary items -420.3 0.0

Reported PAT -252.2 -500.9

EPS 2.35 (7.00)

Raw material cost to sales (%) 90.5% 137.7%

Staff costs to sales (%) 7.0% 8.2%

Other expediture to sales (%) 34.7% 4.1%

PBDIT (%) -32.1% -50.1%

Tax rate (%) 141.3% 0.0%

Interest to revenues % 19.0% 16.1%

YoY numbers not comparable due to demerger of manufacturing division.

Post demerger of its manufacturing division, the company reported its quarterlynumbers for the second time. To that extent, YoY numbers are not comparableas the Q3FY12 included contribution of the manufacturing division, which hasbeen transferred to its subsidiary HDO Technologies.

As per the company, the objective of demerger and transfer is to provide morefocus to the segment. The company even plans to bring in a strategic partnerinto the demerged manufacturing company.

Even after making concessions on the impact of demerger of manufacturing divi-sion, the revenues are significantly lower than our estimates.

The company has reported huge loss at the EBITDA level on the back of projectlosses, transfer of profitable manufacturing business to subsidiary and decline inexecutable volume of work.

The company has created deferred tax assets of Rs 730 mn out of businesslosses. The company is confident that there would be adequate taxable income

Summary table

Rsm 15MFY12 9MFY13E FY14E

Sales 7187.5 2402.5 3000.0Growth (%) -23.9 -66.6 24.9EBITDA -12.7 -639.3 95.0EBITDA margin (%) (0.2) (26.6) 3.2PBT (462.9) (996.8) (322.2)Net profit -309.2 -421.2 -322.2EPS (Rs) -4.3 -5.9 -4.5Growth (%) -171.4 36.2 -23.5CEPS (Rs) -3.7 -5.6 -4.2BV(Rs/share) 30.4 12.9 7.4Dividend PS (Rs) 0.8 0.8 0.8ROE (%) (12.3) (35.9) (3.0)ROCE (%) 3.7 (0.4) 1.9Net cash (debt) -4041.1 -4245.1 -4571.4NWC(Days) 272.5 696.3 296.1EV/Sales (x) 0.7 2.3 1.1EV/EBITDA (x) -422.5 -15.3 17.9P/E (x) -3.1 -2.3 -3.0P/Cash Earnings -3.6 -2.4 -3.2P/BV (x) 0.4 1.0 1.8

Source: Company, Kotak Securities - PrivateClient Research

RESULT UPDATE

Sanjeev [email protected]+91 22 6621 6305



in the future.

Extraordinary items amounting to Rs 420 mn in Q3 and Rs 763 mn in 9MFY13comprises of cost incurred/provided on recently completed projects and provisionsfor expected losses on ongoing projects.

Other expenses for the quarter and nine months included Rs 159 mn towards badand doubtful debts.

Total borrowings stand at Rs 4.7 bn vs Rs 4.25 bn in Q2FY13 and the receivablesstand at Rs 1.9 bn.

Order backlog has continued to remain weak and even the profitability of the ex-isting orders are in serious doubt

Earnings Revision

We have revised our earnings downwards significantly in view of the poor set ofnumbers. We note that in the absence of greater clarity on demerged businessnumbers, our projected numbers have significant room for variance.

Recommendation The stock is trading at 1.8x FY14 P/BV.

We have been negative on the stock since past four quarters and have beenrecommending "SELL" on the stock. We maintain our negative stance on thecompany.

We maintain Sell with an revised target price of Rs 11 per share based on 1.5xP/BV.

We maintain Sell due to weak near-term earnings on subdued order backlog,weak macro environment and higher interest burden. Balance sheet quality hasalso weakened considerably.

FY14

Earlier RevisedRevenues Rs mn 5,500 3,000EBITDA % 6.00% 6.0%EPS Rs -0.6 -11.4% change 1792.0%

We recommend Sell on Hind DorrOliver with a price target of

Rs.11



We recommend ACCUMULATEon Crompton Greaves with a

price target of Rs.102

EVEREST KANTO CYLINDERS LTD (EKC)PRICE: RS.20 RECOMMENDATION: SELL

TARGET PRICE: RS.18 P/BV OF 0.3X

EKC's run of poor set of quarterly numbers continues into Q4FY13. All the geogra-phies reported decline in profitability. The debt burden is also high at Rs 5.3 bn.Company is likely to remain in losses in the foreseeable future. We maintain SELLwith a target price of Rs 18 (Rs 21 earlier)

Risk to our call would be from a resolution of Iran Imbroglio, whichmay resume sales to the country from Dubai.

Summary table

(Rs mn) FY12 FY13E FY14E

Sales 6771 5314 5800Growth (%) -12.8 -21.5 9.1EBITDA 959 188 290

EBITDA margin (%) 14.2 3.5 5.0PBT (84.5) (745.2) (926.1)Net profit 322 -714 -926

EPS (Rs) 3.0 -6.7 -8.6Growth (%) -56.5 -322.1 29.6CEPS (Rs) 6.7 -0.2 -1.7

BV(Rs/share) 76.4 69.4 60.4Dividend PS (Rs) 0.3 0.3 0.3ROE (%) 4.1 (9.2) (13.3)

ROCE (%) 5.5 (2.9) (3.4)Net cash (debt) (3,021.3) (4,279.2) (4,639.3)NWC(Days) 294 337 296EV/Sales (x) 0.8 1.2 1.2

EV/EBITDA (x) 5.4 34.1 23.4P/E (x) 45.7 -3.0 -2.3P/Cash Earnings 3.0 -119.0 -11.9

P/BV (x) 0.3 0.3 0.3


Rs mn Q4 FY13 Q4 FY12 YoY (%)

Net Sales 1223 1435 -15

Other operating income 16 27

Increase / decrease in stock 38.1 149.8 -75

Raw materials 676 574 18

Purchase of traded goods -62.7 138.9 -145

Staff cost 256.7 218 18

Other exp. 257.9 204.1 26

Power and Fuel 120.6 115.4 5

Total exp. 1,287 1,400 -8

EBIDTA (47) 62 -176

Depreciation 172.7 172.1 0

EBIT (220) (110) 99

Interest 117.3 37.9 209

Other income 73.7 24.1 206

PBT (264) (124) 112

Extraordinary/forex loss/ (gain) 411.2 113.8 261

Tax & deferred tax 80.0 -19.1

PAT (754.70) 8.80

Equity Rs. mn 214.3 214.3

shares (Mn) (FV Rs. 2) 107.15 107.15

Ratios

Operting profit margin (%) (3.9) 4.3

Raw Materials / Sales (%) 58 50

Staff Exp / Sales (%) 21.0 15.2

Other Exp / sales (%) 21.1 14.2

Tax / PBT (%) (30.4) 15.4

EPS (Rs.) (7.0) 0.1

CEPS (Rs) (5.4) (0.9)

Cylinders Sold (Lakh) 1.5 1.9

Avg. Relalizations (Rs./cylinder) 8,153 7,552

The company sold 1.52 lac cylinders in the quarter vs 1.9 lac cylinder in Q4FY12.There has been decline in average realization per cylinder to Rs 8153 per cylin-der.

Revenue from Indian operations declined 15% yoy due to slowdown in demandfor CNG kits and increasing competition from new players (the company hasbeen feeling pressure on market share).

RESULT UPDATE

Sanjeev [email protected]+91 22 6621 6305



In the domestic market, the company caters to the auto CNG (OEM and after-market) and industrial cylinder market. There has been softening in demand forAuto CNG due to factors like delays in rollout of the CGD network in cities andincrease in price of CNG in key markets mainly Gujarat.

The demand for CNG cylinders has slowed down due to subdued growth in au-tomobile sector, stagnation in CNG expansion into new cities and continued highsubsidy on diesel (thus making diesel cars for cost-efficient).

The market for CNG cylinders remains over-supplied with several smaller playerscompeting for market share. As a result, the company is not in a position to hikeprices.

Dubai manufacturing unit caters mainly to Iran, which is a major user of CNG.However, the ongoing geopolitical crisis in Iran has adversely impacted the pay-ment security as banks have been averse to entering into financial transactionsrelated to the country. Consequently, EKC's Dubai unit is operating at sub-opti-mal levels of production. On the positive side, the decline in production fromDubai appears to have been arrested as the company has posted a 22% growthin revenues from this location.

EBITDA margins stood at -3.9% in Q4FY13 vs 4.3% in Q4 FY12. The margindecline has been led by sharply lower profitability across most major markets. Ingeneral, volumes remain at sub-optimal levels.

The interest cost is up sharply to Rs.117 mn as the company raised fresh borrow-ings to redeem zero coupon FCCBs (on which no interest was being paid).

The company has taken provision for doubtful debts of Rs 402.7 mn in the quar-ter.

At the end of Q4FY13, total borrowings stand at high levels of Rs 5.3 bn.

Valuation & Recommendation

At the current price of Rs.20, EKC is trading at forward P/BV of 0.3x. Given thebleak near-term outlook for the company and high debt burden, we recommendSell on the company. Target price cut further to Rs 18 (Rs 21 earlier), implying a0.3x P/BV.

We recommend Sell on EverestKanto Cylinders Ltd with a price

target of Rs.18



PIPAVAV DEFENCE AND OFFSHORE ENGINEERING

(PDO)PRICE: RS.72 RECOMMENDATION: BUYTARGET PRICE: RS.92 FY14E P/E: 9.5X

Modest performance in Q4FY13 PDO reported revenue of ~Rs 7.3 bn growing 20% YoY and 18% QoQ.

EBIDTA was reported at Rs 1.3 bn translating into operating margin of18% (down 470bps QoQ) for the company with increase in operationalcost. Interest and depreciation continue to be high for the company as itpursues its capex programme. Consequently it reported PAT of Rs 83 mn(below our expectation of Rs 112 mn). Now it is looking to sell around10% stake to a strategic partner and would utilize the proceeds to con-vert the second wet dock into a dry dock. It has also delivered one 74,500DWT Panamax Bulk Carrier to Golden Ocean of Norway and two OSVs toONGC in the quarter and we estimate the company to execute the entirecurrent order book of Rs 106 bn by December 2016

We continue to believe that PDO is well placed to exploit the massive op-portunity that India's defense sector offers in the next few years. It hasglobal-sized assets and best-in-class tie-ups. Also, PDO offers the onlycredible large-size exposure for investors to India's defense business. Weestimate net profit at Rs 1.5bn for FY14, translating into an EPS of Rs 2.2for FY14. It trades at 32 times FY14E Earnings, which is relatively highcompared to domestic and International Peers as operations of the com-pany are still nascent and would scale-up in the future. Hence we preferto value the company at its replacement cost of Rs. 64 bn or Rs. 92/share.We recommend BUY on the stock with an unchanged TP of Rs 92

Consolidated quarterly

Rs mn Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13

Sales( including Subsidy) 6,181 5,724 6,660 6,210 7,271

Raw material 3,821 3,335 2,860 3,032 4,294

Employee 150 115 129 129 159

Other Expenses 908 1,059 2,272 1,639 1,511

Operating Expenditure 4,879 4,509 5,261 4,800 5,964

EBIDTA 1,302 1,215 1,399 1,410 1,307

EBIDTA % 21.1 21.2 21.0 22.7 18.0

Depreciation 292 300 301 315 310

EBIT 1,010 915 1,098 1,095 997

Interest 828 977 1,011 1,036 950

Other Income 61 91 40 89 66

PBT 243 29 127 148 113

Taxation 373 7 41 48 30

Effective tax rate % 153.5 24.1 32.3 32.4 26.5

PAT -130 22 86 100 83

Source: Company

Summary table


Sales 18,670 25,865 31,018Growth (%) 117.1 38.5 19.9EBITDA 4,203 5,331 5,979EBITDA margin (%) 22.5 20.6 19.3PBT 767 417 1,879Net profit 214 269 1,503EPS (Rs) 0.3 0.4 2.2Growth (%) -51.3 25.7 458.8CEPS (Rs) 1.9 2.2 4.2BV(Rs/share) 29 30 32Dividend/share (Rs) 0 0 0ROE (%) 1.1 8.3 9.0ROCE (%) 5.5 5.4 6.9Net cash (debt) (26,410) (40,692) (43,500)Net WC (Days) 219 240 234EV/EBITDA (x) 18.0 16.9 15.5P/E (x) 229.3 182.4 32.6P/Cash Earnings 37.3 31.8 16.9P/BV (x) 2.5 2.4 2.2


Other Highlights

Company looking raise money via stake sale PDO is looking to sell around a small stake to a strategic partner. The price and

the exact quantum of dilution are still not disclosed by the company. We believethe transaction may be happen at a small premium to current market price of Rs

RESULT UPDATE

Amit [email protected]+91 22 6621 6222



Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been pre-pared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views,estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

85 per share for a 10% dilution (69 million shares) which would fetch the com-pany around Rs 6 bn.

We estimate the company to utilize the proceeds to convert the second wetdock into a dry dock and we estimate the conversion to happen by end of CY15which would almost double the capacity for PDO from current Rs 60 bn to Rs 100bn.

Equity raised by PDO till date

Month No of shares Investor Price Remark

Aug-12 20,000,000 Grevek 78

Sep-11 10,500,000 RakeshJhunjhunwala 78 Convertible warrants were issued

Sep-09 85,450,225 IPO 58

Source: Company

PDO recently won an order of Rs 4 bn from ONGCPDO recently won an order worth Rs 4 bn from ONGC for the repair and mainte-nance of an offshore oil rig named Sagar Laxmi. The company was selected amongthe top global competitors and we estimate similar contracts to come for the com-pany in the near future.

Order book continues to be robust, both defense and non-defensesegmentsCurrently PDO has a robust order book of Rs 104 bn (5x FY13 revenues). The orderbook includes Rs 54 bn from defense, Rs 10 bn from offshore, and Rs 41 bn fromcommercial shipbuilding. We expect its order book to grow significantly, driven byorders from both the defense and non-defense segments.

The company would be focusing on each segment of shipbuilding to beat thecyclicality of any one segment. These segments are;

1. Commercial

2. Offshore

3. Defence

4. Ship repair

Order book as on May 2013

Navy Rs 54 bn

Offshore Rs 10 bn

Commercial Rs 41 bn

Delivery Period April 2011 to December 2016

Source: Company

Delivered 3 Panamax and 2 OSVs till date - to execute the remainingorder book by 2016Till date PDO has successfully delivered three 74,500 DWT Panamax Bulk CarriertoGolden Ocean of Norway and two OSVs to ONGC. We estimate the company toexecute the entire current order book by December 2016.

PDO has Mammoth infrastructurePDO operates the second largest shipbuilding capacity in the world, capable of con-structing vessels up to 400,000DWT. Hyundai Heavy, the largest shipbuilder has atotal capacity of 1,000,000DWT. PDO intends to become the world's largest ship-building company after completing the conversion of its second wet dock facility toa dry dock. It has a shipbuilding, ship repair and offshore fabrication complex spreadover 750acres with ~720 meters of sea front and 685 meters of outfit quay, includ-



ing two Goliath cranes of 600 tons each, which service the dry dock and the adjoin-ing pre erection berth, enabling PIPV to handle up to 1,200 tons of pre-outfitted shipblocks. A host of other technologically advanced infrastructure makes PDO one ofthe most modern shipyards in the world.

We also believe the following to be strengths of the company:1) Modular technology - which is cost effective; able to deliver 4-5 x faster2) Excellent facility and site3) Diversified product mix with thrust on defence and offshore4) Catering to high margin ship repair segment5) Key tie ups with the best in the industry

Macro headwinds for ship building hurting order inflow for PDO, butIndia's growing defense expenditure presents a huge opportunityShipbuilding industry is up against weak fundamentals. Very low freight for bulkcarriers threatens the business outlook for building bulk carriers. We estimate thefreight rates for dry bulk to remain under pressure for the next two financial years. Afall in oil price (though unlikely) would also threaten the demand outlook for vesselscatering to off shore oil exploration and production activity. We estimate that orderswould be tough to come from the commercial shipbuilding segment.

But with India set to spend ~Rs 600 bn over the next five years on improving itsmilitary infrastructure and stress on indigenization coupled with the strengths ofPDO, we expect order book to grow significantly, driven by orders from both thedefense and offshore segment.

Execution capabilities should comfortably support the orderbookThe shipyard consists of a dry-dock facility along with block fabrication sites, berths,etc. The yard originally had two wet basins, one of which has being converted intoa dry dock. The second wet dock would be converted to a dry dock by 2015. PDOscurrent capacity, which is currently Rs 60 bn (in terms of revenue potential), is likely,to shoot up to Rs 100 bn once the second dry dock becomes operational by2015.We estimate the capacity to comfortably support the strong order growth forPDO.

Outlook and ValuationWe are not changing the estimates as nothing has fundamentally changed in thecompany/sector. We continue to value PDO at its replacement cost of Rs 64 bn or Rs92 per share.

We factor in the following to arrive at the fair value: Healthy top line and bottom line growth of 20 - 25% p. a in the medium term

No dilution of equity - 2nd phase of expansion would be financed through debt(present net debt to equity is 1.3 x)

Aspects like scalability of the yard, strategic tie ups and diversified business

We continue to believe that PDO is well placed/ahead of the curve to exploit themassive opportunity that India's defense sector offers in the next few years. Webelieve that the near term stock performance is more a function of macro newsflows and order intakes. Hence, an earnings based valuation approach may not bethe correct representative of the fair value for PDO, given the low capacity utilizationin the interim period. We thus value PDO based on replacement cost method at Rs64 bn (Rs 92/share).

We recommend BUY on PipavavDefence and Offshore

Engineering with a price targetof Rs.92




SIMPLEX INFRASTRUCTURESPRICE: RS.102 RECOMMENDATION: REDUCETARGET PRICE: RS.105 FY14E (PE)X : 7.7X

Result Highlights: Results were lower than our expectations with revenuegrowth impacted by general slowdown in order inflow as well as execution.Operating margins improved in line with expectation but continued high in-terest outgo impacted net profits adversely. As execution and order infloware still below our estimates, we continue to remain cautious on the stockand maintain REDUCE rating.

Revenues for Q4FY13 declined by 17% YoY, lower than our estimates impactedby liquidity issues with clients as well as high working capital. For the full year,revenues reported a decline of 1% YoY.

Operating margins came at 9.3% and 9% for Q4FY13 and full year FY13 re-spectively, in line with our estimates.

Net profit was impacted by slowdown in execution and continued high interestoutgo and declined by 38% YoY for Q4FY13 and 33% YoY for full year FY13.

At current price of Rs102, stock is trading at 7.7x P/E and 4.7x EV/EBITDA onFY14 estimates. We revise our estimates downwards due to lower than ex-pected order inflows and execution seen during FY13 and arrive at a revisedprice target of Rs105 (Rs125 earlier). We continue to maintain REDUCE recom-mendation on the stock since we believe that current valuations are alreadyfactoring in decent growth in revenues as well as order inflows going forward.

Summary table


Sales 58,706 58,075 60,979Growth (%) 23 -1 5EBITDA 5,007 5,249 5,366EBITDA margin (%) 8.5 9.0 8.8PBT 1,333 903 983Net profit 892 598 658EPS (Rs) 18.0 12.0 13.2Growth (%) -28 -33 10CEPS (Rs) 54.9 52.4 53.7BV (Rs/share) 242.0 251.8 262.8Dividend PS (Rs) 2.0 2.0 2.0ROE (%) 7.8 4.9 5.1ROCE (%) 12.0 10.7 10.0Net cash (debt) (20,890) (21,228) (22,566)NWC(Days) 119.9 137.0 143.0P/E (x) 5.7 8.5 7.7P/BV (x) 0.4 0.4 0.4EV/Sales (x) 0.4 0.4 0.4EV/EBITDA (x) 5.0 4.8 4.7


Financial highlights

Rs million Q4FY13 Q4FY12 YoY% FY13 FY12 YoY%

Net Sales 14,790 17,827 -17% 58,075 58,706 -1%

Expenditure 13,411 16,364 52,827 53,699

EBITDA 1,379 1,463 -6% 5,249 5,007 5%

EBITDA margin 9.3% 8.2% 9.0% 8.5%

Depreciation 496 479 2,004 1,833

EBIT 884 984 -10% 3,245 3,174 2%

Interest 766 680 2,894 2,303

EBT(exc other income) 117 305 -61% 351 871 -60%

Other Income 137 152 552 462

EBT 255 456 -44% 903 1,333 -32%

Tax 75 165 305 441

Tax% 29.4% 36.1% 33.8% 33.1%

Net profit 180 292 -38% 598 892 -33%

NPM% 1.2% 1.6% 1.0% 1.5%

Equity Capital 99 99 99 99

EPS 3.6 5.9 -38% 12.0 18.0 -33%

Source: Company

Revenue growth impacted by delays in payments Revenues for Q4FY13 declined by 17% YoY, lower than our estimates impacted

by liquidity issues with clients as well as high working capital. For the full year,revenues reported a decline of 1% YoY. Overall revenues were impacted bydelays in payment cycle from the clients and thus in order to prevent the work-ing capital from stretching further, execution was slow during the year. Com-pany has mentioned that 20% order book coming from the real estate sector isslow moving which has also contributed to decline in revenues in Q4FY13.

RESULT UPDATE

Teena [email protected]+91 22 6621 6302



Current order book of company stands at Rs 155 bn diversified across buildingsand housing (25%), bridges (9.5%), industrial (7.5%), marine (3.5%), piling(3%), power (20%), railways (2%), roads (20%), and urban infrastructure(10%). Domestic orders form nearly 94% of the order book while remaining isfrom overseas. Order inflow during FY13 stood at nearly Rs63 bn while Simplexhas current L1 position of Rs 15.7 bn worth of projects. During Q4FY13, orderinflow stood at Rs 20.5 bn.

Revenues during FY13 were diversified across buildings and housing (19%),bridges (12%), industrial (10%), marine (1%), piling (6%), power (33%), rail-ways (2%), roads (8%) and urban infrastructure (11%). Revenues from domesticsegment stood nearly 85% of the total revenues while 15% is being contributedby overseas.

Road BOT projects

(Rsmn) Cost Debt Equity Stake % Simplex's equity

Bhuwaneshwar-Chandikol 14110 10583 1490 35% 522

MahuliaKharagpur 11590 8693 1630 51% 831

Vijaywada-Gundugolanu 20880 16704 4190 49% 2053

Meghalaya Jowai 3260 1360 650 100% 650

Source: Company

Toll collection from Bhuwaneshwar-Chandikol project currently stands at Rs 23lac per day. Work on Mahulia-Kharagpur project is expected to commission byQ3FY14 while Vijaywada-Gundugolanu project is expected to be delayed sinceland acquisition is still not done by NHAI. Equity requirement for both theseprojects is expected to be around Rs 2.85 bn for Simplex Infrastructure. Due todelays in land acquisition for these projects, company may not be required toput in equity during FY14.

We tweak our estimates and expect revenues to grow by 5% in FY14.

Operating margins came in line with expectations Operating margins came at 9.3% and 9% for Q4FY13 and full year FY13 respec-

tively, in line with our estimates. We maintain our estimates and expect marginsto be 8.8% for FY14.

Net profit growth impacted by decline in execution and high bor-rowings Net profit was impacted by slowdown in execution and continued high interest

outgo and declined by 38% YoY for Q4FY13 and 33% YoY for full year FY13.

Borrowings for the full year have moved up in line with high working capital re-quirements. Delays in payments from real estate and power sector and to someextent from government clients related to urban infra projects is keeping theworking capital cycle on higher side.

We tweak our estimates and expect net profits of Rs657mn (Rs 732 mn esti-mated earlier)

Valuation and recommendation We revise our estimates downwards due to lower than expected order inflows

and execution seen during FY13 and arrive at a revised price target of Rs 105 (Rs125 earlier).

At current price of Rs 102, stock is trading at 7.7x P/E and 4.7x EV/EBITDA onFY14 estimates.

We continue to maintain REDUCE recommendation on the stock since we be-lieve that current valuations are already factoring in decent growth in revenuesas well as order inflows going forward.

We recommend REDUCE onSIMPLEX INFRASTRUCTURES with

a price target of Rs.105



Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been preparedby the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates,rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

UNITY INFRAPROJECTS LTDPRICE: RS.30 RECOMMENDATION: BUYTARGET PRICE: RS.45 FY14E P/E: 2.4X

Revenues of the company declined by 3% YoYfor Q4FY13 while they improvedby 3% YoY for full year FY13. These were lower than our estimates. The com-pany was mainly impacted by delays in payments from the clients.

Operating margins came at 10.6% and 13.4% for Q4FY13 and full year FY13respectively, marginally lower than our estimates.

Net profit was impacted by lower than expected revenue growth but wasboosted by low tax rate.

At current price of Rs 30, stock is trading at very attractive valuations of 2.4x P/E on FY14 respectively. Though stock is trading at very attractive valuations butlack of order inflows for the company and for the entire sector has resulted inunderperformance. We believe that till macroeconomic environment improvesand order inflow ramps up, stock will continue to trade at lower valuations. Werevise our estimates downwards and arrive at a revised target price of Rs 45based on 3.5x FY14 estimated earnings and continue to maintain BUY on thecompany mainly due to its extremely low valuations.

Stock may underperform in near term due to lower order inflows but decline ininterest rates going forward coupled with ramp up in order inflow would be posi-tive for the company in medium to long term.

Financial highlights

Rs million Q4FY13 Q4FY12 YoY% FY13 FY12 YoY%

Net Sales 6,924 7,175 -3% 20,398 19,728 3%

qoq increase

Expenditure (6,194) (6,281) (17,662) (17,009)

EBITDA 731 894 -18% 2737 2718 1%

EBITDA margin 10.6% 12.5% 13.4% 13.8%

Depreciation (60) (56) (219) (201)

EBIT 671 838 -20% 2517 2518 0%

Interest (399) (345) (1,528) (1,213)

EBT(exc other income) 272 493 -45% 990 1305 -24%

Other income 76 70 235 200

EBT 348 563 -38% 1225 1505 -19%

Tax (50) (176) (300) (469)

Tax % 14.2% 31.2% 24.4% 31.2%

PAT 298 387 -23% 926 1035 -11%

NPM% 4.3% 5.4% 4.5% 5.2%

Net Profits 298 387 -23% 926 1035 -11%

Equity Capital 148 148 148 148

EPS 4.0 5.2 12.5 14.0

Source: Company

Revenue growth impacted by delay in payments form clients Revenues of the company declined by 3% YoYfor Q4FY13 while they improved

by 3% YoY for full year FY13. This was lower than our estimates and was mainlyimpacted by delay in payments from the clients, resulting which company hasalso slowed down on the execution.Order inflow continued to remain below ex-pectations.

Summary table


Sales 19,728 20,398 22,030Growth (%) 16 3 8EBITDA 2,718 2,737 2,974EBITDA margin (%) 13.8 13.4 13.5PBT 1,505 1,225 1,412Net profit 1,035 926 939EPS (Rs) 14.0 12.5 12.7Growth (%) 10 -11 1CEPS (Rs) 16.7 15.5 16.0BV(Rs/share) 100.7 112.0 123.5Dividend PS (Rs) 1.0 1.0 1.0ROE (%) 14.8 11.7 10.8ROCE (%) 17.3 15.8 15.7Net cash (debt) (6,876) (8,988) (6,951)NWC(Days) 216.0 271.0 230.0P/E (x) 2.1 2.4 2.4P/BV (x) 0.3 0.3 0.2EV/Sales (x) 0.5 0.5 0.4EV/EBITDA (x) 3.3 4.1 3.1


RESULT UPDATE




Order inflow for the company continues to remain impacted by adverse macro-economic scenario, high interest rates as well as delays in land acquisition. Pri-vate sector capex continues to remain below expectation and delays in approvalsin public sector led to overall slowdown in order inflows.

Order inflow for the company for full year (April,12-March,13) stands at nearly Rs21 bn diversified across building, water and road segment. Current order book ofcompany stands at Rs 38.38bn to be executed over 24-30 months. Out of thecurrent order book, nearly 89% pertains to government projects while remainingis contributed by private projects.

Current order book is diversified across civil (51%), water (20%) and transporta-tion (29%) while revenues are diversified across civil (69%), water (13%) andtransportation (18%).

For road BOT projects, construction work is progressing well on Chomu-Mahalaproject while it has also commenced on Punjab-Jind project. For Suratgarh-Sriganganagar road project, concession agreement has been signed but landacquisition is currently under progress. Company expects to achieve financial clo-sure in a month.

Key projects awarded during Q4FY13 include -

Construction/Improvement of Major Roads in Solapur city worth Rs 2.35 bn

Construction of Administrative staff Housing, Shopping Complex & SportsPavilion at IISER, Pune worth Rs 328.6 mn

Construction of "The Crown Green" Group Housing Colony Plot No. 17,Hinjewadi, Pune worth Rs 425 mn

Supply, installation and maintenance of water meter, Goa worth Rs 537.3mn

Based on lower than expected order inflows, we revise our estimates downwardsfor the company marginally and expect revenues to grow by 8% for FY14.

Operating margins Operating margins came at 10.6% and 13.4% for Q4FY13 and full year FY13

respectively, marginally lower than our estimates.

We tweak our estimates and expect margins to be 13.5% going forward for thecompany since nearly 90% of the order book has a built in price escalationclause.

Net profit growth impacted by lower than expected revenues Net profits were impacted by lower than expected revenue growth but was

boosted by low tax rate. Tax rate was lower for the quarter since company hasavailed benefits of Section 80IA for road BOT projects.

Working capital has moved up sharply due to sharp increase in inventories andsundry debtors for the company. Company has mentioned that increase in inven-tory is mainly due to commencement of road projects while increase in debtors isdue to delay in payments from the clients. Working capital is likely to remainhigh in near to medium term.

We revise our estimates downwards by incorporating higher working capital aswell as borrowings and expect net profits of Rs 939 mn (Rs 1102 mn) for FY14.

Valuation and recommendation At current price of Rs 31, stock is trading at very attractive valuations of 2.4x P/

E on FY14 respectively. Though stock is trading at very attractive valuations butlack of order inflows for the company and for the entire sector has resulted inunderperformance.



We believe that till macroeconomic environment improves and order inflowramps up, stock will continue to trade at lower valuations. We incorporate higherborrowings in our estimates and arrive at a revised target price of Rs 45 based on3.5x FY14 estimated earnings (Rs 60 earlier) and continue to maintain BUY onthe company mainly due to its extremely low valuations.

Stock may underperform in near term due to lower order inflows but decline ininterest rates going forward coupled with ramp up in order inflow would be posi-tive for the company in medium to long term.

We recommend BUY on UNITYINFRAPROJECTS LTD with a price

target of Rs.45




THE PHOENIX MILLS LTD (PML)PRICE: RS.279 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.290 FY14E P/E: X : 23.7X

Standalone revenue and net profit of the company for Q4FY13 were betterthan our estimates led by improvement in rentals and consumption pattern.Market cities are witnessing improved occupancies as well as rentals. Fromhere on, the company's focus would be on launching residential projects aswell as debt reduction. We continue to remain positive on the company butdue to limited upside from the current levels, we maintain ACCUMULATE onthe stock.

Standalone financial highlights

Summary table

Rs m FY12 FY13E FY14E

Sales 3,666 4,699 6,423Growth (%) 74% 28% 37%EBITDA 2,114 2,632 4,018EBITDA margin (%) 57.7% 56.0% 62.6%PBT 1,053 1,242 2,549Net profit 1,056 841 1,705EPS (Rs) 7.3 5.8 11.8Growth % 25% -20% 103%CEPS (Rs) 11.2 9.1 17.1BVPS(Rs) 118.1 121.6 131.0DPS (Rs) 2.0 2.0 2.0ROE (%) 6.2 4.8 9.3ROCE (%) 6.8 8.3 12.4Net debt 14,173 12,777 11,583NWC(Days) 133 93 93EV/Sales (x) 14.9 11.3 8.1EV/EBITDA (x) 25.8 20.2 12.9P/E (x) 38.3 48.0 23.7P/BV (x) 2.4 2.3 2.1


DESCRIPTION Q4FY13 Q4FY12 YoY%

Net Sales 722 600 20.3%

Total Expenditure 243 237 2.6%

EBITDA 479 363 31.9%

EBITDA % 66.3% 60.5%

Depreciation 71 73

EBIT 408 290 40.9%

Interest 66 68

EBT(exc other income) 343 222 54.2%

Other Income 140 146

PBT 483 368

Tax 122 95

Tax% 25.2% 25.7%

PAT 361 273 32.2%

Equity Capital 289.7 289.7

Face Value (In Rs) 2.00 2.00

EPS 2.49 1.89 32.2%

Source: Company

Revenue growth led by improvement in rentals

Phoenix mills had reported a growth of 20% in revenues for Q4FY13 primarilyled by improvement in rentals in high street phoenix.

High Street Phoenix: Average rentals have improved to Rs 212 per sq ft permonth during Q4FY13 vs Rs 174 in Q4FY12. Average sales per sq ft (trading den-sity) increased by 16% YoY to Rs 2126 in Q4FY13 and footfalls have moved upto 4.8 mn during Q4FY13 vs 4.4 mn in Q4FY12. Average rentals for the full yearhave moved up to Rs 202 per sq ft per month. PML also added Brands likeNikon, UCB Kids, Avirate, Vans, Mai Tai during Q4FY13.

Company has also mentioned that during peak consumption month of Jan, 2013,top 10 stores generated rentals in the range of Rs 600 - Rs 1400 per sq ft permonth due to revenue share and new deals at Palladium are being done at aminimum guarantee of over Rs 400 psft per month.

We tweak our estimates for High Street Phoenix to factor in improved rentalsand expect revenues to grow by 37% for FY14 on a consolidated basis.

RESULT UPDATE




DESCRIPTION Q4FY13 Q4FY12 YoY%

Net Sales 4699 3666 28%

Total Expenditure 2067 1552 33%

EBITDA 2632 2114 24%

EBITDA % 56.0% 57.7%

Depreciation 474 563

EBIT 2157 1551 39%

Interest 1430 944 52%

EBT(exc other income) 727 607 20%

Other Income 514 446

PBT 1242 1053 18%

Tax 428.39 189.2

Tax% 35% 18%

PAT 813 864 -6%

Minority interest -17 -100

Share of profit from associate 11 93

Net profit 841 1056 -20%

Equity Capital 289.69 289.69

Face Value (In Rs) 2 2

EPS 5.8 7.3

Source: Company

Performance of key market cities

Pune market city is currently 91% leased with average rentals of nearly Rs 65per sq ft per month. Occupancy levels have improved sequentially to 79% duringQ4FY13 as against 79% during Q3FY13. Footfalls in Pune market city have comedown sequentially for Q4FY13 to 3.47 mn vs 4.09 mn for Q3FY13. Overall rev-enues are expected to improve going forward due to improvement in occupan-cies as well as rentals. Pune market city reported revenues of Rs 315 mn andoperating margins of 58% during Q4Y13 and has a current debt of Rs 4.78 bn.Company would be launching 0.35 mn sq ft of residential project in next threemonths from Pune market city project.

Bangalore market city is currently 93% leased with average rentals of nearly Rs65 per sq ft per month. No. of opened stores have now increased to 230 asagainst 220 in Q3FY13. Occupancy levels have also improved to 79% versus77% during Q3FY13. Bangalore market city reported revenues of Rs 284 mn andoperating margins of 72% during Q4FY13 and has a current debt of Rs 3.4 bn.Footfalls in Bangalore market city are also witnessing an increasing trend andhave moved up to 2.04 mn during Q4FY13 vs 1.89 mn during Q3FY13 and 1.26mn during Q2FY13.Company plans to launch two residential projects of 1mn sqft saleable area during FY14.

Kurla market city is currently 90% leased and has an occupancy of 80% withaverage rentals of nearly Rs 88 per sq ft per month. Currently 235 stores haveopened as against 221 stores during Dec, 2012. Kurla market city reported rev-enues of Rs 352 mn and operating margins of 71% during Q4FY13 and has acurrent debt of Rs 6.73 bn. Footfalls in Kurla market city are also witnessing anincreasing trend.

Chennai market city has commenced operations in Jan, 2013 with leasable areaof 0.98 mn sq ft and lease rentals of nearly Rs 100 psf/pm. Mall is currently 93%leased . Footfalls have also improved from 1.3 mn seen during Jan, 13 to 5.3 mnduring Mar, 13. Chennai market city reported revenues of Rs 217 mn from malloperations and Rs 637 mn from sale of property. It has a current debt of Rs 2.9bn. Nearly 0.4 mn sq ft is also expected to be launched by the company duringthis fiscal.

Consolidated financials



Bangalore residential project: Phoenix mills had launched Phase 1 ofBangalore(W) residential project - "One Bangalore West" during FY13 and hassold nearly 0.77 mn sq ft across 5 towers for a net consideration of Rs 6175 mn.Rates have now been increased to Rs 9500 per sq ft. Construction work is alsogoing in full swing on the project. During Q4FY13, there is also a buyback ofshares by Palladium Constructions which has resulted in inflow of Rs 547 mn forPML. PML plans to launch second phase of this project by Dec, 2013.

Hotel Shangri-La commenced operations on December 19th, 2012. The hotelfeatures 390 spacious rooms, including 32 suites. Due to delays witnessed incommencement of hotel, overall project cost has increased to Rs 10.5 bn andcurrent debt on this project is Rs 6.2 bn. Average monthly occupancy tillMarch,13 stood at 54% with average room rates of Rs 9574 per room.

Thus, going ahead, focus of the company would be on residential launches sincecapex for the market cities is over and its Hotel Courtyard, Agra and a luxurymall are likely to be delivered soon.

Board approval for proposed stake purchase

PML has also taken a board approval for purchase of 24% stake of IL&FS inVamona Developers (Pune Market city) for Rs 716 mn, thereby valuing PuneMarket city at nearly Rs 2.98 bn. IT has also approved for purchase of EdelweissProperty Fund portfolio in PML group projects for Rs 690 mn - Vamona Develop-ers (4%), Alliance Hospitality (3%), Offbeat Developers (1%), Island Star MallDevelopers (7%), Upal (Phoenix United Lucknow - 7.5%) and Gangetic Develop-ers (10%). We have currently not incorporated higher stake in these projects tillit is paid.

Operating margins continue to stay strong

Operating margins stood at 66.3% for Q4FY13 vs 60.3% for Q4FY12. Operatingmargins stayed strong led by re-negotiation of rentals with key tenants.

On consolidated basis, operating margins stood at 56% for FY13 vs 57.7% forFY12, slightly lower than our estimates.

We tweak our estimates and expect operating margins to be 70.1% onstandalone basis and 62.6% on consolidated basis. Margins on consolidated ba-sis are expected to improve going forward with improvement in occupancies,leasing as well as rentals in key market cities.

Net profit growth better than our estimates

Net profit growth was also boosted by strong rentals and operating margins onstandalone basis. Net profits on consolidated basis were impacted by higher in-terest charges on account of full operations of market city Pune. Depreciationwas lower on account of change in accounting policy in case of Upal DevelopersPvt Ltd.

Borrowings at consolidated level at the end of FY13 stood at Rs 16.7 bn. Borrow-ings are likely to come down once operations stabilize in different market citiesand with more residential project launches going forward.

We tweak our estimates and expect net profits to grow to Rs 1.7 bn for FY14 ledby higher revenue recognition from Bangalore(W) project and improved rentalsacross HSP and Pune market city.

Valuation and recommendation

At current price of Rs 279, stock is trading at 23.7x P/E and 12.9x EV/EBITDA onFY14 estimates.

We value the company on sum of the parts valuation and arrive at a revisedtarget price of Rs 290 on FY14 estimates (Rs 267 earlier) to factor in improvedrentals across High Street Phoenix as well as higher realizations for residential



project launches.

Our valuations currently do not incorporate higher shareholding in the Bangaloreand Chennai market city. We would incorporate the same post completion ofstake increase.

We continue to remain positive on the company. However, due to limited upsidefrom the current levels, we continue to maintain ACCUMULATE recommenda-tion on the company. We would advise investors to use dips to enter the stock.

Sum of the parts valuation

Sum of the parts Phnx Avg rent Avg Rate Value PerStake (Rs/sq ft/m) (Rs mn) (Rs/sq ft) share

High Street Phoenix 100% 212 24339 168

Phase IV @ HSP 100% 12000 3000 21

Market cities

Pune 58.60% 65 6200 1635 11

Kurla 23.30% 95 9000 2778 19

Bangalore(East)# 42.0% 65 3000 1205 8

Chennai* 31.00% 90 7000 1988 14

Bangalore(W)-Residential 70% 8200 2725 19

EWDL 40% 45-60 2846 20

Big Apple 74% 35-40 884 6

Shangri-La 53% 12000 667 5

Total 290

S* Stake in Chennai market city is likely to be enhanced to 50%. # Stake in Bangalore marketcity is likely to be enhanced to 68%

Source: Kotak Private Client Group Research estimates

We recommend Accumulate onTHE PHOENIX MILLS LTD LTDwith a price target of Rs.290




ENGINEERS INDIA LTD (EIL)PRICE: RS.162 RECOMMENDATION: BUYTARGET PRICE: RS.225 FY14E P/E FY14X: 8.2

Summary table

INCOME : FY12 FY13 FY14(E)

Sales 37,234 25,290 27,693

Growth (%) 30.7 (32.1) 9.5

EBITDA 7,165 5,928 6,369

EBITDA margin (%) 19.2 23.4 23.0

PBT 9279 8985 9349

Net profit 6,447 6,322 6,638

EPS (Rs) 19.1 18.8 19.7

Growth (%) 21.3 (1.9) 5.0

CEPS (Rs) 19.7 19.1 20.1

BV (Rs/share) 56.4 68.1 81.2

DPS (Rs) 5.3 5.6 5.6

ROE (%) 38.0 30.1 26.4

ROCE (%) 37.6 29.8 26.2

Net cash (debt) 16,870 18,908 27,430

NW Capital (Days) (75.8) (100.1) (121.9)

EV/Sales (x) 1.0 1.5 1.3

EV/EBITDA (x) 5.2 6.2 5.8

P/E (x) 8.5 8.6 8.2

P/Cash Earnings (x) 8.2 8.5 8.1

P/BV (x) 2.9 2.4 2.0


EIL reported Q4FY13 PAT marginally higher than our estimates; revenueswere down due to muted activity in Lump sum turnkey project (LSTP)division. Consultancy business reported revenues marginally higher thanour estimates for the quarter.

EIL has been observing pick up in revenue booking in consultancy busi-ness space. Management anticipates reasonable order booking in theconsultancy business in FY14.

Order inflows have remained weak for the company in FY13 mainly dueto the cyclical slowdown in Hydrocarbon space. However, from historicalperspective we infer that the order booking in Indian hydrocarbon spacehas been unevenly spread. We believe that in future, company shall in-evitably benefit from MoPNG huge target of nearly Rs 1.2 trillion envis-aged for various projects in XII five year plan (FY12-FY17).

We believe that the stock could remain under pressure until FPO pricingbecomes certain. We value the company using DCF valuation methodol-ogy and maintain 'BUY' recommendation on company's stock with anunchanged price target of Rs 225.

Consolidated Quarterly financials

Rs mn Q4FY13 Q4FY12 YoY % Q3FY13 QoQ%

Income from Operations 5135 12253 (58.1) 6047.7 (15.1)

Employee expenses 1388 1324 4.8 1443.9 (3.9)

Sub-Contract Payments 1012 2332 (56.6) 871.8 16.0

Constrction Material 831 5860 (85.8) 1924 (56.8)

Other expenses 568 954 (40.4) 496.6 14.5

Total Expenses 3799 10469 (63.7) 4736.3 (19.8)

EBITDA 1336 1784 (25.1) 1311.4 1.9

Other income 1053 920 14.4 669.3 57.3

Depreciation 25 108 (76.7) 24.2 3.7

EBIT 2364 2597 (9.0) 1956.5 20.8

Net Interest -1 12 0

PBT 2365 2585 (8.5) 1956.5 20.9

Total tax 568 682 (16.7) 632.9 (10.3)

PAT 1797 1903 (5.6) 1323.6 35.8

EPS (Rs) 5.3 5.6 (5.6) 3.9 35.8

EBITDA (%) 26.0 14.6 21.7 20.0

Tax Rate (%) 24.0 26.4 32.3 (25.8)

Source: Company

Result Highlights

Consolidated revenues de-grew by nearly 58% YoY in Q4FY13 mainly due to slug-gish performance by LSTP segment. Company has reported expansion in YoY oper-ating margins margin at 26% in Q4FY13 vis-à-vis 14.6% in Q4FY12 due to increasedexecution in consultancy division.

Consolidated consultancy division reported 6% YoY de-growth in revenue at Rs 3 bnand EBIT margin for the segment stood at 44.3%. Order booking and execution hasremained strong in FY13 for the segment.

RESULT UPDATE

Ruchir [email protected]+91 22 6621 6448



Currently company has been observing muted activity in the 'Lump sum turnkeyproject' (LSTP) division Revenues in LSTP division has reduced by 77% YoY reportedat Rs 2.1 bn in Q4FY13. EBIT margins for the segment stood at 7.2% for the quarter.

Segment Results (Rs mn) Q4FY13 Q2FY12 YoY % Q3FY13 QoQ%

Consultancy & Engineering projects 3017 3211 (6.1) 2895.6 4.2

Lumpsum Turnkey Projects 2108 9042 (76.7) 3152.1 (33.1)

Consultancy & Engineering projects

Consultancy & Engineering projects 1336 1302 2.6 1201.7 11.2

Lumpsum Turnkey Projects 152 682 (77.7) 241 (37.0)

Segment Margins %

Consultancy & Engineering projects 44.3 41.6 41.5 6.7

Lumpsum Turnkey Projects 7.2 10.3 7.6 (5.8)

Source: Company

Management believes that the company from benefit from several pending ordersfrom various PSU refineries over the next few years. Company believes that HPCLRatnagiri refinery and petrochemical project (estimated cost Rs 350 bn might flowQ4FY14 or FY15. Management believes that this could entail consultancy opportu-nity of nearly Rs 15 to Rs 20 bn for the company. However we believe that HPCLwould likely give priority to the Barmer refinery over Ratnagiri plant and have there-fore not built this in our FY14 earnings estimate.

In order to widen the spectrum of offerings/ opportunities and to reduce systematicrisk associated with various industries and geographies, EIL has envisaged a strategyof entering into joint ventures and strategic alliances with the appropriate players inIndia and abroad. The company currently has nearly ten such alliances includingthree overseas JVs.

Company continues to win orders in international geographies mainly Middle Eastand expects further momentum through FY14. Management has stated that thecompany enjoys margins similar to domestic jobs in the international projects. Cur-rently company derives nearly 10-12% of revenues from international jobs and ex-pects it to maintain going ahead.

Current order book at Rs 33.2 bn offers visibility for next eighteen months;meaningful investment in XII year plan in Hydrocarbon space offers im-mense business opportunity

Company's current order book stands at Rs 33.2 bn vis-à-vis Rs 44 bn at the end ofQ3FY13. In FY13, order inflows stood at Rs 14.3 bn comprising of Rs 12.9 bnConsultancy and Rs 1.4 bn in LSTP division. Management has stated that theconsultancy business that enjoys strong margins would continue to remain strong inFY14. Current order backlog comprises of Rs 21 bn of consultancy business and Rs12 bn of LSTP segment. Company currently has limited exposure of close to 8% inoverseas geographies which is likely to increase over period of time.

VALUATION AND RECOMMENDATION

At the current price of Rs 162, EIL stock is trading at 8.2 x P/E and 5.8 x EV/EBITDAon FY 14E earnings.

EIL stock has corrected significantly in the past few trading sessions partly on antici-pation of probable equity dilution through FPO and possible delays in key refineryprojects that would likely defer earning accretion in the current year.

We believe that the stock is attractively valued at the current price but would likelyunderperform the broader market until clarity on anticipated equity dilution/FPO isreceived. We continue to remain positive on the long term business prospects of thecompany. We value the company using DCF valuation methodology and maintain'BUY' recommendation on company's stock with an unchanged price target of Rs225.

We recommend BUY on EIL witha price target of Rs.225




AIA ENGINEERING LTD. (AIA)PRICE: RS.315 RECOMMENDATION: ACCUMULATE

TARGET PRICE: RS.340 FY14E P/E:12X

Summary table

(Rs. mn) 2012 2013 2014E

SSales 14,167 17,513 21,170Growth (%) 22.1 23.6 20.9EBITDA 2,733 3,100 3,641EBITDA margin (%) 19.3 17.7 17.2PBT 2,528 2,915 3,440Net profit 1,808 2,111 2,471EPS (Rs) 19.2 22.4 26.2Growth (%) (1.4) 16.8 17.1CEPS (Rs) 22.3 26.0 30.3BV (Rs/share) 125.1 140.6 158.9Dividend/share (Rs) 5.0 6.0 7.0ROE (%) 16.2 16.8 17.5ROCE (%) 22.6 23.3 24.3Net cash (debt) 1,278 1,141 580NW Capital (Days) 157.8 142.4 142.4EV/Sales (x) 2.0 1.6 1.4EV/EBITDA (x) 10.4 9.2 8.0P/E (x) 16.4 14.1 12.0P/Cash Earnings 14.1 12.1 10.4P/BV (x) 2.5 2.2 2.0


AIA reported Q4FY13 results above our estimates on revenue and profit-ability front. Margins expanded YoY for the quarter despite increasingoverheads in mining vertical.

We remain positive on the company's business and maintain 'Accumu-late' rating on company's stock with an unchanged DCF based targetprice of Rs 340.

Consolidated Financials Q3FY13

Rs mn Q3FY13 Q3FY12 YoY% Q3FY13 QoQ (%)

Net Sales 4,574 4,545 0.6 4,160 10.0

Inc/dec in stock (48) 398 (370)

Raw materials 1,710 1,460 17.1 1,735 (1.4)

Staff cost 223 156 42.9 202 10.6

Other exp. 1,770 1,695 4.4 1,767 0.2

Total exp. 3,655 3,709 (1.4) 3,333 9.7

EBIDTA 919 836 9.9 827 11.1

Other income 57 35 45 27.8

Depreciation 88 79 12.1 87 1.1

EBIT 888 793 12.0 785 13.1

Interest 16 10 60.0 11 45.5

PBT 872 783 11.4 774 12.7

Exceptional loss/ (gain) - - -

Tax & deferred tax 235 249 (5.4) 239 (1.8)

PAT 637 534 19.2 534 19.2

EPS (Rs) 6.8 5.7 19.6 5.7 19.2

Raw Materials / Sales (%) 36.3 40.9 32.8

EBITDA (%) 20.1 18.4 19.9

Tax (%) 27.0 31.8 30.9

Source: Company

The company reported volume sale of 168000 MT of mill internals in FY13. Thegrowth is on account of sale of ~73000 MT (16300 MT for Q4FY13) of mill internalsfor the mining segment in FY13. Company reported revenues of Rs.4.5 bn mainlydriven by the exports which contributed 70% of total revenues.

The operating margins expanded sequentially to 20% in the quarter due to productmix skewed toward utility and cement.

We highlight that over the past few years, company has achieved incremental rev-enue growth from the demand for mill internals from the mining sector. Companyhas commendably gained market share in this space through FY08-13. Managementhas stated that the company would likely continue incurring costs related to clientacquisition in mining vertical over the next few quarters.

Management has stated that the company has been adding several clients in themining segment. However majority of mines are likely to remain under trial runs inthe current year, we believe meaningful business shall flow from FY14 onwards.

Company reported EBIDTA at Rs 919 mn in Q4FY13 vis-à-vis 836 mn last year. Em-ployee expense increased considerably by 42% YoY to Rs 222 mn in Q4FY13.

RESULT UPDATE




Company continues to maintain its leadership position in the industry and has cur-rent order book at Rs 4.8 bn. Its strong balance sheet accounted for low financialcharges that resulted in the PAT of Rs 637 mn for the quarter.


At the current price of Rs 315, company's stock is trading at 12x P/E and 8x EV/EBITDA on FY14E earnings.

We continue to remain positive on the long term growth prospects of AIA due tostrong business model with quality products, rising operating margins and expandingmarkets of mill internals for the mining segment.

We remain positive on the company's business and maintain 'Accumulate' rating oncompany's stock with an unchanged DCF based target price of Rs 340.

We recommend Accumulate onAIA Engineering Ltd with a price

target of Rs.340




HAVELLS INDIA LTD (HIL)PRICE: RS.738 RECOMMENDATION: SELL

TARGET PRICE: RS.620 FY14-21.1X

HIL reported Q4FY13 results in line with our estimates on revenue andnet profit front. Growth in domestic business has been driven by con-sumer division despite sluggish performance in industrial cable division.Sylvania continues to remain sluggish and drag on company's financials..

We believe that the company would likely experience margin pressure inSylvania over FY14. Domestic demand likely to drive growth in free cashflow over FY14E.

In view of the potential downside to our target price, we further down-grade our rating on company's stock to 'Sell' from 'Reduce' with a DCFbased revised price target of Rs 620.

Standalone Result

Rs mn Q4FY13 Q4FY12 % YoY Q3FY13 QoQ%

Net Income 11696 10485 11.6 10584 10.5

Decrease/ (Increase) in stock (235) 85 363

Raw Material consumed 7717 6682 15.5 6236 23.7

Employee expenses 416 358 16.5 472 (11.8)

Forex fluctuation (29) (214) 37

Other expenses 2337 2106 11.0 2114 10.6

Total expenditure 10207 9017 13.2 9222 10.7

EBITDA 1489 1468 1.5 1362 9.4

Other income 33.9 21.2 15.3 121.6

Depreciation 156.0 165.9 (6.0) 146.2 6.7

EBIT 1367 1323 3.3 1231 11.1

Finance Cost 27 197 (86.5) 58 (53.7)

PBT 1341 1126 19.0 1173 14.2

Tax 243 193 26.0 227 7.1

PAT 1098 933 17.6 947 16.0

EPS (Rs) 8.8 7.5 17.6 7.6 16.0

EBITDA (%) 12.7 14.0 12.9

PAT (%) 9.4 8.9 8.9

RM/Sales (x) 66.0 63.7 58.9

Tax Rate (%) 18.1 17.1 19.3

Source: Company

Result Highlights

Domestic revenue grew by 11% YoY at Rs 11.6 bn in Q4FY13 driven mainly by con-sumer durable, lighting and switchgear business. Consumer division grew 17% YoY,lighting division reported growth of 21% and switchgear division observed growth ofclose to 31% in the quarter. Cable and wire division reported de-growth of 3% dueto 17% YoY decline in underground cable division in Q4FY13.

Electrical Consumer Durables further strengthen with revenues at Rs 2.1 bn includingfans that grew by 20% YoY. EBIT margins in consumer division stood at 26%; re-ported contraction on account of higher advertising and promotional expenses in keyproduct categories. Company expects to maintain spend on promotions at currentlevel.

In Q4FY13, company reported standalone EBITDA margin at 12.7% driven by vol-ume growth in consumer durables. Employee cost showed a 16% YoY increase inthe quarter.

Summary table

(Rs. mn) FY12 FY13 FY14(E)

Sales 65,182 72,480 80,366Growth (%) 10.2 13.2 15.4EBITDA 6,574 6,691 7,941EBITDA margin (%) 10.1 9.2 9.9PBT 4758 6641 5600Net profit 3,700 7,761 4,368EPS (Rs) 29.6 31.0 35.0Growth (%) 21.9 4.7 12.8CEPS (Rs) 37.2 55.4 44.2BV (Rs/share) 76.6 115.6 143.0DPS (Rs) 2.5 6.5 6.5ROE (%) 46.0 48.5 27.1ROCE (%) 22.4 28.3 19.3Net cash (debt) (6,349) (4,578) (4,093)NW Capital (Days) 26.2 37.3 41.4EV/Sales (x) 1.6 1.4 1.3EV/EBITDA (x) 15.4 15.1 12.8P/E (x) 24.9 23.8 21.1P/Cash Earnings (x) 19.8 13.3 16.7P/BV (x) 9.6 6.4 5.2


RESULT UPDATE




Revenues from Switchgear division at Rs 3.1bn observed meaningful growth in thequarter. In switches, company continues with its efforts to establish itself as a promi-nent player in the premium category through its 'CRABTREE' brand. Mid-range cat-egory 'REO' has also been observing meaningful traction. It has received strongfeedback and acceptance in the market and expects to capture significant marketshare going ahead. We highlight that it has successfully scaled up its turnover fromREO from Rs 50 mn in first three months to Rs 150 mn currently.

In Q4FY13, tax expense/provision stood at Rs 243 mn vis-à-vis Rs 193 mn last yearresulting in the standalone PAT of Rs 1.1 bn.

Segment reporting (Standalone)

Rs mn Q4FY13 Q4FY12 % YoY Q3FY13 QoQ%

Standalone Revenues Rs

Switchgear 3118 2376 31.2 2697 15.6

Cable and Wires 4619 4767 -3.1 4085 13.1

Lighting and fixtures - India 1823 1511 20.6 1770 3.0

Electrical consumer durables 2136 1813 17.8 2032 5.1

PBIT Rs mn

Switchgear 977 802 21.9 950 2.9

Cable and Wires 279 307 -8.8 414 (32.5)

Lighting and fixtures - India 449 357 25.6 423 6.2

Electrical consumer durables 571 497 14.9 508 12.3

PBIT%

Switchgear 31.3 33.8 35.2

Cable and Wires 6.0 6.4 10.1

Lighting and fixtures - India 24.6 23.6 23.9

Electrical consumer durables 26.7 27.4 25.0

Source: Company

Sylvania observing sluggish demand; challenging business environment andlack of key strategic initiatives pose threat to future cash flow generation

Sylvania posted muted YoY growth in revenue at EUR 113 mn in Q4FY13. EBITDAmargins for Sylvania stood at 6.1% in the quarter vis-à-vis 7.9% in the previousyear.

Management had already reduced its margin guidance for Sylvania earlier to 5-5.5%, further slowdown in European region is likely to pose significant threat tocompany's operations.

We believe margins would likely remain under pressure due to weakening of de-mand leading to negative operating leverage at Sylvania.

Sylvania EUR mn Q4FY13 Q4FY12 % YoY Q3FY13 QoQ

Revenues 113 112 0.9 110 2.7

EBITDA 7 9 (21.6) 5 38.0

PAT 6 4 41.9 3.0

EBITDA % 6.1 7.9 4.5

Source: Company


At current price of Rs.738, stock is trading at 21.1x P/E and 12.8x EV/EBITDA onFY14E earnings.

In view of the potential downside to our target price, we further downgrade our rat-ing on company's stock to 'Sell' from 'Reduce' with a DCF based revised price tar-get of Rs 620.

We recommend Sell on HavellsIndia LTD with a price target of

Rs.620



AUTO INDUSTRY UPDATE

Arun [email protected]

+91 22 6621 6143

AUTO INDUSTRY VOLUME UPDATE - MAY 2013May 2013 wholesale dispatches continue to portray the current weak bleakdemand environment. Players reported YoY de-growth in sales in almost allthe segments. Maruti Suzuki's performance was well below expectation andTata Motors volumes remained weak as been the case over the past fewmonths. M&M and TVSM reported numbers broadly on expected lines.Going ahead, we expect demand across segments to pick-up over themedium term. If monsoons are normal, that probably could provide a muchneeded fillip to demand. Having said that, pick-up in economic activitieswill be critical to sustain growth over the medium to longer term.

Summary - April 2013 volumes (Nos)

May Apr May YoY gth MoM gth YTD YTD Growth2012 2013 2013 (%) (%) FY13 FY14 (%)

TVS Motor

Scooters 38,833 29,692 33,747 (13) 14 74,666 63,439 (15)

Motorcycles 64,134 67,966 66,606 4 (2) 132,100 134,572 2

Mopeds 70,125 62,844 58,983 (16) (6) 137,877 121,827 (12)

Total 2W sales 173,092 160,502 159,336 (8) (1) 344,643 319,838 (7)

2W Exports (incl. above) 21,112 17,708 19,290 (9) 9 41,482 36,998 (11)

3W 2,920 4,713 5,805 99 23 5,824 10,518 81

Overall sales 176,012 165,215 165,141 (6) (0) 350,467 330,356 (6)

Maruti Suzuki

A1&A2 54,185 56,462 48,574 (10) (14) 110,977 105,036 (5)

A3 (SX4, D'zire) 18,112 20,047 17,768 (2) (11) 34,256 37,815 10

A4 (Kizashi) 12 - - - - 15 - -

MUV (Gypsy, Ertiga) 7,734 5,318 4,307 (44) (19) 13,327 9,625 (28)

C (OMNI, Eeco) 9,435 8,696 7,172 (24) (18) 21,158 15,868 (25)

Total Domestic 89,478 90,523 77,821 (13) (14) 179,733 168,344 (6)

Export 9,406 6,779 6,856 (27) 1 19,566 13,635 (30)

Total Sales 98,884 97,302 84,677 (14) (13) 199,299 181,979 (9)

M&M

Passenger Vehicles 21,154 20,748 22,244 5 7 41,708 42,992 3

4W Commercial 13,254 14,414 14,848 12 3 26,308 29,262 11

3W 4,320 4,036 4,028 (7) (0) 8,979 8,064 (10)

CV (3.5T and avove) 1,210 704 984 (19) 40 2,238 1,688 (25)

Total Domestic 39,938 39,902 42,104 5 6 79,233 82,006 3

Export 4,051 1,530 1,356 (67) (11) 5,471 2,886 (47)

Total Sales 43,989 41,432 43,460 (1) 5 84,704 84,892 0

Tata Motors

M&HCV 12,451 10,002 10,123 (19) 1 22,280 20,125 (10)

LCV 27,174 26,023 24,173 (11) (7) 51,992 50,196 (3)

Utility 3,132 2,652 2,207 (30) (17) 7,180 4,859 (32)

Cars 17,371 8,918 8,927 (49) 0 35,981 17,845 (50)

Total Domestic 60,128 47,595 45,430 (24) (5) 117,433 93,025 (21)

Export 4,219 3,565 3,874 (8) 9 7,000 7,439 6

Total Sales 64,347 51,160 49,304 (23) (4) 124,433 100,464 (19)



TVS Motors - sales volume (Nos)


Scooters 38,833 29,692 33,747 (13.1) 13.7 74,666 63,439 (15.0)

Motorcycles 64,134 67,966 66,606 3.9 (2.0) 132,100 134,572 1.9

Mopeds 70,125 62,844 58,983 (15.9) (6.1) 137,877 121,827 (11.6)

Total 2W sales 173,092 160,502 159,336 (7.9) (0.7) 344,643 319,838 (7.2)

2W Exports (incl. above) 21,112 17,708 19,290 (8.6) 8.9 41,482 36,998 (10.8)

3W 2,920 4,713 5,805 98.8 23.2 5,824 10,518 80.6

Overall sales 176,012 165,215 165,141 (6.2) (0.0) 350,467 330,356 (5.7)

Source: Company

Mopeds sales volume trend

Source: Company

Exports sales volume trend

Source: Company

Scooters sales volume trend

Source: Company

Motorcycles sales volume trend

Source: Company

TVSM's May 2013 dispatches were similar to what the company have been re-porting since February 2013. Volumes in May 2013 came in at 165,141 units,6% lower over May 2012 volumes of 176,012 units.

Domestic 2W volumes declined from 173,092 units in May 2012 to 159,336 unitsin May 2013. 2W exports too witnessed a YoY decline of 8.6% and came in at19,290 units.

(continued ....)

TVS MOTORS (TVSM)

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Scooter sales were down by 13% YoY to 33,747 units; though on the positiveside May 2013 scooter volumes showed an improvement over April 2013 by re-porting 14% higher volumes.

Motorcycle volumes were up 4% YoY and was the only segment that reportedgrowth on a YoY basis. Motorcycle wholesale numbers in May 2013 was 66,606units.

Moped sales slid in April 2013 and the same continued in May 2013. Volumes inthis segment stood at 58,983 units down by 16% YoY - steepest YoY declinereported by the company in the past many years.

3W sales performance was very strong with the company reporting its highestever volumes in this segment. 3W volumes at 5,805 units grew by 99% YoY.

For TVSM, FY13 was a difficult year with volumes dropping by 7.5%. Generalslowdown in demand, increased competition and lack of adequate new launchesled to market share loss for the company.

However, in FY14 the company is looking to gain market share through newlaunches in both the scooter and the motorcycle segment. TVSM plans to launcha new scooter in 1HFY14 and a new motorcycle in 2HFY14.

Company expects single digit growth for the 2W industry in FY14. We expectTVSM's volumes in FY14 to grow by 5%, similar to expected industry growthrate.



MSIL - sales volume (Nos)


A1&A2 54,185 56,462 48,574 (10.4) (14.0) 110,977 105,036 (5.4)

A3 (SX4, D'zire) 18,112 20,047 17,768 (1.9) (11.4) 34,256 37,815 10.4

A4 (Kizashi) 12 - - (100.0) - 15 - (100.0)

MUV (Gypsy, Ertiga) 7,734 5,318 4,307 (44.3) (19.0) 13,327 9,625 (27.8)

C (OMNI, Eeco) 9,435 8,696 7,172 (24.0) (17.5) 21,158 15,868 (25.0)

Total Domestic 89,478 90,523 77,821 (13.0) (14.0) 179,733 168,344 (6.3)

Export 9,406 6,779 6,856 (27.1) 1.1 19,566 13,635 (30.3)

Total Sales 98,884 97,302 84,677 (14.4) (13.0) 199,299 181,979 (8.7)

Source: Company

MARUTI SUZUKI INDIA LIMITED (MSIL)

Export volume trend

Source: Company

Business Mix (Domestic)

Source: Company

A1 & A2 segment domestic volume trend

Source: Company

Domestic sales volume trend

Source: Company

MSIL reported disappointing wholesale numbers for the month of May 2013.Volumes witnessed decline across all segments - both YoY and QoQ (exceptmarginal QoQ growth in exports).

MSIL dispatched 84,677 units in May 2013 that was 14.4% lower over May2012 volumes of 98,884 units. Over April 2013, volumes dropped by 13%.

Domestic volumes stood at 77,821 units, a decline of 13% YoY and 14% MoM.

(continued ....)

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C

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A3

A1 and A2



In the mini car segment, volumes increased by 5% YoY to 31,427 units. Growthin this segment probably signals towards improving sentiments in demand forpetrol cars.

In the compact car segment, volumes fell steeply by 29% YoY to 17,147 units.This segment is primarily dominated by Swift, followed by Ritz and both themodels are available in diesel variants. Such a steep drop in this segment indi-cates waning demand for diesel cars.

Dzire volumes dropped by 2.5% from 17,707 units in May 2012 to 17,265 unitsin May 2013. Launch of Amaze (direct competitor to Dzire) by Honda had re-ceived good interest and demand. SX4 failed to impress with volumes of 503units.

UV volumes at 4,307 units witnessed a sharp 44% YoY decline as Ertiga salesstarts declining. After doing a high in November 2013, Ertiga sales have weak-ened since then. Further, competitor launching products will keep situation com-petitive.

MPV sales at 7,172 units were down 24% YoY and 18% MoM.

Exports declined by 27% YoY to 6,856 units. However April 2013, export vol-umes showed a marginal 1% growth.

FY13 was the second consecutive year for decline in petrol car sales. At the in-dustry level, FY13 petrol car sales declined by 17% and diesel car sales grew by23%. Accordingly, share of diesel car sales for the industry improved to 58% inFY13 from 48% in FY12.

Price between petrol and diesel has narrowed down and that should work infavor of petrol car demand. MSIL with its strong petrol car portfolio should ben-efit the most.

Small car sales have been impacted the most due to high interest rates and lowincome growth. As interest cost and inflation lowers, demand for small cars willstart improving.

Following factors in our view should work in favor of MSIL - 1.Expected pick-upin petrol car demand 2.Additional diesel engine capacity 3.Demand pick-up insmall car segment and 4.Lower base effect (volume loss in FY13 due to strike).



M&M - sales volume (Nos)


Passenger Vehicles (incl. Verito) 21,154 20,748 22,244 5.2 7.2 41,708 42,992 3.1

4W Commercial 13,254 14,414 14,848 12.0 3.0 26,308 29,262 11.2

3W 4,320 4,036 4,028 (6.8) (0.2) 8,979 8,064 (10.2)

CV (3.5T and avove) 1,210 704 984 (18.7) 39.8 2,238 1,688 (24.6)

Total Domestic 39,938 39,902 42,104 5.4 5.5 79,233 82,006 3.5

Export 4,051 1,530 1,356 (66.5) (11.4) 5,471 2,886 (47.2)

Total Sales 43,989 41,432 43,460 (1.2) 4.9 84,704 84,892 0.2

Source: Company

MAHINDRA AND MAHINDRA (M&M)

Domestic volume trend (Automotive)

Source: Company

Export volume trend (Automotive)

Source: Company

4W - domestic volume trend

Source: Company

Tractor - volume trend

Source: Company

M&M's automotive volumes reported a YoY de-growth of 1%. While domesticvolumes were up by 5%, exports witnessed a sharp 67% YoY de-growth on highMay 2012 base of 4,051 units.

M&M's overall automotive volumes in May 2013 came in at 43,460 units ascompared with 43,989 units in May 2012 and 41,432 units reported in April2013.

(continued ....)

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Passenger vehicle volumes inched up by 5% to 22,244 units in May 2013 from21,154 units in May 2012. Slowing demand and higher base has led to reductionin growth in this segment.

4W commercial segment volumes grew by 12% YoY to 14,848 units driven bydemand for pick-ups/LCV's.

3W segment continue to witness weak demand and accordingly volumes in thissegment dropped by 7% YoY and stood at 4,028 units. CV volumes declineddue to weak macro factors.

M & M will Launch diesel hatchback 'Verito Vibe', on June 5. Vibe would be asub-4 metre version of M&M's flagship sedan Verito and will be positionedagainst Maruti Suzuki Swift.

M&M's UV sales are expected to face a tough time in FY14. Narrowing pricedifferential between petrol and diesel is expected to turn the tide in favor ofpetrol vehicles. Further the company's UV portfolio is already bearing the bruntof additional 3% excise duty.

Competition too is increasing for M&M's UV portfolio. Apart from the RenaultDuster and Maruti Ertiga, M&M's UV brands will soon have another possiblestrong competitor in the form of Ford EcoSport .

According to media, M&M has started working on down-sizing engines, reducingground clearance, and shortening vehicles to fit into a classification that allows itto offset the additional excise duty.

Company is working on six different engines. In the near term the company isexpected to launch facelifts/refreshes/variants and the new models are only ex-pected over the medium term.



Tata Motors - sales volume (Nos)


M&HCV 12,451 10,002 10,123 (18.7) 1.2 22,280 20,125 (9.7)

LCV 27,174 26,023 24,173 (11.0) (7.1) 51,992 50,196 (3.5)

Utility 3,132 2,652 2,207 (29.5) (16.8) 7,180 4,859 (32.3)

Cars 17,371 8,918 8,927 (48.6) 0.1 35,981 17,845 (50.4)

Total Domestic 60,128 47,595 45,430 (24.4) (4.5) 117,433 93,025 (20.8)

Export 4,219 3,565 3,874 (8.2) 8.7 7,000 7,439 6.3

Total Sales 64,347 51,160 49,304 (23.4) (3.6) 124,433 100,464 (19.3)

Source: Company

TATA MOTORS (TAMO)

Cars - domestic volume trend

Source: Company

Business Mix (Domestic)

Source: Company

M&HCV - domestic volume trend

Source: Company

LCV - domestic volume trend

Source: Company

TAMO continue to report weak volumes. Volumes in May 2013 declined by 23%YoY to 49,304 units. May 2013 volumes reported by the company were lowestsince July 2009. Sequentially volumes de-grew by 4%.

Passenger car dispatches were down sharply from 17,371 units in May 2012 to8,927 units in May 2013 - a decline of 49%. Company's weak performance inthis segment is expected to continue for some more time. UV volumes slid 30%YoY to 2,207 units.

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LCV

M&HCV



LCV segment, which was the only performing segment for the company lastyear, reported volume decline in May 2013. LCV volumes were down by 11%YoY with sales coming in at 24,173. On a monthly basis, LCV segment last wit-nessed volume de-growth in January 2009.

After reporting marginal growth in April 2013, M&HCV volumes continued to de-grow, as been the case for more than a year.

Overall domestic volumes declined from 60,128 units in May 2012 to 45,430units in May 2013. Exports too reported a decline with volume falling from 4,219units in May 2012 to 3,874 units during the period under consideration.

TAMO has been reporting sharp volume decline for the past few months due toweak economic factors and poor performance in the passenger car market. Vol-umes in the near term are expected to stay weak and we expect the companyto continue reporting de-growth in 1HFY14. We expect the company's perfor-mance to show improvement in 2HFY14.

Normal monsoons, rate cuts by RBI and improved economic activities will be thekey factors towards revival in M&HCV demand. Passenger car recovery will takea slightly longer time. Company is planning to launch various new products/re-freshes to revive passenger car sales. Company plans to launch variants of Primarange, Ultra LCV range, ACE and Nano variants in FY2014.



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

Gainers

INFOSYS LTD 2411.7 3.0 10.5 2.31MLN

SESA GOA LTD 163.9 4.0 0.8 4.93MLN

HCL TECH LTD 744.9 0.4 0.2 1.26MLN

Losers

ITC LTD 340 (4.1) (24.6) 7.42MLN

HOUSING DEV 890 (3.9) (17.4) 4.39MLN

RELIANCE IND 806 (3.6) (15.6) 3.92MLN

Source: Bloomberg

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Fundamental Research TeamDipen [email protected]+91 22 6621 6301

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

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

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

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

Arun AgarwalAuto & Auto [email protected]+91 22 6621 6143

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

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

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

Amit AgarwalLogistics, [email protected]+91 22 6621 6222

Jayesh [email protected]+91 22 6652 9172

K. [email protected]+91 22 6621 6311

Technical Research Team

Shrikant [email protected]+91 22 6621 6360

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june 03, 2013 · june 03, 2013 economy news rbi has decided to allow new banking licensees more...

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