Post Conference Report · 2014-06-16 · 6th Annual Global Investor Conference Index CEO TRACK Company/CEO Page Bharti EnterprisesMr Akhil Gupta, Dy Group CEO & MD 3 Vedanta Mr Navin

Post Conference Report

featuring

CEO Track14 CEO presentations4 Thematic presentations

and

Company ConnectTakeaways from companyinteractions

RE-SHAPINGINDIA

6th Annual Global Investor Conference

Index

CEO TRACKCompany/CEO PageBharti Enterprises Mr Akhil Gupta, Dy Group CEO & MD 3Vedanta Mr Navin Agarwal, Vice Chairman 4ONGC Mr R S Sharma, Chairman & MD 5Wipro Mr Girish Paranjpe, Jt CEO 6GSK Pharma Dr Hasit Joshipura, MD-India & V - S.Asia 7Future Group Mr Kishore Biyani, CEO 8HDFC Mr Keki Mistry, Vice Chairman & CEO 9Unitech Mr Sanjay Chandra, MD 10HDFC Bank Mr Aditya Puri, MD 11L&T-IDPL Mr K Venkatesh, CEO 12ICICI Bank Ms Chanda Kochhar, MD and CEO 13Zee Entertainment Mr Punit Goenka, MD & CEO 14Jindal Steel & Power Mr Sushil Maroo, Director 15

Thematic presentations

Politics & DevelopmentMr Nitin Gadkari, President, Bhartiya Janata Party 16

Rural IndiaMr Pradeep Kashyap, CEO, MART 17

Health Of Corporate IndiaMs Roopa Kudva, Managing Director & CEO, CRISIL 18Central Challenges of IndiaMr Ramachandra Guha, Eminent Historian and Writer 19

Company Connect: Conference TakeawaysSector/Company Page

AutomobilesAshok Leyland ............................................................................ 21Bajaj Auto .................................................................................. 22Mahindra & Mahindra .................................................................. 23

Banking, Finance & InsuranceAxis Bank ................................................................................... 24Bank of India .............................................................................. 25Dewan Housing Finance .............................................................. 26HDFC .......................................................................................... 27HDFC Bank ................................................................................. 28ICICI Bank .................................................................................. 29ING Vysya Bank .......................................................................... 30Kotak Mahindra Bank .................................................................. 31Punjab National Bank .................................................................. 32Rural Electrification Corporation ................................................. 33Shriram Transport Finance .......................................................... 34State Bank of India ..................................................................... 35Union Bank of India .................................................................... 36Yes Bank ..................................................................................... 37

EngineeringBHEL ........................................................................................... 38KEC International ....................................................................... 39Larsen & Toubro ......................................................................... 40Voltas ......................................................................................... 41

FMCGAsian Paints ................................................................................ 42Dabur India ................................................................................ 43Ghari Industries .......................................................................... 44Hindustan Unilever ..................................................................... 45Marico ........................................................................................ 46Radico Khaitan ............................................................................ 47

Information TechnologyFinancial Technologies ................................................................. 48Infosys Technologies .................................................................. 49Tata Consultancy Services .......................................................... 50Wipro ......................................................................................... 51

InfrastructureC&C Constructions ..................................................................... 52Era Infra Engineering .................................................................. 53GMR Infrastructure .................................................................... 54Hindustan Construction .............................................................. 55MBL Infrastructure ..................................................................... 56Nagarjuna Construction .............................................................. 57Simplex Infrastructure ................................................................ 58

MediaDB Corp ...................................................................................... 59Network 18 Media and Investments ............................................ 60Zee Entertainment ...................................................................... 61

MetalsHindalco ..................................................................................... 62Jindal Steel and Power ................................................................ 63JSW Steel ................................................................................... 64Sterlite Industries ....................................................................... 65Tata Steel ................................................................................... 66

Oil & GasBPCL ........................................................................................... 67Cairn India .................................................................................. 68HPCL .......................................................................................... 69Indian Oil Corporation ................................................................. 70ONGC ......................................................................................... 71Oil India ...................................................................................... 72Reliance Industries ..................................................................... 73

PharmaceuticalsBiocon ........................................................................................ 74Dr Reddy’s Laboratories .............................................................. 75Glenmark Pharmaceuticals .......................................................... 76Lupin .......................................................................................... 77Opto Circuits .............................................................................. 78Sun Pharmaceuticals ................................................................... 79

Real EstateAnant Raj Industries ................................................................... 80DLF ............................................................................................ 81DB Realty ................................................................................... 82Godrej Properties ....................................................................... 83Mahindra Lifespaces ................................................................... 84Unitech ....................................................................................... 85

RetailingPantaloon Retail ......................................................................... 86Shoppers' Stop ........................................................................... 87

TelecomIdea Cellular ............................................................................... 88Reliance Communications ............................................................ 89Tulip Telecom .............................................................................. 90

TextilesVardhman Textiles ....................................................................... 91

UtilitiesCESC .......................................................................................... 92GVK Power and Infrastructure .................................................... 93JSW Energy ................................................................................ 94Nuclear Power Corporation ......................................................... 95Reliance Infrastructure ............................................................... 96Reliance Power ........................................................................... 97

OthersHavells India ............................................................................... 98Jain Irrigation ............................................................................. 99Sintex Industries ...................................................................... 100


THE INDIAN ECONOMY has shown strong resilience during the global slowdown, andis now in its exciting journey of growth of >8%. The stock markets have respondedvery positively, and FII flows in CY10 YTD have already crossed US$10b.

Aggregate 1QFY11 performance of leading Indian companies seems to be broadly in-line.The Indian corporate sector seems on track to achieve 25% earnings CAGR over FY10-12.

It was in this opportune backdrop that we at Motilal Oswal held our 6th Annual GlobalInvestor Conference over August 2-4, 2010 at the Grand Hyatt in Mumbai.

Our Global Investor Conference in 2009 was arguably the biggest ever Investor Conferencein India by any brokerage house. This year was bigger by another 40%. About 110 leadingIndian companies across sectors participated this year, compared to 80 in 2009. In all, the3-day Investor Conference facilitated over 3,200 company-investor interactions, comparedto 2,300 in 2009.

The unique features which mark Motilal Oswal Annual Global Investor Conferences wereretained and enhanced.

CEO Track: During the first two days of the conference, 14 CEOs of some of India'sbiggest and fastest growing companies shared their vision, their strategies and theirsuccess stories.Four thematic presentations: There were four thematic presentations by eminentpersonalities on a diverse range of themes:1. Mr Nitin Gadkari, National President of BJP spoke on pragmatic politics2. Mr Pradeep Kashyap, founder of MART, made a compelling case for the Rural

India opportunity3. Ms Roopa Kudva, MD & CEO, CRISIL, reassured us on the health of Corporate

India and4. Mr Ramachandra Guha, eminent historian and writer, traced the history of

independent India and articulated three central challenges currently facing thecountry.

Two luncheon panel discussions: On each of the first two days was a paneldiscussion over lunch. On day one, the topic was "India's Next Trillion Dollar Opportunity:The Size Catalyst", and on day two, "The Indian Consumer Wallet: Evolving, Exploding… Exciting". The panelists were leading CEOs from various sectors.And last but not the least was a unique session on "The India Story: Past,Present and Future" by India's best storyteller, Mr Javed Akhtar, and a special show bystar Bollywood actor, Mr Boman Irani.

We believe the conference lived up to its theme of "Re-shaping India", leaving investorswith several interesting insights, winning themes, greater conviction, and the best investmentideas.

We will be organizing our 7th Annual Global Investors Conference in 2011 as well, onlybigger, bolder and better. We look forward to your participation in that event.

Navin Agarwal Rajat RajgarhiaCEO - Institutional Equities Director - Research

Conference Highlights

1August 2010


CEO Track

2August 2010

Company/Keynote* presentationsCompany/CEO

Bharti Enterprises Mr Akhil Gupta, Dy Group CEO & MD

Vedanta Mr Navin Agarwal, Vice Chairman

ONGC Mr R S Sharma, Chairman & MD

Wipro Mr Girish Paranjpe, Jt CEO

GSK Pharma Dr Hasit Joshipura, MD-India & V - S.Asia

Future Group Mr Kishore Biyani, CEO

HDFC Mr Keki Mistry, Vice Chairman & CEO

Unitech Mr Sanjay Chandra, MD

HDFC Bank Mr Aditya Puri, MD

L&T-IDPL Mr K Venkatesh, CEO

ICICI Bank Ms Chanda Kochhar, MD and CEO

Zee Entertainment Mr Punit Goenka, MD & CEO

Jindal Steel&Power Mr Sushil Maroo, Director

Thematic presentations

Politics & DevelopmentMr Nitin Gadkari, President, Bhartiya Janata Party

Rural IndiaMr Pradeep Kashyap, CEO, MART

Health Of Corporate IndiaMs Roopa Kudva, Managing Director & CEO, CRISIL

Central Challenges of IndiaMr Ramachandra Guha, Eminent Historian and Writer

3August 2010


Bharti Airtel

Key Takeaways

Core essence: The Indian Telecom sector is set to enter the second revolution, drivenby broadband and value-added services along with voice.

Industry insightsApparent measures like wireless penetration (~50%), population coverage (~84%),and affordability (tariffs at UScent1/min) underscore the success of the IndianTelecom sector.Real measures of success for the industry are: (a) challenging and transforming thetraditional mindset about the Telecom business by maintaining profitable growthdespite low ARPU, high MOU, and high pre-paid subscriber base, (b) outsourcingnetwork operations and IT, and (c) sharing infrastructure with competitors (e.g.Bharti, Vodafone and Idea pooling their infrastructure under JV, Indus Towers).Universal Service Obligation fund (~US$4.5b) can be productively used for rural 3Grollouts.Mobile banking and m-commerce are the only practical means for financial inclusionand an attractive business opportunity for the Telecom sector.Indian wireless sector has seen two major rounds of competition in 2003 and 2009.In terms of competitive intensity, the worst seems to be over.

Company vision and strategyBharti is confident of implementing its “minutes factory” model in other emergingmarkets.3G is unlikely to be priced very affordably, given the high payouts made for 3Gspectrum.Leading companies like Bharti are emerging stronger from the recent tariff wars.Bharti is set become an Indian MNC – from operations in 1 circle (Delhi) in 1996 to15 countries in 2010.It is unlikely to participate in potential industry consolidation.

Key triggers/milestones/challengesNational Policy for Telecom and Related Infrastructure treating Telecom at par withessential servicesGrowth in broadband market post 3G rolloutsRationalization of taxes and license feesResolution of equipment-related security issuesRBI regulations on m-banking and m-commerce awaited

Mr Akhil Gupta is the DeputyGroup CEO & Managing Director ofBharti Enterprises and a Director ofBharti Airtel. He has been closelyinvolved from the very beginning inthe growth of Bharti in thetelecommunication services sector.He has led the formation of variouspartnerships for Bharti with leadinginternational operators like BritishTelecom, Singapore Telecom andmost recently Vodafone in additionto induction of financial investors likeWarburg Pincus, Asia InfrastructureFund and New York Life.

Mr Gupta has also been responsiblefor conceptualizing and implementingthe separation of passive mobileinfrastructure and forming IndusTowers a Joint Venture with Vodafoneand Idea, which has become alargest tower company in the world.With innovative thought leadership,he has been able to guide Airtel inbecoming perhaps the lowest costproducer of minutes worldwide andensuring that it provides very highROE despite the lowest tariffs in theworld.

A Chartered Accountant byqualification, Mr Gupta also overseesthe investor relations and corporategovernance at Airtel. He has beenrepresenting the Indian TelecomIndustry and Bharti regularly atvarious forums and importantseminars in India and abroad.

Covering Analyst(s):Shobhit Khare+91 22 3982 [email protected]

CEO Track

Mr Akhil GuptaDy Group CEO & MD,Bharti EnterprisesDirector, Bharti Airtel

4August 2010


Key Takeaways

Core essence: Vedanta Group companies will be top-5 producers of iron ore, aluminum,and zinc-lead-silver. Sesa Goa is targeting 50mtpa of iron ore production by FY13. Industry insights

Domestic metal demand is likely to grow 8-10%, driven by GDP and infrastructuregrowth. Metal consumption in India has significant potential to grow.Over the next five years, aluminum per capita consumption in India is likely to growat 9.6% CAGR, the fastest in the world, to 1.7kg by 2014. Even then, India’s percapita consumption will be much lower than the global average of 7.3kg.Copper per capita consumption in India is likely to increase at 8% CAGR, again thefastest in world, to 0.7kg by 2014. It will still be much lower than the global averageof 3.1kg.Demand for power is likely to grow at a CAGR of 10% over FY10-15 v/s CAGR of7.1% in the last five years. Supply of power, on the other hand, is likely to increaseat 9.8% over FY10-15 v/s CAGR of 6.6% over the last five years.

Company vision and strategy

Sesa Goa’s iron ore production is likely to grow to 50m tons by FY13.Post expansion at Rampur Agucha and acquisition of Anglo’s assets, Vedanta hasbecome the world’s largest producer of zinc and lead, with a total capacity of~1.5mtpa.Silver production will grow 3x to 16m ounces by FY13.Aluminum capacity will grow 5x to 2.5mtpa by FY13, while cost of production islikely to be US$1,000-1,100/ton (in the lowest quartile).Commercial power generation will grow 10x to 5,500MW by FY14.

Key triggers/milestones/challengesSterlite Energy’s first 600MW commercial power plant is in advanced stage ofcommissioning. Other three units are likely to be commissioned by 1HFY12.Clearance for Nyamgiri bauxite minesCommissioning of 1,200MW CPP and 325ktpa smelter at BalcoRamp-up of zinc, lead and silver production at Hindustan Zinc.

Vedanta Group

Mr Navin Agarwal is DeputyExecutive Chairman, VedantaResources. He is responsible for thegroup’s business strategy as well asfor overseeing its overallperformance and growth. He chairsthe group’s Executive Committee.

Vedanta Resources, the first Indianmanufacturing company to be listedon the London Stock Exchange, is adiversified metals and miningcompany, with revenues in excessof US$6 billion. Mr Agarwal directsthe planning, execution, andcompletion of the group’s strategicorganic growth projects. He is alsoresponsible for inorganic growth,strategic treasury and fund raisinginitiatives, global investor relations,and talent management.

Mr Agarwal is the Executive ViceChairman of Sterlite Industries, andthe Chairman of Koncola CopperMines (KCM) and Malco. He is Directorin several companies - Balco,Hindustan Zinc, Vedanta Aluminum,Sterlite Infrastructure, SterliteEnergy, Finsider InternationalCompany.

Mr Agarwal has completed theOwner/President ManagementProgram at Harvard University andhas a Bachelor of Commerce fromSydenham College, Mumbai.

Mr Navin AgarwalVice ChairmanVedanta CEO Track

Covering Analyst(s):Sanjay Jain+91 22 3982 [email protected]

Tushar Chaudhari+91 22 3982 [email protected]

5August 2010


Mr R S SharmaChairman & MDONGC

ONGC

Key Takeaways

Core essence: India will account for 15% of incremental global demand, but has only0.5% of global hydrocarbon reserves.

Industry insightsDemand destruction has led OPEC to cut its crude supplies by 4.2mmbbl/d and itsspare capacity is at higher levels of 6-7mmbbl.Production from non-OPEC fields has declined 6.5% during the period 2000-08.New discoveries are smaller in size and also in more difficult deepwater areas,resulting in greater challenges in terms of technology and investments.Shale gas revolution in the US has resulted in dramatic change in global gas markets– glut in LNG markets and softer gas prices.BP spill in Gulf of Mexico will have a huge negative impact on the industry’s offshoreactivities.India’s oil import dependence is already high at 77% and will move up constantly.

Company vision and strategyAs against a decline in non-OPEC fields, ONGC’s production has remained relativelystable due to its investments in IOR/EOR activities (additional production of 8mmtsince 2001).Since FY01, ONGC has already invested Rs365b on IOR/EOR and redevelopmentprojects, and is currently undertaking projects worth Rs237b. ONGC’s RRR (reserve to replacement ratio) has been above one for the last sixyears; reserve accretion at 83mmtoe (3P) in FY10 has been the highest in twodecades.

Key triggers/milestones/challengesSubsidy sharing: In 1QFY11, upstream shared 1/3rd of total under-recoveries, ofwhich ONGC shared 80%. The company expects the government to rationalizesubsidy sharing.Development of East-coast discoveries: ONGC will adopt hub development forits East-coast discoveries (G-4-6, GS-29-1, G-4-5, KG-DWN-98/2, IB) in three phases.Production is likely to commence in 2012-13, with likely production of >30mmscmd.Daman offshore development: Post fast track development of B-12 and C-24fields in this area, production is likely to reach 10-15mmscmd.Production outlook: Crude oil production is likely to increase from 24.9mmt to28mmt in FY13. Gas production will increase from 63mmscmd in FY10 to >72mmscmdin FY13 and >100mmscmd in FY16.

Covering Analyst(s):Harshad Borawake+91 22 3982 [email protected]

Bivek Anand+91 22 3982 [email protected]

Milind Bafna+91 22 3982 [email protected]

Mr R S Sharma is Chairman andManaging Director, ONGC since May2006. He is also the Chairman ofONGC Videsh, Mangalore Refineriesand Petrochemicals, and otherONGC group of companies.

Mr Sharma has varied experience inProject Management, Finance andCorporate Affairs. He joined ONGCBoard as Director (Finance) in March2002. Before joining the ONGCBoard, he was appointed as Director(Finance) of ONGC Videsh Limited -a wholly owned subsidiary of ONGCin January 2002, a position heconcurrently held till November 2002.

Mr Sharma, a Fellow Member of theInstitute of Cost & WorksAccountants of India and anAssociate Member of the IndianInstitute of Bankers, hasparticipated in various managementprograms in India and overseas.

CEO Track

6August 2010


Mr Girish Paranjpe,Jt CEOWipro

Wipro

Key Takeaways

Core essence: Wipro is aligned to the needs of the 21st century corporation.

Industry insightsThe 21st century corporation is a lean organization which performs only coreoperations, and outsources all non-core operations.Such a 21st century corporation will need a transformation partner that will enablebusiness outcomes rather than merely offer services on hire.Technology (both hardware and software) will lead innovation and change; technologyareas include [1] Cloud Computing, [2] Collaboration, [3] Green Technology, [4]Social Computing, [5] Information Management, [6] Mobility, and [7] Security.

Company vision and strategyWipro is well positioned to emerge as the transformation partner of the 21st centurycorporation by offering a 6-pronged solution: (1) Client Engagement Program, (2)Domains and Solutions, (3) Technology Investments, (4) Full Stack and Cloud, (5)Growth Engines, and (6) Operational Excellence.Wipro has established capabilities and a broad portfolio across verticals, geographiesand service lines. It has a comprehensive IT Services portfolio in India and theMiddle East.To tap the technology opportunity, Wipro plans to establish leadership in R&D – ithas 18,000 engineers, who design both hardware and software products.

Key triggers/milestones/challengesThe contribution of fixed price projects (FPP) has increased by 20% in three yearsto 44% for Wipro. Higher proportion of FPP in the project mix necessitates efficientmanagement of manpower to ensure that delivery does not falter.Wipro’s confidence about Europe emerges from three factors: (1) While governmentfinances are weak, private sector finances are reasonably strong. Wipro has hardlyany exposure to government projects; (2) Wipro has low exposure to the affectedareas, mainly countries in southern Europe, Greece, Spain, Italy, Portugal, etc; and(3) Wipro also stated that the depreciation in the Euro has aided exports fromcountries like France and Germany, thereby helping it win more business.23% attrition levels are likely to result in margin pressures ahead, leading to RSUcharges, promotion impact (~20,000 people in the 3-7 year bracket).Active engagements of contractors (for domains without a long-term career growthpath within the organization) could cushion the pressures on margins and reducedelivery pressures.

Covering Analyst(s):Ashwin Mehta+91 22 3982 [email protected]

Ashish Chopra+91 22 3982 [email protected]

Mr Girish S Paranjpe is the JtChief Executive Officer of Wipro'sIT Business and an ExecutiveDirector on Wipro's Board. He jointlycarries the overall responsibility forstrategy and operations of Wipro'sIT Business. He took over this newrole effective April 2008. His directresponsibilities include the followingBusiness Units - Financial Services,Communication, Media, Telecom andTechnology.

Mr Paranjpe joined Wipro in 1990 andhas held a broad range of leadershippositions in critical portfolios acrossthe group. In his last role from 2000-08, he was the President of WiproTechnologies Financial Solutionsdivision, and a member of Wipro'sCorporate Executive Council. Underhis leadership, Financial Solutionshas clocked 45% CAGR over thepast five years, established valuablecustomer relationships, andsignificantly deepened domainexpertise.

Mr Parajpe has represented Wiproand the IT Industry in various publicforums including the Prime Minister'sTask Force on InformationTechnology, the NASSCOM and atleading global business schools. Heis also on the International AdvisoryBoard of Credit Agricole, retail bankleader in France and in Europe.

CEO Track

7August 2010


GlaxoSmithKline Pharmaceuticals

Dr Hasit JoshipuraManaging Director - India& VP - South AsiaGlaxoSmithKline Pharmaceuticals

Key Takeaways

Core essence: The Indian pharmaceuticals industry represents a large opportunitydue to favorable demographics and improving healthcare infrastructure. GSK is wellpositioned to capitalize on this opportunity.

Industry insightsThe Indian pharmaceuticals market is likely to sustain 12-14% growth in the comingyears partially led by growing medical insurance coverage (growing at 38-40% andstill covers less than 5% of the population) and higher spending by the government(currently 1% of GDP, targeted to go up to 2% of GDP).Large growth can come from the segment, which is at bottom of the pyramid, withappropriate product pricing.Medical tourism will be another growth driver for Indian pharmaceuticals, due tolarge differentials in cost of healthcare in developed markets and emerging marketslike India.

Company vision and strategyLeveraging on the large pipeline of its parent, GSK PlcExpanding presence in branded generics segment and pursuing in-licensingopportunitiesGradual transitioning from acute to chronic therapies (lifestyle segments) andsustaining dominant position in vaccinesPursuing inorganic growth opportunities (brand acquisition) at reasonable valuations– the company has Rs18.6b cash on hand as of 31 December 2009.Profitability to be driven by operating leverage, improved productivity and criticalmass rather than increase in pricing

Key triggers/milestones/challengesSustained pace of new launches including patented products (like Eltrombopag inCY10)Ramp-up in Rotarix and Cervarix sales over the next 2-3 yearsRamp-up in sales of patented products to 10-15% of turnover by 2015

Dr Hasit Joshipura is a graduatein Electrical Engineering from VJTI,Mumbai University, and a PostGraduate from Indian Institute ofManagement, Ahmedabad. He hascompleted his Doctorate program atthe School of Management at IITMumbai.

After having spent about three yearswith the Tata AdministrativeServices, Dr Joshipura has spentabout 16 years with the UnileverGroup of companies in India and heldpositions of increasing responsibilityin commercial, sales, marketing andbusiness management functions. InOctober 2001, he joined thepharmaceutical business of Johnson& Johnson, as President & ExecutiveDirector, a position he held untilAugust 2006.

In October 2006, he was appointedVice President, South Asia andManaging Director India withGlaxoSmithKline Pharmaceuticals(GSK). He is also Chairman of theboards of GSK Bangladesh and GSKSri Lanka.

Dr Joshipura is a member of the Boardof Governors of VJTI and is also onthe Board of Governors of theIndian Institute of Management,Ahmedabad.

Covering Analyst(s):Nimish Desai+91 22 3982 [email protected]

Amit Shah+ 91 22 3982 [email protected]

CEO Track

8August 2010


Future Group

Key Takeaways

Mr Kishore Biyani made a joint presentation with Mythologist and Chief Belief Officer ofFuture Group, Mr Devdutt Pattnaik. It was a rather unconventional presentation coveringhow the Future Group is applying principles of mythology to its everyday business.

Core essence: Belief + Behavior = Business

Industry insightsModern retail is operating in a different environment in India. Unlike the West,modern retail is propelling higher spending by consumers.Opening up of FDI (foreign direct investment) to retail is good for well-establishedplayers like Pantaloon, as it will help them address their funding requirements.However, if there are too many foreign players, it may end up as lose-lose for all.

Company vision and strategyLeading retailers like Wal-Mart and Tesco are 2-3% of their respective country'sGDP. There is a similar possibility in India, and Pantaloon is eyeing such a positionas and when it arises.The Future Group is re-designing its business structures, systems and strategiesalong certain mythological principles and value systems. For instance, the valuesystem of "Customer is God; Retailing is Religion; and the Store is the Temple" isbeing imbibed across Pantaloon. Likewise, the store manager is "coronated" as"Karta", the Sanskrit term for overall caretaker of all store constituents includingcustomers, employees, suppliers, etc.Focus on specific product categories (mainly Food, Fashion and Home) has resultedin the group doing well in the retail business. The company's balance sheet is nowstrong and cash flows from operations will exceed incremental investments in thecoming 12-15 months.

Key triggers/milestones/challengesThe key challenge for any business is recruiting and retaining professionals whosebeliefs and behaviors are aligned with that of the organization.The Future Group is actively engaged in identifying "Duryodhans" within theorganization so that the overall business remains on track.

Mr Kishore Biyani is the Group CEOof Future Group and ManagingDirector of Pantaloon Retail. He hasled the emergence of PantaloonRetail as the leading retailer in thecountry. While retail continues toform the core business of FutureGroup, Mr Biyani has led the group'sforay into allied businesses spanningthe consumption space. FutureGroup's other businesses includefinancial services, insurance, branddevelopment and logistics.

Led by its flagship enterprise,Pantaloon Retail, the group operatesaround 15 million square feet of retailspace in over 71 cities and townsand 65 rural locations across India.The group's retail arm follows a multi-format retail strategy and some ofits leading formats include, BigBazaar, Central, Food Bazaar,Pantaloons, Ezone, Home Town andPlanet Sports. It also operatespopular shopping portal,futurebazaar.com and rural retailchain, Aadhar.

A staunch believer in the group'scorporate credo, 'Rewrite Rules,Retain Values,' Mr Biyani considersIndianness as the core value drivingthe group. He recently authored thebook, 'It Happened In India.'

Covering Analyst(s):Amnish Aggarwal+91 22 3982 [email protected]

Nikhil Kumar+91 22 3029 [email protected]

Mr Kishore BiyaniFounder & CEOFuture Group CEO Track

THE BELIEF-BEHAVIOR ALIGNMENT MATRIX

Beliefs(unseen)

Yes

Aligned?

No

Behavior (seen)No Aligned? Yes

Krishna Ram

Ravan Duryodhan

9August 2010


HDFC

Mr Keki MistryVice Chairman & CEOHDFC

Key Takeaways

Core essence: HDFC’s Housing Finance business is likely to grow at a CAGR of 20-25%over the next few years, with RoE improving at least 100bp every year. Subsidiaries willnow contribute significantly to growth.

Industry insightsHDFC remains optimistic about demand for housing finance. India’s mortgage toGDP ratio is just 7% as compared to 80%+ in developed countries like UK and USA.Key growth drivers for housing are: (1) increased affordability, mainly due to increaseddisposable income – average house value has fallen from 22x annual income in1995 to 4.7x in 2010, (2) rising urbanization – 28% in 2010; expected to increase to40% by 2030, and (3) favorable demographics – average age of home buyers is 35,and currently, ~60% of the Indian population is below the age of 30 years.Government statistics place current housing shortage in India at 25m units.

Company vision and strategyHDFC maintains a standard of income based lending, thereby cancelling out exposureto volatility in real estate prices.On AUM basis, the company will continue to keep individual loans to corporate loansratio at 70:30. Owned branches and affiliates will continue to be a dominant sourcefor loan growth (currently contributing 92%).Introduction of base rate will not have a significant impact on the borrowing cost forHDFC, as it has the flexibility to borrow incremental money by issuing bonds anddebentures that even banks can subscribe below the base rate.The company plans to sustain its cost/income ratio at ~8%, going forward.HDFC intends to grow RoE by ~100bp every year. It plans to achieve breakeven in itslife insurance business in FY11, and expects to turn profitable by FY12.

Key triggers/milestones/challengesImproving profitability from asset management and insurance businesses will bekey to long-term profitability.Listing of insurance arm is an important trigger to unlock value.Margins will sustain in the traditional range of 2.15-2.25%.

Covering Analyst(s):Alpesh Mehta+91 22 3982 [email protected]

Abhishek Agarwal+91 22 3982 [email protected]

Mr Keki Mistry is the ViceChairman & CEO of HousingDevelopment Finance Corporation(HDFC).

Mr Mistry began his career with TheIndian Hotels. He joined HDFC in1981. He was inducted on to theBoard of Directors of HDFC as anExecustive Director in 1993 and waselevated to the post of ManagingDirector with effect from November2000. In October 2007, Mr Mistrywas appointed as Vice Chairman &Managing Director, and in January2010, he was elevated to his currentposition.

Mr Mistry obtained a BachelorsDegree in Commerce from theBombay University. A qualifiedChartered Accountant and a FellowMember of the Institute ofChartered Accountants of India, MrMistry is also a member of theMichigan Association of CertifiedPublic Accountants, USA.

Mr Mistry is a Director on the Boardof several Indian companies apartfrom HDFC.

CEO Track

10August 2010


Unitech

Mr Sanjay Chandra,Managing DirectorUnitech

Key Takeaways

Core essence: Unitech is now focusing on projects with quick monetization ratherthan high margin.

Industry insightsLuxury/premium housing accounts for just 4-5% of the real estate market; mid-income and affordable housing account for a much higher proportion.There is unmet demand of ~24m houses, which provides companies with focus onmid-income housing at correct price points a secular opportunity – 18-20% industrygrowth appears likely for FY10 (growth could surprise also).The commercial/retail vertical is unlikely to witness full recovery before two years.Leasing volumes in SEZs have reduced. A lot will depend on the impact of DTA postFY11.

Company vision and strategyFocusing on volumes and cash flows to boost IRRs: Rather than focusing onmargins, Unitech is focused on the mid-income/affordable housing vertical to achievevolumes, increase cash flows and boost IRRs. This is a change from Unitech’s earlierstrategy to focus on luxury/premium housing.Focus entirely on execution: Unitech is focusing on execution to accelerate itscash flows and achieve higher output capability. It currently has ~35msf of projectsunder construction and hopes to achieve sales of 12-14msf in FY11. It is working onstandardizing its processes to reduce cost and time. The management is hopefulthat these steps would enable the company to achieve higher throughput.Aggressive growth plans for UT Infra: Unitech has aggressive growth plans toexpand in the infrastructure business through its 35% associate company, UT Infra.Its prior experience in this field coupled with strong in-house order book fromresidential sales in Unitech would allow UT Infra to achieve strong growth ahead.

Key triggers/milestones/challengesPossible listing of de-merged entity, UT Infra.Another key trigger would be successful acquisition of UCP and its integration withUnitech Infra, as it would allow UT to benefit significantly from the ongoing recoveryin the commercial vertical.Execution ramp up would be the key challenge for Unitech. As on FY10 Unitech had~38msf of residential projects under construction, while it plans to sell ~12msf inFY11. UT is slated to deliver ~22msf of projects over FY11-13.

Covering Analyst(s):Siddharth Bothra+91 22 3982 [email protected]

Sandipan Pal+91 22 3982 [email protected]

Mr Sanjay Chandra joined Unitechas Head of Sales & Marketing in 2002.Subsequently, he was elevated tothe position of Managing Director.

He has been instrumental in creatingand launching several projects thathave set a new benchmark of quality,size and performance in the Indianreal estate industry. Under hisleadership, Unitech has beensuccessful in raising capital in a verychallenging environment. He is alsothe Chairman of Unitech Wireless,the company’s wireless venture.

Prior to Unitech, Mr Chandra foundedIkon Clothing Inc in 1996 in New York,USA, where he was FounderPresident up to 2001.

After his schooling from ModernSchool, Vasant Vihar, New Delhi, MrChandra did his further studies inBusiness Management at Universityof Massachusetts and BostonUniversity.

CEO Track

11August 2010


HDFC Bank

Mr Aditya Puri,Managing DirectorHDFC Bank

Key Takeaways

Core essence: Strong economic growth (8%+) will aid robust growth for financialintermediaries (20%+). HDFC Bank expects to grow at least 5% higher than industry.

Industry insightsGDP growth would be 8-8.5% and higher growth in agriculture could further boostgrowth. Fiscal deficit would continue to trend downwards in line with 5% guidancegiven by the Finance Minister.Inflationary pressure would continue (average inflation of 6-7%) and the bias forinterest rate would be upwards.The Indian banking industry is well placed, given the low leverage, higher provisionsand strong asset-liability management.Not concerned about RBI’s issuance of new licenses; enough competition exists.HDFC Bank believes that the grant of new banking license would have a bias towardsrural areas, where there is enough opportunity for new banks to start.Opening of branch licensing policy for foreign branches would not be meaningful asthe market share of foreign banks is relatively low.Consolidation in the banking industry will not happen in the true sense till there isconsolidation in state-owned banks.Deposit rate hikes will be aggressive, given the expected liquidity deficit in 2HFY11.Indian corporates will rely more on domestic credit, as global liquidity is unlikely tosupport borrowing plans.

Company vision and strategyCustomer segmentation, product diversification, effective utilization of technologicalcapabilities and immaculate execution are key success factors.To grow faster than industry average and increase market share.Retail loans and working capital demand would continue to drive loan growth.However, corporate loan growth is likely to be higher than retail loan growth.HDFC Bank will continue its focus on the domestic market; however, it would like toparticipate in the international trade opportunity emerging from domestic corporates.

Key triggers/milestones/challengesNIMs are likely to remain stable at 4.1-4.2% in FY11. Focus over the next 12 monthswill be on improving productivity of CBoP branches.Branch expansion will be limited. CASA ratio will see some decline as interest ratesrise; unlikely to sustain at ~50%.



Mr Aditya Puri is the ManagingDirector of HDFC Bank since itsinception in 1994. His vision was tocreate a "World Class Indian Bank".And, he did.

Mr Puri is credited with usingtechnology to change the waybanking is done in India. From therange of products to their deliveryto sheer convenience of banking,HDFC Bank has made significantstrides in the banking space. Prior toHDFC Bank, Mr Puri was ChiefExecutive of Citibank, Malaysia.Currently, he is also DeputyChairman of the Indian BanksAssociation.

Mr Puri is a commerce graduate fromPunjab University and a qualifiedChartered Accountant. He did hisschooling from Bishop's School,Pune.

Mr Puri has received many awards inhis illustrious career, the most recentones being:

Businessman of the year 2009 -Business IndiaBest Innovative Banker - FinancialExpress India's Best Banks Awards2009Best CEO in India 2009 - FinanceAsia annual poll of Investors andAnalysts

CEO Track

12August 2010


Larsen & Toubro

Mr K Venkatesh,CEO,L&T-IDPL

Key Takeaways

Core essence: The Indian infrastructure space set to grow at an accelerated pace;core project development skills will drive value creation for L&T-IDPL.

Industry insightsThe Road sector is expected to revive after a brief lull. A large number of bids arelikely to open in the next three months. Initial thrust will be on 6-laning of roads.Along with this, bids for mega-road projects are also expected to open. Work onproposed expressways is unlikely to progress in the next two years.There is scope for growth in Metro Rail and port segments.In Power, apart from the Generation segment, the T&D segment too is likely tocreate opportunities in terms of developmental projects. L&T-IDPL expects bids ofRs500b-700b in the next 3-4 years.However, the Indian Airport sector currently has limited opportunities for privatization,except for the proposed Navi Mumbai project. The new Bengaluru airport will gothrough expansion program in next three years.

Company vision and strategyAround 25% of the company’s assets are operational, 25% will be so in the nexttwo years. This will be an important milestone for its proposed fund raising plans.L&T-IDPL's turnover of Rs10b will accelerate over the next few years.It has set an IRR benchmark and strictly follows it for project evaluation, even incases such as the extremely complex Hyderabad Metro project.Future growth will be driven by the Transportation, Ports and Power sectors. Thecompany aims to have 30-40% exposure to Power and the remaining to Non-Powerassets. It aims to grow its asset base to over US$20b in the next few years.The company is evaluating various fund raising options; it intends to raise funds inthe next one year.It targets a BOT portfolio size of Rs800b-1,000b (Non-Power: Rs500b-600b; Power:Rs300b-400b).

Key triggers/milestones/challengesFund raising, listingSuccess in large power projects, including UMPPs and mega road contractsDhamra port will be commissioned in the next three weeks.Political uncertainty remains a key challenge.Land availability is an issue with large projects, and any delay can impact returns.

Covering Analyst(s):Dhirendra Tiwari+91 22 3029 [email protected]

Navneet Iyengar+91 22 3982 [email protected]

Mr K Venkatesh is the CEO of L&TInfrastructure DevelopmentalProjects Limited, L&T's Investmentand Development arm.

He has more than three decades ofexperience in Project/CompanyFinance and Accounts, Structuring,Bidding, Project Management,Financial Closure, Operations &Maintenance of InfrastructureProjects in sectors such as Roads &Bridges, Seaports, Hydel Power,Water Supply Projects, InformationTechnology Parks, Retail Buildings,Hospitality and Residential Projects.

A Chartered Accountant and a CostAccountant, Mr Venkatesh has alsoobtained a Post-Graduate Diploma inBusiness Management from XLRI,Jamshedpur.

CEO Track

13August 2010


ICICI Bank

Ms Chanda KochharManaging Director and CEOICICI Bank

Key Takeaways

Core essence: To resume growth strategy and continue to focus on 4C’s (increasingCASA base, Cost reduction, Credit quality and Capital conservation). Improving RoE to15% is a key focus area, with RoA improving to 1.4-1.5% by FY12.

Industry insightsGDP growth would remain robust at 9-10%.Inflationary pressures still persist in the economy, with demand-side pressurecontinuing. ICICI Bank expects inflation to decline to 7% by March 2011.Although credit growth has picked up, the base (pick-up from different segments)requires broadening.While deposit rates have already started increasing, interest rates on the lendingside would move up gradually in 2HFY11.With corporate activity picking up, current deposits flow would be lower. Hence,advances growth would outpace deposits growth.

Company vision and strategyBalance sheet growth is likely to be ~20%; CASA ratio is expected to remain atcurrent level (as of 1QFY11, core CASA ratio stood at 37%).While there may not be absolute reduction in costs, going ahead, CI ratio would bemaintained at ~40% (and at ~1.6% as a percentage of average assets).Credit quality is gradually improving, with net accretion to NPAs declining. Further,1QFY11 saw reduction in restructured accounts from Rs53b to Rs37b. It is on courseto achieve 70% coverage ratio much before RBI’s deadline of March 2011.Loan book growth for FY11 would be ~15%, within which the domestic book wouldgrow at 20% and international book in single-digit. In FY12-13, loans are likely togrow 20-22%, again driven by domestic loans.ICICI Bank awaits approval from RBI for completing the merger of Bank of Rajasthan.It expects the merger to boost CASA base, enhance third-party product distributionand support the branch-centric banking model.The new IRDA guidelines augur well for the future of the life insurance industry andwould benefit policy holders. ICICI Bank’s focus would be to make the insurancebusiness more profitable by cutting costs and optimizing commission payments.

Key triggers/milestones/challengesManaging quality growth is a key challenge.There would be no immediate unlocking of value from the insurance businessconsidering the change in regulatory environment. Further, as the insurance businesshas turned profitable, it does not need fresh capital to grow.



Ms Chanda Kochhar is theManaging Director and ChiefExecutive Officer of ICICI Bank. Shebegan her career with ICICI as aManagement Trainee in 1984. In1993, when ICICI decided to entercommercial banking, she wasdeputed to ICICI Bank as a part ofthe core team to set up the bank.Since then, she has served the bankunder different roles.

Ms Kochhar, a qualified CostAccountant and an MBA, has wonseveral awards and accoladesincluding the 'Banker of the Year'Award by Financial Express in July2010.

Apart from being on the Board ofICICI Bank and various groupcompanies, Ms Kochhar is a memberof the Prime Minister's Council onTrade & Industry, US-India CEOForum, Executive Board of theIndian School of Business,Hyderabad, Member of the Board ofGovernors of Indian Council forResearch on International EconomicRelations (ICRIER), Member of theManaging Committee of the IndianBanks Association and also a memberof the Council of Scientific andIndustrial Research (CSIR) Society.

CEO Track

14August 2010


Zee Entertainment Enterprises

Key Takeaways

Core essence: Strength in numbers; Zee network is ideally placed with its diversifiedchannel portfolio.

Industry insightsDigitization will be a significant revenue driver, going forward. Trends indicate thatDTH subscriber base can increase to ~70m in the next four years v/s ~23m currently.Share of television in advertising revenues is likely to continue increasing from thecurrent level of 40-42%.Industry ad revenues are likely to grow at 14-15% in FY11.Potential sunset clause on analog broadcasting would be a positive.Sports business continues to be a loss making proposition for the industry. Turnaroundis likely only post digitization, when subscription revenue becomes a meaningfulcontributor, as broadcasters will be able to charge a premium for sports properties.Regional markets will continue to grow at a faster pace, given lower penetration ofbroadcasting (v/s print) in these markets.

Company vision and strategyZee leads the industry in profitability metrics. It will maintain a disciplined investmentphilosophy, with focus on returns and profitability.It aims at maintaining its leadership and becoming a number-1 or number-2 playeracross its operating genres, including regional channels.The company is looking at genres like cookery, golf, and kids channels to furtherenhance its addressable market.Zee expects to maintain or grow EBITDA margin from FY10 level of ~28%. However,it would be investing back more in content to consolidate its position.It is agnostic to the platform and has more than 90,000 hours of digitized content,which can be used for new media opportunities.

Key triggers/milestones/challengesLack of profitability in sports genre remains a challenge.Regulatory developments mandating digitization could be a big trigger for industry.Gearing up the content for new 10-12m households being added to C&S universeevery year.


Mr Punit Goenka is the ChiefExecutive Officer of ZeeEntertainment Enterprises. He alsoserves as a Director of other Esselgroup companies such as: EsselInfraprojects, Essel TelecomHoldings, Rochan (India), ZeeSports, Agrani Wireless Services,Agrani Satellite Services, ASC MobileCommunication, and Diligent MediaCorporation.

Mr Goenka started his career withZEE TV in 1995 as head of the Musicdivision. In 2004, he took charge asthe Business Head of Zee TV andthen as Chief Executive Officer inJuly 2008. Under his leadership, ZeeTV has made rapid progress into aleadership position among GeneralEntertainment Channels (GEC) inIndia.

Mr Goenka has participated invarious intensive ManagementEducation Programs – YoungManagers Program at INSEAD,France and a program on “Birthingof Giants” hosted by YoungEntrepreneurs’ Organization and MITEnterprise Forum, Boston, USA.

CEO TrackMr Punit GoenkaManaging Director & CEOZee Entertainment

15August 2010


Jindal Steel and Power

Mr Sushil MarooDirectorJindal Steel and Power

Key Takeaways

Core essence: Over 10 years, power capacity will rise 8x to 11,480MW and steelcapacity will rise 6x to 18mtpa. Industry insights

Merchant power rates are likely to be similar to the rates of Rs5-6/kwh that thestate electricity boards charge the user industry. On deducting wheeling chargesand transmission loss, commercial power plants should be able to extract realizationsof Rs4-5/kwh.It will become difficult to set up thermal power plants in India due to worseningdemand-supply equation of coal and environmental issues.Arunachal Pradesh has potential to set up 50,000MW of hydro power projects.Steel is likely to be in shortage once again in 2011 in India.

Company vision and strategyJindal Steel & Power has planned its growth in mineral-rich states of Chhattisgarh,Orissa and Jharkhand. It has coal resources of 2.6b tons and iron ore resources of180m tons.Its 3mtpa steel capacity in Chhattisgarh will be augmented by 6mtpa steel plant atAngul Orissa, 6mtpa steel plant in Jharkhand and 3mtpa steel plant in Chhattisgarh.Power capacity will rise to 5,380MW by FY15 and 11,480MW by FY20. Out of11,480MW capacity target, 6,100MW capacity addition will be by hydro projects.The company is contemplating more projects to keep the growth momentum.Coal-to-liquid project is unique in India. Jindal Steel & Power is likely to investUS$8b. It has been allotted the 1.5b-ton Ramchandani coal block in Orissa.

Key triggers/milestones/challenges

Captive power plant capacities of 1,350MW are likely to be commissioned in phasesduring FY11 and FY12. Sale of surplus power from these projects will drive earnings.Statutory clearances for Jindal Power’s 2,400MW thermal power project are likelyto be completed in the next 3-6 months.Steel and pellet production is expected to ramp up. Steel production will rise from2m tons in FY10 to 2.5m tons in FY11 and 3m tons in FY12.



Mr Sushil Maroo is the DeputyManaging Director of Jindal Powerand a Director on Jindal Steel &Power's (JSPL) Board.

A chartered accountant byprofession, Mr Maroo has workexperience of over two decades inthe field of financial management,accounts and corporate affairs. Eversince he joined JSPL in 2001, he hasplayed a key role in shaping JSPL'sexpansion, its financial planning andstrategic growth. Mr Maroo playedan important role in JSPL'sbreakthrough US$2.1 billion projectin South America apart fromexpansion of the company's Indiabusiness in Orissa and Jharkhand.Under his leadership, Jindal Powerhas set up India's first mega powerproject, the 1,000MW OP JindalSuper Thermal Power Plant inRaigarh, Chhattisgarh.

Mr Maroo holds various positions withnational chambers of commerce,including:

Member of ASSOCHAM's ExpertCommittee on PowerActive member of the ExpertCommittee on Iron & Steel since2008-09Member, Organizing Committee forFICCI's "Indian Electricity 2009".

CEO Track

16August 2010


Politics & Development

Key Takeaways

Core essence: Where there is political will, there is a way; where there is no will,there is a survey!

On politics & developmentGood politics is also good economics. According to Food Commissioner, NC Saxena’sCommittee Report (released in mid-2009), 50% of the Indian population earns lessthan US$1 per day and almost 90% earns less than US$2 per day. Unless developmentuplifts the lives of these people, it cannot be called real and sustainable development.If more and more people are given education and jobs, they will turn consumers, inturn leading to GDP growth and sustained growth in stock markets, as well.Increasingly, there is a need for an integrated approach, including a strong public-private partnership. The government should leave most of the business in privatehands, and step in only in those projects where returns are not adequate forcommercial activity.

On need for innovationInnovation is the key solution to many problems of development. Example – toll feesfor the Bandra-Worli sea link can be securitized to fund the equity portion of extendingthe sea link from Worli to Nariman Point. The expected toll on this can be furthersecuritized to fund the next project, and so on.Similarly, in Mumbai, huge quantity of sewage water is released into the seas,causing pollution. Instead, such sewage water can be treated and supplied to powerplants, conserving water resources and also protecting the environment.Innovation can be applied anywhere e.g. people are more than willing to pay for ahelicopter service connecting religious places in difficult terrains such as Badrinath,Kedarnath, Hrishikesh, etc.

On infrastructure as a key driver of developmentInfrastructure projects such as power, roads (including rural roads), irrigation andcold chains are critical to development, as they generate employment and alsodeliver economic value.In power, there should be high thrust on hydro and solar power. Instead, the presentgovernment seems keen on nuclear power, where the cost of generation is unviable.Irrigation needs to be moved from the state list to the concurrent list, so that centralfunds can also come in and projects will not be stalled or reduced in scope for wantof resources.Projects like interlinking of rivers need to be pursued vigorously for effective watermanagement at the national level.

Mr Nitin Gadkari is President,Bhartiya Janata Party. Whilepopularly known as a political figure,Mr Gadkari is really a multi-facetedpersonality - a young activist, an ableadministrator, a successfulentrepreneur, and an astutepolitician.

Mr Gadkari began his political careerat the age of 19, when he joined theAkhil Bhartiya Vidyarthi Parishad. Heshot to fame during his stint as PublicWorks Minister of Maharashtra(1995-99), thanks to the swiftcompletion of the Mumbai-PuneExpressway and the network of 55flyovers in Mumbai. He pioneered theconcept of Public-Private partnership(PPP) in infrastructure development.

Mr Gadkari is also a successfulentrepreneur. Among his businessventures are a co-operativesupermarket, a 2,500tpd sugarfactory, a 120,000-liter ethanolplant, a 26MW power generationunit, a bio-fertilizer unit, and asolvent extraction soyabean plant.Mr Gadkari is widely traveled, and afirm believer in integral humanism andsocial trusteeship.

Mr Nitin GadkariPresidentBhartiya Janata Party

ThematicPresentation

Covering Analyst(s):Dipankar Mitra+91 22 3982 [email protected]

17August 2010


Rural India

Key Takeaways

Core essence: By 2020, Rural India will be a US$1 trillion economy, larger than today’sCanada or South Korea. This will throw up opportunities across businesses.

Insightful glimpses of Rural IndiaRural India is the real bull’s eye of the Indian growth story.Rural India accounts for 70% of population, 56% of income, 64% of expenditureand 33% of India’s savings. Also, it accounts for 60% of FMCG sales, 50% of TV setsales, and 40% of two-wheeler sales.Despite urbanization, 65% of India’s population would continue to live in villages.Proper roads now connect 80% of Rural India, which accounts for 90% of the ruralpopulation and 95% of rural wealth. Tele-density has improved from 5% to 21% infive years and is expected to go up to 50% by 2012. Almost all villages now haveelectricity; 60% of rural households (70% of rural wealth) have electricity. At present,70% of the rural population is literate; by 2020, there would be ~100% literacy.There are ~87 million Kisan Credit Cards in rural India, which is larger than all thedebit and credit cards of Urban India.At present, 45% in Rural India earn more than US$1/day – the figure is expected togo up to 58% in 2020. In Rural India, the seemingly low income of US$2-3/day isactually high, as there is no rent (most people own houses, however modest) andeducation, health, etc is provided almost free by the Indian government. Thus, evenon lowly income levels, purchasing power in Rural India is high.

Key drivers of rural resurgence and their impact8 good monsoons in last 10 years. Significant increase in minimum support price ofgrain (100% increase in 10 years; input costs have increased only by 50%).Through NREGS (National Rural Employment Guarantee Scheme), 44 million peoplehave been given employment; the program has also given regularity to rural income.Multiplicity, i.e. multiple earnings streams for rural people has added to the income.In terms of share of wallet, food constituted 58% of the consumption basket in2000, which is down to 43% now and would go down to 33% by 2020, the same asUrban India today. This suggests meaningful increase in discretionary spend.

Opportunity Market Size (US$ b) Gr. (%)

2010 2020

Communication 3.3 8.9 170Education 24.0 56.0 128Transportation 44.4 80.0 80Construction 28.9 40.0 38

Mr Pradeep Kashyap is known asthe father of rural marketing in India.He is recognized as a thought leaderand is a regular speaker at CEOforums in India and abroad. He hasauthored the most definitive 'RuralMarketing Book' for students andpractitioners alike.

In 1993, Mr Kashyap started MART,which has emerged as India's leadingrural consultancy organization. Heco-created Project Shakti withHindustan Unilever to appoint46,000 poor women from microfinance groups as company dealers.He has pioneered another low cost,last mile rural distribution model usingvillage volunteers on bicycles forColgate, Heinz and others.

Mr Kashyap been Marketing Advisorto Ministry of Rural Development andhas served on Prime Minister Officeand Chief Minister Committees onrural development. He is a WorldBank and United Nations consultant.He is also President, Rural MarketingAssociation of India.

Mr Pradeep KashyapCEOMART



18August 2010



Health Of Corporate India

Key Takeaways

Core essence: Modified Credit Ratio (MCR, i.e. ratio of rating upgrades to downgrades)is moving up after a gap of four years, suggesting upturn in credit quality cycle.

Economic backdropThe Indian economy is on a high growth path. The credit cycle has turned up inH2FY10. Credit quality as measured by the modified credit ratio (broadly the ratio ofupgrades to downgrades) has turned up sharply.The longer-term economic backdrop is provided by: (1) 8% ‘business as usual’ rateof growth, (2) prospect of economy tripling from US$1.4 trillion to US$4.2 trillionover a decade (assuming 5% inflation rate and stable exchange rate), (3) favorabledemography with 67% population in the working age by 2020, and (4) emergenceof investment as a key growth driver.CRSIL projections for FY11 are: GDP (8%), WPI inflation (8.5-9.0%), 10-yr G-sec(8.3-8.5%), exchange rate (Rs43.5-44/US$), and fiscal deficit (5%).

Implications for Indian corporate sectorFirstly, MNCs are likely to gain higher market share through five growth avenues –establishment of capabilities, joint ventures, acquisitions, customized products andservices, and leveraging Indian resources for global markets.Secondly, the degree of competition is set to increase given (1) entry of new Indianplayers, (2) increasing presence of global corporations, and (3) likely rise in imports,given the appreciating rupee. This, in turn, should result in Indian companies scalingup and diversifying their revenue sources, leading to steady rise in share of exports.Thirdly, financial strength would become critical, requiring liquidity cushion in balancesheets, limiting and controlling debt usage, regular access to equity markets andcreation of innovative corporate structures (eg, subsidiaries, SPVs, etc.).Finally, capital flows into India are expected to remain strong, with FDI exceedingFII flows in the near future. Savings rate would inch up towards 41% of GDP byFY14 from about 37% currently.

CRISIL outlook on credit qualityCredit quality cycle is improving with MCR moving up after a gap of four years. Therate of upgrades has surged in 2HFY10 and now exceeds the rate of downgrades,which has halved over 1HFY10. Key industries upgraded include banks and financialsector, construction, gems and jewelry, and auto ancillaries.The strongest sectors in terms of demand outlook and financial strength are Auto,Banking, Cement, FMCG, Oil & Gas and Pharma. The weakest sectors appear to beReal Estate (Commercial), Chemicals and Leather.

Ms Roopa Kudva is ManagingDirector & Chief Executive Officerof CRISIL, India's leading ratings,research, risk and policy advisorycompany and a subsidiary ofStandard & Poor's. She is also theRegion Head, South Asia, Standard& Poor's, the foremost globalprovider of financial marketintelligence.

Ms Kudva joined CRISIL in 1992. In1998, she was seconded toStandard & Poor's, Paris as Director,Financial Institutions Ratings, andcovered emerging markets in theMediterranean and Middle Eastregion. She has also been a memberof several policy level committeesrelating to the Indian financial systemincluding working groups of theReserve Bank of India.

Ms Kudva holds a degree in Statisticsand a postgraduate diploma inmanagement from Indian Institute ofManagement, Ahmedabad. She hasbeen featured among most powerfulwomen in Indian business by'Business Today' in 2007 and 2009.

Ms Roopa KudvaManaging Director & CEOCRISIL, A Standard & Poor Company


19August 2010


Central Challenges of India

Key Takeaways

Core essence: “In India the choice could never be between chaos and stability, butbetween manageable and unmanageable chaos, between humane and inhuman anarchy,and between tolerable and intolerable disorder.” – quoting sociologist Ashis Nandy.

A historical perspective of India’s presentThe two most remarkable things about India are: (1) It is an unnatural nation, and(2) It is an unlikely democracy. It is an “unnatural nation” because everywhere elsein the world, the three key nation-building factors were: (1) Common language, (2)Common religion, and (3) Common enemy. None of the three hold true for India.India is an unlikely democracy, because again nowhere in the world did democracystart with universal adult suffrage. In contrast, voting rights were granted in phasesin UK and 90 years after its independence, US engaged in its bloodiest civil war.India has been plagued with a series of problems ever since Independence.There were other enormous challenges: 8 million refuges had to be resettled and500 princely states were to be integrated. This mammoth feat was accomplishedbecause India had a set of extraordinary leaders in Nehru, Patel and Ambedkar.The major events that shaped India in subsequent decades include major conflictsaround linguistic states (1950s), Mizoram insurgency (1960s), Emergency (1970s),insurgency in Punjab (1980s), religious riots and caste riots (1990s).

Central challenges of India’s developmentGiven this backdrop, India currently faces three central challenges (1) Discontentat the borders, namely J&K, Nagaland and Manipur, (2) Discontent in the heart ofthe country – one-third of India covering states of Orissa, Bihar, Jharkhand, MadhyaPradesh, Chhattisgarh, Andhra Pradesh and Maharashtra are facing Maoistinsurgency. While Maoists deserve no sympathy it is undeniable that the tribals inIndia are most discriminated against and gained the least from economic prosperity(even less than the dalits). While economic liberalization has a benign face (e.g. ITand service sector growth) it has a brutal face (where tribals are plagued withdisplacement, dispossession and discontent), and (3) abuse of natural environment,encompassing depletion of water table, rise in air pollution, choked rivers, etc.The framework to address these challenges has three pillars (1) State, (2) Privatesector and (3) Civil society. In the years immediately after independence, the Statedid a remarkable job. The private sector was in fact non-existent. However, in morerecent years, the private sector and civil society have done a reasonable job, whereasthe State has slipped into corruption and nepotism, including conversion of politicalparties into family firms. The State has to perform once again for any meaningfulresolution of the central challenges facing modern India.

Mr Ramachandra Guha is aHistorian and Columnist based inBangalore. He obtained his doctoratefrom the Indian Institute ofManagement, Calcutta. Between1985 and 1995 he held academic jobsin India, Europe, and North America.Since 1995 he has been a full-timewriter.

Mr Guha's first book was 'The UnquietWoods' published in 1989. Among MrGuha's other books areEnvironmentalism: A Global History(2000), A Corner of a Foreign Field(2002), a social history of Indiancricket, and two books on Indianecological conflicts co-authored withMadhav Gadgil: This Fissured Land(1992) and Ecology and Equity(1995). Mr Guha's most recent bookis India After Gandhi: The History ofthe World's Largest Democracy,published in 2007.

In January 2009, Mr Guha wasawarded the Padma Bhushan. In2009 and 2010, India Todaynominated him as one of the fiftymost influential people in India.

Mr Ramachandra GuhaEminent Historian and Writer



20August 2010


Company Connect

Anant Raj Industries

Ashok Leyland

Asian Paints

Axis Bank

Bajaj Auto

Bank of India

BHEL

Biocon

BPCL

C&C Constructions

Cairn India

CESC

Dabur India

DB Corp

DB Realty

Dewan Housing Finance

DLF

Dr Reddy’s Laboratories

Era Infra Engineering

Financial Technologies

Ghari Industries

Glenmark Pharmaceuticals

GMR Infrastructure

Godrej Properties

GVK Power and Infrastructure

Havells India

HDFC

HDFC Bank

Hindalco

Hindustan Construction

Hindustan Unilever

HPCL

ICICI Bank

Idea Cellular

Indian Oil Corporation

Infosys Technologies

ING Vysya Bank

Jain Irrigation


JSW Energy

JSW Steel

KEC International

Kotak Mahindra Bank

Larsen & Toubro

Lupin

Mahindra & Mahindra

Mahindra Lifespaces

Marico

MBL Infrastructure

Nagarjuna Construction

Network 18 Media and Investments

Nuclear Power Corporation

Oil India

ONGC

Opto Circuits

Pantaloon Retail

Punjab National Bank

Radico Khaitan

Reliance Communications

Reliance Industries

Reliance Infrastructure

Reliance Power

Rural Electrification Corporation

Shoppers' Stop

Shriram Transport Finance

Simplex Infrastructure

Sintex Industries

State Bank of India

Sterlite Industries

Sun Pharmaceuticals

Tata Consultancy Services

Tata Steel

Tulip Telecom

Union Bank of India

Unitech

Vardhman Textiles

Voltas

Wipro

Yes Bank

Zee Entertainment

21August 2010


Ashok Leyland

Key Takeaways

Positive FY11 growth outlook, supply constraints hit productionIt expects the CV industry to grow by 20% in FY11, with Ashok Leyland growing at55-60% to 85,000-90,000 vehicles with a market share of 28%-30%.The company plans to launch a U-truck tractor and tipper range in 2QFY11.It is facing a shortage of key auto components like diesel fuel injection systems andtyres. While a fuel pump shortage is expected to ease from October, it is importingtyres (~20,000 tyres will be imported in FY11) from China to meet the shortfall.The company is cautious about demand in 2HFY11 due to multiple headwinds in theform of (a) higher fuel prices, (b) higher cost of ownership, (c) pre-buying in 2QFY11due to migration to BS-III from October 2010, and (d) higher interest rates.

EBITDA margins to improve from 1QFY11 levelThe management expects margins to improve from 10% in 1QFY11, driven by priceincreases (~4% since April 2010), softening of raw material costs, higher operatingleverage and higher contribution from the Pantnagar plant.Pantnagar's production ramp-up and increase in localization is expected to supportprofitability over 2-3 years. It will drive savings of Rs35,000/unit in excise duty(~Rs40,000/unit was guided earlier). It operates at 1,000 units/month, which isexpected to rise to 4,000 units/month by March 2011. The excise benefit at fullcapacity would be Rs1.75b.It hopes to pass on cost increase for BS-III compliance (~Rs40,000/vehice or 4.25%).

Other takeawaysAshok Leyland's finance subsidiary started operations in 1QFY11 with the financingof 972 trucks in 1QFY11. It aims to have disbursement of Rs5b in first year and tohave a presence in all states and 300 centers in three years.The management has guided for FY11 tax rate of about the MAT rate, as it wouldbenefit from higher weighted deduction for R&D and increasing contribution fromthe Pantnagar plant.The strategic buyout of 26% stake for about US$7.5m in UK's Optare will give AshokLeyland access to more products including a modern range of low floor, mid-sizeand full size buses and access to export markets.

Valuations and viewWe expect strong demand for commercial vehicles to continue. Besides, excise benefitsfrom the Pantnagar plant, pre-buying due to BS-III norm implementation in India byOctober 2010 and higher operating leverage will drive earnings growth in FY11. Thestock trades at 17.5x FY11E consensus EPS of Rs4 and at 13.8x FY12E consensus EPS ofRs5.2. Not Rated.

Company Represented By:Mr K Sridharan, CFO

Covering Analyst(s):Jinesh Gandhi+91 22 3982 [email protected]

Sandeep Patil+91 22 3982 [email protected]

Bloomberg AL INEquity Shares (m) 1,330.3CMP (Rs) 72Mcap (US$ b) 2.152 W Range (Rs) 74 / 321, 6, 12 Rel Per 12 / 26 / 84

YEAR NET SALES PAT EPS EPS P/E P/BV ROE ROCE EV/ EV/

END (RS M) (RS M) (RS) GROWTH (%) (X) (X) (%) (%) SALES EBITDA

3/07A 71,682 4,413 3.3 34.8 21.8 5.1 23.8 20.7 1.3 13.6

3/08A 77,426 4,693 3.5 6.4 20.6 4.5 22.3 15.6 1.2 11.5

3/09A 59,811 1,900 1.4 -59.5 50.8 2.8 5.8 5.7 1.9 24.0

3/10A 72,447 4,237 3.2 123.0 22.8 2.6 11.4 10.0 1.5 14.4

Sector: Automobiles

22August 2010


Bajaj Auto

Key Takeaways

Volume outlook robust; maintains FY11 volume guidance 4m unitsIt is confident of achieving 4m volumes in FY11, with 3.6m motorcycles and 0.4m 3-wheelers. It expects market share to increase from 29% to 31% over six months. Inthe long run, it aims to increase market share to 33%, but expects it to be a challenge.The deregulation of the permit system for three wheelers in Tamil Nadu will ensurea run-rate of 38,000/month for three wheelers over next three months. It expectsgradual deregulation of permits in other states, boosting three wheeler demand.Its focus is to maintain margins over market share by investing in brands. Similarview of Hero Honda will augur well for the pricing environment.

EBITDA margins to improve over 1QFY11The company expects EBITDA margins to improve over 1QFY11 levels, with 2QFY11EBITDA margins of ~21% and 2HFY11 margins of over 20%, translating into EBITDAmargins of over 20% in FY11.Margin improvement in 2QFY11 would be driven by RM cost savings, the benefit ofprice increases and increasing contribution from its Pantnagar plant.But Bajaj Auto expects advertising and promotion expenses to increase in the restof FY11, from very low levels of 1QFY11.

Plans to offer interest subvention scheme to manage inventoryThe company is planning to introduce an interest subvention scheme in a few days,with the intention of bringing forward some of festive seasonal demand and managinginventory among dealers. The move is not demand led.It expects to bring forward retail sales of 10-15,000 units/month.Although details are unavailable, we don't expect a meaningful impact on marginsas only 20-25% of volumes are on credit.

Other takeawaysBajaj Auto plans to double exports to 2m by FY15 - a CAGR of 19%.Production bottlenecks are easing. This, along with ongoing expansion will result inFY11 exit capacity of 5m units.There are no major product launches lined up for FY11 as the portfolio is relativelyfresh (Pulsar 135cc, Discover 100 and Discover 150cc, Avenger 220cc).

Valuations and viewVolume growth is expected to stay strong, margins are expected to sustain at higherlevels due to operating leverage, product mix being skewed towards high margin productsand a ramp-up at Pantnagar. The stock is valued at 16.2x FY11E EPS and 14.8x FY12EEPS. Maintain Buy with a target price of Rs2,760 (~15x FY12E EPS).

Company Represented By:Mr Kevin D'sa, VP - Finance



Bloomberg BJAUT INEquity Shares (m) 144.7CMP (Rs) 2,724Mcap (US$ b) 8.552 W Range (Rs) 2,767 / 1,0451, 6, 12 Rel Per 7 / 50 / 92



3/09A 88,104 7,963 55.0 -3.4 49.4 42.5 23.3 32.7 48.6 31.5

3/10A 119,210 18,175 125.6 128.3 21.7 20.1 13.4 14.1 78.8 50.6

3/11E 157,595 24,303 168.0 33.7 16.2 15.3 8.5 10.8 64.2 49.4

3/12E 175,806 26,617 184.0 9.5 14.8 14.0 6.0 9.5 47.6 41.8

Sector: Automobiles

23August 2010


Mahindra & Mahindra

Key Takeaways

Volume growth outlook remains robustThe management maintained its guidance of volume growth of 10-14% in the autoand tractor segments, with the company growing at-least in line with the industry.Its short-term volume growth is being impacted by supply constraints on fuel injectionsystem, castings and tyres, which are expected to ease from 3QFY11 onwards.Volume growth is expected to be driven by 6-7 new product launches in FY11 andnew products launched in 2HFY10 (Maximmo and Gio).Maximmo (an LCV competing with Ace) will be launched on a pan-India basis in2QFY11 as production ramps up at its recently inaugurated Chankan plant.

Improved profitability expected, driven by RM cost savingsM&M expects margins to improve from the 1QFY11 level due to RM cost savings andhigher operating leverage. Adjusting for MVML (the Chakan plant), ramp-up ofoperations at the Chakan plant would support margins through operating leverage.Net cash will drive treasury income and an increasing contribution from the taxexempt plant result in lower tax provisioning, boosting PAT.

Plans to launch 6-7 products in FY11; new SUV platform in 1QFY12M&M plans to launch 6-7 variants of Xylo and Maximmo in FY11.The new SUV platform is expected to be launched in 1QFY12.In tractors, M&M has soft launched its new 15HP tractor, Yuvraj, in Gujarat. It didn'tindicate a timeline for the pan-India launch.

Ssangyong Motors, a good fit at a priceThe management believes Ssangyong is a good fit as it offers access to its SUVproduct portfolio and a marketing network in South Korea, Russia and other countries.It indicated that it would not aggressively bid for it.

Other takeawaysM&M plans to set up a new unit for tractors in South India (most likely in TamilNadu), as there is limited scope to de-bottleneck its capacity.To offset the impact of a slowdown in demand from telecom for its gensets, M&Mhas expanded its product basket and has gensets from 5kVA to 320kVA and expectsthe segment to drive growth.

Valuations and viewWe are positive about M&M's prospects, driven by the dominance in the core businessof UVs and tractors, coupled with cheap valuations. Despite its exciting prospects, M&Mtrades at a discount to most of its peers. The stock trades at 11.3x FY11E and 9.6xFY12E consolidated EPS. Maintain Buy with a target price of Rs764 (FY11-based SOTP).

Company Represented By:Mr K Chandrasekar, SR VP - FinMs Sandhya Sharma, SR GM- FinMr Rajen Kavadia, Manager-Fin



YEAR NET SALES S/A PAT CON.PAT ADJ.EPS CONS. CONS, ROE ROCE EV/ EV/

END (RS M) (RS M) (RS M) (RS) EPS (RS) P/E (X) (%) (%) SALES EBITDA

3/09A 130,937 9,297 15,047 16.2 26.2 25.0 17.7 12.9 2.6 29.8

3/10A 186,021 20,451 24,402 35.7 42.6 15.4 26.1 25.8 1.8 10.8

3/11E 225,577 24,287 33,212 42.3 57.9 11.3 23.1 23.7 1.4 9.4

3/12E 262,678 27,978 24,402 48.8 68.3 9.6 22.0 23.9 1.1 7.6

Bloomberg MM INEquity Shares (m) 573.5CMP (Rs) 654Mcap (US$ b) 8.152 W Range (Rs) 677 / 3671, 6, 12 Rel Per 4 / 17 / 26

Sector: Automobiles

24August 2010


Axis Bank

Key Takeaways

Loan growth of 1.3x industry averageAlthough systemic credit growth has picked up, the base (pick up from differentsegments) requires broadening.The management sees industry loan growth of 20% in FY11 and aims to grow loanbook at 1.3x industry average on a lower base loan growth is expected to be 35%plus in 2Q and 3QFY11.Incremental loans disbursement for large corporates in 1QFY 11 was Rs7.2b, ofwhich 70-75% were in the telecom sector. About 40% of the incremental loan to thetelecom sector was for six months and rest, for 12 months.

NIMs to decline gradually from 1QFY11 levelsOn a reported basis the management expects full year margins to be 3.5-3.6% forFY11 (3.7% in 1QFY11).The management believes it can sustain CASA ratio at 40%.The bank raised its deposit rates on 2 August 2010 and expects the incrementaldeposit rate to increase gradually by 1% in FY11.

Bank to maintain asset qualityThe management aims to control credit cost at 1.2-1.3% of the loan book for FY11.Cumulatively Axis Bank restructured loan book of Rs31b out of which Rs4.6b (14.8%of the restructured book) has slipped into NPA. The management expects maximumslippages to be contained below ~25% of restructured book.The management expects incremental slippages from the restructured book willspread over quarters and is not expected to be lumpy.

Other highlightsAxis Bank plans to add 200 new branches in FY11 to its network of 1,050 branches.Going ahead, fee income growth will roughly track asset growth.Cost to income ratio will be maintained at 40-45%.

Valuations and viewWe estimate BV of Rs459 and Rs538 in FY11 and FY12 respectively. We expect EPSto be Rs78 in FY11 and Rs97 in FY12. The stock trades at 2.9x FY11E BV, 2.5x FY12EBV and 17x FY11E EPS, 14x FY12E EPS. We expect RoE of ~18% in FY11 and ~19%in FY12 and RoA of ~1.6% over FY10-12.Maintain Buy with FY12 based revised target price of Rs1,475.

Company Represented By:Mr Shishir Mankad,VP - Finance & Accounts



YEAR NET INCOME PAT EPS EPS P/E P/BV CAR ROAE ROAA P/ABV

END (RS M) (RS M) (RS) GROWTH (%) (X) (X) (%) (%) (%) (X)

3/09A 65,831 18,154 50.6 68.9 26.3 4.7 13.7 19.1 1.4 4.8

3/10A 89,503 25,145 62.1 22.7 21.5 3.4 15.8 19.2 1.5 3.4

3/11E 109,113 31,749 78.4 26.3 17.0 2.9 14.2 18.3 1.6 2.9

3/12E 131,500 39,161 96.7 23.3 13.8 2.5 12.7 19.4 1.6 2.5

Bloomberg AXSB INEquity Shares (m) 405.2CMP (Rs) 1,332Mcap (US$ b) 11.752 W Range (Rs) 1,399 / 7971, 6, 12 Rel Per 3 / 15 / 34

Sector: Banking, Finance & Insurance

25August 2010


Bank of India

Key Takeaways

Asset quality to improveAddition to gross NPAs for 1QFY11 was Rs6.2b, (annualized slippage ratio of 1.4%)and included Rs1.3b due to the agri debt relief scheme.The management aims to control slippages at Rs5b-6b/quarter in absolute termsand to contain gross NPAs for FY11 in absolute terms at or below FY10 levels.The management also targets recoveries/ upgrades of Rs25b in FY11. This, in turn,will lead to a fall in FY11 credit costs to 70-80bp v/s 1.15% in FY10.PCR, including technically written-off accounts were 68.3%. The shortfall to reachcoverage ratio of 70% is a mere Rs800m.

Restructured accounts getting stabilizedOutstanding restructured accounts at the end of 1QFY11 were Rs101.3b, of whichRs87b pertains to domestic loans and the rest to international operations.Cumulatively slippages from restructured accounts (of more than Rs10m) have been~Rs17b, which is highest in the industry as a percentage of the restructured book.BOI said most of the accounts that slipped were on consortium lending.

To return to pre-FY10 profitabilityBOI expects the 1QFY11 profit of Rs7.3b to continue through FY11.It aims to improve NIMs from the current 2.89% to ~3% in FY11.BOI does not expect further benefits from re-pricing of deposits and guides forreduction in cost of deposits coming only from an increase in the CASA mix.BOI estimates a ~20% increase in employee expenses, however cost to incomeratio is targeted at 36-38%.BOI aims to have a 3,500 branches (3,236 in FY10) and 1,500 (820 in FY10) ATMsby March 2011 and enhance its overseas presence.

Valuations and viewStability in asset quality is a key factor in BOI’s FY11 performance. In FY10, higherslippages kept NIMs subdued and resulted in higher credit costs.We expect BoI to post EPS of Rs54 in FY11 and Rs66 in FY12. BV will be Rs287 inFY11 and Rs339 in FY12. The stock trades at a P/E of 6.7x FY12E EPS and P/BV of1.3x FY12E BV. Under Review.

Company Represented By:Mr Alok Misra, CMDMr B.A.Prabhakar, EDMr M Narendra, EDMr P.N. Ramaswamy, GMMr Ravi Kumar, DGM





3/09A 85,508 30,077 57.2 49.7 7.6 2.0 13.0 29.2 1.5 2.0

3/10A 83,726 17,411 33.1 -42.1 13.2 1.8 12.9 14.2 0.7 2.0

3/11E 99,520 28,604 54.4 64.3 8.0 1.5 11.7 20.5 0.9 1.7

3/12E 117,437 34,446 65.5 20.4 6.7 1.3 10.6 20.9 0.9 1.4

Bloomberg BOI INEquity Shares (m) 525.9CMP (Rs) 437Mcap (US$ b) 5.052 W Range (Rs) 475 / 3031, 6, 12 Rel Per 18 / 12 / 16


26August 2010


Dewan Housing Finance

Key Takeaways

Loan growth to stay strongThe management aims to sustain its high growth momentum over FY11 and FY12and expects growth of 30-35% in FY11.It targets disbursement of Rs55b in FY11 (Rs38.6b in FY10) and expects to increaseits balance sheet size to Rs250b by FY13 (Rs100b in FY10).

Adequately capitalised for next phase of growthCurrent CAR is healthy at 22.81% as on 1QFY11 (tier-I 22.2%).For a balance sheet size of Rs250b it estimates net worth of ~Rs20b (currently~Rs14b). With a plough back of profits in three years it expects to reach the estimatednet worth.Current leverage for DHFL is ~7x and it could be increased to 12x without downgradesfrom ratings agencies.The management expects to maintain RoA of over 2% plus going ahead.

Provision coverage to rise to 65-70% by FY11The management expects to shore up its provision and improve the coverage ratiofrom the current 36% to 65-70% by the end of FY11. This will be done by bookingsubstantial gains from selling its investment (primarily HDIL) in the current year.The gains would be tax free (being long term capital gains).

Other highlightsDHFL expects to disburse Rs3.5b-4b in FY11 through a tie-up with Punjab and SindBank and United Bank. The company expects the proportion of disbursements throughthis tie-up to be 8-10% going ahead.DHFL along with IFC promoted Aadhar Housing Finance Pvt. Ltd, which will focus onthe low income housing segment in states like UP, Bihar, MP and Chattisgarh.The business will complement the existing business, which is not present in theseareas. Average ticket size would be 0.55m-0.6m.In FY11, DHFL aims to earn ~Rs600m through fee based initiatives (Rs310m inFY10) and Rs550m-600m (Rs440m in FY10) from processing fees.

Valuation and viewWe expect DHFL to post EPS of Rs22 and Rs32 in FY11 and FY12. BV will be Rs144in FY11 and Rs170 in FY12. RoA and RoE will stay attractive at ~2% and ~20%,respectively, over FY10-12. The stock trades at 1.6x FY12E BV and 8.8x FY12E EPS.Maintain Buy with an SOTP based target price of Rs318.

Company Represented By:Mr Kapil Wadhawan, CMDMr P Chaturvedi, GM



YEAR NET INCOME PAT EPS EPS P/E P/BV ROAE ROAA P/ABV

END (RS M) (RS M) (RS) GROWTH (%) (X) (X) (%) (%) (X)

3/09A 1,996 863 14.3 28.3 19.3 3.6 20.1 1.6 4.0

3/10A 3,227 1,507 18.4 28.8 15.0 2.7 22.7 1.9 2.9

3/11E 4,757 2,317 22.3 21.3 12.4 1.9 19.7 2.0 2.0

3/12E 6,629 3,273 31.5 41.2 8.8 1.6 19.8 2.1 1.7

Bloomberg DEWH INEquity Shares (m) 104.0CMP (Rs) 287Mcap (US$ b) 0.652 W Range (Rs) 295 / 1201, 6, 12 Rel Per 20 / 41 / 96


27August 2010


HDFC

Key Takeaways

Robust prospects for mortgage financingHDFC is optimistic about demand for housing finance. India's mortgage to GDP ratioof 7% is low compared with countries like the UK and the US, where it is 80%+.Key growth drivers for housing are: (1) increased affordability, mainly due to increaseddisposable income, (the average house value has fallen from 22x annual income in1995 to 4.7x in 2010), (2) rising urbanization, (28% in 2010 expected to increase to40% by 2030), and (3) favorable demographics (the average age of home buyersis 35, and currently, ~60% of the Indian population is below 30 years old).Government statistics place the housing shortage in India at 25m units.

Business growth to stay high with stable spreadManagement expects on pre-sell basis loan growth will be 20-25% for FY11.On an AUM basis, HDFC will continue to keep the individual to corporate loans ratioat 70:30. Owned branches and affiliates will continue to be a dominant source forloan growth (currently contributing 92%).HDFC maintains a standard of income based lending, thereby canceling out exposureto volatility in real estate prices and ensuring stable business growth and healthyasset quality.The introduction of a base rate will not have a significant impact on borrowing costsfor HDFC, as it has the flexibility to borrow incremental money through bond anddebenture issues, which even banks can subscribe to at below base rates.Margins will sustain at a traditional 2.15-2.25%.

Other highlightsHDFC plans to sustain its cost/income ratio at ~8% going forward.HDFC plans to achieve breakeven in its life insurance business in FY11, and expectsto turn profitable by FY12.HDFC plans to grow RoE by ~100bp every year.

Valuations and viewWe expect EPS CAGR of 19% over FY10-12. We expect core RoE of 25-26% in FY11and FY12. The stock trades at 3.9x FY12E AP/ABV (price adjusted for the value ofkey ventures and book value adjusted for investment in those ventures) and AP/E of15x. Valuations are rich. Maintain Neutral.

Company Represented By:Mr Conrad D'souza, SGM



YEAR NET INCOME PAT ADJ. EPS EPS P/E P/BV CAR CORE ROAE ROAA P/ABV


3/09A 35,852 22,825 80.2 17.5 32.0 6.6 15.1 23.3 2.6 7.6

3/10A 42,978 28,265 98.4 22.7 23.7 5.9 14.6 25.3 2.7 5.9

3/11E 51,127 33,875 116.8 18.7 19.1 5.1 14.1 25.5 2.8 4.8

3/12E 60,526 40,325 139.1 19.0 15.0 4.4 13.7 25.8 2.8 3.9

Bloomberg HDFC INEquity Shares (m) 289.9CMP (Rs) 3,058Mcap (US$ b) 19.252 W Range (Rs) 3139 / 22101, 6, 12 Rel Per 1 / 14 / 7

Price is adj.for value of key ventures. BV is adj. by deducting invest. in key ventures from net worth


28August 2010


HDFC Bank

Key Takeaways

To grow at 5% higher than industry averageThe management maintains its growth guidance of a few percentage points higherthan the industry. It is confident of achieving 25%+ loan growth in FY11. Corporateloans and retail secured loans (auto, home loans, CV and CE) will be growth drivers.Looking at growing unsecured retail loans selectively and growth is likely to comefrom the existing customer base.The proportion of corporate loans will increase due to increasing capex and workingcapital requirements.

NIMs to sustain at 4%+, high CASA mix a boonNIM at 4.3% in 1QFY11 declines 10bp QoQ, despite the impact of savings depositre-pricing, higher share of priority sector loans and the full impact of CRR. Themanagement expects margins to sustain at 4.2%+ in FY11.Core CASA ratio at the end of 1QFY11 improved to 49% v/s 45% a year earlier.Healthy CASA base will be a boon in a rising interest rate scenario.Interest rates are likely to go up considering the liquidity crunch and strong loangrowth. The bank has increased deposit rates by 25-75bp to boost retail depositgrowth.

Other highlightsFee income growth increased to 17% YoY in 1QFY11 v/s 15% in FY10. Going aheadit expects fee income growth to be 16-18%.Improving operating efficiency from CBoP branches will improve the core cost toincome ratio. The management aims to stabilize it at 46-48%.As CBoP book has run down to Rs10b, slippages have come down to a greaterextent.Bank expects credit costs to stay low as asset quality is healthy. For 1QFY11 creditcost was 1.1%.With a growing balance sheet size, HDFC Bank expects ROAs to stabilize at 1.4-1.5%.

Valuations and viewWe estimate EPS at Rs86 in FY11 and Rs112 in FY12. We expect RoE to be 17% inFY11 and 19% in FY12. We estimate BV of Rs538 for FY11 and Rs627 for FY12.The stock trades at 3.9x FY11E and 3.4x FY12E BV, and 24.5x FY11E and 18.9xFY12E EPS.Given our comfort with asset quality, core operating parameters and earnings growthoutlook, we believe premium valuations will sustain. Maintain Buy.

Company Represented By:Mr Sashi Jagdishan,Head - FinanceMr Amit Khanna





3/09A 107,118 22,449 52.8 27.7 40.1 6.0 15.8 15.6 1.3 6.1

3/10A 121,942 29,487 64.4 22.1 32.8 4.5 17.4 16.1 1.5 4.5

3/11E 150,850 39,565 86.4 34.2 24.5 3.9 15.8 17.1 1.6 4.0

3/12E 181,700 51,264 112.0 29.6 18.9 3.4 14.0 19.2 1.7 3.4

Bloomberg HDFCB INEquity Shares (m) 457.7CMP (Rs) 2,114Mcap (US$ b) 21.052 W Range (Rs) 2,141 / 1,3531, 6, 12 Rel Per 6 / 18 / 29

* Includes pro forma merged figures for HDFC Bank and CBoP


29August 2010


ICICI Bank

Key Takeaways

Management expects loan growth of 15-16% in FY11ICICI Bank intends to resume its growth strategy and continue to focus on 4C’s(increasing CASA base, Cost reduction, Credit quality, and Capital conservation).The management expects overall loan growth of 15-16% for FY11. Domestic loangrowth would be around the industry average ~20%. In FY12-13, loans are likely togrow 20-22%, again driven by domestic loans.The share of CASA in overall deposits would remain at least 35-37% even in a highbusiness growth scenario. Integration of Bank of Rajasthan branches would aidhigher CASA share.Targeting to improve domestic NIM to 3% and on international operation to 1%.

Fee income to grow at 15%, C-I ratio to remain at ~40%Fee income will grow in line with business growth, with fees from the corporatesegment growing at a higher rate.While there may not be absolute reduction in costs going ahead, C-I ratio would bemaintained at ~40% (at ~1.6% as a percentage of average assets).

Other highlightsImproving RoE to 15% will be a key focus area, with RoA improving to 1.4-1.5% byFY12.The bank is awaiting approval from RBI for completing the merger of Bank ofRajasthan. It expects the merger to boost CASA base, enhance third-party productdistribution, and support branch-centric banking model.The new IRDA guidelines augur well for the future of the life insurance industry andwould benefit policy holders. Going ahead, ICICI Bank’s focus would be to makeinsurance business more profitable by cutting cost and optimizing commissionpayments, thus protecting margins.There would be no immediate unlocking of value from the insurance businessconsidering the change in regulatory environment. Further, as the insurance businesshas turned profitable, it does not need fresh capital to grow.

Valuation and viewWe expect ICICI Bank to report EPS of Rs46 in FY11 and Rs57 in FY12. BV would beRs493 in FY11 and Rs529 in FY12. ABV (adjusted for investment in subsidiaries)would be Rs378 in FY11 and Rs414 in FY12.Adjusted for FY12E value of subsidiaries at Rs241/share (post 20% holding companydiscount), the stock trades at 1.5x FY12E ABV (adjusted for investment in subsidiaries)and 12.7x FY12E EPS. Our FY12E SOTP value is Rs1,070.

Company Represented By:Ms Chanda Kochhar, MD & CEOMr Rakesh Jha, Deputy CFOMs Ranju Sigtia, AGM



YEAR NET INCOME PAT EPS EPS AP/E* AP/ABV* CAR ROAE ROAA P/ABV


3/09A 159,703 37,581 33.8 -9.7 28.7 24.3 2.5 15.5 9.3 1.0

3/10A 155,920 40,250 36.1 6.9 26.9 21.7 2.3 19.4 9.7 1.1

3/11E 159,923 51,230 46.0 27.3 21.1 16.5 2.0 18.9 11.8 1.4

3/12E 187,798 63,883 57.3 24.7 16.9 12.7 1.8 16.8 13.6 1.5

Bloomberg ICICIBC INEquity Shares (m) 1,114.9CMP (Rs) 970Mcap (US$ b) 23.452 W Range (Rs) 1,010 / 6911, 6, 12 Rel Per 11 / 5 / 12

* Price adjusted for value of key ventures and BV adjusted for investments in those key ventures


30August 2010


ING Vysya Bank

Key Takeaways

Move to expand presence in IndiaING Vysya Bank is a South India-based bank, with 70-75% of its 483 branches in thesouthern states.The management plans to expand its presence in India. It has 60 pending branchlicenses at the start of FY11, 50 in non-southern states.Most of the branches are in rural and semi-urban areas and hence of the 60 pendinglicenses it plans to open 50 in metro and tier-I cities.Of the 60, it has opened 15 branches and expects to open the rest by March 2011.

Focus on retail, SME (business banking)With systems and processes in line, the management is focusing on growing highyielding secured retail and SME loans.Within the retail segment focus will be on secured lending. ING Vysya Bank plans torelaunch its CV and auto-financing business in FY11.The management expects that with high yields on SME loans and credit costsdeclining to 0.5%, this segment would contribute significantly to ROAs.It expects the wholesale business to sustain growth. In this segment the bank willfocus on granting working capital loans. The bank will leverage the ING brand togrow in this segment.In 1QFY11, ING Vysya Bank provided no funds to the telecom sector for the 3G andBWA auction.

Asset quality to improveThe management expects asset quality to improve from 2QFY11. In 1QFY11, GNPAshad increased 13% QoQ.Beyond FY11 it expects credit loss to fall and be in line with the industry trend.

Other highlightsCost to income ratio improved from 69% (FY07) to 55% (FY10), and the managementbelieves it will fall further even with branch expansion as expected revenue growthwill be higher than the incremental increase in cost.

ValuationsThe stock trades at 1.8x FY10 BV and 16.9x FY10 EPS. Not Rated.

Company Represented By:Mr Shailendra Bhandari, MD& CEO





3/07A 7,313 889 9.8 873.7 35.1 3.1 10.6 9.4 0.5 3.4

3/08A 9,170 1,569 15.3 56.6 22.4 2.5 10.2 13.0 0.7 2.6

3/09A 11,973 1,888 18.4 20.1 18.6 2.2 11.7 12.5 0.7 2.4

3/10 A 14,501 2,422 20.2 9.7 17.0 1.9 14.9 12.7 0.7 2.0

Bloomberg VYSB INEquity Shares (m) 120.0CMP (Rs) 343Mcap (US$ b) 0.952 W Range (Rs) 376 / 2101, 6, 12 Rel Per -7 / 25 / 41


31August 2010


Kotak Mahindra Bank

Key Takeaways

Loan growth of 30-35%; long term NIM 5-5.5%FY11 loan growth is expected to be 30-35% with a focus on corporate and securedretail loans.The management will consider growing the personal loan portfolio selectively andunlike 2007, large volume growth is not expected in personal loans.The management expects NIM to fall to a sustainable level of 5-5.5% in the mediumto long term. In the near term, due to the benefit of current capital raising, NIM arelikely to be 5.5%+.A fall in credit costs with improving asset quality will be an earnings driver.

Lending business to drive profitabilityThe Indian financial services sector's model is likely to be bank-led and Kotak Mahindraexpects the share of the lending business to rise. As on 1QFY11, the lending businesscontributed 75% to profits.The brokerage industry continues to be on the path of fragmentation and marginpressure is likely to continue. The management sees future consolidation in thebroking industry but these are early days yet.Due to stiff competition in investment banking, the pressure on profitability willcontinue despite a large deal pipeline.

Insurance industry to face profitability pressure in near termNew regulations in the insurance industry will put pressure on margins across theindustry. But Kotak Mahindra Bank believes it is better placed due to its conservativefocus on cost and capital in the past.To improve profitability, Kotak Life will focus on traditional products and reducingcosts aggressively.

Other highlightsWith 1QFY11 CAR at 16.9% and tier-I ratio at 15%+, the bank is adequately capitalizedto grow. With SMBC money, CAR will be ~20%.Standalone bank branch network is expected to increase to 320 by the end of FY11from 262 branches currently.

Valuation and viewWe expect Kotak Mahindra Bank to post EPS (excluding insurance) of Rs43 andRs53 in FY10 and FY11 respectively. BV will be Rs299 and Rs352 respectively.RoA will be superior at 2.5%+ but lower leverage will keep RoE at 16%+ over FY11-12. Adjusted for insurance value, the stock trades at a P/E of 14x FY12E, P/BV of2.3x FY12E. Maintain Neutral with a target price of Rs843.

Company Represented By:Mr Dipak Gupta, EDMr Jaimin Bhatt, Group CFOMr R Sundarraman, Exec. VP - IR





3/09A 30,045 6,546 18.9 -37.7 44.1 4.4 22.5 10.8 1.7 4.6

3/10A 49,017 12,402 35.6 88.1 23.5 3.7 19.3 17.9 2.7 3.8

3/11E 54,440 15,576 42.7 19.9 19.6 2.8 18.0 17.0 2.6 2.9

3/12E 66,493 19,185 52.6 23.2 15.9 2.4 17.0 16.6 2.5 2.4

Bloomberg KMB INEquity Shares (m) 348.1CMP (Rs) 824Mcap (US$ b) 6.252 W Range (Rs) 878 / 6691, 6, 12 Rel Per 4 / -2 / 2


32August 2010


Punjab National Bank

Key Takeaways

NIM to remain superior, insulated against MTMPLR increased by 75bp recently, which will lead to 60-65% loan repricing withimmediate effect.Strong liability franchise (40% CASA ratio) and repricing on the asset side will leadto stable margin of ~4% in the near term.Full transition of pricing of loans to the base rate will be complete by March 2011.Average duration of liabilities is 1-1.5 years hence there would be a lag in repricingdeposits.On the investment book, 80% of investments are in the HTM category and withinAFS too, investments subject to mark to market risk constitute a lower proportion(2.24 years duration).

Asset quality is within management levelsDelinquencies from restructured loans are 8% of the loan book and in a worst casescenario, slippages are expected to be 15% of the book.NPAs for loans above Rs1m are system recognized and PNB expects full transitionby March 2011.Slippages will remain within the comfort level and we see no cause for concern.Management expects GNPAs to remain below 2% by end FY11.

Key challengesThe average age of PNB employee is 50 and it expects natural attrition of ~2,000people a year.To leverage its technology base to boost its fee income base.

Other highlightsPNB targets loan growth of 20-22% in FY11 and expects this growth rate to sustainover the medium to long term as there is enough opportunity to grow in retail andthe mid-corporate segment.PNB would also like to increase the proportion of its international loan book from thecurrent proportion of 3%, but it admits returns would be lower from this business.

Valuations and viewWe expect PNB to post EPS of Rs139 in FY11 and Rs171 in FY12. BV would be Rs626in FY11 and Rs762 in FY12.We expect RoE and RoA to remain superior at ~24% and 1.3%+ over FY10-12.Maintain Buy with a target price of Rs1,225 (1.6x FY12E BV).

Company Represented By:Mr Mohan Tanksale, EDMs Aarti Mattoo, GM



YEAR NET INCOME PAT EPS EPS AP/E* AP/ABV* CAR ROAE ROAA P/ABV


3/09A 98,966 30,909 98.0 50.9 11.2 2.6 14.0 25.8 1.4 2.7

3/10A 120,882 39,054 123.9 26.4 8.9 2.1 14.2 26.6 1.4 2.2

3/11E 143,047 43,958 139.4 12.6 7.9 1.8 12.6 24.4 1.3 1.9

3/12E 167,364 53,953 171.1 22.7 6.4 1.4 11.5 24.7 1.3 1.5

Bloomberg PNB INEquity Shares (m) 315.3CMP (Rs) 1,097Mcap (US$ b) 7.552 W Range (Rs) 1,130 / 6481, 6, 12 Rel Per 0 / 13 / 40


33August 2010


Rural Electrification Corporation

Key Takeaways

Business growth to remain strongWith undisbursed sanctions of over Rs1t, loan growth outlook for the next couple ofyears remains robust. REC has guided 30% loan growth in FY11 and expects thegeneration-T&D mix to be 50:50 by FY12.It expects incremental disbursement in the private sector to be robust, with loanbook shifting in favor of the private sector from ~7% in 1QFY11 to 18-20% by FY12.REC plans to raise Rs280b in FY11 to fund loan growth. The resources raised wouldbe from various sources like tax-free bonds, ECB, infra-bonds, etc.

Spread to sustain at 2.8-3%The management expects favorable ALM to offset any rise in cost of funds andspreads to be maintained.Of the total loan book, 75% carries a 3-year reset clause. Upward resets on loans(Rs100b in FY11, ~14% of loan book) would offset the impact of higher incrementalborrowing cost.REC is planning to raise US$400m through overseas borrowings in 2QFY11; it expectsthe borrowing cost to be low.

Applied for Infrastructure NBFC statusREC has applied to the RBI for the grant of the status of Infrastructure NBFC.Approval would result in higher exposure limit to private projects for REC and enableit to raise money through the issuance of infra-bonds and a higher borrowing limitfor ECBs (50% of net worth).The new status would require CAR of 15% (Tier-I: 10% and Tier-II: 5%). REC’scurrent CAR is ~20.9% and is entirely tier-I capital. REC has no plans to raise equitycapital till March 2012.

Other highlightsThe management targets fee income of Rs.1.1b for FY11. Of this, income fromRGGVY scheme will be ~Rs550m, which will mainly accrue in 3Q and 4QFY11.Asset quality is well protected, with 25% of loans being government guaranteedand 83% of loans under the escrow mechanism. Further, including subsidy receivedfrom the government, the financial health of SEBs is improving.

Valuation and viewWe expect EPS CAGR of ~26% over FY10-12. EPS would be Rs26 in FY11 and Rs32in FY12. We expect BV of Rs128 in FY11 and Rs149 in FY12. The stock trades at 9.7xFY12E EPS and 2.1x FY12E BV. Maintain Buy.

Company Represented By:Mr HD Khunteta,Director - Finance



Bloomberg RECL INEquity Shares (m) 858.7CMP (Rs) 313Mcap (US$ b) 5.852 W Range (Rs) 322 / 1781, 6, 12 Rel Per 2 / 20 / 44

YEAR NET INCOME Adj PAT EPS EPS P/E P/RBV ROE ROA P/ADJ BV


3/09A 20,439 12,721 16.4 50.6 19.0 83 3.8 21.2 3.13/10A 27,963 20,012 20.3 23.3 15.4 112 2.8 22.0 3.43/11E 35,974 25,354 25.7 26.6 12.2 128 2.4 21.3 3.33/12E 44,768 31,714 32.1 25.1 9.7 149 2.1 23.2 3.3

Assuming dilution of 15% in FY10 at Rs203/share


34August 2010


Shriram Transport Finance

Key Takeaways

RBI guidelines on securitization will not have any impactNew RBI guidelines relating to securitization will not impact SHTF, as most of itstransactions are bilateral and are not covered under RBI guidelines It is carrying unrecognized securitized income of ~Rs20b on the books.

AUM expected to reach Rs500b by FY13SHTF targets AUM of Rs500b by FY13. It expects net increase of Rs60b-70b in assetbook every year. This translates into an annualized growth rate of 25-30%.The new CV market is likely to grow at 25-30% for the next 2-3 years. This coupledwith the robust growth over 2004-2008 will ensure stable growth opportunity forSHTF.

Asset-liability well managedAverage duration of assets is 38-39 months while 70% of the liabilities are fixed.Resources raised through securitization constitute 36% of the total funding, whilebank borrowings constitute ~30%.SHTF expects to sustain its margins on AUM at~8%.

Fee income and construction equipment finance augur wellFee income initiatives like ‘truck bazaars’ and ‘auto malls’ are likely to yield Rs500m-600m in FY11 as against Rs300m in FY10.Construction equipment finance business is likely to commence in 2QFY11, and themanagement expects AUM to touch Rs60b by March 2012.

Asset quality well protectedPayments to field officers are linked to (1) lending, (2) collections done, and (3)quality of loans granted by them. This ensures strong growth and healthy assetquality.Further, with variable pay being almost 50% of the total pay, employee productivityremains high.

Valuation and viewWe expect SHTF to report EPS of Rs59 in FY11 and Rs70 in FY12. We estimate BVat Rs219 for FY11 and Rs277 for FY12.The stock trades at 2.5x FY12E BV and 9.9x FY12E EPS. We expect RoE to be strongat ~30% during FY11-12. We maintain Buy.

Company Represented By:Mr Sanjay Mundra, VP IR



Bloomberg SHTF INEquity Shares (m) 225.5CMP (Rs) 699Mcap (US$ b) 3.452 W Range (Rs) 723 / 3101, 6, 12 Rel Per 15 / 24 / 114

YEAR NET INCOME PAT EPS EPS P/E P/BV ROE ROA P/ABV


3/09A 17,535 6,124 30.1 56.8 23.2 6.3 30.3 3.1 6.43/10A 22,528 8,731 38.7 28.7 18.1 4.1 28.6 3.9 4.23/11E 31,875 13,204 58.5 51.2 11.9 3.2 30.2 5.4 3.23/12E 38,669 15,851 70.3 20.0 9.9 2.5 28.5 5.4 2.6


35August 2010


State Bank of India

Key Takeaways

Loan growth to be 1-2% higher than industry; sharp improvement in NIMThe management expects loan growth of 20-22% in FY11, as against 18-20% forthe industry.Loan growth is likely to be widespread across SME, Agri, Retail and Corporate.Infrastructure is likely to be the biggest growth driver.CASA growth remains strong and CASA ratio is expected to be flat QoQ.Management expects to maintain margins in FY11 at near to 4QFY10 levels of 2.96%.NIMs at 3% will be ~35bp higher than FY10 levels of 2.65%.

Asset quality: sharp improvement expected in 2HFY11Stress on asset quality has declined considerably.Higher upgradations and recoveries in 2HFY11 can lead to strong improvement inasset quality in 2HFY11.The bank is on track to achieve 70% PCR by 1HFY12.

Other highlightsThe bank continues to focus on controlling operating expenses, and improving C-Iratio and cost to average assets.Fee income growth is likely to track loan growth.Focus remains on improving RoA with margin improvement, operating leverage,and improving fee income growth.

Valuation and viewSBI is likely to achieve the highest core operating profit growth among state-ownedbanks in FY11, with (1) margin expansion of 25bp+, (2) loan and fee income growthof 20%+, and (3) high operating leverage.Strong core operating profit growth provides significant cushion for higher creditcosts and growth in profits despite lower trading gains.We expect the bank to report consolidated EPS of Rs226 in FY11 and Rs285 in FY12.Consolidated BV is expected to be Rs1,500 in FY11 and Rs1,739 in FY12. Adjustedfor value of the insurance business at Rs145/share, the stock trades at FY12E AP/Eof 8.6x and AP/BV of 1.4xSBI is our preferred large-cap bank stock to play the new growth cycle over FY11-14. We recommend Buy, with a target price of Rs2,925 - an upside of 29%.

Company Represented By:Mr Ramnath ChintaguntaCGM - Finance Control



YEAR NET INCOME PAT EPS CONS. CONS. P/BV CONS. CAR ROE ROA

END (RS M) (RS M) (RS) EPS (RS) P/E (X) (X) P/ABV (X)* (%) (%) (%)

3/09A 335,639 91,212 143.7 172.6 13.8 2.1 2.3 14.3 17.1 1.1

3/10A 386,396 91,661 144.4 184.8 12.9 1.8 2.0 13.4 14.8 0.9

3/11E 470,255 113,841 179.3 226.0 10.5 1.6 1.7 12.5 16.2 1.0

3/12E 549,821 143,832 226.5 285.4 8.2 1.4 1.5 11.9 17.9 1.1

Bloomberg SBIN INEquity Shares (m) 634.9CMP (Rs) 1,845Mcap (US$ b) 33.852 W Range 2,500 / 1,5121, 6, 12 Rel Per 11 / -7 / 32

* Valuation multiples are adjusted for SBI Life's value


36August 2010


Union Bank of India

Key Takeaways

GNPAs nearing peakWhile asset quality has been under pressure over the last 4-5 quarters, themanagement expects GNPAs to peak by 2QFY11.The management has guided that slippages are likely to be higher in 2QFY11, as (1)an agri debt relief scheme amount of Rs3.8b will be recognized as non-performing,and (2) some slippages from restructured accounts are likely apart from slippagesin the normal course of business.The bank believes that GNPAs will peak in 2QFY11 and decline thereafter due tostrong upgradations.Union Bank expects to contain GNPAs at less than ~2.1% for FY11 as compared to2.2% at the end of 1QFY11.

Adequately capitalizedOn a reported basis, the bank’s CAR stood at 12.6%, of which tier-I was 7.9% as at1QFY11.In 1QFY11, Union Bank received Rs1.1b of preference capital from the government.This amount and profits for 1QFY11 have not been accounted under tier-I capital.Including these, tier-I ratio and CAR are 50bp higher.Considering the buoyancy in loan growth, the bank will require additional capital tokeep tier-I ratio at 8%+. It has accordingly placed a request with the government.

Confident of growing 5% higher than industryThe management expects loan growth to be ~25% in FY11, while deposits arelikely to grow 22%. Loans grew 30% YoY to Rs1.25t and deposits grew 19% YoY toRs1.7t in 1QFY11.CASA improved to 32.6% in 1QFY11. Management hopes to attain CASA of 35% byFY12.

Other highlightsThe bank will provide Rs2.4b towards pension liability (total liability of Rs12b) inFY11, of which Rs600m was provided in 1QFY11.Strong growth in fee income on a higher base is a challenge. However, themanagement is confident of 20%+ fee income growth in FY11.

Valuation and viewWe expect Union Bank to report EPS of Rs49 in FY11 and Rs61 in FY12. We estimateBV at Rs214 for FY11 and Rs262 for FY12.We expect RoA to sustain at ~1.2%+ and RoE at 23%+. We maintain Buy, with atarget price of Rs365, an upside of 15%.

Company Represented By:Mr N S Mehta, CFO





3/09A 52,961 17,265 34.2 24.5 9.4 2.3 13.3 27.2 1.21 2.4

3/10A 61,672 20,749 41.1 20.2 7.8 1.8 12.5 26.2 1.17 2.0

3/11E 78,698 25,053 49.4 20.3 6.5 1.5 12.0 25.5 1.16 1.6

3/12E 93,233 30,643 60.5 22.4 5.3 1.2 11.1 25.4 1.17 1.3

Bloomberg UNBK INEquity Shares (m) 505.1CMP (Rs) 321Mcap (US$ b) 3.552 W Range (Rs) 333 / 2011, 6, 12 Rel Per -1 / 16 / 22


37August 2010


Yes Bank

Key Takeaways

Strong loan growth to continueManagement remains comfortable to grow 2x of the industry average growth.However, balancing growth with risk-return would be the key.Yes Bank’s current market share is ~0.6% and management expects this to improveby 10bp every year till FY15. This will lead to 4x increase in loan book in the nextfive years.

NIMs to remain robustYes Bank’s business is largely on a floating rate basis. In a rising rate scenario,while cost of deposits would increase faster (low CASA mix), yield on loans toowould rise in the same proportion. Hence, margins would remain intact.It has no major exposure to consumer lending (carrying fixed rate of interest) and~95% of the loan book is linked to PLR.Average duration of the loan book is 16-17 months whereas average duration ofdeposits is at 19-20 months. Therefore YoA and CoD will track the prevailing interestrates in the economy and improvement in NIMs would depend on pricing power.

New branch addition to boost CASA growthAs at June 2010, the bank had 153 branches. It intends to increase its branchnetwork to 250 by June 2011 and to 750 by FY15.Management expects strong growth trajectory in CASA deposits to continue asexisting branches mature (average life 15-16 months) and new branches are added.Reported CASA ratio was 10.8% (absolute CASA grew 99% YoY) in 1QFY11 and themanagement expects to improve CASA ratio by 200-300bp every year.

Other highlightsTraction in non-interest income will be driven by increase in share of transactionand retail banking while contribution from financial markets will decline.With GNPA and NNPA of 0.23% and 0.04%, respectively in 1QFY11 and totalrestructured book of Rs0.8b (0.31% of the loan book), the management expectsasset quality to remain strong.

Valuation and viewYes Bank trades at 12.1x FY12E EPS of Rs25 and 2.3x FY12E BV of Rs130. RoA islikely to remain strong at ~1.5% and increase in leverage would drive RoE to ~20%+in FY11-12. Maintain Buy with a target price of Rs325 (2.5x FY12E BV).

Company Represented By:Mr Rajat Monga,Group President - FinancialMarket and CFOMr Jaideep Iyre,President Financial ManegementMr Aparajit Bhandarkar, VP-IR



Bloomberg YES INEquity Shares (m) 339.7CMP (Rs) 304Mcap (US$ b) 2.252 W Range (Rs) 311 / 1451, 6, 12 Rel Per 9 / 13 / 85



3/09A 9,462 3,038 10.2 51.3 29.7 5.6 16.6 20.6 1.5 5.7

3/10A 13,635 4,777 14.1 37.5 21.6 3.3 20.6 20.3 1.6 3.4

3/11E 18,665 6,511 19.2 36.3 15.9 2.8 17.7 19.3 1.5 2.8

3/12E 24,744 8,515 25.1 30.8 12.1 2.3 15.3 21.1 1.4 2.4


38August 2010


BHEL

Key Takeaways

FY11 order intake guidance of 16GW; orders from JVs to boost intakeBHEL’s order book as at June 2010 was Rs1,480b (up 19% YoY, up 3% QoQ). In 1QFY11,BHEL reported order intake of Rs108b, down 15% YoY.

A large part of the intake in 1QFY11 was from BHEL’s JV with the Karnataka StateElectricity Board for 2x800MW Raichur TPS received in April 2010 and a Rs26border from Dainik Bhaskar for 2x600MW TPS in Chhatisgarh.FY11 order intake is likely to be robust given (i) bulk tendering of super criticalprojects (11 sets of 660MW each), (ii) project awards by joint ventures (MadhyaPradesh 2x660/800 in Khandwa and with Maharashtra for 2x660MW in Latur), and(iii) accelerated award by private players/state utilities/CPSUs. In FY11, we expectBHEL’s inflows to reach Rs614b, up 4% YoY.

FY11 shop-floor production of 16-17GWThe management is confident of achieving FY11 shop-floor production of 16-17GW(up 30%). The management indicated that the full benefit of capacity expansion,from 10GW to 15GW a year, would be realized in 2HFY11.The FY11 outsourced fabrication tonnage will go up to 0.45mt from 0.1mt in FY06,representing 35% CAGR over the past five years. This is a major thrust for BHEL tomeet its execution targets for the year.

Other key takeawaysFY11 staff costs as percentage of revenue will be lower than 15.8% posted in FY10.FY11 raw material costs will be maintained at 1QFY11 levels of 59% as BHEL hasindigenized technology related to transformers, generators, pulverizers and willextend this to other products in FY11.On the various JVs for super-critical projects with SEBs, BHEL is likely to book ordersfrom its JV with Tamil Nadu, Karnataka, Madhya Pradesh and Maharashtra. The JVorder with Tamil Nadu will be booked in 3QFY11 or 4QFY11 and the Maharashtraand Madhya Pradesh JVs are acquiring land for the projects.The JV with Toshiba for T&D/HVDC products will bid for most of the nine HVDCtransmission corridors to be built for Rs810b by PGCIL over eight years.The JV with GE for compressors will help BHEL to pre-qualify for gas-based projectsin future and the NTPC-BHEL JV for EPC/BOP will start construction of its plant inAndhra Pradesh over 2-3 months. BHEL intends to venture into railway (locomotives),renewables (solar, wind) and water desalination, investing Rs4b in the ventures.

Valuation and viewOur EPS estimates are Rs119 (up 24%) for FY11 and Rs147 (up 24%) for FY12. Ourprice target is Rs2,934 (20x FY12). Maintain Buy.

Company Represented By:Mr WVK Krishna Shankar,Executive Director - CorporatePlanning and Development



YEAR NET SALES PAT * EPS* EPS GR. P/E* P/BV ROE ROCE EV/ EV/

END (RS M) (RS M) (RS) (%) (X) (X) (%) (%) SALES EBITDA

03/09A 267,880 35,671 72.9 42.1 20.7 5.7 30.1 46.9 2.4 15.1

03/10A 335,728 46,839 95.7 31.3 24.9 7.3 32.5 51.4 3.3 17.1

03/11E 402,936 58,141 118.8 24.1 21.2 6.2 32.5 54.6 2.8 12.8

03/12E 495,431 71,807 146.7 23.5 17.2 5.0 32.3 53.2 2.3 10.3

Bloomberg BHEL INEquity Shares (m) 489.5CMP (Rs) 2,518Mcap (US$ b) 26.752 W Range (Rs) 2,585 / 2,1051, 6, 12 Rel Per 1 / -6 / -7

* Consolidated; EPS is fully diluted

Sector: Engineering

39August 2010


KEC International

Key Takeaways

Confident of strong FY11 revenue growth led by RPG CablesKEC is confident of posting 15-20% revenue growth over two years as it had arobust order backlog of Rs56b as on 1QFY11 with a BTB of 1.4x.The tender pipeline is robust with orders of Rs40b-50b in various stages of bidding.It expects PGCIL to spend about Rs110b-120b this year on grid expansion projectsand is cautious about price driven competition.As on 1QFY11 KEC had an order backlog of Rs56b divided between South Asia(51%) and the rest of the world (49%). Out of this, domestic orders for transmissionand distribution accounted for Rs25b (~44%) of the backlog.

EBITDA margins to be maintained at 1QFY11 levels in FY11, FY12South Asian orders, which have a 51% share of the order book, have a built inescalation clause, which makes the management confident of maintaining at least10-11% EBITDA margins in FY11.KEC had virtually no market share through FY10 when PGCIL spent about Rs43b ontransmission towers. With most of the new entrants booked with orders for the nextyear, KEC maintains that competitive intensity will return to normative levels in FY11.

RPG Cables to provide incremental growthAfter the consolidation with RPG Cables, KEC intends to set up a power cablesfactory in Gujarat with an initial capex of Rs1b. The plant, which will start operationsby late FY12, is likely to achieve peak revenue of Rs4b-5b. This plant will be used tomake cables that can carry power at 132/220 and 400kV range and will help thecompany to provide integrated substation EPC services in the near future.

Railways, the next big opportunityIn April 2010 KEC won an order worth Rs1.3b to construct station buildings, platforms,level crossings and signaling equipment. This segment forms about 4% of KEC’sorder backlog and the management expects to make inroads into the railwayssegment due to its inherent synergies with the transmission line business.The railways plan to add 1,000km of new lines in FY11 against an average of219km/year over the past five years. An increased thrust on the PPP model todevelop new business areas in the segments of railway lines, world class stations,auto hubs, manufacturing units of rolling stock, logistic parks, high-speed traincorridors, port connectivity and multi-level car-parking will provide new avenues ofgrowth for KEC.

Company Represented By:Mr R D Chandak, MDMr Vardhan Dharkar, CFOMr Mayur Khetan,IR & Corporate





3/07A 20,406 1,046 20.4 112.2 24.0 9.7 48.3 35.4 1.1 8.7

3/08A 28,145 1,712 32.1 57.6 15.2 5.2 44.3 32.0 1.0 8.6

3/09A 34,274 1,163 34.4 7.2 14.2 4.5 33.9 28.2 0.8 7.3

3/10A 39,082 1,897 36.9 7.3 13.2 3.6 30.2 26.5 0.8 7.3

Bloomberg KECI INEquity Shares (m) 49.3CMP (Rs) 488Mcap (US$ b) 0.552 W Range (Rs) 640 / 4161, 6, 12 Rel Per -1 / -29 / -13

Sector: Engineering

40August 2010


Larsen & Toubro

Key Takeaways

Order intake growth guidance 25% YoY1QFY11 order intake grew by 63% to Rs156b. Currently the order book is Rs1,078b,implying book-to-bill ratio of 2.9x TTM revenue.The management is confident of achieving 25% growth in FY11 including orderfrom Hyderabad Metro of Rs75-80b.L&T announced a BTG order worth Rs63b from JP Associates for 3X660MW BTGworth Rs63b. The management is confident of a strong success rate with the privatesector for more such BTG orders in future besides state and central utilities.

Factoring in 22% FY11 revenue growth; long cycle jobs impact 1QFY11 revenueThe management has maintained FY11 revenue growth guidance of 20%. Ourestimates factor in revenue growth of 22% for FY11 and 28% for FY12.There were also some delays in financial closure of development projects (13% oforder book). The management explained that margin recognition in a projectcommences after the booking of 25% of the cost of the project.

Risk management for projects in place to counter uncertaintyL&T follows a systematic risk management practice to analyze and counter projectlevel uncertainty. Projects up to Rs6b are referred to a risk management committeechaired by the CFO and projects exceeding Rs10b must pass through the Chairmanat the bidding stage and for monthly progress on projects.This committee analyses all parameters in including the case of ‘liquidated damages’and its impact on profitability of the company. Hence L&T has a self correctingprocess to smoothen execution issues.

Other key takeaways2QFY10 revenue is expected to be lower due to the inability of projects to cross 20-25% threshold limits depending on the timeline of execution. The managementexpects the Hyderabad Metro award, amounting to Rs128b, in 2HFY11.EPC order awards for development projects in the road sector, amount to Rs20b, asthey attain financial closure.Indigenization levels for BTG orders will be 90% for boilers in three years and in fiveyears for turbines. The MHI JV has started production at its plant in Gujarat and willbook the APGenco (1,600MW) order worth Rs15b in the next two years.

Valuation and viewWe value L&T based on the SOTP methodology. We value the core business atRs1,546/share (20x FY12E) and Rs369 for subsidiaries. We value L&T Power (BTG)at Rs82/share (10x FY14E EPS).

Company Represented By:Mr A K Mondal,General Manager - IRMs Sweta Shetty, IR



YEAR NET SALES PAT * EPS* EPS GR. P/E* P/BV ROE ROCE EV/ EV/

END (RS M) (RS M) (RS) (%) (X) (X) (%) (%) SALES EBITDA

3/09A 339,264 30,046 51.5 31.1 19.8 4.8 24.5 26.0 1.9 16.7

3/10A 370,347 37,110 61.7 20.2 24.1 4.7 19.7 23.7 2.5 19.6

3/11E 443,971 45,711 76.0 23.2 23.8 5.0 18.9 21.7 2.6 19.9

3/12E 565,142 56,487 93.9 23.6 19.3 4.4 19.8 21.9 2.0 15.9

Bloomberg LT INEquity Shares (m) 601.8CMP (Rs) 1,807Mcap (US$ b) 23.652 W Range (Rs) 1,951 / 1,3711, 6, 12 Rel Per -3 / 13 / 4

* Consolidated; EPS is fully diluted

Sector: Engineering

41August 2010


Voltas

Key Takeaways

Confident of 15-20% revenue growth in FY11, FY12The management is confident of 15%+ growth in the EMP segment in FY11 due to astrong order backlog of Rs50b at the end 1QFY11, to be executed until the end of FY12.

Although conversion of orders into execution has improved, it remains sluggish inthe HVAC business. The international order book remains satisfactory at Rs35b;with strong inflows in 4QFY10, revenue buoyancy should sustain beyond FY12.Order-inflow has been strong in the past two quarters. In 1QFY11, new ordersgrew by 77% to Rs10b. The new orders included a tunnel ventilation project forMetro Rail in Singapore. Success in this project augurs well for Voltas as it can lookat this segment in various geographies.In the unitary cooling product segment, the key drivers for growth are (i) healthcare,(ii) metro-rail projects, (iii) airports, (iii) telecom, and (iv) the power sector. Thesegment is expected to record strong volumes in the next few quarters, in airconditioners and refrigerators.With expansion in IIP with a more than 10% average growth over January-May2010, the outlook is positive for the EPS segment. Voltas is expanding its productportfolio especially in the material handling business, where it is the market leaderin segments like forklift trucks, container handling equipment and storage revivalsystems for cargo complexes.

Other takeawaysMEED reports that more than US$2.8t of projects are planned or underway in theGCC as on April 2010. Qatar, Saudi Arabia and the UAE are leading the recovery.The Middle East accounts for ~60% of the order book and 37% of Voltas’ revenue.In the Middle East, about 70% of investment has been planned for the constructionand tourism sector, which constitutes a huge market for Voltas and other EMP/HVACplayers.In the HVAC business, global growth in demand of 6% a year is expected throughFY14. China will be the fastest growing market, outpacing the global growth. InIndia, cooling equipment will continue to outpace heating equipment demand due torising incomes and low penetration of air conditioners in households.The increased thrust on airport modernization and metro rail services will be futuregrowth drivers for Voltas.

Valuation and viewThe stock trades at 22 x FY10 earnings. With 18-20% growth in core earnings likely,Voltas is attractively priced. Success in a few large contracts in India or the Middle Eastwill be the key catalyst. We do not have a rating on the stock.

Company Represented By:Mr B N Garudachar,GM - CommunicationsMr Utsav Shah,CFO - Central F & C Services



Bloomberg VOLT INEquity Shares (m) 330.9CMP (Rs) 209Mcap (US$ b) 1.552 W Range (Rs) 217 / 1281, 6, 12 Rel Per -1 / 19 / 34


END (RS M) (RS M) (RS) YoY (%) (X) (X) (%) (%) SALES EBITDA

03/07A 25,267 2,015 5.9 174.3 35.1 0.0 48 38 2.6 68.8 03/08A 32,029 2,077 6.1 3.1 34.0 0.0 36 32 2.0 25.1 03/09A 43,259 2,514 7.3 21.2 28.1 0.0 32 25 1.5 23.3 03/10A 48,059 3,810 11.2 52.7 18.4 0.0 35 34 1.3 13.7

Sector: Engineering

42August 2010


Asian Paints

Key Takeaways

Volume growth outlook strongAsian Paints’ volume growth outlook is strong and 1QFY11 volumes were up by 24%YoY. Demand in North India has revived after a period of sluggish growth. This will helpto sustain volume growth. Capex estimates at Rs3b-3.5b a yearAsian Paints is expected to incur capex of Rs3b-3.5b every year. It recently starteda unit in Rohtak with a capacity of 150,000 tons, which can be expanded to 400,000tons a year. It is setting up another unit in Maharashtra which will start in CY12. Plan to reduce outsourcingAsian Paints outsources low value paints like Utsav, while most of the enamels andemulsions are manufactured in-house. The ratio of outsourced paints is likely to declinefrom 27% as enamels and emulsions are growing faster. GST to benefit paint industryGST will benefit the paint industry and other FMCG segments. Gains will be a function ofthe GST rate and other taxes like octroi and entry taxes. Supply chain efficiencies willaccrue to the company. Asian Paints expects to maintain marginsGlobal paint margins are usually around 10% but margins in India are higher. Even ifmargins decline in the long term due to increased competition, base margins will be 14-15%. The company expects to maintain the margins in the near term.

Company Represented By:Mr P M Murthy, MD & CEOMr Jayesh Merchant, CFO & CSMr R J Jayamurugan,GM, Accounts and TaxMr Deepak Alva, Chief Manager- Finance and Strategy Planning





3/09A 54,632 4,014 41.8 -3.9 62.1 20.7 33.4 39.4 4.6 37.3

3/10A 66,809 7,720 80.5 92.4 32.3 15.7 48.5 57.3 3.7 20.2

3/11E 78,224 9,160 95.5 18.6 27.2 12.1 44.5 54.4 3.1 17.2

3/12E 93,283 11,305 117.9 23.4 22.1 9.5 43.1 54.8 2.6 13.9

Bloomberg APNT INEquity Shares (m) 95.9CMP (Rs) 2,592Mcap (US$ b) 5.452 W Range (Rs) 2,706 / 1,2961, 6, 12 Rel Per 7 / 23 / 69

Sector: FMCG

43August 2010


Dabur India

Key Takeaways

Volume growth strong, overall momentum sustainableDabur India posted 17% volume grown YoY in 1QFY11. Oral care, hair oils and healthsupplements have been key growth drivers. Demand conditions look good and someprice increases are likely in coming months.

Commodity costs likely to soften from 3QFY11Input cost pressure in 1QFY11 continues in 2QFY11, with cost inflation in honey, dextrose,LLP, oils, packaging (35% of RM costs) and sugar. LLP prices are unlikely to soften dueto a lack of capacity, though sugar and honey prices are softening. Dabur had stockedup mango pulp and sugar, which enabled lower pressure on margins. Dabur expectscommodity costs to fall after 2QFY11.

Hobby acquisition could open new opportunities in MENADabur announced the acquisition of Hobby, a cosmetics brand with a manufacturing andmarketing network in Turkey. It has a topline of US$27m and was acquired for US$70m.The company’s EBITDA margin was 17% and PAT margin, 10% WHEN???. Hobby hasleadership in hair gels and has products like face and body washes and baby cleaners.Hobby will enable Dabur to launch its own brands and products from its facilities in theMENA region, where it will also launch Hobby products. Turkish brands enjoy a premiumimage, so there is a strong possibility Hobby will succeed in the MENA region.

International business a key growth driverThe international business has been Dabur India’s key driver in the recent past, postinghigh double-digit sales growth and margin expansion. Margins of international operationsare in line with those in the domestic operations. The management expects the ratio ofinternational operations to total sales to increase from the current 20% to 30% (it doesnot rule out more acquisitions) by the time Dabur doubles its sales in FY14.

Valuation and viewDabur is one of the steadiest performers in the FMCG space. A wide product portfolio isan advantage and niche positioning insulates most of the portfolio from head-oncompetition with MNCs. We estimate 19% PAT CAGR over FY10-12. The stock trades at24.8x FY12E EPS of Rs8.2. Maintain Buy.

Company Represented By:Mr S Raghunathan, CFOMs Gagan Ahluwalia,AGM - Corporate AffairsMr Dhruv Sharma,Asst. Manger - Corporate Affairs





03/09A 28,054 3,912 4.5 17.1 44.7 21.3 47.7 44.5 6.1 36.6

03/10A 33,657 5,015 5.8 28.3 35.1 16.1 45.8 46.9 5.2 27.5

03/11E 39,851 5,735 6.6 14.2 30.5 12.6 41.5 47.8 4.3 22.8

03/12E 46,778 7,053 8.2 23.0 24.8 9.9 40.0 47.2 3.6 18.8

Bloomberg DABUR INEquity Shares (m) 864.0CMP (Rs) 198Mcap (US$ b) 3.752 W Range (Rs) 219 / 1191, 6, 12 Rel Per -6 / 5 / 27

Sector: FMCG

44August 2010


Ghari Industries

Key Takeaways

Ghari has 18% market share in a Rs100b detergent marketGhari detergents has 18% value share in the Rs100b detergent market. The company ispresent in the mass market, which is 60% of the total. It sells detergent powder andbars under the brand Ghari and competes with HUL’s Wheel, Nirma and Fena. It hasstrong brand equity in the northern and central parts of India with 50% market share inUP and 40% market share in Delhi and Madhya Pradesh. It achieved market leadershipin Haryana, as well. Ghari has gained market share from small and unorganized players.Consolidation of the unorganized sector has increased its share and economies of scale.

Ghari confident of sustaining growth, not impacted by price warsGhari is confident of sustaining double digit volume growth in the coming years. Itforesees no competitive threat from MNCs as it sells products on the value-for-moneyplatform and sees no threat from undercutting. It operates with 35% gross margin,selling and distribution costs are 4% of sales, including adspend (2% of sales). It hasstarted advertising on the national platform medium and expects the adspend ratio toincrease to 3-4%.

Geographical expansion is a key growth driverGhari, which started in UP has been fast spreading its network in other states. Thecompany has been capitalizing on distribution gaps of large players to gain share. It has3,000 dealers but its presence is weak in southern and eastern India. It does nooutsourcing and gets its products from 18 factories. It is setting up a unit in Karnatakato make inroads into South India. It is open to acquiring mid-sized players in East India.

Ghari plans to increase presence beyond detergentsGhari plans to increase its presence beyond detergents. It launched toilet soap underthe brand Venus last year and garnered sales of Rs800m. It plans to enter the toothpaste,shampoo, floor cleaner, toilet cleaner and shaving cream markets. R&D is in progressand first products are 1.5-2 years away. New products will be launched under newbrands.

Ghari has strong cash flows, sustainable operationsGhari posted sales and PAT of Rs18b and Rs1.75b respectively in FY10. It posted EBITDAmargins of 14% and PAT margin of 9%. It posted sales of Rs7b in 4MFY11. It estimates15% CAGR in sales over the next three years and strong cash flows exceeding Rs2b.

Restructuring to create a pure HPC playGhari set up divisions for leather, footwear and wind farms. Leather and footwear havebeen hived off into a separate company. The unit posted sales and PAT of Rs800m andRs400m respectively in FY10. Restructuring of the company will result in making it apure HPC play with presence in detergents and soaps and it plans to enter the personalcare and home care categories. Not Rated.

Company Represented By:Mr Sushil Kumar Bajpai,President-Corporate Affairs & CS



Sector: FMCG

45August 2010


Hindustan Unilever

Key Takeaways

Target to maintain leadership in core categoriesHUL will defend market share in categories like soaps, laundry, hair and skin cre.HUL leads the market (2.5-3x its nearest competitor) in core categories and willinvest strategically (on new launches like Brooke Bond and Sehatmand and pricingstrategies) and tactically through promotions to maintain the relative advantage.

Skin, tea volumes under pressure; soaps, detergents to grow slowlySkin care volumes under pressure, partly due to high inflation. Tea volumes declinedDue to high levels of penetration, traditional categories like soaps and detergentsare likely to post growth in mid-single digits (4-5%). But the opportunity lies inuptrading consumers. Consumers are upgrading in the toilet soap category, fromwhich HUL will benefit.

FY11 margins to stay under pressure, ad-spends to stay highGross margins are likely to come under pressure due to fewer price increases andrising input costs. 1QFY11 gross margins increased due to global procurementsynergies and beneficial rates locked in earlier.Ad-spends are likely to remain high and unlikely to revert to 13.5-14% levels. But,the 1QFY11 ad-spend of 15.4% had the impact of aggressive pursuance of volumegrowth and investments behind new launches (Brooke Bond Sehatmand, Knorr SoupyNoodles), which may not be sustained through the year.

HUL is investing in categories of the future HUL is investing in emerging segments like fabric conditioner, body wash, noodlesand cooking aids, deodorant and water. HUL aims to corner 30-40% share in eachof the categories though new players are likely to enter the segments.The new product segments are margin accretive. HUL expects 30-40bp gross marginexpansion each year as the share of new segments increases.Pure IT posted sales of Rs3b in the previous year and is growing at 40-45%. HULextended the basic product to Rs1,000 Pure IT compact and premium offering inMarvella. The future looks bright as cartridge sales are also picking up.

Valuation and viewHUL posted two consecutive quarters of double-digit volume growth but this hasbeen achieved at the cost of margins as higher ad-spends eroded profitability.Pressure on margins is likely. HUL is trying to mitigate this by efficiencies inprocurement, production, distribution and technology.We estimate 9.5% PAT CAGR over FY10-12. The stock trades at 26.7x FY11E EPS ofRs9.6 and 22.7x FY12E EPS of Rs11.3. Neutral.

Company Represented By:Mr S C Srinivasan,VP - Treasury, M&A and IR





03/09A* 167,617 20,636 9.5 18.5 27.0 27.1 119.0 122.8 2.7 17.8

03/10A 177,253 20,587 9.4 -0.4 27.1 21.6 79.7 105.1 3.0 19.2

03/11E 194,947 20,889 9.6 1.5 26.7 19.4 72.4 95.4 2.7 19.1

03/12E 218,191 24,564 11.3 17.6 22.7 16.3 71.7 95.4 2.4 15.9

Bloomberg HUVR INEquity Shares (m) 2,177.5CMP (Rs) 256Mcap (US$ b) 12.152 W Range (Rs) 296 / 2181, 6, 12 Rel Per -9 / -2 / -28

Sector: FMCG

* EPS for 12 months (April 08-March 09)

46August 2010


Marico

Key Takeaways

Parachute volume growth intact, hair oils picking upParachute coconut oil maintained double-digit volume growth in 1QFY11. Marico plansto increase prices of 100ml, 200ml and 500ml packs by 5% in a few months. But pricesof starter packs in blisters, (20ml, 40ml) will be untouched as the focus is on convertingloose oil users to branded oil.

Copra prices to rise; safflower prices benignCopra (40% of RM) prices are up 5% and the company expects to end FY11 with a 10%price increase. Safflower (12% of RM) prices are down 12% YoY and should be flat inFY11. Rice bran oil (12% of RM) prices are firm and a rise is expected.

Kaya being transformed; definitive outlook after FY11Marico has initiated steps to transform Kaya’s business model. The company posted aloss of Rs47m in 1QFY11 and expects to end FY11 with a loss of Rs150m-200m. Theimpact of restructuring initiatives will be visible 9-12 months hence.

Saffola being extended to other wellness categoriesMarico is extending Saffola from oils to other product categories. The plan is to use thebrand for wellness products used by the consumer through the day. Saffola Arise iswitnessing repeat purchases, and Marico is running an attractive sales promotion schemefor the product. Saffola Zest has returned to the drawing board and will be relaunchedwith changes. Marico is also test marketing oats under the Saffola brand.

Marico to benefit from GST; tax rate to stay at 18-20% for two yearsMarico expects to benefit from the introduction of GST due to lower taxes, efficienciesin distribution and an expected increase in demand. It has commissioned two units inBaddi and Ponta Sahib, which will result in the tax rate being 18-20% until 2012. Afterthat, tax rates will increase as existing units will go out of the 100% tax break.

International business margins to increaseMargins at Marico’s international business increased in Bangladesh, Egypt and the MiddleEast. The South African business is growing at 20% and the Bangladesh and MiddleEast businesses are growing in double digits. Marico plans to increase its presence inthe Middle East and Africa to accelerate growth in its international business.

Valuation and viewMarico is one of the best plays on the coconut oil and edible oils market in India. Weexpect it to maintain steady growth in the medium term due to strong brands and thelack of MNC competition. We estimate 22% PAT CAGR over FY10-12. The stock tradesat 24.8x FY11E EPS of Rs4.9 and 20.2x FY12E EPS of Rs6. Maintain Buy.

Company Represented By:Mr Chaitanya Deshpande,Head M&A and IRMr Anubhav Rastogi, Head - IR





03/09A 23,884 2,038 3.3 28.5 36.5 16.4 44.9 42.5 3.2 25.3

03/10A 26,608 2,454 4.0 20.4 30.3 11.4 36.9 40.8 2.9 20.5

03/11E 31,038 2,967 4.9 22.1 24.8 8.6 34.3 44.2 2.4 16.9

03/12E 36,914 3,643 6.0 22.7 20.2 6.3 30.9 42.3 2.0 14.0

Bloomberg MRCO INEquity Shares (m) 609.0CMP (Rs) 121Mcap (US$ b) 1.652 W Range (Rs) 136 / 781, 6, 12 Rel Per -8 / 7 / 27

Sector: FMCG

47August 2010


Radico Khaitan

Key Takeaways

Liquor industry to maintain double-digit volume growthRadico Khaitan is the second largest player in the IMFL segment with annual sales of14.6m cases. The company expects the IMFL industry to maintain 10-11% volume CAGRand value CAGR of 14-15%. Whisky volumes are likely to grow by 9% and rum is likelyto grow by 6%. Vodka is likely to grow by 30% CAGR over FY10-12.

ENA prices to decline in the coming seasonRadico expects ENA prices to decline in the coming season due to an expected increasein sugarcane production. Current prices rule at Rs27/liter, which it expects to decline toRs23/liter in the flush season.

8PM to be relaunched with new packaging8PM, the largest brand in its portfolio posted single-digit volume growth in FY10 after adecline in FY09. The company cites the change of taste, due to the use of grain spirit, asa key reason for the loss of consumer connect. The product issues have been addressedand it will relaunch the brand in new packaging, which will enable it to regain double-digit volume growth.

Magic Moments maintains high double-digit volume growthMagic Moments vodka sold 1.4m cases in FY10 and it grew by 32.6% YoY in 1QFY11.The brand has a 25% share in the vodka market and 85% share at the Rs350 pricepoint. It is likely to emerge as a key profit driver as its contribution to margins is 3.5x thecontribution of 8PM whisky.

Radico increases focus on innovation; enters premium whisky segmentRadico and Diageo are dismantling a JV they formed to develop premium whisky. The JVsuffered a loss of Rs550m. Radico increased its thrust on innovation and launchedMorpheus brandy in the premium segment, which is selling 20,000 cases a month. Italso launched After Dark and Eagle’s Dare whisky at the premium end.

CSD sales growing at 3-4%; payment delays not seenRadico has a strong presence in canteen store sales with a market share of 22.4%. CSDsales have been growing at 3-4% in volumes. CSD payments are on time and thecompany faces no debtor issues.

Company Represented By:Mr D K Barthiya, CFOMr Mukesh Agarwal,AVP - Finance and Treasury



Sector: FMCG

48August 2010


Financial Technologies

Key Takeaways

On track to launch of 3 new exchanges; upside triggers on successful launchFinancial Technologies’ three new exchanges are expected to go live shortly – SMX(Singapore Merchantile Exchange) in August, GBOT (Mauritius) in September andBFX (Bahrain) in October 2010 (All 100% subsidiaries). The company could look atstrategic placement of some stake at SMX to investors if that would aid liquidity.SMX presents a huge potential in the absence of any competing exchange. FT mayoffer period of free transactions in its promotional attempts for the new exchanges.

Expects greater clarity on introduction of equity trading in MCX-SX andtransaction fees on currency trading over next few months

MCX-SX filed a writ petition in the Bombay High Court in July against market regulatorSEBI, pointing out the delay in approval for commencing operations, despite complyingwith all regulatory requirements.The Competitive Council has taken up the case of predatory pricing by NSE’s currencyexchange in not charging transaction fees. The company expects statute in thisregard ordering NSE and consequently MCX-SX to charge at least the marginal costof operating the exchange. FT indicated that even in case of a charge of Rs1 per100,000 transacted, PBT of MCX-SX could be of the order of Rs1b.

Continued dominance of MCX; IPO possibility post clarity on MCX-SX issuesMCX currently enjoys over 80% market share, is the 6th largest commodity exchangeglobally and undisputed number one in the Indian space. The company expectsMCX to file for an IPO post clarity on MCX-SX related issues.It continues its strong traction with YTD turnover growth of 55% (as on 31 July2010) and high EBITDA margin of 60%+ (including interest on float).

Licenses in technology products increasing at healthy pace, led by ODINODIN is India’s leading trading solution; over 530,000 ODIN licenses sold till date(87% market share in India). ODIN license sales grew more than 50% in FY10.Standalone EBITDA margins in the range of 45-55%; expected to be maintained.

Valuation and viewWe maintain Buy on FT, with an SOTP-based target price of Rs1,610. We value [1]standalone business at 13x FY12E earnings (Rs535), [2] MCX business at 18x FY12Eearnings (Rs299), [3] MCX-SX at 30% discount to last strategic sale valuation(Rs333), [4] NBHC at 13x FY12E earnings (Rs60) and [5] investment in groupcompanies at 1.5x invested capital (Rs384).Clarity on pending issues with SEBI on launch of equity exchange, competition councilin terms of introduction of transaction fees on MCX-SX currency trading segments,and success of new exchanges remain key triggers.

Company Represented By:Mr Shreekant Javalgekar,Director-FinanceMs Mayura Kulkarni,Asst. Manager - IR



YEAR NET SALES PAT* EPS EPS P/E P/BV ROE ROCE EV/ EV/


3/09A 3,564 3,686 80.3 -61.4 15.3 3.3 23.2 8.8 15.8 30.2

3/10A 3,330 3,444 75.0 -6.7 16.3 2.8 18.3 7.0 17.5 34.8

3/11E 3,455 1,906 41.5 -44.7 29.5 2.6 9.0 6.0 16.9 34.7

3/12E 3,716 1,890 41.1 -0.8 29.8 15.1 8.4 6.4 15.1 32.1

Bloomberg FTECH INEquity Shares (m) 45.9CMP (Rs) 1,226Mcap (US$ b) 1.252 W Range (Rs) 1,722 / 1,1501, 6, 12 Rel Per -14 / -28 / -36

Sector: Information Technology

49August 2010


Infosys Technologies

Key Takeaways

Sees no further declines in Europe; expects improvements, going forwardInfosys’ US$ revenues from Europe declined 5.5% QoQ in 1QFY11 on weakness inUK and Switzerland, coupled with cross currency impacts. All European countriesexcept UK and Switzerland were stable or showing an increasing trend.The company does not see any further decline in the geography and expressed itsconfidence in growth improvement, going forward. Europe constitutes 20% of Infosys’revenues and a turnaround in this region would augment its growth impressively(Infosys grew 4.8% QoQ in 1QFY11, despite 5.5% decline in Europe).

No downward pressure on pricing, possibility of mix-based pricing uptick ifgrowth skews towards discretionary service lines

2% QoQ decline in pricing was primarily mix-based, with larger incremental revenuesemanating from lower priced services like Applications Maintenance and Testing.Infosys sees a stable pricing environment ahead; pick-up in discretionary spending(46% contribution from Package Implementation, Application Development, andProducts) could provide scope for mix-based pricing improvements.

Looking at growth without sacrificing margins; expresses confidence onmargin levers

Infosys ruled out further wage-hikes in FY11, post hike of 12-13% offshore and 2-4% onsite in 1QFY11. It expects attrition to trend down over the next 2-3 quarters.It expects stable pricing, best in class bulge mix, fixed bid scope and lowest SGA tosupport its guidance of 150bp decline in EBITDA margins in FY10. Infosys saw anEBITDA margin decline of 230bp QoQ in 1QFY11 on wage inflation and pricing decline.It expects to participate in deal renegotiations, where it can sustain margins withina narrow band through optimal delivery mix, bulge mix management and low SGA.

BPO – best chance of an acquisition; IT-led BPO the sustainable way forwardInfosys measures all acquisition targets against stringent NPV criteria and ability tobring cost efficiencies. It sees the best scope for such acquisitions in BPO, wheretwo of its last acquisitions, Philips BPO and Mc Camish, have happened.Infosys’ BPO practice is the smallest among the top-3 IT names; it believes ITbundled with BPO is a superior and more sustainable offering than standalone BPO.

Valuation and viewWe expect Infosys to post US$ revenue CAGR of 23.2% over FY10-12, with anEBITDA margin moderation of 110bp over this period. It remains our preferred pickin the top-tier IT sector due to: [1] greater discretionary delta, [2] better operationalscope, and [3] better than peer group earnings growth CAGR of 18.4% over FY10-12. We maintain Buy, with a target price of Rs3,160 (21x FY12E EPS).

Company Represented By:Mr Abraham Mathews, BPO - CFO





3/09A 216,930 58,800 102.5 29.5 28.0 9.0 36.7 40.2 7.1 21.5

3/10A 227,420 61,340 107.4 4.7 26.7 7.1 29.7 33.7 6.6 19.1

3/11E 275,723 70,688 123.7 15.2 23.2 5.8 27.6 32.6 5.3 15.7

3/12E 324,700 86,025 150.6 21.7 19.0 4.8 27.7 31.9 4.3 12.9

Bloomberg INFO INEquity Shares (m) 573.9CMP (Rs) 2,868Mcap (US$ b) 35.652 W Range (Rs) 2,912 / 1,9361, 6, 12 Rel Per 1 / 6 / 25


50August 2010


Tata Consultancy Services

Key Takeaways

Sees broad-basing of growth with growth dependence on BFSI reducingBFSI led the growth for TCS over the past four quarters, driven by M&A integration,cost take-outs and discretionary spending. But TCS sees other verticals also startingto contribute, with strong traction in Telecom (+10.8% QoQ), Retail (+7.4% QoQ)and Energy & Utilities (17% QoQ). BFSI contributes ~45% of TCS’ revenues.The management expects BFSI to continue growing and Manufacturing, which wasflat in 1QFY11, to see improvement. On the BPO front, TCS sees IT+BPO emergingas a winning proposition, given weakness in standalone BPO environment.

Measures non-linearity more stringently; sees improvements going aheadTCS measures non-linearity more stringently, with business generated from models,which do not require headcount only as non-linear revenues. Current proportionsare of the order of 5% (excluding products).It includes the following categories in non-linear space: [1] business modelsintrinsically non-linear like platforms, [2] SMB (cloud computing initiative); [3] productsbusiness (3.5-4% at present), and [4] government projects using Digigov framework.

Return of discretionary spend and improving growth indicate possibility ofpricing uptick towards end of FY11

The company has till now not seen any pricing renegotiations, but believes if demandstrength continues into the next calendar year, pricing could see an uptick. Till thenit sees stability in pricing.TCS expressed confidence in the discretionary spending environment, which hascontributed to a significant proportion of its BFSI growth. The company also has apositive outlook on Manufacturing, a vertical which will drive discretionary demand.

Limited scope of utilization, offshoring or fixed bid improvement; non-employeecosts remain the key margin lever

TCS improved its EBITDA margin by 310bp over the last 5 quarters, on 370bpreduction in SGA as a percentage of sales. It used levers like utilization, offshoringand fixed bid progression but sees limited scope for using these levers, going forward.It sees following margin levers to help sustain profitability: [1] non-employee coststo stay at the same absolute levels, [2] improvement in the execution/productivityof existing FPP projects, and [3] improvement in the performance of subsidiaries.

Valuation and viewWe expect TCS to post US$ revenue CAGR of 20% over FY10-12, with largely stableEBITDA margins and an EPS growth of 13.4% over this period. We maintain Neutralon the stock, with a target price of Rs845 (19x FY12E EPS).

Company Represented By:Mr S Mahalingam, CFO & EDMr Kedar Shirali, Director - IR





3/09A 278,129 51,367 26.2 3.0 33.1 10.8 36.4 44.2 6.0 23.4

3/10A 300,289 68,647 35.1 33.6 24.8 8.1 37.3 40.9 5.5 19.2

3/11E 352,537 79,803 40.8 16.3 21.3 6.1 32.7 37.3 4.6 15.6

3/12E 408,496 88,389 45.2 10.8 19.3 4.9 28.2 33.4 3.9 13.4

Bloomberg TCS INEquity Shares (m) 1,957.2CMP (Rs) 870Mcap (US$ b) 36.952 W Range (Rs) 883 / 4301, 6, 12 Rel Per 13 / 6 / 51


51August 2010


Wipro

Key Takeaways

Expects healthy demand for outsourcing irrespective of global IT spend growthWipro expects strong and sustainable growth in outsourcing, given the aging ofpopulation in the developed world. ~77m people will be retiring over the next 10years and some proportion of these would be IT workers.The disruptive nature of new technologies and fast-paced change is drivingmanagements to outsource technology-based non-core responsibilities and focuson core businesses. The management believes that a shift from insourcing tooutsourcing will result in greater demand.

More confident on Europe compared to peers; focus on account miningWipro has expressed higher confidence on turnaround in Europe than its top-tierpeers. It enjoys local leadership in Germany and France, and is positive on Franceon institutionalized IT industry v/s predominance of in-house operations in Germany.Depreciation of the Euro has improved the export attractiveness of these countriesand has benefited the region’s private companies.Wipro has increased focus on account mining; hired 2-3 dozen engagementmanagers, 50 client partners and sales persons from the top 5-10 IT firms.

IMS to drive growth, with 1/4th of the pipeline; TMT not to remain a dragIMS constitutes nearly 1/4th of Wipro’s present deal pipeline; and is likely to leadgrowth. Deal pipeline has shown a 5-6% increase over the last year. IMS contributed21% revenues in FY10 and Wipro is the largest player in this service line.There is positive traction in TMT; the segment is expected to emerge out of asluggish phase and register effective growth.

Focus on earnings growth ahead of peers through margin management andstrategic hiring

Wipro’s impressive operating performance is an outcome of effective costmanagement rather than any realizations from premium pricing, implying marginsustainability. It intends to continue effective cost management, with utilization beingmeasured from an absolute bench perspective, rather than percentage and hiringcontinuing to be JIT. It sees no impact of supply-side pressure in demand fulfillment.Wipro sees improvement in elevated attrition scenario over the next 2-3 quarters. Itexpects RSU’s and promotions for >20,000 people, coupled with employeeengagement initiatives to lead to moderation in attrition.

Valuation and viewWe expect Wipro to post US$ revenue CAGR of 19% and EPS CAGR of 13% overFY10-12. Maintain Neutral, with a target price of Rs455 (19x FY12E EPS).

Company Represented By:Mr Girish Paranjpe, Joint CEOMr Rajendra Shreemal,VP & Corporate Treasurer





3/09A 256,891 38,677 15.9 22.1 27.0 7.1 28.0 23.2 4.0 19.9

3/10A 271,957 45,638 18.6 17.4 23.0 5.3 26.6 21.8 3.7 16.9

3/11E 316,775 53,265 21.7 16.7 19.7 4.2 24.0 20.6 3.1 14.3

3/12E 367,142 58,611 23.9 10.0 17.9 3.5 21.5 19.8 2.5 12.1

Bloomberg WPRO INEquity Shares (m) 2,443.3CMP (Rs) 429Mcap (US$ b) 22.752 W Range (Rs) 452 / 2921, 6, 12 Rel Per 7 / -3 / 33


52August 2010


C&C Constructions

Key Takeaways

Road sector will remain the core segmentC&C Constructions is promoted by a group of five professionals having vast experiencein the construction industry. The company was listed in 2007.C&C derives bulk of its growth from the Road segment (over 60% of order book).Other sectors where it has presence are Civil (25%), Railways (10%), Water,Transmission Towers, etc.The company also has one toll road in Punjab under BSC-C&C Kurali Toll RoadLimited, in which it has 49% stake.

Order book at Rs37b, 4x TTM sales; encouraging outlook for FY11The company has an order book of Rs37b. A large part of the order book (40%) isconcentrated in the state of Bihar. Concerns have been raised about risks associatedwith execution of these projects due to law and order problem in Bihar. Themanagement claims that the situation there has improved and projects areprogressing as expected.Other key projects that the company is executing are three road projects in UP,including Yamuna Expressway and six parking lots in Delhi for Commonwealth Games.Afghanistan also has been a key region for the company in the past. Over the pastfew years though, its exposure to Afghanistan has significantly reduced to just about10% of the current order book. Afghan Parliament work order is the main job thatit is doing in Afghanistan.

Over Rs15b worth of new orders targetedThe company aims at bagging orders worth Rs15b in FY11.To obtain larger orders that require technical and financial pre-qualifications beyondthe capacity of C&C, it has entered into several JVs. Its main JV partners include BSeenaiah and Company Projects (BSC) and MS Sukhmani Engineers. C&C has plansto bid for projects in JV with Spanish company, Isolux Corsan in verticals where itlacks expertise, or where project size is large.

Valuation and viewC&C has posted a CAGR of 35% in sales and 8% in profit over FY05-09 (year endingJune). It enjoys high margins of 18-20% due to presence in difficult regions likeBihar and Afghanistan. Profit remained stagnant in FY09 due to fall in margins evenas sales grew well.For 9MFY10, the company's sales grew 33% to Rs7.7b, while profit grew 67% toRs360m. EBITDA margin was 24% as against 18% in the previous year.C&C has good growth outlook, comfortable DER at 1.34x and RoCE of around 20%.The stock trades at reasonable valuations. We do not have a rating on the stock.

Company Represented By:Mr Gurjeet Singh Johar,ChairmanMr Tapash Majumdar, CFO



Bloomberg CCON INEquity Shares (m) 23.4CMP (Rs) 242Mcap (US$ b) 0.152 W Range (Rs) 284 / 1491, 6, 12 Rel Per -3 / -13 / 29

YEAR NET SALES* PAT* EPS EPS P/E P/BV ROE ROCE EV/ EV/


06/06A 2,117 309 16.9 14.3 0.2 29 15 2.4 8.6 06/07A 3,304 332 18.2 7.3 13.3 0.1 12 8 1.4 6.4 06/08A 5,333 409 22.4 23.3 10.8 0.1 13 7 1.1 6.5 06/09A 7,501 411 22.5 0.5 10.8 0.1 12 4 1.2 6.0

Sector: Infrastructure

53August 2010


Era Infra Engineering

Key Takeaways

Strong order-book of Rs107b; 3x TTM salesEra Infra Engineering (EIL) has expertise in segments including Power, Highways,Railways, Airports, Urban Infrastructure, Refineries, Industrial Complexes,Commercial and Office Buildings, and Residential Complexes. It has a nationalpresence, with a track record of robust execution capability. EIL has five BOT projects.The company has three business lines - EPC (construction business), BOT andEquipment Management and Concrete (EMC).Composition of the EPC order-book stands as: Infra Projects - 51%, Industrial andSocial - 28%, and Power - 21%.Public sector accounts for 88% of the company's order book. With more privatesector participation in power, share of private sector will increase. However,government orders will continue to be large part of its order book.EIL's experience in executing BOP orders in large thermal power plant project hasmade it a preferred contractor for BHEL and NTPC. About 70% of the power orderbook is government orders.

Increasing BOT portfolioEIL has three BOT projects - Gwalior Bypass, Western Haryana and Hyderabad RingRoad - expected to be operational by CY10. Total project cost is about Rs13.4b. EILhas won two more projects in the BOT segment - Muzaffar / Haridwar section forRs10b, and Haridwar / Dehradun section for Rs6.5b. Total equity requirement isRs4b-4.5b over the next three years.Its equipment rental business is on a strong footing; EIL is a leading player in thissegment. This augurs well for the construction business, with optimal asset utilization.

Other key takeawaysEIL aims to become a full-fledged infrastructure-EPC company. It aims at increasingthe ticket size of projects from the government sector.It plans partnerships with strong global names to foray into the international market.

Valuation and viewEIL is among the fastest growing construction companies in India. In the last fouryears, its sales and net profit have grown at a CAGR of 82% and 79%, respectively.Its margins are among the highest in the construction industry at 18-20%. This is onaccount of the company's focus on high-value contracting and equipment rentalbusiness. EPC enjoys 13-15% margins, while rental business has 45-50% margins.Given its strong order book, the company should maintain high growth in the nexttwo years. We do not have a rating on the stock.

Company Represented By:Mr Joy Saxena, Group CFOMr Rakesh Kumar,Senior Manager – Finance



Bloomberg ERIE INEquity Shares (m) 195.0CMP (Rs) 221Mcap (US$ b) 0.952 W Range (Rs) 235 / 1401, 6, 12 Rel Per 2 / -3 / 23



3/08A 14,645 1,014 8.8 7.9 25.3 5.2 25.5 14.4 2.4 11.63/09A 23,769 1,522 10.6 20.7 21.0 3.6 22.2 14.4 2.0 11.63/10E 33,656 2,075 10.6 0.3 20.9 3.0 19.9 14.5 1.9 9.23/11E 41,960 2,562 13.1 23.5 16.9 2.6 17.7 15.6 1.6 7.6


54August 2010


GMR Infrastructure

Key Takeaways

Equity funding for projects under construction largely in placeGMR Infrastructure has raised Rs28b (GMR Energy: Rs13.6b through PE; GMR:Rs14b through QIP), which will enable it to meet large part of the equity fundingrequirements for projects under development (5.5GW of power projects and threeroad projects).Also, GMR has completed the refinancing of US$837m acquisition debt for InterGen,with two years moratorium, through US$737m debt (LIBOR+425bp) and US$100mequity contribution. Thus, there is no immediate requirement on InterGen.

Project progress encouraging: clearances secured, construction onGMR Infrastructure has completed financial closure of its recently-awarded 3-roadproject (cumulative project cost of ~Rs48b) at interest rates of 10.5-10.75%.It has secured clearances (land, water, MoEF, fuel) and awarded equipment for5.5GW of thermal projects under development.The Ministry of Power has recently placed GMR's 768MW Vemagiri expansion (partof 5.5GW under development projects) in the priority list to obtain gas from KG-D6

Stake divestment in InterGen, Airport HoldcoGMR has expressed its interest to divest its 50% holding in InterGen to enable it tofocus on the growing opportunities in the domestic business.GMR has cash and equivalents of Rs55b as of June 2010, of which Rs40b is availablefor equity investment in various project SPVs (balance in operational SPVs). Themanagement has stated that GMR is well placed to fund its equity infusion, and isnot looking at any dilution at parent level in near term. It is, however, exploring theoption to divest stake in Airport Holdco to unlock value.

Valuation and viewWe expect GMR to post a PAT of Rs4.2b in FY11 and Rs4.9b in FY12, with EPS CAGRof 77% over FY10-FY12. The stock trades at 53x FY11E and 45x FY12E earnings.

GMR Infra: SOTP ValuationBusiness Segment Equity Value In % Rs/share

Airports 148,099 56 40Power 62,661 24 17Roads 5,800 2 2Cash 37,936 14 10Intergen 8,500 3 2Others 3,150 1 1Total 266,147 100 73

Company Represented By:Mr Jitendra Jain, CFO - TreasuryMr Gaurang Vasani,AGM - Strategic FinanceMs Bhairvi Lotia, Strategic Fin

Covering Analyst(s):Satyam Agarwal+91 22 3982 [email protected]

Nalin Bhatt+91 22 3982 [email protected]

Bloomberg GMRI INEquity Shares (m) 3,667.4CMP (Rs) 58Mcap (US$ b) 4.652 W Range (Rs) 77 / 511, 6, 12 Rel Per -8 / -7 / -34



3/09A 40,192 2,795 0.8 -34.0 74.8 3.2 4.3 3.4 7.1 26.63/10A 45,665 1,584 0.4 -43.3 132.0 3.1 2.4 3.1 8.3 27.73/11E 50,520 4,264 1.2 169.2 50.7 3.1 6.1 6.6 6.8 14.03/12E 65,950 11,228 3.1 163.3 19.3 2.7 14.1 9.6 5.3 9.5


55August 2010


Hindustan Construction

Key Takeaways

Rs20b IPO for Lavasa in the next six monthsHCC’s board has cleared IPO plans for Lavasa. The tentative issue size will beRs20b and the funds will be used mainly to retire debt of about Rs8b at the end1QFY11 and to fast track construction of the second and third townships.The management stated that the first town, Dasve, was completed with most of theresidential apartments/villas sold out. Phase-I, comprising the development plan ofthree towns Dasve, Mugaon and Bhoini will be completed by FY13 and FY14. At theend of 1QFY11, Lavasa had employed capital of Rs25b with debt of Rs8b and customeradvances through bookings of Rs6b. Money collected through pre-booking of residentialsales cumulatively amounted to Rs13b at the end of 1QFY11.

BOT portfolio to have equity commitment of Rs4.4b by end of FY12HCC has a BOT road portfolio of six NHAI projects totaling Rs55b. HCC intends togrow the portfolio to Rs150b in 2-3 years. The equity commitment until FY12 will beabout Rs4.4b. The equity invested so far is Rs2.8b and the rest, of Rs1.6b, will beinvested in 12-18 months. The equity commitment on the overall BOT portfolio isRs8b.

Order backlog of Rs193bHCC derives ~90% of its order book from the state/central government. The orderbook at the end of 1QFY11 was Rs193b (up 26% YoY, up 3% QoQ), book-to-bill ratiowas 5.1x TTM revenue.We believe the current order book should drive revenue CAGR of 22% over FY10-12. Order intake in 1QFY11 was Rs15b. Major orders received in the quarter are (i)the Rajasthan atomic power project unit 7&8, Rs8.8b, and (ii) Sainj HEP, Rs4.3b.HCC is also L1 in projects totaling Rs20b, out of which hydro power projects accountfor almost Rs13b. The management has guided for FY11 inflows of Rs80b-100b,which translates into inflow growth of 40-70%.

Valaution and viewWe have a price target of Rs145, comprising: core business Rs96/sh (PER 15xFY12E),Lavasa Rs52/sh (20% discount to NPV), IT parks Rs4/sh and BOTs, SRA, KSAG Rs10/sh,less FCCB outstanding (Rs18/sh). We expect revenue and PAT CAGR of 22% and 36%over FY10-12 with margins holding steady at 12.6% for two years. Maintain Buy.

Company Represented By:Mr Shiv Mutto, AVP - IRMr Ishan Pateria, Accounts &Finance Investor Relations



Bloomberg HCC INEquity Shares (m) 303.3CMP (Rs) 142Mcap (US$ b) 0.952 W Range (Rs) 162 / 1001, 6, 12 Rel Per 16 / -5 / 8



3/09A 33,137 843 3.3 19.0 19.4 1.6 8.4 12.0 1.1 8.63/10A 36,442 1,044 3.4 4.6 40.4 2.3 8.3 9.0 1.6 13.33/11E 42,476 1,336 4.4 28.0 31.6 2.2 7.8 9.2 1.6 12.63/12E 54,103 1,939 6.4 45.2 21.8 2.1 9.8 11.0 1.2 9.8


56August 2010


MBL Infrastructure

Key Takeaways

MBL management continues to present an upbeat outlook for the company, both forFY11 and FY12.

Robust PAT guidanceThe management has guided for FY11 PAT of Rs600 -630m and FY12 PAT of Rs900m.The above guidance implies 55-60% reported PAT CAGR over FY10-12.

Healthy Order BookAs on date, MBL has a healthy order book of Rs22,357m (2.2x of FY11E revenue) ofwhich Rs18,189m of contracts will be executed solely by MBL and Rs4,169m throughjoint ventures (MBL's share being Rs 2,870m in the joint ventures). Out of the totalshare of contracts of Rs21,059m, the unexecuted portion is Rs16,000m.

Continue to enhance its project execution capabilitiesMBL has developed a reputation for undertaking challenging infrastructure andconstruction projects and completing such projects in timely manner. MBL intend tocontinuously strengthen is execution capabilities by adding to its existing pool ofengineers, attracting new graduates, and facilitating continuous learning with in-house and external training opportunities.

Company Represented By:Mr Anjanee Kumar Lakhotia,CEO & Whole Time DirectorMr R. N. Bansal, VP (F&A)



Bloomberg MBL INEquity Shares (m) 17.5CMP (Rs) 257Mcap (US$ b) 0.152 W Range (Rs) 269 / 1801, 6, 12 Rel Per -



3/08A 2,940 156 13.8 53.3 29.8 NA 10.5 10.8 NA NA

3/09A 5,136 274 22.9 65.6 16.9 NA 15.9 86.9 NA NA

3/10A 6,370 370 26.0 13.5 12.5 1.4 11.0 14.5 0.8 6.2


57August 2010


Nagarjuna Construction

Key Takeaways

Consolidated FY11 revenue growth guidance of 24%For FY11, management guided for consolidated revenue of Rs73b (up 24% YoY):standalone revenue Rs58b (up 21% YoY), international construction revenue Rs11.5b(up 5% YoY) and real estate/BOT project revenue Rs3.8b (up 210% YoY).Order intake guidance excluding the in-house power project BTG (1,320MW) orderof Rs50b stays at Rs100bfor FY11. This includes roads Rs20b, buildings Rs35b,water Rs15b, etc.

Expect 20-30bp EBITDA margin expansion in FY11NCC is likely to expand its FY11 EBITDA margins by 20-30bp to 10.3-10.4%. Thiswill be driven by: (1) fixed price contracts contributing 35% to the order book forNCC and thus the company will benefit from decline in commodity prices, (2) favorablechange in the order book resulting in an increase in relatively high-margin buildingsand water (now contributing 50% of the order book, up from 35% in FY08) and adecline in transport (at 4% now from 15.3% in FY08).In FY10, the share of roads in revenue declined to 11% from 19% in FY09, whichalso helped margins, and we expect this percentage to decline further in FY11.

Cumulative investments in RE/BOT projects Rs11.8b including advancesNCC has so far invested Rs11.8b in real estate and road BOT projects (includingadvances of Rs2.4b). The outstanding equity commitment was Rs450m-500m,including cost overruns on road projects, of which a large part will be invested.Most of the road BOT projects under construction are expected to become operationalby December 2010, which should improve NCC’s operational cash flows. TheBangalore elevated road project was commissioned and toll collection commencedin February 2010. There has been a 12-18 month delay in commissioning of mostprojects.The 1,320MW power project, to be set up by NCC, has been facing protests fromlocal groups in Andhra Pradesh. The Environment clearance has been cancelled.NCC has capped further equity investments in real estate; it plans to recoverinvestments made as the market improves.

Valuation and viewNCC is our top pick in the construction space.Maintain Buy with a target price of Rs204 (core business at Rs160/share, 12xFY12E and BOT/RE investments at Rs44/share).

Company Represented By:Mr Y.D. Murthy,Executive Vice President - Fin.



YEAR NET SALES PAT EPS* EPS P/E* P/BV ROE ROCE EV/ EV/


3/09A 47,002 1,788 7.0 -1.4 24.0 1.3 9.4 10.2 0.9 10.1

3/10A 57,120 2,370 9.2 32.5 18.1 1.6 9.8 12.7 1.1 11.2

3/11E 69,987 3,003 11.7 26.7 14.3 1.8 10.4 11.5 1.2 11.2

3/12E 86,667 3,678 14.3 22.5 11.7 1.6 12.1 12.8 1.0 9.4

Bloomberg NJCC INEquity Shares (m) 256.6CMP (Rs) 175Mcap (US$ b) 1.052 W Range (Rs) 197 / 1191, 6, 12 Rel Per -11 / -3 / 1

* For construction segment (consolidated, including international business)


58August 2010


Simplex Infrastructure

Key Takeaways

Management guidance of FY11 revenue growth of 15-20%The management stated that FY11 revenue growth would increase 15-20%. Thiscompares with revenue de-growth of 5% in FY10. FY10 margins were up 80bp, areflection of increased focus on picking and choosing orders. Improved FY11 revenuegrowth will lead to better fixed cost absorption.The management expects future growth to come from segments like Power T&D,mainly transmission line towers, due to the company’s inherent strengths in pilingwork, which enables Simplex to qualify for jobs at the state level. Simplex is executingjobs worth Rs2b in power transmission for MSEB (Maharashtra) and Gujarat SEB.After this, it will automatically qualify for PGCIL jobs.

Initial traction in order intake, June 2010 order book Rs115bSimplex’s order book at the end of June 2010 was Rs115b (up 14% from the end ofJune 2009 and up 8% from the end of December 2009).The order book was largely stagnant at Rs100b-105b from 1QFY09 to 3QFY10.Order intake in 4QFY10 was Rs21.4b (up 86% YoY, up 76% QoQ), driven by improvedintake in the domestic market. In FY10, thermal power contributed to 37% of theintake and buildings (largely residential) to 25%. This is also positive for marginsand the working capital cycle, given that a large part of private sector projects areon a negotiated basis (and not on L1).The bid pipeline stands at Rs390b mainly divided into (i) thermal (35%), ii) industryand construction (24%), (iii) building (14%), (iv) marine (6%), (v) 5% each forbridges and piling, urban infrastructure, and 1% of railways expected to be convertedinto inflows over 12-18 months.

Other takeaways4QFY10 EBITDA margins were up 220bp YoY (at 10.5%) despite revenue slowdownmaking for poor fixed cost absorption. The management indicated that margins onthe existing order book were 10.5%+, and incremental orders were at similar margins.The financial closure of the Rs12b BOT road project (four laning of 67km of roadbetween Chennai and Kolkata) in 3-4 months after which the EPC work on thestretch will start. Simplex owns 34% stake in the project, followed by SREI-Infra(40%) and Gulfar (26%).

Valuation and viewWe expect FY11 EPS at Rs34.3 (up 39%) and FY12 EPS of Rs45.5 (up 33%). At CMP, thestock trades at a PER of 14x FY11E and 10.5x FY12E. Maintain Buy with a price target ofRs569 (based on 12x FY12E earnings).

Company Represented By:Mr N K Kakani,Executive Director





3/09A 46,627 1,318 26.6 29.1 11.2 1.6 15.9 16.7 0.6 6.6

3/10A 44,538 1,226 24.8 -7.0 17.9 2.2 12.8 13.4 0.7 7.0

3/11E 53,675 1,698 34.3 38.5 14.0 2.0 15.6 15.6 0.6 6.3

3/12E 67,764 2,251 45.5 32.6 10.5 1.7 17.7 18.2 0.5 5.4

Bloomberg SINF INEquity Shares (m) 49.5CMP (Rs) 485Mcap (US$ b) 0.552 W Range (Rs) 563 / 3431, 6, 12 Rel Per -1 / 2 / 15


59August 2010


DB Corp

Key Takeaways

Penetration levels have upside; DB will continue to expand existing marketsDB Corp is primarily engaged in the printing and publication of newspapers in threelanguages (Hindi, Gujarati and English) across 11 states. It is the number-1 ornumber-2 player in all its existing markets.DB believes there is enough scope for increasing the newspaper penetration in itsmarkets. It will continue to expand its distribution reach in semi-urban and ruralmarkets.Increased readership and circulation will consolidate DB’s lead in existing markets.

Innovative launch strategy has enabled success in new marketsDB has announced its entry into Bihar, Jharkhand and Jammu. It would be launchingRanchi and Jammu editions by the end of August, followed by Jamshedpur andDhanbad editions within CY10.From a one-state (Madhya Pradesh) player, it has expanded to 11 states over thelast 15 years, enabling a ~4x increase in readership to ~15.8m (2nd highest inIndia).DB has an excellent track record of entering new markets with a greenfield strategyand attaining a leadership position. It expects to continue its success with theforthcoming Jharkhand/Bihar launch.

National advertisers are ramping up print ad spendsAdvertising contributes ~80% of revenues for the company. Of this, ~60% comesfrom local advertisers and ~40% from corporate/national advertisers.DB has witnessed increased traction from national advertisers (especially FMCGcompanies) over the past 1-2 quarters.

Current margins are unsustainable given higher newsprint costs, increasedinvestments

Newsprint costs have been on an uptrend during CY10. While DB benefited from lownewsprint cost in FY10 (~US$500/ton), its newsprint cost is likely to increase from~US$540/ton in 1HFY11 to US$560-570/ton in 2HFY11.Current margin levels (38% EBITDA margin in 1QFY11) seem unsustainable givenincreased investments in expansion of existing markets, entry into new markets(Jharkhand, Jammu) and increased newsprint costs. The company expects tomaintain FY11 EBITDA margin at FY10 level (31.5%).

Company Represented By:Mr Aneil Mahajan,COO - Corporate AffairsMs Jhelum Datta,Manager - Investor RelationsMr Prasoon Pandey,Head - Investor Relations




3/07A 6,653 553 3.3 59.2 75.6 25.1 33.2 12.7 6.9 54.0

3/08A 8,506 759 4.5 37.2 55.1 19.0 34.5 23.9 5.3 26.4

3/09A 9,490 477 2.8 -37.1 87.7 16.2 18.5 12.2 5.0 34.9

3/10A 10,505 1,828 10.6 275.3 23.4 6.9 28.2 28.3 4.6 14.5

Bloomberg DBCL INEquity Shares (m) 181.5CMP (Rs) 248Mcap (US$ b) 1.052 W Range (Rs) 275 / 2071, 6, 12 Rel Per -

Sector: Media

60August 2010


Network 18 Media and Investments

Key Takeaways

Subscription revenue ramp-up would be keyNW18 group’s managed revenue (not factoring the ownership) has grown at 83%CAGR over FY05-10 to ~US$470m.Subscription revenue constitutes only 12% of revenue for NW18 v/s an estimated36-38% for Star/Sony and ~45% for Zee.Post restructuring, “new TV18” would have annual advertising revenue of ~Rs12bon a managed basis (v/s ~Rs15b for Zee and Zee News combined).However, current subscription revenue of ~Rs1.2b is only ~11% of the subscriptionrevenue generated by the Zee group.

Distribution tie-up with Sun (Sun 18), international expansion to drivesubscription income

The recent JV of NW18 group with Sun (Sun 18) will have 33 channels (NW18: 10,Sun Network: 20, Disney: 3) and would be India’s highest GRP-delivering bouquet.International subscription revenue will ramp-up over next 2-3 years.The management mentioned that “new TV18” is profitable at the EBITDA leveldespite significantly low subscription revenue and incremental subscription revenuewill flow-through straight to the bottomline.

Ad revenue to grow at 15-20%; opex increase to remain moderateAdvertising revenue is expected to grow by 15-20% in FY11.Pick-up in advertising revenues is visible across sectors including FMCG, autos,financials, etc.Carriage fee in news is trending downwards due to lower competitive intensity andlikely reduced bargaining power of analog cable due to ramp-up in DTH subscriberbase.

Company Represented By:Mr Raghav Bahl,Founder and Group MDMr Sarbvir Singh,Head-Investments


Bloomberg NETM INEquity Shares (m) 114.3CMP (Rs) 142Mcap (US$ b) 0.452 W Range (Rs) 172 / 651, 6, 12 Rel Per -13 / 28 / 20

Sector: Media

61August 2010


Zee Entertainment

Key Takeaways

Industry on a strong footingDigitization will be a significant revenue driver, going forward. Trends indicate thatDTH subscriber base can increase to ~70m in the next four years v/s ~23m currently.Share of television in advertising revenues is likely to increase from current levelsof 40-42%.Industry ad revenues are likely to grow 14-15% in FY11.Potential sunset clause on analog broadcasting would be a positive.Sports business continues to be a loss making proposition for the industry. Turnaroundis likely only post increased digitization when subscription revenue becomes ameaningful contributor. Digitization will enable broadcasters to charge a premiumfor sports properties and monetize fair value of sports content.Regional markets will continue to grow at a faster pace, given lower penetration ofbroadcasting (v/s print) in these markets.

Zee is ideally placed, with a diversified channel portfolioZee leads the industry in profitability metrics. The management intends to maintaina disciplined investment philosophy, with focus on returns and profitability.The company aims at maintaining its leadership and being a number-1 or number-2 player across its operating genres, including regional channels.It is looking at niche genres like cookery, golf and kids channels to further enhanceits addressable market.Zee expects to maintain or increase EBITDA margin from the FY10 level of ~28%.However, it would be investing more in content to consolidate its position.It is platform agnostic and has more than 90,000 hours of digitized content that canbe used for new media opportunities likely to emerge post 3G/BWA rollouts.

Other highlightsLack of profitability in sports genre remains a challenge.Regulatory developments mandating digitization are a big trigger for the industry.However, we believe that implementation and adherence to the proposed timelinesremain uncertain.

Company Represented By:Mr Punit Goenka, CEOMr Atul Das, President




3/09A 21,773 4,365 10.1 14.8 29.8 3.9 13.9 18.2 6.1 24.3

3/10A 21,966 4,686 10.5 4.3 28.6 3.8 12.9 17.8 6.3 22.9

3/11E 28,591 5,804 12.0 14.2 25.0 3.5 14.4 21.1 4.8 16.4

3/12E 33,219 7,474 15.4 28.8 19.4 3.2 17.0 24.6 4.1 12.7

Bloomberg Z INEquity Shares (m) 484.1CMP (Rs) 300Mcap (US$ b) 3.152 W Range (Rs) 326 / 1741, 6, 12 Rel Per -2 / 6 / 34

Sector: Media

62August 2010


Hindalco

Key Takeaways

Novelis: restructuring, better pricing power aid turnaroundRestructuring during the crisis period, expiry of price ceiling contracts and re-pricingof conversion premiums has helped Novelis to perform better in the last few quarters.The management expects the superior performance to continue for the next fewquarters. Novelis has a rich product mix, with leadership in the flat rolled product(FRP) industry.Novelis is investing in few of the fastest growing FRP markets such as South Americaand India, which will become its volume drivers in the longer term. The FRP marketis expected to grow at 5-6% in the next five years. Novelis will be incurring a capexof US$300m in South America to build a new cold mill, to invest in finishing equipmentand ancillary improvements. The expansion is likely to be completed in 2012.The recently closed FRP plant at Rogerstone, UK is being relocated to Hirakud,Orissa at a capex of Rs8.5b (US$185m). The plant is likely to be commissioned by2012. It will have initial capacity of 150,000tpa, which will be expanded further to285,000tpa by FY15. This plant will produce high value added beverage can products.

Focus on domestic greenfield expansion - low cost, high marginsExisting primary aluminum capacity of 545ktpa is fully integrated, with captive powerplant (CPP) capacity of 1,219MW and alumina refinery capacity of 1.5mtpa.Post successfully turning Novelis around in FY10, Hindalco has shifted its focus onhigh yielding domestic greenfield projects. Hindalco has lined up an investment ofRs400b over the next few years to increase its integrated aluminum smelting capacity3x to 1.7mtpa, with facilities such as alumina (3x to 4.5mtpa) and CPP (3.5x to4,200MW).

Valuation and viewWe believe that Hindalco's domestic aluminum expansion is on a fast track, as themanagement is keen to achieve the benefits of the entire value chain of the aluminumbusiness after acquiring Novelis.The Utkal Project has achieved financial closure; project visibility has improvedtremendously after initial delays. We expect aluminum production to grow at aCAGR of 21% and alumina production to grow at a CAGR of 28% over FY10-14.The stock trades at 10.3x FY12E EPS and an EV of 6.6x FY12E EBITDA. We expectthe stock to get re-rated, as projects get delivered as per schedule. Maintain Buy.

Company Represented By:Mr Sagar Dhamorikar, AVPMr Saket Sah,Corporate Finance and IR





3/09A 656,252 4,853 2.8 -83.1 59.7 3.8 6.4 -0.1 0.8 17.1

3/10A 607,221 17,455 8.8 217.1 18.8 2.5 13.1 8.1 0.9 7.5

3/11E 637,058 23,605 12.0 36.7 13.8 2.5 18.1 7.9 0.8 7.6

3/12E 649,709 31,657 16.1 34.1 10.3 2.0 19.9 8.3 0.9 6.6

Bloomberg HNDL INEquity Shares (m) 1,962.8CMP (Rs) 165Mcap (US$ b) 7.052 W Range (Rs) 188 / 991, 6, 12 Rel Per 10 / 1 / 31

Consolidated

Sector: Metals

63August 2010



Key Takeaways

Jindal Steel standalone (JSPL)Existing steel capacity of 3mtpa integrated steel plant at Raigarh includes 1.4mtpasponge iron, 1.7mtpa pig iron plant and a captive power plant (CPP). 340MW fromCPP is produced from waste gases of sponge iron & coke oven and middling's ofcoal washing.Post commissioning of 5mtpa pellet plant in February 2010 at Barbil, the lumprequirement of the company has fallen to 1mtpa from 4mtpa earlier. Iron ore fineswill be sourced from existing mines. Conversion cost is approximately Rs1,000/ton.JSPL is investing Rs220b at its Greenfield projects in Angul and Jharkhand to addcapacities of 1.6mtpa and 3mtpa respectively. Steel production will increase 3x to6m tons and surplus power will rise to ~1140MW over FY10-14E.Capex of Rs120b is planned to set up 810MW of CPP and 1.6mtpa of Steel makingthrough coal gasification-sponge iron route at Angul. Plate mill of 1.6mtpa will becommissioned in 2011. Coal linkages have been granted for 810MW CPP. Coal minesshould be ready by 2011 end.Capex of Rs100b is planned to set up 3mtpa (4000m3 BF) steel capacity (at Jharkhand,through BOF route) by December 2012.Steel production is expected to ramp up to 2.5m tons and 3m tons respectively forFY11 and FY12.Recently acquired 1.5mtpa HBI facilities at Oman at US$525m, which is expected toget commissioned by end FY11. The acquisition brings 20 year agreement for gassupply from Government at US$1/ton.

Jindal Power (JPL)Company's 1,000MW unit is operational with own coal mine (5.5mtpa capacity; just7km away from plant) having ~200m tons reserves. The landed cost post washingof coal for the company is Rs550-600/ton, which keeps the cost of power generationlowest.JPL is implementing capex of Rs240b to expand thermal power capacity by 4380MWduring FY12-14E.JPL has already received 50% coal linkage for its 2400MW power project at Tamnar,equipment orders have been placed with BHEL in December 2008. Managementsounded positive on to resolving the current issue surrounding "no go" zone.Management expects to complete the project on time (by June 2012).1,350MW power project: First unit of 135MW at Raigarh (out of 4*135MW) isunder stabilization and rest are expected to get commissioned by March 2011. Restsix units of 135MW each are expected to get commissioned at Angul within a gap of2-3 months starting from November, 2010.

Company Represented By:Mr Rajeev Aggarwal, Sr. V P Fin.Mr Rajeev Jain, Sr. DGM Finance





3/07A 35,198 7,050 7.6 22.6 81.6 22.5 27.6 12.6 17.9 45.0

3/08A 54,890 14,377 15.5 103.9 40.0 15.3 38.3 16.8 11.6 27.0

3/09A 108,510 31,906 34.4 121.9 18.0 8.2 45.3 27.4 6.0 12.2

3/10A 113,629 36,429 38.6 12.3 16.1 5.4 33.9 23.3 5.8 11.1

Bloomberg JSP INEquity Shares (m) 928.2CMP (Rs) 620Mcap (US$ b) 12.552 W Range (Rs) 786 / 4431, 6, 12 Rel Per -4 / -14 / 11

Consolidated

Sector: Metals

64August 2010


JSW Steel

Key Takeaways

Prices stabilizing; initial signs of supply correction visibleGlobal steel prices have started stabilizing in the last few weeks; there are initialsigns of correction in supply.Domestic steel consumption is growing at 12% and is likely to grow at 10-12% overthe next three years.In China, pressure of rampant dumping is subsiding, as it has recently removed therebates on exports and is shutting down capacities. China's steel production hasdeclined from 1.79mt/day to 1.64mt/day.

Greater raw material integration; product mix to improveJSW's iron ore mine in Karnataka is expecting second stage of forest clearance. It islikely to produce 2m tons in FY12. Approval to allot three more iron ore mines ispending with the central government.With the acquisition of a coking coal mine in USA, prospects of higher integration ofraw materials are increasing. In FY12, JSW expects 1.5m tons of iron ore andcoking coal from its mines in Chile and USA, respectively.With current capacity of 7.8mtpa, flat to longs product mix is 68:32; over FY12 theproportion of flats is expected to increase to 77%.

JSW-JFE deal: to help retain leverage at 1.1x while fueling next phase of growthThe management sounded positive on the JFE deal, as JSW will get (1) access tocutting edge technologies, (2) access to the fast growing automotive market, (3)opportunity to de-leverage its balance sheet to fuel the next phase of growth, (4)ability to shorten the learning curve to lower cost of production by achievingoperational excellence from JFE.With increasing equity contribution, JSW will reduce debt and expects to keep theleveraging ratio at 1.1x.Post completion of ongoing expansion at Vijaynagar, JSW will focus on its WestBengal project (if it does not get mines in Karnataka), as it has already receivedallotment of coking coal, iron ore and thermal coal mines.

Valuation and viewWe believe that JSW Steel is the most aggressive in growing volumes, has thelowest conversion costs, and draws strategic advantage due to proximity to iron oremines. The recent acquisition of coal mines in USA is likely to help achieve greaterraw material integration in the coming years.The stock trades at EV/EBITDA of 9x FY12E and 4.2x FY12E. Though valuationsappear rich on FY11 estimates, the stock remains attractive on FY12 estimates.Maintain Buy.

Company Represented By:Mr Rajesh Asher, Head - IR





3/09A 159,348 10,174 54.4 -31.8 20.5 2.8 13.5 7.7 2.3 12.5

3/10A 189,572 11,117 59.4 9.3 18.7 2.3 12.4 10.1 2.0 9.1

3/11E 227,022 13,437 60.2 1.3 18.5 1.6 8.7 7.4 1.8 9.2

3/12E 316,490 31,058 123.1 104.5 9.0 1.3 14.7 15.2 1.1 4.2

Bloomberg JSTL INEquity Shares (m) 252.2CMP (Rs) 1,113Mcap (US$ b) 6.152 W Range (Rs) 1350 / 6481, 6, 12 Rel Per 4 / -4 / 38

Consolidated

Sector: Metals

65August 2010


Sterlite Industries

Key Takeaways

Zinc: expect strong volume growth and margin expansionZinc capacity has expanded to 869ktpa in FY10, which will drive the production ofrefined metal. Silver production will grow 3x to 16m ounces by FY13. Earnings arelikely to be driven by volume growth in zinc and margin expansion due to silverbusiness.Future growth in zinc business is expected come through Gamsberg and Gergarub(of Anglo American assets), given the company's proven track record to executeprojects at benchmark costs and timelines.

Aluminum: expansion on track, but no visibility on bauxite mines yetBalco is implementing a capex of US$1.8b to expand its aluminum and powercapacities, which are likely to be commissioned by 2QFY12.VAL is implementing a 1.75mtpa aluminum smelter along with captive power plantsat Jharsuguda. Phase-1 of 250ktpa capacity has been running at full capacity.However, there is still no improvement in visibility of bauxite mines, which will dragproduction growth and margins of aluminum.On the positive side, aluminum per capita consumption in India is likely to increaseat 9.6% CAGR over the next five years, the fastest in the world, to 1.7kg by 2014,which will still be much lower than the global average of 7.3kg.

Energy: new revenue stream; in advanced stage of commissioningPower is likely to deliver a major boost to EPS in FY12, as Sterlite Energy is likely tocommission its 2,400MW power plant by 1HFY12. The first unit of 600MW commercialpower plant is in advanced stage of commissioning.We believe VAL's production ramp-up will be gradual because of delays in bauxitemining and Sterlite Energy may not sell much power to VAL. Its 1,215MW CPP isfully commissioned and more than sufficient to feed its phase-I smelter of 500ktpa.VAL is currently selling ~200MW surplus power to the state board. VAL has plannedto set its own CPP for feeding phase-2 aluminum expansions.

Valuation and viewWe continue to believe that Sterlite Industries will outperform its peers in the long term,with 1mtpa zinc and lead capacity, 2.4mtpa aluminum smelting capacity and over6,000MW power capacity. Our SOTP-based valuation of Rs238 implies an upside of35% from current levels. We reiterate Buy.

Company Represented By:Mr M S Mehta, CEO,Vedanta Resources, PlcMr Ashwin Bajaj and SheetalKhanduja, Investor Relations





3/09A 211,442 34,847 24.6 -19.9 7.2 1.0 13.6 9.8 2.1 13.1

3/10A 244,103 40,407 24.0 -2.2 7.4 0.8 10.9 9.5 2.6 13.9

3/11E 301,055 53,712 16.0 -33.5 11.1 1.4 12.9 10.4 2.1 10.3

3/12E 331,382 75,688 22.5 40.9 7.9 1.2 15.7 13.9 1.8 6.1

Bloomberg STLT INEquity Shares (m) 3,361.6CMP (Rs) 178Mcap (US$ b) 13.052 W Range (Rs) 232 / 1371, 6, 12 Rel Per 7 / -18 / -9

Consolidated

Sector: Metals

66August 2010


Tata Steel

Key Takeaways

Tata Steel Europe: reduction in fixed costs, lower imports helping localcompaniesThe share of steel imports in total consumption has fallen in Europe, as currencydepreciation (EUR) restricted imports. Corus has achieved sustainable fixed cost reductionof GBP280m on the back of various restructuring activities. Staff strength has fallenfrom 42,000 to ~35,000 at the end of FY10. The company expects EBITDA of ~US$100/ton in 1QFY11 as against our expectation of US$132/ton.

Tata Steel India: strong demand to continue, steel prices to decline 5-8%QoQ in 2QFY11

Domestic steel demand is expected to grow 12-14% to 72m tons in CY10. Thecompany expects its sales volumes to grow at a CAGR of 5-6% over FY10-12.Tata Steel expects domestic steel prices to decline 5-8% QoQ on the back of highersupply and seasonal factors. However, it expects to deliver better performance interms of profitability in FY11.

Consolidated debt has declined, brownfield expansion on trackTata Steel's gross consolidated debt has declined from US$13.3b to US$11.8b inFY10. Tata Steel Europe has repaid US$970m, while the Indian unit has repaidUS$380m of debt. The company has repaid US$1.1b in 4QFY10 itself. Net debt atthe group level remains at US$9.8b.Ongoing expansion of capacity to 10mtpa at Jamshedpur is scheduled forcommissioning by December 2011.

Valuation and viewAt Corus, the outlook for 2HFY11 remains challenging due to falling steel prices andhigher raw material costs. Indian operations continue to perform better although therewill be pressure on margins. In our FY11 estimates, we have factored EBITDA of US$1.9bfor Indian operations and US$1b for subsidiaries (including Corus). The stock is tradingat an EV of 6.8x FY12E EBITDA. Maintain Neutral.

Company Represented By:Mr Pravin Sood,Head (IR - India & Asia)





3/09A 1,473,293 90,454 101.9 16.9 5.3 4.1 76.7 15.3 0.7 5.4

3/10A 1,023,931 -8,255 -9.3 -n/a- -58.2 5.7 -9.7 4.5 0.9 11.7

3/11E 1,145,399 56,569 63.7 -n/a- 8.5 2.8 33.2 9.6 0.8 7.3

3/12E 1,143,679 59,965 67.6 6.0 8.0 2.2 27.3 9.4 0.8 6.8

Bloomberg TATA INEquity Shares (m) 887.4CMP (Rs) 541Mcap (US$ b) 10.452 W Range (Rs) 737 / 4091, 6, 12 Rel Per 10 / -19 / -1

Consolidated

Sector: Metals

67August 2010


BPCL

Key Takeaways

Diesel to be fully deregulated soonThe Government has in-principle deregulated diesel prices and the Bharat Petroleum(BPCL) management expects complete diesel deregulation to take place soon. In 1QFY11,a third of the subsidy burden was shared by upstream companies (ONGC, OIL andGAIL). Though, in 1QFY11 government did not share any subsidy, BPCL expects that thesharing will come in subsequent quarters as it did in previous years. BPCL believes thatin FY11, OMCs may bear a maximum of 15% of under-recoveries.

Sees FY11 industry underrecoveries at Rs510bBPCL expects FY11 underrecoveries for all three OMCs (HPCL, BPCL and IOC), to beRs510b (auto fuels: Rs140b and cooking fuels: Rs370b) assuming the current crude oilprice for rest of the years Current underrecoveries are estimated at Rs2/ltr for diesel,Rs13/ltr for PDS kerosene and Rs230/cylinder for domestic LPG.

Kochi expansion completed, Bina refinery commissionedBPCL upgraded its Mumbai and Kochi refineries to produce Euro III/IV auto fuel andexpanded capacity at Kochi to 9.5mmtpa. The Bina refinery (6mmt) was commissionedwith key value upgrading units like FCC and delayed coker being commissioned and fullthroughput can be expected in 2HFY11. When Bina is fully operational BPCL will bealmost self-sufficient in fuel requirement.

E&P portfolio to add value over the longer termOf its 25 blocks, the most promising are in Brazil and Mozambique which have recordeddiscoveries. BPCL expects to give incremental information on the Brazil block in terms ofreserve numbers in the next few quarters.

Valuation and viewFor FY11 and FY12 we assume an oil price of US$75/bbl and build OMCs’ share inunderrecoveries at 11%. We estimate BPCL’s EPS at Rs60.5 in FY11 and Rs64.6 in FY12.At a CMP of Rs644, BPCL quotes at a PE of 10.8x FY11E and P/BV of 1.5x FY11E.Maintain Buy.

Company Represented By:Mr S.K. Joshi, Director (Finance)Mr Rajoo Natekar (GM, Treasury)



YEAR NET SALES ADJ.PAT ADJ.EPS EPS P/E P/BV ROE ROCE EV/ EV/

END (RS B) (RS B) (RS) GROWTH (%) (X) (X) (%) (%) SALES EBITDA

03/09A 1,366 6.3 17.5 -58.1 37.1 0.0 4.8 5.9 0.0 0.0

03/10A 1,238 16.3 45.2 157.6 14.4 1.6 11.8 3.9 0.4 15.8

03/11E 1,451 22.1 61.2 35.5 10.6 1.5 14.6 8.2 0.3 8.4

03/12E 1,358 23.0 63.5 3.7 10.2 1.3 13.8 9.3 0.3 6.9

Bloomberg BPCL INEquity Shares (m) 361.5CMP (Rs) 648Mcap (US$ b) 5.152 W Range (Rs) 718 / 4881, 6, 12 Rel Per -7 / -1 / 18

* Consolidated

Sector: Oil & Gas

68August 2010


Cairn India

Key Takeaways

Rajasthan production ramp-up to continueCrude production from the Rajasthan block started in August 2009 and in 10 monthsramped-up to over 100kbpd. Sales through the pipeline started in June 2010 and themanagement maintained its production guidance of 125kbpd in 2HCY10 and 175kbpd in2012. Peak production from the field is expected to be 240kbpd.

Key activities in Rajasthan block near completionCairn commissioned its second and third train in June 2010. The Barmer to Bhogatpipeline has been commissioned until Salaya and crude delivery through the pipelinehas started. Allied facilities like the Raageshwari gas terminal, Thumbli water field andthe captive power plant at the MPT field are also being commissioned. Train 4 and theSalaya to Bhogat pipeline section is expected to be commissioned in CY11 after whichcompany will be able to ramp-up to more than 200kbpd. Crude delivery through onlypipeline will cut transport costs by US$6/bbl v/s trucking.

Update on exploration activitiesCairn has 11 blocks, of which three are producing (Ravva, Cambay and Rajasthan) andeight are exploration blocks (five operated and three non-operated). It drilled threewells in its operated KG onland block and further drilling is expected in coming quarters.It has completed 3D seismic at its blocks in the Palar basin in India and the Mannarbasin in Sri Lanka and plans a three-well drilling program in each block in 2011.

Valuation and viewWe model long term Brent crude price of US$75/bbl in our estimates and take a discountof 12.5% (~US$9/bbl) for quality and customs duty on crude at 2.5%. Our SOTP-basedprice target is Rs314. At long term Brent of US$80/bbl (current levels), our SOTP valuewould increase to Rs330. Maintain Buy.

Company Represented By:Mr Anurag Mantri,Group Financial ControllerMr Suniti Bhat,GM - Reservoir Development





03/09A 14,326 8,082 4.3 N.M. 80.7 2.0 2.6 2.5 44.4 68.4

03/10A 16,230 10,511 5.5 30.1 62.1 1.9 3.2 2.5 40.8 67.5

03/11E 83,801 46,418 24.5 341.6 14.1 1.7 13.0 14.8 7.8 9.2

03/12E 133,479 83,358 43.9 79.6 7.8 1.5 20.5 23.3 4.6 5.2

Bloomberg CAIR INEquity Shares (m) 1,894.4CMP (Rs) 343Mcap (US$ b) 14.152 W Range (Rs) 348 / 2301, 6, 12 Rel Per 12 / 21 / 29

* Consolidated

Sector: Oil & Gas

69August 2010


HPCL

Key Takeaways

Expects OMC subsidy burden to be based on ability to absorbHPCL expects, OMCs to bear 0 to 17% of the underrecoveries as indicated by thegovernment. It believes the subsidy burden on the company will not be based on apercentage of total underrecoveries but will be a certain absolute amount that can beabsorbed by the companies. In 1QFY11, one third of the total underrecoveries wasshared by upstream companies (ONGC, OIL and GAIL).

Mumbai refinery shift to Ratnagiri on cards, DFR to be preparedThe management indicated it received 1,500 acres of land (for Rs1.2b) in Ranagiridistrict near Chiploon and is expecting 500 acres more soon. A detailed feasibility report(DFR) is yet to be prepared for shifting the refinery. The refinery will be of 9mmtpa androughly make US$4/bbl premium over the Singapore GRM.

Bhatinda refinery mechanical completion target April 2011HPCL’s 9mmtpa Bhatinda refinery (Rs189b), which is a JV with Mittal Energy Investments,has achieved 85% physical progress and mechanical completion is targeted in April2011, with products slated to flow by June 2011. The company believes the capacity ofthe Bhatinda refinery can be doubled in lesser time from the present 9mmtpa. Pipelineinfrastructure is not a constraint.

CGD plans in West BengalThe HPCL management indicated it would enter a CGD business in West Bengal whereit has signed a JV (74% stake) with the WB government to develop a network in Kolkataand eventually other cities in the state. The management also said the CGD plan wouldbe authorized by PNGRB in due course.

Key projects to be complete in one yearHPCL is in the final phase of completing major projects like (1) a Rs10b LOBS upgradeat Mumbai, and (2) a Rs9b new FCCU in Mumbai. Other ongoing projects are (1) aRs6.5b single point mooring (SPM) facility at Visakhapatnam, where it has obtainedenvironmental clearance, 2) Rs69b worth of diesel hydro-treaters in Mumbai andVisakhapatnam (by September 2011), and (3) Rs7.5b relocation of the Visakhapatnamterminal (March 2011).

Valuation and viewWe assume an oil price of US$75/bbl in FY11. We build OMCs’ share in underrecoveriesat 11%. We estimate HPCL’s EPS at Rs40 in FY11 and Rs41.2 in FY12. At a CMP ofRs436, HPCL quotes at a PE of 10.9x FY11E and P/BV of 1.1x FY11E. Maintain Buy.

Company Represented By:Mr B Mukherjee,Director (Finance)Mr K V Rao,ED (Corporate Finance)



YEAR NET SALES ADJ.PAT ADJ.EPS EPS P/E P/BV ROE ROCE EV/ EV/


03/09A 1,246,943 4,355 12.8 -40.0 34.1 1.4 4.1 8.8 0.2 8.4

03/10A 1,092,084 13,014 38.4 198.8 11.4 1.3 11.7 8.7 0.2 10.1

03/11E 1,194,714 13,546 40.0 4.1 11.0 1.2 11.3 8.5 0.2 7.7

03/12E 1,150,350 13,962 41.2 3.1 10.6 1.1 10.8 9.1 0.2 6.7

Bloomberg HPCL INEquity Shares (m) 339.0CMP (Rs) 438Mcap (US$ b) 3.252 W Range (Rs) 496 / 2931, 6, 12 Rel Per -12 / 12 / 7

Sector: Oil & Gas

70August 2010


Indian Oil Corporation

Key Takeaways

Looking for clarity on diesel deregulationThe government has in-principle deregulated diesel prices but clarity is yet to emergeon timelines. The IOC management expects clarity on complete diesel deregulationover the coming quarters. Although in 1QFY11 the government did not share subsidy,the company expects it to come in subsequent quarters. IOC believes that in FY11,OMCs may bear a maximum of 15% of underrecoveries.

Pipeline profits give profit sustainability, petchem to contribute moreCompared to other OMCs, IOC’s profitability is protected to some extent by its incomefrom the pipeline business and income from investments. IOC commissioned a 0.9mmtpanaphtha cracker in April 2010 and at 100% utilization it can incrementally contributeRs34b to its petchem EBITDA.

Panipat expansion to be complete by October 2010, other projects on trackIOC is in the final phase of completing major projects in coming quarters like (1) anRs11b Panipat refinery expansion from 12 to 15mmtpa (by October 2010), (2) a Rs70bresidue upgrade and MS/HSD quality improvement project in Gujarat (by October 2010),(3) a Rs21b MS quality upgrade project in Barauni, Guwahati and Digboi (by September2010), and (4)a Rs17b DHDT in Bongaigaon (by September 2010), and 5)a Rs17.9bproduct pipeline from Paradip (by September 2012).

Paradip refinery to be complete by FY13IOC is constructing a 15mmtpa grassroots refinery at Paradip in Orissa at an estimatedcost of Rs298b. This will be the most modern refinery in India with nil-residue production,meeting stringent specifications. IOC has taken over 3,344 acres of land for the projectand expects the refinery to be commissioned in FY13.

Valuation and viewWe assume oil price of US$75/bbl in FY11. We build OMCs’ share in underrecoveries at11%. We estimate IOC’s EPS of Rs35.2 in FY11 and Rs42.9 in FY12. At a CMP of Rs373,IOC quotes at a PE of 10.6x FY11E and P/BV of 1.6x FY11E. Maintain Buy.

Company Represented By:Mr S V Narasimhan,Director (Finance)Mr A K Sharma,GM (Finance) - Treasury



YEAR NET SALES ADJ.PAT ADJ. EPS EPS P/E P/BV ROE ROCE EV/ EV/


03/09A 2,861 26.0 10.9 -67.1 32.9 1.9 5.8 8.2 0.5 17.6

03/10A 2,501 107.1 44.5 308.4 8.1 1.5 21.8 16.1 0.5 9.4

03/11E 2,695 84.8 35.2 -20.9 10.2 1.5 15.4 14.3 0.4 7.2

03/12E 2,262 103.3 42.9 21.8 8.4 1.3 17.0 18.0 0.5 5.4

Bloomberg IOCL INEquity Shares (m) 2,406.3CMP (Rs) 359Mcap (US$ b) 18.752 W Range (Rs) 418 / 2681, 6, 12 Rel Per -15 / 1 / 17

Consolidated

Sector: Oil & Gas

71August 2010


ONGC

Key Takeaways

Clarity expected on subsidy-sharing policyONGC indicated that the government intended to deregulate diesel prices soon. In 1QFY11upstream shared a third of underrecoveries, of which ONGC shared 80%. It indicatedthat upstream sharing would be limited to this ratio and expects rationalisation on thesubsidy sharing.

ONGC production maintained vis-a-vis decline in non-OPEC global fields:ONGC’s oil and gas production has been maintained against a non-OPEC productiondecline of 9.4% in the past nine years (2000-08). ONGC’s investment in IOR/EOR andredevelopment projects to arrest the production decline has been over Rs300b. Thecumulative production through IOR/EOR has been 8mmt.

IOR/EOR, NELP, OVL to provide long term production growthONGC expects production to be subdued in the short term and that long term growthwill come from monetization of investments in IOR/EOR, NELP and OVL. Crude oilproduction will increase from 24.9mmt to 28mmt in FY13 and gas production will increasefrom 63mmscmd in FY10 to over 72mmscmd in FY13 and over 100mmscmd in FY16.

ONGC to make two medium term field developmentsThe first development is the hub development for east-coast discoveries: ONGC willadopt the hub development for its east-coast discoveries (G-4-6, GS-29-1, G-4-5, KG-DWN-98/2, and IB) in three phases. ONGC filed a declaration of commerciality (DoC) forthe northern discovery area on 16 July 2010. Development capex is expected to beUS$5b, with oil production to start in 2012 and gas in 2015. Recoverable reserves ofgas are estimated at 87bcm and of oil at 4.5mmt. Peak production from the block islikely to be 35mmscmd of gas and 16.8kbpd by FY16. The second development is theDaman offshore development: After the fast track development of the B-12 and C-24fields in this area, production is likely to reach 10-15mmscmd.

Valuation and viewWe assume oil price of US$75/bbl in FY11. We build upstream (ONGC, OIL and GAIL)share at a third of underrecoveries in our estimates. We estimate ONGC’s EPS at Rs115in FY11 and Rs135 in FY12. At a CMP of Rs1,277, ONGC quotes at a PE of 10.9x FY11EEV/EBITDA of 4.4. Buy.

Company Represented By:Mr B L Ghasolia,(Advisor, Finance)Mr Sanjiv Kumar,(Chief Manager, F&A)Mr L. Nelson, (Manager, F&A)





03/09A 1,046 198 92.5 -0.4 13.6 3.0 23.4 22.7 2.4 5.8

03/10A 1,018 194 90.7 -2.0 13.9 2.6 20.0 19.4 2.4 5.5

03/11E 1,177 247 115.3 27.1 11.0 2.3 22.4 21.7 2.0 4.4

03/12E 1,252 288 134.6 16.7 9.4 2.0 22.8 22.0 1.8 3.9

Bloomberg ONGC INEquity Shares (m) 2,138.9CMP (Rs) 1,264Mcap (US$ b) 58.552 W Range (Rs) 1346 / 9971, 6, 12 Rel Per -8 / -1 / -4

Consolidated

Sector: Oil & Gas

72August 2010


Oil India

Key Takeaways

Oil production restored; steady oil, gas production growth expectedOil India’s daily production dropped nearly 30% due to a shutdown at the Numaligarhrefinery. But after the restarting of the refinery the company restored production to pre-shutdown levels of ~73kbpd. The management expects oil and gas production growthof 3% and 7% respectively over 3-4 years.

Likely to announce acquisition in near termOIL India’s cash reserves of Rs103b are two-third of its balance sheet size. Themanagement indicated it was working on foreign acquisitions and it would make anannouncement soon. OIL, a predominant onland player, is trying to diversify into theoffshore space, which is evident from its acquisition of offshore blocks in NELP rounds.

Healthy oil/gas reserve ratio, NELP acreage to provide upsideCrude oil accounts for 60% of OIL India’s 957mmboe 2P reserves. Its 1P reserves are55% of its 2P reserves against 78% for ONGC, indicating larger scope for an increase in1P reserves. Oil India has an impressive reserve replacement ratio (RRR) of over 1.5xover the past few years. Its finding cost is US$4.2/bbl and lifting cost is US$6-7/bbl.

Subsidy rationalization to reduce underrecoveries for OILOIL India indicated that the government intended to deregulate diesel very soon. In1QFY11 upstream shared a third of the underrecoveries, of which the company shared11%. The company indicated that the upstream sharing would be limited to this ratio.

Valuation and viewWe expect Oil India to benefit from the likely subsidy rationalization, due to which weare positive on the stock. We assume oil price of US$75/bbl in FY11. We build theupstream (ONGC, OIL and GAIL) share at a third of total underrecoveries. At a CMP ofRs1,394, OIL India quotes at PE of 13.5x FY10 EPS of Rs103.6 and EV/EBITDA of Rs7.6Buy.

Company Represented By:Mr N Bhalla,ED (Corporate Finance)



Bloomberg OINL INEquity Shares (m) 240.5CMP (Rs) 1,393Mcap (US$ b) 7.352 W Range (Rs) 1,558 / 1,0191, 6, 12 Rel Per -

Sector: Oil & Gas



03/07A 54,765 16,400 68.2 20.4 720.1 5,068.6 0.0 0.5

03/08A 61,185 17,889 74.4 9.1 18.7 4.2 24.3 33.9 4.4 10.3

03/09A 72,007 21,617 89.9 20.8 15.5 3.6 25.0 39.3 3.4 7.7

03/10A 80,728 26,105 113.8 26.6 12.2 2.4 22.5 30.8 3.1 6.4

73August 2010


Reliance Industries

Key Takeaways

Refinery utilization 100%, complexity to help GRM outperformance RelianceIndustries (RIL) believes its refinery utilization will be above 100% considering the hugedomestic demand for petro products and due to its cost advantage. The managementexpects higher complexity will help to sustain margins.

Clarity on diesel deregulation soon, keen to boost domestic marketingRIL operates 667 fuel retail outlets. The management indicated it was keen to expandits presence in the marketing business, once there is clarity on policy decisions relatingto diesel deregulation. In a deregulated scenario, RIL expects to get at least 10mmt ofdomestic retail fuel volume share.

Petchem margins subdued but RIL believes will ride down cycleThe company indicated that ~5mmt of ethylene capacity was likely to come on streamin CY10. These capacities, operating at very low ethylene cash cost will hamper overalloperating rates and impact margins of South Asian and European crackers. The companyfeels that due to the huge domestic demand it will not have a threat of volume cuts, butmay witness margin pressure. The management also indicated it was pursuing a mega-cracker and PX-PTA plan in Jamnagar.

Large investments will ensure next growth cycleThe management believes its investments in the broadband wireless access (BWA)business, shale gas JVs in the US, domestic mega-cracker and PX-PTA plant will lead itsnext growth phase. The investment in shale gas assets in the US is in line with itsagenda of diversification across global assets.

Valuation and viewRecently, RIL indicated that KG-D6 gas production was unlikely to increase for 6-12months, as it would need to study the reservoir for its sustainability. We model averagegas production of 60mmscmd for FY11 and 75mmscmd in FY12, well-head gas price ofUS$4.2/mmbtu. We continue to factor in a tax holiday on KG-D6 gas profits. We buildGRM of US$7.6/bbl in FY11 and US$8.5/bbl in FY12. At a CMP of Rs1,000, RIL quotes ata PER of 15.1 FY11E of 67.3 and EV/EBITDA of 9.5. Neutral.

Company Represented By:Mr Robinder Singh,Vice President (IR)Mr Hemen Modi,GM (Investor Relations)





03/09A 1,418 153 52.6 19.3 57.6 17.6 2.1 15.7 12.5 15.1

03/10A 1,925 162 49.6 20.5 54.8 18.5 2.2 13.4 11.3 12.5

03/11E 2,292 200 60.9 16.7 67.3 15.1 1.9 14.5 13.1 9.5

03/12E 2,232 224 68.1 14.9 75.2 13.5 1.9 14.2 13.2 8.6

Bloomberg RIL INEquity Shares (m) 3,286.2CMP (Rs) 1,016Mcap (US$ b) 71.552 W Range 1,185 / 8411, 6, 12 Rel Per -2 / -5 / -15

All adjusted per share info and valuation ratios are adjusted for treasury shares held by the company

Sector: Oil & Gas

74August 2010


Biocon

Key Takeaways

Insulin initiatives to be a major growth driver. Biogenerics in emerging markets,regulated markets to lead growth

Insulin a key growth driverBiocon expects insulin (13% of revenue) to be a key growth driver in the medium to longterm. The company expects insulin to contribute 25-30% to total revenue over 3-4years. Short to medium term growth in this segment will be driven by formulation salesin India and emerging markets. The company sells its products in ~25 emerging marketsand has registered products in total 40-45 markets. Biocon expects to commence PhaseIII clinical trials for biosimilar insulin in 2QFY11.

Contract research - changing focusBiocon’s management is attempting to change its contract research focus to delivervalue-added integrated drug development services instead of existing FTE-based services.This will impact profitability in the short term. But the management thinks the newbusiness model will help Biocon garner and retain new customers.

Axicorp to post good growth, profits to be lowThe management indicated good growth for Axicorp, led by better sourcing and costmanagement. But the growth will slow from 3QFY11 due to 10% mandatory price cuts.The profitability of the business will be low with EBITDA margins of 6-7%.

Statins contribution to declineThe management indicated short-term growth in this segment would be driven byAtvorastatin gong generic. Although Atorvastatin is a large opportunity, competition willbe much stiffer. Revenue from Simvastatin will fall gradually.

Domestic formulations gain tractionBiocon’s domestic formulation business will continue to grow at 25-30% CAGR over 2-3years led by a ramp-up in the high growth lifestyle segment and increasing filed forcestrength. While Biocon did not disclose the profitability of this business separately, webelieve it will continue to be under pressure due to increasing spends on branding andpromotion, expansion of its field force and other ramp-up initiatives.

Valuations and viewKey growth drivers for FY11 will be: (1) traction in Biocon’s insulin initiative, (2) ramp-up in the contract research business, and 3) incremental contribution from immuno-suppressants and API supplies. But higher R&D costs, increased depreciation and higherexpenses linked to the scale-up of the domestic formulations business will continue totemper earnings growth. We estimate EPS of Rs17 for FY11 (up 15.7%) and Rs20.3 forFY12 (up 19.5%) leading to 17% earnings CAGR over FY10-12. The stock is valued at18.9x FY11E and 15.8x FY12E EPS. Buy with a target price of Rs345 (17x FY12E EPS).

Company Represented By:Mr Murali Krishnan,President - Group FinanceMr Chinappa, CFO - SyngeneMs Jill Deviprasad, IR


Amit Shah+91 22 3982 [email protected]



03/09A 16,087 930 4.7 -79.3 68.4 4.2 6.2 6.2 4.0 20.1

03/10A 23,678 2,932 14.7 215.2 21.7 3.6 16.7 15.6 2.7 13.4

03/11E 28,476 3,393 17.0 15.7 18.7 3.1 16.8 17.0 2.2 10.9

03/12E 32,728 4,055 20.3 19.5 15.7 2.7 17.4 17.5 1.8 9.4

Bloomberg BIOS INEquity Shares (m) 200.0CMP (Rs) 318Mcap (US$ b) 1.452 W Range (Rs) 335 / 2101, 6, 12 Rel Per -4 / 7 / 23

Sector: Pharmaceuticals

75August 2010


Dr Reddy’s Laboratories

Key Takeaways

Targets US$3b revenues by FY13 with 25% RoCE, strong growth in the US,India, emerging markets to be key drivers

Aims to be a tier-I player in the US: Dr Reddy's Laboratories (DRL) aims toupgrade itself to tier-I player in US and post revenue of US$1b in the US by FY13 vsUS$350m in FY10 (an implied CAGR of 42%). New launches, comprising normal,low-competition and patent challenge products, will help it to achieve this goal.Low-competition opportunities in the US gaining strength: DRL'smanagement has been guiding for the launch of at least one patent challenge/low-competition product in the US every year for the next few years. Overall, DRL has apipeline of 12 FTFs targeting innovator market size of ~US$9b. Visible opportunitiesinclude Omeprazole OTC, generic Lotrel & Prograf (all launched) and potentiallaunches of generic Allegra D-24 (after a court verdict), Arixtra (US FDA approvalawaited) and Accolate (after expiry of a 30-month stay in December 2010).Traction in emerging markets to sustain: DRL is expanding its portfolio forthese markets through its own products, in-licensed products and biogenerics, leadingto sustainable double-digit growth in revenue. DRL is targeting strong growth in itsIndia formulations business and expects double-digit growth led by new launchesand strengthening of its field force (600 MRs added over the past few quarters tototal ~3,000).Betapharm under pressure but cost structure aligned: Given the price cutsin Germany, DRL has, through a combination of low-cost sourcing and reduction instaff and other overhead costs, aligned its business with the low-margin pure genericbusiness. Hence, we believe the German operations will not pressurize overall profits.Increased forex hedges to help counter potential currency appreciation:The management indicated that it has increased its forex hedges in the past fewmonths, which stand at US$340m relating to the remaining three quarters of FY11.While this is still insufficient compared to its net US-dollar exposure of ~US$490m,it puts DRL in a much better position than it was a few months ago.

Valuations and viewTraction in the branded formulations and US businesses, and focus on improvingprofitability will be key growth drivers for DRL. We estimate core EPS of Rs48.6 for FY11and Rs59.3 for FY12. We expect core EPS CAGR of 21% over FY08-12 (FY09 and FY10EPS suffered due to Betapharm write-offs). Including upsides from Para-IV/low-competition opportunities, we expect EPS of Rs63 for FY11 and Rs73.6 for FY12. Ourcore estimates exclude the upsides from patent challenges/low-competition opportunitiesin the US (current DCF value of Rs26/share for visible opportunities). The stock tradesat 27.2x FY11E and 22.3x FY12E core earnings. Our rating is Under Review.

Company Represented By:Mr Umang Vohra, CFOMr Kedar Upadhye,Director - Corporate FinanceMr Raghavender R,Deputy Manager - IR



YEAR NET SALES PAT EPS EPS ADJ.P/E P/BV ROE ROCE EV/ EV/


03/10A 68,179 334 2.0 668.0 5.4 2.5 2.6 3.4 20.503/11E 72,567 8,217 48.7 27.2 5.3 18.6 16.5 3.3 21.403/11E* 78,018 10,606 63.0 21.403/12E 82,571 10,010 59.3 21.8 22.3 4.5 19.6 19.4 2.9 18.103/12E* 88,512 12,231 72.6 15.3 18.6

Bloomberg DRRD INEquity Shares (m) 168.4CMP (Rs) 1,376Mcap (US$ b) 5.052 W Range (Rs) 1,515 / 6961, 6, 12 Rel Per -8 / 6 / 54

* Includes one-off upsides. Adj P/E for core est is adjusted for DCF value of FTFs & bonus debentures


76August 2010


Glenmark Pharmaceuticals

Key Takeaways

Guides for 20-25% topline growth led by US, India, other emerging markets;higher R&D to partly temper EPS growth

Strong top-line growth guidance: Glenmark expects strong top-line growth ledby a ramp-up in US generics, sustained growth momentum for India formulationsand a recovery in some emerging markets.US business to improve: Despite its muted 1QFY11 performance in the US, themanagement has guided for stronger growth in the remaining three quarters ofFY11 led by new launches. The company recently received ANDA approvals forsome of its niche oral contraceptive products in the US. While the market for theseproducts is small, we expect relatively less competition for them. Glenmark hasover 50 ANDAs pending US FDA approval. The management believes that ~75% ofpending ANDAs are in the niche/low-competition category and will result in adifferentiated portfolio. We expect Glenmark's core US revenue (excluding one-offs) to grow ~19% CAGR over FY10-12.Traction in India formulations to sustain Glenmark's India formulations businesshas been growing at 15-20% over the past few quarters and it is likely to sustainthis growth momentum. We expect revenue to grow 16% CAGR over FY10-12.Emerging markets a mixed bag: The management has guided for a recovery inemerging market performance over the next two years. But Glenmark is alsocontrolling its receivables and hence we expect more gradual growth in some ofthese geographies leading to an overall 12% CAGR over FY10-12.R&D expenses to increase: As more NCEs move into clinical development,Glenmark's R&D costs will rise, especially since there is no clarity on potential NCEout-licensing in the near term. We believe this may partly temper EPS growth overnext two years.Working capital improvement, debt reduction imperative: While Glenmarkintends to control its receivables (~160 days as of 31 March 2010), we believe it willbe a gradual process given its target of strong growth in some emerging markets.Net debt of ~Rs16b continues to be high. We believe it is imperative for Glenmark toimprove on these fronts for a re-rating of valuation multiples.

Valuations and viewWe expect Glenmark to post 16.1% top-line CAGR over FY10-12 led by 24% CAGR forthe generic business, while the branded generic business is expected to grow at a moregradual 14% CAGR. Higher R&D spend will put pressure on earnings growth. We expectcore EPS of Rs15.1 in FY11 (up 29.6%) and Rs18.7 for FY12 (up 24%). The stock tradesat 17.5x FY11E and 14.2x FY12E earnings with about 14-16% RoE. High net debt ofRs16b implies fund-raising is imperative for de-leveraging balance sheet. Neutral.

Company Represented By:Mr Aditya Renjen, GM - IR





03/09A 20,865 1,125 4.2 -64.3 62.5 4.2 7.0 8.0 4.4 27.1

03/10A 24,616 3,310 11.6 174.9 22.8 3.0 14.1 12.7 3.6 14.9

03/11E 29,198 4,292 15.1 29.6 17.5 2.5 15.1 13.6 3.0 11.1

03/12E 33,170 5,317 18.7 23.9 14.2 2.1 15.9 15.1 2.5 10.5

Bloomberg GNP INEquity Shares (m) 269.8CMP (Rs) 265Mcap (US$ b) 1.652 W Range (Rs) 304 / 2021, 6, 12 Rel Per -8 / -9 / -9


77August 2010


Lupin

Key Takeaways

Differentiated US portfolio, strong growth in India, improving profitability inJapan to be key growth drivers

Differentiated US portfolio: Lupin has differentiated itself from other genericcompanies by launching at least one low-competition product in the US every yearfor the past few years. This trend will continue, given the contribution from Lotrel inFY11 and two or three such launches scheduled for FY12, coupled with thecommercialization of its oral contraceptive and ophthalmology products from FY12and FY13. These potential low-competition launches and a steady addition to itsbranded portfolio in the US will enable Lupin to post strong growth in the US overthe next two years. We model in 19% revenue CAGR for Lupin's US operations overFY10-12 despite factoring in competition for Suprax and potential currencyappreciation. Delayed competition for Suprax can upgrade our estimates.Traction in India formulations to sustain: Lupin posted 21% CAGR in its domesticformulations business over FY07-10, led mainly by its entry into new therapeuticsegments, new launches, expansion of its field force and gradually increasingpenetration in tier-II towns and rural areas. Lupin has guided for sustaining thegrowth momentum in the coming years.Japan holds long-term potential: The management indicated that the Japanesegeneric market held long-term potential given the government's initiative to boostgenerics to lower healthcare costs. Lupin is well positioned to exploit this opportunitythrough its subsidiary Kyowa. The company targets six new launches in Japan inFY11. But the Japanese market has had price cuts of 12-15% recently, which Lupinplans to counter through reduced API prices and a gradual shift of manufacturing toits Indian facilities. We believe profitability is likely to improve in the long-term asmanufacturing shifts to India.Inorganic initiatives: The management indicated that while Lupin was open toinorganic initiatives (especially in semi-regulated markets and the branded portfolioin the US), it would not dilute its stringent payback criteria. We believe Lupin isunlikely to make large acquisitions with extended paybacks.

Valuations and viewLupin's underlying fundamentals are likely to improve gradually, led by an expanding USgenerics pipeline, niche/Para-IV opportunities in the US, strong performance from Supraxand a ramp-up in Antara revenue (branded products in the US) and traction in the Indiaformulation business. We expect Lupin's core operations (excluding one-off upsides) topost 16% revenue CAGR over FY10-12 led by 19% CAGR for the US and domesticformulations businesses, leading to a 22% EBITDA and 20% EPS CAGR. The stocktrades at 20.5x FY11E and 17.3x FY12E EPS with a sustained 25-30% RoE. Buy.

Company Represented By:Mr Ramesh Swaminathan,President - Finance & Planning





03/09A 37,759 5,015 56.9 50.5 33.7 11.1 37.1 25.6 4.8 28.1

03/10A 47,405 6,816 76.6 34.8 25.0 6.6 34.1 27.5 3.8 21.1

03/11E 56,009 8,341 93.8 22.4 20.5 5.4 29.1 25.9 3.1 16.4

03/12E 63,562 9,839 110.6 18.0 17.3 4.4 28.1 26.1 2.7 13.6

Bloomberg LPC INEquity Shares (m) 88.9CMP (Rs) 1,912Mcap (US$ b) 3.752 W Range (Rs) 1,985 / 9211, 6, 12 Rel Per -5 / 13 / 91


78August 2010


Opto Circuits

Key Takeaways

Both invasive and non-invasive business segments are performing well. Growthwill be led by geographic expansion, better distribution reach, new productlaunches and acquisitions

Non-invasive segment a major contributor to revenueOpto’s non-invasive business will post 25% CAGR over 2-3 years led by expandeddistribution partly through acquisitions. Opto Circuits is trying to expand its productoffering, which will help it to acquire larger distributors. The opportunity in this segmentis large and Opto Circuits is still a marginal player, which gives it the chance to sustainhigh double digit growth in the segment.

Invasive segment to lead growthOpto’s invasive business offers immense potential and will lead growth in the long term.The market opportunity is pegged at US$7b and Opto Circuits has developed manyproducts to penetrate this market. The competition in this space is limited with the topfour players commanding 85% of the market. Opto Circuits is promoting its products atseminars and conferences to create awareness among physicians. Approval to sellstents in the US could be a major catalyst for the company in the long term and accelerategrowth in the segment.

Opto Circuits to look for strategic acquisitionsThe management indicated that the company is evaluating inorganic growth opportunities.The company recently acquired Unetixs in the US to expand its product portfolio andreach. The management indicated that acquisitions helped the company to expand itsproduct basket, thereby improving its position to tie up with large distributors and leverageits distribution strength.

Return ratios to stay highThe management indicated that despite its growing size, the company would maintainprofitability with EBITDA margins at ~30%. Despite significant investment in workingcapital, the company will be able to maintain high return ratios with RoCE and RoE ofover 25%.

Valuations and viewWe believe Opto Circuits will grow strongly in its invasive and non-invasive businessesdue to the large market opportunity, expanding distribution network and low base. Despitegrowing rapidly in the past, Opto Circuits remains a marginal player in the global medicaldevice industry. We believe this gives it an opportunity to sustain its high growth rate forthe next couple of years. The stock trades at 14.7x FY11E EPS of Rs18.4 and 12x FY12EEPS of Rs22.6. Given the strong earnings growth expected and reasonable valuations,the stock offers good potential upside. Maintain Buy with a target price of Rs339 (15xFY12E EPS).

Company Represented By:Mr Bhaskar, DirectorMs Shalaka & Ms Namita- Investor Relations





03/09A 8,185 1,582 8.7 24.4 31.2 8.4 51.7 37.4 5.9 18.603/10A 10,776 2,426 13.3 53.3 20.4 4.5 32.4 28.1 4.1 12.103/11E 13,500 3,367 18.4 38.8 14.7 3.7 27.8 26.6 3.4 10.903/12E 16,361 4,130 22.6 22.7 12.0 3.0 28.0 27.2 2.8 8.9

Bloomberg OPTC INEquity Shares (m) 182.9CMP (Rs) 271Mcap (US$ b) 1.152 W Range (Rs) 278 / 1671, 6, 12 Rel Per 11 / 14 / 30


79August 2010


Sun Pharmaceuticals

Key Takeaways

Domestic formulations business, US formulations will be key growth drivers.Targets 18-20% top-line growth in FY11 on a high base

The domestic formulation segment to grow in double digitsSun Pharma’s domestic formulation business will sustain higher double digit growth inthe coming years, but due to increased competition in the chronic therapeutic segments,significant outperformance will be difficult. Despite an increase in competition over theyears, company has maintained profitability.

Caraco makes slow progress in resolving USFDA issuesThe management indicated that progress on the resolution of the USFDA issues atCaraco was slower than expected and would involve product by product approvals fromthe USFDA. The company may not seek approval for all the products it used to sellearlier due to unfavorable economics.

US product pipeline gains strengthSun Pharma filed 30 ANDAs in FY10 and four in 1QFY11, taking the total ANDAs pendingapproval to 120, one of the strongest pipelines from India. The pipeline includes low-competition, patent challenge and normal product opportunities.The company has started filings for controlled substances in the US and expects togenerate meaningful revenue from controlled substances initiative in the US over thenext few years. It is a marginal player in this US$4b high-margin low-competition market.

Reiterates strong guidance for FY11The management has guided for 18-20% top-line growth in FY11 despite the stoppageof supplies of generic Protonix and Eloxatin in the US. We believe it would have includedupsides from some of the other Para-IV products (Effexor XR and Exelon) in the guidance.

Valuations and viewAn expanding generic portfolio and change in product mix in favor of high-margin exportsis likely to bring long-term benefits for Sun Pharma. Its ability to sustain superior marginseven on a high base is a clear positive. Key drivers for future include: (1) a ramp-up inthe US business and resolution of Caraco’s cGMP issues, (2) monetization of the Para-IV pipeline in the US, and (3) the launch of controlled substances in the US. The stock isvalued at 29.1x FY11E and 24.2x FY12E core earnings. Earnings growth is likely toimprove after the resolution of Caraco’s problems. Given the severity of the recent USFDA action on Caraco, we believe the key catalyst to the stock’s performance will beearly resolution of US FDA issues.

Company Represented By:Mr Uday Baldota, VP - IRMs Mira Desai, General Manager





03/10A* 41,028 13,567 65.5 -25.4 26.9 4.5 12.6 18.4 7.9 23.603/10A 34,344 9,557 46.103/11E 44,836 12,642 61.0 32.3 28.9 3.9 14.5 18.2 7.0 19.403/11E* 48,721 15,742 76.0 16.003/12E 49,187 15,221 73.5 20.4 24.0 3.5 15.3 16.5 6.2 18.8

Bloomberg SUNP INEquity Shares (m) 207.1CMP (Rs) 1,778Mcap (US$ b) 8.052 W Range (Rs) 1,846 / 1,1221, 6, 12 Rel Per -3 / 7 / 38

* Includes Para-IV upsides


80August 2010


Anant Raj Industries

Key Takeaways

High quality land bank; a focused city-centric playerAnant Raj Industries (ARIL) has a fully-paid land bank of ~982acres, with developmentpotential of 77msf, largely in the NCR (~90% is within 50km of Delhi). Given its city-centric focus, ARIL will be a key beneficiary of the ongoing revival in the RE sector.ARIL's concentration on city-centric projects, in-house construction capabilities, noleveraging to pursue land-bank aggregation, multiple revenue streams with highmonetization visibility, and no pan-India ambitions differentiate ARIL from its peers.

Quick monetization of residential projects to boost operational cash flowsARIL has witnessed a pick-up in its operational activity. In 1QFY11, it launched twokey residential projects in Kapasera and Manesar. The Kapasera project (~0.22msf)has been fully sold at an average realization of ~Rs5,000/sf, while ~25% of theManesar project has been sold at an average realization of ~Rs2,300/sf.The company has had several issues with its Hauz Khas project, repeatedly delayingits launch. The management is hopeful of launching the project by 3QFY11. Toavoid any such delays at its other key residential project at Bhagwandas Road, themanagement is contemplating proactive measures, which would lead to higher IRRand facilitate faster monetization of the project.ARIL expects residential projects to contribute ~Rs6.8b to its FY11 topline.

Robust rental incomeARIL follows an asset-heavy model for its commercial and retail projects, whichprovide a steady flow of income. It has also witnessed a pick-up in its leasing activity.Its rental income for 1QFY11 was ~Rs190m; with early signs of recovery visible, itexpects to achieve rental income of Rs1.2b in FY11 v/s Rs0.8b in FY10.

Effective deployment of idle cash in value-accretive projects to aid RoEARIL is in the process of acquiring land worth ~Rs10b in Gurgaon. This acquisitionwill be in line with its strategy of effectively deploying unutilized surplus cash.The management has indicated this land parcel would cost the company only ~Rs400/sf as against the peak value of ~Rs1,400/sf. The land is zoned and can be launchedfor monetization at short notice.

Valuation and viewARIL has a robust business model, with multiple revenue streams and high monetizationvisibility. We expect revenues to increase at 93% CAGR over FY10-12 and net profit toincrease at 28% over FY10-12. Our FY12E NAV for ARIL is Rs205/share. The stocktrades at ~0.9x FY12E BV of Rs139 and at ~41% discount to its FY12E NAV of Rs205,which is very attractive compared to industry peers. Maintain Buy.

Company Represented By:Mr Amit Sarin, CEO & DirectorMr Navneet Singh,VP - Admin. & Marketing





3/09A 2,508 2,073 7.0 -52.5 17.1 1.1 6.2 8.6 12.5 14.2

3/10A 2,863 2,381 8.1 14.9 14.9 1.0 6.7 8.2 12.0 13.3

3/11E 5,399 2,267 7.7 -4.8 15.7 0.9 6.0 8.1 6.3 11.8

3/12E 10,526 3,855 13.1 70.0 9.2 0.9 9.4 12.9 3.2 6.3

Bloomberg ARCP INEquity Shares (m) 294.6CMP (Rs) 118Mcap (US$ b) 0.852 W Range (Rs) 164 / 991, 6, 12 Rel Per -5 / -21 / -31

Sector: Real Estate

81August 2010


DLF

Key Takeaways

Recurring cash flows to account for 35-40% of operating cash flowsDLF is witnessing a strong recovery in the commercial vertical. It booked ~1.4msf ofcommercial area in 1QFY11 against its target of 3-4msf of commercial leases inFY11. The management expects ~Rs14b rental income in FY11 from its 20msfannuity assets.DLF has guided total operating cash flows of ~Rs25b, net of construction capex, forFY11. It expects recurring income from rentals to account for 35-40% of its operationalcash flows, going forward.

Leverage to peak in 2QFY11DLF has to repay a further ~Rs11b of preferential CCP's in 1QFY10. As a result, itsdebt/equity is likely to peak in 2QFY11. Its net debt/equity, which was ~0.79x in1QFY11, could increase to ~0.9x. DLF intends to bring down its net debt/equity to~0.5x through asset sales and strong operational cash flows.In 1QFY11, DLF achieved asset sales of ~Rs2.9b. However, the management hasguided asset sale / divestment of ~Rs20b primarily from (i) refund from HaryanaGovernment and DDA, (ii) sale of some hotel plots, and (iii) dilution of stake inAman Resort to private equity players. The entire proceeds will be utilized for debtrepayment.

Lack of clarity on value housing plansDLF is in the process of finalizing its value housing plans. It aims at margins of 35-40% in the value housing vertical. The management had guided residential sales of15-18msf at the start of FY11; it now expects sales of ~15msf in FY11. DLF's abilityto achieve the target would depend on successful rollout of its value housing vertical.DLF intends to launch a residential project of ~0.7msf in Greater Kailash in 2QFY11/3QFY11. The management believes the lion's share of its expected sales volumewill be contributed by new launches; unreleased inventories of existing projects arelikely to contribute ~3msf of sales.The company has indicated that its much awaited NTC Mills project at Mumbai isunlikely to be launched very soon; the specialized architectural planning and designrequired for this tall-structured project is yet to be finalized.

Valuation and viewThe stock trades at 20% discount to our revised FY12E NAV of Rs388. It trades at 20.5xFY12E EPS of Rs15.1 and 1.8x FY12E BV of Rs168.5. We expect DLF to benefit significantlyfrom the expected revival in the commercial and retail verticals. A successful REITlisting at an attractive cap rate would be a key near-term catalyst for the stock. Wemaintain Buy.

Company Represented By:Mr Anurag Kalra, VP - IRMr Rajiv Goel, Senior GM - IR





3/09A 100,448 44,696 26.0 -43.4 11.9 2.4 18.5 15.6 6.8 12.1

3/10A 74,209 17,300 10.0 -61.3 30.8 1.8 5.6 7.6 9.9 21.0

3/11E 93,465 19,304 11.2 11.6 27.6 1.9 6.6 8.1 7.6 15.4

3/12E 119,851 26,080 15.1 35.1 20.5 1.8 8.6 10.1 5.7 12.7

Bloomberg DLFU INEquity Shares (m) 1,714.4CMP (Rs) 310Mcap (US$ b) 11.552 W Range (Rs) 491 / 2521, 6, 12 Rel Per 5 / -16 / -37

Sector: Real Estate

82August 2010


DB Realty

Key Takeaways

Largest redevelopment player in MumbaiDB Realty is one of the largest players and a pioneer in the redevelopment businessin Mumbai. Focusing on redevelopment and PPP projects allows the company accessto low cost, prime land bank in land-starved Mumbai. As a result, DB Realty enjoysa low risk, low capital intensive model, which ensures superior RoE.The management believes that the redevelopment business has immense potentialin Mumbai and the company’s unique operational strength to execute such projectsplaces it in a strong position to tap this opportunity.

Concerns regarding Central Mumbai market overshadowing positivesDB Realty has significant exposure to the Central Mumbai market. It acknowledgesthat the consensus outlook on the Central Mumbai luxury market is bearish due toconcerns of oversupply and affordability issues. However, the management believesthat a large proportion of the ‘on-paper supply’ will not materialize in the near-termdue to the operational complexity involved in each of these large-sized projects.Hence, the price correction will not be as severe as perceived.The management has also indicated that as its business model involves low costland, the company is strongly positioned to accept any potential price correctionwithout much impact on margins.

High visibility on near-term monetizationDB Realty has achieved pre-sales of ~Rs25b from its various ongoing projects. Thepace of construction in all its ongoing projects has been good, which provides highmonetization visibility.Continued sales momentum at its key projects along with uninterrupted cash flowscould lower concerns relating to negative outlook on the Central Mumbai market.

Acquisition of high value accretive projects is the key catalystDB Realty has recently acquired a 53acre redevelopment project in Bandra, with thecompany’s economic interest being ~8msf of saleable area. We believe the projecthas the potential to add Rs20b to its NAV.

Valuation and viewDespite DB Realty’s superior land bank and its leadership position in the Mumbairedevelopment vertical, the stock could continue to be under pressure in the mediumterm, on account of concerns on the Central Mumbai market. The key catalysts for thestock would be (1) acquisition of new high value accretive projects, (2) better thanexpected sales at its key Central Mumbai projects, and (3) change in outlook on theCentral Mumbai market.

Company Represented By:Mr Jayesh Doshi, Group CFOMr Ahmad Mashkoor, AGM - Fin.





3/09A 4,644 1,459 160.0

3/10A 9,512 2,520 10.4 72.7 40.5 3.3 8.1 13.2 11.3 29.4

Bloomberg DBRL INEquity Shares (m) 243.3CMP (Rs) 405Mcap (US$ b) 2.152 W Range (Rs) 540 / 3551, 6, 12 Rel Per -

Sector: Real Estate

83August 2010


Godrej Properties

Key Takeaways

Aggressive launch plan: Godrej Properties has witnessed strong sales momentumin its residential projects in Ahmedabad, Kolkata and Mumbai. GPL plans to launch~5msf of projects (in phases), including its recently acquired project in the NCR(2QFY11), and projects in Mangalore, Kochi, Chennai, Hyderabad and Bangalore(3Q/4QFY11) in FY11.Operating margins expected to improve: The decline in EBITDA margin in1QFY11 was mainly due to low profitability in Godrej Waterside, a commercial projectin Kolkata. Profitability on this project was low when it was launched and sold inFY09 and FY10. Revenue recognition of the project was reflected in 1QFY11. InFY11, the management expects GPL’s EBITDA margins to improve to ~30%, assome of the new projects start contributing to the top line.Acquisition through JDA route to continue, foray into NCR: During the quarter,GPL entered the NCR region through the JDA route for a nine-acre plot with 1.04msfdevelopable area and 70% (average) revenue share for GPL. With this, the companymoved a step closer towards a pan-India presence. It is present in 11 Indian cities.GPL is evaluating new projects through the JDA model, including a few in Mumbai.But the management was unwilling to provide an update on a possible JDA to developa prime land parcel near BKC, Mumbai.Leverage to increase: GPL has a comfortable net debt/equity of 0.6x. Themanagement indicated that it may increase debt to pursue construction of ongoingprojects.

Valuation and viewGPL’s business model not only lowers the business risk but also makes the modelless capital intensive. This model is more lucrative as it aids faster monetizationand churning of land.GPL has the unique strength to emerge as a true pan-India player due to its strongbrand advantage. While many real estate players have been trying to positionthemselves as pan-India players, most have not been able to make a mark outsidetheir micro-markets as their brand name is not well known in India (this is mainlywith regard to the residential market).GPL entered into MOUs with Godrej group companies to develop land held by themand currently has firm MOUs for development of 75 acres in Mohali, 100 acres inBangalore and 10 acres in Hyderabad. We believe these MOUs hedge the riskagainst rising land prices and provide significant growth opportunities. Besides, thefact that GPL is majority owned by GIL rules out a major conflict of interest issue.GPL trades at a PER of 39.1x FY10 EPS of Rs17.6 and a PB of 5.9x its FY10 BV ofRs117/share. Not rated.

Company Represented By:Mr Pirojshah Godrej,Executive Director





3/07A 1,372 288 44.7 137.6 15.5 10.0 64.6 40.8 4.2 11.3

3/08A 2,274 750 12.4 -72.2 55.9 17.4 31.2 34.1 19.6 37.2

3/09A 2,555 747 12.4 -0.5 56.2 14.0 25.3 22.0 18.9 40.0

3/10A 3,134 1,228 17.6 64.5 39.5 5.9 15.1 18.4 17.4 61.7

Bloomberg GPL INEquity Shares (m) 69.9CMP (Rs) 695Mcap (US$ b) 1.152 W Range (Rs) 764 / 4381, 6, 12 Rel Per -

Sector: Real Estate

84August 2010


Mahindra Lifespaces

Key Takeaways

To focus on two key real estate verticalsMLL’s stated strategy is to focus on two key real estate segments – residentialprojects and large-format integrated infrastructure development projects.MLL has developed residential projects covering 4.9msf. It is developing 2.1msf and~6msf are in the planning stage. It has signed an MoU for acquiring 23acres or1.8msf of land in Pune and a JDA for 10acres (1msf) of projects in Hyderabad.Sale of residential units was Rs920m in 1QFY11 v/s Rs210m in 1QFY10 and Rs5.9bin FY10. Its projects like Eminente at Goregaon (Mumbai), Spendour at Bhandup(Mumbai), Royale in Pune, and Chloris in Faridabad are progressing as per schedule.

Steady progress at ongoing SEZsMLL has two key ongoing SEZ projects at Chennai and Jaipur. The Chennai SEZ is inthe late monetization stage, with focus now on the residential and institutional areas,and the Jaipur SEZ is in the early monetization phase, with the sale of the processingarea underway. MLL plans to expand its Chennai SEZ by 100 acres in FY11 andcomplete the acquisition of the remaining ~370 acres at the Jaipur SEZ.During 1QFY11, MLL signed up four customers – one under lease and three underMoUs at its Chennai SEZ, aggregating to 18acres. The total number of operationalcompanies increased to 34 companies. The total customer base at Jaipur SEZ was35 customers, while the total employment stood at 2,000 people. The recenttransactions in the Chennai SEZ have achieved average realization of ~Rs16m/acre. Transactions in the Jaipur SEZ are happening at ~Rs8.5m/acre.

New acquisitions in the SEZ vertical to be key triggersMLL is working on acquiring an incremental 1,000acres for a new SEZ/DTA in NorthChennai. Project is being designed to provide world-class infrastructure to ancillaryindustries (auto components, electronics, precision engineering and logistics).Apart from this, MLL is also acquiring land near Pune for a large format developmentin Maharashtra (a company presentation indicated the area at ~3,000acres).

Valuation and viewMLL has a sound business model, a healthy balance sheet and no land outstandings.Our SOTP value for MLL is Rs552/share: (1) Chennai SEZ at Rs180/share, (2) JaipurSEZ at Rs174/share, (3) residential vertical at Rs179/share, and (4) other rental assetsat Rs50/share. Our valuations currently do not include: (1) the 52-acre Thane project,(2) the 50-acre commercial land at Chennai SEZ, and (3) two planned SEZs / IndustrialParks in Chennai and near the Mumbai-Pune Expressway (for which ~Rs1.3b of advanceshave already been given). The stock trades at ~1.7x FY12E adjusted book value ofRs287.3 and at 10.7% discount to its SOTP value. Maintain Buy.

Company Represented By:Mr Anita Arjundas, MD & CEOMr Vishnu Banka, Head - Fin.Mr Rajendra Joshi,VP - Sales & Marketing





3/09A 3,418 641 15.4 -3.5 31.3 2.2 6.9 7.8 6.4 30.3

3/10A 4,179 785 19.0 22.7 25.6 2.1 7.9 8.9 5.5 19.6

3/11E 5,264 1,051 25.5 33.8 19.1 1.9 9.8 11.1 4.3 12.5

3/12E 7,591 1,258 30.6 19.7 16.0 1.7 10.6 13.1 3.0 11.0

Bloomberg MLIFE INEquity Shares (m) 40.8CMP (Rs) 491Mcap (US$ b) 0.452 W Range (Rs) 550 / 2871, 6, 12 Rel Per 3 / 18 / 38

Sector: Real Estate

85August 2010


Unitech

Key Takeaways

Focus on volumes, cash flows to boost IRRs: Unitech focuses on mid-incomehousing and affordable housing to achieve volumes, increase cash flow and boostIRRs instead of focusing on margins. Unitech’s earlier strategy was a focus onluxury/premium housing, which accounts for 4-5% of the real estate market. Themid income or affordable housing segment accounts for a significant portion of thereal estate market. There is unmet housing demand of ~24m homes, which providesa secular opportunity to companies with a focus on mid-income housing.

Focus entirely on execution: Unitech is focusing on execution to accelerate itscashflow and achieve higher output capability. Unitech has ~35msf of projects underconstruction and hopes for sales of 12-14msf in FY11. In this regard, Unitech isworking on standardizing processes to cut cost and time. The management is hopefulthat these steps will allow the company to achieve higher throughput.

NCR, Chennai, Mumbai to drive volume: Unitech’s strategy to churn a large landparcel in a phased manner over 7-8 years provides it with the opportunity to capturethe value through the ageing effect. The management indicated that after a successfullaunch of initial phases, land parcels in the NCR, Chennai and Mumbai would commanda lion’s share of sales volume.

Aggressive growth plans for UT Infra: Unitech has plans to expand in theinfrastructure segment through its 35% associate company UT Infra. Unitech’s priorexperience in this field coupled with a strong in-house order book from residentialsales in Unitech will allow UT Infra to achieve strong growth.

Valuation and view: Unitech is available at ~11% discount to its FY12 NAV ofRs95/share. It is available at 19.8x FY12E EPS of Rs4.3 and 1.8x FY12E BV of Rs46.6/share. Among large cap RE stocks, it has one of the most comfortable balancesheets with a low leverage of ~0.5x, strong near term cash flow and earningsvisibility of 24% CAGR, over FY10-12. Buy with a price target of Rs95/share.

Company Represented By:Mr Sanjay Chandra, MDMr R Nagaraju,VP-Corporate Planning





3/09A 28,945 9,689 6.0 -41.7 13.8 3.3 18.7 13.2 10.0 18.1

3/10A 29,313 6,751 2.8 -53.6 29.6 2.1 6.3 6.3 8.8 24.0

3/11E 37,393 7,891 3.2 14.1 26.0 1.9 6.7 6.5 6.6 20.9

3/12E 50,971 10,634 4.3 34.8 19.3 1.8 8.3 9.3 4.6 13.3

Bloomberg UT INEquity Shares (m) 2,435.6CMP (Rs) 82Mcap (US$ b) 4.352 W Range (Rs) 118 / 651, 6, 12 Rel Per 9 / 3 / -28

Sector: Real Estate

86August 2010


Pantaloon Retail

Key Takeaways

Sales growth to be led by same-store sales growth, space additionBuoyant consumption sentiment and improving store economics is instilling confidencein faster store roll-outs.A learning after the recession is to focus on categories and not formats. PRIL seesits sales being clubbed under foods, fashion, general merchandise and homefurnishing. Food has emerged as a priority for PRIL as it aims to increase its sharefrom ~30% currently to 35% over two years. The management expects to post ~25% sales CAGR over FY10-12 due to 8-10%SSS growth and 17% space addition (2.5m-3msf a year).

Margins to be range bound; benefits of private label, operational efficienciesto partly offset impact of deteriorating sales mix

The management expects to maintain EBIDTA margins at 10-11%. Even thoughlower margin foods will exert pressure on margins due to rising contribution (30-35% over FY10-12), the company plans to offset this with a richer sales mix, highershare of private labels and fresh grocery and operational efficiencies.In apparel, the management aims to improve the sales mix by changing thepositioning of the product portfolio with marginally higher price points and bettermargins. Room for improvement in te private label mix (currently ~85%) is limited.

Management open to inorganic opportunities; FDI reform will provide fundsPRIL is open to inorganic opportunities if the acquisition brings competitive advantageto the table at reasonable valuations.FDI in organized retail is a priority for the government as it will provide direction toseveral stakeholders.PRIL views FDI as positive for incumbents as it will open up avenues for funds andresult in technology transfer (best practices of retail majors) to India.

FCF in 15-18 months; benefits of integration to be reflected from FY12PRIL expects to be free cash flow positive in 15-18 months. Currently ~60% ofcapex needs are being met through internal accruals.Benefits of a higher sales per square foot (target to increase to Rs10,000/sf fromcurrent Rs8,500) and inventory turnover are likely to be reflected in FY11-12.Supply chain integration of older stores is likely in 15-18 months. This would cutinventory levels from Rs1,900/square foot to Rs1,650/square foot in 2-3 years.Debt levels are likely to fall from the current 1.2x to 1x in near future.

Valuation and viewWe estimate a 39% EPS CAGR over FY10-12E. The stock trades at 32x FY11E EPSof Rs14.5 and 24.3x FY12E EPS of Rs19. Maintain Buy.

Company Represented By:Mr Ashish Chakravarti,Senior Manager - IR





06/09A 63,417 1,406 7.4 -6.6 62.7 3.8 6.1 10.1 1.8 17.3

06/10E 77,754 2,033 9.9 33.5 46.9 3.2 6.8 10.6 1.5 13.8

06/11E 96,398 3,058 14.5 46.9 32.0 2.9 9.1 12.1 1.2 11.3

06/12E 114,761 4,020 19.0 31.4 24.3 2.6 10.7 13.4 1.0 9.5

Bloomberg PF INEquity Shares (m) 211.1CMP (Rs) 461Mcap (US$ b) 2.152 W Range (Rs) 531 / 2651, 6, 12 Rel Per 6 / 0 / 31

Sector: Retailing

87August 2010


Shoppers' Stop

Company Represented By:Mr Govind Shrikande, CEOMr C B Navalkar, CFO





03/07A 7,996 262 7.5 -4.6 86.3 8.5 8.9 22.1 3.1 37.9

03/08A 10,900 69 2.0 -73.5 326.0 8.5 2.3 20.1 2.4 46.9

03/09A 12,624 -644 -18.5 -1,027.1 -35.2 10.3 -16.1 22.9 2.1 64.3

03/10A 14,105 479 13.7 -174.4 47.2 7.8 14.8 26.7 1.8 24.0

Bloomberg SHOP INEquity Shares (m) 34.8CMP (Rs) 649Mcap (US$ b) 0.552 W Range (Rs) 673 / 1761, 6, 12 Rel Per 14 / 81 / 212

Sector: Retailing

Key Takeaways

Consumption sentiment surprises positively; aspirational consumption strongOver the past six months the willingness of the Indian consumer to spend (as reflectedby LTL growth), has come as a pleasant surprise. While some part of it has beendue to a base effect and pent-up demand, it indicates a shift in consumption behavior.Much of the revival is led by aspirational consumption as consumers left behindworries of job losses and recession.Shoppers’ Stop’s transition from premium to bridge to luxury has been in sync withthe changing lifestyle of urban India and has gone well with consumers. Some ofthe stores in smaller cities such as Bhopal, Ludhiana and Lucknow, are generatingsales per square foot that is as high as those in Mumbai/NCR.The management believes its model is scalable in 35 cities (>1m population) againstits current presence in 13 cities. But it is likely to add 50% of stores in existing citiesitself due to falling catchments expected over 2-3 years.

Incremental investments largely in well-established core portfolio Even though capex plans for 2-3 years are fairly large (24 stores in the next 30months), much of the incremental investment is likely to be in established formats,such as Shoppers’ Stop. Specialty formats are likely to sustain their growth withmost new store openings being SIS thereby improving revenue productivity. Shoppers’ Stop has exited non-profitable ventures and reiterated its intent of notcreating an overhang on the balance sheet. It will focus on core portfolio (departmentstores, mac and online retailing) in which it had RoCE of 26.8% in FY10.

Hypercity may turn EBIDTA positive by 4QFY11; may increase stakeThe management is confident of Hypercity with most of its stores likely to generatesales of Rs700m-800m in a steady state. But some stores have crossed Rs1b salesin their first year of operation.Shoppers’ Stop plans to have smaller formats to penetrate tier-2 cities.Food and grocery accounts for 55% of sales in Hypercity, which is capping grossmargins at 20.5%. It plans to increase the proportion of apparel and generalmerchandise to increase profit margins.Hypercity has achieved store level EBIDTA and is likely to achieve operating levelbreakeven by 4QFY11. Shoppers’ Stop plans to increase its stake in Hypercity, after having recently raisedit to 51% to participate in the growth opportunity.

Valuation and viewShoppers’ Stop is one of the best plays on rising consumerism in urban India. Thestock trades at 47.2x FY10 EPS of Rs13.7. Not Rated.

88August 2010


Idea Cellular

Key Takeaways

Limited competition from new entrantsExcept Uninor, competition from other entrants has been marginal with most of thenew licensees (Etisalat, Videocon, Loop, S Tel) yet to make a full-blown rollout.Idea has also been less aggressive in its seven new circles (being a late entrant)with focus on curbing EBITDA loss rather than aggressively pursuing market share.The business case for new GSM entrants appears unviable.

RPM pressure has been decliningRPM pressure has been declining over the past few months. While Idea reported~5.5% QoQ average RPM decline in 1QFY11, decline in exit RPM (QoQ) was likelyarrested at 2-3%.RPM could stabilize over the next one year at current levels though there could besome more downside in the near-term.We highlight that 2Q has historically been a seasonally weak quarter for wirelesscompanies.

Leverage within reasonable limits even post 3G payout; refinancing 3G debtremains an option

Idea’s net debt/EBITDA is ~3x after the 3G payouts and net debt/equity is < 1x.Equity raising at parent level is unlikely over the next one year; however the companyhas options to monetize its tower assets (stake in Indus and its own portfolio of~8,000 towers).The company might consider re-financing 3G loans through ECBs. As per RBIguidelines, the companies can raise ECB for the 3G spectrum payout until 31 May2011.

Valuation and view

Idea currently trades at an EV/EBITDA of 9.8x FY11E and 7.2x FY12E.We have a Buy rating on the stock with an SOTP based target price of Rs77.

Company Represented By:Mr Akshaya Moondra, CFOMr Pradeep Agrawal, AVPMr Arpit Gupta, Sr Manager




3/09A 101,485 9,008 3.0 -23.7 24.7 1.6 10.4 7.4 2.6 9.5

3/10A 124,476 9,540 3.1 2.0 24.2 2.0 7.6 5.5 2.4 8.7

3/11E 153,610 4,731 1.4 -53.4 52.0 2.1 4.1 4.1 2.4 9.8

3/12E 177,685 6,033 1.8 27.5 40.8 2.0 5.0 5.0 2.0 7.2

Bloomberg IDEA INEquity Shares (m) 3,299.8CMP (Rs) 75Mcap (US$ b) 5.352 W Range (Rs) 85 / 471, 6, 12 Rel Per 24 / 15 / -20

Sector: Telecom

89August 2010


Reliance Communications

Key Takeaways

Tower de-merger on trackMerger of tower assets with GTL Infra could happen before the targeted time-frame. RCom has earlier announced that the transaction would close by the end ofCY10.The company expects Rs150b-180b cash inflow from the tower deal, which wouldreduce its net debt by ~50%; however, fund raising at GTL Infra level remains aconcern for investors, given the potential high leverage of the merged entity.While we estimate potential rent outgo of ~Rs29b due to tower de-merger basedon a rental of ~Rs30,000/site/month, the management believes that net outgo couldbe ~30% lower due to certain costs related to towers also being transferred fromRCom to the merged entity.

Marketing budgets could increase post MNPHigher end subscribers are currently unable to switch operators, as MNP is notavailable.However, above-the-line marketing could become more aggressive post MNPimplementation, as operators will look to retain and target high-end subscribers.The post-paid segment contributes disproportionately to revenue (4-5% of subscriberbase contributes 20-30% of revenue).Higher competition in the post-paid segment need not result in tariff wars, as thesesubscribers are believed to be less price-conscious than pre-paid subscribers.

No significant incremental capex/opex for 3GRCom has a “3G ready” pan-India GSM network running on 1800MHz band in 14/22circles. Hence, incremental capex/opex for running the 3G network would not besignificant.3G rollout is unlikely to add 1:1 tenancies for tower companies. Tenancy requirementfor the industry could increase by 25-30%, with higher tenancies contributed byincumbents operating on 900MHz.The management has reiterated its Rs30b capex guidance for FY11.

Other highlightsRPM outlook is relatively stable.As announced earlier, the company is in discussions with potential investors forstrategic stake sale up to 26%.

Valuation and viewThe stock trades at an EV of 9.8x FY11E and 8x FY12E EBITDA. Under Review.

Company Represented By:Mr Arvind Narang, Joint PresidentMr J Mukund, Dy General Manager




3/09A 229,410 61,552 29.8 11.7 5.9 1.0 18.7 8.9 2.6 6.33/10A 222,457 48,812 23.7 -20.7 7.5 0.9 12.6 5.8 2.5 7.13/11E 211,587 12,842 6.2 -73.7 28.4 0.9 3.2 3.0 3.1 9.83/12E 239,785 15,788 7.7 22.9 23.1 0.9 3.8 3.4 2.7 8.0

Bloomberg RCOM INEquity Shares (m) 2,063.0CMP (Rs) 177Mcap (US$ b) 7.952 W Range (Rs) 320 / 1321, 6, 12 Rel Per -12 / -5 / -53

Sector: Telecom

90August 2010


Tulip Telecom

Key Takeaways

Stake buy in Qualcomm’s BWA venture gives low investment-low participationB2C exposure

Tulip has acquired 13% stake in Qualcomm’s BWA venture for a consideration of~Rs1.4b.It views the partnership as an investment, with expectation of reasonable returns innext 2-3 years.Qualcomm is likely to divest the venture after building a TD-LTE network in its four-circle footprint (Delhi, Mumbai, Haryana, Kerala).The venture would fulfill Tulip’s objective of safeguarding its enterprise business(for at least two years) by promoting TD-LTE technology.

Fiber revenue contribution up to 25%The company has laid 6,000km of fiber across 300 cities in the last 1.5 years; Fiberreach is expected to expand further to 600 cities in one year.Tulip believes that fiber remains the preferred medium for last mile, hence fiberrollout will de-risk it from new competition.Contribution of fiber to revenues is expected to increase to ~70% in two years (v/s~25% currently and nil six quarters ago).

Capex intensity to declineTulip incurred its peak capex of Rs7.4b in FY09, followed by capex of ~Rs4.5b inFY10.The company has guided a capex of Rs3.5b-4b for FY11 (v/s our estimate of Rs4.8b);FY12 capex could be Rs3b-3.2b (v/s our estimate of Rs3.8b).

Other highlightsThe management expects limited impact of Reliance Industry’s (RIL) BWA entry asit believes that RIL’s launch would be focused more on the mass market thanenterprise market.FCC license obtained in USA (serving as a landing station abroad) would enable thecompany to provide data connectivity to Indian clients to USA.

Valuation and viewThe stock trades at 6.3x FY12E EPS and an EV of 3x FY12E EBITDA. We have a Buyrating, with a DCF-based price target of Rs250 (implied FY12E EV/EBITDA of 4.5x;P/E of 8.6x).

Company Represented By:Lt Col HS Bedi, CMDMr Sanjay Jain, CFO




3/09A 16,144 2,505 14.7 35.3 12.5 4.6 44.5 17.8 2.1 10.23/10A 19,664 2,755 17.0 15.0 10.8 3.3 34.6 16.4 1.8 6.73/11E 24,246 3,495 21.5 26.9 8.5 2.4 32.6 18.4 1.5 5.13/12E 30,138 4,738 29.2 35.6 6.3 1.8 32.6 21.5 0.9 3.0

Bloomberg TTSL INEquity Shares (m) 145.0CMP (Rs) 184Mcap (US$ b) 0.652 W Range (Rs) 250 / 1581, 6, 12 Rel Per -2 / -17 / -22

Sector: Telecom

91August 2010


Vardhman Textiles

Key Takeaways

Global textiles industry exiting deflationary phaseThe global textiles industry is exiting the deflationary period due to macro factorssuch as irreversible higher cost structure in China and appreciating Chinese currency.This is already reflected in the fact that China has not been able to increase itsmarket share in the global textiles industry over the last 2-3 years. India currentlyhas a market share of ~4%, which could move up sharply, going forward.

Yarn profits at historic highsCotton yarn prices have moved up by almost ~35% in the last few months to ~US$3.4/kg, close to the 15-year historic high. Indian upstream cotton textile players are inan advantageous position due to the bumper cotton crop in India. The managementexpects current high yarn margins to sustain in 2QFY11.

Fresh capex of Rs8b planned over FY11-12Vardhaman Textiles (VTL) is firming up capex plans of Rs8b spread over FY11-13(with Rs3.5b in FY11 itself for the expansion of its yarn manufacturing capacity).The management intends to go ahead with this capex plans irrespective of whetherTUF benefits are available or not. It has already got TUF loans sanctioned for itsRs3.5b capex plan for FY11.

Implementation of IFRS could lower depreciation and boost RoEVTL expects its RoCE to jump from FY12 due to change in depreciation policy underIFRS. Currently, textile companies are forced to write-off their spinning assets over10 years although they have a life of 17-20 years. From FY12, VTL plans to changeits depreciation policy, which is likely to result in increased profitability, boostingRoE and RoCE. Total depreciation charged under yarn segment in FY10 was Rs1.5b.Capital employed for the yarn segment as at 1QFY11 was ~Rs24b, which includesRs6b-7b of working capital. There could be savings of Rs600m-700m at PBT level orRs9-10/share at net profit level (20% of our current FY12 EPS estimate of Rs48.2).

Valuations attractiveVTL has spent Rs21b over FY07-10 on capacity expansion. While most of its addedcapacities were commissioned in FY09, capacity utilization was low till FY10. Weexpect FY11 to be the first full year of optimum utilization of these capacities.We estimate VTL’s free cash flow over FY11-13 at Rs11b (63% of its current marketcap). We expect the company to generate cash profits of ~Rs17b over FY11-13while it has capex plans of ~Rs8b for this period.The stock trades at 6.3x FY11E and 6.1x FY12E EPS, and 0.8x FY12E BV of Rs368.We maintain Buy with a price target of Rs368 (1x FY12E BV).

Company Represented By:Mr Sachit Jain,Executive DirectorMr Rajiv Thapar,CGM - Fin. Accounts & TaxationMs Jasmeet Gill,Sr Manager Corp Finance




3/09A 29,654 919 16.2 -32.0 18.8 1.2 6.6 5.0 1.3 8.6

3/10A 33,777 2,407 42.5 52.7 7.2 1.1 15.0 10.5 1.2 5.6

3/11E 36,633 2,653 46.8 10.2 6.5 0.9 14.4 12.1 1.0 4.7

3/12E 38,386 2,730 48.2 2.9 6.3 0.8 13.1 12.3 0.9 4.1

Bloomberg VTEX INEquity Shares (m) 56.6CMP (Rs) 305Mcap (US$ b) 0.452 W Range (Rs) 317 / 1281, 6, 12 Rel Per 11 / 23 / 90

Sector: Textiles

92August 2010


CESC

Key Takeaways

Steady cash flow from regulated generation/distribution businessCESC’s generation/ distribution business provides steady cash flow of over Rs3b.Planned capex of Rs2.3b-2.5b in FY11 to strengthen its distribution business, whichwill increase the company’s regulated asset base.

1.2GW under construction projects on track, development pipeline of 4GWThe 600MW Haldia project 600MW has received all requisite clearances and debtsanctions. The project will be based on linkages (70%, LOA received) and importedcoal (30%). It is expected to sell 75% of generation on regulated terms to CESC’sdistribution business and the rest on a merchant basis.The 600MW Chandrapur Project has received all clearances and is expected to becommissioned by March 2013 with offtake mix of regulated/case-1 and merchant.3GW of projects are under development, comprising 1GW in Jharkhand (coal blockallotted with 110mt, 50% stake), 1GW in Orissa (a large part of the land is acquired,and the project has secured 70 points out of 100 for linkage and thus high possibilityof securing coal linkages) and 2GW in Bihar (MoU signed with state government).

Spencer: EBITDA break even at store level, FY11 cash losses target Rs1.5bSpencer achieved store level break even at EBITDA level in 1QFY11, which will befollowed by breakeven at the zonal level (to recover distribution, back-end cost) andlastly at the company level (to cover advertising costs and corporate overheads).Spencer rationalized its overall area under operations by consolidating operationsof daily and express stores (down 19% to 176 stores). Retail operation salesimproved to Rs906/square foot in June 2010 from Rs736/square foot in June 2009and Rs811/square foot in March 2010.

Valuations and viewWe expect CESC to report net profit of Rs4.8b in FY11 (10.5% YoY) and Rs5.3b in FY12(11.5% YoY). At the CMP of Rs393, the stock trades at a PER of 10x FY11E and 9.2xFY12E. Maintain Neutral.

STATUS OF PROJECTS PIPELINE

PROJECTS STATE CAP (MW) REMARKS

Dumka Jharkhand 1,000 110mt of a coal mining block allotted, MoU signedwith the Jharkhand government, land acquisitionprocess initiated, mining prospecting license obtained.

Dhenkanal Orissa 1,320 A large part of land acquisition has beencompleted, awaiting coal linkages.

Pirpainty Bihar 1,000 MoU signed with the Bihar government.

Company Represented By:Mr BL Chandak,Vice President-Corp. FinanceMr Pankaj Kedia- IR




END (RS M) (RS M) (RS) YOY (%) (X) (X) (%) (%) SALES EBITDA

03/09A 30,313 3,682 29.3 23.9 13.6 1.8 13.0 11.0 2.0 10.0

03/10A 32,928 4,333 34.5 17.7 11.5 1.6 13.8 10.8 2.0 8.9

03/11E 37,240 4,789 38.1 10.5 10.3 1.4 13.4 11.4 2.0 7.7

03/12E 40,842 5,341 42.5 11.5 9.2 1.3 13.2 10.4 2.2 8.1

Bloomberg CESC INEquity Shares (m) 125.6CMP (Rs) 396Mcap (US$ b) 1.152 W Range (Rs) 452 / 2911, 6, 12 Rel Per 1 / -10 / 7

Sector: Utilities

93August 2010


GVK Power and Infrastructure

Key Takeaways

Growth at MIAL: real estate monetization, expansion plans in progressGVK has finalized design and layout plans for real estate monetization and is awaitingMMRDA approval. It plans to invite RFQ for the initial launch of 1.04msf of landparcel, comprising hotels, entertainment and retail space. Currently expects landmonetization to start by end of FY11/early FY12.MIAL is likely to commission Terminal-2 (international terminal) by October 2010,which will further increase its traffic and cargo handling capacity from the existing25.6m and 0.58mtpa, respectively.

Focus on attaining key milestones for new projectsGVK has awarded EPC contract for the 800MW Gautami Power Project (Rs32b),with the target commissioning of the 1st unit by 1QFY13. Gas supply required for theproject would be applied to EGoM.The project capacity can be further enhanced by 400MW, and the company is alsoconsidering Jegarapadu Phase-II expansion of 800MW.GVKPIL plans to focus on achieving financial closure for its recently awarded 690MWRattle Hydropower Project (cost estimated at Rs50b) in J&K and Kota-Deoli roadproject (cost estimated at Rs8b). The management expects to achieve financialclosure of the road project by 2QFY11.

Valuation and viewWe expect GVK to report net profit of Rs3.2b in FY11 (up 100%) and Rs5b in FY11 (up58%). We maintain Buy, with a target price of Rs54.

SOTP Valuation

Project Equity Value In % Rs/shAirports 43,686 51 27Roads 10,603 12 7Power 27,219 32 17Others 2,603 3 2 - Oil & Gas Expl 300 0 0 - O&M business 1,243 1 1 - Investment in SEZ 1,060 1 1Cash 1,500 2 1Total 85,612 100 54

Company Represented By:Mr Viren Vijaya Shankar,Senior Manager - IR





3/09A 5,138 1,076 0.8 -20.9 56.9 2.6 4.7 2.1 6.7 19.5

3/10A 17,866 1,559 1.0 34.1 42.4 2.2 4.9 4.3 2.8 11.1

3/11E 22,613 3,240 2.1 100.0 21.2 2.0 9.5 6.5 2.2 6.5

3/12E 27,537 5,044 3.2 55.7 13.6 1.8 13.1 8.9 2.0 4.8

Bloomberg GVKP INEquity Shares (m) 1,579.2CMP (Rs) 44Mcap (US$ b) 1.552 W Range (Rs) 54 / 401, 6, 12 Rel Per -4 / -14 / -17

Sector: Utilities

94August 2010


JSW Energy

Key Takeaways

FY11 target: capacity of 3.4GW by year-end, FC of 2.92GWBased on current timelines, the generation capacity is expected to reach 3.4GW byFY11. During the year JSW Energy (JSWEL) is expected to commission 1.2GW inRatnagiri and 945MW in Raj West.JSWEL plans to achieve financial closure and award equipment orders forChhattisgarh (1.32GW) and West Bengal (1.6GW) projects in FY11.

JSWEL will have ~40%+ of its capacity for merchant sales in FY11JSWEL will have ~1.3GW+ capacity for merchant sales in FY11, which will driveearnings growth.

Spot purchase of 3-5mt coalJSWEL will require 11-13mt of coal for its planned 3.4GW capacity. The companyexpects 1.8mt of coal supply from Indonesia in FY11, which would increase to 4mtin FY12/13.After the current acquisition of SACMH ACMH, JSWEL will have an additional 1mt ofcoal from South Africa.Considering linkages for 540MW and coal supply sourcing from Indonesia/SouthAfrica (5mt), the shortfall in coal availability will be 3-5mt over FY12-13. The companyis looking to acquire other coal assets overseas to secure coal supply.

Progress on projects under developmentFor the 1.2GW Ratnagiri project, JSWEL has committed to put up fuel gasdesulphurisation equipment at an extra cost of Rs6b (13% of the project cost).The 1.3GW Chattisgarh project land acquisition is in progress (200 acres acquiredout of 600 acres) and public hearing is expected by August 2010.All the land required for the 1.6GW West Bengal project is in possession and PPA ishas been signed with the West Bengal Power Development Corporation (WBPDCL)for 400MW. The mine plan has been approved and MoEF clearances received forthe Jalipa mine (expected to mine 5mt a year) and mine development is in progressof the Kapurgdi mine (expected to mine 3mt a year).

Valuations and viewWe expect JSWEL to post net profit of Rs13.9b in FY11 (up 83%) and Rs19.8b in FY12(up 42%). At a CMP of Rs127, the stock trades at a PER of 15x FY11E and 11x FY12E.Not Rated.

Company Represented By:Mr Rajesh H. Asher,Group Senior VP and IRMs Chandrika Nigam,Jr Manager- Investor Relations





3/10A 23,551 7,631 4.7 - 27.2 4.3 16.0 9.0 11.9 23.1

3/11E 56,045 13,941 8.5 82.7 14.9 3.4 25.5 15.2 4.9 11.8

3/12E 84,011 19,838 12.1 42.3 10.5 2.5 27.7 20.1 3.0 7.1

3/13E 77,848 16,713 10.2 -15.8 12.4 2.1 18.6 15.7 3.0 8.0

Bloomberg JSW INEquity Shares (m) 1,640.1CMP (Rs) 125Mcap (US$ b) 4.452 W Range (Rs) 133 / 1001, 6, 12 Rel Per -

Sector: Utilities

95August 2010


Nuclear Power Corporation

Key Takeaways

Nuclear power addition in three phases; 1st phase addition of 10GW to beundertaken by NPCIL

Based on current uranium reserves available in the country, India has the potentialto produce ~10GW of nuclear power (based on PHWR technology).NPCIL is undertaking the stage-1 program, which comprises of operational 4,120MW,under construction 2,660MW and sites approved for 2,800MW (of which projectawards from 1,400MW have commenced).

Long-term agreements with France, Russia, KazakhstanTo meet demand from the planned nuclear generation capacity of 20GW by 2020compared with 4.12GW currently, India will need uranium of 5,000 tonnes per annum– a 10x increase from the current level.India has signed long-term agreements with Areva (France), TVEL Corporation(Russia), and Kazatomprom (Kazakhstan) for fuel supply to the existing and newreactors under safeguards.

Generation costs largely comparable with imported coal-based thermalprojectsNPCIL estimates cost for setting up nuclear power projects at Rs60m-80m/MW andconstruction time period of 5-6 years. PLFs demonstrated globally have been ~85%+.Nuclear power plants in general have a shelf life of about 60 years. Hence, the fixedcosts are spread over a longer time frame, which enables tariffs of Rs2.5-Rs3.5/unit (inline with thermal coal projects based on imported coal).

Nuclear liability bill heading towards consensusThe Parliamentary Standing Committee has incorporated several changes for smoothpassing of the Nuclear Liability Bill in the Parliament. Liability of the plant’s operatorhas been fixed at Rs5b, the government’s at Rs23b, and no financial limit has beenset for the state in the event of a nuclear disaster.The amended bill is expected to be placed before Parliament during the monsoonsession (August 2010).

Company Represented By:Mr Jagdeep Ghai, Director Finance



Sector: Utilities

96August 2010


Reliance Infrastructure

Key Takeaways

Eleven infrastructure projects to contribute revenues in FY11 (v/s 2 in FY10);project progress satisfactory

Eleven projects are expected to contribute to revenue in FY11 (project cost: Rs174b),including six-laning of NHAI projects under Phase V, which entails toll collectioneven during construction phase, two metro projects (Mumbai metro phase 1 andDelhi metro) and WRSS transmission projects.65% of work (right of way received for 95%) is complete on the Mumbai metrophase 1 project and is expected to be commissioned by 1HFY12 and for road projectRELI is targeting a portfolio of Rs250b (up from Rs120b currently) by FY12.Currently, Reliance Infrastructure (RELI) has a portfolio of 25 infrastructure projectswith total cost of Rs400b. These include roads (11 projects, Rs120b), metros (threeprojects, Rs160b), transmission (five projects, Rs66.4b), the Mumbai sealink (Rs51b)and the operating of five airports in Maharashtra.

Strong EPC order book position, Krishnapatnam UMPP order expected soonThe EPC division order book stands at Rs185b, and RELI is expected to book EPCorder to execute the Krishnapatnam UMPP project (likely order intake of Rs160b).Financial closure for the project has been achieved and CERC has also approved achange in project configuration.The management has guided for revenues of Rs45b in FY11 (up 33% YoY), drivenby the execution of the Sasan UMPP project.Manpower in the EPC division is ~1,600 (v/s 1,050 as at FY08) and RELI has developedin-house competence for execution of power, roads, metros, and is addinginfrastructure projects like airports and ports.

Power sourcing arrangement for Mumbai region in final stagesRELI has secured 450MW of power required for its Mumbai region through a mediumterm agreement at a tariff of Rs4.80+/unit. This compares with power procured bythe company at Rs7/unit currently through spot purchases. The power supply willbegin from April 2011 (315MW in the first year and 450MW from the second year).RELI has invited bids for 1GW of LT power sourcing, for which it has received bidsfrom five parties for 2.5GW. The supply is expected to be commissioned by FY14and tariff is Rs3-Rs4.50/unit.

Valuations and viewWe expect RELI to post net profit of Rs13.2b in FY11 (up 15.5%) and Rs16.5b in FY12(up 24%). At a CMP of Rs1,107, the stock trades at a PER of 22x FY11E and 18x FY12E.We arrive at a SOTP based target price of Rs1,425. Buy.

Company Represented By:Mr Lalit Jalan,CEO & Whole Time DirectorMr Amit Jain, Head - IRMr Gautam Jain,Manager - IR





3/09A 96,965 9,081 34.0 22.0 32.9 2.4 10.2 9.0 2.4 27.5

3/10A 100,273 11,517 43.1 26.8 25.9 1.9 9.1 8.6 2.3 20.9

3/11E 116,350 13,322 49.8 15.7 22.2 1.6 8.6 9.7 1.8 16.4

3/12E 145,916 16,526 61.8 24.1 17.9 1.4 9.4 10.4 1.3 12.3

Bloomberg RELI INEquity Shares (m) 267.2CMP (Rs) 1,140Mcap (US$ b) 6.652 W Range (Rs) 1,404 / 9511, 6, 12 Rel Per -9 / -2 / -19

Sector: Utilities

97August 2010


Reliance Power

Key Takeaways

Financial closure achieved for a total capacity of 10GW, including the 4GWKrishnapatnam UMPP

Financial closure of the 4GW Krishnapatnam Project has been achieved withoutrecourse to Reliance Power (on the lines of Sasan UMPP). DER for the project is75:25 and cost of domestic debt is 11%. Also, CERC has approved the change inproject configuration from 800MW to 660MW which will allow Rpower use coal fromthe mines acquired in Indonesia.Financial closure is acheived for 10GW of capacity and is currently working onachieving financial closure for the Chittrangi Power Project (4GW).

Merger of RNRL to aid backward integrationRNRL has been merged into Reliance Power to smoothen gas supply purchaseagreement and acquire priority status on gas allocation.Also, the merger brings access to four coal bed methane (CBM) blocks with an areaof 351 acres, coal supply logistics, and shipping business.

Generation capacity of 1GW, ramp-up to 10GW by FY13Rpower has acquired 433MW of capacity from Reliance Infra at Rs10.9b post whichthe current operational capacity stands at 1GW (600MW of Rosa commissioned fullyin June 2010). Also, projects under construction now stand at ~9GW, which arelikely to be commissioned by FY13.Projects lined up for commissioning by FY12 include Rosa Phase-II (600MW), Butibori(600MW) and Sasan UMPP 1st unit (660MW). Commissioning of the balance units ofSasan and Krishnapatnam UMPP would be spread over FY12/13.The management expects capex of Rs100b in FY11 and Rs200b each in FY12/13.

300MW of Rosa and Butibori on merchant basis, Chitrangi Project to participatein case-1 bids

Of the planned capacity addition of ~10GW, ~600MW would be sold on merchantbasis. The balance capacity is tied-up under case-1/case-2 bids.For the Chittrangi Project, the capacity would be sold under case-1 bids and 1,220MWis already sold to MPSEB. Reliance Power has also participated in the bids invited byReliance Infra for its Mumbai distribution business and has emerged as L1.

Valuation and viewReliance Power is expected to report net profit of Rs10.5b in FY11 and Rs13.9b inFY12. The stock trades at 40x and 30x FY11E and FY12E EPS. Not Rated.

Company Represented By:Mr Kasturi Soundararajan,Head - Investor RelationsMr Ujjwal Das,Mgr - Business Development



Sector: Utilities

Bloomberg RPWR INEquity Shares (m) 2,396.8CMP (Rs) 160Mcap (US$ b) 8.352 W Range (Rs) 190 / 1301, 6, 12 Rel Per -13 / 0 / -19



3/09A 0 2,445 1.0 154.9 2.7 1.8 1.8 0.0 0.0

3/10E 345 4,251 1.8 92.3 2.8 3.0 3.0 869.7 2,922.0

3/11E 12,529 10,572 4.4 148.7 37.1 2.6 7.2 4.9 40.5 83.8

3/12E 27,522 14,024 5.9 32.7 28.0 2.4 8.8 3.7 26.7 57.4

98August 2010


Havells India

Sector: Others

Key Takeaways

Domestic outlook improving; management expects 20% sales growth in FY11During 1QFY11, Havells’ revenues grew 22% YoY to Rs7.2b. Lightings and electricalconsumer durables, accounting for 14% and 17% of sales, respectively, grew 39%each. Cables – wires and switchgears, accounting for 41% and 27%, respectively,grew more moderately by 20% and 13%, respectively.Growth outlook for the next couple of years appears very strong on the back ofstrong pick-up in consumer electrical products and industrial sector. The companyexpects to grow by 20% in FY11.EBITDA margin was slightly lower during 1QFY11, at 11.1%, due to high cost material(copper and aluminum) impacting margins in cables and wire business. Othersegments showed improvement in margins.PAT grew moderately by 9% due to higher interest cost. The company has startedproduction at two new tax-exempt factories (Haridwar, Baddi) and will avail full taxbenefits in the next five years.

Sylvania to break even at PAT level in CY10During 2QCY10, Sylvania grew by 6% in Euro terms, but declined by 10% in Rupeeterms. EBITDA margin was 4.5% v/s 0.7% in 2QCY09. The company made a marginalloss of Rs24m during the quarter.Sales in the Americas (30% of total) grew at a brisk 31% in Euro terms. In US Dollarterms, growth was 20%. European sales (65% of total) declined 5%.Sylvania has reported EBITDA of EUR13m in 1HCY10 on sales of EUR200m. Thecompany expects EBITDA for the full year to grow to EUR22m.Of the restructuring projects, Project Phoenix has been completed at a total cost ofEUR12.33m. Project Prakram will be completed in Dec-10 and is expected to costEUR20m. These projects aim at reducing direct cost, material cost and headcount.With recovery in the developed markets in FY12, Sylvania can post operating profitof EUR30m, substantially boosting earnings growth during the year.Sylvania’s net debt stood at EUR155m, of which EUR133m has recourse to HavellsIndia. Havells’ total exposure to Sylvania is EUR116m, including equity investment ofEUR50m, recourse debt and interest thereof, and guarantee on working capital.

Other key takeawaysHavells has a long-term growth objective of becoming India’s premier electricalproduct company, with strong global presence. In pursuit of this, it is reviewingvarious other growth options. Sylvania will continue to be a local company, withlimited outsourcing opportunity from India.Havells is fully funded and does not have any fund raising plan in the near term.

Company Represented By:Mr Rajiv Goel - SR. VP FinanceMr Sushil Singhal - AGM IR





03/07A 15,422 1,022 18.6 -25.7 37.4 0.3 38.9 32.1 2.7 29.4

03/08A 20,524 1,435 24.4 31.1 28.5 0.1 20.8 7.2 2.5 27.9

03/09A 21,999 1,452 23.7 -2.6 29.3 0.1 23.6 7.9 2.3 25.3

03/10A 24,735 2,271 37.9 59.6 18.4 0.1 19.7 10.7 2.1 16.4

Bloomberg HAVL INEquity Shares (m) 60.2CMP (Rs) 706Mcap (US$ b) 0.952 W Range (Rs) 719 / 2671, 6, 12 Rel Per 8 / 14 / 122

99August 2010


Jain Irrigation

Key Takeaways

Company to benefit from drip irrigationThe drip irrigation industry is worth Rs25b and is growing at 35-40% CAGR. Jain Irrigationis well placed to capitalize on this growth as it has 55% market share, well ahead of itsnearest competitor, which has a 15% share. The drip irrigation industry will continue togrow in high double digits as the central government gives 40% subsidy and the stategovernment gives more than 20% subsidy.

PVC pipes growth to sustain PVC pipes will maintain a 20% sales and profit growth. An increase in farm incomes willboost demand for pipes. With polymer prices softening the company will benefit fromthe PVC pipes business.

Processed foods segment to maintain growth The processed foods segment is likely to be maintained at 15-20% CAGR in sales andprofits.

Capex of Rs3.5b-4b a year The company is likely to incur a capex of Rs3.5-4b every year.

Company Represented By:Mr Deepak Mundra, SVP - Fin



Bloomberg JI INEquity Shares (m) 76.2CMP (Rs) 1,238Mcap (US$ b) 2.052 W Range (Rs) 1,320 / 6491, 6, 12 Rel Per 10 / 55 / 61

Sector: Others

100August 2010


Sintex Industries

Key Takeaways

Sintex management continues to present an upbeat outlook for the company, both forFY11 and FY12.

Robust PAT guidanceThe management has guided for FY11 PAT of Rs4.4b-4.5b (our estimate: Rs4.2b)and FY12 PAT of Rs5.6b-6b (our estimate: Rs5.3b).The above guidance implies 30-35% reported PAT CAGR over FY10-12, in line withour estimate of adjusted PAT CAGR.

Monolithics: Rs5b-6b incremental sales every yearSintex is confident of adding Rs5b-6b of monolithic sales every year. Our estimatesfactor in incremental sales of Rs4.3b in FY11 and Rs4.6b in FY12.Demand outlook remains positive with steady flow of orders expected fromorganizations like Border Security Force and Central Industrial Security Force.Monolithic has become a well-accepted technology for mass housing. New playerssuch as L&T, Shapoorji Pallonji and B E Billimoria have entered the fray. However,their structures use aluminum frames (mainly imported), which are not as costeffective as Sintex's home-grown plastic frames.

Pre-fabs: 35-40% growthOn a low base of FY10 (given bottomed-out base telecom station shelter segment),Sintex expects to grow pre-fabricated structures at 35-40%.Growth is very high in new product segments such as agri sheds, cold chains andindustrial sites, in addition to steady growth in conventional segments such as ruralclassrooms, health clinics and toilets.

Custom molding (i.e. composites): 20% growth led by India operationsIn custom molding, India operations (Sintex standalone and Bright Autoplast) aregrowing faster than international operations (Nief, France and Wausaukee, USA).However, the synergies between the two have started working - India is gettingnewer global clients. Names like ABB, Avaya, Alstom and Bombardier are potentialclients in addition to Schneider, to which Bright is already supplying electrical parts.

Valuation and viewSintex trades at 12x FY11E and 9x FY12E EPS. This is attractive considering FY10-12Eadjusted EPS CAGR of 32% and FY12 RoE of over 20%. We value Sintex at 12x FY12EEPS of Rs39.1 to arrive at a target price of Rs469, 30% upside from current levels.Reiterate Buy.

Company Represented By:Mr Amit Patel, MDMr Rajiv Naidu, Head - IR & PR

Covering Analyst(s):Shrinath Mithanthaya+91 22 3982 [email protected]



03/09A 31,332 3,057 22.6 40.9 20.3 11.5

03/10A 33,192 3,045 22.5 -0.4 14.9 2.5 18.0 10.7 1.9 11.8

03/11E 40,934 4,166 30.8 36.8 12.1 2.1 18.9 13.7 1.4 8.0

03/12E 49,435 5,293 39.1 27.0 9.2 1.7 20.5 12.1 1.2 6.4

Bloomberg SINT INEquity Shares (m) 135.5CMP (Rs) 361Mcap (US$ b) 1.152 W Range (Rs) 384 / 1901, 6, 12 Rel Per 10 / 26 / 51

Sector: Others

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