08april2011_india_daily

8/7/2019 08April2011_India_Daily

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

INDIA DAILYApril 8, 2011 India 7-Apr 1-day1-mo 3-mo

Sensex 19,591 (0.1) 6.2 (0.5)

Nifty 5,886 (0.1) 6.6 (0.3)

Global/Regional indices

Dow Jones 12,409 (0.1) 1.6 6.3

Nasdaq Composite 2,796 (0.1) 1.1 3.4

FTSE 6,007 (0.6) 0.5 0.4

Nikkie 9,631 0.4 (8.5) (8.6)

Hang Seng 24,311 0.1 2.5 2.6

KOSPI 2,128 0.3 6.6 2.0

Value traded India

Cash (NSE+BSE) 160 150 159

Derivatives (NSE) 742 1,171 1,600

Deri. open interest 1,246 1,255 1,259

Forex/money market

Change, basis points

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

Rs/US$ 44.2 3 (85) (118)

10yr govt bond, % 8.0 (2) 2 (21)

Net investment (US$mn)

6-Apr MTD CYTD

FIIs 162 1,267 610

MFs (46) (60) (282)

Top movers -3mo basis

Change, %

Best performers 7-Apr 1-day 1-mo 3-mo

LICHF IN Equity 231.1 (0.8) 17.3 28.3

WLCO IN Equity 206.6 (0.2) 13.0 23.5

YES IN Equity 330.3 3.6 20.4 22.2

ACEM IN Equity 151.5 0.6 21.7 17.5

BOB IN Equity 980.0 2.1 7.4 15.4

Worst performers

IVRC IN Equity 94.5 5 .5 28.5 (22.7)

UT IN Equity 47.8 5.3 31.9 (22.2)

RBXY IN Equity 461.5 0.0 1.3 (21.7)

RCOM IN Equity 110.8 (0.1) 22.2 (20.5)

UNSP IN Equity 1104.3 0.5 2.0 (19.1)

Contents

New releaseEnergy: Gone with the gas

UpdateConsumer Products: 4QFY11E preview: Profit-less growth in staples

News Round-up

Food inflation fell to a four month low of 9.18% for the week ended March 26, butthis may not dampen overall inflation much since it is now shifting gears tomanufactured prices. (BSTD)

After telecom, ports and refineries, foreign direct investments (FDI) in more sectorscould now be put under security scrutiny. The government is planning to slap newentry route restrictions on FDI in the mining and realty sectors from a securitystandpoint. (FNLE)

The USFDA has taken a strong stance against Mylan, which has opposed FDA'sdecision to allow approval to Ranbaxy's (RBXY IN) generic version of Lipitor. (BSTD)

Vedanta Resources and Cairn Energy extended the deadline for their USD 9.6bn dealby more than a month. The earlier deadline was April 15. Cairn Energy will be free tosell the residual stake of close to 10% in Cairn India (CAIR IN) from 2012 onwards atthe market price. (BSTD)

Central Bank of India (CBOI IN) raises USD 568 mn through rights issue. (BSTD)

SAIL (SAIL IN) FPO to hit market by May end. (BSTD)

Glenmark Pharmaceuticals (GNP IN) has entered into an exclusive licensing deal withCanada-based Immanence-IDC to distribute the latter's anti-aging cosmeceuticalrange of products in eight countries. (BSTD)

Simbhaoli Sugars (SBSM IN) announced transfer of its potable alcohol business into awholly-owned subsidiary Simbhaoli Spirits for a consideration of USD 31 mn. (BSTD)

Unichem Laboratories (UL IN) said it has received approval from the US healthregulator to market Divalproex Sodium Delayed Release tablets, indicated fordisorders, in the American market. (BSTD)

Radico Khaitan (RDCK IN) has entered into an agreement with Japanese firm SuntoryLiquors to launch two super premium whiskey brands in India. (BSTD)

Hotel Leelaventure (LELA IN) will launch its mid-market brand by the end of thisfinancial year. The company also plans to take its current luxury brand overseas. Tobegin with, the Lela group, the Leela group has identified Maldives and Mauritius forthe luxury brand. (FNLE)

Tech Mahindra (TECHM IN) bags Vodafone Australian arm's USD 250 mn IT deal.(THBL)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.


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

Demand exists but at the right price

We do not doubt potential demand for natural gas in India but believe that it will be sensitive tothe price of gas. Current regulations preclude the use of high-priced gas in regulated sectors suchas fertilizer and power, the key users of gas in India. It may be cheaper to import urea or generatepower on imported coal, in our view. We see the proposed pooling of gas prices as a retrogradestep in that it penalizes efficient domestic producers and covers up the poor planning of othercompanies.

Supply may disappoint due to poor planning and unforeseen incidents

(1) Spot LNG is not a viable option for the Indian market, particularly for bulk users, given the likelyuncompetitive price of end-products, urea and power. Also, fertilizer and power plants are unlikelyto commit capital or see financial closure without a firm fuel supply agreement. (2) Domesticsupply may disappoint given continued delay in E&P activity in NELP blocks; also, RIL may not beable to ramp up gas production from KG D-6 block as per our expectations.

Limited amount of gas but large amount of infrastructure planned

We project gas supply to increase to 264 mcm/d in FY2015E from 179 mcm/d in FY2011E.However, this is subject to (1) RIL producing 80 mcm/d of gas from its KG D-6 block and(2) availability of sufficient spot LNG in global markets. We expect significant under-utilization ofdownstream assets (pipelines, LNG import terminals) with corresponding impact on companiesearnings.

Retain REDUCE/SELL rating on gas plays

We see significant downside risks to the earnings of GAIL, GSPL and PLNG from lower-than-expected supply of domestic gas and imported LNG. In the case of GSPL and PLNG, we see risksfrom lower-than-expected tariffs (pipeline or re-gasification) also. Finally, in the case of RIL, we seedownside risks to earnings and valuation of KG D-6 block and other prospective blocks ifproduction figures disappoint versus our expectations and that of the Street.

EnergyIndia

Gone with the gas. We see gas supply issues derailing the India gas story and raisingconcerns about the viability of new gas-based power plants, pipelines and LNG importterminals. Domestic gas supply problems and a limited ability to sell high-priced LNG inthe domestic market may result in severe under-utilization of planned capacities.We rate all gas stocks under our coverage as REDUCE or SELL. Pooling of gas may helpbut seems to be a highly retrograde step, in our view.

CAUTIOUS

APRIL 08, 2011

UPDATE

BSE-30: 19,591


3/21

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

The story is intact discretionary likely to outperform staples

Key considerations for March 2011 quarter would be (1) good growth in discretionary segmentsand companies operating in near-monopolistic categories, (2) deceleration in volume growth inconsumer staples and (3) significant gross margin pressure in staples.

The March quarter will likely be marked with extreme results within the sector, in our viewexcellent results from companies operating in discretionary categories and/or having limitedcompetition (ITC, GSK, Titan, United Spirits, Jubilant Foodworks, Nestle) whereas inability tomitigate input cost inflation in a scenario of increasing market fragmentation hurting coreconsumer staples (Colgate, HUL, Dabur, Jyothy). Exhibits 1-3 give the performance of the industryas a whole, staples and discretionary, respectively.

We expect sector sales growth of 17% yoy (15% for staples), flat EBITDA margins (contraction of180 bps for staples) and earnings growth of 19% (just 3% for staples).

Good results expected from GSK, ITC, Jubilant Foodworks, Nestle and Titan. Weak resultsexpected from Colgate, Dabur, HUL and Jyothy Labs.

Important variables to watch

Deceleration in volume growth. We expect volume growth to decelerate for most companies asbase effect catches up and due to near-term impact of food inflation on consumer wallet(Exhibit 5 gives detailed break-up of company-wise volume growth for the past two years).

Where are the (meaningful) price increases? While the Street was expecting price increases byconsumer companies in 2HFY11E, we highlight that the increases has been far and few. Fewexamples are the ~32% price hike in Parachute by Marico, ~7% increase in Rin by HUL (inSouth and West India) and ~4-5% hike in HUL and GCPL soaps portfolio.

Pressure on EBITDA margins (led by gross margin pressure) is a reality as companies are findingit increasingly difficult to implement price increases due to worries on (1) impact of foodinflation on consumer demand, particularly for the urban poor, in our view, (2) continuedinterest of MNCs in India with stated objective of acquiring meaningful market shares andmarket positions. However, cut in adspends could likely support margins, but not enough tosupport earnings growth, in our view.

Consumer productsIndia

4QFY11E preview: Profit-less growth in staples. The March quarter will likely bemarked with extreme results within the consumer sector, in our viewexcellent resultsfrom companies operating in discretionary categories and/or having limited competition(ITC, GSK, Titan, United Spirits, Jubilant Foodworks, Nestle) whereas inability to mitigateinput cost inflation in a scenario of increasing market fragmentation hurting coreconsumer staples (HUL, Dabur, Jyothy). We forecast 15% sales growth and 1% EBITDAgrowth for staples. We expect volume growth to decelerate for staples as base effectcatches up and due to impact of food inflation on consumer wallet, particularly urbanpoor (~25% of sector demand). Our CAUTIOUS sector view since October 2010 isintact. Our preferred picks are ITC and GSK. Top sells are HUL and Colgate.

CAUTIOUS

APRIL 07, 2011

UPDATE

BSE-30: 19,612

QUICK NUMBERS

In 4QFY11E we

forecast 15% salesgrowth and 1%EBITDA growth forstaples

We expect volumegrowth todecelerate in staplesas base effectcatches up and dueto near-term impact

of food inflation onconsumer wallet

Our preferred picksare ITC and GSK.Top sells are HULand Colgate


4/21

India Consumer products

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

HUL is expected to report ~12% volume growth. While the headline number of double-digit growth is impressive, we highlight that the current quarter (still) has favorable baseeffect (decline of 5% in 4QFY09 and growth of 11% in 4QFY10).

Quote from HULs results press release post 3QFY11 results:

Input cost inflation continued to rise during the quarter. Cost of goods sold went up by 220bps, as a result of steep rise in material costs, especially in commodity sensitive categories.

We expect the trend to remain the same in 4QFY11E as well. While most of HULs inputcosts have witnessed significant inflation in 4QFY11E (palm oil 44%, LAB 12%), we findincreasing willingness by the company to absorb the cost pressures. The reluctance toimplement price increases is due to fear of (further) market share losses and highercompetitive activity, in our view.

Growth in Amla benefits Dabur disproportionately. The biggest beneficiaries of the

narrowing of retail price between coconut and other sub-segments have been amla hairoil (Dabur Amla) and light hair oil (Bajaj Almond Drops). The increase in copra price hasforced Marico to effect a 32% price increase in the Parachute portfolio (including the key100 ml pack to Rs25 from Rs21). Dabur Amla has substantially higher EBITDA marginsthan the average margins for the company, in our view, and any disproportionate growthin it would help it manage the portfolio profitability.

Watch for low volume growth (


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Consumer products India

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

Consumer demand is not parabolic!

We highlight that the past three years have seen a confluence of factors which have likelyaided incremental spends on consumer products, (1) higher outlay on NREGA, (2) wealtheffect due to higher land prices, (3) benefits of farm loan waiver, (4) some benefits of thesixth pay commission and (5) higher minimum support prices for agricultural produce. As welook into FY2012E, we highlight that most of these positive factors are in the base andlower incremental spends have a potential to hurt demand for consumer products.

Consumer market is fragmenting...

Given the long-term attractiveness of Indian consumer categories, brand proliferation hasbeen accelerating, in our view. There are ~5, 000 new Home & Personal Care brands(including variants) and ~900 new Food & Beverage brands launched in the past two years.In turn, this proliferation raises adspends (Exhibit 8). Incumbents, particularly, are compelledto spend more to maintain their market shares and relative market positions.

Relative price/relative performance of the sector makes us cautious

Our analysis of relative earnings and the relative price between the sector and BSE-30 Indexindicates that either the sector valuations are running ahead of fundamentals or we couldsee significant earnings upgrades. We believe it is the former. Exhibit 12 shows theconsumer sector (KIE coverage universe) relative price and earnings momentum versus BSE-30 Index. Relative price is the index of our consumer sector coverage versus BSE-30 Index;relative earnings are the indexed earnings of our consumer sector coverage versus BSE-30Index (with April 1993 as Base 100).

Exhibit 1: Overall industry performance is aided by the strong growth in discretionary companiesKey financials of 14 consumer companies under our coverage

Rs mn Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 E Change yoy(bps)

Sales 164,218 170,002 179,339 183,296 191,122 197,222 219,318 214,586 Gross profit 84,018 88,172 93,015 92,552 98,335 102,117 109,076 104,969 EBITDA 34,207 35,937 37,904 35,642 38,634 40,335 42,998 41,565 PBT 33,051 35,222 37,879 34,700 38,823 41,132 43,979 41,529 PAT 23,744 25,365 27,469 25,115 28,208 29,788 31,547 29,968 Effective tax rate (%) 28 28 27 28 27 28 28 28

Margins (%)Gross profit 51.2 51.9 51.9 50.5 51.5 51.8 49.7 48.9 (158) EBITDA 20.8 21.1 21.1 19.4 20.2 20.5 19.6 19.4 (8) PBT 20.1 20.7 21.1 18.9 20.3 20.9 20.1 19.4 42 PAT 14.5 14.9 15.3 13.7 14.8 15.1 14.4 14.0 26

Growth (%)Sales 16.4 16.0 22.3 17.1Gross profit 17.0 15.8 17.3 13.4EBITDA 12.9 12.2 13.4 16.6PBT 17.5 16.8 16.1 19.7PAT 18.8 17.4 14.8 19.3

Source: Company, Kotak Institutional Equities estimates


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Exhibit 2: We expect weak performance in consumer staplesKey financials of consumer staple companies under our coverage


Sales 72,858 71,395 74,890 71,640 79,491 78,881 84,448 82,704

Gross profit 36,102 35,959 38,632 36,861 39,776 39,519 41,667 39,963 EBITDA 11,896 11,175 12,492 10,577 11,555 11,166 11,376 10,723 PBT 11,873 11,900 13,017 11,256 13,273 12,624 12,879 11,942 PAT 9,427 9,381 10,283 8,848 10,579 10,113 10,181 9,066

Margins (%)Gross profit 49.6 50.4 51.6 51.5 50.0 50.1 49.3 48.3 (313) EBITDA 16.3 15.7 16.7 14.8 14.5 14.2 13.5 13.0 (180) PBT 16.3 16.7 17.4 15.7 16.7 16.0 15.3 14.4 (127) PAT 12.9 13.1 13.7 12.4 13.3 12.8 12.1 11.0 (139)

Growth (%)Sales 9.1 10.5 12.8 15.4Gross profit 10.2 9.9 7.9 8.4EBITDA -2.9 -0.1 -8.9 1.4

PBT 11.8 6.1 -1.1 6.1PAT 12.2 7.8 -1.0 2.5

Note: Includes Colgate, Dabur, Godrej Consumer, HUL, Jyothy, Marico, Tata Global Beverages


Exhibit 3: Discretionary companies are likely to show strong growthKey financials of consumer companies operating in discretionary and/or near-monopolistic categories


Sales 91,360 98,607 104,449 111,657 111,631 118,341 134,870 131,882 Gross profit 47,916 52,213 54,384 55,691 58,559 62,598 67,409 65,006 EBITDA 22,312 24,763 25,412 25,064 27,079 29,169 31,623 30,841 PBT 21,179 23,322 24,862 23,444 25,550 28,509 31,100 29,586 PAT 14,317 15,985 17,185 16,267 17,630 19,675 21,366 20,901

Margins (%)Gross profit 52.4 53.0 52.1 49.9 52.5 52.9 50.0 49.3 (59) EBITDA 24.4 25.1 24.3 22.4 24.3 24.6 23.4 23.4 94 PBT 23.2 23.7 23.8 21.0 22.9 24.1 23.1 22.4 144 PAT 15.7 16.2 16.5 14.6 15.8 16.6 15.8 15.8 128

Growth (%)Sales 22.2 20.0 29.1 18.1Gross profit 22.2 19.9 24.0 16.7EBITDA 21.4 17.8 24.4 23.0PBT 20.6 22.2 25.1 26.2PAT 23.1 23.1 24.3 28.5

Note: Includes Asian Paints, GSK Consumer, ITC, Jubilant Foodworks, Nestle, Titan, UNSP



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Exhibit 4: Company-wise sales growth, (%)

Company Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 EAsian Paints 26 17 19 27 18 28 6 37 26Colgate 16 15 18 17 13 13 13 14 16Dabur 21 27 23 19 16 19 15 17 17

Godrej Consumer 30 22 27 16 2 -7 -3 8 15GSK Consumer 31 25 17 26 20 14 24 21 19Hindustan Unilever 6 8 5 13 8 7 11 12 15ITC 0 5 16 20 28 18 16 19 11Jubilant Foodworks NA NA NA 50 68 59 67 58 59Jyothy NA 21 49 14 31 27 11 10 6Marico 21 17 14 8 6 13 13 22 25Nestle 16 17 18 24 17 21 26 24 23Tata Global Beverages 27 34 32 18 17 8 4 5 7Titan 7 9 5 30 49 42 34 47 29United Spirits 20 23 20 31 38 18 25 46 17


Exhibit 5: We expect deceleration in volume growth due to base effect and impact of food inflationCompany-wise volume growth, (%)

Company Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 EAsian Paints 20 15 19 23 18 19 (2) 30 15 Colgate (toothpaste) 15 14 18 13 11 14 12 12 13 Dabur 14 16 14 14 13 17 12 10 9 Godrej Consumer- Domestic soaps 30 20 20 10 (8) (8) (10) 6 6 - Domestic hair colour 10 10 20 9 5 3 12 (1) 5

GSK Consumer 15 12 12 16 13 10 19 12 14 Hindustan Unilever (5) 2 1 5 11 11 14 13 12 ITC (3) 5 8 8 10 (3) - 2 2

Jyothy- Ujala NA NA 2 (2) 18 35 4 (7) (5) - Maxo NA 10 30 17 34 18 (9) (22) (20)

Marico- Parachute 7 14 10 8 10 14 10 5 5 - Saffola 5 13 22 18 13 18 18 13 15

Nestle 10 12 13 18 16 20 20 17 16 Tata Global (domestic) - 4 4 5 2 2 (2) 1 - Titan (jewelry) 4 33 13 4 45 33 13 25 15


Exhibit 6: Input cost inflation to impact gross marginsCompany-wise gross margin, (%)

Company Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 EAsian Paints 39.3 45.6 44.2 44.4 44.3 43.5 44.7 40.5 42.5Colgate 56.0 56.2 57.4 57.2 70.1 62.8 60.1 61.3 63.2Dabur 53.2 52.8 55.0 54.4 54.7 52.6 52.9 51.6 52.2Godrej Consumer 47.7 55.1 52.8 55.9 59.4 50.2 53.4 51.4 51.2GSK Consumer 60.3 63.3 62.3 66.2 60.5 62.3 62.8 64.9 60.5Hindustan Unilever 47.8 48.4 49.3 51.1 48.6 49.0 49.1 48.9 46.5ITC 62.7 60.3 63.3 63.2 56.9 62.8 63.4 62.4 57.4Jubilant Foodworks 73.9 75.7 75.3 75.3 74.8 75.5 75.2 74.5 75.7Jyothy 44.1 55.3 43.0 46.8 40.4 51.2 46.8 46.7 43.4Marico 49.6 49.5 52.7 52.5 56.1 49.0 50.2 47.3 47.5Nestle 52.8 52.4 52.2 51.8 50.2 51.0 50.9 52.4 51.2

Tata Global Beverages 46.0 42.8 40.4 42.0 43.8 42.8 40.7 37.7 40.9United Spirits 46.0 42.2 45.4 43.4 45.1 45.4 46.7 41.0 40.3



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Exhibit 9: Cutting adspends may not be the solution to support earnings growthCompany-wise adspends as % of sales, (%)

Company Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 E Change yoy(bps)

Colgate 15.4 12.5 16.9 15.3 16.1 13.1 14.3 21.6 15.4 (70) Dabur 13.2 16.0 14.2 14.6 13.6 16.4 12.5 12.5 12.5 (113) Godrej Consumer 4.1 8.5 6.8 7.1 10.0 8.6 7.2 9.1 9.3 (63) GSK Consumer 11.2 15.9 16.3 20.6 15.2 13.9 17.6 17.7 14.6 (53) Hindustan Unilever 11.3 12.5 13.5 14.1 14.5 15.7 13.8 14.8 14.0 (52) Jyothy 3.6 6.2 4.9 8.1 6.4 6.3 11.9 10.3 8.4 206 Marico 9.6 12.1 13.4 12.7 7.2 11.9 12.2 11.0 11.5 423 Titan 4.2 5.0 4.5 4.5 4.2 5.0 4.0 4.6 4.3 13 United Spirits 8.8 7.1 7.7 8.9 12.0 9.5 11.5 9.9 10.3 (162)

Company 2005 2006 2007 2008 2009 2010 2011EAsian Paints 3 3 3 4 4 4 5Colgate 14 18 16 17 16 15 15Dabur 14 12 13 13 12 15 14Godrej Consumer 11 10 10 10 9 12 9

GSK Consumer 12 13 13 13 13 16 16HUL 8 9 11 11 11 14 15ITC 23 15 13 13 14 13 13Jubilant Foodworks 7 6 6 6 5 4 4Jyothy Laboratories 12 9 9 8 5 6 9Marico 10 13 14 13 11 14 12Nestle 6 6 5 5 5 6 6Tata Global Beverages 9 9 9 9 7 8 8Titan 7 7 6 5 5 5 5United Spirits 8 14 13 12 10 11 11


Exhibit 10: Pressure on earnings to sustainCompany-wise PAT margin, (%)

Company Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 E Change yoy(bps)

Asian Paints 9.0 14.1 13.4 14.0 12.1 13.5 13.3 11.8 11.2 (91) Colgate 17.4 21.2 17.8 20.7 23.3 22.2 17.6 11.5 18.1 (521) Dabur 14.4 11.6 16.6 14.9 15.7 11.7 16.5 14.3 13.7 (196) Godrej Consumer 20.1 17.7 20.8 17.8 22.4 53.8 24.0 19.4 19.1 (323) GSK Consumer 15.6 11.8 12.1 8.1 14.8 13.4 12.8 10.5 14.7 (17) Hindustan Unilever 12.6 12.5 12.0 13.3 9.8 10.7 11.4 11.7 9.3 (48) ITC 20.5 21.5 23.2 24.9 20.3 22.2 24.6 25.5 23.5 313 Jubilant Foodworks 5.2 4.0 7.9 9.7 8.4 11.3 11.3 10.2 11.5 308 Jyothy 15.4 18.4 10.8 12.4 14.2 17.0 10.7 11.4 10.9 (331) Marico 10.5 9.3 12.0 11.1 10.0 10.6 10.5 9.8 8.4 (165) Nestle 16.4 14.7 13.7 12.8 13.3 13.7 13.2 13.3 13.6 28 Tata Global Beverages 10.7 10.8 8.5 8.5 13.3 8.0 9.8 10.0 11.3 (197) Titan 5.0 5.2 6.8 5.9 5.7 6.5 8.3 7.2 7.4 166 United Spirits 6.7 8.5 7.3 7.4 5.0 8.3 6.1 5.4 5.7 72



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Exhibit 11: Summary of change in earnings and target price

Company 2012E 2013E New OldAsian Paints 1 1 2,600 2,550 Colgate (5) (5) 780 800

Dabur (1) (1) 110 110 Godrej Consumer (0) (0) 440 440 GSK Consumer 1 1 2,450 2,400 HUL 2 (0) 255 250 ITC 1 1 205 200 Jubilant Foodworks 3 3 470 450 Jyothy Laboratories (7) (9) 240 270 Marico 2 2 145 140 Nestle (3) (2) 3,000 3,100 Tata Global Beverages (1) (1) 110 110 Titan 14 12 4,700 4,100 United Spirits (13) (14) 1,300 1,550

Target price (Rs)Change in EPS (%)

Source: Kotak Institutional Equities estimates

Exhibit 12: Good correlation between relative earnings and relative price performance of the sectorConsumer sector relative price and earnings momentum versus the BSE Sensex

-

0.3

0.6

0.9

1.2

1.5

1.8

Apr-93

Apr-94

Apr-95

Apr-96

Apr-97

Apr-98

Apr-99

Apr-00

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

-

0.5

1.0

1.5

2.0

2.5

3.0Relative Earnings (LHS) Relative Price (RHS)

Source: Kotak Institutional Equities


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Exhibit 13: Significant inflation in palm oilTrend in palm oil price (Base October 2007 =100)

50

70

90

110

130

150

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Source: Bloomberg, Kotak Institutional Equities

Exhibit 14: After benign LLPO price for more than 12 months,there has been an upswing in line with crudeTrend in LLPO price (Base October 2007 =100)

0

50

100

150

200

250

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11


Exhibit 15: 12% increase in LAB price between 4QFY11 and4QFY10Trend in HDPE price (Base October 2007 =100)

100

110

120

130

140

150

160

170

180

190

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11


Exhibit 16: HDPE price on an uptickTrend in HDPE price (Base October 2007 =100)

70

80

90100

110

120

130

140

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11



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Exhibit 17: High correlation of HULs pricing power with inflation seems to have broken down inCY2010HUL pricing growth, urban and rural consumer price inflation (CPI), %

(10)

(5)

0

5

10

15

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Urban CPI Rural CPI HUL price growth

HUL pricing CORREL with Urban CPI = 0.27HUL pricing CORREL with Rural CPI = 0.49

Source: Kotak Institutional Equities


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Exhibit 18: Consumer sector preview

Mar-10 Dec-10 Mar-11E yoy qoq CommentsConsumersAsian PaintsNet sales 12,961 17,542 16,320 25.9 (7.0) EBITDA 2,281 3,016 2,704 18.5 (10.3) EBIT 2,124 2,778 2,450 15.4 (11.8) PBT 2,275 2,949 2,640 16.0 (10.5) PAT 1,574 2,066 1,832 16.4 (11.3) Extraordinaries 197 (100.0) PAT-reported 1,770 2,066 1,832 3.5 (11.3)

Colgate-Palmolive (India)Net sales 5,360 5,766 6,228 16.2 8.0 EBITDA 1,441 931 1,484 2.9 59.4 EBIT 1,235 839 1,390 12.6 65.6 PBT 1,259 913 1,484 17.9 62.6 PAT 1,249 662 1,127 (9.8) 70.2 Extraordinaries (105) (100.0) PAT-reported 1,144 662 1,127 (1.5) 70.2

Dabur IndiaNet sales 8,488 10,800 9,918 16.9 (8.2) EBITDA 1,620 2,095 1,884 16.3 (10.1) EBIT 1,471 1,863 1,644 11.8 (11.7) PBT 1,589 1,897 1,693 6.6 (10.8) PAT 1,331 1,541 1,360 2.2 (11.7) Extraordinaries PAT-reported 1,331 1,541 1,360 2.2 (11.7)

Glaxo SmithKline ConsumerNet sales 6,484 5,078 7,718 19.0 52.0 EBITDA 1,331 584 1,534 15.3 162.6 EBIT 1,235 475 1,427 15.6 200.3 PBT 1,465 800 1,692 15.5 111.6 PAT 962 534 1,131 17.6 112.0 Extraordinaries PAT-reported 962 534 1,131 17.6 112.0

Godrej Consumer ProductsNet sales 2,824 3,421 3,246 14.9 (5.1) EBITDA 700 624 602 (14.0) (3.5) EBIT 673 590 556 (17.5) (5.7) PBT 766 806 751 (1.9) (6.8) PAT 631 664 621 (1.7) (6.5) Extraordinaries 1,770 PAT-reported 631 664 2,391 278.8 260.1

Hindustan UnileverNet sales 43,158 50,270 49,609 14.9 (1.3) EBITDA 5,310 6,243 5,297 (0.2) (15.2) EBIT 4,807 5,680 4,717 (1.9) (16.9) PBT 5,735 7,456 6,178 7.7 (17.1) PAT 4,223 5,867 4,614 9.3 (21.4) Extraordinaries 1,434 508 (100.0) (100.0) PAT-reported 5,657 6,375 4,614 (18.4) (27.6)

Gross margin decline likely mitigated by lower adspends in hair oil portfolio

17% yoy sales growth led by ~4.5% pricing growth and ~5% inorganic growth. DaburAmla will likely grow in double digits as it benefits from narrowing gap between retailprices of Dabur Amla and coconut oil

Likely good volume growth of ~12% yoy led by detergents category. Pricing to improveyoy after four quarters of declines

We expect flat EBITDA yoy; gross margin to decline by 210 bps yoy as highercompetitive activity constrained price increases

Favorable base effect, price hike in hair color will likely help clock 15% yoy sales growth

One-off tax benefits in base year to pull down earnings growth

Domestic sales growth of 26% yoy led by mix of volume (~15%) and pricing (~11%)growth

We expect pressure on gross margin as continuing input cost pressures will likely negatepricing benefits

Sales growth led by mix of volume (~14% yoy growth) and pricing growth (5% inNovember 2010)

We expect 16% yoy sales growth primarily driven by toothpaste. Toothpowder,toothbrush will likely have flat growth

Change (%)

4QFY11E will likely have benefits of palm oil hedges. Exceptional income reflects sale ofKiwi brand to Sara Lee



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Exhibit 18: Consumer sector preview (contd)

Mar-10 Dec-10 Mar-11E yoy qoq Comments

ITCNet sales 50,538 54,535 55,964 10.7 2.6 EBITDA 15,401 19,690 18,755 21.8 (4.7) EBIT 13,863 18,009 17,056 23.0 (5.3) PBT 15,048 20,313 18,741 24.5 (7.7) PAT 10,282 13,891 13,140 27.8 (5.4) Extraordinaries PAT-reported 10,282 13,891 13,140 27.8 (5.4)

Jubilant FoodworksNet sales 1,241 1,856 1,974 59.1 6.3 EBITDA 193 322 356 84.6 10.5 EBIT 123 244 272 120.3 11.5 PBT 104 251 273 161.9 8.7 PAT 104 190 226 117.6 19.4 Extraordinaries PAT-reported 104 190 226 117.6 19.4

Jyothy LaboratoriesNet sales 1,898 1,484 2,010 5.9 35.5 EBITDA 305 168 248 (18.8) 47.8 EBIT 273 137 211 (22.8) 53.6 PBT 350 215 280 (19.9) 30.3 PAT 269 169 219 (18.8) 29.4 Extraordinaries PAT-reported 269 169 219 (18.8) 29.4

MaricoNet sales 6,023 8,177 7,555 25.4 (7.6) EBITDA 861 1,093 908 5.5 (16.9) EBIT 718 946 782 8.9 (17.4) PBT 720 939 798 10.9 (15.0) PAT 603 805 632 4.8 (21.6) Extraordinaries (83) (96) (100.0) (100.0) PAT-reported 520 710 632 21.4 (11.0)

Nestle IndiaNet sales 14,798 16,710 18,221 23.1 9.0 EBITDA 3,040 3,298 3,753 23.4 13.8 EBIT 2,730 2,940 3,344 22.5 13.8 PBT 2,816 3,078 3,475 23.4 12.9 PAT 1,971 2,217 2,478 25.8 11.8 Extraordinaries 48 (183) (100.0) (100.0) PAT-reported 2,019 2,034 2,478 22.8 21.8

Tata TeaNet sales 4,083 4,713 4,370 7.0 (7.3) EBITDA 341 222 301 (11.7) 35.3 EBIT 309 192 270 (12.8) 40.4 PBT 838 653 757 (9.6) 16.0 PAT 542 473 494 (8.9) 4.4 Extraordinaries 4 (2) (100.0) (100.0) PAT-reported 546 471 494 (9.6) 4.7

Titan IndustriesNet sales 13,114 19,548 16,980 29.5 (13.1) EBITDA 1,005 1,952 1,685 67.7 (13.7) EBIT 914 1,866 1,576 72.4 (15.6) PBT 860 1,999 1,634 90.0 (18.2) PAT 753 1,408 1,257 67.0 (10.7) Extraordinaries (32) (100.0) PAT-reported 753 1,376 1,257 67.0 (8.6)

United SpiritsNet sales 12,521 19,601 14,706 17.4 (25.0) EBITDA 1,813 2,761 2,054 13.3 (25.6) EBIT 1,699 2,635 1,933 13.8 (26.6) PBT 876 1,711 1,131 29.1 (33.9) PAT 622 1,061 836 34.4 (21.2) Extraordinaries (54) 238 (100.0) (100.0) PAT-reported 569 1,300 836 47.0 (35.7)

Change (%)

We expect strong sales growth of 60% yoy aided by Cricket World Cup

We expect a muted quarter for volume growth (4-5% yoy in Parachute) due toaggressive price increases

Strong sales growth of 23% yoy led by volume growth of ~16%

We expect sales to grow 17% yoy led by 12% volume growth

6% sales growth yoy led by 15% yoy pricing growth in Ujala. Muted volume growth inUjala (due to the steep price increase)

We expect 70 bps EBITDA margin expansion due to likely mix improvement

We expect 17% sales growth in cigarettes led by price increases



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Exhibit 19: Sector valuation summary

6-Apr-11 O/S shares EPS Grth, % TPCompany Price (Rs) Rating (Rs m) (US$ m) (mn) 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E ( 2011-2013) (Rs)Consumer Products

Asian Paints 2,550 REDUCE 244,567 5,537 96 82.0 96.3 113.7 14.7 17.4 18.1 31.1 26.5 22.4 17.7 2,600 Co lga te -Palmol ive ( Ind ia ) 848 SELL 115,376 2,612 136 29.5 34.3 39.3 (5.2) 16.2 14.7 28.8 24.7 21.6 15.5 780 Dabur India 100 ADD 173,293 3,923 1,731 3.2 3.8 4.3 11.2 17.0 14.4 31.1 26.5 23.2 15.7 110 GlaxoSmithKline Consumer (a) 2,239 ADD 94,156 2,132 42 71.3 85.0 102.0 28.8 19.2 20.0 31.4 26.3 21.9 19.6 2,450 Godre j Consumer P roduct s 391 ADD 126,491 2,864 324 13.8 17.1 20.7 21.7 23.7 21.3 28.3 22.9 18.9 22.5 440 Hindustan Unilever 277 SELL 604,764 13,692 2,182 9.8 11.3 12.8 4.1 15.4 13.3 28.2 24.5 21.6 14.4 255 ITC 183 ADD 1,397,071 3 1,629 7,636 6.6 8.0 9.1 23.6 21.9 13.7 27.9 22.9 20.1 17.7 205 Jubilant Foodworks 601 SELL 38,371 869 64 11.8 14.9 19.9 110.1 26.2 33.9 50.9 40.4 30.1 30.0 470 Jyothy Laboratories 219 ADD 17,626 399 80.6 10.4 12.7 14.7 (5.4) 21.3 15.8 21.0 17.3 14.9 18.6 240 Marico 138 ADD 84,578 1,915 612 5.1 5.7 6.6 14.0 12.9 15.0 27.3 24.2 21.0 13.9 145 Nestle India (a) 3,702 REDUCE 356,936 8,081 96 86.8 101.0 123.8 16.7 16.4 22.6 42.6 36.6 29.9 19.4 3,000 Tata Global Beverages 107 ADD 65,952 1,493 618 5.2 5.9 6.9 (14.6) 14.3 17.0 20.6 18.1 15.4 15.6 110 Titan Industries 4,034 ADD 179,069 4,054 44 107.1 125.9 145.6 87.1 17.5 15.6 37.7 32.0 27.7 16.6 4,700 United Spirits 1,099 ADD 138,015 3,125 126 29.9 40.7 53.8 9.5 36.4 31.9 36.8 27.0 20.4 34.1 1,300 KS universe 3,636,266 82,324 17.3 19.5 16.1 30.0 25.1 21.6

Company 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2012E 2013EAsian Paints 20.5 17.1 14.0 12.1 9.9 7.5 3.8 3.0 2.5 1.6 1.1 Colgate-Palmolive (India) 24.6 21.2 17.8 30.8 26.7 21.9 5.0 4.3 3.6 3.0 3.2 Dabur India 22.8 18.9 16.1 12.7 9.9 7.9 4.3 3.6 3.0 1.3 1.5 GlaxoSmithKline Consumer (a) 22.4 19.1 15.5 10.1 8.2 6.6 3.7 3.1 2.5 1.2 1.5 Godrej Consumer Products 21.3 16.9 13.6 7.0 6.5 5.9 4.0 3.0 2.6 0.8 0.8 Hindustan Unilever 23.5 20.0 17.2 20.4 17.7 15.4 2.9 2.5 2.2 3.3 3.8 ITC 18.6 15.3 13.0 7.9 6.8 5.9 6.4 5.3 4.6 2.0 2.5 Jubilant Foodworks 31.0 21.4 16.1 19.9 13.3 9.2 5.6 4.0 3.1 Jyothy Laboratories 15.2 11.7 9.2 2.6 2.3 2.1 2.1 1.7 1.4 2.1 2.7 Marico 20.1 16.6 14.2 9.3 7.1 5.6 2.7 2.2 1.9 0.7 0.8 Nestle India (a) 28.4 23.9 19.7 41.7 35.5 30.0 5.7 4.7 3.9 2.0 2.4 Tata Global Beverages 10.2 9.2 7.8 1.3 1.2 1.2 1.0 0.9 0.8 1.8 2.1 Titan Industries 27.4 22.7 18.1 15.5 10.8 8.1 2.8 2.3 1.8 0.3 0.4 United Spirits 16.5 13.8 11.9 3.3 3.0 2.6 2.7 2.3 2.0 0.2 0.4 KS universe 20.6 17.2 14.5 9.0 7.8 6.7 4.0 3.4 2.9 2.0 2.2

EV/EBITDA (X) Price/BV (X) EV/Sales (X) Dividend Yield (%)

Mkt cap. EPS (Rs) EPS Growth, % PER (X)



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

Source: Kotak Institutional Equities As of September 30, 2010

* The above categories are defined as follows: Buy = We expectthis stock to outperform the BSE Sensex by 10% over the next 12months; Add = We expect this stock to outperform the BSESensex by 0-10% over the next 12 months; Reduce = We expectthis stock to underperform the BSE Sensex by 0-10% over the

next 12 months; Sell = We expect this stock to underperform theBSE Sensex by more then 10% over the next 12 months. Theseratings are used illustratively to comply with applicableregulations. As of 30/09/2010 Kotak Institutional EquitiesInvestment Research had investment ratings on 156 equitysecurities.

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

Percentage of companies within each category for which KotakInstitutional Equities and or its affiliates has provided investmentbanking services within the previous 12 months.

11.5%

23.1%

32.1% 33.3%

3.2% 5.1% 5.1%0.6%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months.

ADD. We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months.

REDUCE. We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months.

SELL.We expect this stock to underperform the BSE Sensex by more than 10% over the next 12 months.

Our target price are also on 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analysts overall fundamental outlook on the Sector. The coverage view will consist of one of the followingdesignations: Attractive, Neutral, Cautious.

Other ratings/identifiers

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

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

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

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

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

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


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Disclosures

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Copyright 2011 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

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2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions oncommunications with a subject company, public appearances and trading securities held by a research analyst account.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along withour affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment bankingand other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionalsprovide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or itsaffiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the researchprofessionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based onthe profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits itsanalysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies thatthe analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, oradvisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentaryor trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses maymake investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all ofthe foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships withthe company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation wouldbe illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute apersonal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any adviceor recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. Theprice and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on anyinvestments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak SecuritiesLimited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are

not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it shouldnot be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basisthe information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, andemployees, including persons involved in the preparation or issuance of this material, may from time to time have long or short positions in, act as principal in,and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliatesholds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdingsdoes not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible underapplicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currencydenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from theinvestment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In additionoptions involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document beforeentering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historicalinformation, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also bedeemed to mean and include Kotak Mahindra Inc.

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