India Daily, April 02, 2014 - Kotak Securities · Economy: RBI policy: Extended pause with hawkish undertone ` Interest rates unlikely to soften soon ` RBI maintains a hawkish undertone

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

INDIA DAILYApril 2, 2014 India 1-Apr 1-day1-mo 3-mo

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Forex/money market

Change, basis points

1-Apr 1-day 1-mo 3-mo

Rs/US$ 59.9 6 (234) (247)

10yr govt bond, % 9.1 - (6) (10)

Net investment (US$mn)

27-Mar MTD CYTD

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Top movers

Change, %

Best performers 1-Apr 1-day 1-mo 3-mo

FTECH IN Equity 363.6 (2.7) 9.1 95.6

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Contents

Daily Alerts

Company

Nestle India: Analyst meet takeaways - bold bets, not working yet

New year, new guard; old message, old debate

Stiff valuations and uncertainty on earnings rebound keep us SELLers

Sector

Automobiles: A mixed end to the year

Two-wheeler players report strong growth

Maruti reports ~5% yoy decline in domestic volumes

M&M UV volumes surprise positively; Ssangyong Motors sales increase 23% yoy

Tata Motors' commercial vehicle sales remain weak; sales volumes decline by ~30% in FY2014

Banks/Financial Institutions: Sanctions improve a bit; 9MFY14 performance flat

Sanctions improve in 3QFY14 but show no growth in 9MFY14

NII growth likely to remain lower than loan growth

Impact may be higher for private banks

Economy

Economy: RBI policy: Extended pause with hawkish undertone

Interest rates unlikely to soften soon

RBI maintains a hawkish undertone

Liquidity management via term repo to increase short-term cost of funding at the margin

Monetary policy to be on a pause in FY2015, but chances of hikes remain

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

New year, new guard; old message, old debate

Nestle’s strong belief in its strategic drive towards a more ‘value-added/ premium’ portfolio while slowly moving away from ‘price point packs’ remains unchanged. That the company’s performance (volume growth, value growth, EPS growth, return ratios) has deteriorated in recent years is a fact. What is arguable is whether the company’s strategic choices have led to the deterioration and if yes, to what extent. Debate around any key strategic shift or decision is never a short-term one; even as the initial results of portfolio rationalization do not encourage, attributing the recent underperformance to the portfolio-related strategic choices is at best conjecture.

We do think, however, that some of the SKU-related decisions that Nestle has taken in recent years, especially the company’s reluctance to be in the low-price SKUs, may be suboptimal in certain cases. We call these suboptimal essentially on one front—reduced competitiveness in the new user recruitment market. Losing the mindshare of these perhaps low profitability ‘new’ users when they are entering the category as consumers is a risky bet, even from a medium-to-long-term perspective. We do not, for example, foresee a Colgate exiting the `5 price-point pack space—we do highlight here that Colgate’s realization (MRP) on the `5 price-point pack (roughly `28 per 100 gm) is significantly lower than the realization on the larger 200 gm pack (roughly `37 per 100 gm). Colgate is clearly making substantially lower margins on the low-unit-price recruiter pack. We do understand that different categories have different dynamics and what is right for Colgate may not be right for another company. However, Nestle’s ‘blanket’ reluctance to be in the low-unit-price packs is something we do not completely appreciate, at this point.

Stiff valuations and uncertainty on earnings rebound keep us SELLers

At a P/E multiple of 37X forward earnings, we find Nestlé’s valuations expensive given volatile volume growth, weakening consumption trends and significantly lower-than-historical return ratios. While we model volume recovery in CY2014E (led by base and new launches), we believe the same also remains at risk. Maintain SELL with a TP of `4,500.

Nestle India (NEST)

Consumer Products

Analyst meet takeaways—bold bets, not working yet. ‘Portfolio rationalization’ was once again the central point of discussion in the company’s annual analyst meet. Even as we acknowledge the risk of attribution error when blaming portfolio rationalization steps for the recent slow earnings growth trajectory, the fact of the matter is that not only has the company’s absolute growth/return metrics deteriorated in recent years, it has underperformed competitors too, meaningfully. Rich valuations demand a turnaround, which we do believe will happen at some point. Timing and extent remain uncertain; valuations do not fully discount the uncertainty. We remain SELLers.

Nestle IndiaStock data Forecasts/Valuations 2014 2015E 2016E

52-week range (Rs) (high,low) EPS (Rs) 114.4 132.3 158.2Market Cap. (Rs bn) 467.4 EPS growth (%) 3.3 15.6 19.6

Shareholding pattern (%) P/E (X) 42.4 36.6 30.6Promoters 62.8 Sales (Rs bn) 90.6 101.8 115.3FIIs 12.6 Net profits (Rs bn) 11.8 13.4 15.9MFs 1.6 EBITDA (Rs bn) 20.5 22.7 25.9

Price performance (%) 1M 3M 12M EV/EBITDA (X) 22.7 20.1 17.2Absolute (0.3) (8.7) 4.9 ROE (%) 56.4 50.0 47.6Rel. to BSE-30 (6.2) (14.0) (11.9) Div. Yield (%) 1.0 1.2 1.5

Company data and valuation summary

5,865-4,420

SELL

APRIL 02, 2014

UPDATE

Coverage view: Cautious

Price (`): 4,848

Target price (`): 4,500

BSE-30: 22,446

Nestle India Consumer Products

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

KEY TAKEAWAYS FROM THE ANALYST MEET

CY2013 overall performance

Nestle posted overall organic revenue growth of 9.2% in CY2013 led by 6.8% real internal growth (RIG) and 2.4% (down from 3.3% in CY2012) pricing growth.

Domestic revenue growth in CY2013 stood at 7.1% led by 0.8% volume growth and 6.2% price/mix-led growth (mix of price hikes and portfolio rationalization). However, we note volume growth was flat in 2HCY13, indicating further deceleration from 1.6% volume growth registered in 1HCY13.

Exports posted a strong 46.5% yoy revenue growth in CY2013 led by 35% jump in volumes.

Category-wise performance

Milk products & nutrition. Nestle posted 2.4% revenue growth in this segment in CY2013, largely led by pricing/portfolio rationalization as volumes declined 3.6% yoy. We note, revenue growth in this segment has further decelerated to just 1.6% yoy in 2HCY13 (versus 3.2% in 1HCY13), despite improvement in volume growth trajectory, due to weaker realizations (portfolio rationalization benefits getting captured in the base). Nestle highlighted that the key issue in this segment has been weak growth in Everyday whitener (underinvested in this category due to lower margins and lost some share in the North East as underestimated competition). We note management did highlight that two-thirds of the milk products and nutrition portfolio grew in line with the company average.

Prepared dishes & cooking aids. Nestle posted a modest 12.1% yoy revenue growth in this segment, aided by a mix of ~4% volume growth and ~8% price/mix-led growth. We note, this portfolio too has witnessed material deceleration in 2HCY13 with volume growth falling to 1.6% yoy in 2HCY13 versus 6.5% volume growth in 1HCY13. While this category wasn’t influenced too much by portfolio rationalization, growth has slowed down as Nestle has lost market share to an aggressive ITC (Nestlé’s market share in noodles now stands at ~80%). Management highlighted that its future strategy for the segment is to focus on both (1) premiumization, i.e. break price point barriers and drive value upgrading. For example moving consumers from `5/10 price points to `15/20 and to higher priced products like pasta and (2) recruit new consumers at the bottom of the pyramid through initiatives like investments in regional advertisements and push `5 price point in Maggi noodles. Management highlighted that noodles household penetration of 75% in 2013 (from 54% in 2009) in Sec D&E consumers compares with 85% in Sec A consumers (from 75% in 2009), which still has a lot of potential room for growth.

Chocolates & confectionery. Nestle posted 8.6% yoy revenue growth in this segment, completely driven by pricing/portfolio rationalization as volumes declined 2.3% yoy for CY2013. However, we note this segment has witnessed some improvement in 2HCY13 with revenue growth accelerating from 5.8% (volume decline of 3.4%) in 1HCY13 to 11.3% (volume decline of 1.3%) in 2HCY13. We note, along with milk segment, this segment has witnessed the biggest impact of portfolio rationalization. Management highlighted that the key issue in this segment is the performance of Munch chocolates (re-launched last quarter), market share loss in select brands and lower share of voice versus key competitors who have spent disproportionately in recent quarters. Alpino chocolate, launched last quarter, has met company expectations.

Consumer Products Nestle India

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Beverages. Nestle posted a modest 12.8% revenue growth in this segment driven by a mix of ~3% volume growth and 9% pricing/portfolio rationalization for CY2013. However, this segment has witnessed material deceleration in 2HCY13 with flattish volume growth versus 6.5% growth registered in 1HCY13. We note this segment was impacted by portfolio rationalization, especially on small packs/ LUPs of Nescafe. Nestle has introduced several new variants under Nescafe through imported channel like Nescafe Gold, Nestle Coffee Mate and Nescafe Ice Café to target consumer uptrading.

Other takeaways

Significant improvement in cash position. Management highlighted that Nestle India now has enough cash to pay off Nestle SA’s debt and still have some surplus (not an easy feat to achieve given decelerating growth rates, in our view). Nestle India had taken US$192 mn debt from Nestle SA to fund the recent capex program. The company highlighted that it saw material improvement in net working capital cycle in CY2013, which helped free cash generation. Average trade net working capital as % of sales declined from 6% in CY2012 to 4.1% in CY2013 aided by 140 bps reduction in inventory and 50 bps savings from trade payables. It did indicate that the working capital cycle is likely to worsen a tad going forward.

Material costs. Nestle gross margins remained flat in CY2013, despite 220 bps impact on account of input cost inflation and 40 bps adverse channel mix impact, on account of (1) 175 bps gain from price hikes/better realizations, (2) 60 bps gain due to product mix improvement and (3) 30 bps gain from SHARK cost reduction program.

P&F costs. Power & fuel costs declined 20 bps yoy partially aided by base effect as last year was first year of commercialization of new factories (now stabilized).

Effective tax rate. ETR was up nearly 220 bps due to several reasons—(1) surcharge up from 5% to 10% in budget (110 bps impact), (2) deferred tax liabilities revalued (50 bps impact) and (3) timing difference of contingency provisions (60 bps).

Capex for full-year CY2013 stood at `2.8 bn, down from `9.7 bn in CY2012.

Exhibit 1: CY2013 was yet another year of weak volume/revenue/ EBITDA growth Volume growth and EBITDA growth/margin trends, December calendar year-ends, 2008-13

1715

17

7

12

24

2021

24

18

8

-

5

10

15

20

25

30

CY2008 CY2009 CY2010 CY2011 CY2012 CY2013

18

19

20

21

22

23

Volume growth, % (LHS) EBITDA growth, % (LHS) EBITDA Margin, % (RHS)

Source: Company, Kotak Institutional Equities



Exhibit 2: Real internal growth dipped to multi-year low of 6.8% yoy in CY2013 Revenue break-up into RIG and price-led growth, December calendar year-ends, 2009-13 (%)

16.1 17.014.5

9.26.8

2.6

5.6

5.6

3.3

2.4

-

5

10

15

20

25

CY2009 CY2010 CY2011 CY2012 CY2013

Real Internal Growth (RIG) Price Increase


Exhibit 3: Domestic volume growth in CY2013 stood at just 0.8% yoy Revenue and volume break-up, December calendar year-ends

1HCY12 1HCY13 Chg (%) 2HCY12 2HCY13 Chg (%) CY2012 CY2013 Chg (%)Net revenue (Rs bn)Domestic sales 38.1 41.3 8.4 40.7 43.1 5.9 78.8 84.4 7.1 Exports (affiliates + third parties) 2.2 3.3 48.6 2.1 3.0 44.3 4.3 6.3 46.5 Total 40.3 44.6 10.6 42.8 46.1 7.8 83.1 90.7 9.1 Volumes ('000 tons)Domestic sales 213.3 216.7 1.6 219.0 219.2 0.1 432.3 435.9 0.8 Exports (affiliates + third parties) 7.4 10.6 42.8 7.2 9.1 26.8 14.6 19.7 34.9 Total 220.7 227.3 3.0 226.2 228.3 0.9 446.9 455.6 1.9 Realisation per ton (Rs)Domestic sales 178.6 190.6 6.7 185.8 196.6 5.8 182.3 193.6 6.2 Exports (affiliates + third parties) 297.3 309.4 4.1 291.7 331.8 13.8 294.5 319.8 8.6 Total 182.6 196.1 7.4 189.2 202.0 6.8 185.9 199.1 7.1




Exhibit 4: Volume growth slipped across categories during CY2013 Category-wise revenue, volume and realization break-up, December calendar year-ends

1HCY12 1HCY13 Chg (%) 2HCY12 2HCY13 Chg (%) CY2012 CY2013 Chg (%)Net revenue (Rs bn)Milk products & nutrition 18.8 19.4 3.2 18.5 18.8 1.6 37.3 38.2 2.4 Prepared dishes & cooking aids 10.8 12.4 14.8 12.4 13.6 9.7 23.2 26.0 12.1 Chocolate & confectionery 5.2 5.5 5.8 5.3 5.9 11.3 10.5 11.4 8.6 Beverages 3.4 4.0 17.6 4.4 4.8 9.1 7.8 8.8 12.8 Total 38.2 41.3 8.1 40.6 43.1 6.2 78.8 84.4 7.1 Volumes ('000 tons)Milk products & nutrition 71.9 68.3 (5.0) 65.1 63.7 (2.2) 137.0 132.0 (3.6) Prepared dishes & cooking aids 108.6 115.7 6.5 121.4 123.3 1.6 230.0 239.0 3.9 Chocolate & confectionery 23.6 22.8 (3.4) 23.4 23.1 (1.3) 47.0 45.9 (2.3) Beverages 9.2 9.8 6.5 9.3 9.3 — 18.5 19.1 3.2 Total 213.3 216.6 1.5 219.2 219.4 0.1 432.5 436.0 0.8 Realisation per ton (Rs)Milk products & nutrition 261.5 284.0 8.6 284.2 295.1 3.9 272.3 289.4 6.3 Prepared dishes & cooking aids 99.4 107.2 7.8 102.1 110.3 8.0 100.9 108.8 7.8 Chocolate & confectionery 220.3 241.2 9.5 226.5 255.4 12.8 223.4 248.4 11.2 Beverages 369.6 408.2 10.4 473.1 516.1 9.1 421.6 460.7 9.3 Total 179.1 190.7 6.5 185.2 196.4 6.1 182.2 193.6 6.2




Exhibit 5: Nestle—key RM trends

Fresh Milk Fat MSK

Green Coffee Sugar

Wheat Flour Palm Oil

(10)

(5)

-

5

10

15

20

25

1QC

Y12

2QC

Y12

3QC

Y12

4QC

Y12

1QC

Y13

2QC

Y13

3QC

Y13

4QC

Y13

Cur

rent

(8)

(6)

(4)

(2)

-

2

4

6

8

10yoy (%) (LHS) qoq (%) (RHS)

(20)

-

20

40

60

80

1QC

Y12

2QC

Y12

3QC

Y12

4QC

Y12

1QC

Y13

2QC

Y13

3QC

Y13

4QC

Y13

Cur

rent

(10)

-

10

20

30


(20)

(10)

-

10

20

30

40

1QC

Y12

2QC

Y12

3QC

Y12

4QC

Y12

1QC

Y13

2QC

Y13

3QC

Y13

4QC

Y13

Cur

rent

yoy (%) qoq (%)

(20)

(10)

-

10

20

30

1QC

Y12

2QC

Y12

3QC

Y12

4QC

Y12

1QC

Y13

2QC

Y13

3QC

Y13

4QC

Y13

Cur

rent

(10)

(5)

-

5

10


(14)

(7)

-

7

14

21

28

35

1QC

Y12

2QC

Y12

3QC

Y12

4QC

Y12

1QC

Y13

2QC

Y13

3QC

Y13

4QC

Y13

Cur

rent

(8)

(4)

-

4

8

12


(10)

(5)

-

5

10

15

20

1QC

Y12

2QC

Y12

3QC

Y12

4QC

Y12

1QC

Y13

2QC

Y13

3QC

Y13

4QC

Y13

Cur

rent

(10)

(5)

-

5

10

15





Exhibit 6: Nestle: Profit model, balance sheet, December calendar year-ends, 2010-15E (Rs mn)

2010 2011 2012 2013E 2014E 2015EProfit model

Net sales 62,547 74,908 83,023 90,619 101,809 115,278

EBITDA 11,219 13,994 15,486 16,505 18,332 21,316

Other income 427 509 633 1,222 2,034 2,715

Interest expense (11) (51) (266) (365) (387) (244)

Depreciation (1,278) (1,533) (2,772) (3,300) (3,559) (3,759)

Pretax profits 10,357 12,919 13,082 14,063 16,421 20,027

Tax (3,264) (4,264) (4,847) (5,609) (6,593) (7,849)

Net income 7,093 8,655 8,235 8,454 9,828 12,178

Provision for contingencies/impairment losses (184) (573) (327) (720) (630) (685)

Net income after contingencies/impairment 6,909 8,082 7,908 7,734 9,198 11,493

Earnings per share (Rs) 84.9 99.7 110.8 114.4 132.3 158.2

Balance sheet

Total equity 8,554 12,740 17,984 23,688 29,844 37,143

Total borrowings 0 9,709 10,502 11,895 11,895 4,395

Deferred tax liability 333 502 1,621 2,155 2,155 2,155

Total liabilities and equity 8,887 22,951 30,107 37,737 43,894 43,692

Cash 2,553 2,272 2,370 7,494 17,677 20,498

Investments 1,507 1,344 3,649 8,511 6,270 6,270

Net current assets (excl cash) (8,789) (10,141) (11,395) (14,908) (16,698) (18,844)

Net fixed assets (incl CWIP) 13,616 29,475 35,484 36,640 36,645 35,768

Total assets 8,887 22,951 30,107 37,737 43,894 43,692

Free cash flow

Operating cash flow, excl. working capital 9,612 11,769 14,299 14,729 15,317 17,255

Working capital 756 (187) 2,635 3,513 1,790 2,146

Capital expenditure (4,459) (15,552) (9,768) (4,456) (3,563) (2,882)

Free cash flow 5,909 (3,971) 7,166 13,785 13,544 16,519

Key assumptions

Revenue Growth (%) 21.9 19.8 10.8 9.1 12.3 13.2

EBITDA Margin(%) 20.0 20.7 22.0 21.9 21.5 21.8

EPS Growth (%) 25.0 17.5 11.1 3.3 15.6 19.6

ROE (%) 114.0 95.7 71.6 56.4 50.0 47.6

ROCE (%) 149.4 68.8 42.9 36.7 34.3 36.7

Source: Company, Kotak Institutional Equities estimates


Two-wheeler players report strong growth

Two-wheeler players ended FY2014 on a strong note with each major manufacturer reporting strong yoy growth in sales. Hero Motocorp reported 11.9% yoy increase in sales volumes to 524,028 units in March 2014. TVS Motors reported a sharp 17.5% yoy increase in total sales led by a sharp 63% yoy growth in scooter sales and ~16% yoy growth in motorcycle exports. Honda Motorcycle reported 57% and 53% yoy increase in total motorcycle and scooter sales respectively.

Maruti reports ~5% yoy decline in domestic volumes

Maruti Suzuki reported a 5.2% yoy decline in domestic sales volumes led by 11% yoy decline in Alto segment and 14.1% yoy decline in Dzire segment, which was partially offset by 9.3% yoy increase in Swift segment. We highlight that retail volumes increased sharply during the month (+15% yoy) driven by the success of new model Celerio, which has helped in correcting the dealer inventory levels to four weeks now.

We note that passenger car sales in the domestic market (for other car manufacturers as well) continued to be driven by new model launches. Ford India reported 21% yoy increase in domestic sales while Honda reported a sharp 83% yoy increase in its domestic sales during March 2014 led by the success of its new models, while Hyundai Motors reported 3.4% yoy increase in sales.

M&M UV volumes surprise positively; Ssangyong Motors sales increase 23% yoy

M&M passenger UV volumes surprised positively by reporting yoy stable sales in March 2014 versus double-digit decline for the past few months, led by pick up in XUV 500 and Bolero sales. Ssangyong Motors reported a sharp 23% yoy increase in sales volumes during March 2014 led by 19% yoy increase in domestic sales and 27% yoy increase in exports. However, tractor volumes remained subdued and grew by a modest 2% yoy due to unseasonal rains in several regions of the country. We believe the subdued growth was a temporary pattern and expect volumes to remain strong over the next two years driven by increasing agriculture labor costs.

Tata Motors’ commercial vehicle sales remain weak; sales volumes decline by ~30% in FY2014

Tata Motors reported another month of sharp decline (~36% yoy) in CV sales volumes in March 2014, while passenger car volumes increased by ~8% yoy. The company is launching petrol engine in its new models (Zest and Bolt) in 2QFY15, which will increase the company’s presence in the petrol segment (which is gaining back share form the diesel segment in the recent months). This will likely help the company prevent further market share loss in the passenger vehicle segment, in our view.

Automobiles India

A mixed end to the year. Automobile sales volumes in March 2014 showed mixed trends—two-wheeler sales volumes grew at a handsome pace, commercial vehicle sales remained sluggish while passenger car sales volumes continued to be driven by new model launches. Key negative surprise was flattish growth in tractor sales volumes. We believe cost of ownership will decline from the current high levels going forward, which will likely aid volume growth during the next year. We expect a high single-digit growth rate for both motorcycles and passenger vehicle segments in FY2015E led by pent-up and replacement demand. Bajaj Auto and Mahindra & Mahindra remain our preferred picks in the large-cap space.

NEUTRAL

APRIL 02, 2014

UPDATE

BSE-30: 22,446

India Automobiles


Exhibit 1: TVS reported ~18% yoy increase in total sales in March 2014 TVS Motors monthly sales volumes, March fiscal year-ends (units)

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 2013 2014Sales volume (units)Domestic motorcycles 67,394 43,477 39,058 44,325 42,537 46,818 558,468 572,793 Exports motorcycles 14,958 17,994 18,518 21,124 20,225 21,340 191,338 220,686 Total motorcycles 82,352 61,471 57,576 65,449 62,762 68,158 749,806 793,479 Scooters 42,124 38,331 41,817 45,198 41,990 47,766 441,552 475,668 Mopeds 65,503 55,802 53,965 68,929 65,541 72,898 792,069 730,172 Total three-wheelers 7,853 6,304 5,961 6,737 7,369 8,004 49,191 81,197 Total sales 197,832 161,908 159,319 186,313 177,662 196,826 2,032,618 2,080,516 Yoy change (%)Domestic motorcycles 17.0 (14.2) (13.4) (10.4) (5.1) 7.8 2.6Exports motorcycles (0.1) 21.6 22.6 39.9 25.0 16.2 15.3Total motorcycles 13.5 (6.1) (4.4) 1.4 2.9 10.3 5.8Scooters (4.1) 2.3 37.6 19.1 37.2 63.3 7.7Mopeds (6.0) (12.6) (11.7) (0.1) (5.4) 2.0 (7.8)Total three-wheelers 93.3 24.7 32.9 52.5 53.5 57.6 65.1Total sales 4.0 (5.8) 2.0 5.9 7.2 17.5 2.4


Exhibit 2: Maruti’s domestic volumes declined by ~5% yoy in March 2014 Maruti Suzuki monthly sales volumes, March fiscal year-ends (units)

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 2013 2014Sales volume (units)M800, Alto, A-Star, Wagonr 39,379 38,040 38,286 38,565 37,342 40,085 429,569 436,032 Swift, Estillo, Ritz, Celerio 22,188 18,122 19,171 24,473 28,672 28,285 255,302 252,708 Dzire 17,211 15,286 15,427 19,232 18,353 17,237 169,571 197,685 SX4 262 200 271 191 228 411 6,707 4,029 Kizashi — 1 — — — — 188 1 Gypsy and Vitara, Ertiga 7,236 5,840 5,146 4,763 5,231 6,499 79,192 61,119 Omni and Eeco 9,786 8,021 8,312 9,345 9,932 9,752 110,517 102,115 Total domestic 96,062 85,510 86,613 96,569 99,758 102,269 1,051,046 1,053,689 Exports 9,025 6,630 4,311 5,847 9,346 11,081 120,388 101,352 Total volumes 105,087 92,140 90,924 102,416 109,104 113,350 1,171,434 1,155,041 Yoy change (%)M800, Alto, A-Star, Wagonr (6.8) 3.7 16.7 (17.0) (9.6) (11.0) 1.5 Swift, Estillo, Ritz (1.2) (24.0) (14.7) 1.9 19.4 9.3 (1.0) Dzire 19.6 13.2 18.0 12.7 0.2 (14.1) 16.6 SX4 (62.3) (71.1) (17.6) (81.1) 6.0 (54.5) (39.9) Kizashi — (98.6) (100.0) — — — (99.5) Gypsy and Vitara, Ertiga (2.2) (21.5) (5.5) (21.9) (12.2) 0.2 (22.8) Omni and Eeco 11.3 (7.3) 5.3 11.6 22.1 2.6 (7.6) Total domestic 0.1 (5.9) 5.5 (6.3) 1.8 (5.2) 0.3 Exports 27.0 (46.2) (67.0) (47.7) (19.5) (8.0) (15.8) Total volumes 1.9 (10.7) (4.4) (10.3) (0.4) (5.5) (1.4)


Automobiles India


Exhibit 3: M&M UV volumes remained stable yoy in March 2014 Mahindra & Mahindra monthly sales volumes, March fiscal year-ends (units)

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 2013 2014Sales volume (units)Passenger Uvs (incl. Verito) 22,924 16,771 16,436 19,792 19,308 23,433 279,270 229,155 Maxximo + Gio + pick ups 17,362 13,186 14,399 15,100 14,701 17,649 174,233 177,587 MNAL 502 443 440 722 605 1,103 11,902 8,161 3-wheelers 6,999 5,861 5,606 4,710 4,724 6,305 65,510 62,614 Exports (Auto sector) 2,771 2,994 2,730 2,361 2,828 3,146 32,458 29,660 Auto division 50,558 39,255 39,611 42,685 42,166 51,636 563,373 507,177 Tractors (Dom + Exp) 38,263 23,119 17,037 20,109 17,592 17,673 223,885 267,634 Total 88,821 62,374 56,648 62,794 59,758 69,309 787,258 774,811 Yoy change (%)Passenger Uvs (incl. Verito) (14.9) (31.8) (27.8) (25.5) (17.6) (9.3) (17.9) Maxximo + Gio 4.8 (8.1) 5.1 4.5 (3.1) 2.5 1.9 MNAL (40.9) (52.4) (30.3) (29.5) (40.0) (17.4) (31.4) 3-wheelers 0.4 (14.6) 7.6 (18.9) (1.6) 30.5 (4.4) Exports (Auto sector) 30.6 115.7 (8.7) 42.1 (17.4) 17.4 (8.6) Auto division (5.4) (18.5) (12.6) (13.8) (11.8) (0.5) (10.0) Tractors (Dom + Exp) 29.4 12.9 15.4 15.1 18.4 2.0 19.5 Total 7.0 (9.1) (5.7) (6.2) (4.7) 0.1 (1.6)


Exhibit 4: Tata Motors reported ~30% yoy decline in total sales in March 2014 Tata Motors monthly sales volumes, March fiscal year-ends (units)

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 2013 2014Sales volume (units)MHCVs 8,934 7,695 8,276 9,236 10,456 13,706 152,505 121,682 LCVs 28,047 22,421 20,083 19,834 17,731 24,288 428,643 299,534 Total CVs 36,981 30,116 28,359 29,070 28,187 37,994 581,148 421,216 UVs 3,259 2,525 2,825 2,595 2,399 3,029 48,617 32,440 Cars 11,398 8,222 6,652 8,816 9,365 10,161 180,355 112,935 Total PVs 14,657 10,747 9,477 11,411 11,764 13,190 228,972 145,375 Total sales 51,638 40,863 37,836 40,481 39,951 51,184 810,120 566,591 Yoy change (%)MHCVs (29.7) (25.6) (22.2) (1.4) (8.2) (11.1) (20.2) LCVs (25.6) (40.6) (50.2) (45.8) (55.0) (45.1) (30.1) Total CVs (26.6) (37.3) (44.3) (36.7) (44.5) (36.3) (27.5) UVs (31.0) (44.5) (6.1) (36.7) (17.8) (15.7) (33.3) Cars (31.5) (40.8) (42.8) (24.1) 13.4 7.6 (37.4) Total PVs (31.4) (41.7) (35.3) (27.4) 5.3 1.2 (36.5) Total sales (28.1) (38.6) (42.3) (34.3) (35.6) (29.6) (30.1)



Sanctions improve in 3QFY14 but show no growth in 9MFY14

After a disappointing performance in fresh sanctions in 1HFY14, 3QFY14 showed some improvement with total sanctions of `791 bn (~3% of loans) against `575 bn (~2% of loans) in 1HFY14. However, sanctions in 9MFY14 were `1.4 tn (6% of loans, negligible growth of 2% yoy), a steep decline of ~60% from FY2010 levels. The power sector contributed ~44% of sanctions (~40% in 9MFY14). As we see no revision of prior-period data in the past few reports from the RBI we are not too sure about the extent of cancellations/modifications. We maintain that loan growth may ease from current levels and our outlook of 12-14% is with significant downside risk.

NII growth likely to remain lower than loan growth

We maintain our negative outlook on NIM for banks and believe NII growth is likely to be slower than loan growth.

Loan mix to remain adverse from a yield perspective. Retail loans are likely to have higher contribution to loan growth and we believe the current difference in yields between the retail and corporate loan portfolios should be 75-100 bps.

Pricing pressure in the corporate portfolio. Banks may see increased pricing pressure in the corporate portfolio for (1) opportunity costs between growth (especially as the repayment cycle has begun) and yields, which would imply banks may choose the former; (2) demand, which is likely to shift towards working capital loans whose yields are lower than term-loan yields and banks have seen aggressive expansion in spreads in the corporate loan portfolio (see Exhibit 6) and (3) preference towards top-rated borrowers on incremental projects, which is likely to have a negative impact on yields in this portfolio.

Material improvement in liability franchise looks unlikely. Just as in a rising interest-rate scenario, in which banks see positive impact when there is an increase in the base rate, the same is likely to reverse from hereon. Any marginal positive impact on CASA ratio as interest rates soften is likely to be passed on to borrowers at the earliest as the focus shifts to growth.

Impact may be higher for private banks

We maintain our cautious outlook on NII growth for private banks, noting that the impact is only now being gradually felt across all banks (see Exhibit 7). NII growth is likely to slow to about 15% from over 25% last year. Private banks are likely to have a short-term positive impact due to low regulatory costs on FCNR deposits raised last quarter but the medium-term trends suggest the full impact of the slowdown is yet to be reflected in earnings. Slower NII growth and rising credit costs (see Exhibits 5 and 6) imply slow earnings growth.

Banks/Financial Institutions India

Sanctions improve a bit; 9MFY14 performance flat. Sanctions in 3QFY14 were better than in 1HFY14, a marginal relief. But sector-wise data on sanctions shows a skewed performance to power (40% for 9MFY14). Overall sanction growth in 9MFY14 was flat, indicating loan-growth recovery is unlikely to be great. Our negative outlook on loan growth stays and we are a bit negative on NIM outlook for private banks.

CAUTIOUS

APRIL 02, 2014

UPDATE

BSE-30: 22,446



Exhibit 1: Fresh sanctions in 9MFY14 were ~2% of loans, indicating low loan-growth visibility March fiscal year-ends, 2010-14 (#, ` bn)

2010 2011 2012 2013 2014 Projects Amount Projects Amount Projects Amount Projects Amount Projects Amount

(#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) 1Q 146 908 178 1,139 147 749 110 413 96 254 2Q 189 1,327 196 1,043 184 452 132 666 116 321 3Q 175 1,194 157 752 137 462 89 256 179 791 4Q 231 827 166 818 168 253 94 629 FY 741 4,256 697 3,752 636 1,916 425 1,964 391 1,366

Source: RBI, Kotak Institutional Equities

Exhibit 2: Power and metal companies continue to have a high share of sanctions Break-up of sanctions across sectors, March fiscal year-ends, 4QFY12-3QFY14 (%)

4QFY12 1QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14Power 27 58 61 30 33 22 44

Metal and metal products 18 9 6 56 15 41 8 Cement 0 1 4 4 13 NA 7

Construction 5 NA 4 2 NA NA NA

Textiles NA 1 NA 1 19 NA NA

Others 50 31 25 7 20 37 41


Exhibit 3: The difference in yields between corporate and retail loans have expanded sharply Difference in lending yields between corporate and retail loans, March fiscal year-ends, 2003-2012 (%)

0.5

1.2

2.31.9

1.5

0.5

(0.3) (0.1)

0.60.9

(0.8)

-

0.8

1.5

2.3

3.0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012


India Banks/Financial Institutions


Exhibit 4: NII growth likely to be subdued for private banks NII growth, March fiscal year-ends, 2008-16E (%)

-

8

16

24

32

40

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

Private PSU Combined

Source: Companies, Kotak Institutional Equities estimates

Exhibit 5: Credit costs for private banks have been steadily rising Credit costs, March fiscal year-ends, 2008-16E (%)

0.0

0.4

0.8

1.2

1.6

2.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

Private PSU Combined

Source: Companies, Kotak Institutional Equities estimates

Exhibit 6: Wholesale NIM appears to have expanded sharply in recent years, driving NIM expansion Break-up of NII growth across business segments for ICICI Bank, March fiscal year-ends, 2010-13 (` mn)

2010 2011 2012 2013

Retail 37,590 33,200 38,150 42,090Growth yoy (%) (11.7) 14.9 10.3Proportion (%) 36.8 35.5 30.4Wholesale 31,070 33,720 49,370 68,460Growth yoy (%) 8.5 46.4 38.7Proportion (%) 37.4 46.0 49.4Others 12,484 23,249 19,822 28,114Growth yoy (%) 86.2 (14.7) 41.8Proportion (%) 25.8 18.5 20.3Total 81,144 90,169 107,342 138,664Growth yoy (%) 11.1 19.0 29.2




Exhibit 7: NII growth is likely to decline to ~15% in 4QFY14 NII and loan growth, March fiscal year-ends, 3QFY11-4QFY14 (%)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14Net interest income growthICICI Bank 12.3 23.3 21.1 13.7 17.3 23.7 32.4 34.5 29.0 22.5 19.7 19.9 21.7 15.9 HDFC Bank 24.9 20.8 18.6 16.6 12.2 25.4 28.2 31.8 27.8 20.6 21.0 15.3 16.4 15.3 Axis Bank 28.5 16.5 13.9 24.3 23.5 26.2 26.4 15.9 16.6 24.2 31.4 26.2 19.6 15.2 IndusInd Bank 52.7 42.3 31.9 27.1 18.6 19.7 24.1 21.6 34.2 42.4 40.4 37.3 26.4 14.8 Yes Bank 53.2 42.7 35.1 23.1 32.3 28.6 33.3 35.9 36.7 42.4 39.6 28.2 13.9 11.6 Total 23.5 22.4 19.6 18.2 17.6 24.9 29.2 28.5 26.2 24.0 24.7 20.9 19.2 15.3 Loan growthICICI Bank 15.3 19.4 19.7 20.5 19.1 17.3 21.6 17.6 16.5 14.4 12.3 15.5 16.0 16.4 HDFC Bank 34.3 27.1 21.0 19.8 21.9 22.2 20.6 22.0 23.3 22.7 21.2 16.0 22.9 20.8 Axis Bank 45.7 36.5 21.4 26.7 20.4 19.2 29.8 22.9 20.7 16.0 15.8 16.9 17.8 15.9 IndusInd Bank 31.0 27.3 31.4 28.5 29.7 34.0 31.2 30.8 30.8 26.4 27.3 24.2 23.7 22.4 Yes Bank 66.3 54.8 26.1 12.7 15.3 10.5 16.4 22.9 22.3 23.7 24.3 13.6 14.7 15.9 Total 29.8 27.6 21.3 21.5 20.5 19.5 23.3 21.0 20.5 18.3 17.1 16.3 18.8 17.9 Notes: (1) For ICICI Bank, NII and loans for 3QFY14 have been estimated.

Source: Companies, Kotak Institutional Equities

For Private Circulation Only.

Interest rates unlikely to soften soon

Even as the RBI kept the interest rates unchanged, we believe there is little chance for any rally in the bond markets in the short term.

The RBI maintained its hawkish policy communication and also primed the market not to expect any easing of monetary policy even as headline inflation comes off due to base effects.

The RBI will now allow FIIs to invest only in G-Secs with residual maturity of one year and above and not in T-bills. FIIs had recently shown interest to mainly invest in the T-bill segment in an atmosphere of election-related uncertainties. Thus, this move can reduce FIIs investments in G-Secs.

Chances of OMOs are reduced with the RBI moving further into the term-repo structure. We maintain our view that 10-year G-Sec is likely to hover in the 8.60-8.90% band in FY2015.

RBI maintains a hawkish undertone

The RBI kept the policy rates unchanged, largely premised on the fact that the disinflationary process has evolved better than expectations but the surprise factors for inflation could be (1) weather uncertainties and El Nino effects, (2) extent of MSP increases and pricing of other administered items, (3) the fiscal stance and (4) geopolitical risks to global commodities. Further, the RBI reduced hopes of monetary policy easing due to softer headline inflation by indicating that it will gloss over transitory effects and maintain the glide path to 6% by January 2016 (after 8% by January 2015). In the same vein, any food-led increase in inflation will also be critically evaluated to understand the transient versus longstanding implication of this on overall inflation.

Liquidity management via term repo to increase short-term cost of funding at the margin

In line with the Patel Committee’s recommendations, the RBI has reduced access to overnight LAF to 0.25% of bank-wise NDTL, while compensating with a commensurate increase in term repos to 0.75% of system NDTL. While this is likely to lead to a better transmission of monetary policy changes, it pushes the onus of liquidity management more towards the banking sector. As the banking sector will have even limited access of funds (~`200 bn drop in the liquidity access via the LAF window) at the fixed repo rate, risks to fluctuations of the overnight money market rate within the LAF-MSF corridor are likely to increase, leading to a higher cost of funds for the banking sector.

Monetary policy to be on a pause in FY2015, but chances of hikes remain

The RBI reiterated “if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated at this juncture”. As a base case, we think that the RBI will likely remain on an extended pause but with a higher probability of moving higher in the event of inflation failing to behave as per expectations. If growth cheers emerge under a new government, this could exacerbate inflation expectations, as the negative output gap is closing down. Risks of weather-related shocks in primary articles inflation can also not be ruled out immediately.

Economy.dot

Economy Monetary Policy

RBI policy: Extended pause with hawkish undertone. The RBI maintained status quo on policy rates but the communication remained hawkish with adequate risk factors being highlighted for inflation. With the RBI indicating that it will look beyond the transitory dip in inflation on account of base effects, the RBI has set itself up for an extended pause. We believe that in the medium term, the probability of policy tightening is higher than policy loosening. The cost of funding for the banking sector will likely increase marginally with shift in liquidity injection through term repos away from the LAF.

INDIA

APRIL 02, 2014

UPDATE

BSE-30: 22,446

QUICK NUMBERS

• Repo rate and MSF stay at 8.0% and 9.0% respectively

• LAF window restricted to 0.25% of bank-wise NDTL, term repos to account for 0.75% of system NDTL

• Base case—expect an extended pause by the RBI

Economy

KOTAK ECONOMIC RESEARCH 17

Exhibit 1: Majority of the FII debt investments lately have been in short-term T-bills Trends in FII investment in T-bill as a proportion of the limits allotted

0

20

40

60

80

100

29-J

ul-1

3

13-A

ug-1

3

28-A

ug-1

3

12-S

ep-1

3

27-S

ep-1

3

12-O

ct-1

3

27-O

ct-1

3

11-N

ov-1

3

26-N

ov-1

3

11-D

ec-1

3

26-D

ec-1

3

10-J

an-1

4

25-J

an-1

4

9-Fe

b-14

24-F

eb-1

4

11-M

ar-1

4

26-M

ar-1

4

% FII limits exhausted in T-bills

Source: NSDL, SEBI, Kotak Economic Research

Exhibit 2: Headline CPI inflation likely to soften in FY2015, while core will remain largely sticky Trends in headline and core CPI inflation (% yoy)

6

7

8

9

10

11

12

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

Headline CPI inflation Core CPI inflation

March 2015: 7.9

March 2014: 8.3

March 2014: 7.8

March 2015: 7.5

Source: CEIC, Kotak Economic Research estimates

KO

TAK INSTITUTIO

NAL EQ

UITIES RESEARCH 18

In

dia D

aily Sum

mary - A

pril

Ind

ia Daily Su

mm

ary - Ap

ril 2, 2014

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

1-Apr-14 Mkt cap.O/S

shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) RoE (%)Target price Upside

ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E (Rs) (%) (US$ mn)Automobiles

Amara Raja Batteries 387 ADD 66,028 1,103 171 22.5 23.9 27.2 34.3 6.0 14.1 17.2 16.2 14.2 10.9 9.8 8.8 4.9 4.0 3.3 1.2 1.2 1.4 31.9 27.0 25.2 410 6.1 1.6

Apollo Tyres 162 BUY 81,814 1,366 504 16.3 18.2 20.2 34.1 11.8 10.8 10.0 8.9 8.0 5.5 5.0 4.6 1.7 1.5 1.3 0.4 0.5 0.5 21.7 19.9 18.4 200 23.2 18.7

Ashok Leyland 23 SELL 60,131 1,004 2,661 (2.9) (1.4) 0.2 (636.7) 51.0 115.5 (7.8) (15.9) 102.6 (112.5) 32.2 12.2 1.4 1.6 1.6 — — 0.4 (20.2) (14.6) 2.4 15 (33.6) 4.3

Bajaj Auto 2,065 BUY 597,669 9,982 289 116.0 136.5 156.5 10.3 17.6 14.6 17.8 15.1 13.2 13.7 12.0 10.7 6.1 5.0 4.2 2.2 2.6 3.0 37.7 36.4 34.5 2,400 16.2 10.2

Bharat Forge 417 SELL 99,037 1,654 237 17.4 22.2 27.3 66.8 27.5 22.9 24.0 18.8 15.3 9.9 9.1 7.7 3.9 3.3 2.8 0.8 0.9 1.2 16.7 18.9 19.9 365 (12.5) 5.5

Eicher Motors 6,049 ADD 163,577 2,732 27 145.7 235.4 328.1 21.3 61.6 39.4 41.5 25.7 18.4 20.9 15.7 10.1 8.0 6.3 4.8 0.5 0.4 0.5 19.2 25.3 27.8 5,900 (2.5) 2.5

Exide Industries 122 ADD 103,955 1,736 850 5.1 6.3 7.4 (16.6) 23.0 16.8 23.8 19.4 16.6 14.1 12.4 10.9 2.8 2.5 2.3 1.1 1.3 1.5 12.2 13.7 14.5 125 2.2 3.7

Hero Motocorp 2,250 REDUCE 449,325 7,505 200 102.6 135.0 159.8 (3.3) 31.6 18.3 21.9 16.7 14.1 15.4 11.5 9.6 6.6 5.4 4.4 1.4 2.1 2.5 35.3 37.1 35.4 2,050 (8.9) 10.7

Mahindra & Mahindra 1,000 BUY 562,184 9,390 562 63.7 71.0 80.7 1.1 11.4 13.8 15.7 14.1 12.4 11.1 9.8 8.6 3.2 2.8 2.5 1.7 1.9 2.1 20.3 20.1 19.5 1,200 20.0 16.2

Maruti Suzuki 1,931 ADD 583,271 9,742 302 96.5 118.8 151.1 21.9 23.1 27.1 20.0 16.2 12.8 11.6 9.1 6.7 2.7 2.4 2.0 0.5 0.7 0.9 14.4 15.5 17.1 2,025 4.9 28.1

Motherson Sumi Systems 255 ADD 225,131 3,760 882 7.3 13.0 17.1 44.9 77.5 32.2 35.0 19.7 14.9 10.5 7.0 5.2 7.5 5.2 3.7 0.9 1.5 2.0 30.4 33.1 29.1 265 3.8 4.4

Tata Motors 403 ADD 1,297,275 21,667 3,218 44.8 54.9 65.3 45.7 22.5 19.1 9.0 7.3 6.2 4.4 3.9 3.4 2.3 1.7 1.4 — — — 30.3 27.2 24.9 450 11.6 39.9

Automobiles Neutral 4,289,397 71,642 21.6 21.5 20.7 14.6 12.0 10.0 7.7 6.4 5.3 3.2 2.6 2.1 0.9 1.1 1.3 22.0 21.8 21.5 145.9

Banks/Financial Institutions

Axis Bank 1,469 ADD 687,191 11,478 468 127.6 136.4 153.5 15.3 6.8 12.6 11.5 10.8 9.6 — — — 1.9 1.7 1.5 1.6 1.9 2.1 16.8 15.9 15.8 1,550 5.5 75.6

Bajaj Finserv 782 BUY 124,352 2,077 159 85.6 89.6 100.1 (17.2) 4.7 11.6 9.1 8.7 7.8 — — — 1.4 1.2 1.1 1.7 1.7 1.7 16.2 14.8 14.6 850 8.8 0.4

Bank of Baroda 737 ADD 317,344 5,300 431 98.8 106.3 127.1 (6.9) 7.6 19.6 7.5 6.9 5.8 — — — 1.1 1.0 0.9 2.7 2.9 3.5 13.0 12.6 13.6 750 1.8 20.6

Bank of India 224 ADD 143,968 2,405 643 44.0 57.2 59.7 (4.5) 29.9 4.4 5.1 3.9 3.8 — — — 0.7 0.6 0.6 4.3 5.5 5.8 11.6 13.5 12.8 245 9.4 15.8

Canara Bank 261 REDUCE 120,435 2,012 461 46.8 57.7 73.1 (27.7) 23.1 26.7 5.6 4.5 3.6 — — — 0.6 0.5 0.5 3.6 4.4 5.6 8.3 9.5 11.1 260 (0.4) 10.7

Cholamandalam 63 ADD 9,007 150 143 26.0 30.6 35.2 21.6 17.7 14.9 2.4 2.1 1.8 — — — 0.4 0.4 0.3 6.4 7.5 8.7 17.6 17.9 17.8 300 376.9 #N/A

City Union Bank 53 BUY 28,455 475 538 5.8 7.2 8.4 (14.7) 24.1 16.3 9.1 7.4 6.3 — — — 1.5 1.3 1.1 1.6 2.0 2.3 17.0 17.6 17.7 65 22.9 0.3

DCB Bank 60 BUY 15,082 252 250 6.0 6.8 8.0 48.0 13.0 16.6 10.0 8.8 7.6 — — — 1.4 1.2 1.1 — — — 14.7 14.4 14.5 70 16.1 0.9

Federal Bank 94 BUY 80,227 1,340 855 8.7 11.7 14.5 (11.6) 35.1 23.8 10.8 8.0 6.5 — — — 1.2 1.1 0.9 1.7 2.3 2.8 11.1 13.6 15.1 110 17.3 4.2

HDFC 889 REDUCE 1,374,396 22,955 1,546 35.8 41.0 46.9 14.3 14.3 14.4 24.8 21.7 19.0 — — — 4.9 4.4 3.9 1.6 1.8 2.1 20.9 21.4 21.8 850 (4.4) 40.0

HDFC Bank 738 REDUCE 1,756,249 29,333 2,379 36.1 44.6 53.2 27.8 23.6 19.3 20.4 16.5 13.9 — — — 4.2 3.5 2.9 1.0 1.2 1.4 21.7 22.6 22.7 720 (2.5) 26.1

ICICI Bank 1,224 BUY 1,411,993 23,583 1,154 82.7 84.6 98.8 14.7 2.3 16.8 14.8 14.5 12.4 — — — 2.0 1.8 1.7 2.0 2.1 2.4 13.7 12.8 13.7 1,375 12.3 64.8

IDFC 123 BUY 186,172 3,109 1,512 12.5 13.5 16.3 2.7 8.1 21.3 9.9 9.1 7.5 — — — 1.2 1.1 1.0 1.9 2.1 2.5 13.2 12.9 14.1 140 13.7 16.5

India Infoline 78 ADD 23,758 397 304 9.2 9.7 11.2 (0.5) 6.0 14.9 8.5 8.0 7.0 — — — 1.1 1.0 0.9 2.0 2.1 2.4 13.8 13.3 13.5 70 (10.4) 0.2

IndusInd Bank 499 ADD 261,043 4,360 523 25.3 28.4 34.0 24.9 11.9 19.7 19.7 17.6 14.7 — — — 3.1 2.7 2.4 0.8 0.8 1.0 16.8 16.3 17.0 560 12.2 15.0

ING Vysya Bank 621 ADD 114,822 1,918 185 38.3 42.4 48.0 (3.3) 10.8 13.2 16.2 14.7 13.0 — — — 1.7 1.5 1.4 0.9 0.9 1.1 12.3 10.8 11.1 650 4.6 0.9

J&K Bank 1,623 REDUCE 78,724 1,315 48 226.3 204.3 205.3 4.0 (9.7) 0.5 7.2 7.9 7.9 — — — 1.4 1.3 1.2 3.2 2.6 2.7 20.8 16.4 14.7 1,450 (10.7) 1.1

Karur Vysya Bank 368 ADD 39,437 659 107 32.1 63.3 76.4 (37.5) 97.5 20.6 11.5 5.8 4.8 — — — 1.2 1.1 0.9 2.2 4.3 5.2 10.7 19.0 20.0 410 11.4 0.8

LIC Housing Finance 237 ADD 119,547 1,997 505 26.1 30.6 35.9 28.6 17.4 17.2 9.1 7.7 6.6 — — — 1.6 1.4 1.2 2.2 2.6 3.0 18.8 19.1 19.3 250 5.6 10.8

L&T Finance Holdings 75 SELL 129,121 2,157 1,715 3.3 4.6 5.7 (21.4) 38.8 22.0 22.5 16.2 13.3 — — — 2.1 1.8 1.6 — — — 9.8 11.9 12.9 55 (27.0) 9.4

Magma Fincorp 71 BUY 13,471 225 190 7.3 9.0 9.8 11.4 23.5 8.8 9.8 7.9 7.3 — — — 0.9 0.8 0.7 1.7 2.0 2.2 9.5 10.9 11.3 100 41.0 0.1

Mahindra & Mahindra Financial 250 SELL 142,230 2,376 568 15.1 18.1 20.8 (2.6) 19.5 15.0 16.5 13.9 12.0 — — — 2.9 2.5 2.2 1.4 1.7 2.0 18.0 18.8 18.9 220 (12.1) 8.6

Muthoot Finance 170 NR 63,024 1,053 372 21.2 23.1 25.1 (21.6) 9.3 8.6 8.0 7.3 6.7 — — — 1.5 1.4 1.2 5.0 5.5 5.9 19.5 19.6 19.2 — — —

Oriental Bank of Commerce 219 ADD 65,577 1,095 300 35.3 49.7 55.7 (22.5) 40.9 12.1 6.2 4.4 3.9 — — — 0.6 0.6 0.5 3.3 4.6 5.1 8.0 10.5 10.9 240 9.7 5.4

PFC 191 BUY 252,520 4,218 1,319 41.5 42.8 46.2 23.7 3.3 7.8 4.6 4.5 4.1 — — — 0.9 0.9 0.8 4.5 4.7 5.0 20.9 18.6 17.5 205 7.1 7.7

Punjab National Bank 735 REDUCE 266,121 4,445 362 95.8 131.3 151.1 (28.7) 37.1 15.1 7.7 5.6 4.9 — — — 1.0 0.9 0.8 2.6 3.6 4.1 10.6 13.1 13.6 730 (0.7) 16.0

Reliance Capital 341 ADD 83,928 1,402 246 13.4 20.2 25.4 (50.2) 50.8 26.1 25.5 16.9 13.4 — — — 0.7 0.7 0.7 1.2 1.8 2.2 2.8 4.2 5.1 450 32.0 15.5

Rural Electrification Corp. 225 ADD 222,360 3,714 987 47.8 48.5 52.2 23.5 1.5 7.7 4.7 4.6 4.3 — — — 1.1 1.0 0.9 3.8 4.2 5.0 24.4 20.8 19.2 255 13.2 5.6

Shriram City Union Finance 1,115 NR 65,940 1,101 59 76.5 94.0 107.6 (5.7) 22.8 14.5 14.6 11.9 10.4 — — — 2.4 2.0 1.7 0.9 1.1 1.2 17.9 18.3 18.0 — — 0.6

Shriram Transport 755 REDUCE 168,437 2,813 223 57.5 67.3 81.8 (5.6) 17.0 21.4 13.1 11.2 9.2 — — — 2.1 1.8 1.6 1.1 1.2 1.5 16.6 16.9 17.7 670 (11.2) 5.2

State Bank of India 1,894 ADD 1,413,741 23,613 747 141.2 179.1 200.2 (31.5) 26.9 11.8 13.4 10.6 9.5 — — — 1.7 1.6 1.4 2.3 2.4 2.5 9.8 11.1 11.5 2,050 8.3 57.0

Union Bank 135 ADD 84,997 1,420 630 25.3 34.6 40.1 (29.7) 36.7 15.8 5.3 3.9 3.4 — — — 0.6 0.5 0.5 4.2 5.7 6.6 9.6 12.0 12.6 145 7.5 7.3

Yes Bank 410 REDUCE 147,161 2,458 359 38.7 40.9 47.5 6.6 5.7 16.3 10.6 10.0 8.6 — — — 2.1 1.8 1.6 1.6 1.6 1.9 23.3 19.5 19.4 370 (9.8) 37.5

Banks/Financial Institutions Cautious 10,010,829 167,202 (0.3) 15.8 14.7 12.2 10.5 9.2 — — — 1.8 1.7 1.5 1.9 2.2 2.5 14.9 15.7 16.0 #N/A

Cement

ACC 1,389 REDUCE 260,984 4,359 188 46.9 55.0 69.9 (36.4) 17.4 27.0 29.6 25.2 19.9 17.5 13.1 10.9 3.1 2.9 2.7 1.6 1.7 1.7 11.6 12.7 14.8 1,070 (23.0) 5.4

Ambuja Cements 203 SELL 309,271 5,165 1,522 6.8 9.2 10.8 (34.6) 35.4 17.5 30.1 22.2 18.9 17.1 13.6 11.7 3.1 3.0 2.9 1.4 1.5 2.3 10.5 13.6 14.9 150 (26.2) 4.9

Grasim Industries 2,849 ADD 261,523 4,368 92 206.5 227.0 278.3 (24.2) 9.9 22.6 13.8 12.6 10.2 8.1 6.4 4.9 1.2 1.1 1.0 1.2 1.2 1.2 9.3 9.4 10.6 2,800 (1.7) 3.1

India Cements 63 ADD 19,475 325 307 2.7 5.1 8.4 (60.7) 92.3 64.5 23.8 12.4 7.5 5.8 4.6 3.7 0.4 0.4 0.4 4.2 4.3 4.2 2.0 3.8 5.9 60 (5.4) 1.6

Shree Cement 5,694 SELL 198,395 3,314 35 220.4 285.1 358.2 (23.6) 29.4 25.6 25.8 20.0 15.9 16.0 12.3 9.3 4.5 3.8 3.1 0.4 0.4 0.4 18.9 20.6 21.3 3,950 (30.6) 2.0

UltraTech Cement 2,158 REDUCE 591,694 9,883 274 68.9 82.8 111.2 (32.0) 20.2 34.3 31.3 26.1 19.4 16.8 13.3 10.0 3.1 2.8 2.4 0.5 0.5 0.5 11.8 12.7 15.1 1,600 (25.9) 5.6

Cement Cautious 1,641,341 27,414 (30.7) 21.2 26.8 25.1 20.7 16.3 13.2 10.4 8.1 2.4 2.2 2.0 1.0 1.0 1.2 9.7 10.8 12.4 22.6

Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E (Rs) (%) (US$ mn)Consumer products

Asian Paints 537 SELL 514,755 8,598 959 12.6 14.6 16.9 8.4 16.2 15.6 42.6 36.7 31.8 25.5 22.0 19.0 12.3 10.5 9.0 1.0 1.2 1.5 32.7 32.4 32.2 425 (20.8) 8.3

Bajaj Corp. 218 BUY 32,214 538 148 12.2 14.4 16.1 8.7 17.5 11.8 17.8 15.2 13.6 16.6 13.8 11.6 5.9 5.3 4.7 3.2 3.8 4.2 32.4 31.3 32.7 245 12.2 0.3

Colgate-Palmolive (India) 1,352 SELL 183,808 3,070 136 35.2 41.1 48.3 (3.7) 16.9 17.4 38.4 32.9 28.0 27.9 23.0 19.2 32.5 30.6 28.9 2.1 2.4 2.9 88.7 92.4 102.5 1,200 (11.2) 1.6

Dabur India 188 ADD 328,445 5,486 1,744 5.2 6.3 7.4 18.4 21.6 17.4 36.1 29.7 25.3 29.0 23.8 20.0 12.5 10.1 8.3 1.1 1.3 1.5 38.3 37.7 36.0 190 0.9 4.0

GlaxoSmithKline Consumer 4,301 REDUCE 180,876 3,021 42 162.4 149.7 172.8 56.4 (7.9) 15.5 26.5 28.7 24.9 23.1 26.2 21.5 11.2 9.6 8.4 1.7 1.7 2.1 45.0 34.8 34.9 4,200 (2.3) 0.9

Godrej Consumer Products 899 REDUCE 306,071 5,112 340 22.3 27.3 32.9 10.3 22.3 20.5 40.2 32.9 27.3 28.2 23.0 18.4 7.4 6.3 5.3 0.7 0.8 0.9 21.3 22.4 23.0 735 (18.3) 2.8

Hindustan Unilever 602 REDUCE 1,301,345 21,735 2,163 16.8 18.7 20.4 9.1 11.3 9.2 35.8 32.1 29.4 28.2 24.8 21.7 36.8 29.9 25.3 1.9 2.1 2.4 113.3 97.5 89.1 560 (6.9) 12.4

ITC 352 ADD 2,840,511 47,443 8,071 10.9 12.4 13.9 16.3 14.7 11.9 32.4 28.3 25.3 23.3 19.9 17.4 10.8 9.7 8.8 1.8 2.2 2.5 36.6 37.8 38.5 365 3.7 35.4

Jubilant Foodworks 1,049 SELL 69,733 1,165 66 20.4 27.6 38.0 2.4 35.1 37.8 51.4 38.0 27.6 25.7 19.1 14.2 12.9 10.2 8.1 — 0.5 0.9 27.7 29.9 32.9 925 (11.8) 2.3

Jyothy Laboratories 205 ADD 37,019 618 181 7.3 11.5 12.5 87.3 57.8 9.3 28.1 17.8 16.3 20.5 16.5 12.7 3.8 3.3 2.9 1.2 1.2 1.5 16.3 19.9 18.8 215 5.1 0.6

Marico 209 REDUCE 134,714 2,250 645 7.5 8.6 9.8 34.2 13.8 14.5 27.7 24.3 21.3 19.4 16.8 14.3 8.3 6.8 5.6 1.1 1.3 1.6 30.9 28.8 27.5 215 2.9 1.0

Nestle India 4,848 SELL 467,430 7,807 96 114.4 132.3 158.2 3.3 15.6 19.6 42.4 36.6 30.6 23.5 20.8 17.7 18.1 14.6 11.9 1.0 1.2 1.5 56.4 50.0 47.6 4,500 (7.2) 4.3

Page Industries 6,365 ADD 70,996 1,186 11 137.3 186.4 222.8 36.1 35.8 19.5 46.4 34.1 28.6 29.4 22.0 18.4 24.1 17.6 13.1 0.9 1.2 1.3 61.0 60.5 53.2 6,000 (5.7) 2.1

Speciality Restaurants 142 BUY 6,676 111 47 4.4 5.1 6.3 (11.3) 16.0 23.0 32.1 27.7 22.5 17.8 13.4 10.1 2.2 2.0 1.9 1.1 1.4 1.8 6.9 7.5 8.5 145 2.0 0.3

Tata Global Beverages 154 REDUCE 97,352 1,626 631 6.0 7.2 8.0 (6.4) 20.5 11.2 25.9 21.5 19.3 14.8 13.2 11.8 1.6 1.5 1.5 1.5 1.8 2.1 7.6 8.6 9.1 138 (10.5) 5.8

Titan Industries 265 ADD 235,396 3,932 888 8.1 9.6 11.6 (0.7) 18.7 20.0 32.7 27.5 22.9 23.1 18.2 15.2 9.7 8.0 6.6 1.0 1.2 1.5 32.8 31.8 31.5 275 3.7 5.4

United Breweries 825 SELL 218,121 3,643 264 6.7 11.9 16.2 2.6 77.5 36.1 123.1 69.3 50.9 42.9 28.9 23.6 14.9 12.7 10.5 0.1 0.2 0.3 11.6 19.3 22.0 650 (21.2) 3.1

United Spirits 2,674 BUY 388,585 6,490 145 22.2 47.5 68.7 145.3 113.6 44.6 120.2 56.3 38.9 45.2 23.5 19.3 5.0 4.6 4.2 0.1 0.2 0.3 5.1 8.5 11.2 2,700 1.0 31.5

Consumer products Cautious 7,414,044 123,831 16.8 17.6 14.8 36.3 30.9 26.9 25.6 21.3 18.3 11.0 9.6 8.5 1.4 1.7 2.0 30.2 31.2 31.6 122.1

Constructions

Sadbhav Engineering 97 BUY 16,656 278 171 5.4 9.2 10.2 9.4 71.0 10.7 18.1 10.6 9.6 8.3 6.2 5.8 1.4 1.3 1.1 0.6 0.6 0.6 7.9 12.0 11.9 160 64.7 0.2

Construction Cautious 16,656 278 192.7 127.2 (41.7) 12.6 5.6 9.6 6.0 5.3 8.5 0.4 0.4 1.1 0.8 1.4 0.6 3.3 7.0 11.9 0.2

Energy

Aban Offshore 533 RS 23,196 387 44 67.1 94.4 106.3 73.7 40.7 12.6 7.9 5.6 5.0 8.0 6.9 6.8 0.9 0.8 0.7 0.9 0.9 1.0 13.3 15.2 14.5 — — 20.2

Bharat Petroleum 447 BUY 323,144 5,397 723 39.3 37.6 37.8 7.5 (4.2) 0.4 11.4 11.9 11.8 7.0 7.3 6.9 1.6 1.5 1.4 2.6 2.5 2.5 14.0 12.3 11.4 560 25.3 9.1

Cairn india 345 ADD 659,130 11,009 1,911 65.8 56.2 48.6 4.2 (14.6) (13.5) 5.2 6.1 7.1 4.1 4.1 4.3 1.1 1.0 0.9 3.5 3.5 3.5 23.6 17.3 13.4 375 8.7 12.9

Castrol India 306 SELL 151,372 2,528 495 10.0 10.7 11.8 10.3 7.5 9.8 30.7 28.5 26.0 21.1 19.0 17.2 21.6 31.1 29.3 2.3 2.8 3.1 76.9 89.4 116.2 250 (18.3) 0.7

GAIL (India) 375 ADD 475,617 7,944 1,268 36.1 36.7 39.6 0.2 1.7 8.0 10.4 10.2 9.5 7.0 6.2 5.4 1.6 1.4 1.3 2.6 2.8 3.2 15.4 13.8 13.3 410 9.3 6.3

GSPL 68 ADD 38,124 637 563 7.5 7.0 8.0 (21.6) (6.5) 13.8 9.0 9.7 8.5 5.0 5.1 4.6 1.0 0.9 0.9 1.5 2.1 4.7 11.9 10.0 10.5 70 3.3 0.5

Hindustan Petroleum 304 ADD 102,890 1,718 339 17.2 25.6 29.6 (30.7) 49.0 15.6 17.7 11.9 10.3 10.2 7.9 6.9 0.6 0.6 0.5 1.8 2.7 3.1 3.1 4.5 5.0 330 8.7 5.9

Indian Oil Corporation 274 ADD 665,137 11,109 2,428 19.9 25.5 32.9 18.3 28.2 29.1 13.8 10.7 8.3 7.7 5.8 4.4 1.0 0.9 0.8 2.7 3.3 4.0 7.0 8.4 10.0 315 15.0 3.5

Oil India 492 BUY 295,881 4,942 601 52.4 60.1 68.1 (12.2) 14.7 13.3 9.4 8.2 7.2 3.5 2.8 2.3 1.3 1.2 1.1 4.9 4.9 5.5 13.1 14.0 14.5 590 19.9 2.5

Oil & Natural Gas Corporation 324 BUY 2,770,277 46,270 8,556 30.8 36.0 39.3 5.0 16.9 9.1 10.5 9.0 8.2 4.8 4.0 3.6 1.3 1.2 1.1 3.2 3.9 4.3 12.5 13.3 13.2 350 8.1 18.1

Petronet LNG 139 BUY 104,250 1,741 750 9.3 10.7 13.4 (39.4) 14.9 25.5 15.0 13.0 10.4 8.7 7.0 5.9 1.9 1.7 1.5 1.4 2.0 2.5 13.0 13.1 14.4 155 11.5 2.4

Reliance Industries 943 BUY 2,768,416 46,239 2,937 68.7 79.4 82.1 5.6 15.6 3.4 13.7 11.9 11.5 9.5 7.5 7.1 1.3 1.2 1.1 1.0 1.1 1.1 11.0 11.5 10.8 990 5.0 50.8

Energy Attractive 8,377,435 139,921 4.0 10.6 6.2 10.6 9.6 9.0 6.5 5.4 4.9 1.3 1.2 1.1 2.4 2.7 3.0 12.2 12.3 11.9 132.7

Industrials

ABB 849 SELL 179,984 3,006 212 9.8 19.7 26.3 47.6 100.2 34.0 86.5 43.2 32.3 46.7 26.4 21.3 6.6 5.9 5.1 0.4 0.4 0.4 7.8 14.4 16.9 520 (38.8) 4.8

Bharat Heavy Electricals 195 SELL 476,058 7,951 2,448 15.4 10.4 11.4 (43.1) (32.7) 9.8 12.7 18.8 17.1 9.9 12.0 10.7 1.4 1.4 1.3 1.7 1.1 1.2 11.8 7.4 7.7 110 (43.4) 17.7

Crompton Greaves 157 BUY 98,621 1,647 627 4.2 8.5 10.9 222.2 101.5 28.9 37.4 18.5 14.4 15.2 11.0 8.8 2.6 2.4 2.1 1.0 1.1 1.2 7.2 13.5 15.6 165 4.9 7.5

Cummins India 585 SELL 162,079 2,707 277 22.1 24.8 27.5 (21.8) 12.3 10.8 26.4 23.5 21.2 24.8 21.4 18.7 6.1 5.5 5.0 1.8 1.9 2.1 24.3 23.1 22.9 470 (19.6) 2.3

Kalpataru Power Transmission 98 BUY 14,978 250 153 11.5 15.3 16.2 30.9 33.2 6.2 8.5 6.4 6.0 6.1 5.5 4.5 0.7 0.7 0.6 1.5 1.5 1.5 8.0 9.9 9.9 125 28.1 0.4

KEC International 68 BUY 17,533 293 257 3.4 7.5 10.8 35.6 119.3 43.2 19.8 9.0 6.3 7.0 5.6 4.6 1.4 1.2 1.0 0.8 1.7 2.4 7.1 14.2 17.8 68 (0.3) 0.4

Larsen & Toubro 1,279 ADD 1,180,691 19,720 923 50.7 58.4 71.8 (3.3) 15.3 22.8 25.2 21.9 17.8 17.4 15.4 13.4 3.0 2.7 2.3 1.0 1.0 1.2 12.8 13.0 13.9 1,300 1.6 42.1

Siemens 740 SELL 263,422 4,400 356 5.1 7.5 9.1 203.3 48.3 20.8 146.4 98.7 81.7 30.4 23.2 19.9 6.0 5.3 4.7 0.7 0.7 0.8 8.5 11.4 12.3 460 (37.8) 4.1

Thermax 727 REDUCE 86,580 1,446 119 24.4 32.3 37.5 (4.3) 32.1 16.2 29.7 22.5 19.4 18.3 14.6 11.8 4.2 3.7 3.3 1.0 1.3 1.5 14.8 17.6 18.1 630 (13.3) 0.6

Voltas 159 BUY 52,416 875 331 6.5 8.5 10.3 9.7 31.2 20.8 24.5 18.7 15.5 17.1 11.9 9.6 3.0 2.7 2.4 1.2 1.6 1.9 12.5 15.0 16.4 150 (5.4) 7.3

Industrials Cautious 2,532,363 42,296 (19.7) 4.6 19.5 23.8 22.8 19.0 16.4 15.0 12.9 2.7 2.5 2.2 1.1 1.1 1.2 11.5 10.9 11.6 87.1

Dividend yield (%)


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ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E (Rs) (%) (US$ mn)Infrastructure

Adani Port and SEZ 186 ADD 375,851 6,278 2,017 8.6 11.4 15.2 7.2 32.2 32.9 21.6 16.3 12.3 14.7 12.5 9.8 4.4 3.6 2.9 0.8 1.0 1.3 23.1 24.3 26.1 150 (19.5) 5.4

Container Corporation 944 BUY 184,061 3,074 195 51.3 58.7 67.8 6.5 14.4 15.5 18.4 16.1 13.9 13.7 11.4 9.6 2.6 2.3 2.1 1.3 1.4 1.7 15.1 15.4 15.9 925 (2.0) 0.6

Gujarat Pipavav Port 85 BUY 41,117 687 483 4.0 5.6 5.9 163.6 38.1 6.6 21.1 15.3 14.3 15.3 11.7 9.7 2.9 2.5 2.1 — — — 17.7 18.7 17.1 85 (0.1) 1.1

IRB Infrastructure 104 ADD 34,549 577 332 14.7 11.8 3.2 (12.2) (19.5) (73.3) 7.1 8.8 32.8 7.4 7.1 6.5 0.8 0.8 0.8 3.8 3.8 3.8 12.6 8.8 2.3 85 (18.2) 4.7

Infrastructure Cautious 635,578 10,616 7.2 19.9 16.2 18.6 15.5 13.3 12.6 10.8 9.0 3.0 2.6 2.3 1.1 1.2 1.4 16.1 16.8 16.9 11.9

Media

DB Corp 305 ADD 55,873 933 183 16.2 18.5 21.3 35.9 14.6 15.2 18.8 16.4 14.3 10.9 9.5 8.1 4.7 4.2 3.8 2.3 3.0 3.6 26.9 27.2 27.9 330 8.3 0.3

DishTV 53 ADD 56,115 937 1,065 (0.8) 0.5 1.8 38.8 159.4 305.6 (69.4) 117.0 28.8 11.0 9.5 7.6 (23.8) (29.8) 867 — — — 41.3 (22.6) (214) 60 13.9 2.7

Eros International 169 ADD 15,557 260 92 18.1 21.5 18.1 5.4 18.7 (16.0) 9.3 7.9 9.4 6.9 5.7 6.4 1.3 1.1 1.0 — — — 15.4 15.6 11.3 180 6.4 1.0

Jagran Prakashan 102 BUY 32,194 538 316 6.3 7.5 9.3 25.0 19.1 23.0 16.1 13.5 11.0 8.8 7.6 6.3 3.2 2.9 2.7 3.0 4.0 5.0 20.5 22.4 25.3 130 27.7 0.5

Sun TV Network 405 ADD 159,760 2,668 394 18.0 21.3 24.0 0.0 18.3 12.7 22.5 19.0 16.9 13.4 11.5 10.2 5.0 4.6 4.4 2.5 3.2 3.9 24.1 26.2 27.6 410 1.1 4.0

Zee Entertainment Enterprises 273 REDUCE 259,730 4,338 950 9.2 11.2 13.1 20.9 22.8 16.8 29.9 24.3 20.8 20.4 16.2 13.7 4.9 4.6 4.5 0.8 0.9 1.0 17.3 19.9 22.2 260 (4.9) 13.3

Media Neutral 610,420 10,195 15.8 26.8 16.5 25.3 20.0 17.1 13.1 10.9 9.6 4.4 4.1 3.8 1.6 2.1 2.6 17.3 20.3 22.1 22.6

Metals & Mining

Coal India 291 BUY 1,834,904 30,647 6,316 24.4 27.9 34.9 (11.0) 14.0 25.4 11.9 10.4 8.3 6.5 5.3 4.2 3.9 3.4 2.9 9.0 4.9 6.1 31.5 34.7 37.5 335 15.3 17.9

Hindalco Industries 138 REDUCE 285,325 4,766 2,065 11.6 14.2 15.9 (26.6) 22.3 12.1 11.9 9.7 8.7 10.3 7.6 6.2 0.7 0.7 0.6 1.0 1.0 1.0 6.4 7.3 7.6 110 (20.4) 17.8

Hindustan Zinc 131 ADD 552,630 9,230 4,225 16.3 15.9 16.1 (0.2) (2.7) 1.5 8.0 8.2 8.1 4.3 3.9 3.2 1.5 1.3 1.1 2.4 2.4 2.4 18.0 15.4 14.0 160 22.3 3.1

Jindal Steel and Power 296 REDUCE 276,701 4,622 935 23.5 22.5 23.4 (24.6) (4.0) 3.7 12.6 13.1 12.7 10.3 8.3 6.8 1.1 1.1 1.0 0.6 0.6 0.6 9.7 8.4 8.1 240 (18.9) 8.5

JSW Steel 1,023 SELL 247,253 4,130 242 73.7 104.0 126.0 124.2 41.1 21.2 13.9 9.8 8.1 6.4 6.1 5.3 1.1 1.0 0.9 0.9 0.9 0.9 8.3 11.0 12.0 820 (19.8) 12.6

National Aluminium Co. 40 REDUCE 103,090 1,722 2,577 2.5 3.0 2.9 8.0 21.8 (4.5) 16.1 13.2 13.8 5.5 4.2 4.6 0.8 0.8 0.8 3.1 3.1 3.1 5.3 6.3 5.8 32 (20.0) 0.3

NMDC 138 ADD 545,543 9,112 3,965 16.1 16.9 16.8 (1.8) 5.3 (1.1) 8.5 8.1 8.2 4.5 4.4 4.6 1.9 1.7 1.6 7.3 7.3 7.3 22.5 22.2 20.5 165 19.9 6.5

Sesa Sterlite 192 ADD 570,403 9,527 2,965 19.5 20.5 19.0 (26.1) 5.6 (7.7) 9.9 9.4 10.2 4.7 4.6 4.4 0.8 0.7 0.7 1.6 1.6 1.6 8.9 8.2 7.1 210 9.1 17.7

Tata Steel 401 REDUCE 389,681 6,509 971 35.5 41.9 46.9 937.2 18.0 12.0 11.3 9.6 8.6 7.0 6.4 6.0 1.1 1.0 0.9 2.0 2.0 2.0 9.7 10.6 10.9 400 (0.3) 36.8

Metals & Mining Neutral 4,805,529 80,263 (4.0) 10.1 11.0 10.7 9.7 8.7 6.3 5.6 5.0 1.5 1.4 1.3 5.1 3.5 4.0 14.0 14.2 14.4 121.1

Pharmaceutical

Apollo Hospitals 905 REDUCE 125,971 2,104 139 25.7 28.6 37.2 17.7 11.0 30.2 35.2 31.7 24.3 19.1 16.8 13.5 4.2 3.8 3.4 0.7 0.8 1.0 12.5 12.7 14.9 850 (6.1) 2.1

Biocon 431 SELL 85,160 1,422 198 20.0 23.8 27.0 28.9 19.0 13.4 21.5 18.1 16.0 12.4 10.7 9.1 2.9 2.6 2.4 1.4 1.6 1.8 14.0 15.1 15.5 370 (14.1) 8.7

Cipla 382 ADD 306,314 5,116 803 15.9 18.9 23.0 (17.8) 18.2 21.9 23.9 20.2 16.6 15.8 13.3 10.7 3.0 2.6 2.3 0.5 0.5 — 13.6 13.9 14.9 420 10.1 11.2

Cadila Healthcare 1,026 ADD 210,092 3,509 205 35.6 45.7 59.1 11.6 28.2 29.3 28.8 22.5 17.4 22.8 17.1 13.4 6.0 5.1 4.2 0.8 1.0 1.4 22.7 24.5 26.3 920 (10.3) 3.1

Divi's Laboratories 1,349 SELL 178,949 2,989 133 61.4 66.6 78.4 35.3 8.5 17.7 22.0 20.3 17.2 17.0 14.3 11.9 5.9 5.0 4.2 1.5 1.6 1.9 29.6 26.9 26.7 1,200 (11.0) 4.7

Dr Reddy's Laboratories 2,601 BUY 443,294 7,404 170 129.0 146.2 168.6 34.0 13.3 15.3 20.2 17.8 15.4 13.9 12.2 10.4 4.9 4.0 3.3 0.7 0.8 1.0 26.8 24.8 23.6 2,950 13.4 16.3

GlaxoSmithKline Pharmaceuticals 2,581 RS 218,748 3,654 85 63.4 68.4 83.7 (22.2) 7.9 22.4 40.7 37.7 30.8 34.8 30.8 23.5 10.6 10.2 9.8 1.9 2.0 2.4 26.3 27.5 32.4 — — 4.6

Glenmark Pharmaceuticals 579 ADD 156,867 2,620 271 26.0 32.7 40.0 14.6 25.7 22.3 22.3 17.7 14.5 14.1 11.4 9.5 5.0 4.1 3.2 0.3 0.3 0.3 23.9 25.5 24.9 585 1.0 5.3

Lupin 945 ADD 422,960 7,064 448 38.6 44.0 52.5 31.3 14.1 19.3 24.5 21.5 18.0 15.5 12.8 11.0 6.4 5.1 4.2 0.7 0.8 1.0 29.3 26.7 25.8 970 2.6 9.2

Ranbaxy Laboratories 371 REDUCE 156,837 2,620 423 (23.9) 17.4 24.6 (209.6) 172.6 41.4 (15.5) 21.3 15.1 25.3 14.0 11.0 4.5 3.3 2.9 — — — (26.7) 17.7 20.3 310 (16.4) 25.0

Sun Pharmaceuticals 572 SELL 1,184,902 19,790 2,071 26.0 26.6 28.7 47.6 2.3 7.9 22.0 21.5 19.9 15.3 14.0 12.6 6.1 4.7 3.8 0.5 0.5 0.6 29.7 24.7 21.3 535 (6.5) 23.1

Pharmaceuticals Attractive 3,490,095 58,292 (2.0) 31.8 14.8 29.0 22.0 19.2 16.4 14.0 11.9 5.2 4.3 3.6 0.7 0.8 0.9 18.0 19.6 18.8 113.4

Real Estate

DLF 175 ADD 311,454 5,202 1,780 4.3 6.7 7.2 1.2 53.7 8.2 40.3 26.2 24.2 17.4 14.7 13.8 1.0 1.0 1.0 0.6 0.6 0.6 2.7 3.9 4.1 200 14.3 20.4

Godrej Properties 218 ADD 43,489 726 199 7.6 12.1 21.1 (14.3) 60.6 73.8 28.9 18.0 10.3 20.5 12.4 6.9 1.9 1.8 1.6 0.9 0.9 1.1 8.2 10.4 16.1 180 (17.6) 1.2 HDIL 56 NR 23,548 393 419 4.9 12.8 10.2 179.0 163.1 (20.6) 11.5 4.4 5.5 13.8 8.2 9.5 0.2 0.2 0.2 — — — 1.9 5.0 3.8 — — 9.5

Oberoi Realty 217 BUY 71,112 1,188 328 9.6 23.8 27.3 (37.3) 146.8 14.8 22.5 9.1 7.9 16.7 6.0 4.4 1.6 1.4 1.2 0.9 0.9 0.9 7.4 16.4 16.3 290 33.9 0.8

Prestige Estates Projects 170 BUY 59,395 992 350 13.1 17.1 35.9 60.9 30.1 110.0 12.9 9.9 4.7 8.6 7.0 1.6 1.9 1.6 1.2 — — — 15.6 17.4 29.0 200 17.9 0.5 Sobha Developers 360 BUY 35,269 589 98 23.0 30.8 39.9 3.9 33.8 29.6 15.6 11.7 9.0 8.8 6.7 5.8 1.5 1.4 1.2 1.4 1.4 1.4 10.2 12.4 14.4 475 32.1 1.1 Sunteck Realty 276 BUY 16,578 277 60 57.7 24.7 119.8 8,501.6 (57) 385.4 4.8 11.2 2.3 3.8 8.1 1.2 2.0 1.7 1.0 0.7 0.7 0.7 52.7 16.6 54.9 470 70.0 0.3

Real Estate Cautious 560,844 9,367 31.6 48.5 43.2 21.8 14.7 10.3 13.7 10.7 7.4 1.1 1.0 0.9 0.6 0.6 0.6 4.8 6.8 8.9 33.8

Dividend yield (%)


In

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21

KOTAK IN

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UITIES RESEARCH




ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E (Rs) (%) (US$ mn)Technology

HCL Technologies 1,418 REDUCE 1,004,263 16,773 708 86.2 93.2 97.2 51.5 8.1 4.2 16.5 15.2 14.6 10.7 9.8 8.9 5.0 4.0 3.3 1.0 1.1 1.3 34.8 29.0 25.0 1,300 (8.4) 33.3

Hexaware Technologies 159 REDUCE 48,039 802 302 12.6 13.1 12.9 14.5 3.3 (1.0) 12.6 12.2 12.3 8.8 8.5 8.5 3.2 3.4 3.1 6.9 4.1 4.1 28.1 27.1 26.2 130 (18.3) 5.2

Infosys 3,314 ADD 1,893,591 31,627 571 184.9 222.6 245.7 12.2 20.4 10.4 17.9 14.9 13.5 11.9 9.6 8.3 4.2 3.5 3.0 2.1 2.5 2.7 25.9 25.7 24.1 3,800 14.7 74.3

Mindtree 1,360 ADD 57,102 954 42 108.5 125.9 138.6 32.9 16.0 10.1 12.5 10.8 9.8 9.3 7.4 6.3 3.4 2.7 2.2 1.2 1.4 1.5 30.3 27.7 24.6 1,650 21.4 2.7

Mphasis 403 SELL 84,911 1,418 211 35.3 14.7 36.9 (6.1) (58.3) 150.7 11.4 27.4 10.9 8.2 19.2 7.5 1.7 1.7 1.6 4.2 1.8 4.6 15.9 6.2 14.9 370 (8.2) 1.1

Polaris Financial Technology 198 REDUCE 19,766 330 100 19.3 23.5 25.5 (3.0) 21.4 8.4 10.2 8.4 7.8 4.1 3.7 3.4 1.3 1.2 1.1 2.2 2.3 2.4 13.6 14.8 14.3 135 (31.9) 5.7

TCS 2,177 ADD 4,260,237 71,155 1,957 96.5 116.6 128.1 35.4 20.8 9.9 22.6 18.7 17.0 16.1 13.3 11.9 8.2 6.5 5.4 1.6 1.9 2.4 40.6 38.7 34.6 2,400 10.3 55.5

Tech Mahindra 1,820 ADD 432,798 7,229 238 129.1 150.0 167.4 26.7 16.2 11.7 14.1 12.1 10.9 9.5 8.0 7.0 4.4 3.4 2.7 0.3 0.3 0.3 32.6 28.4 24.6 2,100 15.4 27.1

Wipro 561 ADD 1,381,866 23,080 2,463 31.4 37.4 41.1 26.0 19.2 9.8 17.9 15.0 13.7 12.2 9.6 8.4 4.1 3.4 2.8 1.4 1.6 1.8 24.7 24.5 22.6 610 8.7 16.9

Technology Attractive 9,182,573 153,369 28.6 16.8 10.2 19.1 16.4 14.9 13.1 11.0 9.7 5.4 4.4 3.7 1.6 1.8 2.1 28.1 26.8 24.8 221.9

Telecom

Bharti Airtel 315 ADD 1,260,602 21,055 3,997 8.3 14.2 20.8 39.0 70.0 46.8 37.9 22.3 15.2 6.8 5.7 4.9 2.4 2.2 2.0 0.2 0.9 2.0 6.4 10.2 13.9 345 9.4 29.3

Bharti Infratel 204 ADD 384,970 6,430 1,889 7.4 9.7 10.8 39.3 31.1 11.5 27.6 21.0 18.9 8.3 7.5 6.7 2.2 2.1 2.1 2.3 3.1 3.6 8.0 10.3 11.2 200 (1.8) —

IDEA 138 BUY 454,369 7,589 3,303 5.9 8.9 12.3 92.0 52.3 37.2 23.4 15.4 11.2 6.8 5.4 4.2 2.8 2.4 2.0 0.4 0.5 0.6 12.8 17.0 19.7 160 16.3 15.0

Reliance Communications 128 SELL 263,263 4,397 2,064 7.6 7.1 10.9 132.4 (5.6) 52.1 16.8 17.8 11.7 8.0 7.7 6.8 0.9 0.8 0.8 — — — 5.3 4.7 6.7 85 (33.4) 15.1

Tata Communications 302 REDUCE 86,027 1,437 285 (3.0) 7.3 8.1 89.7 342.1 11.0 (99.6) 41.2 37.1 6.6 5.9 5.5 13.5 10.0 9.1 — — — (8.3) 28.0 25.7 290 (3.9) 5.0

Telecom Attractive 2,449,231 40,907 127.8 49.0 39.2 30.1 20.2 14.5 7.1 6.1 5.2 2.1 1.9 1.8 0.5 1.0 1.7 6.9 9.5 12.2 64.4

Utilities

Adani Power 48 SELL 137,709 2,300 2,872 (9.4) (2.8) (0.7) (4.9) 70.5 75.6 (5.1) (17.2) (70.5) 16.3 10.3 9.2 4.1 5.3 5.8 — — — (70.7) (26.9) (7.9) 38 (20.8) 2.9

CESC 504 ADD 62,968 1,052 125 36.9 46.5 60.1 7.8 26.0 29.1 13.6 10.8 8.4 11.2 8.8 7.4 0.9 0.8 0.8 1.3 1.5 1.6 6.7 8.0 9.5 476 (5.6) 2.9

JSW Energy 60 REDUCE 98,728 1,649 1,640 7.0 7.1 6.2 4.5 0.8 (12.9) 8.6 8.5 9.8 5.5 5.1 5.0 1.4 1.2 1.1 — — — 17.4 15.3 11.7 47 (21.9) 1.4

NHPC 20 ADD 215,878 3,606 11,071 2.1 2.3 2.6 8.8 11.0 9.7 9.2 8.3 7.6 9.5 7.4 6.6 0.7 0.7 0.6 2.7 3.2 3.6 7.8 8.5 8.8 22 12.8 1.4

NTPC 122 ADD 1,005,534 16,795 8,245 13.2 12.4 13.1 5.8 (6.3) 6.0 9.2 9.9 9.3 8.2 8.4 7.6 1.1 1.1 1.0 3.2 3.0 3.2 13.0 11.2 11.1 135 10.7 13.9 Power Grid 108 BUY 565,012 9,437 5,232 8.6 9.4 13.0 (6.0) 9.9 38.6 12.6 11.5 8.3 10.8 8.8 7.1 1.6 1.5 1.3 2.4 2.6 3.7 14.7 13.6 17.1 130 20.4 10.7 Reliance Infrastructure 434 BUY 114,181 1,907 263 65.5 59.8 84.1 (7.6) (8.6) 40.6 6.6 7.3 5.2 9.7 9.3 8.0 0.4 0.4 0.4 2.6 2.6 2.6 9.2 8.7 8.7 580 33.6 12.7

Reliance Power 70 SELL 196,639 3,284 2,805 3.6 3.7 7.6 (0.9) 3.4 106.9 19.6 19.0 9.2 24.4 18.3 9.6 1.0 1.0 0.9 — — — 5.3 5.2 9.9 61 (13) 8.3

Tata Power 84 NR 207,958 3,473 2,468 3.9 5.2 5.2 (3.9) 34.0 1.0 21.9 16.3 16.1 7.2 6.7 6.4 1.6 1.5 1.4 1.4 1.4 1.4 7.2 9.4 8.9 — — 6.3

Utilities Attractive 2,604,608 43,503 0.7 11.2 22.9 12.9 11.6 9.4 9.8 8.7 7.4 1.1 1.1 1.0 2.3 2.3 2.6 8.8 9.2 10.5 60.5

Others

Carborundum Universal 151 BUY 28,297 473 187 5.1 8.9 13.1 6.1 76.0 46.2 29.7 16.9 11.5 11.7 8.6 6.5 2.2 2.0 1.8 0.6 1.0 1.5 8.1 12.9 16.6 150 (0.7) 0.1

Coromandel International 220 SELL 62,173 1,038 283 12.2 19.3 21.7 (20.3) 58.4 12.8 18.1 11.4 10.1 10.3 7.8 7.1 2.6 2.2 1.9 2.2 2.2 2.2 14.0 20.0 19.3 190 (13.5) 0.6

Havells India 914 REDUCE 114,057 1,905 125 38.1 43.5 48.0 14.8 14.2 10.5 24.0 21.0 19.0 14.6 12.8 11.1 6.1 5.0 4.2 0.9 0.9 1.0 28.3 26.1 23.8 740 (19.0) 3.6

Info Edge 600 BUY 65,558 1,095 109 11.6 14.7 19.2 9.4 27.1 31.0 52.0 40.9 31.2 42.2 30.5 21.6 9.5 8.4 7.2 0.7 0.9 1.1 19.3 21.8 24.9 630 4.9 1.9

Jaiprakash Associates 53 ADD 117,945 1,970 2,219 2.5 7.2 8.2 25.4 193.0 14.2 21.6 7.4 6.5 10.2 7.5 6.8 0.9 0.8 0.7 — — — 4.3 11.7 12.1 44 (17.2) 24.1

Just Dial 1,556 ADD 108,924 1,819 70 16.7 22.7 30.0 64.6 36.2 32.0 93.3 68.5 51.9 70.8 50.4 35.9 22.0 18.5 15.3 — 0.5 0.7 25.4 29.3 32.2 1,350 (13.2) 18.6

MCX India 492 REDUCE 24,986 417 51 30.2 32.9 26.9 (48.5) 9 (18.3) 16.3 14.9 18.3 8.1 7.0 10.7 2.1 1.9 1.9 3.3 3.3 3.3 13.0 13.4 10.8 500 1.6 23.8

Rallis India 169 BUY 32,856 549 194 7.6 11.0 12.6 23.8 45 14.7 22.3 15.4 13.4 12.2 9.4 7.8 4.6 3.7 3.0 1.3 1.3 1.3 23.2 26.9 24.8 200 18.4 0.7

Tata Chemicals 293 BUY 74,586 1,246 255 13.8 31.3 36.1 (12.2) 126.7 15.2 21.2 9.4 8.1 6.9 5.0 4.4 1.0 0.9 0.8 3.4 3.4 3.4 4.2 9.6 10.1 300 2.5 1.8

UPL 193 SELL 85,312 1,425 443 20.1 21.3 22.6 14.6 6.2 6.3 9.6 9.1 8.5 5.4 4.9 4.5 1.6 1.4 1.2 1.3 1.3 1.3 18.0 16.5 15.3 155 (19.6) 5.7

Others 649,136 10,842 2.9 65.1 14.0 20.2 12.2 10.7 10.0 7.7 7.0 1.9 1.6 1.5 1.2 1.3 1.4 9.2 13.5 13.6 80.8

KIE universe 59,270,078 989,938 5.7 16.3 14.2 15.9 13.7 12.0 9.7 8.3 7.3 2.3 2.1 1.8 1.8 1.9 2.2 14.4 15.0 15.3

KIE universe ex-energy 50,892,644 850,017 6.1 17.8 16.2 17.3 14.7 12.6 10.8 9.3 8.0 2.6 2.3 2.1 1.8 1.8 2.1 15.1 15.9 16.5

KIE universe ex-energy & ex-commodities 44,445,774 742,340 9.9 19.1 16.8 18.3 15.4 13.2 12.0 10.3 8.8 2.9 2.5 2.2 1.4 1.6 1.9 15.6 16.5 17.0

Notes:

(a) For banks we have used adjusted book values.

(b) 2012 means calendar year 2011, similarly for 2013 and 2014 for these particular companies.

(c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.

(d) Rupee-US Dollar exchange rate (Rs/US$)= 59.87

Dividend yield (%)



Disclosures

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of December 31, 2013

Percentage of companies covered by Kotak Institutional Equities, within the specified category.

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

* The above categories are defined as follows: Buy = We expect this stock to deliver more than 15% returns over the next 12 months; Add = We expect this stock to deliver 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We expect this stock to deliver less than -5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2013 Kotak Institutional Equities Investment Research had investment ratings on 162 equity securities.

14.2%

27.2%

39.5%

19.1%

4.3% 4.9%

0.0%1.9%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

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Documents

India Daily, April 02, 2014 - Kotak Securities · Economy: RBI policy: Extended pause with hawkish undertone ` Interest rates unlikely to soften soon ` RBI maintains a hawkish undertone