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Market Outlook India Research August 13, 2010

Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

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Dealer’s Diary The key benchmark indices opened weak following cues from global indices, with US markets closing in red and Asian indices trading negative early on. However, markets witnessed buying in the morning session, which further strengthened by mid-session, following the positive opening in European markets. Markets managed to trade marginally in green in the final session but slipped in red again post the sell-off in Europe before marginal buying led indices to close flat. Volatility was high with negative market breadth during the day. Strong result from benchmark heavyweight State Bank of India (SBI) helped indices contain the fall during the day. The Sensex and Nifty closed flat by 0.0% and -0.1% respectively. BSE mid-cap and small-cap indices gained marginally by 0.3% and 0.0%, respectively. Among the front liners, SBI, ONGC, HUL, Tata Motors and Hindalco gained 2–7%, while Sterlite, JP Associates, ITC, Wipro and Infosys lost 1–3%. Among mid caps, Eicher Motors, Hathway Cable, Gujarat Fluorochem, Patni Computers and Info Edge gained 5–9%, while Essar Shipping, Educomp, Sigrun Holding, Den Network and Berger Paints lost 4–8%.

Markets Today The trend deciding level for the day is 18034 / 5407 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18153 - 18233 / 5441 - 5465 levels. However, if NIFTY trades below 18034 / 5407 levels for the first half-an-hour of trade then it may correct up to 17955 – 17835 / 5382 - 5348 levels.

Indices S2 S1 R1 R2

SENSEX 17835 17955 18153 18233 NIFTY 5348 5382 5441 5465

News Analysis

NCC secures orders worth Rs673cr Result Reviews: Indraprastha Gas, SBI, Tata Steel Result Previews: Allcargo, Cipla

Refer detailed news analysis on the following page.

Net Inflows (August 11, 2010) Rs cr Purch Sales Net MTD YTD

FII 2,972 2,779 193 4,027 51,968

MFs 1,054 940 114 (779) (13,402)

FII Derivatives (August 12, 2010)

Rs cr Purch Sales Net Open Interest

Index Futures 2,023 2,721 (698) 17,388

Stock Futures 1,407 1,777 (370) 36,184

Gainers / Losers

Gainers Losers

Company Price (Rs)

chg (%) Company Price (Rs)

chg (%)

SBI 2,784 6.9 Educomp 622 (9.8)

Bank of India 462 5.9 IVRCL Infra 158 (7.5)

Patni Computers 477 5.4 MMTC 1,476 (4.8)

UCO Bank 102 5.1 Bajaj Auto 2,559 (3.6)

Neyveli Lignite 166 4.9 Unitech 86 (3.4)

Domestic Indices Chg (%) (Pts) (Close)

BSE Sensex 0.0% 3.7 18,074

Nifty -0.1% (4.2) 5,416

MID CAP 0.3% 22.3 7,568

SMALL CAP 0.0% 3.1 9,645

BSE HC 0.2% 10.5 5,507

BSE PSU 1.0% 93.0 9,615

BANKEX 1.7% 198.8 12,028

AUTO 1.2% 101.1 8,742

METAL -0.8% (119.2) 15,361

OIL & GAS 0.2% 17.0 10,059

BSE IT -0.9% (49.7) 5,496

Global Indices Chg (%) (Pts) (Close)

Dow Jones -0.6% (58.9) 10,320

NASDAQ -0.8% (18.4) 2,190

FTSE 0.4% 20.9 5,266

Nikkei -0.9% (80.3) 9,213

Hang Seng -0.9% (188.8) 21,106

Straits Times -0.8% (22.2) 2,927

Shanghai Com -1.2% (32.0) 2,575

Indian ADRs Chg (%) (Pts) (Close)

Infosys -0.8% (0.5) $59.3

Wipro 0.2% 0.0 $13.2

Satyam -1.3% (0.1) $4.7

ICICI Bank 0.1% 0.0 $40.8

HDFC Bank 0.4% 0.7 $158.3

Advances / Declines BSE NSE

Advances 1,297 556

Declines 1,656 793

Unchanged 93 45

Volumes (Rs cr)

BSE 5,497

NSE 15,897

August 13, 2010 2

Market Outlook | India Research

NCC secures orders worth Rs673cr Nagarjuna Construction Company (NCC) has secured six new orders worth Rs673cr from different clients. These orders are spread across verticals of building, oil/gas and urban infrastructure. Secured orders are expected to be executed within 8–30 months. With these new orders, the outstanding order book now stands at ~Rs16,700cr (3.5x FY2010 revenue). At the CMP of Rs161, the stock trades at 16.4x FY2012E P/E and 1.6x FY2012E P/B. We maintain a Buy rating on NCC with a Target Price of Rs201. Result Review – 1QFY2011 Indraprastha Gas Indraprastha Gas (IGL) reported its 1QFY2011 results, which were above our expectations on the top-line front, but were marginally below expectations on the bottom-line front. The top line registered growth of 43.5% yoy to Rs336cr (Rs234cr), against our expectation of Rs318cr. During the quarter, CNG volumes increased 17.8% yoy to 142mnkg (120.5mnkg), above our expectation of 137mnkg. PNG volumes increased 102.9% yoy to 35.5mmscm (17.5mmscm), above our expectation of 28mmscm. Total volumes came in at 221.5mmscm (175.4mmscm), above our expectation of 207.5mmscm. However, the dent came in on account of higher-than-expected raw-material cost, which stood at Rs166.7cr, against our expectation of Rs148.2cr. This resulted in OPM coming in at 32%, which was below our expectation of 34.3%. Depreciation cost also came in above our expectation at Rs23.1cr. The bottom line increased 18.4% to Rs57.1cr (Rs48.3cr), against our expectation of Rs60.3cr. We maintain a Neutral view on the stock. State Bank of India For 1QFY2011, State Bank of India (SBI) reported net profit growth of 25.1% on a yoy basis and 56.1% on a sequential basis to Rs2,914cr, above our estimates, on account of better-than-estimated NII coupled with lower operating expenses. Robust operating performance and stable asset quality were the key highlights of the result.

NII grew by healthy 45.4% on a yoy basis and by 8.7% on a sequential basis to Rs7,304cr. Non-interest income stood at Rs3,690cr, up by 3.4% yoy but down by 18.2% sequentially. Operating costs decreased 1.2% yoy and 19.5% on a sequential basis. The cost-to-income ratio stood at 44.2%, much lower than its eight-quarter average of 49.6%. Gross NPAs were up by 6.6% sequentially to Rs20,825cr, while net NPAs were up by 1.9% sequentially to Rs11,074cr. The bank’s gross NPA ratio was stable at 3.14% compared to 3.05% as of 4QFY2010. While net NPA ratio improved marginally to 1.70% (from 1.72% in 4QFY2010). The provision coverage ratio excluding technical write-offs was at 46.8% compared to 44.4% in 4QFY2010. The bank’s CAR stood at 13.5% as compared to 13.4% in 4QFY2010.

Deposits grew by 6.8% yoy to Rs8,15,297cr, driven by CASA growth of 28.9% and retail term deposit growth of 10.2%, despite shedding of high-cost bulk deposits by 51.4%. The CASA ratio improved to 47.5% as of 1QFY2011 from 38.5% as of 1QFY2010. Net advances registered growth of 20.4% yoy to Rs6,53,220cr, underpinned by strong growth of 34.7% yoy in large corporate advances and growth of 29.8% yoy in the home loans segment.

We may revisit our earnings estimates and target price post our interaction with the bank’s management. SBI (excluding value of insurance and capital market subsidiaries) is trading at 1.7x FY2012E ABV v/s its five-year range of 1.3–2.0x. We believe this provides sufficient margin of safety and attractive upside, especially in light of its dominant position and reach, strong growth and superior earnings quality. Presently, we maintain an Accumulate rating on the stock with a Target Price of Rs3,021.

August 13, 2010 3

Market Outlook | India Research Tata Steel Tata Steel’s standalone 1QFY2011 net revenue grew by 16.5% yoy to Rs6,471cr but was down 13.3% qoq. During the quarter, production was lower on a sequential basis due to maintenance shutdown and power failure at its plants. While sales volume was flat yoy, it declined 17.7% qoq to 1.4mn tonnes. Average realisation increased by 22% yoy and 4.9% qoq to US $1,009/tonne. EBITDA margin expanded by 1,357bp to 43.8% on account of cost reduction initiatives and higher realisations. Consequently, EBITDA grew by 68.8% yoy to Rs2,836cr. Interest expense declined by 4.2% yoy to Rs328cr, while other income increased by 19.3% yoy to Rs129cr. As a result, net profit came in at Rs1,579cr, registering growth 100% yoy.

On a consolidated basis, Tata Steel’s net revenue increased by 16.8% yoy, down 1.1% qoq, to Rs27,195cr. In Europe, deliveries increased to 3.7mn tonnes as compared to 3.3mn tonnes in 1QFY2010, but they were down sequentially from 3.9mn tonnes in 4QFY2010. EBITDA/tonne for European operations increased to US $79 in 1QFY2011 as compared to a loss of US $117 in 1QFY2010. Consolidated EBITDA stood at Rs4,433cr as compared to a loss of Rs30cr in 1QFY2010 and net profit stood at Rs1,825cr as compared to a loss of 2,209cr in 1QFY2010. We maintain our Buy rating on the stock with a Target Price of Rs697. Result Previews – 1QFY2011 Allcargo Global Logistics – 2QCY2010 Allcargo Global Logistics (AGL) is scheduled to announce its 2QCY2010 results. We expect AGL to report healthy top-line growth of 12.4% to Rs588cr, led by strong performance of the MTO and CFS segments on the back of revival in EXIM business. The company’s OPM is expected to be marginally lower yoy by ~143bp to 10.5% on account of higher freight charges and appreciation of euro impacting operating profits from ECU line business. Consequently, we expect AGL’s net profit to fall 22.1% yoy to Rs36.3cr. At Rs167, the stock is trading at 11.7x its CY2011E earnings of Rs14.3. We maintain a Neutral rating on the stock. Cipla Cipla is slated to announce its 1QFY2011 results. The company is expected to post modest sales growth of 6.6% to Rs1,412cr, mainly driven by the domestic formulation segment. The company's OPM (excluding technical know-how fees) is expected to contract by 336bp to 18.6% on account of lower gross margins and higher employee expenses. Further, net profit is estimated to fell by 7.0% to Rs225cr because of lower OPM. We recommend Accumulate on the stock with a Target Price of Rs360.

August 13, 2010 4

Market Outlook | India Research Economic and Political News

June IIP below estimates at 7.1%

Mobile number portability to be rolled out from October 31

April-July Indirect Tax collections up 46.2%

Corporate News

Ssangyong picks M&M as preferred bidder

Maran's offer to buy 20% additional stake in SpiceJet deferred

Vedanta in talks to buy stake in Cairn India

Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Events for the day

Ackruti City Results Adani Enterprises Results Cipla Results Deccan Chronicle Results Dhanalakshmi Bank Results Finolex Ind Results McNally Bharat Engg. Results MSK Projects Results Nitin Fire Results Patel Engg Results Pipavav Shipyard Results Rajesh Exports Results Reliance Comm Results Saregama India Results Shiv Vani Oil Results Suzlon Energy Results Tanla Solutions Results Trigyn Tech Results Wockhardt Results

August 13, 2010 5

Market Outlook | India Research Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

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