Rakesh Jhunjhunwala · India Mid-Caps - September 2011 Gautam Chhaochharia Analyst, Head of Indian Mid-Cap Research [email protected] /+91 22 6155 6080 Ajay Nandanwar Analyst;

India Mid-Caps - September 2011Gautam ChhaochhariaAnalyst, Head of Indian Mid-Cap [email protected] /+91 22 6155 6080

Ajay NandanwarAnalyst; [email protected] /+91 22 6155 6079

Ruchi VoraAnalyst; [email protected] /+91 22 6155 6078

Nupur AgarwalAnalyst; [email protected] /+91 22 6155 6054

Deepa MirchandaniAssociate Analyst; [email protected] /+91 22 6155 6051

This document has been prepared by UBS Securities India Private Ltd

UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Date: September 2011

UBS Investment Research

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON SLIDE 79

www.ubs.com/investmentresearch

1

Table of ContentsMid-cap valuation 11

Apollo Hospitals (Buy, PT Rs 650) 13

Apollo Tyres (Buy, PT Rs 84) 14

Blue Star (Buy, PT Rs 430) 17

Carborundum (Buy, PT Rs 360) 18

Cholamandalam (Buy, PT Rs 215) 21

Coromandel International (Buy, PT Rs 416) 26

DB Corp (Buy, PT Rs 310) 29

Dish TV (Buy, PT Rs 110) 31

EID (Buy, PT Rs 368) 33

Emami (Neutral, PT Rs550) 34

Exide (Buy, PT Rs 200) 36

Essar Ports (Buy, PT Rs 135) 39

Fortis Healthcare (Neutral, PT Rs 170) 41

Hathway Cable (Buy, PT Rs 130) 42

Havells (Buy, PT Rs 510) 43

HT Media (Buy, PT Rs 195) 46

TVN18 (Buy, PT Rs 130) 47

Indraprastha Gas (NA) 49

Jagran Prakashan (Buy, PT Rs145) 51

Jai Balaji (Buy, PT Rs 450) 52

Jindal Saw (Buy, PT Rs 205) 54

Monnet Ispat (Buy, PT Rs 730) 55

Motherson Sumi (Buy, PT Rs 280) 56

Page Industries (NA) 58

Petronet LNG (Sell, PT Rs 135) 61

Pidilite Industries (Buy, PT Rs 200) 63

2

Table of ContentsSintex Industries (Buy, PT Rs240) 66

Tube Investments (Buy, PT Rs200) 68

Triveni Engineering (Buy, PT Rs 85) 71

Tata Chemicals (Buy, PT Rs 450) 74

United Phosphorus (Buy, PT Rs 210) 75

VIP Industries (Buy, PT Rs1010) 76

Voltas (Buy, PT Rs225) 78

Welspun (Buy, PT Rs 250) 79

Disclosures 83

Prices and data as at 29 Aug 2011 unless otherwise stated

3

Mid-Cap Coverage: Snapshot

Source: UBS estimates. Note: Prices as of 29 Aug 2011.

Bloom berg M kt Cap Price Price Up/down Avg daily traded Com pany Ticker Sector Rating (IUSD m ) Close (Rs) Target (Rs) side (% ) Value -6M (US$)

Secular them es / Market leadersApollo Hospita ls Enterprise APHS IB Healthcare Providers Buy 1,430 532.0 650.0 22.2 0.97Corom andel Internationa l CRIN IB Agriculture Buy 1,934 315.5 416.0 31.9 1.53Carborundum Universal CU IB Industria l, D iversified Buy 596 293.0 360.0 22.9 0.23Cholam andalam Investm ent & F inance CIFC IB D iversified Financia l Buy 393 151.6 215.0 41.8 0.26DB Corp DBCL IB M edia Buy 930 235.4 310.0 31.7 0.52D ish TV India D ITV IB M edia Buy 1,768 76.4 110.0 44.0 6.54Em am i Ltd HM N IB Household P roducts, Non-Durab le Neutra l 1,515 460.0 550.0 19.6 0.74Exide Industries EXID IB Auto Parts Buy 2,752 148.8 200.0 34.4 5.66Havells India HAVL IB Electric Com ponents & Equipm ent Buy 879 323.8 510.0 57.5 3.90HT M edia HTM L IB M edia Buy 752 147.5 195.0 32.2 0.47Jagran Prakashan JAG P IB M edia Buy 672 102.6 145.0 41.4 0.39M otherson Sum i System s M SS IB Auto Parts Buy 1,612 191.2 280.0 46.4 1.40P idilite Industries PID I IB Consum er Buy 1,743 158.3 200.0 26.3 0.74VIP Industries VIP IB Household P roducts, Non-Durab le Buy 506 822.2 1,010.0 22.8 21.20Short-term / CyclicalApollo Tyres APTY IB Tires Buy 616 56.2 84.0 49.5 6.16B lue Star BLSTR IB Consum er E lectronics Buy 534 250.9 430.0 71.4 0.34Jindal Saw JSAW IB Steel Buy 704 117.2 205.0 75.0 1.72S intex Industries SINT IB Industria l, D iversified Buy 857 144.4 240.0 66.3 5.78Tata Chem icals TTCH IB Chem icals, Specia lty Buy (CBE) 1,690 331.8 450.0 35.6 3.11United Phosphorus Lim ited UNTP IB Chem icals, Specia lty Buy 1,334 139.5 210.0 50.5 4.21Voltas L td VOLT IB Consum er E lectronics Buy 819 113.8 225.0 97.8 2.95W elspun Corp W LCO IB Steel Buy 543 122.0 250.0 105.0 2.30Special situation / Deep valueCholam andalam Investm ent & F inance CIFC IB D iversified Financia l Buy 393 151.6 215.0 41.8 0.26EID Parry (India) EID IB Industria l, D iversified Buy 927 246.2 368.0 49.5 0.65Essar Ports ESRS IB Transport services Buy 641 71.8 135.0 88.2 0.21Hathway Cable & Datacom HATH IB M edia Buy 269 86.6 130.0 50.2 0.83Jai Bala ji Industries JBIL IB Steel Buy 171 123.4 450.0 264.7 0.44M onnet Ispat M ISP IB Industria l, D iversified Buy 549 483.0 730.0 51.1 0.98Petronet LNG PLNG IB O il Com panies, Secondary Sell 2,796 171.3 135.0 -21.2 7.99Tube Investm ents of India TI IB Auto Parts Buy 566 140.8 200.0 42.1 0.40Triveni Engineering & Industries TRE IB Industria l Services Buy 122 21.7 85.0 291.7 0.91TV18 Broadcast TV18 IB M edia Buy 215 41.7 130.0 212.1 0.28Triveni Engineering & Industries TRE IB Industria l Services Buy 122 21.7 85.0 291.7 0.91

4

How do we pick stocks ?

Our approach is to keep screening about 150-200 stocks top down on fundamental/valuation parameters, meet companies and then pick up bottom up ideas. These ideas can be:

1. Secular themes in agri, consumption, healthcare, industrials.

2. Market leaders in small industries, sometimes with strong brands

3. Special Situations - Turnaround stories, value unlocking, regulatory catalysts, SOTP

4. Short-term positions where we see industry cycle bottoming out and stocks cheap

5. Huge resources like coal and cheap stocks

5

Stick with winners•Which companies displayed earnings resilience in the last downcycle?

We analyzed the financials of our 33-stock mid-cap coverage during the last macro downcycle (Q3 FY09-Q2 FY10). We find the most resilient earnings for companies which are: 1) market leaders with a strong/niche brand (Exide, Havells, Emami); 2) exposed to non-cyclical demand like agri/healthcare/city-gas (Coromandel, Apollo Hospitals); and 3) present in nascent high-growth markets like Dish TV.

•How did our coverage mid-cap stocks perform in the last downcycle?

Most of the companies displaying earnings resilience outperformed the Sensex and BSE Mid-Cap Index over September 2008 to March 2009. However, all these stocks were down on an absolute basis; the Sensex/BSE Mid-Cap Index was down 33%/49%.

•2011 YTD performance of our mid-cap stocks selectively impressive

2011 YTD stock price performance also continues to be above trend, arguably also because of some macro uncertainty. The index of our mid-cap stocks coverage has outperformed the Sensex/BSE Mid-cap Index by 8%/12% but performance has been much dispersed.

•Conclusion—continue to stick with winners

We prefer to stick with winners who have displayed resilience in earnings and stock price in the last downcycle and have continued to do so recently.

—Top 10 mid-cap ideas: Coromandel, Exide, Havells, VIP, Triveni, Motherson, Emami, Dish TV, DB Corp, Pidilite.

— Other ideas: Carborundum, Chola Finance, Tube Investments, Jai Balaji

6

Mid-cap coverage: Conclusion summary

Source: UBS research. Note: * Performance is relative to BSE Sensex over 15 Sep 2008-1 April 2009 period.

Impact evident on both revenues and margins-33.4HT Media

Impact limited to just one quarter (exception - one time impact from sharing inventory losses faced by distributors), else revenues growth and margins unaffected. This is ex Sylvania numbers. Stock reacted more to Sylvania linked issues.

-36.9

Havells India

Revenues growth impacted (due to OEM sales slowing) but earnings growth remained on track - reflecting high margins and stable aftermarket business-12.1Exide Industries

Impact muted due to niche consumer products2.6Emami LtdMore impacted by the sugar cycle-4.8EID Parry (India)

Not enough details as was unlisted. Impact was more immediate but recovered within a quarterNADB Corp

No impact on growth, was at very early stage of penetration though5.5Dish TV India

Was facing brunt of losses in unsecured personal loans business, which it has now stopped-59.0Cholamandalam

Revenues declined marginally but margins impact minimal-17.0Carborundum Universal

Slight impact on margins, drivers more local weather and farm output volumes/prices-21.2Coromandel International

Sales declined, but lower commodity costs helped margins. Old order book protects numbers in short-term-41.1Blue Star

Strongly impacted, but recovery was also sharp-32.0Apollo Tyres

Not even marginally impacted!12.8Apollo Hospitals EnterpriseComments

Relative performance *

Least impacted

Moderately impacted

Strongly impactedCompanies

7

Mid-cap coverage: Conclusion summary (Cont.)

Historical order book helped protecting immediate numbers, but high leverage led to sharply lower earnings-61.9Welspun Corp

Impacted as it was still in early stages of getting its manufacturing and product positioning right-25.2VIP Industries

Sales declined, but lower commodity costs helped margins. Old order book protects numbers in short-term-44.8Voltas Ltd

More linked to agri cycle and thus impact was muted-9.1United Phosphorus Limited

--27.4Tata Chemicals

--30.0Triveni Engineering & Industries

Though impact was only for couple of quarters, it was severe in terms of margins and growth. Recovery was sharp too-14.0Tube Investments of India

Moderately impacted due to revenues growth coming off sharply, though margins impact muted-49.5Sintex Industries

-3.0Petronet LNG

Revenues growth impacted but margins impact muted, reflecting pricing power for its consumer business-13.8Pidilite Industries

Not even marginally impacted!13.7Page Industries--52.9Monnet IspatImpact on numbers more due to SMR acquisition-1.7Motherson Sumi SystemsImpact on revenues and earnings short-lived5.9Jagran PrakashanHistorical order book helped protecting immediate numbers-58.4Jindal SawImpacted adversely as it was less integrated and more leveraged then-41.4Jai Balaji Industries

CommentsRelative

performance *Least

impactedModerately impacted

Strongly impactedCompanies

Source: UBS research. Note: * Performance is relative to BSE Sensex over 15 Sep 2008-1 April 2009 period.

8

What are companies saying ?

•We hosted senior management of 27 companies in meetings with about 100 investors at UBS’s first India Mid-Cap Conference.

•Most popular company meetings (in terms of number of investors met) were Coromandel, Exide, Havells, Motherson, Pidilite, Apollo Tyres, Triveni, TI, Chola.

•Barring one, all companies’ management exuded a confident outlook for FY12 as well as over the medium term, despite concerns on macro environment.

•They remain confident on maintaining margins in FY12, despite input price pressures, indicating confidence in pricing power.

•Expansion projects are on track, so is turnaround/restructuring in some cases

9

Mid-Cap coverage: Stock performance

Source: UBS. Note: Prices as at 29 Aug 2011, the table is sorted by best 3M relative performers

Company 1M 3M 6M 12M YTD 1M 3M 6M 12M YTD3M relative outperfomersPage Industries 14.4 51.8 61.2 108.9 68.0 26.8 68.6 75.0 129.0 109.9Petronet LNG (0.5) 28.1 55.7 57.4 37.1 10.3 42.2 69.0 72.6 71.3Indraprastha Gas 3.1 26.5 45.0 28.2 22.6 14.2 40.4 57.4 40.5 53.1EID Parry (India) (8.5) 18.9 25.2 23.0 (11.5) 1.5 32.0 35.9 34.8 10.6Carborundum Universal (4.7) 11.7 22.0 44.7 16.2 5.6 24.1 32.5 58.6 45.1Apollo Hospitals Enterprise 0.6 10.7 14.5 32.3 17.1 11.6 22.9 24.3 45.0 46.3Tube Investments of India (11.5) 8.7 13.2 6.6 (6.4) (1.9) 20.7 22.9 16.9 16.9VIP Industries 1.4 7.5 58.7 73.5 23.5 12.4 19.4 72.3 90.2 54.3Emami Ltd (6.8) 6.3 29.1 5.4 14.2 3.3 18.1 40.1 15.6 42.6Pidilite Industries (8.2) 5.0 14.4 14.3 4.4 1.8 16.6 24.2 25.3 30.4Dish TV India (9.9) 1.1 30.2 53.7 7.5 (0.1) 12.3 41.3 68.5 34.2Cholamandalam Investment & Finance (10.5) 0.4 (2.0) 0.1 (20.1) (0.7) 11.5 6.4 9.7 (0.2)Coromandel International (3.6) 0.1 23.6 19.2 (0.4) 6.8 11.1 34.2 30.7 24.5DB Corp (5.1) (0.2) (0.3) (9.0) (11.2) 5.2 10.8 8.3 (0.2) 11.0Monnet Ispat (1.9) (2.2) (14.1) (2.5) (14.1) 8.7 8.7 (6.7) 6.9 7.4HT Media (7.3) (5.4) 11.7 (13.3) 1.4 2.7 5.0 21.3 (4.9) 26.6Exide Industries (4.0) (6.6) 9.2 1.3 (10.8) 6.4 3.7 18.6 11.0 11.4Fortis Healthcare (9.2) (6.8) 3.5 (1.2) 3.2 0.6 3.5 12.4 8.3 29.03M relative underperformersTata Chemicals (7.0) (10.9) 3.7 (13.0) (15.8) 3.1 (1.1) 12.6 (4.6) 5.2United Phosphorus Limited (16.0) (11.8) 2.8 (24.3) (19.4) (6.9) (2.1) 11.7 (17.0) 0.7Motherson Sumi Systems (16.9) (16.0) (2.9) 4.8 5.1 (7.8) (6.7) 5.4 14.9 31.4Jagran Prakashan (9.6) (16.9) (8.0) (17.3) (22.2) 0.2 (7.7) (0.1) (9.3) (2.8)Apollo Tyres (23.2) (18.2) 7.7 (21.8) (15.7) (14.8) (9.1) 16.9 (14.2) 5.3Blue Star (12.4) (20.8) (22.3) (41.6) (42.6) (2.9) (12.1) (15.7) (35.9) (28.3)Havells India (10.8) (20.9) 2.5 (20.4) (18.3) (1.1) (12.2) 11.3 (12.7) 2.1Hathway Cable & Datacom (22.5) (23.1) (27.3) (57.3) (48.2) (14.1) (14.6) (21.1) (53.2) (35.3)Sintex Industries (18.0) (23.8) (1.5) (18.4) (20.8) (9.1) (15.3) 6.9 (10.5) (1.0)Jindal Saw (23.3) (25.6) (41.0) (41.7) (35.9) (14.9) (17.4) (35.9) (36.0) (20.0)Welspun Corp (18.5) (31.0) (35.9) (48.2) (28.1) (9.7) (23.4) (30.4) (43.2) (10.2)Voltas Ltd (17.5) (32.0) (30.9) (43.9) (47.8) (8.5) (24.5) (25.0) (38.5) (34.8)Jai Balaji Industries (31.1) (34.2) (29.8) (53.9) (53.5) (23.6) (26.9) (23.8) (49.5) (41.9)Triveni Engineering & Industries (35.5) (40.2) (39.4) (44.8) (51.1) (28.5) (33.6) (34.3) (39.5) (38.9)Essar Ports (22.1) (49.6) (34.7) (50.8) (56.0) (13.7) (44.1) (29.1) (46.0) (45.0)TV18 Broadcast (39.4) (52.9) (54.9) (66.5) (53.2) (32.8) (47.7) (51.0) (63.3) (41.5)

Absolute performance (%) Relative performance versus Sensex (%)

10

Mid-Cap coverage index performance

Source: UBS, Datastream. Prices as at 29 August 2011.

UBS India mid-cap index (market cap weighted) performance versus Sensex and BSE mid-cap since Nov 2010

UBS India mid-cap index (market cap weighted) performance versus Sensex and BSE mid-cap since Jan 2011

BSE Mid-Cap and Small-Cap index performance vs. Sensex

70

75

80

85

90

95

100

105

110

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar-1

1

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

UBS India mid-cap index (market cap wtd.) Sensex BSE Mid-Cap

75

80

85

90

95

100

105

Jan-

11

Feb-

11

Mar-1

1

Apr-1

1

May-1

1

Jun-

11

Jul-1

1

Aug-

11

UBS India Mid cap index (market cap wtd.) Sensex BSE Mid-Cap

70

75

80

85

90

95

100

105

Jan-

11

Feb-

11

Mar-1

1

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11Sensex BSE Mid-Cap BSE Small-Cap

11

"UBSINMID Index" available on Bloomberg

Source: UBS, Bloomberg. Prices as at 29 August 2011. Please note that the UBSINMID Index data is not available for the period from 6 Jul’11 to 20 Jul’11.

UBSINMID Index composition

Name % Weight

Coromandel International Ltd 16.7Dish TV India Ltd 17.1Emami Ltd 13.0Exide Industries Ltd 24.0Havells India Ltd 8.4Motherson Sumi Systems Ltd 14.9Triveni Engineering & Industries Ltd 1.8VIP Industries Ltd 4.1

UBSINMID Index performance versus Sensex and BSE Mid-cap since Jan 2011

70

75

80

85

90

95

100

105

110

Jan-

11

Feb-

11

Mar-1

1

Apr-1

1

May-1

1

Jun-

11

Jul-1

1

Aug-

11

UBSINMID Index SENSEX Index BSEMDCAP Index

12Source: UBS estimates. Note: Prices as of 29 Aug 2011.

Mid-Cap Coverage: Valuation MetricsIndian Mid Cap Companies Valuation

Price EPS CAGR Debt/EquityCompany Rating Target (Rs) 11-13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E (%) FY12E FY13E FY12E FY13E

Apollo Hospitals Enterprise Buy 650.0 28.2% 28.3x 22.3x 3.2x 2.9x 13.4x 11.0x 30.6 17.5 19.2 11.9 13.4Apollo Tyres Buy 84.0 8.9% 6.8x 5.4x 1.0x 0.9x 4.5x 3.6x 77.4 17.0 19.0 16.1 17.1Blue Star Buy 430.0 20.9% 12.1x 9.6x 3.3x 2.7x 8.1x 6.6x -18.3 44.4 53.2 27.4 28.4Coromandel International Buy 416.0 33.0% 12.8x 10.0x 3.7x 3.0x 8.1x 6.0x -14.9 50.3 66.3 31.7 33.0Carborundum Universal Buy 360.0 24.9% 13.9x 11.4x 3.0x 2.5x 8.4x 7.0x 36.8 26.9 27.4 23.8 23.9Cholamandalam Investment & Finance Buy 215.0 68.5% 8.9x 6.9x 1.5x 1.3x NM NM NA NM NM 18.2 20.3Dish TV India Buy 110.0 NM NM 45.6x 106.9x 32.0x 15.2x 10.7x 1034.1 13.2 36.1 NM 107.9DB Corp Buy 310.0 10.4% 16.7x 13.7x 4.3x 3.6x 10.1x 8.2x 0.7 40.4 45.7 28.0 28.5EID Parry (India) Buy 368.0 74.0% 24.9x 22.6x 3.4x 3.2x 17.7x 16.7x 39.1 9.0 9.9 14.3 14.6Emami Ltd Neutral 550.0 23.8% 24.9x 19.9x 7.8x 6.1x 23.1x 18.4x -11.0 38.4 43.4 35.3 34.5Exide Industries Buy 200.0 24.9% 17.0x 12.8x 3.7x 3.0x 9.1x 6.7x -27.3 75.5 87.0 24.3 25.7Essar Ports Buy 135.0 193.0% 19.2x 9.5x 1.1x 0.9x 9.2x 7.9x 208.1 8.2 9.7 6.3 10.5Fortis Healthcare Neutral 170.0 68.0% 49.0x 30.6x 1.7x 1.6x 22.4x 16.4x 6.0 5.0 6.8 3.6 5.4Havells India Buy 510.0 24.1% 12.7x 10.3x 2.4x 1.9x 7.8x 6.2x -12.1 45.5 46.5 20.4 20.6Hathway Cable & Datacom Buy 130.0 NM 277.7x 39.5x 1.4x 1.4x 8.3x 6.5x 18.4 2.9 5.9 0.5 3.6HT Media Buy 195.0 19.0% 15.8x 13.5x 2.3x 2.0x 7.9x 6.2x -7.2 32.5 37.9 15.6 16.1TV18 Broadcast Buy 130.0 148.5% 17.4x 8.8x 0.7x 0.7x 6.4x 3.9x 15.0 7.0 11.3 4.2 7.8Indraprastha Gas NA NA 17.8% 19.3x 16.3x 5.1x 4.3x 9.0x 7.4x 41.9 34.1 33.4 28.5 28.5Jai Balaji Industries Buy 450.0 56.6% 3.4x 2.6x 0.6x 0.5x 3.8x 3.0x 209.2 15.3 16.3 17.8 19.2Jindal Saw Buy 205.0 18.5% 8.0x 5.3x 0.9x 0.7x 4.5x 3.4x 41.7 12.9 18.0 10.4 15.3Jagran Prakashan Buy 145.0 14.4% 14.2x 11.8x 4.0x 3.5x 7.7x 6.4x 21.1 45.7 49.0 30.4 31.9Motherson Sumi Systems Buy 280.0 25.3% 15.6x 12.1x 4.1x 3.3x 8.9x 7.0x 48.4 24.2 28.2 28.5 30.3Monnet Ispat Buy 730.0 28.2% 6.7x 6.9x 1.3x 1.1x 6.5x 7.8x 254.1 12.5 10.0 20.7 17.0Page Industries NA NA 38.2% 35.9x 25.6x 17.9x 13.6x 23.0x 16.6x 62.2 47.4 57.2 56.2 60.4Pidilite Industries Buy 200.0 24.5% 21.0x 16.6x 6.0x 5.0x 14.4x 11.7x 8.8 41.3 46.2 31.4 32.8Petronet LNG Sell 135.0 11.1% 18.0x 16.8x 4.0x 3.4x 10.4x 9.3x 125.5 24.1 21.6 24.3 21.9Sintex Industries Buy 240.0 19.4% 7.1x 6.8x 1.3x 0.9x 5.5x 3.7x 50.3 19.3 21.0 20.7 17.7Tube Investments of India Buy 200.0 23.5% 14.0x 11.0x 2.2x 1.9x 6.3x 5.2x 86.8 30.5 28.6 16.9 18.3Triveni Engineering & Industries Buy 85.0 69.7% 4.2x 2.7x 0.5x 0.4x 3.3x 2.2x 41.7 14.2 18.9 12.1 16.7Tata Chemicals Buy (CBE) 450.0 16.7% 9.8x 8.6x 1.5x 1.4x 5.5x 5.2x 70.6 17.3 18.8 16.1 16.7United Phosphorus Limited Buy 210.0 28.6% 7.7x 6.7x 1.4x 1.2x 4.6x 4.0x 21.0 26.8 27.1 19.9 19.3Voltas Ltd Buy 225.0 19.5% 10.1x 8.3x 2.2x 1.8x 6.4x 5.2x -28.4 56.5 57.6 24.3 24.2VIP Industries Buy 1,010.0 21.9% 22.0x 17.2x 7.7x 5.8x 14.2x 11.1x 10.8 46.8 55.2 40.3 38.6Welspun Corp Buy 250.0 12.9% 3.4x 3.3x 0.7x 0.5x 2.5x 1.7x 62.7 27.2 29.6 21.4 18.6

29-Aug-11EBIT RoIC pre-tax (%) ROE (%)EV/EBITDAP/E P/B

13

Apollo Hospital Enterprise (APLH.BO, Buy, PT Rs 650, 22% upside)

• Leading healthcare service which manages 3,800 owned beds and 1,500 managed beds and a chain of 1,100 Apollo Pharmacy stores in India.

• Stable revenue profile. From Q1 FY09 to Q4 FY11, it reported sequential revenue growth every quarter (average of 5%).

• Brand, leadership in healthcare technology, and scale are critical in healthcare services; APLH ranks high on all these counts.

• New hospitals launched within last 2 years progressing well. Bhubaneswar and Karimnagar are EBITDA positive within second year of operation.

• Apollo Hospitals needs Rs9bn over next two years to fund expansion. It has raised Rs3bn as equity and plans to raise another Rs6bn through debt and internal accruals.

• Shareholding: Promoter - 32%.• Valuation: DCF using VCAM (assume WACC of 11.85%

and terminal sales growth of 5.6%). Implied FY13E EV/EBITDA 13.3x; and Rs 25 for value of associates.

Investment Thesis

Key assumptions

• Revenue per bed day to continue to grow at 10%+ driven by inflation, reduction in length of stay, and improvement in case mix.

• Continued margin improvement in individual hospital cluster driven by maturing hospitals and higher utilization.

•Apollo Hospitals adds 2300 beds FY11-FY15E.

Stock performance

Source: UBS estimates, Datastream, Company

1 yr forward EV/EBITDA

0.01.02.03.04.05.06.07.08.09.0

Apr-0

6

Dec-0

6

Aug-

07

Apr-0

8

Dec-0

8

Aug-

09

Apr-1

0

Dec-1

0

Aug-

11

EV/EBITDA Mean Std+1 std-1

0

100

200

300

400

500

600

700

Aug-

09

Oct-0

9

Dec-

09

Feb-

10

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11-20

0

20

40

60

80

100

120

Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 16,142 20,265 25,662 30,239 36,437EBITDA (Rs Mn) 2,227 3,006 4,193 5,132 6,302Net profit (Rs Mn) 827 1,264 1,832 2,380 3,013EPS (Rs) NA 10.20 14.48 18.81 23.81Revenues Growth (%) 32.7 25.5 26.6 17.8 20.5EPS Growth (%) NA NA 42.0 29.9 26.6EBITDA Margin (%) 13.8 14.8 16.3 17.0 17.3Net Margin (%) 5.1 6.2 7.1 7.9 8.3

Shareholders' equity (Rs Mn) 14,689 16,535 18,743 21,321 23,558Net debt / (cash) (Rs Mn) 6,233 6,522 7,376 6,591 8,794Net fixed assets (Rs Mn) 12,884 16,257 18,505 19,545 22,964Net Working Capital (Rs Mn) 2,835 3,412 4,225 4,979 5,999Investments (Rs Mn) 5,915 4,166 4,166 4,166 4,166Net debt /equity (%) 42 39 39 31 37EBIT ROIC (pre-tax) (%) 11.9 13.1 15.6 17.5 19.2ROE (%) 6.0 8.1 10.4 11.9 13.4

Operating cash flow (Rs Mn) 2,065 2,803 3,936 4,830 5,938Capex (Rs Mn) 3,644 3,913 3,212 2,139 4,691EV/EBITDA (x) 11.8 12.3 16.4 13.4 11.0P/E (x) 32.2 27.4 36.7 28.3 22.3P/BV (x) 1.8 2.1 3.6 3.2 2.9Dividend Yield (%) 1.5 1.2 0.8 0.9 1.0Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

Apollo Hospitals Enterprise ( APLH.BO, Buy, CMP Rs532, PT Rs650, 22% upside)

14

Apollo Tyres (APLO.BO, Buy, PT Rs 84, 49% upside)

• Leading tyre manufacturer in India with the highest market share in truck tyres. In FY04-FY10, it achieved a 39% higher EBITDA/MT than its competitors.

•In rising raw material cost scenario, Apollo Tyres protected its contribution margin and its EBITDA margins decline was far less severe compared to its competitors.•Radial tyre industry in India likely to be capacity constrained even with modest growth in CV tyre volumes.

• Apollo Tyres has made profitable, EPS accretive acquisition, even at the peak of credit crisis.

• Key assumptions: 1) Raw material costs stabilize after steep appreciative over last one year – we expect that natural rubber and synthetic rubber costs stabilize at current levels, and 2) Domestic volumes assumed to grow at modest 5% CAGR over FY10-FY15E.

• Shareholding: Promoter - 44%.Valuation: Multiple based approach; valuing Indian business at

4.5x EV/EBITDA and international business at 5.5x EV/EBITDA on Sept 2012 financials. Implied PE at target price – 8.7x.

Investment Thesis

Stock performance1 yr forward P/E

0.0

5.0

10.0

15.0

20.0

Apr-0

6

Dec-

06

Aug-

07

Apr-0

8

Dec-

08

Aug-

09

Apr-1

0

Dec-

10

Aug-

11

PE Mean Std+1 std-1

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 49,841 81,207 89,079 118,332 137,513EBITDA (Rs Mn) 4,223 11,721 9,778 11,394 13,290Net profit (Rs Mn) 1,307 5,467 4,408 4,190 5,223EPS (Rs) 2.63 10.85 8.75 8.31 10.36Revenues Growth (%) 6.2 62.9 9.7 32.8 16.2EPS Growth (%) NM 311.7 -19.4 -4.9 24.7EBITDA Margin (%) 8.5 14.4 11.0 9.6 9.7Net Margin (%) 2.6 6.7 4.9 3.5 3.8

Shareholders' equity (Rs Mn) 13,495 19,678 24,125 28,029 32,905Net debt / (cash) (Rs Mn) 6,283 15,206 24,683 21,688 17,018Net fixed assets (Rs Mn) 17,068 30,961 40,221 42,602 41,748Net Working Capital (Rs Mn) 4,604 6,379 11,638 10,362 11,669Investments (Rs Mn) 48 59 112 112 112Net debt /equity (%) 47 77 102 77 52EBIT ROIC (pre-tax) (%) 16.3 33.6 16.9 17.0 19.0ROE (%) 10.4 33.2 20.1 16.1 17.1


Apollo Tyres ( APLO.BO, Buy, CMP Rs56, PT Rs84, 49% upside)

0

20

40

60

80

100

Aug-

09

Oct-0

9

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09

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Apr-1

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100


SOTP valuation

Rs mn EBITDA EV/ EBITDA EV per shareIndia business 9,159 4.5 41,216 82 International business 4,131 5.5 22,720 45 Consolidated net (debt) (21,722) (43)

42,214 84 P/E at target price on March 13 EPS 8.1


15

Apollo Tyres– Indian tyre industry

Source: UBS estimates, Company

EBITDA/MT for Tyre Industry – grew over time

-2,000

2,000

6,000

10,000

14,000

18,000

22,000

26,000

FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11

Apollo Tyres JK Tyres CEAT Tyres Birla Tyres MRF

99

7265

52

2718

69

0

25

50

75

100

W Europe +NA

Africa / ME SouthAmerica

Asia EasternEurope

India WorldAverage

Radial penetration rate (%) in CV tyres – India is below world average

Indian Tyre industry market shares – Truck and Bus, Light CV and Car tyre segments

VendorCapex (Rs

bn)Commissioning

date

Radial capacity

(TPD)Michelin (2) 25 Dec-13 500 Bridgestone (2) 25 Dec-13 500 Apollo tyres 23 Dec-12 500 JK Tyre (1) 9 Dec-12 175 Birla Tyre 10 Jun-11 175 MRF 9 Jun-12 150 Ceat 7 Dec-11 125 Import substitution by Michelin and Bridgestone (1,000) Incremental Tyre supply -- TPD 1,125

(1) Expansion of TBR capacity from 0.4 mio tpa to 0.8 mio tpa has already commissioned.(2) Michelin and Bridgestone have announced 7-10 year plans. We have taken data

suggested by industry participants(3) Michelin and Bridgestone -- currently import 350,000 MT of TBR tyres per year.

Indian Tyre Industry supply assumptions

16

Apollo Tyres– better managed


Most efficient tyre manufacturer in India – EBITDA margins and ROAE Apollo tyres – gained market share

Apollo tyres – managed leverage better

Apollo tyres – gained market share

17

Blue Star (BLUS.BO, Buy, PT Rs430, 71% upside)

• An Indian MEP contractor and manufacturer of AC and commercial refrigeration systems. It is a beneficiary of long-term structural story, growing infrastructure spending in India (US$500bn total) and rapid 25-30% growth in consumer AC volumes

• Pick-up in domestic capex could support a re-rating of stock, given their high elasticity to GDP growth (EPS CAGR of 42% in FY06-10). We estimate an EPS CAGR of 21% in FY11-13 and 44% ROIC in FY12

• Asset-light business model, broad based exposure, integrated project execution ability, higher returns and low leverage; Rs21bn order book supports c1 year visibility in MEP business

• Focus on the infrastructure and industrial segments to facilitate order book growth

• Shareholding: Promoter - 40%

• Valuation: DCF using UBS’s VCAM tool (assume WACC of 12.2% and terminal sales growth of 1.7%). Implied FY13E PE of 16.5x

Investment Thesis

Segment Revenues (Rs mn) Stock performance 1 yr forward P/E

Segment Revenues FY09 FY10 FY11E FY12E FY13EElectromechanical Projects and Packaged ACs 17,331 17,940 18,119 19,207 23,048Cooling Products 5,975 5,830 7,462 9,253 11,288Professional Electronics and Industrial Systems 1,721 1,480 1,895 2,273 2,728Total segment revenue (Rs mn) 25,026 25,250 27,476 30,733 37,064Segment ResultsElectromechanical Projects and Packaged ACs 2,182 2,126 1,540 1,729 2,190Cooling Products 754 835 821 1,064 1,129Professional Electronics and Industrial Systems 383 457 464 591 682Total segment results (Rs mn) 3,319 3,418 2,825 3,384 4,000

0

100

200

300

400

500

600

Aug-

09

Oct-0

9

Dec-

09

Feb-

10

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

-40

-30

-20

-10

0

10

20

30


Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 25,026 25,250 27,476 30,733 37,064EBITDA (Rs Mn) 2,596 2,747 2,473 3,012 3,706Net profit (Rs Mn) 1,803 1,975 1,606 1,864 2,349EPS (Rs) 20.05 21.96 17.86 20.73 26.12Revenues Growth (%) 12.7 0.9 8.8 11.9 20.6EPS Growth (%) 3.6 9.6 -18.7 16.1 26.0EBITDA Margin (%) 10.4 10.9 9.0 9.8 10.0Net Margin (%) 7.2 7.8 5.8 6.1 6.3

Shareholders' equity (Rs Mn) 3,671 4,917 6,148 7,469 9,051Net debt / (cash) (Rs Mn) 181 -43 80 -1,369 -2,280Net fixed assets (Rs Mn) 2,124 1,992 2,048 2,105 2,243Net Working Capital (Rs Mn) 1,685 2,825 4,013 3,776 4,244Investments (Rs Mn) 50 57 167 219 285Net debt /equity (%) 5 -1 1 -18 -25EBIT ROIC (pre-tax) (%) 69.4 55.5 39.3 44.4 53.2ROE (%) 57.2 49.3 29.0 27.4 28.4

Operating cash flow (Rs Mn) 2,296 2,650 2,298 2,812 3,456Capex (Rs Mn) 851 239 374 380 480EV/EBITDA (x) 10.3 11.7 9.9 8.1 6.6P/E (x) 14.0 14.9 14.0 12.1 9.6P/BV (x) 7.5 6.5 4.0 3.3 2.7Dividend Yield (%) 2.5 2.4 1.7 2.4 3.4Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

Blue Star ( BLUS.BO, Buy, CMP Rs251, PT Rs430, 71% upside)


0

5

10

15

20

25

30

Apr-0

6

Dec-0

6

Aug-

07

Apr-0

8

Dec-0

8

Aug-

09

Apr-1

0

Dec-1

0

Aug-

11

PE Mean Std+1 std-1

18

Carborundum (CRBR.BO, Buy, PT Rs 360, 23% upside)

• Market leader in abrasives and ceramics

• CUMI strategy to increase focus on electro minerals (raw materials for abrasives and ceramics, strategic and scarce minerals used in high-end applications)

- 36%/40% of its revenue/EBIT in FY11

- higher margins (18%) and ROCE (32%)

- 4 new expansion projects

• 19% EPS CAGR over FY11-13E, 24% revenue CAGR and higher margins. Higher capacity utilization in abrasives and ceramics = ROCE back to 25%+

• Market Cap US$0.6bn, ADV

19

Carborundum – Snapshot

Source: UBS, Company

Business Products Capacity

CUMI consolidated sales (US$m)

Global industry

sales (US$m) End user industries Major players

Abrasives 155 9,500 Global - Saint Gobain, Tyrolit, Winterthur, Sia Abrasives and

3M India - Grindwell Norton Ltd. John Oakey & Mohan and SAK abrasives

Bonded abrasives (including super abrasives). 50,000 tons Automobile, construction, fabrication, and steel industry

Coated abrasives 18 mil sq mts Automobile, furniture, fabrication and construction industry

Metal working fluids Grinding applications

Power tools Metal working, wood working and construction industry

Synthetic diamonds Machinery, metallurgy, geology, petroleum and electronic fields

Ceramics

Fired Refractories 7,500 tons Ceramic, chemical processing, power, iron & steel industry India - CUMI, ACE refractories, Maithan ceramics

Castables 24,000 tons 46 5,000

Industrial Ceramics 5,000 tons 32 2,100 Food processing, mineral processing, cement , steel and electronic industries India - CUMI, Jyothi ceramics and BHEL

Metallized cylinders 0.75mn

Bio Ceramic products Healthcare industry

Anticorrosion products 10,000 tons Petrochemicals, zinc refineries, paper and pulp, and fertilizer industry

Electrominerals 123 3,500

Brown fused and white fused alumina 20,000 tons

SiC Microgrits 4,800 tons

SiC Macrogrits 5,000 tons

Fused zirconia 5,000 tons

SiC Russia 70,000 tons

Refractory, abrasives, semi conductor, metallurgical, Plasma spray, Photovoltaic industries

Global - Saint Gobain, Treibacher, Washington Mills, Kollo India - Grindwell Norton, Orient Abrasives and SNAM Abrasives

20

Carborundum – Strongly placed, EMD key driver

Source: UBS estimates, Company. * Capex required for de-bottlenecking and achieving higher capacity utilization in Russia.

CUMI – EMD expansion plans

74% stake by CUMI and 26% by GMDC Rs1.5bn Rs1bn

Earliest by end-FY13

Brown-fused alumina JV with GMDC

100,000t capacity in three phases. MOU signed, power and land in place.

Rs5bn Rs3.5bn, Rs 1.5bn in Phase 11st phase by March 2012SiC greenfield in Russia

Double its capacity. Rs1.25bn Rs0.4bn By FY12Zirconia—Foskor

Expand 4,800t capacity to 12,000t in three phases. Phase 2 (2400 tons) to get commissioned by July 2011.

Rs2.5bn An additional Rs360m By FY12 Microgrits for photovoltaics (PV)

Comments Revenue potential Amount Time Project

21.80%18.10%26.50%ROCE (%)

86%80%69%Utilization 21,50019,50019,000Alumina - Brown / White (Tonne)

90%70%-Utilization 5,0005,000

Zirconia - South Africa (Tonne)

97%91%69%Utilization 79,10076,6004,800SiC - Russia / India (Tonne) 10-1109-1005-06Electro minerals

87%66%71%Utilization 31,20030,0009,000Refractories (Tonne) 100%94%82%Utilization

457,500360,00041,100Metallized Ceramics (Nos) 86%69%67%Utilization

5,1005,1003,200Industrial Ceramics (Tonne) Ceramics

52%51%89%Utilization 17.817.810.8Coated (Million Sq. Meter)

56%*44%96%Utilization 48,00048,00011,750Bonded (Tonne)

Abrasives

FY11FY10FY06

CUMI – capacity utilisation

22.0%22.0%22.0%18.4%21.5%17.9%Electrominerals

20.0%20.0%20.0%17.6%19.4%20.3%Ceramics

13.5%13.5%13.5%13.7%9.4%9.8%Abrasives

EBIT margins

1.6%1.7%2.0%1.9%3.2%2.6%Others


21.4%20.6%22.1%22.5%22.2%25.3%Ceramics

28.1%27.5%30.1%35.2%25.1%29.2%Abrasives

EBIT mix

0.3%0.3%0.3%1.6%0.5%0.6%Others


19.9%19.2%20.3%20.8%19.2%18.8%Ceramics

38.6%38.0%41.0%41.8%44.0%44.7%Abrasives

Revenue mix

FY14EFY13EFY12EFY11FY10FY09

CUMI – segments summaryCaptive External

SiC India 65% 35%SiC VAW Russia 15% 85%Zirconia Almost 100%Brown-fused alumina (pre GMDC) 40% 60%White-fused alumina 20% 80%

CUMI – current EMD sales mix

21

Cholamandalam (CHLA.BO, Buy, PT Rs 215, 42% upside)

• Turnaround story – exited from unsecured personal finance, focus back on asset/secured financing

• CV financing focus (67% of book): FY11-13E book CAGR 28%. Within this, focus on LCVs (less cyclical than MHCVs) and profitable niche with low-cost model, focus on rural/semi-urban and micro / small enterprises, nationwide distribution with 90% of its 226 branches in growing tier II and tier III Indian cities

• Home Equity and Business Finance: secured book with low NPL

- HE: 24% of book, FY10 NPL 1%, FY11-13E book CAGR 19%

- BF: 9% of book, 0% NPL, FY11-13E book CAGR 10%

• Strong earnings growth outlook for FY12 - provisioning for personal finance done and strong underlying numbers of asset finance businesses now gets reflected. FY11-13E earnings CAGR of 76% and ROE of 20% in FY13E

• Market Cap US$445mn, ADV

22

Cholamandalam – Turnaround done, ready to grow


Cholamandalam - loan book mix (%)

Cholamandalam vehicle finance pyramid business model and positioning

Cholamandalam - nil personal loan provisions from FY12 (Rs M)

0%

20%

40%

60%

80%

100%

FY09 FY10 FY11E FY12E FY13E FY14E

Vehicle Finance Home EquityBusiness Finance Personal loan

0

1,000

2,000

3,000

4,000

5,000

FY09 FY10 FY11 FY12E FY13E FY14E

Reported PBT Non-PL PBT Provisions for PL

Cholamandalam – personal loan portfolio

0

5

10

15

20

25

30

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

Managed assets net of provisions (Rs bn)

23

Cholamandalam-focus on less cyclical LCV, strong distribution


LCV vs MHCV sales in India

Cholamandalam - Vehicle finance—disbursements and AUM (Rs m)

Cholamandalam - Branch distribution

Cholamandalam – CV financing disbursements mix

South36%

Union Territory1%

West26%

North21%

East16%

LCV36%

Mini LCV14%

MUV4%

Cars & 3-W3%

Used CV's27%

HCV16%

0

100,000

200,000

300,000

400,000

500,000

600,000FY

00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

E

FY12

E

FY13

E

-40%-30%-20%-10%0%10%20%30%40%50%

LCV vol (units) MHCV vol (units) LCV vol growth MHCV vol. growth

0

20,000

40,000

60,000

80,000

100,000

FY08

FY09

FY10

FY11

FY12

E

FY13

E

-60%-40%-20%0%20%40%60%80%100%

Disbursements (Rs m) AUM (Rs m)Disbursements growth (%) AUM growth (%)

24

Cholamandalam – Valuation


• We derive our price target from a residual income model which is the sum of BVPS for FY13E and the present value of income generated over and above the cost of equity . We assume a discount rate of 13.5% (a risk-free rate of 8%, beta of 1.1x and a risk premium of 5%) and terminal growth of 7.5%.

215Valuation (Current BVPS + PV of residual income) (Rs)

116.2PV of residual income (Rs)98.9ABVPS current year (Rs)

20.317.87.913.520.820.317.49.310.9Avg RoE (%)

55 7.46.53.9-3.4-1.8PV of residual income (Rs)27.892.6-212.793.1-88.6Growth (%)

170974-3-2Residual income (Rs) = (c) = (a) - (b)62171513119Re*BVPS (Rs) (b)

18.818.31.443.2-0.5Growth (%)18.714.1-3.6540139.0117.098.997.668.2BVPS (Rs)

4.03.32.61.61.0DPS7.521.728.5120.84.2-335.8Growth (%)

16.142.6-1.97326.721.917.17.77.4EPS (Rs) (a)

EPS CAGR FY15-

20E

EPS CAGR FY11-

15E

EPS CAGR

FY05-10Terminal(FY21E)FY14EFY13EFY12EFY11FY10

25

Cholamandalam – Financials


Cholamandalam – Segments summary

12.512.512.511.912.618.1Yield on average loans (%)

21.422.423.823.821.312.2% of net managed assets

18.018.020.038.7114.844.9Loan book growth rate (%)

31,36126,57722,52318,76913,5306,297Loan book (Rs mn)

Home Equity



10.010.010.067.893.7-61.0Loan book growth rate (%)

9,1358,3047,5496,8634,0892,111Loan book (Rs mn)

Business finance



23.026.030.084.357.30.4Loan book growth rate (%)

114,24492,88173,71556,70430,76219,561Loan book (Rs mn)

Vehicle finance

FY14EFY13EFY12EFY11FY10FY09

20.820.318.29.37.2-3.0ROE

9.89.69.28.99.010.2Average assets/average equity

2.122.111.971.050.80-0.30ROA

70.070.070.068.975.639.4(1- tax rate)

3.03.02.81.51.1-0.8PBT

2.92.92.93.23.45.4Operating expenses

1.11.11.03.13.03.8Loan loss provisions

7.07.06.87.87.58.4Total income

1.82.02.43.64.14.1Net other income

5.24.94.34.43.14.4NIM overall

0.00.00.00.60.80.7Securitization income/Assets

5.24.94.44.22.74.6NIM (BS)

2014E2013E2012E201120102009Year ending March

Cholamandalam – DuPont Analysis (%)

Cholamandalam – ALM statements as at 31st March 2011

Period Outflows Inflows Mismatch Cum Mismatch 1-14 days 2,359 9,089 6,730 6,73015-30/31days 2,187 4,069 1,883 8,613Over 1 to 2 months 4,755 4,780 25 8,638Over 2 to 3 months 507 1,890 1,384 10,022Over 3 to 6 months 7,374 7,478 104 10,126Over 6 months to 1year 8,683 8,479 (204) 9,922Over 1 to 3 years 47,697 34,831 (12,867) (2,944)Over 3 to 5 years 5,232 7,782 2,550 (395)Over 5 years to 20 years 4,310 15,092 10,781 10,387Over 20 years 11,029 642 (10,387) -Total 94,132 94,132 - -

26

Coromandel (Buy, PT Rs 416, 32% upside)

• Best play on agri inputs in India – robust business model

- Lowest cost manufacturer of phosphatic and complex fertilizers in India with flexible manufacturing for any combination at short notice

- Raw material security – 14% stake in FOSKOR and 15% stake in TIFERT Tunisia

- First-mover advantage in specialty nutrients and organic compost, and 423 rural retail stores for distribution

• Increased share of non-subsidy businesses (higher margins and lesser regulatory risks) from 30% of contribution to 50% in 3-4 years underpins management strategy

• FY11-13E - 33% EPS CAGR, ROEs of 29-34%, net-cash balance sheet. Differential in growth / ROEs (historical and forecast) and a more robust business model = CIL premium valuation to peers

• Market Cap US$2.2bn. Shareholding - Promoter 64%

• Valuation: DCF using UBS’s VCAM tool (assume WACC at 12.85% and terminal sales growth of 1.7%). Implied FY12E EV/EBITDA 8.1x and PE of 13.2x

Investment Thesis

Stock performance 1 yr forward P/E

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 95,336 63,947 75,279 98,825 122,491EBITDA (Rs Mn) 10,612 6,744 7,557 10,723 13,510Net profit (Rs Mn) 7,251 4,541 5,026 6,911 8,894EPS (Rs) 25.87 16.04 17.70 24.34 31.33Revenues Growth (%) 153.7 NM 17.7 31.3 23.9EPS Growth (%) 282.9 NM 10.4 37.5 28.7EBITDA Margin (%) 11.1 10.5 10.0 10.9 11.0Net Margin (%) 7.6 7.1 6.7 7.0 7.3

Shareholders' equity (Rs Mn) 12,120 15,015 19,567 24,052 29,824Net debt / (cash) (Rs Mn) 4,651 1,898 2,272 -3,581 -8,934Net fixed assets (Rs Mn) 7,966 9,576 11,430 14,372 15,823Net Working Capital (Rs Mn) 7,392 6,866 9,980 5,168 4,085Investments (Rs Mn) 2,207 1,325 1,244 1,705 1,705Net debt /equity (%) 38 13 12 -15 -30EBIT ROIC (pre-tax) (%) 70.9 40.8 38.3 50.3 66.3ROE (%) 55.7 34.5 40.1 31.7 33.0


Coromandel International ( CORF.BO, Buy, CMP Rs316, PT Rs416, 32% upside)

050

100150200250300350400

Aug-

09

Oct-0

9

Dec-

09

Feb-

10

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

0

50

100

150

200

250

300

350


CIL adjusted gross margins/ton

0

1,000

2,000

3,000

4,000

5,000

6,000

FY06

E

FY07

E

FY08

E

FY09

E

FY10

E

FY11

E

FY12

E

FY13

E


0.02.04.06.08.0

10.012.014.016.0

Apr-0

6

Dec-0

6

Aug-

07

Apr-0

8

Dec-0

8

Aug-

09

Apr-1

0

Dec-1

0

Aug-

11

PE Mean Std. Dev.+1 Std. Dev.-1

27

Coromandel – Indian agri nutrient outlook positive


Nutrient consumption among Asian Countries (Kg/Ha)

India’s NPK demand

106 120135

170

333

0

50

100

150

200

250

300

350

Sri Lanka India PaIistan Bangladesh China

Crop productivity (Mt/Ha)

0

50

100

150

200

250

300

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10 (

P)20

10-1

1 (P)

2011

-12 (

P)

Food Grains (Million MT) Nutrient Consumption (Million MT)

-2.04.06.08.0

10.012.014.016.018.0

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

-

0.5

1.0

1.5

2.0

2.5

3.0

N (LHS) P2O5 (LHS) K2O (RHS)

India’s Food Production and Nutrient Consumption

W orld IndiaSugarcane 74 67W heat 3 2.8R ice 4.2 2.3C orn 5 2.2Soybean 2.2 0.9R apeseed 1.9 1.1Peanut 1.6 0.9

DAP as a % of CIL fertilizer sales volumes - not so significant

0%

5%

10%

15%

20%

25%

30%

FY 08 FY 09 FY10 FY11

28

Coromandel – Non-subsidy business growth driver

Source: Bloomberg, Fertecon, UBS analysis.

Coromandel - Segments summary

35%31%27%25%25%As a % of gross margin

16%15%14%12%6%As a % of total revenues

Non-subsidy business

65%69%73%75%75%As a % of gross margin

84%85%83%88%97%As a % of total revenues

3,2003,2003,2913,4274,454Adjusted gross margin (Rs/ton)

17%24%-2%34%-0.7%Growth (%)

4,1503,5602,8622,9142,167Volumes (k mt)

22%35%11%-38%170%Growth (%)

103,49884,55662,47556,06190,515Adjusted revenues (Rs m)

Subsidy business

FY13EFY12EFY11EFY10EFY09E

Coromandel – capacity summaryPlant Volume (Mn MT) ProductVisak 1.3 28:28:00

14:35:1420:20:0010:26:26

Kakinada 1.5 10:26:2612:32:1614:35:15

DAPRanipet 0.12 SSPEnnore 0.33 20:20:00

16:20:00Total 3.25

002271SPIC

0013229FACT

11400.108PPL

19027133ZUARI

191815167IFFCO

1036161462Coromandel

MHORKNTNAPCompany

Coromandel- market share in FY10

Coromandel- agreements for raw materialsProducts Company Capacity (m mt)Ammonia Mitsui, Japan 0.53MOP Canpotex, Canada 0.50Phosphoric acid Foskor, South Africa 0.25Phosphoric acid TIFERT, Tunisia 0.20Rock phosphate Israel, Togo & Algeria 0.90Sulphur Mitsui, Japan 0.30Urea Arab, Gulf 0.25WSF and MAP SQM, Chile -

0

1,000

2,000

3,000

4,000

5,000

6,000

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

E

FY13

E

-150-100-50050100150200250

CRIN adjusted gross margin (Rs/MT) (LHS)Conversion margin with phos acid (U$/MT) (RHS)

0

1,000

2,000

3,000

4,000

5,000

6,000

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

E

FY13

E

0

50

100

150

200

250

CRIN adjusted gross margin (Rs/MT) (LHS)conversion margin with rock phosphate (U$/MT) (RHS)

Note: Different pricing/subsidy regime till FY08 – so margins/t before that are not comparable to current regimes, especially to regime post NBS from FY11.

CIL adjusted gross margins versus DAP conversion margins from phosphoric acid/rock phosphate

29

DB Corp (DBCL.BO, Buy, PT Rs310, 32% upside)

• Largest print media company in India in terms of total daily readership share of all its newspapers; flagship newspaper ‘Dainik Bhaskar’ second-most widely-read Hindi newspaper

• Well-diversified geographical reach, strong management vision and superior execution track record

• The company to benefit the most from India’s rapidly-growing regional print sector; to expand into new geographies

• Strong leadership position in multiple states, allows it to command premium ad rates over its peers

• Forecast a print ad revenue CAGR of 14.5% for the next four years

• Successfully launched Dainik Divya Marathi – a daily newspaper in Marathi language – in Aurangabad and Nasik. Likely to launch a Hindi daily in Bihar in FY13E

• Shareholding - Promoter 86%

Valuation: Value at FY13E P/E multiple of 18.0x

Investment Thesis

Revenue Breakup (Rs mn) Stock performance1 yr forward P/E

FY09 FY10 FY11 FY12E FY13EPrint 8,989 9,894 11,704 13,482 15,330 - Advertising 6,979 7,776 9,561 11,310 13,095 - Circulation 2,009 2,118 2,144 2,173 2,235 Radio 271 350 469 615 787 Event management 105 148 175 190 207 Others 273 278 321 331 340 Total revenue 9,638 10,670 12,671 14,618 16,665 Eliminations (28) (40) (18) (19) (20) Reported revenue 9,610 10,630 12,652 14,599 16,645

0

100

200

300

400

500

Jan-

10

Mar-1

0

May

-10

Jul-1

0

Sep-

10

Nov-

10

Jan-

11

Mar-1

1

May

-11

Jul-1

1-35

-30

-25

-20

-15

-10

-5

0


Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 9,610 10,630 12,652 14,599 16,732EBITDA (Rs Mn) 1,473 3,429 4,031 4,190 5,023Net profit (Rs Mn) 476 1,828 2,584 2,578 3,153EPS (Rs) 2.82 10.61 14.10 14.06 17.20Revenues Growth (%) 11.4 10.6 19.0 15.4 14.6EPS Growth (%) -37.3 275.9 33.0 -0.3 22.3EBITDA Margin (%) 15.3 32.3 31.9 28.7 30.0Net Margin (%) 5.0 17.2 20.4 17.7 18.8

Shareholders' equity (Rs Mn) 2,577 6,487 8,288 10,109 12,000Net debt / (cash) (Rs Mn) 5,179 1,257 641 70 -715Net fixed assets (Rs Mn) 6,471 6,475 7,358 7,715 7,882Net Working Capital (Rs Mn) 1,347 1,591 1,998 2,390 2,829Investments (Rs Mn) 454 331 273 773 1,273Net debt /equity (%) 192 19 8 1 -6EBIT ROIC (pre-tax) (%) 18.7 40.1 44.0 40.4 45.7ROE (%) 20.0 40.3 35.0 28.0 28.5

Operating cash flow (Rs Mn) NA 2,591 2,310 2,950 3,887Capex (Rs Mn) 2,954 596 1,316 850 700EV/EBITDA (x) NA 13.9 10.8 10.1 8.2P/E (x) NA 23.1 16.7 16.7 13.7P/BV (x) NA 6.9 5.2 4.3 3.6Dividend Yield (%) NA 1.0 1.7 1.8 2.9Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

DB Corp ( DBCL.BO, Buy, CMP Rs235, PT Rs310, 32% upside)


14.015.016.017.018.019.020.021.0

Jan-

10

Mar-1

0

May-1

0

Jul-1

0

Sep-

10

Nov-1

0

Jan-

11

Mar-1

1

May-1

1

Jul-1

1

PE Mean Std+1 std-1

30

DB Corp


1 implies higher geographic diversification221Geographic diversification

1 implies lowest sensitivity to a decline in advertising rates312Sensitivity to decline in advertising rates

1 implies highest reliance on advertisingThis has been measured as % of revenue contributed by advertising

132Reliance on advertising

1 implies lowest sensitivity to increase in newsprint price312Sensitivity to increase in newsprint prices

1 implies lowest sensitivity to cover price cut221Sensitivity to cover price cut

1 implies highest focus on circulationThis has been measured as % of revenue contributed by circulation

312Focus on circulationCommentsHT MediaJagranDB Corp

69 85100 108 110 126

143 162183 208

23648

5460 64 65

6768

7071

7274

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015FAdvertising Circulation

69 85100 108 110 126

143 162183 208

23648

5460 64 65

6768

7071

7274

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F

69 85100 108 110 126

143 162183 208

23648

5460 64 65

6768

7071

7274

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015FAdvertising CirculationAdvertising Circulation

Print media revenue break down (Rs bn)Overall media industry revenue breakdown

Comparison on key parameters

24.3%25.4%26.5%27.7%28.6%29.6%29.8%29.8%31.1%31.4%30.4%% contributed by print media

14.3%1,276.01,103.0958.0834.0737.0653.0587.0578.0514.0441.6384.7Total Size12.0%30.027.024.022.019.017.014.016.014.011.710.0Outdoor29.2%36.028.022.018.013.010.08.06.04.02.02.0Digital advertising30.6%38.031.023.017.013.010.08.07.04.03.02.2Gaming18.5%56.047.040.033.028.024.020.017.014.012.010.0Animation16.1%19.016.013.011.09.09.08.07.07.07.88.3Music20.1%25.021.018.015.012.010.08.08.07.06.04.9Radio9.7%132.0120.0109.098.091.083.089.0104.093.078.066.9Film9.9%310.0280.0254.0231.0211.0193.0175.0172.0160.0138.6117.1Print

16.2%630.0533.0455.0389.0341.0297.0257.0241.0211.0182.5163.3TelevisionCAGR2015F2014F2013F2012F2011F201020092008200720062005M&E Industry (Rs bn)

AIR (000) for top 3 newspaper dailies in India

Source: FICCI-KPMG Indian Media and Entertainment Industry, 2011Source: FICCI-KPMG Indian Media and Entertainment Industry, 2011

3.1%11,81011,45210,839 10,143 9,916 HT Media, Hindustan Media VenturesHindustan

0.2%14,01613,99213,488 13,303 13,330 DB CorpDainik Bhaskar

-1.0%15,91016,06615,950 15,925 16,315 Jagran PrakashanDainik Jagran

% change2011 Q12010 Q42010 Q32010 Q22010 Q1CompanyNewspaper

Source: IRS

31

Dish TV (DSTV.BO, Buy, PT Rs110, 44% upside)

• First and largest satellite TV operator in India with 8.9m net subs base (as at June 2011) and ~31% market share. Only listed pure play with strong brand presence, broad distribution network and significant scale benefits

• Likely to achieve net profit and free cash flow break-even in FY12E

• Beneficiary of fast-growing DTH subscriber base; subscriber base to grow led by - rising income levels, increasing awareness of better quality DTH platform, sports-heavy calendar in 2011, and lower prices for new connections; Implementation of mandatory digitalization in the medium term

• ARPU likely to pick up from current levels, content costs to decline as percentage of sales in FY12E - fixed contracts for content with most large broadcasters; Only one contract to get renewed in FY12

• Shareholding - Promoter 65%• Valuation: DCF based methodology using UBS’s VCAM tool

(assume WACC of 12.6% and terminal sales growth of 4%). Implied FY13E EV/EBITDA - 15x

Investment Thesis

Key assumptions

1 yr forward EV/EBITDA

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 7,381 10,850 14,367 21,922 28,784EBITDA (Rs Mn) -1,233 1,117 2,380 5,833 8,199Net profit (Rs Mn) -4,807 -2,622 -1,920 390 1,781EPS (Rs) -5.08 -2.47 -1.81 0.37 1.67Revenues Growth (%) 78.8 47.0 32.4 52.6 31.3EPS Growth (%) NM -51.5 -26.8 -120.3 356.1EBITDA Margin (%) -16.7 10.3 16.6 26.6 28.5Net Margin (%) -65.1 -24.2 -13.4 1.8 6.2

Shareholders' equity (Rs Mn) -6,475 3,768 370 760 2,541Net debt / (cash) (Rs Mn) 10,692 3,808 7,378 7,863 4,913Net fixed assets (Rs Mn) 13,345 14,587 19,017 21,084 22,435Net Working Capital (Rs Mn) -9,127 -8,572 -13,269 -14,460 -16,981Investments (Rs Mn) 0 1,561 2,000 2,000 2,000Net debt /equity (%) -165 101 1994 1034 193EBIT ROIC (pre-tax) (%) -158.3 -41.3 -27.5 13.2 36.1ROE (%) 86.0 193.8 -92.8 69.1 107.9

Operating cash flow (Rs Mn) -6,703 -3,979 -7,670 -1,248 828Capex (Rs Mn) 5,470 5,095 10,050 7,081 7,371EV/EBITDA (x) -21.0 40.9 24.9 15.2 10.7P/E (x) -6.0 -16.5 -29.6 208.1 45.6P/BV (x) -4.5 10.2 153.8 106.9 32.0Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

Dish TV India ( DSTV.BO, Buy, CMP Rs76, PT Rs110, 44% upside)

10.0

12.0

14.0

16.0

18.0

20.0

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11


FY09 FY10 FY11 FY12E FY13ERevenue (Rs m) 7,381 10,850 14,367 21,907 28,770 Net subscriber (m) 4.3 5.7 8.5 11.2 13.8 Monthly churn (%) 0.6% 0.6% 0.7% 0.7% 0.7%Subscription ARPU (Rs) 145 140 140 159 167 Programming costs (% of sales) 47.1% 40.3% 35.1% 28.5% 31.0%SAC (Rs/sub) 2,680 2,575 2,282 2,501 2,597 EBITDA margin -16.7% 10.3% 16.6% 26.6% 28.5%Capex as % to sales 76.6% 45.5% 56.4% 32.3% 25.6%

Stock performance

0

20

40

60

80

100

Aug-

09

Oct-0

9

Dec-

09

Feb-

10

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

-60-40-20020406080100



32

Dish TV


68 67 66 64 60 56

5 6 8 12 18 2628 38

48 5664 711

11

22

3

0

40

80

120

160

2010 2011E 2012E 2013E 2014E 2015E

Analog Digital DTH IPTV

Pay TV household estimates in India (m subscribers)

Source: FICCI-KPMG report 2011

31-Dec-1431-Dec-1331-Mar-1531-Dec-13Rest of IndiaPhase IV

30-Sep-1431-Dec-1330-Nov-1431-Dec-12All urban areasPhase III

31-Mar-1331-Dec-1231-Mar-1331-Dec-11Cities with 1m+ populationPhase II

31-Mar-1231-Dec-1131-Mar-1231-Mar-11MetrosPhase IFinalised by MIBRevised TRAI recosAs proposed by MIBInitial TRAI recosAreas coveredPhase

Mandatory digitisation imminent in India

Source: TRAI

HigherLowerMarginal operating costs

HigherLowerNetwork operating costs

LowerHigherChannel capacity

√XStandardised customer care

√XGeographical reach

X√Triple play

X√Ability to offer localised content

X√Two-way communication

DTHDigital cableFeatures

Dish TV31%

Sun Direct16%Big TV (RCOM)

9%

Digital TV (Bharti)17%

Tata Sky19%

D2H (Videocon)8%

DTH and digital cable: a comparison DTH subscriber market share (March 2011)

6.910.4

13.917.5

20.9

0

5

10

15

20

25

FY10

FY11

FY12

E

FY13

E

FY14

E

Source: Company Source: UBS estimates, Company

Dish TV gross subs base

33

EID Parry (EIDP.BO, Buy, PT Rs368, 50% upside)

• A leading Indian agricultural conglomerate with sugar, co-gen, distillation, bio-products and agri-input operations.

• Well positioned to take advantage of the sugar cycle, Sugar: - South based: high yield, less sensitive politically - Expansion and integration (cogen and distillery) - Refining JV with Cargill: benefit from domestic/global trade disparity

• FY12E - first full year of operations for the subsidiaries’ and JV’s investments

• 63% stake in Coromandel International (CIL) - Benefit from growing demand for agricultural nutrients and potential sector deregulation

• Shareholding - Promoter 46%• Valuation: SOTP method; value sugar business at Rs 113 per

share and CIL stake at Rs 255/share. Implied FY13E PE – 33.7x

Investment Thesis

Stock performance 1 yr forward P/E

15.0

20.0

25.0

30.0

35.0

40.0

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-1

0

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

PE Mean Std+1 std-1

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 7,852 11,473 12,557 13,803 14,686EBITDA (Rs Mn) 729 2,059 37 1,921 2,119Net profit (Rs Mn) 1,968 1,990 624 1,710 1,888EPS (Rs) 11.07 11.45 3.60 9.86 10.88Revenues Growth (%) 20.6 46.1 9.4 9.9 6.4EPS Growth (%) NM 3.5 -68.6 174.1 10.4EBITDA Margin (%) 9.3 17.9 0.3 13.9 14.4Net Margin (%) 25.1 17.3 5.0 12.4 12.9

Shareholders' equity (Rs Mn) 9,693 10,963 11,503 12,377 13,428Net debt / (cash) (Rs Mn) 5,385 5,755 6,538 4,841 5,122Net fixed assets (Rs Mn) 8,652 8,522 8,154 8,105 8,326Net Working Capital (Rs Mn) 2,659 2,756 6,814 6,190 7,471Investments (Rs Mn) 4,856 6,828 4,341 4,341 4,341Net debt /equity (%) 56 52 57 39 38EBIT ROIC (pre-tax) (%) 2.4 13.6 -5.9 9.0 9.9ROE (%) 93.4 19.9 7.1 14.3 14.6

Operating cash flow (Rs Mn) 264 1,868 -1,515 2,252 2,131Capex (Rs Mn) 2,824 422 345 675 1,000EV/EBITDA (x) 8.0 6.9 714.3 17.7 16.7P/E (x) 8.0 13.0 59.2 24.9 22.6P/BV (x) 1.6 2.4 3.2 3.4 3.2Dividend Yield (%) 3.3 1.3 0.9 0.8 0.8Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

EID Parry (India) ( EIDP.BO, Buy, CMP Rs246, PT Rs368, 50% upside)

0

50

100

150

200

250

300

Aug-

09

Oct-0

9

Dec-

09

Feb-

10

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11-20-100102030405060


FY13 EBITDA for standalone business (Rs mn)# 2,279FY13 EBITDA for associates/JV business (Rs mn)* 1,799Total EBITDA of the sugar business (Rs mn) 4,079Debt in the standalone business (Rs mn) 3,202Debt in the associates/JV business (Rs mn) 3,242Total estimated debt in the sugar business (Rs mn) 6,445Peer EV/EBITDA target multiple (x) 6EV of the sugar business (Rs mn) 23,656Investments + cash (Rs mn) 2,346Estimated equity value of the sugar business (Rs mn) 19,557No of shares (mn) 173Equity value per share of sugar business (Rs/share) 113UBS Coromandel target price (Rs/share) 416UBS Coromandel equity value (Rs mn) 117229EID Parry stake in Coromandel (%) 62.94%Value of Coromandel stake (Rs mn) 73784Holding company discount (%) 40%Value of Coromandel stake, after holding co. disc (Rs mn) 44270Value of CIL stake, after holding co. disc. (Rs/share) 255SOTP target price (Rs/share) 368

EID SOTP valuation


34

Emami (EMAM.BO, Buy, PT Rs550, 20% upside)

• One of India’s fastest-growing FMCG player (22.1% EPS CAGR through FY11-13E)

• Niche ayurvedic/herbal product portfolio – health focus ensure high brand loyalty; market leader in key brands (60% of sales)

• Presence in under-penetrated categories with limited MNC competition supports higher gross margins (59-65%) than peers

• Focused advertising, star power and brand development supported by highest advertising spend (c18% of sales)

• Success in developing new categories and product variants – 2-3 products/year

• Scale up of Zandu acquisition and over-the-counter (OTC) products, international sales and new products to support earnings growth

• Shareholding - Promoter 73%• Valuation: DCF using UBS’s VCAM tool (assume WACC of

11.3% and terminal sales growth rate of 5%). Implied FY13PE of 23.8x

Investment Thesis

Gross Margins – Emami vs. Peers Stock performance 1 yr forward P/E

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

FY07 FY08 FY09 FY10 FY11

Emami Dabur India Marico GCPL Hindustan Unilever

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%



5

10

15

20

25

30

Apr-0

6

Dec-

06

Aug-

07

Apr-0

8

Dec-

08

Aug-

09

Apr-1

0

Dec-

10

Aug-

11

PE Mean Std+1 std-1

0

100

200

300

400

500

600

Aug-

09

Oct-0

9

Dec-0

9

Feb-

10

Apr-1

0

Jun-

10

Aug-

10

Oct-1

0

Dec-1

0

Feb-

11

Apr-1

1

Jun-

11

Aug-

110

50

100

150

200


Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 7,662 10,380 12,778 15,686 19,065EBITDA (Rs Mn) 1,290 2,452 2,534 3,027 3,794Net profit (Rs Mn) 919 1,819 2,287 2,791 3,506EPS (Rs) 7.00 12.02 15.12 18.44 23.17Revenues Growth (%) 32.4 35.5 23.1 22.8 21.5EPS Growth (%) -3.6 71.8 25.8 22.0 25.6EBITDA Margin (%) 16.8 23.6 19.8 19.3 19.9Net Margin (%) 12.0 17.5 17.9 17.8 18.4

Shareholders' equity (Rs Mn) 3,013 6,254 6,899 8,908 11,433Net debt / (cash) (Rs Mn) 4,341 976 189 -980 -2,584Net fixed assets (Rs Mn) 6,495 5,673 4,917 5,436 5,807Net Working Capital (Rs Mn) 492 1,025 2,242 2,564 3,113Investments (Rs Mn) 426 616 66 66 66Net debt /equity (%) 144 16 3 -11 -23EBIT ROIC (pre-tax) (%) 24.4 33.8 35.1 38.4 43.4ROE (%) 31.3 36.6 34.8 35.3 34.5

Operating cash flow (Rs Mn) 1,261 2,438 2,526 3,011 3,779Capex (Rs Mn) 1,413 254 344 685 550EV/EBITDA (x) 11.5 12.0 24.2 23.1 18.4P/E (x) 17.4 17.5 27.0 24.9 19.9P/BV (x) 4.9 4.9 8.9 7.8 6.1Dividend Yield (%) 2.1 1.4 0.9 1.0 1.2Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

Emami Ltd ( EMAM.BO, Neutral, CMP Rs460, PT Rs550, 20% upside)


35

Emami


18%4900NA- Amrutanjan- Tiger Balm

Unique formulation using ‘nilgiri’ and ‘lavang’, provides relief from colds, coughs, backaches, sprains, and muscular aches

OTC productHeadache balm

Ointment for headaches

4-5%Mentho Plus

60%210017.1%- Fair & Lovely Menz Active (HUL)- Fair One Man (Shehnaaz Hussain, Elder Pharma)- Nivea for Men Whitening (Nivea)- Set Wet Get Fair (Paras Pharma)

Emami actually created this category.Designed specifically for male skin.

Skin careFairness cream

Male fairness cream

10%Fair and Handsome

40%4900NA- Amrutanjan-Tiger Balm

Unique formulation, provides relief from colds, coughs, backaches, sprains and muscular aches

OTC productBalmOintment for headaches

14-15%Zandu Balm

75%26001.7% in antiseptic cream and 1.3% in cold cream

- Boroline (GD Pharma); BoronaturalPreventive and curative cream, an antiseptic, and also protects against dry weather

Skin careCreamAntiseptic and protective cream

15%BoroplusAntiseptic Cream

49%580074.2%- Himgange- Rahat Rooh

Relaxing, nourishing, hair protectionHair careOilTherapeutic cooling oil

20%Navratna Oil

2010 market

share

2010 market size

(Rs m)Category penetrationCompetitionKey selling/differentiation factorsCategorySub-segmentPositioning

FY11 revenue shareKey brands

Key brands and categories—market size and share

95.6% 92.3% 88.6%74.2%

64.3%55.7% 51.6%

17.1%

1.7% 1.3%0%

10%20%30%40%50%60%70%80%90%

100%

Toilet Soap WashingPowder

Detergent Bar Hair Oil Toothpaste Shampoo TalcumPowder

FairnessCream

AntisepticCream

Cold Cream

95.6% 92.3% 88.6%74.2%

64.3%55.7% 51.6%

17.1%

1.7% 1.3%0%

10%20%30%40%50%60%70%80%90%

100%

Toilet Soap WashingPowder

Detergent Bar Hair Oil Toothpaste Shampoo TalcumPowder

FairnessCream

AntisepticCream

Cold Cream

Product Penetration Growth in India’s addressable market (2010-20E)

5%5%

7%7%7%

7%8%8%8%8%8%

9%9%

10%10%

11%12%12%

12%12%

13%13%

15%17%17%

18%

-1%

-5% 0% 5% 10% 15% 20%

Computers (Home)Mobile

Gold/diamond JewelleryTV

Washing detergent/cakeFridges

ToothpasteTea

FootwearMilk

CoffeeAC

Cars (New)Movies

Washing Machines2 Wheelers

Leisure TravelFast FoodShampoo

Sanitary PadsEducation (Vocational IT)

Skin CreamSoft Drinks (including Juices)

LiquorLife Insurance

DiapersWhite Cigarettes

No. of people/households Revenue potential

5%5%

7%7%7%

7%8%8%8%8%8%

9%9%

10%10%

11%12%12%

12%12%

13%13%

15%17%17%

18%

-1%

-5% 0% 5% 10% 15% 20%

Computers (Home)Mobile

Gold/diamond JewelleryTV

Washing detergent/cakeFridges

ToothpasteTea

FootwearMilk

CoffeeAC

Cars (New)Movies

Washing Machines2 Wheelers

Leisure TravelFast FoodShampoo

Sanitary PadsEducation (Vocational IT)

Skin CreamSoft Drinks (including Juices)

LiquorLife Insurance

DiapersWhite Cigarettes

No. of people/households Revenue potential

36

Exide Industries (EXID.BO, Buy, PT Rs 200, 34% upside)

• Lead acid storage battery manufacturer in India - auto and industrial battery market share of 72% and 45%. Duopoly market

• Consumer business characteristics - >80% of earnings from the auto aftermarket and home inverter - segments where branding and distribution are critical

• Strong FY11-13E earnings CAGR of 25%, attractive FY12E core ROCE/ROE of 75%/44%, net cash B/S

• Drivers - Back-to-trend aftermarket:OEM mix (1.6x), strong outlook for replacement demand and power backup segment

• Negligible earnings sensitivity to lower FY12-13E OEM auto sales

• Recycle lead from captive smelters – cost advantage

• Market Cap US$3bn, ADV ~US$6mn; Shareholding: promoters – 46%

• Valuation: SOTP – FY13E PE of 16x for core battery business

Investment Thesis

Stock performance 1 yr forward P/EExide – FY11 sales mix

Auto64%

Industrial35%

Submarine1%

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 33,930 37,940 45,536 64,678 82,494EBITDA (Rs Mn) 5,448 8,894 8,788 12,028 15,579Net profit (Rs Mn) 2,844 5,371 6,331 7,455 9,876EPS (Rs) 3.55 6.69 7.45 8.77 11.62Revenues Growth (%) 19.3 11.8 20.0 42.0 27.5EPS Growth (%) NM 88.2 11.3 17.8 32.5EBITDA Margin (%) 16.1 23.4 19.3 18.6 18.9Net Margin (%) 8.4 14.2 13.9 11.5 12.0

Shareholders' equity (Rs Mn) 12,504 22,197 27,425 34,023 42,763Net debt / (cash) (Rs Mn) 2,282 -5,158 -5,669 -9,279 -15,108Net fixed assets (Rs Mn) 6,853 7,144 9,018 11,643 12,881Net Working Capital (Rs Mn) 2,212 3,161 5,175 4,786 5,786Investments (Rs Mn) 6,132 7,324 8,237 9,237 10,237Net debt /equity (%) 18 -23 -21 -27 -35EBIT ROIC (pre-tax) (%) 55.4 88.1 68.5 75.5 87.0ROE (%) 25.0 31.0 26.9 24.3 25.7


Exide Industries ( EXID.BO, Buy, CMP Rs149, PT Rs200, 34% upside)

0.0

5.0

10.0

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20.0

25.0

30.0

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6

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06

Aug-

07

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8

Dec-

08

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09

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10

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11

PE Mean Std. Dev.+1 Std. Dev.-1

0

50

100

150

200

Aug-

09

Oct-0

9

Dec-0

9

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10

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10

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11

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11

-20

0

20

40

60

80



37

Exide Industries – 2W the next frontier


India’s domestic two wheeler market

0

5,000

10,000

15,000

20,000

25,000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

-10%

0%

10%

20%

30%

Volumes-2W YoY growth (%)

0

5,000

10,000

15,000

20,000

25,000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

-10%

0%

10%

20%

30%


0

5,000

10,000

15,000

20,000

25,000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

-10%

0%

10%

20%

30%


Exide - 2W push start sales and EBITDA

05,000

10,00015,00020,00025,00030,00035,00040,000

FY11E FY12E FY13E FY14E FY15E0%

50%

100%

150%

200%

Sales (Rs mn) EBITDA (Rs mn)Sales growth (%) EBITDA growth (%)

Exide - 2W push start sales and EBITDA

0%

10%

20%

30%

40%

FY11E FY12E FY13E FY14E FY15E% of total automotive revenues % of total automotive EBITDA

Exide —capacity expansion to meet rising demand India’s power demand/supply – still a deficit

OEM28%

Others2%

Aftermarket70%

Exide – auto segment sales mix

Exide – industrial segment sales mix

Exports7%

Infrastructure

22%

Traction4%

Others3%

Power back-Up

64%

FY11 FY12E FY13EAuto battery capacity (mn units)4-W 9.7 12 12.52-W 16.6 21.3 21.8Industrial battery capacity (Ma 2260 2420 2420

38

Exide Industries- Key assumptions


Exide - Segment assumptions

200Price target (Rs)

91P/BV multipleInsurance business (50% stake)

58Trailing PE Lead smelting subsidiaries (100% stake)

18616FY13E PECore battery business

Price (Rs)Multiple (x)Valuation methodologySegments

We derive our price target from SOTP methodology - 16x FY12E PE for the company’s core battery business, lead smelting subsidiaries is valued at 6x trailing PE and insurance business at a 50% premium to book value.

16.0%16.0%16.0%16.0%16.0%EBITDA margin15.0%15.0%15.0%20.0%12.0%Volume growth

Industrial batteries

1.21.10.80.7Replacement:OEM mix

15.8%15.0%12.8%12.1%9.0%EBITDA margin21.0%31.9%27.4%42.8%21.5%Volume growth

2W

1.31.31.31.2Replacement:OEM mix

17.4%17.5%17.3%17.0%16.3%EBITDA margin (OEM + Replacement)11.3%13.8%17.7%18.9%17.5%Volume growth

4W

Automotive batteriesFY15EFY14EFY13EFY12EFY11E

Exide- Sum-of-the-parts valuation

39

Essar Ports (Buy, PT Rs 135, 88% upside)

• EPL is India’s second-largest private port operator and the largest captive port operator in terms of volume.

• We believe EPL is well-positioned to benefit from its planned capacity expansion, which is also in line with the expansion plans of its anchor customers (Essar Group companies). It has long-term take-or-pay contracts with anchor customers, which provide stability and visibility to its earnings.

• EPL is also looking to increase its higher margin third-party revenue (the co. aims to increase the proportion of third-party sales to 25% in the next three years; its current proportion is negligible).

• We forecast EPL’s volume to grow 37%/34% YoY in FY12/13 and estimate YoY revenue growth of 63%/29% and earnings growth of 209%/109% in FY12/13.

• Shareholding: promoters – 84%• Valuation: SOTP valuation (value each port separately using DCF).

Implied 1.7x FY13E P/BV and 10.7x FY13E EV/EBITDA. We do not ascribe any value to the Hazira II, Paradip II and Salaya ports (as regulatory clearance is pending). We think they could be worth Rs41/share and offer potential upside to our valuation.

Investment Thesis

Stock performance 1 yr forward EV/EBITDA

Year ending March FY10 FY11 FY12E FY13ERevenues (Rs Mn) 4,218 7,056 11,524 14,917EBITDA (Rs Mn) 3,282 5,073 8,552 11,221Net profit (Rs Mn) -363 361 1,535 3,096EPS (Rs) -0.88 0.88 3.74 7.54Revenues Growth (%) #N/A 67.3 63.3 29.5EPS Growth (%) #N/A -199.4 325.7 101.6EBITDA Margin (%) 77.8 71.9 74.2 75.2Net Margin (%) -8.6 5.1 13.3 20.8

Shareholders' equity (Rs Mn) 8,040 21,811 26,601 32,120Net debt / (cash) (Rs Mn) 28,022 43,792 55,554 64,184Net fixed assets (Rs Mn) 46,111 67,444 82,508 96,482Net Working Capital (Rs Mn) -9,462 -2,394 -938 -718Investments (Rs Mn) 0 678 678 678Net debt /equity (%) 325 200 208 199EBIT ROIC (pre-tax) (%) #N/A 6.7 8.2 9.7ROE (%) #N/A 2.4 6.3 10.5

Operating cash flow (Rs Mn) 3,235 4,968 8,396 11,029Capex (Rs Mn) 9,036 11,543 17,635 16,562EV/EBITDA (x) #N/A 18.8 9.2 7.9P/E (x) -109.3 165.2 19.2 9.5P/BV (x) 4.9 2.7 1.1 0.9Dividend Yield (%) 0.0 0.0 0.0 0.0Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11 .

Essar Ports ( ESRS.BO, Buy, CMP Rs72, PT Rs135, 88% upside)

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17.0

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23.0

26.0

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Aug-

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09

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10

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11

EV/EBITDA Mean Std. Dev.+1 Std. Dev.-1

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150

200

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9

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11

-60-40-20020406080100

Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)Source: UBS estimates, Datastream, Company

85% 86%

63% 59% 58%

14% 13%

9% 9% 9%

1% 1%

28% 32% 34%

0%

20%

40%

60%

80%

100%

FY12E FY13E FY14E FY15E FY16ECaptive take-or-pay Captive Variable Third Party

85% 86%

63% 59% 58%

14% 13%

9% 9% 9%

1% 1%

28% 32% 34%

0%

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FY12E FY13E FY14E FY15E FY16E

85% 86%

63% 59% 58%

14% 13%

9% 9% 9%

1% 1%

28% 32% 34%

0%

20%

40%

60%

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100%

FY12E FY13E FY14E FY15E FY16ECaptive take-or-pay Captive Variable Third PartyCaptive take-or-pay Captive Variable Third Party

Take-or-pay revenue should make up the bulk of EPL’s income

40

Essar PortsSOTP valuation


Assets summary

Vadinar 79% 13.00% 21,847 100% 53 Higher-margin petroleum, oil, and lubricants (POL) handled in Vadinar, value till end of concession period in FY27

Hazira I 74% 13.00% 32,355 99%* 78 Higher value than Vadinar due to longer concession period till FY35, and lower debt

Paradip I 60% 13.00% 5,649 62% 9 Lower-margin coal handled, concession period expiring FY26Total 140Corporate level debt -4Price target 135

StakeEquity value

(Rs) CommentsEBITDA marginCost of equity

(COE)Equity value

(Rs m)

Port Capacity (mt) Berth (m) Draft (m) Customer Cargo Status / operational byVadinar-I 46 305 20 Essar Oil Crude + petroleum OperationalVadinar-II 12 300 16 Essar Oil Petroleum OperationalHazira-I 30 550 14 Essar Steel + merchant Coal +iron ore+ break bulk OperationalHazira-II 20 700 16 Essar Steel + merchant Coal + container+ break bulk Mar-13Salaya 20 385 14 Essar Power + merchant Pet coke Mar-13Paradip-I 16 270 14 Essar Steel Iron ore Oct-11Paradip-II 14 370 17 Merchant Coal Mar-13

Approval status by project

Note: (1) MOU signed with Gujarat Maritime Board (GMB), (2) Essar Engineering Services (EESL) is carrying out basic and detailed engineering, (3) Land is demarcated for the project, but handing over the land is pending from Paradip Port Trust (PPT), (4) Approval by the GMB on case-by-case basis for up to 50% of volume of Essar Steel Cargo and (5) Third-party cargo can be handled with prior permission from Kandla Port Trust (KPT)

ProjectsCapacity

(MTPA) Land

OperationalVadinar I + II 58 NAHazira I 30 (4)Under constructionSalaya 20 ΧHazira II 20 Χ Χ NA (1) Χ (4)Paradip I 16 Under developmentParadip II 14 (3) NA NA Vadinar III 0 (2) Χ Χ Χ (5)

Financial closure

Approval for third party

businessEPC

awardedEnvironment

clearanceLong term

take or pay

Port authority approval

41

Fortis Healthcare (FOHE.BO, Neutral, PT Rs 170, 12% upside)

• Fortis is the second largest hospital operator which operates 39 hospitals with 2,317 operating beds and 911 beds under management as of September 2010.

• FOHE has demonstrated an ability to exploit market opportunities; it acquired Escorts (a 90% stake in 2005), Malar (a 50% stake in 2007) and Wockhardt (acquired in December 2009)

• Over FY06-10, its revenue and operating profit recorded a 34% and a 57% CAGR, respectively.

• We expect FOHE to maintain double-digit revenue growth over FY11-15. With higher revenue and an improving EBITDA margin (we estimate 14% in FY11 to 18% in FY15) and a rising net income margin (we estimate 5% in FY11 to 10% in FY15), we forecast a net income CAGR of 38% over FY10-15.

• Shareholding: promoters – 82%

• Valuation: DCF based methodology using UBS’s VCAM tool (assume WACC of 12.18% and terminal sales growth rate of 5.8%).Implied FY13E PE of 34.4x

Investment Thesis

Key assumptionsStock performance 1 yr forward EV/EBITDA

Fortis adds 2000+ beds over FY11-FY15E

Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn) 6,419 9,558 15,174 20,058 25,207EBITDA (Rs Mn) 858 1,413 2,131 2,961 4,054Net profit (Rs Mn) 213 679 716 1,263 2,020EPS (Rs) 0.94 2.14 1.75 3.09 4.94Revenues Growth (%) 20.1 48.9 58.8 32.2 25.7EPS Growth (%) NM 127.4 -18.1 76.5 59.9EBITDA Margin (%) 13.4 14.8 14.0 14.8 16.1Net Margin (%) 3.3 7.1 4.7 6.3 8.0

Shareholders' equity (Rs Mn) 11,138 19,559 34,353 35,666 39,626Net debt / (cash) (Rs Mn) 4,211 41,593 -438 2,126 1,845Net fixed assets (Rs Mn) 12,169 21,019 28,213 32,930 35,531Net Working Capital (Rs Mn) 586 263 163 215 270Investments (Rs Mn) 2,378 39,526 5,165 4,223 5,165Net debt /equity (%) 39 216 -1 6 5EBIT ROIC (pre-tax) (%) 2.5 4.0 4.1 5.0 6.8ROE (%) 2.6 5.1 2.7 3.6 5.4

Operating cash flow (Rs Mn) 794 1,317 1,980 2,760 3,802Capex (Rs Mn) 1,396 10,440 6,866 5,038 3,178EV/EBITDA (x) 24.5 3.2 31.1 22.4 16.4P/E (x) 72.5 52.9 86.4 49.0 30.6P/BV (x) 1.4 1.8 1.8 1.7 1.6Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0Source: Company, UBS estimates. Note: Valuation ratios are based on historical prices for FY08-11

Fortis Healthcare ( FOHE.BO, Neutral, CMP Rs151, PT Rs170, 12% upside)

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08

Aug-

08

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9

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9

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1


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11

-30

-15

0

15

30

45

60

Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)Source: UBS estimates, Datastream, Company

42

Hathway Cable (HAWY.BO, Buy, PT Rs130, 50% upside)

• One of the largest cable multiple system operator (MSO) in India with ~8.7m cable homes reached; offers digital cable and cable broadband

• Long-term growth story and a theme play on cable digitization

• Increase in digital cable subscriber base led by rising income levels and likely implementation of mandatory digitalization in medium term

• Estimate 415,000 digital subscriber additions in FY12; expect analogue subs to increasingly upgrade to the better quality digital platform

• Expect Hathway to add 20,000 primary subscribers every year during FY12-14

• Execution in terms of digital and paying subscriber additions is the key for stock price re-rating; likely to be net profit break-even in FY12

• Shareholding: promoters – 67%• Valuation: EV/EBITDA - value at 8.5x FY13E EV/EBITDA

Investment Thesis

Key assumptions1 yr forward EV/EBITDA

Key assumptions FY09A FY10A FY11A FY12E FY13EKey financial metric (Rs m)Revenue 5,357 6,091 7,554 8,246 9,342 - Subscription r

Documents

Rakesh Jhunjhunwala · India Mid-Caps - September 2011 Gautam Chhaochharia Analyst, Head of Indian Mid-Cap Research [email protected] /+91 22 6155 6080 Ajay Nandanwar Analyst;